GANAPATI DEVELOPERS ,HOWRAH vs. A.C.I.T.,CIRCLE-47, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA (Virtual Court) (Before Sri J. Sudhakar Reddy, Accountant Member & Smt. Madhumita Roy, Judicial Member) I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers...………………..…..............................................................................Appellant [PAN: AAIFG 0188 R] Vs. ACIT, Circle-47, Kolkata................................................................................................Respondent Appearances by: Sh. S.M. Surana, Adv., appeared on behalf of the Assessee. Sh. Supriyo Pal, Addl. CIT, Sr. DR, appeared on behalf of the Revenue. Date of concluding the hearing : August 11th, 2020 Date of pronouncing the order : November 2nd, 2020 ORDER Per J. Sudhakar Reddy, AM: This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-14, Kolkata [hereinafter ld. ‘CIT(A)’ for short] dated 13.12.2019 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’ for short) for AY 2013-14. 2. The assessee is a partnership firm and is in the business of property development and builder. It filed its return of income originally on 27.09.2013 declaring total income of ₹28,70,560/-. This was processed u/s 143(1) of the Act. Later the AO recorded reasons for re-opening of assessment u/s 147 of the Act and issued a notice u/s 148 of the Act on 24.03.2018, re-opening the assessment. In response, the assessee filed a return of income on 26.04.2018 vide a letter dated 08.04.2018. Thereafter the assessee wrote a letter to the AO on 28.04.2018, requesting for a copy of the reasons recorded for re-opening of the assessment, so as to enable it to file objections if any. On 02.08.2018 the AO sent a letter to the assessee which are supposed to be the reasons recorded. In reply the assessee filed objections on 20.08.2018. These objections were disposed off by the AO but in the assessment order itself. Thereafter the AO framed an assessment u/s 147 read with Section 143(3) of the Act on 28.12.2018 determining the

2 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. total income of ₹1,19,68,950/- inter alia making disallowance of purchases of ₹31,98,388/- and making an addition u/s 68 of the Act of ₹59 lakhs, being a loan taken from M/s. Hanuman Vintrade Pvt. Ltd. Aggrieved, the assessee carried the matter in appeal challenging both the re-opening of the assessment on legal grounds as well as on merits. The ld. CIT(A) partly allowed the appeal on merits. The legal grounds raised by the assessee were dismissed. Aggrieved, the assessee is before us on the following grounds:

“1. That, on the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals)-14, Kolkata erred in confirming the addition of Rs. 59,00,000 without considering the fact that the impugned reassessment proceedings initiated by the Assessing Officer vide notice dated 24th March, 2018 issued under section 148 of the Act was without jurisdiction, illegal, invalid, bad-in-law and void ab-initio in as much as the said notice was defective & all mandatory conditions precedent to the issue of notice under section 148 of the Act were not fulfilled and even the copy of sanction, if at all obtained under section 151 of the Act was not provided to the assessee. 2. That, the Learned Commissioner of Income Tax (Appeals)-14, Kolkata erred in confirming the addition of Rs. 59 Lakhs, made by the Assessing Officer u/s 68 of the Income Tax Act being the amount of unsecured loan received from M/s Hanuman Vintrade Pvt. Ltd., which was evidently an unconnected issue considering the reasons recorded u/s 148(2) of the Act, as there was no mention therein whatsoever regarding this unsecured loan transaction of Rs.59,00,000. 3. That, on the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals)-14, Kolkata erred in confirming the addition of Rs. 59,00,000 without considering the fact that there was no live link between the reasons & the alleged escapement of income. 4. That, without prejudice to the above grounds, the Learned Commissioner of Income Tax (Appeals)-14, Kolkata erred in confirming the aforesaid addition of Rs. 59 Lakhs made by the Assessing Officer under section 68 of the Income Tax Act, 1961, by arbitrarily doubting the creditworthiness of that party without bringing any evidence on record and without even making any inquiry from the Assessing Officer of the said party. 5. That, without prejudice to the above grounds, the Learned Commissioner of Income Tax (Appeals)-14, Kolkata erred in confirming the aforesaid addition of Rs. 59,00,000 without considering the fact that, the Assessing Officer while making the aforesaid addition relied upon incorrect facts and did not even serve any show cause notice in this regard. 6. That the Appellant craves leave to adduce additional grounds and/or amend or withdraw any of the additional grounds before, or at the time of hearing of Appeal.” 3. The ld. Counsel for the assessee, Mr. S.M. Surana submitted that the re-opening is bad in law for the reason that,

a) The reasons furnished to the assessee, as those recorded for re-opening, are different from the reasons mentioned by the AO in the assessment order. That the assessee has objected to the re-opening by submitting that the purchases of TMT Rods from M/s. Vasukinath Enterprises was only for ₹5,20,021/- only and not ₹31,20,073/- and that the purchases from M/s. Tarama Merchants Pvt. Ltd. is of cement of ₹78,315/- only and that

3 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. both are genuine transactions recorded in the books of accounts of the assessee and that the payment made by cheques. He submitted that extracts of invoices, challans, ledger accounts, bank statements etc. were filed before the AO and despite this clarification on the figures with evidence the AO without any application of mind, re- opened the assessment. It was submitted that the facts and figures recorded in the reasons were wrong and the facts and figures given in the assessment order are also different. Thus, he submits that it is a case of total non-application of mind by the AO and that the re-opening was based on wrong facts and hence the re-opening of assessment is bad in law. b) That the AO has not disposed off the objections raised by the assessee and hence the assessment is bad in law. He relied on the following case laws for this proposition: i) Pr. CIT vs. SNG Developers Ltd. 404 ITR 312 (Del.) ii) Ankita A. Choksey vs. ITO (2019) 411 ITR 207 (Bom)(HC) He also relied on many other judgements, which we will be dealing with, as and when necessary. c) The ld. Counsel for the assessee refers to the order of the ld. CIT(A) [at page 18 para 3] and submits that only gross profit on purchases were directed to be added and that this was wrong for the reason that, the purchases were not undisclosed purchases but was only alleged bogus purchases. d) He argued that when the addition for which the re-opening was made is not sustained, then no further addition can be made on account of Section 68 of the Act or otherwise. e) On merits he submitted that the assessee never purchased any goods for the amount of ₹31,98,388/- from both these enterprises and it was much lesser amount of goods which were purchased and hence the disallowance on the ground that these were bogus purchases, is bad in law. He referred to the assessment order where at page 6, the list of entities stated therein said to have benefitted from bogus billing and was submitted that this was stated by the deponent Mr. Sanjiw Kr. Singh, in his statement dated 10.05.2016 and it was pointed out that neither the assessee nor the two firms i.e. M/s. Tarama Merchants Pvt. Ltd. and M/s. Vasukinath Enterprises are not mentioned therein.

4 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. Thus, he submits that the re-opening of assessment is based on borrowed satisfaction without investigation and enquiry and that the addition was made in arbitrary manner despite the fact that the assessee had furnished all possible evidences in support of the genuineness of the purchases. He submitted that the ld. CIT(A) was wrong in upholding the re-opening of assessment and also the addition of 11.62% of the declared purchases, after accepting the purchases were only of ₹5,98,336/- and not ₹31,98,388/-. f) On the issue of addition of ₹59 lakhs u/s 68 of the Act, the ld. Counsel for the assessee submitted that the borrowing was from sister concern and the directors of that sister concern were none other than the partners of the assessee firm and they were appearing before the AO during the course of assessment proceedings. He submitted that the credits found in the bank account statement submitted to the AO, also contained the payments made for the purchase, and under those circumstances, the AO was wrong in recording that the copy of the bank statement evidencing the loan were not furnished. In the paper book the assessee filed copies of the Tax audit report and pointed out that the fact of the assessee taking a loan was brought out by the auditors at column 24A of the Tax audit report and it is not right on the part of the AO to state otherwise. He submitted that the addition is arbitrary as confirmation letter was filed and sources explained of the credit. 4. The ld. DR on the other hand opposed the contention of the ld. Counsel for the assessee and submitted that information was received from the Investigation Wing of the Department and based on this information the AO believed that the assessee has taken bogus bills from M/s. Vasukinath Enterprises and M/s. Tarama Merchants Pvt. Ltd. He submitted that a statement was recorded by the Investigation Wing of the Income Tax Department, Kolkata on 10.05.2016 and from this statement it is clear that the assessee firm had taken accommodation entries by way of bogus bills and based on such concrete information, reasons for re-opening has been recorded and the assessment was legally re-opened. On a query from the Bench, he submitted that the reasons recorded in the assessment order are the exact reasons recorded for re- opening. He relied on the order of the ld. CIT(A) and submitted that the re-opening of assessments has to be sustained as the original return was processed u/s 143(1) of the Act and it is not a case of change of opinion. He argued that mere payment being made

5 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. through banking channels does not prove genuineness of the purchases. On merits he relied on the order of the ld. CIT(A).

“A credible information has been received from the Pr. DIT(Inv.), Kolkata vide letter No. Pr.DIT(INV)/Kol/SKS/Report/2016-17/556 dated 05.07.2016 which has received in this office on 17.01.2018, where it has been mentioned that a Search & Seizure operation was conducted in the case of Sri Sanjiw Kumar Singh . During the course of search & seizure operation it was revealed that Sri Sanjiw Kumar Singh is “Bill Master" who has been involved in providing accommodation entries in the form of bogus bills to various parties in lieu of commission. It has been further reported that search & seizure operation intensive investigation spreading over two months was carried out in this case to identify the beneficiaries as a result of which more than 2500 beneficiaries were identified and the total amount of accommodation entries of bogus bills was found to be of Rs.1410 crores during F.Y. 2009-10 to F.Y. 2015-16. Further, it has also been reported in the report that the statements of 7 brokers were recorded under oath wherein they admitted that they contacted the bill master Sri Sanjiw Kumar Singh on behalf of their clients for getting bogus bills. The statement of two beneficiaries were recorded on the spot who came to Shri Singh's office for getting bogus bills wherein they admitted the same fact of getting bogus bills from the bill master Sri Sanjiw Kumar Singh. The statements of Sri Subrata Kumar Das, Manager of Sanjiw Kumar Singh and his employees were recorded wherein they all admitted that they were doing work on behalf of Sanjiw Kumar Singh who is a bill master and has been involved in providing accommodation entries in the form of bogus bills in lieu of commission. He has no worthwhile business activity except providing bogus bills. The statements of some of dummy directors of paper entities were also recorded wherein they admitted that they were doing work of signing papers/cheques on instruction of Sanjiw Kumar Singh.

6 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. The statement of Sri Sanjiw Kumar Singh was recorded under oath wherein he admitted that he had no business activity in any of his concerns/companies. These concerns/companies are merely paper concerns which are used for providing accommodation entries in the form of bogus bills. The statement of Branch Manager of Karur Vysya Bank, N.S. Road Branch, Kolkata was also recorded under oath wherein she admitted that Sanjeew Kumar Singh has been operating more that 43 bank accounts in the name of his family members/employees/concerns. Analysis of seized documents revealed strong evidences of providing bogus bills by Sanjeew Kumar Singh different beneficiaries using more than 80 bank accounts. It was admitted by Sri Sanjeew Kumar Singh and his associates that after the receipt of cheques in consideration of the purported sales by the impugned concerns controlled by Sri Sanjeew Kumar Singh, cash used to be withdrawn and returned to the accommodation entry seekers after adjusting the commission. As a result of search, more than 2500 beneficiaries has been identified and the total amount of accommodation entries of bogus bills has been found to be of Rs.1410 crores during F.Y. 2009- 10 to F.Y. 2015-16 and the assessee has been reported to be one of the beneficiaries of such bogus bills seekers. As per annexure B of the report, the assessee has taken bogus bills which is apparently pertaining to purchase to the tune of Rs.31,20,073/- & Rs.78,315/- from Vasukinath Enterprises and Tarama Merchants Pvt. Ltd respectively during FY : 2012-13 against the claim of total purchase to the tune of Rs.1,03,97,651/-during the F.Y. 2012-13 relevant to A.Y. 2013-14 in his returns of income . Therefore, I have reason to believe that the amount of Rs.31,98,388/- being bogus claim of purchase has escaped assessment in the meaning of section 147 of the income Tax Act, 1961.” 8. In reply the assessee raised the following objections:

“Please refer to your letter dated 02.08.2018 giving us the reasons recorded by you under section 148(2) of the Income Tax Act before issue of the Notice under section 148 of the Act. On the basis of the reasons recorded by your honour in the aforesaid letter dated 02.08.2018, you have reason to believe that our income chargeable to tax has escaped assessment. With regard to the same, we most respectfully state and submit as follows. It is humbly submitted that you have not forwarded the copy of the approval granted by the sanctioning authority u/s 151 of the Act. Therefore, the copy of the reasons sent is not complete in itself. You are requested to kindly send the copy of the approval granted by the Ld. Pr. Commissioner of Income Tax at the earliest so that we can also look into the same and make our submissions on such approval. Subject to above, it is submitted that the re-opening of our assessment on the basis of these reasons recorded by your honour u/s 148 of the Act is invalid due to the following reasons: 1. The Notice has been issued on the basis of borrowed reasons. There is no application of mind on the information received from Investigation Wing of the Income Tax Department before issue of the Notice under section 148 of the Act. On perusal of the reasons recorded by you it transpires that without verifying such information, your honour had reason to believe that Rs.31,98,388 is actually our undisclosed income which has escaped assessment. This shows that you had a doubt / suspicion or reasons to suspect rather than a reason to believe that income amounting to the aforesaid amount has escaped assessment. We submit that a mere statement of facts in the form of a report is not a substitute for reasons that are required to be recorded before issuing a notice under section 148 of the Act. Mere satisfaction of the Assessing Officer for the issuance of a notice is not enough - there must be reasons on record which have led him/her to believe that a notice should be issued. After a foundation based on information is set up, there must still be some reasons which warrant the holding of a belief so as to necessitate the issuance of a notice under section 148. Reliance is placed on the judgement of Hon’ble Delhi

7 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. High Court in the case of CIT vs. Atul Jain [2008] 299ITR 383 (Delhi). Reference is also made to the decision of Punjab & Haryana High Court in the case of CIT vs. Smt. Paramjit Kaur [2008] 168 TAXMAN 39 (Punj & Har). In this case the Hon’ble High Court quashed the reassessment proceedings where the reasons recorded on the basis of information received from department’s survey wing that a Demand draft got prepared by the assessee was not accounted for in the books of accounts. The Court held that the AO merely acted on the information so received without himself examining the fact and corroborating the same. The Court held that there was no satisfaction of the AO and therefore the proceedings were quashed. The facts of our case are also similar to the aforesaid facts and therefore we submit that the initiation of proceedings was illegal and void ab initio. Similar view has been taken by Hon’ble Delhi High Court in the judgement delivered on 08.10.2015 in the case of Pr.CIT vs. G & G Pharma India Ltd. in ITA No. 545/2015. We also refer to the decision of Hon’ble Bombay High Court in the case of Piramal Enterprises Ltd. vs. Deputy Commissioner of Income Tax 7(3)(2), pronounced on 15.02.2017, wherein was held that: “The reason to believe has to be arrived at after applying one's mind to the material available and to reach a prima facie view that income chargeable to tax has escaped assessment. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessment. In the present case the Assessing Officer prima facie has not done the bare necessary/rudimentary enquiry into the material received before he concludes that income chargeable to tax has escaped assessment. The evidence of the same is the absence in the reason of any amount being determined by the Assessing officer as having escaped assessment. This prima facie determination of income escaping assessment would indicate application of mind to arrive at the reason to believe that income chargeable to tax has escaped assessment.” 2. The amount of our income believed by you to have escaped assessment as per your letter dated 02.08.2018 is Rs.31,98,388. It has been alleged by you that we had made bogus purchases of Rs.31,20,073 from M/s. Vasukinath Enterprises and Rs.78,315 from M/s. Tarama Merchants Pvt. Ltd. It is humbly submitted that during the Financial year 2010-11, we had purchased TMT Rods amounting to Rs.5,20,021 (and not Rs.31,20,073 as mentioned in your letter) from M/s. Vasukinath Enterprises and purchased Cement amounting to Rs.78,315 from M/s. Tarama Merchants Pvt. Ltd. for use in construction in our Real Estate business. All the aforesaid transactions are duly disclosed in our Books of accounts for the relevant year. Payments to both the parties were made by us through account payee cheques and copy of all the relevant documentary evidences viz. Ledger extract, Invoice, Delivery Challan and Bank statements are enclosed herewith for your kind verification. We are not aware whether these 2 parties are involved in providing bogus bills etc. or not, but we state and submit that ours were genuine business purchases. Hence we deny your allegation that we had taken bogus bills of Purchases and reduced our taxable income in any way whatsoever. There has been no suppression or ambiguity on our part whatsoever. Hence your allegation is solely based on your assumptions, surmises and conjectures. Thus the reasons recorded under section 148(2) are vague and based upon incorrect facts. It has no live link with the allegation of escapement of income. Utmost this is a case of suspicion and/or doubts. The reason to believe must have a live link with the formation of belief that the income has escaped assessment. The Hon’ble Third Member Bench of Mumbai ITAT in the case of Telco Dadajee Dhackjee Limited vs. DCIT - ITA No. 4613/Mum/2005 also held as under: “In this case the original assessment was made u/s 143(1) of the Act and even then The Hon'ble Tribunal had considered the decision of Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. [2007] 291ITR 500 (SC). The Hon'ble Tribunal referred to observations made by Hon’ble Supreme Court in Rajesh Jhaveri's case at Page 512 wherein it was held that ‘so long as the ingredients of sec. 147 are fulfilled" the Assessing Officer can reopen the proceedings even where intimation u/s 143(1) was issued. Thus fulfillment of the conditions of section 147, including the one that there should be "reasons to believe" is essential for the validity of the notice under section 148."

8 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. 3. On the facts as enumerated herein above we submit that the notice under section 148 has been issued in a mechanical manner without prudent application of mind on the same. We submit that issue of Notice in a mechanical manner is not permissible under law. Reference is made to the judgement of Hon’ble Delhi ITAT in the case of R. K. Arora & Sons (HUF) vs. ACIT in ITA No. 4444/Del/2014. In this case the Hon’ble Tribunal following the judgement of Hon’ble Delhi High Court in the case of Signature Hotels P. Ltd. vs. Income Tax Officer [2011] 338 ITR 51 quashed the re-assessment proceedings wherein the Hon’ble High Court had held as under: “Held, allowing the petition, that the reassessment proceeding were initiated on the basis of information received from the Director of Income Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during the financial year 2002-03 as stated in the Annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of Section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid-up capital of Rs. 90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September, 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed." 4. We request you to please provide us with the copy of the sanction letter and/or evidence of such approval/sanction obtained by you from the Ld. Principal Commissioner of Income Tax- 16, Kolkata. 5. We further submit that we should be given the copy of the information received by your office from DDIT Investigations, Kolkata on the basis of which our assessment is sought to be reopened. We hereby again state and submit that since the issue of Notice under section 148 of the Act is without jurisdiction, illegal and void, the proceedings initiated in this case may kindly be dropped. We would also request you to please pass a speaking order on the aforesaid objections before proceeding further in the matter of re-assessment.” 9. The AO in the assessment order stated that the reasons for re-opening are as follows:

“3.1 Receipt of specific information from the Investigation Wing, Kolkata: In this case, information was received that the assessee has indulged in bogus purchases. The same is produced hereunder: The reasons recorded for-reopening is as under: "Information is received from the Directorate of Income Tax (Investigation Wing), Kolkata vide letter No. Pr. DIT(INV)/Kol/SKS/Report/2016-17/556 dt,05.07.2016 intimating that a search & seizure action u/s. 132 of the I. T. Act, 1961 was conducted at the premises of Shri Sanjiw Kumar Singh. During the course of search it was revealed that Shri Sanjiw Kumar Singh was a “Bill Master” and involved in providing accommodation entries in the form of bogus bills to various parties in lieu of commission. The name of the assessee found as one of the beneficiaries of such sham transactions in the report. It has further reported that the assessee had taken bogus bills which apparently pertains to purchase o/Rs. 19,29,589/- from the following paper concerns operated by Shri Sanjiw Kumar Singh during the year under consideration. Name of the concern of Shri Sanjiw Amount Kumar Singh

9 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. Vasukinath Enterprises 31,20,073/- Tarama Merchants Pvt. Ltd. 78,315/- TOTAL 31,98,388/- These Material facts were not fully and truly disclosed by assesses in the original assessment proceedings. Thus Rs. 31,20,073/- was debited in the profit and loss account to deflate the profit to evade tax and thereby causing loss to the revenue. Perusal of 360 degree profiting did not reveal the transaction. The assesses had a fraudulent claim of expenditure amounting to Rs. 19,29,589/- inform of bogus purchase procured from the paper concerns of Sri Sanjiw Kumar Singh during financial year relevant to the A. Y. 2012-13. Information to the effect that the assesses teas one of the beneficiaries of bogus purchases arranged through paper concerns as discussed above operated Shri Sanjiw Kumar Singh who was involved In providing accommodation entries in the form of bogus bills to various parties in lieu of commission. Thus, Rs. 19,29,589/- was debited in the profit and loss account to deflate the profit to evade the tax and thereby causing loss to the revenue. Therefore, I have reason to believe that by way of claiming bogus purchases of Rs. 19,29,589/-, the assesses had reduced income to this extent; hence the income of Rs. 19,29,589/- chargeable to tax has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961.” 10. A perusal of the above demonstrates that the reasons recorded were not provided to the assessee when they were originally sought for, in the manner in which they were recorded. In the reasons recorded as given in the assessment order, the bogus bills are stated to be ₹19,29,589/- and whereas in the letter given to the assessee as the reasons recorded for re-opening of the assessment, the bogus bills are stated to be ₹31,20,073/- and ₹78,350/-. The assessee objected stating that the figures are wrong and this fact is accepted by the ld. CIT(A) who states that the actual purchases was only ₹5,98,336/-; as the sales are also reflected in VAT return and sales tax return filed with the Central and State Authorities respectively. The G.P. of 11.62% of this amount was directed to be added.

a) Non-furnishing of the reasons recorded in the manner it was recorded prior to re- opening the assessment so as to enable the assessee to furnish his objections, if any, as laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO [2003] 259 ITR 19 (SC).

10 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. b) Non-disposal of the objections raised by speaking order specifically when the figures of purchases are recorded in the reasons are factually incorrect when the purchases are only to the tune of ₹5,98,336/- in the reasons given to the assessee the amount was reflected as ₹31,20,073/- and ₹78,315/- and in the reasons given in the assessment order the figure was given as ₹19,28,589/-. The facts are all mixed up and errors have crept into the reasons recorded.

c) The re-opening is bad in law for the reason that there was total non-application of mind by the AO to the information received from the Investigation Wing of the Department. No preliminary verification has been made. Factual inaccuracies, though pointed out, were not corrected. Re-opening based on such wrong facts recorded in the reasons for re-opening renders the re-opening bad in law.

“6. The objections raised by the Assessee were rejected by the AO by an order dated 24th September, 2010. The AO proceeded to pass an assessment order under Section 144 read with Section 147 of the Act on 16th December, 2010 making an addition of Rs.95,65,510 to the declared income of the Assessee. 7. The Assessee then went in appeal before the CIT (A), who by order dated 19th August, 2011 allowed the appeal filed by the Assessee. The CIT (A) held that the re-opening of the assessment was "without any satisfaction, without verifying the information received from Directorate of Investigation" and that the "AO has not applied his mind. There is no satisfaction on the part of the AO regarding escapement of any income." 8. The Revenue then went in appeal before the ITAT which was dismissed by the impugned order. The ITAT concurred with the CIT (A) that the jurisdictional requirement for re-opening of the assessment under Section 147 read with Section 148 of the Act had not been satisfied. In particular, the ITAT observed that the AO "has not given details what was stated by the so- called entry operators in respect of the entries related to the assessee". Further, from the table of accommodation entries produced by the Assessee, the ITAT found that "there are five instances, where entries have been repeated". 12. In a recent decision in Principal Commissioner of Income Tax-6 v. Meenakshi Overseas (P) Ltd. [2017] 82 taxmann.com 300 (Delhi), this Court observed as under: "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.

11 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. 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 that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act." 13. The Hon'ble Bombay High Court in the case of Ankita A. Choksey vs. ITO (2019) 411 ITR 207 (Bom)(HC) at para 6 and 7 held as follows:

“6. It is a settled position in law that the Assessing Officer acquires jurisdiction to issue a reopening notice only when he has reason to believe that income chargeable to tax has escaped Assessment. This basic condition precedent is applicable whether the return of income was processed under Section 143(1) of the Act by intimation or assessed by scrutiny under Section 143(3) of the Act. [See Asst. Commissioner of Income Tax v/s. Rajesh Jhaveri Stock Brokers (P) Ltd., (SC) 291 ITR 500 and PCIT v/s. M/s. Shodimen Investments (Bombay) 2018 (93) Taxman.Com 153]. Further, the reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts. If the facts, as recorded in the reasons are not correct and the assessee points out the same in its objections, then the order on objection must deal with it and prima facie, establish that the facts stated by it in its reasons as recorded are correct. In the absence of the order of objections dealing with the assertion of the Assessee that the correct facts are not as recorded in the reason, it would be safe to draw an adverse inference against the Revenue. 7. Thus, we are of the view that even in cases where the return of income has been accepted by processing under Section 143(1) of the Act, reopening of an assessment can only be done when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The mere fact that the return has been processed under Section 143(1) of the Act, does not give the Assessing Officer a carte blanc to issue a reopening notice. The condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts, must be satisfied by the Assessing Officer so as to have jurisdiction to issue the reopening notice. In the present case, the Assessing Officer has proceeded on fundamentally wrong facts to come to the reasonable belief conclusion that income chargeable to tax has escaped assessment. Further, even when the same is pointed out by the Petitioner, the Assessing Officer in its order disposing off the objection does not deal with factual position asserted by the Petitioner. Thus, it would safe to conclude that the Revenue does not dispute the facts stated by the Petitioner. On the facts as found, there could be no reason for the Assessing Officer to believe that income chargeable to tax has escaped assessment.” 14. This Bench of the Tribunal in the case of Proficient Commodities Pvt. Ltd. vs. DCIT in ITA Nos. 2307 & 2308/Kol/2017, order dated 02.11.2018, under similar circumstances held as follows:

12 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. “5.1. We find that this Bench of the Tribunal in the case of ACIT vs. M/s. Adhunik Cement Ltd. in ITA No. 1375/Kol/2017; Assessment Year 2009-10, under identical facts and circumstances held as follows: 7.1. 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 who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income-tax (Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the information gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible.

13 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. 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. 7.2. The Hon'ble Delhi High Court in the case of Principal CIT vs G&G Pharma India Ltd. in ITA 545/2015 vide order dt. 08.10.2015 at paras 12 and 13 was held as follows: "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 Wing and 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 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" 7.3. The Hon'ble Delhi High Court in the case of Signature Hotels (P) Ltd. vs ITO and another, reported in 338 ITR 51 (Delhi) has under similar circumstances held as follows: "For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s 143(1) of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s 148 which was objected by the assessee. The

14 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections. The Delhi High Court allowed the writ petition and held as under: '(i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The assessing Officer must have 'reasons to believe' that income chargeable to tax has escaped assessment. This is mandatory and the 'reason to believe' are required to be recorded in writing by the Assessing Officer. (ii) A notice u/s 148 can be quashed if the 'belief' is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer when he recorded the reasons. There should be a link between the reasons and the evidence material available with the Assessing Officer. (iii) The reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to Rs.5 lakhs during F.Y.2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. (iv) Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, bad a paid up capital of Rs. 90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to the quashed. 7.4. In the case of CIT vs Atul Jain reported in 299 ITR 383 it has been held as follows: "Held dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The A.O. did not verify the correctness of information received by him but merely accepted the truth of the vague information in a mechanical manner. The A.O. had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice u/s 148. What had been recorded by the A.O. as his 'reasons to believe' was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The A.O. had clearly substituted form for substance and therefore the action of the A.O. was not sustainable" Applying the proposition of law laid down in these cases to the facts of the case we hold that the reopening is bad in law as the reasons recorded are without independent application of mind.” 5.2. 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: " 8. We have heard the submissions of the learned counsel for the assessee both on the validity of initiation of re-assessment proceedings as well as the merits of the appeal. None appeared on behalf of the department.

15 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. 8.1. We have considered the submissions of the learned counsel for the assessee. As far as the validity of initiation of re-assessment proceedings are concerned the reasons recorded by the AO for initiating proceedings u/s 148 are as follows :- "No.DCIT/Cir-6/reasons for reopening/09-10 Dated 22/04/2009 To The Principal Officer Greatwall Marketing (P) Ltd. c/o Sri. S.M. Daga 11, Clive Row, Room No. 2 .z-. Fir. Kolkata- 700001. Sir. Sub: Recorded Reasons for Reopening in the case of Greatwall Marketing (P) Ltd. for Asst. Yr. 02-03 Ref: Your letter dated 02/04/09 Please refer to the above. As per information received from investigation wing New Delhi the introduced share capital during the year. had been received from corporate bodies which are non existent and whose capacity to invest ( credit worthiness ) could not be established . Therefore I have reasons to believe that unexplained cash credit had been introduced in your books of accounts in the name of introduction of share capital and receipt of share application money. In absence of satisfactory identity and credit worthiness of the other parties. the entire introduced capital and share application money will be treated as your income for that year. I will therefore continue the proceedings for reassessment of your return u/s 147. Statutory notices u/s 143(2) and 142(1) are enclosed herewith. Yours faithfully. Sd/- ( Sanjay Mukherjee) DCIT /Cir-6/Kol " 8.2. The submissions of the learned counsel for the assessee before us was that the reasons recorded by the AO were mere information received from D.I.T.(Investigation), New Delhi. There was no independent application of mind by the AO based on which it can be said that he arrived at the satisfaction that the income of the assessee is chargeable to tax has escaped assessment. It was submitted that information received by the AO was vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which reasonable person can form belief regarding escapement of income. Reliance was placed by the learned counsel for the assessee on the decision of the Hon'ble Delhi High Court in the case of CIT vs Insceticides (India) Ltd 357 ITR 330 and CIT vs SFIL Stock Broking Ltd. 325 ITR 285 (Delhi). In both the aforesaid decisions the reasons recorded by the AO for initiating proceedings u/s 148 of the Act the Hon'ble Delhi High Court upheld the order of the Tribunal quashing the proceedings. Reliance was also placed on the decision of ITAT, Kolkata 'C' Bench in the case of M/s. Controlla Electrotech (P)Ltd vs DCIT in ITA Nos.1443 & 1444/Kol/2014 wherein on identical facts the Tribunal was pleased to quash the reassessment proceedings. On merits the learned counsel for the assessee relied on the order of CIT(A). 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

16 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. 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." 6. Applying the propositions of law laid down in these case-law to the facts of this case we hold that the re-opening is bad in law as the Assessing Officer has not independently applied his mind to the material and has recorded reasons which are vague and based on borrowed satisfaction. Hence this ground of the assessee for both the Assessment Years are allowed.” 15. Applying the propositions of law to the facts of this case we have no other alternative but to hold that the re-opening of assessment is bad in law.

17 I.T.A. No. 139/Kol/2020 Assessment Year: 2013-14 Ganapati Developers. 19. Be it as it may, the borrowing in question was from a sister concern. The partners of the assessee firm and the director of the sister concern which is a company. The bank statement wherein the alleged bogus purchases were recorded, was the same bank statement in which the loans taken from the sister concern were credited. The auditor has mentioned the details of this loan in the Tax audit report. The balance sheet of the creditor company shows that it had the capacity to lend. The creditor company confirmed the loan. The directors of the creditor company, who were also the partners of the assessee firm, have appeared before the AO during the assessment proceedings. Under these circumstances we are of the considered opinion that the assessee has proved the genuineness of the transaction, the identity and the capacity of the creditor company. Hence the addition made under Section 68 of the Act cannot be sustained on merits. Thus we delete the same. 20. In the result, the appeal of the assessee is allowed. Kolkata, the 2nd November, 2020. Sd/- Sd/- [Madhumita Roy] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated: 02.11.2020 Bidhan Copy of the order forwarded to: 1. Ganapati Developers, 82 Chintamoni Dey Road, Howrah Maidan, Howrah-711 101. 2. ACIT, Circle-47, Kolkata. 3. CIT(A)-14, Kolkata. (sent through mail) 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. (sent through mail)