Case Law Details

Case Name : ITO Vs M/s Shakti Securities Pvt. Ltd. (ITAT Delhi)
Appeal Number : I.T.A. No. 3475/DEL/2009 and 3129/DEL/2010
Date of Judgement/Order : 10/09/2015
Related Assessment Year : 2001-02 & 2002-03
Courts : All ITAT (1731) ITAT Delhi (428)

Brief of the Case

ITAT Delhi held In the case of ITO vs. M/s Shakti Securities Pvt. Ltd. that merely based on investigation wing information without surveillance of substantiation and without any statement being mentioned therein and without nature of transaction being narrated therein and without tangible material, and further without application of mind on amount of income escaping assessment, shows that the reopening is bad in law and needs to be quashed. The present case is squarely covered by the decision of the Hon’ble High Court of Delhi delivered in Hotel Signatures Ltd. (2011) 338 ITR 51 in which reassessment proceedings held to be bad in law and decided the issue in favour of assessee.

Facts of the Case

ITA NO. 3475/DEL/2009 (REVENUE’S APPEAL)

The assessee is an investor company which is engaged in the business of dealing in shares and securities. For the AY 2001-02, return declaring total income of Rs.16,290/- was filed on 31.10.2011. The return was processed u/s. 143(1) but no scrutiny assessment was made. Subsequently on the information received from the DIT (Inv.) a notice u/s. 148 was issued after recording of reasons and served on the assessee on 26.3.2008. In response to that the assessee requested to treat the original return as the return in response to notice u/s. 148. The assessment was made u/s.147 by order dated 5.12.2008 determining the total income of Rs. 26,16,290/- and addition of Rs. 26,00,000/- passed u/s. 148/143(3).

ITA NO. 3129/Del/2010 (ASSESSEE’S APPEAL)

The assessee was incorporated on 2.5.1996 and has been engaged in the business of sale and purchase of shares as stock in trade and also as investments. The return of income was filed on 11.11.02 declaring total income of Rs. 4,000/-. The return was processed u/s. 143(1) and thereafter the case was selected for scrutiny. The assessment was completed u/s. 143(3) on 28.2.2005 computing total income at Rs. 4000/- i.e. as declared by the assessee in its returned of income. Subsequently, the case was reopened u/s 147 by duly recording reason u/s 148(2). The submission of the assessee were examined and thereafter assessment was completed on 30.12.2009 computing total income at Rs. 16,04,000/- as against returned income of Rs. 4000/-. The only addition include Rs. 16,00,000/- received from 9 person (including 3 Pvt. Ltd. company and 1 Ltd. Company and 5 individuals) u/s. 68 share application money, which resulted a demand of Rs. 11,30,940/-.

Contention of the Assessee

ITA NO. 3129/Del/2010 (ASSESSEE’S APPEAL)

The ld counsel of the assessee submitted that the reassessment proceedings for the year are based on re- verification of records submitted in the course of original assessment proceedings completed after due scrutiny under sec 143(3), thus not valid. He further submitted that whether the order of the CIT (A) is just and reasonable in the facts and circumstances to confirm the order of A.O. even when it is pointed out that it is a case of “Change of Opinion” on the information already submitted; the order passed by the authorities below is passed without appreciation of information already on record, reasons of satisfaction recorded for reopening, and the reassessment order passed by A.O. are all not connected with each other. He further submitted that assessee had discharged obligations and filed all necessary documents, confirmations at the time of original assessment sufficient to meet the satisfaction under section 148 proceedings when the assessing officer was having accepted those confirmation and information in original assessment proceedings. To support his contention, he referred the various case laws of the Delhi High Court by which the present case of the assessee is covered including the case of Signature Hotel Pvt. Ltd. (2011) 338 ITR 51. He further relied upon the ITAT, ‘C’ Bench, Delhi in which on the similar facts and circumstances the issue in dispute has been dealt by the Tribunal in the case of Shri Govind Kripa Builders and Promoters vs. ITO passed in ITA No. 304/Del/2013 (AY 2008-09) vide order dated 19.12.2014 in which Hotel Signatures Pvt. Ltd. decision (2011) 338 ITR 51 was followed. Later the Department went in Appeal before the Delhi High Court, in ITA No. 486/2015 in the case of Pr. CIT vs. Sh. Govind Kripa Builders Pvt. Ltd. which was dismissed on 4.8.2015 by the Hon’ble High Court of Delhi. Hence, he requested that the reassessment proceedings may be quashed.

Held by CIT (A)

ITA NO. 3475/DEL/2009 (REVENUE’S APPEAL)

CIT (A) allowed the appeal of the assessee & deletes the addition made by AO. CIT (A) held that addition made u/s 68 was on account of information received from DIT (Inv) regarding accommodation entries received by the assessee from the different parties. It is seen from the copy of reasons recorded in respect of escapement of Rs 20 lacs that the four instrument Nos have been repeated twice by the AO. The AO has not mentioned specific amounts against the parties or the instruments Nos according to which they have been received. It is very clear that in respect of four parties at S No 1, 3, 6 & 8 of the table, the amounts have been considered twice. Since the instrument No is same it is obvious that the entries has been repeated by the AO. Therefore I agree with the appellant’s contention that the correct amount received by it only Rs 17 lacs and not Rs 26 lacs. Hence addition to the extent of Rs. 9 lacs is deleted forthwith.

Further as regard to remaining amount of Rs.17 lacs, it is noted that the part of the amount aggregating to Rs 6 lacs was received towards sale of shares which were held by the company and were duly reflected in its balance sheets. Since it was not loan/ advance or any credit received by the appellant, section 68 was not applicable to these receipts. The balance amount was received towards share application money from different parties. I agree with the appellant’s contention that in section 147 proceedings primary onus was upon the AO to confront the appellant with evidence or material   on the basis of which allegation about escapement of income is made. The appellant has to give opportunity to rebut or counter the said material. However the A O did not bring on record any material or any evidence proves that the various payments received were in the nature of accommodation entry. The assessee has furnished sufficient documents to prove the identity of the parties and therefore in view of the decision of Supreme Court in the case of Lovely Exports no additions regarding share application money required. Therefore entire addition of Rs 17 lacs is deleted.

ITA NO. 3129/Del/2010 (ASSESSEE’S APPEAL)

 CIT (A) dismissed the appeal of the assessee and confirmed the addition made by AO.

Held by ITAT

ITA NO. 3475/DEL/2009 (REVENUE’S APPEAL)

ITAT held that the CIT (A) has considered the written submissions of the assessee as well as the documentary evidence filed by the assessee and decided the issue in dispute in favour of the assessee. Therefore, we are of the considered view that no interference is called for in the well reasoned order passed by the CIT (A), hence, we uphold the order on the issue in dispute by dismissing the appeal filed by the Revenue.

ITA NO. 3129/Del/2010 (ASSESSEE’S APPEAL)

ITAT held that AO has recorded the reasons to believe that the income to the extent of Rs. 24.50 lacs has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Hence said income has escaped assessment. We find considerable cogency in the submissions of the Ld. Counsel of the assessee that the facts and circumstances of the present case are similar and identical to that of case of Shri Govind Kripa Builders and Promoters vs. ITO, decided by the ‘C’ Bench, ITAT, New Delhi in ITA No. 304/Del/2013 (AY 2008-09) vide order dated 19.12.2014 (in which one of the Judicial Member was the Party), wherein the Hotel Signatures Pvt. Ltd. (2011) 338 ITR 51 , decision of the Delhi High Court was followed. Against the order dated 19.12.2014 of the Tribunal, the Department went in Appeal before the Hon’ble Delhi High Court, in ITA No. 486/2015 in the case of Pr. CIT vs. Sh. Govind Kripa Builders Pvt. Ltd. and the Hon’ble High Court of Delhi vide its order dated 04.8.2015 held that ITAT relied upon the judgment of this Court in Signature Hotels P. Ltd., vs. ITO [2011] 338 ITR 51 (Delhi) and come to the conclusion that the AO did not apply his own mind to the information and the materials forming the basis of the information. We find no legal error in it.

ITAT further held that from the records, it is clear that earlier scrutiny assessment u/s. 143(3) was completed vide order dated 28.2.2005 and four years have elapsed on date of instant reopening and in reasons recorded allegation was made for income escaping assessment of Rs. 24.50 lacs also whereas income escaping assessment was found to be Rs. 16 lacs in the very same order. On these reasons merely based on investigation wing information without surveillance of substantiation and without any statement being mentioned therein and without nature of transaction being narrated therein and without tangible material, and further without application of mind on amount of income escaping assessment, shows that the reopening is bad in law and needs to be quashed.

Also the issue involved in current case is squarely covered by the decision of the Hon’ble High Court of Delhi delivered in Hotel Signatures Ltd. (2011) 338 ITR 51, in which court held that according to the information , the amount received from a company was nothing but an accommodation entry and the assesee was the beneficiary. The reasons did not satisfy the requirements of Section 147.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 income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The reassessment proceedings are not valid and were liable to be quashed. Hence, respectfully following the above precedent, we decide the legal issue in dispute in favour of the Assessee and against the Revenue and accordingly quash the reassessment proceedings.

Accordingly appeals of the revenue dismissed and appeal of the assessee allowed.

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