Metro Decorative (P) Ltd. Vs. ITO (ITAT Delhi)
Reasons recorded by the AO in this matter solely basing on the information received from the Directorate of investigation without any independent exercise of mental process cannot be construed as reasons to believe and the consequent proceedings of reopening are bad under law. Further, the approval/sanction of the Addl. CIT, is also not in accordance with the requirements of section 151 and this also vitiates the proceedings. For these reasons, the reopening proceedings are bad under law and are liable to be quashed.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
Aggrieved by the order dated 29-11-2013 in appeal no. 155/11-12 passed by the learned Commissioner (Appeals)-IX, New Delhi (hereinafter for short called as ‘the learned Commissioner (Appeals)). Assessee preferred this appeal on the following grounds :–
1. “On the facts and circumstances of the case and in law, the assessing officer erred in issuing notice under section 148 of the Income Tax Act, 1961. The notice under section 148 issued in this case is illegal, void and without jurisdiction and accordingly the assessment order passed on the foundation of such notice is liable to be quashed. The learned Commissioner (Appeal) should have held the reassessment proceedings as illegal, void and without jurisdiction.
2. On the facts and circumstances of the case and in law, the Commissioner (Appeal) erred in confirming the addition made by the assessing officer of share application money/share capital of Rs. 20,00,000 as alleged unexplained income under section 68 of the Income Tax Act, 1961. The addition made by the assessing officer is not sustainable and Commissioner (Appeals) should have deleted the same.
3. On the facts and circumstances of the case and in law, the Commissioner (Appeal) erred in confirming the addition of Rs. 40,000 made by the assessing officer as alleged commission paid. The addition made by the assessing officer is not sustainable and Commissioner (Appeal) should have deleted the same.
4. The alleged reasons given by assessing officer and Commissioner (Appeals) for making/confirming the additions of Rs. 20,00,000 and Rs. 40,000 are erroneous, both on facts and in law and, therefore, the additions of Rs. 20,00,000 and Rs. 40,000 made by the assessing officer and confirmed by Commissioner (Appeals) are liable to be deleted.
The appellant craves leave to add, alter, modify or delete one or more ground of appeal before or at the time of hearing of appeal.
The aforesaid grounds of appeal are without prejudice of each other.”
2. Briefly stated facts are that the return of income dated 30-10-2004 submitted by the assessee declaring a total income of Rs. 1,72,908 was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter for short called as ‘the Act’) and subsequently an information was received from the Investigation Wing, New Delhi that certain persons including the assessee have resorted to money laundering by giving an unaccounted cash to entry operators and in turn taking cheques and DDs under the garb of share application money or sale proceeds of non-existent goods thereby ploughing back their undeclared cash into its books of accounts. Basing on such information the assessing officer recorded the following reasons for reopening the assessment :–
“The investigation wing of the Income Tax Department had unearthed a huge money laundering mechanism wherein it was establish that bogus accommodation entries were provided/taken. These accommodation entries received in lieu of payment of cash of equivalent amount plus commission thereon to the entry operators. For obvious reasons, these cash transactions are not routed through the books of account of the assessee. In this case, information has been received from Assistant Commissioner, Central Circle-4, New Delhi forwarded by Income Tax Officer Ward 14(4), New Delhi vide Letter F. No. ITO W 14(4)/2010-11/765, date 22-3-2011 that during the relevant assessment year, the assessee had received the following cheque amount(s) in nature of accommodation entry from the companies operated by Tarun Goyal (an entry operator) for the assessment year 2004-05.
|Value of Entry Taken||Instrument No. by which Entry Taken||Date on which Entry Taken||Name of Account Holder of Entry Giving Account||Bank From Which Entry Given
|Branch of Entry Given Bank||A/c No. Entry Given Account|
|5,00,000||Mahanivesh India Ltd.|
|5,00,000||Goofcoo Finance Ltd.|
|5,00,000||DU Securities (P) Ltd.|
|5,00,000||Adonis Financial Services (P) Ltd.|
Therefore, I have reason to believe that an income of Rs. 20,00,000 plus commission @ 2%, thereon amounting to Rs. 40,000 totaling to Rs. 20,40,000 has escaped assessment during the assessment year. On the basis of this information, I have reason to believe that the incomes described above have escaped assessment and the case is fit for issuing. Notice under section 148 of Income Tax Act, 1961.”
Assessment was completed by making addition of Rs. 20,40,000 being the unexplained credits in the books of the assessee and commission at 2% thereon. In appeal assessee challenged the reopening of the assessment and also the additions. Learned Commissioner held that the assessing officer followed the procedure by issuing a notice under section 148 of the Act, as such, there is nothing to vitiate the reopening of the proceedings. In so far as the additions are concerned, learned Commissioner (Appeals) held that in reality all the creditors are only paper companies and the creditworthiness and genuineness of the transactions are not proved as all the three attributes required to be proved by the assessee as per the decision in CIT v. Lovely Exports (P) Ltd. (2008) 216 ITR 195 (SC), CIT v. Sophia Finance Ltd. (1994) 205 ITR 98. Holding so learned Commissioner (Appeals) confirmed the additions made by the assessing officer. Hence, the assessee is in appeal now before us.
3. It is the argument of the learned Authorized Representatives that the reasons recorded by the assessing officer in this case cannot be said to be reasons to believe that any income of the assessee had escaped assessment, for they do not indicate the application of mind by the assessing officer. According to him the validity or otherwise of the proceedings initiated under section 147 has to be adjudged on the basis of the reasons recorded, as such, if application of mind is not manifested from the reasons so recorded, such proceedings are invalid and vitiated. He further argued that where the sanction/approval was accorded by the authority for issuing notice under section 149 of the Act in a mechanical manner and without application of mind, assumption of jurisdiction to reopen the assessment is invalid. For this purpose, he placed reliance on the decisions reported in Pr. CIT v. G&G Pharma India Ltd. (Delhi High Court) (ITA No. 545/D/2015), Pr. CIT v. N.C. Cables Ltd. (Delhi High Court) (ITA No. 335/2015), Pr. CIT v. Meenakshi Overseas (P) Ltd. (Delhi High Court) (2017) 395 ITR 677, CIT v. S. Goyanka Lime & Chemicals Ltd. (MP High Court) in (ITA No : 82, 83, 84, 87, 88, 89 of 2012, date 14-10-2014) and CIT v. S. Goyanka Lime and Chemicals Ltd. (2016) 237 Taxman 378 (SC).
4. On merits he submitted that the details like PAN Card, ITR acknowledgements, audited statements relating to Geefcee Finance Limited, Mahanivesh (India) Ltd., Adonis Financial Services (P) Ltd. and Adonis Securities (P) Ltd. all the companies from whom the share application was received are filed establishing not only the identity but also their capacity to invest the amount and the genuineness of the transaction. He submitted that the share application form along with Board Resolution was also made available before the authorities, as such, it is not open for them to say that all the four companies are paper companies and the transaction was not a genuine one. Further in respect of the assessment year 2005-06 similar reopening of the matter took place on the information furnished by the DIT (Inv.) and it was deleted by the learned Commissioner (Appeals) in appeal by order dated 29-4-2013 and a coordinate bench of this Tribunal in ITA No. 513/Del/2015 upheld the findings of the learned Commissioner (Appeals) deleting the addition made under section 68 of the Act on account of share application money and the commission thereon.
5. Per contra, learned Departmental Representative heavily relied upon the orders of the authorities below and he submitted that the whole affair of the assessee receiving the share application money of Rs. 20 lacs is a design to create an apparatus to introduce unaccounted money of the assessee. Whether the creditors or the entry providers should be taxed separately leaving the entry taker, i.e. assessee is free from liability or not is a different issue altogether. But the circumstancial evidences and the design of the entry operator gives the benefit to the assessee more than anyone else. The assessee has introduced unaccounted money paying some commission to the entry operator under the grab of share application money taking advantage of some judicial decisions. In the era of high level of professionalism with degredation of ethics, circumstancial evidences have found due importance even in criminal proceedings and hence in the Income Tax proceedings, at the appellate stage it is difficult to do away with it. All the documents filed by the assessee only points towards identity of the creditors. He, therefore, prayed to dismiss the appeal.
6. We have carefully gone through the record, the documents and decisions relied upon by either side. In so far as the challenge of the assessee as to the legality and validity of the reopening is concerned, assessee is placing reliance on the decisions reported in G&G Pharma India Ltd. (Del. High Court) (supra), N.C. Cables Ltd. (supra) and Meenakshi Overseas (P) Ltd. (supra). He also placed reliance on the decisions reported in Signature Hotels (P) Ltd. v. ITO 338 ITR 51 (Del), Sarthak Securities Co. (P) Ltd. v. ITO (2010) 195 Taxman 262 (Del), CIT v. Kamdhenu Steels & Alloys Ltd. (2014) 361 ITR 220 (Delhi). As could be seen from these decisions, it is consistently held that the reopening based on the information furnished by the Directorate of Investigation and the assessing officer without making any further Investigation on his own, recording the reasons to believe that income escaped assessment are bad. In fact in Pr. CIT v. M/s. N.C. Cables Ltd. (supra) above vide paragraph no. 10 the Hon’ble High Court extracted the reasons which are as follows :–
“10. As far as the first issue with respect to the approval granted to reopen the assessment under section 147/148 of the Act is concerned, the relevant noting is as follows :–
“Reasons for issuing notice under section 148 of the Act in the case of M/s. N. C. Cables Limited, for the assessment year 2001-02-reg.
Information has been received from the Investigation Wing of the Income Tax Department that the above named assessee is a beneficiary of accommodation entries received from certain established entry operators identified by the Wing during the period laundering for the beneficiaries and on the basis of investigation carried out and evidences collected, a report has been forwarded. I have perused the information contained in the report and the evidences gathered. The report provides details of the modus oparandi of the ‘money laundering scam’ and explain how the unaccounted money of the beneficiaries are ploughed back in its books of account in the form of bogus share capital/capital gains etc. after routing the same through the bank account (s) of the entry operators. Entry operators were identified after thorough investigation on the basis of definitive analysis of their identity, creditworthiness and the source of the money ultimately received by the beneficiaries. These entry operators are found to be mostly absconding after the unearthinq of the ‘Money Laundering Scam’ leaving the said money at the disposal of the beneficiaries without any associated cost or liability. In the instant case, the assessee is found to be the beneficiary of accommodation entry from such entry operators as per the following specific details of transaction:-
|Entry Operator||Beneficiary’s Bank||Amount Rs.||Instrument No. by which entry taken and date||Entry giving bank||Account no. from which entry was given|
|Performance Trading & Inv.||–||700420||13.11.2000||SBP-DG||4281|
|Subhash Chander Singhal||–||500300||23.11.2000||SBP-DG||4544|
|Kuldeep Textiles P. ltd.||–||500500||21546 24.03.2001||Innovative Wazipur||239|
|Sweta Stone P. Ltd.||–||500500||23510 24.03.2001||-do-||1200259- CA|
Trading P. Ltd.
During the course of the proceedings under section 148 for the same assessment year, which Was dropped on the technical ground that proper sanction was not obtained, it was noticed that there are other receipts also from the identified entry operators. Information about those entries was not available in the data received from the Investigation Wing.
Nevertheless they also fall within the ambit of section 68 of the Act. The assessee has received unexplained sums from the entry operators as per the above details as per information available with the undersigned. As explained above the identity, creditworthiness and genuineness of transactions with the persons found to be entry operators cannot be established. I therefore have reasons to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment for above assessment year the income chargeable to tax to the extent of accommodation entry mentioned above, has escaped assessment within the meaning of S.147 of the Act.
Since four years has been expired from the end of the relevant year, and assessment under section 143(3) of the Act was made in the case of the assessee for the said A ~ the reasons recorded above for the purpose of reopening of assessment is put up for kind satisfaction of the CIT, Delhi t1, New Delhi in terms of the Proviso to section 151 of the Act.
Sd (ITO) Ward 13(1).
The ACIT, Range 13, New Delhi For kind approval of CIT-V, New Delhi CIT-V, Delhi :–
7. In the case on hand also the contention of the Revenue is that the assessee issued cash and received cheques from one Sh. Tarun Goyal, an entry operator. It is only on the basis of information furnished by the Directorate of Investigation Unit assessing officer found the satisfaction that the income of Rs. 20,40,000 had escaped the assessment due to the reason of failure on the part of the assessee to prove not only the identity of share applicants but also the capacity of such applicants and the genuineness of the transaction. The Hon’ble Jurisdictional High Court in Sarthak Securities (P) Ltd. v. ITO (2010) 195 Taxman 262 (Del), Signature Hotels (P) Ltd. v. ITO 338 ITR 51 (Del), CIT v. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), Pr. CIT v. G&G Pharma India Ltd. (ITA No. 545/D/2015) (Delhi High Court), ITO v. N.C. Cables Ltd. (Delhi ITAT)-Judgment, date 22-10-2014 and Pr. CIT v. Meenakshi Overseas (P) Ltd. (2017) 395 ITR 677 held that the reopening of the assessment without the assessing officer independently undertaking the exercise of examination of facts is bad under law.
8. The Jurisdiction Delhi High Court in the case of Pr. CIT v. Meenakshi Overseas (P) Ltd. (2017) 395 ITR 677 (Del-HC) has held that reopening under section 147/148 was not justified where reasons were recorded merely on the basis of information received from investigation using and without independent application of mind by the assessing officer. The Hon’ble Court held that it was indeed a “borrowed satisfaction” and reopening was not justified.
9. Now coming to the second limb of challenge made by the assessee to the effect that the reassessment proceedings initiated are bad in as much as the approval/sanction by Addl. CIT is without recording satisfaction and the same is not in accordance with the requirements of section 151 of the Act, learned Authorized Representatives brought it to our notice that vide sl. no. 11 the Addl. CIT, Range 6, New Delhi recorded that “Yes, I am satisfied”. On this aspect learned Authorized Representatives placed reliance on the decisions reported in Chhugamal Rajpal v. S.P. Chaliha (1971) 79 ITR 602 (SC), Central India Electric Supply Co. Ltd. v. ITO (2011) 333 ITR 237 (Delhi), ITO v. N.C. Cables Ltd. (Delhi ITAT)-Judgment date 22-10-2014, ITO v. M.B. Jewellers (P) Ltd. (Delhi ITAT) judgment dated 14-11-2014, Amar Lal Bajaj v. ACIT in (IT Appeal Nos. 534 & 611 (Mum.) of 2004 (assessment year 1995-96), date 24-7-2013), CIT v. M/s. S. Goyanka Lime and Chemicals Ltd. in (ITA No : 82, 83, 84, 87, 88, 89 of 2012, date 14-10-2014) and Pr. CIT v. N.C. Cables Ltd. (ITA No. 335/2015), for the principle that where the authority to grant/sanction merely recorded “Yes, I am satisfied”, such an approval/sanction is not sustainable.
10. We have gone through the decisions relied upon by the learned Authorised Representatives. In the decision reported in CIT v. M/s. S. Goyanka Lime and Chemicals Ltd. (supra) it is held by the Hon’ble Madhya Pradesh High Court as follows :–
“7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so “Yes, I am satisfied”. In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down”–
“The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format “Yes, I am satisfied” which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.”
11. This decision of the Madhya Pradesh High Court was challenged by the Revenue before the Hon’ble Supreme Court by way of the Special Leave Petition and the Hon’ble Supreme Court was pleased to dismiss the Special Leave Petition vide order reported in CIT v. S. Goyanka Lime and Chemicals Ltd. (2016) 237 Taxman 378 (SC).
12. In the circumstances surrounding this case, in view of the decisions referred to above, we are of the considered opinion that the decisions reported in Sarthak Securities (P) Ltd. (supra), Signature Hotels (supra), Kamdhenu Steels & Alloys Ltd. (2014) 361 ITR 220 (Delhi) & G&G Pharma India Ltd. (supra) are directly applicable to the facts of the case to hold that the reasons recorded by the assessing officer in this matter solely basing on the information received from the Directorate of Investigation without any independent exercise of mental process cannot be construed as reasons to believe and the consequent proceedings of reopening are bad under law. Further, the approval/sanction of the Addl. CIT, Range 6, New Delhi is also not in accordance with the requirements of section 151 of the Act, as is held in M/s. S. Goyanka Lime and Chemicals Ltd. (supra) and this also vitiates the proceedings. For these reasons, we hold that the reopening proceedings are bad under law and are liable to be quashed. Since, we are quashed the proceedings on the questions of law, we do not deem it necessary to adjudicate the merits of additions made in this matter. For these reasons, we hold that the orders of the authorities below cannot be sustained and consequently, they are liable to be quashed. We do so.
12. In the result, the appeal of the assessee is allowed.