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M/s. MRY Auto Components Ltd. Versus The Income Tax Officer Ward No. 6 (1) , New Delhi

2017 (9) TMI 966 - ITAT DELHI

Reopening of assessment - addition of on account of share application money and commission expenditure - information received from Director of Income Tax (Investigation), New Delhi - non independent application of mind by AO - Held that:- Information shows that assessee has received the amount of credit through banking channels by mentioning names of the parties and cheque nos. with amount. This information by itself cannot be said to be tangible material. The A.O. has not gone through the detai .....

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endently on an objective criteria. The A.O. however, merely repeated the report of Investigation Wing in the reasons and formed his belief that income chargeable to tax has escaped assessment without arriving at his satisfaction. The reason to believe contain no reason but the conclusion of A.O. without any basis. Thus, there is no independent application of mind by the A.O. to the report of Investigation Wing which form the basis for reasons to believe that income has escaped assessment. The co .....

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the Ld. CIT(A)-9, New Delhi, dated 20th February, 2014 for the A.Y. 2003-2004, challenging the reopening of the assessment under section 148 of the I.T. Act, 1961 and addition of ₹ 27,54,000 on account of share application money and commission expenditure. 2. Briefly the facts of the case are that information was received from Investigation Wing of Department to the effect that the assessee was a beneficiary in accommodation entry racket being run by certain persons. It had reportedly rec .....

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Official website of the Ministry of Corporate Affairs. Assessee filed letter dated 30.11.2010, filed a return declaring NIL income in response to notice under section 148 of the Act along with copy of the balance sheet. The reasons recorded on issuance of notice under section 148 were provided to the assessee vide letter dated 30th October, 2010 which are reproduced in the assessment order as under : …The Investigation wing of the Income Tax Department had unearthed a huge money launderi .....

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e had received the following cheque amount(s) in nature of accommodation entry : Value of entry taken Instrument No. by which entry taken Date on which entry taken Name of account holder of entry giving account Bank from which entry given Branch of entry giving bank A/c. no. entry giving account 300375 13. Mar-03 Rahul Finlease P. Ltd., SB Patiala Darya Ganj 50082 300315 26-Mar-03 Kuldeep Textiles (P) Ltd., SBBJ NRR 24624 400415 27-Mar-03 Division Trading Pvt. Ltd., SBBJ NRR 24620 Therefore, I h .....

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Act. The assessee informed the A.O. that it has had no transaction with M/s. Kuldeep Textiles (P) Ltd., as noted in the reasons. The assessee filed details to show that addition to the amounts mentioned above from Rahul Finlease P. Ltd., and Division Trading Pvt. Ltd., it had received money allegedly towards share capital from the three other companies as well. The total amount of money received from these entities towards share capital is noted at page-3 of the assessment order totaling to  .....

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nsel for the Assessee submitted that the issue is covered in favour of the assessee by the recent Judgment of the Hon ble Delhi High Court in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., reported in 395 ITR 677 (Del.). He has also relied upon the decision of the Hon ble Bombay High Court in the case of General Electoral Trust vs. ITO 289 CTR 284 (Bom.) on the proposition that non-filing of the return of income does not ipso-facto give jurisdiction to reopen the assessment. He has also r .....

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ave considered the rival submissions. The Hon ble Delhi High Court in its recent decision in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., (supra), in paras 19 to 38 held as under : 19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the .....

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away records the conclusion that the above said instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver) . The AO adds that the said accommodation was a known entry operator the source being the report of the Investigation Wing . 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason .....

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ion. The statement that the said entry was given to the Assessee on his paying unaccounted cash is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be a known entry operator is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23 .....

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eopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the ass .....

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w that there was any failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147 (1) of the Act requires the AO to have reasons to believe that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investiga .....

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ped assessment. 27. Each case obviously turns on its own facts and no two cases are identical. However, there have been a large number of cases explaining the legal requirement that requires to be satisfied by the AO for a valid assumption of jurisdiction under Section 147 of the Act to reopen a past assessment. 28.1. In Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra), the reasons for reopening as recorded by the AO in a proforma and placed before the CIT for approval read thus: 11. Rea .....

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entry was taken, the date on which the entry was taken, Name of the account holder of the bank from which the cheque was issued, the account number and so on. 28.3. Analysing the above reasons together with the annexure, the Court observed: 14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. T .....

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no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on t .....

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the Act. The facts in the present case are more or less similar. The present case is therefore covered against the Revenue by the aforementioned decision. 29.1. The above decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under: Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by cert .....

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se in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. It has been revealed that the following entries have been received by the assessee:.... 29.2. The details of six entries were then set out in the above 'reasons'. These included name of the beneficiary, the beneficiary's bank, value of the entry taken, instrument number, date, name of the account in which entry was taken and the account from where the entry was given the details .....

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s escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148. 29.3. The Court was not inclined to interfere in the above circumstances in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to the Assessee. Importa .....

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ein. 30.1. In Commissioner of Income Tax, New Delhi v. Highgain Finvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under: It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 138 dated 8th April 2003 that this company was involved in the giving and taking bogus entries/ transactions during the financial year 1996-97, as per the deposition made before them by Shri Sanjay Rastogi .....

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see on 4th March 1998 which was accepted under Section 143 (1) at the declared income of Rs. 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of Rs. 5,00,000 (as mentioned above) has escaped the assessment within the meaning of the proviso to Section 147 and clause (b) to the Explanation 2 of this section. Submitted to the Additional CIT, Range -12, New Delhi for approval to issue notice under Section 148 for the assessment year 1997- .....

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clusion that there was prima facie material for the AO to come to the conclusion that the Assessee had not made a full and true disclosure of all the material facts relevant for the assessment. 31. In Commissioner of Income Tax v. G&G Pharma (supra) there was a similar instance of reopening of assessment by the AO based on the information received from the DIT (I). There again the details of the entry provided were set out in the 'reasons to believe'. However, the Court found that th .....

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nder Section 147 of the Act. 32. In Oriental Insurance Company Limited v. Commissioner of Income Tax 378 ITR 421 (Del) it was held that therefore, even if it is assumed that, in fact, the Assessee s income has escaped assessment, the AO would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional precondition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of t .....

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spicion could not form the basis of initiating proceedings under Section 147 of the Act. A reason to believe - not reason to suspect - is the precondition for exercise of jurisdiction under Section 147 of the Act. 34. Recently in Agya Ram v. CIT (supra), it was emphasized that the reasons to believe should have a link with an objective fact in the form of information or materials on record... It was further emphasized that mere allegation in reasons cannot be treated equivalent to material in ey .....

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an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment. 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation .....

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in question does not satisfy the requirement of law. 38. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs . 5.1. In this case, the reasons for reopening are also reproduced in the judgment of the Hon ble Delhi High Court in which similarly information has been received from Director of Income Tax (Investigation), New Delhi that assessee has received amount of ₹ 5 l .....

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s information by itself cannot be said to be tangible material. The A.O. has not gone through the details of these information and has not even applied his mind and merely concluded that he has reason to believe that income chargeable to tax has escaped assessment. The reason to believe are therefore, not in fact reasons but only conclusion of the A.O. The expression accommodation entry is used to describe the information set-out without explaining the basis for arriving at such conclusion. In t .....

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tisfaction. The reason to believe contain no reason but the conclusion of A.O. without any basis. Thus, there is no independent application of mind by the A.O. to the report of Investigation Wing which form the basis for reasons to believe that income has escaped assessment. The conclusion of the A.O. in the reason are at best reproduction of conclusion of the Investigation report. It is borrowed satisfaction not permissible in law. The reasons fail to demonstrate the link between the alleged ta .....

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