Whether retracted statement can form the basis of reopening of assessment under section 147 of Income Tax Act and whether Protective assessment without substantive assessment is permissible?

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘C’ NEW DELHI

ITA No. 1502/Del/2013

Assessment Year: 2004-05

G.K. Consultants Limited,

302, G.K. House, Ward 12(2),

187-A, Sant Nagar, New Delhi.

East of Kailash,New Delhi.

(Appellant)

Versus

Income Tax Officer,

(Respondent)

Appellant by: Shri P.C. Yadav

Respondent by: ShriSatpal Singh, Sr. DR

BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER

AND

SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

Pronounced on: 27th June 2014

O R D E R

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

This appeal has been preferred by the assessee against the order of the CIT(A)-IX, New Delhi dated 9.1.2013 in Appeal No. TR-14/11-12 for AY2004-05.

2. Ground No. 1 and 13 of the assessee are general in nature which need no adjudication. In ground no. 2, 3 & 4, the assessee is challenging the action of the AO u/s 148 of the Income Tax Act, 1961 which reads asunder:-

“2) Under the facts and circumstances of the case and in law, the learned CIT (A), has erred in affirming the jurisdiction of the AO under section 147,and ignoring that there was neither any satisfaction of the AO nor quantification of escaped assessment at the time of recording of reasons.

3) The CIT (A) has failed to appreciate that the AO has solely relied on the vague and scanty report of investigation wing for assuming jurisdiction of 147.

4) The Ld CIT(A) has further failed to appreciate that allegations made in the report of investigation wing,w ere solely based on the statement of one Sh Subodh Gupta which statement was retracted in due course before the investigation wing itself

3. Briefly stated, the facts giving rise to this appeal are that the assesse is a company engaged in the business of consultancy, investments, financeand trading in shares. The assessee company filed its return of income for the year under consideration on 31.10.2014 and the same was processed u/s143(1) of the Act. It is also pertinent to note that initially the asessee company was incorporated as private limited company and later on it was converted into public limited company on 15.9.1995. The assessee companies a non-banking finance company duly registered with RBI and listed on various stock exchanges such as DSE, BSE, CSE and ASE. A survey was conducted by investigation wing of the department on Shri Subodh Gupta,CA on 30.10.2003 and during the course of survey statement recorded on oath, Shri Subodh Gupta admitted that his company is involved in providing bogus accommodation entries to various entities. Subsequently, Shri Subodh Gupta vide letter dated 4.11.2003 retracted from his above statement recorded on oath on 30.10.2003 and informed the revenue authorities i.e.DDIT that the statement was recorded under coercion and threat which is contrary to the record seized during the course of survey proceedings.

4. The AO vide notice dated 10.12.2007 assumed jurisdiction reassessment u/s 147, 148 of the Act alleging that the assessee is providing accommodation entries to various concerns. In response to the above notice, the assessee vide its letter dated 9.1.2008 informed that the original return filed on 31.10.2004 may be considered as a return filed in pursuance to notice u/s 148 of the Act. In response to the reasons recorded, the assessee company filed its objections contending that the assessment is reopened without application of mind on the basis of surmises and conjectures. TheAO dismissed the objections of the assessee. Aggrieved with the order ofthe AO, the assessee preferred an appeal before the CIT(A) challenging the reassessment on various grounds which was also dismissed by the CIT(A)vide his order dated 9.1.2013. Aggrieved with the order of the CIT(A), the assessee company has preferred this appeal.

Ground no. 2, 3 & 4

5. Apropos these grounds, we have heard argument of both the parties and carefully perused the entire record including paper book, written submissions filed by the assessee and legal propositions and citations reliedby the revenue authorities and the appellant assessee.

6. Ld. Counsel of the assessee submitted that the assessee has challenged the jurisdiction of the AO u/s 147 mainly on three following grounds:-

i) No reason has been recorded in the case of present assessee company as perusal of the reasons recorded would show that the entire allegations were made against Shri Subodh Gupta and not against the assessee. To support this contention, the counsel of the assessee has placed his reliance on the decision of Hon’ble Supreme Court in the case of CIT vs K. Adinarayana Murty(1966) 65 ITR 607(SC) wherein it has been held that under the scheme of the Income Tax Act, the “individual” and the “Hindu undivided family” are treated as separate units of assessment and if a notice u/s 34 of the Act is wrongly issued to the assessee in the status of an individual and not in the correct status of a Hindu undivided family, the notice is illegal and proceedings taken under that notice are ultra vires and without jurisdiction. Ld. Counsel of the assessee has drawn our attention towards reasons recorded and submitted that ‘reason to believe’ entertained by the AO was not in respect of the assessee appellant company as it is evident from the expression “his income” used by the AO in the reasons recorded.

ii) Ld. Counsel of the assessee further contended that no action of reassessment is permissible on the basis of retracted statements of ShriSubodh Gupta. Ld. Counsel of the assessee has placed reliance on the decision of Hon’ble Karnataka High Court in the case of CIT vsDr. R. N. Thippa Shetty reported as 322 ITR525 (Karnataka) and on the recent decision of Hon’ble Jurisdictional High Court of Delhi in the case of CIT vs Sunrise Tooling System Pvt. Ltd. dated 22.1.2014 in ITA399/2013 and submitted that no action of reassessment is permissible on the basis of retracted statement of Shri Subodh Gupta.

iii) The next ground/argument of ld. Counsel of the assessee is that no action of reassessment u/s 147 of the Act is permissible for framing protective assessment in the absence of substantive assessment till the date of assumption of jurisdiction u/s 147 of theAct. To support this contention, ld. Counsel of the assessee has placed reliance on the decision of ITAT, Mumbai in the case of M.P. Ramachandaran vs DCIT 129 TTJ 190 (Mumbai).

To read the full judgment, please find the attached file:

Attached file:

http://www.itatonline.in:8080/itat/upload/-632670137368502662713$5%5E1REFNOITA_1502.pdf