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Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI SUDHANSHU SRIVASTAVA & DR. MITHA LAL MEENA
IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA
BEFORE SHRI SUDHANSHU SRIVASTAVA JUDICIAL MEMBER AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER
ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11)
M/S Lakshya Ice & Cold Storage Pvt. Ltd. Vs.. Income Tax Officer, Goyal Bhawan, Opp. Maheshwari Inter Ward 1(5), Aligarh College, Sasni Gate, Bye Pass Road, Aligarh (PAN: AABCL5656R) (Respondent) (Appellant)
Assessee by: Sh. Pradeep K. Sahgal, Adv. & Sh. Utsav Sahgal, C.A. Revenue by: Shri Waseem Arshad, Sr.DR.
Date of Hearing 19.02.2019 Date of Pronouncement 16.05.2019
ORDER Per DR. M. L. Meena, AM. This appeal by the assessee is directed against the order dated 30/10/2017 of the Commissioner of Income Tax (Appeals), Aligarh [in short “CIT(A)”] for Assessment Year 2010-11. The assessee has raised following grounds of appeal: “1. That as no valid reassessment proceedings U/S 147 of I.T.Act, 1961 (hereinafter referred to as `the Act’) read with section 148 of the Act has been initiated in the case of the appellant, thus in the light of facts and in law the learned CIT(A), Aligarh should have annulled/quashed the unlawfully made reassessment by the AO.
2 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) 2. That the AO having reopened the assessment solely on the basis of general nature of information received from DGIT(Inv.), New Delhi and his suggestion/dictatum without application of his mind so as to come to an independent conclusion that he has reason to believe that income has escaped assessment and thus he has acted upon borrowed satisfaction, therefore the consequent reassessment made is invalid, illegal and abinitio void, which deserves to be annulled/quashed. 3. That the appellant has duly discharged the initial onus laid on it in terms of section 68 of the Act, now it is settled law that if the appellant produces the names, addresses, PAN details of the shareholders then the onus on the appellant to prove the source of share application money discharges and in such case if the AO is not satisfied regarding the creditworthiness of the shareholders, then the revenue is free to proceed to reopen the individual reassessment of the shareholders whose source is doubted but no addition can be sustained U/S 68 of the Act in case of the appellant. 4. a) That it is settled law that in respect of contribution to share capital, the same cannot be assessed in the hands of the appellant, unless the department is able to show that the amount received towards share capital actually emanated from the coffers of the appellant. b) That the AO failed to brought on records any specific material to support that Rs.88 lakhs was own money of the appellant which was rooted in the form of share application money. 5. That without prejudice to the foregoing grounds, as during the year under consideration the appellant did not earn any income, and such fact was even accepted by the AO, thus there arises no question for presuming that the appellant had provided undisclosed cash to the shareholders for depositing in their bank accounts for making investment in the shares of the appellant and hence the addition of Rs.88 lakhs made U/S 68 of the Act by arbitrarily treating the genuine investment made by the shareholders in the share capital of the appellant as alleged accommodation entry, deserves to be deleted. 6. That the authorities below have erred in law and on facts in not providing the appellant the informations and documents/material for which specific request(s) was made. It is settled law that the AO is free to make enquiries at the back of the appellant, but, if the material/evidence collected is sought to be used against the appellant then
3 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) reasonable opportunity for rebuttal must be provided. The AO’s failure to do so has resulted in miscarriage of justice and has thus violated the principle of natural justice. 7. That as Mr. Vijay Gupta, Mr. Surendra Kumar Jain and Mr. Virendra Jain were witnesses of the department, thus in view of well settled principle of law, before utilising the documents/material/ evidences and their statements on oath obtained/recorded by the revenue on the back of the appellant, the appellant should have been confronted with the same for rebuttal as well as allowed an opportunity to cross examine them. 8. That the learned CIT(A), Aligarh has erred both in law and on fact in sustaining the wrong charge of interest under section 234B and initiation of penalty proceedings U/S 271(1)(c) of the Act. That the appellate order dated 30th October, 2017 is arbitrary, capricious and 9. against natural justice and thus deserves to be quashed/annulled. The appellant seeks permission to modify and/or prefer any other ground of appeal as the circumstances of the case might require or justify.”
Apropos, ground nos.1 and 2, the assessee has challenged the validity of the reassessment proceedings that the AO has reopened the assessment solely on the basis of suggestion/dictum of DGIT(Inv.), New Delhi without application of mind being constitutes borrowed satisfaction. Since, this is a legal issue which goes to the root of the matter and hence taken up for adjudication on priority.
The Ld. DR raised objection to legal ground that since, no challenge to reassessment proceedings U/s 147 of the IT Act was raised by the assessee before the AO, hence, it cannot be taken up at this stage. In reply, the Ld. AR of the assessee relied upon following authoritative decisions including the jurisdictional High Court on this issue: 1. Smt. Raj Rani Gulati Vs. Commissioner of Income-tax (2013) 33 taxmann.com 670 (Hon’ble Allahabad High Court) 2. CIT, Central-I, Mumbai Vs. Pruthvi Brokers & Shareholders
4 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) (2012) 23 taxmann.com 23 (Hon’ble Bombay High Court) 3. Inventors Industrial Corpn. Ltd. Vs. Commissioner of Income-tax (1992) 194 ITR 548 (Hon’ble Bombay High Court) 4. E. Jewellery Vs. Income-tax Officer, Ward 20(3)-1, Mumbai (2011) 9 taxmann.com 28 (Hon’ble ITAT Mumbai Bench `H’) 5. Nandlal Sachdeva Vs. Income-tax Officer (2012) 20 taxmann.com 224 (Hon’ble ITAT Indore Bench) 6. Income Tax Officer Vs. XS Cad India (P) Ltd. (2015) 61 taxmann.com 82 (Hon’ble ITAT Mumbai Bench`G’) 7. Manoj Kumar Jain Vs. Income Tax Officer (ITA No.277/Agr/2017) (Hon’ble ITAT Agra Bench) It is seen from the appeal memo that Ground no.3(a), (b), (c), (d) and (e) of appeal filed before the Ld.CIT(A), Aligarh as discussed in paras 4 to 7.1 of the impugned order, however, shows that this issue has been raised before the Ld.CIT(A), Aligarh. Therefore, this objection of the ld. DR is rejected.
Briefly, the facts of the case are that the assessee is a private limited company, which has been formed on 01/01/2009 to run a business of cold storage; that the assessee has not conducted any business but e-filed its Income-tax return on 09/09/2010 declaring NIL income for the year under appeal; that the AO has issued notice dated 16/09/2013 u/s 148 of the Act based on the information received from DGIT(Inv)-II, New Delhi, related to the search case of Shri Surendra Kumar Jain Group (entry operator); that according to the reasons suggested by the DDIT(Inv.) to the AO to issue notice u/s 148 of the Act to bring to tax the undisclosed income regarding the transaction of accommodation entry of Rs.85,00,000/- obtained by the assessee. The reasons recorded by the AO (APB-I, Pg. 1-3) for formation of reason to believe are reproduced as follows:
5 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) “Information has been received from the DGIT (Inv.)-II, New Delhi vide his letter F.No.DIT(Inv.)-II, u/s 148/2012-13/236 dated 15.03.2013, on the basis of search in the cases of Shri Surendra Kumar Jain group of cases (entry operator) and further inquiries, the DDIT(Inv.) has suggested that notice u/s 148 in the case of assessee for the F.Y.2009-10 during the relevant assessment year 2010-11, is required to be issued to bring to tax the undisclosed income regarding the accommodation entries obtained by the company is Rs.85,00,000/- in the F.Y.2009-10. For the purpose of section 148 be deemed to be the full value of the amount of Rs.85,00,000/- received on accruing as a result of such transaction. Thus, I have reason to believe that income of Rs.85,00,000/- has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Accordingly, notice u/s 148 of the Income Tax Act, 1961 is being issued to the assessee. J.P. Singh) Income Tax Officer Ward-1(3), Aligarh”
The AO has completed the assessment by making addition of Rs.88,00,000/- for unexplained share capital from accommodation entry out of income earned by the assessee from undisclosed sources in cash.
Aggrieved assessee, filed appeal before the Ld.CIT(A) taking up the disputed legal issue, vide ground nos.3(a), (b), (c), (d) and (e), as under: “3. a) Because as no valid reassessment proceeding U/S 147 of the Act read with section 148 of the Act has been initiated in the case of the assessee company, therefore the reassessment order passed U/S 143(3)/147 of the Act is illegal, bad in law and abintito void and deserves to be quashed/cancelled. b) Because the reassessment made is bad in law because prior to the completion of reassessment the reasons recorded were never communicated to the assessee company. c) Because at the time of recording reasons for initiating proceedings U/S 147 of the Act, the learned AO did not have return of income of the assessee company and even did not know about the nature of alleged undisclosed income, therefore
6 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) reassessment proceedings has been initiated solely on the basis of `reasons to suspect’ and not `reasons to believe’ and thus reassessment order made on the basis thereof deserves to be quashed/vitiated. d) Because the learned AO having reopened the assessment solely on the basis of general nature of information received from DGIT (Inv.), New Delhi and further on the basis of suggestion/dictatum of DDIT(Inv.) without making any effort to satisfy himself as to whether such information has some basis or not, therefore the reassessment proceedings has been initiated in a mechanical manner on vague grounds and mere suspicion and is invalid and thus the consequent order passed U/S 143(3)/147 of the Act dated 31st March, 2015 is liable to be quashed/annulled. e) Because the learned AO has initiated reassessment proceedings U/S 147 of the Act in the case of the assessee company solely on the basis of suggestion of DDIT(Inv.) therefore in view of well settled law the reassessment proceedings being initiated solely on the instance or dictatum of higher or superior authority and not on the basis of satisfaction of AO, is illegal, bad in law and abintito void, which is liable to be vitiated/quashed.”
While rejecting the assessee’s appeal, the Ld.CIT(A) disposed of the legal ground as under: “7.2 Decision In its written submission, the appellant has alleged that the AO had issued notice u/s 148 merely on the basis of borrowed satisfaction based on the information received from some other authorities without there being any corroborating material or evidence in his possession to form a valid reason to believe that certain income has escaped assessment. It has been submitted that the conditions precedent for taking action u/s 147 of the Act are wholly non-existent. It has been explained that section 147 of the Act mandates that exclusively the satisfaction of the assessing authorities based on some direct and relevant material could lay the foundation for issuing notice u/s 148 of the Act. According to the appellant, the AO has not applied his own mind and hence the assessment is not justified.
7 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) I have considered all the facts and circumstances of the case and also perused the appellant’s written submission. It is a well known fact that certain unscrupulous persons have been indulging in the “business” of providing entries by channelizing unaccounted money of people through a maze of artificial entities to give it a colour of loans or share application money so that the money can be utilized in business without the risk of detection of the underlying unaccounted income. This has indeed become a menace and needs to be checked. Not only that this causes, abetment of tax avoidance but it also results in money laundering which is a crime. In order to check this menace of ‘Entry business’ the Investigation Wing has been carrying out search and seizure operations on various entry operators from time to time. Apparently this case is also of a similar kind. The requirement u/s 147 is that the AO should have “reasons to believe” that any income chargeable to tax has escaped assessment. Therefore we have to decide whether the material in possession of the AO was sufficient to from a reason to believe. Without doubt, the AO had received a report from the Investigation Wing of the Department which had comprehensively detailed the relevant facts. These facts were obtained by carrying out search and seizure operation and subsequent investigation. The provisions of search and seizure are ultimate tools in the hands of the Department and the facts gathered as a result of a search, provide a comprehensive picture of the modus operandi of the related entities. This comprehensive picture cannot be obtained by investigating a particular entity in isolation. The authorities in the investigation wing are statutory authorities who have been vested with specific powers under various provisions of the Act. A report compiled by such statutory authorities by carrying out search operation and investigation in accordance with the provisions of law, is good enough material to form a reasonable opinion in respect of an object which is covered under such report. The only reason why the requirement of “reasons to believe” has been provided in the law is because the legislature intended that the power to reopen the cases should be exercised with due care and without any prejudice. The intention is that the power should not be misused for any vested interest. In this case, there is no allegation of any vested interest on part of the AO. The AO has merely acted on the basis of the material available before him. He has given due consideration to the facts narrated in the report
8 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) of the Investigation Wing. It is not the intention of the legislature that the AO has to carry out independent investigation and establish the facts before he can issue notice u/s 148. This is not necessary because the facts are ultimately established during the course of the assessment proceedings and while issuing notice u/s 148 only a prima facie satisfaction is required. That satisfaction is to be based on the material available before the AO. He is not required to proactively investigate the veracity of facts narrated in the material that he possesses. In this case, the facts had already been investigated by the Investigation Wing and a report detailing the modus operandi and other relevant information was made available to the AO. Considering that the report was prepared in accordance with the law and forwarded by a statutory authority, the AO could not reasonably doubt the contents thereof. There is nothing to show that this opinion of the AO is not a genuine opinion but arising from extraneous considerations. Existence of “reasons to believe” is a question of fact which is determined in the given facts and circumstances of the case. None of the case laws relied by the appellant have applicability to the facts of the present case. In determining whether commencement of assessment proceedings is valid, the court has only to see whether there is prima facie some material on the basis of which the Department opened the case. The sufficiency or correctness of the material is not a thing to be considered at this stage as held by the Supreme Court in the case of Raymond Woollen Mills Ltd. Vs. ITO (1999) 236 ITR 34 (SC), and also as held in the case of Great Arts Pvt. Ltd. Vs. ITO (2002) 257 ITR 639 (Delhi). The assessee cannot challenge sufficiency of belief – ITO Vs. Lakhmani Mewal Das (1976) 103 ITR (SC). In another case Hon’ble SC in case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 has held that at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. Further, it is observed that the appellant had not raised any objections before the AO regarding the validity of the proceedings. From the facts mentioned in the assessment order, it is apparent that the appellant had fully cooperated during the assessment proceedings. Therefore, as per the “doctrine of waiver”, it can be presumed
9 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) that the appellant had waived the objection, if any and accepted the AO’s jurisdiction and validity of the assessment proceedings. If, at all, the appellant had some objections with regard to validity of the proceedings initiated by the AO, he should have raised those objections before the AO so that he could have dealt with such objections before proceedings further. Since the appellant did not raise such objections and on the basis of the appellant’s acquiescence the AO proceeded to complete the assessment, the appellant would not be eligible to raise any objections at any later stage because that will be contrary to the principle of “Estoppel”. In view of the above, I am of the firm opinion that AO’s action of issuing notice U/S 148 is based on bonafide belief and his action is in accordance with the provisions to law. Therefore, appellant’s grounds challenging the AO’s action of assuming jurisdiction u/s 148 are not accepted. These grounds of appeal are dismissed accordingly.”
The Ld. counsel for the assessee vehemently submitted that his case is squarely covered by the decision of Hon’ble ITAT, Agra SMC Bench, Agra in the case of M/S Deepraj Hospital (P) Ltd. Vs. ITO 3(5), Hathras (ITA No.41/Agra/2017 – AY 2010-11 order dated 01/06/2018, (APB Vol. II, pages 96 to 130E). He contended that from para 11 at APB Vol.II pages 121 to 125, it is evident that therein also the Ld.CIT(A), Aligarh has dismissed the legal grounds in the similar manner but the Hon’ble Bench has held that the reassessment proceedings, culminating in the order under appeal, are also not sustainable in the eye of law. In this regard the Ld.AR invited our attention to paras 12 to 25 at APB Vol.II pages 125 to 130C of such order, which are as under: “12. Thus, in short, the ld. CIT(A) observed that the report of the Investigation Wing, a statutory Authority, is good material for the AO to form reason of escapement of income and the AO is not required to investigate the veracity of the facts narrated in the material received by him from the Investigation Wing, where such facts were already investigated by the Investigation Wing and a report was made available to the AO. The
10 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) ld. CIT(A) observed that there is no allegation of any vested interest of the AO and that there is nothing on record to show that the AO’s opinion is an opinion which is based on extraneous considerations and it is not a genuine opinion, that what is to be seen is the existence of, prima facie, some material which could form the basis of the reasons of belief of escapement of income and not the sufficiency thereof to conclusively prove escapement of income, the AO’s satisfaction for formation of such a belief being his subjective satisfaction. 13. The ld. Counsel for the assessee has contended that the ld. CIT(A) has erred in confirming the AO’s action of issuance of notice u/s 148 of the Act, by holding such action to be in accordance with law. Relying on ‘PCIT vs. Meenakshi Overseas (P) Ltd.’, 154 DTR 100 (Del.), the ld. Counsel has contended that mere reliance on the information received, without having acted thereon before recording the reasons, showing non-application of mind on the part of the AO, is unsustainable in law. The ld. Counsel has also placed on reliance on ‘Sabh Infrastructure Ltd. Vs. ACIT’, order dated 25.9.2017, passed by the Hon’ble Delhi High Court in Writ Petition (C) 1357/2016. 14. The ld. DR, on the other hand, has relied on the following decisions to contend that information received from the Investigation Wing of the Department, is information on the basis of which, the AO can initiate reassessment proceedings: 1. ‘Mitsui and Company India Pvt. Vs. ITO and Another’, WP(C) 1121/2012 & CM No.2447/2012 (Delhi High Court). 2. ‘Brij Mohan Agarwal vs. Asstt. Commissioner of Income Tax’, 268 ITR 400 (Allahabad High Court). 3. ‘Hosang R. Debra vs. ITO-1(2)’, ITA No.331/Agr/2012, ITAT, Agra. 4. ‘CIT vs. Active Traders (P.) Ltd.’, 214 ITR 583 (Calcutta High Court). 5. ‘M/s Pragati Financial Management Pvt. Ltd. Vs. The CIT-II’, ITA 178 of 2016, GA 997 of 2016 (Calcutta High Court). 6. ‘Anil Kumar Singhal vs. ITO’, IT Appeal Nos. 408 & 413/Agr/2012, ITAT Agra. 7. ‘Acorus Unitech Wireless Pvt. Ltd. Vs. ACIT’, Judgment dated 28.02.2014, passed by the Hon’ble Delhi High Court in WP (C) 1957/2013.
11 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) 15. Heard. A bare perusal of the ld. CIT(A)’s order, as extracted hereinabove, shows that the ld. CIT(A) has gone by the mere factum of receipt of material by the AO from the Investigation Wing of the Department. In ‘Meenakshi Overseas’ (supra), under similar facts and circumstances, relying on ‘Signature Hotels (P) Ltd. Vs. ITO’, 338 ITR 51 (Del), it has been held that the reasons must be self-evident and they must speak for themselves; that the tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons; and that where the link between the information made available to the AO and the formation of belief is absent, the reasons are not sustainable. It has further been held that where there is no independent application of mind by the AO to the tangible material which forms the basis of the reasons and the reasons fail to demonstrate the link between the tangible material and the formation of the reasons to believe escapement of income, the reasons are unsustainable. 16. In the present case, like in ‘Meenakshi Overseas’ (supra), the link between the information available with the AO and the formation of belief by the AO is missing. No independent application of mind by the AO to the material forming the basis of the reasons recorded is evincible from the reasons. The AO, in the reasons, has just stated the information received and his conclusion about the alleged escapement of income. As to what the AO did with the information made available to him, is not discernible from the reasons. As such, ‘Meenakshi Overseas’ (supra), is squarely applicable. 17. ‘Meenakshi Overseas’ (supra) is by the Hon’ble Delhi High Court, whereas the decisions cited by the ld. DR are from other different High Courts. Of all these, ‘Brij Mohan Agarwal’ (supra) is by the Hon’ble Allahabad High Court, i.e., the jurisdictional High Court qua the assessee. However, that decision is essentially fact- specific. It does not lay down any proposition of law, as such. The Civil Writ Petition filed by the assessee was decided by the Hon’ble High Court on merits, having taken into consideration the investigation report of the Investigation Wing of the Department, as conveyed to the AO, the assessee’s record, the Department’s counter-affidavit (alongwith its annexures) to the Writ Petition and the rejoinder affidavit filed by the assessee. It was held that from the findings of the Investigation Wing and as per the record, the AO of the assessee (Respondent No.1 in the Writ Petition) had reason to believe that the assessee had diverted and, thus, concealed his income by disclosing it to
12 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) be sale proceeds of shares, which was not correct, as no real transaction of shares had ever taken place. It was held that in view of the investigation made by the Investigation Wing, relevant and very material facts had come before the AO that the assessee was concealing his income by indulging in bogus transactions. It was, accordingly, held that the belief of the AO was an honest and reasonable belief based on the material which he had received from the Investigation Wing. The Hon’ble High Court refused to accept the assessee’s contention that it was a case of a mere change of opinion. The Writ Petition was dismissed as having no merit. 18. In the case at hand, however, the issue raised is altogether different. Here, the challenge of the assessee is that since in the reasons recorded, the AO has not spelt out as to what he did with the information received by him from the Investigation Wing, the reasons are hit by the vice of non-application of mind to the information so received. 19. From the above, it is evident that there is no parity whatsoever between ‘Brij Mohan Agarwal’ (supra) and the present case. Accordingly, ‘Brij Mohan Agarwal’ (supra) is of no help to the Department. 20. Now, in a situation like the present one, as is trite, where there is a cleavage of opinion between different High Courts on an issue and none of the decisions has been rendered by the jurisdictional High Court, the view in favour of the assessee needs to be followed. Hence, in deferential keeping with ‘Meenakshi Overseas’ (supra), the reasons recorded by the AO to form belief of escapement of income are found to be no reasons in the eye of the law. 21. Then, in “Sabh Infrastructure Limited” (supra), the Hon’ble Delhi High Court has, vide para 19 of the report, laid down the guidelines as follows, in the matters of re- opening of assessment: (i). while communicating the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the Superior Officer should itself be provided to the Assessee. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the Assessee is to be avoided; (ii). the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment – especially in those cases
13 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; (iii). where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed along with the reasons; (iv) the exercise of considering the Assessee’s objections to the reopening of assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed.” 22. Thus, in deference to “Sabh Infrastructure Limited” (supra), it is incumbent on the AO, while communicating the reasons for the reopening of the assessment, to provide the standard form, used for obtaining approval of the superior officers. Merely stating the reasons in a letter addressed by the AO, is not enough. Then, the reasons to believe escapement of income need to spell out all the reasons and grounds available with the AO for reopening the assessment. The reasons must also paraphrase any investigation report, which may form the basis of the reasons and any enquiry conducted by the AO thereon, as also the conclusions thereof. Further, and this is most relevant for the case at hand, where the reasons make a reference to any document, such document and / or relevant portion thereof must be enclosed along with the reasons. The Hon’ble High Court has underlined that consideration of the assessee’s objections to the reopening of assessment is not a mechanical ritual, but it is a quasi judicial function. It has been mandated that the order disposing of the objections should deal with each objection, giving proper reasons for the conclusion and no attempt should be made to improve or add to the reasons, as recorded and disclosed. 23. In the case of the present assessee, it remains undisputed that though the reasons recorded by the AO for belief of escapement of income contain reference to material forming the basis thereof, such material, despite written request by the assessee to the AO in this regard, was never supplied by the AO to the assessee. This is in direct
14 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) contravention of the principle of natural justice, as reiterated in “Sabh Infrastructure Limited” (supra). As noted, in the present case, the alleged material was only supplied to the assessee in the remand proceedings, where too, the objections of the assessee were not met. The ld. CIT(A) also did not deal with these objections of the AO. 24. Therefore, the reasons recorded by the AO are found to be not in accordance with law. Accordingly, they are cancelled. Too, in view of “Sabh Infrastructure Limited” (supra), none of the other decisions cited by the Department are of any aid to it. Consequently, the reassessment proceedings, culminating in the order under appeal, are also not sustainable in the eye of law and they too are cancelled. Nothing further survives for adjudication. 25. In the result, the appeal is allowed.”
The Ld. AR reiterated the submissions made before the Ld. CIT(A), Aligarh, and invited our attention to the APB Vol. I paras 1 to 5 at pages 6 to 13, wherein he has challenged the validity of reassessment proceedings before Ld.CIT(A), Aligarh. The ld. Counsel has challenged the validity of reassessment proceedings, particularly on the issue of the action taken u/s 147 of I.T. Act, being initiated solely on the basis of borrowed satisfaction by way of vague report of DIT(Inv.) and that the assessee has received accommodation entry however, the AO has not verified such report by way of enquiry/discussion of the material on the basis of which he formed a prima facie opinion that income has escaped assessment or its office record to establish and demonstrate link between tangible material and formation of reason to believe that income has escaped assessment, so as to justify the reassessment. In support, the Ld.AR relied on the following authoritative decisions: 1. Principal Commissioner of Income-tax-6 Vs. Meenakshi Overseas (P) Ltd. (2017) 82 taxmann.com 300 (Delhi High Court) 2. Signature Hotels (P.) Ltd. Vs. Income-tax Officer (2011) 338 ITR 51 (High Court of Delhi)
15 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) 3. Principal Commissioner of Income-tax-4 Vs. G & G Pharma India Ltd. (2017) 81 taxmann.com 109 (High Court of Delhi) 4. Principal Commissioner of Income-tax Vs. RMG Polyvinyl (I) Ltd. (2017) 83 taxmann.com 348 (High Court of Delhi) 5. CIT Jallendhar Vs. Smit. Paramjit Kaur (2008) 168 Taxman 39 (High Court of Punjab & Haryana) 6. ITO Vs. Bajaj & Company Pvt. Ltd. (ITA No.2989/DEL/2009 (ITAT Delhi Bench `A’)
He further submitted that the reasons to belief neither contain any reasons recorded by independent application of mind by the AO nor there was any nexus between tangible material and formation of reason to belief except the suggestions of DDIT(Inv.) that notice u/s 148 of the Act in the case of the assessee for FY 2009-10 relevant to AY 2010-11 is required to be issued to bring to tax the undisclosed income of Rs.85 lakhs regarding the accommodation entries obtained by the assessee company. Thus, there is no independent application of mind by the AO to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income has escaped assessment in the case of the assessee. The conclusion of the AO on the basis of general nature of information received by him, indeed a borrowed satisfaction.
The Ld. AR relied on Hon’ble High Court of Delhi in the case of 10. “PCIT Vs. Meenakshi Overseas P. Ltd.”, 395 ITR 677, where it was held that if the reasons failed to demonstrate the link between the tangible material and formation of the reasons to believe that the income has escaped assessment then, it would amount to borrowed satisfaction and it has to be presumed that there is no independent application of mind by the
16 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) AO to the tangible material which forms the basis of the reason to believe that income has escaped assessment.
In case of “Signature Hotels (P) Ltd. Vs. ITO”, (2012) 338 ITR 51, the 11. Hon’ble Delhi High Court has held that “the reason given by the assessee did not satisfy the requirements of section 147. The reasons and the information referred to were extremely scanty and vague. There was no reference to any document or statement except an annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, it was apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. Therefore, the proceedings under section 148 were to be quashed.”
Further, Ld. AR placing reliance on the decision of Hon’ble High 12. Court of Delhi in the case of “PCIT Vs. G&G Pharma India Ltd.(Supra)”, (2017) 81 Taxmann.com 109, contended that reopening of assessment by the AO based on the information received from Director of Investigation without making any effort to discuss the material on the basis of which he formed a prima facie opinion that income has escaped assessment, the basic requirement of section 147 of the Act that the AO should apply independent mind in order to form reasons to believe that income has escaped assessment, is not fulfilled.
17 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) In the case of “PCIT Vs. RMG Polyvinyl (I) Ltd.”, (Supra) 396 ITR 5, it 13. was held that where information was received from investigation wing and the assessee was beneficiary of accommodation entries but no further inquiry was under taken by AO, said information could not be said to be tangible material as per se and, thus, reassessment on said basis was not justified. Finally, the Ld. AR submitted that the impugned initiation of reassessment proceedings, notice and all consequent proceedings and orders are not valid and bad in law therefore, the same may kindly be quashed.
The Ld. AR cited the judgment of “CIT Vs. Vegetable Products Ltd.”, 14. (1973) 88 ITR 192 of the Hon’ble Apex Court, wherein it was held that “If two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted.” Further we invited our attention to the judgment of Hon’ble Supreme Court in the case of Uma Charan Shaw & Bros. Vs. CIT reported in (1959) 37 ITR 271 wherein it has been held that “suspicion however strong cannot take place of legal proof.”
Per contra, the Ld. DR for the revenue relied upon of the order of CIT(A), Aligarh and stated that the AO has rightly reopened the assessment on the basis of material available with him as being supplied by the investigation wing of the department and the Ld. CIT(A), Aligarh has rightly upheld the same on the legal issue.
In rejoinder, the ld. AR submitted that none of the decision relied upon by the Ld. DR regarding challenging the validity of reassessment proceedings is rendered by the jurisdictional Hon’ble Allahabad High Court or Hon’ble Supreme Court and that the Hon’ble Apex Court in the case of
18 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192, held that where there is a clearage of opinion between different High Courts on adjudication of an issue and none of the decision has been rendered by the jurisdictional High Court, the view in favour of the assessee, needs to be followed.
Heard. It is material fact on record that the AO has issued notice dated 16/09/2013 u/s 148 of the Act, based on the information received from DGIT(Inv)-II, New Delhi, pertaining to the search case of Shri Surendra Kumar Jain Group (entry operator) stating to bring to tax the undisclosed income of Rs.85,00,000/- obtained by the assessee by way of accommodation entry. Thus, the reasons to believe neither shows any reasons recorded by independent application of mind by the AO nor there was any nexus between tangible material and formation of reason to belief except the suggestions of DDIT(Inv.) that notice u/s 148 of the Act in the case of the assessee for FY 2009-10 relevant to AY 2010-11 is required to be issued to bring to tax the undisclosed income of Rs.85 lakhs regarding the accommodation entries obtained by the assessee company. In the absence of independent application of mind by the AO to tangible material, the reasons failed to demonstrate link between tangible material and formation of belief that income has escaped assessment in the case of the assessee. Therefore, the conclusion of the AO on the basis of general nature of information received by him, indeed constitute a borrowed satisfaction.
It is seen that the reasons are solely founded on the information received from the DCIT(Inv.)-II, New Delhi and its suggestion to issue notice u/s 148 of the Act to bring to tax the undisclosed income regarding the accommodation entry of Rs.85,00,000/- obtained by the assessee. In
19 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) fact, the crucial link between the information made available to the AO and formation of his belief is absent. The tangible material which forms the basis for the belief that income has escaped assessment, must be evident from a reading of the reason so that the reasons become self-evident self- speaking.
As per section 147(1) of the Act, the AO should have ‘reason to 19. believe’ that any income chargeable to tax has escaped assessment, and the formation of reason to belief is subject matter of examination and that the AO being quasi-judicial authority is expected to arrive at the subjective satisfaction independently on an objective criterion. We understand that the report of the investigation wing might constitute the valid material for the reason to believe by the AO, however, the process of arriving at such satisfaction cannot be a mere repetition of the report of DDIT(Investigation) because the reasons to believe demonstrate link between the tangible material and the formation of the belief or reason to believe that income has escaped assessment.
From the reasons recorded by the AO, it is evident that he has formed reason to believe that income of Rs.85,00,000/- has escaped assessment within the meaning of section 147 of I.T.Act based on the suggestion of DDIT(Inv.), New Delhi that in the case of the assessee, notice u/s 148 of the Act for AY 2010-11 is required to be issued to bring to tax the undisclosed income regarding accommodation entry of Rs.85,00,000/- obtained by the assessee. The provisions of section 147 of the Act mandates that reassessment proceedings can be attracted only if the Assessing Officer has “reason to believe” that any income chargeable
20 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) to tax has escaped assessment. It is the opinion and belief of the AO which initiates reassessment proceedings and not the suggestion of any superior or parallel authority. The suggestion of DDIT(Inv.) does not confer power to assume jurisdiction up on the AO to initiate reassessment proceedings. Therefore, in the present case, the reasons for initiating reassessment proceedings are against the spirit of provisions of section 147 of the Act and the notice issued u/s 148 of the Act on the suggestion of DDIT(Inv.) by the AO is bad in law.
On perusal of the Ld.CIT(A)’s order, as extracted above, it is noticed 21. that he has gone by mere factum of receipt of material by the AO from Investigation wing of the department. In “Meenakshi Overseas” (supra) under similar facts and circumstances, relying on Signature Hotels Pvt.Ltd. Vs ITO 338 ITR 51 (Del), it has been held that the reasons must be self evident and they must speak for themselves; that the tangible material which forms the basis for formation of belief that income has escaped assessment, must be evident from reading of the reasons and that where the link between the information made available to the AO and formation of belief, is absent, the reasons are not sustainable. In the present case, like in Meenakshi Overseas (supra), the link between the information available with the AO and formation of belief is missing as there was no independent application of mind by the AO to material received from DDIT(Inv.) and the AO, has just stated about the information received and suggestion of the DDIT(Inv.) to the alleged escapement of income. As to what the AO did with the information made available to him is not discernible from the reasons.
21 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) 22. We are of the considered opinion that the AO has proceeded to initiate reassessment proceedings u/s 147 of the Act and to issue notice u/s 148 of the Act without any application of mind and examination of the so called material and information received from the investigation wing to establish any nexus, even prima facie, with such information, by way of borrowed satisfaction and.
Following Deepraj Hospital Pvt. Ltd.(supra), we accept the grievance of the assessee justified. As such, the impugned order, notice u/s 148 of the Act and reassessment proceedings u/s 147 are not sustainable in the eyes of law.
In view of above, as such, the impugned proceedings, notice u/s 148 of the Act and all consequent orders are quashed. Therefore, other grounds of the assessee on merits become academic and nothing further survives for adjudication.
In the result, by the assessee is allowed.
Order pronounced in the open Court on 16/05/2019. Sd/- Sd/- (SUDHANSHU SRIVASTAVA) (DR. MITHA LAL MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER
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22 ITA No. 124/Agra/2018 (ASSESSMENT YEAR: 2010-11) Copy forwarded to: 1.Appellant 2.Respendent 3.CIT 4.CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR