Case: Digvijay Advisor Pvt. Ltd. vs. ITO, Income Tax Appellate Tribunal, Delhi Bench
Excerpt
The petitioner is a private limited company and has filed this case against the order dated 11-03-2019 of the CIT (A) which was related to the year 2008-2009. After carefully examining both parties’ facts and evidence, the court ruled the case in the favor of the assessee/petitioner.
Facts
In the present case, the petitioner is a private limited company and has filed this case against the order dated 11-03-2019 of the CIT (A) which was related to the year 2008-2009. The petitioner had filed its return of income on 27-09-2008 and declared its income as Rs.42, 396/-. However, upon receiving information about the assessee having obtained accommodation entries of Rs.30 lakhs on account of share capital, reassessment proceedings were initiated with the approval of the competent authority. The reasons for the same were provided to the assessee.
However, any form of objections or explanations given by the assessee was rejected by the Assessing Officer, and the total income of the assessee was established at Rs.31, 02,400/-. The assessee apart from challenging the addition on merit challenged the validity of reopening of assessment but due to their weak arguments, the CIT (A) upheld the validity of the reopening of assessment proceedings.
Petitioner’s Arguments
The learned counsel for the Petitioner reiterated the facts for the courts and then strongly stated his arguments against the said order of the learned CIT (A). The learned counsel primarily stated that the notice u/s 148 was not issued with the limitation period that had ended on 31-03-2015 and wasn’t even served on the assessee before the completion of the assessment. The learned counsel also pointed out that despite the objection of the assessee repeatedly that no service of notice was made the lower authorities had upheld the validity of the service of notice.
The learned counsel then referred to Section 282 read with service rules from 9 to 17/20 of order ‘V’ under CPC, 1908 to support his argument as to how the proceedings u/s 147/148 are void ab initio in this case. The learned counsel then referred to the order of the Assessing Officer holding that service by affixture is sufficient and no need to serve by post and stated several cases according to which such an action is illegal and just derails the entire reassessment proceedings.
The cases that were stated by the counsel were CIT V. RAMENDRA NATH GHOSH 82 ITR 888 (SC), CIT V MASCOMPTEL INDIA LTD [2012] 345 ITR 58 (DELHI), AVI -OIL INDIA P. LTD. V ADDL. CIT (2007) 18 SOT 219 (DEL-D) and several others. Furthermore, the learned counsel submitted that the return of income was filed by the assessee on 27-09-2008, and the notice that was dated 15-05-2015 was beyond that limitation and therefore any assumption of jurisdiction on such a notice would be invalid, and the order thus passed would be deemed void ab initio. He further referred to some cases to state that non-issue of notice or invalid issue of notice u/s 143(2) is not a curable defect and the assessment so made has to be quashed. The cases then referred to were ASSTT. CIT V. HOTEL BLUE MOON [2010] 321 ITR 362/188 TAXMAN 113 (SC), CIT V. RAJEEV SHARMA [2011] 336 ITR 678 (ALL), JYOTI PAT RAM VS ITO (2005) 92 ITD 423 ((LKO) and others.
About the Rs.30 lakhs in question, the learned counsel for the assessee stated that the issue about an accommodation entry of Rs. 30 lakhs of M/s Karol Bagh Trading Ltd based on a letter dated 31.03.2009 of ADIT was resolved but no action was taken to issue notice on the income tax return filed on 27.09.2008. The learned counsel submitted that this information was available at the time of the original assessment. Also, the counsel pointed out that there was no material linking the assessee with Mr Tarun Goyal.
Furthermore, the counsel contested that the lower authorities have approved mechanically. Referring to a few decisions, he submitted that when the approval has been given mechanically, such reassessment proceedings are invalid. Justifying the payment of Rs. 30 Lakhs, the counsel stated that the assessee is engaged in the business of advisors to Mutual Fund Investment and has received an amount of Rs.30 Lakhs from M/s Karol Bagh Trading Ltd for allotment of shares. The counsel accordingly submitted before the court that the addition made by the Assessing Officer and upheld by the learned CIT (A) is not justified, both legally and factually.
Respondent’s Arguments
The learned counsel for the respondents on the other hand heavily relied on the order of the learned CIT (A) and opposed the opposing counsels’ arguments. Referring to a case, namely Raymond Woollen Mills Ltd. vs ITO & Ors [236 ITR 34](SC), the counsel stating that in this case, the honourable Supreme Court had only seen whether there was prima facie some material based on which the department could reopen the case.
On the topic of the notice not being served to the assessee the learned counsel for respondent stated that the said notice was served through affixture which is a valid mode of service and no such objection should be entertained in this regard. On the question of the merit of addition to be concerned, the counsel stated that the assessee had failed to prove his identity and creditworthiness of the share applicant and the genuineness of the transactions in terms of section 68 of the Act and had also failed to produce the directors of the investor company in question before the AO. Therefore, the learned counsel claimed the order of the learned CIT (A) as valid and asserted that it should be upheld.
Court’s Observations
The Court observed the arguments and cases presented by both parties and analyzed their applicability. The Court examined the AO’s reasons for reopening the case, the Addl. CIT’s remark of being ‘satisfactory’ to issue notice u/s 147/148. The Court also realized that the perusal of the said approval by the Addl. CIT was not proper and was applied mechanically. The Court then examined several cases amongst which it came to another case wherein the same type of mechanical manner was used and such a reopening of the assessment was declared invalid. The Court also found merit in the arguments of the learned counsel for the assessee that no notice u/s 148 of the Act was ever served to the assessee.
Court’s Decision
Concluding that the arguments of the assessee held force and were factually supported, the Court stated that the reassessment proceedings were not as per law and declared that the same procedure would be quashed. Further, the Court ruled that the assessee succeeded on two legal grounds- the mechanical manner of work and non-service of notice u/ S. 148, and therefore other arguments were also found to be academic and therefore not adjudicated. Conclusively, the appeal of the assessee was allowed and the decision was pronounced.
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