TaxTMI 
TaxTMI 
2018 (10) TMI 1027
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....ee, the AO gave a copy of the reasons recorded for reopening of the assessment, which is kept at page 40 and 41 of the paper book. 4. Thereafter the assessee filed its objection before the AO to the proposed reopening of the assessment vide letter dated 13.08.2015 which is found placed at pages 42 to 46 of the paper book. However, it was brought to our notice that the AO did not dispose of the objection as per the mandatory direction of the Hon'ble Supreme Court in GKN Driveshaft (India) Ltd. Vs. ITO & Ors. (2003) 259 ITR 19 (SC) which he is bound by law to obey and according to ld AR, the AO ought to have disposed off the objection raised by the assessee, which omission on the part of the AO itself makes the order fragile in the eyes of law. Despite this illegal omission, we note that thereafter the AO framed the reassessment vide order dated 18.09.2017 after the DRP direction on 29.08.2017 wherein the ld DRP did not adjudicate the legal issue raised before it on the reasoning that the ld DRP does not have the power to annul the assessment. Aggrieved by the aforesaid decision of ld DRP and assailing the action of the AO in assuming jurisdiction to reopen the regular-assessment ....
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....SS Petron Pvt. Ltd. Vs. ACIT ITA No. 224/Mum/2014 (referred to page 3 para 8- 11) vii) PCIT Vs. Tupperware India Pvt. Ltd. (2016) 236 Taxman 494 (referred to page 3 para 6 and 9) viii) DCIT Vs. National Bank for Agriculture and Rural Development ITA No.4964/Mum/2014 (referred to page 10- 13 para 12) 6. It has been brought to our notice that since the objection raised by the assessee against the reopening has not been disposed of as per the direction of the Hon'ble Supreme Court in GKN Driveshaft (India) Ltd., supra, which omission to do so by AO also makes the order of the AO bad in law The Ld. AR drew our attention to the decision of the Hon'ble High Court of Delhi in ACIT Vs. Meenakshi Overseas (P) Ltd. (2017) 82 taxmann.com 300 (Del) wherein it has been held as under: "22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying "unaccounted cash" i....
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.... criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. 27. Each case obviously turns on its own facts and no two cases are identical. However, there have been a large number of cases explaining the legal requirement that requires to be satisfied by the AO for a valid assumption of jurisdiction under Section 147 of the Act to reopen a past assessment. 28.1 In Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra), the reasons for reopening as recorded by the AO in a proforma and placed before the CIT for approval read thus: "11. Reasons for the belief that income has escaped assessment.- Information is received from the DIT (Inv.-1), New Delhi that the assess....
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.... Section 148 of the Act. The facts in the present case are more or less similar. The present case is therefore covered against the Revenue by the aforementioned decision. 29.1 The above decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under: "Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter-alia reported as under: "Entries are broadly taken for two purposes: 1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc. 2. To inflate expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. It has been revealed that the f....
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....i, CA during a survey operation conducted at his office premises by the Investigation Wing. The particulars of some of the transaction of this nature are as under: Date Particulars of cheque Debit Amt. Credit Amt 18.11.96 305002 5,00,000 Through the Bank Account No. CA 4266 of M/s. Mehram Exports Pvt. Ltd. in the PNB, New Rohtak Road, New Delhi. Note: It is noted that there might be more such entries apart from the above. The return of income for the assessment year 1997-98 was filed by the Assessee on 4th March 1998 which was accepted under Section 143 (1) at the declared income of Rs. 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of Rs. 5,00,000 (as mentioned above) has escaped the assessment within the meaning of the proviso to Section 147 and clause (b) to the Explanation 2 of this section. Submitted to the Additional CIT, Range -12, New Delhi for approval to issue notice under Section 148 for the assessment year 1997-98, if approved." 30.2 The AO was not merely reproducing the information received from the investigation but took the effor....
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....caped assessment, such suspicion could not form the basis of initiating proceedings under Section 147 of the Act. A reason to believe - not reason to suspect - is the precondition for exercise of jurisdiction underSection 147 of the Act. " 34. Recently in Agya Ram v. CIT (supra), it was emphasized that the reasons to believe "should have a link with an objective fact in the form of information or materials on record..." It was further emphasized that "mere allegation in reasons cannot be treated equivalent to material in eyes of law. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessments." 35. In the decision of this Court dated 16th March 2016 in W.P. (C) No. 9659 of 2015 (Rajiv Agarwal v. CIT) it was emphasized that "even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment." 36. In the present case, as already no....
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....n and cannot be construed as satisfaction on the basis of the relevant material on the basis of which a reasonable person can form a belief that income has escaped assessment. The Hon'ble Delhi High Court has also come to the conclusion that the reasons recorded did not disclose the AO's mind regarding escapement of income. The Hon'ble Delhi High Court ultimately held that initiation of proceedings u/s 148 of the Act was not valid and justified in the eyes of law. The facts and circumstances in the present case are identical to the case decided by the Hon'ble Delhi High Court. Following the said decision we hold that initiation of reassessment proceedings is not valid. On this ground, the assessment is liable to be annulled." 8. The Hon'ble Bombay High Court in Pr.CIT Vs. Shodiman Investiments (P) Ltd. (2018) 93 taxmann.com 153 (Bom) it has been held as under: "9. We find that at the time of re-opening of the Assessment, the Assessing Officer did not provide the reasons recorded in support of the re-opening notice in its entirety, to the Respondent-Assessee. This was contrary to and in defiance of the decision of the Apex Court in GKN Driveshafts v. ITO [200....
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....f the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices." . Therefore, the sentence being relied upon was made in the context of the change in law that under the amended provision 'reason to believe' that in case of escaped assessment, is sufficient to re-open the assessment. This unlike the earlier provision of Section 147(a) of the Act which required two conditions i.e. failure to disclose fully and truly all facts necessary for assessment and reason to believe that income has escaped assessment Thus, the observations being relied upon must be read in the context in which it rendered. On so reading the submission, will not survive. 11. Further, a reading of the entire decision, it is clear that the reasonable belief on the basis of tangible material could be, prima facie, formed to conclude that income chargeable to tax has escaped assessment. Mr. Mohanty, learned c....
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....ffect, the Apex Court in ITO v. Lakhmani Merwal Das [1976] 103 ITR 437 had laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitled to challenge the very act of re-opening of Assessment and assuming jurisdiction on the part of the Assessing Officer. 13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does- not indicate the amount which according to the Assessing Officer, has escaped Asses....
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....nitiation of proceedings u/s 147 of the Act in the present appeals in which he has challenged the validity of order passed u/s 263 of the Act. The ld. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the order u/.s 263 of the Act which seeks to revise an order passed u/s 147 of the Act, to challenge the validity of the order passed u/s.147 of the Act as well as initiation of proceedings u/.s 147 of the Act. In this regard the Ld. Counsel for the assessee placed before us two decisions one rendered by Lucknow Bench of ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai 'G' Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016. In both the decisions a view has been taken by the Tribunal that when an Assessment order passed u/s 147 of the Act was illegal the CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon'ble Mumbai bench of the Tribunal has specifically framed the following questions :- " 1.Whether the assessee can challenge the validity of an assessment order during the appe....
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..... The Mumbai Bench has in this regard placed reliance on the decision of Hon'ble Delhi bench of the Tribunal in the case of Krishna Kumar Saraf vs CIT in ITA NO.4562/Del/2007 order dated 24.09.2015 wherein it was held as follows :- " 17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which i....
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....ation of proceedings u/s 147 of the Act for A.Y.2007-08 and 2008-09 are concerned the question for consideration is as to whether on the basis of the reasons recorded it can be said that there can arise any belief on the part of the AO that income chargeable to tax for the relevant assessment years has escaped assessment. In this regard the reasons recorded by the AO for initiating proceedings u/.s 147 of the Act for A.Y.2007-08 and 2008-09 has already been set out by an order in the earlier part of this order. The gist of the reasons recorded by the AO is that the assessee had made investments of about Rs. 4 crore in construction of hotel/resort at Mandarmoni, Purba Midnapore. It is the further allegation in the reasons recorded that to a notice u/s 133(6) of the Act, the Assessee had in reply admitted investment of only Rs. 3.38 crores in construction of hotel and that source of funds for such construction was out of share capital and secured loan. It is also not disputed that the value of investments as stated by the assessee in its reply to the notice u/s 133(6) of the Act, was duly shown as the investment in construction of hotel with the balance sheet of the assessee. The AO ....
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....by submitting that there was a survey in the business premises of the assessee and in such survey there was evidence to show that the assessee had invested a sum of Rs. 4 crores in construction of a hotel at Mandarmoni. We are of the view that this submission of the ld. DR cannot be accepted. The law is well settled that the reasons recorded by the AO have to be tested on the basis of specific wordings of the reasons so recorded. No external material can be shown to justify the conclusion arrived at in the reasons recorded unless these materials are specifically referred to or incorporated in the reasons recorded. In the reasons recorded the AO has not disclosed the basis of this conclusion that the assessee made an investment of Rs. 4 crores in the construction of a hotel at Mandarmoni. We find that in this regard that Hon'ble Bombay High Court in the case of Hindustan Lever Ltd., Vs. R.B.Wadkar (2004) 268 ITR 0332 the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his m....
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..... It is thus clear that the assessment was reopened by the Assessing Officer on the basis of suspicion and in order to make fishing and roaming enquiries, which, in my opinion, is not permissible. It is a settled position of law that the assessment can be reopened under section 147/148 on the basis of 'reason to believe' and not 'reason to suspect'. As held by the Coordinate Bench of this Tribunal in the case of Deputy Director of inc me Tax (International Taxation )-21, Mumbai -vs.- Societe International De Telecommunication ( supra) cited by the Id. counsel for the assessee, unless the reasons to believe about the escapement of income exist, no recourse can be taken to the provisions of section 147. It was held that where an Assessing Officer ventures to initiate reassessment proceedings with an object of finding some material about the escapement of income, such reassessment cannot legally stand and the law doe s not permit the Assessing Officer to conduct inquiries after the initiation of reassessment ITA No. 671 / KOL/2015 Assessment year: 2008 - 2009 proceedings, to find if there is an escapement of income. It was held that the scope of section 147 cannot enco....
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.... been received from DIT(Inv), Kolkata by his letter No.8/0E/2014- 15/2023-25 dated 2.9.2014 in which it has been mentioned that the assessee-M/s. Devansh Exports had exported Iron ore to M/s. S.K Resources Ltd., Hong Kong. The assessee as well as the buyer i.e. m/S. S. K. Resources Ltd. are Associated Enterprises within the meaning contained in sec. 92A of the I. T. Act. It has also been mentioned in the said letter of DIT (Inv.) that assessee has exported the iron ore to various end users located in China and that these were routed through its sister concern M/s. SK Resources Ltd. The price at which the iron ore were exported to Mrs. SK Resources during the year was much less than the prevailing market price of China but the said M/s. SK Resources Ltd. would sell the goods to the end users of the prevailing market price. This entire arrangement thus resulted in profit being shifted from India to Hong Kong It is seen from the audited accounts and other details available in assessment record of the assessee that during the financial year 2009-10, it exported 55,936 MT of iron ore to M/s. SK Resources Ltd. at a total consideration of Rs. 13,90,97,755/-. As per DIT (Inv)'s ab....
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....us end users located at China. As per the DIT (Inv) the price at which the iron ore were exported to its AE at Hongkong during the year was less than the prevailing market price at China, which resulted in profit being shifted from India to Hongkong. Thereafter, the AO notes that assessee has exported 55,936 MT of iron ore to its AE at Hongkong at a total consideration of Rs. 13,90,97,755/-. However, the AO notes that the DIT (Inv.) says that the FOB rate of sale of iron ore were varying from 11$ to 65$ per MT depending on the date of shipment to its AE at Hongkong whereas the market rate of the said goods prevailing in China during that period varied from 71.50$ to 114.50$ per MT. From the aforesaid information of DIT(Inv.) the AO concluded that the transactions between the assessee and its AE at Hongkong was in the nature of international transaction within the meaning contained in sec. 92B of the Act and the rate of transaction as disclosed by the assessee to its AE is much less than the prevailing market price or below the ALP as defined in sec. 92 of the Act. From these facts narrated the AO concluded that he had sufficient reason to believe that the assessment of the assessee....
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....lled conditions in India in relation to exports made to unrelated third parties, that would have at least gave some credence or comparability of the export price of the assessee (Refer rule 10B). Therefore, the AO has simply gulped the information from DIT(Inv) to form a conclusion about escapement of income is itself flawed and cannot pass the test of 'reason to believe' as laid by judicial precedents as discussed above. 12. From the aforesaid reasons it is evident that other than the vague information given by DIT (inv) there is no other material the AO collected after preliminary enquiry which could have enabled him at the time of recording reasons to come to a conscious independent conclusion that "income of the assessee has escaped assessment". The information given by DIT(Inv) can only be a basis to ignite/trigger "reason to suspect" for which reopening cannot be made for further examination to be carried out by him in order to strengthen the suspicion to an extent which can form the belief in his mind that income chargeable to tax has escaped assessment. No quantification of income escaping assessment has been spelt out by the AO in the reasons recorded for justifying reo....
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....escapement of income. The AO is a quasi judicial authority empowered to reopen the completed assessment only in a given case wherein there is reason to believe escapement of chargeable income to tax which is the jurisdictional fact and sine qua non to assume jurisdiction to reopen a completed assessment. It must be kept in mind that reasons to believe postulates foundation based on information and belief based on reason. Even if there is foundation based on information there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment. It has to be kept in mind that the Hon'ble Supreme Court in Ganga Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the expression "reason to believe" occurring in sec. 147 "is stronger" than the expression "if satisfied" and such requirement has to be met by the AO in the reasons recorded before usurping the jurisdiction u/s. 147 of the Act. It must be kept in mind that information adverse against the assessee may trigger "reason to suspect" then the AO is duty bound to make reasonable enquiry to collect material which would make him belief that there is in fact an escapement of income which requirem....