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M/s Shruti Fastners Ltd. Versus DCIT, Circle 8 (1) , New Delhi

2016 (10) TMI 545 - ITAT DELHI

Validity of reopening of assessment - reasons to believe - Held that:- We are 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 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 has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of .....

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Gupta, Adv. & Sh. Somil Aggarwal, Adv Revenue by : Shri NK Bansal, Sr. DR ORDER Per H. S. Sidhu, J. M. The Assessee has filed these two Appeals against the separate Orders both dated 30.1.2013 of the Ld. CIT(A)-XI, New Delhi pertaining to assessment years 2003-04 & 2004-05. Since the issues involved in these appeals are common, therefore, the same are being consolidated by this common order for the sake of convenience, by dealing with ITA No. 1945/Del/2013 (AY 2003-04). 2. The following .....

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without prejudice to ground No.2 above, no justification subsisted on the part of the Ld. AO in making an additions aggregating at ₹ 83,15,000/- u/s 68 of the I.T. Act on account of alleged unexplained cash credits and the same ought to have been deleted by the Ld. CIT(A) keeping in view the submissions made before her supported by documentary evidence and also in view of the judicial pronouncements. 4. That without prejudice to ground No. 3 above, the additions aggregating at ₹ 83,1 .....

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its right to add, amend/modify the grounds of appeal. 3. The following grounds raised in ITA No. 1946/Del/2013:- 1. That the provisions of section 147/148 of the I.T. Act were not applicable to the facts of Assessee's case and therefore, the issue of notice u/s 147/148 was illegal and consequently, the impugned assessment order as passed u/s 147/143(3) is unlawful & unjust and therefore the same deserved to be annulled/cancelled. 2. That without prejudice to ground No.1 above, no justif .....

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essee are very excessive. Various observations made by the authorities below in their respective orders are either incorrect or untenable. Detailed written submissions alongwith the paper book as filed before the Ld. CIT(A) and the arguments advanced by the Counsel had not been appreciated properly or had been ignored. 4. That the interest as levied u/s 234 is illegal and at any rate, without prejudice very excessive. 5. That the appellant reserves its right to add, amend/modify the grounds of a .....

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otice issued u/s. 148 of the Act. In response to the notice u/s. 142(1) of the Act, the Assesee s Director attended the hearing from time to time. In this case information was received from the Directorate of Investigation (Inv.-I), New Delhi that the assessee has received an accommodation entry of ₹ 5.82 crores into its bank account from different companies/ concerns during the financial year 2002-03 relevant to assessment year 2003-04 so as to introduce its unaccounted money into its acc .....

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und raised vide ground no. 2 stating that the provisions of section 147/148 of the I.T. Act were not applicable to the facts of the assessee s case and therefore, the issue of notice u/s. 147/148 was illegal and consequently, the impugned assessment order as passed u/s. 147/143(3) is unlawful and unjust and therefore the same deserved to be annulled / cancelled. In support of his contention he filed the various Paper Books enclosing therewith the assessment and appellate records and a compilatio .....

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no proper reasons were recorded; no nexus between the materials relied upon and the belief formed for escapement of income; no application of mind; no proper satisfaction was recorded before issue of notice u/s. 148; no independent conclusion that there was escapement of income. It was further stated that the case was reopened only on the basis of Investigation Wing information which suffers with serious debility and lacks definiteness, without describing the basic aspects of alleged transactio .....

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on 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). In this regard, he filed the copies of the aforesaid decisions before the Tribunal. In view of the above, he requested that by following the aforesaid precedents the reassessment proceedings of the AO may be quashed by accepting the Appeal filed by the A .....

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for reopening the case as under:- Information from the office of the DIT(Inv.)-I, New Delhi has been received that the assessee M/s Shruti Fastners Ltd. has received an accommodation entry of ₹ 5.82 crores. Into its bank account from different companies / concerns during the financial year 2002-03 relevant to assessment year 2003-04 so as to introduce its unaccounted money into its accounts. In view of the above facts, I have reason to believe that the income of ₹ 5.892 crores has e .....

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l 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 Directorate of Income Tax (Investigation)-I, 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 .....

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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 entr .....

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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 .....

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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. (b) Signature Hote .....

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e Delhi High Court allowed the writ petition and held as under: (i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must 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 nonspecific information. The basis of the beli .....

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to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee 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 .....

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