HIGHTECH CONSTRUCTION P.LTDR,NEW DELHI vs. ITO, WARD-1(3), FARIDABAD

IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH “C”: NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER

ITA Nos. 1605 & 1606/DEL/2019 A.Yrs.: 2011-12 & 2012-13

HIGHTECH CONSTRUCTION P. LTD. VS. ITO, WARD 1(3), C/O KAPIL GOEL, ADVOCATE, FARIDABAD F-26/124, SECTOR-7, ROHINI, DELHI – 85 (PAN: AABCH7695H) (Appellant) (Respondent)

Assessee by : SH. KAPIL GOEL, ADV. Department by : SH. AMIT KATOCH, SR. DR.

O R D E R PER H.S. SIDHU, JM These appeals filed by the Assessee are directed against the respective Orders of the Ld. CIT(A)-Faridabad pertaining to assessment years 2011-12 & 2012-13. In both the appeals common grounds have been involved, hence, the appeals were heard together and disposed of by this common order for the sake of convenience, by dealing with the facts of the ITA No. 1605/Del/2019 (AY 2011-12) and the decision thereof will apply mutatis mutandis in other appeal i.e. ITA No. 1606/Del/2019 (AY 2012-13). The assessee has raised as

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many as 04 grounds in both the appeals, but he only argued the following grounds:-

“1.1 That on the facts and in the circumstances of the case and in law, ld CIT(A) erred in sustaining the order passed by AO u/s 147/143(3) without appreciating that assessee’s seminal objection that reasons recorded in instant case are completely vague and lacks total coherence as manifest from cursory look to the same as even minimum pains to describe and detail the composition of alleged income escapement for Rs 2.93 crores is not taken by AO and approving authority where ultimately it is found that correct escapement is of Rs 1.75 crores (refer para 8.1 CIT(A) order) thus breaking reasons recorded completely beyond repair as sought to be done feebly by Ld CIT(A) by referring to extraneous material like letters internally exchanged between AO and other agencies/officers etc which is totally alien to reasons recorded/communicated to assessee (refer para 7.1, 7.2 and 7.3 of ld CIT(A) order which has reduced reasons recording and communicating requirement to an empty ritual it looks like reasons are recorded here completely by CIT(A) in his order for fist time which is sufficient to quash the reopening) ; further fatal defect of incorrect mention of no return filing by assessee in reasons recorded/communicated to assessee is wrongly treated by Ld CIT(A) in his order at para 8.3.1 to 8.3.3 as inadvertent error thereby validating the incorrect reasons which is impermissible and Ld CIT(A) has Page 2 of 59

incorrectly referred to section 292B to cure fatally defective reasons recorded/communicated to assessee;

1.4 That on the facts and in the circumstances of the case and in law, ld CIT(A) erred in sustaining the order passed by AO u/s 147/143(3) without appreciating that approval of higher authority (PCIT Faridabad) is also without requisite application of mind and is given in mechanical manner;

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reasons by the AO. Notice u/s 148 of the Act was issued on 15/03/2017 by ITO Ward 1(3) Faridabad. Copy of Income Tax Return in response to notice u/s 148 of the Act was issued was filed on 27/04/2017. Reasons recorded u/s 148 of the Act dated 3/03/3017 were supplied to assessee on 17/05/2017 which are placed on records as filed before us by the assessee in separate compilation running into 44 pages. Objections to reasons were filed by assessee on 30/11/2017 challenging reopening action of AO by submitting that reasons are not validly recorded. These objections came to be disposed of by the AO on 07/12/2017. Notice u/s 143(2) of the Act on 17/05/2017 with reasons supplied. Various replies were filed before AO namely 28/11/2017, 12/12/2017 and 15/12/2017 in response to queries raised by AO from time to time. Notices issued u/s 133(6)/131 of the Act have been served on share applicants being matter of records. Further in the said reply request was made to AO to provide cross examination of Mr. Himanshu Verma. As noted in assessment order at page 13 where from it is clear that only when statements were provided at fag end of assessment proceedings there assessee requested for cross examination of those persons including Himanshu Verma in reply dated 29.12.2017. Thereafter, the AO has passed the order u/s 147/143(3) of the Act making sole addition of Rs 1,75,00,000 on account of bogus share application u/s. 68 of the Act in contrast to amount of Rs 2.93 crores as referred in reasons recorded on 03.03.2017 by assessing the income of the assesse at Rs. 1,75,4,1760/- u/s. 143(3)/147 of the Act vide order dated 29.12.2017. Against the said assessment order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 31.1.2019

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has dismissed the appeal of assessee. Aggrieved with the order of the Ld. CIT(A), assessee is in appeal before the Tribunal.

“Reason for initiation of proceedings u/s 147 of the Income Tax Act,1961:

As per information received from the income tax officer ward 11(3) New Delhi vide office letter F.No ITO /W- 11(3)/Remedial action /2016-2017 /425 dated 24.01.2017 that assessee has obtained accommodation entries during financial year 2010-11 through companies of Himanshu Verma Group. On going through the list of accommodation entries provider i.e Himanshu verma group companies , it has been found that during financial year 2010-2011 relevant to assessment year 2011-12 the assessee M/s Hightech Construction Pvt Ltd recd accommodation entries

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of Rs 2,93,00,000 . The assessee has introduced his own money which has not been offered for taxation in shape of share application money.

Having perused and considered the above facts, undersigned has reason to believe that income of the assessee to the tune of Rs 2,93,00,000 and other income which subsequently comes to notice has escaped assessment for the assessment year 2011-2012 by reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for computing correct income and filing his return of income for that assessment year. Acconrdingly notice u/s 148 of Income Tax Act 1961 is being issued. Sd/-

R.K.Singh

Income Tax Officer

Ward 1(3) Faridabad”

3.1 Further it was highlighted before us with reference to format of reasons which was basis of approval by PCIT Faridabad that in column no 8 it is mentioned by AO as under:

“Whether the assessment is proposed to be made for the first time, if the reply is in the affirmative please state: YES

a) Whether any voluntary return has been filed and No

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b) If So, date of filing of said return - .”

3.2 Further by referring to column no 12 of said format of reasons Ld AR highlighted to us the manner in which approval is given by PCIT:

With reasons recorded by ITO that it is a fit case for issue of notice

u/s 148 of the Income Tax Act. I am satisfied it is fit case for issue of notice u/s 148 of the IT Act” 3.3 On basis of aforesaid background Ld AR made his arguments that reopening made by AO as sustained by Ld CIT(A) is manifestly unlawful and without authority of law. The crux of his arguments is a) firstly reasons recorded are based on borrowed satisfaction without independent application of mind; b) secondly reasons are based on wrong and incorrect facts as evident from AO’s narration of no return filing where assesssee has admittedly filed regular return 30.09.2011 and figure of Rs 2.93 crores is found to be non existing qua assessee and correct figure as finally noted in assessment order is Rs 1.75 crores; c) reasons recorded lack and fail on live nexus test and there is no coherence in reasons recorded which is flashing from the following portions of reasons recorded “on going through the list of accommodation entries provider…” and “the assessee has introduced his own money which has not been offered for taxation” from which it clear that just on basis of a list belief is formed by AO and thereafter

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without any sort of description of background information if any available to AO in reasons recorded bald inference is drawn that “the assessee has introduced his own money…” which has no back up or foundation in reasons recorded; d) reasons recorded nowhere communicates the description of how income escapement of Rs 2.93 crores is deduced and what are the components of the same like name of share subscriber entity, amount of share subscribed, date of share subscription , mode of payment and instrument no etc for want of which reasons have become non communicative; e) reasons recorded nowhere discusses what was the basis of treating Himanshu Verma as entry provider and what was the connecting link between Himanshu Verma and assessee here in as it is not mentioned in reasons that what the nature of operation conducted by revenue on Himanshu Verma and what were the key findings of said operation which were divulged only in post mortem stage of assessment, f) reasons nowhere mentions about any statement if any available to AO at the time of recording of reasons /approval by PCIT; g) reasons are based on dictates and directions of ITO Ward 11(3) letter dated 24.01.2017 which becomes verified when one refers to said letter as reproduced by Ld CIT(A) at page 58 of his order where subject line is “issue of notice u/s 148 for AY 2010-2011 to 2012-2013 in respect of accommodation entries provided by Shri Himanshu Verma and its associates to M/s Hightech Construction Co Pvt Ltd” and; h) although assessment order pat page 2 mentioned about some captive enquiry done by AO through his inspector with ITO Ward 11(3) New Delhi collecting certain material for which there is no whisper and mention in reasons recorded on 03.03/2017 as approved by PCIT and as

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communicated to assessee herein. Notably said inspector office report dated 22.02.2017 is no where enclosed and attached with reasons recorded/approved and as communicated to assessee so same cannot be considered while adjudicating validity of reopening action of AO; i) approval by PCIT is also mechanical as he has also not bothered to verify whether reopening is made after due diligence on part of AO; j) Ld CIT(A) while deciding validity of reopening against the appellant has transgressed his boundary by referring to various extraneous material which is not forming part of reasons recorded/communicated to assessee which approach is proscribed in law as validity of reopening is to strictly seen with reference to reasons recorded and as communicated to assessee; Thus making his arguments Ld AR pleaded for quashing of reopening action of AO which is simply based on pretence and guesswork. Various case laws and precedents are relied by Ld AR some of which are discussed by us in succeeding paragraphs .

3.4 Further Ld AR has highlighted with reference to specific ground taken before Ld CIT(A) that there is gross violation of principle of natural justice and no cross examination is offered for revenue’s witness whose statements is heavily relied by AO to draw adverse inference u/s 68 of the Act (reference was made to assessment /AO order sheet entry dated 15/12/2017–page 12 of assessment order where only statements were purveyed at fag end of assessment proceedings without cross examination being offered for the same) and Ld CIT(A) without making legitimate efforts to cure that fatal defect by directing AO for doing the needful for offering cross examination, has arbitrarily proceeded to hold at para 10.8.5 that AO Page 9 of 59

has not committed any irregularity by not allowing cross examination of Mr Himanshu Verma. Ld AR has drawn our attention to revenue office manual in this regard which extract is placed on records before us where it is clearly mandated that AO is under duty to offer cross examination before any statement is relied against the assessee and a case law compilation is placed on records by Ld AR to support his case on violation of principle of natural justice.

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6.1 Apropos argument of validity of extant reopening u/s 148 made on basis of reasons recorded dated 03/03/2017 , we find force in arguments of Ld AR as recorded above. Before testing the arguments of both sides on validity of reopening action, it may be profitable to refer to guiding words of Hon’ble Delhi High Court in case of Signature Hotels as cited by Ld AR (338 ITR 51) on subject of reopening made on basis of allegation of accommodation entry:

“5. Before dealing with the facts of the case, we may notice some judgments of the Supreme Court when proceedings under Section 147/148 of the Act can be initiated on statements made by third person on the account of "accommodation entry". In ITO versus Lakhmani Mewal Das, [1976] 103 ITR 437 (SC), the Supreme Court affirmed the decision of the High Court and held that there was nothing to show in the confession made by a third party related to the loan taken by the assessee much less a loan which was shown to have

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advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provide legal sound basis for initiation of assessment proceedings under Section 147. After referring to this judgment, a Division Bench of Delhi High Court, in Income-Tax Officer, Special Civil No. VII, New Delhi, and Another versus Dwarka Dass and Brothers, [1981] 131 ITR 571 (Del) has held as under:

"....The Supreme Court, affirming the decision of the High Court, held that there was nothing to show that the confession of M.K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent and the live link or close nexus which should be there between the material before the ITO and the belief which he was to form was missing or was, in any event, too tenuous to provide a legally sound basis for reopening the assessment....

6.2 The position in the present case falls within the same category. At the time of the original assessment all the facts relating to the cash credits in question were fully disclosed. This has been found by the learned Judge at page 960 (of 118 ITR) and indeed this is the accepted position on the basis of which even the proposal of the ITO to the Commissioner (set out at page 964) proceeded. Thereafter, the only material received by the ITO appears to be that the revenue

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authorities had carried out certain investigations, that they had discovered the existence of bogus hundi brokers who were allegedly lending their names to assessee and that a list had been circulated to various ITOs of the hundi brokers who were allegedly indulging in malpractices. The internal audit party appears to have discovered that some of the creditors whose credits had been accepted in the assessee's case fell within this category and raised an audit objection which was the immediate provocation for the reopening of the assessment. In this case also, as in the case before the Supreme Court, there is no live connection or link established between the information or the facts, in the possession of the ITO, and the genuineness of the particular loans recorded in the assessee's books. The mere fact that the names of the some of the creditors figured in a list made out by the department would be too general and vague to lead to an inference regarding the truth or otherwise of the loans recorded by the assessee. We are wholly unable to find any material point of distinction between the facts of the present case and those considered by the Supreme Court in the case of Lakhmani Mewal Das [1976] 103 ITR 437."

6.3 The view taken by the Supreme Court in Lakhmani Mewal Das (supra) was followed in Ganga Saran and Sons Private Limited versus Income-Tax Officer-I, [1981] 130 ITR 1 (SC). The matter was again examined by the Supreme Court in Phool Chand Bajrang Lal and Another versus Income-Tax Officer and Another, [1993] (203) ITR 456 (SC). In the said case, information was received by the Assessing Officer that the third company had never actually advanced loans to any person and the said third company was in the business consisting Page 13 of 59

entirely of name lending. Noticing the judgment in Lakhmani Mewal Das (supra) it was held that the nature of information which was available was vastly different. In the case of Lakhmani Mewal Das (supra), the information was extremely vague and scanty whereas in the case of Phool Chand Bajrang Lal (supra), the information was specific, unambiguous and clear.

6.4 In the present case the undated reasons recorded by the Assessing Officer for initiation of proceedings read as under:

" Information received from the office of the DIT (Inv.)-VI, New Delhi revealed that M/s Signature Hotels (P) Ltd. has introduced unaccounted money in its books of account during F.Y. 2002-03 through accommodation entry from M/s Swetu Stone PV for Rs.5.00 lac.

In view of the above, I have reasons to believe that taxable income to the tune of Rs.5.00 lac has escaped assessment within the meaning of section 147 of the I.T. Act, 1961."

6.4 However, the aforesaid reasons are not the same/identical when we compare the reasons recorded by the Assessing Officer in the approval proforma for initiation of action under Section 147/148. The reasons recorded by the Assessing Officer for approval of the Commissioner of Income-Tax Range-VIII, in paragraph 11 of the said form/proforma read:

"11. Reasons for the belief that income has escaped assessment.- Information is received from the DIT

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(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."

6.5 On the basis of the aforesaid reasons, the Commissioner gave approval recording as under:

"Yes, I am satisfied on the reasons recorded by the A.O. for approval & issue of notice u/s 148 of the I.T Act, 1961."

6.6. It is accepted that the Section 151(2) of the Act is applicable in the present case as the proceeding under Section 148 were initiated after expiry of four years from the end of the relevant assessment year. Therefore, the Assessing Officer was required to take approval an officer not below the rank of the Joint Commissioner of Income- Tax after recording reasons. In the present case sanction has been taken from the Commissioner. A Division Bench of Bombay High Court in N.D. Bhatt IAC of IT versus IBM World Trade Corporation, [1995] 216 ITR 811(Bom.) has held as under:

"It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reasons so recorded can be looked at for sustaining or setting aside a notice

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issued under section 148. In the case of Equitable Investment Co. P. Ltd. v. ITO [1988] 174 ITR 714, a Division Bench of the Calcutta High Court has held that where a notice issued under section 148 of the Income-Tax Act, 1961, after obtaining the sanction of the Commissioner of Income-tax is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the Commissioner of Income- tax has been obtained. The Income-tax Department cannot rely on any other material apart from the report." (emphasis supplied)

6.7. The aforesaid paragraph in IBM World Trade Corporation (supra) was cited with approval in Prashant S. Joshi versus Income-Tax Officer and Another, 2010 (324) ITR 154 (Bom.) and it was held as under:

"Section 147 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 163, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The first proviso to section 147 has no application in the facts of this case. The basis postulate which underlies section 147 is the

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formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. The Assessing Officer must have reason to believe that such is the case before he proceeds to issue a notice under section 147. The reasons which are recorded by the Assessing Officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of section 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under section 148."”

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6.8 Further we are guided by following sagacious words of wisdom In Mohinder Singh Gill & Anr vs The Chiief Election AIR 1978 (SC) 851, the 5 judge constitution bench of Hon’ble Supreme Court has observed as under:-

“The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. Public orders publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the acting and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself. Orders are not like old wine becoming better as they grow older.”

6.9 Similarly, Hon’ble Orissa High court Visa Comtrade Ltd. vs UOI and Ors. 338 ITR 343 has held that “It is a settled legal proposition that if an order is bad in its inception, it does not get sanctified at a later stage. A subsequent action/development cannot validate an action which was not lawful at its inception, for the reason that the

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illegality strikes at the root of the order.( (vide: Upen Chandra Gogoi v. State of Assam & Ors., AIR 1998 SC 1289; Mangal Prasad Tamoli (Dead) by L.Rs. v. Narvadeshwar Mishra (Dead) by L.Rs. & Ors. , AIR 2005 SC1964; and Ritesh Tiwari & Anr. v. State of U.P. & Ors., AIR 2010 SC 3823)).”

6.10. So examining validity of extant reopening strictly on basis of reasons recorded which are approved by PCIT and are communicated to assessee , we find it very difficult to fathom and understand what was in mind of AO so that he has reopened the present case . As evident from reasons which are reproduced elsewhere in this order it would be clear like broad day light that reasons are recorded without independent application of mind on part of AO who has recorded reasons on basis of rumor and suspicion only . When we read reasons line by line we find that reasons are simply and solely based on un- described and un-narrated letter of ITO Ward 11(3) New Delhi like a borrowed satisfaction. Phrases like “on going through the list of accommodation entries provider…” and “the assessee has introduced his own money which has not been offered for taxation” clearly tells the tale that reasons are recorded without any tangible material and without any live nexus. Reasons fail on following significant aspects like wrong mentioning of return filing status in reasons format, no description at all about composition of income escapement alleged to be of Rs 2.93 crores which amount is also not correct , mechanical and ritualistic approval of PCIT who has also not bothered to examine reasons independently thus reducing the approval to a empty ritual. We do not agree with reasoning of Ld CIT(A) in his impugned order that even if reasons are wrongly recorded in mechanical manner Page 19 of 59

without independent application of mind which mind application must come out from reasons on its own even then if background information is otherwise available on records with AO which information is not referred and discussed in reasons as such, reopening would remain valid. If this is accepted then recording of reasons would become a empty ritual and entire reasons recording salutary exercise would become otiose and redundant. Reasons in extant case are classical example of non application of mind on part of AO and Ld PCIT where none of the authorities have performed their salutary duties as per law and those authorities by their own actions has allowed the case of revenue to become weakened causing loss to exchequer. We are supported by following observations of Delhi high court in case of Haryana Acrylic case 308 ITR 38 wherein it is lucidly held that:

“…23. Secondly, let us assume for the sake of argument that the ‘actual’ reasons were those as noted in the said form. Then why did the Assessing Officer communicate a different set of reasons to the petitioner? Did he think that the supplying of reasons and the inviting of objections were mere charades? Did he think that it was a mere pretence or a formality which had to be gotten over with? At this point, it would be well to remember that the Supreme Court in GKN Driveshafts (India) Ltd.’s case had specifically directed that when a notice under section 148 of the said Act is issued and the noticee files a return and seeks reasons for the issuance of the notice, the Assessing Officer is bound to furnish reasons within a reasonable Page 20 of 59

time. On receipt of the reasons, the noticee is entitled to file objections to the issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. These are specific directions given by the Supreme Court in all cases where notices under section 148 of the said Act are issued. Surely, the Assessing Officer could not have construed these specific directions to be a mere empty formalities or dead letters? There is a strong logic and purpose behind the directions issued by the Supreme Court and that is to prevent high-handedness on the part of Assessing Officers and to temper any action contemplated under section 147 of the said Act by reason and substance. In fact, even section 148 (2) stipulates that the Assessing Officer shall, before issuing any notice under the said section, record his reasons for doing so. The Supreme Court has only carried forward this mandatory requirement by directing that the reasons which are recorded be communicated to the assessee within a reasonable period of time so that at that stage itself the assessee may point out any objections that he may have with regard to the initiation of action under section 147 of the said Act. The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the Assessing Officer does not reopen assessments which have been finalized on his mere whim or fancy and that he does

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so only on the basis of lawful reasons. These steps are also designed to ensure complete transparency and adherence to the principles of natural justice. Thus, a deviation from these directions would entail the nullifying of the proceedings.”

6.10 These observations are complete answer to Ld CIT(A) adverse views in impugned order. On issue of lack of cross examination when we refer the assessment order and findings of Ld CIT(A) and test them on elementary principle of natural justice which mandates the cross examination of revenue witness here persons whose statements are extensively relied by AO and Ld CIT(A) same without cross examination cannot be basis to draw adverse inference against the assessee u/s 68 of the Act and as regards fag end request of asssessee for cross examination we are of the opinion that once said request is taken from inception in appeal grounds before CIT(A) and Ld CIT(A) has also not made any efforts to allow said cross examination by using his wide and co-terminus powers u/s 250(4) of the Act, and ld CIT(A) has simply brushed aside said request of assessee on irrelevant grounds as AO himself has provided the statements at fag end of assessment proceedings on 15/12/2017 , then non offering of cross examination to assessee in our opinion becomes a fatal infirmity in assessment which is sufficient to quash the assessment proceedings. We are supported by office manual of income tax department which states that “2.6 Recording of statements While recording statements the following points may be kept in mind :- i. A statement is required to be recorded before the AO ii. The AO can decide whether to allow or not to allow the Page 22 of 59

presence of the assessee or his AR. In case they are present that fact should be recorded at the end of the statement and their signatures obtained. iii. The signature of the deponent should be obtained on each page and at the end of the statement. Each correction should be attested by the deponent. A deponent who refuses to sign is liable for penalty u/s 272A. iv. In case of a statement on oath the oath should be administered by the AO. The form of oath/affirmation is stipulated in the schedule to section 6 of the Indian Oaths Act. The form of oath given is: “I do swear in the name of God/or I do solemnly affirm that what I shall state will be the truth, the whole truth and nothing but the truth”. v. A witness should first be examined by the party producing him (assessee or the AO), followed by cross-examination by the other party. After the crossexamination there can be a re- examination by the original party. vi. The statement recorded from a departmental witness cannot be used against the assessee unless the assessee is given an opportunity to cross-examine the witness. A statement without such cross examination would not be admissible evidence. A copy of the statement so recorded should be given to the assessee. In case the assessee does not wish to cross-examine the witness, that fact should be recorded in the order sheet as well as in the body of the statement. The signature of the assessee should be obtained on such noting. Offences relating to depositions attract various penal consequences under the Indian Penal Code as well. 3.2.7 Granting copies An assessee should be provided with copies of statements before the latter are utilised against him for the purpose of assessment. Granting of copies should be recorded in the order-

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sheet and brought out in the assessment order as well. A witness is not entitled to a copy of his statement.”

6.11 Now we proceed to discuss case laws referred before us:

6.11.1 First case law which is relied here is the Hon’ble Delhi High court decision in the case of Pr. CIT vs. RMG Polyvinyl (I) Ltd., (2017) 396 ITR 5 (Del.) held as under “The assessee filed its return for the assessment year 2008-09 and assessment was made under section 143(1) of the Income-tax Act, 1961. The Assessing Officer issued a notice for reassessment based on information received from the Investigation Wing that the assessee was the beneficiary of certain accommodation entries, which were given in the garb of share application money or expenses or gifts or purchase of shares during the period relevant to the assessment year 2004-05. He recorded that the assessee had not filed a return for the assessment year 2004-05, as there was no return available in the database of the Department, and that consequently he had not offered any income for taxation. On appeal :

Held, dismissing the appeal, that no link between the tangible material and the formation of the reasons to believe that income had escaped assessment, could be discerned. The information received from the investigation Wing was not tangible material per se without a further enquiry having been undertaken by the Assessing Officer, who had deprived himself of that opportunity by proceeding on the erroneous premise that the assessee had not filed a return for the assessment year, 2004-05,

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when in fact it had. In his assessment order, the Assessing Officer had, instead of adding a sum of Rs.78 lakhs, even going by the reasons for reopening of the assessment, added a sum of Rs.1.13 crores and the basis for such addition had not been explained. No error was committed by the Appellate Tribunal in holding that reopening of the assessment under section 147 was bad in law. No question of law arose.”

6.11.2 This decision fully applies to preset facts because here also AO has wrongly stated in reasons format that return is not filed whereas return was filed in regular course u/s 139 and even on amount reasons described wrong amount as correct amount was discovered later on in assessment proceedings. This decision is in relied in Delhi A bench ITAT decision in case of M/s Asis Plywood Pvt Ltd order dated 28.01.2019 in ITA 2144/Del/2015 placed at pages 7 to 17 of compilation on records. Similar is decision of The Hon’ble Gujarat High Court in the case of Vijay Harishchandra Patel vs. ITO (2018) 400 ITR 167 (Guj.) (HC) where also it was held that “When the original ground for reopening the assessment did not survive, the Assessing Officer had sought to proceed further with the assessment on totally different grounds, which was impermissible. Despite the fact that the assessee had duly submitted that he had filed his return, wherein the very same issue had been examined, instead of dropping the proceedings, the Assessing Officer had sought to proceed further for reasons which were alien to the reasons recorded for reopening the assessment. Thus the very intent and purpose behind submitting the objections by an assessee and passing an order thereon, was Page 25 of 59

frustrated. Considering the fact that a return had been fled disclosing the sale of the immovable property, the very foundation on which the reopening of the assessment was based, in the reasons recorded was unsustainable. Therefore, on the reasons recorded, the Assessing Officer could not have formed the belief that income had escaped assessment, inasmuch as such belief had been formed on a factually incorrect premise. The notice, dated March 31, 2017, issued under section 148, for reassessment, was to be quashed”. This is also factually applicable to present facts. Likewise is the decision of Hon’ble HIGH COURT OF DELHI AT NEW DELHI % Date of Decision: 19.11.2018 + W.P.(C) 11255/2017, CM No.46017/2017 in case of RAJENDER KUMAR SEHGAL wherein it is held that “11. As far as the second argument, with regard to the clarification is concerned, this court is unpersuaded by the revenue’s argument. The petitioner’s objection that the transaction with an entity attributed to the deceased was unsupported by the books furnished to the revenue was straightaway rejected. However, the “reasons to believe” are premised upon such a transaction with one Varun Capital Services Ltd. (as is evident from the table at Appendix B to that document). After rejection, of the objection, which meant that according to the revenue, such a transaction was indeed recorded in the deceased’s books, the revenue attempted to “correct” the “error” by changing the name of the entity (with whom the suspect transaction occurred). This court is of opinion that such “correction” is neither innocuous nor innocent; it was clearly aimed at improving what was a fatally defective “reasons to believe” and mask the reality, to wit, that the revenue authorities utterly failed to apply their minds to the facts and

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circumstances of the case. On the last issue, i.e the fatality attached to the completed reassessment in the absence of a notice under Section 143 (2), this court notices that the omission renders the assessment (or reassessment as in this case) void a proposition of law enunciated in Asstt. CIT v. Hotel Blue Moon (2010) 321 ITR 362. 12. In view of the foregoing conclusions, the impugned reassessment notice and all consequent proceedings- including the reassessment order-have to be and are, hereby quashed. The writ petition is accordingly allowed, but without order on costs”. Here also we find that ld CIT(A) has tried to make such “correction” which is neither innocuous nor innocent; as it was clearly aimed at improving what was a fatally defective “reasons to believe” and mask the reality, to wit, that the revenue authorities utterly failed to apply their minds to the facts and circumstances of the case.

6.11.3 Next decision relied is Ahmedabad C bench ITAT decision in case of Rajendra Amin in ITA 2880/Ahd/2015 order dated 30.11.2016 wherein it is held that:

“4. We have heard both the sides. Case file perused. It is not is dispute that the Assessing Officer’s main ground as extracted hereinabove is that the assessee had not filed his return for the impugned assessment year. The same turns to be contrary to page (s) 16 to 18 of the paper book wherein the assessee’s return in question is stated to have been filed on 19.12.2011 declaring total income as Rs.27,02,520/- including long term capital gains of Rs.35,35,765/- on sale of the impugned immovable

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property in question. The Assessing Officer’s order dated 09.02.2015 disposing of assessee’s objection to reopening reads that the said return had not been filed u/s.139(1) of the Act. The CIT(A) on the other hand is of the view that the said return was not filed with the Assessing Officer issuing Section 148 notice. The fact however remains that the filing of assessee’s return in question (supra) is not otherwise in dispute. We put up a specific query to Ld. Departmental Representative to prove that assessee’s residential status or his ward is different in the above stated return or in Section 148 notice or in reassessment. He could not point out such difference. It has further come on record that assessee had also received acknowledgement of his return from department’s end forming part of the paper book. We quote hon’ble jurisdictional high court in Special Civil Application No.15475/2015 Manish Kumar Pravinbhai Kiri vs. ACIT decided on 11.01.2016 holding that the only reason of non filing of return forming basis of the impugned reopening in such circumstances stands belied. We thus accept assessee’s challenge to validity of the reopening and conclude that the Assessing Officer’s above stated reasoning goes contrary to the record. The same is accordingly quashed rendering assessee’s other ground on merits as infructuous.” We find this decision is also applicable to present facts fully.

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6.11.4 Next decision which is relied by Ld AR as enclosed in compilation on records is Delhi ITAT G bench decision in case of M/s. SPJ Hotels Private Limited in ITA.No.2857/Del./2017 wherein vide order dated 10/12/2018 it is held that: “13.1. In the aforesaid reasons for reopening of the assessment, it is mentioned that assessee company received share capital on account of accommodation entries of Rs.5 lakhs each from M/s. Hillridge Investment Pvt. Ltd., and M/s. Vogue Leasing & Finance Pvt. Ltd., based on information and seized material received from Investigation Wing. However, the assessee explained before A.O. that amount in question is Rs.20 lakhs from four parties. The A.O. in the re-assessment order made addition of Rs.20 lakhs on account of unexplained credit on account of accommodation entries received from four parties and also made addition of Rs.40,000/- on account of Commission paid to entry operators. On the basis of the same material, the Pr. CIT initiated the proceedings under section 263 of the I.T. Act on the reasons that amount in question is not Rs.10 lakhs received from these two companies, but, it is Rs.50 lakhs each i.e., Rs.1 crore. Thus, the facts mentioned in the reasons for reopening of the assessment are incorrect and non-existent. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Atlas Cycle Industries (1989) 180 ITR 319 (P & H) held as under :

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“Held (i) that the Tribunal was right in cancelling the reassessment as both the grounds on which the reassessment notice was issued were not found to exist, and, therefore, the Income-tax Officer did not get jurisdiction to make a reassessment.”

13.2. Since the facts are totally different as A.O. had reason to believe that Rs.10 lakhs has escaped assessment on account of Rs.5 lakhs received from two companies referred to above, which was ultimately found to be incorrect and nonexistent, therefore, there may not be any application of mind on the part of the A.O. to proceed to initiate the re-assessment proceedings. There is no other material available on record except the information received from the Investigation Wing. The A.O. on the basis of the information and material received from Investigation Wing has recorded reasons for reopening of the assessment which was ultimately found to be incorrect and non-existent. It is well settled law that when no new material other than examined by the A.O originally found on record for the purpose of initiating the re-assessment proceedings, the proceedings under section 148 of the I.T. Act would be invalid and bad in law. We rely upon decision of Delhi High Court in the case of Atul Kumar Swamy 362 ITR 693, Consulting Engineers Services India Pvt. Ltd., 378 ITR 318, Nestle India Ltd., 384 ITR 334 and Priyadesh Gupta 385 ITR 452. The Hon’ble Delhi High

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Court in the case of SNG Developers Ltd., 404 ITR 312 held that when A.O. initiated the re-assessment proceedings without application of mind, such proceedings would be invalid. A.O. in the present case has failed to verify the information received from Investigation Wing. Therefore, it is non-application of mind on the part of the A.O. to record correct facts in the reasons for reopening of the assessment. In such circumstances, the re-assessment order could not be treated as valid and in accordance with law. Since re-assessment proceedings are invalid and bad in law, therefore, such proceedings could not be revised under section 263 of the I.T. Act. Following the reasons for decision in the case of M/s. Supersonic Technologies Pvt. Ltd., (supra), we set aside the order passed by the Ld. Pr. CIT under section 263 of the I.T. Act and quash the same.14. In the result, ITA.No.2857/Del./2017 of the Assessee is allowed.” Here also we take support from Hon’ble jursidictional P&H high court ruling in Atlas cycle case as relied by Delhi ITAT in above decision as facts recorded in reasons are found to be non existing so reopening made is invalid. 6.11.5 Next decision which is relied and placed on records is Delhi ITAT A bench decision in case of Key Components Pvt Ltd in ITA 366/Del/2016 order dated 12.02.2019 wherein it is held as under:

“6. We have considered the rival submissions. and perused the material available on record. It is well settled Law that validity of the reopening of the Page 31 of 59

assessment shall have to be determined with reference to the reasons recorded for reopening of the assessment. The Learned Counsel for the Assessee has filed copy of the reasons for reopening of the assessment which is reproduced above. The reasons contain the report of enquiries made by DIT (Inv.), New Delhi, about accommodation entries given by entry operators. It is also informed by DIT (Inv.), New Delhi, that assessee has received 03 accommodation entries totaling to Rs.5,00,545/- from M/s. V.R. Traders Pvt. Ltd., It is also reported that extensive enquiry have been carried out by the DIT (Inv.) regarding non-genuine transactions. The A.O. reproduced the same facts in the reasons and straightaway concluded that the findings of the report of Investigation Wing shows the creditworthiness of the lender has not been established, therefore, these transactions SEEM to be non-genuine. The record reveals that vide Order dated 16.05.2018, the Ld. D.R. was directed to produce copy of the report of the DIT (Inv.) referred to and recorded by the A.O. in the reasons. However, till date, no such report has been produced on record for verification of the Tribunal. It may be noted that though in the reasons the A.O. has mentioned that value of the entry was of s.5,00,545/- but ultimately the A.O. made addition of Rs.5 lakhs in the case of M/s. V.R. Traders Pvt. Ltd., in which case

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accommodation entry is stated to have been received. There is, thus, a factual error in the reasons recorded for reopening of the assessment regarding the amount of the accommodation entry. In the present case, the A.O. has merely reproduced the precise information which he has received from Investigation Wing of the Revenue Department and reproduced the same in the reasons recorded under section 148 of the I.T. Act, 1961, which was not produced for our perusal. It would show that assessee has received the amount of 03 credits through banking channel by mentioning the names of the parties and cheque numbers, name of the Bank with amount. The A.O. has not gone through the details of these information and has not even applied his mind and merely concluded that the transactions seems not to be genuine, therefore, A.O. was not sure whether transaction was genuine or not. Then, he has merely further concluded that he has reason to believe that amount of Rs.5,00,545/- represents income of the assessee chargeable to tax which has escaped assessment. These reasons to believe are, therefore, not in fact reasons but, only conclusion of the A.O. The expression “accommodation entry” is used to describe the information set-out without explaining the basis for arriving at such conclusion. Even the A.O. has not stated in the reason that he

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has gone through the reports of the Investigation Wing. The A.O. merely repeated the report of the Investigation Wing in the reasons and formed his belief that income chargeable to tax has escaped assessment, without arriving at his satisfaction. The reasons to believe contain no reason, but, the conclusion of the A.O. without any basis. Even no name of entry provider has been mentioned who has provided accommodation entry. Thus, there is no independent application of mind by the A.O. to the report of the Investigation Wing which formed the basis for reasons to believe that income chargeable to tax has escaped assessment. The conclusion of the A.O. in the reasons are at the best reproduction of conclusion of the Investigation Report. It is merely followed which is not permissible in law. The A.O. has not brought anything on record on the basis of which any nexus could have been established between the material and the escapement of income. The reasons fails to demonstrate the link between the alleged tangible material and formation of the reason to believe that income has escaped assessment. The Hon’ble Delhi High Court in the case of Pr. CIT vs. G & G Pharma India Ltd., (2016) 384 ITR 147 (Del.) held as under : “The basic requirement of law for reopening an assessment is application of, mind by the Assessing Officer, to the materials produced prior

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to reopening the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied- a post mortem exercise of analysing materials produced subsequent to the. reopening will not make an inherently defective reassessment order valid. ; The assessee filed returns for the assessment year 2003-04 which was processed under section 143(3) of the Income-tax Act, 1961. Based on information received from he Directorate of Investigation about four entries, stated to have been received by the assessee on a single date, i.e., February 10, 2003} from four entities which were termed as accommodation entries, the Assessing Officer issued notice to the assessee for reassessment for the assessment year 2003-04 on March 19, 2010 stating that it was evident that the assessee company had introduced its own unaccounted money in its bank by way of accommodation entries. The assessee's appeal was dismissed by the Commissioner (Appeals). The Tribunal concluded, from the reasons recorded, that the1 Assessing Officer issued notice only on the basis of information received from the Investigation Wing but without coming to an independent conclusion for reason to believe that income had escaped assessment and allowed the appeal of the assessee.

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On appeal: Held, dismissing the appeal} that once the date on which the so-called accommodation entries were provided was known, it would not have been difficult for the Assessing Officer, 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 November 14 2004 and was processed under section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for him to have simply concluded that it was evident that the assessee company -as introduced its own unaccounted money in its bank by way of accommodation entries. The basic jurisdictional requirement was application of mind by the Assessing Officer to the material produced before issuing the notice for reassessment. Without analysing and forming a prima facie opinion on the basis of material produced, it was not possible for the Assessing Officer to conclude that he had reason to believe that income had escaped assessment. The order of the Tribunal was proper. No question of law arose.

… The Hon’ble Delhi High Court in its recent decision in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., (supra), in paras 19 to 38 held as under : “19. A perusal of the reasons as recorded by the AO reveals Page 36 of 59

that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: "The information so received has been gone through." One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver)". The AO adds that the said accommodation was "a known entry operator" the source being "the report of the Investigation Wing". 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, "the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs.5,00,000 has escaped assessment in the AY

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2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... " 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

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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. 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 147will 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

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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-

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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 reference to any document or statement, except

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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

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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 r espect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed

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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 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

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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 8thApril 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

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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

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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 (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 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 under Section 147 of the Act. " 34. Recently in Agya Ram v. CIT (supra), it was

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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

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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”. 6.3. Considering the above discussion, it is clear that there is a total non-application of mind on the part of the A.O. while recording the reasons for reopening of the assessment. He has recorded incorrect amount which escaped assessment. His conclusion was merely based on observations and information received from DIT (Inv.), New Delhi, which is not brought on record and his conclusion is merely based on doubts because he was not sure whether transaction in question is genuine or not. Therefore, the decisions relied upon by the Learned Counsel for the Assessee squarely apply to the facts and circumstances of the case. The decisions relied upon by the Ld. D.R. would not support the case of the Revenue. Since, there is a total lack of mind while recording the reasons for reopening of the

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assessment, therefore, assumption of jurisdiction under section 147/148 of the I.T. Act, 1961, is bad and illegal. The A.O. was not justified in assuming jurisdiction under section 147/148 of the I.T. Act, 1961. We, therefore, hold that reopening of the assessment in the matter is bad in law and illegal, as such, same cannot be sustained in law. We, accordingly, set aside the Orders of the authorities below and quash the reopening of the assessment. Resultantly, all additions stand deleted.” We heavily rely on Delhi high court rulings in case of G&G Pharma, Meenakshi overseas and RMG Polyvinyl as referred in aforesaid order to support our conclusion that extant reasons are recorded without application of mind.

6.11.6 Next decision which is relied is Delhi ITAT decision in case of Prabhu Finsec Pvt. Ltd., New Delhi vs Ito, Ward- 20(1), New Delhi on 28 December, 2018 in ITA NO.1221/DEL/2018 wherein it is held that:

“16. In the reasons recorded, the Assessing Officer has reproduced the information received from investigation wing without conducting any enquiries on such information received that shows non application of mind as evident from the facts stated by the Assessing Officer in the last para the information received from the investigation wing is considered with reference to the return of income Page 50 of 59

available on record, having satisfaction with the application / information received in the case of the assessee, I have reason to believe that income has escaped assessment. However, he has not mentioned the factum of quantum income of Rs.10 lacs of share application money and the name of the suspicious accommodation entry providers for A. Y. 2008-09 to establish/substantiate reason to believe and the escaped assessment within meaning of the provision of section 147 of the IT Act 1961. 17. The above information in the reasons recorded clearly shows that the Assessing Officer has simply relied on the information received from the investigation wing without verifying the same with reference to the facts of the case; that the Assessing Officer has not even mentioned the name of the entity from whom so called entry of share application money was accepted by the assessee, instrument number, bank account and date on which the entry was made which are essential information to support the application of mind by the Assessing Officer. The judgment of Hon'ble Delhi High Court vicisiate by the Assessing Officer and Hon'ble Supreme Court relied upon by the Ld. DR (supra). While rejecting the objection on the ground the information received contain minusure detail of the entry should operator and the above named particulars. In the absence of the said essential detail being part of the reason, the reason recorded is ambiguous

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vague and non communicative thus, the reason does not stand at its footing and not self contain.

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Overseas (supra), their lordship speaking for the Jurisdictional High Court held that where the reasons recorded by the AO failed to demonstrate the link between the tangible material and the formation of the reasons to believe that income has escaped assessment then, indeed it is a borrowed satisfaction and the conclusion of the AO based on reproduction of conclusion drawn in the investigation report cannot be held as valid reason to believe without application of mind. In this judgment their lordship also held that w here nothing from the report of investigation wing is set out to enable the reader to appreciate how the conclusions flow there from then there is no independent application of mind by the AO to the tangible material which form the very basis of the reasons to believe that income has escaped assessment. 20. In the instant case, as we have noted above, the note of satisfaction recorded by the AO in para 10 of the reasons is based on the information received from the director of investigation wing and the AO without making any effort to examine and discuss the material received from the Investigation Wing with the support of tangible material gathered by way of conducting inquiry shall be held as without application of the mind since, he has used the same to form reason to believe that income had escaped assessment. This also shows that the AO proceeded to initiate reassessm ent proceedings on the basis of borrowed satisfaction w ithout any application of

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mind and exercise on the information received from the Investigation W ing of the Department. Therefore, we have no hesitation to hold that the AO proceeded to initiate reassessment proceedings u/s. 147 of the Act and to issue notice u/s. 148 of the A ct on the basis of borrowed satisfaction and without any application of mind and examination of the so called material and information received from the investigation wing to establish any nexus, even prima facie, with the such information. Therefore, in our considered opinion the initiation of reassessment proceedings u/s. 147 of the Act, notice u/s. 148 of the Act, reassessment proceedings and all consequent proceeding and orders, including impugned reassessment and first appellate order, are bad in law and thus, not sustainable and we hold so.” This ruling covers the facts of present case closely as here also Assessing Officer has not even mentioned the name of the entity from whom so called entry of share application money was accepted by the assessee, instrument number, bank account and date on which the entry was made which are essential information to support the application of mind by the Assessing Officer , Here also AO proceeded to initiate reassessment proceedings u/s. 147 of the Act and to issue notice u/s. 148 of the Act on the basis of borrowed satisfaction and without any application of mind and examination of the so called material and information received from ITO Ward 11(3) New Delhi to establish any

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nexus, even prima facie, with the such information. Here also the reason recorded is ambiguous vague and non communicative thus, the reason does not stand at its footing and not self contain. So we have no hesitation to uphold contention of Ld AR and quash the reopening and reverse the order of Ld CIT(A) and thus delete the addition made by AO in impugned order.

6.11.7 Last decision which is most recent as relied is Bombay high

court decision in case of South Yarra Holdings in WRIT PETITION

NO.3398 OF 2018 order DATE : 1st MARCH, 2019 wherein it is held

that:

“7. It is a settled position in law that reopening of an assessment has to be done by an Assessing Officer on his own satisfaction. It is not open to an Assessing Officer issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income chargeable to tax has escaped assessment, that reopening notice is to be issued.

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assessment year 201112. Admittedly, there was no

company by name “M/s Nivyah Infrastructure & Telecom

Services Ltd” in existence during that year for

consideration. This clearly shows that the Assessing Officer

acted on the satisfaction of the Deputy Collector of Income

Tax (Investigation) that income chargeable to tax has

escaped assessment. It must also be borne in mind that

the impugned notice is issued beyond the period of four Page 56 of 59

years from the end of the relevant assessment year in a

case, where the assessment was completed under section

143(3) of the Act. Therefore, the Assessing Officer would

have to examine the information received in the context of

the facts on record. If such an exercise were to be done, it

is likely that the Assessing Officer would have come to the

conclusion that there was no failure to disclose truly and

fully all material facts necessary for assessment. Thus, hit

by the proviso to section 147 of the Act. However, the

Assessing Officer has not applied his mind to the

information received in the context of the facts on record.

The impugned notice is bad in law, as it has not been

issued by the Assesing Officer on his satisfaction that there

is reason to believe, that income chargeable to tax has

escaped assessment.

unsustainable in law and therefore, is quashed and set

aside.”

6.12 We find this decision also applies to present facts as here AO has

not even cared and taken pains to describe the composition of income Page 57 of 59

escapement of Rs 2.93 crores which has fractured the entire

reopening and reasons are based on the dictate and/or satisfaction of

some other authority that is ITO Ward 11(3) New Delhi which is not

countered by Ld DR and Ld CIT(A) in impugned order.

6.13 On basis of aforesaid discussions and respectfully following the

precedents, as aforesaid, we accept both the pleas raised by Ld AR

and reject the arguments of Ld DR and hold that Ld CIT(A) wrongly

approved the reopening action of AO and thus reverse the findings of

Ld CIT(A) on these count and accordingly hold that AO wrongly

reopened the case of assessee u/s 147 on basis of mechanical reasons

simply based on borrowed satisfaction of ITO Ward 11(3) New Delhi

which are approved in perfunctory manner by Ld PCIT and gravely

violated principle of natural justice in reopening proceedings, and thus

quash the reassessment and cancel the orders of the authorities

below. Since we have quashed the reassessment in the case of the

assessee, thus grounds on merits of the case has become academic in

nature and does not call for any adjudication here. Thus appeal of

assessee is partly allowed.

6.14 Following the consistent view as taken in ITA 1605/Del/2019

(AY 2011-12), as aforesaid, similarly we also quash the reassessment

in the case of assessee in ITA No. 1606/Del/2019 (AY 2012-13) and Page 58 of 59

cancel the orders of the authorities below, being similar and identical

facts and partly allowed this appeal also.

allowed.

Order pronounced on 22-03-2019.

Sd/- Sd/- [L.P. SAHU] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Date:22/03/2019 SRBhatnagar