TaxTMI 
TaxTMI 
2026 (3) TMI 945
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....g of assessment u/s 147 and issuance of notice u/s 148 of the IT Act. In this regard, as desired, the reasons recorded for re-opening of assessment u/s 147 and issuance of notice u/s 148 of the IT Act, 1961 for the Assessment Year 2010-11 is as under: - Reasons for re-opening the assessment u/s 147 and issuance of notice u/s 148 of the IT Act, 1961 in the case of M/s East Delhi Leasing Pvt. Ltd. (PAN: AAACE0240R) for the Assessment Year-2010-11. 1. Return of income for the A.Y. 2010-11 in this case was filed on 15.10.2010 declaring returned income at Nil. As per return of income during the year under consideration the assessee has shown paid up capital of Rs. 3,02,11,700/- and securities premium at Rs. 4,50,00,000/-. Further, the assessee company has made investment of Rs. 6,60,47,400/- and shown bank balance of Rs. 1,45,62,170/-. Further, the assessee company has also shown Sundry creditors of Rs. 55,18,945/- but not shown any business activity during the year under consideration. 2. Brief facts of the case are as under: - Information is received from the Investigation wing i.e. Income Tax Officer, Unit-1, New Delhi that there were vari....
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....n & again is escaped assessment. 5. Reasons for formation of belief In the light of above discussion, it is apparent that the assessee company has made transactions the huge funds to its related parties though RTGS which resembled that huge amount is revolving again and again in the bank accounts of all the parties and the source of funds revolving in account of all the parties remains unexplained. During the year under consideration the assessee company has not done any business activity. Further, return of income of the assessee is perused and it is noticed that the assessee has securities premium account of Rs. 4,50,00,000/-. Further, the assessee company has made investment of Rs. 6,60,47,400/- and shown bank balance of Rs. 1,45,62,170/-. Further, the assessee company has also shown Sundry creditors of Rs. 55,18,945/- but not shown any business activity during the year under consideration. The assessee has received huge securities premium of Rs. 4,50,00,000/- and made Investment of Rs. 6,60,47,400/-. The source of fund received by the assessee company remains unexplained before the Investigation wing and also funds transferred to other parties are also remains....
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.... AO to reach to the conclusion that income of the assessee had escaped assessment warranting reopening thereon. It was submitted that suspicion howsoever strong cannot partake the character of a legal evidence. 5. The Id. AO disposed of the aforesaid objections by a separate communication dated 8.9.2017 addressed to the assessee. In the said letter, the Id. AO stated that the assessee company has made transactions of huge funds to its related parties through RTGS which resembled that huge amount is revolving again and again in the bank accounts of all the parties and the source of funds revolving in account of all the parties remains unexplained before the investigation wing of the department and also funds transferred to other parties also remain unexplained. With these observations, the objections filed by the assessee were rejected by the Id. AO and reassessment proceedings were further proceeded with by the Id. AO. In the reassessment proceedings, the share application money received in the sum of Rs 5.42 crores was sought to be examined by the Id. AO. The assessee had submitted copies of audited financial statements of the aforesaid investors for the relevant years, copy of....
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.... to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of grounds which induce the Income Tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income Tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income Tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income Tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law" The aforesaid principle has been follow....
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....ons of the apex Court in S. Narayanappa vs. CIT (1967) 63 ITR 219, GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19 and Raymond Woollen Mills Ltd. vs. ITO (1999) 236 ITR 34 and also of the Delhi High Court in Bawa Abhai Singh vs. DCIT (2002) 253 ITR 83 (Del) in support of his action. 4.1 The satisfaction as recorded by the AO for reopening of the case is placed at pages 1 to 3 of the Assessee's Paper Book dated 29.10.2022. A perusal of the same would reveal that the message received by the AO from the Investigation Wing stated that there were regular RTGS credits of Rs. 1 crore and Rs. 50 lacs from different entities in the bank account of the Appellant which were followed by outgoing RTGS and transfers favouring BGS Credits Private Ltd. and ARS Metals Ltd. and M/s Leasing Estates Ltd. The bank account opening form of the Assessee company showed that it was engaged in leasing advisory / consultancy services. Credits into the account of the Assessee Company were confirmed to be investments by various companies while the debits were confirmed to be investments made by Assessee in BGS Credits Private Ltd and ARS Metals Ltd. The message further stated that from enquiries....
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....f funds in the bank accounts of the parties remained unexplained. The AO further admits of the Assessee not doing any business during the year. AO also notes that the Assessee had received huge securities premium and that the Assessee had made investments and had also shown sundry creditors. AO made no further enquiries on the reported issues thereafter. However, with those limited reasons at hand the AO held that the credits / deposits in the CITI Bank Account had to be treated as unexplained credits u/s. 68 of the Act. That constituted the core reason for the AO to believe that income of Rs. 7,56,49,303/- had escaped assessment as defined u/s. 147 of the Act. While so believing the AO missed the basic point as to how could the Assessee earn any income and particularly of the magnitude as suspected by him when, even according to his enquiries, it was clear to him that it had not done any business. 4.5 A perusal of S.68 of the Act would show that there is no presumption under it for the movement of funds between entities to be automatically construed as yielding deemed income. The absence of any business during the year completely ruled out the possibility of any income, d....
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....cation is a process distinct and separate from the exercise of reassessment to determine the escaped tax. 4.8 A perusal of the reasons recorded by the AO would show that on the mere suggestion of the Investigation Wing of the rotation of funds escaping assessment the reassessment proceedings have been initiated by the AO in the belief of escapement of income of the Assessee. Apparently as between the information received and the inference drawn by the AO there is no livelink or a nexus. They are indubitably disparate. The belief recorded by the AO suffers from a serious unbridgeable disconnect rendering it redundant, superfluous and unactionable. Absence of live link between the material on record and the satisfaction recorded completely mutilates the validity of the AO's belief and subsequent action. The Delhi High Court in CIT vs. Supreme Polypropylene Private Ltd. (2013) 35 Taxman.com rules such cases it that way to be invalid. 4.9 More importantly it needs to be appreciated that the exact message (verbatim) as received by the AO from the Investigation Wing concurring this case has not been brought by the AO on the records of the case. The material on the basis....
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...., at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence." The subject proceeding initiated otherwise than with definite material and not in good faith are ab initio illegal and invalid. 4.11 The AO alleges that the income chargeable to tax had escaped assessment for the year by reason of the failure on the part of the Assessee to disclose fully and truly all material facts. In this connection it requires to be appreciated and also agreed to that the rotation of funds in the course of activities of an Assessee are not required to be disclosed in the return of income. It is the net result of the rotational transactions of the year that the accounts of the Assessee accompanying the return disclose. Thus the basic ground on which the allegation of the AO is based is preposterous and being so the room sought by him under the Explanation to Sec.147 of the Act is of no av....
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....emained unexplained. Taking umbrage to the disposal of objections by the AO the issue was contested before the Ld. CIT(A)-3. Those contentions of the Assessee are contained on pages A-2 to A-8 of the Paper Book. The Ld. CIT rejected the Assessee's contentions to confirm the AO's action without appreciating that the mere rotation of funds could not result in the generation of any income causing it to subsequently escape assessment. 4.14.1 To reject the objections raised by the Assessee, pointing out the insufficiency of reasons for reopening the case, the Ld. CIT(A) inter alia cites decisions of the apex Court and one of the High Court to validate and confirm the validity of the AO's action. The first of the cases cited by the Ld. CIT(A) is S. Narayanappa vs. CIT (1967) 63 ITR 219. That was a case where the Hon'ble Court had to consider the jurisdiction to issue notice after a lapse of four years and of the conditions applicable thereto. In that context the Court inter alia ruled that with regard to the earlier stage of the proceedings which involved the recording of reasons by the AO or the obtaining of the sanction of the Commissioner thereto would be administrative issue....
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....anomalies in the action of the AO in recording the satisfaction. 5. The principle of law as evolved for testing the validity of the satisfaction recorded by the AO is that the AO ought to have applied the mind and not to have been led by the belief and opinion of any other authority. In this case the perusal of the satisfaction note would reveal that the AO launched the reassessment proceedings merely on the basis of the opinion of the Investigation Wing even though they too did not complain of escapement of income but opined to the escapement of consideration in the assessment vis-a-vis the figures in the bank statement. The AO did not apply his independent mind to that complaint of the Investigation Wing and on the basis of a mis-understood borrowed satisfaction launched the reassessment proceedings. In doing so, the AO contravened the rules and principles enunciated in this regard by the Delhi High Court in the following cases:- (i) Sartak Security Company Ltd. vs. ITO (2010) 329 ITR 110; (ii) CIT vs. SFIL Stocks Broking Ltd. (2010) 325 ITR 285; (iii) PCIT vs. G&G Pharma India Ltd. (2016) 384 ITR 147; & (iv) PCIT vs. Meenakshi Oversea....
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....tion Wing in the case of the assessee. The assessee was the recipient of various regular RTGS credits in the bank account. She also brought to our notice, the additional evidences filed by the assessee before Ld. CIT(A) and she has rejected the same. Therefore, she vehemently supported the detail findings of the Ld. CIT(A). 10. In the rejoinder, the Ld. AR of the assessee referred to page 2 of the paper book and submitted that whatever the information contained in the report received from Investigation Wing, the Ld. AO has reproduced the same but not made any further inquiry before forming in opinion/ reasons for reopening the assessments. 11. Considered the rival submissions and material placed on record. We observed that the Ld AO received information from the investigation wing about the round tripping of funds within the group entities. The above said information was to investigate the possible escapement of income. Ld AO is expected to verify the same and make initial investigation into whether there is any escapement of income. Further, Ld AO himself observed in his order that the assessee has not carried out any business during the year under consideration. That being ....