ORDER
Yogesh Kumar U.S., Judicial Member.- The captioned Appeals are filed by the Assessee against the orders of Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon, (Ld. CIT(A)’ for short), dated 23/01/2025 for the Assessment Year 2011-12 and 201213 respectively.
2. The grounds of Appeal of Respective Appeals are as under:-
ITA No. 1257/Del/2025 (A.Y. 2011-12)
“1.0. That, on the facts and in the circumstances of the case, the disallowance, imposition of tax, and interest with reference thereto, as well as the quantification of taxable income and tax liability, are unjustified, erroneous, and unsustainable, and it is prayed that necessary directions be issued to the Learned Assessing Officer (Ld. AO) to grant appropriate relief in accordance with the law.
2.0. That, on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. AO without considering the fact that the assessment completed u/s 147 r.w.s 143(3) was bad in law on various technical and jurisdictional grounds.
3.0. That, on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. AO without appreciating the fact that recourse to section 147 of the Act would be unavailable in cases where the AO is empowered to proceed u/s 153C of the Act.
4.0. That, on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. AO without appreciating the fact that there was no failure on the part of the appellant to disclose fully and truly all material facts necessary for the assessment for the year under consideration and hence assumption of jurisdiction u/s 147 by issuance of notice u/s 148 beyond the period of 4 years was invalid and as such, could not be sustained in law.
5.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the fact that assumption of jurisdiction by issuing notice u/s 143(2) of the Act before supplying the reasons to believe to the appellant is bad in law.
6.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the fact that reasons recorded u/s 148 of the Act do not meet the requirement of law hence completely vague and untenable.
6.1. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of the Ld. AO without considering the fact, that the reasons to believe recorded by the Ld. AO for the initiation of reassessment proceedings u/s 147 of the Act was based on borrowed satisfaction and without application of mind.
6.2. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the fact that the reasons u/s 148 were recorded merely on the basis of suspicion and assumptions/ presumptions derived from search conducted in case of M3M Group.
6.3. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of the Ld. AO without considering the fact that the material which has been made the basis of recording reasons to believe for initiation of proceedings u/s 147 of the Act has never been supplied to the appellant.
7.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of the Ld. AO without considering the fact that the objections raised by the appellant was not disposed by the Ld. AO by way of speaking order.
8.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the submissions furnished by the appellant before the Ld. AO as well as Ld. CIT(A).
9.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the fact that Ld. AO has changed his mind at each stage of assessment proceedings.
10.0. That on the facts and circumstances of the case, the Ld. CIT-(A) has erred without substantiate the fact that no approval accorded u/s 151 of the Act by the Ld. AO has been provided to the appellant.
11.0. That, on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. AO u/s 147 r.w.s 143(3) of the Act without considering the fact that no incriminating material was found towards rate of commission charged in respect of accommodation entries.
11.1. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding addition made by the Ld. AO on account of commission income amounting to Rs. 1,45,00,360/- 1% on total debits and credits transactions amounting to Rs. 145,00,36,000/- reflected in bank statement.
11.2. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in treating the appellant company as an accommodation entry provider by relying on statement recorded at back of the appellant without providing an opportunity by the Ld. AO to cross examine the same.
11.3. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the observations of Ld. AO in respect of treating the legitimate advances received by the appellant for purchase of land as accommodation entries which were repaid during the year under consideration and subsequent years due to non-fulfilment of the deal.
12.0. That on the facts and circumstances of the case and without prejudice to above grounds, Ld. CIT-(A) has erred in upholding the order of Ld. AO without considering the fact that the assessment order nowhere specify the section under which the addition was made.
13.0. That the appellant craves leave, to add, to amend, modify, rescind, supplement, or alter any of the Grounds stated here-in-above, either before or at the time of hearing of this appeal.
ITA No. 1258/Del/2025 (A.Y. 2012-13)
“1.0. That, on the facts and in the circumstances of the case, the disallowance, imposition of tax, and interest with reference thereto, as well as the quantification of taxable income and tax liability, are unjustified, erroneous, and unsustainable, and it is prayed that necessary directions be issued to the Learned Assessing Officer (Ld. AO) to grant appropriate relief in accordance with the law.
2.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. AO without considering the fact that the assessment completed u/s 147 r.w.s 143(3) was bad in law on various technical and jurisdictional grounds.
3.0. That, on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. AO without appreciating the fact that recourse to section 147 of the Act would be unavailable in cases where the AO is empowered to proceed u/s 153C of the Act.
4.0. That, on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. AO without appreciating the fact that there was no failure on the part of the appellant to disclose fully and truly all material facts necessary for the assessment for the year under consideration and hence assumption of jurisdiction u/s 147 by issuance of notice u/s 148 beyond the period of 4 years was invalid and as such, could not be sustained in law.
5.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the fact that assumption of jurisdiction by issuing notice u/s 143(2) of the Act before supplying the reasons to believe to the appellant is bad in law.
6.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the fact that reasons recorded u/s 148 of the Act do not meet the requirement of law hence completely vague and untenable.
6.1. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of the Ld. AO without considering the fact, that the reasons to believe recorded by the Ld. AO for the initiation of reassessment proceedings u/s 147 of the Act was based on borrowed satisfaction and without application of mind.
6.2. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the fact that the reasons u/s 148 were recorded merely on the basis of suspicion and assumptions/ presumptions derived from search conducted in case of M3M Group.
6.3. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of the Ld. AO without considering the fact that the material which has been made the basis of recording reasons to believe for initiation of proceedings u/s 147 of the Act has never been supplied to the appellant.
7.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of the Ld. AO without considering the fact that the objections raised by the appellant was not disposed by the Ld. AO by way of speaking order.
8.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the submissions furnished by the appellant before the Ld. AO as well as Ld. CIT(A).
9.0. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. A.O without considering the fact that Ld. AO has changed his mind at each stage of assessment proceedings
10.0. That on the facts and circumstances of the case, the Ld. CIT-(A) has erred without substantiate the fact that no approval accorded u/s 151 of the Act by the Ld. AO has been provided to the appellant.
11.0. That, on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the order of Ld. AO u/s 147 r.w.s 143(3) of the Act without considering the fact that no incriminating material was found towards rate of commission charged in respect of accommodation entries.
11.1. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding addition made by the Ld. AO on account of commission income amounting to Rs. 1,45,00,360/- 1% on total debits and credits transactions amounting to Rs. 145,00,36,000/- reflected in bank statement.
11.2. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in treating the appellant company as an accommodation entry provider by relying on statement recorded at back of the appellant without providing an opportunity by the Ld. AO to cross examine the same.
11.3. That on the facts and in the circumstances of the case, the Ld. CIT-(A) has erred in upholding the observations of Ld. AO in respect of treating the legitimate advances received by the appellant for purchase of land as accommodation entries which were repaid during the year under consideration and subsequent years due to non-fulfilment of the deal.
12.0. That on the facts and circumstances of the case and without prejudice to above grounds, Ld. CIT-(A) has erred in upholding the order of Ld. AO without considering the fact that the assessment order nowhere specify the section under which the addition was made.
13.0. That the appellant craves leave, to add, to amend, modify, rescind, supplement, or alter any of the Grounds stated here-in-above, either before or at the time of hearing of this appeal.
ITA No. 1257/Del/2025 (A.Y. 2011-12)
3. Brief facts of the case are that, the Assessee being Private Limited Company, filed return of income declaring ‘NIL’ income for the year under consideration. The case of the Assessee was selected for reassessment under Section 147 of the Act. The A.O. completed the assessment proceedings u/s 147 r.w. Section 143(3) of the Act vide order dated 28/12/2018 by making an addition of Rs. 2,76,00,000/- as commission income. Aggrieved by the assessment order dated 28/12/2018, Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 23/01/2025, dismissed the Appeal of the Assessee. As against the order of the Ld. CIT(A), dated 23/01/2025, Assessee preferred the present Appeal on the Grounds mentioned above.
4. The Ld. Counsel for the Assessee addressing on Ground No. 2.0 of the Appeal submitted that, the Ld. CIT(A) committed error in upholding the assessment order without considering the fact that the reasons recorded u/s 148 of the Act do not meet the requirement of law, further submitted that the reasons to believe recorded by the A.O. for the initiation of re-assessment proceedings u/s 147 of the Act was that the Assessee company received Rs. 98 crores from M/s Vision Multiplex Pvt. Ltd. and M/s Innovative Realtech Pvt. Ltd. which are being accommodation entries and the assessment order has been passed by making addition of Rs. 2,76,00,000/- based on 1% commission income calculated on the total debit and credit entries amounting to Rs. 276,00,00,000/- in the bank account. The Ld. Counsel further submitted that the addition is entirely unrelated to the reasons recorded. Thus, relying on the Judgments of the Hon’ble High Court of Delhi in the case of Pr. CIT v. Sunlight Tour and Travels (P.) Ltd (Delhi)and Pr. CIT, Central v. Jaguar Buildcon (P.) Ltd. (Delhi) sought for allowing the Ground No. 2.0 of the Assessee.
5. Per contra, the Ld. Department’s Representative relying on the findings and the conclusion of the lower authorities, sought for dismissal of the Appeal.
6. We have heard both the parties and perused the material available on record. As could be seen from the reasons recorded, the case of the Assessee was reopened citing that Assessee Company received Rs. 98 crores from M/s Vision Multiplex Pvt. Ltd. and M/s Innovative Realtech Pvt. Ltd. which are being accommodation entries. However, no such addition has been made in the assessment order and the addition of Rs. 2,76,00,000/- has been made based on 1% commission income calculated on the total debit and credit entries amounting to Rs. 2,76,00,000/- in the bank account. The addition made by the A.O. was entirely unrelated to the reasons recorded.
7. The Hon’ble High Court of Delhi in the case of Sunlight Tour and Travels (P.) Ltd. (supra), while dealing with the identical issue decided in favour of the Assessee in following manners:-
17. The said view has also been consistently followed by this Court including recent decisions in The Principal Commissioner of Income Tax-1v. Naveen Infradevelopers& Engineers Pvt. Ltd. (supra) and PCIT v. Jaguar BuildconPvt. Limited (supra). We concur with the aforesaid view. It is well established that Section 147 of the Act enables the reopening of concluded assessments only in exceptional cases, where there the AO has reason to believe that Assessee’s income for the relevant period has escaped assessment. It is trite law that concluded assessment should not be lightlyi nterfered with. If the ground on which the concluded assessment is soughtto be re-opened, cannot be sustained, there would be little rationale forexpanding the reassessment proceedings. In our view, it would not beapposite to accept an expansive interpretation to the provision of Section147 of the Act. Given that the nature of the proceedings is to unsettle concluded assessment, a strict interpretation of the plain language of Section147 of the Act, is warranted. We respectfully concur the view of this courtas articulated in Ranbaxy Laboratories Limited v. CIT; ATS InfrastructureLtd. v. ACIT; and PCIT v. Jaguar BuildconPvt. Limited (supra).
18. It is also relevant to note that various courts had taken a view that the reassessment proceedings were confined under Section 147 of the Act only to the issues (reasons to believe) on the basis of which the assessments werereopened. Thus, there was no scope for making any addition other thanthose which were circumscribed by the reasons to believe as recorded by theAO prior to the issuing a notice under Section 148 of the Act. However, thiscontroversy was set at rest by introduction of Explanation 3 by virtue of theFinance Act, 2009 with retrospective effect from 01.04.1989. Explanation 3to Section 147 as applicable at the material time reads as under:
“Explanation 3. – For the purpose of assessment or reassessment ITA 222/2022 Page 14 of 15 under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub section (2) of section 148.”
19. It is apparent from the above that the said explanation merely clarified that the AO would assess or reassess the income in respect of the issue which had escaped assessment and such other issue, which came to the notice subsequently. However, the said explanation does not control the import of the plain language of Section 147 of the Act. Explanation 3 to Section 147 of the Act, merely clarifies that the jurisdiction of the AO was not confined to assessing or reassessing of the income of an Assessee only inrespect of the issue, which formed a part of the reasons recorded for reopening the assessment. The said explanation cannot be interpreted to mean that the AO could assess other incomes of the Assessee even in cases where no addition is made on account of the reasons for which reassessmentwas initiated.”
8. Identical ratio has also been laid down in the case of Jaguar Buildcon (P) Ltd. (supra) by the Jurisdictional High Court.
9. By respectfully following the above ratio down by the Hon’ble Jurisdictional High Court and in view of the above discussion, we allow the Ground No. 2.0 of the Assessee.
10. The Ld. Counsel for the Assessee addressing on Ground No. 7 submitted that the Assessee vide letter dated 28/12/2018, objected for initiation of reassessment proceedings u/s 147 of the Act, however, the Ld. A.O. without disposing the said objections, proceeded to complete the reassessment proceedings which is contrary to the ratio laid down by the Hon’ble Supreme Court in the case o f GKN Driveshafts (India) Ltd. v. ITO ITR 19 (SC). The Ld. Counsel has also relied on following Judgments of Hon’ble High Court of Delhi and also the Tribunal and sought for allowing Ground No. 7 of the Assessee.
| (a) | | Nimitaya Hotel & Resorts Ltd. v. Asstt. CIT (Delhi – Trib.). |
| (b) | | Pr. CIT v. Tupperware India (P.) Ltd. (Delhi). |
| (c) | | Ferrous Infrastructure (P.) Ltd. v. Dy. CIT (Delhi). |
11. Per contra, the Ld. Department’s Representative relying on the findings and the conclusion of the Lower Authorities, sought for dismissal of Ground No. 7 of the Assessee.
12. We have heard both the parties and perused the material available on record. The case of the Assessee has been reopened under Section 148 of the Act. The Assessee sought for copy of reasons recorded and vide letter dated 13/11/2018 the Assessee had been made available the reasons recorded for assumption of jurisdiction u/s 147 of the Act. The Assessee filed objection to the initiation of proceedings u/s 147 of the Act vide letter dated 19/12/2018. It is the specific case of the Assessee that the objection raised against the initiation of proceedings u/s 147 of the Act vide letter dated 19/12/2018has not been disposed-off as per the ratio laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra). The Revenue neither disputed the above said claim of the Assessee nor produced any material to show that the objection dated 19/12/2018 filed by the Assessee has been indeed disposed off as per the ratio laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra).
13. In an identical situation, the Co-ordinate Bench of the Tribunal in the case of Nimitaya Hotel & Resorts Ltd. (supra), quashed the assessment order in following manners:-
“26. We 1st attend to the issue of the reopening of the assessment. In the present case, notice u/s 148 of the income tax act was first issued on 10/8/2010. Such notice is placed at page number 94 of the paper book. It was also received by the assessee on 10/8/2010. On receipt of such notice assessee submitted a letter dated 23/8/2010 wherein it has been stated that the return originally filed by the assessee on 22/4/2010 may kindly be treated as return filed in response to notice u/s 148 of the income tax act. Such letter is placed at page number 95 of the paper book. After filing the return of income the assessee submitted letter dated 14/10/2010, sick 10/6/2011 and 28/6/2011 for providing the copy of the reasons recorded u/s 148 (2) of the income tax act. The reasons were provided to the assessee on 10/10/2011. Thereafter the assessee submitted objections against initiation of proceedings under section 147 of the income tax act on 09/12/2011. The learned AO passed an assessment order u/s 143 (3) read with section 147 of the income tax act on 15/12/2011. Therefore, firstly, that assessee was not provided reasons for almost 13 months, when the assessment was getting time barred on 31/12/2011, shortly before that on 10/10/2011 the assessee was provided the copies of the reasons recorded. The assessee also took almost 60 days to file objections against the reasons of reopening. Assessee also filed such objections only before 21 days of the assessment order getting time barred. The AO also passed an assessment order on 15/12/2011.
27. Honourable SC in GKN Drive Shaft (India) Limited (SC)/[2003] 259 ITR 19 (SC) has held that:-
“We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years.”
28. Honourable Gujarat High court notices that there is no time limit for performing such acts. Therefore in Sahkari Khand Udyog Mandal Ltd. v. Asstt. CIT (Mag.)/[2015] 370 ITR 107 (Guj.) (para 5.2) it held as under :-
“13. It can thus be seen that there are four important stages once the Assessing Officer issues notice for reopening of the assessment. Such stages are: (i) the assessee if he so wishes, may demand the reasons recorded by the Assessing Officer after filing return in response to notice under section 148 of the Act, (ii) the Assessing Officer supplying such reasons to the assessee, (iii) the assessee raising objections to the notice for reopening and (iv) the Assessing Officer disposing of the objections raised by the assessee.
14. In various cases referred to above, at different stages, unduly long time is consumed either by the assessee or by the Assessing Officer. Cases referred above are only few out of many cases where similar situation has arisen. It is not necessary to refer to all such cases since we have referred to some cases which would represent the cross-section. Stages (i) and (iii) mentioned above are in the hands of the assessee while stages (ii) and (iv) are in the hands of the Assessing Officer. With a view to streamlining this procedure, and to ensure, as far as possible, the Assessing Officer is not faced with the unenviable task of completing the assessment proceedings in a few days left before the same became time barred, we would like to give certain directions of general implication which, we would expect, are followed by all concerned. While doing so, we are conscious that these stages are provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) and we would be giving directions only to the extent the said judgment already does not provide for. We have noticed that considerably long time is consumed sometimes by the assessee demanding the reasons recorded by the Assessing Officer and sometimes the Assessing Officer complying with such a request of the assessee. It is an accepted proposition that the reasons recorded by the Assessing Officer are not confidential and the assessee whose assessment is being reopened has a right to know such reasons. We therefore thought that these two stages can be substantially eliminated by giving suitable directions. The further stage is of the assessee raising objections which often times is done after much delay and the last stage comes where the Assessing Officer deals with such objections. This is yet another problem area where unduly long time is consumed by the Assessing Officer. Under the circumstances, following directions are issued:
(1) Once the Assessing Officer serves to an assessee a notice of reopening of assessment under section 148 of the Income Tax Act, 1961, and within the time permitted in such notice, the assessee files his return of income in response to such notice, the Assessing Officer shall supply the reasons recorded by him for issuing such notice within 30 days of the filing of the return by the assessee without waiting for the assessee to demand such reasons.
(2) Once the assessee receives such reasons, he would be expected to raise his objections, if he so desires, within 60 days of receipt of such reasons.
(3) If objections are received by the Assessing Officer from the assessee within the time permitted hereinabove, the Assessing Officer would dispose of the objections, as far as possible, within four months of date of receipt of the objections filed by the assessee.
(4) This is being done in order to ensure that sufficient time is available with the Assessing Officer to frame the assessment after carrying out proper scrutiny. The requirement and the time-frame for supplying the reasons without being demanded by the assessee would be applicable only if the assessee files his return of income within the period permitted in the notice for reopening. Likewise the time frame for the Assessing Officer to dispose of the objections would apply only if the assessee raises objections within the time provided hereinabove. This, however, would not mean that if in either case, the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) would not apply. It only means that the time frame provided hereinabove would not apply in such cases.
(5) In the communication supplying the reasons recorded by the Assessing Officer, he shall intimate to the assessee that he is expected to raise the objections within 60 days of receipt of the reasons and shall reproduce the directions contained in hereinabove giving reference to this judgment of the High Court.
(6) The Chief Commissioner of Income Tax and Cadre Controlling Authority of the Gujarat State, shall issue a circular to all the Assessing Officers for scrupulously carrying out the directions contained in this judgment.”
29. Honourable Gujarat High Court once again the objections were belatedly filed by the assessee in Bharatmaiya Memorial Foundation v. Deputy Commissioner of Income-tax (Exemption)-2, Ahmedabad (Gujarat) the objections raised by the assessee were filed even after hundred days of the receipt of reasons recorded, has held as under:-
“11. However, a disturbing aspect of the matter is that in this case the assessee had filed objections in response to the reasons recorded by the Assessing Officer. While it is true that such objections were filed belatedly after a considerable time, however, the same had been filed before the assessment order came to be framed. Once the objections had been submitted by the petitioner, in view of the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra), the Assessing Officer was duty bound to decide the same by a reasoned order. In the present case, the Assessing Officer has placed reliance upon the decision of Sahkari Khand Udyog Mandal Ltd.’s case (supra) while holding that the objections raised by the assessee at a belated stage beyond the time framed stipulated by the court in the above decision need not to be entertained. In this regard it may be germane to refer to the following observations made by the court in the above referred decision, the relevant portion whereof reads as under:
“4. This is being done in order to ensure that sufficient time is available with the Assessing Officer to frame the assessment after carrying out proper scrutiny. The requirement and the time-frame for supplying the reasons without being demanded by the assessee would be applicable only if the assessee files his return of income within the period permitted in the notice for reopening. Likewise the time frame for the Assessing Officer to dispose of the objections would apply only if the assessee raises objections within the time provided hereinabove. This, however, would not mean that if in either case, the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) would not apply in such cases.”
12. Thus, it is clear that the court has set out a time line for submission of objections and deciding the same. However, at the same time, the court has also clarified that it would not mean that if in either case, the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) would not apply. It only means that the time frame provided therein would not apply in such cases. Thus, in case where the objections are submitted by the assessee belatedly the time prescribed by the court would not apply, however, this does not absolve the Assessing Officer from deciding the objections in the light of the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra). Therefore, the Assessing Officer was not justified in proceeding to pass the impugned order without deciding the objections raised by the petitioner. In any case, since the notice, which is the foundation for the assessment order, itself is held to be unsustainable, the assessment order would also be rendered unsustainable.”
30. Honourable Delhi High court Samsung India Electronics (P.) Ltd. v. Dy. CIT 2013] (Delhi)(MAG.)/[2014] 362 ITR 460 (Delhi) has laid down the importance of filing objections and its treatment by ld AO as under :-
“7. In order to protect the interest of the petitioner, as some apprehension has been expressed that the Assessing Officer may directly pass the re-assessment order, we are inclined to pass directions. It is directed that the petitioner will file objections before the Assessing Officer within a period of two weeks from today. The petitioner through their authorised representative will appear before the Assessing Officer on 28th November, 2013, when a date of hearing will be fixed for addressing arguments on the said objections. The Assessing Officer will first dispose of the objections by a speaking order meeting the contentions and issues raised by the petitioner. In case the objections are rejected, the Assessing Officer will give at least three weeks’ time to the petitioner to approach the court before taking up the re-assessment proceedings on merits. The aforesaid directions will protect the interest of the petitioner and in case the objections are rejected, it will be open to them to approach the court and raise all contentions and issues, including the contentions and issues raised in the present writ petition. We have deliberately only referred to the contentions of the counsel for the parties and not expressed our opinion on any contention raised to avoid prejudice to any party as an order of remit is being passed.”
31. In view of above facts that the learned assessing officer despite making repeated requests by the assessee for furnishing the reasons recorded for reopening of the case did not provide the reasons even before 13 months of the 1st request and when assessee files objection to such reasons within 60 days, he does not disposal of them by a speaking order but passes the assessment order u/s 143 (3) read with section 147 of the act. This itself shows that reassessment proceedings requires to be quashed as the neither rejection not acceptance of the objections of the assessee has prejudiced the interest of the assessee to challenge the same before the higher forum. Therefore not passing a speaking order rejecting the objections of the assessee but passing an order u/s 147 of the act making the additions based on reasons recorded has caused serious prejudiced to the interest of the assessee. In view of this respectfully following, the judicial precedent cited above the reopening of the assessment is quashed. Therefore, the learned CIT – A was not correct in holding that the reopening has been done in accordance with the law by the assessing officer. Accordingly, ground number 1 of the appeal of the assessee is allowed.”
14. In view of the above fact that the A.O. has not disposed the objection filed by the Assessee vide letter dated 19/12/2018, we find no reason to upheld the assessment order and order of the Ld. CIT(A). Accordingly, we allow the Ground No. 7 of the Assessee.
15. Since we have allowed the Grounds No. 2.0 and 7.0 of the Assessee and deleted the addition, otherGrounds of Appeal in ITA No. 1257/Del/2025 requires no adjudication.
16. In the result, Appeal of the Assessee is partly allowed.
ITA No. 1258/Del/2025 (A.Y. 2012-13)
17. Assessee filed return of income declaring loss of Rs. 24,450/- for the year under consideration. The case of the Assessee was selected for re-assessment under Section 147 of the Act. The A.O. completed the assessment proceedings u/s 147 r.w. Section 143(3) of the Act vide order dated 24/12/2019 by making an addition of Rs. 1,45,00,360/- on account of commission income. Aggrieved by the assessment order dated 24/12/2019, Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 23/01/2025, dismissed the Appeal of the Assessee. As against the order of the Ld. CIT(A), dated 23/01/2025, Assessee preferred the present Appeal on the Grounds mentioned above.
18. The Ld. Counsel for the Assessee addressing on Ground No. 6.1 and 6.2 of the Appeal submitted that, the Ld. CIT(A) committed error in upholding the assessment order without considering the fact that the reasons recorded u/s 148 of the Act do not meet the requirement of law, further submitted that the reasons to believe recorded by the A.O. for the initiation of re-assessment proceedings u/s 147 of the Act was based on the borrowed satisfaction and without application of mind. The Ld. Counsel also submitted that there exists no tangible material or live nexus between the reasons recorded and the addition made, further submitted that the A.O. has not conducted any independent enquiry or verification and the A.O. merely reproduced the alleged information received in the reasons to believe and made the addition. Accordingly, Ld. Assessee’s Representative sought for allowing Ground No. 6.1 and 6.2 of the Assessee. The Ld. Counsel has relied on following judicial precedents in support of his contentions:-
| (a) | | Pr. CIT-6 v. Meenakshi Overseas (P.) Ltd. ITR 677 (Delhi). |
| (b) | | Pr. CIT (Central) v. K.R. Pulp and Papers Ltd. (Delhi). |
| (c) | | Mukut Behari Agarwal v. Dy. CIT [IT Appeal No. 1067 (JP.) of 2024]. |
| (d) | | Pr. CIT v. G & G Pharma India Ltd. ITR 147 (Delhi). |
19. Per contra, the Ld. Department’s Representative submitted that the case of the Assessee has been reopened in accordance with law and the addition has been made on its merits. The Ld. Department’s Representative taken us through the findings and the conclusions of the Lower Authorities and sought for dismissal of Ground No. 6.1 and 6.2 of the Assessee.
20. We have heard both the parties and perused the material available on record. The A.O. received information from DCIT, Ld. CIT(A) vide letter dated 13/03/2018, that a search and seizure action was conducted u/s 132 of the Act on M3M India Group of cases and as per appraisal report it has been noted that the Assessee has purchased lands during the relevant assessment year at discounted price below the circle rate. However, A.O. has not conducted any independent enquiry or verification to substantiate the claims made in the said letter of DCIT and reproduced the said information in the reasons to believe recorded. The reasons recorded failed to establish a direct nexus between the alleged discrepancies in the transaction and in the escapement of income without clear and direct connection between the facts and the alleged escapement of income, the reasons recorded remains speculative and insufficient to justify the reopening of assessment.
21. The Hon’ble Jurisdictional High Court in the case of Meenakshi Overseas (P.) Ltd. (supra), in an identical situation re-assessment was held to be unjustified in following manners:-
“36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a ‘borrowed satisfaction’. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law.”
22. The Jurisdictional High Court in the case of K.R. Pulp and Papers Ltd. (supra) held as under:-
“31. In the present case, the AO did not have any tangible material at the stage of issuance of the notice under Section 148 of the Act. His reasons for issuing the notice was based on certain information from Investigation Wing. The AO did not have any specific details regarding the income that was alleged to have escaped assessment. The AO also did not undertake any enquiries to ascertain the facts that lead to form the reasons to believe that the Assessee’s income had escaped assessment. It is also material to note that no incriminating material was found during the search conducted under Section 132 of the Act in the case of the Assessee and its related entities. The only information stated to have been found during the search was that the Assessee had issued shares at a premium during the previous year relevant to AY 2009-10.
32. In the aforesaid context, the CIT(A) faulted the assumption of jurisdiction by the AO under Section 147 of the Act for issuance of the notice. The CIT(A) accepted the Assessee’s contention in this regard. The relevant extract of the CIT(A) reasoning is set out below:-
“27.7 Apart from the above the assumption of jurisdiction u/s 147 of the Act is stated to be based on the enquiries conducted by Inspectors of the Investigation Wing at Delhi and Kolkata to form an opinion albeit prima-facie that appellant company has received share capital with exorbitant premium from large number of non descript companies mainly based in Kolkatta and Delhi from the period between 1.4.2008 to 31.3.2009. It is a matter of record that such enquiries had not been confronted to the appellant during the course of assessment proceedings through specifically requested vide replies dated 10.11.2016 and 29.12.2016 by the appellant company. In such circumstances all such enquiries cannot mechanically be made a basis to assume jurisdiction. The appellant has highlighted the following aspects in respect of the reasons recorded:
(i) That the reasons recorded do not contain name of any single entity which was inquired by the Investigation Wing, the reasons only mention that during pre and post search proceedings it was found that the group companies have received share capital with exorbitant premium from large number of non descript companies mainly based in Kolkata and Delhi from the period between 1.4.2008 to 31.03.2009.
(ii) Further the reasons just mention that share capital with exorbitant premium was received from large number of non descript companies, but no definite / specific amount of premium has been mentioned in the reasons.
(iii) Further it has been mentioned in the reasons that enquiries were also conducted by the Inspectors of the Investigation Wing at Delhi and Kolkata; but no date of report of such inquiry has been mentioned and further no list of entities were mentioned which were subject to such inquiries.
(iv) Further only a generic statement was mentioned that most of the entry providing companies were not found existing at the given offices in Kolkata; the reasons nowhere mention the name of the entities nor the address on which such inquiry was conducted, even so the date of such inquiry has not been mentioned.
(v) Also it is mentioned that all entry giving companies have been covered under various searches conducted by Kolkata Investigation Wing and all the companies were found bogus and non-existent but hereto a vague statement has been mentioned without any definite details in terms of number of companies on which search was conducted, the period of search etc.
(vi) Also the reasons refer to statement of entry providers along with bogus directors, wherein it has been admitted that they are in the business of providing accommodation entries and the assessee company is one of them which has received shares capital at exorbitant premium from large numbers of these non- descript companies mainly based in Delhi and Kolkata amounting. The reasons do not mention the name of the entry provider who confirmed that assessee company had received accommodation entries. Further no date of such statement has been mentioned, nor have the modes of such receipt or any details in terms of cheque number of bank been mentioned.
(vii) Further the reasons do not mention the modus operandi of alleged routing of unaccounted money of the assessee through shareholder companies.
It was highlighted that reasons recorded suffer following factual infirmities and errors which prove that the reasons have been drafted without application of mind:
“During the year under consideration assessee has issued share capital including share premium to the tune of Rs.36,64,35,000/- to various parties, out of which Rs.11,32,00,000/- was received in the immediately preceding previous year i.e. during the financial year 2007- 08, detail of Share Application Money was already submitted during the course of assessment proceedings vide submission dated 05.08.2011. However, the Ld. AO has mentioned that assessee has received Rs.36,64,35,000/- as share application money during the year and issued the shares at exorbitant premium.
Further the table contains the detail of share issued by the assessee company during the year under consideration and not the amount received by the assessee company as mentioned in the reasons. During the year under consideration assessee has received share application of only Rs.25,32,35000/- and Rs.11,32,00,000/- was received during the financial year 2007-08 relevant to assessment year 2008-09.
The column of total amount of the table as produced in the reason works out to Rs.15,43,75,000/- as against Rs.36,64,35,000/-mentioned in the reasons recorded, hence it could not be understood that why the total amount of Rs.36,64,35,000/- be treated as income which escaped assessment in the reasons.
In the table produced in the reasons at S. No.1 the total amount is mentioned as Rs.3,62,00,000/- and the security premium as Rs.27,00,000/-, however the security premium should be Rs.2,89,60,000/-, further at S. No. 31, 36 and 40 the total amount mentioned is Rs.10,00,000/- and security premium Rs.80,00,000/-, it is also not written correctly.”
27.8 In essence it is apparent reasons contain scanty, general, vague observations and not refer to any objective, tangible relevant material. Further even the figures adopted are factually incorrect and do not pertain to the instant year.
No specific evidence has been highlighted to arrive at an opinion that either the companies are bogus and non existent or the money received represented unaccounted income. Though the reasons refer to the search but do not refer to any incriminating material detected as a result of search so as to form a prima facie opinion contrary to the claim made in the original return and accepted in the original assessment u/s 143(3) of the Act. Drawing of list of shareholders based on a Investigation wing report has not been judicially accepted as a foundation for assuming jurisdiction u/s 147 of the Act.”
33. It is also not in dispute that during the original proceedings, the AO had issued a questionnaire dated 21.06.2011, whereby the AO called upon the Assessee to submit the details of subscribers, paid up capital and also the details of shares allotted during the year under consideration. The Assessee had furnished the response to the said questionnaire and had submitted the share application money, share application form, proof of identity, copy of PAN and copy of ITR as well as the bank statements of the share applicants. Thus, the identity as well as the creditworthiness of the applicants was duly scrutinized. The copy of the ITR of the share applicants would reflect their capacity to subscribe to the shares. Thus, the income declared by the companies could not furnish any reasons for the AO to believe that the Assessee’s income had escaped assessment.
34. In the given circumstances, the CIT(A) found that the AO had issued the notice merely on the basis of the information from the Investigation Wing without examining the foundation and accuracy of such material.
35. We also consider it apposite to refer to paragraphs 27.18 and 27.19 of the order passed by the CIT (A) and is reproduced below:-
27.18 The AO in the order of disposing of objection dated 26.8.2016 has observed that after search and seizure operation, new facts shows that assessee has taken bogus share premium. He has also stated that AO is fully authorized to see all the issues in light of facts and findings from search and seizure operation and other information and take necessary action. All require procedure followed by AO. However from the reasons recorded it is apparent that no material much less incriminating material was detected as result of search on the appellant or gathered during the assessment proceedings to allege, observe or assume that the same has taken bogus share capital. The reference to inquiries is vitiated for being vague and general and non specific, apart from the fact they have not been confronted to the appellant.
27.19 In nutshell, the AO did not apply his own mind to the information and examine the foundation / accuracy of such material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The reasons recorded reflect that the AO did not independently apply his mind to the information received from the Investigation Wing to arrive at a belief that income of the assessee company had escaped assessment.
36. We find no infirmity with the said view. It is well settled that a notice under Section 148 of the Act could not be issued on mere suspicion. In order for the AO to form reasons to believe, it is necessary for the AO to examine the information and satisfy himself regarding the same.
37. In the present case, the reasons recorded by the AO did not specify the names of any particular share applicants, the details of the cheques or the amount paid. It is also necessary to note that issue of share capital, and the details of various share holders had already been examined during the assessment proceedings. Therefore, the AO was required to have some additional information, beyond what had already been examined, in order to form reasons to believe that the Assessee’s income had escaped assessment.”
23. In the present case, the reasons recorded fail to establish a direct nexus between the alleged discrepancies in the transactions and the escapement of income.In our opinion, without a clear and direct connection between the facts and the alleged escapement of income, the reasons recorded remains speculative, therefore, the reopening cannot be justified.
24. In view of the above discussions and by relying on the judicial precedents referred above, we find merit in the Ground No. 6.1 and 6.2 of the Assessee, accordingly we allow Ground No. 6.1 and 6.2 of the Assessee.
25. In Ground No. 7.0 the Assessee contended that Assessee vide letter dated 18/12/2019, objected for initiation of reassessment proceedings u/s 147 of the Act, however, the Ld. A.O. without disposing the said objections, proceeded to complete the reassessment proceedings which is contrary to the ratio laid down by the Hon’ble Supreme Court in the case o f GKN Driveshafts (India) Ltd. (supra).
26. The identical Ground No. 7.0 has been already decided for Assessment Year 2011-12 (supra) and allowed the said ground. As the similar facts and circumstances are involved, the adjudication and the conclusion shall apply mutatis mutandis in deciding Ground No. 7. 0. Accordingly, Ground No. 7.0 of the Assessee is allowed.
27. Since we have allowed the Grounds No. 6.1, 6.2 and Ground No. 7.0 of the Assessee and deleted the addition, other Grounds of Appeal requires no adjudication.
28. In the result, Appeals in ITA Nos. 1257/Del/2025 and 1258/Del/2025 are allowed.
Order pronounced in the open court on 26th November, 2025.