Case Law Details

Case Name : RMP Holding (P) Ltd. Vs ITO (ITAT Delhi)
Appeal Number : ITA No. 7243/Del/2019
Date of Judgement/Order : 31/07/2020
Related Assessment Year : 2011-12
Courts : All ITAT (7222) ITAT Delhi (1683)

RMP Holding (P) Ltd. Vs ITO (ITAT Delhi)

The issue under consideration is whether the re-opening of assessment u/s 147 on the basis of wrong appreciation of facts can be sustained in law?

ITAT states that, since the original assessment was framed u/s 143(3) determining the income at as against the returned loss and wherein the issue of unsecured loan creditors was duly considered and accepted on the basis of various supporting documents filed at the time of original assessment and since there is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly  all material facts necessary for completion of the assessment, therefore, the notice issued u/s 148 after a period of four years from the end of the relevant assessment year in the instant case is illegal and invalid being without jurisdiction. Further, as mentioned earlier, the AO has proceeded to reopen the assessment on the basis of wrong appreciation of facts by mentioning that the assessment is proposed to be made for the first time whereas the facts stood otherwise, i.e., the assessment was,  in fact, completed u/s 143(3) of the Act, therefore, there is complete non- application of mind by the AO as well as by both the superior authorities.  Thus,  the approval has been given in a mechanical manner without appreciating the facts properly and there is complete non-application of mind by the superior authorities. Therefore, on this score also, the reassessment proceedings have to be quashed and the decision relied on by the ld. DR in the case of Sonia Gandhi (supra) is not at all applicable to the facts of the present case in view of the glaring mistake and omission that has been committed by the AO which was not looked into by the superior authorities. In view of the above, ITAT quash the reassessment proceedings initiated u/s 147/148.

Accordingly the appeal filed by the assessee is accepted.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by the assessee is directed against the order dated 5th August, 2019 of the CIT(A)-7, New Delhi, relating to assessment year 2011-12.

2. Facts of the case, in brief, are that the assessee is a company and filed its return of income on 17th August, 2011, declaring a  loss of 20,53,019/-.  The case was scrutinized u/s 143(3) on 10th March, 2014, determining the income at Rs.20,06,714/-. Thereafter, on the basis of information received during the course  of search and seizure operation in the case of entry provider Shri Anand Kumar  Jain and Shri Naresh Kumar Jain and subsequent investigation that the assessee is a beneficiary of Rs.39,00,055/-, the case of the assessee was reopened by recording reasons u/s 147. Subsequently, notice u/s 148 was issued on 26th March, 2018 after obtaining prior approval of the PCIT-7, New Delhi. In response to the same, the assessee filed a letter stating that the return already filed u/s 139 may be treated as the return filed in response to  the notice u/s 148 of the Act.  However, another  letter dated 7th August, 2018 was issued to the assessee requesting him to file the return in response to notice u/s 148 of the Act. The assessee ultimately filed its return on 13th August, 2018 declaring a loss of Rs.4,053/-. Subsequently, the AO issued notice u/s 143(2) and 142(1) of the IT Act and copies of the reasons  recorded were also handed over to the assessee.

3. During the course of assessment proceedings, the AO noted that the information was received in the case that the assessee has received accommodation entries from M/s Ambaranuj Finance and Investments Pvt. Ltd. of Rs.25 lakhs and M/s Zen Tradex Pvt. Ltd. of Rs.14 lakhs. During the course of assessment proceedings, the assessee filed confirmations from the above two companies and it was submitted that it had taken loans from these two parties. In order to verify the genuineness of these two parties, summons u/s 131 were sent to the above two parties on the address available at ROC website as well as on e-mail It was made clear in the summons that personal deposition of the principal officer is required. However, on the appointed date, i.e., on 18th December, 2018, neither anybody attended nor any request for adjournment was  received.  In  the meanwhile, on 16th December, 2018, the assessee was also asked to produce these parties for personal appearance. Since the assessee showed his inability to produce these parties and in absence of personal deposition of these parties, the AO rejected the confirmation so filed by the assessee holding that the same cannot be relied upon. The AO analysed the amount of Rs.39,00,055/- received by the assessee as accommodation entry. He considered the documents and electronic data seized  from various premises by the Investigation Wing according to which a number of bank statements and signed and unsigned cheque books pertained to the shell companies of the Jain brothers were found. He noted as to how these two entities were being run by Shri Naresh Kumar Jain and the modus operandi. Rejecting the various explanations given by the assessee, the AO made addition  of Rs.39,00,055/- u/s 68 of the IT Act.

4. Before the CIT(A),  the  assessee,  apart  from  challenging  the  addition  on merit, challenged the validity of the reassessment proceedings. However, the ld.CIT(A) upheld the reassessment proceedings initiated by the AO and the addition made by him u/s 68 of the Act.

5. Aggrieved with such order of the CIT(A), the assessee is in appeal before  the Tribunal by raising the following grounds:-

“1. 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.

2. The 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.

3. The 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.

3.1 The validity of reassessment proceedings have been confirmed by Ld CIT(A) on basis of a finding of fact given by the Ld CIT(A) that the information from the investigation wing was specific which contains names of companies, cheques number and date of accommodation entries. The above finding is factually incorrect looking into the reasons recorded and on that ground the reassessment proceedings and the impugned assessment order both need be quashed as the reasons being vague, incoherent and indicative of lack of application of independent mind by the AO.

4. The 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 as provided with the copy of the reason recorded shows mechanical satisfaction by the Pr CIT, Delhi-7, New Delhi and the Ld. CIT(A) have held that such mechanical satisfaction are procedural infirmity which does not invalidate the reassessment proceedings.

5. 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.

6. The CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.39,00,055/- u/s 68 of the IT Act holding the unsecured loan 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 proving identity and creditworthiness of the lenders and also to establish genuineness of the transaction during assessment proceedings.

7. The CIT(A) has erred both in law and circumstances of the cases in upholding action of the AO, in making addition u/s 68 of the IT Act of Rs.39,00,055/- is erroneous as the evidences filed by the appellant in support  of cash credit of Rs.39,00,055/- have been rejected by the AO without conducting any enquiry thereon in discharge of onus shifting on the revenue after the initial onus discharged by the appellant.

8. The 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.

9. The CIT(A) has erred both in facts and circumstances of the case in upholding the impugned assessed income u/s 143(3) at Rs.20,06,714/- ignoring the fact the additions originally made were deleted in the first appeal and therefore the assessed income has to be taken considering the returned loss of Rs.20,53,019/- as the amount to which additions made in the assessment order need be made, thus the assessed income need be recomputed at Rs. 18,47,036/-

10. The appellant craves leave to add, delete, modify / amend the above grounds of appeal with the permission of the Hon’ble appellate authority.

6. The ld. counsel for the assessee, at the outset, submitted that the jurisdiction to make assessment in this case was assumed on the basis of the seized material from Shri Anand Kumar Jain and Shri Naresh Kumar Jain. Referring to the provisions of section 153C(1)(b) of the IT Act, he submitted that the power to take cognizance of the material seized from third party are exclusively available and such exclusivity rules out action against the assessee under the provisions  including u/s 147/148 of the IT For the above proposition, he relied on various decisions as mentioned in the synopsis. He accordingly  submitted  that since the AO, in the instant case, has not issued notice u/s153C(1) in order to proceed with the case but initiated reassessment proceedings u/s 147, therefore, the notice issued u/s 148 being not in accordance with law, such reassessment should  be quashed as void ab initio.

7. The ld. Counsel for the assessee, in his second plank of argument, submitted that there is lack of independent application of mind by the AO. Referring to the copy of reasons recorded by the AO which has been reproduced by him from para  3 onwards of the assessment order, he submitted that the AO in the said  reasons  has recorded that the case was processed u/s 143(1) of the Act and no scrutiny assessment has been made. However, in the instant case, the order u/s 143(3) was passed on 10th March, 2014, determining the income at Rs.20,06,714/- as against  the declared loss of Rs.20,53,019/- which has been mentioned by the AO in the order passed u/s 147/143(3) on 21st December, 2018. Thus, the AO, in the instant case, has not applied his mind and has recorded an incorrect fact that no scrutiny assessment had taken place. He submitted that in the original assessment proceedings, the AO had conducted inquiry regarding the unsecured loans accepted by the assessee which is considered by the AO as income escaping assessment. Notice u/s 133(6) were issued to the loan creditors in question during the original proceedings. Replies to the notices were received by the AO directly from the loan creditors. Therefore, the AO’s failure to consider the above important material while forming belief of escapement of income u/s 147(1) shows non-application of mind on the part of the AO. He submitted that when the receipt of unsecured loan, which is the income escaping assessment for reopening of assessment, was examined during original assessment proceedings and the assessee has submitted  all the documents, in such a situation, merely on the basis of information from Investigation Wing about the alleged receipt of accommodation entry would be a case of non-application of mind by the AO on the material on record.  For the  above proposition, he relied on the decision of the Hon’ble Delhi High Court in the case of Pardesi Developers & Infrastructure (P) Ltd. vs. CIT, 220 Taxman 18 (Delhi).

8. Referring to the decision of the Hon’ble Delhi High Court in the case of Shamshad Khan ACIT, 395 ITR 265, he submitted that the Hon’ble Delhi High Court in the said decision has found the variation in the return of income  mentioned in the reasons with that of the return submitted by the assessee and quashed the reassessment proceedings on account of non-application of mind.

9. Referring to the decision of the Hon’ble Punjab & Haryana  High Court in the case of CIT vs. Atlas Cycles Industries , 180 ITR 319, he submitted that the Hon’ble High Court in the said decision has held that the Tribunal was right in cancelling the reassessment as both the grounds on which the reassessment notice was issued were not found to exist and, therefore, the Income-tax Officer did not  get jurisdiction to make reassessment. He also relied on various other decisions mentioned in the written synopsis according to which the condition precedent for issue of notice for reassessment is that the reason to believe that income  has escaped assessment must be based on correct facts. Notice based on wrong facts is without jurisdiction and is to be quashed.

10. In his third alternate argument, the ld. Counsel for the assessee submitted that since there is no specific reference of the seized material from  persons searched and how the same was considered for formation of belief is a case of non- application of mind. He submitted that there is a general mention of various unspecific seized material including seized papers and digital evidences and also certain statements of individuals connected to Jain brothers. He submitted that in absence of identification of any particular seized material and considering of its contents, no person of ordinary intelligence could have reached a belief u/s 147 of the Act. So far as the statement of unnamed individuals are concerned, he  submitted that firstly, their names are not stated and contents of  their statements  are not specifically dealt with and it is not clear as to whether name of the assessee was mentioned by any of the individuals examined by the Investigation Wing. Non-naming of the individuals proved that the statements of those individuals were not available to the AO at the time of formation of belief/recording of reasons. In absence of these basic details either not available with him and even if  available  the same were not dealt in reasons recorded, such reason fails on account of the reason being vague and the same being without independent application of mind. He submitted that the reason for reopening must be complete and self explanatory demonstrating due application of mind by the AO of all relevant material in his possession. Referring to the decision of  the Hon’ble Delhi High Court in the case  of Sabh Infrastructure vs. ACIT, 398 ITR 198, he submitted that the Hon’ble High Court in the said decision, referring to various other decisions has held that the reasons to believe has to be self explanatory. He accordingly submitted that on this account also the notice issued u/s 147 should be quashed and thereby the reassessment proceedings have to be held as void ab initio.

11. The Counsel for the assessee submitted that in the reasons recorded although the AO has identified various modes of accommodation entries such as provision of cheques/RTGS, etc., for unaccounted cash either through fake purchase and sale, commodity profit/loss, fake commission, one time entry or other modes, but, failed to identify the particular modes of accommodation entries out of those enumerated above. In absence of identification of mode of accommodation entry, the reasons recorded by him is vague, incoherent and leave the reader of the same clueless. Such reason does not meet the  requirement of law and,  therefore, the reassessment proceedings should be quashed.

12. The ld. Counsel for the assessee submitted that nowhere the AO has identified the entities of Jain brothers providing accommodation entries nor the name of the so-called middleman, if any. Further, important details in the form of instrument through which cheques/RTGS was accepted by the assessee company, name of the bank from which the accommodation entry was provided, name of the bank in which the accommodation entry was credited and the date of transaction is missing in the reasons. The date of transaction is important to verify whether the transaction falls in the year under consideration which is extremely important piece of information to justify independent application of  mind. Referring to the decision of the Delhi bench of the Tribunal in the case of M/s Superior Buildwell Pvt Ltd., vide ITA No.3301/Del/2017, he submitted that the Tribunal has quashed the reassessment proceedings on account of incorrect facts and not mentioning the names of the entities in the reasons recorded.

13. The ld. Counsel for the assessee, in his another plank of argument submitted that there is ambiguity of the nature of deemed escapement of income and also there is contradictions in the proforma for obtaining sanction u/s 151. Referring to copy of the form for recording reasons for initiating proceedings u/s 147 and for obtaining the approval of Addl.CIT/CIT, copy of which is placed at page 88 of the paper book, , the ld. Counsel for the assessee drew the attention of the Bench to clause 8 of the same where it has been mentioned as under:-

“Whether the assessment is proposed to be made for the first time – Yes.”

14. Referring to the approval given by the Addl.CIT, he submitted that he has simply mentioned as under:-

“Recommended for issue of notice u/s 148 of the IT Act for assessment year 2011-12.”

15. Similarly, PCIT has mentioned as under:-

“Yes. It is a fit case for issue of notice u/s 148 read with section 147 of the IT Act, 1961.”

16. Thus, there is no proper application of mind while recording the reasons either by the AO or by the superior authorities while granting approval for reopening of the assessment. Relying on various decisions mentioned in the synopsis and in the case law compilation, he submitted that merely mentioning ‘Yes. Approved’ has been considered as non-application of mind by the higher authorities.

17. The ld. Counsel for the assessee, in his another plank of argument submitted that the assumption of jurisdiction to proceed with reassessment before supply of reasons makes the entire reassessment proceedings invalid. He submitted that the assessee in the instant case filed a letter dated 12th April, 2018 stating that the return of income filed u/s 139 of the IT Act be treated as return of income filed in response to notice u/s 148 and also requested for supply of reasons. On  the direction of the AO, vide letter dated 7th August, 2018, the return of income was filed on 13th October, 2018. Thereafter, the AO issued notice  u/s  143(2)  and 143(1) dated 16th October, 2018 and supplied proforma of reasons recorded on 22nd October, 2018 against which the assessee submitted objection to assumption of jurisdiction u/s 147 on 5th November, The AO disposed of the same on 09.11.2018. He submitted that the AO assumed jurisdiction by issuing notice u/s 143(2) of the Act on 16th October, 2018 before supplying reasons which means that the AO assumed jurisdiction to make reassessment before allowing the assessee to file objection to assumption of jurisdiction. Therefore, assuming jurisdiction by issuing notice u/s 143(2) before allowing the assessee to file objection and subsequent disposal of the same is nothing, but, non-application of mind by the AO to the legal requirements of the law. For the above proposition, he relied on the decision of the Hon’ble Delhi High Court in the case of Mastech Technologies Pvt. Ltd. vs. DCIT, vide Writ Petition No.2858/2016 dated 13.07.2017 where it has  been held that issuance of notice u/s 142(1)/143(2) before supplying the reasons  and considering objection of the petitioner and passing reasoned order thereon does not meet the requirement of law. Such legal infirmity leads to the inevitable invalidation of all the proceedings that took place pursuant to notice u/s 148.

18. The ld. Counsel for the assessee, in his another plank of argument, submitted that there is error in quantification of income escaping assessment. He submitted that the credit entries accepted by the assessee totaled to Rs.39 lakhs whereas the reasons recorded shows escaped income of such entries at Rs.39,00,055/-. The difference of Rs.55/- in the bank charges paid by the lender while transferring the funds was also considered as income escaping assessment. Therefore,  on  this count also the reassessment proceedings should be quashed due to non-application of He submitted that the AO in the instant case, has issued notice u/s 147 on the basis of borrowed satisfaction solely relying on information from the Investigation Wing without verifying the facts applicable in the instant case.  He  has not applied his independent mind on information provided and the  entire  reason deals with the information of the Investigation Wing. Relying on various decisions, he submitted that where the reopening is based on the report of the Investigation Wing without application of independent mind by the AO, the reassessment proceedings has to be quashed.

19. The ld. Counsel for the assessee submitted that the first proviso to section 147 is squarely applicable to the facts of the instant case. He submitted that in the instant case, the original return of income was filed on 17th August, 2011 and the assessment year concerned is 2011-12. The assessment was completed u/s 143(3)  on 10th March, 2014 and the notice u/s 147 was issued on 26th March, 2018 which  is beyond four years from the end of the relevant assessment year and there is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of  the assessment for that assessment year. He submitted that although the AO has mentioned that no scrutiny assessment has been made in this case in the reasons recorded, however, the fact is that scrutiny assessment had taken place in this case and the order u/s 143(3) was passed on 10th March, 2004, determining the total income at Rs.20,06,714/- as against the returned loss of Rs.20,53,019/-. During the original scrutiny assessment proceedings, the AO had examined the unsecured loans and has completed the assessment. Since the original assessment in this case was completed u/s 143(3) after considering the material facts including the amount of Rs.39,00,055/- for which the assessee had filed the confirmation, bank statements, copy of income-tax return along with other relevant details of loan creditors in question and more than four years has elapsed from the end of the relevant assessment year, therefore, the first proviso to section 147 is clearly applicable to the facts of the present case. Referring to the copy of the reasons recorded which is placed at paper book page 66 to 80, he submitted that there is not a whisper in the said notice regarding any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Relying on various decisions, he submitted that when the original assessment was completed u/s 143(3) and four years time has passed from the end of the relevant assessment year, no reopening of assessment is possible unless there is allegation by the AO of any failure on the part of the assessee to disclose fully and truly all material facts necessary for the completion of the assessment.

20. Referring to the recent decision of the Hon’ble Supreme Court in the case of NDTV vs. DCIT vide CA No.1008/2020, order dated 3rd April, 2020, he submitted that the Hon’ble Supreme Court in the said decision has quashed the reassessment proceedings for not mentioning the first proviso either in the reasons recorded or in the notice issued u/s 148 of the IT Referring to the decision of the Hon’ble Delhi High Court in the case of BPTP Ltd. vs. PCIT, vide Writ Petition No.13802/2018, order dated 11.01.2020, he submitted that the Hon’ble High Court in the said decision has held that if the  AO has failed to perform a statutory duty,  he cannot review his decision and reopen on a change of opinion. The reopening is not an empty formality. There has to be relevant tangible material for the AO to come to the conclusion that there is escapement of income and there must be a live link with such material for the formation of the belief. Merely using the expression ‘failure on the part of the assessee to disclose fully and truly all material facts’ is  not enough. The reasons must specify as to what is the nature of default or failure on the part of the assessee. Relying on various other decisions, he  submitted  that  in view of the first proviso to section 147, the reopening of the assessment by the AO is void ab initio.

21. The ld. Counsel for the assessee, in another plank of argument submitted  that the reason recorded by the AO is nothing, but a change of opinion. In the original assessment proceedings, the above cash credits in question have been duly verified by the then AO which is evident from the notices issued u/s 133(6) to the loan creditors in the original proceedings copies of which are placed in the paper book. The concerned parties had replied directly to the AO.  The  AO  had conducted inquiry regarding unsecured loan accepted by the assessee. Therefore, there was no justification for re-visiting the issue of reopening the assessment as it amounts to change of Relying on various decision, he submitted  that  when the assessee, during the original assessment proceedings, had filed complete details of the loan creditors with their confirmations, copies of income-tax returns, bank statements, etc., and the AO had accepted such unsecured loans during the original assessment proceedings finding the same to be genuine, the successive authorities cannot review the decision of the earlier authority. For the above proposition, he relied on the decision of the Hon’ble Supreme Court in the case of ACIT vs. Marico Ltd. vide SLP No.7367/2020, order dated 11th June, 2020.

22. So far as the merit of the case is concerned, he submitted that the assessee had filed the MCA master data, public document, confirmation, copy of income- tax return of the loan creditors, bank statement of the loan creditors, copies of the replies to summons filed before the AO through speed post with annexures, audited financial statements of loan creditors, subsequent year ledger account showing repayment of loan along with the bank interest to the loan creditors and  computation of income wherever required.

23. He submitted that in the case of M/s Ambaranuj Finance and Investments Pvt. Ltd., the assessment was completed u/s 153A/143(3) by the ACIT, CC-26, New Delhi, vide order dated 28th December, 2017 and there is no adverse finding given by the AO regarding the activities of the above lender company. There is no mention of the lender engaged in  providing accommodation    Similarly, in the case of loan borrowed from another company i.e.,  M/s Zen Tradex Pvt. Ltd.,  the said lender company is engaged in the business as finance company which has given loan to the assessee company after arranging funds and due to this there is credit of identical funds in the bank account of the lender company. It is the allegation of the AO that the assessee did not produce the directors and summons remained uncomplied with and identical amounts were transferred to the accounts of these lender companies on the same date before transfer of the same to the assessee company. Controverting the above allegations of the AO, the ld. Counsel submitted that no show cause notice was issued to the assesseee before such inferences were drawn and, therefore, it amounts to denial of principle of natural justice. Further, the assessee had repaid the loans and had no control over the directors of the lender companies after the loans were repaid with interest. The AO had enough power in his hand to enforce the attendance of the directors of the lender companies which he failed to do. He submitted that the AO had issued summons to the lenders to appear before him on 18th December, 2018 and then before the compliance of the summons of 18th December, 2018 the AO on 16th December, 2018 issued additional notice to the assessee asking it to produce the lenders. This shows that the AO had taken the above twin actions without due application of mind. He submitted that when the AO on his own issued summons for personal deposition fixing the date of compliance, it is not understood  as to  why the AO presumed that the summons issued will not be complied by the  lenders. He submitted that where the AO initiated the process of personally calling the directors of the alleged companies, he was under an obligation to intimate the fact of non-compliance of the summons of those parties. In any case, he submitted that since the assessee had repaid the loans with interest, it was beyond his control and capacity to produce the directors of the lender companies after a long gap.

24. Referring to the decision of the Hon’ble Delhi High Court in the case of Makhani & Tyagi Pvt. Ltd., 267 ITR 430, he submitted that the Hon’ble  High Court in the said decision has held that when documentary evidence in support of identity of creditors along with the assessment particulars or other evidences are placed on record which had neither been controverted nor it is disproved by the  AO, no interference of the AO is called for. Referring to various decisions, he submitted that even on merit also the assessee had fulfilled all the three ingredients of section 68, i.e., the identity and capacity of the loan creditors and genuineness of the transaction, therefore, no addition is called for.

25. The ld. DR, on the other hand, heavily relied on the order of the CIT(A) in confirming the validity of the reassessment proceedings and the addition sustained by him on merit. He submitted that in the instant case, the AO has correctly invoked the provisions of section 147 on the basis of the information found from  the material seized from a third party. Referring to the decision of the Hon’ble Supreme Court in the case of Yogender Kumar Gupta vs. ITO, 227 taxman 374,  and the decision of the Pune Bench of the Tribunal in the case of Sushil Kumar S Nadkarni, vide ITA No.826/PN/2010, order dated 29.11.2013, he submitted that in the instant case, provisions of section 153C are not applicable and the AO has correctly initiated proceedings u/s 147 on the basis of the information available  with him which the ld. CIT(A) has upheld.

26. So far as the argument of the ld. Counsel regarding lack of independent  mind by the AO on the information of Investigation Wing is concerned, he submitted that the AO had duly applied his mind before reopening the assessment u/s 147 and he issued notice u/s 148 only after analyzing the information received from the Investigation Wing. There is complete application of mind by the AO in this case. Referring to the decision of the Hon’ble Supreme Court in the case of Raymond Woolen Mills Ltd., Vs ITO, 236 ITR 34, he submitted that the Hon’ble Supreme Court in the said decision has held that in determining whether commencement of reassessment proceedings was valid, it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing  to be considered at this stage.

27. Referring to the decision of the Hon’ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd., 291 ITR 500, he submitted that the Hon’ble Supreme Court has held hat at the initiation stage, what is required is ‘reason to believe’ on the established fact of escapement of income. At the  stage  of issue of notice, the only question is whether there was relevant material  on which a reasonable person could have formed a requisite belief. Whether the material should conclusively prove the escapement is not the concern at this stage. Relying on various other decisions, the ld. DR submitted that the AO had correctly invoked the provisions of section 147 and the CIT(A) has rightly upheld the same.

28. So far as the argument of the ld. Counsel for the assesseee that there was mechanical approval given by the superior authorities are concerned, the ld. DR, referring to the decision of the Hon’ble Delhi High Court in the case of Sonia Gandhi vs. ACIT, 407 ITR 594, submitted that the Hon’ble High Court in the said decision has held that for the purpose of section 151(1) of the Act, what the court should be satisfied about is that the Addl. CIT has recorded his satisfaction ‘on the reasons recorded by the AO that it is a fit case for the issue of such notice.’ In the present case, the court is satisfied that by recording in his own writing the words “Yes, I am satisfied” the mandate of section 151(1) of the Act as far as approval of the Addl.CIT was concerned stood fulfilled.

29. So far as the merit of the case is concerned, he submitted that the addition of 39,00,055/- was made by the AO u/s 68 on account of introduction of accommodation entries from M/s Ambaranuj Finance and Investments Pvt. Ltd., and M/s Zen Tradex Pvt. Ltd. The documents filed by the assessee before the AO were not sufficient to fulfill the rigors of the three ingredients of section 68 of the Act, i.e., identity of the creditor, capacity of the creditor and genuineness of the transaction, particularly in view of the findings of the Investigation Wing and the inquiry carried out by the AO. The relevant bank account revealed back to back transactions which are typical to the accommodation entries. The apparent attempt of the assessee appears to be merely to complete the paper trail. The summons issued u/s 131 to the Principal Officer of the alleged creditor companies at the available address as well as by mail remained uncomplied with. The assessee also expressed its inability to produce the directors of the alleged creditor companies. Thus, the assessee failed to discharge the onus cast on him to substantiate the genuineness of the transaction and the identity and capacity of the loan creditors.

30. So far as the argument of the ld. Counsel that the assessment in the case of M/s Ambaranuj Finance and Investments Pvt. Ltd., was completed u/s  153A/143(3) and no adverse findings were given by the AO is concerned, he submitted that the assessment in the hands of the lender company has no  bearing  on the assessability of the transaction in the hands of the assessee as being accommodation entries and the transactions have to be examined in the hands of  the beneficiary which is the assessee in the instant case. Relying on various decisions, he submitted that the addition made by the AO and sustained by the CIT(A) is fully justified.

31. The ld. Counsel for the assessee, in his rejoinder, strongly challenged the arguments advanced by the ld. DR. So far as the argument of the ld. DR that the AO has validly invoked the provisions of section 147 on the basis of the  information found from the material seized from a third party is concerned, he submitted that amendment to section 153C has brought out material change in applicability of section 153C for assessing income in the hands of the persons other than the person searched. Prior to the amendment, the power under above section qua an assessee was available only in case where incriminating documents/valuables are seized from the search of other parties and, in addition to that it needed to be proved by the Department that such documents/valuables  belong to the assessee. The compliance of this twin conditions are prerequisite for valid assumption of jurisdiction u/s 153C. The amendment enlarges the scope of power u/s 153C under which cognizance of incriminating material seized from the searched persons pertaining to the assesseee or any information contained therein, could be taken against such an assessee. The implication of the above amendment was that even if the document/material from third party does not belong to the assessee, but, contained transactions pertaining to the assessee or containing information in relation to the assessee, the only option under the Act was to act under section 153C. The reason being the presence of non-obstante clause para phrasing the section itself which rules out action under other sections including section 147/148 of the Act.

32. So far as the decision relied on by the ld. DR in the case of Yogendra Kumar Gupta (supra) is concerned, he submitted that the apex court dismissed the SLP of the assessee against the order of the Hon’ble Gujarat High Court without giving reason for dismissal and, therefore, it has not laid down the law. The Gujarat High Court’s decision was merely on the issue of assumption of jurisdiction by the AO u/s 147 of the Act on the basis of seized material from third The issue of applicability of section 153C was neither raised or considered for  adjudication either before the High Court or before the apex court and, therefore, it cannot be said that this judgment supports the stand of the Revenue that section 153C has no application on the facts of the case. He submitted that the above judgment of the apex court has been considered by the coordinate Bench of the Tribunal in the case of Charan Kamal Singh vs. ACIT, vide ITA No.4662/Del/2007, order dated 21.03.2018, wherein after considering the above decision of the apex court, the Hon’ble Tribunal held that assuming jurisdiction u/s 147 by the AO is not valid on the basis of the material seized from third party and the correct section  under  which action could be taken by the Revenue is section 153C alone.

33. So far as the decision of the Pune Bench of the Tribunal in the case of Sushil Kumar Nadkarni (supra) is concerned, he submitted that in fact, the above judgement supports the case of the assessee that post amendment, the powers u/s 153C only can be exercised as the requirement of the amended section has been met. He accordingly submitted that the argument advanced by the ld. DR for non applicability of section 153C is not in accordance with law in view of the specific amendment brought in the statute book.

34. So far as the argument of the ld. DR that the AO has applied his mind on the basis of the information received from the Investigation Wing is concerned, he submitted that the DR does not dispute the factual inconsistencies in the reasons recorded since he could not controvert the contradictory stand of the AO wherein in the reasons he records that only summary assessment was done whereas in the assessment order passed u/s 147/143(3) he mentions that the original assessment was completed u/s 143(3). The various decisions relied on by the  ld.  DR, according to him, are not applicable to the facts of the present case in view of the glaring incorrect facts recorded in the  reasons.  So far as the argument of the ld.  DR that there is no mechanical approval u/s 151 and for which he relied on the decision of the Hon’ble Delhi High Court in the case of Sonia Gandhi (supra), he submitted that coordinate Benches have considered the above decision of the Hon’ble Delhi High Court. The above decision is contrary to the decisions of the Hon’ble Delhi High Court in the case of German Remedies Ltd. vs. DCIT,  287  ITR 494, Central India Electric Supply Co. Ltd. vs. ITO, 333 ITR 237, PCIT vs.  NC Cables Ltd., 391 ITR 11, United Electrical Company Pvt. Ltd. vs. CIT & Ors., 258 ITR 317. He submitted that none of these decisions were cited and considered by the Hon’ble High Court in the case of Sonia Gandhi. Relying on various decisions cited in the case law compilation, the coordinate Benches after considering the decision in the case of Sonia Gandhi have held that  approval granted by the authority in a mechanical manner and without application of mind cannot be considered as valid approval and accordingly the reassessment proceedings have been quashed. So far as the argument of the ld. DR that the addition sustained by the AO on merit is proper and for which he relied on various decisions, he submitted that none of those decisions under the facts and circumstances of the present case are applicable.

35. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the  We have also considered the various decisions cited before us. We find, the AO, on the basis of the information obtained that the assessee has received accommodation entry of Rs.39,00,055 from M/s Ambaranuj Finance and Investments Pvt. Ltd., (Rs25 lakhs) and M/s Zen Tradex Pvt (Rs.14 lakhs),  which in turn was found out during the search operation at the premises associated with Jain brothers who are known accommodation entry providers, reopened the assessment u/s 147/148 of the Act by recording the reasons.

36. Before we proceed further, we deem it proper to reproduce the form for recording the reasons for initiating proceedings u/s 147 for obtaining approval of Addl.CIT/CIT as under:-

Download Full Text of Annexure “A”

37. We find, the AO in the assessment order at para 1 has mentioned as under:-

“The assessee company filed the return of income for AY 2011-12 declaring loss of Rs, 20,53,019/- on 17.8.2011. The case was scrutinized u/s 143 (3) on 10.3.2014 determining an income of Rs. 20,06,714/-. Thereafter, on  the basis  of information received regarding the search & seizure operation in the case of entry provider Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain (the Jain Brothers) and the assessee being beneficiary of Rs. 39,00,055/-, the reasons were recorded for reopening u/s 147 of the Act. Subsequently notice u/s 148 of the Income Tax Act, 1961 was issued on 26/03/2018 after obtaining prior approval of the Pr. CIT-7, New Delhi and served through  email  as well  as post. In response thereto, the assessee filed a letter stating that the  return already filed u/s 139 may be treated as return filed in response to notice u/s 148. However, another letter dated 7.8.2018 was issued to the assessee requesting him to file the return in response to notice u/s 148 issued by this office. Ultimately, the assessee filed his return of income on 13.10.2018 declaring loss of Rs. 4,053/-. Thereafter Notice u/s 143 (2) and 142 (1) of the IT. Act was issued and “copies of the reasons recorded were also handed over to the assessee. In response to the statutory notices, Shri Mukesh Mittal and Shri Amit Garg, ARs of the assessee appeared and filed details. The case was discussed with them.”

38. A perusal of the above vis-à-vis the reasons recorded and form of approval shows that although the original assessment was completed u/s 143(3) on 10th March, 2014, the AO, in the form for obtaining approval at clause 8 has categorically mentioned that the assessment is proposed to be made for the first time and in the background of reasons also has mentioned that the case was processed u/s 143(1) of the Act and no  scrutiny assessment was made.  A perusal  of the reasons recorded nowhere shows any allegation by the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Since, in the instant case, the original assessment was completed u/s 143(3) on 10th March, 2014 for the A.Y.  2011-12 and the notice u/s 148 was issued on 26th March, 2018, therefore, the first proviso of section 147 is applicable to the facts of the present case. The Hon’ble Supreme Court in the case of NDTV Ltd. Vs. DCIT vide Civil Appeal No. 1008 of 2020 dated 3rd April, 2020, has quashed the reassessment proceedings  for  not mentioning the first proviso neither in the reason recorded nor in the notice issued u/s 148. The Hon’ble Delhi High Court in the case of BPTP Ltd. vs. PCIT, vide Writ Petition No.13803/2018, order dated 28.11.2019 has held that if the AO has failed to perform his statutory duty, he cannot review his decision and reopen on a change of opinion. It has been held that  reopening is not an  empty formality.  There has to be relevant tangible material for the AO  to come to the conclusion  that there is escapement of income and there must be a live link with such material for the formation of the belief. Merely using the expression ‘failure on the part of the assessee to disclose fully and truly all material facts’ is not enough. The reason must specify as to what is the nature of default or failure on the part  of  the assessee. The Hon’ble Bombay High Court in the case of Anand Developers, vide Writ Petition No.17/2020, order dated 18th February, 2020, has held that a mere  bald observation by the AO that the assessee has not disclosed fully and truly all  the material facts is not sufficient. The AO has to give details as to  which fact or the material was not disclosed by the assessee leading to its income escaping assessment. Otherwise reopening is not valid.  The Hon’ble  Delhi High Court in  the case of Haryana Acrylic Manufacturing Company vs. CIT, 308 ITR 38, order dated 1st July, 2020, has held as under:-

“19. Examining the proviso [set out above], we find that no action  can  be taken under section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied:

(a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year; and

(b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee:

(i) to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148; or

(ii) to disclose fully and truly all material facts necessary for his  assessment for that assessment year.

Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out of the failure on the part of the assessee to make a  return  under section 139 or in response to a notice issued under sub-section  (1) of section 142 or section 148. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves  us  with  the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for  his assessment for that assessment year. If it is also found  that the petitioner  had disclosed fully and truly all material facts necessary for  its  assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner  had made a full and true disclosure of all material facts.

20. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a  reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons  supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar  against  taking action  after the said four year period remains unfulfilled. In our recent  decision  in Wel Intertrade (P.) Ltd.’s we had agreed with the view taken  by the  Punjab and Haryana High Court in the case of Duli Chand Singhania that, in the absence of an allegation in the reasons recorded that the escapement of income had  occurred by reason of failure  on  the part of the  assessee  to  disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing Officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our viewpoint, we hold that the notice dated 29-3-2004 under section 148 based  on the recorded reasons as supplied  to the petitioner as well as the consequent order dated 2-3-2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above.”

39. The various other decisions relied on by the ld. Counsel also support his case to the proposition that where there is no allegation in the reasons recorded that  there is failure on the part of the assessee to disclose fully and truly all material  facts necessary for assessment u/s 147 of the Act, the notice issued u/s 148 after a period of four years from the end of the relevant assessment year in a case where original assessment has been framed u/s 143(3) of the Act is illegal and invalid since proceedings are without jurisdiction.

40. Since, in the instant case, the original assessment was framed u/s 143(3) on 10th March, 2014 determining the income at Rs.20,06,714/- as against the returned loss of Rs.20,53,019/- and wherein the issue of unsecured loan creditors was duly considered and accepted on the basis of various supporting documents filed at the time of original assessment and since there is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly  all material facts necessary for completion of the assessment, therefore, the notice issued u/s 148 after a period of four years from the end of the relevant assessment year in the instant case is illegal and invalid being without jurisdiction. Further, as mentioned earlier, the AO has proceeded to reopen the assessment on the basis of wrong appreciation of facts by mentioning that the assessment is proposed to be made for the first time whereas the facts stood otherwise, i.e., the assessment was,  in fact, completed u/s 143(3) of the Act, therefore, there is complete non- application of mind by the AO as well as by both the superior authorities.  Thus,  the approval has been given in a mechanical manner without appreciating the facts properly and there is complete non-application of mind by the superior authorities. Therefore, on this score also, the reassessment proceedings have to be quashed and the decision relied on by the ld. DR in the case of Sonia Gandhi (supra) is not at all applicable to the facts of the present case in view of the glaring mistake and omission that has been committed by the AO which was not looked into by the superior authorities. In view of the above, we quash the reassessment proceedings initiated u/s 147/148. The various other legal grounds raised by the ld. Counsel challenging the validity of the reassessment proceedings become academic in  nature in view of the above discussion. Since the assessee succeeds on this legal ground, the grounds challenging the addition on merit also become academic in nature and, therefore, are not being adjudicated.

41. In the result, the appeal filed by the assessee is

The decision was pronounced in the open court on 31.07.2020.

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