TaxTMI 
TaxTMI 
2023 (8) TMI 1505
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....ithout recording proper reasons in terms of provisions of section 147 of the Income tax Act, 1961 and requisite approval in terms of provisions of section 151 of the Act. (ii) That the reasons have been recording solely on the basis of information from investigation wing and there being no independent application of mind, the reopening u/s 147 is merely on the basis of borrowed satisfaction and not sustainable under the law (iii) That information from investigation wing being not in the nature of tangible material, the reasons are merely recorded on the basis of suspicion and as such the notice u/s 148 is illegal and without jurisdiction. (iv) That the assessing office having failed to properly deal with and dispose- off objection to notice u/s 148, the reassessment proceedings are in disregard to principle laid down Apex Court and are liable to be quashed. 2(i) That on facts and circumstances of the case, the Ld. CIT(A) has erred in confirming addition of Rs. 50,00, 000/- u/s 68 being share capital received from M/s. Shalini Holding P. Ltd. in total disregard to documentary evidence placed on record and remand report of the assessing officer. (ii) That transaction of sha....
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..... 6. That the appellant craves leaves to add, alter, amend, forgo any of the grounds of appeal before or at the time of hearing." 3. The assessee has also raised the additional grounds of appeal touching the jurisdiction. Having regard to the submissions made that the relevant facts are available on record which may require for adjudication of additional grounds, we may consider it expedient to advert to the additional ground of appeal under Rule 11 of the Income Tax [Appellate Tribunal] Rules, 1963. The version of the assessee in its petition for admission of additional grounds of appeal thus read as under: "That very initiation of proceedings u/s 148 is bad in law in as much as action has been taken on the basis of a document found at the premises of a third party, thus proceedings if at all, were required to be initiated under the provisions of Section 153C of the Act. It may kindly be held that notice u/s 148 issued by the AO was illegal and invalid and consequent assessment framed u/s 147/148 of the Act be held illegal and bad in law. Additional ground involving legal issues can be raised, keeping in view Judgment of the Apex court in the case of National Thermal Powe....
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....ee challenged the action of the Assessing Officer both on (a) lack of jurisdiction under S. 147 of the Act as well as (b) lack of merits in additions carried out by the AO. The CIT(A) did not see any merit in the challenge to jurisdiction assumed by the AO under S. 147 of the Act and endorsed the assumption of jurisdiction for reassessment of income. However, on appraisal of facts on merits, the CIT(A) granted partial relief to the extent of Rs. 1,50, 00, 000/- out of additions of Rs. 2 crores made under Section 68 in respect of share capital subscribed by various parties. Thus, on merits, the CIT(A) sustained the additions to the extent of Rs. 50 lakh under section 68 on account of subscription of share in relation to one of the parties namely; 'Shalini Holdings Pvt. Ltd.' on the premise that this subscriber co. is a shell co. engaged in providing accommodation entries and is found to be controlled and operated by one Shri S.K. Jain Group as alleged by the Investigation Wing of the deptt. pursuant to search conducted on S K Jain group. The additions of Rs.50 lakh on account share subscription by Shalini Holding was thus confirmed by the CIT(A) while other subscription by other 3 p....
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....iled the action of the AO and CIT(A) on aspects of merits. The Revenue, on the other hand, defended the action of the Assessing Officer and CIT(A) on the point of jurisdiction but assailed the relief granted by the CIT(A) to the extent of Rs. 1.50 Crs. out of additions of Rs. 2 Crs. carried out by the AO. 12. As noted above, the assessee has inter alia challenged the jurisdiction of the Assessing Officer assumed under Section 147 rws s. 148 rws 151 of the Act. Since, the challenge to the legality of reopening being jurisdictional one and goes to the root of the whole controversy, it will be appropriate to adjudicate this aspect of the appeal first. 13. The reasons recorded under Section 148(2) of the Act being germane to the adjudication of jurisdictional issue, are reproduced hereunder: "Reasons recorded for initiating proceedings u/s 148 of the I.T. Act, 1961 In the case of M/s Bhaijee Commodities Pvt Ltd (PAN : AAAC8890S 6)- A.Y. 2010-11 Information had been received from DIT(Inv.)-II, New Delhi vide letter F.No DIT(Inv.)- II/U/sl48/ 2012-13/198 date/l2.03.2013 & also from the DDIT(Inv.), Unit-VI(2), New Delhi vide letter F. No.DDIT(Inv.)/ U- VI(2)) / information sharing....
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....ing artificial volume in commodity trading by using National Multi-Commodity Exchange {NMCE} platform. 5. Based on the Forward Market Commission ( FMC) report that ''clients/members of NMCE were found to be involved in creating artificial volume and suspected evasion of Income Tax by misuse of NMCE platform", a focused survey action u/s 133 A of the Income Tax Act, 1961 was conducted by Pf. Director of Income Tax ( Inv.),' Ahmedabad at the premises of NMCE and backup of the NMCE trade was taken. The information in the database was perused and analyzed and a list of 85 suspicious parties was generated. After analysis, most of the companies In the said list were found to be shell companies and were not filing Returns of Income and some who filed UR, did not claim loss from the transactions as mentioned above in their return of income. On detailed analysis, it was established that the brokers have misused NMCE platform and created non genuine losses and profit which were given to different clients/beneficiaries according to their requirement. 6. As per the information, M/ s Bhaijee Portfolio Ltd. (PAN No. AACCB 9390H) was found to have indulged in getting/obtaining fic....
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.... the above discussion, it is evident that the undisclosed income amounting to Rs. 50,00,000/- in this case has been introduced by Shri SK Jain Group of companies in the form of share capital/ premium/loan and assessee company has also obtained fictitious entries of profits amounting to Rs. 2,35,49,859 /- to cover unaccounted income and reduce tax Instance from the transactions carried out through NMCE platform and in the process has also Incurred-commission expenses amounting to Rs. 14,12,991 /- outside its books of accounts. The assessee has, thus failed to disclose fully & truly all material facts necessary for assessment. Therefore, after consideration the information received and facts of the case, I have reason to believe that income chargeable to tax to the tune of Rs. 2,99,62,850/- has escaped assessment by reason of failure on the part of the assessee to disclose ail material facts fully and truly which requires to be now brought for taxation by invoking the provisions of section 147 of the Income tax act, 1961." 14. In response to the notice issued under Section 148(1) proposing reopening of the assessment, the assessee denied any escapement of income and filed objection ....
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....ression 'reason to believe'. The 'reason to believe' is the fulcrum for exercise of powers under s. 147 of the Act. The 'believe' fostered, although subjective in nature, must trigger from reasons which are objective in nature and need to be based on something tangible and substantive. The belief on escapement thus could not have been made in the instant case in the absence of any objective material. (ii) The competent authority has also granted a perfunctory approval under Section 151 of the Act in a mechanical manner enabling the Assessing Officer to reopen the assessment. Such mechanical approval has also vitiated the assumption of jurisdiction under Section 147 of the Act on a standalone basis. 16. We shall address ourselves with the main objections raised on account of assumption of jurisdiction under Section 147 of the Act without satisfying conditions of Section the Act. 16.1 A perusal of the reasons recorded would show that the completed assessment has been reopened on two counts, namely, (a) receipt of accommodation entries in the form of share capital/premium during Financial Year 2009-10 from M/s. Shalini Holdings Pvt. Ltd., a company stated to be managed and cont....
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....he report of the investigation wing or made available to the AO except the observation that 'Shalini Holdings Pvt. Ltd.' is allegedly controlled by S K Jain Group and as a corollary all transactions carried out by the subscriber co. are presumably sham and a make believe. No evidence of any underlying cash repayment as a quid pro quo were found by the investigation team as categorically averred in the investigation report itself. Be it as it may, the reference to any material is conspicuously absent in the reasons recorded. (iii). Significantly, the report of the Deputy Director of Income Tax (Inv.) Unit-VI(2) New Delhi clearly records that name of the beneficiaries were not found recorded in the seized documents and efforts were statedly made in the post search investigation in the case of S. K. Jain Group whereby it was claimed to be found that the assessee company is one of the beneficiaries of accommodation entry to the extent of Rs. 50 lakh. To reiterate, there is no reference to any material in the investigation report to hold that the subscription by Shalini Holdings Pvt. Ltd. in the company is in the nature of accommodation entry. No basis whatsoever has been given to suc....
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....erfunctory disposal of the objection without expressing a single word on alleged manipulation on NMCE platform, the assessee, on its part, made efforts with the department and ultimately filed RTI Application dated 24.01.2019 requiring the PIO to provide material available on the record of the AO in support of allegation of accommodation entry of Rs.50 lakhs. The investigation report without any tangible material was thus supplied. (vii) The reasons recorded states that information has been received by DDIT (Inv.) New Delhi adverse to the assessee dated 22.03.2013 however no action of reopening was taken despite efflux of nearly 4 years and case was reopened only on the last day of the limitation period for issue of notice. Such conduct clearly reflects the reluctance of the AO to initiate reopening proceedings based on some generalized and uncorroborated information. The notice issued on the last day on 31.03.2017 was impliedly under compulsion to save on limitation. (viii) To demonstrate the inherent lack of application of mind and nonchalance in this regard firstly by the AO under s. 148(2) and thereafter by the PCIT under S. 151, the Assessee points out that as regards alle....
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....n 147 has been taken for the purposes of approval in exclusion to other part of the provision of Section 147, it would imply that the requirement of holding ' reason to believe' has been dispensed with by the AO and what has been supported is 'escapement of income' alone. The satisfaction drawn and approval accorded by the Pr. CIT is thus restricted to clause (b) to Explanation-2 of Section 147 of the Act only. The approval sought and granted on such narrow compass manifests the action of approval to be an illusory exercise and an idle formality. A reference was made to the judgment of the Hon'ble High Court in the case of Kalpana Shantilal Hariya vs. ACIT W. P no. 3063/ 2017 (Bom.). 18. On the basis of aforesaid contentions and submissions, the ld. counsel in essence contends that the reasons recorded under Section 148(2 ) are (a) vague and nondescript (b) no reference to any material to support the generalized allegations (c) the most basic details like transactions giving rise to fictitious gains in commodity transactions alleged not available at the time of reopening(d) no reference to incriminating document or tangible material to corroborate the alleged lack of bona fides in....
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.... was resort to S. 153C and the provisions of S. 147 stood ousted in the present case. The proceedings, if any, can lie in the case of the assessee under Section 153 C alone in exclusion to Section 147 of the Act. The whole proceedings under Section 147 is void ab initio and bad in law in the light of several judgment of the Co- ordinate Bench listed hereunder: a. Nawal Oils & Containers P. Ltd. Vs ITO ITA. No. 852/DEL/2019 b. M/s Saurashtra Color Tones Pvt. Ltd. Vs ITO ITA. No. 6276/DEL/2018 c. City Life Projects Pvt. Ltd. Vs ITO ITA. No. 2668/DEL/2019 d. Pr. CIT (Central) & Ors. Vs Anand Kumar Jain (HUF) & Ors. (2021) 432 ITR 0384 (Del) e. Shri Sanjay Singhal Vs DCIT ITA No. 702 to 704/CHD/2018 f. Rajat Shubra Chatterji Vs ACIT ITA No. 2430/DEL/2015 g. The ITO Vs Shri Arun Kumar Kapoor, Prop. M/s Vishnu Textiles ITA No. 147/ASR/2010 h. Shri Janak Raj S/o Shri Murari Lai Vs ITO ITA No.744/ASR/2013 i. Shri Adarsh Agarwal vs Income Tax Officer ITA No. 777/DEL/2019 j. Sushil Gaur & Shelly Agarwal Vs ITO ITA No. 1500 & 1501/DEL/2017 21. Per contra, the revenue seeks to plead that the Assessing Officer in the present case has fully satisfied the conditions of Sectio....
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....its to enable the assessee to corroborate its assertions of full disclosure. 24. It goes without saying that the reasons recorded are the manifestation of mind of Assessing officer. It is the tool for judging the validity of order under challenge. It gives opportunity to the appellate forums and Courts to objectively see whether or not the AO has proceeded on the relevant material and evidence while invoking drastic provisions of S. 147. It is no longer res integra that the evaluation of correctness of assumption of jurisdiction is confined to recorded reasons only. Expression 'Reason to believe' is the most salutary safeguard to prevent arbitrary exercise of power and source of jurisdiction arises to belief towards escapement of chargeable income on the basis of reasons i. e. relevant material. The material before the AO should be such which outweighs the doubtful circumstances. S. 147 being substantive provision which bestows jurisdiction to back assess the return of earlier years, strict compliance of the conditions mentioned therein are required to be observed before resorting to the section. The courts have not been permitting reopening on irrelevant or extraneous material. A....
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....ormation. He is required to undergo strictier test for reopening the case. The statute has made careful selection of expression 'reason to believe' and not mere 'satisfaction'. Further, it is not belief per se that is a pre-condition for invoking section 147 of the said Act but a belief founded on reasons. The expression used in erstwhile section 147 is 'If the Assessing Officer has reason to believe' and not 'If the Assessing Officer believes'. 26. On appraisal of the reasons recorded under Section 148(2) and approval thereon under Section 151 of the Act and in the light of contentions raised on behalf of the assessee, it is noticed that the case has been reopened on the last date of the limitation period for two reasons, namely, accommodation entry of Rs.50 lakh in the form of share capital from M/s. Shalini Holdings Pvt. Ltd. and allegation of undisclosed fictitious profit to the extent of Rs. 2,35,48,859/- derived from transactions on NMCE platform. The Assessing Officer has proceeded under Section 147 r.w. Section 148 of the Act on the basis of information received from DDIT (Inv.) New Delhi and DDIT (Inv.) Kolkata. The DDIT (Inv.) New Delhi has alleged the assessee company t....
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....either there is any relevant material to make wide ranging allegations towards accommodation entry and earning fictitious profits nor the reasons recorded spells out the exact particulars of transactions giving birth to such allegations. No culpability can be inferred at the stage of reopening notice based on quality of information gathered against the assessee. This apart, the approval granted under Section 151 is also clearly demonstrated to be out of sync with the duty cast under Section 151 of the Act. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer The Pr. CIT has granted approval without observing the inconsistency and glaring inadequacy in the approval memo placed before him wherein the scope of reopening was curtailed to mere case of alleged 'escapement' qua Explanation- 2 disregarding other overwhelming conditions of the main provision thereof. In terms of approval memo, the reasons recorded thus can be read to be approved towards 'escapement' contemplated under Explanation - 2 but such approval would not extend to existence of other con....