Commissioner Of Income Tax - Iii v. Vibhu Bakhru, J

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 07.05.2013 +ITA No.289/2012 COMMISSIONER OF INCOME TAX - III .....Appellant versus M/S SUREN INTERNATIONAL PVT LTD..…RespondentAdvocates who appeared in this case:For the Appellant:Mr Amol Sinha, Sr.Standing Counsel withMr Deepak Anand, Mr.Anshum Jain &Mr Rahul Kochar, Advocates.For the Respondent:Mr S. Krishnan, Advocate. CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE VIBHU BAKHRU JUDGMENT VIBHU BAKHRU, J 1.This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the said Act”) has been filed on behalf of the revenue challengingthe order dated 23.12.2011 passed by the Income Tax Appellate Tribunal, in ITANo. 2941/D/2010, pertaining to the assessment year 2002-03. The Tribunal has,by its order dated 23.12.2011, quashed the proceedings initiated, by theAssessing Officer, on the basis of a notice under Section 148 of the said Act issued for reopening the assessment pertaining to the said assessment year 2002- 03.The notice under Section 148 of the said Act was issued on 25.03.2009which is beyond the period of 4 years from the end of the relevant assessmentyear.The Tribunal held that as there has been no failure on the part of theassessee to disclose material facts and the same is also not alleged either in thenotice under Section 148 or in the reasons recorded for initiating reassessmentproceedings, the reassessment proceedings are illegal and without jurisdiction. Inabsence of failure, on the part of the assesse, to disclose fully and truly allmaterial facts necessary for the proceedings, the Assessing Officer would lack thejurisdiction to initiate reassessment proceedings. Consequently, the Tribunal hasquashed the reassessment order. 2.The challenge on the part of the revenue to the order passed by theTribunal has to be considered in light of the following facts. 3.The assessee filed its return of income on 31.03.2003 declaring anincome of ` 30,18,779/-. The said return was initially accepted under Section143(1) on 30.05.2003.However, subsequently on 20.10.2003, the same wastaken up for scrutiny. The balance sheet and the books of account of the assesseedisclosed that, during the relevant previous year, the assessee had received anaggregate sum of ` 4,82,01,000/- as share application money from variouspersons and the same was outstanding, pending allotment of shares.TheAssessing Officer issued a detailed questionnaire to inquire into the said share 2.The challenge on the part of the revenue to the order passed by theTribunal has to be considered in light of the following facts. 3.The assessee filed its return of income on 31.03.2003 declaring anincome of ` 30,18,779/-. The said return was initially accepted under Section143(1) on 30.05.2003.However, subsequently on 20.10.2003, the same wastaken up for scrutiny. The balance sheet and the books of account of the assesseedisclosed that, during the relevant previous year, the assessee had received anaggregate sum of ` 4,82,01,000/- as share application money from variouspersons and the same was outstanding, pending allotment of shares.TheAssessing Officer issued a detailed questionnaire to inquire into the said share application money and sought details of the share applicants who had paid theshare application money to the assessee company.The Assessing Officerthereafterconductedaninquirytodeterminethegenuinenessandcreditworthiness of the transactions relating to the share applications.Theassessee produced confirmations from the concerned share applicants during thecourse of the assessment proceedings.In order to make further inquiries, theAssessing Officer issued summons under Section 131 of the Act to 25 partiesfrom whom the share application money had been received. Initially, some of thesummons were received back unserved and the assessee was asked to furnishfresh addresses, which were provided by the assessee. However even thereaftersummons to certain persons were received back and the assesse again provided afresh set of addresses with respect to those persons. The hearings for examiningthe noticees under Section 131 were fixed on 07.03.2005, 22.03.2005 and23.03.2005.One of the persons examined under Section 131 declined toacknowledge any relationship with the assessee and consequently the amount ofshare application money deposited by the said party amounting to ` 5,00,000/-was added as income in the hands of the assesse, as unexplained credit in thebooks of accounts, in terms of Section 68 of the Income Tax Act. Whilst some ofthe parties to whom summons under section 131 were issued remained unserved,in certain other cases the share-applicants did not come forward on the scheduleddates of hearing for being examined.The Assessing Officer, thereafter, concluded that a sum of ` 42,00,000/- on account of share application money wasliable to be taxed as unexplained credit in the books of accounts under Section 68of the Income Tax Act. 4.The assessment made by the Assessing Officer by the order dated30.03.2005 was carried in appeal by the assessee.The assessee contested theassessment made by the Assessing Officer and in support of his contentionsfurnished letters of confirmation, photocopies of share application forms,photocopies of income tax returns, balance sheets, pan cards and bank statementsof the share applicants in respect of whom the additions were made in theassessment order dated 30.03.2005. The assessee further produced evidence toshow that in some cases, the share application money had since been refunded.The CIT (Appeals) forwarded the additional evidence produced by the assesseeto the Assessing Officer for examining the same and furnishing a report thereon.The Assessing Officer submitted a report dated 07.10.2005 reiterating the issuesmentioned in the assessment order. The CIT (Appeals) concluded that some ofthe persons to whom summons had been issued could not appear before theAssessing Officer due to paucity of time and, in the light of the subsequentevidence, deleted the additions made by the Assessing Officer to the extent of` 37 lacs. The addition of ` 5 lacs in relation to the share applicant who hadcategorically stated that she had no link with the assesse was upheld by theCIT(A). 5.It can be seen from the above facts that the assessee furnished allparticulars relating to the share application money including confirmations fromthe share applicants as well as other evidence in relation to those persons, whothe Assessing Officer had found to be suspect. 5.It can be seen from the above facts that the assessee furnished allparticulars relating to the share application money including confirmations fromthe share applicants as well as other evidence in relation to those persons, whothe Assessing Officer had found to be suspect. 6.It is the case of the revenue that during certain investigation proceedings,a statement of one Shri Deepak Gupta was recorded on 25.09.2004 (that is, whilethe assessment proceedings were still pending). Shri Deepak Gupta has allegedlyadmitted that he was providing accommodation entries to the assessee.It hasbeen contended on behalf of the revenue, that based on the statement made by thesaid Deepak Gupta, the Assessing Officer came to believe that income during therelevant previous year had escaped assessment and the Assessing Officer issuedthe notice dated 25.03.2009 under Section 148 of the Act, seeking to reassess theincome of the assessee under Section 147 of the Act. The assessee requested forthe reasons for issuance of notice under Section 148 of the said Act which werefurnished by the Assessing Officer. The assessee objected to the reasons,however the same were rejected by the Assessing Officer. 7.The reasons for issuance of the notice under Section 148, inter alia,alleged that the assessee had taken certain accommodation entries. The reasonsfor reopening of the assessment proceedings furnished by the Assessing Officerare as under :- “12.03.2009 Reasons for issue of notice u/s 148 in the case of M/sSuren International Pvt. Ltd AY 2002-03 Return in this case was filed at an income of ` 10,74,990 on29.10.2002 Enquiries were conducted by the Investigation Wing of the Dept. Inthis inquiry it was found that one Mr Deepak Gupta S/o Late Shri J.N.Gupta R/o Shastri Nagar, Delhi 110052 was indulging in providingaccommodation entries. In his statement recorded on 25/09/2004, hehas admitted that he takes cash from various parties and gives themDD/Cheque by charging his commission.This DD/Cheque is thenintroduced by these parties as share Capital or Loan in their books ofaccounts. M/s Suren International Pvt Ltd has taken following accommodationentries from the accounts operated by Deepak Gupta which have beencredited in its account with BOP, Karol Bagh Branch in A.Y 2002-03,THE DETAILS ARE GIVEN BELOW: 50000031112218-JUL-01--DO----DO----DO--291950000031112218-JUL-01--DO----DO----DO--291950000031112218-JUL-01--DO----DO----DO--291950000031112218-JUL-01--DO----DO----DO--291950000031112218-JUL-01--DO----DO----DO--291950000031112218-JUL-01--DO----DO----DO--291925000013541530-JUN-01SUSHILJAILAXMIFATEHP10081GOYALCOOPURIBANK25000013541530-JUN-01--DO----DO----DO--1008125000013541530-JUN-01--DO----DO----DO--1008125000013541530-JUN-01--DO----DO----DO--1008125000013541530-JUN-01--DO----DO----DO--1008125000013541530-JUN-01--DO----DO----DO--1008150000050325827-JUL-01SWETUOBCMINTO33STONEP.ROADLTD50000050325827-JUL-01--DO----DO----DO--3350000050325827-JUL-01--DO----DO----DO--3350000050325827-JUL-01--DO----DO----DO--3350000050325827-JUL-01--DO----DO----DO--3350000050325827-JUL-01--DO----DO----DO--3350000025-JUL-01TECNOCOSBPDG50060MASSOCIATES PVT.50000025-JUL-01--DO----DO----DO--5006050000025-JUL-01--DO----DO----DO--5006050000025-JUL-01--DO----DO----DO--5006050000025-JUL-01--DO----DO----DO--5006050000025-JUL-01--DO----DO----DO--50060 50000014506702-JUL-01VIPINJAILAXMIFATEHP9378KUMARCOOPURIBANK50000014506702-JUL-01--DO----DO----DO--937850000014506702-JUL-01--DO----DO----DO--937850000014506702-JUL-01--DO----DO----DO--937850000014506702-JUL-01--DO----DO----DO--937850000014506702-JUL-01--DO----DO----DO--93783,65,80,TOTAL000AMOUNT In this case information have been received that their goodshave been seized by DRI and also penalty of Rs 2 Crores is levied byCommissioner Customs (ICD). 50000014506702-JUL-01VIPINJAILAXMIFATEHP9378KUMARCOOPURIBANK50000014506702-JUL-01--DO----DO----DO--937850000014506702-JUL-01--DO----DO----DO--937850000014506702-JUL-01--DO----DO----DO--937850000014506702-JUL-01--DO----DO----DO--937850000014506702-JUL-01--DO----DO----DO--93783,65,80,TOTAL000AMOUNT In this case information have been received that their goodshave been seized by DRI and also penalty of Rs 2 Crores is levied byCommissioner Customs (ICD). From the above details and the Statement of Mr. DeepakGupta who has admitted that he has not carried out any businessactivity accept that of providing accommodation entries as describedabove that of providing accommodation entries as described above, itis seen that the assesee has diverted its own money into the businessby way of taking accommodation entries. Thus the amounts stated intable above taxable u/s 68 of the Act and hence, I have reason tobelieve that an amount of Rs 3,65,80,000/- has escaped assessmentwithin the meaning of section 147 of the IT Act 1961. Since 4 years have been elapsed, the assessment record isbeing submitted for kind perusal and approval of the Commissioner ofIncome-Tax, Delhi-III, New Delhi according to section 151 (1) of theIT Act, 1961 for issuance of notice u/s 148 of I.T. Act. -sd/- (D.D. YADAV)Asstt. Commissioner of Income TaxCircle 9(1), New Delhi” 8.The alleged accommodation entries, tabulated in the reasons for issuanceof the notice under section 148, totaling ` 3,65,80,000/- formed the basis ofinitiating the reassessment proceedings. The Assessing Officer recorded that hehad reason to believe that the amount of ` 3,65,80,000/- has escaped assessment.It is relevant to state that the reasons as furnished by the Assessing Officer, firstof all, did not disclose any allegation that the assessee had failed to make anydisclosure for the purposes of the assessment. Secondly, it would be pertinent forus to mention that a bare perusal of the entries listed in the table forming a part ofthe reasons indicate that most of the entries have been repeated six times to formthe total of ` 3,65,80,000/-. The Assessing Officer has thus made an addition onthe basis of certain set of alleged entries which ex facie include the same entrieswhichhavebeenrepeatedmultipletimestoarriveatthefigureof` 3,65,80,000/-. This is clearly evident from the fact that the details ofinstruments through which payments are alleged to have been made are alsosimilar. 9.We may also add that although the said reasons as furnished by theAssessing Officer contain a statement that information had been received thatcertain goods of the assessee had been seized by DRI and penalty had been leviedby Commissioner Customs (ICD), there is no allegation that any income hadescaped assessment on that count and thus the only reason for initiating proceedings under Section 147/148 are the alleged accommodation entriespurportedly totaling ` 3,65,80,000/-. 10.The Assessing Officer once again commenced inquiries with regard to theamount received by the assessee as share application money, in the reassessmentproceedings and concluded that the identity, creditworthiness of the shareapplicants and the genuineness of the transactions in relation to share applicationmoney totaling a sum of ` 4,75,01,000/- was not established and accordinglymade an addition of the said amount.The Assessing Officer made a furtheraddition of ` 3,46,00,000/- to the income of the assesse on the alleged ground ofconcealment of goods. The order of reassessment dated 24.12.2009 was carriedin appeal by the assessee, however the same was dismissed by the CIT (Appeals)by an order dated 25.03.2010. 10.The Assessing Officer once again commenced inquiries with regard to theamount received by the assessee as share application money, in the reassessmentproceedings and concluded that the identity, creditworthiness of the shareapplicants and the genuineness of the transactions in relation to share applicationmoney totaling a sum of ` 4,75,01,000/- was not established and accordinglymade an addition of the said amount.The Assessing Officer made a furtheraddition of ` 3,46,00,000/- to the income of the assesse on the alleged ground ofconcealment of goods. The order of reassessment dated 24.12.2009 was carriedin appeal by the assessee, however the same was dismissed by the CIT (Appeals)by an order dated 25.03.2010. 11.The assessee thereafter preferred an appeal before the Tribunal against theorder dated 25.03.2010 passed by the CIT (Appeals), inter alia, on the groundthat the reassessment proceedings were based on change of opinion and the samewere initiated without there being a reason to believe that income had escapedassessment. The Tribunal allowed the appeal holding that no omission or failureto disclose all material facts, fully and truly, on the part of the assesse, wasalleged and consequently the reassessment proceedings were illegal and withoutjurisdiction. 12.The Tribunal also noted that the statement of Shri Deepak Gupta wasrecorded on 25.03.2004 that is, prior to the framing of the first assessment andsubsequently the matter had traversed its course in appeal before the CIT(A). TheTribunal also noted that a sum of ` 3,59,85,000/- had also been stated to berefunded by the assessee to the share applicants. The Tribunal concluded that theconditions for reopening the assessment under Section 147 were not satisfied andhence, the reassessment proceedings initiated pursuant to the notice dated25.03.2009 were illegal and quashed the same by the impugned order. 13.We have heard counsels for the parties at length. 14.The learned counsel for the appellant contended that even though there isno specific allegation that the assessee had failed to disclose all the material factsbut the same can be gleaned from the reasons itself. We are unable to accept thiscontention. In the first instance, we do not find the reasons as recorded by theAssessing Officer to be reasons in law, at all. A bare perusal of the table ofalleged accommodation entries included in the reasons as recorded, discloses thatthe same entries have been repeated six times. This is clearly indicative of thecallous manner in which the reasons for initiating reassessment proceedings arerecorded and we are unable to countenance that any belief based on suchstatements can ever be arrived at. The reasons have been recorded without anyapplication of mind and thus no belief that income has escaped assessment can bestated to have been formed based on such reasons as recorded. 15.Having stated the above, we are also unable to accept the contention thatthere has been failure on the part of the assessee to disclose all material facts inhis return as, first of all, there is no such allegation in the reasons as furnished to 15.Having stated the above, we are also unable to accept the contention thatthere has been failure on the part of the assessee to disclose all material facts inhis return as, first of all, there is no such allegation in the reasons as furnished to the assesse; secondly, we cannot ignore the fact that the enquiry into the shareapplication money had been conducted in detail by the Assessing Officer in thefirst round of assessment. Having framed his assessment after enquiry into theidentity, genuineness and the creditworthiness of the share applicants, it wouldnot be open for the Assessing Officer to re-examine the same without there beingany material allegation of failure, on the part of the assesse, to make a full andtrue disclosure. It is well-settled that in order to invoke the provisions of Section147 of the Act, after a period of four years from the end of the relevantassessment year, in addition to the Assessing Officer having reason to believethat any income has escaped assessment, it must also be established that theincome has escaped assessment on account of the assessee failing to make returnsunder Section 139 or on account of failure on the part of the assessee to disclose,fully and truly, the necessary material facts.This Court in the case ofWelIntertrade P. Ltd. & Anr. v. ITO: (2009) 308 ITR 22 (Del) andHaryana AcrylicManufacturing Company v. CIT &Anr.: (2009) 308 ITR 38 (Del) held that itwould not be open for the Assessing Officer to reopen the assessment alreadydone beyond the period of four years unless the income has escaped assessmenton account of failure, on the part of the assesse, to disclose all the material facts.In the case ofWel Intertrade P. Ltd(supra) it has been held as under: “A plain reading of the said proviso makes it more than clear thatwhere the provisions of section 147 are being invoked after theperiod of four years from the end of the relevant assessment year, inaddition to the Assessing Officer having reason to believe that anyincome chargeable to tax has escaped assessment, it must also beestablished as a fact that such escapement of assessment has beenoccasioned by either the assessee failing to make a return undersection 139, etc., or by reason of failure on the part of the assesseeto disclose fully and truly all material facts necessary for hisassessment, for that assessment year. In the present case, thequestion of making of a return is not in issue and the only question is with regard to the second portion of the proviso, which relates tofailure on the part of the assessee to disclose fully and truly allmaterial facts necessary for assessment. Insofar as this pre-condition is concerned, there is not a whisper of it in the reasonsrecorded by the Assessing Officer. In fact, as indicated above, theAssessing Officer could not have made this a ground because theAssessing Officer had required the petitioner to furnish details withregard to loss occasioned by foreign exchange fluctuation which thepetitioner did by virtue of the reply dated February 5, 2002. Sincethe petitioner had fully and truly disclosed all the material factsnecessary for the assessment, the pre-condition for invoking theproviso to section 147 of the said Act had not been satisfied. is with regard to the second portion of the proviso, which relates tofailure on the part of the assessee to disclose fully and truly allmaterial facts necessary for assessment. Insofar as this pre-condition is concerned, there is not a whisper of it in the reasonsrecorded by the Assessing Officer. In fact, as indicated above, theAssessing Officer could not have made this a ground because theAssessing Officer had required the petitioner to furnish details withregard to loss occasioned by foreign exchange fluctuation which thepetitioner did by virtue of the reply dated February 5, 2002. Sincethe petitioner had fully and truly disclosed all the material factsnecessary for the assessment, the pre-condition for invoking theproviso to section 147 of the said Act had not been satisfied. In this connection, it may be relevant to note one decision,although there are several others. The said decision is that of thePunjab and Haryana High Court in the case of Duli ChandSinghania v. Asstt. CIT : (2004) 269 ITR 192. In the said decision,the High Court of Punjab and Haryana was faced with a similarsituation. The court noted that there was not even a whisper of anallegation that the escapement in income had occurred by reason offailure on the part of the assessee to disclose fully and truly allmaterial facts necessary for his assessment. The court observed thatabsence of this finding, which is the sine qua non for assumingjurisdiction under section 147 of the Act in a case falling under theproviso thereto, makes the action taken by the Assessing Officerwholly without jurisdiction. We agree with these observations of thePunjab and Haryana High Court and are of the view that in thepresent case also, the Assessing Officer has acted wholly withoutjurisdiction. The invocation of section 147, the issuance of thenotice under section 148 and the subsequent order on the objectionsare all without jurisdiction. The impugned notice as well as theproceedings pursuant thereto are quashed.” 16.In the reasons as furnished by the Assessing Officer, we find that there isneither any allegation that the assessee had failed to truly disclose any materialfacts at the time of assessment, nor can we readily infer the same in view of the fact that a detailed enquiry had been conducted by the Assessing Officer withregard to the identity and creditworthiness ofthe share-applicants andgenuineness of the transactions in relation to the share application moneyreceived by the assessee.Further the mere statement that the DRI has seizedcertain goods of the assessee and levied a penalty also cannot be stated to be areason for reopening of assessment of the assessee as the said statement made isneither followed by the recording of a belief that the income escaped on thatcount or that the assessee has failed to disclose all relevant material, fully andtruly, at the stage of the first assessment. 17.We, accordingly, do not find any merit in the present appeal and nosubstantial question of law has been raised for our consideration. The presentappeal is, accordingly, dismissed. Parties are left to bear their own costs. VIBHU BAKHRU, JBADAR DURREZ AHMED, J MAY 07, 2013RK