THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 07.05.2013
+ ITA No.289/2012
COMMISSIONER OF INCOME TAX - III ..... Appellant
versus
M/S SUREN INTERNATIONAL PVT LTD ..... Respondent
Advocates who appeared in this case:
For the Appellant :Mr Amol Sinha, Sr.Standing Counsel with
Mr Deepak Anand, Mr.Anshum Jain &
Mr Rahul Kochar, Advocates.
For the Respondent :Mr S. Krishnan, Advocate.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter
referred to as "the said Act") has been filed on behalf of the revenue challenging
the order dated 23.12.2011 passed by the Income Tax Appellate Tribunal, in ITA
No. 2941/D/2010, pertaining to the assessment year 2002-03. The Tribunal has,
by its order dated 23.12.2011, quashed the proceedings initiated, by the
Assessing Officer, on the basis of a notice under Section 148 of the said Act
ITA No.289/2012 Page 1 of 16
issued for reopening the assessment pertaining to the said assessment year 2002-
03. The notice under Section 148 of the said Act was issued on 25.03.2009
which is beyond the period of 4 years from the end of the relevant assessment
year. The Tribunal held that as there has been no failure on the part of the
assessee to disclose material facts and the same is also not alleged either in the
notice under Section 148 or in the reasons recorded for initiating reassessment
proceedings, the reassessment proceedings are illegal and without jurisdiction. In
absence of failure, on the part of the assesse, to disclose fully and truly all
material facts necessary for the proceedings, the Assessing Officer would lack the
jurisdiction to initiate reassessment proceedings. Consequently, the Tribunal has
quashed the reassessment order.
2. The challenge on the part of the revenue to the order passed by the
Tribunal has to be considered in light of the following facts.
3. The assessee filed its return of income on 31.03.2003 declaring an
income of ` 30,18,779/-. The said return was initially accepted under Section
143(1) on 30.05.2003. However, subsequently on 20.10.2003, the same was
taken up for scrutiny. The balance sheet and the books of account of the assessee
disclosed that, during the relevant previous year, the assessee had received an
aggregate sum of ` 4,82,01,000/- as share application money from various
persons and the same was outstanding, pending allotment of shares. The
Assessing Officer issued a detailed questionnaire to inquire into the said share
ITA No.289/2012 Page 2 of 16
application money and sought details of the share applicants who had paid the
share application money to the assessee company. The Assessing Officer
thereafter conducted an inquiry to determine the genuineness and
creditworthiness of the transactions relating to the share applications. The
assessee produced confirmations from the concerned share applicants during the
course of the assessment proceedings. In order to make further inquiries, the
Assessing Officer issued summons under Section 131 of the Act to 25 parties
from whom the share application money had been received. Initially, some of the
summons were received back unserved and the assessee was asked to furnish
fresh addresses, which were provided by the assessee. However even thereafter
summons to certain persons were received back and the assesse again provided a
fresh set of addresses with respect to those persons. The hearings for examining
the noticees under Section 131 were fixed on 07.03.2005, 22.03.2005 and
23.03.2005. One of the persons examined under Section 131 declined to
acknowledge any relationship with the assessee and consequently the amount of
share application money deposited by the said party amounting to ` 5,00,000/-
was added as income in the hands of the assesse, as unexplained credit in the
books of accounts, in terms of Section 68 of the Income Tax Act. Whilst some of
the parties to whom summons under section 131 were issued remained unserved,
in certain other cases the share-applicants did not come forward on the scheduled
dates of hearing for being examined. The Assessing Officer, thereafter,
ITA No.289/2012 Page 3 of 16
concluded that a sum of ` 42,00,000/- on account of share application money was
liable to be taxed as unexplained credit in the books of accounts under Section 68
of the Income Tax Act.
4. The assessment made by the Assessing Officer by the order dated
30.03.2005 was carried in appeal by the assessee. The assessee contested the
assessment made by the Assessing Officer and in support of his contentions
furnished letters of confirmation, photocopies of share application forms,
photocopies of income tax returns, balance sheets, pan cards and bank statements
of the share applicants in respect of whom the additions were made in the
assessment order dated 30.03.2005. The assessee further produced evidence to
show that in some cases, the share application money had since been refunded.
The CIT (Appeals) forwarded the additional evidence produced by the assessee
to the Assessing Officer for examining the same and furnishing a report thereon.
The Assessing Officer submitted a report dated 07.10.2005 reiterating the issues
mentioned in the assessment order. The CIT (Appeals) concluded that some of
the persons to whom summons had been issued could not appear before the
Assessing Officer due to paucity of time and, in the light of the subsequent
evidence, deleted the additions made by the Assessing Officer to the extent of
` 37 lacs. The addition of ` 5 lacs in relation to the share applicant who had
categorically stated that she had no link with the assesse was upheld by the
CIT(A).
ITA No.289/2012 Page 4 of 16
5. It can be seen from the above facts that the assessee furnished all
particulars relating to the share application money including confirmations from
the share applicants as well as other evidence in relation to those persons, who
the Assessing Officer had found to be suspect.
6. It is the case of the revenue that during certain investigation proceedings,
a statement of one Shri Deepak Gupta was recorded on 25.09.2004 (that is, while
the assessment proceedings were still pending). Shri Deepak Gupta has allegedly
admitted that he was providing accommodation entries to the assessee. It has
been contended on behalf of the revenue, that based on the statement made by the
said Deepak Gupta, the Assessing Officer came to believe that income during the
relevant previous year had escaped assessment and the Assessing Officer issued
the notice dated 25.03.2009 under Section 148 of the Act, seeking to reassess the
income of the assessee under Section 147 of the Act. The assessee requested for
the reasons for issuance of notice under Section 148 of the said Act which were
furnished by the Assessing Officer. The assessee objected to the reasons,
however the same were rejected by the Assessing Officer.
7. The reasons for issuance of the notice under Section 148, inter alia,
alleged that the assessee had taken certain accommodation entries. The reasons
for reopening of the assessment proceedings furnished by the Assessing Officer
are as under :-
ITA No.289/2012 Page 5 of 16
"12.03.2009 Reasons for issue of notice u/s 148 in the case of M/s
Suren International Pvt. Ltd AY 2002-03
Return in this case was filed at an income of ` 10,74,990 on
29.10.2002
Enquiries were conducted by the Investigation Wing of the Dept. In
this inquiry it was found that one Mr Deepak Gupta S/o Late Shri J.N.
Gupta R/o Shastri Nagar, Delhi 110052 was indulging in providing
accommodation entries. In his statement recorded on 25/09/2004, he
has admitted that he takes cash from various parties and gives them
DD/Cheque by charging his commission. This DD/Cheque is then
introduced by these parties as share Capital or Loan in their books of
accounts.
M/s Suren International Pvt Ltd has taken following accommodation
entries from the accounts operated by Deepak Gupta which have been
credited in its account with BOP, Karol Bagh Branch in A.Y 2002-03,
THE DETAILS ARE GIVEN BELOW:
VALUE INSTRU DATE ON NAME OF BANK BRANCH A/C NO
OF MENT WHICH ACCOUNT FROM OF ENTRY
ENTRY NO BY ENTRY HOLDER WHICH ENTRY GIVING
TAKEN WHICH TAKEN OF ENTRY ENTRY GIVING ACCOUN
ENTRY GIVING GIVEN BANK T
TAKEN ACCOUNT
500000 26-JUL-01 B.I.C. SBP DG 50088
CONSULT
ANT S P
LTD
500000 26-JUL-01 --DO-- --DO-- --DO-- 50088
500000 26-JUL-01 --DO-- --DO-- --DO-- 50088
500000 26-JUL-01 --DO-- --DO-- --DO-- 50088
500000 26-JUL-01 --DO-- --DO-- --DO-- 50088
500000 26-JUL-01 --DO-- --DO-- --DO-- 50088
500000 495673 21-JUL-01 DINANAT OBC MINTO 19
H ROAD
LAHURIW
ITA No.289/2012 Page 6 of 16
ALA
500000 495673 21-JUL-01 --DO-- --DO-- --DO- 19
500000 495673 21-JUL-01 --DO- --DO- --DO- 19
500000 495673 21-JUL-01 --DO- --DO- --DO- 19
500000 495673 21-JUL-01 --DO- --DO- --DO- 19
500000 495673 21-JUL-01 --DO- --DO- --DO- 19
500000 495673 21-JUL-01 --DO- --DO- --DO- 19
250000 142208 30-JUN-01 DINESH JAILAXMI FATEHP 11246
GUPTA URI
COOP
BANK
250000 142208 30-JUN-01 --DO-- --DO-- --DO-- 11246
250000 142208 30-JUN-01 --DO-- --DO-- --DO-- 11246
250000 142208 30-JUN-01 --DO-- --DO-- --DO-- 11246
250000 142208 30-JUN-01 --DO-- --DO-- --DO-- 11246
250000 142208 30-JUN-01 --DO-- --DO-- --DO-- 11246
500000 257601 6-JUL-01 ENPOL(PV --DO-- --DO-- 3340
T)
500000 257601 6-JUL-01 --DO-- --DO-- --DO-- 3340
500000 257601 6-JUL-01 --DO-- --DO-- --DO-- 3340
500000 257601 6-JUL-01 --DO-- --DO-- --DO-- 3340
500000 257601 6-JUL-01 --DO-- --DO-- --DO-- 3340
500000 257601 6-JUL-01 --DO-- --DO-- --DO-- 3340
450000 499344 24-MAY-01 LANDMAR --DO-- --DO-- 3194
K
COMMUNI
CATION
PVT LTD
450000 499344 24-MAY-01 --DO-- --DO-- --DO-- 3194
450000 499344 24-MAY-01 --DO-- --DO-- --DO-- 3194
450000 499344 24-MAY-01 --DO-- --DO-- --DO-- 3194
ITA No.289/2012 Page 7 of 16
450000 499344 24-MAY-01 --DO-- --DO-- --DO-- 3194
450000 499344 24-MAY-01 --DO-- --DO-- --DO-- 3194
500000 145084 02-JUL-01 LEELA --DO-- --DO-- 8644
DHAR
500000 145084 02-JUL-01 --DO-- --DO-- --DO-- 8644
500000 145084 02-JUL-01 --DO-- --DO-- --DO-- 8644
500000 145084 02-JUL-01 --DO-- --DO-- --DO-- 8644
500000 145084 02-JUL-01 --DO-- --DO-- --DO-- 8644
500000 145084 02-JUL-01 --DO-- --DO-- --DO-- 8644
500000 329725 30-JUN-01 MANOHA --DO-- --DO-- 1556
R LAL
MANISH
KUMAR
500000 329725 30-JUN-01 --DO-- --DO-- --DO-- 1556
500000 329725 30-JUN-01 --DO-- --DO-- --DO-- 1556
500000 329725 30-JUN-01 --DO-- --DO-- --DO-- 1556
500000 329725 30-JUN-01 --DO-- --DO-- --DO-- 1556
500000 329725 30-JUN-01 --DO-- --DO-- --DO-- 1556
480000 269479 18-MAY-01 PROFAN IND BAK CH 5035
FINANCE CHOK
&
INVESTME
NT LTD
480000 269479 18-MAY-01 --DO-- --DO-- --DO-- 5035
480000 269479 18-MAY-01 --DO-- --DO-- --DO-- 5035
480000 269479 18-MAY-01 --DO-- --DO-- --DO-- 5035
480000 269479 18-MAY-01 --DO-- --DO-- --DO-- 5035
480000 269479 18-MAY-01 --DO-- --DO-- --DO-- 5035
500000 311122 18-JUL-01 SUMA CORPN KB 2919
FINANCE
INVESTME
NT LTD.
500000 311122 18-JUL-01 --DO-- --DO-- --DO-- 2919
ITA No.289/2012 Page 8 of 16
500000 311122 18-JUL-01 --DO-- --DO-- --DO-- 2919
500000 311122 18-JUL-01 --DO-- --DO-- --DO-- 2919
500000 311122 18-JUL-01 --DO-- --DO-- --DO-- 2919
500000 311122 18-JUL-01 --DO-- --DO-- --DO-- 2919
500000 311122 18-JUL-01 --DO-- --DO-- --DO-- 2919
500000 311122 18-JUL-01 --DO-- --DO-- --DO-- 2919
250000 135415 30-JUN-01 SUSHIL JAILAXMI FATEHP 10081
GOYAL COOP URI
BANK
250000 135415 30-JUN-01 --DO-- --DO-- --DO-- 10081
250000 135415 30-JUN-01 --DO-- --DO-- --DO-- 10081
250000 135415 30-JUN-01 --DO-- --DO-- --DO-- 10081
250000 135415 30-JUN-01 --DO-- --DO-- --DO-- 10081
250000 135415 30-JUN-01 --DO-- --DO-- --DO-- 10081
500000 503258 27-JUL-01 SWETU OBC MINTO 33
STONE P. ROAD
LTD
500000 503258 27-JUL-01 --DO-- --DO-- --DO-- 33
500000 503258 27-JUL-01 --DO-- --DO-- --DO-- 33
500000 503258 27-JUL-01 --DO-- --DO-- --DO-- 33
500000 503258 27-JUL-01 --DO-- --DO-- --DO-- 33
500000 503258 27-JUL-01 --DO-- --DO-- --DO-- 33
500000 25-JUL-01 TECNOCO SBP DG 50060
M
ASSOCIAT
ES PVT.
500000 25-JUL-01 --DO-- --DO-- --DO-- 50060
500000 25-JUL-01 --DO-- --DO-- --DO-- 50060
500000 25-JUL-01 --DO-- --DO-- --DO-- 50060
500000 25-JUL-01 --DO-- --DO-- --DO-- 50060
500000 25-JUL-01 --DO-- --DO-- --DO-- 50060
ITA No.289/2012 Page 9 of 16
500000 145067 02-JUL-01 VIPIN JAILAXMI FATEHP 9378
KUMAR COOP URI
BANK
500000 145067 02-JUL-01 --DO-- --DO-- --DO-- 9378
500000 145067 02-JUL-01 --DO-- --DO-- --DO-- 9378
500000 145067 02-JUL-01 --DO-- --DO-- --DO-- 9378
500000 145067 02-JUL-01 --DO-- --DO-- --DO-- 9378
500000 145067 02-JUL-01 --DO-- --DO-- --DO-- 9378
3,65,80, TOTAL
000 AMOUN
T
In this case information have been received that their goods
have been seized by DRI and also penalty of Rs 2 Crores is levied by
Commissioner Customs (ICD).
From the above details and the Statement of Mr. Deepak
Gupta who has admitted that he has not carried out any business
activity accept that of providing accommodation entries as described
above that of providing accommodation entries as described above, it
is seen that the assesee has diverted its own money into the business
by way of taking accommodation entries. Thus the amounts stated in
table above taxable u/s 68 of the Act and hence, I have reason to
believe that an amount of Rs 3,65,80,000/- has escaped assessment
within the meaning of section 147 of the IT Act 1961.
Since 4 years have been elapsed, the assessment record is
being submitted for kind perusal and approval of the Commissioner of
Income-Tax, Delhi-III, New Delhi according to section 151 (1) of the
IT Act, 1961 for issuance of notice u/s 148 of I.T. Act.
-sd/-
(D.D. YADAV)
Asstt. Commissioner of Income Tax
Circle 9(1), New Delhi"
ITA No.289/2012 Page 10 of 16
8. The alleged accommodation entries, tabulated in the reasons for issuance
of the notice under section 148, totaling ` 3,65,80,000/- formed the basis of
initiating the reassessment proceedings. The Assessing Officer recorded that he
had reason to believe that the amount of ` 3,65,80,000/- has escaped assessment.
It is relevant to state that the reasons as furnished by the Assessing Officer, first
of all, did not disclose any allegation that the assessee had failed to make any
disclosure for the purposes of the assessment. Secondly, it would be pertinent for
us to mention that a bare perusal of the entries listed in the table forming a part of
the reasons indicate that most of the entries have been repeated six times to form
the total of ` 3,65,80,000/-. The Assessing Officer has thus made an addition on
the basis of certain set of alleged entries which ex facie include the same entries
which have been repeated multiple times to arrive at the figure of
` 3,65,80,000/-. This is clearly evident from the fact that the details of
instruments through which payments are alleged to have been made are also
similar.
9. We may also add that although the said reasons as furnished by the
Assessing Officer contain a statement that information had been received that
certain goods of the assessee had been seized by DRI and penalty had been levied
by Commissioner Customs (ICD), there is no allegation that any income had
escaped assessment on that count and thus the only reason for initiating
ITA No.289/2012 Page 11 of 16
proceedings under Section 147/148 are the alleged accommodation entries
purportedly totaling ` 3,65,80,000/-.
10. The Assessing Officer once again commenced inquiries with regard to the
amount received by the assessee as share application money, in the reassessment
proceedings and concluded that the identity, creditworthiness of the share
applicants and the genuineness of the transactions in relation to share application
money totaling a sum of ` 4,75,01,000/- was not established and accordingly
made an addition of the said amount. The Assessing Officer made a further
addition of ` 3,46,00,000/- to the income of the assesse on the alleged ground of
concealment of goods. The order of reassessment dated 24.12.2009 was carried
in appeal by the assessee, however the same was dismissed by the CIT (Appeals)
by an order dated 25.03.2010.
11. The assessee thereafter preferred an appeal before the Tribunal against the
order dated 25.03.2010 passed by the CIT (Appeals), inter alia, on the ground
that the reassessment proceedings were based on change of opinion and the same
were initiated without there being a reason to believe that income had escaped
assessment. The Tribunal allowed the appeal holding that no omission or failure
to disclose all material facts, fully and truly, on the part of the assesse, was
alleged and consequently the reassessment proceedings were illegal and without
jurisdiction.
ITA No.289/2012 Page 12 of 16
12. The Tribunal also noted that the statement of Shri Deepak Gupta was
recorded on 25.03.2004 that is, prior to the framing of the first assessment and
subsequently the matter had traversed its course in appeal before the CIT(A). The
Tribunal also noted that a sum of ` 3,59,85,000/- had also been stated to be
refunded by the assessee to the share applicants. The Tribunal concluded that the
conditions for reopening the assessment under Section 147 were not satisfied and
hence, the reassessment proceedings initiated pursuant to the notice dated
25.03.2009 were illegal and quashed the same by the impugned order.
13. We have heard counsels for the parties at length.
14. The learned counsel for the appellant contended that even though there is
no specific allegation that the assessee had failed to disclose all the material facts
but the same can be gleaned from the reasons itself. We are unable to accept this
contention. In the first instance, we do not find the reasons as recorded by the
Assessing Officer to be reasons in law, at all. A bare perusal of the table of
alleged accommodation entries included in the reasons as recorded, discloses that
the same entries have been repeated six times. This is clearly indicative of the
callous manner in which the reasons for initiating reassessment proceedings are
recorded and we are unable to countenance that any belief based on such
statements can ever be arrived at. The reasons have been recorded without any
application of mind and thus no belief that income has escaped assessment can be
stated to have been formed based on such reasons as recorded.
15. Having stated the above, we are also unable to accept the contention that
there has been failure on the part of the assessee to disclose all material facts in
his return as, first of all, there is no such allegation in the reasons as furnished to
ITA No.289/2012 Page 13 of 16
the assesse; secondly, we cannot ignore the fact that the enquiry into the share
application money had been conducted in detail by the Assessing Officer in the
first round of assessment. Having framed his assessment after enquiry into the
identity, genuineness and the creditworthiness of the share applicants, it would
not be open for the Assessing Officer to re-examine the same without there being
any material allegation of failure, on the part of the assesse, to make a full and
true disclosure. It is well-settled that in order to invoke the provisions of Section
147 of the Act, after a period of four years from the end of the relevant
assessment year, in addition to the Assessing Officer having reason to believe
that any income has escaped assessment, it must also be established that the
income has escaped assessment on account of the assessee failing to make returns
under Section 139 or on account of failure on the part of the assessee to disclose,
fully and truly, the necessary material facts. This Court in the case of Wel
Intertrade P. Ltd. & Anr. v. ITO: (2009) 308 ITR 22 (Del) and Haryana Acrylic
Manufacturing Company v. CIT &Anr.: (2009) 308 ITR 38 (Del) held that it
would not be open for the Assessing Officer to reopen the assessment already
done beyond the period of four years unless the income has escaped assessment
on account of failure, on the part of the assesse, to disclose all the material facts.
In the case of Wel Intertrade P. Ltd (supra) it has been held as under:
"A plain reading of the said proviso makes it more than clear that
where the provisions of section 147 are being invoked after the
period of four years from the end of the relevant assessment year, in
addition to the Assessing Officer having reason to believe that any
income chargeable to tax has escaped assessment, it must also be
established as a fact that such escapement of assessment has been
occasioned by either the assessee failing to make a return under
section 139, etc., or by reason of failure on the part of the assessee
to disclose fully and truly all material facts necessary for his
assessment, for that assessment year. In the present case, the
question of making of a return is not in issue and the only question
ITA No.289/2012 Page 14 of 16
is with regard to the second portion of the proviso, which relates to
failure on the part of the assessee to disclose fully and truly all
material facts necessary for assessment. Insofar as this pre-
condition is concerned, there is not a whisper of it in the reasons
recorded by the Assessing Officer. In fact, as indicated above, the
Assessing Officer could not have made this a ground because the
Assessing Officer had required the petitioner to furnish details with
regard to loss occasioned by foreign exchange fluctuation which the
petitioner did by virtue of the reply dated February 5, 2002. Since
the petitioner had fully and truly disclosed all the material facts
necessary for the assessment, the pre-condition for invoking the
proviso to section 147 of the said Act had not been satisfied.
In this connection, it may be relevant to note one decision,
although there are several others. The said decision is that of the
Punjab and Haryana High Court in the case of Duli Chand
Singhania v. Asstt. CIT : (2004) 269 ITR 192. In the said decision,
the High Court of Punjab and Haryana was faced with a similar
situation. The court noted that there was not even a whisper of an
allegation that the escapement in income had occurred by reason of
failure on the part of the assessee to disclose fully and truly all
material facts necessary for his assessment. The court observed that
absence of this finding, which is the sine qua non for assuming
jurisdiction under section 147 of the Act in a case falling under the
proviso thereto, makes the action taken by the Assessing Officer
wholly without jurisdiction. We agree with these observations of the
Punjab and Haryana High Court and are of the view that in the
present case also, the Assessing Officer has acted wholly without
jurisdiction. The invocation of section 147, the issuance of the
notice under section 148 and the subsequent order on the objections
are all without jurisdiction. The impugned notice as well as the
proceedings pursuant thereto are quashed."
16. In the reasons as furnished by the Assessing Officer, we find that there is
neither any allegation that the assessee had failed to truly disclose any material
facts at the time of assessment, nor can we readily infer the same in view of the
ITA No.289/2012 Page 15 of 16
fact that a detailed enquiry had been conducted by the Assessing Officer with
regard to the identity and creditworthiness of the share-applicants and
genuineness of the transactions in relation to the share application money
received by the assessee. Further the mere statement that the DRI has seized
certain goods of the assessee and levied a penalty also cannot be stated to be a
reason for reopening of assessment of the assessee as the said statement made is
neither followed by the recording of a belief that the income escaped on that
count or that the assessee has failed to disclose all relevant material, fully and
truly, at the stage of the first assessment.
17. We, accordingly, do not find any merit in the present appeal and no
substantial question of law has been raised for our consideration. The present
appeal is, accordingly, dismissed. Parties are left to bear their own costs.
VIBHU BAKHRU, J
BADAR DURREZ AHMED, J
MAY 07, 2013
RK
ITA No.289/2012 Page 16 of 16
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