R.K. Panda ORDER
R.K. Panda, Member (A)
1. This appeal filed by the assessee is directed against the order dated 30th May, 2019 of the CIT(A)-7, New Delhi relating to assessment year 2011-12.
2. The grounds raised by the assessee are as under:-
"1. That on the facts & in the circumstances of the case and in law, the order passed by the Ld. Commissioner of Income Tax (Appeals) [CIT(A)] is wrong and bad in law.
2. That the Ld. CIT (A) and Ld. AO erred both on facts and circumstances of the case and in law in making addition of Rs. 3,05,400/- under section 68 by treating loan taken by company as unexplained cash credit. The additions has been made on surmises and conjectures rejecting documentary evidences and explanations filed before Ld. AO and Ld. CIT(A). Thus the additions made by AO are erroneous and bad in law.
3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. Assessing Officer ("Ld. AO") of passing order u/s. 147 Income Tax Act, 1961 ('the Act'). The said order passed by the Ld. AO is void ab-initio on, inter alia, the grounds that:
a) that the reasons recorded by the Ld. AO are not valid;
b) the notice under section 148 was not served on the assessee and
c) It is based on factually erroneous premises and built upon surmises and conjectures.
That the above grounds of appeal are without prejudice to each other.
That the appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal."
3. Facts of the case, in brief, are that the assessee is a company and had filed its return of income on 30th September, 2011 declaring a loss of Rs. 3,91,500/-. The return was processed u/s. 143(1) of the Act accepting the return of income. Subsequently, information was obtained from the DDIT (Inv.)-III, Gurugram vide letter No. F. No. ADIT (Inv.)III/Gurugram/2017-18/1428 dated 19.03.2018 according to which Shri Anirudh Joshi had used seven non-genuine concerns for providing accommodation entries which were controlled and managed by him. Out of seven non-genuine firms/concerns, KRAC Securities Pvt. Ltd. was one of the non-genuine firms/concerns which had given accommodation entry of Rs. 3 lakh on 14th February, 2011 to M/s. PV Corporate Advisory Services Pvt. Ltd., i.e., the assessee during the financial year 2010-11. On the basis of the information so received, the AO, after recording reasons, reopened the case u/s. 147 of the Act and notice u/s. 148 was issued to the assessee on 31.03.2018. The assessee, in response to the same, filed the return of income on 10th August, 2018 declaring loss of Rs. 3,91,500/- which was returned earlier. The assessee asked for the reasons which were duly provided to the assessee.
4. During the course of assessment proceedings, the AO asked the assessee to explain the accommodation entry of Rs. 3 lakh from the said concerns. Rejecting the various explanations given by the assessee and observing that the assessee has obtained accommodation entry of Rs. 3 lakh from a non-genuine firm/concern, he made addition of Rs. 3 lakh to the total income of the assessee. Similarly, the AO also made addition of Rs. 5,400/- to the total income of the assessee being the alleged commission @ 1.8% of such accommodation entry. Thus, the AO determined the total income of the assessee at Rs. 3,05,400/-.
5. Before the CIT(A), the assessee challenged the validity of the reassessment proceedings as well as the addition on merit. However, the ld. CIT(A) was not satisfied with the arguments advanced by the assessee and dismissed the appeal filed by the assessee on both the issues, i.e., validity of the reassessment proceedings as well as the addition on merit.
6. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
7. The ld. Counsel for the assessee, referring to the submissions made before the AO as well as before the CIT(A), submitted that the assessee had taken the loan from KRAC Securities on 14th February, 2011 for meeting certain monthly expenses like rent, salary, telephone expenses and miscellaneous expenses of the company. The loan was repaid on 31st March, 2010 itself vide cheque No. 122961 drawn on State Bank of Patiala (now State Bank of India) to KRAC Securities Pvt. Ltd. However, the cheque was cleared from the said bank on 19th April, 2011. Referring to the notice issued u/s. 147 of the Act, he submitted that the information received from the ADIT (Inv.) clearly directed the AO to initiate the proceedings u/s. 147 of the Act. A perusal of the reasons so recorded by the AO clearly indicates that he has blindly relied on the information received from the Investigation Wing of the Department, treating the same as gospel truth without making any effort to correlate the same with the return of income filed by the assessee which was already filed on 30th September, 2011. Therefore, the reasons recorded without independent application of mind by the AO to the information received from the Investigation Wing shows that the same are without proper satisfaction on the part of the AO. The reasons recorded has to indicate in what manner the satisfaction was recorded with regard to escapement of income as there were no specific details of alleged accommodation entries of Rs. 3 lakhs. He submitted that the reasons recorded by the AO are undated and there is no evidence that the same were recorded before the issuance of notice u/s. 148 of the Act. Relying on various decisions, he submitted that when the reasons recorded by the AO do not reveal any effort on his part with regard to independent verification of the information with the record available with him or any independent enquiries made before him to form a belief that income has escaped assessment, then, such reopening has been held to be invalid. The ld. Counsel for the assessee referred to the following decisions:-
1. Sabh Infrastructure Ltd. Vs. ACIT of Hon'ble Delhi High Court
2. Meenakshi Overseas Vs. PCIT 82 taxmann.com 300
3. Signature Hotels (P) Ltd. Vs. ITO of Hon'ble Delhi High Court reported in MANU/DE/2949/2011 : 338 ITR 51
4. CIT Vs. Insecticides India Ltd. of Hon'ble Delhi High Court reported in MANU/DE/1465/2013 : 357 ITR 330
5. PCIT Vs. G&G Pharma India Ltd. of Hon'ble Delhi High Court (2017) 81 taxmann.com 109 (Delhi)
6. Neelkanth Plywood Ltd. vs. ITO (ITA No. 6702/Del/2018)
7. ACIT vs. Dhariya Construction Co. MANU/SC/1091/2010 : (2011) 197 Taxman 202 (SC)
8. Charanjiv Lal Aggarwal vs. ITO MANU/IS/0160/2016 : (2017) 88 taxmann.com 845 (Amritsar Tribunal)
9. CIT vs. Indo Arab Air Services MANU/DE/3288/2015 : (2015) 64 taxmann.com 257 (Delhi)
8. So far as the merit of the case is concerned, he submitted that to prove the identity and credit worthiness of the loan creditor and genuineness of the transaction, the assessee has filed the requisite details and the onus has been discharged. Therefore, no addition is called for both legally and factually.
9. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). So far as the validity of the re-assessment proceeding is concerned, the ld. DR, relying on various decisions submitted that the ld. CIT(A) while discussing the validity of the reassessment proceedings has passed a reasoned order. Therefore, the same should be upheld. So far as the merit of the case is concerned, he submitted that it was clearly proved by the Investigation Wing that Shri Anirudh Joshi had used seven non-genuine concerns for providing accommodation entries which were controlled and managed by him. One of such non-genuine concern was KRAC Securities Pvt. Ltd. which has given accommodation entry of Rs. 3 lakh to the assessee on 14th February, 2011. Therefore, the ld. CIT(A) was fully justified in sustaining the addition on merit including the commission of Rs. 5,400/-. He accordingly submitted that the order of the CIT(A) be upheld and the grounds raised by the assessee should be dismissed.
10. I have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. A perusal of the reasons for reopening of the case for the impugned assessment year, copy of which is placed at page 1-3 of the paper book, shows that the reopening was made on the basis of the report of the Investigation Wing and there is no independent application of mind by the AO for the reopening. The Hon'ble High Court in a number of cases have held that the reopening on the basis of the report of the Investigation Wing without independent application of mind by the AO is not valid. Accordingly, the reassessment proceedings which were based on the report of the Investigation Wing and without independent application of mind by the AO have been held to be illegal. Since the AO, in the instant case, has reopened the assessment on the basis of report of the Investigation Wing and there appears to be no independent application of mind by the AO for reopening of the case, therefore, the reassessment proceedings initiated by the AO in the instant case, in our opinion, is not proper. I, therefore, hold that the reassessment proceedings initiated by the AO is illegal and accordingly subsequent proceedings also become illegal and void. Since the assessee succeeds on this legal ground, therefore, the ground challenging the addition of Rs. 3,05,400/- on merit becomes academic in nature and, therefore, the same is not being adjudicated. The grounds raised by the assessee are allowed.
11. In the result, the appeal filed by the assessee is allowed.
The decision was pronounced in the open court on 07.07.2021.
© Manupatra Information Solutions Pvt. Ltd.