Income Tax Appellate Tribunal - Delhi
K.K. Arora & Sons (Huf), New Delhi vs Acit, New Delhi on 3 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "SMC-3", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
I.T.A. No. 2960/DEL/2015
A.Y. : 2005-06
M/S K.K. ARORA & SONS (HUF) ACIT, CIRCLE 41(1),
C/O ANIL JAIN D.D. & CO., VS. CIVIC CENTRE,
CHARTERED ACCOUNTANTS, NEW DELHI
611, SURYA KIRAN BUILDING,
19, KG MARG,
NEW DELHI - 110001
(PAN: AANHK9309K)
(APPELLANT) (RESPONDENT)
AND
I.T.A. No. 2958/DEL/2015
A.Y. : 2005-06
M/S R.K. ARORA & SONS (HUF) ACIT, CIRCLE-41(1),
C/O ANIL JAIN D.D. & CO., VS. CIVIC CENTRE,
CHARTERED ACCOUNTANTS, NEW DELHI
611, SURYA KIRAN BUILDING,
19, KG MARG,
NEW DELHI - 110001
(PAN: AABHR8360R)
(APPELLANT) (RESPONDENT)
AND
I.T.A. No. 2959/DEL/2015
A.Y. : 2005-06
MR. KAMAL KRISHAN ARORA, ACIT, CIRCLE-41(1),
C/O ANIL JAIN D.D. & CO., VS. CIVIC CENTRE,
CHARTERED ACCOUNTANTS, NEW DELHI
611, SURYA KIRAN BUILDING,
19, KG MARG, NEW DELHI-1
(PAN: AAIPA0350P)
(APPELLANT) (RESPONDENT)
AND
I.T.A. No. 2961/DEL/2015
A.Y. : 2005-06
SMT. RENU ARORA ITO, WARD 72(3)
C/O ANIL JAIN D.D. & CO., VS. CIVIC CENTRE,
CHARTERED ACCOUNTANTS, NEW DELHI
611, SURYA KIRAN BUILDING,
19, KG MARG, NEW DELHI-1
PAN: AABHR8360R)
(APPELLANT) (RESPONDENT)
1
AND
I.T.A. No. 2962/DEL/2015
A.Y. : 2005-06
SMT. KIRAN ARORA, ITO, WARD 72(3)
C/O ANIL JAIN D.D. & CO., VS. CIVIC CENTRE,
CHARTERED ACCOUNTANTS, NEW DELHI
611, SURYA KIRAN BUILDING,
19, KG MARG,
NEW DELHI - 110001
(PAN: AABHR8360R)
(APPELLANT) (RESPONDENT)
Assessee by : Shri Anil Kr. Jain, CA
Department by : Sh. Anil Kumar Sharma, Sr. DR
ORDER
These are 05 Appeals are filed by different assesses which is against the separate orders of the Ld. CIT(A) for the same asstt. year i.e. 2006-06. Since the issues involved in all the 05 appeals are identical and common, hence, these appeals are being consolidated by this common order for the sake of convenience, by dealing with ITA No. 2960/Del/2015 (AY 2005-06).
2. Since the grounds in all the 05 appeals are exactly similar, except the figure, therefore, for the sake of brevity, I am only reproducing the grounds raised in the Assessee's Appeal No. 2960/Del/2015 (AY 2005-
06) as under:-
1. That on the facts and circumstances of the case and the provision of law the Ld CIT(Appeal) has failed to appreciate that the notice u/s 148 is illegal, bad in law, time barred and without jurisdiction and as such the 2 assessment order passed u/s 148 is illegal and bad in law.
2. That on the facts and circumstances of the case and the provision of law the Ld CIT(Appeal) has failed to appreciate that the initiation of reassessment proceeding u/s 147 is illegal and bad in law.
3. That on the facts and circumstances of the case and the provision of law Ld CIT Appeal has filed to appreciate that no valid notice u/s 143(2) has been issued, consequently assessment framed becomes illegal.
4. That on the facts and circumstances of the case and the provision of law the Ld CIT(Appeal) has failed to appreciate that the impugned assessment order passed by the Ld. AO is bad in law, illegal and wrong on facts.
5. That on the facts and circumstances of the case and the provision of law the Ld CIT(Appeal) has failed to appreciate that the impugned assessment order passed by the Ld. AO is against the principles of natural justice and has been passed without affording reasonable opportunity of being heard.
6. That on the facts and on the circumstances of the case and the provision of law the Ld CIT Appeal has erred in sustaining an addition of Rs. 15,05,250/- as unexplained cash credit u/s 68 of the Income Tax Act, 1961.
7. That the Appellant craves the right to amend, append, delete any or all grounds of appeal.3
3. The brief facts of the case are that a search and seizure action u/s. 132 of the I.T. Act, 1961 was carried out in Wings Pharmaceuticals group of cases on 14.2.2008 and the assessee was also covered under search. Proceedings u/s. 153A of the I.T. Act, 1961 had been initiated. In the return of income filed in response to notice u/s. 153A, the assessee had declared income of Rs. 4,61,863/-. The assessment u/s. 143(3)/153A of the I.T. Act, 1961 was completed on 24.12.2009 and assessed at returned income of Rs. 4,61,863/-. Subsequently, a letter was received from the CIT (Central)-III, New Delhi forwarding therein information that, a Survey u/s. 133A was conducted on 20.11.2007 in the case of Sh. SK Gupta and the companies operated by him at 308, Arunachal Building, 19, Barakhamba Road, New Delhi - 110001. Sh. SK Gupta is basically a Chartered Accountant but he is found to have been indulged in providing accommodation entries to the different companies, individual and others, reported to be more than 30 in number. A list of beneficiaries of accommodation entries provided by Suresh Kumar Gupta for A.Y. 2005- 06 was also enclosed with the aforesaid letter and on perusal of the same, AO revealed that M/s RK Arora & Sons (HUF), who is assessed to tax is one of the beneficiaries and has received accommodation entries from Suresh Kumar Gupta husband of Anjali Gupta. In view of the facts and circumstances of the case, the case of the assessee was reopened u/s. 147 of the I.T. Act, 1961 and accordingly, notice u/s. 148 of the Act was issued to the assessee on 29.3.2012 and in response thereto assessee has submitted its reply. Thereafter, after considering the reply of the 4 assessee the AO assessed the income of the assessee at Rs. 19,67,010/- u/s. 143(3)/148 of the I.T. Act, 1961 on 28.3.2013.
4. Aggrieved with the aforesaid assessment order dated 28.3.2008, Assessee was in appeal before the Ld. CIT(A), who vide impugned order dated 30.3.2015 has dismissed the appeal of the assessee.
5. Against the aforesaid order of the Ld. CIT(A), Assessee is in appeal before the Tribunal.
6. Ld. Counsel of the assessee reiterated the contention raised in the Grounds of Appeal. He further submitted that the AO has mechanically issued the notice on the basis of letter received from the office of the CIT Central-3. There is no live link in the reasons recorded between the information obtained and the belief formed by the AO. Only the value of entry taken is mentioned but the nature of entry whether it is, bogus gift, loan or share capital money is not mentioned. Moreover, on what basis the above presumption is drawn that the assesssee has taken any accommodation entry is also not mentioned. No reference is made to any tangible material statement or annexure in support of the information receive on the basis of which reasons have been recorded. From the reasons it is also not clear whether any statement of Smt. Anjali Gupta/ Sh. Suresh Kumar Gupta has been recorded or not. Even in the reasons recorded, Pay Order no. mentioned is wrong meaning thereby that the AO has not bothered to even verify the information received with the assessment folder wherein the confirmation/copy of Pay order has already 5 been filed at the time of original assessment u/s 153A. It indicates that the AO has mechanically recorded the reasons and issued the notice without applying his own mind. Therefore, on these facts, the decision of Hon'ble Jurisdictional High Court in the case Signature Hotels Pvt. Ltd. (supra), 338 ITR 51, Insectici (India) Ltd. (supra), 357 ITR 330 would be squarely applicable because the information on the basis of which the AO had initiated proceedings under section 147 was vague and uncertain as may be evidenced from the relevant para of these judgments. He further stated that the issue in dispute is also squarely covered by the ITAT, Delhi decision 24.9.2015 in assessee's own case for the assessment year 2004-05 passed in ITA Nos. 444/Del/2014 (AY 2004-05) and ITA No. 4445/Del/2014 (AY 2004-05). He further stated that that the issue in dispute is also squarely covered in favour of the assessee by the ITAT decision dated 09.1.2015 in the case of G&G Pharma India Limited vs. ITO passed in ITA No. 3149/Del/2013 (AY 2003-04) in which the Judicial Member is the Author. He further stated that the above decision of the ITAT dated 9.1.2015 has been upheld by the Hon'ble Jurisdictional High Court in its Decision dated 08.10.2015 in ITA No. 545/2015 in the case of Pr. CIT-4 vs. G&G Pharma India Ltd. In this regard, he filed the copies of the aforesaid decisions before the Tribunal. Hence, he requested that respectfully following the above precedents, the reassessment proceedings may be quashed.
7. On the other hand, Ld. DR relied upon the orders passed by the lower authorities on the issue in dispute.
6
8. I have heard both the parties and perused the records. I find that the AO has recorded the reasons for belief that income has escaped assessment as under. The same is reproduced in the impugned order which read as under:-
"REASONS. TO BELIEVE FOR REOPENING U/S 147 MIs K.K. Arora & Sons HUF, B-4/48, Paschim Vlhar, New Deihl.
(A.Y.2005-06) A search & seizure action u/s 132 was carried out in Wings Group of cases on 14.02.2008. The .case was centralized with Central Circle- 2 vide order uls 127 by CIT-IX, New Delhi on 24.10.2008.
2. The assessment in the case of MIs K.K. Arora & Sons HUF was completed vide order u/s 143(3)/153A of the Act, 1961 dated 24.12.2009 at the returned income of Rs.4,61 ,863/-.
3. A letter has been received from the CIT(Central)-III, New Delhi forwarding therewith copy of letter of the ACIT, Central Circle-22, New Delhi. As per information vide this letter (supra), a Survey u/s 133'A was conducted on 20.11.2007 in the case of Sh. S.K. Gupta and the companies operated by him at 308, Arunanchal Building, 19, Barashamba Read, New Delhi- 110001. S.K. Gupta is basically a charted accountant but he is found to have been indulged providing accommodation entries to the different parties through the bank accounts operated by him in the name of different companies, individual and others, reported to be more than 30 in number. As per the print out taken from Annexure A-14 (laptop) impounded during the course of survey, there were huge cash found to have been deposited in various ledger accounts. Sh. S.K. Gupta is the main person controlling the concern of this group.7
4. This fact was confronted to Sh. S.K. Gupta who, vide his statement on 26.12.2008, has admitted as under:-
"Q2 Investigation Wing of the Income Tax Department has reported that transaction undertaken through these companies were not genuine .. They were mere entries given for equivalent cash and you charged certain commission for those transactions."
Ans. Yes, I agree with above statement except or some genuine work of share brokerage, other transaction done are not genuine. Cash was taken and cheques were Issued from different companies. The exact details of each party are recorded in the computer seized by the Department in the survey operations on 20.11.2007 at my premises. Details of premium earned by me are also recorded there. The commission income earned belongs to me and should be taxed in my hands. Details of the entries given over in different years like addresses of beneficiaries and nature of transaction will be supplied from to time."
5. A list of beneficiaries of accommodation entries provided by Sh. Suresh Kumar Gupta for AY 2005-06 is also enclosed with the letter (supra). A perusal of the list enclosed with the letter of the ACIT, CC-22, New Delhi reveals that MIs K.K. Arora & Sons HUF, who is assessed to tax with this Circle, is one of the beneficiaries and has received accommodation entries from Anjali Gupta, as per details given below:
Mediatory Actual Date Ch. No. PO Amount
Beneficiary No.
Deepak Jain KK Arora & 17.6.2004 320390 Rs. 5,00,625
Sons HUF
8
6. In view of this, I am satisfied that the income to the tune of Rs.5,OO,625/- has escaped assessment by reason of the failure on the part of the assessee and to disclose fully and truly all material facts necessary for his assessment for that assessment year.
7. In view of above facts and circumstances of the case, I have reason to believe that the income of the assessee of more than Rs.1.0 lac has escaped from assessment.
Sd/-
(Janardan
Das)
ACIT, Central Circle-2,
New Delhi
9. In the background of the aforesaid discussions, I am of the considered view that only legal ground involved in this Appeal is whether the reassessment proceedings u/s. 148 of the I.T. Act are illegal and without jurisdiction in the absence of any tangible evidence or material in respect of any undisclosed income and recording of requisite satisfaction in respect of any such undisclosed income or not. I am of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In my view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Income Tax Department. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, I am of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. I find that Hon'ble Jurisdictional High Court in the case of Signature Hotels P. Ltd. vs. Income Tax Officer [2011] 338 ITR 0051 has held as under:- 9
"Held, allowing the petition, that the reassessment proceeding were initiated on the basis of information received from the Director of Income Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during the financial year 2002-03 as stated in the Annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assesee was the beneficiary. The reasons did not satisfy the requirements of Section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid-up capital of Rs. 90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September, 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed."
10. I also find that the legal issue is also covered by the Hon'ble High Court of Delhi in the case of Pr. CIT vs. G&G Pharma India Ltd. in ITA No. 545/2015 dated 8.10.2015 wherein, Hon'ble Delhi High Court has adjudicated the issue as under:-
10
"12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons 11 to believe that the income of the Assessee escaped assessment is missing in the present case.
13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity .
14. In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial question of law arises.
15. The appeal is dismissed."
11. In view of above, I am of the considered view that the aforesaid issue in dispute is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the aforesaid decision of the Hon'ble High Court of Delhi in the case of Signatures Hotels (P) Ltd. Vs. ITO (Supra) and CIT vs. G&G Pharma India Ltd. (Supra) and ITAT, Delhi decision dated 24.9.2015 in assessee's own case for the assessment year 2004-05 passed in ITA Nos. 444/Del/2014 (AY 2004-05) 12 and ITA No. 4445/Del/2014 (AY 2004-05) wherein, on similar and identical facts and circumstances, the appeal of the assessee was allowed on legal ground. Hence, respectfully following the above precedents, I decide the legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings and allow the legal issue. Since I have already quashed the reassessment proceedings, as aforesaid, the other issues are not being dealt with being academic in nature.
12. In the result, all the 05 Appeals of the assesses stand allowed.
Order pronounced in the Open Court on 03/01/2017.
SD/-
[H.S. SIDHU] JUDICIAL MEMBER Date 03/1/2017 "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 13 14