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2016 (5) TMI 163

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..... for the asstt. Year in dispute is bad in law and deserves to be quashed. Even otherwise, a perusal of the above demonstrates that the Addl. CIT has written “Yes, I am Satisfied” which establishes that he has not recorded proper satisfaction / approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, the AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are 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. - Decided in favour of assessee. - ITA No. 1596/Del/2014 - - - Dated:- 12-4-2016 - Shri H. S. Sidhu, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Petitioner : Sh. Rakesh Joshi Sh. Sanjay Jain, CAs For the Respondent : Sh. Shravan Gotru, Sr. DR ORDER Per H. S. Sidhu, J.M. The Assessee has filed the Appeal against the Order dated 03.12.2013 of the Ld. CIT(A)-XVIII, New Delhi perta .....

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..... to revise the said Grounds of Appeal. The appellant further craves leaves to add, alter, amend or delete any of the grounds of appeal on or before the date of hearing. 2. The brief facts of the case are that the Assessee had filed return declaring income of ₹ 4,38,958/- on 31.10.2014 which was processed u/s. 143(1) of the Act on 4.1.2005. Later on an information was received from the Investigation Wing, New Delhi that the assessee is amongst the beneficiaries of bogus accommodation entries totaling to ₹ 1,56,00,000/-. Accordingly, the proceedings u/s. 147 of the Act were initiated and notice u/s. 148 of the Act was issued on 25.3.2011 in name of M/s Pine View Construction Traders P. Ltd. and was served through affixtgure on 31.3.2011 as the notice sent through speed post was received back unserved with the postal remarks No such company of this name at the given address . No compliance was made thereof. Thereafter on the basis of the details of the bank account number and branch available in the information received from Investigation Wing, Notice u/s. 133(6) of the Act was issued to the bankers i.e. Canara Bank, Safdarjung Development Area, New Delhi. F .....

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..... f Pr. CIT-4 vs. G G Pharma India Ltd. In this behalf, he filed the copy of the order dated 9.1.2015 of the ITAT, Delhi Bench passed in the case of G G Pharma India Ltd vs. ITO (Supra). Therefore, he requested that by following the decision of the Hon ble Jurisdictional High Court in the case of Pr. CIT vs. G G Pharma Ltd. (Supra) the reassessment proceedings of the AO may be quashed by accepting the Appeal filed by the Assessee. 6. On the contrary, Ld. DR relied upon the order passed by the CIT(A) on the issue of validity of reopening and stated that Ld. CIT(A) has rightly upheld the action of the AO of reopening and also rightly upheld the addition in dispute. 7. We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case law cited by the assessee s counsel on the issue in dispute. In our view, it is very much necessary to reproduce the reasons recorded by the AO before issue of notice u/s. 148 and the approval of the Ld. Addl. CIT, Range-17, New Delhi for reopening of assessment which reads as under:- FORM FOR RECORDING THE REASONS FOR INITIATING PROCEEDINGS U/S. 148 AND FOR OBTAINING .....

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..... ed out by the Investigation Wing for identification of entry operators engaged in the business of money laundering for the beneficiaries and on the basis of investigation carried outand evidences collected, a detailed report has been forwarded. In the instant case, the assessee is found to be the beneficiary of accommodation entry from such entry operators as per the transaction mentioned in the enclosed Annexure-'A' of ₹ 1,56,00,000/-. The accommodation entry provider; have given accommodation entries in the grab of share application money / expenses / gift / purchase of shares etc. They have worked for commission. The assessee is a company incorporated on 11.09.1998. It is noticed that there is no return of come is available in the AST database of Income-tax Department. Therefore. it is clear that the assessee has not filed return of income for the A.Y. 2004-05 and consequently has not offered any income for taxation. Sources of the transactions are not explained. I, therefore, have reason to believe that on account failure on the part of the assessee to disclose truly and fully all the material facts necessary for assessment for the above assessment year, the incom .....

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..... eceived by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are 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. Our view is supported by the following judgments/decisions:- (A) The Tribunal in its decision dated 9.1.2015 passed in ITA No. 3149/Del/2013 (AY 2003-04) in the case of G G Pharma India Limited vs. ITO, has held under:- 8. We have perused the aforesaid reasons recorded by the AO for reopening the assessment in dispute and we are of the considered view that the 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. A mere reference is made to certain information received from the Investigation Wing which was supplied to the assessee vide AO s letter dated 15.9.2010. In our 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 had mechanically issued notices u/s. 148 of .....

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..... 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. (iv) 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 ₹ 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 the quashed. (ii). In the case of CIT vs. Atul Jain reported in 299 ITR 383 it has been held as under:- Held, dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The AO did not verify the correctness of information received by .....

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..... er 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 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 reaso .....

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..... planation.-For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148,need not issue such notice himself.} 6. A simple reading of the provisions of Sec. 151(1) with the proviso clearly show that no such notice shall be issued unless the Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issue of notice which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the AO. In the present case, the order sheet which is placed on record show that the Commissioner has simply affixed approved at the bottom of the note sheet prepared by the ITO technical. Nowhere the CIT has recorded his satisfaction. In the case before the Hon'ble Supreme Court (supra) that on AO's report the Commissioner against the question whether the Commissioner is satisfied that it is a fit ca .....

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..... They are sword for the Revenue and shield for the assessee. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO's belief is well reasoned and bonafide, he is to accord his sanction to the issue of notice u/s. 148 of the Act. In the instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put approved and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction. 8. Hon'ble Delhi High Court in the case of' United Electrical Co. Pvt. Ltd. Vs CIT 257 has held that .....

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..... n cited by the Ld. DR does not pertain to the issue of contravention of provisions of S. 151 of the Act. These judgments are on other aspects relating to reopening. Thus respectfully following the decision of the Coordinate Bench in the matter, we hold that the reopening is bad in law for the reason that the Ld. CIT(A), Delhi has not recorded his satisfaction as contemplated u/s. 151 of the Act. 9. In view of above, we are of the considered view that the above issue is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the aforesaid decisions of the Hon ble High Court of Delhi ITAT, Delhi. Hence, respectfully following the above precedents, we decide the legal issue in dispute in favor of the Assessee and against the Revenue and quash the orders of the authorities below. 10. Since we have quashed the orders of the authorities below on the legal issue itself, hence, the other issues raised by the Assessee have become academic in nature, therefore, are not adjudicated upon. 11. In the result, the Assessee s Appeal stands allowed. Order pronounced in Open Court on this 12-04-2016. - - TaxTMI - TMITax - Income .....

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