TaxTMI 
TaxTMI 
2023 (1) TMI 1437
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....llant denies his liability to tax as upheld by the learned CIT (A) and determined and computed by the learned assessing officer and the manner in which it has been so determined or computed. 3. The learned CIT (A) has erred on facts and in law in upholding the validity of reassessment proceedings ignoring the fact that initiation of the proceedings u/s 148 and the consequent order u/s 147 are bad in law as: a. The initiation of proceedings u/s 148 are contrary to provisions of law. b. The mandatory procedure laid down in the Act has not been followed. c. The information has been collected behind the back of the assessee and the assessee was never confronted with the same nor an opportunity provided for cross-examination of Jain brothers, copies of the orders of Jain Brothers and the relevant seized material relied upon has not been provided to the assessee, which is against Law of Natural Justice. d. The assessment has been made on the basis of conjecture & surmises without any cogent evidence. 4. The learned CIT (A) has erred on facts and in law in upholding the addition of Rs. 15,00,000/- u/s. 68 on account of share capit....
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....ect and non-existing sections is a clear case of non- application of mind by the AO and also by the authorities providing satisfaction u/s 151. Reliance is placed in the decisions of Smt Kalpana Shantilal Haria Vs ACIT W.P.{L) No. 3063/2017 dated 22.12.2017 (Bom), Best Cybercity India P Ltd vs ITO (2019) 414 ITR 0385 (Del), Omkam Developers Ltd vs ITO ITA No. 6862/Del/2018 dt; 11.05.2021, M/s VRC Township P Ltd vs ITO ITA No. 1503/Del/2017 dt: 14.10.2020, M/s Maheshwari Roller Flour Mills P Ltd vs ITO ITA No. 4257 /De1/2019 dt: 17.12.2020 (SMC) and Madhu Apartments P Ltd vs ITO ITA Nos. 3869-3870/Del/2018 dt: 01.02.2021 (SMC). 2. Assuming jurisdiction to complete assessment u/s 143(3)/147 by issue of notice u/s 143(2) of IT Act before supply of reasons thereby debarring appellant to appellant to file objection to assumption to jurisdiction; From the perusal of assessment order at pages 1 - 2 in para's 1 and 3 therein, it can be seen that the Ld AO issued notice dt: 10.02.2014 (PB 10) u/s 148 of IT Act against which the appellant company submitted a return of income vide letter dt: 20.02.2014 (PB 11) and requested the copy of reason rec....
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....n of Mastech Technologies Pvt Lid vs Dy CIT WP(C) 2858/2016 dt: 13.07.2017 (Del) where in para 30 of the judgment held that issuance of notice u/s 142(1) /143(2) before supplying the reasons and considering petitioner objection and passing reasoned order thereon does not meet requirement of law. Such legal infirmity leads to inevitable invalidation of all the proceedings that took place pursuant to notice u/s 148. Recently. the coordinate of Hon'ble Delhi ITAT in case of Mis R N Khemka Enterprises P Lid vs ITO in ITA No. 7244/De1/2019 dt: 12.08.2021 has quashed the reassessment proceedings on similar grounds. Kindly refer para's 33 to 35 at internal page 51-53 therein. 3. No valid notice u/s 143(2) was ever issued: In the present case, the power to make assessment under section 143(3) was assumed by the AO by issue of notice u/s 143(2) (PB 32) on 19.05.2014 as mentioned in para 3 of Assessing Officer order at page 2 therein along with notice u/s 142(1) of IT Act OT: 19.05.2014 (PB 33). The above notice was issued by the AO without having return of income in its possession which fact is proved from the above notice dt: 19.05.2014 (PB 33) issued u/s. 14....
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....ssary is dealt implying that there should be active application of the mind. In other words the term consider postulates consideration of all the relevant aspects of the matter. The word necessary must be construed in the connection in which it is used. It is further submitted that the above illegality cannot be cured u/s sec 292BB of IT Act as held by the jurisdictional Delhi High Court in the case PCIT v. Silver Line (2016) 383 ITR 455 (Del). In para 17 and 18 of said decision. the Hon'ble court held that the Ld AO has discretion to issue of notice u/s 143(2) of IT Act after examining the return of income filed that prima facie the Assessee has "understated the income or has "computed excessive loss" or has "underpaid the tax in any manner" .. Identical view has been held in decisions of DIT v. Society for Worldwide Interbank Financial Telecommunications 323 ITR 249 (Del) (Para 8) and CIT v. Rajeev Sharma (2011) 336 ITR 678 (All.) Therefore, it is evident from perusal of assessment order and above facts, no notice under section 143(2} of IT Act was ever issued after examination of return of income and audited financial statements as discussed above. 3. ....
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..... for want of which reasons have become non-communicative." 6. The ld. DR also submitted written submissions in so far as the re-opening of assessment and the mechanical of approval as under:- " On the issue of validity of reopening u/s 148, Mechanical Approval, Cross examining..... It is seen that the facts of the present case are different from the case laws relied upon by the appellant. Since, at the stage of recording of reason, no final finding is required to be given and only prima facie belief is required to be reached by the assessing authority, the Assessing Officer was correct in initiating reassessment proceedings u/s 147 on the basis of credible and specific information made available to him. On the validity of reassessment proceedings, I am relying on the decision of Raymond Woollen Mills Ltd. Vs ITO 236 ITR 236 ITR 4 (sc; wherein it was held that the AO is not to conclusively prove the escapement of income to assume jurisdiction u/s 147 of the Act. In the case of ITO Vs Purshottam Das Bangur 224 ITR 362 the Hon'ble Apex Court, on the issue of application of mind by the Assessing Officer to information received while recording....
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....tant. This aspect has to be examined subsequently in the reassessment proceedings. It is noted that the AD has applied his mind to the information available independently to arrive at the belief on the basis of material which was available with him. Hence, the AD had validly assumed jurisdiction u/s 148 of the Act by recording the reasons to believe in accordance with the provisions of the Act u/s 147 of the Act and, therefore, the ground of appeal on this is deserve to be dismissed. ON GRANTING SANCTION U/S 151 So far as the contention of' the 'appellant assessee, raised as additional ground that the approval of the competent authority granted u/s 151[1] was in a mechanical manner without application of mind is concerned, the following submission may kindly be considered: 1. That there is no infirmity in the approval/sanction granted by the competent authority u/s 151[1] of the I. T. Act, 1961. 2. That the statute does not lay down any manner or format in which the approval is to be granted. 3. That the remarks of the competent authority may kindly be read with the first part of the column No. 12 which rea....
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....ing Officer while filling up the proforma for obtaining the approval from Commissioner under section 151 of the Act and the ld. CIT also has granted approval in a mechanical manner. The Tribunal observed that in the Form for recording the reasons for initiating proceedings under section 148 for obtaining approval of the Pr. CIT, column 7 i.e. the provisions under which the re-opening was sought for are applicable has been mentioned as section 147(b) and the provisions of section 147(b) are non-existent in the statute book for the assessment year 2010-11. Therefore, the co-ordinate bench of the Tribunal came to the conclusion that there is complete non-application of mind by in obtaining the approval from Pr. CIT and in similar manner the approval was granted by Pr. CIT. While coming to such conclusion the Tribunal referred to various decisions and held as under:- 2. First of all, I have heard the arguments of both the representatives on legal ground No. 3 of the assessee which reads as under:- "3. The Id. CIT (A) has erred on facts and in law in upholding the impugned order of the learned assessing officer which is contrary to law, passed without application ....
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....S.K. Jain group from which it is found that the said searched group was involved in providing accommodation entries. 2. Further, there is specific reference in para 10 (PB 21-22) and para 14-15 (PB 25-26) various seized material has been discussed which includes Annexure A-150 pages 1-13 (PB 26) and other details showing amount of commission and payments to various middlemen in consideration of accommodation entries by them. 3. In para 10 sub para vi (PB 22), there is mention of daily cash book, cheque books seized from Sh S.K. Jain whereby details of cash received from various beneficiaries companies/person through various middleman/agents in lieu of accommodation entries provided to them on various dates have been recorded. 4. There is reference to the seized records elsewhere in the reason particularly in para 18 and 18.1 page 27 and para 21 at page 31 also which led the AO to form a prima facie view of escapement of income chargeable to tax. 5. From these discussions, it is evident that the AO had no material to initiate action u/s 147 except for the material relating to the appellant found in the course of search on above named individuals. ....
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....nd the consequent binding instruction of CIT dt: 15.03.2013, the AO initiated action by recording undated reasons for which approval was granted on 21.03.2017. From the above discussion, it is evident that the above direction is the trigger point for initiating action u/s 148 and therefore it can be inferred that there is a satisfaction of authority other than the AO resulting into reopening of the case. This is against the provisions of sec 147 which lay down that it is the AO whose satisfaction is sine qua none for valid initiation of reassessment proceedings. In Green World Corporation (supra) (SC) held that Notices issued pursuant to the direction by the Pr. CIT thereto would be bad in law. Further In CIT v. SPL's Siddhartha Ltd. [2012] 345 ITR 223 (Del), relying on Sheo Narain Jaiswal & Ors. Vs. ITO, 176 ITR 35 (Pat.), held: 'Where the Assessing Officer does not himself exercise his jurisdiction under Section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non- satisfaction of the condition precedent. ' In the case of Munjal Showa Ltd vs Dy CIT & Anr WP.(C) 1707/2014 DT: 22.....
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....onsidering petitioner objection and passing reasoned order thereon does not meet requirement of law. Such legal infirmity leads to inevitable invalidation of all the proceedings that took place pursuant to notice u/s. 148. Recently, the co-ordinate of Hon'ble Delhi ITAT in case of M/s R N Khemka Enterprises P Ltd vs ITO in ITA No. 7244/Del/2019 dt: 12.08.2021 has quashed the reassessment proceedings on similar grounds. Kindly refer para's 33 to 35 at internal page 51-53 therein. V. Mechanical Approval Granted by Pr CIT The exercise of approval u/s 151(1) of IT Act by the Ld Pr CIT, Delhi-8, New Delhi appears to have been ritualistic and formal rather than meaningful, which goes against the rationale of the safeguard of approval by a higher- ranking officer provided in the Act. Inconsistencies and omissions pointed in preceding para's in support of ground on nonapplication of mind are the glaring mistakes committed by the AO and non-pointing out such omissions by the approving authority and resulting non-correction of the same, before the approval was accorded, shows that the said authority have acted mechanically in granting sanction u/s 151 of the Act. S....
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....Del/2014 in para 22 at page 18 has quashed the reassessment proceeding" 4. Briefly reiterating the written submissions of the assessee, the ld. AR submitted that the invocation of reassessment proceedings based on non-existing provisions of the law clearly shows that it is a clear case of non-application of mind by the AO and also by the authorities provided the approval u/s 151 of the Act. Reliance in this regard has been placed on the decisions of Smt. Kalpana Shantilal Haria vs. ACIT W.P (L) No. 3063/2017, order dated 22.12.2017 (Bom); Best Cybercity India P. Ltd. vs. ITO (2019) 414 ITR 385 (Del); Omkam Developers Ltd. vs. ITO, ITA No. 6862/Del/2018, order dated 11.05.2021; M/s VRC Township P. Ltd. vs. ITO, ITA No. 1503/Del/2017 dated 14.10.2020; M/s Maheshwari Roller Flour Mills P. Ltd. vs. ITO, ITA No. 4257/Del/2019 dated 17.12.2020; and Madhu Apartments P. Ltd. vs. ITO, ITA Nos. 3869-3870/Del/2018, order dated 01.02.2021. Therefore, the ld. AR submitted that impugned reassessment proceedings and reassessment order may kindly be quashed as proposition rendered by above noted orders including order of coordinate Bench of ITAT Delhi in the case ....
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....td. (supra), I observe that in the similar set of facts and circumstances, similar legal contention was placed before the 'E' Bench which was adjudicated as follows:- "10. We have heard rival submission of the parties on the issue in dispute raised in the cross appeals. As far as ground No. 1 of the appeal of the assessee is concerned, the assessee has challenged the validity of the reassessment proceeding on the ground that approval for issue of the notice under section 148 of the Act was granted by the Learned Pr. CIT in a mechanical manner and without application of mind and, therefore, reassessment proceeding must be quashed. For adjudicating this issue, the reasons recorded by the Assessing Officer and relevant proforma of approval granted by the Pr. CIT are reproduced as under: "Reason for the belief that income has escaped assessment in the case of M/s, Omkam Developers Pvt. Ltd. A.Y. 2009-10 (Pan:AAACQ5036B) 1. Name & Address of the Assessee : M/s Omkam Developers Ltd, 702, Arunachal Building, 19, Barakhamba, Road, Connaught Place, New Delhi 2. Assessment Year 2009-10 3. Financial Year 2008-09 4. PAN AAACO05036B ....
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....were 7 Bank Accounts belonging to 6 entities in which cash of Rs. 15.26 crore was deposited in the F.Y.-2008-09: The cash deposited were swiftly Transferred to other entities through Cheques/RTGS. These-6 entities are proprietorships. The detail is given as per Annexure-C. The funds from other entities through Cheques/RTGS were also received in these accounts. The details of another 21 proprietorships given are STR is as per Annexure-C1. II. The find from the entities mentioned in Annexure-C and C1 were transferred to a number of entities which are mostly entities already identified as the companies controlled by the entry operators, few of them have been listed in Annexure-1. III. The fund was rotated among the entities detailed in Annexure-C, C1 and Annexure-1 IV. There were 6 Bank Accounts Belonging to 6 Companies in which funds were received from mostly entities discussed in Annexure-C, C1 and Annexure-1 and the same was swiftly transferred to the other entities (Mostly Companies). The details of 6 such companies are given in Annexure -5 V. The fund was transferred to the entities which are the real beneficiary of the funds from the comp....
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....e mentioned modus-operandi, it is actually assessee's own money (cash) which was rotated through such channel. This cash was out of his unaccounted income. I have reasons to believe that an amount of Rs. 1.93 crores has escaped from the Assessment for the A.Y. 2009-10 which was chargeable to tax. I am also satisfied that on account of failure on the part of the assessee to I disclose truly and fully all the material facts necessary for assessment for the j above assessment year, the income chargeable to tax to the tune of Rs. 193.00 Lakh as escaped assessment with the meaning of Section 147 of the IT Act 1961 I have perused the information received from the Investigation Wing, Kolkata The Investigation Wing of the Department has sent comprehensive detail comprising inter alia the beneficiary's name, value of entry taken etc. In the aforesaid case as per record from ITD, return of income was filed on declaring Rs. 2,389/- income, it is noticed that the assessee company M/s Omkam Developers Ltd, received accommodation entries to the tune of Rs. 1.93, crores during the F.Y. 2008-09 relevant to assessment year 2009-10 from the entr....
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....e High Court further observed that in that case the exercise appeared to have been the ritualistic and formal rather than meaningful, which is the rationale for safeguard of an approval by a high-ranking officer. Thus, in the instant case, mere mentioning of "yes' for approval, without any other evidence of application of the mind, amounts to mechanical approval by the Learned Pr.CIT. 10.2 Further in Column No. 7 of the proforma, the section for invoking reassessment has been recorded as 147(b) of the Act. During the relevant period, section 147(b) was no longer in existence. This shows that the Ld. AO has filed the Proforma in mechanically manner and Ld. CIT has also approved the same mechanically. In the case of Madhu Apartment Private Limited vs. ITO, ITA.Nos.3869 & 3870/Del./2018 wherein the Tribunal, Delhi Bench, vide order dated 01/02/2021 held as under: "7. After considering the rival submissions, we are of the view that the issue is covered by the Order of ITAT, Delhi G-Bench, Delhi in the case of VRC Township Pvt. Ltd., Delhi (supra) in which reopening of the assessment in identical circumstances was held to be bad in law and sanction accorded by....
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....he form for recording the reason for initiation of proceedings u/s 147 of the Act and for obtaining the approval u/s 151 of the Act is available at page 18 of assessee's paper book, the ld. Sr. DR did not dispute that in the column No. 7, the AO mentioned that the provision of section 147(b) of the Act is applicable. For the sake of completeness, the said format is being reproduced below:- 10. Therefore, it is clear that the AO, in the first page of reasons (supra) mentioned in column 7 that provisions of section 147(b) is applicable which is non-existent in the statute book for AY 2010-11. This apparently shows non-application of mind by the AO while filling proforma in a mechanical manner and the ld. ACIT and Ld. PCIT also approved the same in a mechanical manner. So far as the contention of the ld. Sr. DR that this defect is curable u/s 292B of the Act is concerned, this contention was decided by the ITAT Delhi Bench in the case of Madhu Apartments India Pvt. Ltd., ITA No. 3869 & 3870/Del/2018, order dated 01.02.2021, the relevant part of which has already been reproduced in the earlier part of this order since the same was referred to and included in the rele....
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....assessment proceedings ignoring the fact that initiation of the proceedings u/s 148 and the consequent order u/s 147 are bad in law as: a. The initiation of proceedings u/s 148 are contrary to provisions of law. b. The mandatory procedure laid down in the Act has not been followed. c. The information has been collected behind the back of the assessee and the assessee was never confronted with the same nor an opportunity provided for cross-examination of Jain brothers, copies of the orders of Jain Brothers and the relevant seized material relied upon has not been provided to the assessee, which is against Law of Natural Justice. d. The assessment has been made on the basis of conjecture & surmises without any cogent evidence. 4. The learned CIT (A) has erred on facts and in law in upholding the addition of Rs. 35,00,000/- u/s. 68 on account of share capital, treating the same as an accommodation entry. 5. The learned CIT (A) has erred on facts and in law in upholding the addition of Rs. 70,000/- u/s 69C as alleged commission paid for obtaining accommodation entries. 6. The learned CIT (A) has erred on facts and....
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....licable. If the reply is in affirmative, the relevant facts may also be brought out so that provisions of section 150(2) would not stand in the way of initiating proceedings u/s 147. 11. Reasons for the belief that income has escaped assessment. Under Assessment NO As per order sheet dated Boshellte Income Tax Officer Ward-19(1), New Delhi 12. Whether the Addl. CIT is satisfied on the reasons recorded by the ITO that it is a fit case issue of notice under section148. 13 Whether the Pr. CIT is satisfied on the reasons recorded by the ITO that it is a fit case issue of notice under section148. Addi.CIT, Range-19, New Delhi 74. The 16/3/16 Pr.CIT, Delhi-7, New Delhi Document 2 [ Form for recording the reasons for initiating proceedings u/s 148 and for obtaining Approval of the Pr. Commissioner of Income Tax, Delhi-8, New Delhi. 1. Name & Address of the Assessee M/s Shyam Products Pvt.Ltd, 206, 1, Bahadurshah Zafar Marg New Delhi AADCS0943E Company : : : ITO, Ward-23(3),N. Delhi 2010-11 Assessment Year in respect of which it is proposed to: issue notice u/s 148 2. PAN ....