TaxTMI 
TaxTMI 
2019 (8) TMI 1121
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.... u/s 147 of the Act:- "Information has been received from Investigation Wing of the Income tax Department that large scale, manipulation had been done in the market price of shares of SPLASH MEDIA by a group of persons acting as a syndicate in order to provide entries of tax exempt long term capital gains to the assessee (beneficiary). According to the information available, the assessee had traded in the above scrip to the tune of Rs. 2374500/- during the financial year 2010-11 and bogus LTCG amounting to Rs. 2116776 /- had been facilitated to the assessee during the financial year 2010-11. Hence, I have reason to believe that the above income of Rs. 2116776/- chargeable to tax has escaped assessment for the asst, year 2011-12, within the meaning of sec.147 of the Income-tax Act." 5. Accordingly, notice u/s 148 of the IT Act was issued by the ITO, NCW-6(3), Chennai on 19th August, 2016 after obtaining necessary approval u/s 151 of the IT Act. Subsequently, the case was transferred to New Delhi in pursuance of the order dated 19th July, 2017 u/s 127 of the IT Act passed by the PCIT-9, Chennai. The assessee, in response to notice u/s 148 filed her return of income on ....
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....] under section 147 read with section 143(3) of the Income-tax Act [in short "the Act"]and uphold by the Commissioner of Income-tax (Appeals) - 19, New Delhi [in short "Ld. CIT(A)"] is bad in both the eye of law and on the fact. 2. That on the facts and circumstances of the case, the Ld. CIT(A) erred in holding that: a. The AO was right in exercising jurisdiction u/s 148 of the Act; and b. The AO has passed his order u/s 147 in violation of the settled law and pivotal facts that existed on the date of assessment order. 3. That on the facts and circumstances of the case, the addition to the tune of Rs. 20,97,998/- as made by the Ld. AO u/s 68 and upheld by the CIT(A) is bad at law and void ab initio. 4. That on the facts and circumstances of the case, the addition to the tune of Rs. 1,04,900/- as made by the Ld. AO u/s 69C and upheld by the CIT(A) is bad at law and void ab initio. 5. That on the facts and in law, the Ld CIT(A) erred in not disposing ground taken before his esteemed office: "Ground no. 3 : That on the facts and in law, the Ld AO erred in not providing copy of statement recorded in search and seizure opera....
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....mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be su....
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....and the Assessing Officer has not applied his mind independently, therefore, such reopening of assessment is not valid and accordingly the subsequent proceedings are to be held as void ab initio. 10. In his second limb of argument, the ld. counsel for the assessee drew the attention of the Bench to the form of recording the reasons for initiating proceedings u/s 147 and for obtaining the approval of Addl./Joint Commissioner of Income-tax and Commissioner of Income-tax, copy of which is placed at page 40 of the paper book. Referring to column 13 of the said proforma, he drew the attention of the bench to the remarks/approval of the PCIT-9, Chennai where it has been mentioned as under:- "Yes. I am satisfied." 11. Similarly, in column 12, the Joint Commissioner of Income-tax, while giving his approval, has mentioned as under:- "Recommended for approval u/s 147 of the Act." 12. Referring to the decision of the coordinate Bench of the Tribunal in the case of ITO, Ward-17(4), New Delhi vs. Virat Credit & Holdings Pvt. Ltd., ITA No.89/Del/2012 and CO No.57/Del/2012, order dated 9th February, 2018, the ld. counsel for the assessee drew the attention of the Bench ....
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....39;ble Supreme Court in the case of Raymond Woollen Mills vs. ITO reported in 236 ITR 34 submitted that in determining whether commencement of reassessment proceedings was valid or not it has only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. Referring to the decision of the Hon'ble Supreme Court in the case of Yogendra Kumar Gupta vs. ITO reported in 227 Taxman 374 (SC), he submitted that the Hon'ble Supreme Court in the said decision has held that where subsequent to completion of original assessment, the Assessing Officer, on the basis of search carried out in case of another person, came to know that loan transaction of the assessee with a financial company was bogus as the said company was engaged in providing accommodation entries, it being a fresh information, he was justified in initiating reassessment proceedings in case of the assessee. He also relied on the following decisions for the above proposition:- i) Yuvraj vs. Union of India (2009) 315 ITR 84 (Bom); ii) ACIT vs. Rajesh Jhaveri ....
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.... v) Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain vs. CIT (2017) ITA No.18/2017 (Bombay High Court); vi) Chandan Gupta vs. CIT (2015) 54 taxmann.com 10 (P&H); vii) Balbir Chand Maini vs. CIT (2011) 12 taxmann.com 276 (P&H); viii) Usha Chandresh Shah vs. ITO (2014-TIOL-1459-ITAT-MUM); ix) Ratnakar M Pujari vs. ITO 2016-TIOL-1746-ITAT-MUM; x) Abhimanyu Soin vs. ACIT, 2018-TIOL-733-ITAT-CHD; xi) Arvind M Kariya vs. ACIT, ITA No.7024/Mum/2010; xii) ITO vs. Shamim M Bharwani (2016) 69 Taxmann.com 65. 17. He accordingly submitted that the order of the CIT(A) be upheld. 18. I have considered the rival arguments made by both the sides and perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the case of the assessee was reopened u/s 147 by recording the reasons and after obtaining approval from the JCIT and the PCIT on the basis of the information received from the Investigation Wing of the Department that the assessee is a beneficiary of accommodation entry of bogus long-term capital gain. The....
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....en AO while recording the reasons for initiating the reopening of assessment has not applied his mind independently. When we peruse the reasons recorded, available at pages 31-32 of the paper book, the entire reasons have been based on the statement of one Shri P.K. Jindal, who has furnished the list of companies stated to be not doing any business activities but engaged in providing accommodation entries. Before issuing the notice AO appeared to have not examined the profile of the said companies to arrive at a logical conclusion so as to issue the notice u/s 148 of the Act. When this fact is examined in the light of the completed assessment of the assessee u/s 143 (3), all the documents concerning share application money, now available at pages 1 to 30 of the paper book, were supplied to the AO. This fact has not been taken into consideration by the AO before initiating the proceedings u/s 147/148 of the Act. However, since reopening of assessment in this case is otherwise not sustainable, we are not entering into any merits. 14. Hon'ble Supreme Court in case cited as CIT vs. S. Goyanka Lime & Chemical Ltd. - (2015) 64 taxmann.com 313 (SC) examined the identical issu....
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....Notice- Assessee had in its return for A Y 2001-02 claimed that sum of Rs. 1 Crore was received towards share application amounts and a further sum of Thirty Five Lakhs was credited to it as an advance towards loan-Original assessment was completed u/s 143(3)-However, pursuant to reassessment notice, which was dropped due to technical reasons, and later notice was issued and assessments were taken up afresh-After considering submissions of assessee and documents produced in reassessment proceedings, AO added back a sum of Rs. 1,35,00,000-CIT(A) held against assessee on legality of reassessment notice but allowed assessee's appeal on merits holding that AO did not conduct appropriate enquiry to conclude that share inclusion and advances received were from bogus entities-Tribunal allowed assessee's appeal on merits-Revenue appealed against appellate order on merits-Assessee's cross appeal was on correctness of reopening of assessment- Tribunal upheld assessee's crossobjections and dismissed Revenue's appeal holding that there was no proper application of mind by concerned sanctioning authority u/s Section 151 as a pre- condition for issuing notice u/s 147/148- Hel....
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....ting the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the Superior Officer should itself be provided to the Assessee. This would contain the comment or endorsement of the Superior 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 quasijudicial function. The order disposing ....
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....#39;ble Delhi High Court in the case of United Electrical Company Pvt. Ltd. (supra) while deciding an identical issue has held that the power vested in the commissioner u/s 151 to grant or not to grant approval to the Assessing Officer to reopen an assessment is coupled with a duty. The commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. That power cannot be exercised casually and in a routine manner. Accordingly, the Hon'ble High Court quashed the notice, since there was no proper application of mind by the Addl.CIT. 11. I find the Hon'ble Delhi High Court in the case of Pr. CIT vs. N.C. Cables Ltd., while deciding an identical issue has held that section 151 of the Act clearly stipulates that the CIT, who is the competent authority to authorize the reassessment notice has to apply his mind and form an opinion. Mere appending of the expression 'approved' says nothing. It is not as if the commissioner has to record elaborate reasons for agreeing with the noting put up before him. At the same time, satisfaction has to be recorded of the given case which can be reflec....
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....om the Investigation Wing. The Hon'ble Delhi High Court in a number of decisions has held that reopening of assessment on the basis of report of the Investigation Wing without independent application of mind by the Assessing Officer is not in accordance with law and accordingly the reassessment proceedings have been quashed. The Hon'ble Delhi High Court recently in the case of South Yarra Holdings vs. ITO, vide Writ Petition No.3398 of 2018, order dated 1st March, 2019, at para 7 of the order has observed as under:- "7. It is a settled position in law that re-opening of an assessment has to be done by an Assessing Officer on his own satisfaction. It is not open to an Assessing Officer issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income chargeable to tax has escaped assessment, that re-opening notice is to be issued." 24. The Hon'ble High Court in the case of PCIT vs. Meenakshi Overseas Pvt. Lt....
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.... the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act." 25. I....