I.T.O.,WARD-6(1), KOLKATA vs. M/S VARIYA DENIM PVT. LTD., KOLKATA

order

: August 22nd, 2023 ORDER

Per Rajesh Kumar, Accountant Member:

I.T.A. No.: 1657/KOL/2019 Assessment Year: 2010-11 M/s. Variya Denim Pvt. Ltd.

“After having perused reasons recorded by the AO before reopening and when the validity of the order u/s. 147 of the Act depends upon the AO assuming jurisdiction as contemplated by law to make an order of assessment u/s. 147 of the Act and for that it is necessary that the conditions laid down in the said section viz., AO should record "reason to believe” that 'the income chargeable to tax for that assessment year has escaped assessment If this condition is not satisfied at the first place, then it cannot be said the AO has validly assumed jurisdiction u/s. 147 of the Act. Therefore, the question for consideration is whether on the basis of the reasons recorded by the AO to reopen the assessment it can be said that AO on the basis of whatever material before it, had reasons which he had indicated in his "reasons recorded” which warrant holding a belief that income chargeable to tax has escaped assessment. The reasons recorded by AO to reopen has to be evaluated on a stand-alone basis and no addition/extrapolation can be made or assumed while adjudicating the legal issue of AO's usurpation of jurisdiction u/s. 147 of the Act. From the facts narrated, the AO concluded that he had sufficient reason to believe that the assessment of the assessee’s case in the relevant year escaped assessment and, therefore, requires reopening u/s. 147 of the Act. So from the aforesaid facts narrated by the AO based on the information given by the DIT (Inv.). Therefore, the AO has simply gulped the information from DIT (Inv.) to form a conclusion about escapement of income is itself flawed and cannot pass the test of' reason to believe' as laid by judicial precedents as discussed above. From the aforesaid reasons, it is evident that other than the vague information given by DIT (Inv.) there is no other material the AO collected after preliminary enquiry which could have enabled him at I.T.A. No.: 1657/KOL/2019 Assessment Year: 2010-11 M/s. Variya Denim Pvt. Ltd. the time of recording reasons to come to a conscious independent conclusion that "income of the assessee has escaped assessment". The information given by DIT(Inv.) can only be a basis to ignite/trigger “reason to suspect" for which reopening cannot be made for further examination to be carried out by him in order to strengthen the suspicion to an extent which can form the belief in his mind that income chargeable to tax has escaped assessment. It has to be kept in mind that merely on an allegations levelled by DIT (Inv.) can only raise suspicion in the mind of the AO which is not the sufficient/requirement of law for reopening of assessment The 'reasons to believe' is not synonymous to ‘reason to suspect. 'Reason to suspect' based on an information can trigger an enquiry to find out whether there is any substance or material to substantiate that there is merit in the information adduced by the DIT(Inv.) and thereafter the AO has to take an independent decision to re-open or not and the AO should not act on dictate of any other authority like in this case DIT(Inv.) because then it would be borrowed satisfaction. In this case, as discussed above, the AO after referring to the investigation report erroneously concludes that the income has escaped for re-assessment The information given by the DIT (Inv.) which required some exercise from the part of AO which he admittedly did not do and has blindly copied the contents of the DIT(Inv.) report and proceeded to reopen the original assessment completed u/s. 143(3) which action of AO cannot be countenanced. In such a scenario, when the AO was in receipt of the information from the DIT(Inv.) he ought to have made enquiries to unravel the truth. It has to be remembered that information is not “synonymous to truth. The AO failed to quantify the escapement of income in the reasons recorded. As stated earlier, it is noted that AO simply on the basis of the investigation report has formed an erroneous conclusion that there is an escapement of income. The AO is a quasi-judicial authority empowered to reopen the completed assessment only in a given case wherein there is reason to believe escapement of chargeable income to tax which is the jurisdictional fact and sine qua non to assume jurisdiction to reopen a completed assessment The reasons to believe postulates foundation based on information and belief based on reason. Even if there is foundation based on information there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment The Hon'ble Supreme Court in Ganga Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the expression "reason to believe" occurring in sec. 147 “is stronger" than the expression "if I.T.A. No.: 1657/KOL/2019 Assessment Year: 2010-11 M/s. Variya Denim Pvt. Ltd. satisfied" and such requirement has to be met by the AO in the reasons recorded before usurping the jurisdiction u/s. 147 of the Act The information adverse against the assessee may trigger "reason to suspect" then the AO is duty bound to make reasonable enquiry to collect material which would make him belief that there is in fact an escapement of income which requirement of law has not been fulfilled in this case by the AO. The AO simply taking note of the DIT(Inv.) letter has borrowed the satisfaction without independent application of mind to form reason warrant holding a belief that income chargeable to tax has escaped assessment, just because a letter has been received from the DIT(Inv.) the AO cannot reopen the completed assessment u/s. 143(3) of the Act The reasons recorded by AO does not stand the test as laid by plethora of judicial precedence as discussed above which is necessary to assume jurisdiction u/s 147 of the Act therefore, in the light of the aforesaid facts and circumstances of the case as discussed, I find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee fails. Since the AO failed to do so as discussed, the assumption of jurisdiction by him to reopen itself is corum non judice and, therefore, all subsequent action is null in the eyes of law and therefore, I quash the reopening and consequent reassessment order framed by him. In view of above, these grounds of appeal are allowed The relief has been given on legal issue, therefore, the appeal has not been decided on merit as it does not required at this stage. In the result, the appeal of the appellant is allowed.”

5. After hearing rival contentions and perusing the material on record, we find that the re-opening of assessment has been made by Ld. AO by recording reasons u/s 148(2) of the Act by stating that on the basis of information available in the records, there were huge deposits in the various bank accounts operated by paper company/individuals having no business and it was also stated that after deposits, these the amounts were transferred to several beneficiaries. During the year the assessee received 1.75 Cr from I.T.A. No.: 1657/KOL/2019 Assessment Year: 2010-11 M/s. Variya Denim Pvt. Ltd. the said companies. We note that on that basis, Ld. AO re-opened the assessment. However, the reasons are reproduced below for the sake of ready reference: