ITA No. 4989/DEL/2011

Shri G. D. Agrawal And Shri Chandramohan Garg,JJ.

ORDER

The order of the Bench was delivered by

Chandramohan Garg, J.M.-This appeal has been preferred by the assessee against the order of the CIT(A)-XXI, New Delhi dated 2.9.2011 in Appeal No.96/10-11/391 for AY 2003-04. Although the assessee has raised as many as 10 grounds in this appeal but at the outset, we find it appropriate to take up legal grounds no. 4 and 9 which read as under:-

“4. That the ld. CIT(A) has further erred in not appreciating the contention of the AR of the assessee that the AO has failed to apply his mind before issuing notice u/s 147/148 and in not disposing of the objections of the assessee against the initiation of proceedings u/s 147/148.

9. That the ld. CIT(A) has further erred in not appreciating the contention of the AR of the assessee that the AO failed to dispose of the objections of the assessee, against the initiation of proceedings u/s 147/148 in writing.”

2. Briefly stated the facts fiving rise to this appeal are that the assessee filed return for AY 2003-04 declaring nil income on 12.1.2004 and the same was processed u/s 143(3) of the Income Tax Act. Subsequently, information was received from the Investigation Wing of the department that the assessee has received bogus accommodation entries. Accordingly, proceedings u/s 147 of the Act were initiated and a notice u/s 148 of the Act dated 29.3.2010 was issued. The assessee, vide its letter dated 06.08.2010, submitted that the return of income already filed may be treated as return filed in response to notice u/s 148 of the Act. The AO also provided a copy of the reasons recorded for reopening of the assessment to the assessee. On 14.9.2010 the assessee filed objections to the reopening of the assessment which were duly disposed of vide order dated 17.9.2010.

3. The AO proceeded to frame reassessment and held that the assessee has received bogus accommodation entries and the assessee has arranged funds through prohibited means. Accordingly, the assessee was denied benefits of section 11 and 12 of the Act. The AO finalised the assessment u/s 144/147 of the Act and held that the assessee failed to submit confirmation with name and address of the parties from whom unsecured loan of Rs. 26,10,000 have been received. Finally, the AO concluded the reassessment proceedings by holding that the excess amount of income over expenditure Rs. 35,44,187/- and amount of unsecured loan of Rs. 26,10,000 was treated as income of the assessee for the year under consideration by finalising the assessment at a total income of Rs. 61,54,187/-. The aggrieved assessee preferred an appeal before the CIT(A) on legal and factual issues but the same was also dismissed by passing the impugned order.

Ground no.4 & 9

4. Ld. AR submitted that the CIT(A) misunderstood the facts of the case and further erred in confirming the additions made by the AO by further misunderstanding and misinterpreting the remand report and ignoring the rejoinder of the assessee. Ld. AR vehemently contended that the CIT(A) has grossly erred in not appreciating the contention of the assessee that the AO has failed to apply his mind before issuing notice u/s 147/148 of the Act and not disposing of the objections of the assessee against the initiation of the proceedings u/s 147/148 of the Act. Ld. AR further contended that the CIT(A) also ignored the main contention of the assessee that neither the statement of the party on which basis action u/s 147 and 148 was initiated nor the copies of the other documents relied by the AO were made available to the assessee and no opportunity was provided to the assessee to cross-examine the person making the statement as relied by the AO to initiate proceedings u/s 147 and 148 of the Act. Ld. AR also submitted that the CIT(A) was not justified in supporting the action of the AO of not supplying the assessee the statement/documents requested during the reassessment proceedings time and again. The AR further contended that the AO failed to dispose of the objection of the assessee against the initiation of proceedings u/s 147and 148 of the Act in writing.

5. Replying to the above, ld. DR supported the action of the authorities below and submitted that as per reasons recorded by the AO for initiating proceedings u/s 147/148 of the Act, it is clear that the assessee received accommodation entries amounting to Rs. 16,61,000/- which was not an income of the assessee from the property held under the trust where the same was in the nature of voluntary contributions but the impugned amount was income of the assessee from undisclosed sources which was certainly chargeable to tax. The DR further contended that in this situation, the AO was right in initiating the proceedings u/s 147 and 148 of the Act.

6. On careful consideration of above submissions and contentions, from reassessment order dated 10.12.2010 completed u/s 144/147 of the Act, we observe that the reasons recorded by the AO for issuance of notice u/s 148 of the Act reads as under:-

“'Information received from the Director of Income Tax (Investigation), New Delhi vide his letter dated 2.03.2006 that M/s Monarch Educational Society has received the following amounts in its bank a/c with Bank of Punjab, Rohini during the period 01.04.2002 to 31.03.2003 relevant to the asstt. year 2003-04.

As per information, the amounts mentioned above are only the accommodation entries received by the assessee. The amount of Rs. 16,61,000/- is not the income of the assessee from property held under trust nor in the nature of voluntary contributions but income of the assessee from undisclosed sources. I have, therefore, reason to believe that income of Rs. 16,61,000/- chargeable to tax for the AY 2003-04 has escaped assessment for the reason, mentioned above.

It is proposed to initiate proceedings u/s 147 of the 1.T. Act,1961.”

7. The main contention of the AR may be summarised that the assessee trust disclosed all the donations in the books of accounts and offered the income and claimed exemption as corpus fund of capital receipt in nature. Ld. AR further submitted that the assessee submitted details of the donor with their address and other required information. The assessee is not bound to give detail of source of source and it was the duty of AO to verify and examine the detailed rejoinder placed by the assessee before him and the AO simply made fishing inquiries and initiated the proceedings u/s 147 and 148 of the Act without application of mind.

8. Ld. DR has not disputed the fact that the assessee has disclosed all impugned donations in the books of accounts and offered the same as income and claimed exemption as corpus fund of capital in nature. From the reasons recorded by the AO as reproduced hereinabove, we see that the assessee has disputed the amount of donations received during the financial year under consideration from 13 donors. From operative part of assessment order, we observe that the AO has not made any addition pertaining to impugned donations of Rs. 16,61,000/- but the AO has simply held that the assessee has received bogus accommodation entries and has arranged funds through prohibited means; accordingly the assessee is not entitled for benefits u/s 11 and 12 of the Act. We also note that the AO has made addition of Rs. 26,10,000/- with regard to unsecured loan by holding that the assessee has not furnished confirmation with the name and address of the parties from whom unsecured loans have been received. The issue of unsecured loan has not been mentioned in the reasons recorded for initiation of proceedings u/s 147 of the Act and for issuance of notice u/s 148 of the Act.

9. For the sake of clarity and transparency in our findings, we find it appropriate to reproduce relevant operative part of the assessment order at page 56 of the appeal folder which reads as under:-

“In view of the above statement and modus operandi of the entry operators, information u/s 133(6) of the Act was called for from the bankers of the concerns from whom the assessee has received funds. The information i.e. bank statement received indicates that there are cash deposits, or credit entries of approx. similar amounts before the clearance of cheque issue to the beneficiaries. The companies from whom the assessee has received funds are controlled by Shri Mahesh Garg, whose statement has been incorporated above and who along with his statement recorded on 22.09.2003 before the Investigation Wing has provided a list of companies controlled by him for the purposes of providing bogus accommodation entries and the list contains the name of the above named companies from whom the assessee has received the funds.

From the above it becomes amply clear that the assessee has received bogus accommodation entries and the assessee has arranged the funds through prohibited means. Accordingly, the assessee is not entitled for benefits u/s 11 & 12 of the Act. During the course of assessment proceedings, the assessee was asked to furnish confirmations with name and address of the parties from whom unsecured loans of Rs. 26,10,000/- have been received but the assessee has chosen not to furnish even a single information. The onus to prove the genuineness of the claim was upon the assessee but it has failed to do so. Accordingly, the amount is added to the total income of the assessee.”

10. On bare reading of the above operative part of the reassessment order passed u/s 147/144 of the Act, we note that the AO has not made any addition with regard to alleged donations of Rs. 16,61,000 as has been mentioned in the reasons recorded by the AO for issuance of notice u/s 148 of the Act. Ld. AR has also submitted copies of the letter dated 12.8.2004 issued by the ADIT(E), New Delhi wherein the ADIT(E) has asked the assessee to submit a list of donors and explanation towards excess of income over expenditure of Rs. 35,44,187. The AR has also submitted a copy of the reply filed by the assessee before ADIT(E) dated 19.8.2004 and copy of the ledger of donation wherein the names of all 12 donors as mentioned in the reasons recorded have been shown with details of cheques and amount of donation. Ld.AR vehemently contended that this detail was also filed before the AO with the return of income which clearly reveals that the alleged donors have been shown by the assessee in the details submitted along with the return of income. Ld. AR further raised two issues, first, that the AO has not made any addition with regard to alleged donation as mentioned in the reasons recorded for issuance of notice u/s 148 of the Act and, on the other hand, the AO made additions of Rs. 26,10,000/- with regard to unsecured loans which have not been mentioned in the reasons recorded by the AO for issuance of notice u/s 148 of the Act.

11. Ld. DR has not disputed this fact that the AO has recorded reasons in regard to donations received from 12 donors amounting to Rs. 16,61,000/- and the detail with regard to the same was furnished by the assessee along with the return of income in the statement of account. In this situation, it can safely be presumed that the detail of donors as alleged by the AO in the reasons recorded u/s 147 of the Act for issuance of notice u/s 148 of the Act, was very well available before the AO at the time of original assessment. We also observe that the AO has initiated proceedings u/s 147/148 of the Act on allegation of alleged donation of Rs. 16,61,000 but at the same time, we also observe from the reassessment order that the AO has not made any addition pertaining to the impugned donations as mentioned in the reasons recorded but the AO has made the additions in regard to unsecured loans of Rs. 26,10,000/- which was not mentioned in the reasons recorded.

12. Ld. DR has placed reliance on the decision of Hon’ble Jurisdictional High Court of Delhi in the case of Rajat Export & Import (P) India Ltd. vs ITO (2012) 341 ITR 135 (Del) and submitted that initiation of reassessment proceedings on the basis of information received from Investigation Wing that assessee had received certain amount from a person working as an accommodation entry provider was to be upheld. In this judgment, their lordships have held that since the assessee was not in a position to deny that the material relied upon by the AO at the time of recording reasons for reopening of assessment did not contain entry linking “S. Ltd.” with the assessee, then the issuance of notice u/s 148 on prima facie belief that income chargeable to tax had escaped assessment must be upheld as valid.

13. On the other hand, ld. AR has placed reliance on the decision of Hon’ble Jurisdictional High Court of Delhi in the case of Signature Hotels Ltd. vs ITO (2011) 338 ITR 0051 (Del) and Jai Bharat Maruti Ltd. vs ACIT (2013) 258 CTR (Del) 462 and submitted that the order rejecting the assessee’s objection to notice u/s 148 of the Act being non-speaking, and passed without application of mind, was liable to be set aside. The AR has also contended that where the reasons recorded is not a pointer and does not indicate escapement of income and where it is apparent that the AO did not apply his own mind to the information received from the Investigation Wing and failed to examine the basis and material, then assumption of jurisdiction u/s 147 of the Act and notice issued u/s 148 of the Act is not valid and bad in law. The AR has also placed reliance on the decision of ITAT Agra Bench in the case of M/s Rashi Buildcon (Pvt.) Ltd. in ITA No. 407/Agra/2012 for AY 2004-05 and submitted that the AO must have reason to believe that the income had escaped assessment prior to issuance of notice u/s 148 of the Act. The AR also reiterated its argument that the AO is alleging the amount received from 12 donors amounting to Rs. 35,57,480/-. The AR also contended that the assessee has shown entire amount of donation in the return of income and the AO has not applied his independent mind to these details prior to issuance of notice u/s 148 of the Act. The AR has also drawn our attention towards Paper Book 3 of the assessee at page 322 and submitted that in the receipts and payments account for the year ended 31.3.2003, the assessee has shown similar amount of Rs. 3557480/- as donation received and the same has been submitted before the AO. The DR has not disputed the fact that the assessee has shown details of donations before the AO in the details filed along with return of income.

14. In view of above, we observe that the AO issued notice alleging the amount received from 12 donors amounting to Rs. 16,61,000 and in the reassessment order dated 10.12.2010 passed u/s 147/144 of the Act, the AO has not made any addition in this regard. Per contra, we also observe that the AO has made addition of Rs. 26,10,000 in the reassessment order (supra) with regard to unsecured loans shown by the assessee in the balance sheet but in the reasons recorded by the AO, the issue of unsecured loan has not been mentioned. In these circumstances, we can safely presume that the AO issued notice u/s 148 of the Act on the basis of same material which was before him during the assessment proceedings and the AO made additions on account of unsecured loans which has not been mentioned in the reasons recorded for issuance of notice u/s 148 of the Act. From bare reading of reasons recorded, we observe that the AO has simply reproduced details received from the Director of Income Tax, Investigation vide his letter dated 2.3.2006 and in the last operative part, the AO has recorded his satisfaction without any verification and examination of the information received and mentioned that he has reason to believe that the income of Rs. 16,61,000 chargeable to tax for AY 2003-04 has escaped assessment. In this situation, we are inclined to hold that the AO issued notice u/s 148 of the Act without application of mind to the information received from the Director of Investigation, New Delhi and the AO has not made any addition in this regard in the reassessment order but the addition has been made on account of unsecured loan which was not mentioned in the reasons recorded. As we have already mentioned that the DR has not disputed the fact that the detail of donors was submitted before the AO during original assessment proceedings. Now, under this factual matrix of the case, we are inclined to hold that the AO has his own jurisdiction without any basis which was not valid and bad in law, hence, notice u/s 148 of the Act and all subsequent proceedings in pursuance thereto are not sustainable and we quash the notice u/s 148 of the Act and all subsequent proceedings conducted by the AO in this regard. We order accordingly.

15. Finally, ground no. 4 and 9 of the assessee are allowed.

16. Since by the earlier part of this order, we have quashed the notice u/s 148 of the Act and all proceedings in pursuance thereto, therefore, other grounds raised by the assessee do not survive for adjudication on merits and we dismiss the same.

17. In the result, the appeal of the assessee is allowed as indicated above.

The order pronounced in the open court on 24.11.2014.