Pr.commisioner Of Income Tax-6 v. M/S N.c Cables Ltd

$~77 *IN THE HIGH COURT OF DELHI AT NEW DELHI %Judgement delivered on:11.01.2017 +ITA 335/2015 PR.COMMISIONER OF INCOME TAX-6..... AppellantThrough:Mr.DileepShivpuri,Mr.SanjayKumar and Mr. Vikrant A.Maheshwari, Advocates. Versus M/S N.C CABLES LTD...... RespondentThrough:Dr. Rakesh Gupta, Mr. SomilAgarwal, Mr. Rohit Kumar Gupta andMs. Monika Ghai, Advocates. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE NAJMI WAZIRI S. RAVINDRA BHAT (Oral):- 1.The following questions of law were framed in this case:- “(a) Did the Tribunal fall into error in holding that theCommissioner of Income Tax (CIT) did not in fact recordsatisfaction under Section 151 of the Income Tax Act, 1961 forissuing notice under Section 147, in the circumstances of thecase? (b) Is the impugned order of the Tribunal justified in so far as itdirects the deletion of sums brought to tax by the AssessingOfficer under Section 68?” 2.The assessee had in its return for the Assessment Year (AY) 2001-02claimed that sum of `1,00,00,000/- (One Crore) was received towards share application amounts and a further sum of `35,00,000/- (Thirty Five Lakhs)was credited to it as an advance towards loan. The original assessment wascompleted under Section 143(3) of the Income Tax Act, 1961 (hereinafter tobe referred as ‘the Act’).However, pursuant to the reassessment notice,issued on 25.03.2008, which was dropped due to technical reasons, and laternotice was issued on 21.04.2008, assessments were taken up afresh. Afterconsidering the submissions of the assessee and the documents produced inthe reassessment proceedings, the Assessment Officer (AO) added back asum of `1,35,00,000/- (One Crore Thirty Five Lakhs). The Commissionerof Income Tax (Appeals) [CIT (A)] held against the assessee on the questionof legality of the reassessment notice but allowed the assessee’s appeal onmerits holding that the AO did not conduct the appropriate enquiry toconclude that share inclusion and the advances received were from bogusentities. The Income Tax Appellate Tribunal (ITAT) allowed the assessee’sappeal on merits. 3.The Revenue appealed against the appellate order on the merits; theassessee’s cross appeal was on the question of correctness of reopening ofthe assessment. 4.The ITAT upheld the assessee’s cross-objections and dismissed theRevenue’s appeal holding that there was no proper application of mind bythe concerned sanctioning authority under Section 151 of the Act as a pre-condition for issuing notice under Sections 147/148 of the Act. The ITATalso concluded that in the given facts of the case, the AO had not conductedadequate and proper inquiry into the materials, while invoking Section 68 ofthe Act to add the amounts in issue. 5.Counsel for the Revenue urges that the CIT (A) and the Tribunal fell into material error of law in holding that there was no proper application ofmind by the competent authority under Section 151 of the Act. 4.The ITAT upheld the assessee’s cross-objections and dismissed theRevenue’s appeal holding that there was no proper application of mind bythe concerned sanctioning authority under Section 151 of the Act as a pre-condition for issuing notice under Sections 147/148 of the Act. The ITATalso concluded that in the given facts of the case, the AO had not conductedadequate and proper inquiry into the materials, while invoking Section 68 ofthe Act to add the amounts in issue. 5.Counsel for the Revenue urges that the CIT (A) and the Tribunal fell into material error of law in holding that there was no proper application ofmind by the competent authority under Section 151 of the Act. 6.The learned counsel relied upon the actual noting which approved thereasons put up to the CIT (A) under Section 151 and submitted that theCommissioner had applied its mind to all the surrounding circumstanceswhile authorizing the reopening and in the circumstances, the adversefindings recorded by the ITAT cannot be sustained. Learned counsel nextsubmitted that on the merits, the CIT (A) and the ITAT’s findings cannot besustained and are unreasonable in the circumstances. It was urged that whennotices were issued under Section 131 to the alleged investors/creditors, itwas found that substantial majority of them were missing or not found at theaddresses given. Furthermore, the bank statements furnished by the assesseeof such individuals or entities were supposed to have invested in the sharesof the assessee, a private company, who had infusion of funds before thedisbursement. The assessee despite opportunity failed to substantiate theseinfusions and also failed to show that the share investors or creditors weregenuine parties and that the transactions were genuine. It was submitted thatthe judgment in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd.216 CTR 195(SC) clearly envisages that three tests are to be satisfied. In thepresent case, the genuineness of the transactions and the creditworthiness ofthe share applicants and the creditors were not demonstrated.In thecircumstances, the assessee could not be said to have discharged the burdenplaced upon it in the first instance. 7.Counsel for the assessee argued that the findings of the ITAT on thequestion of reopening are not perverse and are according to law. He reliedupon the noting to say that the CIT (A) merely approved the note put up by the ACIT which cannot be said to have satisfied the pre-condition ofsatisfaction contemplated under Section 151 of the Act.As to the merits,the learned counsel urged that details of each relevant party i.e. confirmationof the amounts paid towards share application or loan, acknowledgment ofthe ITRs filed by the concerned party/creditor, copies of bank statementsand company details were furnished.The mere fact that the AO’srepresentative or inspector could not find the premises of these investorsafter seven years did not mean that the transactions were not genuine.Learned counsel submitted that the AO could well have conducted anappropriate inquiry into the income tax records to discern whether theauthorities were genuine and had sufficient credit to invest or advance theamounts. In the absence of such enquiry, the onus could not have shiftedback to the assessee in terms of the judgment in Lovely Exports’ case(supra) since it had clearly shown the identities of the investors/creditors,their bank accounts and the creditworthiness of such party. 8.As far as the addition is concerned, the assessee had furnished largeamounts of materials in the form of documents to evidence the genuinenessof the identity and the transactions as well as the creditworthiness of theparties. The AO apparently conducted the perfunctory inquiry by deputingan inspector to the premises. As is contended by the assessee, the absenceof these parties, after seven or eight years, ipso facto could not have led theAO to conclude that the parties were fictitious or non-existent. The assesseehad provided details of the Permanent Account Numbers (PAN) and IncomeTax Returns (ITR) for the relevant years. Nothing prevented the AO frominquiring into these details in support of its suspicion that the transactionswere not genuine. Undoubtedly, the AO had certain bank statements which disclosed facially that the amounts were infused in cash at the relevant timebefore the shares were subscribed to or the credits were given.Thosesuspicious circumstances at the same time could not have been theconclusive factor in this case. 9.Since the investigation wing had levelled several allegations, the AOshould, in our opinion, have carried out a more intensive investigation intothe income tax records to actually discern the volume of trade or commerceof the share applicants/creditors and their inability, if any, to invest oradvance the amounts in issue. That failure cannot translate into the amountby the assessee to provide basic information which is undoubtedly not done.In these circumstances, this Court is of the opinion that there is no infirmityin the concurrent findings of the CIT (A) and the ITAT on this issue. 10.As far as the first issue with respect to the approval granted to reopenthe assessment under Section 147/148 of the Act is concerned, the relevantnoting is as follows:- "Reasons for issuing notice u/s 148 of the Act in the case of M/sN. C. Cables Limited, for the A. Y. 2001-02-reg. Information has been received from the Investigation Wing of theIncome Tax Department that the above named assessee is abeneficiary of accommodation entries received from certainestablished entry operators identified by the Wing during theperiod laundering for the beneficiaries and on the basis ofinvestigation carried out and evidences collected, a report hasbeen forwarded. I have perused the information contained in thereport and the evidences gathered. The report provides details ofthe modus oparandi of the 'money laundering scam' and explainhow the unaccounted money of the beneficiaries are ploughedback in its books of account in the form of bogus sharecapital/capital gains etc. after routing the same through the bankaccount (s) of the entry operators. Entry operators were identified after thorough investigation on the basis of definitiveanalysis of their identity, creditworthiness and the source of themoney ultimately received by the beneficiaries. These entryoperators are found to be mostly absconding after the unearthinqof the 'Money Laundering Scam’ leaving the said money at thedisposal of the beneficiaries without any associated cost orliability. In the instant case, the assessee is found to be thebeneficiary of accommodation entry from such entry operators asper the following specific details of transaction:- During the course of the proceedings u/s 148 for the sameassessment year, which Was dropped on the technical groundthat proper sanction was not obtained, it was noticed that thereare other receipts also from the identified entry operators.Information about those entries was not available in the datareceived from the Investigation Wing. Nevertheless they also fall within the ambit of section 68 of theAct. The assessee has received unexplained sums from the entry During the course of the proceedings u/s 148 for the sameassessment year, which Was dropped on the technical groundthat proper sanction was not obtained, it was noticed that thereare other receipts also from the identified entry operators.Information about those entries was not available in the datareceived from the Investigation Wing. Nevertheless they also fall within the ambit of section 68 of theAct. The assessee has received unexplained sums from the entry operators as per the above details as per information availablewiththeundersigned.Asexplainedabovetheidentity,creditworthiness and genuineness of transactions with thepersons found to be entry operators cannot be established. Itherefore have reasons to believe that on account of failure onthe part of the assessee to disclose truly and fully all materialfacts necessary for assessment for above AY the incomechargeable to tax to the extent of accommodation entrymentioned above, has escaped assessment within the meaning ofS.147 of the Act. Since four years has been expired from the end of the relevantyear, and assessment u/s 143(3) of the Act was made in the caseof the assessee for the said A ~ the reasons recorded above forthe purpose of reopening of assessment is put up for kindsatisfaction of the CIT, Delhi t1, New Delhi interms of the Proviso to Section 151 of the Act. The ACIT, Range 13, New DelhiFor kind approval of CIT-V, New DelhiCIT-V, Delhi:"Approved"Sd/-" 11.Section 151 of the Act clearly stipulates that the CIT (A), who is thecompetent authority to authorize the reassessment notice, has to apply hismind and form an opinion.The mere appending of the expression‘approved’ says nothing. It is not as if the CIT (A) has to record elaboratereasons for agreeing with the noting put up. At the same time, satisfactionhas to be recorded of the given case which can be reflected in the briefestpossible manner.In the present case, the exercise appears to have beenritualistic and formal rather than meaningful, which is the rationale for thesafeguard of an approval by a higher ranking officer. For these reasons, theCourt is satisfied that the findings by the ITAT cannot be disturbed. 12.The substantial questions of law framed are answered in favour of theassessee and against the Revenue. The appeal is dismissed. S. RAVINDRA BHAT, J. JANUARY 11, 2017sb NAJMI WAZIRI, J.