Bhaijee Commodities Pvt Ltd Vs ACIT (ITAT Delhi)
ITAT Delhi held that initiation of reassessment proceedings u/s 147 of the Income Tax Act merely on the basis of information from other officer without cogent and demonstrable material unjustified.
Facts- The assessee-company is a brokerage house engaged in the services of commodities. The assessee has inter alia executed transactions towards commodities trading on by using National Multi-Commodity Exchange (NMCE) platform through certain brokers and sub-brokers.
On the basis of certain information received from investigation wing of the dep’t, the re-assessment proceedings were initiated and the notice u/s. 148(1) was issued on 31.03.2017 to assume jurisdiction for re-assessment u/s. 147 of the Act. The reassessment proceedings u/s. 147 were completed after making additions.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Mere adoption of some information from other officer straightaway can not be characterized as bonafide belief of AO in the absence of some cogent and demonstrable material. The AO can not merely be ‘satisfied’ on the alleged information. lie is required to undergo strictier test for reopening the case. The statute has made careful selection of expression ‘reason to believe’ and not mere ‘satisfaction’. Further, it is not belief per se that is a pre-condition for invoking section 147 of the said Act but a belief founded on reasons. The expression used in erstwhile section 147 is ‘If the Assessing Officer has reason to believe’ and not ‘If the Assessing Officer believes’.
Held that reasons recorded and approval granted thereon under Section 151 do not meet the requirement of law at all and thus the issuance of notice under Section 148 based on cryptic and nondescript reasons combined with a mechanical approval of the CIT that too on a narrow compass under Section 151 is not permissible in law. We thus have no hesitation to hold that the notice issued under Section 148 is thus without jurisdiction and consequently reassessment framed for Assessment Year 2010-11 is bad in law and hence quashed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned Cross Appeals have been filed at the instance of the Assessee and the Revenue against the order of the Commissioner of Income Tax (Appeals)-2, Delhi [‘CIT(A)’ in short], dated 09-082019 arising from the reassessment order dated 22-12-2017 passed by the Assessing Officer (AO) under Section 147 r.w.s 143(1) of the Income Tax Act, 1961 (the Act) concerning AY 2010-11 in question.
2. The Grounds of Appeal raised by the assessee read as under:
“1(i) That on facts and circumstances of the case, the Ld. CIT(A) has erred in upholding validity of notice u/s 148 and consequential reassessment proceedings u/s 147 even though the same are without recording proper reasons in terms of provisions of section 147 of the Income tax Act, 1961 and requisite approval in terms of provisions of section 151 of the Act.
(ii) That the reasons have been recording solely on the basis of information from investigation wing and there being no independent application of mind, the reopening u/s 147 is merely on the basis of borrowed satisfaction and not sustainable under the law
(iii) That information from investigation wing being not in the nature of tangible material, the reasons are merely recorded on the basis of suspicion and as such the notice u/s 148 is illegal and without jurisdiction.
(iv) That the assessing office having failed to properly deal with and dispose- off objection to notice u/s 148, the reassessment proceedings are in disregard to principle laid down Apex Court and are liable to be quashed.
2(i) That on facts and circumstances of the case, the Ld. CIT(A) has erred in confirming addition of Rs. 50,00,000/- u/s 68 being share capital received from M/s. Shalini Holding P. Ltd. in total disregard to documentary evidence placed on record and remand report of the assessing officer.
(ii) That transaction of share capital being supported from relevant documentary evidences and there being no dispute with regard to identity and genuineness of the party, the impugned addition u/s 68 is misconceived and merely on arbitrary basis.
(iii) That the notice u/s 133(6) was duly complied with by the share applicant during remand proceedings and the existence and identity of the share applicant having been accepted by the assessing officer in remand report, the impugned order is contrary to facts and not sustainable under the law.
(iv) That appellant having discharged the burden of proof and in absence of any adverse material, the addition u/s 68 is on the basis of conjectures and surmises.
3(i) That on facts and circumstances of the case, the Ld. CIT(A) has grossly erred in upholding addition of Rs. 2,35,49,859/- being profit earned from transactions undertaken on NCME platform without appreciating that such profit has duly been accounted for and corroborated from audited accounts.
(ii) That the allegation of fictitious profits is unsubstantiated, whimsical and merely on the basis of information from investigation wing without verifying the books of account and there exists no valid basis of presuming any undisclosed income in respect of transaction carried out at NCME platform which is a recognized stock exchange particularly when the entire profit arising out of the impugned transactions have been duly disclosed.
(iii) That such profit is part of business activities and allegation of same being fictitious and unaccounted is highly arbitrary and unjustified.
(iv) That similar claim of profit having been accepted in immediately subsequent AY 2011-12 vide order u/s 147/143 (3), the impugned addition is illegal and without any basis.
(v) That the action of the assessing Officer is illegal and merely on surmises and conjectures and resulting in double assessment of same profit.
4(i) That on the facts and circumstances of the case, the Ld. C1T(A) was not justified in the confirming addition to the extent of Rs.14,12,991/- on the alleged ground of unexplained expenditure in respect of commission charged in respect of above mentioned transactions carried on NCME platform.
(ii) That the said addition is illegal and arbitrary basis merely on surmises and conjectures.
5. That the orders passed by lower authorities are not sustainable on facts and are bad in law.
6. That the appellant craves leaves to add, alter, amend, forgo any of the grounds of appeal before or at the time of hearing.”
3. The assessee has also raised the additional grounds of appeal touching the jurisdiction. Having regard to the submissions made that the relevant facts are available on record which may require for adjudication of additional grounds, we may consider it expedient to advert to the additional ground of appeal under Rule 11 of the Income Tax [Appellate Tribunal] Rules, 1963. The version of the assessee in its petition for admission of additional grounds of appeal thus read as under:
“That very initiation of proceedings u/s 148 is bad in law in as much as action has been taken on the basis of a document found at the premises of a third party, thus proceedings if at all, were required to be initiated under the provisions of Section 153C of the Act.
It may kindly be held that notice u/s 148 issued by the AO was illegal and invalid and consequent assessment framed u/s 147/148 of the Act be held illegal and bad in law.
Additional ground involving legal issues can be raised, keeping in view Judgment of the Apex court in the case of National Thermal Power Co Ltd. v.v. Commissioner of Income Tax 229 ITR 383.”
4. The prayer for admission of additional grounds noted above which are not set forth in memorandum of appeal are being admitted for adjudication in terms of Rule 11 of Income Tax (Appellate Tribunal) Rules, 1963 owing to the fact that objections raised in additional grounds are legal in nature for which relevant facts are stated to be emanating from existing records.
5. Concurrently, the Revenue by way of its grounds of appeal has also challenged the part relief granted to the Assessee by the CIT(A). The Grounds raised are also reproduced hereunder:
“1. That the order of the Ld. CIT(A) is not correct in law and on facts.
2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the additions of Rs.1,50,00,000/- made by the A.O. without verifying the capacity of the lenders and genuineness of the transactions.
3. Whether the Ld. CIT(A) was correct in law and facts in deleting the addition made by the A.O. without examining the source of share capital invested in Assessee Company”
6. Briefly stated, the assessee-company is a brokerage house engaged in the services of commodities. The assessee has inter alia executed transactions towards commodities trading on by using National Multi-Commodity Exchange (NMCE) platform through certain brokers and sub-brokers. The assessee filed its return of income on 29.07.2010 declaring total income at Rs.26,49,495/-concerning Assessment Year 2010-11 in question. The return filed was assessed under Section 143(1) of the Act. Subsequently, on the basis of certain information received from investigation wing of the dep’t, the re-assessment proceedings were initiated and the notice under Section 148(1) was issued on 31.03.2017 to assume jurisdiction for re-assessment under Section 147 of the Act. The reassessment proceedings under Section 147 were completed vide reassessment order dated 22.12.2017 after making additions to the extent of Rs.4,49,62,850/-. The details of additions made by the Assessing Officer are listed hereunder:
“a. Addition u/s. 68 in respect of Share Capital Rs.2, 00,00,000/-
b. Addition in respect of undisclosed profit earned Rs. 2,35,49,859/-
c. Addition of Notional Commission Rs.14,12,991”
7. Aggrieved, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee challenged the action of the Assessing Officer both on (a) lack of jurisdiction under S. 147 of the Act as well as (b) lack of merits in additions carried out by the AO. The CIT(A) did not see any merit in the challenge to jurisdiction assumed by the AO under S. 147 of the Act and endorsed the assumption of jurisdiction for reassessment of income. however, on appraisal of facts on merits, the CIT(A) granted partial relief to the extent of Rs.1,50,00,000/- out of additions of Rs.2 crores made under Section 68 in respect of share capital subscribed by various parties. Thus, on merits, the CIT(A) sustained the additions to the extent of Rs.50 lakh under section 68 on account of subscription of share in relation to one of the parties namely; ‘Shalini holdings Pvt. Ltd.’ on the premise that this subscriber co. is a shell co. engaged in providing accommodation entries and is found to be controlled and operated by one Shri S.K. Jain Group as alleged by the Investigation Wing of the dep’t. pursuant to search conducted on S K Jain group. The additions of Rs.50 lakh on account share subscription by Shalini holding was thus confirmed by the CIT(A) while other subscription by other 3 parties were found to be bonafide and thus additions for remaining amount of Rs. 1.5 cr. was cancelled. Similarly, the CIT(A) declined to interfere with the additions of Rs.2,35,49,859/-made by the Assessing Officer on account of fictitious gains from transactions carried out on NMCE [National Multi Commodity Exchange] platform. The CIT(A) upheld the additions made by the Assessing Officer alleging indulgence in tax evasion practices by the assessee by claiming fictitious profits/losses by using NMCE platform. The CIT(A) also declined to interfere with the additions made amounting to Rs.14,12,991/- by the Assessing Officer alleging unexplained expenditure on account of commission paid to indulge in obtaining fictitious profits by misusing NMCE platform.
8. Aggrieved by the first appellate order wherein some relief was granted by the CIT(A), both the Assessee and Revenue have filed respective appeal as captioned above.
9. The grounds of appeal raised by the assessee in ITA No.7291/Del/2019 are three fold; (i) challenge to the assumption of jurisdiction under section 147 /148 r.w.s 151 (ii) wrong assumption of jurisdiction under S. 147 instead of statutory path available under s. 153C of the Act and (iii) challenge to the action of the Assessing Officer (AO) in making certain additions /disallowances on merits in pursuance of the assumption of jurisdiction under s.147 of the Act.
10. The Revenue, on the other hand, has challenged the action of the CIT(A) in granting relief out of additions made by the Assessing Officer under Section 68 on account of share capital subscription.
11. When the matter was called for hearing, the ld. counsel for the assessee adverted to the main grounds and strongly voiced objection on legal ground of lack of jurisdiction available under Section 147 of the Act. The ld. Counsel contended that the assumption of jurisdiction by the AO in the instant case is without meeting the prerequisites ordained in S. 147 and s. 151 of the Act. As per the additional ground, the assessee has impugned the action of the AO for exercising powers available under s. 147 rather than the legal recourse available under s. 153C as per the scheme of the Act. The ld. counsel for the assessee made wide ranging objections towards lack of jurisdiction which are dealt with at appropriate place in the succeeding paragraphs. The Ld. Counsel also assailed the action of the AO and CIT(A) on aspects of merits. The Revenue, on the other hand, defended the action of the Assessing Officer and CIT(A) on the point of jurisdiction but assailed the relief granted by the CIT(A) to the extent of Rs. 1.50 Crs. out of additions of Rs. 2 Crs. carried out by the AO.
12. As noted above, the assessee has inter alia challenged the jurisdiction of the Assessing Officer assumed under Section 147 rws s.148 rws 151 of the Act. Since, the challenge to the legality of reopening being jurisdictional one and goes to the root of the whole controversy, it will be appropriate to adjudicate this aspect of the appeal first.
13. The reasons recorded under Section 148(2) of the Act being germane to the adjudication of jurisdictional issue, are reproduced hereunder:
“Reasons recorded for initiating proceedings u/s 148 of the I.T. Act, 1961 In the case of M/s Bhaijee Commodities Pvt Ltd (PAN : AAAC8890S6)- A.Y. 2010-11
Information had been received from DIT(Inv.)-II, New Delhi vide letter F. No DIT(Inv.) -II/U/sl48/2 012-13/198 date/l2.03.2013 & also from the DDIT(Inv.), Unit-VI(2), New Delhi vide letter F. No. DDIT(Inv.)/ U-VI(2)) / information sharing / 2012-13/ 133 dated 22.03.2013 that a search & survey action was conducted by the investigation wing, Delhi the case of Shri Surendra Kumar Jain (S K Jain) on 14.09.2010. It was gathered that Shri Surendra Kumar Jain and his brother Sh. Virendra Jain were engaged in the business of providing accommodation entries by providing RTGS/Cheques/PO/DD in lieu of cash, to a large number of beneficiary companies through various paper and dummy companies floated controlled by them.
2. Further, it has been revealed from the aforesaid information /details that M/s. Bhaijee Commodities Pvt. Ltd has received accommodation entries in the form of share capital/premium during the financial year 2009-10 relevant the AY 2010-11 from the following companies managed and controlled by S K Jain Group:
