MANOJ KUMAR JAIN,AGRA vs. ITO-1(2), AGRA

In the Income-Tax Appellate Tribunal, Agra (SMC)Bench, Agra

Before : Shri A.D. Jain, Judicial Member

ITA No. 277/Agr/2017 Assessment Year: 2002-03

Shri Manoj Kumar Jain, 26.60, Jain Gali, vs. Income-tax Officer Chhipitola, Agra (PAN-AAVPJ6194M). 1(2), Agra. (Appellant) (Respondent)

Assessee by Shri Anurag Sinha, Advocate Revenue by Shri Waseem Arshad, Sr. DR

Date of Hearing 06.03.2018 Date of Pronouncement 04.05.2018

ORDER This is assessee�s appeal for the assessment year 2002-03. The

effective grounds raised are as under : �1. BECAUSE the learned CIT(A) has erred both on facts and in law in upholding the initiation of reassessment proceedings, initiated by the learned ITO-1(2), Agra by taking recourse to the provision of section 147/148 of the Income Tax Act, 1961, despite the fact that there existed �No material� on his record (at the time of recording reasons) for his reason to believe that the income of the �appellant� has escaped assessment.

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the IT Act was raised before the AO, it cannot be taken up at this stage.

Para 9.1 of the impugned order, however, shows this issue to have

been raised before the ld. CIT(A). Therefore, this objection is rejected.

had no material with him to form any reason to believe any

escapement of income, and that the reassessment proceedings were

initiated only for the purpose of making fishing and roving enquiries.

The reasons recorded by the AO for formation of belief of escapement

of income are as follows :

�An information has been received from the Addl. Commissioner of Income tax, Range-1, Agra, vide letter F.No. Addl. CIT/Capital gain/R-1/Agra/2008-09/141 dated 19.03.2009 regarding bogus entries of Long Term/Short Term Capital Gain and bogus gifts etc. (Hawala Entries). These have been found bogus as a result of enquiries made by the Inv. Wing and during the course of assessment proceedings in the case of M/s. Ayushi Stock Brokers (P) Ltd., Sanjay Place, Agra, it was found that the said broker (Ayushi....) was engaged in the business of providing entries of

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bogus Long Term Capital Gain, Share application money, share money, gifts etc. On enquiries it has been found that modus operandi of M/s. Ayushi Stok Brokers (P) Ltd., Sanjay Place, Agra is to take cash from the beneficiary (assessee), deposit the same in one or more of various accounts maintained or controlled by one Sh. R.K. Agarwal, then the money is transferred to the account of M/s. Ayushi Stock Broker (P) Ltd. And thereafter the beneficiary (assessee) was issued cheques/drafts along with bills of share purchase/sales after charging commission/premium from him. Thus, bogus entries were provided to the beneficiaries by showing them transaction made by them in purchase and sale of shares of certain companies, gifts etc., which in fact never took place.

The assessee is also one of the beneficiaries figuring in the list supplied as sated above and an amount of Rs.2,21,895/- through Inst. No. 13606 dated 22.02.2002. The said amount is found credited in the bank account of above named assessee maintained in UCO Bank, Belanganj, Agra, which has been remitted to the assessee from M/s. Ayushi Stock Brokers (P) Ltd., Agra. Since the said transaction is found to be bogus and the entire amount of the same claimed to have been received by the assessee by inst./bank draft is the assessee’s income from undisclosed sources, which has escaped assessment within the meaning of section 147 of the IT Act, 1961. Hence, I have reason to believe that the above income of Rs.2,21,895/- has escaped assessment within the meaning of section 147 of the IT Act, 1961.�

CIT(A) has wrongly upheld the validity of the reassessment proceedings by observing (page-8 of the order under appeal) that �the said proceedings have been initiated undisputedly on the receipt of

information from the Investigation Wing, Agra and this fact has been

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mentioned in the impugned order. Therefore, this objection, too, in my opinion, is not acceptable�. It has been contended that the learned

CIT(A) failed to consider that in the case of assessee himself, for A.Y.

2001-02, i.e., the immediately preceding assessment year, the ld.

CIT(A) deleted the addition made as income from other sources and

directed the AO to accept the income as Long-term Capital Gains as per

the return of income filed by the assessee. Attention has been attracted to the CIT(A)�s order dated 31.05.2010, for A.Y. 2001-02, in

the assessee�s case, on the same issue. A copy thereof has been placed

at APB 52 to 61. It has been pointed out, that as available at APB-52,

para 3, the reasons are exactly the same as those recorded for the year

under consideration. It has been stated that in para 14 (APB 60-61), it

has been found that there was no material with the AO to form any

reason to believe escapement of income and that it was so, that the

addition made as income from other sources, was deleted. It has

further been submitted that in the reasons recorded for the year under

consideration, the nature of the transactions allegedly entered into by

the assessee, have not been specified and that the reasons were

recorded without any application of mind, merely on the basis of

information received from the Investigation Wing of the Department,

i.e., just on borrowed satisfaction. Reliance has been place on �Principal

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CIT vs. Meenakshi Overseas (P) Ltd.�, 154 DTR 100 (Del) and �Mayank Mittal vs. ITO�, ITA No.276/Agra/2016, order dated 26.04.2018 (ITAT

Agra). 5. The learned DR, on the other hand, has stated that the

information received by the AO from the Investigation Wing of the

Department was new and fresh evidence, on which, the AO could have drawn an inference and could have formed a prima facie opinion

whether or not to initiate reassessment proceedings. Reliance has been placed on �CIT vs. India Terminal Connector System Ltd.�, order dated 21.03.2012, passed by the Hon�ble Delhi High Court in ITA No.643/2011 (copy filed). Reliance has also been placed on the

following case laws for the proposition that information received from the Investigation Wing of the Department is information on the basis

of which, the AO can initiate reassessment proceedings:

‘Mitsui and Company India Pvt. Vs. ITO and Another’, 1. WP(C) 1121/2012 & CM No.2447/2012 (Delhi High Court). ‘Brij Mohan Agarwal vs. Asstt. Commissioner of 2. Income Tax’, 268 ITR 400 (Allahabad High Court).

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‘Hosang R. Debra vs. ITO-1(2)’, ITA No.331/Agr/2012, 3. ITAT, Agra. ‘CIT vs. Active Traders (P.) Ltd.’, 214 ITR 583 4. (Calcutta High Court). ‘M/s Pragati Financial Management Pvt. Ltd. Vs. The 5. CIT-II’, ITA 178 of 2016, GA 997 of 2016 (Calcutta High Court). ‘Anil Kumar Singhal vs. ITO’, IT Appeal Nos. 408 & 6. 413/Agr/2012, ITAT Agra. ‘Acorus Unitech Wireless Pvt. Ltd. Vs. ACIT’, 7. Judgment dated 28.02.2014, passed by the Hon’ble Delhi High Court in WP (C) 1957/2013. 6. The question is as to whether or not in the facts and circumstances of the present case, the reasons for belief of escapement of income were recorded by the AO without application of mind, merely on the information received from the Investigation Wing of the Department.

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providing entries of Long-term Capital Gains, share application money,

share money and gifts, etc. The assessee had been found by the

Investigation Wing, to be one of the beneficiaries of M/s. Ayushi Stock

Brokers, an amount of Rs.2,21,895/- having been credited to its bank

account, remitted by M/s. Ayushi Stock Brokers. The AO observed that

the transaction was bogus and that the entire amount was the assessee�s income from undisclosed source, which had escaped

assessment.

Heard. In ‘Meenakshi Overseas’ (supra), under similar facts and 8. circumstances, relying on ‘Signature Hotels (P) Ltd. Vs. ITO’, 338 ITR 51 (Del), it has been held that the reasons must be self-evident and they must speak for themselves; that the tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons; and that where the link between the information made available to the AO and the formation of belief is absent, the reasons are not sustainable. It has further been held that where there is no independent application of mind by the AO to the tangible material which forms the basis of the reasons and the reasons fail to demonstrate the link between the tangible material and the formation of the reasons to believe escapement of income, the reasons are unsustainable.

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In the present case, like in ‘Meenakshi Overseas’ (supra), the link 9. between the information available with the AO and the formation of belief by the AO is missing. No independent application of mind by the AO to the material forming the basis of the reasons recorded is evincible from the reasons. The AO, in the reasons, has just stated the information received and his conclusion about the alleged escapement of income. As to what the AO did with the information made available to him, is not discernible from the reasons. As such, ‘Meenakshi Overseas’ (supra), is squarely applicable. ‘Meenakshi Overseas’ (supra) is by the Hon’ble Delhi High Court, 10. whereas the decisions cited by the ld. DR are from other different High Courts. Of all these, ‘Brij Mohan Agarwal’ (supra) is by the Hon’ble Allahabad High Court, i.e., the jurisdictional High Court qua the assessee. However, that decision is essentially fact-specific. It does not lay down any proposition of law, as such. The Civil Writ Petition filed by the assessee was decided by the Hon’ble High Court on merits, having taken into consideration the investigation report of the Investigation Wing of the Department, as conveyed to the AO, the assessee’s record, the Department’s counter-affidavit (alongwith its annexures) to the Writ Petition and the rejoinder affidavit filed by the assessee. It was held that from the findings of the Investigation Wing and as per the record, the AO of the assessee (Respondent No.1 in the Writ Petition) had reason to

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believe that the assessee had diverted and, thus, concealed his income by disclosing it to be sale proceeds of shares, which was not correct, as no real transaction of shares had ever taken place. It was held that in view of the investigation made by the Investigation Wing, relevant and very material facts had come before the AO that the assessee was concealing his income by indulging in bogus transactions. It was, accordingly, held that the belief of the AO was an honest and reasonable belief based on the material which he had received from the Investigation Wing. The Hon’ble High Court refused to accept the assessee’s contention that it was a case of a mere change of opinion. The Writ Petition was dismissed as having no merit. 11. In the case at hand, however, the issue raised is altogether different. Here, the challenge of the assessee is that since in the reasons recorded, the AO has not spelt out as to what he did with the information received by him from the Investigation Wing, the reasons are hit by the vice of non- application of mind to the information so received. 12. From the above, it is evident that there is no parity whatsoever between ‘Brij Mohan Agarwal’ (supra) and the present case. Accordingly, Brij Mohan Agarwal’ (supra) is of no help to the Department. ‘Hosang R. Debra vs. ITO’ (supra) by the coordinate Bench is of no 13. relevance. In that case, the ground concerning reopening was withdrawn.

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Lordships in that case was as to whether the Tribunal was right in

setting aside the reassessment proceedings on the ground that the AO

had failed to prove and establish that the assessee had been unable to

disclose fully and truly all material facts at the time of original

assessment. The Tribunal had quashed the re-assessment proceedings

on the basis that the original assessment was completed u/s. 143(3) of

the IT Act and the share application money was duly reflected.

proceedings. The issue actually is as to whether the AO applied his mind to the information received and if the reasons recorded evince such application of mind by showing a direct nexus or live link between the

information received and the reasons recorded. 16. Now, in a situation like the present one, as is trite, where there is a cleavage of opinion between different High Courts on an issue and none of

the decisions has been rendered by the jurisdictional High Court, the view in favour of the assessee needs to be followed. Hence, in deferential keeping with ‘Meenakshi Overseas’ (supra), the reasons recorded by the

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AO to form belief of escapement of income are found to be no reasons in

the eye of the law. They are held to be null and void and are cancelled.

Accordingly, the reassessment proceedings, culminating in the impugned

order, are also cancelled. Nothing further survives for adjudication.

Order pronounced in the open court on 04/05/2018.

Sd/- (A.D. JAIN) JUDICIAL MEMBER Dated 04/05/2018 *AKV* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR