TaxTMI 
TaxTMI 
2023 (8) TMI 1505
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....tice u/ s 148 and consequential reassessment proceedings u/s 147 even though the same are without 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 disreg....
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....i) That the said addition is illegal and arbitrary basis merely on surmises and conjectures. 5. That the orders passed by lower authorities are not sustainable on facts and are bad in law. 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 co....
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....ect of Share Capital Rs. 2,00,00, 000/- b. Addition in respect of undisclosed profit earned Rs. 2,35,49, 859/- c. Addition of Notional Commission Rs. 14, 12, 991" 7. Aggrieved, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee 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 operate....
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....der s. 147 rather than the legal recourse available under s. 153C as per the scheme of the Act. The ld. counsel for the assessee made wide ranging objections towards lack of jurisdiction which are dealt with at appropriate place in the succeeding paragraphs. The Ld. Counsel also assailed 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 ....
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....corroborated by the particulars shown by the assessee company in its return of income. 4. Simultaneously, Information has been received from Deputy Director of income TAX (Inv.), unit - 3(1), Kolkata vide letter F. No. DDIT(inv.)/ Kol./ NMCE/ Report/ 2016- 17/6104 dated 17 .03. 2017 wherein it Is informed that some companies have indulged in tax evasion practices by claiming fictitious profits/losses by creating 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, ....
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.... whom the assessee company has received fictitious gain/loss (ii) Perusal of the information in table, it clearly shows that the name- of the assesses company M/s. Bhaijee Portfolio Ltd. appears as beneficiary who were provided fictitious profits/loss entries from various parties by misusing the NMCE platform. On perusal of the assessment records, it appears that the assesses company has not disclosed any expense on account of commission paid for obtaining fictitious gain/loss from the transactions carried out through NMCE platform. 9. From 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 assess....
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....thus untenable. The information provided by the investigation wing to the AO itself is delightfully vague and non- descript and not backed by any tangible material detected in the course of search or at any other stage of enquiry. The modus operandi narrated in the case of S.K, Jain group would not give rise to any prima facie belief towards escapement in the hands of assessee. Such assertions made in the report of investigation wing would at best give rise a reason to initiate enquiries to ascertain the correctness of suspicion which is wholly distinct from the pre-eminent expression '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 ....
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....pplication dated 02. 05.2017 was cursorily disposed off in a sweeping manner by the Assessing Officer vide order dated 18.07.2017. The order disposing objections only evidences only conclusion and no reasons. Similarly, as regards second point of contention, the subscription towards share capital by Shalini Holdings Pvt. Ltd. was duly reflected in the books of account as well as the audited financial statement. The share were issued and allotted at par similar to allotment to other entities about the same time and same terms which was not subject matter of allegation in the reasons. No iota of adverse material was referred in the 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 ....
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....ons on the propriety of commodity transactions on NMCE platform as well as propriety of receipt of share capital subscription from Shalini Holdings Pvt. Ltd. was not provided despite specific request in this regard vide letter dated 02.05.2017 addressed to the Assessing Officer. Such action of the Assessing Officer is in contravention of the judgment rendered by Hon'ble Delhi High Court in the case of Sabh Infrastructure vs. ACIT (2017) 398 ITR 198 (Del) and Micro Marbles Pvt. Ltd. vs. ITO, 331 CTR 329 (Raj.) As per the aforesaid judgments, the assessee is required to be supplied with material giving rise to the reason of believe. (vi) Owing to perfunctory 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 Delh....
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....y the Assessing Officer are devoid of 'reason to believe' and are without application of mind, the approval of PCIT under s. 151 suffers from non application of mind for yet another reason. As per the approval memo presented by the AO before PCIT for his approval, the Assessing Officer stated that scope of exercise of powers under S. 147 by him is to be adjudged with reference to 'clause (b) to Explanation 2 of Section 147' of the Act. As a corollary, other part of S. 147 stood excluded for the purposes of his approval. As further adverted, Explanation-2 merely explains the chargeable income 'deemed to have escaped assessment' and once a resort to Explanation-2 to Section 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 ....
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....ntly without sanction of law. 20. To support the additional ground, the Assessee contends that the entire edifice for initiation of proceedings under Section 147 is certain information collected by the Department through its Investigation Units. The Assessing Officer has formed the belief towards escapement of income on the basis of communication received from the Investigation Wing of the Department. Therefore, where pursuant to search in the case of third party giving rise to material pertaining to the Assessee and where the provisions of Section 153A of the Act were initiated in the case of third party, i.e., S.K. Jain Group, the only course of action available to the AO 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 ....
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....perception and conjectures. The ld. counsel also contends that the assessee has issued share capital to several companies at the same price. 23. As regards the profits / losses arising on commodity transactions carried through registered brokers NMCE platform, the assessee submits that all the transactions have been duly reported and the profits arising thereon has been fully accounted and included as part of chargeable income and thus i t fails to understand as to how the escapement of such income from taxation has taken place. The AO has proceeded against the assessee on the factually incorrect allegation and data of other entity i.e Bhajee Portfolio. The Assessing Officer has rather not provided any details of alleged unaccounted fictitious profits 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.....
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....t material and weigh the credibility of information and consequently disclose his 'process of reasoning' to arrive at the 'reason to belief' contemplated under S. 147. The appraisal of the material needs to be carried out by the AO and none other. The process of holding 'reason to belief' being justiciable and open to judicial review, the reference to material relied upon while holding requisite belief of escapement of chargeable income is a sin qua non. It is the only visible safeguard against possible injustice and arbitrariness. Mere adoption of some information from other officer straightaway cannot be characterized as bona fide belief of AO in the absence of some cogent and demonstrable material. The AO cannot merely be 'satisfied' on the alleged information. 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 Offi....
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....ed profits has been identified even in the assessment as well. The onus has been wrongly shifted on the assessee without providing the details/particulars of transactions in commodity exchange towards alleged fictitious profits. The formation of 'reason to believe' is thus clearly extraneous to any material relevant for formation of prima facie belief. No live link or direct nexus between the so called information and the belief is found. Noticeably, the objection of the Assessee has also been disposed in a summary manner disregarding the points raised by the assessee. The order disposing objections does not utter a single word on the nature of material available or transaction carried at NMCE platform. The assessee thus has sufficiently demonstrated that neither 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 d....