SMT. VIDHYA AGARWAL,AGRA vs. I.T.O., WARD-4(4), AGRA

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH: AGRA

BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER

I.T.A No. 216 /Agra/2012: (A.Y.1999-00) I.T.A. No.217/Agra/2012: (A.Y. 2000-01)

Smt. Shanta Balani W/o Shri Ramesh Vs. ITO, Ward-2(4), Chand Balani, B-66, Alok Nagar, Jaipur Agra House, Agra. PAN:ABTPB4266B (Appellant) (Respondent)

I.T.A. No.218/Agra/2012: (A.Y. 1999-00) I.T.A. No.219/Agra/2012: (A.Y. 2000-01)

Ravindra Balani, B-66, Alok Nagar, Jaipur Vs. ITO, Ward-2(4), House, Agra. PAN:AAPPB5000Q Agra (Appellant) (Respondent)

I.T.A. No. 220/Agra/2012: (A.Y. 2000-01)

Ramesh Chand Balani, B-66, Alok Nagar, Vs. ITO, Ward-2(4), Jaipur House, Agra. PAN:AAZPB2110P Agra (Appellant) (Respondent)

I.T.A. No. 222/Agra/2012: (A.Y. 2000-01)

Poonam Sewkani, A-20, Alok Nagar, Vs. ITO, Ward-2(3), Jaipur House, Agra. PAN:ANDPS6969A Agra (Appellant) (Respondent)

2 I.T.A No. 216 /Agra/2012 & Others

I.T.A. No. 223/Agra/2012: (A.Y. 2000-01)

Nishant Kumar Sewkani, A-20, Alok Nagar, Vs. ITO, Ward-2(3), Jaipur House, Agra. Agra PAN:ANDPS6970R (Appellant) (Respondent)

I.T.A. No. 284/Agra/2012: (A.Y. 2000-01)

Ishwar Das Sewkani, 5, Deep Appartment, Vs. ITO, Ward-2(4), Behind Rashmi Place, Kamla Nagar, Agra. Agra PAN:AHWPS1439E (Appellant) (Respondent)

I.T.A. No. 285/Agra/2012: (A.Y. 1999-00)

Smt. Pravesh Agarwal, 53, Anandpuram, Vs. ITO, Ward-2(3), Shahganj, Agra. PAN:ABHPA0978R Agra (Appellant) (Respondent)

I.T.A. No. 381/Agra/2012: (A.Y. 2000-01)

Sanjay Khandelwal, 8/50, Bhogipura, Vs. ITO, Ward-2(4), Shahganj, Agra. PAN:AFZPK7297M Agra (Appellant) (Respondent)

I.T.A. No. 387/Agra/2012: (A.Y. 1999-00)

Late Hari Kishan Das Bhatia Legal Heir Vs. ITO, Ward-1(2), mamta Bhatia, 88, Nehru Nagar, Agra. Agra PAN:AAZPB2208C (Appellant) (Respondent)

3 I.T.A No. 216 /Agra/2012 & Others

I.T.A. No. 507/Agra/2012: (A.Y. 2000-01)

Gopal Prasad Singhal HUF, Karta, 38, Vs. ITO, Ward-1(1), Shahzadi Mandi, Agra. Agra PAN:AABHG7318C (Appellant) (Respondent)

I.T.A. No. 508/Agra/2012: (A.Y. 2000-01)

Raj Kumar Goyal, 34/169, Khati Para, Vs. ITO, Ward-2(2), Loha Mandi, Agra. PAN:ABEPG9609C Agra (Appellant) (Respondent)

I.T.A. No. 527/Agra/2012: (A.Y. 1999-00)

Smt. Soyam Tandon, W/o Shri Anil Kumar Vs.. ITO, Ward-1(1), Tandon, 8/500-Alok Niwas, Hing Ki Agra Mandi, Agra. PAN:ADYPT8716B (Appellant) (Respondent) I.T.A. No. 524/Agra/2012: (A.Y. 1999-00) I.T.A. No. 525/Agra/2012: (A.Y. 2000-01)

Shri Anil Kumar Tandon, S/o Shri Sarvan Vs. ITO, Ward-1(1), Lal, 8/500-Alok Niwas, Hing Ki Mandi, Agra Agra. PAN:AAIPT1632P (Appellant) (Respondent) I.T.A. No. 362/Agra/2015: (A.Y. 2001-02)

Smt. Raj Kanti Gupta, W/o Shri Dilip Vs. ITO, Ward-4(3), Kumar Gupta, 21, New Agra. Agra PAN:ABCPG4365R (Appellant) (Respondent) Assessee by Shri Anurag Sinha, Adv. Revenue by Shri Waseem Arshad, Sr.DR.

4 I.T.A No. 216 /Agra/2012 & Others

I.T.A No. 335/Agra/2014 (ASSESSMENT YEAR-2000-01)

Smt. Vidhya Agarwal, W/o Shri Kailash Vs. ITO, Ward-4(4), Nath Goyal, KE-4, Kaveri Kunj, Phase-1, Agra. Kamla Nagar, Agra. PAN No.AEHPA1752G (Appellant) (Respondent)

Assessee by Shri Deepak Maheshwari, Adv. Revenue by Shri Waseem Arshad, Sr. DR.

Date of Hearing 18.02.2019 Date of Pronouncement 22.03.2019 ORDER PER BENCH: These eighteen appeals by the various assessees involve a common legal

issue regarding validity of initiation of re-assessment proceedings. These

appeals were heard together and they are being disposed of by this consolidated

order.

adjudicating on the validity of initiation of re-assessment proceedings, and,

therefore, both the parties would have to be heard on the legal ground first, and,

thereafter, if the Bench so directs, arguments can be made on the merits of the

addition/s.

5 I.T.A No. 216 /Agra/2012 & Others

Authorised Representatives (ARs) for the assessees, while referring to the Paper

Books and written synopsis, submitted that the proceedings in all these cases

came to be initiated by issuance of notice/s under section 148 of the Income Tax

Act, 1961 (hereinafter called ‘the Act’). Referring to the ‘reasons recorded’, the

Ld. ARs submitted that a bare reading of the ‘reasons recorded’ as supplied to

the respective assessees would show that the so-called reasons were ‘no

reasons’ in the eyes of the law being based on ‘borrowed satisfaction’ without

application of mind by the Assessing Officer (AO) recording alleged ’satisfaction’

of ‘escapement of income’ in the cases of the respective assessees.

3.1 The Ld. ARs submitted that the very issue under appeal, wherein re-

opening was initiated on the basis of the same Report of Income Tax Officer

(ITO) -4(1), Agra dated 22.03.2006 has been the subject matter of judicial

scrutiny time and again by the co-ordinate Benches of the Tribunal (ITAT) at

Agra and Delhi. According to the Ld. ARs, the various Benches, upon due

consideration of the legal position, have held the re-opening to be bad in law.

3.2 Our attention was invited to order dated 01.08.2016 passed by the

Agra Bench of the ITAT in group cases of Shri Rakesh Kumar Arora & Others Vs.

ITO, Agra & Others in ITA Nos. 339/ 340/ 341/ 342/ 346/ 414/ 184/ 383/ 384/

392/ 396/ & 397/Agra/2015, wherein the Bench, after due consideration of

6 I.T.A No. 216 /Agra/2012 & Others

reasons recorded alleging gift received from one Chartered Accountant Mr. D.K.

Agarwal to be bogus , being based on report dated 22.03.2006 of ITO 4(1), Agra,

held the re-opening to be bad in law by holding that the reasons were recorded

without application of mind. Our attention was drawn to copy this order which

was placed at Pages 59 to 75 of the consolidated Paper Book filed by the

assessees.

3.3 The Ld. ARs further submitted that again, vide order dated

07.09.2016, ITAT, Agra Bench, in the case of Smt. Laxmi Devi Vs. ITO in ITA No.

183/Agra/2015 in an identical case had held the re-opening to be bad in law

after due consideration of the reasons recorded holding the same to be without

application of mind. Our attention was drawn to copy this order which was

placed at Pages 76 to 84 of the consolidated Paper Book filed by the assessees.

3.4 Inviting attention to order dated 23.05.2008 passed by ITAT, Agra

Bench in the group case of ITO & others Vs. Shri Vipin Kumar Agarwal & others

while deciding cross objection Nos. 24/26/25/Agra/2008 arising in ITA No.

171,173 & 174, it was submitted by the Ld. AR that on identical reasons, the

Agra Bench had held the notice under section 148 to be invalid and without

jurisdiction. Our attention was drawn to copy this order which was placed at

Pages 85 to 94 of the consolidated Paper Book filed by the assessees.

7 I.T.A No. 216 /Agra/2012 & Others

3.5 Further reliance was placed by the Ld. ARs on the order dated

20.06.2008 in the case of ITO vs. Shri Prahlad Das Agarwal in C.O. No

50/Agra/2008 arising out of ITA No. 175/Agra/2008 wherein the ITAT, Agra

Bench had held the notice under section 148 to be invalid on the basis of reasons

recorded in which case also the case had been re-opened on the basis of same

report of ITO 4(1), Agra . Our attention was drawn to copy this order which was

placed at Pages 95 to 97 of the consolidated Paper Books filed by the assessees.

3.6 Our attention was further invited to another order of ITAT, Agra

Bench wherein, vide order dated 19.05.2008, in the case of Smt. Kirti Garg vs.

ITO in ITA No. 484/Agr/2007, the Agra Bench had held notice under section 148

to be invalid on the basis of ‘reasons recorded’. The Ld. ARs pointed out that the

reasons recorded in the present group of appeals were ‘verbatim’ same as the

reasons recorded in the case of Smt. Kirti Garg (supra). Our attention was drawn

to copy this order which was placed at Pages 98 to 104 of the consolidated

Paper Book filed by the assessees.

3.7 The Ld. ARs further submitted that ITAT, Agra Bench in another

identical case, vide order dated 14.08.2008 in the case of Smt. Manu Varshney

vs. ITO in ITA No. 468/Agr/2008, had held the notice under section 148 to be

invalid on the basis of ‘reasons recorded’. Our attention was drawn to copy this

8 I.T.A No. 216 /Agra/2012 & Others

order which was placed at Pages 105 to 107 of the consolidated Paper Book filed

by the assessees.

3.8 The Ld. A.Rs further submitted that the coordinate Bench of ITAT,

Delhi, vide order dated 19.08.2011, in the case of ITO Bulandshahr vs. Vijendra

Kumar in ITA No. 1202/Del/2009, in a matter having identical facts, held that

the notice under section 148 as was issued without application of mind wherein

the reasons recorded were based on same Report of ITO 4(1), Agra alleging that

the gift received from Shri D.K Agarwal was bogus. The Ld. AR submitted that for

the Delhi Bench of the ITAT had placed reliance on decision of the ITAT, Agra

Bench, Agra wherein an identical issue was involved and after due consideration

of a host of decisions, view in favour of assessee was arrived at. Our attention

was drawn to copy this order which was placed at Pages 108 to 137 of the

consolidated Paper Book filed by the assessees.

3.8 The Ld. ARs also placed further reliance on another order passed by

ITAT Delhi Bench wherein, vide order dated 16.12.2011, the ITAT Delhi Bench in

the case of ITO vs. Brij Mohan in ITA No. 1527/Del/2009 had quashed the notice

under section 148 of the ‘Act’ issued on the basis of a Report from ITO 4(2), Agra

alleging that the Gift received out of funds of the Trust allegedly

controlled/managed by Shri D.K. Agarwal was bogus. It was submitted that in

this case, ITAT Delhi Bench had also dismissed the prayer of the revenue for

9 I.T.A No. 216 /Agra/2012 & Others

referring the case to a Special Bench by holding that the source of information

being common, the case was covered. Our attention was drawn to copy this

order which was placed at Pages 138 to 145 of the consolidated Paper Book filed

by the assessees.

3.9 Reliance was also placed by the Ld. ARs on the order of ITAT Delhi

Bench in the case of ITO vs. Ajay Kumar in ITA No. 1196/Del/2009 wherein, vide

order dated 27.04.2012, ITAT Delhi Bench had quashed the notice under section

148 of the Act issued on the basis of report from ITO 4(2), Agra alleging that the

Gift received out of funds of the Trust allegedly controlled/managed by Shri D.K.

Agarwal was bogus, inter alia after following the decisions of ITAT, Agra Bench

on identical issues. Our attention was drawn to copy this order which was

placed at Pages 146 to 165 of the consolidated Paper Book filed by the assessees.

3.10 The Ld. ARs submitted that on similar set of facts and on the

identical reasoning the Agra Bench in the case of Smt. Sarla Devi Nigam Vs ITO-

1(1), in ITA No. 250/Agra/2016, vide order dated 23.05.2018, quashed the

notice issued on the basis of identical reasons. Our attention was drawn to copy

this order which was placed at Pages 176 to 186 of the consolidated Paper Book

filed by the assessees.

3.11 Heavy reliance was placed by the Ld. ARs on a recent order passed

by the Bench at Agra in ITA No. 562/Agra/2012 in the case of Shri Ranveer

10 I.T.A No. 216 /Agra/2012 & Others

Singh Vs ITO-1(3), Agra wherein, vide order dated 09.07.18, under similar set of

facts and on the basis of identical reasons the Bench had ordered for quashing

the resultant assessment framed in pursuance to notice under section 148 of the

Act holding the reasons to be not valid in eye of law in the case where the

reasons were recorded on the basis of Report by ITO 4(1), Agra. Our attention

was drawn to copy this order which was placed at Pages 187 to 208 of the

consolidated Paper Book filed by the assessees.

3.12 The Ld. ARs vehemently argued that in view of the above binding

precedents of the two Benches of Agra and Delhi on quashing the re-assessment

proceedings initiated on the basis of identical reasons recorded, the re-

assessments in this group of appeals before us now also deserved to be quashed.

4.0 In response to the arguments of the Ld. AR regarding validity of

initiation of reassessment proceedings, the Ld. Senior Departmental

Representative (Sr. DR) Shri Waseem Arshad argued at length and submitted

that the reopening based on the report of the Income Tax Officer (ITO) was

perfectly in order. It was submitted that the report of the ITO constituted

material fresh facts and, therefore, the Assessing Officer had validly assumed

jurisdiction for re-initiation of assessment proceedings in these group of cases.

It was also submitted that the knowledge that the assessees had received gifts

which were bogus in nature had come to the knowledge of the department on

11 I.T.A No. 216 /Agra/2012 & Others

the basis of the survey conducted at the premises of the Chartered Accountant

Shri D.K. Agarwal and, therefore, it cannot be said that the Assessing Officer was

reopening the assessments on borrowed satisfaction in these group of cases. It

was submitted that reasonable grounds existed for the Assessing Officer to

believe that there has been a non-disclosure of material facts by the various

assessees in these group of cases. The Ld. Sr. DR also submitted that in the

present group of cases, the primary facts were false and, therefore, the Assessing

Officer was acting within the four corners of the law in assuming jurisdiction for

the purpose of reassessment proceedings. The Ld. Sr. DR, while referring to the

1922 Income Tax Act, drew our attention to Explanation 34(1) and submitted

that the duty of the assessee does not merely end by producing evidence or

disclosing primary facts but also extends to disclosure of facts relating to status,

agency, benami nature of the transaction etc. which he might be knowing but

which does not appear from the evidence. The Ld. Sr. DR also vehemently

argued that after the recording of reasons, the Assessing Officer had to just issue

the notice u/s 148 of the Act and furnish the reasons if so requested by the

assessee/s. It was submitted that the mandate of section 148 is not that the

Assessing Officer will be required to disclose what all information he had in his

possession on which he was placing reliance prior to the issuance of notice. It

was argued that the Courts cannot go beyond the reasons recorded and question

12 I.T.A No. 216 /Agra/2012 & Others

the action of the Assessing Officer on the touchstone of appropriateness. It was

further submitted that only two conditions have to be satisfied for initiating

proceedings for reassessment. First, the Assessing Officer has reason to believe

that any income chargeable to tax has escaped assessment and, secondly, the

assessee has failed to disclose fully and truly all material facts necessary for the

purpose of assessment. It was submitted that both these conditions were fully

satisfied in these group of cases. The Ld. Sr. DR also submitted that as per the

facts, which were identical in this group of cases, there was lack of

creditworthiness on the part of donors, the Trusts which had been formed were

bogus, there was no relationship between the donor and the donee and the

trustees were not even aware of the activities of the Trust. It was submitted that

these facts clearly indicate that the entire exercise of giving and taking

donations in this group of cases had been undertaken with a view to introduce

unaccounted money of the assessees as accounted money. The Ld. Sr. DR also

placed reliance on numerous judicial precedents. These case laws, which have

been relied upon by the Ld. Sr. DR, are more than 100 in number and the same

along with the written synopsis which run into more than 20 volumes have been

placed on record. However, the case laws being relied upon by the Ld. Sr. DR as

well as the submissions made in writing are not being reproduced in this order

for the sake of brevity. The Ld. Sr. DR also argued at length that the orders of the

13 I.T.A No. 216 /Agra/2012 & Others

ITAT Agra Bench and Delhi Bench, which have been so vehemently relied upon

by the Ld. ARs were distinguishable on facts. It was also submitted that each

case has to be adjudicated on its own peculiar sets of facts. The sum and

substance of the arguments of the Ld. Sr. DR is that the jurisdiction assumed by

the Assessing Officer for the purpose of initiation of reassessment proceedings

was entirely valid and it was prayed that the assessees’ appeals be dismissed by

holding the assumption of jurisdiction u/s 148 of the Act to be valid in the eyes

of law.

5.0 We have heard the rival submissions, perused the material available on

record and have also duly considered the various judicial precedents referred to

and relied upon by the two parties. We find that in all these cases, the re-

opening/s are based on a Letter dated 22.03.2006 received from ITO 4(1), Agra.

We also have the advantage of going through the Report dated 22.03.2006

prepared by ITO 4(2), Agra since, in few cases as in ITA No.284/Agra/2012 in

the case Shri Ishwar Das Sewkani Vs ITO 2(4), Agra the learned CIT (Appeals)

has made this Report dated 22.03.2006 a part of appellate order specifically

marked by him as Annexure-A-1 of the impugned order. A perusal of the said

Report reveals that the reasons recorded are the conclusion drawn in Report

dated 22.03.2006 by the ITO 4(1), Agra. The reasons are almost identical in all

cases. The reasons recorded in the case of Shri Ramesh Balani, Legal Heir of Smt.

14 I.T.A No. 216 /Agra/2012 & Others

Shanta Balani, in ITA No. 216/Agr/2012 for AY 1999-2000 are being reproduced

here in under with a view to demonstrate how the reasons have been recorded

in this group of cases:

“Information has been received vide letter F. No. Addl. CIT/R- 4/survey/2004-05 dated 28.03.2005 of Addl. CIT, Range -4, Agra and vide Letter F.No.ITO-4(1)/Agra/148/2005-06 dated 22.03.2006 of ITO-4(1), Agra through Addl CIT Range -4, Agra vide his endorsement F.No. Addl/CIT/R- 4/Gifts/2005-06/1331 dated 24.03.2006 that a survey u/s 133A was conducted on 22.04.2001 at the office premises of Sh. D.K. Agarwal, CA, 245, Madhav Kunj, Near Pratap Nagar, Agra. The survey party has reported that as many as 292 trusts and their funds are controlled by Sh. D.K. Agarwal. These trusts mostly show their addresses at 245- Madhav Kunj Agra or 41/67, Lohar Gali, Agra. On examination of the survey material it has also been found that Sh. D.K. Agarwal has created hundreds of Trusts over which he exercise control as Trustee. Sh. D.K. Agarwal has been creating Bogus Trusts in the name of God/Goddesses of which he or his family members and his other associates are trustees. The documents show that the Sh. D.K. Agarwal keeps record of the transaction to be shown as made through these Trusts. These transactions are mostly of receipts of gifts by the trusts and gifts made by the trusts to unknown persons of Agra, Hathras, Bharatpur, Gwalior Etc. These trusts do not conduct any business but large receipt of money is shown in the hands of trusts by way of gifts, business profit, donation etc. these trusts have received gifts in cash from other trusts and these trusts have given gifts to various persons. There is no relationship between donor and donee.

15 I.T.A No. 216 /Agra/2012 & Others

Further more, one Sh. Lalit Kumar Agarwal, Assessee of ward-4(2), Agra has stated that Sh. D.K. Agarwal has created bogus trusts in the name of Sh. Lalit Kumar Agarwal and that although he has been shown as trustee, he has no knowledge of the activities of the trusts. The CIT (A)-II, Agra has also given his findings in the cases of the trustees Sh. Vishnu Bhagwan Agarwal, Smt. Kusum Kumari, Sh. Ravindra Kumar, Sh. Radha Ballabh & Sh. D.K. Agarwal, Sh. Shital Prasad Jain that M/s Vishnu Bhagwan Family Trust, M/s Radha Trust, M/s Renu Agarwal Trust, M/s Shital Prasad Jain (P) Family Trust are bogus trusts and the income shown in the hand of trusts actually belongs to trustees vide his order dated 8/9.7.2004. All these trusts are actually managed and controlled by Sh. D.K. Agarwal, CA. Smt. Shanta Balani, W/o Shri Ramesh Chand Balani, B-66, Alok Nagar, Near Jaipur House, Agra. A.Y. 1999-2000.

It has also been informed that Annexure -19 & 21 of seized material during the survey shows that the following trusts which are also managed and controlled by Sh. D.K. Agarwal, CA have given gifts as under to the above named assessee Smt. ShantaBalani, w/o Shri Ramesh Chand Balani, B-66, Alok Nagar, Near Jaipur House, Agra who falls under the jurisdiction of the undersigned.

Name of the Trust Date Amount DD/Cheque No. M/s Monica Family trust, 4/138, Hing Ki Mandi, Agra 11.02.1999 200000 306417 M/s Narmada Benefit Trust, 27/62, Pathwari, Agra 10.01.1999 200000 306898 M/s Kalpana Enterprises, 4/138, Heeng Ki mandi, Agra 11.02.1999 200000 306417 prop. M/s Neelam Trusts, 27/62, Pathwari, Agra

16 I.T.A No. 216 /Agra/2012 & Others

M/s Meera Trust, 27/62, Pathwari, Agra Prop. M/s 11.02.1999 200000 306417 Monika Export, 4/138, HingkiMandi, Agra M/s Narmada Benefit Trust, Prop M/s Brij Mohan Lal& 10.01.1999 100000 306898 Sons In view of the above, it is clear that Sh. D.K. Agarwal has been created bogus trusts which are involved in giving entries of gifts. As per information received these gifts have been found to be unaccounted money of the beneficiaries themselves. I have, therefore reasons to believe that income to the tune of Rs.9,00,000/- has escaped assessment in the case of Smt. Shanta Balani for the assessment year 1999-2000.”

5.1 It is apparent from a bare reading of the reasons that the reasons

recorded are solely based on borrowed satisfaction. It is very much evident that

the A.O. did not apply his mind to form his own belief that income chargeable to

tax has escaped assessment. Assessee’s contention of ‘borrowed satisfaction’ is

proven from the fact that in all these cases, although, the reasons are recorded

by different Assessing Officers working under different charges, but all of them

have recorded reasons which are almost identical in their wording and this

clearly establishes that the so called ‘reasons’ are conclusions drawn in the

survey report of ITO 4(1), Agra and is indeed based on ‘borrowed satisfaction’.

Provisions of section 147 of the Act mandate that it is solely the satisfaction of

the A.O which is material and which can lay the foundation for reassessment

proceedings by issuance of notice under section 148 of the Act. In the present

group of casess, as is evident from the reasons recorded, no enquiry was ever

17 I.T.A No. 216 /Agra/2012 & Others

conducted by the AO while recording the reasons for arriving at the prima-facie

belief that the gift is bogus. The AO has directly arrived at the conclusion that gift

by the Trust is bogus and this conclusion has no basis at all and has been drawn

without application of mind. The reasons recorded in the present group of cases

do not show any live link between the material received by the AO and the

formation of the belief of escapement of income and the respective AOs have

acted merely on borrowed satisfaction in recording the reasons.

5.2 The notice issued under section 148 is the jurisdictional notice

under which the A.O. assumes powers to reassess the income of the assessee.

However, in the present appeals, there is nothing on records to show that the

respective A.O.s had applied their minds to form the requisite satisfaction after

receipt of Report from ITO 4(1), Agra. Even the particulars of already filed

Returns of Income are not mentioned in any of the reasons recorded. It is true

that the law does not cast any obligation on the Assessing officer to make any

kind of pre-enquiry from the assessee/s but it does not also permit the

Assessing officer to taking recourse to section 147 of the Act without making any

enquiry. It is settled law that if any such enquiry is made, the same should be

clearly spelt out in the reasons recorded. In absence thereof, the reasons cannot

withstand the test of ‘independent application of mind’ and are bound to fall

when subjected to judicial scrutiny. Thus, from the reasons recorded, it can be

18 I.T.A No. 216 /Agra/2012 & Others

safely concluded that the A.Os, acting on borrowed satisfaction and in absence of

any reliable material in their possession and without applying an independent

mind to the contents of the said Report of the ITO simply went ahead and issued

notice/s to the assessee/s.

5.3 In our consideration opinion, the A.O.s have accepted the

'information' as ‘gospel truth’ and without applying their mind to the contents of

Letter dated 22.03.2006 found it most convenient to issue notice/s to the

assessee/s. In our considered opinion, letter dated 22.03.2006 may form source

of information but before issuance of notice/s and before forming of requisite

‘satisfaction’, some mental exercise was required to be done by the AOs showing

as how their belief is formed for escapement of income . The A.O.s were required

to look into the materials which were referred to in this information. They

simply cannot exchange their ‘own satisfaction' with 'borrowed satisfaction'.

There must be a direct nexus between the material and belief of escapement.

This mental exercise must be self-evident from the reasons recorded. Reasons

must be self-speaking and self-defending. However, in the present appeals

before us, in the reasons recorded, at one place, the AOs relying on the

observations of the Ld. CIT (A) held that the income shown in Trust actually

belonged to the trustees and on the same stroke concluded that the gift/s

received from the Trust was unaccounted money of the beneficiaries. It is

19 I.T.A No. 216 /Agra/2012 & Others

settled law that the power conferred under section 147 is no doubt very wide.

However, at the same time it cannot be stated to be a plenary power. The

assumption of jurisdiction under section 147 of the Income-tax Act, therefore,

must be on existence of materials before the authority. It will not depend on the

mere whim or fancy of the Assessing Officer. The existence of the materials,

therefore, must be real and should not be on a mere hearsay. Secondly, there

must be nexus between the materials as well as the belief of escapement. The

exercise must contain a definite application of mind by the Assessing Officer so

as to reach an inference based on materials justifying that the income has

escaped assessment. Testing on such touchstone, the reasons as recorded by

Assessing officer/s, hardly lead to any prima facie conclusion of escapement of

income.

5.4 In such a background, we find force in the argument of the Ld. A.Rs

that the reasons recorded do not show any application of mind on part of the AOs. As held by the Hon’ble Delhi High Court in the case of CIT Vs Indo Arab Air Services (2016) 283 CTR 0092 (Del) “There is a long distance to travel between a suspicion that income had escaped assessment and forming reasons to believe that income had escaped assessment.” We also note that the issue stands covered in favour of the assessees by the various orders of the ITAT Agra and Delhi

Benches on identical reasons on which the Ld. ARs have heavily relied. For the

20 I.T.A No. 216 /Agra/2012 & Others

sake of brevity, we refrain ourselves from mentioning the distinction in respect

of the each of the more than one hundred cases relied upon by the Ld. Sr. D.R

during the course of hearing. Suffice it to say, that the ‘reasons recorded’ in this

group of appeals are identical to the ‘reasons recorded’ in the cases which have

been cited by the Ld. ARs in support of their contention that the initiation of re-

assessment proceedings was bad in law and judicial discipline requires us to

respectfully follow the earlier orders of the coordinate Benches on identical

issues. Therefore, in absence of any factual difference being shown by the Sr.

D.R, we will have to necessarily follow the orders of the co-ordinate Benches.

One may, at this juncture, also refer to the judgment of the Hon’ble 5.5

Delhi High Court in the case of Pr. CIT vs. Meenakshi Overseas (2017) 295 ITR

677 (Del) wherein the Hon’ble Delhi High Court has discussed the law on re-

assessment which was laid down by some earlier judgments of the Hon’ble

Court and has, thereafter, concluded that since in that case the reasons failed to

demonstrate the link between the tangible material and the formation of the

reason to believe that income had escaped assessment, no error had been

committed by the ITAT in the impugned order in concluding that the initiation of

the proceedings under Section 147/148 of the Act to reopen the assessments for

the Assessment Years in question did not satisfy the requirement of law.

Paragraphs 27 to 37 of this judgment of the Hon’ble Delhi High Court lay down

21 I.T.A No. 216 /Agra/2012 & Others

the law with respect to the ‘recording of reasons’ after ‘application of mind’ by

the AO. For the sake of ready reference, these are being reproduced as under:

“27. Each case obviously turns on its own facts and no two cases are identical. However, there have been a large number of cases explaining the legal requirement that requires to be satisfied by the AO for a valid assumption of jurisdiction under Section 147 of the Act to reopen a past assessment.

28.1 In Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra), the reasons for reopening as recorded by the AO in a pro forma and placed before the CIT for approval read thus:

"11. Reasons for the belief that income has escaped assessment.- Information is received from the DIT (Inv.-1), New Delhi that the assessee has introduced money amounting to Rs. 5 lakh during the F.Y. 2002-03 relating to A.Y. 2003-04. Details are contained in Annexure. As per information amount received is nothing but accommodation entry and assessee is a beneficiary."

28.2 The Annexure to the said pro forma gave the Name of the Beneficiary, the value of entry taken, the number of the instrument by which entry was taken, the date on which the entry was taken, Name of the account holder of the bank from which the cheque was issued, the account number and so on.

28.3 Analysing the above reasons together with the annexure, the Court observed:

"14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during

22 I.T.A No. 216 /Agra/2012 & Others

financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is 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. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment."

28.4 The Court in Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra) quashed the proceedings under Section 148 of the Act. The facts in the present case are more or less similar. The present case is therefore covered against the Revenue by the aforementioned decision.

29.1 The above decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under:

23 I.T.A No. 216 /Agra/2012 & Others

"Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter-alia reported as under: "Entries are broadly taken for two purposes: 1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc. 2. To inflate expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. It has been revealed that the following entries have been received by the assessee:...."

29.2 The details of six entries were then set out in the above 'reasons'. These included name of the beneficiary, the beneficiary's bank, value of the entry taken, instrument number, date, name of the account in which entry was taken and the account from where the entry was given the details of those banks. The reasons then recorded:

"The transactions involving Rs. 27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed. On the basis of this new information, I have reason to believe that the income of Rs. 27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148."

24 I.T.A No. 216 /Agra/2012 & Others

29.3 The Court was not inclined to interfere in the above circumstances in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does not also examine the return already filed to ascertain if the entry has been disclosed therein.

30.1 In Commissioner of Income Tax, New Delhi v. Highgain Finvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under:

"It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 138 dated 8 th April 2003 that this company was involved in the giving and taking bogus entries/ transactions during the financial year 1996-97, as per the deposition made before them by Shri Sanjay Rastogi, CA during a survey operation conducted at his office premises by the Investigation Wing. The particulars of some of the transaction of this nature are as under: Date Particulars of cheque Debit Amt. Credit Amt

18.11.96 305002 5,00,000

Through the Bank Account No CA 4266 of M/s. Mehram Exports Pvt. Ltd. in the PNB, New Rohtak Road, New Delhi.

25 I.T.A No. 216 /Agra/2012 & Others

Note: It is noted that there might be more such entries apart from the above. The return of income for the assessment year 1997-98 was filed by the Assessee on 4th March 1998 which was accepted under Section 143 (1) at the declared income of Rs. 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of Rs. 5,00,000 (as mentioned above) has escaped the assessment within the meaning of the proviso to Section 147 and clause (b) to the Explanation 2 of this section. Submitted to the Additional CIT, Range -12, New Delhi for approval to issue notice under Section 148 for the assessment year 1997-98, if approved." 30.2 The AO was not merely reproducing the information received from the investigation but took the effort of referring to the deposition made during the survey by the Chartered Accountant that the Assessee company was involved in the giving and taking of bogus entries. The AO thus indicated what the tangible material was which enabled him to form the reasons to believe that income has escaped assessment. It was in those circumstances that in the case, the Court came to the conclusion that there was prima facie material for the AO to come to the conclusion that the Assessee had not made a full and true disclosure of all the material facts relevant for the assessment.

26 I.T.A No. 216 /Agra/2012 & Others

should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act.

Although the AO may have entertained a suspicion that the Assessee‟s income has escaped assessment, such suspicion could not form the basis of initiating proceedings under Section 147 of the Act. A reason to believe - not reason to suspect - is the precondition for exercise of jurisdiction under Section 147 of the Act. "

27 I.T.A No. 216 /Agra/2012 & Others

information or materials on record..." It was further emphasized that "mere allegation in reasons cannot be treated equivalent to material in eyes of law. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessments."

The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.

28 I.T.A No. 216 /Agra/2012 & Others

5.5 We find that in this group of appeals, the reasons recorded

miserably fail to meet the requirement of law as has been enunciated by the

Hon’ble High Court in the preceding paragraphs.

5.6 We further note that these appeals are squarely covered in favour of

the assessees by a recent order of ITAT Agra Bench in the case of Shri Ranvir

Singh in ITA Nos. 562/Agra/2012 and 153/Agra/2106, vide order dated

09/07/2018. In this case, the reasons recorded were identical as in this group of

appeals. The relevant observations of the ITAT are as under:

“7. Heard. In this case, assessment proceedings were reopened u/s 147 of the Act. The AO had received an information through a letter F. No. ITO 4(1)/Agra/148/2004-05, dated 22.03.2006 of ITO 4(1) forwarded by the Joint Commissioner of Income-tax, Range-1, Agra vide letter F. No. LTCG/J.C.I.T/Agra/05-06 dated 23.03.2006 that the appellant had shown receipt of a gift of Rs.1,00,000/- from M/s Manju Marble Co., Prop. M/s Om Family Trust, which is one of the trusts created by a person, Shri Dinesh Kumar Agarwal, D.K. Agarwal, for short, a Chartered Accountant involved in providing entries of fictitious gifts as came to the knowledge of the Agra Office of the Income tax Department, after a survey was conducted in his premises.

29 I.T.A No. 216 /Agra/2012 & Others

entries in the form of-bogus gifts. The information was collected by the Income Tax Department after following the due process of law under a survey conducted u/s 133A of the Income Tax Act.

"Certain observations made in the decision of Rajesh Jhaveri (supra) are sought to be relied upon by the revenue to point out the difference between an "assessment" and "intimation". The context in which those observations were made has to be kept in mind. They were made to point out that where "intimation" is issued under section 143(1) there

30 I.T.A No. 216 /Agra/2012 & Others

is no opportunity to the assessing authority to form an opinion and therefore when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of "change of opinion". It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised On the contrary, from the observations (quoted by us earlier) it would appear that the court reiterated that "so long as the ingredients of section 147 are fulfilled" an intimation issued under section 143(1) can be subjected to proceedings for reopening. The court also emphasized that the only requirement for disturbing the finality of intimation is that the assessing officer should have "reason to believe" that income chargeable to tax has escaped assessment. In our opinion, the said expression should apply to intimation in the same manner and subject to the same interpretation as it would -have applied to an assessment made under section 143(3). The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an "intimation" is not an assessment" then it can never be subjected to section 147 proceedings, for, that section covers only an "assessment" and we wonder if the revenue would be prepared to concede that position. It is nobody's case that an "intimation" cannot be subjected to section 147 proceedings; all that is contended by the Appellant, and quite rightly, is that if the revenue wants to invoke section 147 it should play by the rules of that section and cannot bog down. In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where intimation was earlier issued under section 143(1). It follows that it is open to the Appellant to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the Appellant to

31 I.T.A No. 216 /Agra/2012 & Others

challenge the reasons recorded under section 148(2) on the ground that, they do not meet the standards set in the various judicial pronouncements. " 13. In the case of CIT Vs. SFIL Stock Broking Ltd.', 325 ITR 285 (Del), the Hon'ble Delhi High Court also had the occasion to consider the applicability of the Judgment delivered in `Rajesh Jhaveri' (supra). The Hon'ble High Court, while holding in favour of the assessee, observed as under:

"8. After having heard the counsel for the parties, we are inclined to agree with the submissions made by the respondent/assessee. We find that the Supreme Court in Rajesh Jhaveri(supra) made it absolutely clear that before an AO issued a notice under s.148, thereby re- opening the assessment under s. 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the AO. However, the Supreme Court in Rajesh Jhaveri (supra) did not say that it was not necessary for the AO to form a 'belief and that the mere fact that there was some material on record was sufficient." 14. The Hon'ble Bombay High Court, in the case of Prashant S. Joshi Vs. ITO', 189 Taxman 1 (Bombay), while considering Rajesh Jhaveri' (supra), quashed the notice issued under section 148 of the Act, holding as under:

"Counsel for the Revenue submitted before the Court that in the present case, no assessment has taken place and at the stage of s. 143(1), there is only intimation. Reliance is sought to be placed on the judgment of the Supreme Court in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC).The judgment of the Supreme Court in Rajesh Jhaveri (supra) has noticed the difference between the expression 'intimation' and 'assessment' and the Supreme Court held that in the scheme of things an intimation under s.

32 I.T.A No. 216 /Agra/2012 & Others

143(1)(a) cannot be treated as an order of assessment. The Supreme Court held that there being no assessment under s. 143(1)(a), the question of a change of opinion, as contended did not arise. The judgment of the Supreme also emphasizes what is meant by the expression "reason to believe" and the nature of the belief that is to be formed by the 'AO' that the income for any assessment year has escaped assessment. The Supreme Court held that at the stage of the issuance of a notice under s. 148, the 'AO' must have reason to believe that income has escaped assessment and at that stage an established fact that income has escaped assessment is not required. The Supreme Court held thus: "Sec. 147 authorizes and permits the 'AO' to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the 'AO' has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the 'AO' should have finally ascertained the fact by legal evidence or conclusion.............. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is 'reason to believe', but not established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the 'AO' is within the realm of subjective satisfaction." The Supreme Court held that so long as the ingredients of s.147 are fulfilled, the 'AO' is free to initiate proceedings under s. 147 and failure to take steps under s.143(3) will not render him powerless to initiate reassessment proceedings even whenintimation under s. 143(1) had been issued. In other words, when intimation has been issued under s. 143(1), the `AO' is competent to initiate reassessment proceedings provided that the requirements of s. 147 are fulfilled. In such a case as

33 I.T.A No. 216 /Agra/2012 & Others

well, the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment." 15. A similar view was taken by the ITAT, Mumbai Bench in the case of `Pirojshah Godrej Foundation Vs. ACIT', 44 SOT 24 (Mum.) (URO), wherein, following the decision of Prashant N. Joshi' (supra), notice under section 148 of the Act was quashed, holding as under:-

34 I.T.A No. 216 /Agra/2012 & Others

initiated within a period of four years, it is still necessary that there should be reasons to believe that income had escaped assessment and such reasons are subject to judicial scrutiny. No doubt that at the stage of initiating reassessment proceedings, it is not necessary to establish that there has been an escapement of income, but essentially there have to be valid reasons to believe that income has escaped assessment and these reasons, on standalone basis, must be considered appropriate for arriving at the conclusion arrived at by the officer recording the reasons. 10. In view of the above discussions and bearing in mind entirety of the case, we are of the considered view that the very initiation of reassessment proceedings, on the facts of this case and on the basis of reasons recorded by the Assessing Officer, is bad in law. We, therefore, quash the reassessment proceedings. As we have quashed the reassessment proceeding itself we see no need to deal with ground No. 3 raised by the assessee to the effect that "on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming and the Assessing Officer erred in holding that the provisions of section 11(5) read with section 13(1)(d) of the Act were violated in respect of investment made in 11.5 per cent Government of India Bonds, 2005". That grievance is rendered academic and does not call for any adjudication at this stage." 16. The ITAT Delhi, vide Order dated 16.12.2011 in the case of 'ITO vs. Brij Mohan', in ITA No. 1527/Del/2009, quashing notice under section 148 of the Act issued on the basis of Report from ITO 4(2), Agra, alleging gift received out of funds of Trust allegedly controlled/ managed by Shri D.K. Agarwal to be bogus, inter alia, following decisions of the ITAT, Agra Bench and also turning down the prayer of reference to Special Bench, that source of information being common, the case was covered.

35 I.T.A No. 216 /Agra/2012 & Others

148 of the Act issued on the basis of report from ITO 4(2), Agra alleging the gift received out of funds of Trust allegedly controlled/managed by Shri D.K. Agarwal to be bogus, inter alia, following the decisions of ITAT, Agra Bench.

36 I.T.A No. 216 /Agra/2012 & Others

"Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). Opinion of the DVO per se is not information for the purposes of reopening assessment under Section 147 of the Income Tax Act, 1961 The AO has to apply his mind to the information, if any, collected and must form a belief thereon. In

37 I.T.A No. 216 /Agra/2012 & Others

the circumstances, there is no merit in the Civil Appeal. The Department was not entitled to reopen the assessment. Civil appeal is, accordingly, dismissed. No order as to costs." 21. In the case of `Hosang R. Debara Vs. ITO 1(2) Agra', the issue of re- opening was involved. The ITAT, Agra remitted the matter to the file of Id CIT (A) to decide the issue afresh.

38 I.T.A No. 216 /Agra/2012 & Others

escapement of income and the AO has acted merely on borrowed satisfaction in recording the reasons.

5.7 Thus, in the case of Shri Ranveer Singh (supra), ITAT Agra Bench has

held that the reasons recorded were based on total non-application of mind and,

therefore, no valid assumption of jurisdiction could have been made on the basis

of such invalid reasons. On identical reasons recorded, we also hold in this group

of eighteen appeals that the reasons recorded were based on a total non-

application of mind by the AO and, therefore, there was no valid assumption of

jurisdiction in all these cases. We draw our support from the various judgments of the Hon’ble Delhi High Court in this regard, especially on the judgment in the

case of Meenakshi Overseas (supra) and we also note and respectfully follow the

order of ITAT Agra Bench in the case Shri Ranveer Singh (supra). Accordingly,

the Notices issued under section 148 of the Act culminating into the impugned

orders in all the eighteen appeals are also hereby quashed. The assessment

39 I.T.A No. 216 /Agra/2012 & Others

orders in all the eighteen appeals are held to be void ab intio. Nothing else was argued or survives for our adjudication.

6.0 In the final result, all the eighteen appeals of the assessee/s stand allowed.

Sd/- Sd/- (DR. MITHA LAL MEENA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER 22.03.2019 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR