Reassessment merely based on Investigation Wing information is invalid

Uma Strips Ltd. Vs DCIT (ITAT Delhi)

In this case ITAT find that there is no live link presented by the AO between the material available with him i.e. the report of the investigation and to reason to belief that the assessee has tried to evade the assessment for the particular year in question. Simply stating and doubting that the assessee is involved in obtaining accommodation entries without providing proof, reason, information to back-up the claim cannot be considered as a valid reason to issue notice u/s 148 of the I.T. Act. There is no independent application of mind that could be deciphered from the reasons recorded. There is no reference to examination of the returns filed and whether the entries taken or on account of bogus capital, a balance sheet item or on account of bogus sales or purchases on account of revenue account. As per the record and the reasons recorded, no enquiries have been conducted by the Assessing Officer to come to a conclusion or reasons to belief with regard to evasion of tax which has escaped assessment.

Placing reliance on the decisions of Hon’ble jurisdictional Delhi High Court in the case of Pr. CIT Vs. Meenakshi Overseas (P) Ltd. 395 ITR 677, G&G Pharma 384 ITR 147, Sabh Infrastructure 398 ITR 198 and Pr. CIT Vs. RMC Potyvinyl (I) Ltd. 396 ITR 5 wherein the Delhi High Court has held that observations of the Investigation Wing should not be treated as conclusions without the AO independently verifying the same, in the absence of which the Hon’ble Court held that the reopening of assessment was bad in law.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeal has been filed by the assessee against the order of the ld. CIT(A)-9, New Delhi dated 29.01.2019.

2. Following grounds have been raised by the assessee:

“(1) That the order of the Learned Commissioner of Income Tax (Appeals)-9, New Delhi is arbitrary, biased and bad in law and in facts and circumstances of the case in so far as it confirms the addition made by the Assessing Officer.

(2) That the Learned Commissioner of Income Tax, (Appeals) has grossly erred in confirming the assumption of jurisdiction u/s 147/148 of the Act, by the AO which jurisdiction is illegal and bad in law.

(3) That the order passed pursuant to illegal assumption of jurisdiction u/s 147/148 of the Act is void ab initio and deserves to be quashed.

(4) That the Learned Commissioner of Income Tax, (Appeals) has grossly erred in confirming an addition of Rs.57,39,306/- for alleged bogus purchase made from M/s. Naman Exports without appreciating the fact that the purchased diamonds had been exported out of India and an independent government agency had verified the fact of exports.

(5) That the Learned Commissioner of Income Tax, (Appeals) has grossly erred in summarily brushing aside the submission of the appellant and in confirming the addition of Rs.57,39,306/- ignoring even the remand report of the Assessing Officer wherein the Assessing Officer had stated that no adverse finding was recorded by him on inquiry during the remand proceedings on account of appellant’s dealing with M/s for Uma Strips Ltd.

(6) That the Learned Commissioner of Income Tax, (Appeals) has grossly erred in confirming the addition made by the AO without appreciating the fact that the AO had not provided an opportunity to the appellant to cross examine the said Shri Bhan war Lal Jain on the basis of whose retraced statement the case had been reopened ignoring the settled judicial precedents on the issue and in confirming the assessment of income on the basis of mere allegations.

(7) That the Learned Commissioner of Income Tax, (Appeals) has grossly erred in confirming the addition of Rs. 57,39,306/- by treating the same as bogus purchases in spite of the complete quantitative tally of material purchased and sold/ exported furnished during the course of assessment proceedings.

(8) That the Learned Commissioner of Income Tax, (Appeals) has grossly erred in confirming a hypothetical addition of Rs. 1,14,786/- towards alleged commission paid for arranging the alleged bogus purchases under section 69C of the Act.”

3. The assessee filed return of income on 28.09.2010 declaring total income of Rs.3,74,820/-. Notice u/s 148 of the Income Tax Act, 1961 for reopening the above assessment was issued on 17.03.2015 and was served on the assessee on 19.03.2015.

4. Reasons recorded on 17.03.2015 for re-opening the assessment has been duly provided vide letter dated 13.07.2015 to the assessee. The reasons recorded are as under:

Reasons recorded for re-opening the case of 147/148 of Income Tax Act

“M/s Uma Strips. Ltd. is assessed to tax with Circle 27(1), New Delhi. The assessee company e-filed its Return of income on 28.09.2010 declaring total income of Rs. 3,74,820/-. The case was processed ids 143(1) of Income tax Act-1961.

2. Director of lnvestigation-11, Mumbai have unearthed huge accommodation entry racket being operated by accommodation entry operator Sh. Bhanwarilal Jain Group by way of many companies/ firm etc. The investigation wing has complied a report & data of the beneficiaries of such entries. The name of the assessee figures in the list of beneficiaries who have taken accommodation entries of bogus purchases.

I have gone through the report and data sent by the investigation wing. The report clearly indicates that accommodation entries have been taken to plough back uncounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form accommodation entries of bogus purchases and even describes the modus operandi of this scam.

The Investigation Wing’s list of Beneficiaries (of such accommodation entries), gives comprehensive details of Beneficiaries Name, Entity from where entry received, even the person through which such entry is received.

This list contains the name of M/s. Uma Strips Ltd. which has taken such accommodation entries as under:

Thus, the assessee has ploughed back unaccounted money of Rs. 57.39 Lakhs in its business through the channel of accommodation entry. The assessee has also paid commission on the same. Therefore, it is failure on the part of the assessee to disclose fully arid truly all material facts necessary for its assessment, for the assessment year 2010-11. In view of the above facts, I have reasons to believe that income to the tune of Rs.57.39 Lakhs of the assessee company for A. Y. 2010-11, has escaped assessment.”

5. At the outset, the ld. AR argued that the assumption of jurisdiction u/s 147 of the Income Tax Act, 1961 is void ab initio as there was no “satisfaction” drawn by the Assessing Officer.

6. The ld. DR argued that the “satisfaction” of the AO is apparent from the “reasons recorded” by the AO.

7. Heard the arguments of both the parties and perused the material available on record.

8. We find that,

a. The first para deals with the factual information about filing of the return by the assessee and processing u/s 143(1) of the I.T. Act.

b. The second para deals with report of the Director of Investigation-II and the data of beneficiaries of the accommodation entries.

c. The third para deals with the examination of the Assessing Officer with regard to the report.

d. The fourth para deals with the list of beneficiaries wherein in the name of the assessee has been mentioned.

e. In the fifth para, the Assessing Officer holds that the assessee has ploughed back unaccounted money in its business through accommodation entries. The Assessing Officer also held that there is a failure on the part of the assessee fully and truly all material facts required for assessment.

9. From the above, we find that there is no live link presented by the AO between the material available with him i.e. the report of the investigation and to reason to belief that the assessee has tried to evade the assessment for the particular year in question. Simply stating and doubting that the assessee is involved in obtaining accommodation entries without providing proof, reason, information to back-up the claim cannot be considered as a valid reason to issue notice u/s 148 of the I.T. Act. There is no independent application of mind that could be deciphered from the reasons recorded. There is no reference to examination of the returns filed and whether the entries taken or on account of bogus capital, a balance sheet item or on account of bogus sales or purchases on account of revenue account. As per the record and the reasons recorded, no enquiries have been conducted by the Assessing Officer to come to a conclusion or reasons to belief with regard to evasion of tax which has escaped assessment.

10. Placing reliance on the decisions of Hon’ble jurisdictional Delhi High Court in the case of Pr. CIT Vs. Meenakshi Overseas (P) Ltd. 395 ITR 677, G&G Pharma 384 ITR 147, Sabh Infrastructure 398 ITR 198 and Pr. CIT Vs. RMC Potyvinyl (I) Ltd. 396 ITR 5 wherein the Delhi High Court has held that observations of the Investigation Wing should not be treated as conclusions without the AO independently verifying the same, in the absence of which the Hon’ble Court held that the reopening of assessment was bad in law.

11. Hence, we hold that the proceedings u/s 148 of the I.T. Act are void ab initio and are liable to be quashed.

12. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 20/05/2022.