IN INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA Nos. 2036 & 2037/Del/2010 Assessment Years: 2002-03 & 2003-04 MRS. SONIA CHOWDHRY, Vs. ITO, WARD 47(1), E-78, GREATER KAILASH-I, ROOM NO. 425, NEW DELHI MAYUR BHAWAN, NEW DELHI (PAN: AACPC5227H) (APPELLANT) (RESPONDENT) Assessee by : Sh. Salil Kapoor, Adv. Revenue by : Sh. Satpal Gulati, CIT(DR) Date of hearing : 22-09-2016 Date of order : 07-10-2016 ORDER PER H.S. SIDHU, J.M. Assessee has filed these two Appeals against separate Orders both dated 26.2.2010 of Ld. CIT(A)-XXX, New Delhi pertaining to assessment years 2002-03 & 2003-04. Since issues involved in these appeals are common, therefore, same are being consolidated by this common order for sake of convenience, by dealing with ITA No. 2036/Del/2010 (AY 2002-03). 2. following grounds raised in ITA No. 2036/Del/2010:- 2 1. Action of CIT(A) in confirming assessment made by AO u/s. 148 of I.T. Act in respect of income already disclosed in original return and taxes paid thereon as applicable is unjust, illegal, arbitrary and against facts and circumstances of case. 2. Action of CIT(A) in confirming treatment of Short Term Capital Gain of Rs. 3,505,986/- as income from other sources by AO is unjust, illegal, arbitrary and against facts and circumstances of case. 3. Action of CIT(A) in confirming addition of Rs. 3,50,986/- made by AO based upon presumption that appellant has taken accommodation entry and ignoring all documentary evidence filed by appellant in this regard and without confronting appellant with documentary evidence and statements relied upon by AO is unjust, illegal, arbitrary and against facts and circumstances of case. 4. Action of CIT(A) in confirming charge of interest of Rs. 782,818/- u/s. 234B of I.T. by AO is unjust, illegal, arbitrary and against facts and circumstances of case. 3. following grounds raised in ITA No. 2037/Del/2010:- 1. Action of CIT(A) in confirming assessment made by AO u/s. 148 of I.T. Act in respect of 3 income already disclosed in original return and taxes paid thereon as applicable is unjust, illegal, arbitrary and against facts and circumstances of case. 2. Action of CIT(A) in confirming treatment of Short Term Capital Gain of Rs. 98,219/- as income from other sources by AO is unjust, illegal, arbitrary and against facts and circumstances of case. 3. Action of CIT(A) in confirming addition of Rs. 98,219/- made by AO based upon presumption that appellant has taken accommodation entry and ignoring all documentary evidence filed by appellant in this regard and without confronting appellant with documentary evidence and statements relied upon by AO is unjust, illegal, arbitrary and against facts and circumstances of case. 4. brief facts of case are that assessee had filed her return of income on 30.10.2002 declaring income of Rs. 80,390/- for AY 2002-03. proceedings u/s 147 of I.T. Act were initiated by AO. Notice u/s. 148 was issued and served upon assessee and during assessment proceedings it was found by AO that assessee had shown short term capital gain of Rs. 35,11,354/- and against it adjusted long term capital gain of Rs. 35,09,903/- for AY 2000-01 out of which alleged short term capital gain of Rs. 35,11,354/-, Rs. 4,99,630/- has been shown as 4 received by JRD Stock Brokers P Ltd. and Rs. 30,06,356/- from MKN Finsec. Ltd. AO completed assessment u/s. 147/143(3) of I.T. Act at income of Rs. 35,83,920/- where addition of Rs. 35,05,986/- has been made by AO as income from other sources vide his order dated 27.12.2007. 5. Against Order of Ld. AO, assessee appealed before Ld. CIT(A), who vide impugned order dated 26.2.2010 has dismissed appeal of assesseee. 6. Aggrieved with aforesaid order of Ld. CIT(A), Assessee is in appeal before Tribunal. 7. Ld. Counsel for assessee has only argued legal ground raised vide ground no. 1 stating that provisions of section 147/148 of I.T. Act were not applicable to facts of assessee s case and therefore, issue of notice u/s. 147/148 was illegal and consequently, impugned assessment order as passed u/s. 147/143(3) is unlawful and unjust and therefore same deserved to be annulled / cancelled. In support of his contention he filed various Paper Books enclosing therewith assessment and appellate records and compilation of various case laws having pages 1 to 123 including copy of notice u/s. 148 alongwith reasons recorded. He further stated that Ld. CIT(A) has erred in confirming action of AO in framing impugned assessment order without assuming jurisdiction u/s. 147 and that too without complying with mandatory conditions as prescribed under section 5 147 to 151 of I.T. Act, 1961 and reasons recorded are invalid and contrary to law and facts. He further draw our attention towards copy of reasons for reopening case u/s. 148 and stated that no proper reasons were recorded; no nexus between materials relied upon and belief formed for escapement of income; no application of mind; no proper satisfaction was recorded before issue of notice u/s. 148; no independent conclusion that there was escapement of income. It was further stated that case was reopened only on basis of Investigation Wing information which suffers with serious debility and lacks definiteness, without describing basic aspects of alleged transaction and in absence of same, whole action of AO gets vitiated. To support his contention he submitted that issue in dispute is squarely covered in favour of assessee by ITAT decision dated 09.1.2015 in case of G&G Pharma India Limited vs. ITO passed in ITA No. 3149/Del/2013 (AY 2003-04) in which Judicial Member is Author. He further stated that above decision of ITAT dated 9.1.2015 has been upheld by Hon ble Jurisdictional High Court in its Decision dated 08.10.2015 in ITA No. 545/2015 in case of Pr. CIT-4 vs. G&G Pharma India Ltd. In this behalf, he filed copy of order dated 9.1.2015 of ITAT, Delhi Bench passed in case of G&G Pharma India Ltd vs. ITO (Supra). In this regard, he filed copies of aforesaid decisions before Tribunal. In view of above, he requested that by following aforesaid precedents 6 reassessment proceedings of AO may be quashed by accepting Appeal filed by Assessee. 8. On contrary, Ld. DR relied upon orders passed by authorities below and stated that AO has properly recorded reasons for reopening by due application of mind, hence, appeal of Assessee may be dismissed. 9. We have heard both parties and perused relevant records available with us, especially orders of revenue authorities and case laws cited by assessee s counsel. For sake of clarity, we would like to reproduce reasons recorded for reopening case as under:- During course of investigation carried out and enquiries made by DIT(Inv.) Wing, New Delhi it is observed that various persons and parties were beneficiaries of bogus transactions / accommodation entries. above named assessee was also of beneficiaries as she had taken accommodation entry of Rs. 35,05,986/-(Rupees ..) from MKM Finsec Ltd. on different dates from its bank account as mentioned below:- S.No. Value of entry Date of Bank Branch A/c No. taken which from entry entry entry which giving giving taken entry bank bank given 7 1 490327 29.8.01 Corp. Karol CCSDL 13 Bank Bagh 2 343168 9.11.01 S.B. of -do- 6612 Mysore 3 301115 9.11.01 S.B. of -do- -do Mysore 4 399815 1.09.01 Corp. -do- CSDL 13 Bank 5 228962 11.10.01 -do- -do- -do- 6 261712 11.10.01 -do- -do- -do- 7 494262 12.11.01 S.B. of -do- 6612 Mysore 8 485597 23.8.01 Corp. -do- CCSDL 13 Bank 9 501028 6.9.01 -do- -do- -do- 3505986 Total sum of Rs. 35.05 lacs has been deposited by in her bank account 12424 with PNB, Nehru Place, ND (Source of information floppy disc of DIT (Inv.)-I, New Delhi). Such entires are only in form of accommodation entries which were taken by either agt. Cash payment or in form of bogus sale/ purchase of shares and share capital. Since amount of Rs. 35.05 lacs has escaped assessment within meaning of section 147 of I.T. Act in hands of for AY 2002-03, therefore, I have reason to believe that it is fit case for issue of notice u/s. 148 for issue of notice u/s. 148 for taking 8 necessary action u/s. 147 of I.T. Act for F.Y. ending 31.3.03 pertaining to assessment year 2002-03. 9.1 On going through above reasons recorded by AO, we are of view that AO has not applied his mind so as to come to independent conclusion that he has reason to believe that income has escaped during year. In our view reasons are vague and are not based on any tangible material as well as are not acceptable in eyes of law. AO has mechanically issued notice u/s. 148 of Act, on basis of information allegedly received by him from Directorate of Income Tax (Investigation)-I, New Delhi. Keeping in view of facts and circumstances of present case and case law applicable in case of assessee, we are of considered view that reopening in case of assessee for asstt. Year in dispute is bad in law and deserves to be quashed. Our view is supported by following judgments/decisions:- (a) Pr. CIT vs. G&G Pharma India Ltd. in ITA No. 545/2015 dated 8.10.2015 of Delhi High Court wherein Hon ble Court has adjudicated issue as under:- 12. In present case, after setting out four entries, stated to have been received by Assessee on single date i.e. 10th February 2003, from four entities which were termed as 9 accommodation entries, which information was given to him by Directorate of Investigation, AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." above conclusion is unhelpful in understanding whether AO applied his mind to materials that he talks about particularly since he did not describe what those materials were. Once date on which so called accommodation entries were provided is known, it would not have been difficult for AO, if he had in fact undertaken exercise, to make reference to manner in which those very entries were provided in accounts of Assessee, which must have been tendered along with return, which was filed on 14th November 2004 and was processed under Section 143(3) of Act. Without forming prima facie opinion, on basis of such material, it was not possible for AO to have simply concluded: "it is evident that assessee company has introduced its own 10 unaccounted money in its bank by way of accommodation entries". In considered view of Court, in light of law explained with sufficient clarity by Supreme Court in decisions discussed hereinbefore, basic requirement that AO must apply his mind to materials in order to have reasons to believe that income of Assessee escaped assessment is missing in present case. 13. Mr. Sawhney took Court through order of CIT(A) to show how CIT (A) discussed materials produced during hearing of appeal. Court would like to observe that this is in nature of post mortem exercise after event of reopening of assessment has taken place. While CIT may have proceeded on basis that reopening of assessment was valid, this does not satisfy requirement of law that prior to reopening of assessment, AO has to, applying his mind to materials, conclude that he has reason to believe that income of Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied 11 post mortem exercise of analysing materials produced subsequent to reopening will not rescue inherently defective reopening order from invalidity . 14. In circumstances, conclusion reached by ITAT cannot be said to be erroneous. No substantial question of law arises. 15. appeal is dismissed. (b) Signature Hotels (P)_ Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has under similar circumstances as follows:- For A.Y. 2003-04, return of income of assessee company was accepted u/s.143(1) of Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, Assessing Officer issued notice u/s.148 which was objected by assessee. Assessing Officer rejected objections. assessee company filed writ petition and challenged notice and order on objections. Delhi High Court allowed writ petition and held as under: (i) Section 147 of Income-tax Act, 1961, is wide but not plenary. Assessing Officer must have reason to 12 believe that income chargeable to tax has escaped assessment. This is mandatory and reason to believe are required to be recorded in writing by Assessing Officer. (ii) notice u/s.148 can be quashed if belief is not bona fide, or one based on vague, irrelevant and non- specific information. basis of belief should be discernible from material on record, which was available with Assessing Officer, when he recorded reasons. There should be link between reasons and evidence/material available with Assessing Officer. (iii) reassessment proceedings were initiated on basis of information received from Director of Income-tax (Investigation) that petitioner had introduced money amounting to Rs.5 lakhs during F.Y. 2002-03 as stated in annexure. According to information, amount received from company, S, was nothing but accommodation entry and assessee was beneficiary. reasons did not satisfy requirements of section 147 of Act. There was no reference to any document or statement, except annexure. annexure could not be regarded as material or evidence that prima facie showed or 13 established nexus or link which disclosed escapement of income. annexure was not pointer and did not indicate escapement of income. (iv) Further, Assessing Officer did not apply his own mind to information and examine basis and material of information. There was no dispute that company, S, had paid up capital of Rs.90 lakhs and was incorporated on January 4, 1989, and was also allotted permanent account number in September 2001. Thus, it could not be held to be fictitious person. reassessment proceedings were not valid and were liable to quashed. 10. In view of above, we are of considered view that aforesaid issue in dispute is exactly similar and identical to issue involved in present appeal and is squarely covered by aforesaid decisions of Hon ble High Court of Delhi in case of G&G Pharma (supra) & Signatures Hotels (P) Ltd. (Supra). Hence, respectfully following above precedents in case of Pr. CIT-4 vs. G&G Pharma India Ltd. (Supra) and Signature Hotels (P) Ltd. vs. ITO, we decide legal issue in dispute in favor of Assessee and against Revenue and accordingly quash reassessment proceedings and allow legal ground no. 1 raised by Assessee 14 in its Appeal. Since we have quashed reassessment proceedings, as aforesaid, other issues are not being dealt with. 11. As regards ITA No. 2037/Del/2010 (AY 2003-04) is concerned, following consistent view, as taken in ITA No. 2036/Del/2010 (AY 2002-03), as aforesaid, ITA No. 2037/Del/2010 (AY 2003-04) also stands allowed. 12. In result, both appeals of Assessee are allowed. Order pronounced in Open Court on 07/10/2016. Sd/- Sd/- [O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Date 07/10/2016 SRBHATNAGAR Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order, Assistant Registrar, ITAT, Delhi Benches Sonia Chowdhry v. ITO, Ward, 47(1), New Delhi