IN HIGH COURT OF DELHI AT NEW DELHI 2 W.P.(C) 2858/2016 & C.M. APPL.11983/2016 MASTECH TECHNOLOGIES PVT. LTD ...Petitioner Through : Mr. Ajay Wadhwa and Mr. Sameep Gupta, Advocates. versus DY. COMMISSIONER OF INCOME TAX ...Respondent Through: Mr. Rahul Chaudhary, Senior Standing Counsel. CORAM: JUSTICE S.MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER 13.07.2017 Dr. S. Muralidhar, J.: Introduction 1. This petition by Mastech Technologies Pvt. Ltd. challenges two notices dated 23rd March, 2015 and 18th January, 2016 issued to it under Section 148 of Income Tax Act, 1961 ( Act ) by Deputy Commissioner of Income Tax, Circle 16(2) [hereinafter referred to as Assessing Officer (AO)] as well as order dated 21st March, 2016 rejecting objections filed by Petitioner. 2. When this petition was heard on 1st April 2016, while directing issuance of notice to Respondent, this Court directed that till next date of hearing, assessment proceedings may go but no order shall be passed and in event order has already been passed, it will be subject to W.P.(C) 2858/2016 Page 1 of 16 outcome of this writ petition . Court is informed that in fact on 30th March 2016, assessment order was passed by AO pursuant to reopening of assessment under Section 148 of Act against Petitioner making additions as proposed. However, in terms of interim order passed by this Court, said order has not been given effect to. 3. It may further be mentioned that during course of hearing of present petition on 7th December 2016, original file concerning reopening of assessment was brought before Court by learned counsel for Respondent. Court recorded his statement that there are other parts of file which are currently not available. Court then directed that record produced on that date to be kept in sealed cover by Court. 4. Today, Mr Rahul Chaudhary, learned Senior Standing Counsel for Revenue, informed Court no other part of file is available with Department. Court perused file kept in sealed cover and returned it to Mr Chaudhary. Background facts 5. background facts are that Petitioner filed its return of income for Assessment Year ( AY ) 2008-09 on 28th September, 2008 declaring loss of (-) Rs.6,10,314. return was processed under Section 143(1) of Act and intimation was sent to Petitioner. 6. Thereafter, on 18th January 2016, AO issued notice to Petitioner W.P.(C) 2858/2016 Page 2 of 16 under Section 148 of Act in which he stated as under: Whereas I have reason to believe that your income in respect of which you are assessable to tax for Assessment Year 2008-09, has escaped assessment within meaning of Section 147 of Income Tax Act, 1961, I, therefore, propose to re-assess/re-compute income for said Assessment Year. I hereby require you to deliver to me within 10 days from date of service of this notice, return in prescribed form of your income/the income of company in respect of which you are assessable for said Assessment Year. 7. Thereafter, three distinct events took place nearly one month later on 16 th February, 2016. On that date, Petitioner wrote to AO though its Chartered Accountant (CA) in which it was stated that original return filed under Section 139 (1) of Act should be treated as return filed under Section 148 of Act. request was made to provide to Petitioner with 'reasons to believe' for reopening assessment under Section 148 of Act. 8.1 Simultaneously, on same date i.e. 16th February 2016, two notices were sent to Petitioner by AO. One notice was titled as notice under Section 142(1) of Act. By this notice, Assessee was asked to furnish complete details as per Annexure-A to notice. said Annexure-A was also in form of letter addressed to Petitioner dated 16 th February, 2016. 8.2 subject matter of said letter reads: Proceedings u/s. 148/147 for AY 2008- 2009- show cause notice - Reg. This Annexure- runs into 16 pages. It sets out in detail background of incorporation of Assessee, details of its directors, filing of its return on 28 th September, W.P.(C) 2858/2016 Page 3 of 16 2008. Thereafter, it states that information was received from Investigation Wing and return of income was scrutinized. It was found that during year under consideration, share capital of loan of Assessee had increased to extent as provided in information of investigation. 8.3 In paras 6 to 10 details of information received regarding escapement of income are set out. It essentially states that search was conducted against entry operator S.K. Jain and his group. investigation wing on detailed enquiry into working of S.K. Jain Group concluded that S.K. Jain and his group and Virendra Kumar Jain were accommodation entry providers. modus operandi adopted by them was set out in paras 11 to 18. All that was gathered during investigation qua operation of S.K. Jain and his brother Virendra Kumar Jain is set out. details of bank accounts of S.J. Jain Group companies were set out. 8.4 In paras 19 to 21 summary of evidence relating to Assessee is set out. There is reference to Annexure- recovered during search which enclosed copies of various documents seized from premises of S.K. Group along with report. It was stated that Assessee appears to have taken accommodation entry amounting to Rs.1.35 crores credit from various companies controlled by S.K. Jain Group through intermediary (A.K. Jain).... 8.5 In paras 20 to 22, details of assessment proceedings and order of CIT(A) in relation to Virendra Kumar Jain are set out. Paras 24 to 28 set out conclusion. analysis is set out in par 23 and conclusion in W.P.(C) 2858/2016 Page 4 of 16 para 25 that sum of Rs.1.35 crores unexplained credit under Section 68 of Act in books of A/c of Assessee. 8.6 In para 26, it was stated that Assessee had obtained share capital from M/s Shalini Holdings Ltd. which was company controlled by S.K. Jain Group and that transaction in question have also failed to pass test of creditworthiness of creditor since company was dummy company and that since entries had been created to create web of transaction to camouflage true nature of transaction. In para 26, Assessee was asked to show cause why sum of Rs. 1.35 crores received by it during A.Y. 2008-2009 should not be treated as unexplained credit under Section 68 of Act. 8.7 Further, in para 27 Assessee was asked to show cause why Rs.2,43,000/- representing commission paid at rate of 1.8% as discussed in Para 22.1 of notice should not be treated as unexplained investment to procure these accommodation entries. Assessee was asked to furnish its reply to AO by 24th February, 2016. 9. On 16th February 2016 itself, notice under Section 143 (3) of Act was issued by AO to Assessee stating that there were certain points in connection with return of income submitted by you on 28th September, 2008 for assessment year 2008-09 on which I would like some further information. Interestingly, this notice shows that this was proceeding under Section 148 of IT Act for AY 2008-2009 Assessee was asked to attend office of AO on 23rd February 2016 at 11:10 am. W.P.(C) 2858/2016 Page 5 of 16 10 One week later on 23rd February, 2016, AO wrote to Assessee with reference to request made by its letter dated 16 th February, 2016. said letter reads as under: Kindly refer to above mentioned subject. reason recorded for re-opening of assessment for AY 2008 2009 as under: "It has been gathered that you have received accommodation entries of Rs.1,35,00,000 during year under consideration." 11. Assessee through its CA submitted its objections dated 7 th March, 2016 to reopening of assessment. It was inter alia pointed out that reasons as communicated to Assessee were without any particulars and without disclosing material on basis of which conclusion that Assessee s income had escaped assessment was reached. Inter alia, Assessee pointed out as under: 1. reason do not reflect any application of mind for reopening of assessment. There is no material mentioned on basis of which assessment has been sought to be reopened. Your good self has merely stated that it has been gathered that accommodation entries of Rs. 1,35,00,000/- were received during year under reference. How was information gathered? What is source of information? Even information is incomplete, vague and does not inspire any confidence. It appears to be mere allegation and nothing beyond that. 2. It is well settled law that reasons to believe must reflect prima facie view based on material available. reasons must show that material has been received from credible source and that material leads to prima facie conclusion that income has escaped W.P.(C) 2858/2016 Page 6 of 16 assessment. As per reasons cited by you, there is no mention of what are entries alleged to be accommodation in nature. Who have they been received from? Is there any statement or allegation by person who is claimed to have given accommodation entries? What are accommodation entries and what are their particulars and how have they been treated by assessee in its books of accounts? 12. By letter dated 21st March, 2016, AO informed Assessee that its objections to reopening of Assessment had been rejected. Thereafter, present writ petition was filed and as mentioned hereinbefore interim order was passed on 1st April, 2016 and on that date, as already noted, AO issued assessment order pursuant to reassessment proceedings under Section 147/148 of Act read with Section 143(3) of Act. file of Department 13.It must be mentioned at this stage that when file was produced before Court it contained order sheet which begins with dated of 18 th January, 2016. Although file contained original form of record, reasons for initiating proceedings under Section 148 of Act prepared by AO on 17th March, 2015 with endorsement in Column No.12 of Additional Commissioner of Income Tax granting his approval to reopening of 19th March, 2015, no noting for this action was found on file. This is of some significance as will be explained hereafter. 14. In Column no.11 of this form against caption reasons for believing that income has escaped assessment it is stated as per Annexure-A attached. Annexure- to this form sets out reasons for issuing notice under Section 148(2) of Act in case of Assessee. reasons read as under: W.P.(C) 2858/2016 Page 7 of 16 In case of assessee company M/s Mastech Technologies Pvt. Ltd., information has been received from Director of Income Tax (Investigation)-II, New Delhi vide letter dated 12th March 2013 that Assessee namely M/s Mastech Technologies Pvt. Ltd. had received accommodation entry amounting to Rs.1,35,00,000/- during FY 2007 2008 relevant to AY 2008 2009. This information came to notice of Investigation Wing during course of search in case of Shri Surender Kumar Jain Group of cases (Entry Operator) which is as under: S.No. Name of Amount Cheque Date Bank Name of beneficiary / DD Detail company used No. for providing accommodation entry 1 Mastech 34,00,000 080504 26.04.2007 UTI Shalini Technologies Holdings Ltd. Pvt. Ltd 2 Mastech 20,00,000 080682 07.05.2007 UTI Shalini Technologies Holdings Ltd. Pvt. Ltd 3 Mastech 15, 00,000 080562 16.05.2007 UTI Shalini Technologies Holdings Ltd. Pvt. Ltd 4 Mastech 15, 00,000 080564 21.05.2007 UTI Shalini Technologies Holdings Ltd. Pvt. Ltd 5 Mastech 15,00,000 080569 05.06.2007 UTI Shalini Technologies Holdings Ltd. Pvt. Ltd 6 Mastech 24,00,000 081321 11.10.2007 Axis Shalini Technologies Bank Holdings Ltd. Pvt. Ltd 7 Mastech 12, 00,000 190248 14.01.2008 Axis Shalini Technologies Bank Holdings Ltd. Pvt. Ltd Total 1,35,00,000 There was thus failure on part of assessee to disclose fully and truly all material facts necessary for assessment for AY 2008 2009 which resulted into escapement of income of Rs.1,35,00,000/- for assessment year W.P.(C) 2858/2016 Page 8 of 16 2008- 2009. In view of this, I have reasons to believe that Income of Rs.1,35,00,000/- chargeable to tax has escaped assessment in case of M/s Mastech Technologies Pvt. Ltd. for AY 2008 2009 within meaning of section 147 of Income Tax Act, 1961. Therefore, I am satisfied that it is fit case to be reopened under Section 147 of Income Tax Act by issue notice under Section 148 15. It is matter of fact that aforementioned reasons in Annexure-A together with form in which approval of Additional CIT was recorded had in fact not communicated to Assessee by AO pursuant to request made by it by its letter dated 16th February, 2016. only reason conveyed to Assessee was that set out by letter dated 23rd February, 2016 written by AO to Assessee, which is one single line which has been extracted hereinbefore. Submissions of counsel for Petitioner 16. Mr. Ajay Wadhwa, learned counsel appearing for Petitioner, made two broad submissions: (i) second notice under Section 148(1) of Act could not have been issued to Petitioner when no action was taken pursuant to first notice issued on 23rd March, 2015. Reliance was placed on decision of High Court of Gujarat in Aditya Medisales Ltd. v. Deputy Commissioner of Income-tax, Circle 1(1) [2016] 73 taxmann.com 197 (Gujarat). (ii) reasons for reopening of assessment as contained in form with Annexure- thereto were never communicated to Petitioner. All that was communicated was single line which did not set out particulars or materials on basis of which reasons to believe arrived at by W.P.(C) 2858/2016 Page 9 of 16 AO. There was no tangible material on basis of which such reasons to believe was formed prior to issuing of notice under Section 148 of Act. 17. Mr Wadhwa further pointed out that it was only after disposal of objections of Petitioner to reopening of assessment, could re- assessment proceedings have being continued. He submitted that notices issued on 16th February, 2016 under Section 142(1) of Act and 143(2) of Act by AO, which purportedly set out reasons for reopening of assessment were not in fact sent pursuant to request made by Petitioner for being provided reasons for reopening of assessment. Both these notices therefore, according to Mr Wadhwa, were invalid. He pointed out that said fresh notice, in any event, did not contain Annexure-A to Form in which approval was granted to reopening of assessment by Additional CIT on 19 th March, 2015. Therefore, there was failure to comply with mandatory requirement of Section 148 of Act inasmuch as reasons for reopening of assessment were not communicated to Petitioner. Mr Wadhwa pointed out that second reopening of assessment under Section 148 of Act by issuing second notice on 18th January, 2016, was clearly without approval of Additional CIT and was, in any event, barred by limitation. Submissions of counsel for Revenue 18. Countering above submissions, Mr Rahul Chaudhary, learned Senior Standing Counsel appearing for Revenue, submitted that on strength of Section 129 (1) of Act, AO had merely continued proceedings under Section 148 of Act which were initiated by issuance of notice W.P.(C) 2858/2016 Page 10 of 16 dated 23rd March, 2015. Revenue s case, in other words, is that notice dated 18th January, 2016 did not constitute initiation of fresh proceedings under Section 148 of Act. 19. Mr Chaudhary further submitted that on face of it notice dated 18th January, 2016 could not be treated as initiation of proceedings under Section 148 of Act since it had no approval of Additional CIT. In any event, reopening of assessment as on that date was time-barred. He submitted that even if second notice dated 18th January, 2016 is treated as non est for aforementioned reasons, reopening of assessment made on 23rd May, 2015 under Section 148 of Act remained valid. It was within time and done with approval of Additional CIT and reasons for reopening were clearly recorded on file. 20. Further, according to Mr Chaudhary although Petitioner was not furnished reasons as contained in Annexure-A to proforma in which approval to reopening was obtained from Additional CIT on 19 th March 2015, reasons were elaborated in Annexure-A to notice under Section 142(1) of Act issued by AO to Petitioner on 16th February, 2016. He submitted that both notices under Section 142(1) and 143(2) of Act dated 16th February, 2016 expressly made reference to Section 148 of Act. Therefore, it was obvious that these proceedings were in continuation of proceedings under Section 148 of Act which commenced with notice dated 23rd March, 2015. He submitted that mere absence of any note on file relating to initial reopening of assessment by AO who replaced earlier AO would not affect W.P.(C) 2858/2016 Page 11 of 16 validity of proceedings. He submitted that decision of Gujarat High Court in Aditya Medisales Ltd. v. Deputy Commissioner of Income-tax, Circle (supra) was distinguishable on facts and was of no help to Petitioner. Analysis and reasons 21. Having considered above submissions and having perused file produced before Court by Revenue, Court satisfied that present case has too many procedural lapses which cannot possibly be sustained as mere irregularities. 22. To begin with, it appears to Court that for reasons which are not clear, Revenue did not pursue notice dated 23rd March, 2015 issued to Petitioner under Section 148 of Act. attempt was made by Mr Rahul Chaudhary to suggest that since AO who issued said notice was replaced by another AO, said notice was not pursued. He, however, insisted that under Section 129 of Act it was possible to continue proceedings which commenced with notice dated 23rd March, 2015 and that was in fact what was done on 18th January, 2016 when second notice was issued by incumbent AO. 23. careful perusal of notice dated 18th January, 2016 reveals that it does not state anywhere that it is in continuation of earlier notice dated 23rd March, 2015. There is no noting even on file made by AO that while issuing said notice he was proposing to continue proceedings that already commenced with notice dated 23rd March, 2015. Annexure- to notice under Section 142(1) of Act reveals what weighed with W.P.(C) 2858/2016 Page 12 of 16 AO when he issued said notice dated 18 th January, 2016. In this document with sub-heading proceedings u/s 148/147 of Act for AY 2008-2009, show cause notice - reg. AO states as under: Please refer to re-assessment proceedings u/s. 147/148 of Income-tax Act, 1961 pending against you for A.Y. 2008-09. notice u/s. 148 of Act was issued initiating proceedings vide notice dated 18.01.2016 served upon you through speed post after duly recording reasons for reopening same u/s. 148. case has been re- opened u/s. 148 of Act on account of there being reason to believe that at least amount of Rs. 1,35,00,000 has escaped assessment for A.Y. 2008-09. copy of reasons for reopening case is being supplied to you alongwith (sic herewith). (emphasis supplied) 24. It is plain from above paragraph that according to AO, notice dated 18th January 2016 under Section 148 of Act was issued initiating afresh proceedings. It was not merely in continuation of earlier proceedings that commenced with notice dated 23rd March, 2015. 25. Although facts of present case are different from those in case before Gujarat High Court in Aditya Medisales Ltd. v. Deputy Commissioner of Income-tax, Circle (supra), it is evident that entire proceedings under Section 148 of Act stood vitiated since even according to AO, he initiated proceedings on 18th January, 2016 on which date such initiation was clearly time barred. Secondly, fresh initiation did not have approval of Additional CIT, as required by law. 26. Consequently, on this ground itself Assessee is entitled to succeed and all proceedings pursuant to notice dated 18th January, 2016 cannot be W.P.(C) 2858/2016 Page 13 of 16 sustained in law. 27. second problem is in manner in which AO has proceeded. AO has indeed followed very strange procedure. As already noticed, reasons that he furnished Petitioner by letter dated 23rd February, 2016 contained only one sentence. For some reasons, AO did not provide Petitioner reasons recorded in Annexure-A to proforma which contained approval of Additional CIT dated 19th March, 2015. Also, clearly, these were not reasons for reopening of assessment on 18th January, 2016. Perhaps for that reasons what was communicated to Assessee on 23rd February, 2016 was single line which did not have approval of Additional CIT. 28. It is not possible to accept plea of Mr Chaudhary that Court should proceed as if second notice dated 18th January, 2016 does not exist. fact that said notice was issued by AO initiating proceedings under Section 148 of Act is plain from Annexure-A dated 16th February, 2016 enclosed with notice under Section 142 (1) of Act. That being position, legal consequences of such action have to follow. Mr Chaudhary s submission that in absence of any approval granted to issuance of notice dated 18th January, 2016 by Additional CIT and with said notice being time barred, it should not be taken to have been issued at all, is unacceptable. 29. Court has not been provided with any satisfactory explanation as to why notice dated 23rd March, 2015 issued by AO under Section 148 of Act was not carried to its logical end. mere fact that AO who W.P.(C) 2858/2016 Page 14 of 16 issued that notice was replaced by another AO can hardly be justification for not proceeding in matter. On other hand, AO did not seek to proceed under Section 129 of Act but to proceed de novo under Section 148 of Act. This was serious error which cannot be accepted to be mere irregularity. 30. As regards non-communication of reasons as contained in Annexure-A to proforma on which approval dated 19th March, 2015 was granted by Additional CIT, there is again no satisfactory explanation. fact remains that what was communicated to Petitioner on 23rd February, 2016 was only one line without any supporting material. There appears to be also no clarity of how case had to be proceeded with by Revenue. On one date i.e. 16th February 2016, AO was issuing notice both under Section 142(1) of Act as well as notice under Section 143(2) of Act when on that very date Petitioner had asked for reasons for reopening by notice dated 18th January, 2016. Again, it is not clear why AO did not wait for process of supplying reasons to Petitioner, considering Petitioner s objections thereto and passing reasoned order thereon to be completed before issuing notice under Section 142(1) and 143(2) of Act. There appears to be non-application of mind by AO to legal requirement. 31. Consequently, Court noticed that there are numerous legal infirmities which leads to inevitable invalidation of all proceedings that took place pursuant to notice issued to Petitioner first on 23rd March, 2015 and then again on 18th January, 2016 under Section 148 of Act. Interestingly, W.P.(C) 2858/2016 Page 15 of 16 even in assessment order issued on 30th March, 2016, AO failed to acknowledge that fresh notice was issued to Assessee on 18th January, 2016 and that Assessee was never communicated reasons for reopening as contained in Annexure to form in which Additional CIT gave his approval on 19th March, 2015. Conclusion 32. For all of aforementioned reasons, notices dated 23rd March, 2015 and 18th January, 2016 - both under Section 148 of Act and all consequential proceedings including assessment order dated 30 th March, 2016 are hereby set aside. 33. petition is accordingly allowed in above terms but in circumstances no orders as to costs. S.MURALIDHAR, J PRATHIBA M. SINGH, J JULY 13, 2017/rd W.P.(C) 2858/2016 Page 16 of 16 Mastech Technoliogies Pvt. Ltd. v. Dy. Commissioner of Income-tax