TaxTMI 
TaxTMI 
2017 (9) TMI 426
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....see on 31.07.2007 declaring a total income of Rs. 95,400/-. The same was merely processed u/s. 143(1) of the Act. Subsequently the A.O. received information from the Sales Tax Department and also from the office of the DGIT(Inv), Mumbai that the assessee is a beneficiary of accommodation bill of purchases from certain bogus hawala dealers. The information was that the concerned dealers had not sold any actual goods but had given accommodation entries of sales made to the assessee. The A.O. noted that the assessee has taken accommodation entries from M/s. Arun Paper & Iron Traders, a hawala dealer. Accordingly the A.O. initiated action section 147 of the Act. 5. The A.O.'s observation regarding the enquiry made in this regard is as under: 4.3 Thereafter, notice under section 133(6) of the Income tax Act, 1961 dated 26.09.2014 was also sent to the above party. The reply was received from M/s. Arun Paper and Iron Traders vide letter no. nil dated 07.01.2014 wherein M/s. Arun Papers & Iron Traders submitted documents related to the transactions made with the assessee during the year under consideration. In its submission to the undersigned, M/s. Arun Paper and Iron Traders filled co....
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.... be kept in the soft format and hence their genuineness remained non-verifiable. 4.5 On further investigation of the documentary evidences provided by the hawala party M/s. Arun Paper and Iron Traders and the by the assessee, it is found that there are serious discrepancies in the all bills and delivery challans provided both the parties, the discrepancies are is summarized as under:- 1. The entries made on the bills and delivery challans differ in their form and presentation and it shows that the bills and respective delivery challans are prepared by two different persons at two different times. 2. There is no seal or rubber stamp and no signature of the receiver and sender on some of the delivery challans produced and also the signature of the receiver in similar challans are different. 3. The necessary details of transportation such as vehicle No. /LR No. etc. are not Mentioned on the delivery challans. 5.1 It may be noticed that the assessee has not produced complete details with respect to the transportation of goods, proper delivery challans, freight charges etc. regarding transportation of goods to the its business premises. As such, the purchases effected by ....
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....documents, either in allowing or in disallowing deductions, allowance or relief. The Supreme Court further noted that intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2). In the words of the Supreme Court "Thus, the legislative intent is very clear from the use of the word "intimation" as substituted for "assessment" that two different concepts emerged". While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed with accepting the return and making the permissible adjustments only. The Supreme Court held that that so long as the ingredients of section 147 are fulfilled, the Assessin....
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....verments in the counter affidavit, it is clear that the Income tax Officer had applied his mind to the facts and, after prima facie satisfying himself of the existence of those two conditions precedent, reached the conclusion for reopening the assessment. It is settled law that, in an administrative action, though the order does not ex facie disclose the satisfaction by the officer of the necessary facts of the record discloses the same, the notice or the order does not per se become illegal;" It is a fact that the original return of the assessee had not been subjected to scrutiny u/s. 143(3) of the Act. Consequently at the time of reassessment there is no requirement of passing the test laid down in the First Proviso below section 147(1) of the Act. As a result the claim of the assessee that he reassessment notice is barred is not correct. 8.4 Thus it is concluded that there is no change of opinion by the AO and the AO has reopened the proceedings after having reasons to believe that the income of the assessee has escaped assessment. The assessing officer had information that the suspect Hawala dealer had given statements to the Sales Tax Department that they are only providi....
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....e Assessing Officer as to what is the basis on which he says that the purchases are bogus. In this case the AO subsequently informed the assessee at the time of disposing of the objections to the issue of notice u/s. 148 that a report had been received in this case form the DGIT(Inv) informing the AO of the bogus purchases. The High Court cited various judgments to stress the point that the AO gets the necessary jurisdiction only through the reasons recorded and they cannot be supplemented alter on by filing an affidavit etc. The High Court held that filing an affidavit and stating the same before the court for the first time would amount to bringing on record material which did not form the basis of formation of such belief. The High Court held that the belief that income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts has to be recorded in the reasons, though the same may be elaborated by filing an affidavit. But, in the absence of formation of any such belief being recorded in the reasons, it is not open for the Assessing Officer to express formation of such belief for the first time by way of affidavit-in-re....
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....t considered the decision of the Supreme Court in the case of Biju Patnaik (supra) wherein it was held that: 'Thus, though ex facie the notice does not disclose the satisfaction of the requirement of section 147(a), from the record and the averments in the counter affidavit, it is clear that the Income tax Officer had applied his mind to the facts and, after prima facie satisfying himself of the existence of those two conditions precedent, reached the conclusion for reopening the assessment. It is settled law that, in an administrative action, though the order does not ex facie disclose the satisfaction by the officer of the necessary facts if the record discloses the same, the notice or the order does not per se become illegal." 8.6 However in the present case at hand the situation is in any case much different. The reasons recorded by the AO in this case before issue of the notice u1s ] 48 are very specific and the source of the information is clearly spelt out as under: 'Reasons for Re-opening' "DGIT(Investigation), Mumbai has compiled information on the basis of the inputs from the Sales Tax Department about the assessee who have been either involved in Haw....
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.... The Kayans are known entry operators of Kolkata and have been giving entries of bogus share capital, bogus bills of expenses and bogus long terms capital gains to various beneficiaries throughout the country. The above mentioned assessee is also a beneficiary of Rs. 39.94 lacs (accommodating co. Agnes Bruno Ltd.) pertaining to A.Y. 2009-10. 3. Considering the facts stated above, I have reason to believe that the income of the assessee to the tune of Rs. 39.94 lacs for the accounting period relevant to AY.2009-10, has escaped assessment within the meaning of section 147 of the I.T. Act, 1961." The High Court after considering the various case laws on the subject has upheld the issuance of notice u/s 148 of the Act with the following decision: "we are of the opinion that when the Authority is armed with the tangible material in the form of specific information received by the Investigation Wing, Ahmedabad is throughly justified in issuing a notice for reassessment. It is revealed from the said additional material available on hand a reasonable belief is formed by the Assessing Authority that income of the petitioner has escaped assessment and therefore, once the reasonable b....
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....s and the various case laws including the Supreme Court decision in Biju Pattnail case (supra) discussed above the assessee's challenge to the reopening of the assessment is rejected. It is also held that the reasons recorded u/s 148 are only tentative and not final. It is also held that the AO had tangible information from an outside source and the issuance of notice u/s 148 on that basis cannot be faulted. 8. On merits of the case, the ld. CIT(A) held that since the sales are not doubted by the A.O., the assessee must have made his purchases from some other sources in the grey market. Therefore, keeping in mind the Hon'ble Gujarat High Court's decision, the ld. CIT(A) directed that disallowance be restricted to 25% of the bogus purchases. 9. Against the above order, the assessee is in appeal before the ITAT. 10. I have heard the learned counsel and perused the records. As regards the reopening of the assessee, on a careful consideration, I note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for sale o....
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....me chargeable to lax 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 AO has cause or justification to know or suppose (hat 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 AO should have finally ascertained the fact by lega/ statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Managnese Ore Co, Itd. v. ITO(1991) 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether ....