TaxTMI 
TaxTMI 
2021 (5) TMI 22
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.... 3. Following grounds have been raised in this appeal: 1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-3, Ludhiana is against law and facts on the file in as much as she was not justified to uphold the action of the Ld. Assessing Officer in initiating proceedings u/s 148 of the Income Tax Act, 1961 merely on the basis of suspicion. 2. That the Learned CIT(A) was further not justified to arbitrarily uphold the action of the Ld. Assessing Officer in making an addition of Rs. 1,17,00,000/- on account of share premium received from various parties by resort to provisions of Section 56(vii)(b) of the Act. 3. That the Learned CIT(A) was not justified to arbitrarily hold that the addition made by the Ld. Assessing Officer by resort to provisions of Section 56(vii)(b) is to be upheld u/s 68 of the Income Tax Act, 1961. 4. That she was further not justified to arbitrarily enhance the income of the appellant by Rs. 13,00,000/- on account of share capital received from various parties by invoking the provisions of Section 251(2) of the Income Tax Act, 1961. 5. That she gravely erred....
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....ssessee on 08/05/2015. The assessee raised some objections against those reasons vide letter dt. 22/07/2015 which were disposed off by the A.O. vide letter dt. 24/07/2015 by mentioning that the A.O. had sufficient reasons to form the belief that the income of the assessee had escaped assessment by reasons of omission of failure on part of the assessee to disclose fully and truly all material facts necessary for this assessment. The reliance was placed on the following judgments of the Hon'ble Apex Court : Phool Chand Bajrang Lal Vs. I.T.O. (1993) 203 ITR 456 M/s Raymond Woolen Mills Ltd. Vs. I.T.O (1999) 236 ITR 34 The reliance was also placed on the judgment of the Hon'ble Delhi High Court in the case of Mahangar Telephone Nigam Ltd. (2000) 246 ITR 173 (Del). 5.4 The A.O. held that since no assessment was completed in the case of the assessee, the notice issued under section 148 of the Act was very much within the provisions of the Act, and that in the case of the assesse there were sufficient reasons to form the belief that the income had escaped the assessment within the meaning of Section 147/148 of the Act. 5.5 The A.O. also observed that to ....
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....iib) of the Income-Tax Act, 1961. Aggrieved by the order dated 11.03.2016, the appellant filed an appeal before Your Honor. The appellant seeks to place on record, its preliminary legal assertions, challenging the legitimacy of the addition effected in the assessment order, as under: A. That the Ld. Assessing Officer has erred both in law and on the facts of the case by initiating proceedings U/s 148 of the Act * on the basis of Suspicion; * inspite of the fact that there is no new, fresh, reliable and tangible material before the Ld. Assessing Officer while forming the belief that the assessee has escaped income. * on acting upon the directions of the other authorities and also on the borrowed satisfaction and there is no independent satisfaction recording reasons. * inspite of the fact that there is no information before the Ld. Assessing Officer while forming the belief that the assessee has escaped income. B. That the Ld. Assessing Officer has erred both in law and on the facts of the case by interpreting the various judgements wrongly and hence the initiation of proceedings U/s 147/148 of the Act are illegal, arbit....
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....ts by different courts of law, wherein. it has been held that, without having any satisfaction on record, and, without any application of mind, the Ld Assessing Officer could not draw a presumption on the basis of information received from the investigation wing that the income chargeable to tax has escaped assessment, and, accordingly a notice issued U/s 148 of the Income-Tax Act, 1961 would be an invalid notice, as under: - I. The Hon'ble High Court of Punjab and Haryana in the case of Commissioner of Income-Tax Vs. Anupam Kapoor reported at [2008] 299ITR 179 has held as under: "The assessee had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the Assessing Officer, which could have led to a conclusion that the transaction was simplicitor a device to camouflage activities, to defraud the revenue. No such presumption could be drawn by the Assessing Officer, merely on surmises and conjectures. It was for the Assessing Officer, who had....
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....lhi in the case of Income-Tax Officer Vs. Sarthak Securities (P.) Ltd reported at [2010] 329 ITR 110 (Delhi) has laid down as under: "In the instant case, the Assessing Officer was aware of the existence of four companies with whom the assessee had entered transactions. Both the orders clearly exposited that the Assessing Officer was made aware of the situation by the investigation wing and there was no mention that those companies were fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicated independent application of mind. True it is, at that stage, it was not necessary to have the fact of escapement of income established but what was necessary was that there was material on record on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof was not germane at that stage but the formation of belief had to be on the basis or foundation or platform of prudence, which a reasonable person was required to apply. As was manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authorit....
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....ry evidence including bank statement and cash flow statement. He also observed that the A.O. called for, result of assessee company for previous year and subsequent three years, however, the assessee declined to furnish such information claiming that the information was also available on record but the A.O. had mentioned that the details claimed by the assessee were not part of the return filed by the assessee, therefore, notice under section 148 of the Act was issued. He also observed that the A.O. disposed off all the objections raised by the assessee. 6.3 Ld. CIT(A) was of the view that the informations received in the assessee's case were specific and clear which were correlated by the A.O. with Income Tax Return filed by the assessee before issuing the notice under section 148 of the Act and that the A.O. after having preliminary satisfaction with respect to information received, issued letter under section 133(6) of the Act to the assessee for detailed explanation in order to verify the veracity of the information received and the assessee's explanation with regard to the same. After having satisfaction over the basis of information and verifying the assessee's....
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....said that the action of the A.O. was on the basis of certain surmises and conjectures only and it could also not be said that the material in possession of the A.O. could just make him reason to suspect and not reason to believe that the income had escaped assessment. The reliance was placed on the following case laws: * Gurera Gas Cylinders Pvt. Ltd. Vs. CIT 258 ITR 170 (P&H) * Swaraj Engine Ltd. Vs. ACIT 260 ITR 202 (P&H) * Phool Chand Bajrang Lal Vs. ITO 203 ITR 456 (SC) 6.5 The Ld. CIT(A) further observed that the reasons recorded by the A.O. revealed that the A.O. applied his mind to the information by verifying the assessment record wherein he found that the assessee had no income as per the Income Tax Return filed for the assessment year under consideration and that the assessee had received huge share premium without any obvious reasons therefore the A.O. had reason for forming the belief and the application of mind and opportunity to the assessee, the AO had initiated proceedings under section 147 of the Act, therefore, the AO was fully justified in initiating the proceedings under section 147 r.w.s 148 of the Act. 7. Now the assessee is in....
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....e share holder, all those documents were available on the record. 8.4 It was further submitted that the Director of the investor companies also furnished their affidavit in support of the contention that the investor companies made the payments for purchasing the shares from the assessee company @ Rs. 100/- share which included premium of Rs. 90/- per share, copies of those affidavits are placed at page no. 183 to 190 of the assessee's compilation. It was accordingly submitted that all the documents were available to the A.O. who acted only on the basis of the report of the investigating wing, therefore reopening under section 148 of the Act was not justified. 8.5 It was further stated that the case of the assessee was reopened on the basis of share premium by invoking the provisions of Section 56 of the Act which were not applicable in assessee's case for the year under consideration. It was contended that all the companies who applied for the shares were in existence, their Director furnished the affidavits, therefore on merits also the addition made by the AO and sustained by the Ld. CIT(A) was not justified and that the Ld. CIT(A) wrongly enhanced the addition mad....
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....ngs have been given in para 9 to 11 which read as under: "9. A perusal of the above reproduced 'reasons to believe' for reopening of the assessment reveal that the Assessing Officer had received details of companies which had received share premium at a high rate. The name of the assessee also figures in that list . The Assessing Officer on the basis of the said information formed the belief that the assessee had introduced its unaccounted income in the form of share application / share premium. The Assessing Officer thereafter proceeded to discuss / mention various case laws running into 4 -5 pages, wherein, in the facts and circumstances of those case it was held that the share premium shown to be received in those cases was result of bogus transactions. However, how those decisions were applicable to the facts and circumstances of the present case has not been pointed out by the Assessing Officer in the reasons recorded. The Assessing Officer in this case had received the only information that the assessee had received a high premium along with share application money. However, this information alone, in our view, does not constitute any tangible materi....
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....t have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment , though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". There can be no manner of doubt that the words" reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income- tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. The entire law as to what would constitute "reason to believe" had summed up by Supreme Court in ....
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....ifying the assumption of jurisdiction, the A.O. addresses the legal position on what would constitute information." 11. In view of the above discussion, in our view, the Assessing Officer has wrongly and illegally assumed jurisdiction in this case to reopen the assessment . The reasons pointed out by the Assessing Officer cannot be said to be the reasons "to form the belief" that income of the assessee had escaped assessment . In view of this, since the assessment order framed by the Assessing Officer is not sustainable in the eyes of law, the same is accordingly quashed. 10.1 Since the facts of the present case are similar to the facts involved in the aforesaid referred to case of M/s Indo Global Techno Trade Limited Vs. ITO, Ward-1(5), Ludhiana (supra) so respectfully following the aforesaid referred to order dt. 15/06/2020, we are of the view that reopening by the AO in the present case was not justified. Moreover the AO himself admitted that the reopening in this case was based on the information received from Director of Income Tax (Intelligence & Criminal Investigation) Chandigarh which is evident from the observation of the Ld. CIT(A) in para 3 of the impugned or....
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....ent. Approval of the Addl. Commissioner of Income Tax Range-I5, New Delhi obtained. Subsequently notice u/s 148 of the IT Act, 1961, was issued on 29.03.2012 for reopening the assessment proceedings of the assessment year 2005-06 which was served upon the assessee. The assessee was provided with the reasons for reopening the assessment. The assessee raised objection for issue of notice u/s 148 on 7.12.2012 which were disposed off vide this office letter dated 19.12.2012. the assessee also submitted that the return filed u/s 139(1) may be treated as filed in response to notice u/s 148. " 12. From the aforesaid noting, of the AO in the assessment order dated 21.03.2013, reasons recorded on 28.03.2012 for issuing the notice u/s 148 of the Act and observations of the Id. CIT(A) in para 7 of the impugned order, it is crystal clear that the reopening was done only on the basis of the report of the Investigation Wing of the department and the AO did not apply his independent mind. 13. On a similar issue, the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs G & G Pharma India Ltd. (2016) 384 ITR 147 (supra) held as under: "That once the date on which the so....
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....t income had escaped assessment must be evident from a reading of the reasons. The reasons failed to demonstrate the link between the tangible material and the formation of the reason to believe that income had escaped assessment. The Assessing Officer had not independently considered the tangible material which formed the basis for the reasons to believe that income had escaped assessment. No error had been committed by the Appellate Tribunal in concluding that the initiation of the reassessment proceedings under section 147/148 to reopen the assessments for the assessment year 2004-05, was not legal. " 15. Similarly, the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Laxman Industrial Resources Ltd. (2017) 397 ITR 106 (supra) held as under: "That the assessee had provided severed documents that could have thrown light on whether truly the transactions were genuine. It was not a case where the share applicants merely provided confirmation letters. They had provided their particulars, permanent account number details, assessment particulars, mode of payment for share application money, i.e., through banks, bank statements, cheque numbers, copies o....