WINSOME TEXTILE INDUSTRIES LIMITED,CHANDIGARH vs. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-4(1), CHANDIGARH, CHANDIGARH

before the appeal is finally heard or disposed off.

6. That the order of the Ld. Commissioner of Income Tax is erroneous, arbitrary, opposed to law and facts of the case and is, thus untenable.

3. In the Revenue has raised the following grounds of appeal:

1. “The Ld. CIT(A) erred on the facts and circumstances of the case in deleting the addition of Rs. 44,75,88,075/- made on account of failure of the assessee to establish identity, creditworthiness and genuineness of transaction of the investors in GDRS (Global Depository Receipts).

2. The Ld. CIT(A) erred on the facts and circumstances of the case in deleting the addition of Rs. 44,75,88,075/- when the circumstances established that the assessee could not explain the sources of investment of Rs. 44,75,88,075/- in its books of accounts as Share Application Money/Share Premium/Global Depository Receipts.” 4. Briefly the facts of the case are that the assessee company was engaged in the business of manufacturing and sale of yarns during the F.Y 2010-11 relevant to impugned A.Y 2011-12. The assessee company filed its return of income on 28/09/2011 declaring profit of Rs. 21,05,09,768/- which was set off against the brought forward losses and thereby NIL income was reported under the normal provisions. However, the tax liability was discharged by paying taxes under section 115JB of the Act. The return of income was processed under section 143(1), thereafter the case of the assessee was reopened under section 147 after recording reasons relating to taxability of exchange rate gains earned by the assessee on GDR proceeds which were not repatriated to India immediately and thus income has escaped assessment and notice under section 148 was issued on 26/03/2017. Thereafter after considering the submissions filed by the assessee, the AO framed the assessment under section 143(3) r.w.s 147 vide order dt. 12/10/2017 accepting the return of income, without providing any adverse inference or finding. 5. Thereafter, information was received by the AO from DDIT(Investigation) Unit-71, Delhi vide letter dt. 26/03/2018 that the assessee has undertaken transaction with the some proprietary concerns which on investigation were found to be paper concern and are used to provide bogus bills of purchases to the beneficiaries company. Basis the same, reasons were recorded by the AO that income to the extent of Rs. 2,29,15,034/- has escaped assessment within the meaning of Section 147 of the Act and another notice under section 148 was issued on 31/03/2018 which was served on the assessee on the said date. 6. In response to the notice under section 148, the assessee filed its return of income on 19/04/2018 declaring total income as declared as per original return of income filed on 28/09/2011. Thereafter, the assessee sought copy of the reasons so recorded vide its letter dt. 15/12/2018 and which were provided to the assessee on 17/12/2018 and thereafter, the assessee filed its objection to the initiation of reassessment proceedings under section 147 vide letter dt. 19/12/2018 which were disposed off by the AO by passing a separate order dt. 19/12/2018. Thereafter, after issuance of notice under section 143(2) and 142(1) and after calling for necessary information and documentation as well as issue of specific show cause notice, the AO made an addition of Rs. 82,06,338/- being 20% of the total purchase of Rs. 4,10,31,689/- made from M/s Rohit Trading Company (Rs. 3,44,37,684/-) and M/s Vijay Trading Company (Rs. 65,94,005/-). In addition, the AO also treated the GDR receipt of Rs. 6,45,00,000/-being share capital and Rs. 38,30,88,075/- being security premium totaling to Rs. 44,75,88,075/- as income from undisclosed sources and which was brought to tax by invoking the provisions of Section 68 of the Act. The AO further did not allow the set off of the income so assessed against the brought forward losses/ unabsorbed depreciation and as against the returned income of Rs. 21,05,09,769/-, the assessed income was determined at Rs. 44,75,88,075/- under the normal provision and income under section 115JB at Rs. 12,83,97,342/-.

7. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) wherein the order so passed by the AO under section 143(3) r.w.s 147 dt. 28/12/2018 was challenged both in terms of assumption of jurisdiction under section 147 of the Act as well as on the merits of the addition so made by the AO. As far as the assessee’s challenge to the assumption of jurisdiction under section 147 of the Act, the Ld. CIT(A) did not agree with the various contentions so raised by the assessee and the grounds of appeal

so raised by the assessee were dismissed. Against the said findings, the assessee has again challenged the assumption of jurisdiction by the AO before us.

8. As far as the addition of Rs. 82,06,338/- made by the AO @ 20% of the total purchase, the Ld. CIT(A) allowed part relief to the assessee wherein as against 20% applied by the AO, 15% of the purchase price was found reasonable to cover the extra profit and as a result, the addition of Rs. 61,54,745/- was confirmed and the balance addition of Rs. 20,51,585/- was directed to be deleted. Against the addition so sustained by the Ld. CIT(A), the assessee is in appeal before us.

9. As far as the addition on account of GDR receipt under section 68 of the Act, the Ld. CIT(A) has given his reasoning and findings in para 8.1 to 8.29 in the impugned order and held that the addition under section 68 on account of share capital and share premium through issuance of GDR is not sustainable by invoking the provisions of Section 68 of the Act and the AO was directed to delete the addition so made in the hands of the assessee and the grounds of appeal so taken by the assessee be allowed. Against the said action of the Ld. CIT(A) in terms of deleting the addition under section 68 on account of GDR receipt, the Revenue is in appeal before us.

10. As we have noted above, the assessee has challenged the findings of the Ld. CIT(A) in respect of assumption of jurisdiction under section 147 of the Act. Both the parties fairly submitted and it was also deemed appropriate that the said grounds of appeal be taken up first for adjudication, thereafter, the merit of the addition so sustained and deleted by the Ld CIT(A) may be considered.

11. In this regard, during the course of hearing, the Ld. AR submitted that the appellant had filed its original return of income on 28.09.2011 declaring profit of Rs 21,05,90,768/- which was set off against the brought forward losses. However, tax was paid under sections 115JB of Income Tax Act, 1961. Thereafter, notice under section 148 of Income Tax Act, 1961 dated 26.03.2017 was issued after approval from the Worthy Pr. Commissioner of Income Tax and thereafter, the assessment was completed on 12.10.2017. The Assessing officer during the course of assessment proceedings for Assessment Year 2013-14 had referred the matter regarding receipt of GDRs to the Foreign Tax Department (FTD), the information of which was received from them before the completion of assessment and even before the issue of original notice under section 148 of Income Tax Act, 1961 on 26.03.2017 for Assessment Year 2011-12. This fact emerges from the rebuttal to the order disposing off the objections dated 19.12.2018 filed by the assessee and is incorporated in the assessment order. The averments in respect of the information being available from Singapore and UK authorities with the department have not been denied. Thus, details in entirety in respect of GDR issue was available with the Assessing Officer at the time when the assessment proceedings in respect of original notice issued under section 148 on 26.03.2017. Thereafter, another notice u/s 148 of Income Tax Act, 1961 dated 31.03.2018 has been issued on the basis of information received from investigation wing of department, New Delhi regarding certain non-genuine purchases by the appellant vide letter dated 26.03.2018 as mentioned in the reasons recorded. The appellant filed all documents regarding purchase bills, transport receipts, material inward register, payment of entry tax to Government. The assessee even requested for cross examination of the party concerned on whose statement the Income Tax Department was relying regarding non-supply of goods by them. The Assessing Officer has accepted the books of accounts and has made an adhoc addition of 20 percent of the purchase to cover any kind of extra profit. The action of the Assessing Officer in the absence of reliance on any credible evidence is unjustified and legally not tenable. The Assessing Officer has infact accepted the purchases but has taken 20 percent of the purchase price as extra profit in the absence of any evidence for reasons best known to him. The Assessing Officer has further extended the scope of enquiry regarding issue of GDR receipts credited in the assessee’s books of accounts when all the material relied upon by him was available in the assessment records at the time of issuance of notice under section 148 of Income Tax Act, 1961 dated 26.03.17 and the returned income was accepted by the then Assessing Officer. The reasons recorded in the present proceedings pertained only to alleged bogus purchases and not in respect of GDR issue. Rather, the Assessing Officer mentions in the reasons in Para 1 that earlier the case was reopened under section 148 on the issue of GDR receipts. The assessee had filed objections clearly stating that the basis of the information received from U.K Authorities in the month of April 2018 appears contrary to the material on record. The information received from U.K Authorities in April 2018 was the same as intimated by them to Foreign Tax Department to the Assessing Officer in June/July, 2016 on the basis of the documents shown to the authorized representative of the assessee. The extension of the scope of the proceedings under section 147 is against the provisions of law in view of the various judicial pronouncements specially when the information was on record at the time of issuance of original notice under section 148 of Income Tax Act, 1961. The Assessing Officer has only tried to justify extending the scope of his enquiry and has remained silent on the receipt of information from U.K Authorities in June/July, 2016 and from Singapore Authority on 03.06.2016. The addition on account of GDR proceeds under section 68 Income Tax Act, 1961 are without any basis and on the reliance of SEBI investigation of the lead manager to the issue, the SEBI report was also available on record as shown to the Authorised Representative of the assessee before the issue of the first notice of reassessment on 26.03.2017. As such, the assessment framed in respect of both the issues i.e. alleged bogus purchases and GDR issue is nothing but a change of opinion. All the details in respect of sales/purchases were on record during the course of earlier proceedings initiated vide issuance of notice under section 148 on 26.03.2017 and subsequent assessment framed. The assessee had filed its objections before the Assessing Officer vide letter dated 19.12.2018 and contents thereof read as under: “Objection to the initiation of proceedings U/s. 147 of the Income Tax Act for A.Y. 2011-12 pursuant to the copy of the reasons recorded for initiation of proceedings supplied on 15th December, 2018 and both Notice No. ITBA/AST/F/142(1)/2018- 19/1014084611(1)and Notice No. ITBA/AST/F/142(1)/2018-19/1014102487(1) issued on 7th December, 2018 further expanding the scope of the proceedings to the issue relating to the GDR receipts for which no reasons have been recorded and which have been subject matter of extensive inquiry U/S 147 and 143(3) for A.Ys. 2011-12, 2012-13, 2013-14 and 2014-15. The assumption of jurisdiction and the extension of scope of inquiry beyond the reasons recorded deserves to be set aside on the following grounds:- i) The assessee company filed its return of income on 29th September, 2011 at nil income after set- ting of brought forward losses to the tune of Rs.210509768/-. The said return was accepted and a notice was issued U/s. 147 on 26th March, 2017. The reasons recorded for initiation of proceedings U/s. 147 indicated that during the course of assessment proceedings for A.Y. 2013-14, the amount raised after the issue of GDRs during the FY 2010-11, was not immediately repatriated to India. It was invested in Aries Capital Fund Ltd. and subsequently repatriated to India over a period of four years which during F.Y. 2010-11 resulted in a foreign exchange gain of Rs.11,99,000/- which was not treated as a revenue receipt and thus in terms of the reasons recorded escaped in- come for A.Y. 2011-12. The assessee submitted its reply and after due application of mind, the re- turned income was accepted in terms of order passed under Section 143(3) read with Section 147 on 12.10.2017. The present notice U/s. 147 has been issued on 31st March, 2018 on the ground that certain purchases made from M/s Rohit Trading Company were bogus purchases and thus income had escaped assessment for which reasons were recorded for initiating the present proceedings. That since the present proceedings have been initiated after a period of four years, and all material facts relating to the purchases made had been duly disclosed in the profit and loss account and balance sheet there being no failure to disclose truly all material facts, the pre- sent reassessment proceedings are bad in law in terms of the ratio of the following judgments: a) Dulichand Singhania Vs. ACIT 269 ITR 192. b) Winsome Textile Industries Vs. Union of India 278 ITR 470. c) Navkar share and stock brokers Vs. ACIT 390 ITR 362 & d) Haryana Acrylics Manufacturing company Vs. CIT 308 ITR 38 ii) That it is relevant to point out that after initiation of the reassessment proceedings, a notice was issued U/s 142(1) was issued on 4th July, 2018 asking the undersigned to provided information and copies of accounts of i) Rohit Trading Company 2) Mahalakshmi and others. The assessee furnished all information on 11th September, 2018 alongwith requisite proof. The same was followed by show cause notice on 1st October, 2018 also relating to the purchases made by the company which was the only ground for initiating the reassessment proceedings for A.Y. 2011-12 as is evident from the reasons recorded. The Assessee furnished reply on 17th October, 2018 and was thereafter issued other notices on 7th December, 2018. The said notices related to the issue pertaining to GDR amounting to Rs.6,45,00,000/- shown as credit in share capital account and Rs. 38,30,88,075/- in securities premium account pertaining to five parties for which details were sought by the Assessing Officer. The assessee furnished information on 14th December, 2018. However, it is relevant to point out that the issue relating to GDR receipts is not part of the reasons recorded for reassessment proceeding against which notice u/s 148 issued on 31st March, 2018 since the issue of GDR receipts was already subject matter of reassessment proceedings initiated for the present year vide reasons recorded and notice issued on 14th July, 2017 culminating in an assessment order on 12th October, 2017. The same is clear from para 1of reasons recorded which reads as“ The case was reopened u/s 148 on the issue of GDR receipts. The assessment proceedings were completed on 12.10.2017”. The present notices issued on 7th December, 2018 are beyond the reasons recorded and are based on no new material but are seeking to review the orders passed on the said issue on 12th October, 2017. The said proceedings are thus barred in terms of the judgment of the Gujarat High Court in the case of Kunal Organics Vs. DCIT 362 ITR 530. Further, for assessment year 2012-13, the issue regarding GDR receipts was subject matter of proceeding U/s. 147 on 26th March, 2017 and final orders were also passed on 12th October, 2017 for A.Y. 2012-13. It is also relevant to point out that the issue regarding GDR was subject matter of proceeding for A.Y. 2013-14 and 2014-15 in which detailed queries were raised to the assessee on the GDR issue and the company has appropriately replied with relevant information and documents on the GDR issue and final assessment orders were passed on 29th February, 2016 and 31st October, 2016 respectively. Further as per your notice no. ITBA/AST/F/142(1)/2018-19/1014102487(1) dtd. 07/12/2018 it is informed that M/s Scholari Investment ltd., Albarma Ltd. of Singapore and M/s Cruise Waterford, UK are not traceable at the addresses of the same provided by the assessee during assessment proceedings for AY 2013-14. It is presumed that the above information was already available with the IT Department before the order for reassessment for AY 2011-12 was passed on 12th October, 2017. Since the matter was examined thread bare and all information regarding the same was furnished, the present inquiry vide notices dated 7th December 2018 is beyond the reasons recorded and based on change of opinion and without any new material coming to the knowledge of the Assessment Officer. The issue of GDR was examined and it is presumed that all facets of the same were subject to application of mind by the Assessing Officer since no new material has come to the possession of the Assessing Officer. Thus the issue relating to GDR receipts cannot be re-opened as it would amount to change of opinion.”

12. It was submitted that the objection were disposed off by the AO vide order dt. 19/12/2018 and the contents thereof read as under:

The assessee Winsome Textile Industries Limited is in the business of manufacturing and sale of yarn. During the year under consideration the assessee company had filed return of income on 28.09.2011 declaring current year profit of Rs. 21,05,09,768/- which was further set off against brought forward losses. This return was processed under Section 143(1) of the Income Tax Act, 1961 (in short the Act). The case was reopened under Section 147 by recording reasons that after the issue of GDR during the F.Y. 2010-11, the amount raised was not repatriated to India resulting exchange rate gain which escaped assessment. The reassessment proceedings were completed on 12.10.2017. Subsequent to that information was received from the DDIT (Inv) Unit 7(1) Delhi vide letter F.No. DDIT(INV.)/U-7(1)/2017-18/539 dated 26.03.2018 that the assessee has undertaken transactions with some proprietary concerns which on investigation were found to be paper concerns. The said concerns were operated by some entry operators used to provide bogus bills of purchase (cotton purchases) to the beneficiary companies/entities who in turn purchase the raw material in cash from other persons. The modus operandi involved in these cases is that these proprietary concerns receive payments from the beneficiary companies through various modes like RTGS/ CHEQUES/BANK TRASNFERS/ and the amount is immediately withdrawn as cash and returned to the beneficiaries after charging certain commission from the beneficiaries. Therefore, after analyzing the information with the records of the assessee proceeding u/s 147 of the I.T. Act in this case was initiated and notice u/s 148 of the I.T. Act was issued on 31.03.2018 after recording reasons as per relevant provisions of the Income Tax Act. Vide letter dated 20.04.2018, the assessee informed that it had filed its retum in response to notice u/s 148. The assessee did not asked for providing the copy of reasons recorded for initiating proceedings u/s 147. Subsequent to that notice(s) u/s 142(1)/show cause notice(s) were issued to the assessee. However, on 17.12.2018, the assessee through its AR filed a letter dated 15.12.2018 and asked for the copy of reasons recorded. The reasons were provided to him on 17.12.2018 itself. Thereafter, the assessee vide letter dated 19.12.2018 filed its objections to the initiation of proceedings u/s 147. I have gone through the submission of the assessee. The objections raised by the assessee to the reopening of the assessment are disposed off in the following paras: The first objection is about the extension of the scope of proceedings to the issue relating to the GDR receipts for which no reasons were recorded and which have been subject matter of extensive inquiry u/s 147 and 143(3) for A. Ys. 2011-12 to 2014-15. In this regard, it is pertinent to mention here the provisions of Section 147 which reads as under:

If the assessing office has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assessee or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the A.Y. concerned". A bare perusal of the above provisions the AO has power to extend his enquiry beyond reasons recorded on the issue which came to his knowledge during the course of pending proceedings. During the course of pending proceedings it came to the notice of the undersigned that during assessment proceedings for the A.Y. 2013-14 enquiries about receipts of GDRs during A.Y. 2011-12 was initiated through Foreign Tax Division of the department resulting some information received in respect of 03 entries from whom assessee claimed to have receipts of GDR. The information so received prima facie disapproves the genuineness of the claim of money through GDR by the assessee. Therefore, since the proceedings for the A.Y. 2011-12 were pending and information so received are related to A.Y. 2011-12 has been taken into consideration for further inquiry. It is pertinent to mention here that information so received have already been confronted to the assessee vide order sheet entry dated 19.12.2018. In view of the above action of AO to extend inquiry beyond reasons are in accordance with law. The assessee stated that when the order dated 12.10.2017 for the A.Y. 2011-12 was passed the information based on which inquiries about the genuineness of the receipt of GDR started were already received. In this regard, it is pertinent to mention here that on 12.10.2017 only details from Singapore Authority was received. Information from UK was received in the month of April, 2018. Therefore, it is incorrect to say that all information was available on records when order dated 12.10.2017 for the A.Y. 2011-12 was passed. The assessee also claimed that issue of GDR was examined during A.Y. 2012-13 to 2014-15 for which detailed reply given. In this regard, it is pertinent to mention here that since the amount claimed received from issue of GDR credited in assessee's books during the A.Y. 2011-12, therefore, action u/s 68, can be initiated in the year of such credit. Moreover, it is also being mentioned here that in the A.Y. 2013-14, the then AO specifically given office note about the reference to Foreign Authorities and about remedial action to be taken on the basis of information received till that date from Singapore Authority. The assessee also claimed that proceedings u/s 147 on the issue of GDR has already been completed on 12.10.2017 by not making any adverse view. In this regard, it is pertinent to mention here that the proceedings which was completed on 12.10.2017 was related to exchange rate gain arisen due to delay repatriated the funds into India. In that proceeding, the issue of identity, genuineness and creditworthiness of alleged investors was not there. Therefore, contention raised by the assessee that issue of GDR receipts has been considered in the proceedings completed by 12.10.2017 is incorrect and denied. In view of the above all the objections raised by the assessee are disposed off.

13. It was submitted that rebuttal to the order disposing off the objections dated 24.12.2018 was thereafter filed by the assessee and the contents thereof read as under :

“Rebuttal to the order disposing off the objections dated 19th December, 2018: As per your order disposing assessee’s objections vide letter no ITBA/AST/F/17/2018- 19/1014424606(1) dtd 19/12/18: a) You have stated that “In this regard it is pertinent to mention here that on 12/10/2017 only details from Singapore authority was received. Information from UK was received in the month of April 2018. Therefore it is incorrect to say that all information was available on records when order dt. 12.10.2017 for AY 2011-12 was passed”. The letters shown to the A.R. regarding the information received from the U.K. Authority was dated 30th June, 2016 and 19th July 2016 which was received by AO vide covering letters dtd. 27th July 2016 and April 2018. Thus the letter dtd 30th June, 2016 which was shown to the Authorised Representative of the Assessee on 19th December, 2018 clearly indicates that the information sent by the U.K. Authorities was part of the Assessment record when the re-assessment proceedings for the Assessment year 2011-12 on the issue regarding the receipt of GDR were considered and concluded on 12th October, 2017. The information from the U.K. Authority which was received in April, 2018 is just reiteration of the material already on record prior to conclusion of first reassessment proceedings for AY 2011-12 on the GDR issue in October, 2017. Therefore your assertion that information was received from the U.K. Authorities in the month of April, 2018 appears contrary to the material on record. b) Further you have also stated that “Moreover it is also being mentioned here that in the AY 2013-14, the then AO specifically given office note about the reference to foreign authorities and about remedial action to be taken on the basis of information received till that date from Singapore authority” and also stated that “In this regard, it is pertinent to mention here that on 12.10.2017 only details from Singapore Authority was received “.. Hence it is clear that the information from Singapore Authority vide their letter dtd. 19.05.16 which was received by AO vide covering letter dtd. 03.06.2016 was available at time of re-assessment proceeding for AY 2011-12 initiated on 26th March 17 and concluded on 12th October, 2017. Based on these above facts, it is clear that the information both from Singapore authority and UK authority was already available before the initiation of re- assessment proceedings for AY 2011-12 on 26th March 17 which was concluded on 12th October 17. Also it is relevant to point out that the issue relating to GDR receipts is not part of the reasons recorded for reassessment proceeding against which notice u/s 148 issued on 31st March, 2018. However you have sought to justify the same by referring to the provisions of Section 147 which empowers the Assessing officer to inquire into the matters which comes to his notice subsequently. But the said provision is not relevant in the facts of the present case since the issue of GDR receipts was already subject matter of reassessment proceedings initiated for the AY 2011-12 vide reasons recorded and notice issued on 26th March, 2017 culminating in an assessment order on 12th October, 2017, copy of reasons recorded enclosed as Annexure A (page nos. 1 to 2) and assessment order dtd. 12th October, 2017 enclosed as Annexure B (page nos. 1 to 2). The present proceedings again initiated by the Assessing Officer refer to this as the same is clear from para 1 of reasons recorded which reads as “The case was reopened u/s 148 on the issue of GDR receipts. The assessment proceedings were completed on 12.10.2017”. The present notices issued on 7th December, 2018 and show cause notice dtd 19th December, 2018 are beyond the reasons recorded and are based on no new material but are seeking to review the orders passed on the said issue on 12th October, 2017. The said proceedings are thus barred in terms of the judgment of the Gujarat High Court in the case of Kunal Organics Vs. DCIT 362 ITR 530, enclosed as Annexure C (page nos. 1 to 5). Further, for assessment year 2012-13, the issue regarding GDR receipts was subject matter of proceeding U/s. 147 on 26th March, 2017 and final orders were also passed on 12th October, 2017 for A.Y. 2012-13. It is also relevant to point out that the issue regarding GDR was subject matter of proceeding for A.Y. 2013-14 and 2014-15 in which detailed queries were raised to the Assessee on the GDR issue and the company has appropriately replied with relevant information and documents on the GDR issue and final assessment orders were passed on 29th February, 2016 and 31st October, 2016 respectively. Similar information is now being sought again. The fact, i.e. information from Singapore and UK Authority, is the same information which was available on record at the time of earlier assessments is now being used to review the orders passed by the earlier Assessing Authorities. The issue of GDR was examined and all facets of the same were subject to application of mind by the previous Assessing Officer.

Since no new material has come to the possession of the Assessing Officer during present proceedings regarding the issue relating to GDR receipts, thus, the extension of inquiry beyond the reasons recorded on the basis of existing information which was already part of the Assessment record and is deemed to have been considered by your predecessors amounts to review and change of opinion which is impermissible in law. This is clearly contrary to the ratio of the Apex Court in CIT v Kelvinator of India Ltd. reiterated in Techspan India P ltd. v ITO enclosed as Annexure D (page nos. 1 to 5). That the objections to the extension of the scope of inquiry when the material has been discussed in the reassessment for the A.Y. 2011-12, 2012-13 and 2013-14 have been brushed aside by stating that the amount claimed from the issue of GDR was credited in the Assessee’s books for the Assessment Year 2011-12 and the Assessing Officer had specific information from Foreign Authorities and had recommended remedial action in the office note while passing the assessment order for the Assessment year 2013-14 shows that all information presently being used to expand scope of inquiry to present issues of GDR was there on file. prior to initiation of first reassessment proceedings by the present Assessment Year 2011- 12 on the GDR issue the relevant material being part of the record thus the Assessing Officer is deemed to have applied his mind thereto prior to conclusion of reassessment proceedings in October, 2017. Further as per your notice no. ITBA/AST/F/142(1)/2018-19/1014102487(1)dtd. 07/12/2018 it is informed that M/s Scholari Investment ltd., Albarma Ltd. of Singapore and M/s Cruise Waterford, UK are not traceable at the addresses of the same provided by the assessee during assessment proceedings for AY 2013- 14. Since the matter was examined thread bare by the Assessing Officer during the previous assessment proceedings for AY 2011-12 and all information regarding the same was furnished, the present inquiry vide notices dated 7th December 2018 and show cause dtd 19th December, 2018 is beyond the reasons recorded and clearly based on change of opinion and without any new material coming to the knowledge of the Assessment Officer and the rebuttal of objections vide order dated 19th December, 2018 is contrary to law and facts. The present proceedings thus constitute a review of the order passed by the preceding Assessing Officer on the basis of material already existing when the final order was passed on 12th October, 2017.”

14. In light of above factual position, the Ld. AR submitted that the AO acted mechanically on the information supplied by the Investigation Wing without carrying out any verification and due application of mind and thus the reasons were recorded based on borrowed satisfaction without any independent application of mind by the AO and it was submitted that the Courts have held from time to time that where the reopening has been done by Assessing officer basis information supplied by the Investigation Wing without carrying out necessary examination and independent application of mind, the reopening was held to be bad in law and in this regard, reliance was placed on the following decisions:

 PCIT v. Shodiman Investments Pvt. Ltd. (2020) 422 ITR 337 (Bom.)(HC)  PCIT v. SNG Developers Ltd. [2018] 404 ITR 312 (Delhi)(HC)  PCIT v. Meenakshi Overseas Pvt. Ltd. (2017) 395 ITR 677 (Delhi) (HC)  PCIT vs RMG Polyvinyl Ltd ITA 29/2017 & CM 1009/2017 DATED 07/07/2017  PCIT v. G & G Pharma India Ltd. [2017] 384 ITR 147 (Delhi)(HC)  CIT v. Multiplex Trading & Industrial Co. Ltd. (2016) 378 ITR 351 (Delhi) (HC)  SABH Infrastructure vs ACIT WP(C) No. 1357/2016 DATED 25/09/2017  CIT v. Insecticides (India) Ltd. (2013) 357 ITR 300 (Delhi)(HC)  CIT v. Fair Invest Ltd. (2013) 357 ITR 146 (Delhi)(HC)  CIT v. Kamdhenu Steel & Alloys Ltd. (2014) 361 ITR 220 (Delhi)(HC)  Sarthak Securities Co. (P.) Ltd. v. ITO (2010) 329 ITR 110 (Delhi)(HC)  CIT v. Indo Arab Air Services (2016) 130 DTR78/ 283 CTR 92 (Delhi)(HC)  Sesa Sterlite Ltd. v. ACIT (2019) 417 ITR 334 / 267 Taxman275 (Bom.)(HC)  Nu Power Renewables (P.) Ltd. v. ACIT (2019) 264 Taxman 27 (Mag.)(Bom.)(HC)

15. It was further submitted that in this case, the notice has been issued after the expiry of four years from the end of the relevant assessment year and in terms of the requirement of Section 147 of the Act, the power to reopen the case can be invoked only where there is a failure on the part of the assessee to disclosed truly and fully all material facts. It was submitted that there is no assertion by the AO in the reasons so recorded as to what material fact have not been disclosed by the assessee. It was submitted that all the necessary facts relating to the purchases have been duly recorded in the financial statement and the AO himself has mentioned that the assessee has placed on record copy of the audited P&L Account, Balance Sheet alongwith return of income where various information and material have been duly disclosed by the assessee. It was submitted that as per the decision of Hon’ble Bombay High Court in case of Hindustan Unilever Limited as so relied upon by the Ld CIT(A), it has been clearly provided that it is for the AO to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year and in the event of challenge to the reasons, the AO must be able to justify the same based on material available on the record and he must disclosed in the reasons as to which facts or material was not disclosed by the assessee fully and truly necessary for the assessment of that year so as to establish the vital link between the reasons and the evidence which is vital for reopening of the concluded assessment. It was submitted that there is nothing in the reasons so recorded by the AO as to what material fact has not been disclosed by the assessee and even in the order disposing off the objections, nothing has been stated by the AO as to which material facts or information has not been truly and fully disclosed by the assessee.

16. It was further submitted that the AO has merely referred to the information received from DDIT in the letter dt. 26/03/2018. However as to the contents of the said information / the report so received from the DDIT (Investigation), nothing has been stated in the reasons so recorded. It was submitted that the information has been received on 26/03/2018 and the reasons have thereafter been recorded and notice under section 148 has been issued on 31/03/2018 and in between, there is no further examination/verification of the alleged information so received from the DDIT (Investigation). It was submitted that same is evident from the reasons itself wherein the AO has time and again referred to the information received from DDIT(Investigation) without specifying as to what further analysis and verification he has carried out on receipt of the information from DDIT(Investigation). It was submitted that in the reasons so recorded, the AO has stated that the assessee has made purchases from M/s Rohit Trading Company amounting to Rs. 2,29,15,034/- and whereas on perusal of the reassessment order, he has himself taken figure of 3,44,37,684/- of purchases made from M/s Rohit Trading Company. It was accordingly submitted that the AO did not even look at the audited P&L Account wherein the purchases from M/s Rohit Trading Company has been duly disclosed in addition to purchase from M/s Vijay Trading Company. 17. It was further submitted that the issue of GDR receipt on which the reassessment proceedings were subsequently expanded though not part of the reasons initially recorded was already examined by the AO during the first round of reassessment proceedings and therefore this constitutes a mere change of opinion and even on this account, the reassessment proceedings deserve to be set-aside. 18. In light of aforesaid submissions, it was submitted that the reopening in the present case is clearly in breach of the settled position in law as the AO has merely acted on borrowed information without carrying out any independent application of mind and there has been no fault on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. 19. Per contra, the Ld. DR fairly submitted that the similar contentions challenging the reopening of the assessment were taken by the assessee before the Ld. CIT(A) as evident from para 6.6 of the impugned order. At the same time, it was submitted that the same have been duly disposed off by the Ld. CIT(A) and the contentions so raised have rightly been dismissed by the Ld. CIT(A). 20. In this regard, our reference was drawn to the findings of the Ld. CIT(A) wherein he has stated that it is trite law that initiation of reassessment proceedings based on change of opinion is not permissible under law. The case laws relied upon by the assessee squarely covers this issue. But on careful perusal of the facts and record, he is of the opinion that this is not a case of change of opinion. It is undisputed that the Return of Income was initially processed u/s 143(1) of the Act, and no assessment u/s 143(3) was carried out. Later on, re- assessment was completed u/s 147 read with section 143(3) vide assessment order dated 12.10.2017 in which the sole issue that was examined was the foreign exchange gains accrued to the assessee on repatriation of GDR receipts. There was no examination, even remotely, carried out in respect of any purchases made from M/s Rohit Trading during the first round of reassessment proceedings.

21. It was submitted that the Ld. CIT(A) further stated that as per the reasons recorded by the AO in respect of the second round of reassessment proceedings, the reopening has been done on the basis of information received by the AO in respect of bogus purchases of Rs. 2,29,15,034/- made by the assessee from M/s Rohit Trading. Reliance was placed on the decision of the Hon’ble Bombay High Court in case of Hindustan Lever Limited vs. ACIT 268 ITR 332 and it was submitted that from the said decision, it is clear that if no addition and deletion can be made by the AO to the reasons recorded, the assessee is also not at liberty to read anything into the reasons which is not recorded. It is not in dispute that the issue of GDR receipts did not find mention in the reasons recorded by the AO. As such, whether or not the same had been examined earlier is irrelevant for the purpose of examining the validity of reopening of assessment and our reference was drawn to the reasons so recorded and the contents thereof read as under:

“1. BRIEF DETAILS OF THE ASSESSEE: The assessee Winsome Textile industries Limited is in the business of manufacturing and sale of yarn. During the year under consideration the assessee company had filed return of income on 28.09.2011 declaring current year profit of Rs. 21,05,09,768 which was further set off against brought forward losses. The original assessment of the assessee was completed under Section 143(1). The case was reopened under Section 148 on the issue of GDR receipts. The reassessment proceedings were completed on 12.10.2017.

It is true that the assessee has filed a copy of annual report and audited P&L A/c and balance sheet along with return of income where various information/ material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that even though the assessee has produced books of accounts, annual report, audited P&L A/c and balance sheet or other evidence as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the Act. It is evident from the above discussion that in this case, the issues under consideration were never examined by the AO during the course of reassessment. This fact is corroborated from the contents of notices issued by the AO u/s 143(2)/142(1) and order sheet entries recorded during the 147 proceedings where the only issues that was examined was the taxability on return of GDR receipts issued during the year It is important to highlight here that material facts relevant for the assessment on the issue(s) under consideration were not filed during the course of assessment proceeding and the same may be embedded in annual report, audited P&L. A /c. balance sheet and books of account in such a manner that it would require due diligence by the AO to extract these information. For aforestated reasons, it is not a case of change of opinion by the AO. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 has been obtained separately from Principal Commissioner of Income Tax as per the provisions of section 151 of the Act."

22. It was submitted that the issue of bogus purchases from M/s Rohit Traders was never in the knowledge of the AO in earlier round of assessment. It was a new information which came into his possession from the Investigation Wing, on the basis of which, he formed a genuine and reasonable belief that income had escaped assessment. In these circumstances, the argument of the assessee on 'mere change of opinion and various case laws cited by it are not relevant to the present case.

23. It was submitted that in the present case, there was additional material available with the AO relying on which he went on to form a prima-facie view that income had escaped assessment. The assessee has contended that since it had submitted books of account, which were not rejected by the AO, any escapement cannot be attributed to failure on its part. However, it is noted that the assessee's case is squarely covered by Explanation 1 of section 147 which provides that “Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.”

24. It was submitted that there have been a number of judicial pronouncements explaining the ambit and scope of Explanation 1 to section 147 and reliance was placed on the decision of the Hon’ble Supreme Court in case of Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 wherein it was held that a mere production of the books of account, it could not be inferred that there had been full disclosure of the material facts necessary for the purposes of assessment. The terms of the Explanation, declared the Court, were too plain to permit an argument that the duty of the assessee to disclose fully and truly all material facts would stand discharged when he produces the books of account or evidence which has a material bearing on the assessment. It was submitted that to the same effect is the decision of the Hon’ble Supreme Court in Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466. 25. It was submitted that the law postulates a duty on every assessee to disclose fully and truly all material facts for its assessment. The disclosure must be full and true. Material facts are those facts which if taken into account, they would have an adverse effect on assessee by the higher assessment of income than the one actually made. They should be proximate and not have any remote bearing on the assessment. Omission to disclose may be deliberate or inadvertent. This is not relevant, provided there is omission or failure on the part of assessee. The latter confers jurisdiction to reopen assessment. In the present case, the AO was in possession of reliable information regarding bogus purchases claimed by the assessee- an information which the assessee had failed to disclose. In view of the explanation 1 supra, the AO was fully empowered to initiate reassessment proceedings after following due process which he actually did. 26. It was submitted that this issue was also examined by Hon'ble Delhi High Court in the case of Honda Siel Power Products Limited 197 Taxmann 415, wherein it was held that “It is clear from the aforesaid paragraph the petitioner has accepted that "material particular" referred to in the first proviso not only refers to details in the Return but also explanations and details furnished during the course of assessment. The petitioner had not stated anything or given factual matrix to justify and state that the material facts had been fully and truly disclosed in the assessment proceedings and there was no omission or failure on the part of the petitioner. Explanation to section 147 stipulates that mere production of books of accounts or other evidence is not sufficient. (Refer paragraph 11 above wherein judgment in the Consolidated Photo and Finvest Ltd. (supra) has been quoted). Whether the Assessing Officer could have found the truth but he did not, does not preclude the Assessing Officer from exercising the power of re- assessment to bring to tax the escaped income." 27. It was submitted that it is established law that post 1989 amendment in section 147, as per Explanation 3 to Section 147, for the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection 2 of Section 148. Further, the AO has duly made addition on account of bogus purchases which was the reason for reopening of the present proceedings. In the light of the legal precedence and facts of the present case, it was submitted that the reopening of the assessment on the issue of bogus purchases was validly done by the AO. Once, the assessment is validly reopened, the AO, in terms of Explanation 3 to section 147 is entitled to examine any issue which might come to his notice subsequently. As such, the argument of the assessee that the issue related to GDR having been already examined would render the reopening invalid is without any basis, and is liable to be rejected. 28. It was submitted that the contention of the ld AR that the AO simply relied on the information provided by the Investigation Wing, and the reopening has been done on borrowed information cannot be accepted. In this regard, reference was drawn to the decision of Hon'ble Supreme court, in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. 291 ITR 500 and it was submitted that as pointed out by the Hon'ble Supreme Court, it is sufficient if the AO, for whatever reasons, has reasons to believe that an income has escaped assessment for him to initiate the reopening of assessment. In the present case, he was in possession of tangible material in the form of a report from Investigation Wing. As per the report, extensive enquiries had revealed that M/s Rohit Traders was no supplier of goods, and was in fact provider of accommodation entries. The assessee had claimed purchases from the said accommodation entry provider. This constitutes a live, tangible material, having a proximate link to the case enabling the AO to form a reasonable belief of escapement of income. It was submitted that in the case of Pushpak Bullion (P.) Ltd. vs DCIT [2017] 85 taxmann.com 84 (Gujarat), Hon'ble Gujarat High Court upheld the initiation of reassessment proceedings based on a report from the Investigation Wing of the Department. It was submitted that the facts of the present case are similar to the above. As such, no credence can be given to the contention of the ld AR that the reason to believe recorded by the AO was a borrowed one. In fact, a perusal of the reasons recorded for reopening reveal that the AO has recorded detailed reasons, addressing all aspects of the case, and also the issues related to 'mere change of opinion' and earlier reopening of assessment. Under the circumstances, by no stretch of imagination, this can be held to be a case of mechanical recording of a borrowed belief. He accordingly relied on the findings of the Ld. CIT(A) and it was submitted that there is no merit in the various contentions so raised by the Ld. AR and therefore the same deserves to be dismissed.

“16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC).

17. The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.

18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.”

34. In case of Pr. CIT-6 Vs. Meenakshi Overseas (P) Ltd. (Supra), the Hon’ble Delhi High Court has held as under:

“19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material.

20. Coming to the second part, this tells us what the AO did with the information so received. He says: "The information so received has been gone through." One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver)". The AO adds that the said accommodation was "a known entry operator" the source being "the report of the Investigation Wing".

21. The third and last part contains the conclusion drawn by the AO that in view of these facts, "the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... "

22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying "unaccounted cash" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom.

23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing.

37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law.”

6. The second glaring error in the reasons was that the total of the accommodation entries was set out as Rs.1.56 crore. In the same assessment order dated 30th December 2011 in para 2.3 it is stated as under: "2.3 It is pertinent to mention here that in the reasons recorded there was some clerical error as certain single transactions were appearing in multiple and this resulted in working of the escaped income to the extent of Rs.1,56,00,000/-. However, the same has now been considered and stands corrected for the purposes of completion of proceedings."

8. Mr. Ruchir Bhatia, learned Senior Standing Counsel for the Revenue, relied on the decisions in Income-Tax Officer v. Selected Dalurband Coal Co. Pvt. Ltd. (1996) 217 ITR 597 and ITO v. Purushottam Das Bangur (1997) 224 ITR 362 to urge that at the stage of reopening of the assessment, the AO is not expected to undertake any detailed inquiry; it was sufficient if on the basis of the information received he was prima facie satisfied that a case was made out for reopening the assessment as income had escaped assessment.

9. However, in neither of the above cases are the facts similar to those in the present case. The two glaring errors in the reasons in the present case are, in fact, unusual. What the AO might have done if he was aware, even at the stage of consideration of reopening of the assessment that a return had in fact been filed by the Assessee and that the extent of the accommodation entries was to the tune of Rs.78 lakh and not Rs.1.56 crore would be a matter of pure speculation at this stage. He may or may not have come to the same conclusion. But that is not the point. The question is of application of mind by the AO to the material available with him before deciding to reopen the assessment under Section 147 of the Act.

10. In this context the following observations of this Court in CIT v. Suren International (2013) 357 ITR 24 (Del)are relevant: "....In the first instance, we do not find the reasons as recorded by the Assessing Officer to be reasons in law, at all. A bare perusal of the table of alleged accommodation entries included in the reasons as recorded, discloses that the same entries have been repeated six times. This is clearly indicative of the callous manner in which the reasons for initiating reassessment proceedings are recorded and we are unable to countenance that any belief based on such statements can ever be arrived at. The reasons have been recorded without any application of mind and thus no belief that income has escaped assessment can be stated to have been formed based on such reasons as recorded."

11. There can be no manner of doubt that in the instant there was a failure of application of mind by the AO to the facts. In fact he proceeded on two wrong premises - one regarding alleged non-filing of the return and the other regarding the extent of the so-called accommodation entries.

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."

13. 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.

14. To compound matters further the in the assessment order the AO has, instead of adding a sum of Rs.78 lakh, even going by the reasons for reopening of the assessment, added a sum of Rs.1.13 crore. On what basis such an addition was made has not been explained.

15. For the aforementioned reasons, the Court is satisfied that no error was committed by the ITAT in holding that reopening of the assessment under Section 147 of the Act was bad in law.

16. No substantial question of law arises from the impugned order of the ITAT.”

“15. On scanning of the anatomy of the aforesaid provision, it is clear as crystal that the formation of belief is a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer is required to form an opinion before he proceeds to issue a notice. The validity of reasons, which are supposed to sustain the formation of an opinion, is challengeable. The reasons to believe are required to be recorded by the Assessing Officer.

16. In this regard, it is apt to reproduce a passage from N.D. Bhatt, IAC v. I.B.M. World Trade Corpn. [1995] 216 ITR 811 (Bom.) :— "It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reason so recorded can be looked at for sustaining or setting aside a notice issued under section 148. In the case of Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714, a Division Bench of the Calcutta High Court has held that where a notice issued under section 148 of the Income-tax Act, 1961, after obtaining the sanction of the Commissioner of Income-tax is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the Commissioner of Income-tax has been obtained. The Income-tax Department cannot rely on any other material apart from the report."

10. From the above, it is clear that the Assessing Officer referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under section 148. We are afraid that these cannot be the reasons for proceeding under section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on facts. The law is well-settled. There is no substantial question of law which arises for our consideration." [Emphasis supplied] 20. On a perusal of the aforesaid decisions, it is graphically clear that once the ingredients of section 147 are fulfilled, the Assessing Officer is competent in law to initiate the proceedings under section 147. To put it differently, the conditions precedent as engrafted in the said provision are to be satisfied.

21. At this juncture, it is profitable to refer to the authority in GNK Driveshafts (India) Ltd. v. ITO [2002] 125 Taxman 963 (SC) wherein their Lordships of the Apex Court have held thus :— "5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years."

22. In Lovely Exports (P.) Ltd.'s case (supra), the Apex Court held thus :— "2. Can the amount of share money be regarded as undisclosed income under section 68 of Income-tax Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment."

23. The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the Assessing Officer was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the Assessing Officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income, but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P.) Ltd.'s case (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee- company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted.

24. Resultantly, the initiation of proceedings under section 147 and issuance of notice under section 148 of the Act are hereby quashed. In the facts and circumstances of the case, there shall be no order as to costs.”

13. In fact, the Petitioner, after initially submitting the details of the companies and the shares subscribed to, further provided confirmations from the said companies. The Petitioner also submitted copies of the balance sheets of the said companies for the relevant AYs showing that these amounts were duly reflected therein. The said companies were also assessed to tax. Thus, it appears that the AO was satisfied with the details and information provided by the Petitioner.

14. A perusal of the order disposing of the objections reveals that it proceeds on the basis that the information sought for by the Petitioner which formed the basis for the reasons to believe, including the evidence collected, was required to be provided only in the further assessment proceedings. The said order overlooks the fact that the reasons for reopening do not mention as to what fact or information was not disclosed by the Petitioner. This is very vital and in fact goes to the root of the matter. An allegation that the companies are `paper companies' without further facts is by itself insufficient to reopen assessments that stand closed after passing of orders under Section 143 (3) of the Act.

15. The assessment proceedings, especially those under Section 143 (3) of the Act, have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis. It is well settled that a mere conjecture or surmise is not sufficient. There have to be reasons to believe and not merely reasons to suspect that income has escaped assessment. In this case, the reasons failed to mention what facts or information was withheld by the Petitioner. Merely relying upon the statement of Mr. Navneet Kumar Singhania that the companies in question were 'paper companies', by itself, is insufficient to reopen the assessment, unless the AO had further information that these companies were non-existent after making further inquiries into the matter. It is clear that the AO did not make any inquiry or investigation, if these companies were in fact 'paper companies'. No effort has been made to establish the connection between the statement of Mr. Navneet Kumar Singhania and the five companies.

16. Mr. Chaudhary's submission that this Court cannot dictate the manner and content of what is to be written in the reasons to believe is correct as a legal proposition. However, the Court has to examine the reasons to believe to see if it satisfies the rigour of the provisions. The observations of this court in Multiplex (supra) are relevant in this respect and are set out below: "24. In our view, the question whether the Assessee could have been stated to disclosed fully and truly all material facts have to be examined in the light of facts of each case and also the reasons that led the AO to believe that income of an Assessee has escaped assessment. In a case where the primary facts have been truly disclosed and the issue is only with respect to the inference drawn, the AO would not have the jurisdiction to reopen assessment. But in cases where the primary facts as asserted by the Assessee for framing of assessment are subsequently discovered as false, the reopening of assessment may be justified"."

17. In the facts of this case, the primary facts have not been shown to be false. The five companies do exist. They did subscribe to the share capital of the Petitioner. They did pay the money to the Petitioner. All the five companies are assessed to tax. These are the primary facts. The reasons to believe rely upon a letter received from the Investigation Wing and Mr. Chaudhary submits that this letter was in fact an investigation report. The report does not form part of the reasons and neither was it annexed to the reasons. Interestingly, even the counter affidavit is silent as to the material which has not been disclosed by the Petitioner. The counter affidavit merely states that the information was specific and the information would be provided to the Petitioner during the assessment proceedings. Thus, if the Revenue had any basis to show that the primary facts were incorrect, the same ought to have been set out in the reasons to believe. That has not been done in the present case.

19. Before parting with the case, the Court would like to observe that on a routine basis, a large number of writ petitions are filed challenging the reopening of assessments by the Revenue under Sections 147 and 148 of the Act and despite numerous judgments on this issue, the same errors are repeated by the concerned Revenue authorities. In this background, the Court would like the Revenue to adhere to the following guidelines in matters of reopening of assessments: (i) while communicating the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the Superior Officer should itself be provided to the Assessee. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the Assessee is to be avoided; (ii) the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof;

(iii) where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons; (iv) the exercise of considering the Assessee's objections to the reopening of assessment is not a mechanical ritual. It is a quasi- judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed.”

“Reading of the proviso to section 147 makes it clear that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceeding under section 147, or recompute the loss or the depreciation allowance or any other allowance, as the case may be for the concerned assessment year. However, where an assessment under sub-section (3) of section 143 has been made for relevant assessment year, no action can 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 reasons of the failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year. [Emphasis supplied by us]. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. 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 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. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of the affidavit or oral submissions advanced.”

“21. The other main objection of the Assessee is that there was no belief on the part of the Assessing Officer that escapement of income had arisen by reason of any 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 or truly all material facts necessary for the assessment. It is not good enough for the Assessing Officer to simply make a bald assertion that escapement of income is as a result of failure on the part of the assessee to fully and truly disclose all material facts. He must indicate, however briefly, what is it that was not disclosed and which gives the Assessing Officer reason to believe that income has escaped assessment. The entire case of the revenue is founded on the so-called under-invoicing of exports. It is difficult to fathom what information or particulars was the Assessee expected to disclose in its assessment insofar as the export prices charged by it are concerned and which is now available to the Assessing Officer so as to enable him to form a belief that income has indeed escaped assessment.

22. When we come to the third reason alleged by the Assessing Officer for reopening the case, namely, illegality of the business and taxation of income derived from it as income from other sources, the department is on an even thinner ground. In the first place, when the income from the activity of mining and export of ore arose and also when it was assessed to tax, there was nothing to suggest that the activity was illegal. Six years later, when the Supreme Court decided the case of Goa Foundation, and declared that deemed mining leases had already expired and mining carried out thereafter was illegal, the question of illegality of the activity arose for the first time. But be that as it may, even if it is assumed that at all times the activity carried on by the Assessee, through which income was said to have accrued to it, was in violation of law, that does not alter the character of the activity. Income earned from the activity is still very much business income and any expenditure made for the activity is business expenditure. Section 37(1) of the Act refers to expenditure incurred by an Assessee "for any purpose which is an offence" or "which is prohibited by law". Such expenditure is not deemed to be incurred for the purpose of business and no deduction or allowance can be made in respect of such expenditure. This does not imply that the character of the very activity itself changes having regard to the legality or otherwise of the activity. It is submitted on behalf of the revenue at the Bar that the mining activity itself being an illegal activity, expenditure incurred by the Assessee for it is not deductible. There is no such ground alleged in the reopening notice or the reasons indicated in support of the notice. For the first time, a faint suggestion to this effect was made in the order passed by the Assessing Officer on the objections communicated by the Assessee. As our Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 (Bom.) has made it clear, the reasons, with a view to assess their reasonableness, are required to be read as they are recorded by the Assessing Officer; no substitution or deletion is permissible; no addition can be made to those reasons; and no inference can be allowed to be drawn based on these reasons which is not recorded. It is for the Assessing Officer to form an opinion as to whether there was escapement of income from assessment and whether such escapement occurred from failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year; and it is for him to put his opinion on record in black and white. The reasons recorded must disclose his mind and they should be self- explanatory. The reasons recorded cannot be supplemented by the time the matter reaches the Court by filing of any affidavit or making any oral submission. In the premises, it is not open to the revenue to seek to sustain the re-opening notice on a new reason, namely, disallowance of deduction of expenditure since the whole activity was illegal.”

“12. The re-opening of an Assessment is an exercise of extra-ordinary 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 re-opening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of re-opening 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. CIT [1967] 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. Lakhmani Merwal Das [1976] 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 re-opening 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 re-opening notice on the basis of intimation regarding re- opening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that re- opening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction.”

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

9. We do not see any reason to differ with the view expressed by the Tribunal. No substantial question of law arises for our consideration. The appeals are dismissed. There shall be no order as to costs.

“5. From the reasons recorded by the Assessing Officer for issuing the notice, it can be seen that from the information supplied by the investigation wing of the department at Mumbai, it was revealed that during the course of investigation carried out in case of Shri Chandrakant Prahladbhai Patel, it was found from his bank statement that he had indulged in providing accommodation entries and bogus bills without actual supply of any goods or services. Most of these cheques were issued from the current account maintained by him and issuance of these cheques preceded by substantial cash deposits in such account. The account was maintained in the name of M/s. Shiyon Enterprises in Union Bank of India, Zaveri Bazar branch. There was strong prima facie material suggesting that said Shri Chandrakant Patel was providing accommodation entries. It was found that the assessee company was also availing the accommodation entries from said Shri Chandrakant Patel. The petitioner assessee also maintained bank account in the same branch of Union Bank of India. The study of the bank account of the assessee showed that debit in name of M/s. Shiyon Enterprises between 20.12.2007 to 31.3.2008 came to a total of Rs.219.96 crores (rounded off). During the assessment year 2008-2009, the assessee company had debited purchases from M/s. Shiyon Enterprises in the books of account. Inter-alia on such grounds, the Assessing Officer formed a belief that the purchases made by the assessee from M/s. Shiyon Enterprises were bogus purchases and corresponding income had escaped assessment.

6. At the stage when we are examining the validity of a notice of reopening of the assessment, the Court would not go into sufficiency of reasons recorded by the Assessing Officer and if it is found that the Assessing Officer had tangible materials at his command to form a bona fide belief of income chargeable to tax had escaped assessment, there would be no interference with the Assessing Officer proceeding further with the reassessment. In case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC), the Supreme Court observed that the expression "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is reason to believe but not the established fact of escapement of income. At the stage of issuance of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income was not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. At this stage therefore, what we have on record and emerging from the reasons recorded is that there is strong prima facie material to suggest that the purchases shown to have been made by the assessee from M/s. Shiyon Enterprises were bogus. The investigation wing of the department had during the course of investigation in case of Shri Chandrakant Patel found materials suggesting that he had indulged in providing accommodation entries and bogus bills. This was further supplemented by the fact that in the current account of M/s. Shiyon Enterprises maintained at Jhaveri bazar branch of Union Bank of India, cheques issued were preceded by substantial cash deposits in the account. The assessee had also maintained bank account in the same branch of the same bank. The assessee had claimed sizeable purchases from such entity during the year under consideration.

7. In case of Yogendrakumar Gupta v. ITO [2014] 366 ITR 186/46 taxmann.com 56 (Guj.), Division Bench of this Court had carried out detailed examination of legal position in the background of somewhat similar facts and concluded as under : "The Assessing Officer required jurisdiction to reopen under section 147 read with section 148 of the Act, where the information must be specific and reliable. As held by the Apex Court in the case of Phul Chand Bajrang (supra), since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but is open to an assessee to establish that there exists no belief or that the belief is not at all a bona fide one or based on vague, irrelevant and non- specific information. To that limited extent, the Court may look at the view taken by the Income-tax Officer and can examine whether any material is available on record from which the requisite belief could be formed by the Assessing Officer and whether that material has any rational connection or a live link with the formation of the requisite belief. It is also immaterial that at the time of making original assessment, the Assessing Officer could have found by further inquiry or investigation as to whether the transactions were genuine or not. If on the basis of subsequent valid information, the Assessing Officer forms a reason to believe on satisfying twin conditions prescribed under section 147 of the Act that no full and true disclosure of facts was made by the assessee at the time of original assessment and, therefore, the income chargeable to tax had escaped assessment, his belief and the notice of reassessment based on such belief/ opinion needs no interference. In the present case, since both the necessary conditions have been duly fulfilled, sufficiency of the reasons is not to be gone into by this Court. The information furnished at the time of original assessment, when by subsequent information received from the DCIT, Kolkata, itself found to be controverted, the objection to the notice of reassessment under section 147 of the Act must fail. At the costs of ingemination, it needs to be mentioned that at the time of scrutiny assessment, a specific query was raised with regard to unsecured loans and advances received from the said company namely, Basant Marketing Pvt. Ltd. based at Kolkata. These being the transactions through the cheques and drafts, there would arise no question of the Assessing Officer not accepting such version of the assessee and not treating them as genuine loans and advances. Furnishing the details of names, addresses, PANs, etc. also would lose its relevance if subsequently furnished information, which has been made basis for issuance of notice impugned, concludes that Basant Marketing Pvt. Ltd. is merely a dummy company of one Shri Arun Dalmia, which provided the accommodation entries to various beneficiaries. This Court has examined the belief of the Assessing Officer to a limited extent to inquiry as to whether there was sufficient material available on record for the Assessing Officer to form a requisite belief whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director, CBI, Mumbai, intimated to the DIT (Investigation), Mumbai. A case is registered against Mr. Arun Dalmia, Harsh Dalmia and during the search at their residence and office premises, the substantial material indicated that 20 dummy companies of Mr. Arun Dalmia were engaged in money laundering and the income-tax evasion. The said entities included Basant Marketing Pvt. Ltd. also. From the analysis of details furnished and the beneficiaries reflected, which are spread across the country, the CIT, Koklata, suspected the accommodation entry related to the assessment year 2006-07 as well, this information has been provided to Director General of Income-tax, Kolkata, who in turn, communicated to the Chief Commissioner of Income-tax, Ahmedabad. Further revelation of investigation as could be noticed from the record examined (file) deserves no reflection in this petition. Insistence on the part of the petitioner to provide any further material forming the part of investigation carried out against Dalmias also needs to meet with negation, as the law requires supply of information on which Assessing Officer recorded her satisfaction, without necessitating supply of any specific documents. The proceedings initiated under section 147 of the Act would not be rendered void on non- supply of such document for which confidentiality is claimed at this stage, following the decision of the Delhi High Court in case of Acorus Unitech Wireless (P.) Ltd. (supra). Assumption of jurisdiction on the part of the Assessing Officer is since based on fresh information, specific and reliable and otherwise sustainable under the law, challenge to reassessment proceedings warrant no interference. Resultantly, the petition is dismissed. Notice is discharged. There shall be, however, no order as to costs."

“13. The entire thrust of the findings recorded by the Assessing Officer in his order dated 13-3-2003 is to justify his satisfaction about escapement of income. According to him, it was a clear case of escapement of income as defined in Explanation-2 to section 147 as the assessee had been allowed excessive relief under section 80-O of the Act. However, it is not necessary for us to go into the merits of this finding as the second requirement of the proviso has not been satisfied obviously. The reasons recorded by the Assessing Officer for initiation of proceedings under section 147 of the Act have already been reproduced above. A bare perusal of the same shows that the satisfaction recorded therein is merely about escapement of income. There is not even a whisper of an allegation that such escapement had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Absence of this finding, which is a "sine qua non" for assuming jurisdiction under section 147 of the Act in a case falling under the proviso thereto, makes the action taken by the Assessing Officer wholly without jurisdiction. As already observed, the learned counsel for the Revenue has conceded that neither in the reasons recorded nor in the order dated 13-3-2003, has the assessee been charged with failure to disclose fully and truly all material facts necessary for his assessment. In Fenner (India) Ltd. v. Dy. CIT [2000] 241 ITR 672, similar matter had come up for consideration before the Madras High Court and it has been held as under :— "The pre-condition for the exercise of the power under section 147 in cases where power is exercised within a period of four years from the end of the relevant assessment year is the belief reasonably entertained by the Assessing Officer that any income chargeable to tax has escaped assessment for that assessment year. However, when the power is invoked after the expiry of the period of four years from the end of the assessment year, a further pre-condition for such exercise is imposed by the proviso namely, that there has been a failure on the part of the assessee to make a return under section 139 or in response to a notice issued under section 142 or section 148 or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Unless, the condition in the proviso is satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceedings under section 147 of the Act after the expiry of four years from the end of the assessment year. Thus, in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. The relevant words in the proviso are, ‘. . . unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee. . . .’ Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment. Whenever a notice is issued by the Assessing Officer beyond a period of four years from the end of the relevant assessment year, such notice being issued without recording the reasons for his belief that income escaped assessment, it cannot be presumed in law that there is also a failure on the part of the assessee to file the returns referred to in the proviso or a failure to fully and truly disclose the material facts. The reasons referred to in the main paragraph of section 147 would, in cases where the proviso is attracted, include reasons referred to in the proviso and it is necessary for the Assessing Officer to record that any one or all the circumstances referred to in the proviso existed before the issue of notice under section 147." (p. 677) Similarly, in Arvind Mills Ltd. v. Dy. CIT [2000] 242 ITR 173 (Guj.), it was held as under:— "It is a clear case where the Assessing Officer has no reason to link escapement of income from assessment with non-disclosure of any material fact necessary for his assessment at the time of original assessment but is due to an erroneous decision on the question of law by the Assessing Officer. Thus, the case is squarely covered by the proviso to section 147 and not section 149. Initiation of proceedings under the proviso being clearly barred by time, the Assessing Officer could not have assumed jurisdiction by issuing notice under section 148 in respect of the assessment year 1982-83." (p. 176) In the case of Mercury Travels Ltd. (supra), the proceedings under section 147 were initiated for assessment years 1989-90, 1990-91 and 1991-92 vide issue of notices under section 148 in September, 1996, which was after the expiry of four years. The reassessment proceedings had been initiated almost on identical grounds as in the present case. In the reasons re-corded, it was mentioned that the deduction under section 80HHD was allowable on total profit of the business by multiplying by ratio of total receipt of convertible foreign exchange to total receipt of whole business carried on by the assessee. However, to calculate total receipt of the business, the assessee had taken gross receipt of foreign exchange plus net receipt of domestic business in respect of commission/service charges. Thus, it was claimed that the assessee had claimed excess deduction under section 80HHD the High Court observed that where expressly deduction under section 80HHD was claimed and it was examined and granted by the Assessing Authority, there could be no omission or failure on the part of the assessee to disclose any material fact necessary for the assessment. It has been further observed that in the reasons for reopening the assessment, it had not been alleged that there had been any omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment for those assessment years. It has been further observed that it was not even noted in the recorded reasons as to what other primary facts were required to be disclosed by the assessee. The notice under section 148 and the proceedings relating thereto were, accordingly, quashed.

14. In view of the above, we are of the considered view that the notice under section 148 dated 22-3-2002 (Annexure P-2) cannot be sustained.

“10. In the reasons recorded for initiation of proceedings under section 147, the Assessing Officer has tried to justify her opinion that deduction under section 80-IA was not admissible while computing the book profits under section 115JA. This could at best be her satisfaction about escapement of income. However, since it was a case where assessment had been made under section 143(3) of the Act and the proceedings were being initiated after the expiry of four years from the end of the assessment year under consideration, it was further necessary for her to record satisfaction that the escapement of income was by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. In para 3 of the reasons, only a general observation to this effect has been made without pointing out as to what facts had not been fully and truly disclosed. The only failure attributed to the assessee is that it had failed to file the profit and loss accounts of Winsome Spinners for assessment years 1995-96, 1996-97 and 1997-98 with the return. It has been further stated that without the profit and loss accounts of assessment years 1995-96 and 1996-97, the profits and gains eligible for deduction under section 80-IA(7) could not be properly determined. It is also stated that without the depreciation chart for assessment year 1996-97, the depreciation chart for assessment year under consideration cannot be verified.

11. It has been correctly pointed out by the learned counsel for the assessee that there was no obligation on the part of the assessee to furnish profit and loss accounts for assessment years 1995-96 and 1996-97 with the return for assessment year 1997-98. Counsel for the Revenue has also not been able to point out any provision of law or rule which required furnishing of profit and loss accounts of earlier years. In the absence of any obligation to file these documents, the assessee cannot be charged with any failure to disclose fully and truly material facts necessary for its assessment. As far as profit and loss account for assessment year 1997-98 is concerned, the Assessing Officer was wrong in observing that the same had not been attached with the return. The records of the department were produced by counsel for the Revenue on 27-5-2004 from where it was duly verified that the profit and loss account for assessment year had been duly filed with the return. Similarly, the depreciation chart for assessment year 1997-98 giving particulars required for computation of depreciation is also available on record.

13. We are, therefore, satisfied that there was no failure on the part of the assessee to disclose fully and truly and material facts necessary for its assessment for assessment year 1997-98. Accordingly, as held in Duli Chand Singhania’s case (supra), the initiation of proceedings under section 147 after the expiry of four years from the end of the assessment year is wholly without jurisdiction.”

“18. Viewed in this light, the proviso to section 147 of the said Act, carves out an exception from the main provisions of section 147. If a case were to fall within the proviso, whether or not it was covered under the main provisions of section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of section 147.

(i) 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. Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out 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. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts.

“10. Thus, the petitioner has accepted and admitted that he had not given details with regard to proportionate expenses relatable to tax free or exempt income, which were claimed as a deduction under the cumulative head "Expenditure". It is pleaded and stated that the petitioner was not required to disclose the said fact as when they had filed the return, section 14A was not in the statute book. Sequitor, there was no omission and failure on the part of the assessee-petitioner to make full and true disclosure. The term "failure" on the part of the assessee is not restricted only to the income-tax return and the columns of the income-tax return or the tax audit report. This is the first stage. The said expression "failure to fully and truly disclose material facts" also relate to the stage of the assessment proceedings, the second stage. There can be omission and failure on the part of the assessee to disclose fully and truly material facts during the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details it is required and under an obligation to disclose. Burden is on the assessee to make full and true disclosure.

“33. In the present case, the Assessee filed its objections by a letter dated 12th December, 2008 and requested the AO to drop the proceedings. The Assessee by its letter dated 18th December, 2008 sent in response to another notice, also provided its response in respect of the alleged accomodation entries, which were reported by the Investigation Wing. However, the objections filed by the Assessee were not disposed of by the AO and he proceeded to frame the assessment. This Court in Haryana Acrylic Mfg. Co. (P.) Ltd. (supra) had observed that the requirements regarding recording the reasons to believe; communicating the same to the Assessee; permitting the Assessee to file the objections; and passing a speaking order disposing of the objections are all designed to ensure that the AO does not reopen assessments, which have been finalized, on his mere whim and fancy and that he does so only on the basis of lawful reasons. It was further held that a deviation from the directions issued by the Supreme Court in G.K.N Driveshafts (India) Ltd. (supra) would entail nullifying the proceedings. Although the AO is required to provide reasons, receive objections and pass a speaking order thereon, only after the notice under Section 148 of the Act has been issued; these requirements are an integral part of the safeguards which have been inbuilt for ensuring that the assessments are reopened only for lawful reasons and in a transparent manner. If the said safeguards are flouted, it would invalidate the exercise of jurisdiction under Section 147 and 148 of the Act.

Order pronounced in the open Court on 27/02/2025. परेश म. जोशी िव"म िसंह यादव (PARESH M. JOSHI) ( VIKRAM SINGH YADAV) "ाियक सद" / JUDICIAL MEMBER लेखा सद"/ ACCOUNTANT MEMBER