Case Law Details

Case Name : G.K. Consultants Limited Vs ITO (ITAT Delhi)
Appeal Number : ITA No. 1502/Del/2013
Date of Judgement/Order : 27/06/2014
Related Assessment Year :
Courts : All ITAT (5168) ITAT Delhi (1162)

In the present case, from the reasons recorded by the AO as reproduced hereinabove, we observe that the AO went on to initiate reassessment proceedings u/s 147 and 148 of the Act on the basis of retracted statement of Shri Subhash Gupta without making any further inquiry and investigation. From bare reading of reasons recorded, we also observe that the AO went on to reopen the assessment with a genuine intention to make protective addition pertaining to the accommodation entries alleged to be provided by the appellant company and at the same time, we notice that on a specific query from the Bench, ld. DR was unable to show us that there was a substantive assessment/addition either in the case of Shri Subodh Gupta or in the case of anybody else on the date of assumption of jurisdiction u/s 147 of the Act.

In view of above, we clearly hold that the AO had to initiate reassessment proceedings u/s 147 and 148 of the Act only on the basis of retracted statement of Shri Subodh Gupta, CA without making any further inquiry or investigation. We also hold that the AO proceeded to reopen the assessment of the assessee company for making protective assessment/addition but no substantive assessment existed on the date of assumption of jurisdiction u/s 147 of the Act neither in the case of Shri Subodh Gupta nor in the case of any body else.

Ld. Counsel of the assessee placing reliance on the decision of Hon’ble Jurisdictional High Court of Delhi in the case of CIT vs Dhingra Metal Works (2010) 328 ITR 384 (Delhi) and submitted that even on the basis of the statement made by the assessee during the course of survey, the AO could not have made addition as the said statement cannot be said to be conclusive and it is open to the person who has made the admission in the statement to show that the same is incorrect. Ld. Counsel of the assessee further submitted that in the present case, the statement of Shri Subodh Gupta was recorded in his individual capacity and not as a director of the assessee company which was also retracted only after four days on 4.11.2003, therefore, the AO was not justified in assuming jurisdiction for initiation of proceedings u/s 147 and in issuing notice u/s 148 of the Act.

The counsel of the assessee has also placed reliance on another decision of Hon’ble Jurisdictional High Court of Delhi in the case of Signature Hotel vs ITO (2011) 338 ITR 51 (Del) and submitted that the AO must have “reason to believe” that an income chargeable to tax has escaped assessment and it is mandatory for the AO that the “reason to believe” are required to be recorded by the AO and if the belief is not bona fide or based on vague, irrelevant and non-specific information, then the same cannot be regarded as material evidence which prima facie establishes escapement of income, more so, when the AO did not apply his own mind to the information to arrive at the belief as to whether or not any income had escaped assessment, then initiation of proceeding and notice u/s 147 and 148 of the Act deserves to be quashed. Ld. Counsel of the assessee has drawn our attention towards reasons recorded by the AO and submitted that the AO has proceeded to make protective assessment without any substantial assessment on the basis of retracted statement of Shri Saurabh Gupta recorded during the course of survey without making any further investigation and inquiry and without applying his own mind to the material and evidence available before him at the time of recording reasons and assuming jurisdiction u/s 147 of the Act for issuance of notice u/s 148 of the Act.

Ld. DR replied that the AO proceeded to initiate proceeding of reopening of assessment u/s 147 of the Act and for issuing notice u/s 148 of the Act on cogent and justified basis because Shri Subodh Gupta, CA who was also a director in the assessee company made a statement that he provided accommodation entries to the various entities through an assessee and other companies managed and controlled by him, therefore, the AO rightly assumed jurisdiction u/s 147 of the Act for issuing notice u/s 148 of the Act.

On careful consideration of above contention, we are of the view that there may be a substantive assessment without any protective assessment but there can not be any protective assessment/addition without a substantive assessment/addition, meaning thereby there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition. In the present case, the AO proceeded to make protective assessment by way of reopening of assessment of the assessee appellant company without being a substantive assessment on the date of assumption of jurisdiction u/s 147 of the Act which is not permissible as per decision of ITAT, Mumbai in the case of M.P. Ramachandaran vs DCIT (supra) and Suresh K Jajo vs ACIT (supra).

On the basis of following discussion and submissions and contention of both the parties, we also observe that the statement of Shri Subodh Gupta CA was recorded during the course of survey in his personal capacity and which was retracted on 4.11.2003 and retracted statement recorded during the survey cannot be a basis of assumption of jurisdiction u/s 147 of the Act.

Respectfully following the decision of Hon’ble Karnataka High Court in the case of CIT vs Dr. R.N. Thippa Shetty, we are inclined to hold that if the very basis on which reopening was ordered did not exist, then there was no question of reopening the assessment and thus, notice u/s 148 of the Act deserves to be held as illegal and without jurisdiction.

From the reasons recorded and reproduced hereinabove, we observe that the AO has not made any specific allegations against the assessee appellant company. The entire contents of the reasons recorded are pertaining to statement of Shri Subodh Gupta and the AO proceeded to initiate proceedings for reopening of assessment u/s 147 of the Act and for issuance of notice u/s 148 of the Act without making any further inquiry and investigation about material which was before him at the time of assumption of jurisdiction u/s 147 of the Act and issuing notice u/s 148 of the Act.

On the basis of foregoing discussion, we reach to a conclusion that the AO assumed jurisdiction to initiate and reopen reassessment u/s 147 of the Act on the basis of retracted statement of Shri Subodh Gupta which was recorded during the survey on Shri Subodh Gupta in his individual capacity and the AO also proceeded to make a protective assessment/addition without any substantive assessment/addition and without making any further investigation and inquiry about the material and information before him at the time of recording reasons.

Accordingly, we have no hesitation to hold that the AO assumed jurisdiction for reopening of assessment u/s 147 of the Act and for issuing notice u/s 148 of the Act on wrong premise and without any justified, cogent and legal reason. We, therefore, further hold that there existed no good or sufficient ground or reason for reopening of the case and issuance of notices u/s 148 of the Act against the assessee company. We also hold that the condition precedent for valid initiation of reassessment is not being satisfied as the belief that income chargeable to tax has escaped assessment does not exist on the date of assuming jurisdiction u/s 147 of the Act. Therefore, all subsequent proceedings including issuance of notice u/s 148 of the Act were illegal and bad in law. Accordingly, ground no. 2, 3 and 4 of the assessee are allowed and we hold that the CIT(A) has erred in confirming the action of the AO for assuming jurisdiction u/s 147 of the Act and issuing notice u/s 148 of the Act to the assessee for reopening of assessment and, thus, all proceedings u/s 147 and 148 of the Act to the assessee including notices are hereby quashed.

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Category : Income Tax (27499)
Type : Featured (4062) Judiciary (11697)
Tags : ITAT Judgments (5352) Reassessment (254) section 147 (445) section 148 (371)

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