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2015 (6) TMI 804 - ITAT DELHI

2015 (6) TMI 804 - ITAT DELHI - TMI - Reopening of assessment - unaccounted cash credit - Held that:- AO while framing the original assessment, specifically, asked the assessee to furnish the details of the unsecured loans and the assessee gave the details by disclosing the name of the persons from whom loans were received and also furnished their PAN nos. alongwith the requisite details in the form of affidavit from the Directors of the lending companies, balance sheet & profit & loss A/c of th .....

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the original assessment. Therefore, the notice issued u/s 148 of the Act subsequently on the basis of information received from the Investigation Wing of the Department was on account of change of opinion and as such the reopening u/s 147 of the Act was not valid, therefore, the subsequent reassessment framed on that basis was invalid. Accordingly, we set aside the impugned order passed by the ld. CIT(A) and the original assessment framed by the AO is restored. - Decided in favour of the assess .....

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Delhi has erred in upholding the reassessment order dated 26th November 2010 passed by the Deputy Commissioner of Income Tax, Circle- 6(1), New Delhi under section 143(3) read with section 147 of the Income Tax Act, 1961 ( The Act ) Reopening of assessment is bad in law 2.0 That the Ld. CIT(A) has grossly erred in law and on the facts and circumstances of the appellant s case in upholding the action of the AO for reopening the assessment u/s 147/148 of the Income Tax Act. The assessment order pa .....

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e queried and answered. The reassessment is based on change of opinion & is bad in law. 5.0 The reopening u/s 147 was based on hearsay, surmises & assumptions & AO had no material to form an independent view about the alleged escapement of income. 6.0 That the learned CIT(A) has grossly erred in law in rejecting the appellant s contentions that the amount of ₹ 25,00,000/- has been received on account of loans/ICD s from the parties and the same had been repaid along with intere .....

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ayed to be quashed. 9.0 The Ld. CIT(A) reliance on the judgment of M/s Nova Promoters (342 ITR 169) & (Beutex India Pvt. Ltd. Vs CIT in ITA No. 465 of 2011) is completely erroneous, unjustified and out of context as much as in those case share application money was involved whereas in the case of the appellant admittedly that these were loans transaction which had been paid subsequently. 10.0 That the Ld. CIT(A) erred in law in holding that the appellant failed to justify the loan transactio .....

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1961 (hereinafter referred to as the Act). At the first instance the aforesaid legal grounds were argued by the ld. Counsel for the assessee. 4. The facts related to this issue in brief are that the assessee furnished the return of income on 28.11.2003 declaring an income of ₹ 4,17,61,259/-. The assessment however was framed on 30.03.2006 u/s 143(3) of the Act at an income of ₹ 4,28,28,277/-. Against the said order, the assessee went in appeal before the ld. CIT(A) who partly allowed .....

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eturned income of ₹ 4,17,61,259. Investigations were conducted by the Investigation wing of the Department on certain persons engaged in providing accommodation entries to beneficiaries of their services, in return of commission. It has been revealed that many persons were using services of accommodation entry operators to channelize their own unaccounted money in their regular books of accounts by routing the same through the accounts of Accommodation entry providers. 2. The modus operand .....

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led as entry takers or beneficiaries) and wanted to introduce the same in the books of accounts without paying tax, approached another person (called as entry operator) and handed over the cash (plus commission) and had taken cheques/DDs/POs. The cash was being deposited by the entry operator in a bank account either in his own name or in the name of relative/friends or other person hired by him, for the purpose of opening bank account. In most of these bank accounts the introducer was the main .....

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struments in his bank accounts and thus his unaccounted money is introduced to his regular books of account in the form of gift, share application money, loan etc. through banking channels. 2.3 The operators gave the account holders amounts ranging from ₹ 1000 to 2000 per month. These account holders were masons, plumbers, electricians, peons, drivers etc., whose earnings are not sufficient for a living. They earned normally ₹ 3 to 5 thousand per month in their normal work and by wor .....

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and rupees given to them by the entry operators. 3. Summing up, the report as a result of these extensive enquiries carried out by the D.I.T (Inv.), New Delhi has established the non-genuineness of transactions, whether shown by beneficiaries as inflow of Share Capital or receipt of Gifts or consideration for sale-purchase. The creditworthiness of the persons/persons controlling the concerns who have given these credit entries/share capital/gift/sale consideration has also not been established a .....

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y taken/date Name of account holder of entry giving account Bank from which entry given/account no. of entry giving account Canara Bank, Kamla Nagar 500000 184330/25.10.2002 Kohinoor Oil Mills Ltd. KVB, Karol Bagh/CA2991 Canara Bank, Kamla Nagar 500000 184332/29.10.2002 Kohinoor Oil Mills Ltd. KVB, Karol Bagh/CA2991 Canara Bank, Kamla Nagar 500000 184334/09.11.2002 Kohinoor Oil Mills Ltd. KVB, Karol Bagh/CA2991 Canara Bank, Kamla Nagar 500000 585840/20.11.2002 Shimmer Marketing Pvt. Ltd Federal .....

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company has received the accommodation entry from the following parties during the assessment year 2003-04. S. No. Name of the party Value of entry Instrument no. Date 1. Kohinoor Oil Mills Ltd. 500000 184330 25.10.2002 2. Kohinoor Oil Mills Ltd. 500000 184332 29.10.2002 3. Kohinoor Oil Mills Ltd. 500000 184334 09.11.2002 4. Shimmer Marketing Pvt. Ltd. 500000 585840 20.11.2002 5. Aries Pisces Finsec Services Pvt. Ltd. 500000 724823 21.11.2002 We have checked our records and found that company h .....

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Tax audit report of Minda Industries Limited which shows the particulars of each loan of ₹ 20000 or more during the year ended 31.03.2003 as annexure 2 of this reply. However, company had repaid the above said loans in the subsequent years in 2003-04, 2004-05. The details of repayment of above loans alongwith interest are as under: S. No. Name of the party Value of entry Instrument no. Date 1. Kohinoor Oil Mills Ltd. 500000 443056 18.12.2004 2. Kohinoor Oil Mills Ltd. 1000000 443168 20.12. .....

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erest paid on the above unsecured loans and timely deposit in Govt. account. Let me know if anything more required in this regarding we shall be glad to furnish the same. In continuation of our reply dated 26.10.2010, we are submitting following information in respect of aforesaid subject matter. A. Kohinoor Oil Mills Ltd. i. The copy of affidavit from Director of Kohinoor Oil Mills Ltd. for granting loan to us in financial year 2002-03. ii. The copy of ITR acknowledgement for assessment year 20 .....

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AO did not find merit in the submissions of the assessee and made the addition of ₹ 25,00,000/- on account of cash credit. 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submission which are incorporated by the ld. CIT(A) in para 4 of the impugned order and are reproduced verbatim as under: Based on the aforesaid reopening of the AO and the corresponding facts narrated by the assessee, the first issue which the assessee has raised vide groun .....

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osed by the assessee and whether there was any failure on the part of the assessee to disclose fully and truly all material facts for the computation of income? Another question that would need to be decided, is that is it not a case of mere change of opinion by the AO on the same set of facts? Relevant facts are:- 1) That assessee had obtained loans/ICDs from not only these three parties but also 40-45 other parties as well. 2) That the factum of obtaining loans from all the parties had been gi .....

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manufacturing automobile parts as already clarified and it requires regular flow of funds for running its business operations. These funds are arranged amongst other sources, by making borrowing in the shape of loan from banks, intercorporate deposits, fixed deposits etc. During the year, the assessee had obtained inter-corporate deposit front about 50 companies totaling to ₹ 5.12 crores, as were duly reported in Annexure 'H' of the Tax Audit Report, a copy of which is being filed .....

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e amount of loan was also repaid along with interest after making TDS in the subsequent years. During the course of assessment proceedings, the Assessing Officer has issued a specific questionnaire being questionnaire dated 4.4.2005 under which he had required the assessee to file confirmation for the increase in unsecured loans, copy of which is enclosed. The assessee, in response to this questionnaire vide its letter dated 9.12.2005 filed complete details of loan obtained during the year along .....

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D from these parties. Under these circumstances, firstly it is needs to be decided, as to whether the reopening of the assessment pertaining to assessment year 2003-04 after the expiry of four years, can be said to be on account of failure of the assessee to disclose fully and truly all material facts for the purpose of computation of income. Admittedly, notice u/s 148 was issued to the assessee on 29th March 2010 as noted by the AO in the assessment order itself which was beyond the statutory l .....

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ready clarified by the assessee, it obtained all the loans in the normal course of arranging funds by way of ICDs and the assessee has no inkling as to whether he was dealing in any manner with the alleged entry operators because the transactions undertaken by the assessee were of unsecured loans/ICDs and not share capital or gifts or sale-purchase transactions, as is claimed to have been found by the Investigation agency as per para 3 of the order of the AO. The AO believed the general observat .....

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not only in this year but also in subsequent year. The fact that these loans have been repaid subsequently is also not disputed by the AO. Under these circumstances, the conclusion drawn by the AO, based on some general findings of another wing of the department has no bearing on the genuine transactions of loan undertaken by the assessee, it is respectfully submitted. It is respectfully submitted that on account of the facts narrated above, as the transactions of obtaining loan having been inc .....

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% of the total loan amount received by the assessee. It is respectfully submitted that the reopening done without even an allegation that the assessee has failed in its statutory obligation to disclose fully and truly the material facts necessary for the computation of income cannot be held to be valid in law and needs to be cancelled on this primary ground only. There is not even an allegation in the reasons that assessee has failed to disclose fully & truly all material facts for the compu .....

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IDS TRADING AND INVESTMENTS P. LTD. vs. DCIT, (2009) 308 ITR 190. (viii) CIT vs. EICHER LTD. (2007) 294 ITR 310 (DEL) (ix) CARLTON OVERSEAS (P) LTD. vs. ITO, (2010) 188 TAXMAN 11 (DEL) (x) SATNAM OVERSEAS LTD. vs. ADDL. CIT (2010) 188 TAXMAN 172 (DEL) (xi) LEGATO SYSTEMS (INDIA) PVT. LTD. vs. DCIT (2010) 187 TAXMAN (DEL) 294 (xii) DIWAKAR ENGINEERS LTD. vs. ITO (2010) 187 TAXMAN (DEL) 327 (xiii) JAL HOTELS CO. LTD. vs. Ass. DIT (2009) 184 TAXMAN (DEL) 1 (xiv) CIT vs. Indian Farmers Fertilizers C .....

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roceedings u/s 148 of the Act were recorded by the AO and the ld. CIT Delhi-II, New Delhi granted permission on 19.03.2010. He further observed that section 147 of the Act enables the AO to reopen an assessment after expiry of 4 years, if the AO has reason to believe that reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, an income assessable to tax escaped assessment. He Further observed that Explanation 1 to provis .....

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s contained in Explanation 1 below proviso to section 147 of the Act and observed that the AO should have material on the basis of which he could form a bonafide belief that the income assessable to tax has escaped assessment for the relevant assessment year. The ld. CIT(A) made the reference to the following case laws: Johri Lal (HUF) Vs CIT (1973) 38 ITR 439 (SC) ITO Vs Lakhmani Mewal Das (1976) 103 ITR 437 (SC) CIT Vs TSPLP Chidambaram Chettiar (1971) ITR 467 (SC) HA Hanji & CO. Vs ITO (1 .....

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evidence on record to establish the actual escapement of income so as to form a reasonable belief that the income of the assessee has escaped assessment and that one has to keep in mind the distinction between suspicion and belief and between belief and conclusive finding based on evidence. The ld. CIT(A) observed that in the present case, the reassessment proceedings were initiated on the basis of information received from the Investigation Wing of the Department stating that the assessee had .....

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bserved that had there been no investigation/verification, these evidences and information could have never come into the possession of the AO. The ld. CIT(A) was of the view that the AO had not committed any error while issuing the notice u/s 147/148 of the Act and was justified in forming belief that the income of the assessee escaped assessment for the year under consideration and there was no change of opinion, in the instance case. Accordingly reopening of assessment u/s 148 of the Act was .....

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hat there was failure on the part of the assessee to disclose truly or fully material facts necessary for computation of income. It was pointed out that at the original assessment stage, the AO raised a specific query with regard to the confirmation of these unsecured loans (a reference was made to page no. 101 of the assessee s paper book) and the same was responded with similar details (a reference was made to page no. 102 of the assessee s paper book). It was stated that in the reasons for re .....

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submitted the details of repayment of loan i.e. cheque nos., dates on which the loans were repaid and this fact was noted by the AO at page no. 3 of the assessment order. It was also contended that the assessee filed the details, such as affidavits from the Directors of the lending companies as well as copies of acknowledgment of income-tax return etc. and the details pertaining to the loans transactions were given in Annexure H of Tax Audit Report wherein names, addresses, PAN, Ward Nos. etc. .....

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s not justified in confirming the action of the AO. 11. The Reliance was placed on the following case laws: (i) CIT vs. KELVINATOR OF INDIA LTD., 256 ITR 1 (DELHI- FB) (ii) CIT vs. GOETZE (INDIA) LTD., (2010) 321 ITR (DEL) 431 (iii) CIT vs. CHAKIAT AGENCIES PVT. LTD. (2009) 314 ITR 200 (MADRAS) (iv) CARTINI INDIA LTD. vs. ADDL. CIT (2009) 314 ITR 275 (BOM.) (v) ASTEROIDS TRADING AND INVESTMENTS P. LTD. vs. DCIT, (2009) 308 ITR 190. (vi) CIT vs. EICHER LTD. (2007) 294 ITR 310 (DEL) (vii) CARLTON .....

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s. DCIT (2011) 242 CTR (GUJ) 302 (xv) COMMERCIAL CO-OPERATIVE BANK LTD. vs. ITO (2011) 336 ITR 196 (GUJ) (xvi) CIT vs. Simbhaoli Sugar Mills Ltd. (2011) 333 ITR 470 (Delhi) (xvii) CIT vs. FORAMER FRANCE (2003) 264 ITR 566 (SC) (xviii) MIHIR TEXTILE LTD. vs. JT. CIT 210 TAX LR 417 (GUJ) 12. The ld. Counsel for the assessee pointed out that there was no name of the assessee in the general report of the Investigation Wing, therefore, the reopening on the basis of Investigation Wing was not justifie .....

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judgment of the Hon ble Jurisdictional High Court in the case of CIT Vs Nova Promoters and Finlease (P) Ltd. (2012) 342 ITR 169 (Del). 14. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the original assessment in assessee s case was completed u/s 143(3) of the Act on 30.03.2006 and the assessment was framed at an income of ₹ 4,28,28,277/- after making certain additions/ .....

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the present case, it is an admitted fact that the reassessment proceedings were initiated by the AO only on the basis of information received from the Investigation Wing and no independent inquiry was made by the AO. It is also noticed that during the course of original assessment proceedings the AO, vide notice u/s 142(1) of the Act dated 04.04.2005 asked the details and confirmation for increase in unsecured loan as is evident from page no. 101 of the assessee s paper book which is the copy o .....

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re, the reopening on the basis of the same issue which was examined in the course of original assessment was a change of opinion. On a similar issue the Hon ble Delhi High Court Full Bench in the case of CIT Vs Kelvinator of India Ltd. 256 ITR 1 held as under: The scope and effect of section 147 as substituted with effect from April 1, 1989, by the Direct Tax Laws (Amendment) Act, 1987, and subsequently amended by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989, as also .....

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of opinion cannot form the basis for reopening a completed assessment. A statute conferring an arbitrary power may be held to be ultra vires article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality should be favoured. In the event it is held that by reason of section 147 the Income-tax Officer may exercise his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held t .....

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been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong. Hence, it is clear that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceed .....

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