Income Tax Appellate Tribunal - Delhi
R N Khemka Enterprises Private Limited, ... vs Income Tax Officer, Ward 20(3), New ... on 20 September, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F': NEW DELHI
BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER
AND
SHRI SUDHIR KUMAR, JUDICIAL MEMBER
ITA No.1068/DEL/2024
(Assessment Year: 2017-18)
R.N. Khemka Enterprises Private Ltd., vs. ITO, Ward 20 (3),
G-137, Gali No.8, New Delhi.
Shiv Mandir Road,
Swaroop Nagar,
Delhi - 110 042.
(PAN : AADCR1772L)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Suresh Gupta, CA
REVENUE BY : Ms. Shashi Kajle, Sr. DR.
Date of Hearing : 13.08.2024
Date of Order : 20.09.2024
ORDER
PER S.RIFAUR RAHMAN,AM:
This appeal has been filed by the assessee against the order of ld.
Commissioner of Income-tax (Appeals), Delhi [for short 'ld. CIT (A)]/ National Faceless Appeal Centre (NFAC) dated 11.01.2024 for the Assessment Year 2017-18.
2. Brief Facts of the Case Are, assessee has filed its original return of income declaring income of Rs. 2,93, 790/-for assessment year 2017-18 on 01.11.2017. A survey action was conducted in the case of Sarvroopey Vyapar 2 ITA No.1068/DEL/2024 Pvt Ltd, Shashi Sales & Marketing Pvt. Ltd , Astral Food Pvt Ltd and Rabik Exports Ltd, Delhi, based on the information that these companies have received huge amount of cash and deposited in the respective bank accounts during demonetization period. However, during the course of survey and posts of a proceedings it was found that there were two main persons, Namely, Smt. Rani Sharma and Shri Yashpal Gupta, who were involved in providing accommodation entries of sale and purchase bills various beneficiaries the paper entities. From the analysis of bank accounts controlled by Shri Yashpal Gupta and his associates, it was found that these entities were providing accommodation entries in normal course beyond demonetization period involving providing bogus bills and unsecured loans et cetera. The assessing officer discussed the modus operandi for providing bogus bills et cetera in his order and found that assessee has taken unsecured loan from 1 of these entities controlled by Shri Yashpal Gupta to the extent of ₹ 61,890,000 involving two transactions from Asian Bulls Capital Private Limited for ₹ 50,000,000/- and from AHY Foods Products Capital Ltd ₹ 1,18,90,000/-.
3. Based on the above information, the case of the assessee was reopened by issue and served of notice under Section 148 of the Income Tax Act 1961 (in short 'Act') dated 31 3 2021. Subsequently notice under section 143 (2) and 142 (1) were issued and served on the assessee and proceedings were initiated based on the faceless scheme of assessment under section 144B of the Act. In 3 ITA No.1068/DEL/2024 response year of the assessee attended and submitted the relevant information as called for.
4. In order to verify the genuineness of the transaction, the assessee was asked to furnish the relevant information relating to unsecured loans taken from AHY Food Products Ltd and Asian Bulls Capital Private Limited. In response, assessee uploaded a copy of letter sent requesting to confirm the unsecured loan in its books of account. The assessing officer rejected the same by relying on the findings in survey proceedings and in order to verify the genuineness of the transaction a notice under section 133 (6) of the act were issued to the above said parties and no reply was received from these parties. The assessing officer observed that the assessee has not asked for cross examination of the directors of the lending company at all at the earliest stages of the assessment proceedings and asked only at the fag end of the assessment proceedings.
Further, the assessing officer observed that the assessee has not furnished documentary evidences in support of genuineness of the transaction such as legible bank account statement reflecting transfer of funds to the assessee's bank account and not furnished documentary evidences in support of creditworthiness of these parties such as its income tax returns et cetera. Based on the above observations and non-response of these parties to the notices issued under section 133 (6) of the act, he proceeded to treat the above said loan 4 ITA No.1068/DEL/2024 transactions as bogus entries and treated the same as unexplained cash credit under Section 68 of the Act.
5. Aggrieved, the assessee preferred an appeal before National Faceless Appeal Centre (NFAC), Delhi. Before NFAC, the assessee has raised various legal objections relating to reopening of the assessment and on merits. The assessee has filed detailed submissions in this regard were reproduced by the Ld CIT(A) in his order at page 3 and 4. After considering the assessment order and written submissions filed before him, Ld CIT(A) issued two notices to the assessee for the purpose of hearing on 3.1.2024 and 10.1.2024 and he granted adjournment for the 1st notice and rejected the 2nd notice. He proceeded to adjudicate the issues/grounds based on the written submissions filed by the assessee and proceeded to sustain the additions made by the assessing officer, accordingly dismissed the appeal filed by the assessee.
6. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal.
"1. That the order passed by the Ld. CIT (Appeals) under section 250 of the Income Tax Act, 1961 is bad in law and not justified because Ld. CIT (A) has dismissed the appeal simply on account of non-prosecution of the appeal by the appellant without appreciating the fact that section 251 of IT Act does not provide any power to Ld CIT(A) to dismiss the appeal for non-prosecution and the Ld CH(A) has to adjudicate the grounds of appeal before passing the order. Reliance is placed in the judgment of Hon'ble Bombay High Court in case of CIT (Central) Nagpur vs. Premkumar Arjundas Luthra (HUF), [2016] 69 taxmann.com 407 (Bombay), where it has been held that law does not empower Ld. CIT (A) to dismiss the appeal for non-prosecution.5 ITA No.1068/DEL/2024
2. The Ld. CIT(A) has erred both in law and in facts of the case in not allowing sufficient opportunity to the appellant to represent its case before himself to adjudicate on all ground of appeal.
3. On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that impugned assessment is invalid and without jurisdiction as the said assessment is completed without complying with legal requirements of the provisions of section 147/148/151/263 of the Income Tax Act therefore such assessment is void ab initio and liable to be quashed.
4. On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that reassessment proceedings-initiated u/s 147 of the IT Act ignoring the contention of appellant that the proceedings have been initiated by the AO without application of independent mind on the material, if any, provided by the Inv. Wing of the department. Therefore, such reassessment is void ab initio and liable to be quashed.
5. On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that sanction u/s 151 of IT Act as provided with the copy of the reason recorded shows mechanical satisfaction by the Addl CIT, Delhi.
6. On the facts and circumstances of the case, the authorities below have erred in upholding the addition of Rs.4,31,80,000/- allegedly treating the unsecured loans from the parties in question as unexplained credit within meaning of section 68 rws 115BBE of IT Act ignoring the fact that the above majority of the amount of unsecured loan have been either repaid or offered to tax by the appellant and also onus u/s 68 has been discharged by the appellant by filling relevant documents therefore, such addition is not tenable in law."
6 ITA No.1068/DEL/20247. At the Time of Hearing, learned AR of the assessee made detailed submissions and also submitted written submission, for the sake of brevity the same is reproduced below:
"Brief Facts of the Case Nature of Business: Finance and Investment Original Return: Filed on 01.11.2017 declaring an income of Rs.293,790/-
Original Assessment: Completed u/s 143(3) on 08.12.2019 on the returned income Reassessment: Initiated based on information from the High-Risk Transaction CRIU/VRU on the Insight Portal regarding financial transactions amounting to Rs.61,890,000/- with M/s Asian Bulls Capital P Ltd ("ABC") (Rs. 50,000,000/-) and M/s AHY Foods Products Capital Ltd ("AHY") (Rs. 11,890,000/-) Reassessment Notice: Issued u/s 148 on 31.03.2021 (PB 32) Reassessed Income: Rs.43.473,790/- after' making an addition of Rs.4,31,80,000/- u/s 68 r.w.s 115BBE as unexplained cash credits Grounds of Appeal Ground Nos.3 to 5: Invalid Assumption of Jurisdiction u/s 147/148/151/263 of IT Act The orders of authorities below are challenged on the ground that the Ld AO has not assumed valid jurisdiction u/s 147148 of IT Act on account of following reasons:
I. Non-Verification of Assessment Records:
a. From reason recorded (PB 33-41, relevant pages 37-38), it can be
appreciated that the basis of reassessment proceeding is the information of financial transaction reported in CRIU/VRU on the Insight portal of department. The above information does not indicate the nature of transactions which were found to be indicating that the transactions reported are accommodation entries and also the fact that income chargeable to tax has escaped assessment. These features indicate that in absence of exact nature of accommodation entries reported in the portal, the Ld AO was in no position to form a belief 7 ITA No.1068/DEL/2024 that income has escaped assessment that shows lack of independent application of mind by the Ld AO. On the non-recitation of these essential details in the reason as the basis for quashing of reassessment proceedings, reliance is placed on the judgment of jurisdictional Delhi High Court in M/s Shiv Sai Infrastructure P Ltd vs Dy CIT W.P.(C) 2158/2016 Dt: 2 3.07.2018. The co-ordinate Bench of Hon'ble ITAT in decision of appellant's own case in ITA No.7244/Del/20 19 dt:
12.08.2021 in para 28 at page 400 therein on identical facts has quashed the reassessment proceedings on ground of non-identification of nature of accommodation entry.
b. As has been mentioned by the Ld AO in the reason recorded that assessment has been originally completed u/s 143(3) of IT Act vide order dated 18.12.2019 (PB 28-29), there cannot be any dispute that the department in assessment proceeding has examined the case more particularly when the transactions in dispute, which is evident from assessment order, are the loans transactions from M/s ABC and M/s AHY. The fact that those transactions were duly verified during original proceeding u/s 143(3) can be proved from copies of notices issued u/s 142(1) dated 22.08.2019/119.09.2019 (PB 167-171) and the replies filed (PB 172-174). The Ld AO in the reason recorded has mentioned incorrect amounts of the transaction made with M/s ABC which in the reason is Rs.5,00,00,000/- and as per the facts on record, the same is at Rs.3,12,90,000/-. The Ld AO found that against the amount of Rs.5,00,00,000/- mentioned in the reason, the correct amount is Rs.3, 12,90,000/- as he made the addition of later amount and not the amount mentioned in reason. The mentioning of incorrect amount of income escaping assessment is the sufficient ground for quashing the reassessment proceedings in view of decisions of Pr CIT vs M/S SNG Developers Ltd 404 ITR 312 (Del) approved by Hon'ble Apex Court by dismissing SLP of revenue in SLP (C) 42379/2017 Dt:
09.02.2018, Synfonia Trade Links Pvt Ltd in W P (C) 12544/2018 (Del), CIT vs Suren International Pvt Ltd 357 ITR 24 (Del) and Pro CIT vs. RMG Polyvinyl (I) Ltd (2017) 3961TR 5 (Del). The Hon'ble ITAT, Delhi Bench in the recent decision of Nisha Goel vs ITO ITA NO.2767/0el/2023 has quashed the reassessment proceeding on identical fact of incorrect quantification of income.
c. This discrepancy in the amounts mentioned in the reason could have been verified from the confirmations filed in the original proceeding in letter dated 02.12.2019 (PB 172-174) in reply to notice and also from the tax audit report in Form 3CO at S.No.31 (a) (PB 23-24) where the transaction of loans with M/s ABC and M/s AHY is mentioned at Rs.3,12,90,000/- and Rs.l,18,90,0000/- respectively. Even if the information triggering the reassessment did not match with the records in form of tax audit report and reply filed during assessment u/s 143(3), the Ld AO was under obligation to conduct enquiry to verify the 8 ITA No.1068/DEL/2024 authenticity of the information before initiating action u/s 147/148 of IT Act. In view of the decision of Sh Rajiv Agarwal vs ACIT 395 ITR 0255 (Del) held that "even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment. There is non-application of mind by the AO could not be said to have reason to believe as to justify reopening of assessment." The co-ordinate Bench of Hon' ble ITA T in decision of appellant's own case in ITA No.7244/Del/20 19 dt: 12.08.2021 in para 32 at page 51 therein on identical facts has quashed the reassessment proceedings on ground of Non-verification of unverified information received from investigation relying on decision of Sh Rajiv Aggarwal vs ACIT (supra). The Hon I ble IT A T, Delhi Bench in the recent decision of Nisha Goel vs ITO ITA NO.27 67 /Del/2023 has quashed the reassessment proceeding on identical fact of incorrect quantification of income.
d. The lack of application of mind is further manifested from the discussion in para (a)/(b) (PB 38) of reason recorded where from heading given in above para i.e. "Modus Operandii used for bogus purchase/sale" attributed to the alleged entry provider entities controlled by one Sh Yash Pal Gupta in favour of beneficiaries. There is also a specific mention of activities of issue of bogus purchase/sale bills undertaken by the said entities in favour of beneficiaries impliedly to the appellant. There was also observation that there was no actual transfer of material through such bogus purchase and sale as no stock was found at the time of survey and no godown was found to be maintained. But the above observation is contrary to facts on records as the appellant is engaged in finance and investment activities and there is no purchase/sale done by appellant except transaction of purchase/sale in shares. The above fact further gets fortified by the addition made in assessment order where the Ld AO does not find any transaction of purchase/sale from the entities mentioned in reason and instead the Ld AO found that contrary to reason recorded there was transaction of acceptance of unsecured loans from entities mentioned in reason and not the transaction of purchase/sale. The fact that transaction of appellant with those entities can be found from the discussion in para 2 at page 2, para 4-4.1-4.2-4.5 (in case of AHY) at pages 3-6 and para 5-5.1 at pages 7-8 (in case of ABC) of Ld AO order. In view of above facts, it can be inferred that information with assessing officer on the basis of which reassessment proceeding was initiated is either incorrect or the same was incorrectly appreciated and that shows non-application of mind. The decisions already upon on the issue of incorrect facts are also relied to support the present ground.
9 ITA No.1068/DEL/2024e. From the above discussion, it is clear that reassessment proceeding is initiated by the Ld AO merely relying on report from Investigation wing without applying its independent Mind. In the case of Pro CIT vs. Meenakshi Overseas Pvt. Ltd. 395 ITR 677 (Del), it was held that reproduction of information without showing how the material referred in therein does not show application of mind by the AO in absence of any specific discussion on the material on the basis of which independent prima facie belief is reached that income has escaped assessment. To support the above proposition of law regarding non- application of mind by the AO on the reasons recorded, the reliance is placed on following decisions • Pro CIT v. G & G Pharma India Ltd 3841TR 147 (Del.);
• CIT vs Independent Media Pvt Ltd in ITA 108/2015 (Del); • Signature Hotels P. Ltd. Vs. ITO - [2011] 338 ITR 0051 (Del);
• CIT Vs. SFIL Stock Broking Ltd. 325 ITR 285 (Del);
• Sarlhak Securities Co. P. Ltd. Vs. ITO 329 ITR I 10 (Del);
• CITVs. Supreme Polypropolene (P) Ltd.ITA NO.266/2011 (Del);
• CITvs. Multiplex Trading & Industrial Co. Ltd 3781TR 351
(Del.);
II. Incorrect Invocation of Explanation
From the para 7 of the reason recorded (PB 40), it can be seen that deeming escapement of income chargeable to tax under Explanation 2(b) of sec 147 has been invoked. The above Explanation 2(b) is applicable only in the cases where the return has been filed by the appellant but no assessment has been made. But in the present case, reason recorded (PB 37) in para 1, the Ld AO clearly mentions the fact that assessment in this case u/s 143(3) has been made on 18.12.2019 at returned income. In view of this fact, the correct Explanation applicable in the present case should have been Explanation 2(c) to sec 147 and not the Explanation 2(b) invoked by the Ld AO. The significance of action of invoking correct Explanation to prove that deeming escapement of income chargeable to tax which goes to root of the matter of assumption of jurisdiction by the AO. It shows non- application of mind on the facts and records available to the authorities involved i.e. the Ld AO who recorded the reasons and also the JClT, Range-19, New Delhi, who accorded approval u/s 151 of IT Act. The significance of invoking correct deeming Explanation has been highlighted and failure of which has been found to be fatal for the validity of reassessment proceedings in the decisions cited below:
• Smt Kalpana Shantilal Haria Vs ACIT W.P.(L) NO.3063/2017 dated 22.12.2017 (Bom);
• Yum! Restaurants Asia Pte Ltd VS DCIT in WP(C) No. 614/2014 dated 3l.08.2017 (Del); 10 ITA No.1068/DEL/2024 • Best Cybercity India P Ltd vs ITO WP(C) 12360/2018 td: 2l.05.2019 in para 23 (Del); • M/s VRC Township P Ltd ITA No. 1503/0el/20 17 dt: 14.10.2020; • MIS Shree Bal Kishan Aggarwal Glass Industries Ltd ITA No.5821/0el/2017. • Shashi Mohan Garg vs. ITO 118 CCH 95 (Del.) III. Mechanical approval u/s 151 of the Act.
From the copy of approval (PB 36), it is evident that although approval has been taken from the correct authority i.e. JCIT, Range-19, Delhi under section i.e.151 (1) whereas correct sub section under which approval was required to be obtained was section (2) of sec 151 of IT Act. Since, the assessment proceedings had been initiated within period of four years from end of relevant assessment year, the sanction for issue of notice u/s 148 was required to be taken from JCIT / Addl CIT(taken from the correct authority) but not under section 151 (1) but under section 151 (2) of IT Act. The sanction u/s 151 (1) is required to be obtained from PCCIT /CCIT /PCIT /CIT only in the condition where reassessment proceedings are initiated after expiry of four years from end of relevant assessment year. Further, that from the Performa of approval granted, it is noticed that the all the actions from recording of reasons, seeking and obtaining approval u/s 151 and issue of notice u/s
148 appear to have been taken in less than 24 hours. The appellant is able to highlight these specific objections based on the digital signatures put in by the authorities concerned.
The non application of the mind by the authority u/s 151 is also evident from the fact that the said authority while granting approval/ sanction as per the remarks in approval (PB 36) has invoked the TOLA Act 2020 whereas in the facts and circumstances of the case the above Act had no application in the facts of the case in hand as the reassessment proceedings have been initiated by the ld AO within the time prescribed under the normal provisions within expiry of three years from the end of assessment year, the time available under section 149( 1) (a) of the Act. The ld Rang Head-19 was not required to invoke the TOLA Act and invocation of the non-applicable law in granting approval u/s 151 further supports the contention of the appellant that the approval was mechanical without application of mind by the authority concerned.
Inconsistencies and omissions pointed in preceding para in support of ground on non-application of mind are the glaring mistakes committed by all the authorities involved in the process such as the AO recording reason, Addl CIT recommending reopening and Pr CIT non-pointing out such omissions and resulting non-correction of the same, before the approval was accorded, shows that the said authority have acted 11 ITA No.1068/DEL/2024 mechanically in granting sanction u/s 151 of the Act. Such mechanical approval was found to be fatal for validity of the reassessment proceedings as decided by the co-ordinate Hon'ble Delhi Bench in the RMP Holdings P Ltd ITA No.7243/0el/2019 dt: 31.07.2020 Reliance is also placed on the following authorities:
a. Chhugamal Rajpal vs. S.P. Chaliha & Ors. - 79 ITR 603 (SC); b. Arjun Singh vs AssH. Director of Income Tax (M.P.) reported in (2000) 246 ITR 363 (MP);
c. Pro CIT vs. N. C. Cables Ltd 391 ITR 11 (Del) d. German Remedies Ltd. vs. Dy. CIT (2006) 287 ITR 494 (Bom); e. United Electrical Company PLtd. vs, CIT & Ors(2002) 258 ITR 317 (Del)"; f. Central India electric Supply Co. Ltd. Vs .I TO , 333 ITR 237 (Del); g. M/s Synfonia Tradelinks P Ltd vs ITO W.P.(C) NO.12544/2018 dt: 26.03.2021 (Del); h. Shashi Mohan Garg vs. ITO 118 CCH 95 (Del.) IV. Change of Opinion
From above discussion hereinbefore, in the present case original assessment in the case was completed on 18.12.2019. The assessment was completed on returned income. During the above assessment proceedings, the AO had verified all the loan transactions including the transaction with the entities namely M/s ABC and M/s AHP. The notices u/s 142( 1) (PB 167-171) and its relevant reply (PB 172-174) are available on record which show that the transaction with the above two entities have been accepted by the Ld AO after due verification. It is therefore clear-cut case of change of opinion which is not permitted in law in garb of reassessment.
The AO was not justified in reviewing decision of his predecessor in view of the Hon'ble Apex Court decision of ACIT vs Marico Ltd SLP No.7367/2020 dt: 11.06.2020. The issue before the court was whether reassessment can be initiated when the transaction was verified in the original proceedings. The Hon'ble Court dismissed the SLP of department by passing a reasoned order. The relevant extract is "The reasons in support of the s. 148 notice is the very issue in respect of which the AO had raised a query during the assessment proceedings and the Petitioner had responded justifying its stand. The non-rejection of the explanation in the Assessment Order amounts to the AO accepting the view of the assessee, thus taking a view /forming an opinion. In these circumstances, the reasons in support of the notice proceed on a mere change of opinion and would be completely without jurisdiction" The above decision of Hon'ble Apex Court has been relied while dealing identical facts by the Co-ordinate Benches in the cases of 12 ITA No.1068/DEL/2024 M/s AST Pipes P Ltd ITA NO.8312/Del/2019 dt: 27.10.2020 and M/s Gaurang Products P Ltd ITA NO.5196/Del/20 19 dt: 01.02.2021. The reassessment proceedings is not the occasion to entertain/alter the earlier decisions due to change of mind. Further, reliance is placed on following decisions:
• CIT VS. Usha International Ltd. 348 ITR 485 (Delhi) (Full Bench);
• CIT v. Kelvinator of India Ltd.: 320 ITR 561 (SC);
• CIT vs. Eicher Ltd. 294 ITR 310(Del);
• DITT vs Royal Royce Industrial Power India Ltd 394 ITR 547
(Del);
• CIT vs. Foraner Franch 264 ITR 566 (SC)
• Indian Oil Corporation 159 ITR 956 (SC)
• CIT vs. Multiplex Trading & Industrial Co. Ltd378 ITR 351
(Del.)
Ground No.6 On merits of the addition of Rs.4,31 ,80,000/- u/s 68 rws 115BBE of IT Act.
The addition in question has been made u/s 68 rws 115BBE of IT Act of the unsecured loan of Rs.3,12,90,000/- from M/s ABCL and Rs.1, 18,90,000/- taken from M/s AHY. The reason why these credits have been considered as unexplained credit is summarized as under:
Reasons for rejecting credits from M/s AHY:
1. Notices u/s 133(6) have been issued to the M/s AHY for compliance but no reply has been received. (Kindly refer para 4.3 of Ld AO's order)
2. Copy of the bank statement provided was not legible in case of M/s AHY. (Kindly refer para 4.3 of Ld AO's order)
3. Request of the appellant of cross examination was not acceded too as the same was made at fag end of the limitation period.
(Kindly refer para 4.4 of Ld AO's order) Reasons for rejecting credits from M/s ABCL:
1. PAN number is not mentioned in the audit report of appellant.
(Kindly refer para 5.1 of Ld AO's order)
2. Copy of the bank statement provided was not legible in case of M/s ABCL. (Kindly refer para 5.1 of -Ld AO's order) 13 ITA No.1068/DEL/2024
3. The lender company is struck off from MCA records. (Kindly refer pages 39-40 of reason recorded)
4. Request of the appellant of cross examination was not acceded too as the same was made at fag end of the limitation period. (Kindly refer para 4.4 of Ld AO's order) The appellant qua the above objections seeks to submit that the bank statement of both the entities were provided and the Ld Assessing authority in reply to the notices issued u/s 142( 1) of IT Act on 07.03.2022 (PB 73-77) and then on 25.03.2022 (PB 78-81). In response to show cause notice dated 29.03.2022 (PB 49-55), the legible copies of bank statement were provided as has been made available by the creditors. In any case, the original assessment proceeding was completed after taking original bank statement on record and at the time of reopening also the authority concerned supposed to have bank statement in his possession before he initiates action u/s 148 of IT Act. The objection of the Ld AO appears to be farfetched and bank statement already placed on record there is evidence of sufficient funds in the bank accounts of lender entities. The Ld AO could also have issued notice to respective banks for the bank statements of above companies by invoking powers u/s 133(6) of IT Act. So far as the appellant is concerned, it had made the compliance of the requirement made for the first time on 07.03.2022 in response to notice u/s 142( 1) of IT Act (PB 73-77»). The reason why the Ld AO could not verify the evidences produced could be the late activation of assessment proceedings which was in the month of Feb which is just a month prior to end of limitation is due to the reason not attributed to the appellant. This fact is evident from copy of screens hot of e-proceeding portal (PB 30-31).
Coming to non-compliance of notice u/s 133( 6) to M/s AHY, it is submitted that notice has been duly served and non-response of duly served notice cannot be used as adverse material against the appellant as it is duty of the department to ensure compliance of the notice duly served. To support the above proposition of law, reliance is placed in the case of CIT VS. Orissa Corporation 159 ITR 78 (SC).
Non-mentioning of PAN in Form 3CD is optional and since department is in possession of material in relation to creditor concerned, the PAN number is something which is always available in the cases where post survey investigation is conducted.
On denial of cross examination and provision of the adverse material for confrontation, the request has been rejected just for the reason that said request has been made on 30.03.2022 (PB 82-90) just a day before expiry of limitation period. The appellant seeks to make the records 14 ITA No.1068/DEL/2024 straight. The correct position is that appellant has made the request of confrontation of adverse material and request for cross examination firstly on 29.11.2021(PB 56-72, relevant page 62-0bjection to assumption of Jurisdiction) and repeated the same on 25.03.2022 (PB 78-81) and 30.03.2022 (PB 82-90. It is therefore, not correct that this request is made just fag end of reassessment proceedings. The fault of late active pursuance of assessment proceedings which is started in month of February 2022 is something which is responsible for the non- consideration of request of the appellant and this fault which is responsible for adverse action on the appellant is not attributable explicitly or implicitly in any manner. To support the above proposition of law of not providing opportunity of cross examination invalidates the assessment, reliance is placed in following decision:
• Andaman Timber Industries vs CCE 281 CTR 241 (SC);
• KishinchandChellaram v. CIT (1980] 125 ITR 713 (SC)
• CIT v. Ashwani Gupta [2010] 322 ITR 396 (Delhi)
• CITvs SMC Share Brokers Ltd 2881TR 0345 (Del);
• Pr CIT vs Best Infrastructure (India) P Ltd (2017) 397 ITR 82
(Del);
• Swadeshi Cotton Mills Company Ltd. vs UOI 51 ITR 210 (SC)
The ground that company M/s ABC was struck off from the MCA records does not show that at the time of transaction of loan in question, the company was not legally existing. If that be so, the Ld AO could have given relevant details when the company was struck off and whether the date of struck off was prior to date of transaction of appellant with the above entity. In absence of any such information, the fact of company being struck off cannot be utilized to the detrimental interest of the appellant.
It may kindly be noted that all the loons have been repaid barring the amount of Rs.44,85,000/- which has been offered for tax in AY 2020-21 u/s 41 (1) of IT Act being liability no longer payable. Your kind attention is invited to decisions of various authorities including decision of Jurisdiction Delhi High Court that when credit entries like unsecured loans etc are subsequently repaid, no addition u/s 68 could be made as unexplained credits. The decisions cited in support of above legal proposition are Director of Income-tax vs. Modern Charitable Foundation, 335 ITR 105 (Del), Pro CIT Vs Skylark Build 2018-TIOL- 2323-HC-MUM-IT, CIT vs Shiv Dhooti Pearls & Investments Ltd 237 taxman 0401 (Del), Mod Creations P Ltd vs ITO 354 ITR 282 (Del), CIT vs. Ayachi Chandrasekhar Narsangji 42 Taxmann.com 251 (Guj), CITs. Mahavir Crimpers, 95 Taxman.com 323 (Guj), CIT vs. Karaj Singh 15 txmann.com 70 (P&H) and Panna Devi Chowdhary vs. CIT, 2081TR 849 (Bom).15 ITA No.1068/DEL/2024 Ground Nos.l and 2
The appellant is aggrieved from the dismissal of appeal for the reason of non- prosecution without considering the merits of the case. From the chart given in the Ld CIT(A) order, it is evident that first notice of hearing u/s 250 was given on 28.12.2023 fixed for hearing on 03.01.2024. The appellant sought time for 15-20 days and Ld CIT(A) after partly accepting request granted till 10.01.2024. On 10.0l.2024.
The adjournment was sought but same was denied without communicating the fact refusal of adjournment application and also the fact that the opportunity given on 10.01.2024 is a final opportunity. This amounts to denial of fair opportunity of hearing and thus violation of principles of natural justice.
Further, Ld CIT(A) even passing the ex-parte order was not entitled to dismiss the appeal without considering the merits of issue involved in view of decision of CIT (Central) Nagpur vs. Premkumar Arjundas Luthra (HUF), [2016] 69 taxmann.com 407 (Bombay)."
8. On the other hand, ld. DR for the Revenue submitted that the reassessment was initiated based on the new material/information available with the Department on the basis of survey conducted in the case of persons who have provided accommodation entries. He submitted that the method of providing accommodation entries was clearly brought on record by the assessing officer. The approving authority have considered the issues involved and reviewed the assessment order before approving the same and there is no mechanical approval in any manner. With regard to mis-match of amounts, he submitted that it is only a re-verification which can be done by remitting the issue back to the AO. With regard to additions, he supported the findings of the assessing officer and heavily relied on the findings of the authorities.
9. In the rejoinder, ld. AR submitted that the assessing officer has not examined the original assessment records and further he submitted that the 16 ITA No.1068/DEL/2024 alleged unsecured loans were already repaid by the assessee in the subsequent assessment years. In this regard he relied on the decision of Shiv Dhooti Pearls And Investment Ltd 237 taxman 0401 (Delhi).
10. Considered the rival submissions and material placed on record. We observed that the case of the assessee was reopened based on the findings in the survey proceedings and AO noticed that the assessee has received unsecured loans from the entities which are controlled by Shri Yashpal Gupta. Apart from the above findings that the entities with whom the assessee had taken unsecured loans are providing accommodation entries, the department does not have any other information and not carried out any investigation except sending the notice u/s 133(6) to the above said parties. Since they have not responded the AO rejected the documents submitted by the assessee. He fully relied on the findings of the survey proceedings.
11. We observed that in the assessment order, the AO has recorded the reasons for initiating the reassessment based on the observations received from the investigation wing that Shri Yashpal Gupta was providing accommodation entries in purchase and sales. With the above information, he presumed that the unsecured loan also falls within the accommodation entries without there being any information. He observed that the assessee has taken loan and the assessee is one of the beneficiaries. He has given detailed modus operandi used for bogus purchase and sales but he has no information about the modus operandi of 17 ITA No.1068/DEL/2024 unsecured loan nor he brought on record after proper verification in the case of the assessee under consideration. Further, there is no allegation that the assessee had received the unsecured loan in cash or any findings that there are cash deposits before or after the payment of unsecured loan by the respective lenders.
The AO has only observed that the bank statement is not clear, non response of the notice u/s 133(6) is the main reason for making addition. From the above, it is clear that the AO has failed to apply his mind on the issues involved in the present case and grossly proceeded to make the addition without properly making investigation whether the reasons recorded and the transactions are falling within the ambit of accommodation entry. There is no statement recorded from Shri Yashpal Gupta accepting that they have provided unsecured loan as accommodation entry. There is no specific acceptance which supports the view of AO. Therefore, in the similar line, the Hon'ble Delhi High Court held in the case of Signature Hotels P. Ltd. Vs. ITO - [2011] 338 ITR 0051 (Del) as under :-
"15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment."18 ITA No.1068/DEL/2024
12. Respectfully following the above decision, we are inclined to allow the grounds raised by the assessee with the observations that the information with the AO on the basis on which reassessment proceedings were initiated incorrectly appreciated and applied presumptions to form the reasons for reopening as well as to complete the reassessment.
13. Further Ld AR submitted several other issues relating to the issue of reopening of the assessment, we are not adjudicating at this stage, it will lead to only academic interest. Further, it is brought to our notice on the merit that the assessee had repaid the above unsecured loan in the subsequent year and an amount of Rs.44,85,000/- was unpaid. The same was written off and declared as income u/s 41(1) of the Act.
14. In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on this 20th day of September, 2024.
Sd/- sd/-
(SUDHIR KUMAR) (S.RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated:20.09.2024
TS
19
ITA No.1068/DEL/2024
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals).
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT, NEW DELHI