TMI Blog2020 (11) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... ment was, in fact, completed u/s 143(3) therefore, there is complete non-application of mind by the AO as well as by both the superior authorities. Approval has been given in a mechanical manner without appreciating the facts properly and there is complete non-application of mind by the superior authorities. On this score also, the reassessment proceedings have to be quashed and the decision relied on by the ld. DR in the case of Sonia Gandhi [ 2018 (9) TMI 720 - DELHI HIGH COURT] is not at all applicable to the facts of the present case in view of the glaring mistake and omission that has been committed by the AO which was not looked into by the superior authorities - we quash the reassessment proceedings initiated u/s 147/148. The various other legal grounds raised by the ld. Counsel challenging the validity of the reassessment proceedings become academic in nature in view of the above discussion. Since the assessee succeeds on this legal ground, the grounds challenging the addition on merit also become academic in nature and, therefore, are not being adjudicated. - Decided in favour of assessee. - ITA No.7243/Del/2019 - - - Dated:- 31-7-2020 - SHRI R.K. PANDA AND M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any request for adjournment was received. In the meanwhile, on 16th December, 2018, the assessee was also asked to produce these parties for personal appearance. Since the assessee showed his inability to produce these parties and in absence of personal deposition of these parties, the AO rejected the confirmation so filed by the assessee holding that the same cannot be relied upon. The AO analysed the amount of ₹ 39,00,055/- received by the assessee as accommodation entry. He considered the documents and electronic data seized from various premises by the Investigation Wing according to which a number of bank statements and signed and unsigned cheque books pertained to the shell companies of the Jain brothers were found. He noted as to how these two entities were being run by Shri Naresh Kumar Jain and the modus operandi. Rejecting the various explanations given by the assessee, the AO made addition of ₹ 39,00,055/- u/s 68 of the IT Act. 4 Before the CIT(A), the assessee, apart from challenging the addition on merit, challenged the validity of the reassessment proceedings. However, the ld.CIT(A) upheld the reassessment proceedings initiated by the AO and the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassessment proceedings u/s 147 of the IT Act which is not properly initiated and therefore need be quashed as the appellants case is covered by proviso to section 147 of the IT Act and that being the case the AO has failed to give a finding as which material facts the appellant failed to disclose fully and truly during original proceedings and in the absence of any such finding, the initiation of reassessment proceedings and the impugned assessment order both are bad in law because such proceedings are as a result of change of mind by the successor incumbent on the same set of facts. 6. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of ₹ 39,00,055/- u/s 68 of the IT Act holding the unsecured loan as unexplained cash credit ignoring the fact that the assessee has discharged its initial onus u/s 68 of the IT Act explaining nature and source of the credits by filing requisite documents proving identity and creditworthiness of the lenders and also to establish genuineness of the transaction during assessment proceedings. 7. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order, he submitted that the AO in the said reasons has recorded that the case was processed u/s 143(1) of the Act and no scrutiny assessment has been made. However, in the instant case, the order u/s 143(3) was passed on 10th March, 2014, determining the income at ₹ 20,06,714/- as against the declared loss of ₹ 20,53,019/- which has been mentioned by the AO in the order passed u/s 147/143(3) on 21st December, 2018. Thus, the AO, in the instant case, has not applied his mind and has recorded an incorrect fact that no scrutiny assessment had taken place. He submitted that in the original assessment proceedings, the AO had conducted inquiry regarding the unsecured loans accepted by the assessee which is considered by the AO as income escaping assessment. Notice u/s 133(6) were issued to the loan creditors in question during the original proceedings. Replies to the notices were received by the AO directly from the loan creditors. Therefore, the AO s failure to consider the above important material while forming belief of escapement of income u/s 147(1) shows non-application of mind on the part of the AO. He submitted that when the receipt of unsecured loan, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d individuals are concerned, he submitted that firstly, their names are not stated and contents of their statements are not specifically dealt with and it is not clear as to whether name of the assessee was mentioned by any of the individuals examined by the Investigation Wing. Non-naming of the individuals proved that the statements of those individuals were not available to the AO at the time of formation of belief/recording of reasons. In absence of these basic details either not available with him and even if available the same were not dealt in reasons recorded, such reason fails on account of the reason being vague and the same being without independent application of mind. He submitted that the reason for reopening must be complete and self explanatory demonstrating due application of mind by the AO of all relevant material in his possession. Referring to the decision of the Hon ble Delhi High Court in the case of Sabh Infrastructure vs. ACIT, 398 ITR 198, he submitted that the Hon ble High Court in the said decision, referring to various other decisions has held that the reasons to believe has to be self explanatory. He accordingly submitted that on this account also the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposed to be made for the first time Yes. 14. Referring to the approval given by the Addl.CIT, he submitted that he has simply mentioned as under:- Recommended for issue of notice u/s 148 of the IT Act for assessment year 2011-12. 15. Similarly, PCIT has mentioned as under:- Yes. It is a fit case for issue of notice u/s 148 read with section 147 of the IT Act, 1961. 16. Thus, there is no proper application of mind while recording the reasons either by the AO or by the superior authorities while granting approval for reopening of the assessment. Relying on various decisions mentioned in the synopsis and in the case law compilation, he submitted that merely mentioning Yes. Approved has been considered as non-application of mind by the higher authorities. 17. The ld. Counsel for the assessee, in his another plank of argument submitted that the assumption of jurisdiction to proceed with reassessment before supply of reasons makes the entire reassessment proceedings invalid. He submitted that the assessee in the instant case filed a letter dated 12th April, 2018 stating that the return of income filed u/s 139 of the IT Act be treated as return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation provided and the entire reason deals with the information of the Investigation Wing. Relying on various decisions, he submitted that where the reopening is based on the report of the Investigation Wing without application of independent mind by the AO, the reassessment proceedings has to be quashed. 19. The ld. Counsel for the assessee submitted that the first proviso to section 147 is squarely applicable to the facts of the instant case. He submitted that in the instant case, the original return of income was filed on 17th August, 2011 and the assessment year concerned is 2011-12. The assessment was completed u/s 143(3) on 10th March, 2014 and the notice u/s 147 was issued on 26th March, 2018 which is beyond four years from the end of the relevant assessment year and there is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment for that assessment year. He submitted that although the AO has mentioned that no scrutiny assessment has been made in this case in the reasons recorded, however, the fact is that scrutiny assessment had taken place in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the belief. Merely using the expression failure on the part of the assessee to disclose fully and truly all material facts is not enough. The reasons must specify as to what is the nature of default or failure on the part of the assessee. Relying on various other decisions, he submitted that in view of the first proviso to section 147, the reopening of the assessment by the AO is void ab initio. 21. The ld. Counsel for the assessee, in another plank of argument submitted that the reason recorded by the AO is nothing, but a change of opinion. In the original assessment proceedings, the above cash credits in question have been duly verified by the then AO which is evident from the notices issued u/s 133(6) to the loan creditors in the original proceedings copies of which are placed in the paper book. The concerned parties had replied directly to the AO. The AO had conducted inquiry regarding unsecured loan accepted by the assessee. Therefore, there was no justification for re-visiting the issue of reopening the assessment as it amounts to change of opinion. Relying on various decision, he submitted that when the assessee, during the original assessment proceedings, had fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o enforce the attendance of the directors of the lender companies which he failed to do. He submitted that the AO had issued summons to the lenders to appear before him on 18th December, 2018 and then before the compliance of the summons of 18th December, 2018 the AO on 16th December, 2018 issued additional notice to the assessee asking it to produce the lenders. This shows that the AO had taken the above twin actions without due application of mind. He submitted that when the AO on his own issued summons for personal deposition fixing the date of compliance, it is not understood as to why the AO presumed that the summons issued will not be complied by the lenders. He submitted that where the AO initiated the process of personally calling the directors of the alleged companies, he was under an obligation to intimate the fact of non-compliance of the summons of those parties. In any case, he submitted that since the assessee had repaid the loans with interest, it was beyond his control and capacity to produce the directors of the lender companies after a long gap. 24. Referring to the decision of the Hon ble Delhi High Court in the case of Makhani Tyagi Pvt. Ltd., 267 ITR 430, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd., 291 ITR 500, he submitted that the Hon ble Supreme Court has held hat at the initiation stage, what is required is reason to believe on the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the material should conclusively prove the escapement is not the concern at this stage. Relying on various other decisions, the ld. DR submitted that the AO had correctly invoked the provisions of section 147 and the CIT(A) has rightly upheld the same. 28. So far as the argument of the ld. Counsel for the assesseee that there was mechanical approval given by the superior authorities are concerned, the ld. DR, referring to the decision of the Hon ble Delhi High Court in the case of Sonia Gandhi vs. ACIT, 407 ITR 594, submitted that the Hon ble High Court in the said decision has held that for the purpose of section 151(1) of the Act, what the court should be satisfied about is that the Addl. CIT has recorded his satisfaction on the reasons recorded by the AO that it is a fit case for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third party is concerned, he submitted that amendment to section 153C has brought out material change in applicability of section 153C for assessing income in the hands of the persons other than the person searched. Prior to the amendment, the power under above section qua an assessee was available only in case where incriminating documents/valuables are seized from the search of other parties and, in addition to that it needed to be proved by the Department that such documents/valuables belong to the assessee. The compliance of this twin conditions are prerequisite for valid assumption of jurisdiction u/s 153C. The amendment enlarges the scope of power u/s 153C under which cognizance of incriminating material seized from the searched persons pertaining to the assesseee or any information contained therein, could be taken against such an assessee. The implication of the above amendment was that even if the document/material from third party does not belong to the assessee, but, contained transactions pertaining to the assessee or containing information in relation to the assessee, the only option under the Act was to act under section 153C. The reason being the presence of non-obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment was completed u/s 143(3). The various decisions relied on by the ld. DR, according to him, are not applicable to the facts of the present case in view of the glaring incorrect facts recorded in the reasons. So far as the argument of the ld. DR that there is no mechanical approval u/s 151 and for which he relied on the decision of the Hon ble Delhi High Court in the case of Sonia Gandhi (supra), he submitted that coordinate Benches have considered the above decision of the Hon ble Delhi High Court. The above decision is contrary to the decisions of the Hon ble Delhi High Court in the case of German Remedies Ltd. vs. DCIT, 287 ITR 494, Central India Electric Supply Co. Ltd. vs. ITO, 333 ITR 237, PCIT vs. NC Cables Ltd., 391 ITR 11, United Electrical Company Pvt. Ltd. vs. CIT Ors., 258 ITR 317. He submitted that none of these decisions were cited and considered by the Hon ble High Court in the case of Sonia Gandhi. Relying on various decisions cited in the case law compilation, the coordinate Benches after considering the decision in the case of Sonia Gandhi have held that approval granted by the authority in a mechanical manner and without application of min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice. Ultimately, the assessee filed his return of income on 13.10.2018 declaring loss of ₹ 4,053/-. Thereafter Notice u/s 143 (2) and 142 (1) of the IT. Act was issued and copies of the reasons recorded were also handed over to the assessee. In response to the statutory notices, Shri Mukesh Mittal and Shri Amit Garg, ARs of the assessee appeared and filed details. The case was discussed with them. 38. A perusal of the above vis- -vis the reasons recorded and form of approval shows that although the original assessment was completed u/s 143(3) on 10th March, 2014, the AO, in the form for obtaining approval at clause 8 has categorically mentioned that the assessment is proposed to be made for the first time and in the background of reasons also has mentioned that the case was processed u/s 143(1) of the Act and no scrutiny assessment was made. A perusal of the reasons recorded nowhere shows any allegation by the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Since, in the instant case, the original assessment was completed u/s 143(3) on 10th March, 2014 for the A.Y. 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd truly all material facts necessary for his assessment for that assessment year. Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med u/s 143(3) of the Act is illegal and invalid since proceedings are without jurisdiction. 40. Since, in the instant case, the original assessment was framed u/s 143(3) on 10th March, 2014 determining the income at ₹ 20,06,714/- as against the returned loss of ₹ 20,53,019/- and wherein the issue of unsecured loan creditors was duly considered and accepted on the basis of various supporting documents filed at the time of original assessment and since there is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment, therefore, the notice issued u/s 148 after a period of four years from the end of the relevant assessment year in the instant case is illegal and invalid being without jurisdiction. Further, as mentioned earlier, the AO has proceeded to reopen the assessment on the basis of wrong appreciation of facts by mentioning that the assessment is proposed to be made for the first time whereas the facts stood otherwise, i.e., the assessment was, in fact, completed u/s 143(3) of the Act, therefore, there is complete nonapplication of mind by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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