TaxTMI 
TaxTMI 
2017 (8) TMI 922
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....partment in the case of one Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain on 14.09.2010 and post search investigation, the concluded assessments of the assessee were reopened and after obtaining documentary evidence from the assessee regarding the issue of share and share application money from certain companies, AO added a sum of Rs. 96,90,000/- in respect of the AY 2007-08 and Rs. 61,28,600/- in respect of the AY 2008-09. Appeals preferred by the assessee challenging the said additions were dismissed by way of impugned orders and, therefore, the assessee is before us challenging the legality and validity of the reopening proceedings as well as the additions made on account of the share application money, share premium and alleged payment of commission u/s 68 of the Act. 3. Assessment orders in respect of both the years are almost identical but for the change in the names of the companies applied for allotment of shares in the assessee company and the amount that was added in respect of these two years. For proper appreciation of the companies on either side it has become necessary to extract paragraph nos. 4 to 10 of these assessment orders which are identical in both th....
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....This clearly shows that these companies were being run by Sh. Surendra Kumar Jain and Virendra Kumar Jain and they controlled these companies through dummy directors/principal officers of these companies. This could be established by a careful examination of seized material, including the computer hard discs and tally data, which contain the books of accounts of these companies along with other important and confidential documents of these companies. These documents should have not been in the possession of Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain had they not been the actual controller of these companies." 4. Now coming to the argument of the Ld. AR his contention is that as could be seen from the assessment order the AO entirely relied upon the facts found in the case of Sh. Surendra Kumar Jain and another, without verification of the information that he got from the investigation wing of the Department or confronting the assessee with such material for reopening the assessment the AO substituted the information received from the investigation wing to his satisfaction. Assessment order clearly shows that no material whatsoever was put to the assessee before the AO r....
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....hrough banking channels was established, instead of making enquiry into this aspect, the AO made additions solely basing on suspicion as to the source of source. Suspicion, however, grave it is, it cannot take the place of legal evidence or proof and fastening a financial liability of a considerable magnitude is impermissible under law. 6. Per contra, it is the argument of the Ld. DR that the post search investigation basing on the material seized at the search and seizure operations establishes the introduction of assessee's own money through accommodation entry providers by way of cheques and during the reassessment proceedings when confronted with such material, as recorded by the AO at paragraph no. 25, the assessee was speechless and could not give any satisfactory reply to the Department as such AO is justified in making addition. He further submitted that the information was furnished by the investigation wing after thorough examination of the material that was found at the premises of Jain Brothers and also the material that was obtained post search investigation. He heavily relied upon the orders of the authorities below. 7. Now coming to the legal ground raised by t....
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.... a ground to reopen the assessment. 9. We find the Hon'ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das reported in 103 ITR 437 has observed as under :- As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion 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 th....
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....having heard the counsel for the parties, we are inclined to agree with the submissions made by the respondent / assessee. We find that the Supreme Court in Rajesh Jhaveri (supra) made it absolutely clear that before an Assessing Officer issues a notice under Section 148, thereby re- opening the assessment under Section 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief. The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the Assessing Officer. However, the Supreme Court in Rajesh Jhaveri (supra) did not say that it was not necessary for the Assessing Officer to form a „belief_ and that the mere fact that there was some material on record was sufficient. 9. In the present case, we find that the first sentence of the so-called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income Tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income Tax (Investigation) to issue a notice under Section 148 and th....
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....ns 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 is ours] 20. On a perusal of the aforesaid decisions, it is graphically clear that once the ingredients of Section 147 are fulfilled, the assessing officer is competent in law to initiate the proceedings under Section 147. To put it ....
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....t 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. (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 of proceedings. It is totally unwarranted. 24. Resultantly, the initiation of proceedings under Section 147 and is....
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....ection 148" he noted "Yes" and affixed his signatures. The Supreme Court was of the view that upon reading the report given by the Income Tax Officer (which is not the same as reasons for issuing a notice), the Commissioner could not have come to the conclusion on the material before him that it is a fit case for issuance of a notice under Section 148 of the Act. 11. From the decision of the Supreme Court, it is clear that a mere statement of facts in the form of a report is not a substitute for reasons that are required to be recorded before issuing a notice under Section 148 of the Act. The Supreme Court also noted that substance cannot be substituted by form and it is in that context that the Supreme Court expressed the view that by merely saying "Yes", the Commissioner did not fulfilll the duty cast upon him. 12. In P. Munirathnam Chetty and P. Satyanarayana Chetty v. Income-tax Officer, the Andhra Pradesh High Court analyzed Chhugamal Rajpal and distinguished it on the ground that since the Income Tax Officer had given reasons for issuing a notice to the assessed, the mere fact that the Commissioner recorded "Yes" in respect of the question "Whether the Commi....
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....te the issuance of a notice under Section 148of the Act. 17. Looked at in the light of the decisions placed before us and the law laid down therein, it is necessary to appreciate the information available with the Assessing Officer in the present case. The only information is that the assesseds had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague. In so far as the basis for the reasons is concerned, even this is absent. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice under Section 148 of the Act. Read in this light, what ....
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....r relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion 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 informa....