TMI Blog2017 (12) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Counsel of the assessee. In such situation, when the reopening proceedings vis-a-viz compliance with section 151 has not been duly met with, the reopening proceedings deserve to be declared as void-ab-initio and the same is declared void-ab-initio as such. - Decided in favour of assessee. - I.T.A. No. 5805/Mum/2017, C.O. No. 260/Mum/2017 And ITA No. 5805/Mum/2017 - - - Dated:- 4-12-2017 - SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER For The Revenue : Shri N. Hemalatha For The Assessee : Dr. P. Daniel ORDER Per Shamim Yahya, A. M.: This appeal by the Revenue and the cross objection by the assessee arise out of the order of ld. Commissioner of Income Tax (Appeals) dated 30.03.2016 and pertain to the assessment year 2008-09. 2. The grounds of appeal in Revenue s appeal read as under: 1 On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition made u/s.68 of the Act by solely relying on the retracted statement of Shri Pravin Kumar Jain, ignoring the fact that the same has been rebutted by DDIT Investigation)-II(2), Mumbai and also ignoring the statement of Shri Nilesh Parmar, a dummy director, having r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lgold Trading Co P Ltd) 15,00,000 Total 45,00,000 Accordingly the Assessing Officer recorded his reasons to believe and issued notice u/s 148. Notice u/s 143(2) and 142(1) of the Act was issued and duly served on the assessee. 5. During the course of assessment proceedings, assessee company was asked to establish the identity, and creditworthiness of the said parties and genuineness of the transactions. To substantiate its claim, the assessee company furnished bank statement of the said parties highlighting the relevant entry. Also, ledger account and acknowledgement of the said parties were produced. Various other documents were produced to establish the identity and creditworthiness of the said parties and genuineness of the transactions. However, Assessing Officer has not accepted the assessee's company contention, discussed all the issues at Para 3 of the assessment order and added the sum of ₹ 45,00,000/- as Unexplained Cash Credit under the head Income from Other Sources . He had further disallowed the interest and commission expense. 6. In making the disallowance, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unaware of the place of operations, books of accounts and the businesses being carried out by the concerns where they were directors/proprietors. 7. Thereafter, the Assessing Officer referred to the statement of directors of the so called dummy companies and the search conducted in their cases. Thereafter, the Assessing Officer referred to several case laws and concluded as under: After carefully going through the submissions of the assessee as well as the data / details / documents available on record, it becomes crystal clear that; (a) The primary onus is on the assessee to establish the genuineness of the transactions recorded by it in its books of account; (b) Since the primary facts are in the knowledge of the assessee, it is the duty of the assessee to provide the correct details with regard to the impugned transactions; (c) If the investigation done by the Department leads to doubt regarding the genuineness of the transactions, it is incumbent on the assessee to produce the parties along with the necessary documents to establish the genuineness of the transaction; and (d) Payment by account payee cheque is not sacrosanct. In view of the above discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' from M7s. Kush Hindustan Entertainment Ltd Olive Overseas Private Limited, one of the entities of Shri Praveen Kumar Jain, and has also claimed to have paid interest of ₹ 90,617/- and must have also paid commission of at least ₹ 67,500/- being 1.5% of the transaction value of ₹ 45,00,000/-. The practice of Shri Praveen Kumar Jain was to accommodate and facilitate the entries under different forms whereby he used to accept give back cash from 7 to the parties against the payment receipts made through banking channel. Thus, in the instant case, the purported expenditure claimed under the garb of interest commission must have been received back by the assessee from the bogus entity of Shri Praveen Kumar Jain as such the said expenditure cannot be allowed to the assessee. Accordingly, interest expenditure of ₹ 90.617/- and commission expenditure of ₹ 67,500/- are hereby disallowed and added back to income of the assessee under the head Income from other sources in view of the fact that the assessee must have received back the said sums in cash. Penalty proceedings u/s.271(1)(c) of the Act are hereby initiated for furnishing inaccurate p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe that income chargeable to tax has escaped assessment, irrespective of any failure of the part of assessee. It does not require that the very outset there should be an established factum of escapement. At the stage of issue of notice only question is whether the material prima facie shows escapement. Whether the material would conclusively prove the escapement, is not the concern at this stage. The AO relied on the following cases; Raymond Woollen Mills Ltd. (1999) 236 ITR 34 (SC) Central Provinces Manganese Ore Co. Limited (1991) 191 ITR 66 (SC) Sri Krishna Private Limited (1996) 221 ITR 538 (SC) Information from enforcement directorate showing possible inflation of purchases- notice issued u/s 148 valid. (Sterlite Industries (India) Ltd vs ACIT (Mad) 302 ITR 275 Information from Investigation Wing- notice 148 issued on the basis of such letter is valid. AGR Investment Ltd vsAddl. CIT (Del) 333 ITR 146 Shafcnar Buucon P LW Vs ITO (ITAT. Jaipur) 136 TTJ 701 It is important to point out that there was no assessment or reassessment prior to issuance of notice u/s. 148. It is a settled legal proposition that in a case where, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial precedents support the action of the AO - The Supreme Court in the case of Income-Tax Officer, Cuttack and Others v. Biju Patnaik (1991) 188 ITR 247 that: Thus, though ex facie the notice does not disclose the satisfaction of the requirement of section 147(a), from the record and the averments in the counter affidavit, it is clear that the Income tax Officer had applied his mind to the facts and, after prima facie satisfying himself of the existence of those two conditions precedent, reached the conclusion for reopening the assessment. It is settled law that, in an administrative action, though the order does not ex facie disclose the satisfaction by the officer of the necessary facts if the record discloses the same, the notice or the order does not per se become illegal. (emphasis supplied) A similar issue has been considered and rejected by the ITAT in the case of Sukh Ram v. ACIT (2007) 99 ITD 417(Del) and by the Delhi High Court in 285 ITR 256 (Del) in the sane case. In the Sukh Ram case the appellant had belonged to a political party. The AO recorded a statement of the party treasurer of the political party who refuted this claim. Before the ITAT and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year wherein the parties have affirmed the registered office address of the company, nature of business, registration number of the company with Registrar of Companies, CIN and PAN. They also have affirmed about the filing of Return of Income and loans granted to the assessee. On a perusal of the bank statements of the parties, it is seen that both the companies have sufficient balances to advance the loans. With the above documents, the identity, genuineness of the transaction and credit worthiness of the parties have been proved by the assessee by filing the necessary documents. The important aspect to be noted here is that the loans were borrowed by the assessee in FY 2007-08 and repaid in financial year 2008-09 and 2009-10 whereas the search and survey action on Pravin Kumar Jain and his associate companies was subsequent. The conclusion of the AO that the assessee company has not proved the genuineness of the transaction appears to be factually incorrect as all the evidencing documents were placed on record by the assessee company. The AO discharged his onus of establishing that the loans were not genuine by heavily relying on the statement given by Shri. Pravin Kuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot by applied to each and every case. The additions made were deleted as there was no direct evidence against the assessee. Neither the statement of Mukesh Choksi was provided to the assessee nor any opportunity for cross examination of Mukesh Choksi was provided. Various courts have held and reiterated the principle that where the assessee is not granted an opportunity of cross examination of the person whose statement has been relied upon during the course of assessment, which could have held the assessee to rebut the statements, the addition made basis the statement is not correct as there is a violation of the principle of natural justice. This principle has been settled time and again by the Higher Courts. Section 68 of the Act casts the responsibility upon the assessee to prove the identity of the creditors, capacity of the creditors and genuineness of the loan. The assessee has been able to establish the identity of the cash creditors, their credit worthiness and the genuineness of transaction by furnishing evidence like their I.T. details, mode of payment, etc. Once the assessee has discharged the obligation of establishing the identity, creditworthiness of those parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or proving that the transaction was an adjustment entry and that the cash had exchanged hands. The assessee also submitted the details of confirmation of loans of all the parties with their income tax acknowledgements of the return filed and financial statements and bank statements. There was sufficient creditworthiness of the lending companies and bank balance before lending the monies to the assessee. The AO has not considered these evidences filed by the assessee and simply relied on the statements of Shri Praveen Kumar Jain, which has been subsequently retracted, without independently N verifying any facts of the matter. The facts in the case of M/s. KomalAgrotech Pvt. Ltd. Vs ITO Ward 2(1), ITA No. 37/HYD/2016, (Hyd) were as under - As per the Assessing Officer the entire sum was received from certain companies managed by one Mr. Praveen Kumar Jain who has admitted that this money was routed through bogus share applications. According to the Assessing Officer, the said sum of ₹ 75,00,000 represented the amounts received from shell Companies.' Therefore, the Assessing Officer had added the entire sum of ₹ 75,00,000 as unexplained credit u/s 68 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Praveen Kumar Jain which does not refer the name of the appellant company as beneficiary and the loan was borrowed during financial year 2007-08 and repaid during 2008-09 and 2009-10 when Shri Praveen Jain was not associated with the investor company and also much before the search and seizure in case of Praveen Jain has taken place. The AO also failed to make any further inquiries with the lender companies to establish the genuineness of the transaction and also failed to consider the various evidences filed by the assessee to prove the identity, creditworthiness and genuineness of the loans. The AO has not pointed out any defect /deficiencies in the evidences adduced by the assessee. Addition has been made u/s. 68 the Act by simply relying of the statements of third parties which was not associated with Investor Company and has not named the appellant company as beneficiary. In light /of the same, the AO's consideration that the loan are not genuine is not correct. These grounds of appeal are allowed. 12. Against the above order, the Revenue is in appeal before us regarding the addition on merits deleted by the ld. Commissioner of Income Tax (Appeals). 13. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. Upon careful consideration, first I proceed to take up the issue raised by the ld. Counsel of the assessee that there is no proper sanction or approval as per the provision of section 151(2) of the I. T. Act permitting the reopening. In this connection, the submission of the ld. Counsel of the assessee in the cross objection may be gainfully referred as under: 2. There is no mention of approval/satisfaction of the higher authority is obtained u/s. 151(2) of the I. T. Act, 1961 in the Notice. Even though a specific objection was raised about the satisfaction of the higher authority the disposal of objection only states that sanction of issue of notice u/s. 149/151 of the I. T. Act, 1961. Whose satisfaction is obtained is not given and when obtained is nowhere mentioned, (see p. 179-182) However, when the matter reached to the CIT(A), the Learned CIT(A) called for a Remand Report. In the Remand Report, the Learned A.O. attached the letter which is now placed before the Hon'ble Bench, the letter explains the non application of mind by the Jt. C.I.T. also in recording his satisfaction. In the instant case neither in the notice nor on the Reasons recorded the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 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 the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself. 19. I may also gainfully refer to the notice for reopening in this case which reads as under: Notice under Section 148 of the Income - Tax Act, 1961 Office of the WARD 10(1) (2), MUMBAI PAN: AA5CI7012C Dated : 30/03/2015 To M/s IDM Agro Bio Tech Ltd, A/45, Nandjyot Industrial Estate, Andheri Kurla road, Sakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded by such g Officer, that it is a fit case for the issue of such notice . We may mention that our assessment involved for re-opening is Assessment Year 2008-09 which is being re-opened by your notice dated 30.03.2015, the provisions of Section 151(2) are clearly attracted as it is a case of re-opening of the assessment after the expiry of the 4 years from the end of the relevant assessment year. From the notice it appears that necessary sanction as required u/s 151(2) has not been obtained and therefore the notice issued by your good self is not valid and bad in law and is therefore to be cancelled and withdrawn. We may mention that para 3 of the notice states This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income Tax ------- the Central Board of Direct Taxes but this does not reveal that you have obtained any sanction as provided u/s. 151(2) and hence in our humble submission, the issuance of notice is not valid and void ab-initio and we object to the re-opening of the assessment. We further have to submit that incase your goodself has obtained necessary sanction as provided u/s 151(2) we request you to kindly give us the cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Income Tax Officer-10(1)(2), Mumbai. Sub: Administrative approval for issue of Notice u/s. 148 in the case of M/s. IDM Agro Bio Tech Ltd., A.Y. 2008-09 Ref: No. ITO-10(1)92)/148 Prop/2014-15 dated 30.03.2015 With reference to the above, sanction is herbey accorded u/s. 151(2) for issue of notice u/s. 148 of the Act in the above mentioned case for A.Y. 2009-10. Sd/- ( Ganesh Bare) Joint Commissioner of Income Tax, Range-10(1), Mumbai 25. In this regard, the ld. Counsel of the assessee placed reliance upon Hon'ble Delhi High Court decision in the case of United Electrical Co. Pvt. Ltd. vs. CIT 258 ITR 317 and the decision of ITAT in the case of Shri Hirachand Kanuga vs. The DCIT (in ITA Nos. 4261 4262/Mum/2002 vide order dated 27.02.2015). I may gainfully refer to the decision of Hon ble Delhi High Court in the case of United Electric Company P. Ltd. (supra), which read as under: 12. Hon'ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. Vs CIT 258 ITR 317 has held that the proviso to sub-section (1) of section!51of the Act provides that after the expiry of four years from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfaction or specified the authority, i.e., Joint Commissioner of Income Tax who gave the approval/satisfaction. It was only during the remand proceeding by the ld. Commissioner of Income Tax (Appeals) that the Assessing Officer came up with the aforesaid details and letter of approval was submitted. In my considered opinion, in view of the above discussion, the reopening in this case lacks jurisdiction on twin counts. Firstly, the assessee has not been properly intimated about any such satisfaction/approval despite request in the objection to reopening filed before the Assessing Officer repeatedly. Secondly, in the remand proceedings before the ld. Commissioner of Income Tax (Appeals), a sanction/approval letter dated 30.03.2015 which is of the same date as the date of notice for reopening has been submitted. This satisfaction/approval is of Joint Commissioner of Income Tax (Appeals). In reply, to assessee s objection, the Assessing Officer never gave any such detail. This gives credence to the submission of ld. Counsel of the assessee that due approval/satisfaction was not obtained in this case before issue of notice of reopening. Hence, the sequence of events and discussion her ..... X X X X Extracts X X X X X X X X Extracts X X X X
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