OMPRAKASH DARUKA,RANIGANJ vs. ITO, WARD 3(1), , ASANSOL

(iv) Show cause notice for initiation of proceedings u/s 147 was issued on 15/10/2018 for necessary compliance on or before 15/11/2018, but the assessee has failed to comply with the show cause notice. (v) On examination of the Return of Income filed by the assessee, it is found that the assessee has disclosed income from business & profession amount to Rs.2,55,874/- and income from other sources amount to Rs.58,578/-in its return of income for the A.Y.2013-14. It is evident from the records that the assessee had claimed exempt income amount to Rs.11,87,522/- for LTCG In its ITR (Schedule El) filed for the A.Y.2013-14. (vi) On the basis of above discussion, I have every reason to believe that the income chargeable to tax has escaped assessment to the extent of Rs.11,87,522/-, coming within the meaning of section 147 read with proviso thereto, by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As the time limit for issue of notice as provided u/s 149(b)(iii) is expiring on 31.03.2020, your honour is requested to sanction permission u/s 151 read with proviso thereto to issue notice u/s 148 of the Income Tax Act, 1961 for the A.Y.2013-14."

On perusal of the above reasons it is revealed that the ld. AO has only recorded the facts of the assessee as to the return of income and source of income. Thereafter, he noted the information received from the DIT. Thereafter, the ld. AO noted that the assessee is beneficiary of bogus Long Term Capital Gain/ Short Term Capital Gain and has earned ₹11,87,522/- in the script of M/s BSR Finance & Construction Ltd. The ld. AR then concluded that he has reason to believe that the income the income has escaped assessment.

In our option, the above reasons are not complete as the details of transactions, such as date of transactions, the person from whom the money has been received and where the transactions have been transacted and how the assessee is beneficiary of bogus Long Term Capital Gain. We find merit in the contention of the assessee that the reopening has been made on the basis of vague reasons as it the reasons mentioned only that the assessee is beneficiary of Long Term Capital Gain of ₹11,87,522/- in the script of M/s BSR Finance & Construction Ltd. and no other details were mentioned and therefore, the reasons recorded were not sufficient as the AO has not recorded his satisfaction and it is, in fact, a case of borrowed satisfaction. The case of the assessee find support from the decision of CIT Vs. Insecticides (India) Ltd. (supra), wherein the Hon'ble Court in para no. 8 and 9 has observed as under:- "8. The Tribunal gave detailed reasons for concluding that the proceedings under Section 147 were invalid. Instead of adding anything to the said reasons, we think it would be appropriate if the same are reproduced: -- "In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The AO has further stated that the assessee company has failed to disclose fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned as to who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income- tax (Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the informations gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. Therefore, the details of entries or amount mentioned in the assessment order and in respect of which ultimate addition has been made by the AO, cannot be made a basis to say that the reasons recorded by the AO were with reference to those amounts mentioned in the assessment order. The reasons recorded by the AO are totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. In this respect, we may rely upon the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT v. Atul Jain [2000] 299 ITR 383, in which case the information relied upon by the AO for initiating proceedings u/s 147 of the Act did indicate the source of the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the information supplied was extremely scanty and vague and in that light of those facts, the Hon'ble Jurisdictional Delhi High Court held that initiation of proceedings u/s 147 of the Act by the AO was not valid and justified in the eyes of law. The recent decision of Hon'ble jurisdictional High Court of Delhi in the case of Signature Hotels (P.) Ltd. (supra) also supports the view we have taken above."

The Hon'ble Delhi High Court while passing the said order has followed another decision relied on by the assessee in the case of Commissioner of Income-tax vs. Atul Jain (supra), wherein the Hon'ble Court has held that the ld. AO has to record his satisfaction and where the reasons recorded are vague and mechanical, the same are not valid reasons for reopening of assessment. The Hon'ble Court has held as under:- "Looked at in the light of the decisions placed before us and the law laid down therein, it is necessary to appreciate the information available with the Assessing Officer in the present case. The only information is that the assessees had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague. In so far as the basis for the reasons is concerned, even this is absent. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice under section 148 of the Act. Read in this light, what has been recorded by the Assessing Officer as his "reasons to believe" is nothing more than a report given by him to the Commissioner of Income-tax. As held by the Supreme Court in Chhugamal Rajpal [1971] 79 ITR 603, the submission of a report is not the same as recording of reasons to believe for issuing a notice. The Assessing Officer has clearly substituted form for substance and, therefore, the action of the respondent falls foul of the law laid down by the Supreme Court in Chhugamal Rajpal [1971] 79 ITR 603 which is clearly applicable to the facts of these appeals. For these reasons, we are of the view that there is no error in the decision rendered by the Tribunal and no substantial question of law has arises for our consideration. Therefore, the appeals are dismissed."

It was the submission that the reasons recorded against assessee’s wife was also identical and in verbatim to the reasons recorded in the case of the assessee. It was the prayer that the notice issued u/s.148 of the Act is liable to be quashed and the reassessment proceedings is also liable to be quashed.

In reply, ld Sr. DR submitted that this a case of penny stock and he also vehemently supported the orders of the Assessing Officer and ld. CIT(A).

I have considered the rival submissions. As it is noticed that the coordinate bench of the Tribunal, being Division Bench, in the case of assessee’s wife namely Anju Daruka (supra), has already quashed the reassessment proceedings which are identical and in verbatim to the reasons recorded in the assessee’s case, respectfully following the decision of the coordinate bench of the Tribunal in the case of Anju Daruka