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Genius Electricals & Electronics Pvt. Ltd. Versus ITO, Ward 12 (1) , New Delhi

2016 (5) TMI 625 - ITAT DELHI

Validity of reopening of assessment - information received from the investigation wing - introduction of own unaccounted money in its bank by way of accommodation entry - Held that:- There was lack of application of mind by the Assessing Officer while acting upon the information received from the investigation wing of the department. The Assessing Officer did not appreciate that there was repetition of same entries and the Assessing Officer has totally banked upon the investigation made by the I .....

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ing the ratio laid down in Pr. CIT vs. G & G Pharma India Ltd. [2015 (10) TMI 754 - DELHI HIGH COURT] hold that the initiation of re-opening proceedings in the present case by the Assessing Officer was not valid and the assessment made in furtherance to such initiation is also held void ab initio. - Decided in favour of assessee - ITA No. 3623/Del/2014 - Dated:- 22-4-2016 - Shri I. C. Sudhir And Shri O. P. Kant For the Petitioner : Shri Gautam Jain, FCA For the Respondent : Ms. Anima Barnwal, Sr .....

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notices issued by the first appellate authority resulting into prevention of the assessee from representing its case before the Learned CIT(Appeals). 2. During the course of hearing, the Learned AR preferred to argue the issue raised in ground No.2 which is legal in nature and goes to the root of the matter. In support of this ground, he submitted that the assessee company is engaged in the business of manufacturing of electrical parts. It maintained regular books of account and the same were au .....

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that the return of income filed on 30.10.2001 was processed under sec. 143(1) of the Act and no notice under sec. 143(2) of the Act was issued. Subsequently, on the basis of report of the Investigation Wing of the Department, the Assessing Officer initiated reopening proceedings under sec. 147 of the Act without application of his mind and solely based upon the said report. Statements of some persons alleged to have been engaged in providing accommodation entry, as per the assessment order were .....

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ted as return filed under sec. 148 of the Act. On request, the assessee was supplied with the reasons to believe recorded by the Assessing Officer. The Learned AR referred page Nos. 15 to 18 of the paper book wherein copy of the said reasons has been made available. The Learned AR submitted that the reasons recorded are vague and similar entries of ₹ 2,50,000, ₹ 2,00,000 and ₹ 2,00,000 have been repeated. It has been alleged that on investigation made by the Investigation Wing, .....

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itted that during the year the assessee had received share application money of ₹ 13,49,000 through account payee cheques. The assessee had allotted shares to the share applicants. Out of the said share application money, the Assessing Officer has made addition of ₹ 6,50,000 received from Polo Leasing & Finance Pvt. Ltd. (Rs.2,50,000), Fair N Square Exports Pvt. Ltd. (Rs.2,00,000) and Tashi Contractors Pvt. Ltd. (Rs.2,00,000). These amounts were paid through account payee cheques .....

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it was money of the assessee which routed through those entries. Copies of the above evidences have been made available at page Nos. 22 to 42 of the paper book. The Assessing Officer has made the addition only on the basis that the assessee could not produce the share applicant. Since the reasons recorded are vague and solely based upon the information received from the Investigation Wing of the Department without application of mind by the Assessing Officer, the initiation of reopening proceedi .....

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3-04) - order dated 27.11.2015; f) Unique Metal Industries vs. ITO - ITA No. 1372/Del/2015 (A.Y. 2006-07) - order dated 28.10.2015; g) Jiten Gurnani Vs. ITO - ITA No. 4908/Del/2012; & h) Kathiroor Service Co-Op Bank Ltd. vs. CIT - (2014) - 360 ITR 243 (SC). 3. The Learned Senior DR on the other hand opposed the ground with this submission that the information received from the Investigation Wing of the Department was specific showing the involvement of assessee in the activity of accommodati .....

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vestigation wing is the part of the department and during the recording of reason, the Assessing Officer is needed to record a prima facie case of escapement of taxable income. She contended that sufficiency of reasons recorded cannot be questioned before the Court of Law and in this regard she placed reliance on the decision of Hon'ble Supreme Court in the case of Raymond Woolen Mills - 236 ITR 34 (SC). The Learned Senior DR submitted further that in the present case, there was no assessmen .....

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Pharma India Ltd. (supra), for acquiring jurisdiction under sec. 147 of the Act, the Assessing Officer is required to form a prima facie opinion on the basis of material available before it. In other words, application of mind by the Assessing Officer for forming reason to believe that there is escapement of assessment of taxable income is a pre-condition for acquisition of jurisdiction under sec. 147 of the Act. The Assessing Officer cannot act upon merely on the basis of information received f .....

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Pr. CIT vs. G & G Pharma India Ltd. (supra) are being reproduced hereunder for a ready reference: 9. The Court at the outset proposes to recapitulate the jurisdictional requirement for reopening of the assessment under Section 147/148 of the Act by referring to two decisions of the Supreme Court. In Chhugamal Rajpal v. SP Chaliha (1971) 79 ITR 603, the Supreme Court was dealing with a case where the AO had received certain communications from the Commissioner of Income Tax showing that the .....

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as further explained by the Supreme Court that: "Before issuing a notice under S. 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under S. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failu .....

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erefore could not have issued notice under Section 148. 10. In ACIT v. Dhariya Construction Co.(2010)328 ITR 515 the Supreme Court in a short order held as under: "Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the DVO. Opinion of the DVO per se is not an information for the purposes of reopening assessment under s. 147 of the IT Act, 1961. The AO has to apply his mind to the information, if any, collect .....

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ened beyond the period of four years. This Court considered the decision of the Supreme Court in Phool Chand Bajrang Lal v. Income-tax Officer (supra) as well as the decision of this Court in M/s Haryana Acrylic Manufacturing Co. (P) Ltd. v. CIT 308 ITR 38 (Del). The Court noted that a material change had been brought about to Section 147 of the Act with effect from 1st April 1989 and observed: "29. It is at once seen that the Amendment in Section 147 of the Act brought about a material cha .....

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t the AO has reason to believe that income of an Assessee has escaped assessment. However, the proviso to Section 147 of the Act provides a complete bar for reopening an assessment, which has been made under Section 143(3) of the Act, after the expiry of four years. However, this proscription is not applicable where the income of an Assessee has escaped assessment on account of failure on the part of the Assessee to make a return or to disclose fully and truly all material facts necessary for hi .....

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e entirely applicable since the same was in respect of Section 147(a) as it existed prior to the amendment." 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 b .....

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ercise, 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 accom .....

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aring 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. Un .....

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nt alleging that the assessee was beneficiary of accommodation entry provider. For a ready reference, the reasons recorded by the Assessing Officer are being reproduced hereunder: As per information received from the Office of the DIT(Inv.), New Delhi vide letter No. DIT(Inv.) -1/2006-07/AE/1322 dated 31.10.2007 and No. 1536 dated 05.02.2007, the assessee company has taken following accommodation entries totaling to ₹ 13,00,000: Value of entry taken Date of entry From whom taken Instrument .....

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2814 with Karur Vaishya Bank, Karol Bagh) 168941 Rs.2,00,000 30-03-2001 Fair N Square Exports Pvt. Ltd. (A/c. No. CA2814 with Karur Vaishya Bank, Karol Bagh) 168941 The said amount has been credited in to assessee s bank account maintained with Dena Bank, South Exn. On investigation made by the investigating wing it has been found that assessee is a beneficiary of taking the aforesaid accommodation entries. I have also perused various material & report received from Investigation Wing and on .....

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