Sandeep Kumar, Muzaffarnagar vs Assessee

1 ITA 5016/Del/2010 Sandeep Kumar Vs. ITO

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "G" NEW DELHI BEFORE SHRI G.D. AGRAWAL : VICE PRESIDENT AND SHRI GEORGE GEORGE K.: JUDICIAL MEMBER

ITA no. 5016/Del/2010 Asstt. Yr: 2002-03 Sandeep Kumar , Vs. Income-tax Officer, Prop. Balaji Trading Co., Ward-1, Shamli (UP). V.V. Inter College Road, Shamli. PAN: ADEPK 2923 K.

( Appellant ) (Respondent) Appellant by : Shri Ankit Gupta Adv. Respondent by : Shri B.R.R. Kumar Sr. DR

Date of hearing: 02/03/2015. Date of order: 02/03/2015.

ORDER

PER G.D. AGRAWAL, V.P.:

This appeal, by the assessee, is directed against CIT(A)'s order dated

13-8-2010, relating to A.Y. 2002-03.

2. Ground nos. 1 to 3 of the assessee's appeal read as under:

"1. That the notice issued u/s 148 is illegal, bad in law and without jurisdiction and the re-assessment order passed is illegal, bad in law and without jurisdiction.

2. That the notice issued u/s 148 has been issued without any approval of the higher authority and the approval, if any, is given without any application of mind.

2 ITA 5016/Del/2010 Sandeep Kumar Vs. ITO

3. The CIT(A) has erred on facts & in law in upholding the initiation of reassessment proceedings u/s 147 and upholding the validity of notice u/s 148."

3. At the time of hearing, before us, it was pointed out by the ld. counsel

for the assessee that the AO has reopened the case simply as per the

direction of the CIT(A) for A.Y. 2003-04, without any independent

application of mind. Therefore, reopening is bad in law. In support of this

contention, he relied on the following decisions:

- CIT Vs. M/s Tejaskiran Pharmachem Industries Pvt. Ltd. (ITA no. 398 of 2013 dated 18-2-2015 (Bom.);

- M.B. Traders Vs. ACIT (ITA no. 188/Nag/2008 dated 14-7-2009 (ITAT - Nagpur); and

- M/s Hotel Hero Vs. DCIT (IT(SS)A no. 45-46/Ahd/2008 -dated 16- 12-2010 (ITAT Ahmedabad);

4. The ld. DR, on the other hand, relied on the orders of the authorities

below and stated that the AO, after considering the observations of the

CIT(A) for AY 2003-04, has applied his mind independently and the

allegation of the assessee's counsel that AO reopened the case without any

independent application of mind, is incorrect. In this regard he referred the

relevant portion of the reasons recorded for reopening of assessment.

5. We have carefully considered the arguments of both the sides and

perused the material placed before us. We find that the Hon'ble Bombay 3 ITA 5016/Del/2010 Sandeep Kumar Vs. ITO

High Court in the case of M/s Tejaskiran Pharmachem Industries Pvt. Ltd.

(supra), held as under:

"9. We find that the reasons as recorded in support of the reopening notice dated 10 February 2003 merely states that loans were taken by some companies but that does not indicate in what manner those loans would be hit by the provisions of deemed dividend. The reasons must indicate live link between the material and the belief. (see ITO Vs. Lakhmani Mewal Das in 103 ITR 437 and CIT Vs. Kelvinator India Ltd. in 320 ITR

561). The material here is that the respondent- assessee has received a loan from three private limited companies but that by itself does not make it deemed dividend leading to reason to believe that income chargeable to tax has escaped assessment.

Moreover, we also notice that the Assessing Officer in issuing the notice dated 7 March 2000 has acted at the directions of the CIT(A). This seems to be an admitted position. This is more than evident from Question 1 as formulated by the revenue hereinabove which states that the assessing officer was required to carry out the reassessment in view of the Section 150 of the Act i.e. in pursuance of the direction by the CIT(A). This itself an indication of the assessing officer as per the direction of the CIT(A) in issuing the impugned notice.

10. So far as the section question is concerned, it is a settled position in law that even though the assessment has been processed under Section 143 (1) (a) of the Act for the purposes of reopening of assessment, the condition stipulated for invoking jurisdiction under Section 147/148 of the Act has to be satisfied.

11. In view of the above, we see no reason to entertain the present appeal as the Tribunal by the impugned order has correctly held that the notice for reopening dated 10 February 2003 was without jurisdiction."

4

ITA 5016/Del/2010 Sandeep Kumar Vs. ITO

5.1. The ITAT Nagpur Bench in the case of M.B. Traders (supra) held as

under:

"Section 19 deals as quoted above with regard to time limit for notice. Sec. 150 deals with regard to provision for cases where assessment is in pursuance of an order on appeal. In our considered view there is no bar for issuing notice under s. 148 by the AO on the direction of the first appellate authority. At the same time, reassessment proceeding must be based on the belief of the AO and not of the CIT or appellate authority or that of the Tribunal as had been meant and interpreted from a perusal of s. 147 of the IT Act. The direction of higher authority should not be interpreted as a blanket direction by the AO. But that should be accompanied by the direct satisfaction of the AO with regard to the escapement of income. The appellate authorities or higher authorities cannot interfere on this power of the AO. It means the direction of the higher authorities and that of the appellate authorities must be acted upon by the AO with utter satisfaction. Taking initiation of reassessment proceeding without satisfaction of the AO, simply on the basis of the blanket direction, will not justify the action of initiation of reopening proceeding. In this particular case as has been rightly pointed out by the learned Authorized Representative from p. 13 of the paper book filed, the AO has simply acted upon, i.e., initiated reopening proceeding on the basis of the direction of the CIT(A) and has totally ignored his part of the job i.e., his satisfaction, as is evident from p. 13 of the paper book filed by the learned counsel which is quoted below for better appraisal of facts :"

5.2. The ITAT Ahmedabad Bench in the case of M/s Hotel Hero (supra)

held as under:

"We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the order of CIT(A) in appeal No. CAB/III-226/2002-03 dated 24-03-2004 5 ITA 5016/Del/2010 Sandeep Kumar Vs. ITO

that CIT(A) has specifically observed, "However, it was further observed that on merits of the case the appellant has not fully discharge its onus as much as that the identity of the persons were established and confirmations from the persons mainly partners was furnished, moreover, creditworthiness of these partners and the immediate source of money in order to contribute the capital. This issue may be examined in the regular assessment proceedings." We find from the above observations that it is a matter which could have been considered in regular assessment proceedings." We find from the above reasons recorded, wherein the Assessing Officer used the words "therefore" in the light of the observation of CIT(A), which itself proves that the AO has not applied his independent mind before issuing notice u/s 147 of the Act. In similar Circumstances, the Tribunal Nagpur Bench in the case of M. V. Traders v. ACIT (2010) 41 DTR 441 , (Nag) held that re- assessment proceedings must be based on the "belief" of the Assessing Officer and not the "belief" of the Appellate Authority, i.e. CIT(A) or the ITAT. Here, in the present case even there is no direction by CIT(A) which can be considered to be direction u/s 150(1) of the Act. Accordingly, we are of the view that the reopening is bad in law and accordingly quashed."

5.3. From the above, it is evident that when there is any observation/

direction by the CIT(A), in regard to consideration of some matter for other

year, the AO has to apply his mind to the issue and then arrive at his own

satisfaction, whether the reopening of completed assessment of any year is

required or not. He cannot reopen the completed assessment simply on the

basis of some direction or observation of the CIT(A), without recording his

own satisfaction with regard to escapement of income. 6

ITA 5016/Del/2010 Sandeep Kumar Vs. ITO

5.4. Let us now see the facts of the assessee's case. The copy of the reasons recorded for reopening of assessment is placed at page 27 of the assessee's paper book, which reads as under:

"To, Sh. Sandeep. Kumar, Prop. M/s Balaji Trading Co..

V.V. Inter College Road.

Shamli

SUB: Assessment proceedings u/s 148 of the I.T. Act, 1961 for A. Y.2002-03 - Regarding.

Please refer to your letter dated 04-02-2008 on the subject cited above.

2. In the appellate order passed by the Ld. CIT (Appeals), Muzaffarnagar dated 05-10-2006 for A.Y.2003-04 the Ld. Appellate authority while deleting the addition made at Rs.5.40,475/- observed that "since liabilities are brought forwarded from earlier years for which the appellant has already filed return of income, no addition required in this year, However, remedial action should be taken by the A0 in the respective years where liabilities have been created for the first time in the hooks of the assessee appellant."

In the case of Bansal Polyvin (P) Ltd. Samana and M/s Ek Onkar Foundry, Harayana liability totaling to Rs.5,40,175/- -was created for the first time during the financial year 2001-02 relevant to A. Y .2002-03. Therefore, , on the basis of above referred observations made, I have reason to believe that income to the extent of Rs.5,40, 175/- had escaped assessment. Action u/s 1 47 for A.Y.2002-03 was initialed by way of issue of notice u/s 148 dated 7-01-2008 after obtaining prior approval of the Ld. AddI.CIT, Range-Muzaffarnagar.

(OM PRAKASHI) Income Tax Officer, Ward-I. Shamli"

5.5. From the above it is evident that the AO reproduced the observation

of the CIT(A) and thereafter has recorded that there is a credit balance in the

account of Bansal Polyvin (P) Ltd.; and M/s Ek Onkar Foundry, amounting 7 ITA 5016/Del/2010 Sandeep Kumar Vs. ITO

to Rs. 5,40,175/-, which was created for the first time during the FY 2001-02

relevant to AY 2002-03. Thereafter, he recorded the finding that-

"Therefore, on the basis of above referred observations made, I have reason

to believe that income to the extent of Rs. 5,40,175/- had escaped

assessment". Thus, it is evident that the assessment had been reopened on

the basis of observations of the ld. CIT(A) and the claim of the ld. DR that

the AO had applied his mind independently, is not correct. The AO has

simply found that there is credit balance in the account of two parties during

the financial year, relevant to AY 2002-03. The credit balance itself cannot

be a ground to arrive at the conclusion of escapement of income. In view of

above, in our opinion, the decision of Hon'ble Bombay High Court in the

case of M/s Tejaskiran Pharmachem Industries Pvt. Ltd. (supra); order of

ITAT Nagpur Bench in the case of M.B. Traders (supra); and order of

ITAT Ahmedabad Bench in the case of M/s Hotel Hero (supra), would be

squarely applicable to the facts of the assessee's case. Respectfully

following the same, we hold that the impugned reopening of assessment was

not valid. Accordingly, we quash the issue of notice u/s 148 and

consequently the assessment order passed in pursuance to such notice is also

quashed.

8 ITA 5016/Del/2010 Sandeep Kumar Vs. ITO

6. In the other grounds of appeal, the assessee has challenged the

addition made in the reopened assessment. Since we have already quashed

the assessment order, the other grounds in the assessee's appeal do not

survive for further adjudication.

7. In the result, assessee's appeal is allowed, as above.

Order pronounced in open court on 02/03/2015..

Sd/- Sd/- ( GEORGE GEORGE K. ) ( G.D. AGRAWAL) JUDICIAL MEMBER VICE PRESIDENT Dated: 02/03/2015. *MP* Copy of order to:

1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, New Delhi.