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2016 (5) TMI 163 - ITAT DELHI

2016 (5) TMI 163 - ITAT DELHI - [2016] 48 ITR (Trib) 674 - Reopening of assessment - reasons to believe - basis of information allegedly received by him from the Directorate of Income Tax (Investigation) - Held that:- After going through the reasons recorded by the Assessing Officer/DCIT, Circle 14(2), New Delhi for reopening and the approval thereof by the Ld. Addl. CIT, Range-14, New Delhi, we are of the view that AO has not applied his mind so as to come to an independent conclusion that he h .....

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e 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. 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 f .....

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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 pertaining to assessment year 2004-05. The assessee has filed the concise grounds of appeal which are reproduced as under:- 1. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessi .....

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well as in Law, the Learned Assessing Officer as well as Learned CIT(A) has erred in not appreciating the fact that there was no effective notice u/s.143(2) of the Income Tax Act, 1961 and accordingly Assessment Order passed u/s.143 (3) r.w.s 147 is bad in law. 4. On the facts and circumstances of the' case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of ₹ 1,13,00,000/- by treating the sum received on accoun .....

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of natural justice, which is arbitrary, illegal and against the provisions of law. 6. On the facts and circumstances of the. case as well as in Law, the Ld. CIT(A) has erred in confirming the action Learned Assessing Officer in making an addition on the basis of the statement of third party, without providing the opportunity to cross examination of such party as requested by the appellant, without allowing cross examination' is i in violation of principles of natural justice and thus the ord .....

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he 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 giv .....

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., New Delhi-48 and PAN - AAACG 2886R. The assessee vide letter dated 8.11.2011, stated that it had filed return for the year on 31.10.2004. Though the assessee had objected to the present proceedings but so far as for the purpose of completion of present proceedings the same has been considered as has been filed in compliance to notice u/s. 148 of the Act. The assessee vide his letter dated 29.11.2011 filed objections to the reopening of the assessment proceedings and the same were duly complet .....

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r of the Ld. CIT(A), Assessee is in Appeal before the Tribunal for challenging the legal issue of reopening of assessment as well as the addition in dispute. 5. At the time of hearing, Ld. Counsel of the assessee has only argued the legal ground challenging the validity of reopening u/s. 147 of the I.T. Act by stating that action of the Assessing Officer is illegal, because no proper reasons were recorded; no nexus between the materials relied upon and the belief formed for escapement of income; .....

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r. 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 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 P .....

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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 THE APPROVAL OF THE ADDL. COMMISSIONER OF INCOME TAX / COMMISSIONER OF INCOME TAX 1 Name & Address o .....

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cable. 147(a) of the I.T. Act, 1961 8 Whether the assessment is proposed to be made for the first time. If the reply is in affirmative please state. Whether any voluntaryreturn had already been filed. If so, date of filing the said return. Yes No NA 9 If the answer to item 8 is in negative please state The income originally assessed Whether it is a case of under assessment, assessment at too low a rate, assessment which has been made the subject of excessive relief or allowing of excessive loss .....

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ers Pvt. Ltd. is a beneficiary of accommodation entries received from certain established entry operators identified by the Investigation Wing during the period relevant to A.Y. 2004-05. A comprehensive investigation was carried 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 asse .....

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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 income chargeable to tax to the extent of accommodation entry of ₹ 1,56,0 .....

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Tax, Range-14, New Delhi in terms of the proviso of Section 151(2) of the I.T. Act, 1961. Dated: 16.03.2011 Sd/- (C.M. MEENA) ITO, WARD 14(2), NEW DELHI 12 Whether the Addl. CIT/CIT/CBDT is satisfied on the reasons recorded by the AO that it is a fit case for the issue of notice u/s. 148. YES, I AM SATISFIED. Dated: 18/3/11 Sd/- (Mukesh Verma) Addl. CIT, Range-14, New Delhi 8. After going through the reasons recorded by the Assessing Officer/DCIT, Circle 14(2), New Delhi for reopening and the ap .....

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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. 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 notic .....

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s 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 .....

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ces of the present case and the 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. We draw our support from the judgments of the Hon ble High Court of Delhi in the following cases:- (i) Signature Hotels (P)_ Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has under similar circumstances as follows:- For the A.Y. 2003-04, the return of income of the .....

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ust have reason to believe that income chargeable to tax has escaped assessment. This is mandatory and the reason to believe are required to be recorded in writing by the Assessing Officer. (ii) A notice u/s.148 can be quashed if the belief is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reasons. There should be a link b .....

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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. (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 .....

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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 him but merely accepted the truth of the vague information in a mechanical manner. The AO had not even recorded his satisfaction abou .....

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lar to the issue involved in the present appeal and is squarely covered by the aforesaid decisions of the Hon ble High Court of Delhi. Hence, respectfully following the above precedent, we decide the legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings. The other issues are not dealt with as the same have become academic in nature. 10. In the result, the Appeal filed by the Assessee stands allowed. (B). Pr. CIT vs. G&G Pha .....

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ation 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 i .....

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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 material .....

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s 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. (C) ITAT, E Bench, New Delhi in the case of ITO vs. M/s NC Cables Ltd. in ITA No. 4122/Del/2009 (AY 20 .....

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benefit of perusing the order sheet entries by which the Ld. CIT has granted sanction. Let us first consider the relevant part of the provisions of Sec. 151 of the Act. 151. (1) In a case where an assessment under sub-section (3) of section 143or section 147has been made for the relevant assessment year, no notice shall be issued under section 148[by an Assessing Officer, who is below the rank of Assistant Commissioner [or Deputy Commissioner}, unless the [Joint} Commissioner is satisfied on the .....

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by an Assessing Officer, who is below the rank of [Joint} Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the [Joint} Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.} [Explanation.-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 th .....

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cation 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 tha .....

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nd if the 9 Commissioner had read the report carefully he could not have come to the conclusion that this was a fit case for issuing a notice under section 148. The notice issued under section 148 was therefore, invalid. It would be pertinent here to note the reasons recorded by the AO. "Intimation has been received from DCIT-24(2), Mumbai vide his letters dt. 22nd February, 2002 that one Shri Nitin 1. Rugmani assessed in his charge had arranged Hawala entries in arranging loans, expenses, .....

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ies. The assessee Shri Amar G. Bajaj had taken benefit of such entries of loans, commission ad bill discounting of ₹ 8,00,000/-, 11,21,243/- and 9,64,739/- respectively. The assessment was completed u/s. 143(3) of the 1. T. Act on 31st March, 1998 by DCIT-Spl. Rg. 40, Mumbai. It is seen from records that the aforesaid points have not been verified in the assessment. I have therefore reason to believe that by reason of the failure on the part of the assessee to disclose fully and truly all .....

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t 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 belie .....

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atisfaction. 8. Hon'ble Delhi High Court in the case of' United Electrical Co. Pvt. Ltd. Vs CIT 257 has held that "the proviso to sub-section (1) of section 151of the 10 Act provides that after the expiry of four years from the end of the relevant assessment year, notice under section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the Assessing Officer concerned, that it is a fit case for the is .....

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l, which was mandatory in terms of the proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be ex .....

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