TaxTMI 
TaxTMI 
2019 (11) TMI 28
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....the assessee. Assessee's objection to reopening were disposed off by the Assessing Officer (AO) vide order dated 14.12.2012. Assessment order u/s 147/144 of the Act was passed after making following additions: i) Rs. 600,000/- on account of alleged accommodation entry as referred to in the reasons recorded) ii) Rs. 6,000/- (on account of alleged expenditure to obtain the said accommodation entry u/s 69C of the Act) iii) Rs. 970,000/- (on a/c of increase of share capital after excluding Rs. 600,000 as added above as taken from the assessee's balance sheet) iv) Rs. 62,80,000/- (on a/c of increase of share premium as taken from the assessee's balance sheet) 2.1 The assessment was made at total income of Rs. 79,28,220/- as compared to the returned income of 72,222/-. 2.2 In appeal before the Ld CIT-A , various legal grounds were taken challenging the assumption of jurisdiction u/s 148 of the Act and also the additions made were challenged on merits. On legal and merits, both aspects, the Ld. CIT-A confirmed the AO's action and sustained the AO's order except for allowing marginal relief of Rs. 3,000/- on a/c of alleged expenditure incurred by t....
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.... letter, the reopening was based on the borrowed satisfaction of CIT Central II, New Delhi and was without an independent application of mind. Various case laws were relied upon by the Ld. AR in this regard. 3.2 It was further argued by the Ld AR that firstly the reasons in the present case do not state as to what was the exact information received from the investigation wing/CIT-Central vis a vis assessee's subject transaction of Rs. 600,000/- so as to prima facie treat the same as an accommodation entry. It was submitted that reasons recorded merely stated general and vague facts of one search u/s 132 of the Act on one Shri Aseem Gupta without bringing out anything specific to correlate the said search operation on Shri Aseem Gupta with the assessee so as to implicate the assessee. It was submitted by the Ld. AR that the reasons recorded did not divulge certain crucial facts viz: i)existence of statement, if any, recorded of Shri Aseem Gupta during said search operation u/s 132 of the Act; ii) whether the said statement (if any) mentioned and correlated the assessee's impugned transaction; iii) existence of incriminating material (if any) unearthed from said search operation u....
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.... (share acquisition) the primary fact would have been on the record; the AO's subsequent action in pursuing that aspect or letting go of it, after inquiry might well have justified the charge of a second and impermissible opinion on the same subject. However, that is not the case. The TEP and investigation reports - of subsequent vintage (after completion of Mr. Gandhi's assessment), therefore, constituted tangible material which in terms of the ruling in Commissioner of Income Tax vs. Kelvinator of India Ltd 320 ITR 561 (SC) justified reassessment. In the case of the other two assessees (Ms. Sonia Gandhi and Mr. Oscar Fernandes) the returns filed by them were processed under Section 143 (1). Such instances are not treated as "assessments". Zuari Estate Development & Investment Co Ltd (supra) is an authority on the subject." 4.2 Heavily relying on aforesaid observations of the Hon'ble Delhi High Court it was sought to be argued by the Ld. Sr. DR that no interference need be made in perfectly valid and justified reopening made in the present case. The Ld. Sr. DR prayed for the rejection of arguments of the Ld AR of assessee. 5.0 In the rejoinder, the Ld AR submitted that the a....
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....t keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence....". Therefore, the reasons are to be examined only as they were recorded by the competent officer before the issuance of the notice. 6.1 The next important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment. The reasons should not merely disclose need for an inquiry which may result in detection of an income escaping assessment. Undoubtedly, at the stage of recording the reasons for reopening the assessment, all which is necessary is the formation of a prima facie belief that an income has escaped the assessment and it is not necessary that the fact of the income having escaped assessment is proved to the hilt. What is, however, necessary is that there must be something tangible which indicates, even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that income has escaped assessment. Merely because detailed investigation was not carried out, and if so, co....
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....cts and circumstances. The power under sections 147 / 148 comes into existence if the AO had reason to believe that income has escaped assessment. Formation of reason to believe that income escaped assessment has to be that of a prudent person. The reasons for such belief have to be recorded in writing on the basis of material in the possession of AO. While the phrase "reason to believe" is wide in its import, it cannot include a mere suspicion or ipse dixit of the AO. The belief of the AO should lead him to form an honest and reasonable opinion based on reasonable grounds. This proposition has been laid down by the Hon'ble Supreme Court in the judgments of ITO vs. Lakhmani Mewal Das (supra) and Navinchandra Mohanlal Parik vs. WTO (124 ITR 68). The reasonability of the grounds which lead to the formation of belief warranting reopening is tested from the point of view of whether or not they are germane to the formation of belief that income escaped assessment and after four years, an additional condition that escapement of income was due to fault of the assessee in not fully and truly disclosing the material facts at the time of original assessment is also to be fulfilled. 6.....
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....pta has stated on oath (at the time of search as well as during assessment proceedings) that cash and other unexplained deposits made in various bank accounts of entities controlled by him belonging to the beneficiaries should be taxed in the hands of respective beneficiaries. The evidences gathered at the time of search further corroborates the assertion made by Shri Aseem Kumar Gupta that he was merely providing accommodation entries. Accordingly cash and other unexplained deposits appearing in the bank accounts of entities controlled by Shri Aseem Kumar Gupta were taxed in hands of Shri Aseem Kumar Gupta, his companies and proprietorship concerns on protective basis. It is appropriate that the cash and other deposits belonging to beneficiaries should be substantively taxed in the hands of beneficiaries themselves. As per information received from the office of CIT-Central II New Delhi the assessee M/s Raghvi Finance P Ltd has taken following accommodation entries from following person (beneficiary) as per details hereunder: Name of beneficiary Amount (Rs) Cheque/DD No Date Bank detail Name of the company used for providing accommodation entry Raghvi....
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....h on Shri Aseem Gupta and the inference to hold the assessee's transaction as accommodation entry are left to guess work and nothing is divulged from the reasons recorded on the above said aspects which make the reasons-recording exercise as invalid on wellsettled parameters of section 148 of the Act. Second aspect which is notable in the reasons recorded is that there is no intelligible and rational connection in the reasons recorded and a mere conclusion is drawn from un-narrated information which does not fulfil the legal requirement u/s 148 of the Act. What we notice is that the reasons recorded mention conclusions drawn by the CIT-Central/investigation wing only which is taken as good enough to draw reasons recorded u/s 148 of the Act. We are fully conscious of the fact that the investigation wing of the Income Tax department is very important organ and arm collecting lot of significant information/s under the Act. However, the requirement of recording the reasons u/s 148 of the Act is vested in the AO only and nobody else. In the present case, the AO should have given relevant details in the reasons recorded vis a vis the crucial aspects of information shared by the CIT Centr....
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....on to suspect', based on an information can trigger an enquiry to find out whether there is any substance or material to substantiate that there is merit in the information adduced by the CIT(Central)/DIT(Inv.) and, thereafter, the AO has to take an independent decision to re-open or not. The AO should not act on the dictates of any other authority like in the present case the AO has acted on the mere information from the CIT (Central)/DIT(Inv.) because then it would be borrowed satisfaction. 6.10 ITAT Delhi 'G' Bench had an occasion to consider an identical issue in the case of SBS Realtors (P) Ltd in ITA No. 7791/Del/2018 for Assessment Year 2009-10. Vide order dated 01.04.2019, the co-ordinate Bench held as under: "6. From a perusal of the above reasons, it is seen that the Investigation Wing has supplied certain information to the Assessing Officer with regard to receipt of cheques by the assessee from various companies who are considered to be S.K. Jain group companies by the Investigation Wing. As per the Investigation Wing, the above cheques paid by S.K. Jain group companies were accommodation entries to M/s SBS Realtors Pvt. Ltd. i.e., the assessee. However, wha....
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....ineness, identification and creditworthiness of any transaction. In our opinion, the reply is clearly NO. 7. Thus, if the Assessing Officer considered it necessary to ensure that the assessee has not understated the income, he can issue the notice under Section 143(2). However, proviso to above Section provides the time limit within which such notice can be issued. Once that time limit is expired, in our opinion, the Assessing Officer cannot invoke Section 148 just for the purpose of verification. Therefore, in our opinion, in the case under consideration, the reopening of assessment for the purpose of verification of genuineness, identification and creditworthiness of the transaction is not permissible under law and is liable to be quashed. 8. The learned counsel for the assessee has also mentioned that the notice has been issued mechanically without application of mind and the satisfaction by the Assessing Officer is only the borrowed satisfaction of the Investigation Wing. The Assessing Officer, without applying his mind, has simply on the basis of information of the Investigation Wing jumped to the conclusion that there is escapement of income. From a perusal ....
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....onditions to be nature of discussions or reasons that the Officer authorizing the notice would have to discuss in the note or decision was beyond the purview of the courts and was not justified. The orders of the Appellate Tribunal could not be sustained. The Appellate Tribunal was directed to hear the Department's appeals on their merits." 9. On the other hand, learned counsel for the assessee has relied upon the catena of judgment before and after the date of above judgment of Hon'ble Delhi High Court wherein the notice under Section 148 simply on the basis of report of the Investigation Wing has been quashed. The same is as under:- (i) Sarthak Securities Co. P. Ltd. Vs ITO - [2010] 329 ITR 110 (Delhi). (ii) Signature Hotels P. Ltd. Vs. ITO - [2011] 338 ITR 51 (Delhi). (iii) PCIT Vs. G And G Pharma India Ltd. - [2016] 384 ITR 147 (Delhi). (iv) PCIT Vs. RMG Polyvinyl (I) Ltd. - [2017] 396 ITR 5 (Delhi). (v) PCIT Vs. Meenakshi Overseas Pvt. Ltd. - [2017] 395 ITR 677 (Delhi). 10. Learned DR has also relied upon few decisions of Hon'ble Gujarat High Court. However, when there are large number of decisions of Hon'b....
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....ort from the Investigation Wing. There is no crucial link between the information made available to the Assessing Officer and the formation of belief of escapement of income. There is no basis for coming to the conclusion that the assessee received accommodation entries. The Investigation Wing alleged that the companies which issued cheques to the assessee company are companies of Shri S.K.Jain group and they are entry providers. However, the basis for such conclusion is missing. There is no mention that any document was seized from Shri S.K. Jain group or any director of the 12 companies which have given cheques to the assessee has given the statement that they have provided accommodation entries to the assessee. The Assessing Officer has simply reopened the case on the basis of information provided by the Investigation Wing without any independent application of mind. There is no tangible material which formed the basis for the belief that income has escaped assessment. 12. While taking the above view, we derive support from the latest decision of Hon'ble Jurisdictional High Court in the case of RMG Polyvinyl (I) Ltd. (supra) and Meenakshi Overseas Pvt. Ltd. (supra).....
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....that in view of these facts, "the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... " 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" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not 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 there from. 23. Thus, the crucial link between the information made available to the ....
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.... 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. ************* 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding ....