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ITAT Delhi in the case of ITO versus Navodaya Castles Pvt. Ltd. in ITA No. 4613/Del/2010 dated 24.08.2016

·         In this case, on the basis of material placed before the AO, the AO came to a conclusion that the assessee has failed to disclose fully and truly all material facts relating to the income of Rs.54,00,000/- received on account of share application money.

·         In the first round of appeal, the CIT(A) deleted the addition. Thereafter, the revenue as well as the assessee challenged the order of the CIT(A) before the Tribunal. The Tribunal dismissed the appeal of the revenue on merits and the cross objection filed by the assessee as infructuous.

·         Revenue challenged the order passed by the Tribunal before the Hon’ble jurisdictional High Court, which has remitted the case back to the Tribunal to decide the issue afresh, along with cross objection.

·         The sole question for determination framed by the Tribunal in this case was as to whether the AO is empowered to initiate the proceedings u/s 147 of the Act, merely on the basis of report received from the Investigation Wing, without applying his own mind.

·         The Tribunal, after considering the facts and circumstances of the case and the settled principles of law, was of the view that:

(i)        the AO has merely acted in mechanical manner on receipt of the report from the Investigation Wing that “he has reason to believe that income of Rs.54,00,000/- has escaped assessment for the assessment year 2002-03 due to failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment”;

(ii)       the AO has not even satisfied himself to prima facie make out that income of Rs.54,00,000/- has escaped assessment in the year under assessment by pursuing record, if any;

(iii)      that when the AO has been provided with copies of share application forms containing names, addresses, PAN, bank details and confirmation of the investors, he was required to conduct the independent investigation to satisfy himself that such and such income has escaped assessment before assuming jurisdiction u/s 147 of the Act;

(iv)     that even on merits when the assessee had provided copies of share application forms containing names, addresses, PAN, bank details and confirmation of the investors, the onus stood shifted to the AO to prove that these are the shell companies and not to fasten the liability of the assessee on the ground that assessee has failed to produce the aforesaid six investor companies, moreso assessee cannot be called upon to prove negative;

(v)      that forming an opinion merely on the basis of information supplied by Investigation Wing of the revenue that such and such company has provided an accommodation entries to the assessee to the tune of Rs.54,00,000/- does not amount to the satisfaction of the AO in any manner whatsoever to reopen the case u/s 147 of the Act;

(vi)     that when the AO has sufficient material to conduct the independent investigation to assume the jurisdiction u/s 147/148 of the Act, which he has not used for the reasons best known to him rather proceeded on the basis of report of Investigation Wing without applying his mind, which is not permissible under law;

(vii)    that in view of the law laid down by the Hon’ble Supreme Court and Hon’ble jurisdictional High Court in the judgment cited as Chhugamal Rajpal vs. S.P. Chaliha and G & G Pharma India Ltd.(supra) respectively when the initiation of proceedings u/s 147 of the Act in this case is itself bad in law, consequent assessment framed u/s 143(3)/147 of the Act is also not sustainable, hence hereby quashed.

 

For further reading, refer the attachment.

  Further Reading
Posted on: 01-09-2016