AI Drafter 
TaxTMI 
TaxTMI 
2013 (6) TMI 748
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....eopening is reproduced from page no.2 of the A.O.'s order as under :- (Page no.2) "Information has been received from ADIT(Inv)-1,Agra that M/s Rashi Buildcon Pvt. Ltd., Saraswatpara, Farah, Dist. Mathura has received following accommodation entries from M/s Aayushi Stock Brokers (formerly known as Cosmos Financial Services Pvt. Ltd., 38-4B/IF, Friends Centre, Sanjay Place, Agra :- Instrument No. Instrument date Bank details Amount Clearing date 78483 10.10.2003 Canara bank, Kamla Nagar, Agra 1500000 11.10.2003 78489 13.10.2003 ----do---- 1500000 14.10.2003 78490 14.10.2003 ----do---- 80000 15.10.2003 3800000 M/s Rashi Buildeon Pvt. Ltd., Farah (PAN AAHCS0929E) was earlier filing its return of income in the name of M/s Sagar Sopas Pvt. Ltd., Firozabad Bye pass Road, Agra with ITO 4(3), Agra. After change of name from M/s Sagar Sopas Pvt.Ltd. to M/s RAshi Buildcon Pvt., Farah, the company is filing return of income with ITO 3(3), Mathura. M/s Rashi Buildcon Pvt. Ltd., Farah has received the accommodation entries amounting to Rs. 38,00,000/- as a....
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....nancial year 2002-03, copy of bank account of M/s Aayushi Stock Broker, details of brokerage and other relevant details required during the course of assessment proceedings. All the documentary evidences brought on record and discussed above and the circumstantial evidences establish that the assessee has failed to substantiate the genuineness of the said credits. The assessee has thus failed to discharge his onus in this regard to substantiate the genuineness of the credit entry of Rs. 38,00,000/- in the bank account with Canara Bank, Agra. Hence, the amount of Rs. 38,00,000/- is held to be unexplained and is ordered to be added to the income of the assessee as income from other sources. Besides that it is apparent that the entry of the alleged transactions of shares amounting to Rs. 38,00,000/- would have been taken on commission @ 0.25%, the rate prevalent at that time for such entries as per the report of the Wing. Accordingly, a sum of Rs. 9500/- is also added to the income of the assessee as explained expenditure within the meaning of section 69C of the I.T. Act, 1961. I am satisfied that the assessee has concealed the income of Rs. 38,00,000/- and Rs. 9500/....
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....ogus entries of Long Term Capital Gain was provided by certain brokers to a number of assessee in Agra in which, name of the assessee (appellant) was also included and hence, such information provided a 'cause' to the AO to reopen the case of the assessee (appellant) u/s 147 as pr the decision of Hon'ble Supreme Court in case of ACIT Vs. Rajesh Jhaveri Stock brokers Pvt. Ltd. (supra). After going through the case record, I have found that the AO has recorded the reason for escapement of income on the basis of the information provided by the Investigation Wing about receipt of Rs. 38 lac shown by the assessee on account of sale of share being in fact, an accommodation entry and such information which provided trigger point to the AO is the 'cause' for the reopening of the assessment proceeding of the assessee(appellant) especially, when its earlier return was only processed u/s 143(1)(a) which is not an assessment at all and there is no clear evidence on record whether such return was not in possession of the AO. It is only imagination of Ld. AR that the AO has not seen the original return. In any way, the information about accommodation entry has nothing to do with the return of in....
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....38 lac, I find that the AO is correct in holding that the amount of Rs. 38 lac is unexplained and liable to be added as undisclosed income of the assessee(appellant) under the head income from other source and this amount is in the nature of unexplained money should be added as per provision of section 69A of the Income Tax, 1961 because if acquisition of alleged shares is not established, their sale claimed to have been made without mentioning their distinctive numbers in the sale bill cannot be said to be genuine sale of shares to explain receipt of Rs. 38 lac. Since the amount of Rs. 38 lac has been found to be in the nature of an accommodation entry and such accommodation entry in the market are provided only on payment of certain commission and the O has computed a very reasonable amount of Rs. 9,500/- @ 0.25% of the amount of entry. In my considered opinion such amount of commission for obtaining entry of Rs. 38 lac is very much justified and hence, addition of Rs. 9,500/- is also confirmed. 6.6 In view of my above decision, I confirm the addition of Rs. 38 lac being unexplained money u/s 69A and also the amount of Rs. 9,500/- as commission paid for obtainin....
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....hares @ 10 each) 250000/- - Total Investment 14581550/- 19906000/- 12. From the above investment schedule, the ld. Authorised Representative pointed out that the assessee has clearly shown the investment in three companies namely M/s. Anupam Tiles Pvt. Ltd. Rs. 10,00,000/-, M/s. B.V. Finance & Leasing Pvt. Ltd. Rs. 11,00,000/- out of which the assessee has sold 8,00,000 shares & M/s. Prash Printing & Publications Pvt. Ltd. Rs. 20,00,000/- Ld. Authorised Representative further submitted that the assessee has submitted confirmation from M/s Aayushi Stock Brokers Pvt. Ltd. in support of the fact that the assessee received amount of Rs. 38,00,000/- against the sale of shares through three different cheques of Rs. 15,00,000/-, Rs. 15,00,000/- and Rs. 8,00,000/-, all are dated 10th October, 2003. The ld. Authorised Representative further referred page no.84 of the assessee's Paper Book where copy of Bank account of broker has been placed and submitted that the payment received to the assessee through cheques. Ld. Authorised Representative while referring page no.7 of AO's order submitted that survey under section 133A of the Act was carried ou....
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....d assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts59 necessary for his assessment, for that assessment year: [Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and ....
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....acts necessary for the assessment. Both these conditions must co-exist in order to confer jurisdiction on the Incometax Officer. The Income-tax Officer is obliged, before initiating proceedings under section 148 of the Act, to record the reasons for the formation of his belief to reopen the assessment. S.P. Agarwalla alias Sukhdeo Prasad Agarwalla vs. ITO [1983] 140 ITR 1010 (Cal.) - In this judgment it was held that a mere confessional statement by a third party (who is a lender of the assessee) that he was a mere name-lender and that all his transactions of loans were bogus, without naming the assessee as one who had obtained bogus loans, would not be sufficient to hold that the assessee's income had escaped assessment Purity Techtextile Pvt. Ltd. vs. ACIT 325 ITR 459 (Bomb) - In this judgment it was held that Validity of exercise of powers to re-open an assessment has to be decided with reference to reasons recorded while re-opening an assessment - Where the AO had no reason to believe that income had escaped assessment, reasons recorded while re-opening the assessment did not justify the exercise of the power u/s 148.. Dass Frirnds Builders P. Ltd. vs. DCIT(2006) 280 I....
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.... for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched,. which would warrant the formation of the belief relating to escapement of the income of the assessee. from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped a....
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....[1999] 236 ITR 34 (SC) - In these judgments it were held that Belief should not be arbitrary or irrational but based on relevant and material reasons - The important words under section 147 are 'has reason to believe' and these words are stronger than the words 'is satisfied'. The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court cannot of course investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147. S. Narayanappa vs. CIT [1967] 63 ITR 219 (SC) - In this judgment it was held that Belief must be in good faith, and cannot merely be pretence - The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith; it cannot merely be pretence - Sheo Nath Singh vs. AAC [1971] 82 ITR 147 (SC) - In this judgment it was ....
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....nder section 148 were illegal. Therefore, the Commissioner (Appeals) annulled the assessment. The Tribunal upheld the order of the Commissioner (Appeals).On appeal the court held that a reading of the reasons recorded did not disclose that the Assessing Officer, in fact, had reasons to believe that any income had escaped assessment. It is not just the belief of the Assessing Officer that is material, but such a belief must be based on certain reasons. There was no indication as to on what information or on what material the Assessing Officer had harboured the belief that the claim of the assessee required deeper scrutiny. In fact, no new material was on record after the filing of the return till the issuance of notice under section 147. The proceedings under section 147 are not to be invoked at the mere whim and fancy of the Assessing Officer. It has to be seen in every case as to whether the invocation is arbitrary or reasonable one Merely because the Assessing Officer felt that the issue required 'much deeper scrutiny', it was not enough ground for invoking section 147. It is not belief per se that is a pre-condition for invoking section 147, but a belief founded on reasons. The ....
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....ad to independently apply his mind to the information received from the Addl. DIT and arrive at the belief that income had escaped assessment; and that even as per the alleged information provided by the Addl. DIT himself, all the four companies had bank accounts and payments were made by them to the assessee-company through banking channels. The Assessing Officer rejected the assessee's objections. On writ, the court held as under :- "15. On scanning of the anatomy of the aforesaid provision, it is clear as crystal that the formation of belief is a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer is required to form an opinion before he proceeds to issue a notice. The validity of reasons, which are supposed to sustain the formation of an opinion, is challengeable. The reasons to believe are required to be recorded by the Assessing Officer. 16. In this regard, it is apt to reproduce a passage from N.D. Bhatt, IAC v. I.B.M. World Trade Corpn. [1995] 216 ITR 811 (Bom.) :- "It is also well-settled that the reasons for reopening are required to be recorded by the assessi....
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....asons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the court, on the strength of affidavit or oral submissions advanced." [Emphasis supplied] 18. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 5001 (SC), it has been ruled thus :- "Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The ....
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....I have sufficient information in my possession to issue notice under section 148 in the case of M/s. SFIL Stock Broking Ltd. on the basis of reasons recorded as above." 10. From the above, it is clear that the Assessing Officer referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under section 148. We are afraid that these cannot be the reasons for proceeding under section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on facts. The law is well-settled. There is no substantial question of law which arises for our consideration." [Emphasis supplied] 20. On a perusal of the aforesaid decisions, it is graphically clear that once the ingredients o....
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....f mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income, but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P.) Ltd.'s case (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee-company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut....
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....d before him, income had escaped assessment. The court held that Therefore, the reassessment was not valid. 17. In the light of above back ground of discussions, we noticed that one of the conditions which must be satisfied before the A.O. can assume jurisdiction under section 147 of the Act that, he must have reason to believe that the income of the assessee has escaped assessment. If this condition is not fulfilled, the notice issued by the A.O. would be without jurisdiction. The important words under section 147 are "has reason to believe" and these words are stronger than the words "is satisfied ". The belief entertained by the A.O. must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the A.O. in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a hearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 148. If there is no rational and intelligible nexus between the r....
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....d indefinite or distant, remote and far fetched, which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. Again this issue was considered by the Hon'ble Supreme Court in the case of Ganga Saran & Sons (P.) Ltd. vs. ITO reported in 130 ITR 1, where the apex court observed that expression "reason to believe" was stronger than the words 'satisfied'. The belief entertained by the A.O. must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. If there is no rational and intelligible nexus between the reasons and belief, the reopening of the assessment would be without jurisdiction and bad in law. 20. In the light of above discussions, if we consider the facts of the case under consideration, we noticed that reasons recorded in the case under consideration and reasons recoded in the case of Commissioner of Income-tax vs. Sfil Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) are similar. In the case under consideration, information has been received from ADIT (Inv)-1, Agra that M/s Rashi Buildcon Pvt. Ltd., Saraswatpara, Farah, Dist. Mathura has....
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.... dated 30.05.2008. The same has been followed by I.T.A.T. Agra Bench in case of Shri Baijnath Agarwal, Prop. M/s. Baijnath Scrap Centre in ITA No.133/Agr/2005 vide order dated 13.04.2010. It has also been noticed that on identical set of facts the I.T.A.T., Allahabad Bench in ITA Nos.84 & 85/Alld/2013 in the case of Shri Ashok Kumar Arora vs. ITO vide order dated 13.05.2013 has decided the issue as under :- "13. We have heard the ld. Representatives of the parties and records perused. The important words under section 147 are 'has reason to believe' and these words are stronger than the words 'is satisfied'. The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court cannot of course investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147 as held in the case of Ganga Saran & Sons (P) Ltd vs.....
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....P) Ltd., 61,700 shares for a consideration of Rs. 92,550. These shares were purchased between 10th April, 2000 to 17th May, 2000. The payments were made in cash, copy of ledger account is placed at p. 228. The copy of certificate confirming the sale of shares to assessee is placed at p. 229 of the paper book. Copy of account of M/s Elite Capital & Management Services (P) Ltd. certifying that 61,700 shares have been demated in the name of the assessee is placed at p. 320 of the paper book. Thereafter the assessee sold shares numbering 20,000 on 28th Aug., 2001 through M/s MKM Finse (P) Ltd., copy of which is placed at p. 231 of the paper book. Thereafter assessee sold further 41,700 shares, copy of the same is placed at p. 232. These shares were sold vide bill dt. 24th Aug., 2001. Payments have been received through account payee cheque. The certificate from M/s Stock Holding Corporation Ltd. through whom the shares are delivered is placed at pp. 235 and 236 of the paper book. After going through details, it is clearly seen that assessee purchased shares in earlier year. They were shown in the balance sheet which was filed along with the return of income. The payments were made thro....
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....sale of shares over a period of time as seen from the balance sheet/s. In our opinion, the AO has simply acted on the information received from the Investigation Wing without verifying the details furnished by the assessee. The assessee has also produced best possible evidence to support its claim. Consequently the addition made by the AO cannot be sustained." 14.2 Hon'ble Allahabad High Court in the case of CIT vs. Sudeep Goenka in Income Tax Appeal No.468 of 2009, judgment dated 03.01.2013, held as under :- "7. We have considered the arguments of the counsel for the parties. The CIT(A) after considering entire evidence of record found that purchase and sale transactions were proved. He further found that payment of the sale price was made to the assessee through bank channel and not in cash as such the transactions are actual transactions and not a fictitious accommodation entries. The sale transactions cannot be disbelieved only for the reason that the assessee could not give the identity of the purchasers. Arguments of the Senior Standing Counsel in this respect is not liable to be accepted. Similar controversy has been raised in the case of Shri Akash Goenka ....
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....confirmed the findings of the Tribunal that the sales are not sham transactions. According to the AO, the facts of these cases are identical to the case of the assessee, therefore, when in the identical cases of the family members of the assessee, additions have been deleted by the Tribunal and the order of the Tribunal have been confirmed by Allahabad High Court, therefore, on such reason itself, the departmental appeal is liable to be dismissed. Further, the assessee has filed proper evidences before the authorities below to show that shares of M/s. B.T. Technet Ltd. were allotted directly by this company @ 10/- per share and consideration was transferred through banking channel. All the allotment letters, drafts, certificates of the company are filed in the paper boo;. The profile of M/s. B.T. Technet is also filed in the paper book to show that it was a genuine company. The same were shown in the books of earlier years. Therefore, the purchase of shares and source of purchase could not have been disputed. Same shares were sold to the broker, M/s. CMS Securities Ltd. Delhi and all the contract notes, sale consideration through drafts have been filed in the paper book to support ....