IN HIGH COURT OF DELHI AT NEW DELHI 20 ITA 92/2017 PRINCIPAL COMMISSIONER OF INCOME-TAX 8 ..... Appellant Through: Mr. Rahul Kaushik, Advocate versus M/S SNG DEVELOPERS LIMITED ..... Respondent Through: Mr. Inder Pal Bansal and Mr. Vivek Bansal, Advocates CORAM: JUSTICE S.MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER 12.07.2017 Dr. S. Muralidhar, J.: 1.This appeal by Revenue under Section 260A of Income Tax Act, 1961 ( Act ) is directed against order dated 29th July, 2016 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 735/Del./2012 for Assessment Year ( AY ) 2003-04. 2. While admitting appeal on 15th February, 2017, following question of law was framed by Court for consideration: Did ITAT and CIT(A) fall into error in holding that reassessment was not justified in law in circumstances of case? 3.The Assessee filed its return of income on 25th November, 2003 for AY 2003-04 declaring income of Rs. 76,340. ITA 92/2017 Page 1 of 7 4. On 31st March, 2010, Assessing Officer ( AO ) served notice on Assessee under Section 148 of Act stating that he has reasons to believe that income of Rs. 95,65,510 had escaped assessment which was based on report of Directorate of Income-Tax (Investigation). reasons to believe as noted by AO and as supplied to Assessee read as under: Return of income in this case was filed on 25/11/2003 declaring total income of Rs.76,340 which was processed vide order u/s 143(1) dated 16/02/2004. directorate of Income Tax (Inv.), New Delhi has carried out detailed enquiry about persons /companies engaged in business of providing accommodation entries to various companies. Information has been received along with statements of persons who had admitted that they were in business of providing accommodation entries and they were not doing any business but were engaged in activity of providing accommodation entries to other concerns. These persons used to issue cheques in lieu of cash received after deducting their commission and these cheques were generally issued as share application money/ unsecured loans. As per information received, above named assessee M/s. SNG Developer Ltd. (earlier known as S N JEE Developers (P) Ltd.) has also received accommodation entries during F.Y. 2002-03 as per annexure -B attached. These accommodation entries involving total amount of Rs. 95,65,510 represent assessee's own unaccounted money. In view of above, I have reason to believe that income of Rs. 95,65,510 has escaped assessment within meaning of section 147 of Income Tax Act, 1961. Since, as per available records assessment was not made in this case u/s 143(3) or 147 of Act and period of 4 years has elapsed, proposal is hereby submitted along with relevant assessment records to Addl. Commissioner of Income Tax, ITA 92/2017 Page 2 of 7 Range-9, New Delhi for consideration and necessary approval in accordance with provisions of section 15l (2) of IT Act, 1961 for issuance of notice u/s 148 of 1.T. Act. 5. Annexure B to reasons set out details of entries which were 19 in number totalling Rs. 95,65,510/-. 6. objections raised by Assessee were rejected by AO by order dated 24th September, 2010. AO proceeded to pass assessment order under Section 144 read with Section 147 of Act on 16 th December, 2010 making addition of Rs.95,65,510 to declared income of Assessee. 7. Assessee then went in appeal before CIT (A), who by order dated 19th August, 2011 allowed appeal filed by Assessee. CIT (A) held that re-opening of assessment was without any satisfaction, without verifying information received from Directorate of Investigation and that AO has not applied his mind. There is no satisfaction on part of AO regarding escapement of any income. 8. Revenue then went in appeal before ITAT which was dismissed by impugned order. ITAT concurred with CIT (A) that jurisdictional requirement for re-opening of assessment under Section 147 read with Section 148 of Act had not been satisfied. In particular, ITAT observed that AO has not given details what was stated by so-called entry operators in respect of entries related to assessee . Further, from table of accommodation entries produced by Assessee, ITAT found that there are five instances, where entries have been ITA 92/2017 Page 3 of 7 repeated . 9. Two decisions are relied upon by Mr Rahul Kaushik, learned counsel for Revenue. first is decision dated 5 th December, 2012 in Writ Petition (Civil) No.7538/2012 (Pratibha Finvest Pvt. Ltd. v. ITO Ward 14(3), New Delhi). As far as this decision is concerned, limited question that was sought to be urged by Assessee which was in appeal before this Court was whether ITAT had fallen in error in upholding addition of Rs.1, 10,896 as income earned by way of commission for providing accommodation entries, when in fact this particular item did not feature as part of reasons to believe recorded by AO in that case in support of notice issued under Section 147 of Act. Court had analysed material placed on record and found that total amount of alleged accommodation entries worked out to Rs.55,44,816 and in that regard Assessee s explanation was somewhat accepted . It was to limited extent of Rs.1, 10,896/- that was held to constitute commission that could be said to be reasonably earned by Assessee. Therefore, this was not case of non-application of mind by AO to material available with him prior to reopening of assessment. 10. second decision relied upon by Mr Kaushik is A.G. Holdings Pvt. Ltd. v. Income Tax Officer [2013] 352 ITR 364 (Del). There Court took note of fact that investigation report referred to specific information that petitioner company had received amount of Rs.4,50,000/- from M/s Quality Security Services (P) Ltd. report also mentions that this is accommodation entry given by said company to ITA 92/2017 Page 4 of 7 petitioner company. relevant bank account particulars, instrument number, etc. have all been reported. In circumstances, Court concluded that investigation report is pointer and costs grave doubts on basis of evidence/material on genuineness of share contribution. 11. In considered view of Court, neither of above two cases come to aid of Revenue in present case where facts speak for themselves. reasons for reopening assessment have already been set out hereinbefore. Court has again perused Annexure B thereto. As already noticed by ITAT, there is repetition of at least five entries. In other words total amount constituting so-called accommodation entries would therefore not work out to Rs.95,65,510. On face of it, therefore, there is non-application of mind by AO. What is further unacceptable is that AO persisted with his belief that said amount had escaped assessment not only at stage of rejecting Assessee s objections but also in re-assessment proceedings where he proceeded to add entire amount to returned income of Assessee. This is classic case of non-application of mind by AO. 12. In recent decision in Principal Commissioner of Income Tax-6 v. Meenakshi Overseas (P) Ltd. [2017] 82 taxmann.com 300 (Delhi), this Court observed as under: 22. As rightly pointed out by ITAT, 'reasons to believe' are not in fact reasons but only conclusions, one after other. expression 'accommodation entry' is used to describe information set out without explaining basis for arriving at such conclusion. statement that said entry was given to Assessee on his paying "unaccounted cash" is another conclusion basis for which ITA 92/2017 Page 5 of 7 is not disclosed. Who is accommodation entry giver is not mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly source for all these conclusions, one after other, is Investigation report of DIT. Nothing from that report is set out to enable reader to appreciate how conclusions flow therefrom. 23. Thus, crucial link between information made available to AO and formation of belief is absent. reasons must be self evident, they must speak for themselves. tangible material which forms basis for belief that income has escaped assessment must be evident from reading of reasons. entire material need not be set out. However, something therein which is critical to formation of belief must be referred to. Otherwise link goes missing. 24. reopening of assessment under Section 147 is potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. heart of provision is formation of belief by AO that income has escaped assessment. reasons so recorded have to be based on some tangible material and that should be evident from reading reasons. It cannot be supplied subsequently either during proceedings when objections to reopening are considered or even during assessment proceedings that follow. This is bare minimum mandatory requirement of first part of Section 147 (1) of Act. 13. In view of said decision, Court has no hesitation in concluding in present case that reasons recorded by AO for reopening assessment under Section 147 of Act do not meet requirement of law. ITAT was, therefore, perfectly justified in confirming order of CIT (A) and holding reopening of assessment to be bad in law. 14. question framed is, accordingly, answered in negative i.e. in favour of Assessee and against Revenue. ITA 92/2017 Page 6 of 7 15. appeal is dismissed but in circumstances with no orders as to costs. S.MURALIDHAR, J PRATHIBA M. SINGH, J JULY 12, 2017 rd ITA 92/2017 Page 7 of 7 Principal Commissioner of Income-tax-8 v. SNG Developers Limited