TaxTMI 
TaxTMI 
2013 (4) TMI 863
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....t and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Assessing Officer in passing order without allowing cross examination as was requested by the appellant. Order passed without allowing cross examination is in violation of principles of natural justice and thus void in law and needs to be quashed. 4. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Assessing Officer in making an addition Rs. 3,11,25,000/- on account of alleged bogus purchases, without considering the facts & circumstances of the case." 2. At the time of hearing Ld. AR submitted that Ground No. 3 of the appeal is not pressed for. Hence Ground No. 3 of the appeal is rejected. 3. Grounds Nos. 1 & 2 of the appeal go to the root of the validity of the assessment order under consideration, accordingly, we heard the parties at length. The issue involved is as to whether, on the facts and in the circumstances of the case, the initiation of reassessment proceedings by the Assessing Officer is valid and in accordance with law. 4. The relevant facts are that assessee is engaged in the....
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.... the assessee vide its letter dated 16.12.2010 has objected the reopening of the assessment. The grounds on which the assessee has objected the reopening are as under: a) The assessment was completed u/s. 143(3) of the Act and some purchase were verified u/s.133(6) of the Act. b) The assessee has never dealt with Mr. Mukesh Choksi, further Mr. Mukesh Choksi has nowhere mentioned about issue of bogus bills to the assessee company. 5. The above objections raised by the assessee are not acceptable. The assessment has been reopened on the basis of statement recorded of Mr. Mukesh Choksi, Director of M/s Talent Infoway Ltd from whom the assessee has purchased the impugned software. Mr. Mukesh Choksi in a statement recorded on oath u/s. 132(4) of the Act has admitted that M/s. Talent Infoway Ltd. is engaged purely in the business of bogus bills as required by third parties." 8. Thereafter, Assessing Officer has completed the assessment stating that as per the statement of Shri Mukesh Choksi, Director of Talent Infoway Ltd. assessee had taken bogus purchase bills of Rs. 3,11,25,000/- and accordingly added back the same to the total income of the assessee. Bei....
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.... and his statement u/s 132 of the Act was recorded. In the said statement Shri Mukesh Choksi stated that he was a director in various concerns including Talent Infoway Ltd. and stated that his concerns were providing accommodation entries in their books of accounts. Ld. AR submitted that a copy of the statement of Mukesh Choksi is placed at pages 25 to 39 of the paper book. Ld. AR referred question no. 4 of the statement and submitted that Shri Mukesh Choksi stated that he was issuing through his various concerns accommodation entries in respect of share transactions to claim bogus profits. He further referred to question no.40 of the statement and submitted that Shri. Mukesh Choksi stated that he was issuing accommodation bills through his concerns namely: (i) M/s. Alliance Intermediateries and Network Private Ltd. (ii) M/s. Goldstar Finvest Private Ltd. (iii) M/s. Mahasagar Securities Pvt. Ltd. (now know as Alag Securities Pvt. Ltd.) Ld. AR further submitted that the said accommodation entries stated by Shri Mukesh Choksi in his statement did not relate to his concern Talent Infoway Ltd. 11(ii) Ld. AR submitted that assessee made purchases in the ....
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....ee had actually purchased software from M/s. Talent Infoway Ltd. and referred pages 42 to 50 of the paper book which are the copies of the invoices of purchase of software from M/s. Talent Infoway Ltd. Ld. AR further submitted that the copies as well as bills to M/s. Sahara India Finance Corporation Ltd. are also placed at pages 51- 52 of the paper book. He has submitted that said purchases by the assessee were genuine and the reassessment proceeding has been initiated merely on suspicion. 11(iii) Ld. AR submitted that at the time of making original assessment the Assessing Officer vide letter dated 15.11.2004, issued a questionnaire and in question no. 5 asked to submit party wise details of sundry creditors and sundry debtors along with their current postal addresses, and vide question No.9 asked to submit details of sales and purchases party wise giving name, address, total quantity, rate, total value, Pan No. and Telephone No. of the party, and referred page 12 of the paper book which is a copy of the said letter of the Assessing Officer dated 15.11.2004. Ld. AR submitted that the assessee vide its letter dated 29.12.2004 furnished the requisite details and referred pages 13....
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....so considered the original assessment order dated 17th March 2006 passed u/s 143(3) of the Act, copy placed at pages 10 to 11 of the paper book along with the letter of the Assessing Officer dated 15.11.2004 placed at page 12 of the paper book and the reply thereto filed by the assessee vide its letter dated 29.12.2004, placed at pages 13 to 15 of the paper book. We have also considered the cases (supra) relied upon by the assessee at the time of hearing. 14. Before considering the issue as to whether initiation of reassessment proceedings by the Assessing Officer is valid and is in accordance with law on the facts and circumstances of the case, we consider it useful to reproduce the relevant provisions of section 147 and 148 of the Act which are as under: " 147 If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provision of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or ....
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....the Income Tax Act, he must have reason to believe that income chargeable to tax has escaped assessment inter-alia by reason of the failure on the part of the an assessee to disclose fully and truly all material facts necessary for his assessment for that Assessment Year as action is taken after the expiry of 4 years from the end of the relevant Assessment Year. It is also provided u/s 148(2) of the Act that before issuing notice to initiate reassessment proceedings, the Assessing officer must record his reasons before issuing notice u/s 148(1) of the Act. 16. On perusal of the reasons recorded by the assessing officer, as mentioned in the assessment order, we observe that the assessing officer has stated that he has reason to believe that the income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment to the extent of Rs. 3,11,25,000/- within the meaning of section 147 of the Income Tax Act 1961. However, we observe on perusal of orders of authorities below, that the reassessment proceeding was initiated only on the basis of statement recorded of Mr. Mukesh Choksi a director of M/s. T....
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....to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate are not is not a matters for the court to investigate. The sufficiently of the grounds which induce the ITO to act is, therefore, not a justifiable issue. It is, of course, open to the assessee to contend that ITO did not hold the belief that there had been such non disclosure. The existence of the belief can be challenged by the assessee but not sufficiency of the reasons for the belief. The expression "reason to believe" does not mention a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It can not be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational action with are a relevant on the formation of the people and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the ITO starting proceedings in respect of income escaping assessment is open to challenge in a court of law." 17. In the above case one Shri Mohan Singh Kanaya lal was shown to be one of the creditor of the assessee who ha....
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....o the formation of the belief that the income of the assessee had escaped assessment because of his failure or omission to disclose the fully and truly all material facts. Accordingly the appeal filed by the department was dismissed with costs. 18. Similarly the Hon'ble Madras High Court in the case of P.S. Veerappa(supra) considered that the hundi loans accepted as genuine in original assessment and subsequently reopening of assessment u/s 147 of the Act on the ground that there was prevalent at the relevant time a hundi racket which did hawala business was not justified as the statement of hundi banker must have relation to a particular credit of the assessee and the fact, that one of the hundi bankers of the assessee mentioned in the list of hundi banker's was doing havala business or the statement of third party assessees that transactions with other bankers were not genuine transactions were not material. It was held that it would not be sufficient to hold that the assessee had failed to disclose any material fact relating to his assessment. In the said case the original assessment was completed accepting the returns and treating the loans as genuine borrowing. Latter on, t....
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....en a loan of Rs. 20,000 to the appellant on 6th March, 1959, finds a place. It is on the basis of these investigations conducted by the IT Department, the ITO came to know that the hundi borrowals made by the appellant were not true and genuine." 19. In further appeal to the Hon'ble Madras High Court on the issue as to whether on the facts and in the circumstances of the case the reopening of the assessment is valid and justified, their lordships have held that the general statement of the hundi bankers that he has been doing havala business or that some of the assessees had admitted that they had not borrowed moneys from Dwarkadas Chaitram who is one of the hundi bankers from whom the assessee had stated that he had borrowed moneys will not be sufficient to hold that the assessee had failed to disclose any material fact relating to his assessment. The Hon'ble Madras High Court after considering the decision of the Hon'ble Apex Court in the case ITO is Lakhmani Mewal Das (supra) has held that "even in a case where the individual had given a general statement that he had never done any money lending business and every one of the transactions was a havala transaction, there should....
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....is an escapement of income for assessment year 2003-04 because of assessee's failure or omission to disclose fully and truly all material facts. The said nexus is missing in the case before us. We hold that the statement of Shri Mukesh Choksi, on which reliance has been placed by the assessing officer to reopen the assessment, is a general statement and there is no specific reference to the assessee's transaction and the year of the assessment. On the other hand, we observe that the assessee has placed copies of the invoices to prove the genuineness of the transaction and the Assessing Officer rejected the same as genuine only on account of the statement of Mr. Mukesh Choksi that he was issuing bogus bills and bogus share capital entries through his various concerns, in which he is a director, including Talent Infoway Ltd. though in the said admission there is no specific reference of the transaction entered into by the assessee with M/s. Talent Infoway Ltd. in financial year 2002-03. 21. The Hon'ble Delhi High Court has held in the case of Bawa Abhay Vs. DCIT 253 ITR 83 that the crucial expression u/s 147 of the Act is "reason to belief" It contemplates existence of reasons on ....
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....ransaction with assessess is mentioned therein nor any material has been brought on record in the assessment order that there was any material which came to the notice of the department due to which the income chargeable to tax escaped assessment at the time of making assessment u/s 143(3) of the Act, on account of failure to disclose fully and truly all material facts by the assessee. The live link or close nexus, which should be there between the material and the belief which the AO was to form regarding the escapement of the income of the assessee from assessment because of assessee's failure or omission to disclose fully and truly all material facts is missing. Hence initiation of reassessment proceedings by the Assessing Officer is not valid. Not only this the assessment proceedings have been initiated admittedly after the expiry of more than 5 years from the end of the relevant assessment year, therefore, we find that reopening of the assessment is also barred by limitation as per proviso of section 147 of the Income Tax Act. Their lordships of Hon'ble Bombay High Court in the case of Sound Casting P Ltd. Vs DCIT and others (supra) and also in the case of Titanor Components L....