SHRI MANOJ MADANLAL CHHAJED,PUNE vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(1), PUNE

Subsequently, a search action u/s 132 of the Act was conducted in the premises of the assessee on 04.11.2017. Thereafter, the Assessing Officer reopened the assessment u/s 147 of the Act on 26.03.2018 by recording the following reasons: “02. In response to notices issued, Shri H.G. Sharma, CA Authorized Representatives attended from time to time and explained the return. During the course of assessment proceeding, the assessee has requested to provide the reasons for reopening of the case u/s 148 of the Act. The reasons recorded for reopening have been forwarded to assessee on 12/09/2018 which is reproduced as under: “Shri Manoj Chhajed is engaged in the business of construction, real estate, land development etc. He is also involved in lottery business and also partner in dabba trade with Shri Ashok Jain. The assessee has filed his return of income for AY 2011-12 on 29/09/2011 declaring total income at Rs.12,66,372/. The return was processed u/s 143(1) on 23/12/2011 accepting the return income. Subsequently, order u/s 143(3) was passed on 31/01/2014 assessing total income at Rs.13,17,230/-.

Accordingly, a notice u/s 148 of the Act was issued on 26.03.2018. The assessee in response to the same vide letter dated 11.09.2018 requested the Assessing Officer to consider the return of income filed on 30.09.2011 as return of income filed in response to the notice u/s 148 of the Act. The Assessing Officer supplied the reasons for reopening the assessment to the assessee as requested. Subsequently, notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which the AR of the assessee filed the requisite details from time to time. The Assessing Officer completed the assessment u/s 143(3) / 147 of the Act on 20.12.2018 determining the total income of the assessee at Rs.2,92,96,142/- wherein he made addition of Rs.2,79,78,912/- by observing as under: “07. Therefore, considering the facts and circumstances of the case as discussed above it is held that there was no real transaction in nature of unsecured loan in the case of assessee from above said Kolkata based companies. Therefore, the net credit amounting to Rs.2,79,78,912/- (Rs.10,42,46,375 – Rs.7,62,67,463) remains unexplained in hands of the assessee. Hence, same is disallowed and held as income from unexplained sources u/s 68 of the Act, 1961. Accordingly, an amount of Rs.2,79,78,912/- is added back to the total income of the assessee. Penalty u/s 271(1)(c) of Income-tax Act, 1961 initiated separately for concealment of income.”

The assessee filed an appeal before CIT(A) on 11.02.2020. In the meantime, the Ld. PCIT examined the records and noted that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. He noted that during the year under consideration the assessee has taken unsecured loans from various persons including individuals and the outstanding balance of unsecured loan was Rs.12,16,17,647/-. Further, during the course of search action in the case of Ashok B. Jain and others on 04.11.2017, the case of the assessee was also covered. It was found that the assessee has obtained accommodation entries in the form of unsecured loans from shell companies based in Kolkata and such unsecured loan entries are to the tune of Rs.10,42,46,375/-. It was proved by the Investigation Wing that these companies from whom the assessee obtained loans are shell companies and are not doing any business. Therefore, the case of the assessee was reopened u/s 147 of the Act. However, the Assessing Officer in the order passed u/s 143(3) / 147 of the Act had not made the addition of Rs.7,62,67,463/- which was returned back to these shell companies. Since the assessee in his statement recorded /s 132(4) of the Act at the time of search u/s 132 had admitted to the fact that he had taken accommodation entries from the Kolkata based companies by providing unaccounted cash and the assessee had explained the detailed modus operandi through which such accommodation entries were taken by him, the Assessing Officer, instead of making addition to the tune of Rs.10,42,46,375/-, has made addition only of Rs.2,79,78,912/-. Therefore, the order of the Assessing Officer has become erroneous as well as prejudicial to the interest of Revenue. Further, the assessee must have paid commission which is not less than 2% of the total amount for providing accommodation entry which must be paid from unaccounted cash and which is required to be disallowed u/s 69C of the Act. Since the Assessing Officer failed to make addition of the same, the PCIT was of the opinion that the order passed by the Assessing Officer has become erroneous and prejudicial to the interest of Revenue. He, therefore, issued a show cause notice to the assessee to explain as to why the order passed by the Assessing Officer should not be set aside by invoking the provisions of section 263 of the Act. Rejecting the various explanations given by the assessee, the Ld. PCIT set aside the order by invoking the provisions of section 263 of the Act by observing as under: “5. However, there was no response from the assessee to the second notice either. As there was no response to these notices, I am constrained to decide the issue on merits based on the available records.

1 I have carefully considered the facts of the case. As stated above, the AO while passing the order u/s 143(3) of the Act dated 28/12/2018 failed to verify and scrutinize all the issues mentioned herein under.

1. Accommodation loan entries 6.2.1 The AO passed the assessment order under section 143(3) rws 148 of the act on 28/12/2018 by making a total addition of Rs 2,79,78,912/-. The addition of this amount has been made by the assessing officer by arriving at the figure of net credit in the bank account from such Kolkata based paper companies. The net figure has been arrived at difference between the total credit of Rs.10,42,46,375/- which was received by the assessee in the form of unsecured loans and amount of Rs.7,62,67,463/- which was returned back to these companies The AO held that these are mere accommodation entries and considerable amount of money has gone back to these companies. Since the amount of Rs 7.62 crore has gone back to these companies, the addition has been made in the form of net credit available to the assessee during the Financial year 2010-11 by considering the totality of facts and circumstances.

2.2 However, during the course of search action under section 132 of the act in the case of assessee, the statement of the assessee was recorded u/s 132(4) of the Act. In the statement recorded under oath the assessee admitted to the fact that he had taken accommodation entries from Kolkata based companies by providing unaccounted cash to them through the mediators by Hawala Channels. In the statement recorded (reproduced in supra in para 3), the assessee explained the detailed modus operandi through which such accommodation entries were taken by routing the unaccounted cash.

2.3 Thus, it is clearly seen from the facts revealed in the statement that the assessee has duly admitted to the fact that it was in possession of unaccounted cash which was routed through the Kolkata entry operators as unsecured loans in its books of account. This means that the assessee was in possession of such cash at the time of credit of such entries in the books of account. This unaccounted cash ought to be brought to tax by making the addition equivalent to the total credits received in the books of account.

2.4 Further, it is also noted that the assessee has returned the amount of Rs.7,62,67,463/- to these Kolkata based companies. Considering the modus operandi of the assessee, it can also be reasonably inferred that when these so called unsecured loans are returned, an equivalent amount of cash would be received back by the assessee. Eventually it can be seen that the assessee was in possession of unaccounted cash to the tune of Rs.10,42,46,375/- in the FY 2010- 11. This amount was to be added to the total income of the assessee during the course of reassessment proceedings which remained to be done.

2.5 Furthermore, the issue of routing unaccounted cash in the form of unsecured loans through Kolkata based companies is also part of the reasons recorded under section 148 of the act. The amount of Rs 10,42,46,375- was held as unaccounted income to be brought to tax in the form of escapement of income. This was the basis on which reopening of the case was carried out in view of the above, it is clearly noted that the assessee has itself admitted in the statement recorded on oath under section 132(4) of the act that the amount of Rs.10,42,46,375 is an cash has been given to these companies to facilitate this transaction. This amount of Rs.10,42,46,375/- being unaccounted cash generated by the assessee ought to have been brought to tax. This amount of Rs.10,42,46,375/- shall be restricted to the peak balance shown as outstanding at any given point of time during the previous year. The subsequent repayment/reduction of this entry, shall not alter the fact and quantum of concealed income in the form of cash paid for buying the accommodation entries by the assessee.

2.6 However, the AO has made an addition of Rs.2,79,78,912/- only on the same issue in the assessment order dated 27/12/2018. Hence it can be seen that there is an underassessment to the tune of Rs.7,62,67,463/-

3 Payment of Commission to the entry provider:

3.1 As discussed above, it can be seen from the statement of the assessee (replies to question no. 25 & 26) that the accommodation entries were taken by him from Kolkata based entities by paying equivalent amount in cash. Since, these transactions are arranged through entry providers, the same would have been done for a commission to be paid in cash. This was confirmed by the assessee in his statement recorded on oath, in response to question no.26. 6.3.2 Hence, it is a fact that the assessee has paid commission to these Kolkata based shell companies. However, as a quantum was not specified it can be assumed that atleast an amount equivalent to not less than 2% of the total entry amount, would have been paid from unaccounted cash for providing accommodation entry. Thus, the assessee would have incurred this commission expenditure calculated at the rate of 2% on the amount of accommodation entry taken of Rs.10,42,46,373/-, which comes to Rs.20,84,927/-. The same is also required to be added to the total income of the assessee.

4 Interest Expenditure claimed thereon:

0 Considering the above, it is apparent that the A.O has failed to apply his mind to the case in all perspectives and the order passed by him was erroneous and in result prejudicial to the interest of the revenue. 7.1 In the case of CIT v. Jawahar Bhattacharjee [2012] 341 ITR 434 (Gauhati) (HC) (FB) it has been held that non-application of mind to relevant material or an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of order being erroneous.

2 It is now a settled law that an order passed by the A.O. become erroneous and prejudicial to the interest of Revenue as per the provisions of Section 263 of the Income Tax Act in following cases –

0 The facts of the case under consideration are duly covered under the yardstick discussed above. Hence in the light of the discussions that have preceded and for the reasons alluded in the show cause notice, I am of the opinion that this is a fit case for exercise of the suo-motu revision powers of the CIT under Section 263 of the (IT) Act. Accordingly, after considering the totality of facts & circumstances of the case and for the detailed reasons discussed herein above, I hold that the assessment order u/s 143(3) of the Act dtd. 28/12/2018 for AY 2011-12, passed by the Assessing Officer as erroneous & prejudicial to the interest of revenue.

0 Accordingly, the assessment order u/s 143(3) dtd. 28/12/2018 for AY 2011-12, is hereby set aside to the file of assessing officer to be framed de-novo. While making fresh assessment order the Assessing officer shall take into account the issues already considered/additions made in the order dated 28/12/2018 and complete the assessment after making necessary verification of the issues discussed in para 6 Supra in this order, after giving reasonable, opportunity of being heard to the assessee.”

The Assessing Officer thereafter passed the order u/s 143(3) r.w.s. 263 of the Act on 23.03.2022 determining total income of the assessee at Rs.10,78,45,690/-, the details of which are as under: Income assessed as per order u/s 143(3) r.w.s. 147 dated 28/12/2018 Rs. 2,92,96,142/- Add:

The assessee filed an appeal before the Ld. CIT(A) against this order also. The Ld. CIT(A) in the consolidated order dated 10.10.2023 passed the order i.e. in respect of order passed u/s 143(3) r.w.s. 147 and u/s 143(3) r.w.s. 263 of the Act and dismissed both the appeals.

Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:

Ld. Assessing Officer erred in disallowing the loans in the reassessment proceedings although all necessary details relating to such disallowances were already brought on record and which was duly examined by the Assessing Officer when the original scrutiny assessment proceedings were made u/s 143(3) of the Income Tax Act, 1961 and further, in an appeal to the Commissioner of Income Tax (Appeals) erred in confirming the Re- Assessment Order.

Ld. Assessing Officer erred in re-opening the matter on the basis of information gathered from ITD system and the information received from the Investigation Wing, Pune on the search and seizure proceedings in the Appellant's own matter which seems to be a change of opinion and there is no reason to believe for re-opening the concluded matters and further, Ld. Commissioner of Income Tax (Appeals) erred in confirming the Re- Assessment Order. 3. Ld. Assessing Officer erred in passing a Re-Assessment Order after 4 years although all information was brought during the original scrutiny assessment proceedings made u/s 143(3) in relation to the transactions in dispute and Ld. Commissioner of Income Tax (Appeals) further erred in confirming the same and in not appreciating the arguments made by the Appellant in respect of the limitation of 4 years.

Ld. Assessing Officer erred in re-opening the concluded assessment although he has relied upon the search materials gathered by the Investigation Wing, Pune over and above the preceding 7 years' proceedings which was concluded u/s 153A by the Assessing Officer and further, the Commissioner of Income Tax (Appeals) erred in confirming the said Re-Opening Assessment Order.

Ld. Assessing Officer erred in enhancing the assessment made in the Re- Assessment Order as per the directions issued by the Commissioner u/s 263 of the Income Tax Act, 1961 and further, the Commissioner of Income Tax (Appeals) erred in confirming such enhancement.

Ld. Assessing Officer erred in making an addition of Rs.10,42,46,375/- (Rs.2,79,78,912/- (original reopening order) and Rs.7,62,67,463/- (fresh order in pursuance of 263 order) which are genuine loan transactions and erred in holding the transactions as accommodation entries. Further, Ld. Commissioner of Income Tax (Appeals) erred in confirming the same.

Ld. Assessing Officer erred in making an estimation of commission expenditure on loans and erred in making an addition of Rs.20,84,927/- and further, Ld. Commissioner of Income Tax (Appeals) erred in confirming the same.

Ld. Assessing Officer erred in disallowing the interest expenditure claimed in the returns amounting to Rs.1,97,159/- and further, Ld, Commissioner of Income Tax (Appeals) erred in confirming the same.

The Appellant craves leave to add, alter, amend, vary or delete any of the aforesaid grounds.

The assessee has also filed an additional ground in ITA No.1178/PUN/2023 which reads as under: “The reassessment order passed by the Ld AO U/Sec. 143(3) r.w.s.147 of the Income Tax Act 1961 is bad in law and void ab-initio as once reassessment proceedings are initiated on the basis of report of Investigation wing Kolkata and incriminating material found in the search of appellant and then the provisions of Sec.153C of the Act are applicable which override the applicability of Sec. 147 and Sec. 148 of the Act.” 10. The ld. Counsel for the assessee submitted that the additional ground raised is purely legal in nature which goes to the root of the matter and all necessary facts are already available on record and no new facts are required to be investigated. Referring to the decision of Hon‟ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and in the case of Jute 11. After hearing both the sides and considering the fact that the additional ground raised by the assessee is purely legal in nature and all the material facts are already available on record and no new facts are required to be investigated, therefore, in view of the decision of Hon‟ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT (supra) and in the case of Jute 12. The Ld. Counsel for the assessee at the outset drew the attention of the Bench to the amendment to provisions of section 153A w.e.f. 01.04.2017 and submitted that the same mandates the Assessing Officer to assess or re-assess the income for four earlier years beyond the 6 assessment years subject to certain conditions. He submitted that in the present case, a search and seizure action u/s 132 of the Act was carried out in the case of the assessee on 04.11.2017, therefore, the case of the assessee is squarely covered by the amendment to the provisions of section 153A of the Act which came into force w.e.f. 01.04.2017 as the clause (c) specifically refers that the amendment is applicable in respect of search initiated on or after 01.04.2017. Therefore, the Assessing Officer by re-assessing the income of the assessee u/s 147 of the Act and not following the mandatory statutory provisions of section 153A has clearly violated the provisions of law. Since the issue involved in the present case is to assess/re-assess the income as per provisions of section 153A of the Act is a juri ictional issue and it is mandatory to assume the said juri iction u/s 153A of the Act where the assessment / re- assessment is consequent to a search action, therefore, the re-assessment proceedings initiated by the Assessing Officer u/s 147 of the Act instead of u/s 153A of the is viod ab initio. For the above proposition, the Ld. Counsel for the assessee relied on the decision of Mumbai Bench of the Tribunal in the case of Nilesh Bharani vs. DCIT vide ITA No.612/MUM/2020, order dated 28.02.2023. 13. The Ld. Counsel for the assessee in his second plank of argument submitted that the additions were based entirely on the basis of the investigation report from the Kolkata Investigation Wing dt 27.04.2015 on the basis of searches on some shell companies which covers the year under consideration as per the provisions of section 153C of the Act as it fell within the 6 year limitation period. Referring to question No.24 of the statement of the assessee recorded u/s 132(4) of the Act, he Shri Jeevendra Mishra recorded by the Investigation Wing, Kolkata. Referring to page 923 of the paper book-2, the Ld. Counsel for the assessee drew the attention of the Bench to the statement of Shri Praveen Agarwal, wherein there is a reference of search and seizure action u/s 132 of the Act on 10.11.2012. Therefore, the case of the assessee is re-assessed on the basis of search in case of other person and therefore, the provisions of section 153C of the Act should have been adopted and not the provisions of section 147 of the Act. The Ld. Counsel for the assessee drew the attention of the Bench to the provisions of section 153C of the Act and submitted that a bare perusal of the above provisions would show that it is mandatory where any information is found during the course of any search anywhere in respect of a person not searched, then for the purpose of re-assessment of income on the basis of the same, it can only be considered by taking recourse to the provisions of section 153C of the Act to make a re-assessment of the income and not u/s 148 of the Act. Since the Assessing Officer has initiated re-assessment proceedings u/s 147 instead of 153C which is clearly applicable to the facts of the present case, therefore, such action of the Assessing Officer being not in accordance with law has to be quashed. For the above proposition, he relied on the following decisions: i) ITO vs. Narendra Sampatlal Bafna vide ITA No.688/PUN/2024, order dated 19.08.2024

The Ld. Counsel for the assessee in his next plank of argument submitted that the assessment involved in the present case is assessment year 2011-12 and the original assessment was completed u/s 143(3) on 31.01.2014. The issue of loans was already scrutinized during the course of original assessment proceedings. Referring to the reasons recorded, the Ld. Counsel for the assessee submitted that there is no reference by the Assessing Officer of any failure on the part of the assessee to disclose fully and truly all the material facts necessary for completion of assessment. Since the notice u/s 148 of the Act was issued on 26.03.2018, the same is beyond a period of four years from the end of the relevant assessment year. Since there is no allegation of any failure on the part of the assessee to disclose fully and truly all the material facts necessary for completion of assessment, therefore, such re-assessment notice which is issued beyond a period of four years from the relevant assessment year, is bad in law. For the above proposition, he relied on the following decisions: 15. The Ld. Counsel for the assessee in his fourth plank of argument submitted that the re-assessment order u/s 143(3) r.w.s. 147 of the Act is invalid since the same is mere change of opinion and the same cannot be reopened without independent verification and application of mind to the information received. Referring to the original assessment order u/s 143(3) dated 31.01.2014, he submitted that the issue of loans has already been scrutinized during the original assessment proceedings, therefore, in absence of any fresh tangible material, the re-assessment proceedings initiated are merely based on change of opinion. He submitted that the Assessing Officer in the instant case has relied solely upon the Investigation Wing report, which is mainly talking about the long term capital gain on penny stocks and nowhere the issues are reported regarding loans / accommodation entries. Therefore, it is clear that the Assessing Officer has not applied his mind to the information received and simply reproduced the information as contained in pages from 720 to 996 of the paper book-2. 16. Referring to the decision of the Pune Bench of the Tribunal in assessee‟s own case vide IT(SS)A Nos.91 to 98/PUN/2022, he drew the attention of the Bench to para 23 of the said order and submitted that the Tribunal had observed that the department failed to produce evidence of any incriminating material providing that the assessee has accepted the accommodation entries. Therefore, the entire case is solely based on the investigation report and no direct linking is established by the Assessing Officer to form the „reason to believe‟ to reopen the assessment. He also relied on the following decisions:

So far as the issue of change of opinion is concerned, the Ld. DR drew the attention of the Bench to the decision of Hon'ble Supreme Court in the case of M/s. Techspan India Pvt. Ltd. (2018) 404 ITR 10 (SC) and drew the attention of the Bench to para 18 of the order which reads as under: “18. Before interfering with the proposed reopening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed reassessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address, itself to a given aspect sought to be examined in the reassessment proceedings.”

So far as the argument of the assessee that the reopening of the assessment is beyond a period of four years where the original assessment was made u/s 143(3) of the Act is concerned, he submitted that the mandatory requirement is the „non- disclosure of material facts necessary for assessment by the assessee‟. He submitted that in the instant case the assessee did not disclose the true nature of unsecured loan transactions taken by him during the original assessment and the same were disclosed by him only when the statements of accommodation entry operators were confronted with him during the search proceedings where he has accepted that the true nature of loans was accommodation entries. Therefore, it is clear that at the time of original assessment the assessee had withheld the true facts which were within his exclusive knowledge.

So far as the argument of the Ld. Counsel for the assessee that the reasons so recorded does not contain any failure on the part of the assessee to fully and truly disclose all material facts necessary for completion of assessment is concerned, the Ld. DR drew the attention of the Bench to the decision of the Hon‟ble Bombay No.3656 of 2018, order dated 08.02.2019 and submitted that the Hon‟ble High requirement provided u/s 147 of the Act.

So far as the argument of the Ld. Counsel for the assessee that the Assessing Officer could have issued notice u/s 153A or 153C of the Act instead of u/s 147 of the Act is concerned, he submitted that the year under consideration falls beyond the block period of six years prior to year of search as prescribed u/s 153A of the Act and therefore, the Assessing Officer could have issued notice u/s 153A of the Act only for the assessment year 2012-13 and onwards. Therefore, the only option available with the Assessing Officer for assessment year 2012-13 was to reopen the assessment u/s 147 of the Act. He also relied on the following decisions: (i) Smt. Samanthapudi Lavanya vs. ACIT vide ITA No.704/VIZ/2019, order dated 27.04.2021 (iv) Nilesh Bharani vs. DCIT vide ITA No.612/MUM/2020, order dated 28.02.2023

The Ld. Counsel for the assessee in his rejoinder submitted that the assessee has challenged the validity of re-assessment u/s 147 of the Act on the ground that the same should have been framed u/s 153A / 153C of the Act. He submitted that the Ld. DR relied on the decision of Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) wherein it has been held that there should be only “reason to believe”. Referring to the decision of Hon'ble 312, he drew the attention of the Bench to the following written submission:

The appellant has discharged the primary onus as the appellant has filed the required details before AO, CIT(A) as well as the Hon'ble ITAT.

He accordingly submitted that the re-assessment proceedings being not in accordance with law have to be quashed.

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 by both sides. We find the assessee in the instant case had filed the original return of income on 30.09.2011 which was selected for scrutiny through CASS. Statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee. During the course of such assessment proceedings, the Assessing Officer vide notices u/s 143(2) and 142(1) of the Act dated 26.08.2023 had asked for various details, in response to which the assessee filed the requisite details including the ledger account of the parties concerned including their confirmations on 15.10.2013 and 31.01.2014, the details of which are as under: “a) Reply to notice dated 15.10.2013 u/s 143(2) and 142(1) – Documents enclosed are:

We find on the basis of various replies given by the assessee, the Assessing Officer passed the order u/s 143(3) of the Act on 31.01.2014 determining the total income at Rs.13,17,230/- and agricultural income of Rs.7,22,800/-. We find the Assessing Officer reopened the assessment u/s 147 and the notice u/s 148 of the Act dated 26.03.2018 was issued and served on the assessee, in response to which the assessee submitted that the original return filed may be treated as in response to the notice issued u/s 148 of the Act. The assessee thereafter asked for the reasons and the Assessing Officer supplied the same which has already been reproduced in the preceding paragraphs. A perusal of the reasons so recorded, nowhere shows that there is any allegation of any failure on part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. 27. It is an admitted fact that the assessment year involved in the instant case is assessment year 2011-12 and the original assessment was completed u/s 143(3) of the Act. As mentioned earlier, it is also an admitted fact that in the entire set of reasons, there is no allegation by the Assessing Officer of any failure on the part of assessee to disclose fully and truly all material facts necessary for completion of the assessment. Under these circumstances, we have to see as to whether the reopening of the assessment u/s 147 of the Act is valid when the original assessment was completed u/s 143(3) of the Act, the reasons recorded do not contain any allegation by the Assessing Officer of any failure on the part of assessee to disclose fully and truly all material facts necessary for completion of the assessment and such reopening is beyond a period of four years from the end of the relevant assessment year.

We find the Hon'ble Supreme Court in the case of ITO vs. Kayathwal Estate (P.) Ltd. reported in (2022) 442 ITR 507 (SC) while dismissing the SLP filed by the Revenue against the order of Hon‟ble Gujarat High Court has observed as under: “Having heard Shri Balbir Singh, learned ASG and in the facts and circumstances of the case more particularly at the time of Scrutiny Assessment under Section 143(3), the Assessing Officer had asked for the details regarding the unsecured loan taken by the Assessee during the year under consideration and the Assessee furnished the details as asked for and thereafter, after perusing the details so furnished by the Assessee, the Assessing Officer passed an order under Section 143(3) of the Act. Therefore, it cannot be said that there was any suppression on the part of the Assessee in not disclosing true and correct facts. It is required to be noted that even the re-assessment proceeding were initiated beyond the period of four years. Under the circumstances, the High Court is absolutely justified in quashing the re-assessment proceedings and the notice under Section 148 of the Income Tax Act. No interference of this Court is called for in exercise of powers under Article 136 of the Constitution of India.

We find the Hon‟ble Bombay High Court in the case of Vibrant Securities Pvt Ltd vs ITO (supra) has observed as under: “9. We have heard learned counsel for the parties. 10. It is settled law that the validity of reassessment proceedings have to be tested on the touchstone of the reasons recorded by the Assessing Officer, which reasons can neither be added nor substituted by pleadings. 11. Admittedly, the assessment is sought to be reopened beyond the period of four years from the end of the relevant assessment year 2014-15. Since this is a case where an order under section 143(3) of the Act had been passed for the relevant assessment year, the Assessing Officer, in addition to satisfying the juri ictional conditions of 'reason to believe' that income chargeable to tax had escaped assessment, had to show that there was failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings. 12. A reference to the reasons recorded would clearly show that not a whisper has been made by the Assessing Officer that there was any such failure on the part of the assessee. The consequence is clear that the Assessing Officer had not satisfied himself on this important juri ictional aspect and therefore must be deemed to have arbitrarily proceeded to initiate the reassessment proceedings by issuing the notice impugned, which makes it unsustainable. 13. In Hindustan Lever Ltd. V/s. R. B. Wadkar, Assistant Commissioner of Income- Tax and Ors. 1, it was held : "......The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. concluded assessment." 14. This Court in the aforementioned judgment proceeded to allow the petition and set aside the notice impugned therein only on this ground that the juri ictional requirement of proviso to Section 147 of the Act had not been complied with by the Assessing Officer. In the judgment Supra, this Court had noticed that the Assessing Officer had nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary of assessment for that assessment year. The notice impugned under section 148 of the Act is thus liable to be set aside on this ground alone. 15. Apart from above, it is clear that the material which was referred to in the reasons recorded in the shape of transactions, securities, etc. do not reflect that the said material was not available with the Assessing Officer during the scrutiny assessment proceedings. The Assessing Officer appears to have relied solely upon the said information obtained from the Investigation Wing of the department without, in the least, verifying as to whether the said issue had been gone into or disclosed by the assessee during the scrutiny assessment proceedings. The petitioner, on the other hand, has placed on record details of notices and the replies submitted thereto, as referred to in the preceding paragraphs which would show that the information with regard to all transactions had been sought for and supplied by the petitioner. 16. In Aroni Commercials Ltd. Vs. Deputy Commissioner of Income-tax-2(1)2, it was held : "14..........We are of the view that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contained reference and/or discussion to disclose its satisfaction in respect of the query raised. If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under Section 148 of the Act, during the original assessment proceedings. There can be no doubt in the present facts as evidenced by a letter dated 8 September 2012 the very issue of taxability of sale of shares under the head assessment proceedings leading to an order dated 12 October 2010. It would therefore, follow that the reopening of the assessment by impugned notice dated 28 March 2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 12 October 2010. This change of opinion does not constitute justification and/ or reasons to believe that income chargeable to tax has escaped assessment." 17. Since an order under section 143(3) had been passed after eliciting various information from the petitioner, which was responded to by the petitioner, it must be presumed that the Assessing Officer, while passing the order under section 143(3) of the Act, had considered all issues pertaining to the queries raised as also issues in regard to which the information was sought and therefore, if the matter is deemed to have been considered, any subsequent reassessment on the same issue would be nothing but a 'change of opinion'. 18. The Assessing Officer in the reasons recorded was also supposed to establish the live link between the information received by him and the formation of his belief that income had escaped assessment which is conspicuously missing in the present case. What was held by the Supreme Court in Commissioner of Income Tax V/s. Kelvinator of India Ltd. 3 is as under : " ....The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." 19. In our opinion, the juri ictional conditions have not been met with in the present case and that reassessment proceedings are nothing but a 'change of opinion', and therefore, would not furnish a sound basis to the Assessing Offcer in the formation of his belief that income had escaped assessment. 20. Be that as it may, the present petition is allowed. Order impugned, dated 8th February 2022 rejecting the objections so also the impugned notice dated 31st March 2021 under section 148 of the Act are held to be unsustainable and are accordingly set aside. No order as to costs.” 30. We find the Hon‟ble Bombay High Court in the case of Gateway Leasing Pvt. Ltd vs ACIT (supra) has observed as under: “27 At this stage, we may briefly refer to the relevant legal provisions.

1 The first proviso to section 147 is important. As per this proviso, where an assessment under subsection (3) of section 143 or section 147 has been made for the relevant assessment year, no action shall be taken under section 147 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.

2 Section 149 deals with time limit for notice under section 148. As per clause (a) of sub-section (1), no notice under section 148 shall be issued for the relevant assessment year, if four years have elapsed from the end of the relevant assessment year unless the case falls under clause (b) or clause (c). Clause (b) says that no notice shall be issued if four years have elapsed but not more than six years have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Clause (c) deals with a situation where limitation is extended upto sixteen years but the escaped income must relate to any asset located outside India.

1. Of course the limitation point though pleaded in the writ petition, has been given up by the Petitioner following filing of affidavit by the Respondents which clearly shows that the re-opening notice was issued within the limitation period of six years.

1 Before dilating on these two expressions, it would be apposite to refer to section 148 of the Act, which deals with issue of notice where income has escaped assessment. As per sub-section (1), before making the assessment, re-assessment or recomputation under section 147, a notice in the prescribed form is required to be served upon the assessee by the Assessing Officer, calling upon him to file return of income in terms of such notice within the period specified and in such event the return so filed would be construed to be a return filed under section 139. As per sub-section (2) of the said section, the Assessing Officer shall before issuing any notice under section 148, record his reasons for doing so.

2 In GKN Driveshafts (India) Ltd. (supra), Supreme Court held that when a notice under section 148 of the Act is issued, the proper course of action for the assessee is to file the return and if he so desires, to seek the reasons for issuing the notice. If sought for, Assessing Officer is bound to furnish the reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to the notice in which event the Assessing Officer would be under an obligation to dispose off the same by passing a speaking order

He must have reason to believe that income chargeable to tax has escaped assessment; and 2. He must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee to make a that year.

1 Both the two conditions must co-exist in order to confer juri iction on the Income Tax Officer. Supreme Court observed that duty is cast upon the assessee to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income Tax Officer the books of accounts or other evidence from which material evidence with due diligence could have been discovered by the Income Tax Officer will not necessarily amount to disclosure contemplated by law but the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the Income Tax Officer to draw the correct inference from the primary facts. If the Income Tax Officer draws an inference, which appears subsequently to be erroneous, it would amount to change of opinion and mere change of opinion with regard to that inference would not justify initiation of action for re-opening assessment.

2 The grounds or reasons which led to formation of the belief that income chargeable to tax has escaped assessment must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exists reasonable grounds for the Income Tax Officer to form the above belief that would be sufficient to clothe him with juri iction to issue notice. However, sufficiency of the grounds is not justiceable. The expression “reason to believe” does not mean a purely subjective satisfaction on the part of the Income Tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant. To this limited extent, initiation of proceedings in respect of income escaping assessment is open to challenge in a court of law.

3 Dilating further, Supreme Court held that reasons for formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. But it has to be borne in mind that it is not any and every material howsoever vague and indefinite or distant, remote and far- fetched which would warrant formation of the belief relating to escapement of income. Moreover, powers of the Income Tax Officer to reopen assessment, though wide are not plenary. The words of the statute are “reason to believe” and not “reason to suspect”. Reopening of assessment after the lapse of many years is a serious matter. Mewal Das (supra) has withstood the test of time and is being consistently applied while examining challenge to a notice issued under section 148 of the Act

We find the Co-ordinate Bench of the Tribunal in the case of DCIT vs. Vista Nirman Pvt. Ltd. vide ITA No.1340/PUN/2023 and CO No.21/PUN/2024, order dated 05.08.2024 has observed as under: “30. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed by both the sides. We have also considered the various decisions cited before us. Before deciding the appeal of the Revenue challenging the order of CIT(A) deleting the addition of Rs.24,11,50,000/- made by the Assessing Officer u/s 68 of the Act, we would first like to adjudicate the grounds raised by the assessee in the CO challenging the validity of re-assessment proceedings. It is an admitted fact that the original assessment was completed u/s 143(3) of the Act on 21.03.2014 and the Assessing Officer in the order passed u/s 143(3) of the Act has observed as under:

We find the Assessing Officer reopened the assessment by recording reasons which have already been reproduced in the preceding paragraphs. A perusal of the reasons recorded by the Assessing Officer nowhere shows that there is any allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Since the assessment year involved in the instant case is 2011-12 and the original assessment was completed u/s 143(3) of the Act and there is no allegation of any failure on the part of the assessee to disclose fully and truly all the material facts necessary for completion of assessment in the reasons recorded for reopening of the case, therefore, the proviso to section 147 of the Act is clearly applicable which reads as under:

We find the Hon‟ble Bombay High Court in the case of Akshar Anshul Construction LLP vs. ACIT (supra) while quashing the re-assessment proceedings on account of reasons not having any allegation of any failure on the part of the assessee to disclose fully and truly all the material facts for completion of assessment for reopening of the assessment has observed as under: “7. It is a settled position in law that where assessment has been completed by scrutiny under Section 143(3) of the Act, an assessment cannot be reopened beyond a period of four years from the end of the relevant assessment year in the absence of any failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. This is the mandate of the first proviso to Section 147 of the Act. In the present case, it is undisputed position that the regular assessment for Assessment Year 2010-11was completed under Section S.R.JOSHI 5 of 8 wp-14302- 2018 143(3) of the Act. The impugned notice has been issued on 27 th March, 2018 i.e. admittedly, beyond a period of four years from the end of the relevant Assessment Year 2010-11. Thus, the reasons in support of the impugned notice in cases where assessments sought to be re-opened is beyond a period of four years from the end of the relevant assessment year where assessment is completed u/s. 143(3) of the Act, must spell out the exact failure on the part of the assessee which resulted in escapement of income. The reasons recorded in support of the impugned notice, alleges that the Petitioner is not entitled to the benefit of exemption under Section 80 IB (10) of the Act as from index II of the flats sold registered with the