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TMI Blog2018 (1) TMI 1360X X X X Extracts X X X X X X X X Extracts X X X X ..... en initiated instead of under section 147 of the Act. As regards the contention that material or information found during the course of search in the case of S.K. Jain group cannot be held to be a tangible material pertaining to the assessee, we are unable to accept such a contention for the reason that, firstly, there was a categorical information and material coming on record, that assessee was one of the beneficiaries of accommodation entries provided by one of the group concern of S.K. Jain and not only that, a specific amount (of ₹ 25 lacs ) has been mentioned which prima-facie pertained to the assessee. This definitely constitutes a tangible and definite material having live-link nexus with the income chargeable to tax escaping assessment. As seen from the records that the assessee had raised similar objections after the receipt of “reasons recorded” before the Assessing Officer during the course of re-assessment proceedings, which have been amply dealt with and discussed by the Assessing Officer inn detail vide his separate order, copy of which has been placed in the paper book. Against the said order, assessee has not sought for any remedy nor has it challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing six years preceding to AY 2013-14 (in AY 2013 - 14 as per paragraph 1 of the impugned order, the information was received with seized material by the AD). Therefore, reopening itself U/S 148 was bad since inception as section 153C covered the present period, so revision order passed u/s 263 on basis of invalid order u/s 148 is bad in law. 2. That on the facts and in the circumstances of the case and in law, as evident from show cause notice dated 13.01.2017 only reference is made annexure A-13 (Page - 38), A - 13 (Page- 15) being seized material gathered in the search of S.K. Jain Group, when compared with reasons recorded and supplied to the assessee (dated 17.10.2013), it will be clear that reasons never contained any reference to stated seized documents, which is itself sufficient to knock off, the revision proceedings as it is settled law that reasons cannot be improved and modified. Any deficiency in the reasons cannot be corrected CIT u/s. 263. 3. That on the facts and in the circumstances of the case and in law, Ld. CIT erred in initiating proceedings u/s. 263 which is invalid because there was no application of mind by AO while recording the reasons for initiati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 after recording the reasons. In response to the above statutory notice the assessee filed its reply vide its letter dated 29.4.2014 submitting that the original return filed may please be treated as return filed in response to the notice u/s. 148 of the Act and also requested to provide reasons recorded, which were duly provided to it. Thereafter a notice u/s. 142(1) of the Act was issued to the assessee. In response to the above statutory notice, the A.R. of the Assessee appeared from time to time and filed details as called for. During the year under consideration the assessee company has claimed a loss of ₹ 22,722/- being ₹ 325/- as financial expense and ₹ 22,848/- as administrative expenses. Since the assessee during the year under consideration has not engaged in any business activity not it has started any business project/work, therefore, in accordance to the provisions of section 37 of the I.T. Act, the assessee is not entitled to claim expenditure on account of business activity. Therefore, the sum amount of ₹ 23,173/- is disallowed and added back to the total taxable income of the assessee and accordingly the AO assessed the income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had furnished all information that has been called for by him during the course of reassessment proceedings. Further the AO had made independent and proper enquiry and verification directly from the share applicants. Moreover, the AO had issued summons for personal appearance of the share applicants and had recorded their statement on oath. It was further stated that it would be incorrect to hold that the AO did not consider a particular seized material on record during the course of reassessment proceedings and any revision proceedings under section 263 in such case is unsustainable. In support, various judicial decisions were also referred and relied upon, which has been incorporated at page 4 (para 2) of the impugned order. 3.2 The Ld. Pr. CIT after considering the entire gamut of facts, material on record as well as the submissions made by the assessee, first of all noted that, many incriminating documents were found during the course of investigation and search seizure action in the case of S.K. Jain group which was seized during the course of search by the Investigation Wing on 14/9/2010. He further noted that these seized papers clearly reveal various accommo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice under section 148 of the Income Tax Act. As can be seen from the entry number 240 against the name of Surya Financial Services Private Limited amount of ₹ 25 is mentioned. In this case, even though the AO has considered the appraisal report, he did not examine any of the relevant seized material. Since, the entries in the seized material showed that the assessee was also one of the beneficiary of the accommodation entries give by the concerns of SK Jain and others, it cannot be stated that such seized material belonged to the assessee and therefore, there was no need to proceed under section 153C of the Income Tax Act. Ld. Pr. CIT further observed that in this case the AO merely tried to verify the existence and the creditworthiness of the parties investing in the shares of the assessee company. They failed to make enquiries regarding the genuineness of the transaction whether the cheque was issued in lieu of cash as was appearing in the seized material. It was further noted by the Ld. Pr. CIT that there is nothing on the record to show that the AO has ever confronted the assessee on such seized documents. Had the AO examined the seized material, there should have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, Shri Kapil Goel, Adv. has stated that since entire revision proceeding revolves around seized documents annexure A-13 (Page 38) and A-13(Page 15), which is the foundation of show cause notice dated 13.01.2017, which document is purportedly seized from S.K. Jain Group (search dated 14.09.2010 refer para 1 of the impugned order), the year under consideration (AY 2010-11) falls u/s 153C of the Act, being six years preceding to AY 2013-14 (in AY 2013 - 14 as per paragraph 1 of the impugned order, the information was received with seized material by the AO). Therefore, reopening itself u/s 148 of the Act was bad since inception as section 153C of the Act covered the present period, so revision order passed u/s 263 on basis of invalid order u/s 148 of the Act is bad in law. He further stated that it is evident from show cause notice dated 13.01.2017 only reference is made annexure A-13 (Page - 38), A - 13 (Page- 15) being seized material gathered in the search of S.K. Jain Group, when compared with reasons recorded and supplied to the assessee (dated 17.10.2013), it will be clear that reasons never contained any reference to stated seized documents, which is itself sufficient to kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court decisions in the case of Vinita Chaurasia reported at 394 ITR 758 and Raidco Khaitan reported at 83 taxmann.com 375 iii) Hon ble Supreme Court of India decision in the case of Andaman Timber Industries 281 CTR 241 and order dated 24.7.2001 in Civil Appeal No. 3685/1999 in the case of Sohna Builders vs. UOI iv) Hon ble Delhi High Court decision in the case of Best Infrastructure Ltd. 397 ITR 82 and Sabh Infrastructure Ltd reported in 398 ITR 198; G G Pharma reported 384 ITR 147; Meenakshi Overseas 395 ITR 677; RMG Polyvinyl 396 ITR 5; Sarthak Securities 329 ITR 110; Signature Hotels 338 ITR 51 and SFIL 325 ITR 285. 4.1 On the basis of the aforesaid discussions and precedents relied by the Ld. Counsel of the assessee, he requested to quash the impugned order passed under section 263 of the Act. 5. On the other hand, the Ld. CIT(DR), after explaining the entire facts and material on record, which has been discussed by the Pr. CIT in the impugned order, submitted that here in this case there is absolutely no dispute that the AO has not made any enquiry regarding the accommodation entry pertaining to the assessee specifically which was found during the course of sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should have been initiated under section 153C of the Act, he submitted that the Pr. CIT has dealt the issue in his order and so far as the contention that information from the third party or material recovered from other persons cannot be treated as tangible material for reopening the assessment, he relied upon the following judgments:- 1. Yoqendrakumar Gupta Vs 1TO [2014] 227 Taxman 374 (SC) 2. Ankit Financial Services Ltd. Vs DCIT [2017]78 taxmann.com 58 (Guiarat) 3. PCIT Vs Paramount Communication (P.) Ltd. [2017-TIOL-253- SC-IT] 4. PCIT Vs Paramount Communication (P.) Ltd. [2017] 392 ITR 444 (Delhi) Thus, he strongly relied upon the order of the Ld. Pr. CIT. 6. We have heard the rival submissions, perused the relevant finding and observations appearing in the impugned order as well as the material referred to before us. We find that Ld. Pr. CIT in his revisionary jurisdiction under section 263 of the Act from the examination of records before him, noted that though the assessment was reopened under section 148 of the Act on the allegation of accommodation entry taken from S.K. Jain group of concerns who were subjected to search on 14/9/2010 by the Investigatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular seized material on record during the course of reassessment proceedings and any revision proceedings under section 263 in such case is unsustainable. In support, various judicial decisions were also referred and relied upon, which has been incorporated at page 4 (para 2) of the impugned order. We find that Ld. Pr. CIT after considering the entire gamut of facts, material on record as well as the submissions made by the assessee, first of all noted that, many incriminating documents were found during the course of investigation and search seizure action in the case of S.K. Jain group which was seized during the course of search by the Investigation Wing on 14/9/2010. He further noted that these seized papers clearly reveal various accommodation entries provided by such companies to various beneficiaries. The appraisal report was forwarded by the Investigation Wing in the month of March, 2013 to the then CIT-III in hard copy and various other seized materials running into 1000 pages were scanned and soft copies of the relevant seized materials were sent to the Commissioners and then to the Assessing Officers. The relevant extract of certain seized documents has also been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rns of SK Jain and others, it cannot be stated that such seized material belonged to the assessee and therefore, there was no need to proceed under section 153C of the Income Tax Act. It was further observed that in this case the AO merely tried to verify the existence and the creditworthiness of the parties investing in the shares of the assessee company. They failed to make enquiries regarding the genuineness of the transaction whether the cheque was issued in lieu of cash as was appearing in the seized material. It was further noted that there is nothing on the record to show that the AO has ever confronted the assessee on such seized documents. Had the AO examined the seized material, there should have been some nothings either in the order sheet or in the questionnaire issued to the assessee by the AO or in the submission of the assessee before the AO. In this case, the seized material clearly indicate the cheques issued against the receipt of cash through some intermediaries and the details of cheque number, bank name, date, amount and the name of the issuing party clearly matches with the cheques credited in the bank account of the assessee. Keeping in views of the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hird party and if material found from the premises of the searched person is being utilized, then in such a situation the law provides that proceedings should have been initiated under section 153C of the Act, which has not been done and, therefore, the entire proceedings under section 147 of the Act gets vitiated and is bad in law. In support of this proposition Ld. Counsel, has relied upon certain decisions, firstly on the point that validity of reassessment or assessment order can be challenged in the revisionary proceeding under section 263; and secondly, if any material has been found pertaining to the assessee in the case of person searched or covered u/s 153A of the Act, then only recourse was to initiate proceedings under section 153C of the Act and not under section 147 of the Act. At the outset, we do not find any quarrel to the proposition that the validity of assessment or reassessment cannot be challenged in the revisionary proceedings u/s 263, however, on the facts of the present case, the ratio laid down in such judgments would not be applicable at all, because here in this case no document or material belonging to the assessee was found in the course of search proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable, as in that case also the information regarding bogus purchase by the assessee was received vide DRI from CCE which was passed on to Revenue authorities and was held to be tangible material outside record to initiate valid re-assessment proceedings. Here in this case, as reiterated several times there was a definite information and material found qua the assessee which at least needed verification and examination and hence, in our opinion such a material and information does constitute a tangible and relevant material sufficient enough to form reason to believe that income chargeable to tax has escaped assessment. Apart from that, it is seen from the records that the assessee had raised similar objections after the receipt of reasons recorded before the Assessing Officer during the course of re-assessment proceedings, which have been amply dealt with and discussed by the Assessing Officer inn detail vide his separate order, copy of which has been placed in the paper book. Against the said order, assessee has not sought for any remedy nor has it challenged this issue in appeal after the passing of the assessment order. In any case, we have already held Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of accommodation entry taken and the Ld. Pr. CIT s order u/s. 263 of the Act on account of the fact that the AO had not taken into consideration the material seized during search in the case of Sh. SK Jain. We further find that the present is also covered by the decision of the Hon ble Supreme Court of India in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017, wherein the Hon ble Supreme Court of India has dismissed the SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the AO, simply directed the AO to carry thorough and detailed inquiry. 6.6 In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, we hold that the Ld. Pr. CIT has rightly exercised his jurisdiction under section 263 of the Act in setting aside the order of the Assessing Officer being erroneous in so far it is prejudicial to the interest of the Revenue. Accordingly, we confirm the order of the Ld. Pr. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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