DCIT, CENTRAL CIRCLE - 1(1), KOLKATA , KOLKATA vs. M/S. ALEMBIC MERCHANTS PVT. LTD., , KOLKATA

1 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd आयकर अपीलीय अधीकरण, �यायपीठ –“C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Hon’ble Shri J.Sudhakar Reddy, AM and Hon’ble Shri A. T. Varkey, JM ITA No. 1826/Kol/2018 Assessment Year: 2009-10 DCIT, Central Cir-1(1), Kolkata Vs. M/s. Alembic Merchants Pvt. Ltd PAN: AACCA 0918Q Appellant Respondent

Date of Hearing (Virtual) 22-09.2020, 01.10.2020 &16.10.2020 Date of Pronouncement 20.11.2020 For the Appellant Shri Jayanta Khanra, JCIT, Ld. Sr. DR For the Respondent Shri Manish Tiwari, FCA, Ld.AR

ORDER Shri A. T. Varkey, JM

This is an appeal preferred by the revenue against the order of Ld. CIT(A)-2, Kolkata dated 04-06-2018 for the assessment year 2009-10.

1) For that the Ld. (Appeals) -2, Kolkata has erred on facts and in law in holding that the terms ‘issue’ and ‘serve’ are used interchangeably, by relying on the decision of the Hon’ble Supreme Court in the case of Benarasi Debi Vs. ITO, disregarding the fact that the Hon’ble Apex Court, in a subsequent decision in the case of R.K. Upadhyay Vs. Shanbhai P.Patel has distinguished the said judgment and held that the notice under section is valid if it is issued on or before the time-barring date. 2) For that the Ld. (Appeals) -2, Kolkata has erred on facts as well as in law by holding that the assessment made under section 147/144 on 11.12.2017 is barred by limitation of time, disregarding the provisions of section 153(2) which provide that, no assessment or reassessment shall be made after mine months from the end of the financial year in which notice under section 148 is served. And in this case, notice under section 148 was served in financial year 2016- 17, hence, the assessment could have been made upto 31.12.2017. 3) For that the Ld. CIT (Appeals)-2, Kolkata has erred on facts and in law by placing reliance on a decision of the Hon'ble Supreme Court, i.e. Banarasi Debi Vs. ITO, which has been distinguished and superseded in a subsequent decision in the case of R.K.

2 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd Upadhyay Vs. Shanabhai P. Patel.

4) That the appellant craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or hearing of this appeal.

“I have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellant company as well as the assessment order framed in the light of the materials available on record before the assessing officer

3 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd during the assessment proceedings.

The facts of the case is that the AO issued notice u/s. 148 of the I.T Act, 1961 on 31.03. 2016 for re-opening of assessment after obtaining necessary approvals. However, the notice was not served on the appellant company. The appellant therefore did not file any return of income u/s. 148 of the Act. Thereafter, the AO issued notices u/s. 142(1) on 16.08.2017 and on subsequent dates which were challenged by the appellant company in course of assessment proceedings itself. It was brought to the notice of the AO that if the notice u/s. 148 was issued and served before 31.03.2016, the order u/s. 147 was barred by limitation as contained in provisions of section 153(2) of the Act and if the notice u/s. 148 was issued and served after 31.03.2016 then the notice u/s. 148 itself was barred by limitation u/s. 149 of the I.T Act, 1961. The AO however after considering the submissions made by the A/R proceeded to pass order u/s. 147/144 of the I.T Act, 1961 by making an addition of Rs. 4,08,00,000/- and by misinterpreting the provisions of section 148, 149 and 153(2) of the I.T. Act, 1961.

The appellant had e-filed its original return of income for AY 2009-10 u/s. 13(1) on 25.09.2009. The said return was not selected for any scrutiny assessment. The limitation period of six years from the end of the relevant assessment year as contained in section 149(1) of the Act for the purposes of assessing the income of the appellant was to expire on 31.03.2016. The AO alleges that such notice u/s. 148 of the Act was issued and also dispatched to the appellant on 31.03.2016. But the said notice remained unserved. However, finally the said notice was served through e-mail on 22.09.2016 to the appellant.

The issue which comes up for consideration is that what should be the date of service of notice dated 31.03.2016 issued u/s. 148 of the Act. An objection was raised before the AO that by virtue of section 153(2) which provides for the time limit for completion of reassessment within nine months from the end of the financial year in which notice u/s. 148 of the Act was served upon the assessee, the impugned proceedings were already barred by limitation as on 31.12.2016 since the date issue & dispatch of notice u/s. 148 of the Act was 31.03.2016, the relevant assessment order u/s. 147 could have been passed only up to 31.12.2016.

The AO interpreted that issuance of notice u/s. 148 and service of notice u/s. 148 are two different things and since the service of notice u/s. 148 of the act was made through email on 22.09.2016 i.e in next financial year 2016-17 the assessment could have been completed upto 31.12.2017.

The above interpretation of AO is incorrect in view of the decision of Hon’ble Apex Court in the case of Banarasi Debi v ITO reported in 53 ITR 100 where in it was held that the expression “issued” and served are used as interchangeable terms and in legislative practice of our country they are sometimes used to convey the same idea. In other words, the expression “issued” is used in a limited as well as wider sense. The word “issued” u/s. 4 of the Indian Income Tax (Amendment) Act 1959, must not be given a limited meaning i.e issued means “sent”.

4 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd It is a settled law that the expression serve means the date of issue of notice. The Hon’ble Delhi High Court in “VRA Cotton Mills (P) Ltd v. Union of India (CWP No. 18193 of 2011, dated 27.09.2011) has held as follows:- “In view of the said judgement, the date of receipt of notice by the addressee is not relevant to determine, as to whether the notice has been issued within the prescribed period of limitation. The expression serve means the date of issue of notice. The date of receipt of notice cannot be left to be undermined dependent upon the will of the addressee. Therefore, to bring certainly and to avoid attempts of the addressee to evade the process of receipt of notice, the purpose of the statue will be better served, if the date of issue of notice is considered as compliance of the requirement of proviso to section 143(2) of the Act. In fact that is the only conclusion that can be arrived as to the expression ‘serve’ appearing in section 143(2) of the Act.” Similarly, it is the date of issue of the notice u/s. 148, and not actual receipt of notice by assessee which is relevant to return a finding as to whether re-assessment proceedings have been initiated within period of limitation. The Hon’ble Punjab & Haryana High Court in the case of CIT v. K.G Singhania (2012) reported in 24 Taxmann.com 208. It is further the contentions gain strength from the following decisions wherein the notice was issued within time but was served on the assessee after the expiry of the time limit, it held to be valid- R.K Upadhyaya V Shananhai Patel P.Patel (1987) 166 ITR 163 (SC); CIT v Sheo Kumari Debi (1986) 157 ITR 13 (Pat) (FB) and Jai Hanuman Trading Co P.Ltd (1977) 110 ITR 36 ( P & H ) (FB). Similarly, in framing an assessment time period/limitation period as prescribed in Act on date of issue of notice would apply and not on the date of service of such notice as held in the case of C.B Richards Ellis Mauritius Ltd v. ADIT (2012) 208 Taxmann 322 (Delhi). Further, in the case of CIT v. Major Tikka Khuswant Singh (1995) reported in 80 Taxman 88 (SC), it was held that issuance of notice within period of limitation gives jurisdiction to AO to proceed to make reassessment, irrespective of whether or not such notice is served within period of limitation. Thus, from the aforesaid submissions, it has be held that the service of notice date has to be considered as 31.03.2016 only which is same as the date of issue and dispatched of notice u/s. 148 by the AO. Now, the time limit for completion of reassessment shall be governed by sub-section (2) of section 153 of the Act, which is reproduced as follows:- “No order of assessment, reassessment, or recomputation shall be made u/s. 147 after the expiry of nine months from the end of the financial year in which the notice u/s. 148 was served.” From the above, since the financial year in which notice u/s. 148 was served ended on 31.03.2016, the reassessment order ought to have been made by the AO till 31.12.2016 and the impugned order u/s. 147/144 being passed on 11.12.2017 is barred by limitation and should be quashed/annulled. On one hand the AO’s contention is that the notice u/s. 148 of the Act was issued and dispatched on 31.03.2016 thus the requirement of issue of notice as contained in section 149 of the is fulfilled and since the service of notice u/s. 148 of the Act to the appellant was made through e-mail dated 22.09.2016 i.e. in financial year 2016-17, the period of nine months will be reckoned from the end of the financial year 2016-17 being on 31.12.2017. The purpose of a limitation period is that the same must have a clear cut and fixed tenure

5 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd at both ends. A limitation period would lose its effect unless it has a start date at the beginning and end date at its conclusion. Section 148 read with section 149 has fixed the opening date as 31.03.2016, and section 153(2) has fixed the end date of passing the order u/s. 147/144 upto 31.12.2016. Therefore, the contention of the AO that the issue of notice u/s. 148 of the Act dated 31.03.2016 would not be date of service of notice u/s. 148 of the Act would be violating the norms fixed by the Act. Alternatively, even if the contention of AO is assumed (not admitted ) to be correct and the date of service of notice u/s. 148 of the Act is taken to be 22.09.2016 then also the impugned order passed u/s. 147/144 has to be held to be bad in law as the period of six years from the end of the relevant assessment year i.e the last date for service of notice u/s. 148 for the relevant assessment year ended on 31.03. 2016 and hence no notice u/s. 148 could have been served upon the appellant beyond 31.03.2016. The AO has mentioned in the order that “as you will appreciate that issuance of notice and service of the same are to different things. Notice was issued and handed over to the postal authority on 31st March, 2016. The said notice was returned unserved by the postal authority on 04.04.2016.And finally it was served on you through email on 22.09.2016 i.e in the Fin, Yr 2016-17. And none months form the end of the finance year 2016-17 is 31.12.2017. ……. And the matter was settled……” The AO has further mentioned that notice was issued on 31.03.2016 and no return of income was filed by the assessee in response to notice u/s. 148. Thereafter notice u/s. 142(1) were issued on 16.08.2017 for hearing on 29.08.2017, 29.08.2017 for hearing on 06.09.2017, 13.10.2017 for hearing 24.10.2017 and 25.10.2017 for hearing on 02.11.2017. The AR of the appellate company first time appeared on 03.11.0187 and filed a letter challenging the proceedings of reopening and it initiation. The next date of hearing was again fixed for 16.11.2017 for filing the details as per notice u/s. 142(1) dated 16.08.2017 i.e the first notice form the AO in the matter but no compliance. The show case letter dated 28.11.2017 was again issued for hearing on 05.12.2017 and on 06.12.2017 the assessee again submitted objection to reopening of the case and re- assesment proceedings. The AO thereafter complete the assessment u/s. 144 of the act. It is clear that the appellate company has objected the re-assessment proceedings. Hence, the case of the appellate comes under section 292BB which says as under:- The section 292BB relates to notice deemed to be valid in certain circumstances says as under:- 292BB. Where an assessee has appeared in any proceedings or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was- (a) Not served upon him; or (b) Not served upon him in time; or (c) Served upon him in an improper manner; Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment] The section 148 relates to issue of notice where income has escaped assessment says as under:-

6 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd

148 (1) Before making the assessment, reassessment or re-computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under-section 139.” The section 149 relates to time limit for notice sys as under:- 149(1) No notice under section 148 shall be issued for the relevant assessment year,- (a)……. (b) if four years, but not more then six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year; ( c ) …… The section 153 relates to time limit for completion of assessment, reassessment and re- computation says as under:- 153(1)…. (2) No order of assessment, reassessment or re-computation shall be made under section 147 after the expiry of nine months from the end of the financial year in which the notice under section 148 was served; From the above, since the financial year in which notice u/s. 148 was issued ended on 31.03.2016, the reassessment order ought to have been made by the AO till 31.12.2016 and the impugned order u/s. 147/144 being passed on 11.12.2017 is barred by limitation. Alternatively, even if the contention of AO is assumed to be correct and the date of service of notice u/s. 148 of the Act is taken to be 22.09.2016 then also the impugned order passed u/s.147/144 has to be held to be bad in law as the period of six years from the end of the relevant assessment year i.e the last date for service of notice u/s. 148 for the relevant assessment year ended on 31.03.2016 and hence no notice u/s. 148 could have been served upon the appellant beyond 31.03.2016. In view of above, the legal ground regarding the validity of notice issued u/s. 148 of the Act as well as that of order passed u/s. 147/144 of the Act is decided in favour of the appellate. Keeping in view of above, the assessment order and notice u/s. 148 both are barred by limitation, hence, the assessment order as passed by the AO is hereby quashed/annulled. This ground of appeal is allowed. The appellant company got relief on the legal ground regarding the validity of notice issued u/s. 148 of the Act as well as that of order passed u/s. 147/144 of the Act. Therefore, the case/appeal has not been considered on merit as it does not require adjudication on merit.[emphasis given by us]

Aggrieved, the revenue is before us.

7 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd 5. We have heard rival submissions and gone through the facts and circumstances of the case. First of all, we note that the Ld. CIT(A) has erroneously allowed the legal issue which was raised by the assessee wherein the ld. CIT(A) was of the opinion that issuance / serving of notice for reopening u/s 148 of the Act and subsequent framing of re-assessment order was not as per Section 149 and 153 of the Act. Before adjudicating the question regarding the legality of issuance of notice u/s. 148 of the Act was within the statutory limitation period or not? As to whether by merely issuing notice u/s 148 of the Act, confers jurisdiction on Assessing Officer to re-open an assessment or serving the notice on the assessee is necessary to legally assume jurisdiction to reopen; And next question is in respect of the limitation period prescribed for framing an assessment after validly assuming jurisdiction to re-open will be discussed (infra). Before doing so, let us refresh certain basic settled concepts in the field of taxation. First of all it has to be kept in mind that the concept of assessment is governed by the time barring rule and the assessee acquires a right as to the finality of proceedings. Quietus of the completed assessments can be disturbed only when the Assessing Officer has information or material in his possession regarding undisclosed income which had escaped assessment. As per the scheme of the Act, the reopening of assessment for assessing the income which has escaped assessment can be traced to Section 147 of the Act, where it is prescribed that if the Assessing Officer has “reason to believe” that any income has escaped assessment for any assessment year, he may subject to provision of Section 148 to 153 of the Act, assess or reassess such income and other incomes which has come to his notice during reopened proceedings. So, when the Assessing Officer has to assess / reassess the income which has escaped assessment, then he can do so if he satisfies the conditions precedents prescribed in Section 147 which is also subject to law prescribed in Section 148 to 153 of the Act. The Parliament while prescribing the time limit for validity reopening an assessment by issuance of notice has stated so in Section 149 of the Act. Here one has to note the crucial words used by the Parliament when it prescribed under the sub-heading “Time Limit for notice” (for reopening) prescribed in Section 149 of the Act where sub-section (1) of Section 149 reads “No notice under section 148 shall be issued for the relevant assessment years. So, the Parliament has prohibited the Assessing Officer from issuing reopening notice after the

8 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd prescribed period of time given in Section 149 of the Act. Here it has to be noted that Parliament has used the word “issue” in contra-distinction to ‘serve’ / serving of notice. So, once the Assessing Officer issues the reopening notice u/s 148 of the Act within the time prescribed in Section 149 of the Act, the Assessing Officer acquires power to reopen and frame the re-assessment provided, he had served the notice upon the assessee. So, what has to be understood is that issuance of notice u/s 148 within the time prescribed in Section 149 of the Act gives jurisdiction to Assessing Officer to reopen the assessment. However, he can frame the assessment/re-assessment only after serving notice on the assessee as prescribed by Section 148 of the Act. From a reading of Sub-section (1) of Section 148 of the Act it can be seen “Before making the assessment, re-assessment or re-computation u/s 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period ROI…….” So, as discussed (supra) we must note that Parliament has specifically prescribed i) Time limit for Assessing Officer to issue notice for reopening u/s 148 of the Act and (ii) Time limit for completion of assessment/re-assessment/re- computation. This important aspect must be kept in mind. So coming to the time limit prescribed for completion of assessment / re-assessment / re-computation after re-opening is concerned it is found prescribed in sub-section (2) of Section 153 of the Act which reads “No order of assessment, reassessment or re-computation shall be made u/s. 147 of the Act after the expiry of nine months from the end of the financial year in which the notice u/s. 148 of the Act was served.’’ Keeping these legal provisions in mind, in the present case, we note that the limitation period for issuing notice of reopening u/s. 148 of the Act as prescribed in Section149 of the Act gives the outer limit of six years from the end of the relevant assessment year which in this case for AY 2009-10 is admittedly on 31.03.2016. So by issuing notice even though on the last day as prescribed by Section 149 of the Act, the AO gets the jurisdiction to reopen the assessment of the assessee for AY 2009-10. Further, it can be noted that section 153 of the Act, prescribes the “Time Limit for completion of assessment, re-assessment and re-computation”. Therefore, in the case of re- opening of assessment u/s 147 of the Act, the time limit to frame the assessment or reassessment starts only after serving of notice u/s 148 of the Act i.e. nine (9) months from the end of financial year in which the notice u/s 148 of the Act was served upon the

9 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd assessee. Therefore, admittedly in this case, the notice u/s. 148 of the Act was served upon the assessee by e-mail on 22.09.2016, so the limitation time of nine months starts from the end of financial year, so in this case the end of financial year after serving notice is 31.03.2017, so as per Section 153 of the Act, the Assessing Officer should frame the assessment before the expiry of nine months from the end of the financial year in which the notice u/s. 148 of the Act was served, therefore, in this case, the Assessing Officer has time to frame the assessment till 31.12.2017 and the Assessing Officer in the instant case has framed the assessment on 11.12.2017 that is well within the time prescribed by section 153(2) of the Act and, therefore, his framing of assessment after reopening is legal as per the statute. For this proposition of law, we refer to the decision of the Hon’ble Supreme Court in R. K. Upadhyaya Vs. Shanabhai P. Patel order dated 28.04.1987, 1987 AIR 1378 wherein the Hon’ble Supreme Court has considered its own earlier decision in the case of Benarasi Devi vs. ITO, 53 ITR 100 and held that the law declared in that case (Benarasi Devi, supra) was in respect of the earlier Income Tax Act (1922 Act) and not pertaining to this Act (1961 Act); and an identical issue as in this case was before the Hon’ble Bombay High Court in the case of R. B. Durgaprasad Vs. CIT, Nagpur, IT. Reference No. 153 of 1984 order dated 24.11.2015 reported in (2016) 65 taxman.com 293 (Bom.), wherein their Lordships view we have applied and humbly followed on this legal issue. Therefore, the ld. CIT(A) erred in relying on the decision in Benarasi Devi (supra) while deciding the legal issue regarding the time limit for completing the assessment/reassessment after validly issuing notice u/s 148 on 31.03.2016. So, the revenue succeeds on this score and we reverse the order of ld. CIT(A) and we hold that Assessing Officer after issuing the notice u/s 148 for AY 2009-10 within the limitation period on 31.03.2016, had got jurisdiction to re-open the assessment for AY 2009-10 and after having served the assessee notice u/s 148 on 22.09.2016 has passed the assessment order within the prescribed time u/s. 153(2) of the Act on 11.12.2017, so these actions of Assessing Officer are legal and valid in the eyes of law.

10 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd notice thereafter the appeal was heard in the virtual court on 16.10.2020 wherein the Ld. AR has raised another important legal issue under Rule 27 of ITAT Rules, 1963 which according to him, if found valid would go to the root of the reopening of assessment. According to Ld. AR, the assessee is entitled as per Rule 27 of ITAT Rules, 1963 to support the impugned order of Ld. CIT(A) orally also on an alternate ground and since the assessee is raising a legal issue, it can be raised even for the first time before this Tribunal as held by the Hon’ble Supreme Court in NTPC Vs. CIT 229 ITR 383. Assailing the action of AO to re-open the assessment, the Ld. AR submitted that the basic jurisdictional fact as well as law before an AO intends to reopen an assessment which has attained finality is that the AO should have ‘reason to believe’ escapement of income. According to him, it is settled law that ‘reason to believe’ postulates foundation based on information and belief based on reason. According to him, even if there is foundation based on information, still there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment. According to him, from a mere perusal of the reasons recorded by the AO in order to reopen the assessment would reveal that the basic requirement of law u/s. 147 has not been satisfied. Thereafter, he drew our attention to the reasons recorded for reopening which is placed at page 31 of the paper book, which reads as under: "The office has been informed that Investigation Wing has conducted enquiry on the basis of some credible information in respect of cash deposits in a manner of dubious A/cs. The A/cs stood in the name of certain concerns which are found to be fictitious/fake controlled by entry operators. The unaccounted cash of beneficiaries were transferred to the bank A/cs of the beneficiaries through these dubious A/cs of fake entities. The assessee has reportedly enjoyed bogus accommodation entries to the tune of Rs.4.08 Crores in F. Y. 2008-09. In view of this, I have reason to belief that a sum of Rs. 4.08 Crores which is unaccounted money of the assessee and chargeable to tax has escaped assessment within the meaning of sec. 147. "

11 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd received prompted him to base his (AO) reasoning that income has escaped assessment. According to him, from a reading of the recorded reason, it can be discerned that the AO has referred vaguely to some information and about some (not specific) investigation and mechanically reiterated the information which he had in his possession which is nothing but general information from investigation wing, Kolkata in respect of some persons (not specific) indulging in unscrupulous activities as entry operators in Kolkata. According to him, this reason recorded by the AO gives the impression that AO got this general information about undesired activity of some (no-name given) entry operators and is not a specific information against the assessee. So, according to Ld. AR, the AO got carried away by this general information as regarding the modus operandi of some entry operators, which made the AO arbitrarily picking up the case of assessee for AY 2009-10, since the assessee had shown while filing ROI that it has raised share capital. Moreover, according to Ld. A.R., the AO has not issued notice u/s 148 of the Act after recording his own satisfaction/belief regarding escapement of income but on borrowed satisfaction of some officer of DDIT, Investigation. According to ld. A.R, the law is settled that re-opening notice has to be issued by AO after forming his own requisite satisfaction u/s. 147 of the Act & not based on borrowed / dictated satisfaction of Investigation Wing/Superior Officer. Further, it was pointed out by the Ld. AR that the information recorded in reason for re-opening has not been linked in any way to assessee, so that AO could have thought that assessee could have indulged in any kind of activity/transaction which could give rise to an event which could have formed as foundation for the Assessing Officer to form the requisite reason to believe that income has escaped assessment. According to Ld. AR, if the general modus-operandi of entry providers in Kolkata is based as a foundation for forming the belief that income has escaped assessment, then whichever company in Kolkata has raised share capital / loans will be proceeded against which will be arbitrary exercise of power, which has no sanction of law. Therefore, according to Ld. AR, the AO erred in concluding that assessee enjoyed bogus accommodation entries to the tune of Rs.4.08 Crores without carrying out any preliminary enquiry/verification or examination or any other exercise after receipt of information. According to Ld. AR, the AO had not conducted any preliminary enquiry to base his belief that the said sum of Rs. 4.08 crore is

12 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd fall out of accommodation entry and that share capital was the unaccounted money of the assessee. According to Ld. AR, even though the AO mentioned in the reasons recorded that there was number of dubious accounts fictitious / fake concerns, however, has not named anyone so the information is totally vague. It was pointed out by the Ld. AR that in the reason recorded the AO did not mention the name of any entry operator, and that there is no mention whether any statement of any entry operator was recorded by Investigation Wing or by himself. Thus, according to ld. AR, the AO failed to establish the live link of the information he received in respect of assessee, so that he could have formed a belief that assessee’s income has escaped assessment and, therefore, the vague information the AO received from DDIT (Inv), Kolkata can at best be reason to suspect and not adequate for forming reason to belief that income of assessee has escaped assessment. According to him, the AO has to establish the link between information received and the assessee’s income escaping assessment. Further, it was pointed out by the Ld. AR that the AO does not even mention the nature of alleged accommodation entry whether it is, income or expense or allowance or whether it is share capital or loan etc. So, according to Ld. AR, the recorded reasons are completely silent on the nature of income (if any) which is alleged to have escaped assessment, so, non-application of mind by the AO can be discerned by his omission to do so. So in the light of the aforesaid submissions, according to Ld. AR, the reasons recorded by the AO to reopen the assessment does not satisfy the essential legal requisite to reopen the assessment. So, according to him, the action of AO to assume jurisdiction is void ab initio. So, the Ld. AR urged us to quash the assessment passed by the AO being without jurisdiction.

13 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd 37). ii) DCIT Vs. Greal Wall Marketing Pvt. Ltd. ITA No.660/Kol/2011 (referred to page 10 para 11) iii) Shri Raj Kumar Goel Vs. ITO ITA No.1028/Kol/2017 (referred to page 5-8 para 11) (iv) Classic Flour & Food Processing Pvt. Ltd. Vs. CIT ITA Nos. 764 to 766/Kol/2014 (page 7 para 12 to 16) v) PCIT Vs. Shodiman Investments (P) Ltd. (2018) 93 taxmann.com 153 (Bom) page 4 para 12 to 14) vi) KSS Petron Pvt. Ltd. Vs. ACIT ITA No. 224/Mum/2014 (referred to page 3 para 8- 11) vii) PCIT Vs. Tupperware India Pvt. Ltd. (2016) 236 Taxman 494 (referred to page 3 para 6 and 9) viii) DCIT Vs. National Bank for Agriculture and Rural Development ITA No.4964/Mum/2014 (referred to page 10- 13 para 12) ix) CIT Vs. Insecticides (India) Ltd. (2013) 357 ITR 330 (Del.) x) Hon’ble Calcutta High Court in the case of Pr. CIT Vs. G4G Pharma India Ltd. in ITA 545/2015 vide order dated 08.10.2015 (para 12 and 13)

“22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying "unaccounted cash" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings

14 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. 27. Each case obviously turns on its own facts and no two cases are identical. However, there have been a large number of cases explaining the legal requirement that requires to be satisfied by the AO for a valid assumption of jurisdiction under Section 147 of the Act to reopen a past assessment. 28.1 In Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra), the reasons for reopening as recorded by the AO in a proforma and placed before the CIT for approval read thus: "11. Reasons for the belief that income has escaped assessment.- Information is received from the DIT (Inv.-1), New Delhi that the assessee has introduced money amounting to Rs. 5 lakh during the F.Y. 2002-03 relating to A.Y. 2003-04. Details are contained in Annexure. As per information amount received is nothing but accommodation entry and assessee is a beneficiary." 28.2 The Annexure to the said proforma gave the Name of the Beneficiary, the value of entry taken, the number of the instrument by which entry was taken, the date on which the entry was taken, Name of the account holder of the bank from which the cheque was issued, the account number and so on. 28.3 Analysing the above reasons together with the annexure, the Court observed: "14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no

15 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment." 28.4 The Court in Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra) quashed the proceedings under Section 148 of the Act. The facts in the present case are more or less similar. The present case is therefore covered against the Revenue by the aforementioned decision. 29.1 The above decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under: "Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter-alia reported as under: "Entries are broadly taken for two purposes: 1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc. 2. To inflate expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. It has been revealed that the following entries have been received by the assessee:...." 29.2 The details of six entries were then set out in the above 'reasons'. These included name of the beneficiary, the beneficiary's bank, value of the entry taken, instrument number, date, name of the account in which entry was taken and the account from where the entry was given the details of those banks. The reasons then recorded: "The transactions involving Rs. 27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed. On the basis of this new information, I have reason to believe that the income of Rs. 27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148." 29.3 The Court was not inclined to interfere in the above circumstances in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the

16 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does not also examine the return already filed to ascertain if the entry has been disclosed therein. 30.1 In Commissioner of Income Tax, New Delhi v. HighgainFinvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under: "It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 138 dated 8 th April 2003 that this company was involved in the giving and taking bogus entries/ transactions during the financial year 1996-97, as per the deposition made before them by Shri Sanjay Rastogi, CA during a survey operation conducted at his office premises by the Investigation Wing. The particulars of some of the transaction of this nature are as under: Date Particulars of cheque Debit Amt. Credit Amt 18.11.96 305002 5,00,000 Through the Bank Account No. CA 4266 of M/s. Mehram Exports Pvt. Ltd. in the PNB, New Rohtak Road, New Delhi. Note: It is noted that there might be more such entries apart from the above. The return of income for the assessment year 1997-98 was filed by the Assessee on 4th March 1998 which was accepted under Section 143 (1) at the declared income of Rs. 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of Rs. 5,00,000 (as mentioned above) has escaped the assessment within the meaning of the proviso to Section 147 and clause (b) to the Explanation 2 of this section. Submitted to the Additional CIT, Range -12, New Delhi for approval to issue notice under Section 148 for the assessment year 1997-98, if approved." 30.2 The AO was not merely reproducing the information received from the investigation but took the effort of referring to the deposition made during the survey by the Chartered Accountant that the Assessee company was involved in the giving and taking of bogus entries. The AO thus indicated what the tangible material was which enabled him to form the reasons to believe that income has escaped assessment. It was in those circumstances that in the case, the Court came to the conclusion that there was prima facie material for the AO to come to the conclusion that the Assessee had not made a full and true disclosure of all the material facts relevant for the assessment. 31. In Commissioner of Income Tax v. G&G Pharma (supra) there was a similar instance of reopening of assessment by the AO based on the information received from the DIT (I). There again the details of the entry provided were set out in the 'reasons to believe'. However, the Court found that the AO had not made any effort to discuss the material on the basis of which he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act. 32. In Oriental Insurance Company Limited v. Commissioner of Income Tax 378 ITR 421

17 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd (Del) it was held that "therefore, even if it is assumed that, in fact, the Assessee‟s income has escaped assessment, the AO would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional pre- condition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise." 33. In Rustagi Engineering Udyog (P) Limited (supra), it was held that "...the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped assessment. Concededly, the AO had no tangible material in regard to any of the transactions pertaining to the relevant assessment years. Although the AO may have entertained a suspicion that the Assessee‟s income has escaped assessment, such suspicion could not form the basis of initiating proceedings under Section 147 of the Act. A reason to believe - not reason to suspect - is the precondition for exercise of jurisdiction underSection 147 of the Act. " 34. Recently in Agya Ram v. CIT (supra), it was emphasized that the reasons to believe "should have a link with an objective fact in the form of information or materials on record..." It was further emphasized that "mere allegation in reasons cannot be treated equivalent to material in eyes of law. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessments." 35. In the decision of this Court dated 16th March 2016 in W.P. (C) No. 9659 of 2015 (Rajiv Agarwal v. CIT) it was emphasized that "even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment." 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. 38. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs.” 10. We also note that the coordinate bench of this Tribunal in ITA No. 660/Kol/2011 for AY 2002-03 in the case of DCIT Vs. Great Wall Marketing (P) Ltd. vide order dated 03.02.2016 has held as under:

18 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd “9. We have given a careful consideration of the submissions made by the learned counsel for the assessee. It is clear from the reasons recorded by the AO that the AO acted only on the basis of a letter received from Investigation Wing, New Delhi. The reasons recorded does not give as to who has given the bogus entries to the assessee. The reasons recorded also does not mention as to on which dates and through which mode the bogus entries were made by the assessee. The reasons recorded which are extracted in the earlier part of the order does not show, what was the information given by DIT(Inv.),New Delhi. The date of the information received by the AO were not spelt out in the reasons recorded. The involvement of the assessee is also not spelt out, except mentioning the corporate bodies who had subscribed to the share capital of the assessee were non-existent and not creditworthy. On identical facts the Hon'ble Delhi High Court in the case of CIT vs Insecticides (India) Ltd (supra) has taken a view that the reasons recorded were vague and uncertain and cannot be construed as satisfaction on the basis of the relevant material on the basis of which a reasonable person can form a belief that income has escaped assessment. The Hon'ble Delhi High Court has also come to the conclusion that the reasons recorded did not disclose the AO's mind regarding escapement of income. The Hon'ble Delhi High Court ultimately held that initiation of proceedings u/s 148 of the Act was not valid and justified in the eyes of law. The facts and circumstances in the present case are identical to the case decided by the Hon’ble Delhi High Court. Following the said decision we hold that initiation of re-assessment proceedings is not valid. On this ground, the assessment is liable to be annulled.” 11. The Hon’ble Bombay High Court in Pr.CITVs. Shodiman Investments (P) Ltd. (2018) 93 taxmann.com 153 (Bom) it has been held as under:

“9. We find that at the time of re-opening of the Assessment, the Assessing Officer did not provide the reasons recorded in support of the re-opening notice in its entirety, to the Respondent-Assessee. This was contrary to and in defiance of the decision of the Apex Court in GKN Driveshafts v. ITO [2002] 125 Taxman 963/ [2003]259 ITR 19. The entire objects of reasons for re- opening notice as recorded being made available to an Assessee, is to enable the Assessing Officer to have a second look at his reasons recorded before he proceeds to assess the income, which according to him, has escaped Assessment. In fact, non furnishing of reasons would make an Assessment Order bad as held by this Court in CIT v. Videsh Sanchar Nigam Ltd. [2012] 21 taxmann.com 53, 340 ITR 66. In fact, partial furnishing of reasons will also necessarily meet the same fate i.e. render the Assessment Order on re- opening notice bad. Therefore, on the aboveground itself, the question as proposed does not give rise to any substantial question of law as it is covered by the decision of this Court in Videsh Sanchar Nigam Ltd.’s case (supra) against the Revenue in the present facts. 10. Besides, the submissions made on behalf of the Revenue that in view of the decision of the Apex Court in Rajesh Jhaveri Stock Brokers (P) Ltd.'s, case (supra), the Assessing Officer is entitled to re-open the Assessment for whatever reasons and the same cannot be subjected to jurisdictional review, is preposterous. First of all, taking out a word or sentence from the entire judgment, divorced from the context and relying upon it, is not permissible (see CIT v. Sun Engg. Works (P) Ltd. [l992] 64 Taxman 442/198 ITR 297 (SC). It may be useful to reproduce the context in which the sentence in Rajesh Jhaveri Stock Brokers (P) Ltd. 's case (supra) being relied upon by the Revenue to support its case, was made. The context, is as under: "The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to

19 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd such substitutions. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed to confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to, income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices." . Therefore, the sentence being relied upon was made in the context of the change in law that under the amended provision 'reason to believe' that in case of escaped assessment, is sufficient to re-open the assessment. This unlike the earlier provision of Section 147(a) of the Act which required two conditions i.e. failure to disclose fully and truly all facts necessary for assessment and reason to believe that income has escaped assessment Thus, the observations being relied upon must be read in the context in which it rendered. On so reading the submission, will not survive. 11. Further, a reading of the entire decision, it is clear that the reasonable belief on the basis of tangible material could be, prima facie, formed to conclude that income chargeable to tax has escaped assessment. Mr. Mohanty, learned counsel is ignoring the fact that 6the words ‘whatever reasons’ is qualified by the words ‘having reasons to believe that income has escaped assessment’. The words whatever reasons only means any tangible material which would on application of the facts on record lead to reasonable belief that income chargeable, to tax has escaped, assessment This material which, forms the basis, is not restricted, but the material must lead to the formation of reason to believe that income chargeable to tax has escaped Assessment Mere obtaining, of material by itself does not result in reason to believe that income has escaped assessment. In fact, this would be evident from the fact that in para 16 of the decision in Rajesh Jhaveri Stock Brokers (P) Ltd. 's, case (supra), it is observed that the word 'reason' in the 'reason to believe' would mean cause or justification. Therefore, it can only be the basis of forming the belief. However, the belief must be independently formed in the context of the material obtained that there is an escapement of income. Otherwise, no meaning is being given to the words 'to believe' as found in Section 147 of the Act. Therefore, the words 'whatever reasons' in Rajesh Jhaveri Stock Brokers (P) Ltd.'s, case (supra), only means whatever the material, the reasons recorded must indicate the reasons to believe that income has, escaped assessment. This is so as reasons as recorded alone give the Assessing Officer power to re-open an assessment, if it reveals/indicate, reasons to believe that income chargeable to tax has escaped assessment. 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

20 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd 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. 15. 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. '\ 16. Therefore, the question; as framed does not give rise to any substantial question of law. Thus, not entertained." 12. The Coordinate Bench of this Tribunal in ITA Nos. 764 to 766/Kol/2014 in M/s. Classic Flour & Food Processing Pvt. Ltd. Vs. CIT for AY 2009-10, 2007-08 and 2008-09 vide order dated 05.04.2017 has held as under:

“7. As far as the additional grounds of appeal raised by the assessee are concerned, it can be seen from the additional grounds that the assessee wants to contend that the very initiation of proceedings u/s 147 of the Act was bad in law and therefore proceedings u/s 263 of the Act cannot be initiated on an order which is invalid in law. It is the further contention of the assessee that in the reasons recorded for reopening of the assessments u/s 147 of the Act, the AO has mentioned that there was unexplained investment in construction of hotel and resorts at Mandarmoni, PurbaMidnapore and such unexplained investment in the construction which ought to have been brought to tax as income of the assessee has escaped the assessment. It is the case of the assessee that in the assessment order passed u/s 147 of the Act, the AO did not make any addition on account of unexplained investment in construction. It is the plea of the assessee that when no addition is made on the grounds on which re-assessment proceedings are initiated then no other addition can be made in such reassessment proceedings. 8. The first aspect which needs to be examined is as to whether the assessee is entitled to challenge the validity of initiation of proceedings u/s 147 of the Act in the present appeals in which he has challenged the validity of order passed u/s 263 of the Act. The ld. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the

21 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd order u/.s 263 of the Act which seeks to revise an order passed u/s 147 of the Act, to challenge the validity of the order passed u/s.147 of the Act as well as initiation of proceedings u/.s 147 of the Act. In this regard the Ld. Counsel for the assessee placed before us two decisions one rendered by Lucknow Bench of ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai ‘G’ Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016. In both the decisions a view has been taken by the Tribunal that when an Assessment order passed u/s 147 of the Act was illegal the CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon’ble Mumbai bench of the Tribunal has specifically framed the following questions :- “ 1.Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10-2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order?” 9. On question no. 1 and 3 which is relevant to the present case the Hon’ble Mumbai bench of the Tribunal has taken the view that when the original assessment proceedings are null and void in the eyes of law for want of proper assumption of jurisdiction then such validity can be challenged even in collateral proceedings. The Mumbai bench took the view that the proceedings u/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s 147 of the Act can be challenged. The Mumbai bench of the Tribunal in this regard has placed reliance on several decisions, the principal decision being that of the Hon’ble Supreme Court in the case of Kiran Singh &Ors. V. ChamanPaswan&Ors. [1955] 1 SCR 117 wherein the Hon’ble Supreme Court observed as follows :- “ It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties." 10. The ITAT Mumbai bench made a reference to another decision of the Hon’ble Supreme Court in the case of Sushil Kumar Mehta vsGobind Ram Bohra, (1990) 1 SCC 193 and the decisions in the case of Indian Bank vsManilalGovindjiKhona (2015) 3 SCC 712. The ITAT Mumbai bench also held that if order of assessment passed u/s 147 of the Act was illegal and nullity in the eyes of law then that order cannot be revised by invoking powers u/s 263 of the Act by CIT. The Mumbai Bench has in this regard placed reliance on the decision of Hon’ble Delhi bench of the Tribunal in the case of Krishna Kumar Sarafvs CIT in ITA NO.4562/Del/2007 order dated 24.09.2015 wherein it was held as follows :- “ 17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee.

22 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon’ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is nonest in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended. Because the provisions of limitation are provided in the same. 20. In view of above discussion ground no.3 is allowed and revision order passed u/s 263 is quashed. 11. The learned DR relied on the order of the CIT(A). We have considered the rival submissions. We are of the view that the validity of the order u/s 147 of the Act depends upon the AO assuming jurisdiction to make an order of assessment u/s 147 of the Act after fulfilling the conditions laid down in the said section namely reason to believe the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied then it cannot be said the AO has validly assumed jurisdiction u/s 147 of the Act. If the validity of proceedings u/s 147 of the Act has not been challenged by the assessee by filing appeal against the order u/s.147 of the Act, can it be challenged in the appeal against an order u/s 263 of the Act revising the invalid order u/s 147 of the Act. This issue has been analysed by the Hon’ble Mumbai Bench of the tribunal in the case of M/s. Westlife Development Ltd. (supra) and 147 proceedings has been equated to primary proceedings and the proceedings u/s 263 passed equated to collateral proceedings. It has further been held based on various judicial pronouncements of the Hon’ble Supreme Court that if the primary proceedings are non-est in law or void on the ground of lack of jurisdiction then the validity of such proceedings can be challenged even in an appeal arising out of collateral proceedings. We have already set out the ratio laid down in these decisions and we do not wish to repeat the same. Suffice it to say the law is well settled that invalidity of the primary proceedings for want of proper jurisdiction can be challenged even in appellate proceedings arising out of a collateral proceeding. In view of the aforesaid legal position we admit the additional grounds for adjudication. 12. As far as the merits of the validity of initiation of proceedings u/s 147 of the Act for A.Y.2007-08 and 2008-09 are concerned the question for consideration is as to whether on the basis of the reasons recorded it can be said that there can arise any belief on the part of the AO that income chargeable to tax for the relevant assessment years has escaped assessment. In this regard the reasons recorded by the AO for initiating proceedings u/.s 147 of the Act for A.Y.2007-08 and 2008-09 has already been set out by an order in the earlier part of this order. The gist of the reasons recorded by the AO is that the assessee had made investments of about Rs.4 crore in construction of hotel/resort at Mandarmoni, PurbaMidnapore. It is the further allegation in the reasons recorded that to a notice u/s 133(6) of the Act, the Assessee had in reply admitted investment of only Rs.3.38 crores in construction of hotel and that source of funds for such construction was out of share capital

23 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd and secured loan. It is also not disputed that the value of investments as stated by the assessee in its reply to the notice u/s 133(6) of the Act, was duly shown as the investment in construction of hotel with the balance sheet of the assessee. The AO has however inferred that there is a difference in the value of investment in construction of hotel as shown in the books of account and as per the information in possession of the AO which is a sum of Rs.4 crores. Another reason given by the AO is that the difference in the amount of investment in construction might have been met by the Assessee out of income not disclosed. It has also been mentioned that the source of investment with regard to the actual cost of construction requires investigation. 13. In this regard it can be seen that in its reply dated 26.07.2010 to the notice u/s 133(6) of the Act the assessee has given the following details :- “ Kindly refer to your above letter dated 18.06.2010 calling for information u/s. 133(6) of the Income Tax Act, 1961 Regarding investment in Hotel AjoyMinar situated in Mandarmoni, Dist. - PurbaMedinipur. As asked for, we are furnishing the information along with enclosures for your kind perusal.- I. Total Amount invested up to 31.03.2010 is Rs. 3,38,43,644.00 and source of fund is given hereunder: - Share Capital Rs. 1,88,30,000.00 Unsecured Loan . Rs. 1.65.16,005.00 Total Rs. 3,53,46,005.00 We are enclosing herewith the list of share holders and loaners up to 31.03.2010 showing names, address and PAN of the respective parties for your ready reference. The figures relating to 2009-10 included with the above are subject to audit. The above two lists are the clear evidence in support of credit worthiness of our company, 2. A separate year wise list of Investment in Hotel AjoyMinar is enclosed as asked for. 3 We are enclosing herewith photo copy of Audited Balance Sheet for the years 2006-07, 2007-08 & 2008-09. The Audit of Accounts for the year ending 31st• March2010 is under progress. The same, if required, will be furnished when the same will be signed by the auditor. 4 The photo copies of two bank accounts are enclosed for your kind perusal.” 14. In the light of the aforesaid reply the question that needs to be answered is as to how did the AO get information that the assessee had invested Rs.4 crores in hotel at Mandarmoni, PurbaMedinipur. Apparently there appears to be no basis for this conclusion arrived at by the AO in the reasons recorded. The ld. DR however sought to defend the action of the AO by submitting that there was a survey in the business premises of the assessee and in such survey there was evidence to show that the assessee had invested a sum of Rs.4 crores in construction of a hotel at Mandarmoni. We are of the view that this submission of the ld. DR cannot be accepted. The law is well settled that the reasons recorded by the AO have to be tested on the basis of specific wordings of the reasons so recorded. No external material can be shown to justify the conclusion arrived at in the reasons recorded unless these materials are specifically referred to or incorporated in the

24 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd reasons recorded. In the reasons recorded the AO has not disclosed the basis of this conclusion that the assessee made an investment of Rs. 4 crores in the construction of a hotel at Mandarmoni. We find that in this regard that Hon’ble Bombay High Court in the case of Hindustan Lever Ltd., Vs. R.B.Wadkar (2004) 268 ITR 0332 the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the AO to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the AO to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the AO. The reasons recorded should be self- explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. 15. We are also of the view that as rightly contended by the ld. Counsel for the assessee that the reasons recorded are vague and belief regarding escapement of income is on mere pretence. In this regard the decision of ITAT Kolkata bench in ITA No.671/Kol/2015 dated 18.09.2015 in the case of Dr.Papiya Dutta vs ITO is relevant and it has been held in the aforesaid decision as follows :- “ It is clearly evident from the reasons recorded by the Assessing Officer that there was actually no reason for him to have formed a belief about the escapement of any income of the assessee from the assessment, but the assessment was reopened by him to verify or examine certain particulars furnished by the assessee in the return of income, which according to the Assessing Officer, might have possibly involved introduction of her un accounted money by the assessee. It is thus clear that the assessment was reopened by the Assessing Officer on the basis of suspicion and in order to make fishing and roaming enquiries, which, in my opinion, is not permissible. It is a settled position of law that the assessment can be reopened under section 147/148 on the basis of 'reason to believe' and not 'reason to suspect'. As held by the Coordinate Bench of this Tribunal in the case of Deputy Director of inc me Tax (International Taxation )-21, Mumbai -vs.- Societe International De Telecommunication ( supra) cited by the Id. counsel for the assessee, unless the reasons to believe about the escapement of income exist, no recourse can be taken to the provisions of section 147. It was held that where an Assessing Officer ventures to initiate reassessment proceedings with an object of finding some material about the escapement of income, such reassessment cannot legally stand and the law doe s not permit the Assessing Officer to conduct inquiries after the initiation of reassessment ITA No. 671 / KOL/2015 Assessment year: 2008 - 2009 proceedings, to find if there is an escapement of income. It was held that the scope of section 147 cannot encompass such an action under which certain examination

25 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd is to be conducted for forming a reason to believe as to the escapement of income. If the facts of the present case including especially the reasons recorded by the Assessing Officer for reopening the assessment a reconsidered in the light of the decision of the Coordinate Bench of this Tribunal in the case of Deputy Director of income Tax (International Taxation)-21, Mumbai - vs.- Societe International De Telecommunication (supra), I am of the view that the initiation of reassessment proceeding itself was bad in law and the assessment completed by the Assessing Officer under section 143(3) read with section 147 in pursuance of such invalid initiation is liable to be cancelled. I order accordingly.” 16. In the present case also the re-assessment proceedings have been initiated only for the purpose of verification and examination which is not the scope of reassessment proceedings. It would be the case of rather reasons to suspect rather than reasons to belief that there was escapement of income. It is a case of the AO seeking to make fishing and roving inquiry without any basis. We have no hesitation in concluding that initiation of reassessment proceedings in the present case was not valid as the mandatory requirement of such 147 has not been satisfied. We therefore hold that reassessments orders for A.Y.2007-08 and 2008-09 dated 30.12.2011 were invalid. Consequently order passed u/s 263 of the Act dated 21.03.2014 for A.Y.2007- 08 and 2008-09 are also held to be invalid and quashed. Thus the appeals being ITA No.765 and 766/Kol/2014 are allowed.” 13. The Hon’ble Delhi High Court in the case of Commissioner of Income-tax, IV v. Insecticides (India) Ltd[2013] 357 ITR 330 (Delhi) upheld the order of the ITAT Delhi Bench in ITA Nos. 2332-2333/Del/2010, holding as follows:-

“7. We may point out at this juncture itself that the Tribunal did not go into the question of merits. It only examined the question of the validity of the proceedings under Section 147 of the said Act. The Tribunal, in essence, held that the purported reasons for reopening the assessments were entirely vague and devoid of any material. As such, on the available material, no reasonable person could have any reason to believe that income had escaped assessment. Consequently, the Tribunal held that the proceedings under Section 147 of the said Act were invalid. 8. The Tribunal gave detailed reasons for concluding that the proceedings under Section 147 were invalid. Instead of adding anything to the said reasons, we think it would be appropriate if the same are reproduced:— "In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The AO has further stated that the assessee company has failed to disclose fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned as to whohad given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income-tax (Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the informations gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in

26 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. Therefore, the details of entries or amount mentioned in the assessment order and in respect of which ultimate addition has been made by the AO, cannot be made a basis to say that the reasons recorded by the AO were with reference to those amounts mentioned in the assessment order. The reasons recorded by the AO are totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. In this respect, we may rely upon the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT v. Atul Jain [2000] 299 ITR 383, in which case the information relied upon by the AO for initiating proceedings u/s 147 of the Act did indicate the source of the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the information supplied was extremely scanty and vague and in that light of those facts, the Hon'ble Jurisdictional Delhi High Court held that initiation of proceedings u/s 147 of the Act by the AO was not valid and justified in the eyes of law. The recent decision of Hon'ble jurisdictional High Court of Delhi in the case of Signature Hotels (P.) Ltd. (supra) also supports the view we have taken above." 9. We do not see any reason to differ with the view expressed by the Tribunal. No substantial question of law arises for our consideration. The appeals are dismissed. There shall be no order as to costs.

“12. In the present case, after setting out four entries, stated to have been received by the assessee on a single date i.e. 10th Feb. 2003, from four entries which were received by the assessee on a single date i.e. 10th Feb. 2003, from four entries which were termed as accommodation entries, which information was given to him by the Director Investigation, the A.O. stated: ‘I have also perused various materials and report from Investigation Wingand on that basis it is evident that the assessee company has, introduced its own unaccounted money in its bank account by way of above accommodation entries’. The above conclusion is unhelpful in understanding whether the A.O. applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the A.O., if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the assessee, which must have been tendered along with the return, which was filed on 14th November, 2004 and was processed u/s 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the A.O. to have simply concluded: ‘it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries’. In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decision discussed, the basic requirement that the A.O. must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment is missing in the present case. 13. A perusal of the reasons recorded demonstrate total non application of mind by the A.O. Thus

27 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd applying the proposition laid down by the Jurisdictional High Court in G&G Pharma India (supra) we hold that the reopening of assessment is bad in law”

"The office has been informed that Investigation Wing has conducted enquiry on the basis of some credible information in respect of cash deposits in a manner of dubious A/cs. The A/cs stood in the name of certain concerns which are found to be fictitious/fake controlled by entry operators. The unaccounted cash of beneficiaries were transferred to the bank A/cs of the beneficiaries through these dubious A/cs of fake entities. The assessee has reportedly enjoyed bogus accommodation entries to the tune of Rs.4.08 Crores in F. Y. 2008-09. In view of this, I have reason to belief that a sum of Rs. 4.08 Crores which is unaccounted money of the assessee and chargeable to tax has escaped assessment within the meaning of sec. 147. "

28 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd 17. Having perused the reasons recorded by the AO before reopening and when the validity of the order u/s. 147 of the Act depends upon the AO rightly assuming jurisdiction as contemplated by law to make an order of assessment u/s. 147 of the Act, let us understand the settled position of law on the legal issue at hand. We note that before the AO assumes jurisdiction to re-open it is necessary that the conditions laid down in the said section 147 has to be satisfied viz., AO should record “reason to believe” that the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied at the first place, then it cannot be said the AO has validly assumed jurisdiction u/s. 147 of the Act. Therefore, the question for consideration is whether on the basis of the reasons recorded by the AO, he could have validly reopened the assessment. For that it has to be seen as to whether the AO on the basis of whatever material before him, [which he had indicated in his “reasons recorded”] had reasons warrant holding a belief that income chargeable to tax has escaped assessment. It is important to remember that the reasons recorded by AO to reopen has to be evaluated on a stand-alone basis and no addition/extrapolation can be made or assumed, while adjudicating the legal issue of AO’s usurpation of jurisdiction u/s. 147 of the Act. Moreover, the Parliament has given power to AO to reopen the assessment, if the condition precedent as discussed above are satisfied, and not otherwise. It should be kept in mind that the concept of assessment is governed by the time-barring rule and the assessee acquires a right as to the finality of proceedings. Queitus of the completed assessment is the Fundamental Rule and exception to this rule is Re-opening of assessment by AO under section 147 or exercise of Revisional jurisdiction by CIT under section 263 of the Act. Therefore, the Parliament in its wisdom has provided safeguards for exercise of the reopening of assessment jurisdiction to AO; and revisional jurisdiction of CIT by providing condition precedent which is sine qua non for assumption/usurpation of jurisdiction. In the case of reopening of assessment, the reason to believe escapement of income is the jurisdictional fact and law (mixed question of fact and law) and for revisional jurisdiction the order of the AO should be erroneous as well as prejudicial to the revenue. Unless the condition precedent is not satisfied, the AO or the CIT can exercise their reopening jurisdiction or revisional jurisdiction respectively. The legislative history is that in respect to the reopening u/s. 147 of the Act, the Parliament by

29 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd Direct Tax Laws (Amendment) Act 1987 w.e.f. 01.04.1989 had substituted “for reason to believe escapement of income” to ‘for reasons to be recorded by him in writing, is of the opinion’’ which gave unbridled subjective satisfaction to the AO was later reversed to ‘reason to believe escapement of income’’, by the Direct Tax Laws (Amendment) Act, 1989. The Hon’ble Apex Court as well as the Hon’ble jurisdictional High Court as well as other Hon’ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact and law (mixed question of fact and law) the reason to believe escapement of income (supra).

30 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd that is why if the reason to believe escapement of income is not that of AO, the assumption of jurisdiction to re-open, has been held to be vitiated and resultantly bad in law, since it will be on the basis of borrowed satisfaction, which is not permissible.

31 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd there is no specific inputs connecting the case of assessee. Other than the general statement, no specific inputs are mentioned in the reasons recorded to have any nexus or connection with the assessee’s income escaping assessment. No bank accounts, no entry operator has been named which can be linked to assessee qua this AY. So the foundation on which the Assessing Officer builds his belief is totally vague and does not have any inputs or material to remotely even connect the assessee. And if such information can be the base/foundation for re-opening, then any person/company’s assessment can be reopened, which is why the Parliament as well as the Hon’ble Constitutional Courts have prescribed safe-guards against arbitrary reopening of assessment. Here in this case, it can be seen that the foundation itself on which the AO forms his belief of assessee’s income escaping assessment is bad in law because there is nothing in the information which remotely connects assessee’s income escaping assessment. So, when the foundation falls, the super structure falls. Thus, the case of assessee is squarely covered by the legal maxim ‘Sublato Fundamento Credit opus’ meaning in case a foundation is removed, the super structure falls. Since the ‘reason to believe’ postulates a foundation based on information and a belief based on reason, the first limb itself is vague and cannot be qualified as a foundation for a prudent person to form a belief that income of assessee has escaped assessment. So, the reasons recorded by AO to reopen is not sufficient to satisfy the requirement of law as laid in section 147 of the Act and, therefore, the assessee succeeds on the legal issue raised by it.

32 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd information on which the Assessing Officer has recorded the reasons for reopening is conspicuous with its omission to give the details of the enquiry report, viz, where and when was the enquiry conducted ? It pertains to which F.Y/A.Y? What are the names of entry operators? Which are the fake bank accounts identified by the wing? And how they are connected to assessee? Moreover though the Assessing Officer used the expression “accommodation entry” in his reasons recorded, he has not bothered to explain the basis for arriving at such findings and who are the accommodation entry providers etc is not found mentioned in the ‘reasons recorded to reopen’, so the contents of the information from investigation wing which AO relies doesn’t have any factual information to act upon against the assessee qua AY 2009-10.

33 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd unscrupulous persons in suspected transactions to convert the unaccounted cash of beneficiaries which were transferred to the bank accounts of the beneficiaries through the dubious bank accounts of fake entities can only raise suspicion in the mind of the AO (which fact we have pointed out earlier) which is not sufficient/requirement of law for reopening of assessment. It has to be kept in mind that the ‘reasons to believe’ is not synonymous to ‘reason to suspect’. ‘Reason to suspect’ based on an information can trigger an enquiry so that it can be found out whether there is any substance or material to substantiate that there is merit in the information adduced by the Investigation Wing and after post enquiry the AO has to take an independent decision whether to re-open the assessment or not. And at the cost of repetition we say that the AO should not act on dictate of any other authority like in this case from a report from unknown Investigation Wing because then it would be borrowed satisfaction of the jurisdictional fact & law which is not permitted by law and consequently vitiate the assumption of jurisdiction by AO to reopen u/s. 147 of the Act. In this case, as discussed above, we note that the AO after referring to the vague unknown investigation report which describes the general modus operandi of entry providers concludes that a sum of Rs.4.08 cr. is unaccounted money of the assessee which has escaped assessment because assessee has introduced Rs.4.08 cr. as accommodation entries, without specifying the nature of accommodation entry like whether it is income/expense/capital/share/loan etc. So, it is clear from the aforesaid averments that AO based on some Investigation Wing’s information has erroneously concluded that unaccounted money of assessee has been transferred back to it through dubious bank accounts and not as per his independent view after a preliminary enquiry conducted by him. Thus from the reading of the totally vague information which is nothing but general information, which the AO based his reason to reopen can be termed at best as “AO had reason to suspect” only and not reason to believe. As stated earlier, it has to be remembered that information is not synonymous to truth. At the cost of repetitions, we note that AO simply on the basis of some investigation report of the Wing which is general information has jumped into conclusion that there is an escapement of income which is erroneous since it does not satisfy the jurisdictional fact and law for reopening as envisaged u/s. 147 of the Act. The AO has not even spelled out in his reasons the details of

34 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd the investigation report has simply borrowed the satisfaction without independent application of mind to form reason warrant holding a belief that income chargeable to tax has escaped assessment. Just because a letter/information/report/study has been received from the Investigation Wing the AO cannot reopen the assessment even if original assessment was u/s. 143(1) of the Act. The reasons recorded by AO cannot be said to have satisfied the essential condition precedent as required by section 147 of the Act and as laid by plethora of judicial precedence as discussed above which is sine qua non to assume jurisdiction u/s 147 of the Act, therefore, in the light of the aforesaid facts and circumstances of the case as discussed, we find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee falls. Since the AO failed to validly assume jurisdiction u/s. 147 of the Act, the assumption of jurisdiction by him to re-open the assessment itself is qorum non judice and, therefore, all subsequent action is null in the eyes of law and therefore, we quash the reopening and consequently reassessment order framed by him is null in the eyes of law. So, though we reversed the decision of the Ld CIT(A) on the legal ground he erroneously decided as discussed in para 5 (supra), we uphold the action of the Ld. CIT(A) in quashing the assessment order dated 11.12.2017 on the alternate legal issue raised by the assessee as per Rule 27 of ITAT Rules, 1963 as discussed from para 6 onwards .

35 ITA No.1826/Kol/2018 A.Y 2009-10 M/s. Alembic Merchants P.Ltd Respondent /Assessee– M/s. Alembic Merchants Pvt. Ltd 5th Fl., R.R.B 2 Basu Road, Kolkata-1. 3. CIT(A)-, Kolkata (sent through e-mail) 4. CIT- , Kolkata. 5. DR, ITAT, Kolkata. (sent through e-mail) By order, /True Copy, Assistant Registrar