TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1034
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....ued under section 144 of the Act. 4. That the ld. Assessing Officer grossly erred in law and on facts in not appreciating that the appellant incurred only short term capital loss, which was not even claimed while filing return of income. Consequently, no loss accrued to Revenue. The appellant craves to add, amend, modify and delete any of the above grounds at or before the time of hearing." 2. The brief facts of the case are that the assessee is an Individual, filed his return of income under section 139(1) of the IT Act, 1961 on 29.09.2013 for the assessment year 2013-14, declaring total income at Rs. 2,76,990/-. Subsequently, notice under section 148 of the IT Act was issued on 16.03.2020 to the appellant on the basis of information received from DDIT (Inv.), Unit-1(3), Ahmedabad that the appellant has claimed bogus long term capital gains (LTCG) of Rs. 15,95,000/-, which has not been found genuine and verifiable from the return of income on prima facie verification. In response to the notice under section 148 of the IT Act, the appellant e-filed return of income on 17.03.2021 declaring total income at Rs. 2,76,990/- for the AY 2013-14. Thereafter, notices under section 143(....
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....th for your ready reference- As per the details/information received from DDIT(Inv), Unit 1(3), Ahmadabad, the assessee has held claimed bogus LTCG of Rs. 15,95,000/-, which has not been found genuine and verifiable from the ITR on prima facie verification. Thus, the then Assessing Officer has reasons to believe that the income to the extent of Rs. 15,95,000/-has escaped assessment within the meaning of Section 147 of the Income Tax Act 1961 and recorded reasons w/s 147 & found it a fit case for issue of notice u/s 148 of the Act. 1.3 Accordingly, the Learned AO reopened the assessment in the present case, believing that long term capital gain amounting to Rs. 15,95,000/- was earned by the appellant during relevant assessment year. However, the grounds for reopening the assessment were fundamentally wrong. As such, no long term capital gains were earned by the appellant, instead the appellant incurred short term capital loss amounting to Rs. 7,01,240/- 1.4 The details are tabulated as below- Particular Date Amount (in INR) Supporting document Purchase 04.06.2012 15,99,785/- Contract Note annexed as Annexure-12 Sale 16.11.2012 8,98,545/- Contract Note annexed as An....
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....based on some tangible material and the same should be evident from the reading of the reasons and this constitutes the mandatory requirement of section 147. In this regard, reliance is placed on following legal precedents, clarifying position of law as under: 2.3.1 Well Trans Logistics India (P.) Ltd. v. Addl. Commissioner of Income-tax (166 taxmann.com 72)-Delhi High Court (copy annexed as Annexure-17) In this case, the Assessing Officer received information from Investigation Wing that the assessee deposited substantial amount of cash in different bank accounts. The Assessing Officer based on said information, formed reason to believe that income to the extent of cash deposited in the bank account had escaped assessment. As a result of writ petition by the assessee, Hon'ble High Court held as under- 25. In the instant case, there is no 'close nexus' or 'live link' between tangible material and the reason to believe that income has escaped assessment. The information received from the Investigating Unit of the revenue cannot be the sole basis for forming a belief that income of the assessee has escaped assessment. Having received information from the Inv....
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....her words, what in such information 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 escuped 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 h....
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....n of the belief or the reason to believe that income has escaped assessment. In the present case as well, reasons to believe are merely copy paste of information contained in report from Investigation Wing. Thus, the learned AO had only "reasons to suspect and not "reasons to believe in the instant case. Analysing the 'reasons to believe' recorded by the learned AO, following observations are noted, which are identical to facts of the above judicial pronouncement: i) The first sentence of the reasons states that information had been received from DDIT(Investigation) that the appellant has claimed bogus LTCG of Rs. 15,95,000/-which has not been found genuine and verifiable from Income Tax Return on prima facie verification. The last sentence records that as per this information, "reasons to believe' are formed, approval taken under section 151 and notice issued under section 148 of the Act. ii) The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document. Further, it is apparent that the learned AO did not apply his own mind to the in....
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....with the return filed by the assessee pursuant to receiving the notice under section 148. In Schedule VI of the balance sheet transaction pertaining to procurement of land worth Rs. 1.26 crores is clearly stated [Para 9] learned AO, following observations are noted, which are identical to facts of the above judicial pronouncement: i) The first sentence of the reasons states that information had been received from DDIT(Investigation) that the appellant has claimed bogus LTCG of Rs. 15,95,000/-which has not been found genuine and verifiable from Income Tax Return on prima facie verification. The last sentence records that as per this information, "reasons to believe' are formed, approval taken under section 151 and notice issued under section 148 of the Act. ii) The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document. Further, it is apparent that the learned AO did not apply his own mind to the information and examine the basis and material of the information. The learned AO recorded reasons on the basis of vague information in a mechanical....
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....ng to procurement of land worth Rs. 1.26 crores is clearly stated [Para 9] Resultantly the very foundation of the impugned notice, the reasons to believe and the order turning down objections is non-existent. All the three proceedings are based sheerly on conjectures and surmises. The Assessing Officer had no tangible evidence to initiate the reassessment proceedings against the assessee. Even if it is assumed for argument's sake that the transaction made by the assessee for the acquisition of land at Pali may be read in place of Delhi then also the said transaction is duly mentioned in the return filed for the relevant assessment year and is supported by the audited balance sheet which was accepted by the Assessing Officer. [Para 10] In view of aforesaid the notice under section 148, the reasons to believe and the order disposing of the objections and all consequential proceedings deserved to be quashed and struck down [Para 11] In the present case as well, reasons to believe are founded on non-existent transaction. The Learned AO believed the said transaction to be 'long term capital gains", whereas no such "long term capital gains were earned by the appellant on allege....
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.... article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year." 4.2 Since the appellant recorded all purchases and sales with regard to investment in shares in books of accounts, there arises no violation of provisions of section 69A of the Act. 4.3 It is also relevant to note that various courts had taken a view that the reassessment proceedings were confined under section 147 only to the issues (reasons to believe) on the basis of which the assessments were reopened. Thus, there was no scope for making any addition other than those which were circumscribed by the reasons to believe as recorded by the Assessing Officer prior to the issuing a notice under section 148. However, this controversy was set at rest by introduction of Explanation 3 by virtue of the Finance Act, 2009 with retrospective effect from 1-4-1989. Explanation 3 to Section 147 as applicable at the material time reads as under "Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing O....
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....imited (supra), this court had noted and interpreted the import of the word "and also any other income chargeable to tax" and had concluded that the said word clearly indicate that other income could be brought to tax provided an addition was made on the ground on which the assessment was reopened. We consider it apposite to set out the following extracts of the decision in the case of Ranbaxy Laboratories Limited (supra). (copy annexed as Annexure-20) "17... Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment, and also any other income chargeable to tax. The words 'and also cannot be ignored. The interpretation which the court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words 'assess or reassess such income and also any other income charg....
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....ich came to his notice during the proceedings. In the absence of the assessment or reassessment the former, he cannot independently assess the latter Section 147 has this effect that the Assessing Officer has to assess or reassess the income (such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income If he intends to do so, a fresh notice under section 148 would he necessary, the legality of which would be tested in the event of a challenge by the assessee." 4.9 If the ground on which assessment is sought to be re-opened, cannot be sustained, there would be little rationale for expanding the reassessment proceedings. In our view, it would not be apposite to accept an expansive inte....
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....on of jurisdictional Rajasthan High Court in case of Commissioner of Income-tax vs. Shri Ram Singh [2008] 306 ITR 343 (Rajasthan)/[2008] 217 CTR 345 (Rajasthan) [20-05-2008), which was further followed in case of Commissioner of Income Tax, Ajmer v. Mahendra Singh Asoliya (107 taxmann.com 80). SLP filed against the said order of High Court was dismissed in Principal Commissioner of Income-tax Mahendra Singh Asoliya [2019] 107 taxmann.com 81 (SC)/[2019] 264 Taxman 287 (SC)(31-08-2018). Relevant extract from Shri Ram Singh's case is reproduced hereunder- (copy annexed as Annexure-22) It is only when in proceedings under section 147 the Assessing Officer assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then only, in addition he can also put to tax the other income chargeable to tax which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147. If in the course of proceedings under section 147, the Assessing Officer were to come to conclusion that any income chargeable to tax which, according to his "re....
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....with principles of natural justice and did not grant sufficient time to respond to show cause notice. 6. Legal position in this regard- 6.1 Dipak Natwarlal Dholakiya vs. Additional/Joint/Deputy/Assistant Commissioner of Income- tax [2023] 149 taxmann.com 151 (Gujarat)/[2023] 293 Taxman 192 (Gujarat)[06-02-2023] (copy annexed as Annexure-23) Where Assessing Officer issued show cause notice-cum-draft assessment order directing assessee to comply with same within time of 12 hours and later, passed assessment order making additions, there was gross violation of principles of natural justice and thus, final assessment order was to be quashed. 6.2 Rahim Saib Hiriyur Hyder Ali vs. National Faceless Assessment Centre [2022] 145 taxmann.com 116 (Karnataka)/[2023] 291 Taxman 175 (Karnataka)/[2023] 457 ITR 253 (Karnataka)[02-09-2022] (copy annexed as Annexure-24) Where Assessing Officer passed a final assessment order within short period of only two days from issuance of show cause notice against assessee asking it to furnish his reply, same was violative of principles of natural justice and, thus, impugned assessment order was to be quashed The above decision of Karnataka High Cour....
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....ng on 16.04.2025, as sought for by the Bench, the assessee filed copy of return of income filed on 17.03.2021 in response to notice under section 148 of the IT Act, 1961 along with computation of total income u/s 148 on 17.04.2025. On perusal of return, we find that the assessee had filed his return of income on 17.03.2021 declaring total income of Rs. 2,76,990/- vide acknowledgement no. 292762281170321. 5.1 On perusal of the case file, we find that the AO has also not recorded anything with regard to the material on the basis of which the reasons and conclusion was formed except the information received from DDIT (Inv.), Unit 1(3), Ahmedabad and on the basis of vague reasons initiated proceedings under section 147 by issuing notice under section 148 of the Act. The case of the assessee was reopened on the reason that the assessee has claimed bogus Long Term Capital Gain of Rs. 15,95,000/- and has not disclosed the capital gain earned and income escaped assessment. Whereas, the assessment order was passed taking into account that the assessee has invested Rs. 15,95,000/- in purchase of shares of Safal Herbs Ltd. The AO observing that the assessee could not explain the source of in....
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....ares. Therefore, what has been recorded by the AO as 'reasons to believe' is nothing more than a vague information, further, the said reasons cannot be substituted subsequently by way of assessment order. It is well settled in 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 anything can be deleted from the reasons so recorded. Hon'ble Bombay High Court, in the case of Hindustan Lever Ltd. vs. R.B. Wadkar (2004) 268 ITR 332 (Bom.) has, inter alia, observed in para 21 of its order as under :- "21. 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 AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the....
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.... Clearly, in this case, the Assessing Officer has not acquired any material to form such belief. There is not even a line of reason which may justify the formation of the belief. Consequently, reopening of assessment for the assessment year in question by the Assessing Officer does not satisfy the requirement of law in terms of sections 147 and 148. 27. Consequently, the writ petition is allowed. The impugned reassessment notice issued under section 148 and further proceedings, if any, initiated pursuant to the said notice are set aside." Further, reasons are deduced from the material available on record and such material should have a direct link with the formation of the belief that income chargeable to tax has escaped assessment. In the instant case the AO has neither provided any material nor referred any material on the basis of which the AO formed his reasons and came to the conclusion that there is escapement of income. In fact, there was no tangible material in possession of the AO leading to the belief that income has escaped assessment. The AO has failed to establish any live nexus between the information and formation of belief that the assessee claimed Long Term Capi....
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....le High Courts and the Tribunals have observed as under :- "The Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs. CIT, (2011) 12 taxmann.com 74 (Delhi) in para 17 of its Judgment observed as under :- "17. Now, coming back to the interpretation which was given by the Bombay High Court to sections 147 and 148 in view of the precedent on the subject. The Court held as under :- "11.......Interpreting the provisions it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provisions should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "an....
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....nnot independently assess the latter." Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee." Hon'ble jurisdictional Rajasthan High Court in the case of Commissioner of Income-tax vs. Shri Ram Singh (2008) 306 ITR 343 (Raj.), relevant extracts from this judgment is reproduced hereunder :- "It is only when in proceedings under section 147 the Assessing Officer assesses or reassesses any income chargeable to tax which has escape....