Income Tax Appellate Tribunal - Delhi
G.G. Metal Udyog, New Delhi vs Assessee on 28 April, 2016
ITA NO.1430/Del/2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
I.T.A.No.1430/Del/2015
A.Y. : 2006-07
M/S G.G. METAL UDYOG ITO, WARD 39(3),
B-160, STREET NO. 2, MAJLISH VS. NEW DELHI
PARK,
ADARSH NAGAR, NEW DELHI
(PAN:AAFDJ4351C)
(APPELLANT) (RESPONDENT)
Assessee by : Sh. Ashish Chadha, CA
Department by : Sh. T. Vasanthan, Sr. DR
Date of Hearing : 09-03-2016
Date of Order : 28-04-2016
ORDER
PER H.S. SIDHU : JM The Assessee has filed the present appeal against the impugned order dated 10/12/2014 passed by the Ld. Commissioner of Income Tax (Appeals)- XX, New Delhi on the following grounds:-
1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad, both in the eye of law and on the facts.
2. On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the initiation of the reassessment proceedings and the reassessment order 1 ITA NO.1430/Del/2015 are bad both on facts and in law and liable to be quashed as the statutory conditions and procedure prescribed under the statute have not been complied with.
3 (i) On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned AO are bad in the eye of law as the reasons recorded for the issue of notice under Section 148 are bad in the eye of law and are contrary to the facts.
(ii) On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment order passed by the AO is bad and liable to be quashed as the same has been reopened on the basis of the reasons which are vague and has been recorded without application of mind on the part of the AO.
4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the rejection of the books of accounts of the assessee by the AO, despite the fact that the assessee has been maintaining proper books of accounts as per law.
5. On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in confirming the addition of an amount of Rs.
9,08,838/- on account of bogus purchases.
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ITA NO.1430/Del/2015
6. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition to the extent of 20% of such purchases, without there being any basis for the same.
7.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming that the firms MIs Vishnu Trading Company, MIS Shree Shyam Trading Company & MIs Shree Bankey Bihari Trading Co. are not engaged in the actual business ignoring the fact that during the course of the search substantial inventory in respect of the material being purchased by the assessee were found which confirm the fact that this firm was doing actual business.
(ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting that the inference drawn by the AO merely on the basis of a statement that these firms are not in actual business is baseless and contrary to the facts on record.
8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting the contention of the assessee in ignoring the fact that there being a complete tally of the quantity purchased and sold the allegation that the assessee has not made purchases cannot be sustained.
3
ITA NO.1430/Del/2015
9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the addition to the extent of 20% of such purchases rejecting the material and evidences brought on record by the assessee to show that the purchases were made in regular course of the business and material so purchased was sold in the regular course of business.
10. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in giving the direction to the A.O. in respect to an amount of Rs. 10,28,926/- on account of purchases not related to the relevant assessment year.
11. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting the contention of the assessee that the addition so made on the basis of material collected at the back of the assessee is bad in law & liable to be deleted.
12. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting the contention of the assessee that the addition made by the learned AO is untenable in the eye of law having bee made without providing opportunity to cross examine the person on the basis of whose statement the allegations have been made against the assessee and without following the principle of natural justice. 4
ITA NO.1430/Del/2015
13. The appellant craves leave to add, amend or alter any of the grounds of appeal.
2. The brief facts of the case are that on verifying the ITD system, it was noticed that no return of income for the year under consideration was filed. Later on, information was received from ACIT, Central Circle10, Jhandewalan Extension, New Delhi vide his letter dated 13.3.2013 forwarded through CIT, Central-II, New Delhi and the CCIT, Delhi-I, New Delhi vide their letters dated 19.3.2013 and 26.3.2013 respectively therein providing a CD wherein the list of parties to whom the bogus purchases / accommodation entries provided by Sh. Rakesh Gupta, Sh. Vishesh Gupta, Sh. Navneet Jain and Sh. Vaibhav Jain was appearing. After going through the complete list and indentifying the parties, after recording the reasons, as stated in page 2 of the assessment order, Ld. AO has made an addition of Rs.45,44,189/- on account of bogus purchase and completed the assessment at an income of Rs. 45,44,190/- u/s. 143(3)/147 of the I.T. Act, 1961.
3. Aggrieved by the order of the AO, the assessee came in appeal before the learned CIT(A), who vide impugned order dated 10.12.2014 has partly allowed the appeal of the assessee.
4. Against the order of the Ld. CIT(A), assessee is in appeal before the Tribunal.
5. At the time of hearing, Ld. Counsel has stated the issues in dispute are squarely covered by the ITAT, Delhi decision dated 28.10.2015 in the case of Unique Metal Industries vs. ITO in ITA No. 1372/Del/2015. He stated that the assessment in this case was also reopened on the same allegation. He further submitted that the facts of the case are identical as number of assessments were opened by the same AO on the basis of the same set of information and by recording similar reasons. He draw our attention towards the page no. 9 vide 5 ITA NO.1430/Del/2015 para 7 to 13 of the Tribunal's order dated 28.10.2015 wherein, the issue of reopening was held to be invalid and accordingly the same was quashed. Therefore, he requested that by following the said precedent, the reopening proceedings may be quashed and Appeal of the assessee may be allowed.
6. On the contrary, Ld. DR relied upon the order of the authorities below and requested that the same may be upheld.
7. We have heard the both parties and perused and considered the relevant record available with us specially the impugned orders passed by the Revenue Authorities and the copy of the Tribunal's order dated 28.10.2015 passed in the case Unique MetaI Industries vs. ITO in ITA No. 1372/Del/2015. In our view, it will be relevant to refer to the reasons recorded by the AO and the approval of the Joint Commissioner of Income Tax which reads as under:-
"Reasons for the belief that the income has escaped assessment in the case of M/s Unique Metal Ind for the assessment year 2006-07 A letter bearing F.No. Addl. CIT/(Hq)/(Coord.)/Accommodation entry/2012-13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner of I. Tax, Delhi-I, New Delhi herein forwarding letter bearing F. No. CIT(C)-II/2012-13/3898 dated 19.3.2013 received from the Commissioner of I. Tax, Central-II, New Delhi along with a CD containing the details of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain and directing this office to take necessary action as per section 148 in respect of entries pertaining to A.Y. 2006-07, which is time barring on 31.03.2013.
The information provided by the CIT, Central-II, New Delhi vide his letter dated 19.03.2013 reads as under:-6
ITA NO.1430/Del/2015 "Kindly find enclosed herewith letter dated 13.03.2013 of ACIT, Central Circle-10 duly forwarded by the Addl. CIT, Central Range- IV, along with its enclosures on the subject mentioned above.
2. The assessment of search cases of Sh. Rakesh Gupta, Sh.
Vishesh Gupta, Sh. Navneet Jain & Sh. Vaibhav Jain are under process with the ACIT, Central Circle-10. During the assessment proceedings u/s 153A in the aforesaid cases, details regarding accommodation entries given by the above entry providers has been obtained by the AO.
3. The list of accommodation entry recipients has been obtained from Sh. Rakesh Gupta and Sh. Vishesh Gupta. Hard copy of the list is enclosed as Annexure A, duly signed by Sh. Vishesh Gupta. The list gives the name of the firm which has provided the accommodation entry along with the name and address of recipients of accommodation entry.
4. Sh. Naveen Jain & Sh. Vaibhav Jain has provided accommodation entry through thirty-seven paper entities. The list of the firms giving accommodation entry is enclosed as annexure- B. The list of accommodation entry recipients, has been obtained from Sh. Navneet Jain & Sh. Vaibhav Jain. It does not give year wise bifurcation. Hard copy of the lost is enclosed as annexure-C, duly signed by Sh. Vaibhav Jain. Thus, the firms mention in the list 'B' have provided accommodation entries to the firms mentioned in list 'C'.
5. The soft copy of the information in respect to annexure A, B & C is also enclosed.
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ITA NO.1430/Del/2015
6. The information of accommodation entry includes A.Y. 2006- 07 also, which is a time barring year for taking action u/s 148.
7. The information is forwarded to you for early dissemination to various field officers in Delhi (Soft copy also enclosed). On examining the list of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07, it is noted that the following accommodation entries have been taken by the assessee namely M/s GG Metal Udyog:-
Sl. Accommodation Name of party to whom Amount of No. entry provided by accommodation entry is Accommodation provided entry 1 Shree Shyam M/s GG Metal Udyog Rs. 10,28,926/-
Trading Co.
2 Shree Bankey Bihari M/s GG Metal Udyog Rs. 21,05,940/-
Trading Co.
3 Vishu Trading Co. M/s GG Metal Udyog Rs. 7,08,448/- 4 Shree Shyam M/s GG Metal Udyog Rs. 7,00,875/-
Trading Co.
Total amount of entries= Rs.45,44,189/-
Since Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain during the course of assessment proceedings u/s 153A of I. Tax Act have admitted that they have given accommodation entries to the parties whose lists have been provided by them to the ACIT, Central 8 ITA NO.1430/Del/2015 Circle-10, New Delhi, therefore, it is fair to conclude that M/s GG Metal Udyog whose name is appearing in the said list, has taken accommodation entries from Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07. In view of the above, I have reasons to believe that income chargeable to tax of M/s GG Metal Udyog amounting to Rs.45,44,1899/- for the F.Y. 2005-06 relevant to A.Y. 2006-07 has escaped assessment and it is a fit case for initiation of proceedings u/s 147 of the Act. Proposal in the prescribed form for the A.Y. 2006-07 (F.Y. 2005-06) is submitted herewith for kind consideration and necessary approval u/s 2006-07 (F.Y. 2005-06) is submitted herewith for kind consideration and necessary approval u/s 151(2) of the I. Tax Act, 1961 as the same is getting barred by limitation on 31/3/2013.
If approved, notice u/s 148 of the act may be issued.
Sd/-
28.3.2013 (Pawan Kumar Vashist) Income Tax Officer Ward-39(3), New Delhi Joint CIT, Range-39, N.Delhi For the reasons recorded by the AO, ITO Ward - 39(3), it is a fit case for issue of notice u/s 148 of the I.T. Act, 1961. Accordingly 9 ITA NO.1430/Del/2015 necessary approval for reopening the above case for A.Y. 2006-07 is hereby given s per the provision of section 151(2) of I.T. Act, 1961. ITO, Ward 39(3) Sd/-
28.3.2013 (Vijay BabuVasanta) Jt. Commission of Income Tax Range-39, New Delhi"
8. On going through the above reasons it is evident that this assessment has been reopened on the basis of the letter received from the ld. CIT, Central-2, New Delhi with the direction to take necessary action as per section 148 of the Act. As per this, accommodation entries were obtained by various persons from Sh. Rakesh Gupta and Sh. Vishesh Gupta as well as Sh. Navneet Jain and Sh. Vaibhav Jain. Copy of this list was forwarded in a CD to the Assessing Officer. Thus this list contained the name of the assessee. The Assessing Officer reopened the assessment on the basis of this information. The basis given by the Assessing Officer in the reasons is that these persons have admitted that they have given accommodation entries to the parties whose lists have been provided by them. From the above facts it is apparent that the Assessing Officer at that point of time when he recorded the reasons was not having the copy of the statement or any other material in which these people have alleged to have 10 ITA NO.1430/Del/2015 provided accommodation entries to the assessee. This position gets also corroborated from the facts stated by the Assessing Officer himself in the reassessment order in para 3 page 5 which read as under:-
"Here it is pertinent to mention that in the intervening period, this office had conversations with the ACIT, Central Circle-10, New Delhi from whom vide this office's letter dated 23.07.2013, 02.09.2013, 14.10.2013, 06.11.2013, 22.11.2013, 09.12.2013 & 24.12.2013 and vide Joint CIT, Range-39, New Delhi's letter dated 16.12.2013, the following details/documents were sought:-
(i) Copies of the statements recorded of Sh. Rakeh Gupta & Sh.
Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain in search/post search/assessment proceedings.
(ii) Soft copies of the statements recorded of Sh. Rakeh Gupta & Sh.
Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain in search/post search/assessment proceedings.
(iii) Hard copy of assessment orders passed in these cases for A.Y. 2006-07
(iv) Soft copy of assessment orders passed in these cases for A.Y. 2006-07
(v) Any other detail/document you may deem fit that need to be confronted with the parties whose cases have been reopened u/s 148 of I.Tax. Act.
4. In response to these letters, the ACIT, Central Circle-10, New Delhi vide his letter dated 20.12.2013, received by this office on 27.12.2013, forwarded his reply along with supporting documents, which were running into 92 pages. After going through the reply forwarded by the ACIT, Central Circle-10, New Delhi and the annexure enclosed 11 ITA NO.1430/Del/2015 therein, this office was of the view that the purchase bills provided by the 11 firms/concerns controlled and managed by Sh. Rakesh Gupta and Sh. Vishesh Gupta or their family members is nothing but bogus purchase bills/accommodation bills."
9. In view of above facts and circumstances of the case, we find considerable cogency in the contention of the ld. Counsel of the assessee that the facts and circumstances of the present case are similar to that of Unique Metal Industries (supra) and the legal issue of reopening in the Assessee's Appeal is squarely covered by the Order dated 28.10.2015 of this Bench passed in the case of Unique MetaI Industries vs. ITO in ITA No. 1372/Del/2015 dated 28.10.2015 wherein, the Tribunal has adjudicated the legal issue at page no. 9 to 23 vide para no. 7 to 13 as under:-
"7. I have perused the assessment order, order passed by the learned CIT(A) as well as the paper book. It will be relevant to refer to the reasons recorded by the Assessing Officer and the approval of the Joint Commissioner of Income Tax which reads as under:-
"Reasons for the belief that the income has escaped assessment in the case of M/s Unique Metal Ind for the assessment year 2006-07 A letter bearing F.No. Addl. CIT/(Hq)/(Coord.)/Accommodation entry/2012-13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner of I. Tax, Delhi-I, New Delhi herein forwarding letter bearing F. No. CIT©-II/2012-13/3898 dated 19.3.2013 received from the Commissioner of I. Tax, Central-II, New Delhi along with a CD containing the details of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain and direct 12 ITA NO.1430/Del/2015 this office to take necessary action as per section 148 in respect of entries pertaining to A.Y. 2006-07, which is time barring on 31.03.2013.
The information provided by the CIT, Central-II, New Delhi vide his letter dated 19.03.2013 reads as under:-
"Kindly find enclosed herewith letter dated 13.03.2013 of ACIT, Central Circle-10 duly forwarded by the Addl. CIT, Central Range- IV, along with its enclosures on the subject mentioned above.
2. The assessment of search cases of Sh. Rakesh Gupta, Sh. Vishesh Gupta, Sh. Navneet Jain & Sh. Vaibhav Jain are under process with the ACIT, Central Circle-10. During the assessment proceedings u/s 153A in the aforesaid cases, details regarding accommodation entries given by the above entry providers has been obtained by the AO.
3. The list of accommodation entry recipients has been obtained from Sh. Rakesh Gupta and Sh. Vishesh Gupta. Hard copy of the list is enclosed as Annexure A, duly signed by Sh. Vishesh Gupta. The list gives the name of the firm which has provided the accommodation entry along with the name and address of recipients of accommodation entry.
4. Sh. Naveen Jain & Sh. Vsaibhav Jain has provided accommodation entry through thirty-seven paper entities. The list of the firms giving accommodation entry is enclosed as annexure- B. The list of accommodation entry recipients, has been obtained from Sh. Navneet Jain & Sh. Vaibhav Jain. It does not give year wise bifurcation. Hard copy of the lost is enclosed as annexure-C, duly signed by Sh. Vaibhav Jain. Thus, the firms mention in the list 13 ITA NO.1430/Del/2015 'B' have provided accommodation entries to the firms mentioned in list 'C'.
5. The soft copy of the information in respect to annexure A, B & C is also enclosed.
6. The information of accommodation entry includes A.Y. 2006- 07 also, which is a time barring year for taking action u/s 148.
7. The information is forwarded to you for early dissemination to various field officers in Delhi (Soft copy also enclosed).
On examining the list of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07, it is noted that the following accommodation entries have been taken by the assessee namely M/s Unique Metal Industries:-
Sl. Accommodation Name of party to whom Amount of
No. entry provided by accommodation entry is Accommodation
provided entry
1 Shree Shyam M/s Unique Metal Industries Rs.2,44,399/-
Trading Co.
2 Vishnu Trading Co. M/s Unique Metal Industries Rs.8,12,542/-
3 Shree BankeyBihari M/s Unique Metal Industries Rs.3,28,368/-
Total amount of entries= Rs.13,85,309/-
Since Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain during the course of assessment proceedings u/s 153A of I. 14 ITA NO.1430/Del/2015 Tax Act have admitted that they have given accommodation entries to the parties whose lists have been provided by them to the ACIT, Central Circle-10, New Delhi, therefore, it is fair to conclude that M/s Unique Metal Industries whose name is appearing in the said list, has taken accommodation entries from Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07.
In view of the above, I have reasons to believe that income chargeable to tax of M/s Unique Metal Industries amounting to Rs.13,85,309/-for the F.Y. 2005-06 relevant to A.Y. 2006-07 has escaped assessment and it is a fit case for initiation of proceedings u/s 147 of the Act.
Proposal in the prescribed form for the A.Y. 2006-07 (F.Y. 2005-06) is submitted herewith for kind consideration and necessary approval u/s 2006-07 (F.Y. 2005-06) is submitted herewith for kind consideration and necessary approval u/s 151(2) of the I. Tax Act, 1961 as the same is getting barred by limitation on 31/3/2013.
If approved, notice u/s 148 of the act may be issued.
Sd/-
28.3.2013 (PawankumarVashist) Income Tax Officer Ward-39(3), New Delhi Joint CIT, Range-39, N.Delhi For the reasons recorded by the Ao, ITO Ward - 39(3), it is a fit case for issue of notice u/s 148 of the I.T. Sct, 1961. Accordingly necessary approval for reopening the above case for A.Y. 2006-07 is hereby given s per the provision of section 151(2) of I.T. Act, 1961.
ITO, Ward 39(3) Sd/-15
ITA NO.1430/Del/2015 28.3.2013 (Vijay BabuVasanta) Jt. Commission of Income Tax Range-39, New Delhi"
8. On going through the above reasons it is evident that this assessment has been reopened on the basis of the letter received from the ld. CIT, Central-2, New Delhi with the direction to take necessary action as per section 148 of the Act. As per this, accommodation entries were obtained by various persons from Sh. Rakesh Gupta and Sh. Vishesh Gupta as well as Sh. Navneet Jain and Sh. Vaibhav Jain. Copy of this list was forwarded in a CD to the Assessing Officer. Thus this list contained the name of the assessee. The Assessing Officer reopened the assessment on the basis of this information. The basis given by the Assessing Officer in the reasons is that these persons have admitted that they have given accommodation entries to the parties whose lists have been provided by them. From the above facts it is apparent that the Assessing Officer at that point of time when he recorded the reasons was not having the copy of the statement or any other material in which these people have alleged to have provided accommodation entries to the assessee. This position gets also corroborated from the facts stated by the Assessing Officer himself in the reassessment order in para 3 page 5 which read as under:- 16
ITA NO.1430/Del/2015 "Here it is pertinent to mention that in the intervening period, this office had conversations with the ACIT, Central Circle-10, New Delhi from whom vide this office's letter dated 23.07.2013, 02.09.2013, 14.10.2013, 06.11.2013, 22.11.2013, 09.12.2013 & 24.12.2013 and vide Joint CIT, Range-39, New Delhi's letter dated 16.12.2013, the following details/documents were sought:-
i) Copies of the statements recorded of Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain in search/post search/assessment proceedings.
ii) Soft copies of the tatements recorded of Sh. Rakeh Gupta & Sh.
Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain in search/post search/assessment proceedings.\
iii) Hard copy of assessment orders passed in these cases for A.Y. 2006-7
iv) Soft copy of assessment orders passed in these cases for A.Y. 2006-07
v) Any other detail/document you may deem fit that need to be confronted with the parties whose cases have been reopened u/s 148 of I. Tax Act.
4. In response to these letters, the ACIT, Central Circle-10, New Delhi vide his letter dated 20.12.2013, received by this office on 27.12.2013, forwarded his reply along with supporting documents, which were running into 92 pages. After going through the reply forwarded by the ACIT, Central Circle-10, New Delhi and the annexure enclosed therein, this office was of the view that the purchase bills provided by the 11 firms/concers controlled and managed by Sh. Rakesh Gupta and Sh. VisheshGupt or their family members is nothing but bogus purchase bills/accommodation bills."
9. The above facts stated by the Assessing Officer makes it abundantly clear that at the time of formation of the belief to reopen 17 ITA NO.1430/Del/2015 assessment the Assessing Officer was not having the above said information. Only that he was having the letter along with list which was forwarded by the CIT, Central-2, New Delhi.
10. The above observation of the Assessing Officer also shows that it was letter dated 20.12.2013 received by him on 27.12.2013 on the basis of which the Assessing Officer could make a view that the purchase bills provided by these persons or their family members is nothing but bogus purchase bills. At the time of recording of the reasons the Assessing Officer apparently was not having any idea about the nature of the transactions entered into by the assessee. In the reasons recorded there is no mention about the nature of the transactions. As per provision of section 147 an assessment can be reopened if the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment. The reasons to believe has to be that of the Assessing Officer and further there have to be application of mind by the Assessing Officer though the reasons to believe does not mean that the Assessing Officer should have finally ascertained the fact that income has escaped assessment but at the same time, it also means that the Assessing Officer is required to examine the facts on the basis of the information and satisfy himself that the taxable income has escaped assessment. In the present case, on going through the reasons it is quite evident that the Assessing 18 ITA NO.1430/Del/2015 Officer was also not aware of the nature of the accommodation entries. In the reasons recorded he has simply mentioned the name of the party and the amount and nowhere has stated the nature of such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. This fact gets further supported from the sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item no. 7, whether the assessment is proposed to be made for the first time, the Assessing Officer has stated 'Yes', and in Column no. 7(a), whether any voluntary return had already been filed and in Column no. 8 (b), date of filing the said return 'NA' has been stated. Thus this is a clear case of non-application of mind by the Assessing Officer. It may also be relevant that on page 2 of the assessment order, the Assessing Officer himself has stated that in this case the return of income for the year under consideration was filed with this ward on 27.09.2006. These facts clearly demonstrate that the return was with the same ward and at the time of recording of the reasons for reopening the assessment, the Assessing Officer has not looked at the return and in a mechanical way, on receipt of the letter from the CIT, Central-2, New Delhi the assessment has been reopened. It is a settled position of law that there must be material for formation of a belief that income has escaped assessment. Further reasons referred to must disclose process of reasoning by which the Assessing Officer holds 19 ITA NO.1430/Del/2015 reason to believe. There must be nexus between such material and belief. Further and most importantly the reasons referred to must show application of mind by the Assessing Officer. It is also a settled law that the validity of the initiation of the reassessment proceeding is to be judged with reference to the material available with the Assessing Officer at the point of time of the issue of notice under section 148. In the present case, as is evident from the assessment order, the Assessing Officer was having nothing except the list provided by the CIT, Central-2, New Delhi about the list of accommodation entries. Beyond that he was not having the copies of the statement of any of these persons. He was not having copy of the assessment orders and other details or document which would have enabled the Assessing Officer to apply his mind and form a belief that income has escaped assessment. In fact this information was not with the Assessing Officer till fag end of the reassessment proceedings, a fact admitted by the Assessing Officer himself in the assessment order. The judgment relied upon by the learned AR also supports the case of the assessee. In the case of Sarthak Securities Pvt. Ltd. vs. ITO (2009) 329 ITR 110 the Hon'ble jurisdictional Delhi High Court has held that under the circumstances narrated hereinabove the reopening cannot be said to be a valid reopening. The Hon'ble Court has held as under:-
20
ITA NO.1430/Del/2015 "In the case at hand, as is evincible, the AO was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the AO was made aware of the situation by the Investigation Wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. Resultantly, the initiation of proceedings under s. 147 and issuance of notice under s. 148 are hereby quashed."21
ITA NO.1430/Del/2015
11. Similarly in Signature Hotels (P) Ltd. vs. ITO (2011) 338 ITR 51 (Del) the Hon'ble Court has also quashed the reopening of the assessment on the ground that the AO did not independently apply his mind to the information received from the Director of Income Tax (Inv.). The relevant observation of the Court reads as under:-
"The first sentence of the reasons states that information had been received from Director of IT (Inv.) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure relates to a cheque received by the petitioner on 9th Oct., 2002 from SS Ltd. from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. The aforesaid reasons do not satisfy the requirements of s. 147. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure. 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 AO did not apply his own mind to the information and examine the basis and material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The CIT also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the AO did not independently apply his mind to the information received from 22 ITA NO.1430/Del/2015 the Director of IT (Inv.) and arrive at a belief whether or not any income had escaped assessment. Company SS Ltd. had applied for and was allotted shares in the petitioner company on payment by cheque of Rs. 5 lacs. SS Ltd. is an incorporated company and the petitioner has pleaded and stated that the said company has a paid-up capital of Rs. 90 lacs. The company was incorporated on 4th Jan., 1989 and was also allotted PAN in September, 2001. The facts indicated above do not show that SS Ltd. is a non- existing and a fictitious entity/person. For the reasons stated above, writ of certiorari is issued quashing the proceedings under s. 148"
12. In the case of CIT vs. SFIL Stockbroking Co. (2010) 325 ITR 285 (Del) also the Hon'ble High Court has quashed the reopening proceedings on the ground that from the reasons it is not discernible as to whether the AO has applied his mind to the information and independently arrived at a belief that income has escaped assessment. The Hon'ble Court has held as under:-
"The first sentence of the so-called reasons recorded by the AO is mere information received from the Dy. Director of IT (Inv.). The second sentence is a direction given by the very same Dy. Director to issue a notice under s. 148 and the third sentence again comprises of a direction given by the Addl. CIT to initiate proceedings under s. 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following 23 ITA NO.1430/Del/2015 sentence, which is the concluding portion of the so-called reasons : "Thus, I have sufficient information in my possession to issue notice under s. 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above." From the above, it is clear that the AO referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under s. 148. These cannot be the reasons for proceeding under s. 147/148. The first part is only an information and the second and the third parts of the beginning para of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the AO had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, the Tribunal has arrived at the correct conclusion on facts. There is no substantial question of law which arises for consideration."
13. In view of the above discussed facts of the present case, the reopening of the assessment is without application of mind and examination of the facts and accordingly the reopening is held to be invalid and accordingly the same is quashed. Accordingly the reopening is held to be bad in law and ground nos.2 and 3 are allowed."
10. Keeping in view of the facts and circumstances of the case, we are of the view that the facts and circumstances of the present case are exactly similar and identical to the facts and circumstances of the case of Unique Metal Industries 24 ITA NO.1430/Del/2015 vs. ITO decided by the ITAT, SMC-2, Bench, Delhi vide order dated 28.10.2015 passed in ITA No. 1372/Del/2015 (AY 2006-07). Therefore, respectfully, following the precedent of the Coordinate Bench, as aforesaid, we allow the appeal of the assessee by holding that the reopening in the present case is bad in law and therefore, we quash the reopening proceedings.
11. Since we have quashed the reopening in the present case, the other issues have not been adjudicated upon.
12. In the result, the appeal of the Assessee is allowed.
Order pronounced in the Open Court on 28/04/2016.
Sd/- Sd/-
[PRASHANT MAHARISHI] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 28/04/2016
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches
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