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Income Tax Appellate Tribunal, ‘’ D’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI SIDDHARTHA NAUTIYAL
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned six appeals have been filed at the instance of Assessee and Revenue against the separate orders of the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad, arising in the matter of assessment order passed under s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2008-09.
First, we take up ITA No.1329/Ahd/2018 for AY 2008-09 in the case of Shri Anilbhai Hiralal Shah.
The assessee has raised the following grounds of appeal: 1 Ld CIT (A) erred in law and on facts in dismissing ground challenging validity of reassessment proceedings by AO on the basis of DDIT report without reaching requisite satisfaction and not recording proper reasons. 2 Ld. CIT (A) erred in law and on facts in dismissing ground challenging validity of reassessment proceedings by AO without recording contents or details of transactions reflected in seized papers for forming belief as to escapement of undisclosed income. 3 Ld. CIT (A) erred in law and on facts confirming validity of initiation of reassessment proceedings in absence of quantification of income escaping assessment in the reasons recorded by AO. 4 Ld. CIT (A) erred in law and on facts in dismissing ground challenging validity of reasons recorded holding that dismissal of SCA challenging improper service of
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notice by Hon’ble High Court covered the issue. 5 Ld. CIT (A) erred in law and on facts in not appreciating that AO without having original return of income could not have ‘reasons to believe’ that income escaped assessment for issuing notice u/s 148 of the Act. 6 Ld. CIT (A) erred in law and on facts confirming action of AO adding same amount of alleged unaccounted income on substantive and protective basis in the hands of assessee & his brother that is not in consonance with ‘Reasons to believe’ mandated under provisions of sec. 147 of the Act for reassessment proceedings. 7 Ld. CIT (A) erred in law and on facts confirming addition made by AO of unaccounted income earned from various scripts u/s 69A of the Act though assessee is not found to be owner of any money, bullion or jewellery. 8 Ld. CIT (A) erred in law and on facts confirming addition of Rs. 204,76,29,634/- alleged profit earned dealing in various scripts on the basis of seized material ignoring duplication of entries submitted by appellant. 9 Without prejudice to the above, ld. CIT (A) erred in law and on facts in holding that documents found & seized during the course of search belonged to the appellant. 10 Ld. CIT (A) further erred in law and on facts confirming addition of Rs. 44,70,32,717/- of amount recovered from loss incurred in share trading. 11 Ld. CIT (A) erred in law and on facts confirming addition of Rs. 13,51,23,200/- made by AO on account of unexplained investment. 12 Ld. CIT (A) erred in law and on facts directing AO to make addition to the extent income determined in future not covering unexplained investment instead of confining himself to deletion of addition made by AO of unexplained investment u/s 69A of the Act as application of income. 13 Ld. CIT (A) erred in law and on facts confirming addition of R.s 12,53,63,490/- made by AO on account of unexplained advances.] 14 Ld. CIT (A) erred in law and on facts directing AO to make addition to the extent income determined in future not covering unexplained advances instead of confining himself to deletion of addition made by AO of unexplained advances u/s 69A of the Act as application of income. 15 Ld. CIT (A) erred in law and on facts confirming addition of Rs. 45 lakh as income from managing IPO of Ankit Metal & Power Ltd (AMPL). 16 Ld. CIT (A) erred in law and on facts confirming addition of income of Rs. 9 lakh (90000 shares @ Rs.10/) received from Vigneshwara Exports through MOU that was signed beyond the block period. 17 Ld. CIT (A) erred in law and on facts confirming addition of income of Rs. 3 Crores from Gremach Infrastructure (GIEPL) for IPO management on the basis of MOU that was signed beyond the block period. 18 Ld. CIT (A) erred in law and on facts confirming addition made by AO of Rs. 53,06,00,000/- as unaccounted income from Gitanjali Gems for price management
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& share trading activities in their shares. 19 Ld. CIT (A) erred in law and on facts making enhancement of income by Rs. 1,68,08,860/- of net receipt of margin money on the basis of remand report by AO without issuing show cause notice of enhancement. 20 Levy of interest u/s 234A, 234B, & 234C is not justified. 21 Initiation of penalty u/s 271(1)(c) of the Act is not justified.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
2.1 The assessee vide letter dated 07/09/2022 has filed the additional ground of appeal which is reproduced as under:
(a) The Ao erred issuing notice u/s.148 of for A.Y. 2008-09 which falls beyond six assessment years from the end of assessment year relevant to previous year in which search is conducted even though the use of non obstane clause is sub-section (1) of the Section 153-A i.e use of the expression nothwithstanding is indicative of the legislative intent that provisions of Section153-A(1) would have overriding effect over the provision contained in Sections 139, 147, 148,149,151 and 153 and if Assessing Officer is said to be justified in proceeding with section 147 to reopen the assessment, then there would be no relevance to section 153A, which was inserted in the Act to deal exclusively with search cases. (b) The AO erred to notice that the legislators in their wisdom clearly spelt out the provisions of law applicable to search cases by using the word 'shall' to begin with section 153A, made it mandatory that the Assessing Officer is bound to issue notice u/s 153A or 153C, thereafter proceed to assess or reassess the total income, where search is conducted u/s 132 which is further evidenced by amendment bythe Finance Act, 2017 w.e.f. 01.04.2017 that inserted 4th proviso to section 153A read with explanation 1, the expression "relevant assessment year" that means an assessment year which falls beyond six assessment years but not later than ten assessment years from the end of assessment year relevant to previous year in which search is conducted and had there been any intention of legislature to give power to AO to invoke section 148, then there was no need to insert 4mproviso to section 153A read with explanation 1. (c) The AO has erred in not applying his mind in any of the issue where additions have been made on 50:50 basis and also on protective basis and thus abdicating his duty as AO and diverting the decision, which as per Act are to be taken by the AO, on to the appellate authorities and thus acted against the basic scheme of assessment to be done by AO. (d) Without prejudice to the grounds taken above, the AO ought to have made assessment in the status of AOP as additions have been made on 50:50 between two persons.
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At the time of hearing, the learned AR appearing on behalf of the assessee did not press the additional ground raised by the assessee. Therefore we dismiss the same as not pressed.
The assessee in ground Nos. 1 to 6 has challenged the validity of the assessment framed under section 147/ 143(3) of the Act for various reasons including the reason that the AO has issued notice u/s 148 of the Act merely on information received from DDIT without reaching his own satisfaction based on the materials found during the course of search conducted under section 132 of the Act.
The facts in brief are that the assessee in the present case is an individual and engaged in the business of trading/ investments in shares/ securities and also acting as facilitators for investors. There was a search and seizure operation carried out under section 132 of the Act dated 04-12-2014 at various premises of the Barter Group. The assessee being a part of the group was also subject to search action carried out under section 132 of the Act. During the course of search proceedings, various documents of incriminating nature were found. Therefore, the proceedings under section 153A of the Act were initiated against the assessee.
5.1 However, the year under consideration was beyond the period for which the proceedings under section 153A of the Act could have been initiated. Accordingly, the AO on the basis of the materials found during the search proceedings initiated the income escapement proceedings under section 147 of the Act for the year under consideration. As such, the AO has received the information from the DDIT vide letter dated 24th of March 2015. The information received by the AO from the DDIT was running into 9 pages which is placed on pages 86 to 94 of the written submission which is available on record. The relevant extract of the letter received from the DDIT which was incorporated by the AO in the reasons recorded by him under section 147 of the Act is reproduced as under:
Submitted through the Add. DIT(Inv.) Unit-1, Ahmedabad.
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Subject: Dissemination of information in the case of Shri Anil Harilal Shah (ALHPS1805K) and Shri Atul Hiralal Shah (ALJPS4966M) pursuant to search conducted in the case of Accommodation Entry Providers Group of Ahmedabad on 04.12.2014-Reg. Kindly refer to the above. A search in the case of Shri Atul Hiralal Shah and Shri Anil Hiralal Shah alias Raju barter, their group concerns and their employees and relatives was carried out on 04.12.2014 at various premises. During the course fo search, evidence with regard to receipt of unaccounted cash was found and seized from various premises. Amongst other evidence seized the following evidence as detailed in the table below was also seized from the premises mentioned at column no.2 of the Table, below: Sr.No. Details of the premises from which Annexure No. Pages seized 1. Residence of Shri Sanket A-24 3 to 10 Jitendrabhai Vora9Shah), situated at C-104, Pushkar-3, Opp. Vitrag Society, P.T. College Road, Paldi, Ahmedabad-380007 2. Residence of Shri Shailesh Gandhi A-22 searched in the case of kush B Shah, situated at 4, Sahjanand Bunglows, Nr. Shalby Hospital, Ramdev Nagar, Ahmedabad. 3. 612A, Venus Atlantis, Near Shell Hard Disk ‘Gitan old sheet” in Petrol Pump, Anand Nagar Road, “VERAGE4”.xls file and Prahladnaghar, Satellite, “Gitanjali” excel in Ahmedabad “VERAGE4”xls file. 4. 612A, Venus Atlantis, Near Shell Hard Disk “Sheet 2” in “New Petrol Pump, Anand Nagar Road, Microsoft Excel Prahladnagar, Satellite, Ahmedabad. Wortksheet” 5. 612A, Venus Atlantis, Near Shell Hard Disk “Sheet3” of “geta intra Petrol Pump, Anand Nagar Road, day old” .xls Prahladnagar, Satellite, Ahmedabad
Based on the above information, the AO derived his satisfaction and recorded reasons to believe for initiating the proceedings under section 147 of the Act for income escaping assessment vide letter dated 24th of March 2015 which is reproduced as under: In this case intimation has been received from the DDIT(Inv) Unit(3). Ahmedabad vide letter dated 24-03-2015 that search u/s.132 conducted on 04/12/2014 in the cae of Shri Atul Hiralal Shah and Shri Anil Hiralal Shah alias Raju Barter, their group concerns and their employees and relatives at various premises. During the course of search, evidence with regard to receipt of unaccounted cash was found and seized from various premises during F.Y. 2007-08 relevant to A.Y. 2008-09. Amongst other evidence seized the following
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evidence as detailed in the table below was also seized from the premises mentioned at column No.2 of the table below: Sr.No. Details of the premises from Annexure No. Pages which seized 1. Residence of Shri Sanket A-24 3 to 10 Jitendrabhai Vora(Shah), situated at C-104, Pushkar- 3, Opp. Vitrag Society, P.T. College Road, Paldi, Ahmedabad 2. Residence of Shri Shailesh A-22 67 to 75 Gandhi searched in the case of kush B shah, situated at 4, sahanand Bunglows, Nr. Shailby Hospital, Ramdevnagar, Ahmedabad 3 612A Venus Atlantis, Near Hard Disk “Gitan old sheet” in Shell Petrol Pump, “VERAGE4”. Xls file and Anandnagar Road, “Gitanjali excel sheet” Prahladnagar, Ahmedabad. “VERAG”. xls.file 4 612A Venus Atlatis, Near Hard Disk “sheet 2” in New shell Petrol Pump, Microsoft Excel Anandnagar road, Worksheet” Prahladnagar, Satellite, Ahmedabad 5 612A Venus Atlastis, Near Hard Disk “sheet3” of “gitaintra shell Petrol Pump, day old”. xls Anandnagar Road, Prahladnagar, Satellite, Ahmednagar In view of the above facts of the case and legal position, thus it is clear that the income to the above extent has escaped the assessment by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for A.Y. 2008-09. I have reasons to believe that the income more than one crore assessable to tax has escaped assessment receipt in A.Y. 2008-09.
6.1 Consequently, the AO issued a notice dated 24th March 2015 under section 148 of the Act for initiating the proceedings under section 147 of the Act. The chronological sequence of events for initiating the proceedings under section 147 of the Act stand as under: From To Date Remarks DDIT Inv. Addl.DIT Inv. 24.03.2015 Letter prepared and dispatched by DDIT on the same day. Addl.DIT Inv. ICIT Central 24.03.2015 The letter is received and Range-1 again dispatched by Addl. DIT on same day.
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ICIT Central Range-1 ACIT Central 24.03.2015 The letter is received and Circle-1(2) again dispatched by JCIT on same day. ACIT Central Circle- …… 24.03.2015 Recorded reason by the A.O 1(2) on same day on same day. ACIT Central Circle- JCIT Central 24.03.2015 Sent proposal for Pr.CIT’s 1(2) Range-1 approval on same day. JCIT Central Range-1 Pr.CIT 24.03.2015 Forwarded the proposal on same day. Pr.CIT Central JCIT Central 24.03.2015 Accorded approval on same Range-1 day JCIT Central Range-1 ACIT Central 24.03.2015 Forwarded Pr.CIT’s Circle-1(2) approval on same day ACIT Central Circle- .. 24.03.2015 Issued notice on same day. 1(2)
6.2 Finally, the proceedings under section 147 of the Act were completed vide order dated 12th August 2016 after making the addition of Rs. 873,29,47,473/- for different reasons/ items of income.
Aggrieved assessee preferred an appeal before the Ld. CIT(A) challenging the validity of the assessment carried out under section 147 of the Act on the reasoning that notice under section 148 of the Act issued by the AO was not served upon the assessee. However, the learned CIT-A rejected the ground raised by the assessee challenging the validity of the assessment by observing as under:
Ground No.1 to 5 are against the re-opening of assessment u/s. 147 by issuing notice u/s. 148 of the Act. The appellant contended that the notice u/s. 148 of the Act was served upon one Shri Krishna Yadav, who was not in any way related to the appellant. He is neither relative nor employee of the appellant and was not authorized to receive the notice on behalf of the appellant. The appellant also contended that no proper reasons were recorded before issuing notice u/s. 148 of the Act. Therefore, the proceedings initiated u/s. 147 of the Act is ab-initio-void, hence, order passed in consequence to notice u/s. 148 of the Act may be quashed. The appellant cited several case laws in support of this contention. The facts of the case have been considered in totality with reference to the submission of the appellant and the case laws cited. As mentioned above, the AO issued notice u/s. 148 of the Act after recording the reasons and taking approval from higher authorities, as required by the provisions of the Act in this regard. The appellant complied with the notice and stated that the original return filed may be considered as return filed in response to the said notice. The reasons recorded were provided to the appellant and the appellant filed objections. The objections filed have been disposed off by the AO by passing the speaking order. The appellant filed Special Civil Application before the Hon'ble High Court of Gujarat, Ahmedabad against the order of disposing off the objections. The Hon'ble High Court vide order dated 13.6.2016 dismissed the SCA filed by the appellant stating that only on the ground of non- issuance of service of notice, re-opening proceedings are not terminated, since [ no other
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contention regarding the validity of the notice was raised. As the issue regarding service of notice has already been decided by the Hon'ble High Court against the appellant, this contention now has no merit, hence, dismissed. Regarding the validity of notice u/s.148 of the Act & reasons recorded, the appellant filed SCA before the Hon'ble High Court on the issue of re-opening of proceeding and he had an opportunity to take up all his grounds before the Hon'ble Court but he did not, knowing well that those contentions will also be dismissed. SCA before the Hon'ble Court cannot be filed issue/ ground wise. Thus, it is clear that raising this ground at this stage is totally irrelevant, as the same has already been decided by the Hon'bfe High Court. The various case laws cited by the appellant are not relied upon as the Hon'ble jurisdictional High Court has decided the issue against the appellant in its own case & for the same assessment year. From the facts mentioned above, it is clear that the AO followed the procedure laid down strictly, hence, these grounds of appeal are dismissed.
Being aggrieved by the order of the ld. CIT-A, the assessee is in appeal before us and has challenged the validity of the assessment framed under section 147 of the Act on various counts.
The learned AR before us specifies the facts that the AO issued notice under section 148 of the Act dated 24-03-2015 after receiving the letter from the DDIT (Inv) dated 24-03-2015. The AO has recorded the reason to believe on the same day and likewise, the approval from the ld. PCIT under section 151 of the Act was also obtained on the same day. As such, all the procedures in respect of initiation of assessment proceeding under section 147 of the Act have been done by the AO on same day only i.e. 24-3-2015. In this regard, the learned AR before us contended that there was no tangible information available with the AO so as to pinpoint any escapement of income in the hands of the assessee. As such, at the time of issuance of notice under section 148 of the Act the AO was neither having the possession of the seized documents nor he was having the possession of the ITR of the assessee. The learned AR in support of his contention drew our attention on page 3 of the assessment order where the fact about the non-availability of the ITR of the assessee for the year under consideration is recorded. Likewise, the ld. AR also drew our attention on the letter dated 09-12-2015 by the DDIT for handing over the search materials/ records to the AO which is placed on pages 74 of the written submission filed by the assessee.
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Thus, the AO recorded the reason to believe for the escapement of income without verifying the ITR of the assessee for the relevant assessment year viz a viz the search materials as discussed above. Therefore, the AO had not applied his mind on seized materials and the ITR to form the reason to believe for the escapement of income. As per the learned AR, the AO before issuing notice under section 148 of the Act for income escaping assessment has to form prima facie opinion that he has reason to believe that income of the assessee has escaped assessment which should be based on some tangible materials and that too after verification. But in the present case, the AO without verifying the details received from the search team and without applying his mind, has just formed his opinion that the income of the assessee has escaped assessment.
The learned AR further contended that the learned PCIT while granting approval under section 151 of the Act has recorded the satisfaction by using the words “After perusal of the records” dated 24th of March 2015 whereas no such record was available at that point of time. Therefore, it is flawless that the Approval was given by the learned PCIT in Mechanical manner and without recording the proper satisfaction.
On the other hand, the learned DR contended that the AO has recorded the reasons for income escaping assessment under section 147 of the Act after applying his mind and after verification of the search materials. In nutshell the learned DR opposed the issue raised by the assessee on the validity of the assessment framed under section 147/143(3) of the Act as discussed above and further vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. Form the preceding discussion, the following issues arise for our considerations:
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(1) Weather the reason to believe for re-opening assessment under section 147 of the Act must be of the assessing officer who derived such satisfaction after application of his mind. As such, the AO is not empowered to re-open assessment proceeding under section 147 of the Act based on borrowed satisfaction and merely on the basis some information available with him/her?
(2) Whether the Approval was granted by ld. PCIT under section 151 of the Act after applying his mind or in mechanical manner in the given facts and circumstances. 13.1 As regards question no. 1, we note that the power of assessment- reassessment are conferred on the Assessing Officer by the provisions of section 147/148 of the Act. But such power is subject to the certain conditions laid down under section 147/148/149/151 of the Act. One of the very first condition is that before issuing notice under section 148 of the Act for assessment proceeding under section 147 of the Act the AO must have to form reason to believe that income has escaped assessment. Thus, the AO for that purpose has to derive satisfaction which must fulfil the parameters of the undefined expression 'reason to believe'. The expression ‘reason to believe’ occurring in section 147 of the Act has been interpreted by various Hon'ble High Courts as well as the Hon'ble' Supreme Court of India in numerous cases. The phrase “reason to believe” has been interpreted by the Hon’ble Courts as there is a cause or justification to accept something true or to have faith. The phrase “the AO has reason to believe that income has escaped” the AO has something i.e. fresh material which cause to the AO or the AO has justification to accept that the income has been escaped. Thus to from reason to believe, there must be fresh or tangible material on record and the AO on application of mind on such materials has drawn belief that income has escaped. There must be nexus between the materials available on record and the belief that the income has been escaped.
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13.2 The expression 'reason to believe' occurring in section 147 of the Act inter- alia postulates that the information received from investigation wing, emanating from the search records would not per se empower the Assessing Officer to exercise the power of reassessment. While the report of the Investigation Wing might have constituted material on the basis of which the Assessing Officer formed the reasons to believe, the process of arriving at such satisfaction could not be a mere repetition of the report of investigation. As such the AO is required to apply his/her mind on such information and material received from the investigation wing to reach to primary belief that the income has escaped assessment. The AO is prima facie required to establish nexus between the material and the inference/ belief that income has been escaped. The reason to believe of the AO cannot be mechanical or merely based on satisfaction of other. To initiate proceedings under section 147 of the Act, it is the AO who has to reach to the prima facie belief that income has escaped and such belief has to be based on reasonable cause and justification.
13.3 Coming to the facts of the present case, we find that the crucial link between the information made available to the Assessing Officer and the formation of belief was absent. The "reasons to believe" recorded were not reasons but only conclusions and a reproduction of the conclusion in the investigation report received from the Directorate of Income Tax (Investigation). It was a "Borrowed satisfaction". The relevant extract of the information received from the DDIT and reasons recorded have already been reproduced somewhere in the preceding paragraph. On comparison of the information received from the DDIT and the reasons recorded by the AO, it is revealed that barring few words which were added by the AO in the reasons recorded by him are matching with the information received from the DDIT in verbatim. In fact, the AO, in the reasons recorded, discussed in detail the materials found by the search team and thereafter initiated the proceedings under the provisions of section 147 of the Act. Thus what is inferred is that there was no application of the mind of the AO which was pre-requisite for acquiring the jurisdiction under section 147/148 of the Act.
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13.4 As such, the AO in the reason recorded nowhere mentioned how he reached to believe that the information received form the investigation wing represent income of the assessee and such income has escaped assessment. There is no mention in reason recorded with respect to the fact that whether the assessee has filed original return of income or weather assessment under section 143(3) of the Act was made earlier or not. If the assessment under section 143(3) of the Act was completed earlier then how it was failure on the part of the assessee to disclose all material facts fully and truly during assessment proceeding or in return for initiating reassessment proceeding after expiry of 4 years from the end of relevant assessment year.
13.5 In addition to the above it is equally important to note that the AO at the time of recording the reasons to believe for issuing notice under section 148 of the Act was not in possession of the return of income. Thus in the absence of the return of income, how the AO can correlate the information received from the DDIT based on which the proceedings were initiated under section 147 of the Act. The relevant finding of the AO to this effect is reproduced as under:
In response, the assessee filed letter dtd.24.06.2015, submitted on 30.07.2015, stating that the Return of Income filed on 21.01.2009 for A.Y. 2008-09 with Ack. No.0450 with Central Circle-2(2), Ahmedabad may be treated as Return of Income filed u/s.148 of the Act. Vide letters dtd.10.08.2015, 13.10.2015 and 20.01.2016, the assessee was requested to provide a copy of the Return of Income for A.Y. 2008-09 stated to have filed with the ACIT, Central Cirde-2(2), Ahmedabad on 21.01.2009. 13.6 Further, the AO in the reason recorded only stated that information was received from DDIT that search under section 132 of the Act was conducted in the case of the assesse where certain materials were found. As such, the AO nowhere mentioned in the reasons recorded about the nature of transaction found and recorded in search materials except referring certain annexures impounded from the premises of different persons. There was no mentioned in the reason recorded to what extent the income has escaped assessment. It is surprisingly not known how the AO reached to believe that the income has been escaped assessment.
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13.7 It is also important to note that the provisions of section 149 of the Act prescribe that “no notice under section 148 of the Act can be issued if the 4 years have been elapsed from the end of relevant assessment year unless income chargeable to tax escaped assessment amounts to or is likely to amount to one lacs or exceeds or more for that year”. Thus, the provision of section 149 of the Act not only specifies the time limit to issue notice under section 148 but also the amount of income chargeable to tax. Hence, it is duty of the AO to quantify the amount of income chargeable to tax which has escaped assessment in reason to believe recorded. However, no such income has been quantified by the AO in the case of the assessee. On this basis also, it is established that the AO has not applied his mind in reaching to the reason to believe that income chargeable to tax has escaped. In holding so we draw support and guidance from the order of coordinate bench of Jaipur Tribunal in case of ITO vs. Satya Narayan Parwal reported in 96 ITD 362. The relevant observation of bench is extracted as under:
We are also of the opinion that it was necessary for the Assessing Officer to quantify the escaped assessment at the stage of recording of reasons in order to know that assessee enjoyed taxable income. The Assessing Officer did not mention the amount of incomeescaped for initiation of proceedings under section 147 of the Act. Section 149 of the Act makes it clear and obligatory on the part of the Assessing Officer to mention specific incomeescaped and the time limits for issue of notice under section 148 of the Act 13.8 In this regard we also find support and guidance from the judgment of Amritsar Tribunal on case of ACIT vs. Bhagat Industrial Corpn. Ltd. reported in 173 Taxman 55 where the coordinate bench observed as under:
Besides in the reasons recorded, the Assessing Officer has only mentioned that transactions contained in the seized documents were not in consonance with the Income-tax return of the assessee for the assessment year 1993-94 as the returned income for the said year is at Rs. 42,100. The Assessing Officer has not at all mentioned the nature of transactions found recorded on the seized documents, i.e., whether these were transactions of undisclosed purchases or sales, loans, deposits or accommodation entries. The extent of income which could be said to have escaped income would depend upon the nature of transaction. If these were transactions of trading in nature, only the profit element embedded therein would be liable to tax. If these are unexplained credits, the entire amount would be liable to be treated as unexplained credits. Nowhere the Assessing Officer has mentioned about the extent of income arising from these transactions that has escaped assessment. Further, the assessee had not maintained any books of account in the form of ledger and cash book. Therefore, it is not known as to on what basis, the Assessing Officer had observed that these transactions have not been entered in the books of account. Further, the very fact that income disclosed in the original return was Rs. 42,100 does not
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mean that the transactions found on the seized documents were not included or considered in the same. Therefore, on the basis of reasonsrecorded, it could not be said that there is a direct nexus between the material referred therein and formation of the belief that income chargeable to tax had escaped assessment. The reopening of the assessment still remains in the realm of mere suspicion, vague and unspecific. Therefore, the reopening of the assessment is not valid. The judgment of Hon'ble Supreme Court in the case of 'ITO v. Lakhmani Mewal Dass' (supra) and two decisions of ITAT, Chandigarh Bench in the case of 'DCIT, Cir. 1(2), Ludhiana v. M/s. AAG Exports (P.) Ltd., Ludhiana' (supra) and 'M/s. Goyal Kritwears, Ludhiana v. ACIT, Range VI, Ludhiana' (supra) support this view. In this view of the matter, we do not find any justification to interfere with the order of the CIT(A). The same is upheld and the grounds of appeal of the revenue are dismissed."
13.9 In view of the above, the search information received from the investigation wing was used to form the reason to believe by the AO but without application of mind. Thus, the reasons were merely recorded on the borrowed satisfaction by the AO. The source for all the conclusions was of the investigation report. The tangible material which formed the basis for the belief that income had escaped assessment must be evident from a reading of the reasons. The reasons failed to demonstrate the link between the tangible material and the formation of the reason to believe that income had escaped assessment. The Assessing Officer had not independently considered the tangible material which formed the basis for the reasons to believe that income had escaped assessment.
13.10 We also note that the Hon'ble High Court of Bombay in the case Principal Commissioner of Income-tax-5 v. Shodiman Investments (P.) Ltd held that reopening of assessment on the basis of intimation received from DDIT (Investigation) about a particular entity entering into suspicious transactions, was clearly in breach of the settled position of law that reopening notice has to be issued by the Assessing Officer on his own satisfaction and not on borrowed satisfaction. The relevant observation of the Hon’ble High Court is extracted 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
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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."
13.11 The power to reopen a completed assessment under section 147 of the Act has been bestowed on the Assessing Officer, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. However, this belief that income has escaped assessment has to be the reasonable belief of the Assessing Officer himself and cannot be an opinion and/or belief of some other authority. On the basis of the information by itself received from another agency, there cannot be any reassessment proceedings. However, after considering the information/material received from other source, the Assessing Officer is required to consider the material on record in case of the assessee by applying his mind and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is
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that the satisfaction recorded should be 'independent' and not 'borrowed' or 'dictated' satisfaction. Law in this regard is now well-settled.
13.12 Third party information is only an information and does not constitute 'reason to believe' until and unless the third party information is subjected to investigation and on the basis thereof independent reasons are recorded by the Assessing Officer before issuance of notice under section 148 of the Act. In this regard we draw support and guidance from the judgment of Supreme Court in case of ACIT Vs Dhariya Construction co reported in 197 taxman 202 wherein it was held as under:
“Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income-tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the civil appeal. The Department was not entitled to reopen the assessment.”
13.13 At this juncture, it is important to note that the Hon’ble Gujarat High Court in various cases has held the reopening under section 147 of the Act is valid if it is based on the information received from the DDIT. In this connection, we make a reference to the following judgments: (i) Aishwarya Dying Mills (P.) Ltd. Vs. DCIT [2018] 94 taxmann.com 430 (Guj.) (ii) Zaveri & Company (P.) Ltd. Vs. DCIT [2021] 133 taxmann.com 397 (Guj.) (iii) Surani Steel Tubes Ltd Vs. ITO [2022] 136 taxmann.com 139 (Guj.)
13.14 However, we note that the facts of the case cited above are distinguishable from the present facts of the case. In all those cases the Hon’ble High Court found that the AO upon receiving of information and materials from DDIT made preliminary verification of the same and found that the assessee has received long term capital gain on sale of shares of shell companies or the assessee was engaged in systemic evasion of taxes. Thereafter, the AO recorded the reason to believe that income has been escaped to the extent of sale amount of shares. However in the
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case of appellant assessee before us, the AO has not applied his mind at all. There was no nexus established in the reason recorded with regard to the opinion formed and material supplied by the DDIT. The current AO has nowhere mentioned in the reason recorded about the nature of income and to what extent such income has escaped assessment. Hence, in our humble and considered opinion, the ratio laid down by the Hon’ble Jurisdictional High Court in above mentioned cases are not applicable to the facts of the case on hand. One more distinguishing feature is there in the case on hand viz a viz in the cases cited above. In the cases cited above, the search was conducted at the premises of the 3rd party and the information was received by the AO of different parties from the office of DDIT whereas in the case on hand the search was conducted at the premises of the assessee himself. Thus the information was received by the AO of the assessee from DDIT which was used for the purpose of initiating the proceedings under section 147 of the Act. As such, in the case of the assessee, the information was not received as a result of search at the premises of the 3rd party. Generally, when the information is received as a result of search which was conducted at the 3rd party, in that background, there is less scope for the AO to carry out the necessary verification of such information but it is not so when the information was received as a result of search from the premises of the assessee who was subject to the income escapement proceedings under section 147 of the Act.
13.15 Now moving to the next question whether the approval granted by the learned PCIT under section 151 of the Act was based on the application of mind or it was granted in mechanical manner. We note that the AO has received the report from DIT (INV) UNIT-1(3) Ahmedabad on 24-03-2015. The AO recorded the reason to believe and obtain the approval of the PCIT on same day i.e. 24th of March 2015. The learned PCIT while approving the reopening noted as under: After perusal of records and in view of reasons given by A.O in Annexure, I am satisfied that income has escaped assessment in this case and it is a fit case for issue of notice U/s.148 of I.T. Act. Therefore, necessary approval is accorded.
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13.16 From the above it is seen that learned PCIT has granted approval after perusal of the records whereas the fact is that there was no record available before him except the letter dated 24th of March 2015 as discussed above. It is for the reason that the search materials was received by the AO from the DDIT dated 09- 12-2015 which is evident from the impugned letter, the relevant extract is reproduced as under: In this regard, a letter No.ADIT(Inv.)/Unit-1(3) AEPGOA/2015-16 dated 08.12.2015 received from the ADIT(Inv.), Unit-1(3), Ahmedabad, regarding handing over of seized materials in respect of Accommodation Entry Providers Group of Ahmedabad is enclosed herewith for immediate necessary action in the matter.
13.17 Thus, from the above it is envisaged that the there was no material available on record before the learned PCIT to verify before approving the initiation of reassessment proceeding for income escaped assessment. Still the learned PCIT noted that the he has verified the material which shows non-application of mind and mechanical approach of the learned PCIT in giving approvl for initiating reassessment proceeding. The learned PCIT was vested with power to approve the initiation of proceeding against the assessee in certain circumstances therefore he/she is expected to verify the detail after application of mind in order to reach to the conclusion that such detail and information is fit case for initiation of reassessment proceeding. The Hon'ble Supreme Court in the case of AnirudhSinhji KaranSinhji Jadeja v. State of Gujarat AIR 1959 SC 2390 has held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether. The cases reopened on the basis of information received from the other Departments are also governed by the aforesaid principle of making an independent inquiry and recording of satisfaction by the Assessing Officer for issuing notice under section 148 of the Act.
13.18 It is also important to note that this Tribunal in the case of Shri Ashok Sunderdas Vaswani in ITA 456/AHD/2019 vide order dated 12-11-2020, involving
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identical facts and circumstances, has decided the issue on hand in favor of the assessee. The relevant finding of the ITAT reads as under:
Coming to the second question of the assessee, we note that the power of reassessment is conferred on the Assessing Officer by the provisions of Section 147/148 of the Act. But such power is subject to the certain conditions laid down under Section 147/148/149/151 of the Act. One of the very first condition is that before issuing notice under Section 148 of the Act for reassessment proceeding under Section 147 of the Act the AO must have reason to believe that income has been escaped assessment. Thus the AO for that purpose has to record a satisfaction note which must fulfill the parameters of the undefined expression 'reason to believe'. The expression ‘reason to believe’ occurring in Section 147 of the Act has been interpreted by various Hon'ble High Courts as well as the Hon'ble' Supreme Court of India in numerous cases. The question in the present case is as to whether the information received from the investigation wing/search team would constitute 'reason to believe' empowering the Assessing Officer to reopen the assessment. Indeed the 'reason to believe' being a condition precedent for reopening the assessment is a question of jurisdiction. 88. The expression 'reason to believe' occurring in Section 147 of the Act inter-alia postulates that the information received from investigation wing, emanating from the search records would not per se empower the Assessing Officer to exercise the power of reassessment. Such information with regard to escapement of income which comes into possession of an Assessing Officer has to be processed and, on the basis, thereof an opinion has to be formed objectively before issuing notice under Section 148 of the Act to an assessee. In other words the information received from the investigation wing cannot be said to be tangible material per se without a further inquiry being undertaken failing which the decision of the Assessing Officer in issuing notice for reopening of assessment would be a result of borrowed satisfaction and notices would be as a result of assumption of jurisdiction. While the report of the Investigation Wing might have constituted material on the basis of which the Assessing Officer formed the reasons to believe, the process of arriving at such satisfaction could not be a mere repetition of the report of investigation wing. 89. In the assessee's case, the crucial link between the information made available to the Assessing Officer and the formation of belief was absent. The "reasons to believe" recorded were not reasons but only conclusions and a reproduction of the information received from the Director (Investigation). Hence it is nothing but a "Borrowed satisfaction". 90. The AO, in the reasons recorded, discussed in details the materials found by the search team and thereafter initiated the proceedings by observing as detailed under: On the basis of analysis base on above seized documents it has been found that these transaction are done in cash by ASV (Ashok Sunderdas Vaswani) for the relevant assessment year 2008-09.
Date Page Receipt (Rs.) Reference of Payment Reference of no./Annexure receipt (Rs.) Payment
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5.10.2007 145/A-64 9800000 Vejalpur-1062 61500 ASV 71p 450000 ASV sarafi - - from Gopal/ishwar 08.10.2007 140/A-64 10400000 Vejalpur-1062 41400 ASV 71p 3300000 ASV - - 15.10.2007 126/A-64 9800000 Vejalpur-1062 2500000 ASV 71p 1700000 ASV 1057600 ASV - - 68837 ASV - - 15000 ASV 24.10.2007 104/A-64 5000000 Vejalpur-1062 11400 ASV 71p 1000000 ASV - - 8.02.2008 81/A-66 5000000 Vejalpur 1062 - - 8.02.2008 81/A-66 500000 ASV - - Total 43980000 3755737
In view of the above facts, I have reason to believe that income amounting to Rs. 4,77,35,737/- chargeable to tax has escaped assessment within the meaning of Section 147 of the Act by reason of the failure of the assessee to disclose fully and truly all material facts necessary for assessment.” 91. Thus what is inferred from the satisfaction recorded by the AO is that there was no application of the mind of the AO which was pre-requisite for acquiring the jurisdiction under Section 147/148 of the Act. As such the AO in the reason recorded nowhere mentioned how he reached to believe that the information received form the investigation wing represent income of the assessee and such income has escaped assessment. There is no mention in reasons recorded with respect to the fact that whether the assessee has filed original return or weather assessment under Section 143(3) was made earlier or not. if assessment under Section 143(3) completed earlier then how it was failure on the part of the assessee to disclose all material facts fully and truly during assessment proceeding for initiating reassessment proceeding after expiry of 4 year from the end of relevant assessment year. 92. Further, we note that search under Section 132 of Act was conducted as on 10th and 12th March 2015 in case of assessee group. The last date of Panchnama was made as on 6th and 8th May 2015. From this what doubt arises is that there was no material available before the AO as on the date of issue of notice under Section 148 of the Act to analyze and form a
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prima facie believe that the income has escaped assessment for the year under consideration. 93. In the present case the search information received from the investigation wing was used to form the reason to believe by the AO but without applying the mind. Thus the reasons were merely recorded on the borrowed satisfaction by the AO. The source for all the conclusions was of the investigation report. The tangible material which formed the basis for the belief that income had escaped assessment must be evident from a reading of the reasons. The reasons failed to demonstrate the link between the tangible material and the formation of the reason to believe that income had escaped assessment. The Assessing Officer had not independently considered the tangible material which formed the basis for the reasons to believe that income had escaped assessment. 94. The Hon'ble High Court of Bombay in the case Principal Commissioner of Income- tax-5 v. Shodiman Investments (P.) Ltd. reported in 422 ITR 337 holding that reopening notice on the basis of intimation from DDIT (Investigation) about a particular entity entering into suspicious transactions, was clearly in breach of the settled position of law that reopening notice has to be issued by the Assessing Officer on his own satisfaction and not on borrowed satisfaction. The Hon’ble Court has pronounced 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. 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."
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The power to reopen a completed assessment under Section 147 of the Act has been bestowed on the Assessing Officer, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. However, this belief that income has escaped assessment has to be the reasonable belief of the Assessing Officer himself and cannot be an opinion and/or belief of some other authority. On the basis of the information by itself received from another agency, there cannot be any reassessment proceedings. However, after considering the information/material received from other source, the Assessing Officer is required to consider the material on record in case of the assessee by applying his mind and thereafter is required to form an independent opinion on the basis of the material on record that the information has bearing on the income of the assessee and such income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be 'independent' and not 'borrowed' or 'dictated' satisfaction. Law in this regard is now well-settled. 96. The Hon'ble Supreme Court in the case of Anirudh Sinhji Karan Sinhji Jadeja v. State of Gujarat reported in [1995] 5 SCC 302 as well has held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether. The cases reopened on the basis of information received from the other Departments are also governed by the aforesaid principle of making an independent inquiry and recording of satisfaction by the Assessing Officer issuing notice under Section 148 of the Act. 97. Third party information is only an information and does not constitute 'reason to believe' until and unless the third party information is subjected to investigation and on the basis thereof independent reasons are recorded by the Assessing Officer before issuance of notice under Section 148 of the Act. 98. Moving further, we also note that the assessee was already assessed under the provisions of Section 143(3) of the Act vide order dated 22nd November 2010. Accordingly the 1st proviso in Section 147 of the Act has a direct bearing on the issue on hand. It is stated therein that there cannot be any action under Section 147 of the Act after the expiry of the 4 years from the end of the relevant assessment year until and unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make disclosure of all the material facts truly and fully necessary for assessment. In the present case, we have already held that initiation of the proceedings under Section 147 of the Act was based on the borrowed satisfaction. Thus it is implied that the AO has not applied his mind to arrive at the conclusion that there was of failure on the part of the assessee to disclose fully and truly all the material facts. In other words, mentioning by the AO that the assessee has failed to disclose all material facts in the reasons recorded is not sufficient enough. Rather the AO is under the obligation to arrive at such conclusion that the assessee failed to disclose all material facts necessary for the assessment after applying his mind and verification of the facts. But the AO has not done so. In holding so we draw support and guidance from the judgment of Hon’ble Bombay High court in case of Gateway Leasing (P.) Ltd vs. ACIT reported in 117 taxmann.com 442 where it was held as under: 35. Having discussed the above, we may once again revert back to the reasons furnished by Respondent No. 2 for re-opening of assessment under Section 147 of the Act. After referring to the information received following search and seizure
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action carried out in the premises of Shri Naresh Jain, it was stated that information showed that Petitioner had traded in the shares of M/s. Scan Steels Ltd., and was in receipt of Rs. 23,98,014.00 and therefore, Respondent No. 2 concluded that he had reasons to believe that this amount had escaped assessment within the meaning of Section 147 of the Act. 36. First of all it would be evident from the materials on record that Petitioner had disclosed the above information to the Assessing Officer in the course of the assessment proceedings. All related details and information sought for by the Assessing Officer were furnished by the petitioner. Several hearings took place in this regard where-after the Assessing Officer had concluded the assessment proceedings by passing assessment order under Section 143 (3) of the Act. Thus it would appear that Petitioner had disclosed the primary facts at its disposal to the Assessing Officer for the purpose of assessment. He had also explained whatever queries were put by the Assessing Officer with regard to the primary facts during the hearings. 37. In such circumstances, it cannot be said that Petitioner did not disclose fully and truly all material facts necessary for the assessment. Consequently, Respondent No. 2 could not have arrived at the satisfaction that he had reasons to believe that income chargeable to tax had escaped assessment. In the absence of the same, Respondent No. 2 could not have assumed jurisdiction and issued the impugned notice under Section 148 of the Act In view of the above, we hold that the initiation of proceedings under Section 147/148 of the Act are not valid in the eyes of law and liable to be quashed for the reason that the AO failed to apply his mind. Thus the reasons were merely recorded on the borrowed satisfaction by the AO. The source for all the conclusions was of the investigation report. Accordingly, we quash the same. 99. Moving ahead to question number 3we note 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 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. The issue arises whether AO on having dropped the item of escaped income, on the basis of which reasons to believe were formed and notice u/s. 148 was issued, after getting a satisfactory explanation from the assessee, can validly tax "other items of escaped income" which come to his notice during reassessment proceedings. In this regard, the Courts have noticed that the Parliament has 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. The correct interpretation would be to regard those 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". It has been emphasized that the words "and", as well as "also" have been used together and in conjunction. 100. Evidently, therefore, what the Parliament intends by use of the words "and also" is that the AO, 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' refer to the income which became the basis for recording reasons and issue of notice u/s. 148. The expression "any other income" refers to such escaped income which came to
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the notice of the AO during the course of reassessment proceedings and in respect of which no reasons were recorded before issue of notice u/s 148. The Hon’ble Bombay high Courts in case of CIT vs. Jet Airways reported in 331 ITR 236 have held that: 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' refer 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] Similarly the Hon’ble Karnataka High Court in case of N Govindraju v ITO reported in 377 ITR 243 held as under: 24. The 'reason to believe' that any income chargeable to tax has escaped assessment, is one aspect of the matter. If such reason exists, the Assessing Officer can undoubtedly assess or reassess such income, for which there is such 'reason to believe' that income chargeable to tax has escaped assessment. This is the first part of the Section and up to this extent, there is no dispute. 25. It is the latter part of the Section that is to be interpreted by this Court, which is as to whether the second part relating to 'any other income' is to be read in
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conjunction with the first part (relating to 'such income') or not. If it is to be read in conjunction, then without there being any addition made with regard to 'such income' (for which reason had been given in the notice for reopening the assessment), the second part cannot be invoked. But if it is not to be read in conjunction, the second part can be invoked independently even without the reason for the first part surviving. 26. From a plain reading of Section 147 of the Act it is clear that its latter part provides that 'any other income' chargeable to tax which has escaped assessment and which has come to the notice of the Assessing Officer subsequently in the course of the proceedings, can also be taxed. The said two parts of the Section having been joined by the words 'and also', what we have to now consider is whether 'and also' would be conjunctive, or the second part has to be treated as independent of the first part. If we treat it as conjunctive, then certainly if the reason to believe is there for a particular ground or issue with regard to escaped income which has to be assessed or reassessed, and such ground is not found or does not survive, then the assessment or reassessment of 'any other income' which is chargeable to tax and has escaped assessment, cannot be made. 101. In the light of the above stated discussion, we proceed to adjudicate the issue on hand. From the reasons recorded we note that the AO has proposed the additions in the reasons recorded as detailed under: On the basis of analysis base on above seized documents it has been found that these transaction are done in cash by ASV (Ashok Sunderdas Vaswani) for the relevant assessment year 2008-09. Date Page Receipt (Rs.) Reference of Payment Reference of no./Annexure receipt (Rs.) Payment 5.10.2007 145/A-64 9800000 Vejalpur-1062 61500 ASV 71p 450000 ASV sarafi - - from Gopal/ishwar 08.10.2007 140/A-64 10400000 Vejalpur-1062 41400 ASV 71p 3300000 ASV - - 15.10.2007 126/A-64 9800000 Vejalpur-1062 2500000 ASV 71p 1700000 ASV 1057600 ASV - - 68837 ASV - - 15000 ASV 24.10.2007 104/A-64 5000000 Vejalpur-1062 11400 ASV 71p 1000000 ASV - -
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8.02.2008 81/A-66 5000000 Vejalpur 1062 - - 8.02.2008 81/A-66 500000 ASV - - Total 43980000 3755737
However, the AO has made the addition in the assessment framed under Section 147/143(3) of the Act as detailed under:
Sr.No. Item of Addition Amount (in Rs.) 1. Parmanand Khattar 1,05,00,000/- 2. Investment in Shop 1,00,00,000/- in 3rd Eye 3. Investment in 10,45,410/- Bungalows 4. Golden 4,16,35,050/- 5. Swapnalok 33,000/- 6. Abhishek 6,28,200/- 7. Transaction of 8,29,49,396/- Personal Nature 8. Transaction marks as 28,30,01,684/- “against EC/Sarafi etc’’ 9. Transaction related 37,31,117/- to Projects 10. Other land 74,25,715/- Transaction 11. Miscellaneous 1,35,60,365/- Transactions
On comparison to the above additions documented by the AO in the reasons recorded with the actual addition made by the AO in the assessment order, we note that there was no addition made by the AO in the assessment order which was proposed in the reasons recorded by the AO in actuality.
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The learned DR at the time of hearing has submitted that the following addition made by the AO in the assessment framed under Section 147 /143(3) of the Act were also proposed in the reasons recorded. On analysis of cash book (total 142 annexure), it was noticed that (i) Rs.8,29,49,396/- is in nature of payment in cash was recorded in name of the assessee. (ii) Rs.1,35,60,365/- is in nature of payment in cash which was paid to others. The above payments made by the assessee were remained unexplained and following additions were made: Sr. No Particulars Amount in Rs. 1 Unexplained expenditure 8,29,49,396 towards payment made in cash (personal nature) 2 Unexplained expenditure 1,35,60,365 (miscellaneous transaction)
In view of the above, the learned DR contended before us that the assessment framed under Section 147/143(3) of the Act is valid as 2 addition which were proposed in the reasons recorded were also actually added to the total income of the assessee. 103. However, on comparison of the additions proposed in the reason to believe recorded for the assessment under Section 147 of the Act with the actual addition made by the AO as contended by the learned DR hereinabove, we find that the additions which were proposed in the reasons recorded were not matching with the actual additions made by the AO in the assessment order under Section 147/143(3) of the Act. As such the amount of addition viz a viz the basis of re-opening as proposed in the reasons recorded were not matching with the addition made by the AO in the assessment framed under Section 147/143(3) of the Act. Accordingly, we hold that there cannot be any addition in the assessment framed under Section 147/143(3) of the Act in the given facts and circumstances. In view of the above we quash the assessment framed under 147 of the Act. Hence, the grounds of appeal of the assessee are allowed. 104. The assessee in grounds nos. 1 to 18 of the appeal has challenged the additions made by the AO on merit which were partly confirmed by the ld. CIT-A. 105. As the assessment order framed under Section 147 r.w.s. 143(3) of the Act has been held as invalid by us in the paragraph bearing No.78of this order, therefore we are not inclined to decide the issues raised by the assessee on merit. Accordingly, we dismiss the same as infructuous.
13.19 In view of the above, we hold that the initiation of proceedings under section 147/148 of the Act are not valid in the eyes of law and liable to be quashed.
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Accordingly, we quash the same. Hence the technical grounds of appeal of the assessee are hereby allowed.
13.20 Since, we have quashed the assessment under section 147 r.w.s. 143(3) of the Act and allowed the appeal of the assessee on technical ground we restrain ourselves from giving finding on merit of the case. As such, the issues on merit become infructuous. Therefore, the grounds of appeal of the assessee on merit are hereby dismissed as infructuous.
13.19 In the result appeal of the assessee in ITA No.1329/Ahd/2018 is hereby partly allowed.
Coming to the ITA No. 2328/Ahd/2018 for AY 2008-09, an appeal by the assessee in the case of Shri Anilbhai Hiralal Shah.
Since, we have quashed the assessment order under section 143(3) r.w.s. 147 of the Act on technical ground , penalty imposed under section 271(1)(c) of the Act has no leg to stand, the same is accordingly dismissed as infructuous .
14.1 In the result the appeal filed by the assessee is dismissed as infructuous.
Coming to the ITA No. 1453/AHD/2018 for AY 2008-09, an appeal by the Revenue in the case of Shri Anilbhai Hiralal Shah.
As regards, the appeal of the Revenue is concerned, since we have quashed the assessment order passed under section 143(3) read with section 147 of the Act as discussed in the preceding paragraph, the appeal of the Revenue does not survive, and the same is accordingly dismissed.
15.1 In the result the appeal filed by the Revenue is dismissed.
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Now, we take up the appeal of the assessee in the case of Shri Atulbhai Hiralal Shah in ITA No.1330/Ahd/2018 and penalty appeal in ITA No.2327/Ahd/2018 for A.Y. 2008-09.
Admittedly, the facts and issues involved in these appeals are identical to the appeals in the case of Shri Anilbhai Hiralal Shah, which we have partly allowed the quantum appeal vide paragraph 13 to 13.19 of this order and dismissed the penalty appeal of the assessee as infructuous vide paragraph no. 14 of this order. Thus, respectfully following the same we partly allow the assessee’s appeal bearing ITA No. 1330/Ahd/2018 and dismissed the penalty appeal of the assessee as infructuous bearing ITA No. 2327/Ahd/2018 for the reasons stated therein.
17.1 In the result, the appeal filed by the assessee bearing ITA No.1330/Ahd/2018 is partly allowed whereas ITA bearing No.2327/Ahd/2017 for A.Y. 2008-09 is dismissed as infructuous.
Coming to the Revenue appeal bearing ITA No. 1454/Ahd/2018, an appeal by the Revenue in the case of Shri Atulbhai Hiralal Shah.
As regards the appeal of the Revenue is concerned, since we have quashed the assessment order passed under section 143(3) read with section 147 of the Act, the appeal of the Revenue does not survive, and the same is accordingly dismissed.
18.1 In the result, the appeal filed by the Revenue is dismissed.
In the combined results, the appeal filed by two different assessee bearing ITA Nos. 1329-1330/Ahd/2018 for A.Y.2008-09 are partly allowed whereas appeals of the assessee bearing ITA Nos.2327-2328/Ahd/2018 for A.Y. 2008-09 are
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dismissed as infructuous and appeals of the Revenue bearing ITA Nos.1453- 1454/Ahd/2018 for A.Y. 2008-09 are dismissed.
Order pronounced in the Court on 30/11/2022 at Ahmedabad.
Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy) Ahmedabad; Dated 30/11/2022 Manish