TaxTMI 
TaxTMI 
2026 (3) TMI 1550
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....2. In law and in the facts and circumstances of appellants case, the Ld. CIT(A) erred in upholding proceedings initiated u/s 147 which are based on incorrect reasons wherein the Ld. AO has also failed to specify the nature of the transaction for which present case has been reopened. The Ld. CIT(A) has erred in not adjudicating the argument raised by the appellant. The Ld. CIT(A) ought to have appreciated that proceedings cannot be reopened on the basis of incorrect reasons. 3. In law and in the facts and circumstances of appellants case, the Ld. CIT(A) erred in upholding proceeding initiated u/s 147 which are merely on the basis of borrowed satisfaction and without independent application of mind by the Assessing Officer. Such proceedings are bad in law and deserves to be quashed. 4. In law and in the facts and circumstances of appellants case, the Ld. CIT(A) erred in holding that the present case passes test of "tangible material" as there existed new information before the AO, before initiation of proceedings u/s 147 when such proceedings are initiated merely on the basis of change of opinion since entire details were duly available on record of AO during the co....
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....nded that the reasons recorded do not specify the nature of the alleged escapement of income and do not demonstrate any independent inquiry conducted by the Assessing Officer prior to issuance of notice u/s 148 of the Act. The Ld. AR further submitted that during the original assessment proceedings, all details relating to unsecured loans, including names, addresses, PAN, confirmations and bank statements, were available on record and therefore reopening amounts to a mere change of opinion, which is impermissible in law. 7. The Ld. DR, on the other hand, supported the order of the Ld. CIT(A) and submitted that the reopening was validly initiated on the basis of credible and specific information received from the Investigation Wing regarding accommodation entries obtained by the assessee from M/s Orange Tradex Pvt. Ltd. and M/s Krrish Enterprise. It was contended that the statement of Shri Chandresh Vyas, recorded on oath, clearly established that the said entities were paper concerns engaged in providing accommodation entries and that the field enquiry conducted by the Inspector corroborated these findings. 8. Heard both the parties and perused the material available on recor....
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....s found that VAT registration of both the concerns were cancelled by the VAT department. Main person of the concern is Chandresh Vyas (Applicant Name) Cancellation of VAT registration shows that there is lack of genuineness in the activities of these 2 concerns. 2.2 Further, Inspector of investigation wing of the department visited the business premises of Mis Orange Tradex. It was reported by him that the office remains closed most of the time during the month. Further, it is gathered that the office premise of Orange Tradex Pvt. Ltd. situated at said address hardly open for 3-4 hours in 15-20 days. Therefore, there is no genuineness in the activities of the assessees. Even furthermore, such huge turnover cannot be attributed to a concern having an office which remains closed for most of the period. 2.3 It may be noted here that maximum transactions in these bank accounts are carried out with persons of Ardor Group. It is worthwhile to mention here that a case has been registered by CBI against the directors of Ardor Group viz. Bharat Shah, Fenil Shah and other for submitting fraudulent books debts statements to the bank and dishonestly obtained the fund....
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....545652) needs to be brought to tax net. 6. By omission on the part of the assessee to disclose fully and truly all the material facts necessary for the A.Y. 2016-17 and in view of the above facts, I have, reason to believe that income to the tune of Rs. 1223,90,29,798/- (more than Rs. 1 Lakh) has escaped assessment in this case, for which, the case of the assessee for AY.2016-17 needs to be re-opened within the meaning of section 147 of the I. T. Act. 7. In view of the above facts, I am satisfied that this is a fit case for re-opening u/s 147 of the Act. 8. In this case, the return of Income was filed for the year under consideration. Further, no scrutiny assessment was made, and therefore the only requirement to initiate proceeding u/s.147 is the reason to believe which has been recorded at above paragraphs. Therefore, provisions of clause (b) of explanation 2 of Section 147 of the I.T. Act are applicable to facts of the case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. Further, in this case more than 4 years have not lapsed from end of assessment year under considerati....
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.... under consideration, the assessee had taken certain unsecured loans from "Orange Tradex Pvt. Ltd." as well as "Krrish Enterprise". A portion of such loan was also repaid during the year under consideration. Such loans are duly reflected in the books of accounts of the assessee for the year under consideration. Copy of ledgers of "Orange Tradex Pvt. Ltd." and "Krrish Enterprise" is annexed herewith and marked as ANNEXURE "A (Colly.)". Copy of Annual Accounts is annexed herewith and marked as ANNEXURE "B (Colly.)". Copy of affidavit of Chandresh Vyas is annexed herewith and marked as ANNEXURE "C". 3.2 The assessee filed return of income for the year under consideration on 23.03.17 declaring total income at Rs. 85,690/-. The same was processed under section 143(1) of the Act. 3.3 Now Your Goodself has reopened the case of the assessee for the year under consideration on account of reasons discussed hereinabove. Action of reopening the case of the assessee for the year under consideration is not at all justified in the eye of law in view of submissions raised here-in-under. 4. SUBMISSIONS: 4.1 The assessee most respectfully submits....
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....fied on the basis of contents of the "reasons recorded for reopening" only. If the "reason to believe" is not emanating from the "reasons recorded for reopening", then the very pre-requisite for reopening does not get fulfilled and under such circumstances, action of reopening is not justified in the eye of law. 4.3.2 The Assessing Officer has merely relied upon the information received from the Department for the purpose of reopening the case of the assessee. This is evident from the fact that the Assessing Officer did not even bother to look into the aspect as to what is the nature of transaction entered into by the assessee with "Orange Tradex Pvt. Ltd." and "Krrish Enterprise". Without knowing the real nature of transaction, it is not possible for the Assessing Officer to have reason to believe that any income chargeable to tax has escaped assessment in the hands of the assessee on account of such transactions. Even on that score, the action of reopening is not justified in the eye of law at all. 4.4 STATEMENT OF CHANDRESH VYAS HAS NOT BEEN INTERPRETED IN THE CORRECT MANNER: 4.4.1 The assessee further submits that statement of Chandresh Vyas has not b....
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.... are engaged in the business of providing accommodation entries. However, it may be noted that Chandresh Vyas resigned as a Director of "Orange Tradex Pvt. Ltd." and Partner of "Krrish Enterprise on 31.03.14, as is evident from affidavit of Chandresh Vyas. Accordingly, Financial Year 2014-15 (Assessment Year 2015-16) onwards, Chandresh Vyas was not at all associated with the said firms. Hence, for the period commencing from Assessment Year 2015-16, statement of Chandresh Vyas is not at all relevant. Accordingly, case for the year under consideration could not have been reopened even on that score. 4.6 REOPENING IS NOT PERMISSIBLE FOR CARRYING OUT 4.6 "ROVING AND/OR FISHING INQUIRY" OR "INVESTIGATION" WITHOUT THERE BEING A SPECIFIC FINDING AS TO ESCAPEMENT OF INCOME: The assessee further submits that there is no material whatsoever with Your Goodself so as to demonstrate that the transactions in question are not genuine. In fact, it transpires that Your Goodself wants to verify the said aspect. Accordingly, it becomes amply clear that Your Goodself merely has some suspicion as to escapement of some income chargeable to tax in our hands and hence, Your Goodself is l....
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....scaped assessment. Such an act is not permissible in the eye of law. Hence, on this count as well, action of reopening is not at all justified in the eye of law and hence, reopening proceedings initiated by Your Goodself in the case of the assessee for the year under consideration must be dropped in the larger of justice. 4.8 REOPENING IS BASED ON BORROWED SATISFACTION: The assessee further most respectfully submits that Your Goodself has acted illegally and without jurisdiction in issuing the impugned notice under section 148 of the Act. Statutory notice u/s 148 can be issued if and only if "an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment". It implies that an "Assessing Officer" himself must be satisfied that some income chargeable to tax has escaped assessment. Such satisfaction must be of the concerned AO himself. In our case, no such satisfaction has been recorded by Your Goodself. In fact, Your Goodself has merely relied upon some information received from the Department for the purpose of reopening the assessment. Your Goodself has not applied your mind independently so as to reach a conclusion that any inc....
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....T registration on 30.06.17 as the said concern had ceased its business activities since 30.03.17. Hence, it is very much obvious that when field verification is carried later on, the office of the said concern would be functional for limited hours in a day. 4.9.4 The assessee further submits that the fact that maximum transactions in the banks accounts referred to in reasons for reopening are with Ardor group has no bearing at all on the transactions entered into between the assessee and the concern named in the reasons for reopening. Also the assessee has no hold over such transactions entered into between Orange Tradex Pvt. Ltd. and third parties. Hence, that cannot be a guiding factor for reopening the case of the assessee. 4.9.5 The assessee further submits that as regards statement of Chandresh Vyas, the same cannot be taken as a base for reopening the case of the assessee since the assessee has not been given an opportunity of cross examination. In any case, affidavit of Chandresh Vyas throws substantial light on the issue on hand and makes it clear that the inference drawn by the Department on the basis of statement of Chandresh Vyas is not correct in the e....
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....e the preliminary objections by passing a speaking order. In case the order is adverse to the assessee, the assessee shall be at liberty to challenge such order on the preliminary objections by filing a writ petition and the Assessing officer shall not proceed with the reassessment proceedings for a period of one month from the date of dispatch of the order to the petitioner by RPAD." (UNQUOTE) Thus, Hon'ble the Gujarat High Court has imposed restriction on Assessing Officer in framing the reassessment order after passing the order dealing with the objections raised by the assessee....." 8.4 The Assessing Officer, vide a separate order dated 09.02.2022, disposed off and rejected the objections raised by the assessee against the reopening of the assessment, recording his findings as under:- "ORDER DISPOSING THE OBJECTIONS FILED BY ASSESSEE AGAINST THE REOPENING OF THE ASSESSMENT FOR THE A.Y. 2016-2017 1. The original return of income for the A.Y. 2016-17 was filed by the assessee declaring total income of Rs. 85,690/ Subsequently information became available in the Insight Portal of the department that an enquiry was conducted in the case of M/S ....
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....t and credit entries were almost equal. Therefore the analysis and inference of the AO is very much right which needs further investigation and therefore objections of assessee le lacked validity and accordingly re-opening is not justified in the eye of law are not tenable and therefore rejected. 4. In his objection (in Para 4.3) the assessee has stated that the AO has no reason to believe that the income chargeable to tax has escaped assessment (On Facts) 4.1 It is very clearly mentioned by the AO in the reasons of opening that on perusal of bank accounts of these concerns it is seen that there are huge inward credits immediately followed by outward debit transfers. Also the amount of debit and credit entries were almost equal. Therefore the analysis and inference of the AO is very much right which needs further investigation and therefore objections of assessee le no reason to believe that the income chargeable to tax has escaped assessment are not tenable and therefore rejected. 5. In his objection (in Para 4.4) the assessee has stated that statement of Chandresh Vyas has not been interpreted in the correct manner. (On Facts) ....
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..... Therefore it is very clear that statement of Sh. Chandresh Vyas is not the only basis of reopening of the case and proper enquiries have been made by the department/AO before reopening which needs further investigation and therefore objections of assessee i.e. statement of Chandresh Vyas which is the basis of reopening is not relevant for the year under consideration since Chander Vyas resigned as a director of Orange Tradex Pvt. Ltd and partner of Krrish Enterprise on 31.03.2014 are not tenable and therefore rejected. 7. In his objection (in Para 4.6) the assessee has stated that reopening is not permissible for carrying out roving and/or fishing enquiry or investigation without there being a specific finding as to escapement of income. (On Facts) 7.1 Assessee's objection was considered carefully and on perusal of the records it is seen that Sh. Chandresh Vyas has recorded his statement on oath with his free will and without any pressure and with his senses before the investigation wing on 20.07.2018 in which he has clearly admitted that he was a dummy director/ partner of these concerns in lieu of a nominal salary of Rs 15,000/- p.m. He further de....
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....s have been made by the department/AO before reopening of the case AND THERE IS CLEAR CAUSE AND EFFECT RELATIONSHIP between reasons recorded and income escaping assessment and which needs further investigation and therefore objections of assessee le that no cause and effect relationship between reasons recorded and income escaping assessment are not tenable and hence rejected. As far as the assessee's reliance on Hon'ble Apex Court judgement in case of Lakhmani Mewal Das- (1976)103ITR437 is concerned which implies that the reasons for the formation of belief must have a rational connection with or relevant bearing on the formation of belief, in the instant case as elaborated above THERE IS CLEAR CAUSE AND EFFECT RELATIONSHIP and hence the judgement is completely followed in letter and spirit. Also in it's judgement the Hon'ble Apex Court has further stated that IT IS NO RESPONSIBILITY OF THE ASSESSEE TO ADVISE THE INCOME TAX OFFICER WITH REGARD TO THE INFERENCE WHICH HE SHOULD DRAW FROM THE PRIMARY FACTS. 9. In his objection (in Para 4.8) the assessee has stated that reopening is based on borrowed satisfaction (On Facts) 9.1 Assessee's....
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....jections of assessee i.e. that reopening is based on borrowed satisfaction is not tenable and therefore rejected. 10. In his objection (in Para 4.9) the assessee has raised objections against reopening of the case by quoting VAT clause, visit of inspector, Ardor Group clause, statement of Chandresh Vyas etc. (On Facts) 10.1 Assessee's objection was considered carefully and on perusal of the records it is seen that the VAT clause was just a part of information and not the sole reason for reopening of the case, Regarding inspector's visit the assessee is himself not certain regarding time of physical enquiry conducted, ARDOR clause was just a part of information and not the sole reason for reopening of the case and Chandresh Vyas statement was discussed earlier. Moreover Chandresh Vyas has recorded his statement on oath with his free will and without any pressure and with his senses before the investigation wing on 20.07 2018 in which he has clearly admitted that he was a dummy director/ partner of these concerns in lieu of a nominal salary of Rs. 15,000/- p.m. He further deposed in his statement that no actual business activities have been carried ....
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....the assessment, and sufficiency of material cannot be considered at the stage of issuing the notice u/s 148 of the Act. In determining whether commencement and reassessment proceedings was valid, it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case, and the sufficiency and correctness of the material is not a thing to be considered at that stage. 13. Reliance is placed on the decision of the Hon'ble Gujarat High Court dated 09.08.2021 in the case of Mis. Priya Blue Industries (P) Ltd. v. ACIT (2021) 437 ITR 155 (Gujarat). In the said case, Assessing Officer sought to reopen assessment in case of assessee on count that assessee was beneficiary of accommodation entries from company 'H'. Assessee challenged impugned notice mainly on ground that jurisdictional facts were not established as assessee had received amount of Rs. 1.06 crores from 'H' against sales made to said party and such sales was duly credited to its books of account and hence, revenue could not have assumed jurisdiction and reopened assessment. The Hon'ble Gujarat High Court held the reopening of the assessment to....
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....on 148 have been initiated in right earnest. a. It is a fact on record that no doubt the assessee has received loans from M/s. Krrish Enterprise and M/s. Orange Tradex Pvt Ltd, and the bank accounts show immediate transfer of funds in and out of the accounts. b. There is no dispute that the enquires were conducted by the Gujarat VAT Department in the case of the entities. c. It is an undisputable fact that the assessee is one of the entities who entered the transactions with the two entities which were proved to be involved in providing accommodation entries. d. Based on the investigation by the Gujarat VAT Department and the investigations, enquiries conducted, due credence to the reasons to believe about the non-genuineness of the transactions entered by the assessee with the two involved concerns. It is not mere doubt, uncertainty or suspicion which led to reopening of the assessment, but the reopening was done based on the tangible material available with the Assessing Officer. e. It is not in doubt that the inward amounts have been moved out as outward amounts in the shortest span. The Assessing Officer has analyzed the transactions....
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....held that the Assessing Officer has rightly reopened the assessment under Section 147 of the Act when the reasons recorded demonstrate that the assessee has not fully and truly disclosed all material facts necessary for completing the assessment. The Hon'ble Jurisdictional High Court in the case of Amit Polyprints Pvt Ltd. Vs. DCIT, 94 taxmann.com 393, held that reassessment proceedings initiated on the basis of information received from Investigation Wing that the assessee has received amounts from shell companies/accommodation entry provider is valid. Similar propositions were laid down by the Hon'ble High Court of Delhi in the case of Experion Developers Pvt Ltd. Vs. ACIT, 115 taxmann.com 338. i. Hon'ble Supreme Court judgment in the case of Raymond Woollen Mills Vs. ITO, 236 ITR 34 held that Courts can only consider whether there was a prima facie cause for reopening of the assessment and sufficiency of material cannot be considered at the stage of issuing the notice u/s 148 of the Act. In the instant case, the Assessing Officer went further and could make a case not only for prima facie cause but also to prove sufficiency of material. j. The Hon'ble Supreme C....