TaxTMI 
TaxTMI 
2017 (9) TMI 641
X X X X Extracts X X X X
X X X X Extracts X X X X
....8. The return of income for this year was filed by the assessee on 30.08.2007 declaring a total income of Rs. 27,73,034/-. 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: 4.4 Meanwhile, Shri Arun Kumar Agarwal, proprietor of M/s. Arun Paper and Traders attended the office in response to summons u/s. 131 of the Income Tax Act, 1961 dated 22.01.2015 and his statement is recorded, the gist of which is stated below:- In his statement u/s. 131 of the Income Tax Act, 1961 taken on 22.01.2015, Prop. of M/s. Arun Paper and Iron Traders, Shri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the assessee are not proved to be the genuine purchases during the year i.e. A. Yr. 2007-08. 6. Therefore, after making independent enquiries on the findings of the Sales Tax Department and details submitted by the assessee, I have come to conclusion that the assessee had not purchased goods from above stated hawala party and only accommodation entries were taken ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt" 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 Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. Recently the Supreme Court in the case of Deputy Commissioner of Income-tax v. Zuari Estate Developmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 providing accommodation entries of bills of purchase and are not genuinely dealing with any item of trade. The subsequent enquiries by the office of the DGIT(Inv) also informed the AO that the suppliers have no record to produce. The set off claimed for VAT declared paid on the bills of purchase from the bogus ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....v) 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-reply filed in the court. The High Court observed as under: "13. On a plain reading of the reasons recorded, what emerges is that the Assessing Officer, on verification of (he details available on record, has noticed that (here were bogus purchases. However, there is no asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Hawala Racket of issuing bogus purchase bills or the beneficiaries who have taken accommodation entries with an intention to inflate purchase and thus reduce taxable profits. M/s. JAYPEE INDUSTRIES, is one such beneficiaries of who has obtained bogus ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee 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 belief is formulated by the Authority on the basis of cogent tangible material, the Authority is not expected to conclude at this stage the issue finally or to ascertain the fact by evidence or conclusion, we are of the op....
X X X X Extracts X X X X
X X X X Extracts X X X X
....easons 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. 7. 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. 8. Against the above order, the assessee is in appeal before the ITAT. 9. 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 of material without delivery of goods, which information was based on information received by Revenue from Maharashtra Sales Tax Authority. Information was received that the assessee was beneficiary of hawala ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction ITO v. Select....