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Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: SHRI GAGAN GOYAL & SHRI NARINDER KUMAR
This appeal by the assessee is directed against the order of NFAC, Delhi dated 22.07.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal:-
1. That on the facts and in the circumstances of the case and in law, the Ld. Assessing Officer grossly erred in initiating reassessment proceedings u/s. 148 of the Income Tax Act, 1961 against the assessee appellant.
2. That on the facts and in the circumstances of the case and in law, the Ld. Assessing Officer grossly erred in not providing the relevant material & evidence and statement recorded u/s. 132 of the Act of Shri Mukesh Banka during the course of search proceeding to the assessee appellant.
3. That on the facts and in the circumstances of the case and in law, the Ld. Lower Authorities have grossly erred in not providing the opportunity of cross-examination to the assessee appellant and have also grossly erred in ignoring the retraction filed by Shri Mukesh Banka before the Investigation Wing.
That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming addition of Rs. 1, 40, 00,000/- u/s. 68 of the Act on account of alleged accommodation entries received by the assessee appellant.
5. That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming addition of Rs. 1, 40, 000/- u/s. 69C of the Act on account of interest paid on the alleged accommodation entry by the assessee appellant.
6. That on the facts and in the circumstances of the case in law, the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming addition of Rs. 3, 50,000/- u/s. 69C of the Act on account of commission paid on the alleged accommodation by the assessee appellant. 7. the assessee appellant craves leave to add, alter, modifies or amends any ground on or before the date of hearing.”
The brief facts of the case are that the assessee company filed its original return of income on 13.09.2012 declaring total income at Rs. 4,91,360/-. The case of the assessee was assessed in scrutiny u/s. 143(3) of the Act vide order dated 03.02.2015. Information received from the DDIT (Inv.), Unit- 4(2), Kolkata vide letter no. DDIT (Inv.)/Unit-4(2)/Kol/Babylon/2018-19/7534 dated 27.2.2019. The mechanism was operated by well known entry operator Sh. Gopal Banka and Shri Manohar Lal Nangalia through the company M/s. Babylon Trading & Investment Pvt. Ltd., (PAN: AABCB2862R). The company is used for providing accommodation entries. The assessee has taken accommodation entry form these companies.
Further, the information was received from the DDIT (Inv), Unit-1(3), Kolkata vide letter no. DDI (Inv)/Unit-1(3)/Kol/ALVES/2018-19/9055 dated 28.2.2019. As per information the assessee has received Rs. 11, 00,000/- during F.Y. 2011-12 relevant to A.Y 2012-13 through transfer/RTGS. The mechanism was operated by the company M/s. Alves Securities Pvt. Ltd. (PAN: AAJCS66415). The company is used for providing accommodation entries. The assessee has taken accommodation entry form these companies. Further, information was also received from DDIT (Inv), Unit-1(3) vide letter no. DDIT (Inv)/Unit- 1(3)/Kol/Banka/Information/2018-19/8077 dated 26.2.2019. As per information, various paper/shell companies controlled and managed by Sh. Mukesh Banka were identified as engaged in providing accommodation entries in the nature of bogus unsecured loans or in other forms. Various beneficiaries have been identified who have obtained accommodation entry in the nature of bogus unsecured loan or in other forms from the paper/ shell companies of Bank group. M/s. Shri Salasar Balaji Developers Pvt. Ltd., is one of the beneficiary company who have taken accommodation entry from paper/shell companies the Banka Group. The assessee has received Rs. 1, 65, 00,440/- during F.Y. 2011-12 relevant to A.Y. 2012-13 through accommodation entry. It is clear that some persons /entities were indulged in providing accommodation entries in the form of bogus unsecured loans or in other forms in a planned manner, in lieu of some commission.
4. Based on this information above a notice u/s. 148 of the Act was issued vide dated 28.03.2019. After detailed deliberations on the issue between the assessee and the AO ultimately case of the assessee was assessed after making additions of Rs. 1,91,00,495/- u/s. 68 of the Act, Rs. 1,91,004/- as interest on the amount of unsecured loans and Rs. 4,82,287/- as commission @ 2.5% on unsecured loans and interest thereon. The assessee being aggrieved with this order of the AO preferred an appeal before the Ld. CIT(A) who in turned partly allowed the appeal of the assessee by reducing the amount of addition made u/s. 68 of the Act from Rs. 1,91,00,495/- to Rs. 1.4 Cr. Further relief was given on account of interest disallowance from Rs. 1, 91,004/- to Rs. 1.4 lacs and commission disallowance was also reduced from Rs. 4, 82,287/- to Rs. 3.5 Lacs. The assessee being not satisfied with the order of first appellate authority preferred the present appeal before us and there is no counter appeal by the department against the relief given by the Ld. CIT (A).
We have gone through the order of the AO, order of the Ld. CIT (A) and submissions of the assessee along with grounds taken before us. We have gone through the notice issued u/s. 148 of the Act, notice issued u/s. 142(1) of the Act along with annexure and copy of order disposing of the objections raised by the assessee and reproduced as under:-
5. In view of the above the amount proposed to be added back was (Rs. 25 Lacs + Rs. 11 Lacs + Rs. 1, 65, 00,440/-) Rs. 2, 01, 00,440/-, whereas the actual amount sustained was Rs. 1.4 Cr. Only, as emerged out of the order of the Ld. CIT (A) that this was the factual error committed by the AO, further the same is not under challenge by the revenue before us. In the similar facts the decision of the Hon’ble Bombay High Court in the case of Commissioner of Income-tax-5, Mumbai vs. Jet Airways (I) Ltd., held as under:
“The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation of a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147, has to serve a notice on the assessee requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to assess or to 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 proceedings under section 147. [Para 5] The effect of the Explanation 3 which was inserted by the Finance (No. 2) Act, 2009 is that, even though the notice issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, yet the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of the proceedings. The reasons for the insertion of the Explanation 3 are to be found in the memorandum explaining the provisions of the Finance (No. 2) Bill, 2009. [Para 6] The memorandum states that some of the Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment, and that it is not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by the Parliament as being contrary to the legislative intent. Hence, the Explanation 3 came to be inserted to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under section 147, though the reasons for such issue have not been included in the reasons recorded in the notice under section 148(2). [Para 8] The effect of section 147, as it now stands after the amendment of 2009, can, therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve a notice on the assessee under sub-section (1) of section 148; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section; and (iv) though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, yet he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. [Para 9] Interpreting the provision as it stands without adding or deducting from the words used by the Parliament, it is clear that upon formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words 'and also' cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by the Parliament otiose. The Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words 'and also' cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard these words as being conjunctive and cumulative. It is of some significance that the Parliament has not used the word 'or'. The Legislature did not rest content by merely using the word 'and'. The words 'and' as well as 'also' have been used together and in conjunction. Evidently, therefore, what the Parliament intends by use of the words 'and also' is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2), must assess or reassess: (i) 'such income'; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income' refers to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language used by the Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe, is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. The Parliament, when it enacted the provisions of section 147 with effect from 1-4-1989, clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter. [Para 11] The Explanation 3 to section 147 lifts the embargo inserted by judicial interpretation on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of the Explanation 3 by the Finance (No. 2) Act, 2009. However, the Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or to render the substance and core nugatory. Section 147 has the effect that the Assessing Officer has to assess or reassess the income ('such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepts the contention of the assessee and holds that the income for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income, and if he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. [Para 16] Section 147(1), as it stands, postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income 'and also' any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment . The words 'and also' are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by the Parliament. This view has been supported by the background which led to the insertion of the Explanation 3 to section 147. The Parliament must be regarded as being aware of the interpretation placed on the words 'and also', by the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343. The Parliament has not taken away the basis of that decision. While it is open to the Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1), as they stood after the amendment of 1-4-1989, continue to hold the field. [Para 17] The question of law would, accordingly, stand answered against the revenue and in favour of the assessee. The appeal was, accordingly, to be dismissed. [Para 18] Further the jurisdictional Hon’ble High Court of Rajasthan in the case of CIT v. Shri Ram Singh [2008] 306 ITR 343, held as under:
“8. On the other hand, learned counsel for the assessee submits, that the bare reading of the language of section 147, rather makes it clear, that of course the sine qua non for assumption of jurisdiction is, that the AO should have a reason to believe, that any income chargeable to tax, has escaped assessment, for any assessment year, and on such jurisdiction coming into existence, he is to proceed under that section, but then, he is to assess or reassess "such income", obviously the income, regarding which he has "reason to believe" to have escaped assessment, for any assessment year, and while so assessing, such "income" of course may make assessment with respect to other income, which also may have escaped, and which comes to his notice subsequently, in the course of the proceedings, but then, if while exercising powers under section 147, the AO comes to conclusion, that the income, with respect to which he has entertained "reason to believe" to have escaped assessment, did not escape, or that it was not liable to tax, then merely because he had initiated proceedings, would not confer on him the continued jurisdiction, to assess the other incomes, which have come to his notice subsequently, in the course of proceedings, to have escaped assessment. In the present case, since the "reason to believe" entertained by the AO was, with respect to the assessee having purchased a plot of land from undisclosed source of income, while it has been found, that the source of income was clearly established to be agricultural income, which were lying deposited with M/s. Brar & Sons, wherefrom it was withdrawn by cheque, and was invested, and the AO himself also found the investment to have been properly explained, that being the position, the jurisdiction commenced, came to an end, at that point itself, and did not confer any jurisdiction on the AO, to further continue with the assessment proceedings, simply because, he was of the opinion, that other escaped income had come to his notice, subsequently, in the course of the proceedings. In this regard, learned counsel has relied upon a judgment of Punjab & Haryana High Court, in CIT vs. Atlas Cycle Industries (1989) 180 ITR 319 (P&H), which in turn is based on the judgment of Hon'ble the Supreme Court, in Bankipur Club Ltd. vs. CIT 1972 CTR (SC) 245: (1971) 82 ITR 831 (SC) as well, apart from the fact, that it does consider various judgments also. Accordingly, it is contended by learned counsel for the assessee, that the impugned order doesn't require any interference.
We have considered the submissions, and have gone through the judgments cited at the Bar, so also the impugned judgment of the learned Tribunal. 10. a look at the judgment of the learned Tribunal shows, that it substantially proceeds on its earlier judgment, in the case of Maruti Guar Gum (P) Ltd., dated. 13th Aug., 2004. Since learned counsel for the Revenue pointed out, that appeal against that judgment has already been filed, and is pending before this Court, we requisitioned that file, and have gone through that order also, and find, that that order basically proceeds on the basis, that the reasons for reopening were consistently demanded by the assessee, but were not supplied, and then it has been found on merits, by holding, that otherwise also, the facts are, that the assessee had received rent in connection with leased godowns and factory premises, the claim of depreciation was made by the assessee in the returns of income, therefore, in the opinion of the Tribunal, no income chargeable to tax can be said to have escaped assessment. Then reference is made to judgment of Punjab & Haryana High Court, in Atlas Cycle Industries case by observing as under: "To find support we can quote the decision of Hon'ble Supreme Court in the case of 180/319 Supreme Court in which it was held."
11. However, it was pointed out by learned counsel for the assessee, that as a matter of fact it was in a bunch of appeals, led by Dr. Devendra Gupta vs. ITO, that the learned Tribunal, vide order dated. 8th Sept., 2005 [reported at (2005) 97 TTJ (Jd) 561-Ed.), had decided this controversy, by giving detailed reasons. It was pointed out, that against that judgment also appeals are pending before this Court, and therefore, we requisitioned that file also, and have gone through the order of the learned Tribunal, available in that case, in an attempt to find out, as to what were the reasons, working in the mind of the Tribunal, instead of standing to ceremonies, about the propriety of construction of sentences, or propriety of expression etc.
12. In Dr. Devendra Gupta's case, learned Tribunal has relied upon the judgment of the Punjab & Haryana High Court, in Atlas Cycle Industries case, and concluded, that the basic condition is, that the AO has reason to believe, that any income chargeable to tax has escaped assessment, for any assessment year, and it was found, that the section puts no bar on the powers of the AO, to put to tax, any other income, chargeable to tax, which has escaped assessment, and which subsequently comes to his notice, in the course of the proceedings, but then, the prefixing words "and also", which succeeded "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". This expression was found to be making clear, that existence of the income, for which the AO formed belief, to have escaped assessment, is a precondition, for including any other income chargeable to tax, escaping assessment, and coming to the notice of the AO subsequently, in the course of the proceedings. Thus, unless and until such income, as giving rise to form belief, for escaping assessment, continues to exist, and constitutes a subject- matter of assessment, under section 147 "no other income" coming to the notice of the AO, during the course of the proceedings, can be roped in.
13. Thus, though by undertaking a long drawn exercise, but then, we have been able to decipher the reasons, appear to have existed in the mind of the learned Tribunal, though succinctly expressed, on a subsequent occasion, in Dr. Devendra Gupta's case.
It is in the above situation, that the question as framed is required to be examined by us. Before proceeding further we may gainfully quote the relevant provisions of section 147, which read as under:
147. If the AO 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 proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)
With this, a look at the judgment cited by Mr. Bissa, being in Rajesh Jhaveri's case, and Jagan Nath Singhal's case, do show, that those judgments are slightly on different points, inasmuch as, in Rajesh Jhaveri's case, proceedings were initiated under section 147, by giving notice, which itself was under challenge, and Hon'ble the Supreme Court was examining the parameters of the expression "reason to believe", as used in section 147, and it was held as under: "The expression "reason to believe" in section 147 would mean cause or justification. If the AO 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 AO 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 issue 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 is 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 AO."
Likewise in Jagan Nath Singhal's case again, this very view was taken, that was also a case, where the initiation, of proceedings was challenged. It was also held, that the affidavit of the daughter of the petitioner, formed a reasonable ground for the AO, to entertain areason to believe, about the escapement of income, and therefore, it was held, that the proceedings cannot be said to be without jurisdiction. It was also clarified, that the Court was not going into the merits of the case of the assessee, the assessee was left free to lead evidence, in the reassessment proceedings, to show, that the expenditure incurred in the daughter's marriage was upto a specified extent, and as such, no income has escaped assessment. 18. in the present case, initiation of the proceedings is not under challenge, before us, by either side, and rightly so. Therefore, the two judgments cited by the learned counsel for the Revenue, are of no assistance to the appellant.
Then we are referred to the judgment of Hon'ble the Supreme Court. In Bankipur Club Ltd.'s case, wherein again, the question was about the jurisdiction of the AO to initiate reopening proceedings. In that case it was found, that the material on the basis of which the reason to believe was entertained, did also exist, at the time of passing of the original order of assessment, and it was not the case of the AO, that when he made the original assessment order, he was not aware of the true legal position.
Then we come to the judgment of Punjab & Haryana High Court, in Atlas Cycle Industries' case, which is a case, precisely on the point, inasmuch as, in that case, the Tribunal referred for the opinion of the High Court, the question viz., whether on the facts and in the circumstances of the case the Tribunal was right in law in cancelling the reassessment made by the ITO.
Dealing with this question, it was held by the High Court, that the Tribunal was right in cancelling the reassessment, as the two grounds, on which the reassessment notice was issued, were not found to exist, and the moment such is the position, ITO does not get the jurisdiction to make reassessment. Of course for this proposition, reliance was placed on Bankipur Club Ltd.'s case, and another judgment of Hon'ble the Supreme Court, in CIT vs. A. Raman & Co., which in turn, again was a case, dealing with the aspect of validity of commencement of the proceedings for reassessment under section 147. But then, the Division Bench of the Punjab & Haryana High Court does take the view, that once the grounds, on which the reassessment notice was issued, are not found to exist, the ITO does not get the jurisdiction, to make reassessment.
Learned counsel for the Revenue could not find, or show, any contrary judgment of this Court, or of Hon'ble the Supreme Court, or even of any other High Court of the country.
Thus, the question is required to be examined, as to whether, we should follow the judgment in Atlas Cycle Industries' case, or take a different view.
Reverting back to language of section 147, this much is clear, that the sine qua non for conferment of jurisdiction on the AO, to initiate proceedings under that section is, that he should have "reason to believe" that "any income chargeable to tax has escaped assessment for any assessment year" and that, being that situation, being available, i.e., the AO having entertained a "reason to believe", obviously on valid grounds, he acquires the jurisdiction to assess or reassess "such income", which obviously means, the income, which was chargeable to tax, and had escaped assessment for any assessment year, according to his "reason to believe", and while so assessing or reassessing, he can also, in addition, assess or reassess "any other income chargeable to tax which has escaped assessment and which may come to his notice subsequently in the course of proceedings under section 147".
The precise question, thus requiring to be considered is, as to whether, the conjunctive word used, being "and", used between the expression "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 proceedings under section 147" is required to be given its due, or is required to be ignored, or is required to be interpreted as "or". Obviously because, if it is to be interpreted as "or", then the language would read as under: "147. If the AO 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 or also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)."
But then if it were to be so read, the word "also" becomes redundant, and to make sense of the sentence, the section would be required to be read by ignoring the words "also", as well, in which event, the section would read as under: "147. If the AO 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 or any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)."
It is established principle of interpretation of statutes, that the Parliament is presumed to be not extravagant, in using the words, and therefore, every word used in the section, is required to be given its due meaning.
If considered on that principle, leaving apart for the moment, the aspect of interpretation of the word "and" as "or", the existence of the word "also" is of a great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings under section 147 the AO, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment. and which has come to his notice subsequently, in the course of proceedings under section 147.
To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the AO were to come to conclusion, that any income chargeable to tax, Which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147.
It is a different story that for such other income, the AO may have recourse to such other remedies, as may be available to him under law, but then, once it is found, that the income, regarding which he had "reason to believe" to have escaped assessment, is not found to have escaped assessment, the AO is required to withhold his hands, at that only.
To this extent. We agree with the view expressed by the Punjab & Haryana High Court, in Atlas Cycle Industries' case.
The result of the aforesaid discussion is that the question framed, in the order dated. 23rd May, 2006, is required to be, and is, answered in the manner, that the Tribunal was not justified in holding, that the proceedings for reassessment under section 148/147 were initiated by the AO, on non-existing facts. Because ultimately the assessee has been able to explain the income, which was believed to have been escaped assessment, was explainable. It is further held, that the AO was justified in initiating the proceedings under section 147/148, but then, once he came to the conclusion, that the income, with respect to which he had entertained "reason to believe" to have escaped assessment, was found to have been explained, his jurisdiction came to a stop at that, and he did not continue to possess jurisdiction, to put to tax, any other income, which subsequently came to his notice, in the course of the proceedings, which were found by him, to have escaped assessment.
In view of the above judicial pronouncements on the subject, it is observed that the Ld. AO has further erred in re opening the assessment without recording any subjective belief as to escapement of income and has merely acted upon suspicion formed on the basis of so-called information received from some other officials, by completely ignoring the prerequisite condition for re-opening of assessment which can be done only on the basis of subjective belief of escapement of income and that suspicion cannot take the place of firm belief. Thus, the impugned reassessment order deserves to be held bad in law and consequent additions deserve to be deleted.
The AO has further erred in initiating the proceedings u/s. 148 of the Act after four years from the relevant assessment year, wherein assessment stood completed u/s. 143(3) of the Act, after complete verification of all details including all documentary evidences filed in relation to capital raised by the assessee and the returned income was accepted as such. Appellant prays that such re-opening initiated without establishing any fault of the assessee to disclose fully and truly all facts or material necessary for its assessment is contrary to the provisions of the Act, until unless a new material is there which confirms the nature and amount both the elements to justify the re-opening. Otherwise the AO has erred in initiating proceedings u/s. 147 of the Act, in the case of a completed assessment u/s. 143(3) of the Act, which tantamount to re-visiting a completed assessment without any material on record, which is not permissible as per the provisions of law.
On facts and in circumstances, the Id. AO has made addition of Rs. 1, 99, 00,495/- (which even as per the order of the AO should have been Rs. 1, 91, 00,495/- as per para 10 of the order) merely on presumptions drawn by discussing the modus operandi on the basis of excerpts of statements of Shri Mukesh Banka, cited in the assessment order, recorded at the back of the assessee, by some other officer. Further the entire addition has been made by alleging that assessee has paid cash and in turn received accommodation entry in the shape unsecured loan received by the assessee, whereas actually the same was share application money, against which due shares were allotted by the assessee. Thus the addition made merely on presumptions and surmises in a very casual manner, without proper verification of facts on record is most un-justified, bad in law and deserves to be deleted.
9. It is further observed that the AO has further erred in making addition to the tune of Rs. 76, 00,220/- out of Rs. 1, 99, 00,495/- without considering the fact that no transaction whatsoever was entered into, nor any sum was received by the assessee from the following entities during the year under appeal:
Name of the entity Amount M/s. Alves Securities (P.) Ltd. Rs. 11,00,000/- M/s. Nector Business (P) Ltd. Rs. 50,00,165/- M/s. Harshita Finance and Investment (P) Ltd Rs. 15,00,0055/- Total Rs. 76,00,220/- In view of the above it is observed that such additions made merely on the basis of information received from other officials in a very casual manner, without verifying the facts with a very casual approach and is absolutely unwarranted.
It is further observed that the AO has grossly erred in making addition of Rs. 1,91,004/- by presuming the same to be Interest paid at 1 percent per month for one month, on the amount alleged to have been received by the assessee as accommodation entry, in the shape of unsecured loans arbitrarily by not appreciating the basic fact, that the assessee had not received any such amount as unsecured loan from any of the entities during the year under appeal. Thus question of making any payment of interest does not arise more so no such interest was claimed by the assessee in its Profit and Loss account.
So in view of the above discussions, despite of the fact that the assessee submitted clearly that he issued shares for the amount under consideration and not accepted any unsecured loan, still the AO chosen to treat the same as unsecured loans, based on the information received from the office of the DGIT (Inv.), Kolkata without either pursuing the explanation/evidences submitted by the assessee or independent examination of the information received. In view of this it’s a clear violation of the guidelines and law declared by the Hon’ble Jurisdictional High Court in the case CIT v. Shri Ram Singh (supra) and Hon’ble Bombay High Court in the case of Commissioner of Income-tax-5, Mumbai vs. Jet Airways (I) Ltd. Rather, by virtue of ignorance or adamant attitude throughout the matter the AO maintained his stand that the assessee has taken unsecured loans, whereas the itself has clarified so many times that he issued shares to the parties under consideration and not unsecured loans at all. This fact forced us to hold that there was a total ignorance on the part of the AO and approach was absolutely casual without application of mind and appreciation of the applicable facts.
Resultantly, other than ground nos. 2, 3 and 7 all other grounds raised by the assessee are allowed. As the matter is declared legally null and void, we deem it fit not to examine the matter from other angles may be involved as that will lead to infructuous exercise. Although the assessee has submitted the documents pertaining to the following companies, who had subscribed the shares of the assessee as under and following documents to establish identity, genuineness and creditworthiness :-
• M/s. Harsharatna Finance & Investment Pvt. Ltd. • M/s. Darshan Enclase Pvt. Ltd. • M/s. Deepjyoti Developers Pvt. Ltd. • M/s. Babyloan Trading Investment Pvt. Ltd.
• M/s. Sarla Finance Pvt. Ltd. • M/s. Snowfall Impex Pvt. Ltd.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on the 2nd day of April 2025.