TaxTMI 
TaxTMI 
2019 (11) TMI 861
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....e-opening are as under:- "Investigation/enquiries were conducted by the office of the Directorate of Income Tax (Investigation), New Delhi upon the entry providers. The Investigation/enquiries carried out and the data of such beneficiaries as complied by the DIT (Investigation) was examined. It was been gathered that the assessee is amongst the beneficiaries of bogus accommodation entries. The assessee has received bogus accommodation entries detailed below: Beneficiary bank name Beneficiary bank branch Value of entry taken Instrument no. by which entry taken Date 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 1 2 3 4 5 6 7 8 9 Standard Chartered New Delhi 150000 117631 17/10/04 S.M.Enterprise Corporation Bank Paschim Vihar 52778 Standard Chartered New Delhi 200000 117635 05/11/04 S.M.Enterprise Corporation Bank Paschim Vihar 52778 Standard Chartered New Delhi 250000 117643 23/11/04 S.M.Enterprise Corporation Bank Paschim Vihar 52778 ....
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.... the beneficiary gives to the entry operator the cash which it had generated from undisclosed sources of income, who (entry operator) in turn issues cheque(s) in the form of share application money/share capital/unsecured loans etc. Thereafter, the AO has formed his opinion that he has reasons to believe that Rs. 6 lakhs has escaped assessment. From a mere reading of the reasons recorded by the AO to invoke the jurisdiction to reopen the assessment, according to the ld.AR it is vague and cannot give rise to the condition precedent for usurpation of the jurisdiction u/s. 147 of the Act. According to the ld. AR the condition precedent to reopen the assessment is "reason to believe, escapement of income", which is absent in the reasons recorded by the AO to reopen the assessment. According to him, reason to believe, postulates foundation based on information and belief based on reason. According to ld. AR even if there is a foundation based on information is existing, still there must be reason warrant holding a belief that income chargeable to tax has escaped assessment. So according to ld. AR when we look at the reassessment nowhere it is stated who is the accommodation entry provid....
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....28 Date on which entry 31.03.2004 Name of A/c Holder of entry giving account Shubham electronic & Electric Bank from which entry given SBH Branch of entry given bank KB A/c No. Entry giving account 50038 Information so received has been gone through. The above said instruments are in the nature of accommodation entry, which the Assessee has taken after paying unaccounted cash to the accommodation entry given, who is a known entry operator as per the report of the Investigation Wing. In view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason to believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment so far as this amount is concerned. Therefore, this case is fit for issuing notice under Section 148 of the Income Tax Act, 1961. In this case the assessment was made under Section 143(1) not under Section 143(3) of the I.T Act, 1961. I am therefore satisfied that the said income, on account of accommodation entry worth Rs. 5,00,000 received by the Assessee has ....
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....ader 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 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 A....
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....of the instrument by which entry was taken, the date on which the entry was taken, Name of the account holder of the bank from which the cheque was issued, the account number and so on. 28.3 Analysing the above reasons together with the annexure, the Court observed: "14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence tha....
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....volving Rs. 27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed. On the basis of this new information, I have reason to believe that the income of ~ 27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148." 29.3 The Court was not inclined to interfere in the above circumstances in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the pr....
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....to come to the conclusion that the Assessee had not made a full and true disclosure of all the material facts relevant for the assessment. 31. In Commissioner of Income Tax v. G&G Pharma (supra) there was a similar instance of reopening of assessment by the AO based on the information received from the DIT (I). There again the details of the entry provided were set out in the 'reasons to believe'. However, the Court found that the AO had not made any effort to discuss the material on the basis of which he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act. 32. In Oriental Insurance Company Limited v. Commissioner of Income Tax 378 ITR 421 (Del) it was held that "therefore, even if it is assumed that, in fact, the Assessee's income has escaped assessment, the AO....
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....ons 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 that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. 38. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs." 8. Per contra, learned Departmental Representative opposing contentions of the learned AR submitted when the AO receives information from the DDIT(Investigation) that an assessee who is residing in his jurisdiction has laundered undisclosed cash through an accommodation entry provider, he( AO) has to re-open the assessment to tax the escaped income. According to him, the AO received information that M/s. S.M Enterprises has provided accommodation entry to the assessee on various dates. After taking note ....
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...., but how the AO concluded that the said entity is an accommodation entry operator/provider is not discernable. So that basis of the conclusions made by the AO even if it is the report of DDIT (Inv), then the AO ought to have brought out these facts which could have formed the basis of conclusion is absent in the reasons recorded by the AO, which exposes the fact that the reasons recorded by AO to re-open the assessment is vague and is only reproduction of the information, which the AO received from the DDIT (Inv.). Moreover, even the information from DDIT is not given/supplied in full. Though we are of the opinion that it is not necessary to copy/repeat verbatim the report of DDIT (Inv), the AO ought to have mentioned the relevant facts pertaining to that of assessee to enable the reader of reasons recorded how the AO had formed the belief based on the reasons recorded that income of the assessee has escaped assessment. Here it is absent. On reading of the reasons recorded as set out above does not bring out how the AO has come to the conclusion that assessee had utilized the services of the account holder of entry giving account of M/s. S.M Enterprises. Thus, crucial link between....
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....nt of income. While the report of the Investigation Wing might constitute the material/foundation, but belief he forms cannot be a mere repetition of the report of investigation. It has to be kept in mind that the condition precedent to invoke the jurisdiction of reopening is the recording of reasons to believe and not reasons to suspect. This is the precondition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe escapement of income which is recorded by the AO prior to reopening of the assessment must necessarily demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. Thus, we note that the reasons recorded by the AO to reopen the assessment of the assessee in the present case do not satisfy the requirement of section 147 of the Act. Information referred to by the AO in the reasons recorded (supra) is extremely scanty and vague. There is no reference to any document or statement, except reference of investigation report of DDIT (Inv.), Delhi and a general modus operandi of entry operators/providers and conclusions of the AO without any basis. Thus, the reasons re....