JAIBHAGWAN BANARASIDAS JINDAL,JALNA vs. THE INCOME TAX OFFICER, WARD-1, JALNA

After thoroughly analyzing the details, the Assessing Officer noted that the scrip of M/s. Yamini Investment Company Ltd. was managed and controlled to benefit certain pre-decided persons. On the basis of the data analysis, he noted that the assessee is also among the beneficiaries who have received the non-genuine benefit of transactions in the scrip of M/s. Yamini Investment Company Ltd. and availed bogus long term capital gain. Accordingly, the Assessing Officer concluded that the assessee is one of the beneficiaries of obtaining accommodation entries of bogus long term capital gains operated by a group of persons acting as a syndicate in order to provide entries of tax exempt LTCG to the beneficiaries. The exchange of shares of M/s. Anax Com Trade Ltd. with those of M/s. Yamini Investments Company Ltd. was a manipulated affair to generate entries of bogus long term capital gain facilitating tax evasion. The assessee is one such person who has availed accommodation entries / bogus long term capital gains. He, therefore, rejected the claim of exemption u/s 10(38) of the Act on such bogus long term capital gain of Rs.85,38,145/- and added the same to the total income of the assessee treating the same as unexplained cash credit u/s 68 of the Act. He accordingly determined the total income of the assessee at Rs.97,03,015/-.

However, the Ld. CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee and upheld the action of the Assessing Officer by observing as under: “5.3 I have gone through the grounds of appeal, assessment order and the submissions of the appellant along with the documentary evidences. It is confirmed by the appellant that the appellant had traded in the script of M/s. Yamini Investment Company Ltd. A search and survey operation u/s 132/133 of the Income tax Act 1961 was conducted by the investigation wing on Dutta and Tyagi group dated 16.5.2018 and during the post search enquiries of the case, it has been gathered that the scrip of the M/s. Yamini Investment Company was managed and controlled to benefit certain pre decided persons and the assessee is a beneficiary of Yamini Investments Co Ltd. Scrip in the case of Dutta and Tyagi group. Trade data of the scrip Yamini Investment Co Ltd. and trading patterns was analysed and analysis of this data has proved that the scrip of Yamini was controlled and managed by some individual whose aim was to provide long term capital gain / loss by received cash, This traded value was found suspicious and detailed investigation of this issue was undertaken by the DDIT (Inv). The information has been analysed and examined it has been found that Yamini Investment Co Ltd. (YICL) is a penny stock company wherein prices are artificially moved in a desired/required direction on time to time basis in order to benefit few respective identities. Hence, it is established that the assessee had sold shares of YICL to tune his own financial interest and claimed capital gain of Rs. 85,38,145/- as exempted from sale of shares of YICL. 5.3.1 It is further seen from the Investigation report that in this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices through the route of preferential allotment and off market transactions, then granting the bonus shares and finally splitting face value of the shares so that value of a share was reduced to almost a small fraction of a rupee. These shares have a lock in period of 1 year as per Securities and Exchange Board of India. General public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. Once the period of 1 year has passed and the share prices have been sufficiently rigged, the beneficiaries sell their shares at the inflated prices on the stock exchange. The purchase of shares is not made by the public but by the bogus entities managed and controlled by the promoter of the penny stock company or the operator which are referred to as exist providers. The unaccounted money of the beneficiaries is routed to these bogus entities exist

In the result, the appeal is dismissed.”

So far as the grounds challenging the validity of re-assessment proceedings are concerned, the Ld. CIT(A) / NFAC has dismissed the same by observing as under: 4.3 I have gone through the grounds of appeal, statement of facts, assessment order and the submission of the appellant. In this case, specific information has been received that the assessee is a beneficiary of LTC gain and has received Rs.85,38,145/- during the A.Y. 2016-17. Section 147 of the Act lays down that the reopening the assessment can be done by the Assessing Officer (AO) if he has 'reason to believe' that the income has escaped assessment. Escapement of income chargeable to tax can be due to not filing of return of income by the appellant despite having taxable income, receipt of information from other agencies, or failure on part of the AO during the initial assessment proceedings to account for a portion of the income or allowing of excess loss or depreciation etc. In such a case, the provisions of Section 147 would be applicable and the assessment can be reopened. Explanation 2 to Section 147 enlists other conditions under which the section is applicable (deeming provision); which is when the income has been assessed but there has been under-assessment, the income has been assessed at too low a rate, excessive relief has been provided and/or excessive loss, depreciation allowance or any other allowance has been computed under the provisions of the Act. The very fact that reasons are recorded and notice u/s 148

Aggrieved with such order of the Ld. Addl./NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:

The Learned CIT(A) erred in confirming the reopening of the assessment under section 147 of the Income Tax Act, 1961 merely on the basis of the information received through the Insight portal from DDIT(Inv.) Unit 3(3) Delhi and there was no independent application of mind by Assessing Officer to arrive reason to believe that income had escaped assessment. Further, the Learned assessing officer failed to demonstrate the live link between tangible material and formation of reason to believe that income had escaped assessment.

The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A) / NFAC in confirming the validity of re-assessment proceedings as well as the addition on merit. So far as the validity of re-assessment proceedings is concerned, the Ld. Counsel for the assessee submitted that the Assessing Officer in the instant case has reopened the assessment on the basis of report of investigation wing and has not applied his own mind and the entire reopening of assessment was on account of borrowed satisfaction.

Referring to the decision of the Hon’ble Delhi High Court in the case of PCIT vs. RMG Polyvinyl (I) Ltd., 83 taxmann.com 348 (Del), he submitted that the Hon’ble High Court in the said decision has held that where information was received from investigation wing that assessee was beneficiary of accommodation entries but no further inquiry was undertaken by Assessing Officer, the said information could not be said to be tangible material per se and, thus, reassessment on said basis was not justified.

Referring to the decision of the Hon’ble Delhi High Court in the case of Pr. CIT vs. G and G Pharma India Ltd., [2016] 384 ITR 147 (Del.), he submitted that the Hon’ble High Court in the said decision has held that prior to the reopening of the assessment, the Assessing Officer has to, applying his mind to the material, conclude that he has reason to believe that income of the assessee has escaped assessment. Unless the basic jurisdictional requirement is satisfied, a postmortem exercise of analyzing materials produced subsequent to the re-opening will not rescue an inherently defective reopening order from invalidity.

Referring to the decision of the Hon’ble Delhi High Court in the case of Sarthak Securities Co Pvt Ltd vs Income Tax Officer-Ward 7(3), 329 ITR 110 (Del.), he submitted that the Hon’ble High Court in the said decision has held that where there is no independent application of mind by the Assessing officer but acting under information from Inv. Wing, the notice u/s 147 has to be quashed.

Referring to the decision of the Hon’ble Bombay High Court in the case of PCIT v. Shodiman Investments (P) Ltd, 93 taxmann.com 153, he submitted that the Hon’ble High Court in the said decision has held that where Assessing Officer had issued a reassessment notice on the basis of intimation from DDIT (Inv.) about a particular entity entering into suspicious transactions, this was clearly in breach of settled position in law that re-opening notice has to be issued by Assessing Officer on his own satisfaction and not on borrowed satisfaction.

Referring to the decision of the Mumbai Bench of the Tribunal in the case of Leela Bhanji Gada & ANR v. ITO, 52 CCH 163, he submitted that the Tribunal in the said decision has held that when Assessing Officer while recording the reasons had failed to apply his mind and merely referred to the report of Investigation wing, initiation of reassessment proceedings was without application of appropriate mind hence reopening was invalid in eyes of law.

He also relied on the following decisions: i) Rajesh Goyal vs. DCIT vide ii) Subhash Chandra Gupta vs. ACIT 168 taxmann.com 76 iii) ACIT vs. Keshavji Nongha Shah vide order dated 01.10.2024 iv) ACIT vs. Mrs Rehana Mohammed Ali Gheewala 2024-TIOL-1469-ITAT- MUM v) Nimish Chandrakant Mehta vs. ITO vide ITA No.4877/Mum/2023, order dated 24.09.2024 vi) Shobhit Gupta vs. ACIT, 168 taxmann.com 599

So far as the merit of the case is concerned, the Ld. Counsel for the assessee submitted that the assessee during the course of assessment proceedings has submitted the following documents: i) Bank statement reflecting payment made for purchase of shares ii) Bank statement reflecting consideration received on sale of shares iii) Demat account statement for the period of purchase and sale of shares iv) Share allotment letter on allotment of shares v) Contact notes of sale of shares

He submitted that the Ld. CIT(A) / NFAC did not consider the various documents including bank statements, share allotment letter, copy of demat account, bills, contract notes etc., in respect of the purchase of shares of Anax Com Trade Limited and sale of shares of M/s Yamini Investment Company Limited and based his findings merely on the basis of the alleged information received from the DDIT/ADIT(Inv.), 3(3), New Delhi through Insight Portal during the course of post search proceedings in the case of Dutta and Tyagi group.

Referring to the order of the Ld. CIT(A) / NFAC in case of the son of assessee Shri Manoj Jaibhagwan Jindal, he submitted that the son of the assessee has also earned capital gain on account of sale of same shares and the Ld. CIT(A) / NFAC has deleted the addition made by the Assessing Officer. However, the Ld. CIT(A) / NFAC has not considered the same although the Revenue has accepted the order of the Ld. CIT(A) / NFAC in case of son of the assessee and has not filed any appeal despite the tax effect involved of Rs.56.52 lakh which is more than the prescribed monetary limit for filing of appeal at that that time. Further, the Ld. CIT(A) / NFAC has also not considered the various decisions of the Hon’ble jurisdictional High Court as well as the Hon'ble Supreme Court. He submitted that the investigation wing of the department has listed 84 scrips which were treated as penny stock shares on the basis of which the re-assessment proceedings have been initiated and those have been sustained. Referring to the decisions relied on by the Assessing Officer / Ld. CIT(A) / NFAC/ CIT-DR he submitted that in all these decisions the scrips that were involved are on account of 84 scrips pointed out by the investigation wing of the department. However, the assessee has not traded in any of those penny stock shares, therefore, the order of the Ld. CIT(A) / NFAC confirming the addition made by the Assessing Officer is not justified.

Referring to the decision of the Hon'ble Supreme Court in the case of Union of India vs. Kamlakshi Finance Corporation Ltd. (1992) 1992 taxmann.com 16 (SC), he submitted that the decision of the Hon’ble jurisdictional High Court would have higher precedence value on the Tribunal than the decision of Hon’ble non-jurisdictional High Court. Therefore, the Tribunal should follow the decision of the Hon’ble jurisdictional High Court so that the judicial discipline would be maintained in order to give effect to the orders of the higher appellate authorities.

Referring to the decision of the Hon'ble Supreme Court in the case of PCIT vs. Kishore Kumar Mohapatra, 162 taxmann.com 5 (SC), he submitted that the Hon'ble Supreme Court in the said decision has dismissed the SLP filed against the order of Hon’ble High Court that where Assessing Officer denied exemption claimed by the assessee under section 10(38) on long term capital gain on sale of shares on basis of statement of entry operators recorded on various dates in some other proceedings not connected with assessee and no opportunity to cross- examine so-called entry providers was given to assessee thereby violating principles of natural justice, the Tribunal was justified in deleting the addition made by the Assessing Officer.

Referring to the decision of the Hon'ble Madhya Pradesh High Court in the case of Chief Commissioner of Income-tax Vs Nilesh Jain (HUF), 163 taxmann.com 229 dated 30-04-2024, he submitted that the Hon’ble High Court in the said decision has held that where assessee purchased shares of a company listed on Bombay Stock Exchange through a D-mat account, with payments made via banking channels and Security Transaction Tax paid, fulfilling all conditions for exemption under Section 10(38), Assessing Officer could not question genuineness of those shares or treat them as bogus to make an addition under Section 68.

Referring to the decision of the Hon'ble Supreme Court of India in the case of Principal Commissioner of Income-tax Vs Kuntala Mohapatra 160 taxmann.com 608, he submitted that the Hon’ble Supreme Court in the said decision has dismissed the SLP filed against order of Hon’ble High Court that where shares were purchased via Account Payee Cheques, held in a Demat Account for over 12 months, and sold through a recognized stock exchange after payment of security transaction tax assessee was eligible to claim exemption under section 10(38) for long-term capital gains.

Referring to the decision of Hon'ble Supreme Court of India in the case of Principal Commissioner of Income-tax-1 Vs Parasben Kasturchand Kochar 130 taxmann.com 177, he submitted that the Hon’ble Supreme Court in the said decision has dismissed the SLP filed against impugned order of High Court holding that where assessee-individual engaged in trading of shares had discharged his onus of establishing long term capital gains arising out of sale of different shares as fair and transparent by submitting records of purchase bills, sale bills, demat statement etc., same not being earned from bogus companies was eligible for exemption under section 10(38).

Referring to the decision of Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax Vs Renu Aggarwal, 153 taxmann.com 579, he submitted that the Hon’ble Supreme Court in the said decision has dismissed the SLP filed against order of High Court that where Assessing Officer disallowed exemption claimed by assessee under section 10(38) and made additions, alleging involvement in penny stock which were being misused for providing bogus accommodation of LTCG, however, there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report, additions made by Assessing Officer had rightly been deleted.

Referring to the decision of Hon'ble Supreme Court of India in the case of Principal Commissioner of Income-tax Vs Dipansu Mohapatra, 160 taxmann.com 289, he submitted that the Hon’ble Supreme Court in the said decision has held that where the Assessing Officer denied said claim and treated same as bogus on ground that receipts constituted accommodation entries taken by assessee, the Tribunal noted that all details of purchase and sales were placed before Assessing Officer along with contract notes for purchase and sale, demat account and bank statement and allowed the claim of assessee by holding that no incriminating materials were found during survey and statements relied upon were recorded much before date of survey conducted at premises of assessee. The Hon’ble High Court has held that the Tribunal was justified in allowing assessee's claim under section 10(38).

Referring to the decision of the Hon'ble Bombay High Court in the case of Pr. Commissioner of Income Tax-13 Vs Shyam R. Pawar, 54 taxmann.com 108, he submitted that the Hon’ble High Court in the said decision has held that where DMAT account and contract note showed details of share transaction and Assessing Officer had not proved said transaction as bogus, capital gain earned on said transaction could not be treated as unaccounted income under section 68.

Referring to the decision of the Hon'ble Bombay High Court in the case of Principal Commissioner of Income Tax-3 Vs Ziauddin A Siddique, of 2017, dated 04-03-2022, he submitted that the Hon’ble High Court in the said decision has held as under: “We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.

Therefore we find nothing perverse in the order of the Tribunal.

In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law."

Referring to the decision of the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs Smt. Jamnadevi Agrawal, 20 taxmann.com 529, he drew the attention of the Bench to the following Head note: “Section 68 of the Income Tax Act, 1961 – Cash credit – Assessment year 2001-02 – Fact that assessees in group had purchased and sold shares of similar companies through same broker could not be a ground to hold that transactions were sham and bogus, especially when documentary evidence was produced to establish genuineness of claim.”

Referring to the decision of the Hon'ble Bombay High Court in the case of Principal Commissioner of Income Tax Vs Indravadan Jain HUF, of 2018, dated 12-07-2023, he submitted that in this case the Revenue filed the appeal to contest orders passed by the ITAT, w.r.t. order passed by the CIT(A) for the relevant assessment year. It was the case of Revenue before the ITAT that the CIT[A] was wrong in deleting the addition made by the Assessing Officer (A.O.) in respect of long term capital gain treated by A.O. as unexplained cash credit under Section 68 of the Act. The assessee had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/-per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. It was Assessing Office's case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. In view thereof, respondent's case was reopened under Section 148 of the Act. On appeal, the Hon’ble High Court observed the detailed findings of the CIT(A) and concluded that these findings were sound and based on thorough appreciation of the facts and circumstances of the matter at hand. Hence the Hon’ble High Court finds no error in the action of the Tribunal in upholding the findings of the CIT(A).

Referring to the decision of the Hon'ble Gujrat High Court in the case of the Principal Commissioner of Income Tax Vs Sandipkumar Parsottambhai Patel, 457 ITR 368, he submitted that the Hon’ble High Court in the said decision has held that where the Assessing Officer treated transactions in purchase and sale of share as sham transactions and sale proceeds of shares were treated as undisclosed income under section 68, since payments were received through account payee cheques and transactions were done through recognized stock exchange, and there was no evidence that assessee had paid cash in return of receipt through cheque Tribunal rightly deleted addition holding that transactions were genuine.

Referring to the decision of the Hon'ble Delhi High Court in the case of Pr. Commissioner of Income Tax-12 Vs Karuna Garg, ITA 477/2022, dated 23-11- 2022, he submitted that the Hon’ble High Court in the said decision has held that though Revenue has mentioned in the present appeal that the issue involved is covered by the judgment of this Court in Suman Poddar v. ITO 423 ITR 480, wherein appeal of the Assessee was dismissed taking judicial notice of the fact that there was an astronomical increase in the share price of a company which was not commensurate with the financial parameters of the said company, yet this Court finds that a Coordinate Bench of this Court in PCIT vs. Smt. Krishna Devi [ITA 125/2022] & connected ITAs has upheld the Tribunal’s order which is impugned in the present appeal. He accordingly submitted that the re-assessment proceedings are invalid and the addition on merit also has to be deleted.

The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. Referring to the decision of the Pune Bench of the Tribunal in the case of ITO Vs. Splice Biotech Pvt. Ltd. vide order dated 27.09.2023, he submitted that the Tribunal in the said decision has upheld the order of the Ld. CIT(A) in confirming the disallowance of exemption u/s 10(38) on account of bogus long term capital gains made by the Assessing Officer.

Referring to the decision of the Pune Bench of the Tribunal in the case of Abhishek Ashok Lohade vs. ITO vide order dated 22.11.2022, he submitted that here also the Tribunal has confirmed the order of the Ld. CIT(A) sustaining the disallowance made by the Assessing Officer on account of long term capital gains claimed as exempt u/s 10(38) of the Act. So far as validity of re-assessment proceedings are concerned, he relied on the findings of Ld. CIT(A) / NFAC. He accordingly submitted that the order of the Ld. CIT(A) / NFAC being in accordance with law should be upheld.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case, on the basis of information received in insight portal from DDIT (Inv) Wing, Unit-3, Delhi that the assessee has traded in the scrips of shell company viz. M/s. Yamini Investments Co. Ltd., which is proved to be a penny stock company listed on BSE and which has been used to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain, reopened the assessment u/s 147 of the Act. Rejecting the various explanations given by the assessee, the Assessing Officer rejected the claim of exemption u/s 10(38) of the Act on such bogus long term capital and made addition of Rs.85,38,145/- u/s 68 of the Act. We find before the Ld. CIT(A) / NFAC, the assessee apart from challenging the addition on merit, challenged the validity of re-assessment proceedings. We find the Ld. CIT(A) / NFAC upheld the validity of re-assessment proceedings and sustained the addition on merit, the reasons of which have been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the initiation of re-assessment proceedings by the Assessing Officer are on the basis of information received in insight portal from the DDIT (Inv) Wing, Unit-3, Delhi and there is no independent application of mind by the Assessing Officer before reopening of the assessment. Since the re-assessment proceedings have been initiated on borrowed satisfaction and without independent application of mind by the Assessing Officer, such re-assessment proceedings are invalid. Even on merit also, it is the submission of the Ld. Counsel for the assessee that the assessee has filed bank statements reflecting the payments made for purchase of the shares, consideration received on sale of such shares, the Dmat account statement for the period of purchase and sale of shares, share allotment letter, bills, contract notes, payment of security transaction tax and other expenses and none of these documents have been proved to be false or untrue by the Assessing Officer. It is his submission that in view of the various decisions of the Hon’ble Bombay High Court and various other Hon’ble High Courts, the Ld. CIT(A) / NFAC is not justified in sustaining the addition made by the Assessing Officer u/s 68 of the Act by rejecting the claim of exemption u/s 10(38) of the Act. It is also his submission that the son of the assessee has also traded in the same shares and claimed exemption u/s 10(38) of the Act which was rejected by the Assessing Officer and on appeal filed by the son of the assessee, the Ld. CIT(A) deleted such disallowance. Although the tax amount involved was more than Rs.50 lakhs as was prevailing at that time (Rs.56.52 lakhs), the Revenue has not filed any appeal against the order of the Ld. CIT(A). Therefore, the facts being similar, the Ld. CIT(A) / NFAC should have allowed the claim of exemption u/s 10(38) of the Act.

We find some force in the above arguments of the Ld. Counsel for the assessee. The reasons for reopening of assessment have already been reproduced in para 4 of this order. A perusal of the same shows that the same is based on the information received through insight portal from the DDIT (Inv) Wing and there is absolutely no independent application of mind by the Assessing Officer. Under these circumstances, we have to see as to whether such reopening of the assessment is valid or not. We find the Hon’ble Delhi High Court in the case of Pr. CIT vs. G and G Pharma India Ltd. (supra) has observed as under:

We find the Hon’ble Bombay High Court in the case of PCIT v. Shodiman Investments (P) Ltd (supra) has held as under: “12 The reopening of an Assessment is an exercise of extraordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before reopening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of reopening Assessment and its reasons which would evidence the linkage/ nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in S. Narayanappa v/s. CIT 63 ITR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in ITO v/s. Lakhmani Merwal Das 103 ITR 437 had laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitled to challenge the very act of reopening of Assessment and assuming jurisdiction on the part of the Assessing Officer. 13 In this case, the reasons as made available to the Respondent Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. 14 Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a reopening notice on the basis of intimation regarding reopening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that reopening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction. 15 Therefore, in the above facts, the view taken by the impugned order of the Tribunal cannot be found fault with. This view of the Tribunal is in accordance with the settled position in law. 16 Therefore, the question as framed does not give rise to any substantial question of law. Thus, not entertained. 17 Accordingly, Appeal dismissed. No order as to costs.”

We find the Hon’ble Delhi High Court in the case of PCIT vs. RMG Polyvinyl (I) Ltd. (supra) while quashing the re-assessment proceedings where such reopening was based on the report of the Investigation Wing has observed as under: “12. Recently, in its decision dated 26th May, 2017 in (Principal Commissioner of Income Tax-6 v. Meenakshi Overseas Pvt. Ltd.), this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions "one after the other" and that the satisfaction arrived at by the AO was a "borrowed satisfaction" and at best "a reproduction of the conclusion in the investigation report."

As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had.

The various decisions relied on by the Ld. Counsel for the assessee on the issue of reopening on the basis of report of the Investigation wing and non application of independent mind by the Assessing Officer which amounts to borrowed satisfaction supports his case to the proposition that the reopening of the assessment merely on the basis of report of Investigation Wing and without independent application of mind by the Assessing Officer is void ab initio. Since admittedly in the instant case the assessment has been reopened on the basis of the information received through insight portal from DDIT (Inv), Delhi and without independent application of mind by the Assessing Officer, therefore, such re- assessment proceedings being not in accordance with law, have to be quashed. We, accordingly, quash the re-assessment proceedings and the ground raised by the assessee on this issue is allowed. Since the assessee succeeds on this legal ground, the other grounds challenging the addition on merit are not being adjudicated being academic in nature.

In the result, the appeal filed by the assessee is allowed.