TaxTMI 
TaxTMI 
2025 (7) TMI 1034
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....id not grant sufficient time to respond to show cause notice issued 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 inc....
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....ning the assessment proceedings. 1.2 In this regard, reasons for reopening as per the assessment order are reproduced herewith 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 (....
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....ot be exercised lightly. Said power cannot be invoked casually or mechanically. Formation of belief by the Assessing Officer that income has escaped assessment is the heart of the provision. The reasons recorded must be 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 t....
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....d to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received He says. "The information so received has been gone through." One would have expected him to point out what he found when he went through the information. In other 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 'reas....
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....ving 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. 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 se....
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....justify the fundamentally flawed reopening proceedings on entirely a new ground that the assessee did not upload the financial statement with the return and the details of the land transaction were not mentioned in Schedule VI of the balance sheet. This observation of the Assessing Officer is also incorrect on the face of record because the balance sheet was admittedly uploaded 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 n....
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.... did not upload the financial statement with the return and the details of the land transaction were not mentioned in Schedule VI of the balance sheet. This observation of the Assessing Officer is also incorrect on the face of record because the balance sheet was admittedly uploaded 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] 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 ....
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....nexure-16) 4. Legal position regarding the issue- 4.1 In this regard, provisions of section 69A are reproduced hereunder for ready reference- "Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable 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 bel....
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.... 4.6 But proceeded to make addition of purchase amount under section 69A of the Act, i.e. on an issue which did not form a part of 'reasons to believe recorded before reopening the assessment proceedings. 4.7 Undisputedly, the issue involved is squarely covered by the decisions of Delhi High Court in Ranbaxy Laboratories Limited (supra); Pr. CIT v. Jaguar Buildcon (P.) Ltd. in ITA 756/2023 decided on 01.08.2024/[2024] 165 taxmann.com 757 (Delhi), and a recent decision in Pr. CIT v. Naveen Infradevelopers & Engineers (P.) Limited, Neutral Citation No.: 2024:DHC:7997-DB. 4.8 In Ranbaxy Laboratories Limited (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 P....
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....ce subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from April 1, 1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which 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, ....
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...., 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." 4.11 It would be important to advert to decision 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&....
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....not complying with principles of natural justice. Further, the Ld. Assessing Officer did not grant sufficient time to respond to show cause notice issued under section 144 of the Act. 5. Facts underlying the issue- 5.1 In the present case, show cause notice was issued to the appellant on 28.09.2021, requiring the appellant to respond by 29.09.2021. The appellant sought adjournment on 29.09.2021, and also furnished response on 30.09.2021 (copy of acknowledgement of response furnished is attached as Annexure-8 & 9) 5.2 However, the learned AO did not consider the response furnished on 30.09.2021 and proceeded to make addition under section 69A of the Act. 5.3 Therefore, learned AO erred in complying 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 a....
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.... 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 u/s 147 & found it a fit case for issue of notice u/s 148 of the Act." Accordingly, the AO reopened the assessment by issuing notice under section 148 of the IT Act, 1961 believing that long term capital gain amounting to Rs. 15,95,000/- earned by the appellant has escaped assessment. In response to the notice u/s 148, the assessee filed the return of income declaring total income at Rs. 2,76,990/- on 17.03.2021 along with computation of total income under section 148. At the time of hearing 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 n....
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....asons on the basis of which notice of reassessment had been given do not subsist, the AO loses his jurisdiction to assessee the case and hence we quash the assessment order passed by ld. AO on this score. 5.2 It is noteworthy that it is a settled position that reasons cannot be substituted and the reasons are required to be read as they were recorded by the AO. In the instant case, the information was available with the AO at the time of recording reasons was that the appellant had claimed bogus Long Term Capital Gain of Rs. 15,95,000/- and has not disclosed the capital gain earned and income escaped assessment. however, when the assessment order was passed it was mentioned that the assessee has invested Rs. 15,95,000/- in purchase of shares of Safal Herbs Ltd. and the assessee could not explain the source of purchase of the shares. 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....
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....i High Court, in the case of Well Trans Logistics India (P) Ltd. vs. Addl. Commissioner of Income-tax (166 taxmann.com 72)(Del.) has observed in para 25 to 27 of its order 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 Investigating Wing, it was incumbent upon the Assessing Officer to take further steps, make further enquiries and garner further material and if such material indicate that the income of the assessee has escaped assessment and then form a belief that the income of the assessee has escaped assessment. 26. 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 secti....
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....assessee stated that no Long Term Capital Gains were earned during the year under consideration. The ld. CIT(A) has failed to appreciate facts evident from ledger account with the broker as well as contract notes, in respect of purchase and sale of shares and the loss incurred by the assessee. On perusal of the first appellate order, we find that ld. CIT (A) admitted the said fact by observing in his order as under :- "As per Purchase & Sale bill submitted by the appellant, the appellant has purchased 25,000 shares of Safal Herbs Ltd. for the amount of Rs. 15,99,785/- and sold the same at Rs. 8,98,545/-, thus suffering a Capital Loss of Rs. 7,01,240/-." But proceeded to make addition of purchase amount under section 69A of the IT Act, 1961 on an issue which did not form a part of 'reasons to believe' recorded before reopening the assessment proceedings. In this regard, vide following judgments of the Hon'ble 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 in....
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....ich was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from 1.4.1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which 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....