TaxTMI 
TaxTMI 
2025 (4) TMI 978
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....and unjustified. 2. That there was no reason to believe that the income already assessed under section 143(3) of the Act had escaped assessment and as such the assessment framed and upheld by the Commissioner of Income Tax(Appeals) based on a mere change of opinion is illegal, arbitrary and unjustified. 3. That the Ld. Assessing Officer has erred in law as well as on facts in as much as there has been no reason to believe that there was an escapement of income in as much as the reasons recorded are based only on borrowed information and as such the assessment order passed is illegal, arbitrary and unjustified. 4. Without prejudice to the above, the Ld. Commissioner of Income Tax (Appeals) has erred in sustaining the addition of Rs. 61,54,754/- out of total addition of Rs. 82,06,338/- made on account of alleged unexplained purchases from M/s Rohit Trading Company and M/s Vijay Trading Company treating them to be non-genuine which is arbitrary and unjustified. 5. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 6. That the order of the Ld. Commissioner of Income Tax i....
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....e Act and another notice under section 148 was issued on 31/03/2018 which was served on the assessee on the said date. 6. In response to the notice under section 148, the assessee filed its return of income on 19/04/2018 declaring total income as declared as per original return of income filed on 28/09/2011. Thereafter, the assessee sought copy of the reasons so recorded vide its letter dt. 15/12/2018 and which were provided to the assessee on 17/12/2018 and thereafter, the assessee filed its objection to the initiation of reassessment proceedings under section 147 vide letter dt. 19/12/2018 which were disposed off by the AO by passing a separate order dt. 19/12/2018. Thereafter, after issuance of notice under section 143(2) and 142(1) and after calling for necessary information and documentation as well as issue of specific show cause notice, the AO made an addition of Rs. 82,06,338/- being 20% of the total purchase of Rs. 4,10,31,689/- made from M/s Rohit Trading Company (Rs. 3,44,37,684/-) and M/s Vijay Trading Company (Rs. 65,94,005/-). In addition, the AO also treated the GDR receipt of Rs. 6,45,00,000/-being share capital and Rs. 38,30,88,075/- being security premium total....
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....f assumption of jurisdiction under section 147 of the Act. Both the parties fairly submitted and it was also deemed appropriate that the said grounds of appeal be taken up first for adjudication, thereafter, the merit of the addition so sustained and deleted by the Ld CIT(A) may be considered. 11. In this regard, during the course of hearing, the Ld. AR submitted that the appellant had filed its original return of income on 28.09.2011 declaring profit of Rs 21,05,90,768/- which was set off against the brought forward losses. However, tax was paid under sections 115JB of Income Tax Act, 1961. Thereafter, notice under section 148 of Income Tax Act, 1961 dated 26.03.2017 was issued after approval from the Worthy Pr. Commissioner of Income Tax and thereafter, the assessment was completed on 12.10.2017. The Assessing officer during the course of assessment proceedings for Assessment Year 2013-14 had referred the matter regarding receipt of GDRs to the Foreign Tax Department (FTD), the information of which was received from them before the completion of assessment and even before the issue of original notice under section 148 of Income Tax Act, 1961 on 26.03.2017 for Assessment Year 2....
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....e material on record. The information received from U.K Authorities in April 2018 was the same as intimated by them to Foreign Tax Department to the Assessing Officer in June/July, 2016 on the basis of the documents shown to the authorized representative of the assessee. The extension of the scope of the proceedings under section 147 is against the provisions of law in view of the various judicial pronouncements specially when the information was on record at the time of issuance of original notice under section 148 of Income Tax Act, 1961. The Assessing Officer has only tried to justify extending the scope of his enquiry and has remained silent on the receipt of information from U.K Authorities in June/July, 2016 and from Singapore Authority on 03.06.2016. The addition on account of GDR proceeds under section 68 Income Tax Act, 1961 are without any basis and on the reliance of SEBI investigation of the lead manager to the issue, the SEBI report was also available on record as shown to the Authorised Representative of the assessee before the issue of the first notice of reassessment on 26.03.2017. As such, the assessment framed in respect of both the issues i.e. alleged bogus purch....
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....nt proceedings. That since the present proceedings have been initiated after a period of four years, and all material facts relating to the purchases made had been duly disclosed in the profit and loss account and balance sheet there being no failure to disclose truly all material facts, the pre- sent reassessment proceedings are bad in law in terms of the ratio of the following judgments: a) Dulichand Singhania Vs. ACIT 269 ITR 192. b) Winsome Textile Industries Vs. Union of India 278 ITR 470. c) Navkar share and stock brokers Vs. ACIT 390 ITR 362 & d) Haryana Acrylics Manufacturing company Vs. CIT 308 ITR 38 ii) That it is relevant to point out that after initiation of the reassessment proceedings, a notice was issued U/s 142(1) was issued on 4th July, 2018 asking the undersigned to provided information and copies of accounts of i) Rohit Trading Company 2) Mahalakshmi and others. The assessee furnished all information on 11th September, 2018 alongwith requisite proof. The same was followed by show cause notice on 1st October, 2018 also relating to the purchases made by the company which was the only ground for initiating the reassessme....
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....hat the above information was already available with the IT Department before the order for reassessment for AY 2011-12 was passed on 12th October, 2017. Since the matter was examined thread bare and all information regarding the same was furnished, the present inquiry vide notices dated 7th December 2018 is beyond the reasons recorded and based on change of opinion and without any new material coming to the knowledge of the Assessment Officer. The issue of GDR was examined and it is presumed that all facets of the same were subject to application of mind by the Assessing Officer since no new material has come to the possession of the Assessing Officer. Thus the issue relating to GDR receipts cannot be re-opened as it would amount to change of opinion." 12. It was submitted that the objection were disposed off by the AO vide order dt. 19/12/2018 and the contents thereof read as under: "The assessee Winsome Textile Industries Limited is in the business of manufacturing and sale of yarn. During the year under consideration the assessee company had filed return of income on 28.09.2011 declaring current year profit of Rs. 21,05,09,768/- which was further set off against bro....
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....ipts for which no reasons were recorded and which have been subject matter of extensive inquiry u/s 147 and 143(3) for A. Ys. 2011-12 to 2014-15. In this regard, it is pertinent to mention here the provisions of Section 147 which reads as under: "If the assessing office has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assessee or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the A.Y. concerned". A bare perusal of the above provisions the AO has power to extend his enquiry beyond reasons recorded on the issue which came to his knowledge during the course of pending proceedings. During the course of pending proceedings it came to the notice of the undersigned that during assessment proceedings for the A.Y. 2013-14 enquiries about receipts of GDRs during A.Y. 2011-12 was initiated through Foreign Tax Di....
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....ed in the proceedings completed by 12.10.2017 is incorrect and denied. In view of the above all the objections raised by the assessee are disposed off. 13. It was submitted that rebuttal to the order disposing off the objections dated 24.12.2018 was thereafter filed by the assessee and the contents thereof read as under : "Rebuttal to the order disposing off the objections dated 19th December, 2018: As per your order disposing assessee's objections vide letter no ITBA/AST/F/17/2018- 19/1014424606(1) dtd 19/12/18: a) You have stated that "In this regard it is pertinent to mention here that on 12/10/2017 only details from Singapore authority was received. Information from UK was received in the month of April 2018. Therefore it is incorrect to say that all information was available on records when order dt. 12.10.2017 for AY 2011-12 was passed". The letters shown to the A.R. regarding the information received from the U.K. Authority was dated 30th June, 2016 and 19th July 2016 which was received by AO vide covering letters dtd. 27th July 2016 and April 2018. Thus the letter dtd 30th June, 2016 which was shown to the Authorised Represent....
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....tober, 2017, copy of reasons recorded enclosed as Annexure A (page nos. 1 to 2) and assessment order dtd. 12th October, 2017 enclosed as Annexure B (page nos. 1 to 2). The present proceedings again initiated by the Assessing Officer refer to this as the same is clear from para 1 of reasons recorded which reads as "The case was reopened u/s 148 on the issue of GDR receipts. The assessment proceedings were completed on 12.10.2017". The present notices issued on 7th December, 2018 and show cause notice dtd 19th December, 2018 are beyond the reasons recorded and are based on no new material but are seeking to review the orders passed on the said issue on 12th October, 2017. The said proceedings are thus barred in terms of the judgment of the Gujarat High Court in the case of Kunal Organics Vs. DCIT 362 ITR 530, enclosed as Annexure C (page nos. 1 to 5). Further, for assessment year 2012-13, the issue regarding GDR receipts was subject matter of proceeding U/s. 147 on 26th March, 2017 and final orders were also passed on 12th October, 2017 for A.Y. 2012-13. It is also relevant to point out that the issue regarding GDR was subject matter of proceeding for A.Y. 2013-14 a....
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....of Singapore and M/s Cruise Waterford, UK are not traceable at the addresses of the same provided by the assessee during assessment proceedings for AY 2013- 14. Since the matter was examined thread bare by the Assessing Officer during the previous assessment proceedings for AY 2011-12 and all information regarding the same was furnished, the present inquiry vide notices dated 7th December 2018 and show cause dtd 19th December, 2018 is beyond the reasons recorded and clearly based on change of opinion and without any new material coming to the knowledge of the Assessment Officer and the rebuttal of objections vide order dated 19th December, 2018 is contrary to law and facts. The present proceedings thus constitute a review of the order passed by the preceding Assessing Officer on the basis of material already existing when the final order was passed on 12th October, 2017." 14. In light of above factual position, the Ld. AR submitted that the AO acted mechanically on the information supplied by the Investigation Wing without carrying out any verification and due application of mind and thus the reasons were recorded based on borrowed satisfaction without any independent applicatio....
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....'ble Bombay High Court in case of Hindustan Unilever Limited as so relied upon by the Ld CIT(A), it has been clearly provided that it is for the AO to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year and in the event of challenge to the reasons, the AO must be able to justify the same based on material available on the record and he must disclosed in the reasons as to which facts or material was not disclosed by the assessee fully and truly necessary for the assessment of that year so as to establish the vital link between the reasons and the evidence which is vital for reopening of the concluded assessment. It was submitted that there is nothing in the reasons so recorded by the AO as to what material fact has not been disclosed by the assessee and even in the order disposing off the objections, nothing has been stated by the AO as to which material facts or information has not been truly and fully disclosed by the assessee. 16. It was further submitted that the AO has merely referred to the information received from DDIT in the letter dt....
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....T(A) and the contentions so raised have rightly been dismissed by the Ld. CIT(A). 20. In this regard, our reference was drawn to the findings of the Ld. CIT(A) wherein he has stated that it is trite law that initiation of reassessment proceedings based on change of opinion is not permissible under law. The case laws relied upon by the assessee squarely covers this issue. But on careful perusal of the facts and record, he is of the opinion that this is not a case of change of opinion. It is undisputed that the Return of Income was initially processed u/s 143(1) of the Act, and no assessment u/s 143(3) was carried out. Later on, reassessment was completed u/s 147 read with section 143(3) vide assessment order dated 12.10.2017 in which the sole issue that was examined was the foreign exchange gains accrued to the assessee on repatriation of GDR receipts. There was no examination, even remotely, carried out in respect of any purchases made from M/s Rohit Trading during the first round of reassessment proceedings. 21. It was submitted that the Ld. CIT(A) further stated that as per the reasons recorded by the AO in respect of the second round of reassessment proceedings, the reopen....
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....eal that the assessee has received many bogus entries from these proprietary concerns and thereby has evaded the payment of correct taxes as per income earned during the year by increasing its expenditures through these bogus purchases. It is seen that the assessee company has made following payment to the proprietary concern: Sr. No. Amount Proprietary concern to whom payment made 1. Rs. 2,29,15,034/- Rohit Trading 5. FINDINGS OF THE AO: On the basis of Information received 'and information available I have reason to believe that an income of Rs. 2,29,15,034/- has escaped assessment within the meaning of Section 147 of the Income Tax Ac. The assessment record, 360 degree report along with the financial of the company are the basis of the reasons to believe that an income of Rs. 2,29, 15,034/-has escaped assessment within the meaning of Section 147 of the Income Tax Act. 6. FINDINGS OF THE AO ON TRUE AND FULL DISCLOSURE OF THE MATERIAL FACTS NECESSARY FOR ASSESSMENT UNDER PROVISO TO SECTION 147: As the assessee had not disclosed full and truly all material facts necessary for his assessment and the facts of the case are covered by the Explana....
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....s relevant for the assessment on the issue(s) under consideration were not filed during the course of assessment proceeding and the same may be embedded in annual report, audited P&L. A /c. balance sheet and books of account in such a manner that it would require due diligence by the AO to extract these information. For aforestated reasons, it is not a case of change of opinion by the AO. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 has been obtained separately from Principal Commissioner of Income Tax as per the provisions of section 151 of the Act." 22. It was submitted that the issue of bogus purchases from M/s Rohit Traders was never in the knowledge of the AO in earlier round of assessment. It was a new information which came into his possession from the Investigation Wing, on the basis of which, he formed a genuine and reasonable belief that income had escaped assessment. In these circumstances, the argument of the assessee on 'mere change of opinion and various case laws cited by it are not relevant to the present case. 23. It was submitted that in the pr....
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....see had failed to disclose. In view of the explanation 1 supra, the AO was fully empowered to initiate reassessment proceedings after following due process which he actually did. 26. It was submitted that this issue was also examined by Hon'ble Delhi High Court in the case of Honda Siel Power Products Limited 197 Taxmann 415, wherein it was held that "It is clear from the aforesaid paragraph the petitioner has accepted that "material particular" referred to in the first proviso not only refers to details in the Return but also explanations and details furnished during the course of assessment. The petitioner had not stated anything or given factual matrix to justify and state that the material facts had been fully and truly disclosed in the assessment proceedings and there was no omission or failure on the part of the petitioner. Explanation to section 147 stipulates that mere production of books of accounts or other evidence is not sufficient. (Refer paragraph 11 above wherein judgment in the Consolidated Photo and Finvest Ltd. (supra) has been quoted). Whether the Assessing Officer could have found the truth but he did not, does not preclude the Assessing Officer from exer....
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....in the case of Pushpak Bullion (P.) Ltd. vs DCIT [2017] 85 taxmann.com 84 (Gujarat), Hon'ble Gujarat High Court upheld the initiation of reassessment proceedings based on a report from the Investigation Wing of the Department. It was submitted that the facts of the present case are similar to the above. As such, no credence can be given to the contention of the ld AR that the reason to believe recorded by the AO was a borrowed one. In fact, a perusal of the reasons recorded for reopening reveal that the AO has recorded detailed reasons, addressing all aspects of the case, and also the issues related to 'mere change of opinion' and earlier reopening of assessment. Under the circumstances, by no stretch of imagination, this can be held to be a case of mechanical recording of a borrowed belief. He accordingly relied on the findings of the Ld. CIT(A) and it was submitted that there is no merit in the various contentions so raised by the Ld. AR and therefore the same deserves to be dismissed. 29. We have heard the rival contentions and pursued the material available on record. In order to appreciate the rival contentions, we refer to the provisions contained in Section 14....
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....) income chargeable to tax has been under-assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed." 30. A perusal of the above provision shows that the power to assess or reassess the escaped income for any assessment year has been conferred upon the Assessing Officer where he has reason to believe that the income chargeable to tax has escaped assessment. However, in cases where assessments under sub-section (3) of section 143 or section 147 of the Act have already been made for the relevant assessment year, the proviso further provides that in such cases no action shall be taken under section 147 after the expiry of four years from the end of the relevant assessment year unless the escapement of income is on account of failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment. In other words, in order to assume jurisdiction under section 147 in a case where assessment has been made u....
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....re Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). 17. The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circ....
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....ormation led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver)". The AO adds that the said accommodation was "a known entry operator" the source being "the report of the Investigation Wing". 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, "the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... " 22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his payi....
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....n an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment." "36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 37....
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....ied that a case was made out for reopening the assessment as income had escaped assessment. 9. However, in neither of the above cases are the facts similar to those in the present case. The two glaring errors in the reasons in the present case are, in fact, unusual. What the AO might have done if he was aware, even at the stage of consideration of reopening of the assessment that a return had in fact been filed by the Assessee and that the extent of the accommodation entries was to the tune of Rs. 78 lakh and not Rs. 1.56 crore would be a matter of pure speculation at this stage. He may or may not have come to the same conclusion. But that is not the point. The question is of application of mind by the AO to the material available with him before deciding to reopen the assessment under Section 147 of the Act. 10. In this context the following observations of this Court in CIT v. Suren International (2013) 357 ITR 24 (Del)are relevant: "....In the first instance, we do not find the reasons as recorded by the Assessing Officer to be reasons in law, at all. A bare perusal of the table of alleged accommodation entries included in the reasons as recorded, disc....
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....assessment, added a sum of Rs. 1.13 crore. On what basis such an addition was made has not been explained. 15. For the aforementioned reasons, the Court is satisfied that no error was committed by the ITAT in holding that reopening of the assessment under Section 147 of the Act was bad in law. 16. No substantial question of law arises from the impugned order of the ITAT." 36. In case of Sarthak Securities Co. (P) Ltd. vs. ITO-Ward 7(3) (Supra), the Hon'ble Delhi High Court has held as under: "15. On scanning of the anatomy of the aforesaid provision, it is clear as crystal that the formation of belief is a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer is required to form an opinion before he proceeds to issue a notice. The validity of reasons, which are supposed to sustain the formation of an opinion, is challengeable. The reasons to believe are required to be recorded by the Assessing Officer. 16. In this regard, it is apt to reproduce a passage from N.D. Bhatt, IAC v. I.B.M. World Trade Corpn. [1995] 216 ITR 811 (Bom.) :- "It is also well-se....
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....ent of that assessment year, so as to establish the 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 an affidavit or making an 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." [Emphasis supplied] 18. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC), it has been ruled thus :- "Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have....
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....hich is the concluding portion of the socalled reasons :- "Thus, I have sufficient information in my possession to issue notice under section 148 in the case of M/s. SFIL Stock Broking Ltd. on the basis of reasons recorded as above." 10. From the above, it is clear that the Assessing Officer referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under section 148. We are afraid that these cannot be the reasons for proceeding under section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on facts. The law is well-settled. There is no substantial question of law which arises for our consideration." [Emphasis supplied] 20. On a perus....
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....ce nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income, but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is 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 authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P.) Ltd.'s case (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assesseecompany through banking channel. The identity of the companies was not disputed. Under these circumst....
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....x. Thus, it appears that the AO was satisfied with the details and information provided by the Petitioner. 14. A perusal of the order disposing of the objections reveals that it proceeds on the basis that the information sought for by the Petitioner which formed the basis for the reasons to believe, including the evidence collected, was required to be provided only in the further assessment proceedings. The said order overlooks the fact that the reasons for reopening do not mention as to what fact or information was not disclosed by the Petitioner. This is very vital and in fact goes to the root of the matter. An allegation that the companies are `paper companies' without further facts is by itself insufficient to reopen assessments that stand closed after passing of orders under Section 143 (3) of the Act. 15. The assessment proceedings, especially those under Section 143 (3) of the Act, have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis. It is well settled that a mere conjecture or surmise is not sufficient. There have to be reasons to believe and not merely reasons to suspect that income has escaped assess....
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....tates that the information was specific and the information would be provided to the Petitioner during the assessment proceedings. Thus, if the Revenue had any basis to show that the primary facts were incorrect, the same ought to have been set out in the reasons to believe. That has not been done in the present case. 18. Thus, the Petitioner cannot be said to have failed to disclose fully and truly all the material facts. This being a jurisdictional issue, the assumption of jurisdiction under Sections 147 and 148 of the Act was erroneous. The notice dated 20th March, 2015 and the subsequent order dated 1st February, 2016 deserve to be and are hereby quashed. 19. Before parting with the case, the Court would like to observe that on a routine basis, a large number of writ petitions are filed challenging the reopening of assessments by the Revenue under Sections 147 and 148 of the Act and despite numerous judgments on this issue, the same errors are repeated by the concerned Revenue authorities. In this background, the Court would like the Revenue to adhere to the following guidelines in matters of reopening of assessments: (i) while communicating the reaso....
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.... such assessment year by reasons of the failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year. [Emphasis supplied by us]. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear an....
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....income has indeed escaped assessment. 22. When we come to the third reason alleged by the Assessing Officer for reopening the case, namely, illegality of the business and taxation of income derived from it as income from other sources, the department is on an even thinner ground. In the first place, when the income from the activity of mining and export of ore arose and also when it was assessed to tax, there was nothing to suggest that the activity was illegal. Six years later, when the Supreme Court decided the case of Goa Foundation, and declared that deemed mining leases had already expired and mining carried out thereafter was illegal, the question of illegality of the activity arose for the first time. But be that as it may, even if it is assumed that at all times the activity carried on by the Assessee, through which income was said to have accrued to it, was in violation of law, that does not alter the character of the activity. Income earned from the activity is still very much business income and any expenditure made for the activity is business expenditure. Section 37(1) of the Act refers to expenditure incurred by an Assessee "for any purpose which is an offenc....
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....under section 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief. The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the Assessing Officer. However, the Supreme Court in Rajesh Jhaveri [2007] 291 ITR 500 did not say that it was not necessary for the Assessing Officer to form a "belief and that the mere fact that there was some material on record was sufficient. 9. In the present case, we find that the first sentence of the so-called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income-tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income-tax (Investigation) to issue a notice under section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. These three sentences are followed by the following sentence, which is the concluding portion of the so-called....
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....ssee is entitled to challenge the very act of re-opening of Assessment and assuming jurisdiction on the part of the Assessing Officer. 13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. 14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding reopening not....
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....the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiati....
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....ds or services. Most of these cheques were issued from the current account maintained by him and issuance of these cheques preceded by substantial cash deposits in such account. The account was maintained in the name of M/s. Shiyon Enterprises in Union Bank of India, Zaveri Bazar branch. There was strong prima facie material suggesting that said Shri Chandrakant Patel was providing accommodation entries. It was found that the assessee company was also availing the accommodation entries from said Shri Chandrakant Patel. The petitioner assessee also maintained bank account in the same branch of Union Bank of India. The study of the bank account of the assessee showed that debit in name of M/s. Shiyon Enterprises between 20.12.2007 to 31.3.2008 came to a total of Rs. 219.96 crores (rounded off). During the assessment year 2008-2009, the assessee company had debited purchases from M/s. Shiyon Enterprises in the books of account. Inter-alia on such grounds, the Assessing Officer formed a belief that the purchases made by the assessee from M/s. Shiyon Enterprises were bogus purchases and corresponding income had escaped assessment. 6. At the stage when we are examining the valid....
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....ried out detailed examination of legal position in the background of somewhat similar facts and concluded as under : "The Assessing Officer required jurisdiction to reopen under section 147 read with section 148 of the Act, where the information must be specific and reliable. As held by the Apex Court in the case of Phul Chand Bajrang (supra), since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but is open to an assessee to establish that there exists no belief or that the belief is not at all a bona fide one or based on vague, irrelevant and non- specific information. To that limited extent, the Court may look at the view taken by the Income-tax Officer and can examine whether any material is available on record from which the requisite belief could be formed by the Assessing Officer and whether that material has any rational connection or a live link with the formation of the requisite belief. It is also immaterial that at the time of making original assessment, the Assessing Officer could have found by further inquiry or investigation as to whether the transactions were genuine or not. If o....
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.... the substantial material indicated that 20 dummy companies of Mr. Arun Dalmia were engaged in money laundering and the income-tax evasion. The said entities included Basant Marketing Pvt. Ltd. also. From the analysis of details furnished and the beneficiaries reflected, which are spread across the country, the CIT, Koklata, suspected the accommodation entry related to the assessment year 2006-07 as well, this information has been provided to Director General of Income-tax, Kolkata, who in turn, communicated to the Chief Commissioner of Income-tax, Ahmedabad. Further revelation of investigation as could be noticed from the record examined (file) deserves no reflection in this petition. Insistence on the part of the petitioner to provide any further material forming the part of investigation carried out against Dalmias also needs to meet with negation, as the law requires supply of information on which Assessing Officer recorded her satisfaction, without necessitating supply of any specific documents. The proceedings initiated under section 147 of the Act would not be rendered void on non- supply of such document for which confidentiality is claimed at this stage, following the deci....
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.... Ltd. v. Dy. CIT [2000] 241 ITR 672, similar matter had come up for consideration before the Madras High Court and it has been held as under :- "The pre-condition for the exercise of the power under section 147 in cases where power is exercised within a period of four years from the end of the relevant assessment year is the belief reasonably entertained by the Assessing Officer that any income chargeable to tax has escaped assessment for that assessment year. However, when the power is invoked after the expiry of the period of four years from the end of the assessment year, a further pre-condition for such exercise is imposed by the proviso namely, that there has been a failure on the part of the assessee to make a return under section 139 or in response to a notice issued under section 142 or section 148 or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Unless, the condition in the proviso is satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceedings under section 147 of the Act after the expiry of four years from the end of the assessment year. Thus....
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....(p. 176) In the case of Mercury Travels Ltd. (supra), the proceedings under section 147 were initiated for assessment years 1989-90, 1990-91 and 1991-92 vide issue of notices under section 148 in September, 1996, which was after the expiry of four years. The reassessment proceedings had been initiated almost on identical grounds as in the present case. In the reasons re-corded, it was mentioned that the deduction under section 80HHD was allowable on total profit of the business by multiplying by ratio of total receipt of convertible foreign exchange to total receipt of whole business carried on by the assessee. However, to calculate total receipt of the business, the assessee had taken gross receipt of foreign exchange plus net receipt of domestic business in respect of commission/service charges. Thus, it was claimed that the assessee had claimed excess deduction under section 80HHD the High Court observed that where expressly deduction under section 80HHD was claimed and it was examined and granted by the Assessing Authority, there could be no omission or failure on the part of the assessee to disclose any material fact necessary for the assessment. It has been further o....
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....on the part of the assessee to furnish profit and loss accounts for assessment years 1995-96 and 1996-97 with the return for assessment year 1997-98. Counsel for the Revenue has also not been able to point out any provision of law or rule which required furnishing of profit and loss accounts of earlier years. In the absence of any obligation to file these documents, the assessee cannot be charged with any failure to disclose fully and truly material facts necessary for its assessment. As far as profit and loss account for assessment year 1997-98 is concerned, the Assessing Officer was wrong in observing that the same had not been attached with the return. The records of the department were produced by counsel for the Revenue on 27-5-2004 from where it was duly verified that the profit and loss account for assessment year had been duly filed with the return. Similarly, the depreciation chart for assessment year 1997-98 giving particulars required for computation of depreciation is also available on record. 12. The limitation of four years provided in the proviso to section 147 has been made applicable only to cases where assessments have already been completed under sub-sec....
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....sment year if the following conditions are satisfied: (a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year; and (b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee: (i) to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148; or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapem....
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....e four year period in the circumstances narrated above. 21. The matter, however, does not end here. We have mentioned above that the stand taken by the respondents in their counter-affidavit before this court is that the 'actual' reasons recorded are those recorded in the Form for recording reasons, a copy of which has been filed as Annexure-A to the said counteraffidavit. It was urged on behalf of the respondents that the 'reasons for the belief that income has escaped assessment' at serial No. 11 of the said form clearly carries the allegation that 'there was failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries'. This being the case, it was submitted, the bar of taking action within four years would not apply and, consequently, the notice under section 148 was valid. 22. This argument suffers from several infirmities. First of all, the respondents cannot be permitted to gloss over the fact that the reasons which were supplied to the petitioner were different from the reasons purportedly recorded in the said form on which they now seek to rely. If the reasons in the said form ....
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....of the said Act are issued. Surely, the Assessing Officer could not have construed these specific directions to be a mere empty formalities or dead letters? There is a strong logic and purpose behind the directions issued by the Supreme Court and that is to prevent high-handedness on the part of Assessing Officers and to temper any action contemplated under section 147 of the said Act by reason and substance. In fact, even section 148 (2) stipulates that the Assessing Officer shall, before issuing any notice under the said section, record his reasons for doing so. The Supreme Court has only carried forward this mandatory requirement by directing that the reasons which are recorded be communicated to the assessee within a reasonable period of time so that at that stage itself the assessee may point out any objections that he may have with regard to the initiation of action under section 147 of the said Act. The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the Assessing Officer does not reopen assessments which have been finalized o....
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....e second stage. There can be omission and failure on the part of the assessee to disclose fully and truly material facts during the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details it is required and under an obligation to disclose. Burden is on the assessee to make full and true disclosure. 11. In the case of Consolidated Photo & Finvest Ltd. v. Asstt. CIT [2006] 281 ITR 3941, the Delhi High Court has referred to several decisions of the Supreme Court and observed :- "In Kantamani Venkata Narayana & Sons v. First Addl. ITO [1967] 63 ITR 638, the Apex Court held that in proceedings under article 226 of the Constitution of India challenging the jurisdiction of the Income-tax Officer to issue a notice for reopening the assessment, the High Court was only concerned with examining whether the conditions which invested the Income-tax Officer with the powers to reopen the assessment existed. It is not, observed the court, within the province of the High Court to record a final decision about the failure to disclose fully and truly all material facts ....
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....earing on the assessment. Omission to disclose may be deliberate or inadvertent. This is not relevant, provided there is omission or failure on the part of assessee. The latter confers jurisdiction to reopen assessment. 13. Whether or not there was a failure or omission to disclose fully and truly material facts, is essentially a question of fact. Section 14A was introduced with retrospective effect by Finance Act, 2001, which was tabled in the Parliament on 28-2-2001 and was passed by the Parliament on 1-4-2001. The petitioner is a multinational company and it is difficult to perceive and accept that their tax or the legal department was not aware and did not have knowledge about section 14A of the Act. 14. In the objection dated 14-11-2007 filed by the petitioner before the Assessing Officer on facts the petitioner had pleaded as under : "In the case of the assessee the assessment was, completed under section 143(3) of the Act. Further, it would be evident from the reasons provided for reopening the assessment that the reassessment has been initiated on appreciation of the papers/documents furnished along with the return of income. The notice under sect....
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....e Investigation Wing. However, the objections filed by the Assessee were not disposed of by the AO and he proceeded to frame the assessment. This Court in Haryana Acrylic Mfg. Co. (P.) Ltd. (supra) had observed that the requirements regarding recording the reasons to believe; communicating the same to the Assessee; permitting the Assessee to file the objections; and passing a speaking order disposing of the objections are all designed to ensure that the AO does not reopen assessments, which have been finalized, on his mere whim and fancy and that he does so only on the basis of lawful reasons. It was further held that a deviation from the directions issued by the Supreme Court in G.K.N Driveshafts (India) Ltd. (supra) would entail nullifying the proceedings. Although the AO is required to provide reasons, receive objections and pass a speaking order thereon, only after the notice under Section 148 of the Act has been issued; these requirements are an integral part of the safeguards which have been inbuilt for ensuring that the assessments are reopened only for lawful reasons and in a transparent manner. If the said safeguards are flouted, it would invalidate the exercise of jurisdi....
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....e, therefore, the first limb of the proviso is not relevant. What needs to be examined is the satisfaction of the second limb of the proviso as to whether there is a failure on part of the assessee to disclose fully and truly all material facts necessary for its assessment. The aforementioned requirements of law are held to be conditions precedent for invoking the jurisdiction of the Assessing Officer to reopen the assessment under section 147 of the Act and both the conditions are cumulative and must co-exist and in event of any of the conditions not been satisfied, the very initiation of proceedings under section 147 of the Act shall be wholly without jurisdiction. 51. In the second part of the reasons so recorded, the Assessing officer has talked about the information collected/received by him and basis which, he has recorded the reasons of income having escaped assessment. The Assessing officer has referred to a communication dated 26/03/2018 received from DDIT(Investigation) Unit 7(1) Delhi stating that the assessee has undertaken transactions with some proprietary concerns which on investigation were found to be paper concerns and the said concerns were operated by some en....
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....session is not sufficient unless he brings out the relevant facts and bearing thereof in the hands of the assessee in the reasons so recorded which has evidently not happened in the instant case. 52. In the third part of the reasons so recorded, the Assessing officer has claimed to have carried out the analysis of the information so collected/received by him and all that he has stated was that the assessee had received many bogus entries from Rohit Trading and has made payment of Rs 2,29,15,034/-. The same is clearly on the face of Assessing officer's own finding in the reassessment order so passed where he has considered the figure of Rs 3,44,37,684/- being the purchases made from Rohit Trading. How mere making the payment to Rohit Trading has been construed as leading to a belief that the income has escaped assessment is not discernable from the reasons so recorded. The question is whether the Assessing officer has applied his mind to the information so received, whether he has examined the assessment records of the original proceedings and audited financial statements available on record, whether he called for any information/clarification from the assessee and/or Rohit Tradi....
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....facts necessary for assessment has not been made as noted above. It has been further stated by the Assessing officer that even though the assessee has produced books of accounts, annual report, audited P&L A/c and balance sheet or other evidence as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the Act. 54. Here it is noted that the assessee in its objections to the reasons so recorded had taken a specific plea and submitted that all material facts relating to the purchases had been duly disclosed in the profit/loss account and balance sheet. As held in case of Haryana Acrylic Manufacturing Co (Supra), the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. had specifically directed that on receipt of the reasons, the noticee is entitled to file objections to the issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. These are specific directions given by the Supreme Court in all ....
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....on as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year, that the Assessing Office, in the event of challenge to the reasons, must be able to justify the same based on material available on record, that he must disclose in the reasons as to which fact or material was not disclosed by the Assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence which is a vital link and a safeguard against the reopening of the concluded assessment. 57. In the instant case, as well, we find that the assessee took a specific objection stating that there is no failure on its part as all material facts relating to purchased from Rohit Trading had been disclosed, it is noted that the Assessing officer while disposing off the assessee's objection, has failed to address the said objection as can be discernable from the order dated 19/12/2018 disposing off the objections so taken by the assessee. The Assessing officer infact has kept total silence on the matter forgot about highlighting what material fact ....