TaxTMI 
TaxTMI 
2021 (2) TMI 1385
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....pening of assessment u/s 148 of the IT Act 1961 did not meet the test of law laid down by various courts and hence the reopening be declared to be bad in law and the reassessment order be quashed. 12. For that the reopening of assessment u/s 148 of the IT Act 1961 was on borrowed satisfaction and not on any independent application of mind by the assessing officer and hence the reopening be declared to be bad in law and the reassessment order be quashed. 13. For that the reopening of assessment u/s 148 of the IT Act 1961 was without any relevant material having link to escapement of income and hence the reopening be declared to be bad in law and the reassessment order be quashed. 14. For that the sanction u/s 151 of the IT Act 1961 before the reopening of assessment u/s 148 of the IT Act 1961 was mechanical and without application of proper mind and the sanction was bad in law and hence the reopening be held to be bad in law. 15. For that the facts and circumstances of the case the notice u/s 143(2) of the IT Act 1961 was without jurisdiction and bad in law and hence the entire assessment order is bad in law and the same should be quashed. 3. F....
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.... Profit Siddheswari Projects Pvt. Ltd. 1,67,60,100 1,72,62,600 5,02,500 Profit Total 6,03,140 It is therefore apparent that the assessee has booked profit of Rs. 6,03,140/- through bogus entities. 5. However, as discussed above the said transaction is not verifiable from the return of income furnished by the assessee. The AO also had no such information before receiving the said report along with the data as mentioned above . 6. Considering the facts and circumstances of the case, I have reason to believe the income of Rs. 6,03,140/- have escaped income needs to be assessed followed by recovery of tax arrears. 7. In this case return of income was filed for the year under ocnsideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provision of clause (b) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income charge....
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....ugh his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to incometax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. 5. From a plain reading of Section 147 of the Act it can be seen that the basic requirement of reassessment u/s 147 of the Act is that the AO of the assessee must have "reason to believe" that any income chargeable to tax has escaped assessment. The Hon'ble Supreme Court in ITO vs. Lakhm....
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....t assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the assessing officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced." 7. The importance and relevancy of the material to the information was discussed in the case of CIT vs. SFIL Stock Broking Ltd. by Hon'ble Delhi High Court reported in (2010) 325 ITR 285 (Delhi), wherein it was held that mere information is not a material and that even existence of material would not be sufficient to invoke reopening proceedings u/s 147 of the Act : "After having heard the counsel for the parties, we are inclined to agree with the submissions made by the respondent / assessee. We find that the Supreme Court in Rajesh Jhaveri (supra) made it absolutely clear that before an Assessing Officer issues a notice under Section 148, thereby re- opening the assessment under Section 14....
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....the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; (iii) where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons; (iv) the exercise of considering the Assessee's objections to the reopening of assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed." 10. In the light of the aforesaid judicial precedents in respect of re-opening u/s 147 of the Act we have to analyse the reasons recorded by the AO to see whether the condition precedent to re-open u/s 147 of the Act has been complied or not. As noted (supra) it is settled position of law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor can anything be deleted from the reasons so record....
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....bout income escaping the assessment'. The former category consists of the facts which, if established to be correct, will have a cause & effect relationship with the income escaping assessment. The latter category consists of facts, which, if established to be correct, could legitimately lead to further inquiries which may lead to detection of an income which has escaped assessment. There has to be some kind of cause & effect relationship taken note by AO while recording reason about the escapement of income. While dealing with this matter it is useful to bear in mind the following observation of Hon'ble Supreme Court in ITO vs. Lakhmani Mewal Das (supra) as follows: "The reasons for the formation of the belief must have a rational connection with or relevant bearing of 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 ITO and the formation of his belief that there has been escapement of income of the assessee from the assessment in the particular year because of his failure to disclose fully & truly all material facts. It is no doubt true that the court cannot go int....
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....essee. So no specific facts/information is found in the first paragraph of the reason for reopening the assessee's case and it can be discerned that it only states the general/vague allegations/wrong doings of certain person and not about the assessee. 15. Next let us analyse the 3rd para of reasons recorded (it should have been 2nd, but as stated in reasons recorded) which is reproduced : "Based on the Forward Market Commisison (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 133A of the Act was conducted by Pr. Director of Income Tax (Investigation), Ahmedabad at the premise of NMCE and backup of the NMCE trade was taken. Aftter analysis of this data, 85 entites was identified was identified who had booked contrived losses in excess of Rs. 10 crores and information was shared with concerned Director General of Income Tax (Inv). In this context, the list of 50 clients was forwarded to the DGIT (Inv), Kolkata jurisdiction to verify whether the contrived losses booked on NMCE were used to set off any income / profit available in the books.....
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....O has formed his belief of escapement of income of assessee, which action of AO cannot be countenanced for the following reasons: i) The belief of AO is based on the investigation wings observation and not his own, which is sine-qua-non for usurpation of jurisdiction to re-open as held by the Hon'ble Supreme Court in Lakhmani Mewal Das (Supra) ii) The information given by the investigation wing at best can trigger "reason to suspect" and not 'reason to belief' which is the requirement of law for re-opening u/s 147 of the Act. In such a case i.e. reason to suspect, then AO is bound to conduct preliminary inquiry and collected some material which would make him believe that there is in fact an escapement of income. Unfortunately from a reading of the reason's recorded (supra) does not reveal as to what investigation he under took when he got the information from the investigation wing. viz what inquiry was conducted, on whom such inquiry was conducted, what were the evidences or material or admission found in such inquiries and how that material was linked with the case of the assessee. In absence of all such facts being mentioned in the reasons, the reasons-recorded by the AO ....
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.... income should be that of the AO. The opening words of section 147 of the Act reads: "If the assessing officer has reasons to believe that any income chargeable to tax has escaped assessment............". Taking note of this requirement of law, the Hon'ble High Court held that: "where the Assessing Officer does not himself exercise his jurisdiction under section 147, but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the condition precedent." 18. In this context, it should be appreciated that Sec. 116 of the Act defines the Income Tax Authorities which can be seen to be as different and distinct authorities. It is trite law that such different and distinct authorities have to exercise their powers given to them in the specified circumstances as stipulated by law or they can't. It has been observed by the Apex Court that if power is conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction o....
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.... construed strictly. This deeming provision will apply where (i) the assessee had furnished the return (ii) But no assessment has been made by AO (iii) AO notices that assessee has understated the income or (iv) has claimed excessive loss, deduction, allowance or relief in the return. In such cases only AO can apply this deeming provision to assume that income has escaped assessment. In the present case, the assessee had earned profit from the disputed F & O trading in the commodity segment and offered the same to tax as can be seen from the working (copy of audited accounts enclosed at page (21-24) which was furnished before the AO during assessment and the AO did not raise any dispute in respect of the same: Details of Income Particulars Rs. 1 Profit: F & O trading (NMEC) PKC Commodities Ltd. 23,89,890 AN Commodity Broking(P) Ltd. 20,01,112 Rajeshwari Commodity Sales (P) Ltd. (-) 1,85,568 SMC Securities Ltd. 4,835 2 Profit: F & O trading (NSE) (-) 38,60,816 Sub-Total 3,49,453 3 Profit: F & O trading (Premium)&n....