R.N. KHEMKA ENTERPRISES (P) LTD.,DELHI vs. ITO WARD- 20(3), NEW DELHI

PER R.K. PANDA, AM,

This appeal filed by the assessee is directed against the

order dated 07.08.2019 of the learned CIT(A)-7, New Delhi,

relating to Assessment Year 2011-12.

engaged in the business of finance and filed its return of

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income on 12.09.2011, declaring total income of Rs.30,460/-.

The return was processed u/s 143(1) of the Act. Subsequently,

information was received regarding the search & seizure

operation in the case of entry provider Mr. Anand Kumar Jain

and Mr. Naresh Kumar Jain (the Jain Brothers) according to

which the assessee is a beneficiary of Rs.92,00,110/-. Reasons

were recorded for reopening u/s 147 of the Act and a notice

u/s 148 of the Income Tax Act, 1961 was issued on 26.03.2018

after obtaining prior approval of the Pr. CIT-7, New Delhi. The

notice was duly served on the assessee. In response to the

same, the assessee filed a letter stating that the return already

filed u/s 139 of the Act may be treated as return filed in

response to notice u/s 148 of the Act.

2.1. Subsequently, the AO issued another letter to the

assessee requesting him to file the return in response to notice

u/s 148 of the Act. Ultimately, the assessee filed his return of

income on 13.10.2018 declaring income of Rs.30,460/-.

Thereafter, the AO issued notice u/s 143(2) and 142(1) of the

Act and the copies of the reasons recorded were also handed

over to the assessee. The assessee filed objections in response

to notice u/s 142(1) of the Act vide letter dated 05.11.2018 and

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the AO vice order dated 09.11.2011 disposed off such objection

by passing a speaking order.

AO noted that the assessee has received accommodation

entries to the tune of Rs.92,00,110/- from the companies

controlled by Mr. Anand Kumar Jain and Mr. Naresh Kumar

Jain which are as under:-

1 M/s VKS Properties Pvt. Ltd. Rs.20,00,000/- 2 M/s Shivij Garments Pvt. Ltd. Rs.5,00,000/- 3 M.s Danodia Impex Pvt. Ltd. Rs.20,00,000/- 4 M/s Zen Tradex Pvt. Ltd. Rs.47,00,000/-

from the above parties. From the various details furnished by

the assessee, the AO noted that all these companies are owned

and controlled by Mr. Anand Kumar Jain and Mr. Naresh

Kumar Jain. Therefore, in order to ascertain the genuineness

of the transactions, summons u/s 131 of the Act were issued to

these parties on 14.12.2018, both at the addresses appearing

in ROC as well as mail-ID appearing at the ROC website for

personal deposition of the Principal Officer of these companies.

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However, no-one appeared on the appointed date and on being

confronted by the AO, the assessee also expressed its inability

to produce these parties on the ground that they are not in

touch with the directors of these companies at present since

loans taken from these companies were refunded in the

subsequent year. It was also explained that interest has been

paid on such loans and TDS has also been deducted from such

interest. However, the AO rejecting the various explanation

given by the assessee made addition of Rs.92,00,100/- invoking

the provisions of section 68 of the Act.

information received from the Investigation Wing, the assessee

has taken accommodation entries of Rs.50 lakhs from M/s.

Ashish Capital Services (P) Ltd. on 15.05.2010. This company

is controlled by Shri Surender Kumr Jain & Virendra Kumar

Jain who are involved in the business of providing

accommodation entries. He, therefore, asked the assessee to

substantiate the amount of Rs.50 lakhs by proving the identity

and creditworthiness of the investor and the genuineness of the

transactions. It was explained by the assessee that they have

received share capital of Rs.50 lakhs from Aasheesh Capital

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Services Pvt. Ltd. through banking channel. The assessee filed

the copy of audited balance sheet, bank statement,

confirmation with ITR as proof of genuineness, etc. It was

explained that no accommodation entries from anyone was

received by the assessee and the transaction was genuine.

5.1. In order to verify the genuineness of the

transactions, the AO issued summons u/s 131 of the Act to

M/s Aasheesh Capital Services Pvt. Ltd. on 14.12.2018 for

personal deposition of the principal officer. However, nobody

appeared on the appointed date nor any request for

adjournment was received. On being asked by the AO to

produce the parties the assessee expressed its inability to

produce them. In view of the above, the AO, invoking the

provisions of section 68 of the Act and relying on various

decisions including the decision of the Tribunal in the case of

Sh. Surender Kumar Jain and Sh. Virendra Jain wherein they

are treated as entry operators made addition of Rs.50 lakhs to

the total income of the assessee u/s 68 of the Act.

ADIT(Inv.), Unit-5(4), New Delhi, dated 23.03.2018, that the

assessee has availed accommodation entries of Rs.33 lakhs

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from M/s RKG Finvest Pvt. Ltd.. He, therefore, asked the

assessee to prove the identity and creditworthiness of the said

parties and the genuineness of the transactions. It was

explained that the assessee company had already repaid the

above loan amount in the subsequent year and also deducted

TDS on interest paid on this loan. Copy of confirmation with

ITR and audited balance sheet of the said party was filed before

the AO.

6.1. However, the AO was not satisfied with the

explanation given by the assessee. Since, the principal officer of

M/s RKG Finvest Ltd. did not appear before the AO in response

to summons issued by him u/s 131 of the Income Tax Act,

1961 and the assessee also failed to produce the director of

M/s RKG Finvest Ltd. for recording of his statement, therefore,

the AO, invoking the provisions of section 68 of the Act made

addition of Rs.33 Lakhs to the total income of the assessee.

Thus, the AO determined the total income of the assessee at

Rs.1,75,30,470/- by making addition of Rs.1,75,00,110/- to

the returned income of Rs.30,460/-.

challenging the addition on merit challenged the validity of

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reassessment proceedings. It was argued that the provisions of

section 153C are applicable to the facts of the present case and

not 147. It was also argued that the reassessment proceedings

were made without applying independent mind by the AO and

the reopening was merely based on the report of the

Investigation Wing. It was also argued that the reasons

recorded do not contain the name of the so called entry

provider, the important details in form of instrument number

through which cheques/RTGS were accepted by the assessee

company, name of the bank from which the accommodation

entries were provided, the name of the bank in which the

accommodation entries were credited and the date of

transaction etc. The assessee also challenged the validity of

reassessment proceedings on the ground that the AO assumed

jurisdiction by issuing notice u/s 143(2) of the Act on

16.10.2018 and supplied the reasons after that which means

the AO assumed jurisdiction before allowing the assessee to file

objections for assumption of jurisdiction. Relying on the

decision of the Hon’ble Delhi High Court in the case of Mastech

Technologies Pvt. Ltd. vs DCIT vide Writ Petition

No.2858/2016, order dated 13.07.2017 wherein, it was held

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that the issuance of notice u/s 142(1)/143(2) of the Act before

supplying the reasons and considering the objection and

passing reasoned order thereon does not meet requirement of

law, therefore, the reassessment proceedings should be held as

invalid. It was argued that the information/report from the

Investing Wing is not a gospel truth as held by the AO without

applying his independent mind. Further, the approving

authorities have approved the reassessment proceedings in a

mechanical manner without due application of mind. Relying

on various decision, it was submitted that such approval given

by the higher authority does not demonstrate the due

application of mind and therefore, such reassessment

proceedings are invalid.

submitted that the assessee has filed the requisite details

before the AO by filing confirmations, copy of ITR , bank

statement of relevant period, audited financial statement,

subsequent ledger account of repayment of loan along with

bank interest, etc. It was argued that when the assessee has

repaid the unsecured loan obtained from these companies in

the subsequent assessment years which is prior to the notice

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issued u/s 148 of the Act and interest has been paid on such

unsecured loan and TDS has been deducted, therefore, non-

production of the directors of those companies before the AO

for recording of their statement should not be held against the

assessee for making the addition. Relying on various decisions,

it was argued that the addition made by the AO should be

deleted.

the arguments advanced by the assessee and upheld the

validity of reassessment proceedings as well as the addition on

merit.

9.1. Aggrieved with such order of the learned CIT(A), the

assessee is in appeal before the Tribunal by raising the

following grounds:-

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3.1 The validity of reassessment proceedings have been confirmed by Ld CIT(A) on basis of a finding of fact given by the Ld CIT(A) that the information from the investigation wing was specific which contains names of companies, cheques number and date of accommodation entries. The above finding is factually incorrect looking into the reasons recorded and on that ground the reassessment proceedings and the impugned assessment order both need be quashed as the reasons being vague, incoherent and indicative of lack of application of independent mind by the AO.

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in discharge of onus shifting on the revenue after the initial onus discharged by the appellant.

assessee did not press the ground challenging the applicability

of provisions of section 153C of the Act as per ground of appeal

no.2, for which the learned DR has no objection. Therefore, the

ground of appeal no. 2 is dismissed as not pressed.

dismissed.

validity of reassessment proceedings.

copy of the reasons recorded which is placed at page 47 to 59 of

the paper book (PDF page 48 to 60) submitted that the AO has

reproduced therein the information obtained from the

Investigation Wing and has straight away reached the stage of

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formation of belief of escapement of income. He submitted that

in the information, there is a general mention of various un-

specified seized material such as seized papers/digital

evidences and also certain statements of individuals connected

to Jain brothers. He submitted that in absence of identity of

specific seized material by the AO, the non-application of mind

is evident since no person of ordinary intelligence could be in a

position to reach to belief of escapement of income u/s 147 of

the Act. He submitted that mentioning of statements of

unnamed individuals shows non-application of mind qua this

evidence as firstly their names are not stated and contents of

their statements are not specifically dealt and it is not clear

whether the name of the assessee as beneficiary of the

accommodation entries was mentioned by any of the

individuals examined by the Investigation Wing. Referring to

the decision of the Co-ordinate Bench of the Tribunal in the

case of M/s Integrated Global Solutions Pvt. Ltd. in ITA

No.4993/Del/2012, dated 31.12.2019, he submitted that the

Tribunal relying on the decision in the case of Pr. CIT vs

Meenakshi Overseas Pvt. Ltd. 395 ITR 677(Del.), has held that

reproduction of information without showing how the material

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referred to therein does not show application of mind by the AO

in absence of any specific discussion on the material on the

basis of which independent prima facie belief is reached that

income has escaped assessment.

Court in the case of Sabh Infrastructure vs ACIT reported in

398 ITR 198 (Del.) , he submitted that it is settled position of

law that the reason for reopening must be complete and self

explanatory demonstrating the application of mind by the AO of

the relevant material in his possession. He also relied on the

following decisions:-

i. Pr. CIT vs RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5(Del.) ii. Pr. CIT vs G & G Pharma India Ltd. 384 ITR 147 (Del.) iii. CIT vs Independent Media Pvt. Ltd. in ITA No.108/2015(Del.) iv. Signature Hotels P. Ltd. vs ITO [2011] 338 ITR 0051 (Del.) v. CIT vs SFIL Stock Broking ltd. 325 ITR 285 (Del.) vi. Sarthak Securities Co. P. Ltd. vs ITO 329 ITR 110 (Del.) vii. CIT vs Suprme Polypropolene (P) Ltd. ITA No.266/2011(Del.) viii. CIT vs Multiplex Trading & Industrial Co. Ltd. 378 ITR 351 (Del.) ix. Hindustan Lever Ltd. [2004] 137 Taxman 479 (Bom.)

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x. CIT vs Greenworld Corporation 314 ITR 81(SC) 15. The learned counsel for the assessee in his next

plank of argument submitted that non-identification of nature

of alleged accommodation entries, mode of payments and the

parties acted as entry provider entities make such recording of

reasons insufficient for initiating the proceedings u/s 147 of

the Act.

Court in the case of M/s. Superior Buildwell Private Limited vs

Pr. CIT vide ITA No.3301/Del/2017, he submitted that

initiation of reassessment proceedings by recording incorrect

facts and not mentioning the names of the entities in the

reasons recorded are not in accordance with law for which the

reassessment proceedings be quashed. He also relied on the

decision of the Hon’ble Delhi High Court in the case of Ms/

Shiv Sai Infrastructure P Ltd. vs DCIT vide Writ Petition

No.2158/2016, order dated 23.07.2018.

16.1. The learned counsel for the assessee in his another

plank of argument submitted that the reassessment

proceedings in the instant case is based on borrowed

satisfaction based on the conclusion drawn by Investigation

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Wing, on incomplete/unverified information and the purpose of

the exercise undertaken by the AO is to verify further facts and

tax possible escapement of income. Referring to the decision of

the Hon’ble Delhi High Court in the case of Sh. Rajiv Agarwal vs

ACIT 395 ITR 255(Del.), he submitted that the Hon’ble Delhi

High Court held that even in cases where the AO comes across

certain unverified information, it is necessary for him to take

further steps, make enquiries and garner further material and

if such material indicates that income of an assessee has

escaped assessment form a belief that income of the assessee

has escaped assessment. It has been held that where there is

non-application of mind by the AO, it cannot be said to have

reason to believe so as to justify reopening of the assessment.

Referring to the decision of the Hon’ble Supreme Court in the

case of Indian Oil Corporation vs ITO reported in 159 ITR 956

(SC) and Bhor Industries Ltd. vs ACIT reported in 267 ITR 161

(Bom.) and various other decisions, he submitted that

reopening of the assessment for verification of facts and

possible escapement on the basis of incomplete material is not

in accordance with law.

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the assessee in response to notice u/s 148 of the Act dated

12.04.2018 had stated that the return of income filed u/s 139

of the Act be treated as return of income filed in response to

notice u/s 148 of the Act and also requested for supply of

reason. The AO after more than 4 months vide letter dated

07.08.2018, copy of which is placed at page 73 (PDF page 77) of

the paper book directed the assessee to e-file the return of

income which was done on 13.10.2018 copy of which is placed

at page 1A (PDF PB 2) of the paper book. Referring to page 74

to 76 of the paper book, he submitted that the AO issued notice

dated 16.10.2018 u/s 143(2)/142(1) and supplied reasons

recorded on 22.10.2018 against which the assessee submitted

objection to assumption of jurisdiction on 05.11.2018,. The

same were disposed of by the AO on 09.11.2018 as per Pages

65 to 72 of the paper book. He accordingly submitted that the

AO has assumed jurisdiction to make assessment by issuing

notice u/s 143(2) of the Act on 16.10.2018 before supplying

reason which means that the AO assumed jurisdiction before

allowing assessee to file objections against assumption of

jurisdiction. Referring to the decision of the Hon’ble Delhi High

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Court in the case of Mastech Technologies Ltd. vs DCIT in Writ

Petition No.2858/2016, order dated 13.07.2017, he submitted

that the Hon’ble Delhi High Court has held that issuance of

notice u/s 142(1)/143(2) before supplying the reasons and

considering petitioner’s objection and passing reasoned order

thereon does not meet requirement of law. Such legal infirmity

leads to inevitable invalidation of all the proceedings that took

place pursuant to notice u/s 148 of the Act.

the validity of reassessment proceedings on account of error in

quantification of income escaping assessment and

mechanically approved by the Pr. CIT by simply stating “Yes, it

is a fit case of issue of notice u/s 148 r.w.s. 147 of the Act,

1961”. Referring to various decisions, he submitted that such

error in quantification of income escaping assessment and

mechanical approval by the Pr. CIT makes such reassessment a

nullity.

learned counsel for the assessee submitted that to prove the

identity, creditworthiness of the loan creditors/investor and the

genuineness of the transactions, the assessee has filed

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confirmations from the parties, copies of their income tax

return, copies of their bank statement for the relevant period,

copies of the audited financial statement of current year, ledger

account showing repayment of loan along with bank interest,

etc. before the Assessing Officer. Further, the assessee has

paid interest on such loans obtained and deducted TDS from

such interest and has repaid such loans in the subsequent year

and therefore merely because there is non-compliance to

summons and non-production of directors, the AO should not

have made the addition u/s 68 of the Act. The learned CIT(A)

without considering the above has upheld the addition so made

which is not correct.

credits of the identical amount in the bank accounts of lenders

before the transfer to the assessee company is concerned, he

submitted that all the companies in question apart from their

primary business were also involved in activities of financing.

In the business of financing, such company has to arrange the

funds and only then lend the money/make investment and in

that process, credit of identical amount in the bank account of

such company before lending/investment is something which is

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a common feature. He submitted that a perusal of the bank

statements of the above companies would show that there is no

cash deposit in the bank account and the assessee has paid

interest to the above lenders on the amount borrowed and also

has deducted TDS u/s 194A of the Act. Relying on various

decisions as per case law compilation, he submitted that action

of the AO and the learned CIT(A) are not in accordance with

law.

share capital is concerned, he submitted that the assessee has

filed the confirmations, share application forms, bank

statements for the relevant period, copies of ITR filed and

copies of audited financial statements of the share applicants,

etc. The assessee has discharged the onus cast upon it.

Nothing has been brought on record by the AO to substantiate

his allegation that these credit entries by way of share capital

are accommodation entries. Relying on various decisions, he

submitted that merely because the directors were not produced

before the AO, the addition cannot be made u/s 68 of the Act.

He submitted that the assessee has proved all the three

important ingredients of section 68 of the Act by proving the

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identity and creditworthiness of the investor/share applicants

and the genuineness of the transactions. He further submitted

that despite request made to the AO, the assessee was not

provided the opportunity for cross examine of the persons

whose statements were the basis for reopening of the

assessment. The learned counsel for the assessee, accordingly

submitted that both on merit as well as on the validity of

reassessment proceedings, the assessee has a strong case and

therefore, the order of the learned CIT(A) be set-aside and the

grounds raised by the assessee should be allowed.

the order of the AO and the learned CIT(A). He submitted that

the AO has got specific, tangible and actionable information

while recording the reasons for reopening of the assessment.

At the time of reopening of assessment, the AO is not required

to conclusively prove that income has escaped assessment.

Referring to the order of the learned CIT(A), he submitted that

the learned CIT(A) has given valid reasons for upholding the

reassessment proceedings. So far as the argument of the

learned counsel for the assessee that the notice u/s 143(2) was

issued prior to supply of reasons recorded and disposal of the

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objection is concerned, he submitted that no such ground was

taken before the AO or the learned CIT(A).

submitted that despite many opportunities granted by the AO,

the assessee has not produced the principal Officers/directors

of the loan creditor companies or the companies who have

given loan to the assessee or who have invested in the shares of

the assessee company. He submitted that mere submission of

certain details before the AO cannot discharge the assessee

from the onus cast upon it, especially when the assessee

company has taken money from an entry Provider Company.

He accordingly, submitted that the order of the learned CIT(A)

being a reasoned one be upheld.

reiterated the same arguments as made before the learned

CIT(A). Referring to page 8 of the order of the learned CIT(A)

he drew the attention of the Bench to the specific arguments

taken before the learned CIT(A) that assuming jurisdiction by

issuing notice u/s 143(2) before allowing the assessee to file

objection and subsequent disposal of the same is nothing but

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non-application of mind. He accordingly submitted that the

contention of the learned DR is not factually correct.

sides, perused the orders of the Assessing Officer and the

learned CIT(A) and the paper book filed on behalf of the

assessee. We have also considered the various decisions cited

before us. We find the AO on the basis of information received

from the Investigation Wing that the assessee is beneficiary of

accommodation entries to the tune of Rs. Rs.92,00,110/-

evidence of which was found during the course of search and

seizure operation in the case of Mr. Anand Kumar Jain and Mr.

Naresh Kumar Jain on 17.12.2015 who are known as entry

providers, reopened the assessment u/s 147 of the Act after

recording the reasons and issued notice 148 of the Act.

r.w.s. 143(3) of the Act and determined the total income of the

assessee at Rs.1,75,30,470/- by making addition of

Rs.1,75,00,110/- to the returned income of Rs.30,460/-. We

find the learned CIT(A) upheld the action of the AO both on

merit as well as on the validity of reassessment proceedings. It

is the submission of the learned counsel for the assessee that

23 ITA No.7244/Del/2019

reopening of the assessment in the instant case is not in

accordance with law on account of number of infirmities.

reproduce the reasons recorded by the AO for reopening of the

assessment which are as under:-

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above shows that the AO has reproduced therein the

information from the Investigation Wing and has straightway

reached the stage of formation of belief of escapement of

income. We find in the information, there is general mention to

various unspecified seized material such as seized papers,

digital evidence and also certain statement of individuals who

are connected to Jain Brothers. However, we find there is

complete absence of identity of specific seized material by the

AO which shows his non-application of mind to the information

received from the Investigation Wing. In our opinion, no person

of ordinary intelligence could be in a position to reach to belief

of escapement of income u/s 147 of the Act, from the reasons

recorded by the AO. Mentioning of statements of unnamed

individuals shows non-application of mind by the AO since,

their names are not stated and contents of their statements are

not specifically dealt with and it is not clear as to whether the

name of the assessee as beneficiary of the accommodation

entries was mentioned by any of the individuals examined by

the Investigation Wing. We find force in the argument of the

learned counsel for the assessee that non-identification of the

40 ITA No.7244/Del/2019

deponents proves that the statements of these individuals were

not available to the AO at the time of formation of belief while

recording of reasons. Either these details were not available

with him and even if available the same failed to find any

subjective consideration by the AO. Further, although the AO

in his reasons recorded has identified various possible modes of

accommodation entries such as provision of cheques/RTGS etc

for unaccounted cash either through fake purchase and sale,

commodity profit/loss, fake commission, one time entry or

other modes but failed to identify the particular mode(s) of

accommodation entries adopted in the present case. In absence

of identification of mode of accommodation entry, the reason

recorded in our opinion is incomplete, vague and incoherent

and leaves the reader clueless. Besides non-identification of

the entities, the AO has also failed to identify middleman, if

any, in the deal. The important details in the form of

instrument number through which cheques/RTGS was

accepted by the assessee company, name of the bank from

which the accommodation entry was provided, the name of the

bank in which the accommodation entry was credited and the

date of the transaction is missing in the reason. The date of

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transaction in our opinion, is important to verify whether the

transaction falls in the year under consideration which is

extremely important piece of information to justify independent

application of mind.

proceedings, the assessee had raised specific objection

before the AO regarding the non-mentioning of the entities as

per reasons provided who had given accommodation entries.

However, a perusal of the said annexure which is reproduced

as under does not give such details giving the names of the

entities giving the amount of accommodation entries during the

year.

Pr. CIT vs Meenakshi Overseas Pvt. Ltd. reported in 395 ITR

677 (Del.) has quashed the reassessment proceedings on the

ground that the reasons recorded by the AO failed to

42 ITA No.7244/Del/2019

demonstrate link between tangible material and formation of

reason to believe that income had escaped assessment. The

relevant observations of the Hon’ble Delhi High Court from

paras 19 to 38 read as under:-

“19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: "The information so received has been gone through." One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver)". The AO adds that the said accommodation was "a known entry operator" the source being "the report of the Investigation Wing". 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, "the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... " 22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying

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"unaccounted cash" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom.

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subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment.

28.1 In Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra), the reasons for reopening as recorded by the AO in a proforma 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 proforma 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

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money amounting to Rs. 5 lacs during 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:

46 ITA No.7244/Del/2019

"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."

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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. 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

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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. 31. In Commissioner of Income Tax v. G&G Pharma (supra) there was a similar instance of reopening of assessment by the AO based on the information received from the DIT (I). There again the details of the entry provided were set out in the 'reasons to believe'. However, the Court found that the AO had not made any effort to discuss the material on the basis of which he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO 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. 32. In Oriental Insurance Company Limited v. Commissioner of Income Tax 378 ITR 421 (Del) it was held that "therefore, even if it is assumed that, in fact, the Assessee‟s income has escaped assessment, the AO would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional pre-

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condition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise." 33. In Rustagi Engineering Udyog (P) Limited (supra), it was held that "...the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped assessment. Concededly, the AO had no tangible material in regard to any of the transactions pertaining to the relevant assessment years.

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. "

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The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has 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 AYs in question does not satisfy the requirement of law. 38. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs.” 31. We find, following the above decision, the Co-

ordinate Benches of the Tribunal are taking the consistent view

that when there is non-application of mind by the AO to the

report of the Investigation Wing, such reassessment

proceedings are not in accordance with law and such reopening

proceedings have been quashed. Since, in the instant case, the

AO has not applied his mind as there is non-identification of

the deponents, non-mentioning of middleman if any, absence of

details in the form of instrument number through which the

cheques/RTGS was accepted by the assessee company, name

of the bank from which the accommodation entries were

provided, the name of the bank in which the accommodation

entries were credited and the date of transaction etc. therefore,

we are of the considered opinion that there is complete non-

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application of mind by the AO to the information received from

the Investigation Wing. Therefore, in view of the decision of

the Hon’ble Delhi High court in the case of Pr. CIT vs

Meenkashi Overseas Pvt. Ltd. (supra), the reassessment

proceedings are not in accordance with law.

case of Sh Rajiv Agarwal vs ACIT, reported in 395 ITR 0255

(Del) has held that even in cases where the AO comes across

certain unverified information, it is necessary for him to take

further steps, make inquiries and garner further material and if

such material indicates that income of an Assessee has escaped

assessment, form a belief that income of the Assessee has

escaped assessment. There is non-application of mind by the

AO could not be said to have reason to believe as to justify

reopening of assessment.

response to notice u/s 148 of the Act vide letter dated

12.04.2018 (Paper book page 77) stated that return of income

filed u/s 139 of the Act be treated as return of income filed in

response to notice u/s 148 and also requested for supply of the

copy of reasons. We find the AO after more than four months

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vide letter dated 07.08.2018 (Paper book 73), directed the

assessee to e-file the return of income which was done on

13.10.2018. We find the AO thereafter issued notice dated

16.10.2018 u/s 143(2)/142(1) of the Act (Paper book 74-76)

and supplied reasons recorded on 22.10.2018 (Paper book 45)

against which the assessee submitted objection to assumption

to jurisdiction on 05.11.2018 and same were disposed of by

AO on 09.11.2018. From the above facts, it is evident that the

AO assumed jurisdiction to make assessment by issuing notice

u/s 143(2) of the Act on 16.10.2018 before supplying reason

which means that the AO assumed jurisdiction before allowing

assessee to file objection to assumption to jurisdiction.

Mastech Technologies Pvt Ltd. vs DCIT reported in 407 ITR

242(Del.) at para 30 of the order has observed as under:-

“30. As regards the non-communication of the reasons as contained in Annexure-A to the proforma on which the approval dated 19th March, 2015 was granted by the Additional CIT, there is again no satisfactory explanation. The fact remains that what was communicated to the Petitioner on 23rd February, 2016 was only one line without any supporting material. There appears to be also no clarity of how the case had to be proceeded with by the Revenue, On one date i.e. 16th February 2016, the AO was issuing notice both under Section 142(1) of the Act as well as notice under Section 143(2) of the Act when on that very date the Petitioner had asked for the reasons for reopening by notice dated 18th January, 2016. Again, it is not clear why the AO did not wait

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for the process of supplying reasons to the Petitioner, considering the Petitioner's objections thereto and passing a reasoned order thereon to be completed before issuing the notice under Section 142(1) and 143(2) of the Act. There appears to be non-application of mind.” 35. In view of the above discussion, we are of the

considered opinion that reassessment proceeding initiated by

the AO in the instant case and upheld by the learned CIT(A) is

not in accordance with law. Therefore, we quash the

reassessment proceeding. Since, the assessee succeeds on this

legal ground, therefore, the other plank of arguments

challenging the validity of reassessment proceeding and the

arguments challenging the validity on merit are not being

adjudicated.

allowed.

Order was pronounced in the open court on 12/08/2021.

Sd/- Sd/- [SUCHITRA KAMBLE] [R.K.PANDA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated: 12/08/2021. P.S f{x~{tÜ? f{x~{tÜ? fÜA f{x~{tÜ? f{x~{tÜ? fÜA fÜA P.S fÜA P.S P.S Copy forwarded to: 1. Appellant 2. Respondent 3. CIT

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Asst. Registrar, ITAT, New Delhi