TaxTMI 
TaxTMI 
2019 (7) TMI 1311
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....re of information received from DGIT(Inv.), New Delhi and his suggestion/dictatum without application of his mind so as to come to an independent conclusion that he has reason to believe that income has escaped assessment and thus he has acted upon borrowed satisfaction, therefore the consequent reassessment made is invalid, illegal and abinitio void, which deserves to be annulled/quashed. 3. That the appellant has duly discharged the initial onus laid on it in terms of section 68 of the Act, now it is settled law that if the appellant produces the names, addresses, PAN details of the shareholders then the onus on the appellant to prove the source of share application money discharges and in such case if the AO is not satisfied regarding the creditworthiness of the shareholders, then the revenue is free to proceed to reopen the individual reassessment of the shareholders whose source is doubted but no addition can be sustained U/S 68 of the Act in case of the appellant. 4. a) That it is settled law that in respect of contribution to share capital, the same cannot be assessed in the hands of the appellant, unless the department is able to show that the amount recei....
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....assessee has challenged the validity of the reassessment proceedings that the AO has reopened the assessment solely on the basis of suggestion/dictum of DGIT(Inv.), New Delhi without application of mind being constitutes borrowed satisfaction. Since, this is a legal issue which goes to the root of the matter and hence taken up for adjudication on priority. 3. The Ld. DR raised objection to legal ground that since, no challenge to reassessment proceedings U/s 147 of the IT Act was raised by the assessee before the AO, hence, it cannot be taken up at this stage. In reply, the Ld. AR of the assessee relied upon following authoritative decisions including the jurisdictional High Court on this issue: 1. Smt. Raj Rani Gulati Vs. Commissioner of Income-tax (2013) 33 taxmann.com 670 (Hon'ble Allahabad High Court) 2. CIT, Central-I, Mumbai Vs. Pruthvi Brokers & Shareholders (2012) 23 taxmann.com 23 (Hon'ble Bombay High Court) 3. Inventors Industrial Corpn. Ltd. Vs. Commissioner of Income-tax (1992) 194 ITR 548 (Hon'ble Bombay High Court) 4. E. Jewellery Vs. Income-tax Officer, Ward 20(3)-1, Mumbai (2011) 9 taxmann.com 28 (Hon'ble ITAT Mumbai Bench `....
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....notice u/s 148 of the Income Tax Act, 1961 is being issued to the assessee. J.P. Singh) Income Tax Officer Ward-1(3), Aligarh" The AO has completed the assessment by making addition of Rs. 88,00,000/- for unexplained share capital from accommodation entry out of income earned by the assessee from undisclosed sources in cash. 5. Aggrieved assessee, filed appeal before the Ld.CIT(A) taking up the disputed legal issue, vide ground nos.3(a), (b), (c), (d) and (e), as under: "3. a) Because as no valid reassessment proceeding U/S 147 of the Act read with section 148 of the Act has been initiated in the case of the assessee company, therefore the reassessment order passed U/S 143(3)/147 of the Act is illegal, bad in law and abintito void and deserves to be quashed/cancelled. b) Because the reassessment made is bad in law because prior to the completion of reassessment the reasons recorded were never communicated to the assessee company. c) Because at the time of recording reasons for initiating proceedings U/S 147 of the Act, the learned AO did not have return of income of the assessee company and even did not know about the nature of alleged undi....
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....ness" of providing entries by channelizing unaccounted money of people through a maze of artificial entities to give it a colour of loans or share application money so that the money can be utilized in business without the risk of detection of the underlying unaccounted income. This has indeed become a menace and needs to be checked. Not only that this causes, abetment of tax avoidance but it also results in money laundering which is a crime. In order to check this menace of 'Entry business' the Investigation Wing has been carrying out search and seizure operations on various entry operators from time to time. Apparently this case is also of a similar kind. The requirement u/s 147 is that the AO should have "reasons to believe" that any income chargeable to tax has escaped assessment. Therefore we have to decide whether the material in possession of the AO was sufficient to from a reason to believe. Without doubt, the AO had received a report from the Investigation Wing of the Department which had comprehensively detailed the relevant facts. These facts were obtained by carrying out search and seizure operation and subsequent investigation. The provisions of search and sei....
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....relied by the appellant have applicability to the facts of the present case. In determining whether commencement of assessment proceedings is valid, the court has only to see whether there is prima facie some material on the basis of which the Department opened the case. The sufficiency or correctness of the material is not a thing to be considered at this stage as held by the Supreme Court in the case of Raymond Woollen Mills Ltd. Vs. ITO (1999) 236 ITR 34 (SC), and also as held in the case of Great Arts Pvt. Ltd. Vs. ITO (2002) 257 ITR 639 (Delhi). The assessee cannot challenge sufficiency of belief - ITO Vs. Lakhmani Mewal Das (1976) 103 ITR (SC). In another case Hon'ble SC in case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 has held that at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. Further, it is observed that the appe....
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....s were already investigated by the Investigation Wing and a report was made available to the AO. The ld. CIT(A) observed that there is no allegation of any vested interest of the AO and that there is nothing on record to show that the AO's opinion is an opinion which is based on extraneous considerations and it is not a genuine opinion, that what is to be seen is the existence of, prima facie, some material which could form the basis of the reasons of belief of escapement of income and not the sufficiency thereof to conclusively prove escapement of income, the AO's satisfaction for formation of such a belief being his subjective satisfaction. 13. The ld. Counsel for the assessee has contended that the ld. CIT(A) has erred in confirming the AO's action of issuance of notice u/s 148 of the Act, by holding such action to be in accordance with law. Relying on 'PCIT vs. Meenakshi Overseas (P) Ltd.', 154 DTR 100 (Del.), the ld. Counsel has contended that mere reliance on the information received, without having acted thereon before recording the reasons, showing non-application of mind on the part of the AO, is unsustainable in law. The ld. Counsel has also placed on reliance on....
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....of mind by the AO to the material forming the basis of the reasons recorded is evincible from the reasons. The AO, in the reasons, has just stated the information received and his conclusion about the alleged escapement of income. As to what the AO did with the information made available to him, is not discernible from the reasons. As such, 'Meenakshi Overseas' (supra), is squarely applicable. 17. 'Meenakshi Overseas' (supra) is by the Hon'ble Delhi High Court, whereas the decisions cited by the ld. DR are from other different High Courts. Of all these, 'Brij Mohan Agarwal' (supra) is by the Hon'ble Allahabad High Court, i.e., the jurisdictional High Court qua the assessee. However, that decision is essentially factspecific. It does not lay down any proposition of law, as such. The Civil Writ Petition filed by the assessee was decided by the Hon'ble High Court on merits, having taken into consideration the investigation report of the Investigation Wing of the Department, as conveyed to the AO, the assessee's record, the Department's counter-affidavit (alongwith its annexures) to the Writ Petition and the rejoinder affidavit filed by the assessee. It was held that ....
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.... Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the Assessee is to be avoided; (ii). the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment - especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; (iii). where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed along with the reasons; (iv) the exercise of considering the Assessee's objections to the reopening of assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed." 22. Thus, in deference to ....
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.... 25. In the result, the appeal is allowed." 8. The Ld. AR reiterated the submissions made before the Ld. CIT(A), Aligarh, and invited our attention to the APB Vol. I paras 1 to 5 at pages 6 to 13, wherein he has challenged the validity of reassessment proceedings before Ld.CIT(A), Aligarh. The ld. Counsel has challenged the validity of reassessment proceedings, particularly on the issue of the action taken u/s 147 of I.T. Act, being initiated solely on the basis of borrowed satisfaction by way of vague report of DIT(Inv.) and that the assessee has received accommodation entry however, the AO has not verified such report by way of enquiry/discussion of the material on the basis of which he formed a prima facie opinion that income has escaped assessment or its office record to establish and demonstrate link between tangible material and formation of reason to believe that income has escaped assessment, so as to justify the reassessment. In support, the Ld.AR relied on the following authoritative decisions: 1. Principal Commissioner of Income-tax-6 Vs. Meenakshi Overseas (P) Ltd. (2017) 82 taxmann.com 300 (Delhi High Court) 2. Signature Hotels (P.) Ltd. Vs. ....
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....sed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, it was 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. Therefore, the proceedings under section 148 were to be quashed." 12. Further, Ld. AR placing reliance on the decision of Hon'ble High Court of Delhi in the case of "PCIT Vs. G&G Pharma India Ltd.(Supra)", (2017) 81 Taxmann.com 109, contended that reopening of assessment by the AO based on the information received from Director of Investigation without making any effort to discuss the material on the basis of which he formed a prima facie opinion that income has escaped assessment, the basic requirement of section 147 of the Act that the AO should apply independent mind in order to form reasons to believe that income has escaped assessment, is not fulfilled. 13. In the case of "PCIT Vs. RMG Polyvinyl (I) Ltd.", (Supra) 396 ITR 5, it was held that whe....
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....on of mind by the AO nor there was any nexus between tangible material and formation of reason to belief except the suggestions of DDIT(Inv.) that notice u/s 148 of the Act in the case of the assessee for FY 2009-10 relevant to AY 2010-11 is required to be issued to bring to tax the undisclosed income of Rs. 85 lakhs regarding the accommodation entries obtained by the assessee company. In the absence of independent application of mind by the AO to tangible material, the reasons failed to demonstrate link between tangible material and formation of belief that income has escaped assessment in the case of the assessee. Therefore, the conclusion of the AO on the basis of general nature of information received by him, indeed constitute a borrowed satisfaction. 18. It is seen that the reasons are solely founded on the information received from the DCIT(Inv.)-II, New Delhi and its suggestion to issue notice u/s 148 of the Act to bring to tax the undisclosed income regarding the accommodation entry of Rs. 85,00,000/- obtained by the assessee. In fact, the crucial link between the information made available to the AO and formation of his belief is absent. The tangible material which form....