M/S GLOBE COMPLEX PVT LTD ,KOLKATA vs ITO, WARD-5(4), KOLKATA

Income Tax Appellate Tribunal, “SMC”

Before: SHRI SANJAY GARG

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” (VIRTUAL COURT HEARING) BENCH KOLKATA BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER Assessment Year: 2012-13 M/s Globe Complex Pvt. Ltd...………………..............................…….……Appellant 528, Nayabad, Near Mini bus Stand, Kolkata-700099.( [PAN:AADCG4222A] vs. ITO, Ward-5(4), Kolkata……….…..…...............……........……...…..…..Respondent Appearances by: Shri Sunil Surana, CA,appeared on behalf of the appellant. ShriGautamMondal, Sr. DR,appeared on behalf of the Respondent. Date of concluding the hearing :February 01, 2022 Date of pronouncing the order : March 16, 2022 ORDER The present appeal has been preferred by the assessee against the order dated 28.06.2021of the National Faceless Appeal Centre [hereinafter referred to as‘CIT(A)’] passed u/s 250 of the Income Tax Act(hereinafter referred to as the ‘Act’). The assessee in this appeal has taken the following grounds of appeal:

“1. For that the CIT(A) erred inupholding the validity of there-assessment since no noticeu/s 148 in accordance withlaw was served on the assessee.

2. For that the CIT(A) erred inupholding the validity ofreopening of assessmentmerely relying on un-identifiedinformation withoutapplicationofmindand withoutbrining on record any tangible material inthe reasons recorded to justifythe formation of reasonablebelief. 3For that the CIT(A) erred inupholding the validity of re- assessmentwhichwasreopened merely on the basisof suspicion and surmises, there was nothing in thereasons to showthat anyincomehadescapedassessment and the reopeningof assessment is liable to bequashed. 4 For that the CIT(A) erred inupholding the validity ofreopeningofassessmentdone by the AO when noproper approval from higherauthority u/s 151 was taken. 5For that on the facts and in thecircumstances of the case theproceedings initiated u/s 148and continuation thereof is notin accordance with law and isliable to be quashed.

Assessment Year: 2012-13 M/s Globe Complex Pvt. Ltd 6 For that the CIT(A) erredin confirming the addition of Rs.16,05,300/- when there was nomaterial to hold that theamount was income of theassessee and in fact the A.Othesimplyreliedon the information while making theaddition without making anyenquiry himself with regard tothe authenticity of the allegedinformation. 7 For that the CIT(A) erredin confirming the addition of Rs.10 Lakhs received from M/sOverall Distributors Pvt. Ltd asunaccounted money when thesame was repaid back in thesame year and hence, noaddition was called for. 8Forthatthe CIT(A)erredin confirming the addition of Rs.6,05,300/- as received fromM/s Goodfaith Barter Pvt. Ltdas unaccounted money whenthe same was never receivedfrom the said party, nor therewas any evidence of suchreceipt and hence, no additionwas called for.

9. For that on the facts and circumstances of the case, the additions made by the A.O were not justified.”

At the outset, the ld. Counsel for the assessee has submitted that as per the instruction of his client, he does not press Ground No.1 of the appeal. Ground no.1 of the appeal is dismissed as not pressed.

A perusal of the remaining grounds of appeal

revealsthat the assessee inter alia has taken the legal ground contesting the validity of the notice issued under section 148 of the of the Income Tax Act, 1961 (in short 'the Act') and thereby the validity of the assessment order,itself, passed by the Assessing Officer u/s 147 of the Act. Since this legal ground taken by the assessee is regarding the validity of assumption of jurisdiction by the Assessing Officer to reopen the assessment and frame the assessment in question, hence, at the request of the parties, this legal ground is taken first for adjudication.

4. The Ld. Counsel for the assessee has submitted that there was no valid reason for the Assessing Officer to believe that the income of the assessee had escaped assessment. That the Assessing Officer has reopened the assessment without any tangible material coming to his knowledge or any other relevant evidence which may be sufficient to form the belief that the income of the assessee has escaped assessment. He has further submitted that the Assessing Officer has reopened the assessment on the basis of mere suspicion which could not be said to be the reason to believe of the escapement of income from assessment, which is sine qua non for issue of notice u/s 148 of the Act for reopening of the assessment. The Ld. Counsel for the assessee, in this respect, has invited our attention to the copy of reasons recorded by the Assessing Officer for reopening of Assessment Year: 2012-13 M/s Globe Complex Pvt. Ltd the assessment, a copy of the same has been placed in the paper book,contents of the same are reproduced as under:

“In this case, the assessee company has electronically furnished the return of income for the A.Y 2012-13 on 24.09.2012 declaring total income of Rs.31,880/-. The same was processed u/s 143(1) by CPC Bengaluru. The case was not assessed u/s 143(3)/147 of the Act earlier.

On the basis of enquiry and information in possession of the undersigned, it is seen that, during the F.Y. 2011-12, the assessee company bank account got credit of Rs.6,05,300/- from M/S. GOODFAITH BARTER PRIVATE LIMITED (A/C Number: 001783900001650) and Rs.10,00,000/- from M/S. OVERALL DISTRIBUTORS PRIVATE LIMITED (A/C Number:001783900001790). Further information revealed that large value cash were deposited in the accounts of M/s Smart Udyog, (Prop: AbhaySultania) A/c No.001784000002215) and related parties and further funds were transferred to the bank accounts various entities. ITD information revealed that most of these layering entities do not file return and some file return with meagre income, no fixed assets, no salary or office expense which are primary requirement of running a business. Further investigation revealed that these companies are shell entities managed and controlled by entry operators and the bank accounts were used for layering the funds by the beneficiary companies and in this case M/s. Globe Complex Pvt. Ltd., the assessee, has brought back Rs.16,05,300/- in its regular books of Accounts through these shell companies, which is nothing but the undisclosed/unaccounted cash of the assessee itself, not brought to tax.

Hence, on the basis of information correlated and analysis done I am of the view that the assessee has not disclosed its true and full accounts, therefore, I have reason to believe that the assessee has escaped assessment of Rs.16,05,300/-.”

The ld. Counsel for the assessee contesting the action of the Assessing Officer in reopening of the assessment on the basis of aforesaid reasons recorded, has made the following submissions:

“Reopening is not valid as the same was based upon incorrect appreciation of facts. There was no receipt of money from Goodfaith Barter Pvt. Ltd as mentioned in the reasons recorded which is in paper book page 2. The source of information has not been spelt out in the reasons recorded. The date of transactions has not been spelt out in the reasons recorded. The details of bank account through which transactions were undertaken has not been spelt out in the reasons recorded.

Assessment Year: 2012-13 M/s Globe Complex Pvt. Ltd The names of entities through which the funds were allegedly transferred by Smart Udyog in which initial cash was deposited has not been spelt out in the reasons recorded. The AO has stated that most of the layering entities do not file return. He is silent as to whether Overall Distributors through which the appellant received funds of Rs. 1o lakhs has filed its return of income or not. The names of so called entry operators have not been spelt out in the reasons recorded. The reasons recorded were vague without any tangible material and reopening simply on suspicion without any independent application of mind is not valid. Reference is invited to Judgement of Chandigarh Bench of ITAT in the case of Indo Global Techno Trade Ltd in pronounced on 15/06/2020. (Copy enclosed) Copy of sanction given by higher authority us 151 of the I. T. Act were not forwarded to the appellant along with the reasons recorded for reopening the Reference in this connection is invited to the judgement of Hon’ble Delhi High Court in the case of Sabh Infrastructure Ltd vs. ACIT reported in 398 ITR 198. The amount of Rs.6,5300/- to Goodfaith Barter was not received but paid for clearing the opening outstanding liability as per ledger enclosed in page 7 of the paper book.”

The ld. DR, on the other hand, has submitted that the Assessing Officer had valid reasons to form belief that the income of the assessee has escaped assessment as he had received information that the assessee had received credits through bogus concerns.

I have heard the rival contentions and gone through the records. As per the settled law in relation to the exercise of the powers of the Assessing Officer to reopen the assessment under the provisions to section 147 of the Act read with section 148 of the Act, the Assessing Officer is authorized to reopen the assessment proceedings, if he has reason to believe that any income chargeable to tax has escaped assessment. The courts of law have time and again held that such a reason to believe should be based on some tangible material which comes to the knowledge of the Assessing Officer. An assessment cannot be reopened u/s 147 of the Act on the basis of mere suspicion.

However, a perusal of the above reasons for reopening of the assessment would reveal that the said reasons were vague and were not sufficient to form a belief that the income of the assessee has escaped assessment. The only information which was available to the Assessing Officer was that the assessee had got credit of Rs.16,05,300/- from M/s Goodfaith Barter Pvt. Ltd. and Rs.10,00,000/- from Overall Distributors Pvt. Ltd. However, beyond that, there was no information available to the Assessing Officer that these funds received by the assessee were on account of bogus transactions done Assessment Year: 2012-13 M/s Globe Complex Pvt. Ltd through shell companies/paper entities. There was nothing on record to form the belief that the assessee had brought back Rs.16,05,300/- in its regular books of account through shell companies. Though the Assessing Officer has mentioned in the reasons recorded that the large value of cash was deposited in the accounts of one M/s Smart Udyog and related parties and further funds were transferred to bank accounts of various entities,however, there is no mention as to which were those various entities and which of the said shell entities transferred the amount further to the accounts of M/s Goodfaith Barter Pvt. Ltd. and M/s Overall Distributors Pvt. Ltd. which allegedly was further transferred to the account of the assessee. There is nothing in the record to correlate the aforesaid two transactions of the assessee with any shell entities as alleged.

On the other hand, the counsel for the assessee has submitted that the assessee,in fact, had not received the alleged amount of Rs.16,05,300/- from M/s Goodfaith Barter Pvt. Ltd.,rather, it was paid by the assessee to the said company for clearing the opening/ outstanding liability which was duly recorded in the ledger book of the assessee. So far as the loan amount received of Rs.10,00,000/- from M/s Overall Distributors Ltd. was concerned, there was nothing on record that the said amount was brought back by the assessee through any of the shell entities. The ld. counsel for the assessee has submitted that the said loan amount was repaid within a span of 9 days by the assessee to M/s Overall Distributors Pvt. Ltd. If the Assessing Officer would have consulted the records of the assessee, then the Assessing Officer could have easily verified the aforesaid contention/submissions from the records of the assessee. Even the name of the companies through which the alleged transactions were carried out have not been mentioned. The details of bank accounts through which alleged transactions were undertaken have not been mentioned. Mere information that was available on record was that the assessee had financial transaction with two companies and that was not sufficient to form the belief that the assessee was indulged in bogus transactions to bring back his own unaccounted money. Moreover, part of the information in the reasons recorded by the Assessing Officer was factually incorrect as the amount of Rs.16,05,300/- was not received from M/s Goodfaith Barter Pvt. Ltd., Assessment Year: 2012-13 M/s Globe Complex Pvt. Ltd rather the same was paid to it by the assessee. The information received by the Assessing Officer was general and vague information, that of course, can be used to some extent by an Assessing Officer to make further enquiries to ascertain the true facts in a case of an on-going assessment proceedings; however, in a concluded case of assessment, this general information without pointing out any incriminating information against the assessee, cannot be said to be a tangible information sufficient to form belief that the income of the assessee has escaped assessment. The suspicion of the Assessing Officer, thus, was not based on any reliable information or tangible material coming to his possession in this respect. There is no dispute to the well settled proposition that reason to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority, such reason should be held in good faith and cannot merely be a pretence. Furthermore, the reasons to believe 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 Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". There can be no manner of doubt that the words" reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. The entire law as to what would constitute "reason to believe" had summed up by Supreme Court in Income Tax Officer v LakhmaniMewaldas (1976) 103 ITR 437. Reliance in this respect can also be placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of 'CIT vs ParamjitKaur' (2008) 311 ITR 38 (P&H), wherein, making identical observations, the Hon'ble High Court held that the in the absence of sufficient material to

M/S GLOBE COMPLEX PVT LTD ,KOLKATA vs. ITO, WARD-5(4), KOLKATA