M/s Nishit Fincap Private Limited Vs ITO (ITAT Delhi)
In this case The original assessment was completed u/s 143(3) on 03.12.2010 determining the total income at Rs.48,360/-. I find the assessment in this case was reopened on the basis of information obtained from the Investigation Wing, according to which, during the search and seizure operations u/s 132/133A in the case of Mr. Surender Kumar Jain and group of cases and post search enquiries/verification, it is established that the Sh. S.K. Jain, who is known entry provider and also in the business of providing accommodation entries to various beneficiaries companies, had given accommodation entry of Rs.15 lakhs from his company namely M/s Shalini Holdings Ltd. to the assessee. Accordingly, the case of the assessee was reopened by recording reasons which have been already reproduced in the preceding paragraph. A perusal of the reasons so recorded shows that the AO has reopened the assessment by invoking the provision of clause (b) of Explanation-2 of section 147 of the Act.
A perusal of clause (b) of explanation-2 clearly shows that the same is applicable in a case where a return has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. However, a perusal of the paper book filed on behalf of the assessee shows that the original assessment has been completed u/s 143(3) on 03.12.2010 by the Income Tax Officer, Ward-13, New Delhi for the impugned assessment year. Therefore, it is clear that the AO without application of mind and on the basis of report of the Investigation Wing and without verifying the assessment records wherein, the original assessment was completed u/s 143(3), has reopened the assessment. Therefore, the very initiation of proceedings by invoking clause (b) of Explanation-2 of section 147 renders the reassessment proceedings invalid and consequently, such reassessment proceedings have to be quashed on account of non-application of mind before reopening of the assessment.
Considering the fact that the AO has invoked clause (b) of Explanation-2 of section 147 of the Act, which is not applicable in the instant case and further considering the fact that the AO has merely stated that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment without specifying which material, the assessee has not disclosed, especially when every issue was examined during the course of original assessment u/s 143(3) by calling information u/s 133(6), which was complied with by the investing company, I hold that the reassessment proceedings initiated by the AO and upheld by the Ld. CIT(A) is not in accordance with law. I, therefore, quash the same.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is directed against the order dated 27/04/2021 of the CIT(A) National Faceless Appeal Centre (NFAC) for Assessment Year 2008-09.
2. The grounds raised by the assessee are as under:-
“1. The Ld. CIT(A) has erred both in law and circumstances of the case in upholding the reassessment proceedings initiated u/s 147 of the IT Act ignoring the contention of appellant that the proceedings have been initiated by the AO without application of independent mind on the material, if any, provided by the Inv. Wing of the department. In view of the above defects in the compliances the resultant reassessment proceedings are required to be set aside.
2. The Ld. CIT(A) has erred both in law and in facts of the case in upholding the impugned reassessment proceedings ignoring the fact that the sanction u/s 151 of IT Act has been obtained from inappropriate authority i.e the Addl. CIT, Range-18, New Delhi instead of correct authority i.e. Pr. CIT /Pr CCIT/ CCIT/ CIT, New Delhi and in the absence of sanction from the appropriate authority the consequent reassessment proceedings are not valid
3. The Ld. CIT(A) has erred both in law and in facts of the case in upholding the impugned reassessment proceedings ignoring the fact that the sanction u/s 151 of IT Act has been mechanically accorded by the sanctioning authority which is evident from the application of clause (b) of the Explanation 2 to section 147 of the Act initiating action u/s 147 implying that the AO failed to consider the fact that the appellant is already assessed u/s 143(3) of the Act and in such a case that the said clause has no application.
4. The Ld. CIT(A) has erred both in law and circumstances of the case in upholding the reassessment 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.
5. The Assessing Officer has erred in law in completing the assessment u/s 144 r.w.s 147 without issuing a notice u/s 143(2) of the Act against the return of income filed on 16.11.2015 in response to notice u/s 148 of IT Act issued by the AO and such non- compliance of the above mandatory requirement of law to issue notice u/s 143(2) of IT Act against return of income filed makes the resultant assessment order in appeal null and void- ab-initio.
6. 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 initio and liable to be quashed.
7. The Ld. CIT(A) on the facts and circumstances of the case has erred in upholding the validity of impugned assessment order passed u/s 143(3)/147 of the Act on the ground that the AO was not entitled to take cognizance of the material seized from the third party by invoking provisions of sec 147/148 of the Act ignoring the specific provision u/s 153C of the Act dealing with such material.
8. The Ld CIT(A) has erred in law and in facts of the case in upholding the legality of the order of assessment as the same has been passed beyond the period of limitation prescribed u/s 153(1) of the IT Act.
9. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs. 15,00,000/- u/s 68 of the IT Act holding the share capital 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 during assessment proceedings.
10. 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 AO is in contravention of the principals of natural justice.
11. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the assessing officer in making an addition of Rs.27,000/-being 1.8% of the alleged accommodation entries of Rs. 15,00,000/- is arbitrary and without basis and therefore need be quashed.”
3. Facts of the case, in brief, are that the assessee is a company, which was incorporated on 20th March 1997 under the Companies Act, 1956 and is engaged in the business of sale/purchase of shares and providing finance to corporate and other parties. It has two directors namely Sh. Manoj Kumar and Sh. Anuj Gupta. It filed its return of income on 28.09.2008 declaring total income of Rs.18,230/-. The return was selected for scrutiny and noticed u/s 143(2) and 142(1) were issued and served upon the assessee. The AO in the order passed u/s 143(3) dated 03.12.2010 completed the assessment determining the total income at Rs.48,360/-, wherein, he made disallowance out of preliminary expenses at Rs.17,603/-, disallowance out of general expenses at Rs.1,060/- and disallowance u/s 14A r.w.r 8D at Rs.11,465/-.
3.1. Subsequently, the AO reopened the case u/s 147 of the Act by recording the following reasons.
“Reasons for the belief that income has escaped assessment in the case of M/s Nishit Fincan Pvt, Ltd. (PAN-AAACN3687M)
PUC is a proposal for reopening the case u/s 147 of the I.T. Act for the A.Y. 2008-09 in the prescribed proforma.
A search and seizure action u/s 132/133A of the I.T. Act, 1961, was conducted at the residential and business premises of Shri Surender Kumar Jain group of cases (entry operator). During the course of post search investigation and preparation of appraisal report it has been evidently established that Shri Surender Kumar Jain is known entry providers and is in the business of providing accommodation entries to various beneficiary companies/entities/persons through cheques through a number of paper 8s dummy companies in lieu of cash.
During the course of search action vast number of incriminating documents were found and seized. These documents included date wise and month wise hand written cheque books and cash books maintained by Shri Surender Kumar Jain over a long period of time. In these cheque books and cash books details of cheque provided to the beneficiary companies/entities/persons
companies/entities/persons were recorded date wise.
From the verification of the documents seized from the residence of Shri Surender Kumar Jain it clearly appears that the assessee company had obtained accommodation entries from various paper companies of Shri Surender Kumar Jain in lieu of cash during the Financial Year 2007-08 relevant to the assessment year 2008-09 for a total amount mentioned against their names. These bogus share capital and premium has clearly escaped taxation in these assessment years therefore these amounts are required to be taxed in the hands of these companies by initiating action u/s 148 of the I.T. Act, 1961.
Details of the company/entity/person and cheque/pay orders issued in the name of this company/entity/person are reproduced below in a tabular:
