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Facts
The Revenue appealed an order by the CIT (Appeals) which deleted an addition of Rs. 1,00,00,220/- made on account of accommodation entries. The Revenue argued that the addition was justified as investigation revealed the assessee routed unaccounted money through various companies for accommodation entries. The assessee, however, contended that no such amount was received and the reassessment proceedings were initiated without proper application of mind.
Held
The Tribunal held that the reassessment proceedings were initiated based on borrowed satisfaction and without proper application of mind by the Assessing Officer. The reasons for reopening were found to be baseless and factually incorrect, lacking supporting evidence. Therefore, the notice under Section 148 was unsustainable.
Key Issues
Whether the reassessment proceedings initiated by the AO were valid, considering the lack of independent application of mind and reliance on borrowed satisfaction. Whether the addition made by the AO on account of accommodation entries was justified when the assessee denied receipt of the amount and the basis for reopening was found to be faulty.
Sections Cited
147, 148, 250(4), 143(3), 143(2), 142(1), 68, 132
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Income Tax Appellate Tribunal, JAIPUR BENCHES,B JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI GAGAN GOYAL, AM
PER DR. S. SEETHALAKSHMI, J.M. The present appeal has been filed by the Revenue against the order of ld. CIT (Appeals)-4, Jaipur dated 31.03.2024 passed under section 250 of the I.T. Act, 1961, for the assessment year 2012-13. The Revenue has raised the following grounds of appeal :-
1. 1. Whether on facts and in circumstances of the case, the ld. CIT (A) is justified in deleting the addition of Rs. 1,00,00,220/- made on account of accommodation entry Karnani Solvex Pvt. Ltd., Jaipur. taken from the entry providers holding that it is a case of borrowed satisfaction while the AO has issued notice u/s 148 after analyzing the facts related to escapement of income.
2. Whether on facts and in circumstances of the case, the ld. CIT (A) is justified in deleting the addition of Rs. 1,00,00,220/- without appreciating the fact that the investigation/verification was done by DDIT (Inv.) to unearth the undisclosed money that the assessee introduced in its books of accounts by taking accommodation entry.
3. Whether on facts and in circumstances of the case, the ld. CIT (A) is justified in deleting the addition of Rs. 1,00,00,220/- without appreciating the decisions of Hon. Supreme Court in 224 ITR 362, Hon. Madras High Court 242 ITR 176 and Hon. Punjab & Haryana High Court 2452 ITR 554 wherein it was held that even a letter from DDIT (Inv.) constitutes information for re-opening assessment.
4. Whether on facts and in circumstances of the case, the ld. CIT (A) is justified in deleting the addition without invoking provisions of section 250(4) of the I.T. Act, 1961, which empowers him to conduct enquiry in the case.
5. The appellant craves leave to add, amend or withdraw any of the ground of appeal during the course of appellant proceeding.”
The appeal filed by the Revenue is delayed by 5 (five) days. The Deputy Commissioner of Income Tax, Central Circle-3, Jaipur vide application dated 06.06.2024 has submitted that original copy of authority letter for filing the appeal has been received in his office on 03.06.2024, and further there was heavy workload during the last week of May, 2024, therefore, he could not follow up the matter timely. In view of the above facts, he requested to condone the delay in filing the appeal.
Considering the reasons mentioned in the said application, we feel that the reasons mentioned by the revenue constitute sufficient cause for not filing the Karnani Solvex Pvt. Ltd., Jaipur. appeal within the time before us. Therefore, taking a lenient view and considering the principles laid down in the case of Collector, Land Acquisition vs. Mst. Katiji, 1987 AIR 1353 (SC), we condone the delay of 5 (five) days in filing the appeal before us.
The brief facts of the case are that the assessee is a company, filed its return of income on 21.09.2012 declaring a total income of Rs. 2,25,82,056/- and the assessment was completed under section 143(3) of the IT Act, 1961 at an income of Rs. 10,06,78,276/- vide order dated 18.03.2015. Thereafter, on the basis of information received and after analyzing the fact related to escapement of income, the case of the assessee was reopened under section 147 of the IT Act, 1961 after taking prior approval of the PCIT (Central), Jaipur. Notice under section 148 of the IT Act was issued on 29.03.2019 which was duly served upon the assessee. Notice under section 143(2) and 142(1) were issued to the assessee and the same were duly served upon the assessee. On the request of assessee, copy of reasons recorded for issuing notice under section 148 was provided to the assessee vide letter dated 23.08.2019. During the assessment proceeding the assessee filed objection on 11.11.2019 regarding issuance of notice under section 148 which was disposed off vide speaking order dated 05.12.2019. The assessee submitted that the case has already been scrutinized on the same issue earlier. Finally, the AO completed the assessment vide order dated 31.12.2019 at a total income of Rs. Karnani Solvex Pvt. Ltd., Jaipur. 11,06,78,500/- after making an addition of Rs. 1,00,00,220/- on account of cash received by the assessee. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). The ld. CIT (A) after considering the submissions of the assessee allowed the appeal of the assessee by elaborately discussing the issue at great length vide his order dated 31.03.2024. Now the revenue has preferred the appeal before the Tribunal on the grounds mentioned herein above.
Before us, the ld. DR submitted that the assessee company is engaged in the business of manufacturing and trading of edible oils and oil cakes. A search and seizure action under section 132 of the IT Act, 1961 was carried out on Karnani Group, Jaipur on 01.10.2018 wherein it was observed that the appellant company was involved in taking accommodation entries on account of shares capital involving heavy premium from Kolkata based companies. During the course of assessment proceedings, the following issues have emerged which the AO discussed as under :-
“As per information on record M/s. Karnani Solvex Pvt. Ltd. is involved in routing of its unaccounted money in books via money laundering through various jama-kharch/paper companies. On inquiry conducted by the DDIT (Inv.), Kolkata Unit 2(4) in case of M/s. Vista Dealcom Pvt. Ltd. and related entities, on verification of bank statement for the period 01.04.2011 to 31.03.2012 relevant to FY 2011-12 of all the accounts, it is observed that there were deposits of cash in the account of M/s. Vista Dealcom Pvt. Ltd. Karnani Solvex Pvt. Ltd., Jaipur. and same day or next day transferred to another account like M/s. Lookline Mercantile Pvt. Ltd., M/s. Dhanklash Vanijya Pvt. Ltd., M/s. Scope Vyapar Pvt. Ltd. From the bank statement collected, it appears that cash was deposited at one point followed by transfer the funds to desired destination through banking channel. This is the common practice of Jama-Kharchi companies in Kolkata.
Summons was issued to the Principal Officer of aforementioned concerns and he was asked to produce the books of accounts and explain the transaction made through subject bank accounts but assessee company neither appeared nor made any compliance and the summons returned by postal department with remark ‘not known’ and ‘incomplete address’.
Cash trail of these companies were analyzed and it was found that the fund was ultimately transferred to a beneficiary company and M/s. Karnani Solvex Pvt. Ltd. is one of the beneficiaries to have received a sum of Rs. 1,00,00,220/-. Therefore, it is clear that M/s. Karnani Solvex Pvt. Ltd. have brought their unaccounted money in the books via monetary laundering through banking channels and in turn these funds were again invested in these beneficiary companies. For obtaining entries in the books beneficiary provided cash to operator which was deposited in the individual or dummy proprietorship accounts followed by transfer to account of different concern.
During the post search and assessment proceedings, assessee was given number of opportunities to furnish its explanation, but the assessee failed to explain the same. It is pertinent to mention that the assessee did not comply with any of the statutory notices issued to the assessee. A show cause notice issued to the assessee on 07.11.2019. In response to this the assessee filed objection on 11.11.2019 regarding issuance of notice under section 148 which was disposed off vide speaking order dated 05.12.2019 and further the assessee was required to file information but the assessee did not comply with the statutory notices. However, later the assessee has filed its reply on 09.12.2019 as under :-
Karnani Solvex Pvt. Ltd., Jaipur. “ It is a case which has already assessed u/s 143(3) on 25.03.2015, wherein complete details/supporting documents and particulars of share capital raised were filed to the satisfaction of the ld. AO. The information was also available in the audited financial statement. Now your goodself wants to reopen the case by taking shelter of Explanation 2 to Section 147, whereas the assessee covered under Proviso to Se.
When there has been full and true disclosure at the time of assessment itself than occasion of invoking 147 does not arise at all. Your goodself is directly applying explanation 2 without taking into consideration the proviso.”
The reply of the assessee has been duly and carefully analyzed and the same has not found acceptable in the light of detailed discussion as above. The contention of the assessee is that the case was already scrutinized u/s 143(3) of the IT Act, but here new facts came on record which were not in the possession of the then AO. Hence, it is clear that the assessee submitted incomplete details related to the sources of income. The assessee was clearly involved in routing its unaccounted money in its books through jamakharchi/paper companies. The details of the same have been elaborately discussed in the para above. In case of M/s. Vista Dealcom Pvt. Ltd. and related entities, on verification of bank statement for the period 01.04.2011 to 31.03.2012 relevant to the F.Y. 2011-12 of all the accounts, it is observed that there were deposits of cash in the account of M/s. Vista Dealcom Pvt. Ltd. and same day or next day transferred to another account like M/s. Lookline Mercantile Pvt. Ltd., M/s. Dhanklash Vanijya Pvt. Ltd., M/s. Scope Vyapar Pvt. Ltd. From the bank statement collected, it Karnani Solvex Pvt. Ltd., Jaipur. appears that cash was deposited at one point followed by transfer the funds to desired destination through banking channel. This is the common practice of Jama- Kharchi companies in Kolkata. It is clear that the entities have no sources of income to justify the amount of transfer of such huge amounts. It is further noteworthy that as on 31.03.2012 the entity has no tangible or intangible assets. During the course of enquiry conducted by investigation wing, Kolkata, in order to examine the nature and creditworthiness of transactions, summons were issued to the Principal Officer of the above mentioned concerns. However, the summons were returned unserved by the department of post. An Inspector was also deputed to conduct spot enquiry about existence & business activities of the subject entities/companies. Summons were also issued to other intermediary companies but no reply against the same has been received. On verification, it came to light that most of the companies have either not filed their ITR or have shown meager income. Apparently the companies were running on papers only and their bank accounts were used for layering of funds. It is noted that section 68 of the Income Tax Act, 1961 clearly states that a resident company is required to provide explanation regarding the nature and source of the cash credits as appearing in its books of accounts. “ 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the From the discussion in the preceding paras, it is clear that the assessee company has not been able to offer any satisfactory explanation regarding the nature and the source of the cash receipt from M/s. Vista Dealcom Pvt. Ltd.
The ld. DR thus submitted that the cash receipts of the assessee amounting to Rs. 1,00,00,220/- from M/s. Vista Dealcom Pvt. Ltd. are found to lack any creditworthiness. The same has been examined at length and considered as an unexplained cash credit within the meaning of section 68 of the IT Act and accordingly added to the income of the assessee. The ld. D/R submitted that the ld. CIT (A) was not justified in deleting the addition without appreciating the facts that the investigation /verification was done by DDIT (Inv.) to unearth the undisclosed money that the assessee introduced in its books of accounts by taking accommodation entry. The ld. DR submitted that the addition be sustained.
On the contrary, the ld. AR submitted that the ld. CIT (A) has rightly deleted the addition after considering the submissions furnished by the assessee before him. He, further, relied on the submissions as were made before the ld. CIT (A).
Karnani Solvex Pvt. Ltd., Jaipur.
We have considered the rival submissions as well as the relevant material on record. The assessee company filed its return of income for the year under consideration declaring total income of Rs. 2,25,82,056/-. The assessment was completed under section 143(3) of the IT Act, 1961 vide order dated 25.03.2015 assessing total income at Rs. 10,06,78,276/-. Thereafter, on the basis of information received and after analyzing the fact related to escapement of income, the case of the assessee was reopened under section 148 of the IT Act,1961, after recording reasons for satisfaction and obtaining prior approval of the Pr. Commissioner of Income-tax (Central), Jaipur. Notice under section 143(2) and 142(1) of the IT Act, 1961 were issued to the assessee and duly served on the assessee. Thereafter, on the request of the assessee, copy of reasons recorded were provided to the assessee vide letter dated 23.08.2019. During the assessment proceeding, the appellant filed objection on 11.11.2019 regarding issuance of notice under section 148 which was disposed off vide order dated 05.12.2019. Finally, the AO completed the assessment vide order dated 31.12.2019 at a total income of Rs. 11,06,78,500/-.
9.1 We find that the ld. CIT (Appeals) while dealing with the issue raised in ground no. 1 regarding issuance of notice u/s 148 of the Income Tax Act, 1961 for “ 4.2 I have considered the facts of the case and written submissions of the appellant as against the observations / findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under : A notice u/s 148 of the Income tax Act, 1961 was issued on 29.03.2019. The appellant requested for providing copy of reasons recorded for reopening the case u/s 148. The copy of the reasons recorded for issuing notice u/s 148 were provided to the appellant vide letter dated 23.08.2019. During the assessment proceeding the appellant filed objection on 11.11.2019 regarding issuance of notice u/s 148 which was disposed off vide order dated 05.12.2019. From perusal of reasons for reopening, it is observed that the ld. AO was proceeding on the fact of receipt of share capital and premium amounting to Rs. 60,00,000/- from M/s. Blue Finvest Pvt. Ltd. and receipt of Rs. 1,00,00,220/- from M/s. Vista Dealcom Pvt. Ltd. group. The appellant has submitted that the assessee never received any share capital and securities premium of Rs. 60,00,000/- from M/s. Blue Stone Finvest Pvt. Ltd. during the year under consideration. The appellant has also submitted that the assessee never received any amount of Rs. 1,00,00,220/- from M/s. Vista Dealcom Pvt. Ltd. during the year under consideration. Issue of receipt of share capital and premium of Rs. 60,00,000/- from M/s. Blue Stone Finvest Private Limited. The appellant has also submitted that on going through the facts relied upon by the AO for initiation of proceeding under section 147 and actual facts, it is clear that ld. AO has wrongly mentioned that assessee received amount including premium of Rs. 60,00,000/- from M/s. Blue Stone Finvest Pvt. Ltd. During the course of assessment, complete financial statements were submitted duly containing the details of share capital raised and premium received (11-31) and it was conclusively established that assessee never received any such amount of share capital and premium from M/s. Blue Stone Finvest Pvt. Ltd. and resultantly no such addition has been made for this in the assessment order.
Karnani Solvex Pvt. Ltd., Jaipur. The above contention of the assessee is found to be correct. From the perusal of the assessment order it is seen that no addition has been made in the assessment order on this issue. Further from the perusal of the reasons of reopening there is no reference to any documentary evidence in connection with respect to the company “Blue Stone Finvest Ltd.” in the form of (a) name, date, extract etc. of the statement recorded during search or survey, or (b) field enquiry report of the Inspector or the DDIT or (c) order of any assessing officer or any appellate authority or of any authority of other Department, or (d) any other document or evidence with respect to the “Blue Stone Finvest Ltd.”. Further it is also noted that, assessment in the case of the appellant had already been concluded for the year after the search and seizure action of the appellant and in the assessment one of the issue has been the issue of share capital and share premium from the shell companies of Kolkata on which the addition was made in the earlier assessment order which is also referred in the reasons of reopening. Hence the details of the receipt of the share capital and premium were on the record of the assessing authority. From the perusal of the balance sheet of the appellant it is seen that during the year under appeal 73900 equity shares were issued and these were issued to Zigma Vinimay Pvt. Ltd. The opening number of shares during the year were 1286000 and shares issued during the year are 73900 and the closing number of shares are 1359900. The shareholding of Zigma Vinimay Pvt. Ltd. on the beginning of the year i.e. 31.03.2011 is nil and at the end of the financial year under appeal is 73900. The total increase in the share capital during the year is Rs. 7,39,000. The receipt of share premium during the year is shown at Rs. 7,31,61,000 which comes to Rs. 990 per share for the 73900 shares issued during the year. Thus the total increase in the share capital and share premium in the year is Rs. 7,39,00,000. These are the facts from the balance sheet of the appellant. This amount has already been added in the initial/original assessment order. This amount also matches with the amount mentioned in the reasons of reopening by the learned AO with respect to Zigma Vinimay Pvt. Ltd. on which however no reasons of the reopening were found as the same was already added in the original assessment order. From the overall facts it is not at all clear from where the learned AO came to the conclusion in the reasons of reopening that Rs. 60 lakhs was received by the appellant during the year as share capital and share premium from “Blue Stone Finvest Ltd.”. There is no reference to iota of evidence. In this regard, there is no basis to conclude in the reasons of reopening that the income escaped during the year due to the failure on the part of the assessee to disclose the complete details duly and fairly. No fault is found on account of the appellant in this regard.
Karnani Solvex Pvt. Ltd., Jaipur. Thus no equity share was issued to Blue Stone Finvest Ltd. as the question of the escapement did not arise. While recording the reasons of reopening the learned AO has not considered the facts already available on the file. Further there is no evidence referred in the reasons of reopening which showed that share capital and premium was received by the appellant during the year from Blue Stone Finvest Ltd. The issue whether the same was genuine or not genuine arises subsequently but first of all it was to be borne out of records or from the evidences that share capital and premium payment was received by the appellant from this company. However there is no reference to any material in this regard. Accordingly the reasons of reopening on this issue are found to be baseless and factually incorrect and shows less than due required application of mind by the learned AO. The AR for the assesee has relied upon following judgements in support of his contentions. (a) M/s. SPJ Hotels Private Limited in vide order dated 10/12/2018 (Delhi ITAT) “13.2. Since the facts are totally different as AO had reason to believe that Rs. 10 lakhs has escaped assessment on account of Rs. 5 lakhs received from two companies referred to above, which was ultimately found to be incorrect and nonexistent, therefore, there may not be any application of mind on the part of the AO to proceed to initiate the re-assessment proceedings. There is no other material available on record except the information received from the Investigation Wing. The AO on the basis of the information and material received from Investigation Wing has recorded reasons for reopening of the assessment which has ultimately found to be incorrect and non-existent. It is well settled law that when no new material other than examined by the AO originally found on record for the purpose of initiating the re-assessment proceedings, the proceedings under section 148 of the I.T. Act would be invalid and bad in law. We rely upon decision of Delhi High Court in the case of Atul Kumar Swamy 362 ITR 693, Consulting Engineers Services India Pvt. Ltd. 378 ITR 318, Nestle India Ltd. 384 ITR 334 and Priyadesh Gupta 385 ITR 452. The Hon’ble Delhi High Court in the case of SNG Developers Ltd. 404 ITR 312 held that when AO initiated the reassessment proceedings without application of mind, such proceedings would be invalid. AO in the present case has failed to verify the information received from Investigation Wing. Therefore, it is non-application of mind on the part of the AO to record correct facts in the reasons for reopening of the Karnani Solvex Pvt. Ltd., Jaipur. assessment. In such circumstances, the re-assessment order could not be treated as valid and in accordance with law. Since re-assessment proceedings are invalid and bad in law, therefore, such proceedings could not be revised under section 263 of the IT Act. Following the reasons for decision in the case of M/s. Supersonic Technologies Pvt. Ltd. (supra), we set aside the order passed by the ld. Pr. CIT under section 263 of the IT Act and quash the same.” (Emphasis supplied) (b) Smt. Meena Baldua vs. ITO in vide order dated 08.03.2019 (Jaipur ITAT) Hence, we hold that the reasons recorded by the AO based on incorrect fact is not sustainable in law and liable to be quashed. Since, we quashed the reopening being invalid therefore, we do not propose to go into ground no. 2 of the assessee’s appeal on the merits of the addition. (Emphasis supplied) (c) Ram Mohan Rawat vs. ITO in (Jaipur Trib.) vide order dated 08.03.2019: “Thus making the wrong statement in the reasons recorded and ignoring the relevant and correct facts available on record established that the AO has not applied his independent mind while forming the opinion. The Chandigarh Bench of the Tribunal in case of Babu Kartar Singh Dukki Educational Trust vs. ITO (supra) has also considered an identical issue and held that the AO proceeded for reopening of the assessment for non- existent and factually incorrect reasons and has not applied his mind. The Tribunal has concluded in para 19 as under : “19. In view of the above discussion, I hold that the AO had taken an irrelevant fact into consideration and reopened the assessments on the basis of suspicion. Further more, the Assessing Officer proceeded for re-opening of the assessment on non-existent and factually incorrect basis/reasons and has not applied his mind and did not verify the assessment records/returns filed by the assessee prior to recording of the reasons, therefore, re-opening of the assessments for assessment year 2001-02, 2002-03 and 2003-04 is invalid and liable to be set aside/quashed. Accordingly, the orders Karnani Solvex Pvt. Ltd., Jaipur. of the authorities below are not sustainable and hence deserve to be quashed. I order accordingly.” Accordingly, in view of the above facts and circumstances of the case, when the AO has initiated the proceedings on the basis of non-existent and factually incorrect facts and reasons without application of mind and without verification of the facts available on record, then the proceedings initiated under section 147/148 are not sustainable in law. The same are set aside and consequential reassessment order is quashed.” Respectfully following the ratio of the judgements, the reopening of the case of the appellant on this issue is found to be not valid as per law and not sustainable. Issue of receipt of Rs. 100,00,220/- from M/s. Vista Dealcom Pvt. Ltd. group:- It is mentioned in the assessment order that on inquiry conducted by the DDIT (Inv.)/Kol/Unit-2(4) in case of M/s. Vista Dealcom Pvt. Ltd. and related entities, on verification of bank statement for the period 01.04.2011 to 31.03.2012 relevant to the F.Y.2011-12 of all the accounts, it is observed that there were deposits of cash in the account of M/s. Vista Dealcom Pvt. Ltd. and same day or next day transferred to another account like M/s. Lookline Mercantile Pvt. Ltd., M/s. Dhanklash Vanijya Pvt. Ltd., M/s. Scope Vyapar Pvt. Ltd. From the bank statement collected, it appears that cash was deposited at one point followed by transfer the funds to desired destination through banking channel. This is the common practice of Jama-Kharchi companies in Kolkata. Further summons was issued to the Principal Officer of aforementioned concern and he was asked to produce the books of accounts and explain the transaction made through subject bank but assessee company neither appeared nor made any compliance and same cases summon returned by postal department with mark of ‘not known’ and ‘incomplete address’. Further, the cash trail of these companies were analysed and it was found that the fund was ultimately transferred to a beneficiary company and M/s. Karnani Solvex Pvt. Ltd. is one of the beneficiaries to have received a sum of Rs. 1,00,00,220/-. Therefore, it is clear that M/s. Karnani Solvex Pvt. Ltd. have brought their unaccounted money in the books via money laundering through banking channels and in turn these funds were again invested in these beneficiary companies. For obtaining entries in the books beneficiary provided cash to operator which was deposited in the individual or dummy proprietorship accounts followed by transfer to account different concern. Appellant has contested the validity of reasons recorded on the ground of factual inaccuracies crept therein. The copy of reasons recorded was made part of the Karnani Solvex Pvt. Ltd., Jaipur. paper book submitted during the course of hearing. The reasons were recorded on the premise of receipt of Rs. 1,00,00,220/- by the appellant from one M/s. Vista Dealcom P Ltd as beneficiary of accommodation entry, whereas, it was contested by the appellant that no such amount of Rs. 1,00,00,220/- was received from M/s. Vista Dealcom P Ltd or any other entity. Further that assessee never received amount of Rs. 1,00,00,220/- as alleged from M/s. Vista Dealcom P Ltd and ld. AO has wrongly mentioned that assessee has received said amount. Time and again it was requested to provide the details of Rs. 1,00,00,220/- alleged to be received as beneficiary of M/s. Vista Dealcom P Ltd, however no such details were provided during the course of assessment. In this regard affidavit dated 30.12.2019 of Director of appellant Shri Sanjay Karnani has been filed which was made part of Paper book filed during these appellate proceedings. As there was a clear denial on the part of the appellant regarding this amount and in the reasons recorded as well as assessment order, accordingly, the relevant evidences “Copy of bank statements and other documents as referred in the assessment order regarding deposit of cash and movement of funds from Vista Dealcom Pvt. Ltd. to the appellant as received from the DDIT, Kolkata as referred on page 2 of the assessment order” were called from the ld. AO. However, in response the learned AO has only provided the report received from DDIT (Inv.)/Kol/Unit-2(4). The appellant has stated in the rejoinder that addition has been made solely on the basis of information provided by DDIT (Inv.)/Kol/Unit-2(4). This makes it evidently clear that merely an information received from DDIT (Inv.)/Kol/Unit- 2(4) has been relied upon without any independent application of mind to said information. There is no information as to the details of Rs. 100,00,220/- alleged to be received by the assessee. It is further important to note that in the said report itself it was clearly stated that “the AOs of all beneficiaries are also advised to coordinate with each other and also with the AO of M/s. Vista Dealcom P Ltd. in order to collect evidences for further taxation of undisclosed income of these beneficiaries used for taking entry from M/s. Vista Dealcom Private Limited”, it was further directed as “the facts mentioned in this letter are indicative and not exhaustive. The detail effort need to be made during the course of assessment to ascertain actual quantum of concealment and take appropriate action as per the provisions of law”. The only piece of information in the possession of ld. AO is report of DDIT(Inv.)/Kol/Unit-2(4), bereft of details of amount allegedly received by the assessee. During the course of assessment, a duly notarized affidavit dated 30.12.2019 of Shri Sanjay Karnani director of M/s. Karnani Solvex P Ltd. was submitted mentioning that no such amount of Rs. 1,00,00,220/- was received from M/s. Vista Dealcom P Ltd (PBP-38). However, ld. AO blindly relied upon the Karnani Solvex Pvt. Ltd., Jaipur. letter information received from ADIT(Inv.), Kolkata and made the impugned addition, which is not permissible. In the reasons of reopening, the type/nature of alleged receipt of Rs. 1,00,00,220/- in the hands of the appellant has not been commented upon. The details of the share issue during the year and the share premium on the same have been discussed in the earlier paragraphs. The appellant has also brought attention to the details of unsecured loans in AY 2012-13, duly appearing in Financial Statements. As per the details furnished in this regard Rs. 8,924,237 unsecured loans was received from related parties and Rs. 6,984,804 unsecured loans was received from unrelated parties during the year. Thus the alleged receipt of Rs. 1,00,00,220/- also prima facie does not fall under the category of receipt of unsecured loan. In the reasons of reopening there is no reference to any underlying material to arrive at finding or in other words there is no reference to any underlying material as to on basis of what documents and what transactions in terms of dates, name of bank, bank account number of appellant etc., names of parties etc. it has been found by the ld AO that the appellant received the money. The learned AO has only provided the letter report received from DDIT(Inv.)/Kol/Unit-2(4). Despite of the specific request regarding the copy of the bank accounts and the documents on the movement of funds, no such document has been provided. Such documents were also not provided to the appellant during the assessment proceedings as the appellant has been denying any transaction in this regard. From this discussion it is clear that the underlying material and evidences were not available with the learned AO at the time of forming of reasons of reopening. The facts narrated in the said report concerning the appellant has been challenged and found to be non-existent as discussed above. These facts suggest that reassessment has been initiated on the basis of report of DDIT Investigation without carrying out any independent verification of the facts and subsequent inquiries. From the above factual discussion, it is clear that the reasons of reopening were formed by the learned AO only on the basis of the letter report of the DDIT. It held by the Hon’ble Rajasthan High Court in the case of Rajhans Processors v. Union of India (2023) 149 taxmann.com 29 (Rajasthan)/(2023) 292 Taxman 332 (Rajasthan)(08.02.2023) as under :- “12. Resultantly, we are of the firm view that the very foundation of impugned notice, the reasons to believe and the order turning down Karnani Solvex Pvt. Ltd., Jaipur. objections is non-existent. All the three proceedings are based sheerly on conjectures and surmises. The AO had no tangible evidence to initiate the re-assessment proceedings against the petitioner and the impugned action is based sheerly on borrowed satisfaction. Even if it is assumed for argument’s sake that the transaction made by the petitioner for acquisition of immovable property at Pali may be read in place of Delhi, then also, the said transaction is duly mentioned in the return filed by the petitioner for the relevant financial year and is supported by the audited balance sheet, which was accepted by the Assessing Officer. Hence, there is no escape from the conclusion that no tangible material was available with the Assessing Authority so as to initiate the re-assessment proceedings against the petitioner by taking recourse to the provisions under section 148 and 143(2) of the Income-tax Act.” It held by Hon’ble Bombay High Court in the case of Principal Commissioner of Income-tax-5 v. Shodiman Investments (P) Ltd. (2018) 93 taxmann.com 153 (Bombay)/(2020) 422 ITR 337 (Bombay)(16.04.2018) as under :- “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. LakhmaniMerwal 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.
In this case, the reasons as made available tgo the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering Karnani Solvex Pvt. Ltd., Jaipur. 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.
Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a reopening notice on the basis of intimation regarding 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 Officer on his own satisfaction and not on borrowed satisfaction.
Therefore, in the above facts, the view taken by the impugned order of the Tribunal cannot be found fault with. This view of the Tribunal is in accordance with the settled position in law. It held by the Hon’ble Bombay High Court in the case of GandhibagSahakari Bank Ltd. v. Deputy Commissioner of Income-tax/Assistant Commissioner of Income-tax (2023) 156 taxmann.com 221 (Bombay)/(2023) 458 ITR 157 (Bombay) 25-09-2023) as under :- “ On perusal of the notice dated 31.3.2021 issued under section 148(1) of the Act of 1961 coupled with the reasons assigned by the respondents for seeking to re-open the proceedings it becomes clear that it is on the basis of the information shared on the Insight Portal with regard to high value cash deposits that has prompted the Assessing Officer to have a “reason to believe” that the said amount in the hands of the petitioner had escaped assessment. Except for stating that such information was available on the Insight Portal it has not been indicated in the said reasons as to how there was formation of belief by the Assessing Officer that income had escaped assessment. The reasons supplied do not indicate that any exercise of independent verification thereafter was undertaken resulting in consideration of the same with due application of mind by the Assessing Officer so as to re-open the completed assessment. Only by stating that information was available on the Insight Portal, belief has been formed by the Assessing Officer that the stated amount had escaped assessment at the Karnani Solvex Pvt. Ltd., Jaipur. hands of the petitioner. In Shodiman Investments (P) Ltd. (supra) it has been held that the words “reason to believe” would mean cause or justification. It can only be the basis of forming such belief. However, the belief must be independently formed in the context of the material obtained that there was escapement of income. The facts in the said decision indicate that the reasons made available to the assessee indicate that the information was received from the Director of Income-tax (Investigation) about a particular entity entering into suspicious transactions. The said material however was not further linked by any reason to come to the conclusion that the assessee had indulged in any activity that could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax had escaped assessment. Further there was absence of application of mind to the information received and the re-opening notice was issued merely on the basis of such information received. It was held that such action was in breach of the settled position of law that the reopening notice was required to be issued by the Assessing Officer on his own satisfaction and not on borrowed satisfaction. We find that in the present case except for referring to the information available on the Insight Portal, the Assessing Officer has proceeded to re-open the assessment without indicating any independent application of mind to the said information that was available on the Insight Portal for satisfaction to be recorded. It would thus be a case of issuing the re-opening notice on borrowed satisfaction.” In view of the above discussion and the ratio of the above judgements it is clear that the reasons of reopening are formed by the learned AO on the basis of borrowed satisfaction which is not permissible/sustainable in the eyes of law. Accordingly the notice under section 148 of the Act issued on the basis of such reasons of reopening is not sustainable as well. Accordingly the appellant succeeds on ground of appeal number 1 and 3 and the same are hereby allowed.”
9.2 We find that similar finding has been given by the Coordinate Bench of Tribunal, Jaipur in case of Smt. Kanta Chaudhary vs. ITO in dated 06.12.2018 and the relevant finding in para 5 reads as under:-
Karnani Solvex Pvt. Ltd., Jaipur. "5. We have heard the rival contentions and perused the material available on record. On perusal of the reasons so recorded by the AO before issuance of notice u/s 148 of the Act, we find that on the basis certain information received from the Investigation Wing Mumbai, the AO has not just formed an opinion but has finally concluded that the assessee has benefitted by obtaining accommodation entries from M/s New Planet Trading Co Ltd. Further, the AO has stated that since the assessee has not filed the return of income as per AST system of the department, he has reasons to believe that income has escaped assessment. To our mind, such an approach of the AO where, based on information received in context of a third party, even before issuance of notice u/s 148 has concluded that assessee has obtained accommodation entries and income to that extent has escaped assessment is not a correct approach in the eyes of law. In the instant case, it is an undisputed fact that the assessee has filed her return of income on 31.07.2007 where she has shown purchases of Rs 36,64,300 and which are the only purchases during the year and which are alleged to be accommodation entry as per the reasons issued u/s 148 of the Act. The assessee has shown the corresponding sales of Rs 39,44,220 and reported a gross profit of Rs 3,41,752. As held by the Bombay High Court in case of M/s Shodiman Investments, the material in possession of the AO has to be further linked by any reason to come to conclusion that the assessee has indulged in any activity which could give rise to reason to believe that income chargeable to tax has escaped assessment. In other words, unless the AO carries out the further examination after receipt of initial information from the Investigation wing, how can he conclude that income has escaped assessment. It is a fact that the assessee has filed her return of income. The AO should have examined her return of income and carried out initial investigation before coming to the conclusion that income has escaped assessment. In the entirety of facts and circumstances of the case, the notice issued under section 148 cannot be sustained and the same is held to be bad in law. In the result, the reassessment proceedings are hereby quashed and set-aside. The grounds on merit have thus become infructous and are not adjudicated upon." We also find the issue in question is squarely covered by the decision of the Coordinate Bench of the Tribunal in the case of Surbhi Minchem Pvt. Ltd. in & 103/Jodh/2012014 dated16.05.2014 wherein in para 8 it has been held as under :
Karnani Solvex Pvt. Ltd., Jaipur. “8. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the Assessing Officer reopened the assessment by issuing the notice u/s 148 of the Act and invoked the jurisdiction u/s 147 of the Act. The provisions contained in Section 147 of the Act read as under:- “147. 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 proceedings under this section, or recompute 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): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:” From the above provisions, it is clear that for taking action u/s 147 of the Act, the Assessing Officer must have reason to believe that an income chargeable to tax has escaped assessment for any assessment year. Therefore, the Assessing Officer must satisfy himself regarding the escapement of income. He should not act mechanically or on the information supplied by any other person. In the present case, the Assessing Officer acted on the information supplied by the Directorate of the Income Tax (Inv.), Udaipur and Mumbai but he has not applied his independent mind and the reassessment proceedings were initiated only on the basis of information received from the investigation wing of the department. In the present case, the satisfaction regarding the escapement of income, was not of the Assessing Officer, therefore, without applying his mind, the Assessing Officer was not justified in invoking the provisions of Section 147 of the Act by issuing notice u/s 148 of the Act. On the similar issue, Hon'ble Delhi High Court in the case of CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del.) held as under:- “ The assessee in his original return of income had shown a long term capital gain of Rs. 40,953/-. The return was processed under section Karnani Solvex Pvt. Ltd., Jaipur. 143(1) of the Income Tax Act, 1961. Subsequently, on the basis of the information given by the Deputy Director of Income-tax (Investigation) that the assessee was allegedly the beneficiary of a bogus claim of long- term capital gain shown on sale/purchase of shares a notice under section 148 of the Act was issued by the Assessing Officer to the assessee. In the reassessment proceedings, the Assessing Officer made an addition of Rs. 20,70,000/- holding that the assessee could not explain the source of the entries. The Commissioner (Appeals) confirmed the order passed by the Assessing Officer. The Tribunal quashed the entire reassessment proceeding. On appeal: Held, dismissing the appeal, that the first sentence of the reasons recorded by the Assessing Officer was mere information received from the Deputy Director of Income-tax (Investigation). The second sentence was a direction given by the same Deputy Director of Income-tax (Investigation) to issue a notice under section 148 and the third sentence again comprised a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. 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. These could not be the reasons for proceeding under section 147/148 of the Act. As the first part was only an information and the second and the third parts of the reasons were mere directions, it was 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. There was no substantial question of law for consideration.” In the present case also, the reason recorded by the Assessing Officer were merely on the basis of information received from DDIT (Inv.) Udaipur and Mumbai, therefore, from the so called reason, it was not at all discernable 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 the income had escaped assessment, therefore, the reassessment u/s 147 of the Act was not valid and accordingly the same is quashed. Since we have quashed the reassessment order, therefore, no findings are being given for the grounds raised by the assessee on merit.”
Karnani Solvex Pvt. Ltd., Jaipur. 9.3 In light of above discussions and in the entirety of facts and circumstances of the case and respectfully following the above cited judicial pronouncements of Hon’ble High Courts and coordinate bench of the Tribunal, we find no infirmity in the order of the ld. CIT (A) which is hereby upheld. The ground no. 1 of the revenue is dismissed.
In Ground No. 2,the department has raised grounds that the investigation wing had carried investigations to reach on the fact that the assessee had also obtained accommodation entry from Kolkata based company to the tune of Rs. 1,00,00,220/- and on such basis the ld. CIT (A) has erred in allowing the appeal of the assessee. In ground no. 3, the department has raised the ground that decisions of Hon`ble SC in 224 ITR 362, Madras High Court in 242 ITR 176 and Punjab and Haryana High Court in 242 ITR 554 have not been followed and in ground no. 4 the department has challenged the action of the ld. CIT(A) in not resorting to section 250(4) .
10.1 We have noted that the ld. CIT (A) has after verifying the records of the assessee has given a categorical finding that no such amount of Rs. 1,00,00220/- which was made the sole basis of instant reassessment proceedings was received by the assessee during the year under consideration and this finding of the ld. CIT (A) has also not been challenged by the department in their appeal before us and Karnani Solvex Pvt. Ltd., Jaipur. therefore since the subject matter of instant reassessment proceedings had never been received by the assessee and hence we are inclined to dismiss all the above grounds of appeal of the department.
In the result, this appeal of the Revenue is dismissed.
Order pronounced in the open court on 06/05/2025.