TaxTMI 
TaxTMI 
2019 (3) TMI 555
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....h proper channel. As per the information the assessee company in assessment year under appeal has taken accommodation entries to the value of Rs. 5,00,545/- from M/s. V.R. Traders Pvt. Ltd., on three occasions. The A.O. also noted that it has been revealed that many persons were using service of accommodation entries operators to channelize their own unaccounted money in their regular books of account by routing the same through the accounts of accommodation entry providers. The modus operandi of the entry providers have been highlighted in the re-assessment order. The A.O. after getting approval of Addl. CIT, issued notice under section 148 on 28.03.2012. The assessee filed letter stating that return filed originally may be treated as having been filed in response to notice under section 148 of the I.T. Act. The A.O. after examining the records before him rejected the objection of the assessee regarding reopening of the assessment and noted that in assessment year under appeal assessee has raised share capital of Rs. 1.90 crores from 32 parties including M/s. V.R. Traders Pvt. Ltd., (Rs. 5 lakhs). The A.O. issued letters under section 133(6) to the parties but the same were retur....
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....ney in their regular books of accounts by routing the same through the accounts of Accommodation entry providers. 2. The modus operandi of these entry providers and beneficiaries of their services, was detected to be as under : 2.1. Entries were being broadly taken for two purposes : 0.1. To plough back unaccounted black money for the purpose of business for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc. 0.2. To inflate expenses in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. 2.2. The assessee who had unaccounted money (called as entry takers or beneficiaries) and wanted to introduce the same in the books of accounts without paying tax, approached another person (called as entry operator) and handed over the cash (plus commission) and had taken cheques/DDs/Pos. The cash was being deposited by the entry' operator in a bank account either in his own name or in the name or relative/ friends or other person hired by him, for the purpose of opening bank account. In most of these bank accounts the introducer was the main entry operator and the cash deposit slips a....
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..... 0152064 14.06.2004 V.R. Traders (P) Ltd., SBJJ NRR 24781 Key Components (P) Ltd., State Bank of Bikaner & Jaipur. N. Delhi 1,50,165 Transfer CHQ. 00152091 28.06.2004 V.R. Traders (P) Ltd., SBJJ NRR 24781 Total 5,00,545/- 5. As per the findings of the report of the investigating wing-the creditworthiness of the lenders has not been established and these transactions seem to be not genuine. I, therefore have reasons to believe that this amount of Rs. 5,00,545/- represents income of the assessee chargeable to tax which has escaped assessment for A.Y. 2005 - 06. Sd/- DHARAM VEER Income Tax Officer, Ward-5(2), New Delhi." 4.1. The Learned Counsel for the Assessee submitted that reasons are based on information and findings of the Investigation Wing. The A.O. did not apply his mind to the same. The A.O. merely concluded without verifying the facts that it is a case of reopening of the assessment. No details have been provided as to who has provided the accommodation entry and the observation of the A.O. is merely based on "transactions seems to be not genuine". The A.O. did not verify the transact....
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....unt Communication (P.) Ltd., 2017-TIOL-253-SC-IT. (ii) PCIT vs. Paramount Communication (P.) Ltd., (2017) 392 ITR 444 (Del.). (iii) Amit Polyprints (P) Ltd., vs. DCIT (2018) 94 taxmann.com 393 (Guj. ). (iv) Aaspas Multimedia Ltd., vs. DCIT (2017) 83 taxmann.com 82 (Guj.). (v) Decision of Delhi High Court in the case of Indulata Rangwala 384 ITR 337. 5.1. The Ld. D.R. submitted that at the time of commencement of re-assessment proceedings, the A.O. has to see whether there was prima facie some material on the basis of which the department could reopen the case. Sufficiency or correctness of the material is not a thing to be considered at this stage - Raymond Woolen Mills Ltd., vs. ITO 236 ITR 34 SC. 6. We have considered the rival submissions. and perused the material available on record. It is well settled Law that validity of the reopening of the assessment shall have to be determined with reference to the reasons recorded for reopening of the assessment. The Learned Counsel for the Assessee has filed copy of the reasons for reopening of the assessment which is reproduced above. The reasons contain the report of enquiries made by DIT (Inv.), New Delhi, about accommodation ....
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....eason that he has gone through the reports of the Investigation Wing. The A.O. merely repeated the report of the Investigation Wing in the reasons and formed his belief that income chargeable to tax has escaped assessment, without arriving at his satisfaction. The reasons to believe contain no reason, but, the conclusion of the A.O. without any basis. Even no name of entry provider has been mentioned who has provided accommodation entry. Thus, there is no independent application of mind by the A.O. to the report of the Investigation Wing which formed the basis for reasons to believe that income chargeable to tax has escaped assessment. The conclusion of the A.O. in the reasons are at the best reproduction of conclusion of the Investigation Report. It is merely followed which is not permissible in law. The A.O. has not brought anything on record on the basis of which any nexus could have been established between the material and the escapement of income. The reasons fails to demonstrate the link between the alleged tangible material and formation of the reason to believe that income has escaped assessment. The Hon'ble Delhi High Court in the case of Pr. CIT vs. G & G Pharma India ....
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....nt. Without analysing and forming a prima facie opinion on the basis of material produced, it was not possible for the Assessing Officer to conclude that he had reason to believe that income had escaped assessment. The order of the Tribunal was proper. No question of law arose." 6.1. The Hon'ble Delhi High Court in the case of Pr. CIT vs. RMG Polyvinyl (I) Ltd., (2017) 396 ITR 5 (Del.) held as under: "The assessee filed its return for the assessment year 2008-09 and assessment was made under section 143(1) of the Income-tax Act, 1961. The Assessing Officer issued a notice for reassessment based on information received from the Investigation Wing that the assessee was the beneficiary of certain accommodation entries, which were given in the garb of share application money or expenses or gifts or purchase of shares during the period relevant to the assessment year 2004-05. He recorded that the assessee had not filed a return for the assessment year 2004-05, as there was no return available in the database of the Department, and that consequently he had not offered any income for taxation. On appeal: Held, dismissing the appeal that no link between the tangible material and the fo....
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.... laundering mechanism wherein it was established that bogus accommodation entities were being provided/taken. These accommodation entries are received in lieu of payment of cash of equivalent amount plus commission thereon to the entry operator. For obvious reasons, these cash transactions are not routed through the books of account of the assessee. In this case, information has been received from Directorate of Income Tax, (Investigation), New Delhi that during the relevant assessment year, this assessee had received the following cheque amount(s) in nature of accommodation entry : Value of entry taken Instrument No. by which entry taken Date on which entry taken Name of account holder of entry giving account Bank from which entry given Branch of entry giving bank A/c. no. entry giving account 300375 13. Mar-03 Rahul Finlease P. Ltd., SB Patiala Darya Ganj 50082 300315 26-Mar-03 Kuldeep Textiles (P) Ltd., SBBJ NRR 24624 400415 27-Mar-03 Division Trading Pvt. Ltd., SBBJ NRR 24620 Therefore, I have reason to believe that an income of Rs. 10,01,105/- plus commission @ 2% thereon amounting to Rs. 20,022/- totaling toRs....
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.... The Hon'ble Delhi High Court in its recent decision in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., (supra), in paras 19 to 38 held as under : "19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: "The information so received has been gone through." One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver)". The AO adds that the sai....
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....) of the Act. 25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective 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 jurisd....
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.... which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment." 28.4. The Court in Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra) quashed the proceedings under 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 ....
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...., the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does not also examine the return already filed to ascertain if the entry has been disclosed therein. 30.1. In Commissioner of Income Tax, New Delhi v. HighgainFinvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under: "It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 138 dated 8thApril 2003 that this company was involved in the giving and taking bogus entries/ transactions during the financial year 1996-97, as per the deposition made before them by Shri Sanjay Rastogi, 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 t....
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....In absence of the jurisdictional pre-condition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise." 33. In Rustagi Engineering Udyog (P) Limited (supra), it was held that "...the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped assessment. Concededly, the AO had no tangible material in regard to any of the transactions pertaining to the relevant assessment years.Although the AO may have entertained a suspicion that the Assessee's income has escaped 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 under Section 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 ....
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.... mentioning names of the parties and cheque nos. with amount. This information by itself cannot be said to be tangible material. The A.O. has not gone through the details of these information and has not even applied his mind and merely concluded that he has reason to believe that income chargeable to tax has escaped assessment. The reason to believe are therefore, not in fact reasons but only conclusion of the A.O. The expression "accommodation entry" is used to describe the information set-out without explaining the basis for arriving at such conclusion. In the case of Meenakshi Overseas Pvt. Ltd., (supra), the A.O. in the reasons has even mentioned that he has gone through the information so received which is lacking in the instant case. TheA.O. being a quasi-judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. The A.O. however, merely repeated the report of Investigation Wing in the reasons and formed his belief that income chargeable to tax has escaped assessment without arriving at his satisfaction. The reason to believe contain no reason but the conclusion of A.O. without any basis. Thus, there is no independent appli....