TMI Blog2021 (8) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... the Investigation Wing. Therefore, in view of the decision of Meenkashi Overseas Pvt. Ltd. ( 2017 (5) TMI 1428 - DELHI HIGH COURT the reassessment proceedings are not in accordance with law. We further find in the case of Sh Rajiv Agarwal [ 2016 (3) TMI 972 - DELHI HIGH COURT] [has held that even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment. There is non-application of mind by the AO could not be said to have reason to believe as to justify reopening of assessment. We further find in the instant case, the assessee in response to notice u/s 148 stated that return of income filed u/s 139 of the Act be treated as return of income filed in response to notice u/s 148 and also requested for supply of the copy of reasons. We find the AO after more than four months directed the assessee to e-file the return of income which was done on 13.10.2018. We find the AO thereafter issued notice dated 16.10.2018 u/s 143(2)/142(1) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. The assessee filed objections in response to notice u/s 142(1) of the Act vide letter dated 05.11.2018 and the AO vice order dated 09.11.2011 disposed off such objection by passing a speaking order. 3. During the course of assessment proceedings, the AO noted that the assessee has received accommodation entries to the tune of Rs.92,00,110/- from the companies controlled by Mr. Anand Kumar Jain and Mr. Naresh Kumar Jain which are as under:- 1 M/s VKS Properties Pvt. Ltd. Rs.20,00,000/- 2 M/s Shivij Garments Pvt. Ltd. Rs.5,00,000/- 3 M.s Danodia Impex Pvt. Ltd. Rs.20,00,000/- 4 M/s Zen Tradex Pvt. Ltd. Rs.47,00,000/- 4. The assessee filed confirmations of unsecured loan from the above parties. From the various details furnished by the assessee, the AO noted that all these companies are owned and controlled by Mr. Anand Kumar Jain and Mr. Naresh Kumar Jain. Therefore, in order to ascertain the genuineness of the transactions, summons u/s 131 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Rs.50 lakhs to the total income of the assessee u/s 68 of the Act. 6. The AO has also received information from ADIT(Inv.), Unit-5(4), New Delhi, dated 23.03.2018, that the assessee has availed accommodation entries of Rs.33 lakhs from M/s RKG Finvest Pvt. Ltd.. He, therefore, asked the assessee to prove the identity and creditworthiness of the said parties and the genuineness of the transactions. It was explained that the assessee company had already repaid the above loan amount in the subsequent year and also deducted TDS on interest paid on this loan. Copy of confirmation with ITR and audited balance sheet of the said party was filed before the AO. 6.1. However, the AO was not satisfied with the explanation given by the assessee. Since, the principal officer of M/s RKG Finvest Ltd. did not appear before the AO in response to summons issued by him u/s 131 of the Income Tax Act, 1961 and the assessee also failed to produce the director of M/s RKG Finvest Ltd. for recording of his statement, therefore, the AO, invoking the provisions of section 68 of the Act made addition of Rs.33 Lakhs to the total income of the assessee. Thus, the AO determined the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted financial statement, subsequent ledger account of repayment of loan along with bank interest, etc. It was argued that when the assessee has repaid the unsecured loan obtained from these companies in the subsequent assessment years which is prior to the notice issued u/s 148 of the Act and interest has been paid on such unsecured loan and TDS has been deducted, therefore, nonproduction of the directors of those companies before the AO for recording of their statement should not be held against the assessee for making the addition. Relying on various decisions, it was argued that the addition made by the AO should be deleted. 9. However, the learned CIT(A) was not satisfied with the arguments advanced by the assessee and upheld the validity of reassessment proceedings as well as the addition on merit. 9.1. Aggrieved with such order of the learned CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- 1. The impugned assessment is invalid and without jurisdiction as the said assessment is completed without complying with legal requirements of the provisions of section 147/148 of the Income Tax Act therefore such assessment is void ab ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on during assessment proceedings. 6. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the AO, in making additions u/s 68 of the IT Act of Rs.1,25,00,110/- and Rs.50,00,000/- are erroneous as the evidences filed by the appellant in support of above cash credits have been rejected by the AO without conducting any enquiry thereon in discharge of onus shifting on the revenue after the initial onus discharged by the appellant. 7. The Ld. CIT(A) has erred both in law and circumstances of the cases in reliance on the material to take view adverse to the appellant without confronting the same and therefore action of the Assessing Officer is in contravention of the principals of natural justice. 8. The appellant craves leave to add, delete, modify/amend the above grounds of appeal with the permission of the Hon ble appellate authority. 10. At the time of hearing, the learned counsel for the assessee did not press the ground challenging the applicability of provisions of section 153C of the Act as per ground of appeal no.2, for which the learned DR has no objection. Therefore, the ground of appeal no. 2 is dismissed as not pressed. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii. Pr. CIT vs G G Pharma India Ltd. 384 ITR 147 (Del.) iii. CIT vs Independent Media Pvt. Ltd. in ITA No.108/2015(Del.) iv. Signature Hotels P. Ltd. vs ITO [2011] 338 ITR 0051 (Del.) v. CIT vs SFIL Stock Broking ltd. 325 ITR 285 (Del.) vi. Sarthak Securities Co. P. Ltd. vs ITO 329 ITR 110 (Del.) vii. CIT vs Suprme Polypropolene (P) Ltd. ITA No.266/2011(Del.) viii. CIT vs Multiplex Trading Industrial Co. Ltd. 378 ITR 351 (Del.) ix. Hindustan Lever Ltd. [2004] 137 Taxman 479 (Bom.) x. CIT vs Greenworld Corporation 314 ITR 81(SC) 15. The learned counsel for the assessee in his next plank of argument submitted that non-identification of nature of alleged accommodation entries, mode of payments and the parties acted as entry provider entities make such recording of reasons insufficient for initiating the proceedings u/s 147 of the Act. 16. Referring to the decision of the Hon ble Delhi High Court in the case of M/s. Superior Buildwell Private Limited vs Pr. CIT vide ITA No.3301/Del/2017, he submitted that initiation of reassessment proceedings by recording incorrect facts and not mentioning the names of the entities in the reasons recorded are not in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 22.10.2018 against which the assessee submitted objection to assumption of jurisdiction on 05.11.2018,. The same were disposed of by the AO on 09.11.2018 as per Pages 65 to 72 of the paper book. He accordingly submitted that the AO has assumed jurisdiction to make assessment by issuing notice u/s 143(2) of the Act on 16.10.2018 before supplying reason which means that the AO assumed jurisdiction before allowing assessee to file objections against assumption of jurisdiction. Referring to the decision of the Hon ble Delhi High Court in the case of Mastech Technologies Ltd. vs DCIT in Writ Petition No.2858/2016, order dated 13.07.2017, he submitted that the Hon ble Delhi High Court has held that issuance of notice u/s 142(1)/143(2) before supplying the reasons and considering petitioner s objection and passing reasoned order thereon does not meet requirement of law. Such legal infirmity leads to inevitable invalidation of all the proceedings that took place pursuant to notice u/s 148 of the Act. 18. The learned counsel for the assessee also challenged the validity of reassessment proceedings on account of error in quantification of income escaping assessment and mechanically a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts for the relevant period, copies of ITR filed and copies of audited financial statements of the share applicants, etc. The assessee has discharged the onus cast upon it. Nothing has been brought on record by the AO to substantiate his allegation that these credit entries by way of share capital are accommodation entries. Relying on various decisions, he submitted that merely because the directors were not produced before the AO, the addition cannot be made u/s 68 of the Act. He submitted that the assessee has proved all the three important ingredients of section 68 of the Act by proving the identity and creditworthiness of the investor/share applicants and the genuineness of the transactions. He further submitted that despite request made to the AO, the assessee was not provided the opportunity for cross examine of the persons whose statements were the basis for reopening of the assessment. The learned counsel for the assessee, accordingly submitted that both on merit as well as on the validity of reassessment proceedings, the assessee has a strong case and therefore, the order of the learned CIT(A) be set-aside and the grounds raised by the assessee should be allowed. 22. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of search and seizure operation in the case of Mr. Anand Kumar Jain and Mr. Naresh Kumar Jain on 17.12.2015 who are known as entry providers, reopened the assessment u/s 147 of the Act after recording the reasons and issued notice 148 of the Act. 26. We find the AO completed the assessment u/s 147 r.w.s. 143(3) of the Act and determined the total income of the assessee at Rs.1,75,30,470/- by making addition of Rs.1,75,00,110/- to the returned income of Rs.30,460/-. We find the learned CIT(A) upheld the action of the AO both on merit as well as on the validity of reassessment proceedings. It is the submission of the learned counsel for the assessee that reopening of the assessment in the instant case is not in accordance with law on account of number of infirmities. 27. Before proceeding further, we deem it proper to reproduce the reasons recorded by the AO for reopening of the assessment which are as under:- 28. A perusal of the reasons recorded as reproduced above shows that the AO has reproduced therein the information from the Investigation Wing and has straightway reached the stage of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the transaction falls in the year under consideration which is extremely important piece of information to justify independent application of mind. 29. We find during the course of assessment proceedings, the assessee had raised specific objection before the AO regarding the non-mentioning of the entities as per reasons provided who had given accommodation entries. However, a perusal of the said annexure which is reproduced as under does not give such details giving the names of the entities giving the amount of accommodation entries during the year. 30. We find that Hon ble Delhi High Court in the case of Pr. CIT vs Meenakshi Overseas Pvt. Ltd. reported in 395 ITR 677 (Del.) has quashed the reassessment proceedings on the ground that the reasons recorded by the AO failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment. The relevant observations of the Hon ble Delhi High Court from paras 19 to 38 read 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening 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 assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Director of IncomeTax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is 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 the basis of vague i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn filed. On the basis of this new information, I have reason to believe that the income of Rs. 27,00,000/- has 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. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does not also examine the return already filed to ascertain if the entry has been disclosed therein. 30.1 In Commissioner of Income Tax, New Delhi v. Highgain Finvest (P) Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 the AO had not made any effort to discuss the material on the basis of which he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under 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 the Act would not arise. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs 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. 31. We find, following the above decision, the Co-ordinate Benches of the Tribunal are taking the consistent view that when there is non-application of mind by the AO to the report of the Investigation Wing, such reassessment proceedings are not in accordance with law and such reopening proceedings have been quashed. Since, in the instant case, the AO has not applied his mind as there is non-identification of the deponents, non-mentioning of middleman if any, absence of details in the form of instrument number through which the cheques/RTGS was accepted by the assessee company, name of the bank from which the accommodation entries were provided, the name of the bank in which the accommodation entries were credited and the date of transaction etc. therefore, we are of the considered opinion that there is complete nonapplication of mind by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly one line without any supporting material. There appears to be also no clarity of how the case had to be proceeded with by the Revenue, On one date i.e. 16th February 2016, the AO was issuing notice both under Section 142(1) of the Act as well as notice under Section 143(2) of the Act when on that very date the Petitioner had asked for the reasons for reopening by notice dated 18th January, 2016. Again, it is not clear why the AO did not wait for the process of supplying reasons to the Petitioner, considering the Petitioner's objections thereto and passing a reasoned order thereon to be completed before issuing the notice under Section 142(1) and 143(2) of the Act. There appears to be non-application of mind. 35. In view of the above discussion, we are of the considered opinion that reassessment proceeding initiated by the AO in the instant case and upheld by the learned CIT(A) is not in accordance with law. Therefore, we quash the reassessment proceeding. Since, the assessee succeeds on this legal ground, therefore, the other plank of arguments challenging the validity of reassessment proceeding and the arguments challenging the validity on merit are not being adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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