TaxTMI 
TaxTMI 
2014 (7) TMI 680
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....sp; 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made in the report of investigation wing, were solely based on the statement of one Sh Subodh Gupta which statement was retracted in due course before the investigation wing itself 3.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 assessee is a company engaged in the business of consultancy, investments, finance and 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/s 143(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 company is 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 departm....
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....dividual" 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 Shri Subodh Gupta. Ld. Counsel of the assessee has placed reliance on the decision of Hon'ble Karnataka High Court in the case of CIT vs Dr. R. N. Thippa Shetty reported as 322 ITR 525 (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 ITA 399/2013 and submitted that no action of reassessment is permiss....
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....report reveals that Shri Subodh Gupta is a Director of M/s G.K. Consultant Pvt. Ltd. Further, perusal of the report reveals that in reply to Q. No. 24, Shri Subodh Gupta accepted that his companies do not possess any of the statutory records which are a mandatory requirement to be maintained. They are for all purposes managed by him for furnishing accommodation entries to his clients. There is practically no capital of these companies which are only managed to accommodate others by rotating funds through them. He stated that for all this effort his income in the transactions is only 0.5% to 1.5% of the entry amount. The report indicates the various transactions held by M/s G.K. Consultants Pvt. Ltd., however, the quantum of transactions income generated thereon has not been quantified. The assessee had filed return of income for A. Y. 2004-05 on 01.10.2004 declaring an income of Rs. Nil claiming itself to be engaged in the business of consultancy, investments, finance and trading in shares, IT related business and such other allied business. The assessee had not disclosed any income from the accommodation e....
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....ce the statements said to have been recorded u/s 132(4) of the Act were withdrawn, then there existed no material on record to warrant reopening of the case against the assessee u/s 148 of the Act. If the very basis on which reopening was ordered did not exist, there was no question for reopening of the case. This material aspect of the matter has not been considered by the AO, who proceeded to direct reopening of the case, without there being any legally admissible evidence available on record. Thus the very issuance of notice u/s 148 of the Act is found to be illegal and absolutely without jurisdiction." 12. Ld. Counsel of the assessee has also placed reliance on the decision of ITAT, Mumbai in the case of Suresh K. Jajo vs ACIT (2010) 39 SOT 514 (Mumbai) wherein following the decision of the coordinate bench of ITAT, Mumbai in the case of M.P. Ramachandaran vs DCIT (2009) 32 SOT 592 (Mumbai), it has been held that there may be substantive assessment without any protective assessment but there cannot be protective assessment without there being a substantive assessment. The relevant observations and findings of the Tribunal in the case of M.P. Ramachandran vs DCIT (supra)read ....
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....ssessment. In that case again it will tantamount to reopening assessment on the basis of an item of income or disallowance, which has already been made in block assessment of the assessee, thereby leaving no income escaping assessment. Under these circumstances we are satisfied that having made addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income has escaped assessment in the instant year. CIT VS. Wipro Finance Ltd. (2008) 10DTR (Kar) 281 relied on." 13. In the case of Suresh K. Jajo vs ACIT, ITAT, Mumbai reiterated the same legal proposition and held as under:- "In the present case, the observations of the AO while completing assessment for asstt. Year 2001-02 cannot be said to be an expression of his intention to make a protective assessment of the capital gain as long term capital gain. It is an assessment pure and simple. Firstly, the words used by the AO do not express his intention that the long-term capital gain is being brought to tax by way of protective assessment. Secondly,....
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....mpany which was also retracted only after four days on 4.11.2003, therefore, the AO was not justified in assuming jurisdiction for initiation of proceedings u/s 147 and in issuing notice u/s 148 of the Act. 17. The counsel of the assessee has also placed reliance on another decision of Hon'ble Jurisdictional High Court of Delhi in the case of Signature Hotel vs ITO (2011) 338 ITR 51 (Del) and submitted that the AO must have "reason to believe" that an income chargeable to tax has escaped assessment and it is mandatory for the AO that the "reason to believe" are required to be recorded by the AO and if the belief is not bona fide or based on vague, irrelevant and non-specific information, then the same cannot be regarded as material evidence which prima facie establishes escapement of income, more so, when the AO did not apply his own mind to the information to arrive at the belief as to whether or not any income had escaped assessment, then initiation of proceeding and notice u/s 147 and 148 of the Act deserves to be quashed. Ld. Counsel of the assessee has drawn our attention towards reasons recorded by the AO and submitted that the AO has proceeded to make protective assessmen....
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....on. 21. From the reasons recorded and reproduced hereinabove, we observe that the AO has not made any specific allegations against the assessee appellant company. The entire contents of the reasons recorded are pertaining to statement of Shri Subodh Gupta and the AO proceeded to initiate proceedings for reopening of assessment u/s 147 of the Act and for issuance of notice u/s 148 of the Act without making any further inquiry and investigation about material which was before him at the time of assumption of jurisdiction u/s 147 of the Act and issuing notice u/s 148 of the Act. 22. On the basis of foregoing discussion, we reach to a conclusion that the AO assumed jurisdiction to initiate and reopen reassessment u/s 147 of the Act on the basis of retracted statement of Shri Subodh Gupta which was recorded during the survey on Shri Subodh Gupta in his individual capacity and the AO also proceeded to make a protective assessment/addition without any substantive assessment/addition and without making any further investigation and inquiry about the material and information before him at the time of recording reasons. 23. Accordingly, we have no hesitation to hold that the AO assu....