M/s. Charbhuja Marmo (India) Pvt. Ltd. Vs PCIT (ITAT Delhi)
Invalid Reassessment Proceedings can not be Revised Under Section 263 by PCIT
It is well settled Law that since re-assessment proceedings are invalid and bad in law, therefore, such proceedings could not be revised under section 263 of the I.T. Act. It is also well settled Law that validity of the re-assessment proceedings are to be judged on the basis of the reasons recorded for reopening of the assessment. It is also settled Law that while granting sanction under section 151 of the I.T. Act to the reasons and reopening of the assessment, the Competent Authority should apply their mind and could not grant sanction/approval in a mechanical manner.
The ITAT, Delhi Bench in the case of M/s. Supersonic Technologies Pvt. Ltd., Delhi vs. PCIT-8, New Delhi reported in 69 ITR 585 (Delhi) in the proceedings under section 263 of the I.T. Act held that “since reassessment proceedings are invalid and bad in Law, therefore, such proceedings could not be revised under section 263 of the I.T. Act.
Considering the issue involved in the present appeal in the light of above decisions, it is clear that the Addl. CIT and Ld. Pr. CIT while granting approval for reopening of the assessment under section 147/148 of the I.T. Act merely stated “Yes”, which would show that they have not applied their independent mind and merely accorded sanction without going through any material on record. The issue is thus covered against the Revenue by the aforecited decisions in which even on more facts the approval was not found valid. Therefore, the issue is covered by the above decisions of the Tribunal in which even on better footing the re-assessment order was quashed and ultimately it was held that such proceedings could not be reopened in collateral proceedings under section 263 of the I.T. Act, 1961. The Learned Counsel for the Assessee has pointed-out several inconsistencies in the reasons which also show that the reasons are recorded just by reproducing the report of the Investigation Wing without application of mind. The issue is, therefore, covered in favour of the assessee by the above Orders of the Tribunal. Following the same we hold that reopening of the assessment in this case is invalid, bad in law and therefore, such re-assessment proceedings could not be reopened under section 263 of the I.T. Act, 1961. It may also be briefly noted that the A.O. in the reasons recorded in the assessment order has mentioned that assessee has received accommodation entries in assessment year under appeal from five parties in a sum of Rs.70 lakhs and after reopening of the assessment, A.O. called for the details and documents from the assessee and was satisfied with the explanation of assessee, therefore, the of proceedings under section 263 of the I.T. Act by the Ld. Pr. CIT could not have substituted the view taken by the A.O. In view of these facts and circumstances, we are of the view that initiation of proceedings under section 263 of the I.T. Act are not justified. The same are bad in law and invalid. We, accordingly, set aside the Order of the Ld. Pr. CIT passed under section 263 of the I.T. Act and quash the same.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by Assessee has been directed against the Order of the Pr. Commissioner of Income Tax-2, New Delhi, Dated 22.03.2019 for the A.Y. 2010-2011 under section 263 of the I.T. Act, 1961.
2. We have heard the Learned Representatives of both the parties and perused the material on record.
3. Briefly the facts of the case are that the assessee company filed original return of income declaring income of Rs.5,34,420/- which was processed under section 143(1) of the I.T. Act, 1961. Thereafter, a notice under section 148 was issued on 23.03.2016 calling upon the assessee to file its return of income after recording reasons under section 147 and obtaining necessary approval under section 151 as statutorily required. In response to the statutory notice and questionnaire issued by the A.O, the assessee appeared from time to time before the A.O. and filed the requisite details which were examined and taken on record. The oral submissions of the assessee were also considered. The A.O. after examining the detailed evidences filed by assessee, accepted the return of income vide Order under section 147/143(3) Dated 05.12.2016.
4. The Pr. CIT, however, on examination of the record found that re-assessment order to be erroneous and prejudicial to the interests of Revenue because in the year under consideration assessee has received share capital / share premium of Rs.70 lakhs from five parties and all these companies are managed and controlled by Shri S.K. Jain and Shri Virendra Jain who were entry operators and running dummy companies. The Pr. CIT, therefore, issued show cause notice under section 263 of the I.T. Act, 1961, calling for explanation of the assessee.
3.1. The assessee filed written submissions before the Ld. Pr. CIT which is reproduced in the impugned order in which it is explained that assessee filed necessary documents to prove the genuineness of the transaction entered into respect of the share application money which were provided to the A.O. along with supporting documents. The assessee produced all the documentary evidences and there is no failure on the part of the assessee to disclose fully and truly all necessary facts for assessment. Since A.O. has accepted the genuineness of the transaction after examining the documentary evidences and material on record, therefore, it is not a fit case of proceeding under section 263 of the I.T. Act, 1961. The Ld. Pr. CIT, however, did not accept the contention of assessee and noted that during the course of search in the case of Shri S.K. Jain and Shri Virendra Jain various incriminating documents were found. The A.O. considered the appraisal report, but, did not examine the relevant seized material even though the entries in the seized material showed that assessee company was also one of the beneficial of accommodation entries given by these persons. The Ld. Pr. CIT, therefore, held that A.O. passed the re-assessment order without verification of the seized material. The re-assessment order was set-aside and A.O. was directed to frame the assessment afresh by conducting proper inquiries about the source of investment, by affording reasonable opportunity of being heard to the assessee.
4. In the present appeal, the assessee challenged the Order under section 263 of the I.T. Act on several grounds. Learned Counsel for the Assessee initially submitted that Ld. Pr. CIT has no jurisdiction to upset the re-assessment order under section 263 of the I.T. Act because the reopening of the assessment itself was invalid and bad in law and liable to be quashed. He has submitted that reasons recorded are based on borrowed satisfaction and without independent application of mind which is verifiable from the fact that on number of places in the reasons recorded it is mentioned that same is based on mere Investigation Wing appraisal report without anything more brought on record in the reasons and further vague description used in the reasons to address the transaction in question by saying that share capital/premium/loan has escaped assessment vitiates that so purported belief and even details of information received, if any, are no way narrated or described in the reasons recorded even — filing details etc are missing in the reasons. Since reopening of the assessment itself is invalid under section 147 of the I.T. Act, therefore, same is liable to be quashed and as such in collateral proceedings under section 263 of the I.T. Act, the Ld. Pr. CIT would not assume valid jurisdiction. He has also submitted that approval granted by Addl. CIT and Pr. CIT are invalid and bad in law. Learned Counsel for the Assessee, therefore, submitted that proceedings under section 147 are invalid and bad in law. In support of his contention he has relied upon several decisions, copies of which are filed in the paper book.
5. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that A.O. has recorded the reasons after going through the appraisal report and the documents, therefore, reopening of the assessment is justified. The Ld. D.R. also submitted that the Ld. Pr. CIT on going through the record correctly found it to be an assessment erroneous as well as prejudicial to the interests of the Revenue because A.O. has not examined the seized material found during the course of search.
6. We have considered the rival submissions. It is well settled Law that since re-assessment proceedings are invalid and bad in law, therefore, such proceedings could not be revised under section 263 of the I.T. Act. It is also well settled Law that validity of the re-assessment proceedings are to be judged on the basis of the reasons recorded for reopening of the assessment. It is also settled Law that while granting sanction under section 151 of the I.T. Act to the reasons and reopening of the assessment, the Competent Authority should apply their mind and could not grant sanction/approval in a mechanical manner. In this case the A.O. while reopening the assessment has recorded the following reasons for re-assessment under section 147/148 of the I.T. Act, copy of which is filed at PB-3 of the paper book which reads as under :
“ANNEXURE-A
Reasons recorded for initiating proceedings u/s. 147 of the I.T. Act, 1961 in the case of M/s. Charbhuja Marmo India Pvt. Ltd., PAN AADCC5143L for A.Y. 2010-11.
A search and seizure operation u/s 132 of I.T. Act, 1961 was conducted at the business and residential premises of S.K. Jain group of companies, including Shri S.K. Jain & Shri Virendra Jain and considerable incrementing evidence in form of documents/material was seized. During the course of post search investigation, it emerged that Shri S.K. Jain and Shri Virendra Jain were engaged in the business of providing accommodation entries in lieu of cash to a large number of beneficiaries through numerous dummy companies, floated and controlled by them. In fact, it was unearthed that Shri S.K. Jain and Shri Virendra Jain were providing accommodation entries through more than 100 companies/proprietary concerns/ partnership firms. Modus operandi of such bogus companies, as discussed in the report, is briefly prescribed as follows :
“Cash received from the recipient parties for providing the accommodation entries was first deposited in the accounts of these dummy firms/companies in the disguise of the cash received against the bogus sales, duly shown in the books of accounts. From there, this cash was transferred to the different paper companies floated by Shri S.K.Jain and Shri Virendra Jain through a complex trail of transactions, so as to hide the actual sources of funds of the last set of recipient companies of Shri S.K. Jain and Shri Virendra Jain.”
In this way, the reserves & surplus and the capital account of specific set of companies are enhanced with the help of the unexplained cash received by S.K. Jain and Shri Virendra Jain, which routed to these companies through their dummy firms/companies. Once the funds were of these companies have been enhanced sufficiently, accommodation entries through RTGS/ Cheques in the shape of the share capital, share premium, capital gains or loan as per the specific requirement of the recipient clients were provided them in lieu of the cash received from them. In this way, the chain for providing an accommodation entry gets completed.”
As per the report, the assessee company M/s Charbhuja Marmo India Pvt. Ltd. had obtained the following accommodation entries in the form of Share application/Share premium/loan during the F.Y. 200910 relevant to A.Y. 2010-2011 :-
