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Vijender Nath Gupta Vs ITO (ITAT Delhi)
AO reopened the assessment based on information received from the Investigation Wing, which alleged unexplained high-volume transactions in the assessee’s savings account. Major concern was an unsecured loan of ₹8.99 crore from M/s Shiva Chain Pvt. Ltd., a company with very low de-clared income and dubious creditworthiness.
Assessee’s claimed all entries were related to inter-firm fund transfers and supported by documen-tation and that the Loan was not interest-bearing and still outstanding.
Tribunal’s Findings:
Tribunal found serious procedural lapses in the reopening process and held that the AO and ap-proving authority failed to apply their minds to the material facts and reasons. Tribunal noted that there is no independent application of mind by AO & that; he merely reproduced Investigation Wing’s input. Escaped income is not properly quantified in the reasons recorded (₹12.73 crore was mentioned without basis).Further the Approval under Section 151(1) was mechanical and lacked due diligence. Also AO ignored that return was processed under Section 143(1) & wrongly stated no return was filed. Thus Reopening was deemed invalid, and the assessment order was quashed.
Dispute Over Escaped Income Quantification
ITA No.8738/Del/201 In the form for recording reasons and seeking approval for reopening , the AO quantified the alleged escaped income as ₹12,73,65,912. Tribunal noted that there was no clear justification or calculation provided in the recorded reasons as to how this specific figure of ₹12.73 crore was derived. AO only narrated facts about the ₹8.99 crore loan and bank entries but did not show any computation or analysis leading to ₹12.73 crore. Merely writing a large figure (like ₹12.73 crore) without explaining how it was arrived at reflects a lack of application of mind. This lack of justification becomes critical, especially because Section 149(1) requires that the escaped income exceeds ₹1 lakh for reassessment after 4 years. When income is alleged to exceed ₹50 lakh or more, it triggers even stricter requirements under the law. he Tribunal cited precedent from ITO vs. Satya Narayan Parwal, , ITA No.706-708/JP/2003, order dt 28.12.2004 where it was held that the recording of the amount of escapement was obligatory on the part of the AO. Thus quantifica-tion of escaped income was necessary at the stage of recording of reasons .
Tribunal held that the jurisdiction for reassessment was wrongly assumed, and thus the reassess-ment was quashed on the following grounds as the AO failed to – (1)properly quantify the escaped income with evidence, ( 2) Establish a logical link between the facts and the ₹12.73 crore figure, & (3) Independently verify the Investigation Wing’s findings.
FULL TEXT OF THE ORDER OF ITAT DELHI
This is an appeal preferred by the assessee against the order dated 30.08.2019 of the Commissioner of Income-tax (Appeals)-12, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No.352/18-19 arising out of the appeal before it against the order dated 28.12.2018 passed u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the ITO, Ward-34(5), New Delhi (hereinafter referred to as the Ld. AO).
2. On hearing both the sides, we find that it is ground No.2 which goes to the root of assumption of jurisdiction by way of reopening of the assessment for which the the ld. counsel for the assessee has opened and argued the case submitting that the reopening is based on reasons which establish utter non-application of mind. The same has been contested by the ld. DR and based upon the rival submissions it comes up that at page No.64 of the paper book the copy of a form for recording the reasons for initiating proceedings u/s 148 of the Act and for obtaining the approval of the compe-tent authority is filed and the same is by way of Annexure-A available at pages 65-66 the reasons for the belief as recorded by the AO alleging the escapement of income and at page No.67 is the satisfaction recorded by the competent authority for granting approval u/s 151(1) of the Act.
3. It comes up from the reasons as recorded that the assessee had filed return of income declaring income of Rs.715,590/- which was processed u/s 143(1) of the Act. The case of the AO is that in-formation was received from ITO (Inv.) OSD-2, Unit-4, Delhi by a letter dated 09.03.2018 through ITO, ward 35(3) Delhi vide letter dated 14.03.2018 alleging that the assessee has been maintaining a savings bank account in Allahabad Bank, Account No.50009610812 in which, allegedly, high volume debit and credit entries took place which is unusual for a saving account. In para 3 of the reasons for reopening the AO has given narration of facts mentioning that the assessee had filed the ITR for AY 2011-12 and shown income of Rs.7,15,590/-. When the debit and credit entries are taken into consideration the income shown in ITR does not commensurate with total credits in the assessee’s bank account. The ld. AO mentions that the assessee has submitted he has taken unse-cured loan of Rs.8,99,12,000/- from M/s Shiva Chain Private Ltd. and no interest was charged by M/s Shiva Chain Pvt. Ltd. It was found to be doubtful as allegedly M/s Shiva Chain Pvt. Ltd. has shown income in ITR of Rs.2,02,492/-. Thereafter, the ld. AO mentions the fact that the assessee was summoned by ITO (Inv.) and asked to provide explanation of credit and debit entries along with supporting documentary evidences. Assessee submitted various details from time to time. As-sessee is a proprietor in M/s VNI Exports. He is partner in M/s Manraj Enterprises, M/s. V.N. Inter-national and M/s Jewel Craft (later converted into M/s Golden Jewel Craft India Pvt. Ltd. during F.Y 2010-11). In addition, the assessee was also director in M/s Golden Phoenix FL Pvt. Ltd., M/s Golden Jewel Craft India Pvt. Ltd. and M/s Kashvi Metals Pvt. Ltd. Assessee submitted that various debit and credit entries in his savings account are related to unsecured loan and fund transfer among above said firms/companies. Narration of entries in bank account was given. Assessee sub-mitted various ledgers and confirmation in support of entries in his bank accounts.
4. Thereafter, the ld. AO observes in para 5 that while tracing the ultimate source of funds routed through his saving bank account, it has been found by ITO (Inv) that major chunk of these funds were sourced from M/s Shiva Chain Pvt. Ltd. Then, as he was associated with various firms and companies, he rotated funds among all related concerns but the ultimate source is unsecured loan from M/s Shiva Chain Pvt. Ltd. Assessee was asked to submit the current status of loan and details of interest charged by them. He submitted vide reply dated 21.02.2018 that no interest was charged by them and loan is still outstanding. M/s Shiva Chain Pvt. Ltd. has given unsecured loan of Rs. 8,99,12,000/- to the assessee. ITRs of M/s Shiva Chain Pvt. Ltd. for A.Y. 201011 and A.Y. 2011-12 has been examined by the ITO (lnv) to check creditworthiness of the company which is as un-der:-
| A.Y. | Returned income | Turnover | Total loan given | Total loan taken |
| 2010-11 | 21,062 | 1,32,60,987 | 35,73,45,634 | 34,97,00,000 |
| 2011-12 | 2,02,492 | 22,77,17,680 | 15,15,36,551 | 32,34,92,267 |
5. It is not going with the business prudence that a company earning income of only Rs. 2,02,492/- and has given unsecured loan of Rs. 8,99,12,000/-without any interest. It. is also pertinent to men-tion that M/s Shiva Chain Pvt. Ltd. has never filed ITR after the relevant year i.e. 2011-12. In view of the findings, it can be concluded that creditworthiness of M/s Shiva Chain Pvt. Ltd. is not proved. So all unsecured loan i.e. Rs. 8,99,12,000/- taken by the assessee from M/s Shiva Chain Pvt. Ltd. during F.Y. 2010-11 appears to be income from unexplained sources.
6. Based on aforesaid information from the investigation wing what the ld. AO concluded is as fol-lows;
“I have examined the assessee’s return of income for assess-ment year 2011-12 in the light of above noted information, I am satisfied that neither the particulars declared in the return of income vindicate the information stated above nor the income disclosed by the assessee in his return of income is commensurate with the credits/debits shown in the asse-see’s bank account as per above noted information. Hence I am satisfied with the above noted ma-terial has a live link with the assessee’s income assessable to tax as per the provisions of Income Tax Act, 1961. In view of the information that the assessee had credits/unsecured loans in his sav-ing bank account with Allahabad Bank (Account No. 50009610812) during the FY 2010-11, the assessee’s case is clearly covered by the Explanation 2 to Section 147 of the I.T. Act, 1961. Hence, it is a case where it shall be deemed to the case where income chargeable to tax has escaped as-sessment.
In view of the findings stated in Para 5 above, the undersigned has reason to believe that the assessee’s income for A.Y. 2011-12 has escaped assessment within the meaning of Section 147 of the I.T. Act, 1961.”
7. The first contention of the ld. counsel is that without quantifying the amount of escapement for the purpose of section 149 of the Act, the reopening has been done. In this context, as we consider the form for recording of reasons for obtaining approval available at page No.64 in para 6, the AO has quantified the escaped income at Rs.12,73,65,912/-. However, based upon the narration of facts in the reasoning, the ld. DR was unable to justify as to how this amount in absolute figures has been arrived. Merely writing of an amount which is otherwise not getting justified from the facts as narrated only needs an inference that as for the purpose of section 149(1), for the purpose of as-sumption of jurisdiction for reopening beyond a period of four years there was lack of application of mind by the ld. AO. The attention of this Bench was drawn by the ld. counsel to the order of the Jaipur Bench of the Tribunal in the case titled ITO vs. Satya Narayan Parwal, ITA No.706-708/JP/2003, order dated 28.12.2004 wherein the Revenue was challenging the order of the ld.CIT(A) alleging that quantification of escaped income was necessary at the stage of recording of reasons and it was held by the coordinate Bench that the recording of the amount of escapement was obligatory on the part of the AO.
8. Then, as we go through the format for recording the reasons and for obtaining approval, we find that the AO specifically mentions applicability of clause (a) of Explanation 2 to section 147. In column 8, the AO mentions that the assessment is proposed to be made for the first time and then records that no voluntary return has been filed by the assessee. Further, in column 9 of this proforma for obtaining approval of the competent authority, the ld. AO observes specifically that there has been no original assessment.
9. These facts as narrated when examined in the light of the reasons for reopening it appears that the fact of the assessee filing the return and that it was processed u/s 143(1) of the Act has not at all been taken cognizance of by the ld. AO and he merely relied whatever information reached the In-vestigation Wing and how it was examined. It appears that the AO has merely reproduced the facts coming up from the Investigation Wing and added his remark of escapement of income. It is com-ing up from the reopening reasons that the ITO (Inv.) had called for all the relevant information with regard to credit and debit entries in the bank accounts which were filed before the ITO (Inv.). However, not a word of the same has been examined by the ld. AO to show as to if this infor-mation has been part of the assessee’s return.
10. The aforesaid also established that authority granting the approval has also not entered into the facts of the case by application of mind. The non application of mind to information to record a live link of information with the escapement of income thus not being there the reasons for reopen-ing suffer fatal defect and thus we are inclined to allow this ground no. 2. The appeal is allowed. The impugned assessment order is quashed.
Order pronounced in the open court on 16.04.2025.
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