Commissioner Of Income Tax - Iv v. M/S Insecticides (India) Ltd.+Ita 609/2012

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 20.05.2013 +ITA 608/2012 COMMISSIONER OF INCOME TAX - IV ... Appellant versus M/s INSECTICIDES (INDIA) LTD.+ITA 609/2012 ... Respondent COMMISSIONER OF INCOME TAX - IV ... Appellantversus M/s INSECTICIDES (INDIA) LTD. ... Respondent Advocates who appeared in this case:For the Appellant: Mr N. P. Sahni with Mr Ruchesh SinhaFor the Respondent: Mr K.V.S Gupta CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE VIBHU BAKHRU JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.These appeals by the revenue are directed against the order dated12.10.2011 passed by the Income Tax Appellate Tribunal, New Delhi inITA Nos. 2332-2333/Del/2010 relating to the assessment years 2002-03 and 2003-04 (respectively). In both these appeals the issue relates to thevalidity of the reassessment proceedings under Section 147 of the Income- tax Act, 1961 (hereinafter referred to as “the said Act”). 2.Insofar as assessment year 2002-03 is concerned, the originalassessment under Section 143(3) of the said Act was completed on29.11.2004. The notices under Section 148 were issued on 21.09.2006.As regards, assessment year 2003-04, there was no assessment underSection 143(3) of the said Act, however, an intimation under Section143(1) thereof had been issued. The notice under Section 148 seeking tore-open the assessment was issued on 17.10.2006. 3.The reasons indicated behind the re-opening of the assessmentswere identical in both the cases. We are setting out below the reasonsgiven in respect of the assessment year 2002-03. They are as under:- “It has been informed by the Director of Income-tax(Inv.), New Delhi vide letter dated 16.6.2006 that theabove named company was involved in giving and takingbogus entries/transactions during the F.Y. 2001-02. From the information gathered by the DIT(Inv.)-1,New Delhi that the assessee was involved in giving andtakingaccommodationentriesonlyandrepresentedunsecured money of the assessee company is actuallyunexplained income of the assessee company. The assesseecompany has failed to disclose fully and truly all the material facts and source of these funds routed throughbank accounts of the assessee company. I, therefore havereasons to believe that the income has escaped assessmentwithin the meaning of section 147 of the I.T. Act, 1961 forthe asstt. Year referred above. Hence notice u/s 148 is issued.” The respondent / assessee had filed objections against the said noticesunder Section 148 of the said Act. However, without disposing of thoseobjections by reasoned order, the Assessing Officer framed reassessmentorders on 15.10.2007 in respect of both the years.By virtue of thereassessment orders, the Assessing Officer made an addition of ` 30 lakhsin respect of the assessment year 2002-03 and an addition of ` 35 lakhs inrespect of the assessment year 2003-04.Essentially, the AssessingOfficer held that the said sums of money represented income of theassessee from undisclosed sources which had been shown as shareapplication money. In other words, the Assessing Officer held the saidsums to be bogus entries. 4.Being aggrieved by the said orders passed by the AssessingOfficer, the respondent / assessee preferred appeals. Those appeals wereallowed by the Commissioner of Income Tax (Appeals) by a commonorder dated 06.01.2011.Insofar as the assessment year 2002-03 wasconcerned, the CIT (Appeals) held that the reassessment proceedingswere bad inasmuch as it amounted to a mere change of opinion.Thefindings of the CIT (Appeals) to this effect were as under:- 4.Being aggrieved by the said orders passed by the AssessingOfficer, the respondent / assessee preferred appeals. Those appeals wereallowed by the Commissioner of Income Tax (Appeals) by a commonorder dated 06.01.2011.Insofar as the assessment year 2002-03 wasconcerned, the CIT (Appeals) held that the reassessment proceedingswere bad inasmuch as it amounted to a mere change of opinion.Thefindings of the CIT (Appeals) to this effect were as under:- “The submissions made on behalf of the appellantcompany and reasons recorded by the Ld AO have beencarefully perused. On consideration, I find that the issueof share capital and share application money has come upin the regular assessment proceedings and the appellantcompany, vide its letter dated 09.11.2004, had submitteddetailed written reply along with necessary details ofshare capital, share holding pattern and confirmation ofthe persons contributing to share capital along with proofoffilingoftheirincometaxreturn,PANnos.Ward/Circle/Range etc.Further, this fact was againbrought to the notice of Ld AO, vide appellant’s letterdated 28.08.2007, while filing the objections to thereopening the assessment for the assessment year underconsideration. On a perusal of the said letter it is seenthat not only the issue was examined by the AO but alsothe claim of the appellant company was accepted in theoriginal assessment. In this factual position, it cannot beheld that the issue of share capital of ` 30 lacs was notexamined and decided by the Ld AO at the time of theregular assessment. I also find myself in agreement withthe Ld counsel that no fresh material, let alone tangiblematerial,hascometohispossessionsoastoempower/enabletheAOtotakerecoursetotheprovisions of section 147 of the IT Act, 1961. Therefore, the reopening of assessment is based merely on change ofopinion, which I am afraid, is not sustainable in law.Therefore, in the light of the judgment relied upon by theld counsel, I have no hesitation in holding that thereopening of assessment in terms of section 147 of theAct is not sustainable in law.” 5.In respect of both the assessment years, the CIT (Appeals) held infavour of the assessee on merits also. 6.Being aggrieved by the deletion of the addition made by the CIT(Appeals), the revenue preferred the above mentioned appeals before theTribunal. As mentioned above, the Tribunal rejected those appeals andthat is how the revenue has filed these appeals before us. 7.We may point out at this juncture itself that the Tribunal did not gointo the question of merits. It only examined the question of the validityof the proceedings under Section 147 of the said Act. The Tribunal, inessence, held that the purported reasons for reopening the assessmentswere entirely vague and devoid of any material. As such, on the availablematerial, no reasonable person could have any reason to believe thatincome had escaped assessment. Consequently, the Tribunal held that theproceedings under Section 147 of the said Act were invalid. 8.The Tribunal gave detailed reasons for concluding that theproceedings under Section 147 were invalid. Instead of adding anythingto the said reasons, we think it would be appropriate if the same arereproduced:- 7.We may point out at this juncture itself that the Tribunal did not gointo the question of merits. It only examined the question of the validityof the proceedings under Section 147 of the said Act. The Tribunal, inessence, held that the purported reasons for reopening the assessmentswere entirely vague and devoid of any material. As such, on the availablematerial, no reasonable person could have any reason to believe thatincome had escaped assessment. Consequently, the Tribunal held that theproceedings under Section 147 of the said Act were invalid. 8.The Tribunal gave detailed reasons for concluding that theproceedings under Section 147 were invalid. Instead of adding anythingto the said reasons, we think it would be appropriate if the same arereproduced:- “In the case at hand, as is seen from the reasons recordedby the AO, we find that the AO has merely stated that ithas been informed by the Director of Income-tax (Inv.),New Delhi, vide letter dated 16.06.2006 that the abovenamed company was involved in giving and taking bogusentries/transactions during the relevant year, which isactually unexplained income of the assessee company.The AO has further stated that the assessee company hasfailed to disclose fully and truly all material facts andsource of these funds routed through bank account of theassessee company. In the reasons recorded, it is nowherementioned as to who had given bogus entries/transactionsto the assessee or to whom the assessee had given bogusentries or transactions. It is also nowhere mentioned as toon which dates and through which mode the bogusentries and transactions were made by the assessee. Whatwas the information given by the Director of Income-tax(Inv.), New Delhi, vide letter dated 16.06.2006 has alsonot been mentioned. In other words, the contents of theletter dated 16.06.2006 of the Director of Income-tax(Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he hadreceived from the DIT(Inv.), New Delhi; the AO did notmention the facts mentioned in the said communicationexcept that from the informations gathered by the DIT(Inv.), New Delhi that the assessee was involved ingiving and taking accommodation entries only andrepresented unsecured money of the assessee company isactually unexplained income of the assessee company orthat it has been informed by the Director of Income-tax(Inv.), New Delhi vide letter dated 16.06.2006 that theassessee company was involved in giving and takingbogus entries/transactions during the relevant financialyear. The AO did not mention the details of transactionsthat represented unexplained income of the assesseecompany. The information on the basis of which the AOhas initiated proceedings u/s 147 of the Act areundoubtedlyvagueanduncertainandcannotbeconstrued to be sufficient and relevant material on thebasis of which a reasonable person could have formed abelief that income had escaped assessment. In otherwords, the reasons recorded by the AO are totally vague,scantyandambiguous.Theyarenotclearandunambiguous but suffer from vagueness. The reasonsrecorded by the AO do not disclose the AO’s mind as towhat was the nature and amount of transaction or entries, which had been given or taken by the assessee in therelevant year. The reasons recorded by the AO also donot disclose his mind as to when and in what mode orway the bogus entries or transactions were given or takenby the assessee. From the reasons recorded, nobody canknow what was the amount and nature of bogus entries ortransactions given and taken by the assessee in therelevant year and with whom the transaction had takenplace. As already noted above, it is well settled that onlythe reasons recorded by the AO for initiating proceedingsu/s 147 of the Act are to be looked at or examined forsustaining or setting aside a notice issued u/s 148 of theAct. The reasons are required to be read as they wererecorded by the AO. No substitution or deletion ispermissible. No addition can be made to those reasons.Therefore, the details of entries or amount mentioned inthe assessment order and in respect of which ultimateaddition has been made by the AO, cannot be made abasis to say that the reasons recorded by the AO werewith reference to those amounts mentioned in theassessment order. The reasons recorded by the AO aretotally silent with regard to the amount and nature ofbogus entries and transactions and the persons withwhom the transactions had taken place. In this respect,we may rely upon the decision of Hon’ble jurisdictional Delhi High Court in the case of CIT vs. Atul Jain (2000)299 ITR 383, in which case the information relied uponby the AO for initiating proceedings u/s 147 of the Actdid indicate the source of the capital gain and nobodyknew which shares were transacted and with whom thetransaction has taken place and in that case there wereabsolutely no details available and the informationsupplied was extremely scanty and vague and in that lightof those facts, the Hon’ble Jurisdictional Delhi HighCourt held that initiation of proceedings u/s 147 of theAct by the AO was not valid and justified in the eyes oflaw. The recent decision of Hon’ble jurisdictional HighCourt of Delhi in the case of Signature Hotels (P) Ltd.(supra) also supports the view we have taken above.” 9.We do not see any reason to differ with the view expressed by theTribunal.No substantial question of law arises for our consideration.The appeals are dismissed. There shall be no order as to costs. BADAR DURREZ AHMED, J VIBHU BAKHRU, J MAY 20, 2013SU