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TMI Blog2024 (7) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... stigation wing, dehors any independent inquiry or application of mind, much less the claim of the Ld. AO that it has been noticed by the undersigned that huge chunk of cash was deposited in the bank account of M/s Gitanjali Book Depot was found to be a bald statement as the relevant information was not with him and further on perusal of the bank statement such conviction of the Ld. AO is found to be militating against the corroborative evidence. Since the Ld. AO was hunting for the evidence / information even after 09 months from the date of recording of the reasons, therefore, the reasons recorded can be construed as formation of belief under borrowed satisfaction and obviously without application of mind as the information which was to be looked into was not available with the Ld. AO. Further since the facts are found to be incorrect, which was the basis for reopening assessment, therefore, on that ground also the reopening assessment u/s 147 cannot sustained. AO had formed the reason to believe without application of mind to the material/information which was though claimed to be noticed but eventually was not available with him. Thus, the proceedings invoked u/s 147 by issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and in law, CIT(A) has erred in sustaining/ confirming re-assessment order passed by the AO in spite of the fact that re-assessment order passed by the AO is illegal as much as it has been passed without complying with the rules of natural justice and without following mandatory provisions of law. 4) On facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of AO in initiating proceeding u/s 147 on the basis of borrowed satisfaction. 5) Without prejudice to ground nos. I to 4, on facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of the AO in making an addition of Rs. 55,00,000/- as unexplained cash credit u/s 68 on account of commission received by the assessee company, without appreciating the facts of the case properly and judicially. The addition made by the AO is arbitrary and not justified as unexplained credit u/s 68. 6) Without prejudice to ground nos. I to 4, on facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of AO in assessing commission income as unexplained cash credit u/s 68 in the year of receipt in spite the fact that this pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withdraw any ground/grounds of appeal at the time of hearing. 5. Brief facts of the case are that the assessee is a Private Limited company, engaged in production of Ingot moulds using the pig iron, iron scrap, CTD Bar etc. The assessee had claimed to have received commission income of Rs. 1.99 Crore during the FY 2010-11. As observed by the Ld. AO commission income shown by the assessee was partly received in the year under consideration to the tune of Rs. 55,00,000/- and remaining was shown as commission receivable in the Balance Sheet of the assessee under the head Current Assets. Such commission was received by the assessee from M/s Arion Commosales Pvt. Ltd. for which no explanation regarding nature and the source of such transaction could be furnished by the assessee before the Ld. AO. After deliberating upon this issue, which was the basis for reopening of assessment u/s 147 of the Act by the Ld. AO, based on information received from investigation wing of the department. Ld. AO made an addition of Rs. 55,00,000/- and also another addition on account of bogus / inflated purchases u/s 69C of the Income Tax Act. Similar additions have been made by the Ld. AO in all the respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocumentary evidence in form of books of account and Profit Loss Account. It is stated by the assessee that the company has maintained it's book of account on mercantile system of accounting. Further it is also stated that the assessee company has maintained it's account with M/s Arion Commosales Pvt. Ltd. on the basis of mercantile system of accounting. The transaction of the assessee company with M/s Arion Commosales Pvt. Ltd. has been proved a same transaction by the AO during assessment stage. Now, Nothing has been brought on record regarding the genuineness and creditworthiness. The Ld. AO has rightly make the addition u/s 68 of the IT Act. An income assessable under section 68 cannot be assessed under any particular head of income including income from other sources under section 56, the business loss assessed in the case of assessee cannot be set off against the amount taxed under section 68 as unexplained cash credits as addition u/s 68 cannot be pegged to any head of income. The aforesaid view is fortified by the Judgment of Hon'ble ITAT Chennai in the case of Deputy Commissioner of Income Tax Corporate Circle Vs. M/s Shree Karthik Papers Ltd for A.Y. 2006-07, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening the case u/s 147 of the Income Tax Act, 1961. This reopening has been done after taking proper approval from the appropriate authority. The approving authority has also applied his mind while giving the approval. It is the case of the petitioner it was stated that there was no independent application of mind by the sanctioning authorities for according approval. Whilst it is the settled position in law that the sanctioning authority is required to apply his mind and the grant of approval must not be made in a mechanical manner, however, as noted by the Division Bench of the Calcutta High Court in Prem Chand Shaw (Jaiswal) v. Asstt. CIT [2016] 67 taxmann.com 339/238 Taxman 423/383 1 TR 597, the mere fact that the sanctioning authority did not record his satisfaction in so many words would not render invalid the sanction granted under section 151(2) when the reasons on the basis on the basis of which sanction was sought could not be assailed and even an appellate authority is not required to give reasons when it agrees with the finding unless statute or rules so requires. 3.4.2 The decision in United Electrical Co. Pvt. Ltd. (supra), as relied upon by the petitioner is distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 393 (Gujarat) has held that reassessment proceedings were initiated on basis of information received from Investigation wing that assessee had received certain amount from shell companies working as an accommodation entry provider, reassessment could not be held unjustified. In the same case for the another year reported in [20171 78 taxmann.com 58 (Gujarat), Hon'ble Gujarat High Court has held that where material recovered in search of another person indicated that assessee had received bogus share applications through accommodation entries, since assessee was beneficiary, initiation of re-opening was justified. Hon'ble Gujarat High Court in the case of Aaspas Multimedia Ltd. vs DCIT [2018] 405 ITR 512 (Gujarat) has held that where reassessment was made on basis of information received from Principal DIT (Investigation) that assessee was beneficiary of accommodation entries by way of share application provided by a third party, same was justified. In view of these discussions, the above contentions of the appellant are hereby rejected. 3.4.4 Considering the above discussion, the AO, initiation of reassessment by issue of notice u/s 148 and consequent reassessment order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other judgments in which it has been categorically decided that if the statute requires something to be done in a particular manner, then such act has to be done in that manner alone and the same cannot be compromised in any manner whatsoever. Refer page 281-284, (284) Delhi HC in case of SPL Siddhartha Ltd. In this case, the JCIT has no locus standi, because he is not competent to grant approval. The powers conferred on one authority CANNOT be exercised by another authority to whom such power has not been conferred for that specified circumstance. Refer page 259-266 (265) Mumbai HC in case of Ghanshyam K.Khabrani and Page 267-271 (271)- Aquatic Remedies Respectfully submitted that departmental SLP in case of Aquatic Remedies has been dismissed by Hon'ble SC by holding that When the Statute mandates the satisfaction of a particular manner, then it has to be done in that manner only. (Page 273-274) Therefore this issue has attained finality Therefore, notice issued u/s 148 is bad in law as there is breach of section 151. Submission for - PROCEDURAL REQUIREMENT Departmental procedure cannot override the provision of law. Here provision of law stops JCIT to grant approval JCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal . . Our Bench has followed the judgment of Hon'ble SC in case of Anirudh Sinhji Karan Sinhji Jadeja vs state of Gujarat [1995, 5 SCC 302], in which it has been held that if the statutory authority has been vested with jurisdiction then he has to exercise it according to its own discretion. If the discretion is exercised under the direction or in compliance with some other authorities' instruction, then it will be a case of failure to exercise discretion altogether. There is a reference of so many judgments Delhi HC Meenakshi overseas [89-106 of PB-2], G.G.Pharma India [117-122 of PB-2], RMG Polyvinyl [123-128 of PB2], [ page 127 para-12] SFIL Stock broking [129-134 of PB-2] Now refer page 5 of PB-1, it is the information received by AO from ADIT Kolkota. Last para 5, last line ,FOR FURTHER NECESSARY ACTION AT YOUR END AS PER LAW This clearly shows that the AO has not applied his mind and he has acted in compliance with the instruction of some other authority. Therefore, it is a case of failure to exercise jurisdiction altogether. In all these cases, the AO has acted mechanically he did not apply his own mind he did not take any kind of step of his own and therefore HC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the PCIT acted mechanically in granting approval. He merely writes Yes. I am satisfied on the reasons recorded by the AO as if he was to put his signature only in the specified place. PCIT acted mechanically in order to discharge his statutory obligation and he also did not apply his mind. PCIT was duty bound to see whether AO has conducted any independent enquiry of his own and how AO was satisfied. All these are in built safeguards provided in the Act. Yes. I am satisfied on the reasons recorded by the AO It does not show application of mind by PCIT before granting approval. This vitiates the very purpose of granting approval by competent authority. The sanctioning authority is expected to review the issue judiciously and then record his objective satisfaction before granting approval. It is missing in this case. Once again reliance on Mumbai ITAT Bharti Axa relevant page is 231 approval granted by CIT and then page 246 para 4.9.3 read it. Refer page 249 - Reliance on MP HC CIT vs S. Goenka Lime and Chemicals Department's SLP dismissed by Hon'ble SC [ page 135-140] Reliance on jurisdictional HC i.e. CG HC also Maruti clean coal and power [141-148 of PB-2] relevant pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d held that income u/s 68 cannot be classified under any head of income as provided in section 14 and therefore no loss can be set off against income u/s 68. AO did not bother to consider that the same Guj. HC, in the year 2009 has reconsidered this issue in DCIT vs Radhe Developer's case [page 193-206, relevant page 205, para 14] and in the year 2013 in case of CIT vs Shilpa dyeing and printing [187-191, relevant page 190, para 9 10] Further, AO has relied upon Kerala HC judgment in case of Kerala Sponge iron, rendered in the year 2015. Here also, AO did not bother to consider that the same Kerala HC in the year 2019 has reconsidered this issue in case of Vijaya Hospitality [179-185, relevant page is 184 para 14 15] and in the year 2022 in case of Bhima Jewellers [157 to 178, relevant page is 165 para 9 and page 176 para 13] The AO has followed the judgments which had been overruled by those High Courts themselves, before issuance of notice u/s 148. So, AO has issued notice under wrong presumption of law and on that count also, the notice is invalid. Once the very basis on which notice u/s 148 was issued, does not exit, then reassessment proceedings is invalid. ON MERITS OF TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 221 of PB-2, 220 para 3) 9. The first contention challenging the validity of notice u/s 148 raised by the Ld. AR was only for AY 2011-12 and 2012-13, that the approval granted by competent authority is not in accordance with the provisions of section 151 and hence there is a breach of compliance as mandated by the law. It was the contention that out of the batch of five years, two years i.e., AY 2011-12 2012-13 were picked up for reopening assessment beyond 4 years, therefore, the approval was to be granted by Ld. PCIT, who is the competent authority. However, the approval in these two years are granted by Ld. PCIT and also by the Range head i.e., Ld. JCIT, therefore, such approval which is to be accorded by only the competent authority i.e., Ld. PCIT, are not in the manner in which the statute requires. On this issue, it was the submission that statutory provisions allows the respective authority to grant the approval u/s 151 depending upon different circumstances, therefore, such powers cannot be exercised by the authority simultaneously, who is not vested with such authority. On this aspect, Ld. AR placed his reliance on the decision referred to in his written submissions (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Emphasizing upon the aforesaid notings in the reasons to believe, it was the assertion of Ld. AR that the aforesaid finding of the Ld. AO shows that he had verified the bank account of M/s Gitanjali Book Depot and had himself witnessed the entries therein reflecting huge amounts of cash deposited in the said bank account. Ld. AR further extended his argument with the allegation that such inference by the Ld. AO was totally misplaced and cannot be based on some material evidence, because as per the fact on record, the bank statement of M/s Gitanjali Book Depot were not available with the Ld. AO at the time of recording of the reasons, therefore, his observations in the reason that, it has been noticed by the undersigned, was without any basis or any cogent evidence before him, all the more it was just an inference drawn based on the report from investigation wing, which itself was not having the supporting evidence in the form of bank accounts of the entities who were in the chain for executing such alleged bogus transactions. In order to substantiate the allegation that even the account statement of the M/s Gitanjali Book Depot are not available with the investigation wing, Kolkat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah vs. ITO, wherein the issue was decided after elaborate discussion on the same based on interpretations of various Hon ble High Courts, the relevant observations of Tribunal in the aforesaid case are as under: 9. On a perusal of the aforesaid reasons to believe , we find that the case of the assessee was reopened by the Assessing Officer u/s.147 of the Act on the basis of the information received by him from CIB that the assessee had during the year under consideration booked bogus purchases to the tune of Rs. 9,53,492/- and thus, inflated his expenditure with a purpose of suppressing his taxable income. In our considered view, though there was material/information with the Assessing Officer on the basis of which he could have arrived at a bonafide belief that the income of the assessee chargeable to tax has escaped assessment, however, we find that he had failed to apply his mind to the material/information before him and had reopened the case of the assessee by merely referring to the information that was received by him from CIB. As per the settled position of law, the reopening of a concluded assessment presupposes application of mind by the Assessing Officer to the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gathered from the aforesaid reasons to believe is that the A.O by merely referring to the information received from the DGIT(Inv.), Mumbai, wherein it was conveyed that the assessee was a beneficiary of the accommodation entries given by two concerns, had observed, that he had a reason to believe that the income of the assessee in respect of such accommodation entries had escaped assessment. Although, the A.O had at the outset of his reasons observed that information was received from the DGIT(Inv.), Mumbai in respect of accommodation entries in the nature of sales, unsecured loans and share application money issued by the group companies controlled and managed by Shri Praveen Kumar Jain, however, he had not even done the bare minimum by pointing out the nature of the impugned accommodation entries that were allegedly stated to have been received by the assessee as a beneficiary. On a careful perusal of the reasons to believe , it can safely be gathered that the A.O had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai and had dispensed with the statutory obligation that was cast upon him as regards formation of an independent and a bonafide b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spensing with the date of recording of the reasons, the A.O, without any further verification, examination or any other exercise had jumped to the conclusion that the assessee had received accommodation entries. The Hon ble High Court in the backdrop of the facts involved in the case before them observed that as the crucial link between the information made available by the DIT (Investigation) to the A.O and the formation of belief was absent, the reassessment proceeding initiated against the assessee was rightly quashed by the Tribunal. The High Court while concluding as hereinabove observed that while the report of the Investigation Wing might constitute the material on the basis of which the A.O forms the reasons to believe, but the process of arriving at such satisfaction/belief cannot be a mere repetition of the report of the Investigation wing. As observed by the Hon ble High Court, the reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that the income of the assessee chargeable to tax had escaped assessment. Also, a similar view was earlier taken by the Hon ble High Court of Delhi in the case of PCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of having earned long-term capital gains on account of sale/purchase of shares by obtaining entries. After deliberating on the facts, it was inter alia observed by the Hon ble High Court that a mere reference to the information received from the Dy. Director of IT (Inv.) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that the A.O had independently applied his mind to arrive at a belief that income has escaped assessment. Also, in the case of CIT Vs. Kamdhenu Steel Alloys Ltd. Ors. (2014) 361 ITR 220 (Del), it was observed by the High Court that where the A.O had acted mechanically on the information supplied by the Directorate of IT(Inv.) about the alleged bogus/ accommodation entries provided by certain individuals/companies without applying his own mind, he was not justified in invoking jurisdiction under Sec. 147. 9. As observed by us at length hereinabove, the A.O in his reasons to believe in the case of the assessee before us had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai that the assessee as a beneficiary had received accommodation entries from two concerns, and dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. or from M/s Gitanjali Book Depot during the entire relevant period. It was the submission that the bank statement of M/s Arion Commosales Pvt. Ltd. was part of the information, which the ADIT(Inv.), Kolkata had provided to the Ld. AO. Under such facts and circumstances, it was the submission that there was no whisper of the name of entities i.e., M/s Gitanjali Book Depot and M/s Evergrow Suppliers Pvt. Ltd., as alleged by the investigation wing in their report showing trail of funds. So far as funds received from M/s Arion Commosales Pvt. Ltd., there was no dispute by the either side. However, since the delayering done by the department was found to be bereft of support from the factual evidence and the nexus between M/s Gitanjali Book Depot and the assessee company could not be established by the revenue till the completion of the assessment, therefore, it is apparent that the basis for issuance of notice u/s 148 are found to be on incorrect facts. To support this contention, Ld. AR placed his reliance on the judgment from the judgment by the Hon ble Mumbai High Court in the case of Anita A. Choksey vs. Income Tax Officer, [2019] 411 ITR 207, wherein Hon ble Mumbai High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me chargeable to tax has escaped assessment. 8. Therefore, in the above view, as the impugned notice is without jurisdiction, it is quashed and set aside. 15. Based on the analogy drawn from the aforesaid judgment, it was the assertion from the assessee that reopening assessment was exercised in violation of prescribed procedure merely on the basis of borrowed satisfactions, presumptions and surmises the conclusion arrived at by the Ld. AO was totally arbitrary, illegal, bad in law and in absence of valid reasons to believe which was the foundation for reopening assessment, the entire assessment is liable to be termed as void-ab-initio. It was the submission that the order of Ld. CIT(A), therefore, confirming such invalid order in appellate proceedings are at nullity. 16. Another argument raised by the Ld. AR was that the Ld. AO made the addition on account of accommodation entries received by the assessee in the garb of commission which were duly recorded in the books of the assessee, however, are such books of accounts of the assessee were not rejected by the Ld. AO while recharacterizing the income of the assessee emanating from the same set of books of accounts. 17. Another all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to furnish any plausible information so as to bring the impugned transactions out of the ambit of additions made u/s 68 and 69C of the Act. In view of such facts, it was the assertion that the order of Ld. AO making additions and the order of Ld. CIT(A) sustain such additions are justified, reasoned, and have all the merits to sustain in the eyes of law, therefore, both the orders of revenue authorities are deserving to be upheld. 20. We have considered the rival submissions, perused the material available on record and judicial pronouncements relied upon. Adverting to the legal grounds raised by the Ld. AR, wherein various contentions are raised to bring the proceedings initiated u/s 147 /148 within the realm of illegal, bad in law and proceedings without valid assumption of jurisdiction. On perusal of the reasons recorded in the instant case, it is evident that the Ld. AO had recorded such reasons with his conviction that the assessee had received certain amounts as commission, in the form of accommodation entries from M/s Arion Commosales Pvt. Ltd., which in turn are remitted by M/s Evergrow suppliers Pvt. Ltd as the same was received from M/s Gitanjali Book Depot. It was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inquiry or application of mind, much less the claim of the Ld. AO that it has been noticed by the undersigned that huge chunk of cash was deposited in the bank account of M/s Gitanjali Book Depot was found to be a bald statement as the relevant information was not with him and further on perusal of the bank statement such conviction of the Ld. AO is found to be militating against the corroborative evidence. Since the Ld. AO was hunting for the evidence / information even after 09 months from the date of recording of the reasons, therefore, the reasons recorded can be construed as formation of belief under borrowed satisfaction and obviously without application of mind as the information which was to be looked into was not available with the Ld. AO. Further since the facts are found to be incorrect, which was the basis for reopening assessment, therefore, on that ground also the reopening assessment u/s 147 cannot sustained. 21. We, therefore, in terms of aforesaid observations respectfully following the decision of this tribunal in the case of Shri Tarun Pugalia Jain vs. ITO, wherein various judgments comprises of Anirudh Sinhji Karan Sinhji Jadeja Vs. State of Gujarat (SC), Cheta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplying his mind to the information/material which was supposed to be verified but the same was not available with him, therefore, we concur with the contentions raised by the Ld. AR, which are supported with material evidence/information and relevant case laws, which could not be dislodged by the revenue by bringing on record any contrary decision, evidence or material fact. Consequently, we are of the considered opinion that the Ld. AO had reopened the present case of the assessee on the basis of a borrowed satisfaction/ without application of mind which is the prerequisite condition for the reopening assessment, moreover on the basis of incorrect facts as the delayering of the transactions are not inconsistency with the facts and circumstances, which are construed and recorded by the Ld. AO in the reasons to believe, therefore, had wrongly assumed jurisdiction u/s.147 of the Act, while initiating the reopening proceedings, which thus, on the said count itself cannot be upheld and the assessment completed in wake of such invalid proceedings is liable to be quashed. 22. Since we have quashed the assessment on the basis of aforesaid observations, therefore, without dealing with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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