IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA Nos. 78 & 2823/Del/2010 Assessment Years: 1999-2000 & 2001-02 M/s. Prateek Securities (P) Ltd., Vs. Income Tax Officer, Ward - B-925, Sector-1, Avantika, 14(3), New Delhi Rohini, New Delhi PAN : AAACP7285R (Appellant) (Respondent) Appellant by Sh. Tarun Kumar, Advocate Respondent by None Date of hearing 17.08.2016 Date of pronouncement 19.10.2016 ORDER PER O.P. KANT, A.M.: These two appeals of assessee are directed against two separate orders dated 31/10/2009 and 26/03/2010 passed by learned Commissioner of Income-tax (Appeals)-XVII, New Delhi, for assessment years 1999-2000 and 2001-02 respectively. grounds raised in both appeals are identical except change of amounts involved, and therefore, both appeals are heard together for sake of convenience and brevity and are disposed of by this consolidated order. 2. grounds of appeal raised in ITA No. 78/Del/2010 for assessment year 1999-2000 are reproduced as under: i. That having regard to facts and circumstances of case, learned Commissioner of Income Tax (Appeals) has erred in law 2 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 and on facts in confirming action of learned Assessing Officer in framing impugned assessment order without complying with mandatory conditions of section 147 to 151 of Income Tax Act, 1961 and reopening of case is bad in law and beyond jurisdiction of learned Assessing Officer. ii. That having regard to facts and circumstances of case, learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming action of learned Assessing Officer in framing impugned assessment order without disposing off objections of appellant against reasons recorded. iii. That having regard to facts and circumstances of case, learned Commissioner of Income Tax (Appeals) has erred in law and on facts in not quashing impugned assessment order which was passed without recording satisfaction of joint commissioner of income tax before issuance of notice u/s 148 of Act. iv. That having regard to facts and circumstances of case, learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming action of learned Assessing Officer in making aggregate addition of Rs.2,80,000/- treated as income of appellant u/s 68 of Act. v. That having regard to facts and circumstances of case, learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming action of learned Assessing Officer in making addition or Rs.62,018/- on account of commission income. vi. That in any case and in any view of matter learned Commissioner of Income Tax (Appeals) has erred in law and on facts in not quashing impugned assessment order passed by learned Assessing Officer and in not deleting various additions/disallowances made by learned Assessing Officer as assessment order is not sustainable on various legal and factual grounds and more so by recording incorrect facts and finding and without giving any opportunity of cross examination of persons on whose statement impugned addition has been made. vii. That appellant craves leave to add, modify, amend or delete any of grounds of appeal at time of hearing and all above grounds are without prejudice to each other. 3. In appeal, assessee filed application on 02/03/2014 under Rule 11 of ITAT Rules, 1963 for filing additional ground in view of 3 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 judgment of Hon ble Supreme Court in case of National Thermal Power Corporation reported in 229 ITR 383(SC) as follows: That mandatory notice u/s 148 was not served upon assessee company much less in according to law and therefore learned Assessing Officer did not presume jurisdiction to frame impugned assessment order and thereafter impugned assessment is bad in law. 4. application for admission of additional ground of assessee was allowed by Tribunal which is recorded in order sheet entry dated 21/07/2015. ITA No. 78/Del/2010 for AY:1999-00 5. At time of hearing, before us, none represented on behalf of Revenue. However, learned Authorized Representative of assessee submitted that assessee has already filed paper book containing all documents and materials and legal grounds raised by assessee against reassessment proceedings was duly covered in favour of assessee by decision of Tribunal as well as decision of Jurisdictional High Court and case being very old, he requested to hear appeal ex-party, Revenue. 6. We have heard submission of learned Authorized Representative of assessee and find that this appeal is very old and on earlier occasion adjournment was granted on request of Department, despite, none represented on behalf of Revenue. We also find that assessee has filed copy of relevant documents in form of paper book. In view of above facts and circumstances and looking to issue involved in appeal, we have heard appeal ex- party, qua Revenue. 7. facts in brief of case are that on basis of information received from Investigation Wing of Income Tax 4 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 Department, that assessee was engaged in providing of accommodation entries for monetary benefit, Assessing Officer recorded reasons for reopening of assessment and issued notice under section 148 of Income-tax Act, 1961 (in short Act ). Assessing Officer claimed that this notice was duly served on assessee company on 31/03/2006. In response, assessee vide letter dated 21/11/2006, stated that original return of income filed by assessee under section 139 of Act might be treated as return in compliance to notice under section 148 of Act. Assessing Officer noted that original return of income was filed on 30/11/1999 declaring income of Rs.10,080/-. During assessment proceedings, Assessing Officer observed from information received from Investigation Wing of Income Tax Department that Sh. Govind Ram in his statement dated 13/05/2005, admitted of having opened bank accounts in name of various concerns and bank accounts of those concernes were used as entry operator for providing accommodation entries. Sh. Govind Ram, further admitted that Sh. Vinesh Kumar and Sh. Sharique Kamal were working under him in various capacity for which they were paid monthly remuneration. Assessing Officer further observed that Sh. Sharique Kamal and Sh. Vinesh Kumar, both Directors of assessee company, in their statement dated 13/05/2005, admitted of working under direction of Sh. Govind Ram and signed Bank cheques and documents of various concerns including assessee company. Assessing Officer collected copy of bank statements of assessee company from banks and asked assessee to provide narration of each debit and credit entry of bank statement. assessee provided detail of share application money of Rs.2,80,000/-received during year from eight persons, having details as under: 5 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 Sl. No. Name of Party Amount 1. Sh. Brij Murari Pandey Rs.16,000/- 2. Sh. Davender Sabat Rs.18,000/- 3. Sh. Jagjit Malik Rs.70,000/- 4. Sh. Pawan Chawla Rs.24,000/- 5. Arun Bala Rs.70,000/- 6. Harsh Kumar Rs.12,000/- 7. Geeta Rs.60,000/- 8. Assem Pushkarma Rs.10,000/- Total Rs.2,80,000/- 7.1 According to Assessing Officer notice issued under section 133(6) of Act to share applicant at serial Nos. 1 and 2 above returned undelivered and in case of share Applicant No. 3 to 8, neither notices received back undelivered, nor any response was received from those persons and, therefore, assessee was called upon to show cause why amount of Rs.2,80,000/- shown to have received may not be treated as unexplained credit under Section 68 of Act. According to Assessing Officer, assessee was engaged in providing accommodation entry and, therefore, commission at rate of 2% on total credit balance of Rs.31,00,899/- appearing in records of assessee, was estimated, which worked out Rs.62,018/-. According to Assessing Officer, no reply was furnished by assessee, and therefore he made additions accordingly. 7.2 Before learned Commissioner of Income-tax (Appeals), assessee challenged reassessment proceedings initiated by Assessing Officer on ground that Assessing Officer had no reasons to believe that income has escaped assessment. assessee submitted that there was no material on basis of which, belief that income escaped, could be formed. He further submitted that belief of Assessing Officer should not be product of imagination or speculation. assessee also took ground that assessment was framed without disposing off objection of assessee against 6 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 reasons for reopening and assessee was not provided opportunity to cross-examine persons, whose statements have been referred by Assessing Officer. learned Commissioner of Income-tax (Appeals), however, rejected legal grounds of assessee and upheld reassessment proceedings with following observations: 3.1. I have considered facts of case, order of AO and submissions made by Id. AR appearing on behalf of appellant. notice u/s 148 was issued in present case on 30.03.2006. As per provisions of Section 149 of Income Tax Act, notice u/s 148 can be issued within period of four / six years from end of relevant Assessment Year. In present case, notice was issued within period of six years from end of relevant Assessment Year. Hence, it is seen that notice was issued, well within time and same was not barred by limitation. 3.2 Regarding, reason to believe, it is seen that in this case reasons to believe was formed by Assessing Officer on specific information received from Investigation Wing of Department. said information was not general or vague, as alleged by appellant, but was basis of specific information, pertaining to transactions made by appellant. In said information date of cheque, amount of cheque and name of person issuing cheque, etc , in respect of accommodation entry received by appellant, were duly mentioned two persons, namely, Sh. Sharique Kamal and Sh. Vinesh Kumar, who were working for appellant admitted in their statement on oath that appellant was indulging in accommodation entries. These facts were sufficient for forming belief by Assessing Officer. Any subsequent investigation could be done only after initiating proceeding as per provisions of I.T. Act. On receipt of this information from Investigation Wing of Income-tax Department, AO examined facts of case and applied his mind before initiating reassessment proceedings. contention of appellant that reopening was done on direction of Investigation Wing is not true. Directorate of Investigation simply forwarded information which was containing modus operandi and statements of persons who were involved in providing accommodation entries including statements of Mr. Sharique Kamal and Mr. Vinesh Kumar. On receipt of information, AO independently analyzed same and thereafter 7 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 formed reason to believe that income had escaped assessment which was put into writing in form of reason to believe. Therefore, there is no force in argument of appellant that reopening was done on behest of Directorate of Investigation. 3.3. AO has followed all procedures laid down in Act and recorded reasons which had live link with material in his possession. Further, appellant has not pointed out any specific infirmity in action of Assessing Officer, as far as reopening of Assessment as per provisions of section 147 is concerned. Hence, it is clear that reason to believe recorded by Assessing Officer, were having rational nexus / relevant to facts of appellant and reopening was done by A.O. as per provisions of I.T. Act. 3.4. copy of reasons recorded by AO was provided to A.R. of appellant during course of assessment proceedings. reopening of assessment proceedings is as per provisions of Law and AO has followed all procedures and guidelines laid down by Hon ble Supreme Court in case of GKN Driveshafts (India) Ltd. \/s. Income Tax Officer(2003) 259 ITR 19/(2002) 125 Taxman 963 (SC) for supplying of reasons recorded and disposing off of objections raised by appellant. 3.5. In case of Highgain Finvest Pvt. Ltd. 304 ITR 325 (Del), Jurisdictional High Court of Delhi'xlpheidthe reopening of assessment when specific information is available with assessing officer. fact of this case is also similar to facts of above case of Jurisdictional High Court. In view of above, it is clear that proceedings u/s 147 of IT Act have been validly initiated in case of appellant. facts of case laws relied upon by appellant are different with that of appellant s case, therefore, findings of those judgements are not applicable in case of appellant. Therefore, ground nos.1, 2, 3 & 7 are rejected. 8. Before us, learned Authorized Representative of assessee argued in support of ground No. 1 that Assessing Officer has not applied mind while recording reasons for reopening, which is evident from copy of reasons recorded available at page 39 of 8 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 assessee s paper book. learned Authorized Representative submitted that in reasons recorded, Assessing Officer has even not mentioned material, on which, he relied for reopening of assessment except mentioning fact that information was received from Investigation Wing. He further submitted that Assessing Officer even did not verify fact that assessee had already filed return of income for year under consideration and he simply mentioned that assessee has not filed return of income. He further submitted that Assessing Officer has not even mentioned amount of income escaped in reasons recorded. According to him, thus it was evident that Assessing Officer has not applied his mind while reopening assessment and which renders assessment proceeding as bad in law. Accordingly he prayed that reassessment proceeding might be held invalid in case of assessee. In support of his contention, he relied on decision of Hon ble jurisdictional High Court in case of principal Commissioner of Income Tax Vs. G & G Pharma India Ltd in ITA 545/2015. 9. We have heard submission of learned Authorized Representative of assessee and perused relevant material on record. In decisions cited by learned Authorized Representative in case of M/s G & G Pharma India Ltd (supra), Hon ble High Court concluded that when basic requirement that Assessing Officer must apply his mind to materials on record in order to have reasons to believe that income of assessee escaped assessment was missing and therefore reopening of assessment was not justified. relevant paragraph of decision of Hon ble High Court are reproduced 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 9 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 2003, from four entities which were termed as 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 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 post mortem exercise of analysing materials produced subsequent to reopening will not rescue inherently defective reopening order from invalidity. 10 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 10. When we advert to instant case, that reasons recorded by Assessing Officer for reopening of assessment, are available on page 39 of paper book, which we are reproducing as under: Reasons for issue of notice u/s 148 report from DIT(Inv.) was received stating that company has received accommodation entries from group of Sh. Hari Om Bansal Govind Ram Saini/Mukesh Gupta. perusal of I.T. Return, it is revealed that assessee company has only taken PAN of this ward but has not filed any IT return for any of assessment years till now. income escaped assessment on account of accommodation entries is likely to exceed over Rs. 1 lakh. In view of above facts and report received from DIT(Inv.), New Delhi, I have reason to believe that sum of Rs.1 lakhs has not been disclosed by assessee company as its income, which has escaped assessment so same is to be sought to tax net u/s 147/148 of Income Tax Act, 1961. 11. From above reasons recorded, we find: (i) that Assessing Officer has not even mentioned letter number and date of letter of Director of Income-tax (Investigation), which constituted information on basis of which, he reopened assessment. (ii) that Assessing Officer has not mentioned name of persons who gave statement that assessee was engaged in providing accommodation entry (iii) that Assessing Officer has not verified that assessee had already filed return of income for year under consideration. (iv) that Assessing Officer was not sure of amount of income escaped and thus he has not even mentioned amount of income escaped , which is evident from sentence in reasons recorded that escaped income on account of accommodation entry was likely to exceed Rs. 1 lakh 11 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 (v) Assessing Officer has not even mentioned nature of income escaped i.e loans or share application money or share capital etc. 12. In view of above, it is manifested that Assessing Officer has not applied his mind to information and he has recorded reasons in mechanical manner, which are vague and non-specific. It is settled law that action of reopening has to be judged only on basis of reasons recorded and no extraneous material can be supplemented to see validity of reopening. Though learned Commissioner of Income Tax, subsequently brought on record all details leading to reopening of assessment, however, but as held by Hon ble Jurisdictional High Court in above decision that production of materials before learned Commissioner of Income-tax (Appeals) during hearing was in nature of post-mortem exercise and taken place after event of reopening assessment. Hon ble Court has held that while Commissioner of Income Tax might have proceeded on basis that reopening of assessment was valid, that did not satisfy requirement of law that prior to reopening of assessment, AO has to apply his mind to material to conclude that he has reason to believe that income of assessee escaped assessment and unless basic jurisdictional requirement is not satisfied, post-mortem exercise of analysing material produced subsequent to reopening will not rescue inherently defective reopening orders from invalidity. 13 In view of above, respectfully following above decision of Hon ble High Court, we hold reassessment proceedings in case as invalid. Since reassessment proceedings have been held by us as invalid, other grounds of appeal as well as additional ground of 12 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 assessee are rendered merely academic, and hence we are not adjudicating upon those grounds of assessee. 14. In result, appeal of assessee is allowed. ITA No. 2823/Del/2010 for AY: 2001-02 15. Since facts and circumstances of case in ITA No. 2823/Del/2010 are identical to facts and circumstances of case in ITA No. 78/Del/2010, therefore, following our decision in ITA No. 78/Del/2010, we hold reassessment proceeding in assessment year 2001-02 as invalid and accordingly allow appeal in ITA No. 2823/Del/2010 of assessee. 16. In result, both appeals of assessee are allowed. decision is pronounced in open court on 19th October, 2016. Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19th October, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi M/s. Prateek Securities (P) Ltd. v. Income-tax Officer, Ward-14(3), New Delhi