Case Law Details
M/s. Neelkanth Plywood Pvt. Ltd. Vs Income Tax Officer (ITAT Delhi)
A perusal of the reasons for reopening of the case for the impugned assessment year, copy of which is placed at paper book page No. 20-21 shows that the reopening was made on the basis of the report of the investigation wing and there is no independent application of mind by the Assessing Officer for such reopening. The Hon’ble Delhi High Court in a number of cases has held that the reopening on the basis of report of investigation wing without independent application of mind by the Assessing Officer is not valid. Accordingly the reassessment proceedings which were based on the report of the investigation wing and without independent application of mind by the Assessing Officer have been held to be illegal. Since the Assessing Officer in the instant case has reopened the assessment on the basis of report of the investigation wing and there appears to be no independent application of mind by the Assessing officer for reopening of the case, therefore, the reassessment proceeding initiated by the Assessing Officer are not proper.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the assessee is directed against the order dated 31.08.2018 of the CIT(A)-37, New Delhi relating to A. Y. 2008-09.
2. Facts of the case, in brief, are that the assessee is a company and filed its return of income on 11.09.2008 declaring total income of Rs.1,77,185/-. The return was processed u/s. 143(1) on 20.07.2009. Subsequently the Assessing Officer received information from Investigation Wing of the department that a search operation was carried out in the case of Sh. Surender Kumar Jain group of cases, who are known as entry operators. During the course of search and post search enquiries it was established that the said group is involved in providing accommodation entries to various persons whose names were named in the report. The name of the assessee company also appears in the said list as one of the beneficiaries being amount of Rs.5,50,000/- received by the assessee as share capital money from Finage Lease & Finance P. Ltd. The Assessing Officer thereafter reopened the assessment u/s. 147 and notice u/s. 148 was issued to the assessee. In response to the same the assessee submitted that the original return filed on 11.09.2008 may be treated as return filed in response to notice u/s.148. The Assessing Officer issued notice u/s. 133 (6) to Oriental bank of Commerce for copy of account opening form and bank statement from 01.04.2007 to 31.03.2008. He also issued notice u/s. 133 (6) to M/s. Finage Lease & Finance P. Ltd. asking for documents regarding its transaction with the assessee. It was replied by the said company that it has given an amount of Rs.5,50,000/- through cheque No. 000111 dated 24.12.2007 drawn on Kotak Mahindra Bank. The Assessing Officer asked the assessee to produce the Director of above said company. He also asked the assessee to substantiate the identity and creditworthiness of the Investor Company and genuineness of the transaction. However, the assessee failed to produce the director of the investor company. Rejecting the various explanation given by the assessee and relying on various decisions the Assessing Officer made addition of Rs.5,50,000/- to the total income of the assessee u/s. 68 of the IT Act. On the ground that the assessee could not substantiate the ingredients of the said section.
3. Before CIT(A) the assessee apart from challenging the addition on merit challenged the validity of reassessment proceedings. However, the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee and upheld the validity of reassessment proceedings and also sustained the addition made by the Assessing Officer u/s. 68 of the IT Act.
4. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :-
1. That on the facts and circumstances of the case and the provision of law the Ld CIT(A) has failed to appreciate that the initiation of proceedings u/s 147/148 is illegal and bad in law and consequently the assessment framed being illegal requires to be quashed.
2. That on the facts and circumstances of the case and the provisions of the law, the Ld. CIT(A) has erred in sustaining the addition of Rs. 5,50,000/-on account of Share Application money as cash credit u/s 68.
3. That on the facts and circumstances of the case and the provisions of the law, the Ld. AO has erred in initiation of penalty proceedings u/s 271(l](c) of the Act.
4. That the appellant craves leave to reserve to itself the right to add, alter amend, vary, modify and/or withdraw and grounds of appeal at or before the time of hearing.
5. The Ld. Counsel for the assessee at the outset submitted that the reopening of the assessment by the Assessing Officer is illegal and void ab initio. Referring to the reasons recorded by the Assessing Officer, copy of which is placed at pages 20 and 21 of the paper book he submitted that the reasons have been recorded in a mechanical manner and without independent application of mind by the Assessing Officer. He submitted that the Assessing Officer has simply mentioned that as per the information received from the Investigation Wing of the department vide letter dated 12.03.2013 that the assessee during the financial year 2007-08 has received total entries of Rs.5,50,000/- from the entities managed and controlled by the Sh. Surender Kumar Jain for providing accommodation entries to the beneficiaries. He submitted that in the reasons recorded there is no reference of any tangible material or statement alleging the involvement of the assessee. The nature of the entry whether it is loan or share capital or purchase has not been clearly spelt out in the reasons itself. Thus it is clear that the Assessing Officer has not applied his mind and reasons have been recorded on the basis of borrowed satisfaction. There is no live link or nexus between the information so received and formation of belief by the Assessing Officer for escapement of income. For the above proposition he relied on the following decisions :-
1. Sabh Infrastructure Ltd. Vs. ACIT of Hon’ble Delhi High Court
2. Meenakshi Overseas Vs. PCIT ITA No.692/2016
3. Signature Hotels (P) ltd. Vs. ITO of Hon’ble Delhi High Court reported in 338 ITR 51
4. CIT Vs. Insecticides India Ltd. of Hon’ble Delhi High Court reported in 357 ITR 330
5. CIT Vs. G&G Pharma India Ltd. of Hon’ble Delhi High Court ITA No.545/2015
6. So far as the merit of the case is concerned he submitted that to prove the identity and credit worthiness of the investor company and genuineness of the transaction the assessee company had filed the copy of confirmation, copy of share application form, bank statements, balance sheet, income tax return, auditor report, board resolutions, directors report and return of allotment of shares before the Assessing Officer. Further the company M/s. Finage Lease & Finance P. Ltd is having net worth of Rs.14.57 crores. He submitted that the investor company has complied with the notice issued u/s. 133 (6) by the Assessing Officer.
7. So far as the production of the director is concerned he submitted that assessee had requested the Assessing Officer to call them by issuing notice u/s. 131 which was not done by the Assessing Officer. He submitted that the assessee has discharged the onus cast on it by proving the various ingredients of section 68. Therefore, the addition made by the Assessing Officer and sustained by the CIT(A) is not proper. He also relied on the following decisions :-
1. CIT Vs. Gangeshwari of Hon’ble Delhi High Court reported in 361 ITR 10
2. Good view Trading Vs. PCIT of Hon’ble Delhi High Court reported in 377/2016
3. CIT Vs. Victor Electrodes 329 ITR 271
4. Nancy Sales Pvt. Ltd. Vs. ITO ITA No.4129/Del/2017
5. Moti Adhesives Pvt. Ltd. Vs. ITO ITA No.3133/Del/2018
8. The Ld. DR on the other hand heavily relied on the order of the CIT(A). So far as the validity of reassessment proceedings are concerned the Ld. DR relied on the following decisions :-
1. Yogendra kumar Gupta Vs ITO (51 com383) (SC)/r20141 227 Taxman 374 (SC)
2. Raymond Woollen Mills Ltd. v. ITO And Others 236 ITR
3. Yuvrai v. Union of India Bombay High Court r20091 315 ITR 84 (Bombay)/[2009] 225 CTR 283 (Bombay)
4. ACIT Vs Rajesh Jhaveri Stock Brokers (P.) Ltd [2007] 161 Taxman 316 (SC)/[2007] 291 ITR 500 (SC)/[2007]210 CTR 30 (SC)
5. Devi Electronics Pvt Ltd Vs ITO Bombay High Court 201 7-TIQL-92-HC-MUM-IT
6. Acorus Unitech Wireless (P.) Ltd. Vs ACIT Delhi High Court [2014] 43 com62 (Delhi)/[2014] 223 Taxman 181 (Delhi)(MAG)/[2014] 362 ITR 417 (Delhi)
7. Pranawa Leafin (P) Ltd. Vs. DCIT Bombay High court [2013] 33 com454 (Bomba) /[2013] 215 Taxman 109 (Bombay) (MAG.)
8. PCIT Vs. Paramount Communications (P.) Ltd. Delhi High Court [2017] 79 com409 (Delhi)/[2017] 392 ITR 444 (Delhi).
9. Paramount Communication (P.) Ltd. Vs PCIT Supreme Court 2017-TIQL-253- SC-IT
10. – Amit Polyprints (P.) Ltd. Vs PCIT Gujarat High Court T20181 94 com393 (Gujarat)
11. Aaspas Multimedia Ltd. Vs PCIT Gujarat High Court T20171 83 com82 (Gujarat)
12. Murlibhai Fatandas Sawlani Vs. ITO Gujarat High Court 2016-TIOL-370-HC-AHM-IT
13. Ankit Agrochem (P) Ltd. Vs. JCIT Rajasthan High Court [2018] 89 com45 (Rajasthan)
14. Rakesh Gupta Vs. CIT P & H High Court [2018] 93 com271 (Punjab & Haryana)
9. So far as the addition on merit is concerned the Ld. DR relied on the following decisions :-
1. PCIT Vs. NRA Iron & Steel (P) Ltd. [2019] 103 com48 (SC)
2. PCIT Vs. NDR Promoters Pvt. Ltd. (2019-TIOL-172-HC-DEL-IT)
10. I have considered the rival arguments made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. A perusal of the reasons for reopening of the case for the impugned assessment year, copy of which is placed at paper book page No. 20-21 shows that the reopening was made on the basis of the report of the investigation wing and there is no independent application of mind by the Assessing Officer for such reopening. The Hon’ble Delhi High Court in a number of cases has held that the reopening on the basis of report of investigation wing without independent application of mind by the Assessing Officer is not valid. Accordingly the reassessment proceedings which were based on the report of the investigation wing and without independent application of mind by the Assessing Officer have been held to be illegal. Since the Assessing Officer in the instant case has reopened the assessment on the basis of report of the investigation wing and there appears to be no independent application of mind by the Assessing officer for reopening of the case, therefore, the reassessment proceeding initiated by the Assessing Officer are not proper. I, therefore, hold that the reassessment proceeding initiated by the Assessing Officer is illegal and accordingly the subsequent proceedings also become illegal and void. Since the assessee succeeds on this legal ground, therefore, the ground challenging the addition of Rs.5,50,000/- u/s. 68 of the IT Act on merit becomes academic in nature and, therefore, the same is not being adjudicated. The grounds raised by the assessee are accordingly allowed.
11. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 21.08.2019.
