ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(2), BANGALORE vs. MR. M R SEETHARAM, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 256/Bang/2020 Assessment Year : 2007-08 The Assistant Shri M R Seetharam, Commissioner of Gokula House, Income Tax, Gokula, Central Circle – Mathikere, 1(2), Bangalore – 560 054. Vs. Bangalore. PAN: AGDPS5886M APPELLANT RESPONDENT : Shri Naginchand Khincha, Assessee by CA : Shri K.V. Arvind, Standing Revenue by Counsel for Dept. Date of Hearing : 23-03-2022 Date of Pronouncement : 31-05-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by revenue against order dated 19.12.2019 passed by Ld.CIT(A)-11, Bangalore for A.Y. 2007-08 on following grounds of appeal: “1. The order of the learned Ld. CIT(A) is opposed to law and facts of the case. 2. The Ld. CIT(A) erred in deleting the addition of Rs. 14,70,36,000/- as undisclosed income. 3. The Ld. CIT(A) erred in not appreciating the fact that the prevailing law at the time of reopening, required the seized document to belong to the person other than the searched person referred to in section 153A for issue of notice u/s

Page 2 of 26 ITA No. 256/Bang/2020 153C in the case of the other person and it was not sufficient if it pertained to the other person. 4. The Ld. CIT(A) erred in not adhering to the principle laid down by the Hon'ble High Court of Karnataka in the case of Gudwill Housing Ltd Vs ITO in [2014] [ 45 taxmann. Corn 144. 5. The Ld. CIT(A) erred in not appreciating the fact that the assessment is not reopened on the basis of satisfaction of the Assessing Officer of the searched person that the seized material/ asset belongs to assessee but on the basis of an information received from the investigation wing. 6. The Ld. CIT(A) erred in not appreciating that all conditions for issue notice u/s 148 of I T Act were fulfilled such as recording the satisfaction and obtaining sanction u/s 151. 7. For these and other grounds that may be urged upon, the order of the CIT(A) may be reversed and that assessment order to be restored.” 2. Brief facts of the case are as under: 2.1 A search u/s 132 of the Income Tax Act, 1961 was conducted in the case of Rasiklal Manikchand Group on 10/10/2009. During the course of search action, a number of incriminating documents pertaining to unaccounted sale transaction of gutka made by Shri Sohanraj, C & F agent for Rasiklal Manikchand Group were seized and the documents indicated that Sri Sohanraj had made payments to various parties in cash out of the proceeds of unaccounted gutka sales. As per seized material, the assessee was paid cash amounting to Rs. 32,31,09,000/- during the period April 2003 to October 2006. Accordingly, notice u/s 148 was issued. In response to notice u/s 148 the assessee filed letter dated 23/01/2015, stating that revised return filed on 27/03/2009 may be treated as the return filed in response to the notice issued under section 148. Subsequently, notices under section 143(2) and 142(1) were issued calling for details and to show cause as to why, the unaccounted cash of Rs. 14,70,36,000/- received from

Page 3 of 26 ITA No. 256/Bang/2020 Sri Sohanraj, on the instructions of Sri Rasiklal Manikchand Group, should not be brought to tax. 2.2 The Ld.AO held that the assessee had not explained transaction recorded in seized materials and that as cash transactions as recorded in seized material is confirmed by person who had recorded the entries as genuine, an addition of Rs.14,70,36,000/- was made in the hands of the assessee. 3. Aggrieved by the order of Ld.AO, the assessee preferred appeal before the Ld.CIT(A). 3.1 Before the Ld.CIT(A), the assessee filed various submissions challenging the validity of order passed u/s. 143(3) r.w.s. 147 of the Act. The Ld.CIT(A) after considering various submissions by the assessee allowed the appeal by holding that proceedings u/s. 147 of the Act is unsustainable by holding as under: “16. It may be noted that the Hon'ble jurisdictional ITAT Bangalore has categorically held that where an assessment /reassessment is sought to be made on the basis of incriminating material found in the search of third party, provisions of 153C ought to be invoked and are applicable and further such circumstances exclude application of section 147 and hence notice issued u/s 148 and proceedings u/s 147 are illegal and void ab initio and AO not having followed procedure u/s 153 C, order under 147 is to be rightly quashed. 17. In the light of the above judicial decisions of Hon'ble jurisdictional ITAT Bangalore in the case of N. Suryanarayana in ITA Nos 1708 & 1799 /Bang/2017 AYs 2010-11 & 2011-12 dated 01/12/2017 and in the case of Shri. Srinivas Rao Hoskote in ITA Nos 1154 & 1155 / Bang / 2015 dated 27/02/2018 which are squarely applicable in the instant appeal, and in view of the fact that the decisions are binding, and since judicial discipline requires that wisdom of higher authorities prevail, one is constrained to hold initiation of proceedings u/s 147 for the assessment year under consideration and consequent assessment order passed for AY 2007-08 as unsustainable.”

Page 4 of 26 ITA No. 256/Bang/2020 Aggrieved by the order of Ld.CIT(A), revenue filed appeal before this Tribunal. We note that Ground nos. 3-6 raised by the revenue are legal issues and goes to the root of the case. Hence the same is adjudicated first. 4. The Ld. Standing Counsel for the Revenue submitted that, the information emanated from search and, based on such information, the Ld.AO had reason to believe that, income escaped assessment, for the year under consideration. He submitted that, from the seized material marked A/M/08, it was noted that, amount of Rs.14,70,36,000/- is received in cash by the assessee. Further, we submitted that, from various statements recorded by the investigation wing, of one Shri Sohanraj Mehta on 10.10.2009, as well as 15.10.2009, it was evident that, unaccounted cash generated were paid to various suppliers against which, investigation wing and Central Circle were carrying out enquiries. He contended that the present assessee was one among the list that was seized. 4.1 The Ld. Standing Counsel argued that, unaccounted cash amounting to Rs.14,70,36,000/- was received by the assessee in April, 2006, which has not been accounted for in his books of account. He also submitted that, the scanned page no. 34 of the seized document, forming part of the assessment order, is confirmed by the searched person, being the C&F agent for Rasiklal Manikchand Group, Shri. Sohanraj Mehta in his statements. 5. It is the submission of the Ld. Standing Counsel that, only provision that could be initiated in such circumstances was

Page 5 of 26 ITA No. 256/Bang/2020 section 147 and 148 of the Act, as, the seized document did not belong to, or, pertain to the present assessee and therefore provisions of section 153C was not applicable. He submitted that, it was on the basis of the statements recorded of the C&F agent and the seized material, being the list of parties to whom unaccounted cash was paid, of which assessee was one of them, proceedings u/s. 153C could not have been initiated. He submitted that, the requirements to initiate the provisions of section 153C does not get triggered in such factual situation, and, the only recourse to examine the alleged receipt of unaccounted cash in the hands of the assessee was to issue notice u/s. 148. He submitted that, there was incriminating material available before the Ld.AO, to reasonably believe that, income has escaped assessment. He relied on the reasons recorded by the Ld.AO, which was issued to the assessee vide letter dated 06.03.2015. 6. The Ld.Standing Counsel submitted that, the contention raised by the assessee that the issue of notice under section 148 is bad in law cannot be accepted, since the Ld.AO was prima facie satisfied that the assessee received unaccounted cash of Rs.14,70,36,000/- during April 2006 from Sri. Sohanraj on the instructions of Sri.Rasiklal Manikchand, owner of Manikchand group. On the basis of credible information by the Investigation Wing, Pune, in the course of a consequential search conducted in the case of RMD group on 20.1.2010, the Ld.AO, had reason to believe that, the income chargeable to tax, escaped assessment, and accordingly issued notice under section 148 with the prior approval of the Commissioner of Income-tax, Bangalore-III, Bangalore. Under the circumstances, when the material which

Page 6 of 26 ITA No. 256/Bang/2020 prima facie establish live link between the assessee and the third party who has admitted having paid unaccounted cash to a list of parties, the Ld.AO is empowered to make further enquiries with the assessee. 7. He relied on the following decisions  (1999) 236 ITR (SC.) Raymond Wollen Ltd.  (2020) 247 ITR 818 (SC.)Ess Ess Kay Engg.Co. P vs. CIT  159 ITR 956 (SC.) I.O.C. Vs. ITO  (1993) 203 ITR (SC) — Phool Chand Bajrang Lal. vs. ITO  324 ITR 54 (Bom.) Multiscreen Media Pvt. Ltd.  (2010) 329 ITR 28 (Del.) — Diwakar Engineers Ltd. vs. ITO  225 ITR 495 (Del.) — Rakesh Aggarwal 8. The Ld. Standing Counsel also placed heavy reliance on the decision of Hon’ble Madras High Court in case of Karti P. Chidambaram vs. Pr.DIT reported in (2021) 436 ITR 340. The Ld. Standing Counsel further submitted that no materials were handed over by the Assessing Officer of the search person to the Ld.AO of the assessee, and admittedly it is a position that, the materials referred to in the reasons recorded were received by the Ld.AO from the investigating officer. He thus submitted that, the Ld.CIT(A) erred in holding that the proceedings u/s. 148 to be bad in law and therefore the impugned order is unsustainable. 9. On the contrary, the Ld.AR submitted that the assessing officer first served on assessee with a notice u/s. 148 on 04.03.2014. Thereafter another notice u/s. 148 of the Act, dated 25.03.2014 was served along with letter dated even date, wherein, it was stated that, the earlier notice issued on 04.03.2014 is withdrawn and a fresh notice u/s. 148 is issued after the approval of CIT-3, Bangalore. The Ld.AR submitted that, such issue of two notices of reopening of assessment is bad in law, and that, the Act nowhere

Page 7 of 26 ITA No. 256/Bang/2020 provides for two simultaneous reassessment proceedings for the same year. He submitted that, the first notice having withdrawn by Ld.AO himself the assessment u/s. 147 without a valid notice u/s. 148 is bad in law and has been rightly quashed by Ld.CIT(A). 10. The Ld.AR submitted that on receipt of the reasons recorded, assessee filed objections to the Ld.AO against the reopening on 20.03.2015 wherein it was submitted that a speaking order is to be passed in accordance with the principles laid down by the Hon’ble Supreme Court in case of GKN Driveshaft reported in 259 ITR 19. However, the Ld.AR submitted that the Ld.AO has not passed any speaking order in response to the objections filed and has simply rejected the contentions of the assessee without assigning a valid reason. He placed reliance on the i) Decision of Hon’ble Gujarat High Court in case of Torrent Power SEC Ltd. vs. ACIT reported in (2015) 231 Taxman 881 ii) Decision of Hon’ble Delhi High Court in case of Pr.CIT vs. Tupperware India Pvt. Ltd. reported in (2016) 65 taxmann.com 17 iii) Decision of Hon’ble Delhi Tribunal in case of Suresh Chandra vs. ITO in ITA No. 3061/Del/2012 dt. 13.03.2015, A.Y. 1997-98 11. The Ld.AR submitted that for A.Ys. 2004-05 and 2006-07, the reassessment proceedings were quashed by the Ld.CIT(A) in assessee’s own case, for non passing of speaking order in respect of the objections raised by the assessee against reopening, by relying on the decision of Hon’ble Supreme Court in case of GKN Driveshaft (supra). 12. The Ld.AR submitted that, the expression does not mean a purely subjective satisfaction of the ITO. The decision as to the existence of reasons and the belief is not in the mind of the ITO as held in case of Calcutta Discount Co. Ltd. v. ITO reported in [1961]

Page 8 of 26 ITA No. 256/Bang/2020 41 ITR 191 by Hon’ble Supreme Court. He submitted that ‘Reason to believe’ does not mean a purely subjective satisfaction on the part of the ITO, and that, the belief must be held in good faith. He also submitted that, it cannot be merely a pretence as held in case of S. Narayanappa v. CIT reported in [1967] 63 ITR 219 by Hon’ble Supreme Court. He further submitted that the words ‘reason to believe’ suggest that, the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour as held in case of Sheo Nath Singh v. AAC reported in [1971] 82 ITR 147 by Hon’ble Supreme Court. The Ld.AR pointed out that, the expression ‘reason to believe’ occurring in section 147 does not mean a purely subjective satisfaction on the part of the ITO, but the reasons to believe must have a rational connection or relevant bearing to the formation of the belief as held in case of ITO/WTO v. Nawab Mir Barkat Ali Khan Bahadur reported in [1974] 97 ITR 239 by Hon’ble Supreme Court. 13. The Ld.AR submitted that the reasons do not show information if any received from investigation and further it does not show as to from which investigation wing the information was received. He also submitted that, there was no cogent material available for issuance of notice u/s. 148. He thus submitted that the conclusion of the Ld.AO that the income has escaped assessment in the reasons recorded, without there being a cogent material and material based on suspicion, gossip, rumour cannot be a valid ground for initiation of assessment proceedings. It is the

Page 9 of 26 ITA No. 256/Bang/2020 submission of the Ld.AR that the reasons recorded is merely reason to suspect and not a reason to believe for assuming jurisdiction u/s. 147 of the Act. He placed reliance on various decision of this Tribunal. The Ld.AR thus vehemently supported the view taken by the Ld.CIT(A). We have perused the submissions advanced by both sides in the light of records placed before us. 14. The primary submission of the Ld.AR is that the Ld.AO wrongly initiated proceedings u/s. 147 of the Act as against 153C since the Ld.AO reopened the assessment based on materials seized during a search. Before we proceed with the analysing applicability of section 148 vis-à-vis 153C it is necessary to extract the relevant context. "Assessment of income of any other person. - 153C. [(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :] [Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to [sub-section (1) of] section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.] " [underline is ours] "Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the

Page 10 of 26 ITA No. 256/Bang/2020 depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: [Provided further --------- " Provisions of Section 153C and Section 147 carry many distinguishing features notwithstanding the fact that, both these provisions have ultimate effect of redetermination of true income. A conjoint reading of S. 153C & S. 147 shows that, the nature of power of reopening assessment under section 147 is materially different from that of the power conferred under S.153C. Section 153A/S.153C are special provisions dealing exclusively with search cases, while S. 147 is applicable to all types of escapement including income unearthed in search proceedings. The power available under S. 153C, does not render provision of S. 147 repugnant. Hon'ble Bombay High Court in the case of Shirish Madhukar Dalvi v. Asstt. CIT reported in [2006] 156 Taxman 79 has held that Section 148 are substantive provision, whereas, section 158BC are procedural, and that both the sections stand on different footings. For falling within the jurisdiction of S. 147, the materials/documents found in the course of search need not 'belong to' the person other than person searched person. Mere connection or live link to such third person, revealing escapement of income, is adequate to invoke remedy under S. 147. Further, triggering of provisions under Section 153C is dependent on the 'satisfaction' arrived by the AO of the searched person, and not the AO of the person whose income is found to have escaped assessment. In the absence of such 'satisfaction' arrived by the AO of the searched person, the AO of the other person would be rendered powerless to assess true income under S. 153C. In contrast, Section 147 can be invoked by the AO of an Assessee independently, on arriving at satisfaction of escapement of income for a given assessment year, regardless of 'satisfaction' of AO of searched person. Thus, it is self-evident that two sections operate quite differently. There is any statutory compulsion to resort only to mode prescribed under S. 153A/S.153C in the event of search. The scheme of Act does not suggest that mere search action revealing materials against the person other than searched person, would automatically oust the power of the AO over the assessee concerned under S. 147 of the Act. The overriding provisions of S. 153C merely enables the AO to set aside the pending reassessment proceedings and grants primacy to Section 153C of the Act. The exercise of power under S. 153C is governed without any stringent fetters of holding

Page 11 of 26 ITA No. 256/Bang/2020 'reason to believe' contemplated under S. 147. Therefore, while exercise of overriding power under S. 153C will render S. 147 otiose, the converse case of clipping the powers available under S. 147 in search cases per se is not found to be reconcilable to the scheme of the Act. In the light of scheme of the Act narrated above, we are of the view that the Ld.AO of the assessee cannot be compelled to pursue remedy necessarily under s.153C of the Act in exclusion to remedy available to the AO under s.147 of the Act. 15. The assessee has placed heavy reliance on the decision of Coordinate Bench of this Tribunal in case of a) ACIT vs. Shri Srinivas Rao in ITA Nos. 1154 & 1155/Bang/2015 by order dated 21.02.2018 b) Shri N. Suryanarayan vs. DCIT in ITA Nos. 1708 & 1709/Bang/2017 by order dated 01.12.2017 16. We have perused the above decisions and found to be distinguishable on facts, pursuant to the observations of Hon’ble Madras High Court in case of Karti P. Chidambaram vs. Pr.DIT (supra). 17. We refer to and rely on decision of Hon’ble Karnataka High Court in case of Gudwill Housing Ltd. Vs. ITO reported in (2014) 45 taxmann.com 144 wherein the Hon’ble High Court observed and held as under: “5. It is true that Section 158BD states that where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132, then the books of accounts, other documents or assets seized shall be handed over to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed under Section 158BC against such other person and the provisions of these Chapter shall apply accordingly. This provision by itself, in our opinion, is not sufficient to hold that the Assessing Officer, on the facts and in the circumstances, as occurred in the present case, could not have proceeded against the assessee under Section 147 by issuing notice under Section 148 of the Act. This provision fell for consideration of the Delhi High Court and the Allahabad High Court. The Allahabad High Court in CIT v. Abhyudaya Builders (P.) Ltd. [2012] 34o ITR

Page 12 of 26 ITA No. 256/Bang/2020 310/20 taxmann.com 851 was considering not only these provisions but was examining the same in the light of similar facts, as fall for our consideration in the present case. While doing so, the Allahabad High Court placed reliance upon the judgment of the Delhi High Court in Janki Exports International v. Union of India [2005] 278 ITR 296/145 Taxman 82 (Delhi) to hold that the provisions contained in Section 158BD of the Act are analogous to the provisions contained in Section 147 of the Act, insofar as the procedure that is required to be followed. Section 147 contemplates that ITA.1154 & 1155/Bang/2015 Page - 5 if the Assessing Officer has reasons to believe that there is escapement of income, then notice can be issued under Section 148 of the Act. Section 158BD of the Act provides that if the Assessing officer is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made under Section 132 of the Act, upon such satisfaction, is required to forward the relevant documents, papers, etc. to the Assessing Officer having jurisdiction over such other person in respect of whom the undisclosed income has been disclosed for block assessment.” 18. In the present facts of the case, the materials seized, does not relate to or pertain to, belong to assessee alone. The seized material reveals host of transactions being unaccounted cash paid by the C&F agent to various parties of which assessee is one of them. The Hon’ble Madras High Court while considering the facts in the case of Karti P. Chidambaram vs. Pr.DIT (supra), has held as under: “83. Therefore, upon a conspectus of the relevant provisions, it is clear that the recourse under Section 153A and Section 153C is a special procedure that gets triggered upon receipt of incriminating material post any search or requisition. The normal course of assessment and reassessment is fundamentally altered when a search or requisition takes place under Section 132/132A and the moment, the seized materials are received by the Assessing Officers, the special procedure laid out under Section 153A or Section 153C shall come into effect. The use of the non-obstante clause https://www.mhc.tn.gov.in/judis/W.P.Nos.16686 of 2020 & etc., batch coupled with the abatement mechanism contained in the provisions makes it clear that

Page 13 of 26 ITA No. 256/Bang/2020 the legislative intent was for Assessing Officers to proceed only under Section 153A or Section 153C upon receipt of material seized or requisitioned. This special procedure is a derogation from the regular procedure for assessment or reassessment and only some immunity has been carved out for completed assessments. Therefore, the concerned jurisdictional Assessing Officer, upon receipt of material seized or requisitioned, can only proceed under Section 153A or 153C and they cannot proceed with any other pending assessment or proceeding. ..................... 95. Section 147 of the Act may be invoked by the Assessing Officer, if he has “reason to believe” that any income chargeable to tax has escaped assessment. However, there is no such “reason to believe” clause or otherwise under Section 153A or Section 153C. These two provisions shall be invoked by the Assessing Officer based on the materials seized during search operations conducted under Section 132A of the Act, and handed over to the jurisdictional Assessing Officer. .................. 122. Undoubtedly, the informations communicated to the third respondent through DDIT (Inv) vide letter dated 10.08.2018 and 20.08.2018 were the informations collected pursuant to the search conducted on 05.07.2018 in the premises of M/s.Agni Estates and Foundations Private Limited. However, in the absence of handing over of the searched materials as per the procedures contemplated under the provisions of the Act, it would be improper on the part of the Assessing Officer to initiate proceedings under Section 153C of the Act. Thus, on receipt of the informations from DDIT (Inv), the Assessing Officer has initiated proceedings under Section https://www.mhc.tn.gov.in/judis/W.P.Nos.16686 of 2020 & etc., batch 147 of the Act, knowing the fact that the informations are collected pursuant to the search conducted in the premises of M/s.Agni Estates. However, at that point of time, the Assessing Officer could not able to initiate any action under Section 153C of the Act as the procedure mandates handing over of all seized materials to the Assessing Officer. After handing over and receipt of the entire seized materials, the Assessing Officer could prepare “Satisfaction Note” and initiated Section 153C proceedings. The cogent consideration of facts, circumstances as well as the perusal of original files would reveal that the Assessing Officer has initiated action under Section 147/148 of the Act initially and thereafter on receipt of the entire search and impounded materials,

Page 14 of 26 ITA No. 256/Bang/2020 he has prepared a “Satisfaction Note” and issued notice under Section 153C of the Act. The procedural differences between these proceedings are well enumerated in the Act, and established by the respondents through the original files produced before this Court. Certain facts were not available at the initial stage. The complete documents and materials were handed over to the Assessing Officer only on 22.08.2019, after the centralization was done on 06.05.2019. Thereafter, the Assessing Officer prepared the “Satisfaction Note” and issued Show Cause Notice https://www.mhc.tn.gov.in/judis/W.P.Nos.16686 of 2020 & etc., batch under Section 153C of the Act. ............................. 124. This Court is of an opinion that the scope of Section 147/148 and Section 153A and 153C are not comparable. These two sets of provisions contain different set of procedures as contemplated under the Act. Generally, the procedures contemplated for assessment under these provisions may be divided in three parts: for better understanding. The first procedure is return of income filed by the assessee and secondly, in case of availability of any informations or materials, or if any received by the Assessing Officer and he has “reason to believe” that any income chargeable to tax has escaped assessment, he is empowered to proceed under Section 147/148 of the Act. Thirdly, in the event of search operations under Section 132 of the Act, and the searched materials are handed over to the Assessing Officer of the searched person, issue notice to the searched person and if the materials seized are handed over to the Assessing Officer of the other person, issue notice to the other person under Section 153C of the Act. ................... 128. The date of search for the proceedings under Section 153C of the Act in the present case, is 28.11.2019, on which date, the reopening proceedings under Section 147 of the Act was pending. Thus, the said proceedings stood abated on initiation of assessment / reassessment proceedings under Section 153C of the Act on 16.12.2019. Under these circumstances, it cannot be construed as a lapse. It stood abated pursuant to the Proviso clause to Section 153C of the Act. Thus, the ground of legal malice is not established by the petitioners.” 19. The above view by the Hon’ble Madras High Court, is squarely applicable to the present facts of the case primarily because there has been no satisfaction recorded by the AO to the searched

Page 15 of 26 ITA No. 256/Bang/2020 person and there is an absence of handing over of the search material as per the proceedings contemplated u/s. 153A/153C of the Act. Under such circumstances, it is improper on the part of the Ld.AO to initiate proceedings u/s. 153C. 20. It is therefore necessary at this juncture to reproduce the reasons recorded as under and to meet with the arguments / objections raised by the Ld.AR against the reopening of assessment u/s. 148 of the Act. “I am furnishing herewith the reasons for issue of notice uls. 148 In your case for the assessment year 2007-08 as under: "Information was received from the investigation wing that during the course of search proceedings, a number of Incriminating documents pertaining to the unaccounted sale transactions of Gutkha made by Shri.. Sohanraj, C&F agent for Rasiklal Manikchand Group were seized. The documents also indicated that Shri. Sohanraj had made payments to various parties in cash out the proceeds unaccounted gutkha sales. Mr. Sohanraj has admitted that the above said payments in cash as recorded in seized documents were true and correct transactions and the payments were made on the Instructions and correct transactions and the payments were made on the instructions of Shri Rasiklal Manikchand, Owner of Manilkchand group. Mr. Seetharam is one of the parties to whom cash to the extent of Rs.32,31,09,000!-was paid by Shri. Sohanraj on the instruction of Shri. Rasiklal Manikchand during the period April 2003 to October 2006. One of the ledgers extracts seized showed cash payment of Rs.7,16,22,000/- on 08/10/2003. . The above said unaccounted cash transactions are not accounted in the regular books of account of RMD group or in the books of Shri. Seetharam. The above said unaccounted cash transactions have escaped taxation in the case of Shri. Seetharam M R due to failure on the part of the assessee to disclose fully the above said transaction in the books of account. Hence I have reason to believe the above said cash transaction and consequently the income to tune of Rs.32,31,09,000/- has escaped assessment for the AYs 2005-06 and 2006-07 and 2007-08. Hence I propose to reassess the above said income for the AYs 2005-06 and 2006-07 and 2007-08 u/s 147. However, as Mr. Seetharam is filing returns both in Individual and HUF statuses, both cases needs to be

Page 16 of 26 ITA No. 256/Bang/2020 reopened to re-assess the correct income after taking into account the above said unaccounted cash transaction, which escaped taxation. Issue notices u/s. 148 accordingly.” 21. In the present case on a mere perusal of the above reasons recorded it is very clear that, the statements recorded by the investigation wing during the course of search proceedings pertained to unaccounted sale transaction of gutkha made by C&F agent for Rasiklal Manikchand Group. Further the seized document forming part of assessment order reveals that payments were made to various parties in cash. These cash payments were undisputedly admitted by the C&F agent. 22. In the case of Phool Chand Bajrang Lal v. ITO(supra) , Hon’ble Supreme Court observed and held as under :- "19……….Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the same facts and material which was available with the I.-T.O at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and the I.- T.O would have the jurisdiction to reopen the concluded assessment in such a, case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under S. 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the I.-T.O acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific." "26. .………One of the purposes of S. 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands

Page 17 of 26 ITA No. 256/Bang/2020 are tied and you can do nothing." It would be travesty of justice to allow the assessee that latitude." (Emphasis supplied) 23. The Ld.AO observed that the entries mentioned in the seized document scanned and reproduced in the assessment order reveals that sum of Rs.14,70,36,000/- was given to Shri Seetharamaiah during April which is written in Hindi, and that, on perusal of the return of income filed by assessee during the relevant year u/s. 139(1) of the Act does reveal such cash amount having received. Upon such verification, the Ld.AO recorded the reasons for reopening of assessment by forming a prima facie reasonable belief that, income has escaped assessment for the year under consideration. The Ld.AO also recorded that there is a failure on the part of assessee to disclose fully and truly the above transaction in the books of accounts. Therefore he is justified in reopening the assessment. 24. As per section 147, for the purpose of 'reason to believe', it is necessary that the 'reason to believe' must have arisen in consequence of the information in the possession of the Ld.AO. The information must precede the reasons to believe, as per provisions of Sec.147(b). We noted that the Hon'ble Supreme Court had occasion to interpret the word 'information', as used in sec.147(b) in the case of CIT v. A. Raman & Co. reported in (1968) 67 ITR 11. Hon;ble Court observed as under: 'The expression "information" in the context in which it occurs [in section 147(b) of the Income-tax Act, 1961] must mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. To commence the proceedings for reassessment it is not necessary that on the materials which came to the notice of the Income-tax Officer, the previous order of assessment was vitiated by some error of fact or law.

Page 18 of 26 ITA No. 256/Bang/2020 The High Court exercising jurisdiction under article 226 of the Constitution has power to set aside a notice issued under section 147(b) of the Income- tax Act, 1961, if the condition precedent to the exercise of the jurisdiction does not exist. The court may, in exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information: the court may also determine whether from the information the Income-tax Officer may have reason to believe the income chargeable to tax has escaped assessment. But the jurisdiction of the court extends no further. Whether on the information in his possession, he should commence proceedings for assessment or reassessment, must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act: if he has information from which it may be said, prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court exercising powers under article 226 of the Constitution to set aside or vacate the notice for reassessment on a reappraisal of the evidence. In a petition under article 226 of the Constitution, the taxpayer may challenge the validity of a notice under section 147 of the Income-tax Act, 1961, on the ground that either of the conditions precedent does not exist, but an investigation whether the inferences raised by the Income- tax Officer are "correct or proper" cannot be made. Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information must, it is true, have come into the possession of the Income-tax Office after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the material on record, or the facts disclosed thereby, or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected.' Therefore, in our opinion, for taking action u/s 147 the 'reason to believe' can be based on the basis of the material available with the AO even available at the time of making the assessment provided the prima facie material belong to the assessee and apparently relates to the assessment year concerned. The courts have from time to time interpreted the word 'reason to believe' to mean that the AO must have cause or justification. At the stage of initiation of the proceedings it is not required that the AO must establish the escapement of the income. 25. In Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500, Hon’ble Supreme Court held that: "Section 147 authorises and permits the Assessing Officer to assess or, re- assess 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 Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have

Page 19 of 26 ITA No. 256/Bang/2020 reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained- the fact by legal evidence or conclusion. The function of the "Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. 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 the 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 Assessing Officer is within the realm of subjective satisfaction. (emphasis supplied) 26. Now it is required to test based on the information received, whether, the Ld.AO applied his mind, before reopening of assessment or not. The Ld.AR relied on various decision reproduced hereinabove to submit that there must be reason to believe, warranting issuance of notice of reassessment by the Ld.AO and if there is no reason, then the entire foundation for initiating the proceedings is bad, and the notice initiating the proceedings must be quashed. 27. The term “reason to believe”, is not defined in the Act, but it can be gathered and available from the information, leading the Assessing Officer to reopen the assessment. The term itself suggests of a “primafacie” characteristics and not established or conclusive facts or information. Meaning thereby, the Assessing Officer has to primafacie derive his belief based on some material / information etc. leading to the reopening of assessment.

Page 20 of 26 ITA No. 256/Bang/2020 At the stage of recording the reasons, the assessing officer must have a reason to believe and not to establish the fact of escapement of income. 28. In the present case, certain information was received from the investigation wing based on which the assessing officer issued notice to the assessee u/s. 148 of the Act. The information in the form of statements recorded and the seized material, wherein unaccounted cash transactions with various parties were admitted by the searched person before the investigation wing, wherein the name of assessee is categorically appearing having paid cash of Rs.14,70,36,000/- during the month of April coupled with the fact that the alleged receipts were disclosed by the assessee in the original return of income. This clearly indicates that, there is a “reason to believe” that the income having escaped assessment. In the present facts of the case, there is a definite information coming from the investigation wing based on several enquiries that form the entire basis of reasons recorded, and therefore, it cannot be said that the assessing office has not applied his mind. Further Hon’ble Supreme Court in numerous cases have examined the ambit and import of “reason to believe”. 29. It is also been argued by the Ld.AR that the reasons recorded is mere reproduction of information received and therefore there is no live link between the information received be a tangible material and the formation of belief. In our view, the Ld.AO being quasi judicial authority is expected to arrive at a satisfaction independently on objective criteria. 30. The recording of “reasons to believe” and not the “reasons to suspect”, is the precondition for assumption of jurisdiction u/s.

Page 21 of 26 ITA No. 256/Bang/2020 147 of the Act. The “reasons to believe”, must demonstrate a live link to the tangible material, and formation of belief, or, the “reason to believe” that, income has escaped assessment. In the present facts of the case, the reasons for reopening were recorded by the Ld.AO, though by extracting the information received from the investigation wing. But the Ld.AO also noted that, the alleged cash are not accounted by the assessee in its regular books of accounts, that formed the basis for the “reason to believe”, that, income has escaped assessment. Therefore, in the present case it is just not cut and paste of the report of investigation wing, but, there is a clear finding recorded by the Ld.AO that, he has perused the return of income and on verification of the regular books of accounts of RMD Group in the books of assessee the Ld.AO came to the conclusion that the income has escaped assessment. 31. Therefore in our opinion, there is a clear live link between the tangible material received from the investigation wing and the formation of belief by the Ld.AO, and, it is not merely reproduction of the report of the investigation wing but the findings of the Ld.AO himself of income having escaped assessment. The reasons recorded cannot be considered to be a non application of mind by the Ld.AO. The decisions therefore relied by the Ld.AR do not assist the assessee at all. 32. The Ld.AO met with the objections raised by the assessee by way of independent order dated 27.03.2015 placed at pages 40-42 of paper book. Therefore it cannot be held that the Ld.AO did not follow the principles laid down by Hon’ble Supreme Court in case of G.K.N. Driveshaft (supra). For sake of reference, the same is scanned and reproduced herewith.

Page 22 of 26 ITA No. 256/Bang/2020

Page 23 of 26 ITA No. 256/Bang/2020

Page 24 of 26 ITA No. 256/Bang/2020

Page 25 of 26 ITA No. 256/Bang/2020 33. It is admitted position of fact that the first notice was issued by the Ld.AO on 04/03/2014. Subsequently, second notice u/s. 148 was issued by the Ld.AO on 25/03/2014, wherein it was intimated that the earlier notice dated 04/03/2014 is withdrawn. It is also an admitted position that the second notice was issued by the Ld.AO after taking approval from CIT-3, Bangalore. The argument that two simultaneous proceedings were initiated by the Ld.AO therefore cannot be appreciated. Accordingly, in the present facts of the case, we reverse the decision of the Ld.CIT(A) and hold that the assessee was correctly subjected to provisions of section 147 of the Act. Accordingly we allow the grounds raised by revenue in Grounds 3-6. 34. It is a fact that in this case the Ld.CIT(A), vide impugned order did not decide other grounds taken by the Assessee on merits, and annulled the assessment only on the issue relating to the notice issued u/s 148 of the Act. The Revenue challenged the order of the Ld.CIT(A) on the legal issue in grounds 3-6, as well as on merits in Ground No.2. The issues on merits raised by the assessee not being considered in the impugned order, the natural consequence, in our opinion, is to restore it to the Ld.CIT(A), to decide all other grounds taken by the assessee. The Ld.CIT(A) cannot be estopped not to decide other grounds merely on the basis that, the assessee has not filed any appeal or cross objection before this Tribunal against the impugned order. The Ld.CIT(A) is directed o pass a detailed order on merits after granting proper opportunity of being heard to the assessee. The assessee is directed to file all relevant documents in support of its claim.

Page 26 of 26 ITA No. 256/Bang/2020 Accordingly Ground no.2 raised by the revenue is allowed for statistical purposes. In the result, the appeal filed by the revenue stands allowed as indicated hereinabove. Order pronounced in open court on 31st May, 2022.

Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 31st May, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, ITAT, Bangalore