THE ACIT, CENTRAL CIRCLE-2(4),, AHMEDABAD vs. AMBE TRADECORP PVT. LTD.(FORMERLY KNOWN AS J.P.FINCORP SERVICES PVT. LTD), AHMEDABAD

आदेश/O R D E R

PER BENCH:

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 2 Act, 1961 (here-in-after referred to as "the Act"). The assessee has filed the Cross Objection in the Revenue’s appeal bearing Assessment Year 2010-2011.

3.1 Based on above, the assessment of the assessee was reopened under section 147 of the Act and show cause notice was issued proposing to treat the amount of Rs. 39,05,50,000/ (Rs. 42,74,50,000.00 minus 3,69,00,000) received during the year as unexplained cash credit under section 68 of the Act.

3.2 The assessee in response to such show cause notice filed ledger copy M/s Rachna Finelease Pvt. in its books of account for the year under consideration and next year i.e. A.Y. 2010-11 and 2011-12 and claimed that entire amount of share

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 3 application money received has been returned back in A.Y. 2011-12. The assessee further claimed that entire transaction was carried out through the banking channel and duly recorded in the audited books of account which goes to prove the genuineness of transaction and credit worthiness/ identity of the investor. Accordingly, the assessee claimed to have discharged the primary obligation cast under the section 68 of the Act. It was also submitted that no adverse inference can be drawn against the assessee in a situation where the investor is not filing return of income. In any case, if the investor is unable to explain the sources of fund which was used for the purpose of investment, then the addition should be made in hand of investor under section 69 of the Act, and not in hand of assessee under section 68 of the Act.

3.3 However, the AO rejected the submission of the assessee by observing that undisputedly the assessee has received Rs. 39,05,50,000/- from M/s Rachna Finelease Pvt., a company which is not filing return of income. Thus in absence of return, the creditworthiness of M/s Rachna Finelease Pvt. is not proved. The assessee’s argument that the amount of share capital was repaid in subsequent year cannot be accepted as the provisions of section 68 restricts to the amount credited during the year. Therefore, it is the responsibility of the assessee to explain the source of the amount credited during the year satisfactory irrespective of the repayment in the next year. But the assessee failed to discharge the onus cast upon it. Therefore the AO treated the amount of Rs. 39,05,50,000/ as unexplained cash credit under section 68 of the Act after making reference to various case laws and added to the total income of the assessee.

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 4 financial statements, annual return in order to establish genuineness of the transaction. There was sufficient balance in the bank account of investor which justifies the credit worthiness. Thus, the assessee has discharged the obligation cast under section 68 of the Act. Once, the onus is discharged, there cannot be any addition unless the AO brings other materials showing the amount credited represent income of the assessee. The assessee in support of its contention made reference to various case laws.

5.1 The assessee further submitted that the investor company has received fund from Smt. Hansaben Patel and Shri Ramesh Thakor as share application money. This fact can also be verified from the finding of the AO that Smt. Hansaben Patel has sold immovable property and proceeds from such property was utilized for the purpose of making investment and advancing loan. The assessee in support of its contention has filed the sale deed of property, chart showing flow of fund and bank statement of Smt. Hansaben Patel and Shri Ramesh Thakor. Accordingly, the assessee claimed that all the transactions at all the stages have been carried out through banking channel without involving any element of cash. Thus, the addition under section 68 of the Act in the given facts and circumstances is not justified.

5.2 The learned CIT (A) after considering the facts and circumstances and submission of the assessee deleted the addition made by the AO by observing as under: 7.3 It is the case of the appellant duly evidenced by the documentary evidences that" the credits in its books of accounts were from M/s. Kachana Fiulease Pvt. Ltd. and for the purpose, the identity and credit-worthiness of the party were established by the appellant. For the purpose, the appellant had submitted ledger account of M/s. Rachana Finlease Pvt. Ltd. from the books of the appellant company, ledger account of the appellant company from the books of M/s. Rachana Finlease Pvt. Ltd., copy of bank statement of the appellant company, copy bank statement of M/s. Rachana Finlease Pvt. Ltd., copy of the audited financial statement of the appellant company and copy of company matter data of M/s. Rachana Finlease Pvt. Ltd. from ROC Website. Thus, by any standard applied, the appellant has definitely discharged the onus on it for the purpose of Section-68 of the Act. The appellant cannot be faulted and made to suffer if the creditor(s) has not filed its return of income for that previous year. In this context, it has to be admitted that filing of the return of income and the return of income are important evidences but they are not the only evidence and not even a necessary

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 5 evidence. Identity and creditworthiness can be evidences otherwise also. Similarly genuineness of transaction can be proved even if the books of accounts are not there. These alternative means of evidences cannot be ignored/discounted. Under the circumstances, it has to be admitted that the onus has shifted to the AO to disprove the appellant. 7.4 Furthermore, the appellant has gone to the extent of furnishing all the documentary evidences as to the source of the source and even source of the source of the source. From the perusal of all these evidences filed before me which were also produced during the assessment proceedings, it emerges that the ultimate source of the funds is one Srnt. Hansaben Manibhai Patel who has allegedly sold lands to M/s. Applewoods Estate Pvt. Ltd. and the consideration thereof was given by her to one Shri Rameshbhai Thakor and to M/s. Rachana Finlcase Pvt. Ltd. Shri Ramcshbhai Thakor has also given money to M/s. Rachana Finlease Pvt. Ltd. The appellant has attached the copy of sale deed of land between Srnt. Hansaben Patel anri M/s. Applewoods Estate Pvt. Ltd. All the flow of funds from Smt. Hansaben Patr.1 to ultimately the appellant company has been evidenced through copies of respective bank statements. It is not the case of the AO that Smt. Hansaben Patel is non-existent or is a fictitious person. Smt. Hansaben Patel's photograph and address appears in the relevant sale deed(s) and that her bank account has proper KYC and she has been filing the return of income, though it appears and is alleged by the AO that the return for the A.Y. 2010-11 was not filed by Smt, Hansaben Patel. In my considered view, merely not filing the return of income cannot be the basis for an Income-tax Authority to conclude that the capacity/creditworthiness is not established and that the genuineness of the transactions is not above board. 7.5 In connection with the appeal proceedings in the case of Shri Asit Sunderbhai Shah (PAN:AFUPS64692), the A.R. of the person had produced before me the details of lands sold by Smt. Hansaben Patel and also the ledger accounts giving the bank details of Smt. Hansaben Patel, the assessment order in the case of Smt. Hansaben Patel (PAN:ATCPP9642E) for the A.Y. 2010-11 by the 1TO, Ward-3(3)(2), Ahmedabad which is based on the information received from the Investigation Wing, Ahmedabad, a to credit of Rs.33,36,89,804/- in her bank account with Indian Bank, Navrangpura Branch, Ahmedabad during F.Y. 2009-10 relevant to A.Y. 2010-11 and that she was non-filer and her identity was not established and her whereabouts were not known. The assessments in the case was completed u/s.144 r.w.s. 147 for A.Y. 2009-10 and A.Y. 2010-11 as the statutory notices could not be served on Smt. Hansaben Pate! at the known address and determining the total income at Rs.1,03,02,57,250/- vide order dated 23.12.2016 and Rs.33,36,89,804/- vide order dated 29.02.2017 respectively. For the purpose of A.Y. 2009-10, the details of land transactions were called out from the data available in the ITD database. 7.6 From the perusal of the assessment order dated 23.12.2016 for A.Y. 2009-10 in the case of Smt. Hansaben Manilal Patel (PAN:ATCPP9642E), it is seen that the AO h^.d obtained the information from Textile Traders Co. Op. Bank Ltd., Sub-registrar, Sanand and all the persons to whom she had advanced money during F.Y. 2008-09 including S. Mangaldas Group (of Shri Asit Sunderbhai Shah). As per the AO, Textile Traders Co. Op. Bank replied that they had no record of the person, though the amounts were credited/debited to S. Mangaldas Group. As to the purchase of properties from Smt. Hansaben Patel by M/s. Applewoods Estate P, Ltd., it was informed by J.P. Iscon Group vide letter dated 24.10.2016 that Shri Jayesh Kotak, Director from 14.12.2007 to 18.06.2008 and Shri Jatin Gupta, Director from 14.12.2007 to 07.05.2010 who were no With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 6 more Director in J.P. Iscon Group had given new address of Applewoods Estate P. Ltd. at Block No. 16, Abhishree Corporate Complex, Opp. Madhurya Restaurant, Iscon Ambali Road, Ahmedabad. M/s. Indian"' Bank submitted year-wise bank statement of Smt. Hansaben Patel and also copy of her specimen signature from its record. The details of sale and purchase of immovable property by Smt. Hansabcn Patel was also obtained and it is matter of record that she earned sale consideration of Rs.l02,93,92,000/~ as short term as the properties were purchased in January lu March, 2008 and sold in July and October, 2008. However, as neither any submission was made nor any evidences in response to show cause notices were furnished, the AO treated the entire sale proceed as her income by way of short term capital gain and completed the said assessments. 7.7 It is noted from the paper book filed in the case of Shri Asit Surenderbhai Shah (PAN; AFUPS6469Q) for appeals against the assessment orders for various assessment years before roe that during the post search proceedings in his case, it was discovered that he had advanced huge amount of loan to various persons and Srnt. Hansaben Patel had advanced loan of Rs.5,00,00,000/- to Asit S. Shah HUF, Rs.13,25,00,000/-Surendra Managaldas HUF, Rs.5,00,00,000/- to Shri Surendra M. Shah and Rs.5,00,00,000/- to Shri Chetnaben Shah and that she had earned huge profits from sale of agricultural land and she had advanced huge unsecured loans and earned interest income thereon. The paper book also contains the appellate order dated 12.02.2018 by the Ld. C1T (A)-l 1, Ahmedabad in the case of Shri Asit Surendrabhai Shah (against the assessment order for the A.Y. 2009-10 dated 23.12.2016 u/s.143(3) r.w.s. 147 by ACIT, Central Circle- 1(3), Ahmedabad). From the perusal of the said appellate order, it is noted that the Ld. CIT (A) held as under:- "Facts of the case as mentioned in assessment order, submissions of the appellant and case laws cited upon by the appellant have been carefully considered. There is no dispute that the loan ofRs.10 crore was obtained by the appellant through account payee cheques. It is established, accepted and settled legal principle that to prove the genuineness of credits, three parameters, i.e. identity, genuineness of transaction, and creditwnrthiness of the creditor should be proved. The AO did nut find explanation about the identity of the creditor Smt. Hansaben M. PaLel tsutixfuvtory as she wn.i not found at the address given and the appellant could not produce iuzr. Uut, the ufifit*llt- j.nt had submitted PAN details of Smt. Hansuben M. Patel, copy of her l.T. Return for A.Y. 200')-1U, confirmation from tier to prove her irfr.iiiity. These facts proved the identity of Smt. Hansaben M. Putel beyond doubt. Moreover, on the sale deeds of plots uf land sold worth mo/'e than Rs.149 onras duriny (/if year, she signed nil these sale deeds and }uir . photo is affixed on all these sales deeds. Sales deeds are registered in the O/o. the Sub-registrar and seller and buyer has to remain present personally for registration of documents. Apart from this, the ITO, Ward-3(3)(2), Ahmedabad made assessment u/s.144 r.w.s. 147 of the Act in the name of Smt Hansaben M. Patel vide order dated 23.12.2016 and determined income of Rs. 103.02 crore for A.Y. 2009- 10 i.e. year under consideration. All these facts proved that the appellant hadproved identity of creditor, Smt. Hansaben M. Patel beyond doubt. Regarding genuineness of the transaction, there is no doubt that the transactions took place through account payee cheques. There is not a single rupee found deposited in cash even in the bank account of Smt. Hansaben M. Patel, which has been utilized to give loan to the appellant. There is no finding in the assessment order that the appellant given cash for obtaining cheques worth Rs.10 crore. Even the loan taken was re-paid in the same Financial Year to the extent of Rs. 1.35 crore through account payee cheques and remaining amount was also paid through regular banking channel in the next financial year. ............... Regarding creditworthiness of the creditor, there is no doubt about the fact that Smt.

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 7 Hansaben M. Patel sold plots of land worth Rs.149 crores during the year and she has been assessed at Rs. 103.02 crore by her Assessing Officer. These facts prove her creditworthiness............ These facts proved that the appellant satisfactorily established the identity of the creditor, genuineness of the transactions and creditworthiness of the creditor with documentary evidences. Hence, the additions made by the AO are not found justified. Regarding the financial relations of the appellant with J.P. /scon Group, the appellant did not deny and admitted that he had financial relations with Kotak family since his father's days, but all these transactions have been found entered into regular books of accounts. Therefore, any adverse inference without any substantial documentary evidence is not legally sustainable." 7.8 It is noted from the paper book filed in the case of Shri Asit Surenderbhai Shah (PAN: AFUPS6469Q) for appeals in his case that the Ld. CIT(A)-5, Ahmedabad also in the appellate order dated 13.03.2018 in the case of Surendra Mangaidas Shah HUF (PAN: AACHS6590R) against the assessment order for AY 2009-10 u/s 143(3} nvs 147 by the ITO, Ward 5(2)(4), Ahmedabad deleted the addition of Ks.13.25 crores u/s.68 implying thereby that the identity and creditworthiness of Smt. Hansaben M. Patel in this case also was established and the transaction was found genuine. 7.9 The purpose of narrating the assessments in the case of Smt. Hansaben Patel and the appellate orders in the case of Shri Asit Surendra Shah and Surendra Mangaidas Shah HUF is to explore the identity of Srnt. Hansaben Patel. The analysis of the facts and conclusion of the Ld. CsIT (A) as reproduced above cannot be ignored for adjudcating the present appeal under consideration in the case of M/s. Arnbe Tradecorp Pvt. Ltd. The assessment in the case of Smt. Hansaben Patel and the registered sale deed of lands sold by her establish her identity and her creditworthiness. And accordingly, the creditworthiness of subsequent parties in the chain of transactions up to the appellant M/s. Arnbe Tradecorp Pvt. Ltd. are also established. 7.10 I also note that the AO had no rational basis to reject the explanation of the appellant during the assessment proceedings and to hold that the creditworthiness of the creditor M/s. Rachana Finlease Pvt. Ltd. was not proven by the appellant and thus invoking the provisions of Section-68 adversely in the case of the appellant is not legally tenable. Having examined the facts of the case and in view of the case laws relied upon by the appellant, it is evident that the appellant having not only discharged its onus u/s.68 but also having furnished the details of source of the source of the source as to the fund and thus establishing the identity and creditworthiness, the addition of Rs.39,05,50,000/- cannot be sustained. The addition is directed to be deleted.

8. The appeal is partly allowed.

8.1 Both the learned DR and the AR vehemently supported the order of the authorities below to the extent favourable to them.

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 9 it was clear that the creditworthiness of the company i.e. M/s Rachna Finlease Pvt. Ltd. was not established. Accordingly, the reopening proceedings were initiated on the reasoning that the assessee has received a sum of ₹ 18,42,50,000/- from M/s Rachna Finlease Pvt. Ltd. towards share application money. The reasons recorded by the AO are placed on pages 48-49 of the paper book. Accordingly, the reassessment proceedings were framed under section 143(3) read with section 147 of the Act vide order dated 13th December 2017 after making an addition of Rs. 39,05,50,000/- to the total income of the assessee. It is necessary to clarify at this juncture that there was a mismatch in the amount recorded in the reasons for reopening the assessment viz a viz the addition made in the assessment proceedings under section 143(3) read with section 147 of the Act. However, the difference is not in dispute. In fact, during the assessment proceedings it was discovered that the amount received by the assessee from M/s Rachna Finlease Pvt. Ltd. stand at Rs. 39,05,50,000/- (Rs. 42,74,50,000 – Rs. 3,69,00,000 being opening balance) and therefore addition was made in the reassessment proceedings for the same amount.

9.1 First, we deal with the finding of the AO on merit. It was alleged by the AO that the amount received by the assessee represents the accommodation entries from M/s Rachna Finelease Pvt. for the reason that such company was not filing its income tax return. In this connection, we find that the finding of the AO is not correct to some extent. It is for the reason that the company namely M/s Rachna Finelease Pvt. has filed income tax return in response to the notice issued under section 148 of the Act and accordingly the assessment was completed under section 147 read with section 143(3) of the Act where huge additions were made in the hands of the company on account of unexplained cash credit under section 68 of the Act. However, subsequently the learned CIT (A) was pleased to delete the addition made by the AO in the hands of the company. The copy of assessment order under section 147 of the Act and the order of the learned CIT (A) is placed on pages 421-425 and 426 to 476 of the paper book filed along with ITA No. 53/AHD/2021. Therefore, the finding of the AO is not correct up-to this extent.

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 10 9.2 Furthermore, once the source of fund in the hand of above company was held as explained by learned CIT (A) then amount received by the assessee from that company cannot be held as unexplained under section 68 of the Act in the absence of contrary information. Likewise, there cannot be addition of one item in the hands of two different persons.

9.3 Nevertheless, the assessee has submitted PAN, address, ledger confirmation, own bank statement and bank statement of M/s Rachna Finelease Pvt. showing amount received through banking channel. The assessee also claimed before the learned CIT (A) that M/s Rachna Finelease Pvt. has received money from Smt. Hansaben Patel and Shri Ramesh Thakor which can be verified from the bank statement of M/s Rachna Finelease Pvt. and also from the finding of the AO in paragraph 6.1.3 which reads as under: On verification of the bank book of Rachna Finelease Pvt. Ltd. it is found that the fund have travelled within minutes of being credited from the bank account of Hansaben H. Patel and Rameshbhai Thakor and immediately the funds have landed in the bank account of JP Fincorp Services Pvt. Ltd.(Renamed as Ambe Tradecorp Pvt. Ltd.).

9.4 Smt. Hansaben Patel sold immovable property for Rs. 102.93 crores and paid due taxes in the assessment framed under section 147 r.w.s. 144 of the Act. Going through all these document it is established that identity, genuineness of transaction and credit worthiness/sources of fund has been established. Further the AO has not pointed out any deficiency in these documentary evidences neither any contrary evidences brought by the learned DR before us at the time of hearing against the finding of the ld. CIT-A. Thus, the finding of the AO that the creditworthiness of the party was not proved was not based on the cogent reasons. Thus the finding of the AO appears to be arbitrary and non-speaking.

9.5 It is also not out of the place to mention that the shares application money received by the assessee in the year under consideration was refunded in the subsequent year. The repayment of the share application amount by the assessee

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 11 was duly accepted by the Revenue. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under: “The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.”

9.6 Thus, the entire basis of allegation by the AO that the credit worthiness of the party i.e. share application money was not proved does not hold well in view of above discussion. As the assessee was able to establish the identity of the share applicant by furnishing PAN and company master data and proving the genuineness of transaction by adducing bank statements and also explained the sources of fund in the hands of the party, which are placed on pages of the paper book as discussed above, no addition is warranted.

9.7 In view of the above facts and after considering the details in totality, we do not find any reason to interfere in the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the Revenue is dismissed.

9.8 In the result, the appeal filed by the Revenue is dismissed.

Coming to C.O. No. 189/AHD/2019 (in A.Y. 2010-11 filed by the assessee

11.1 However, the AO rejected the contention of the assessee vide order dated 6 October 2017 by observing that the proceedings under section 147 of the Act have been issued after making the reference to the case records and after obtaining the prior approval from the appropriate authority. The AO further observed that at the stage of issuing notice under section 148 of the Act it is expected to have only relevant materials based on which a reasonable person could have formed a requisite belief without proving the escapement of income. In view of the above, the AO upheld the initiation of the proceedings under section 147 of the Act.

From the perusal of the assessment order which is not disputed by the appellant on the facts thereof, it is seen that the AO has followed the due procedure laid down by the various ITATs and Courts including the decision of the Mumbai Tribunal in the case of Motilal R. Todi vs ACIT 85 taxmann.com234 and that the appellant has filed the return in response to notice u/s H8 and has complied to the notices u/s 143(2} and 142(1). All the procedures and actions are in line with the decision of the Supreme Court in G.K.N. Drive Shafts (India) Ltd. Vs. DCIT 259 ITR 19. I do not find any infirmity in the action of the AO in the terms of section With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 13

148 and 147 and I do not find any basis as to how the appellant is protected in any way by various case laws relied upon by it and mentioned in its written submission. I find that the appellant company is not justified in contending that the A:O has merely relied upon the information received from the investigation conducted by the Investigation Wing, Ahmedabad and has made no efforts to form an independent and conclusive opinion of his own. It is also evident from the assessment order that the AO had given adequate opportunity in relation to the issues involved and had provided the materials relied upon for reopening and completion of the assessment u/s 147. The grounds related to legality of notice u/s 148 and assessment u/s 143(3) r.w.s. 147 are rejected.

16.1 From the above, it is transpired that it is necessary for the AO before initiating the proceedings under section 147 of the Act to form reasons to believe for the With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 14 escapement of income. The words ‘reasons to believe’ contains 2 components. Firstly, the ‘reasons’ which refers to the cause or justification. Secondly, the word believe which refers to accept something as true or have faith in some facts to exist. On the contrary, the words reasons to suspect is contrary to the reasons to believe. The words reasons to suspect refers to something which is not true or capable of being trusted. Thus, the reasons to suspect cannot be equated with the reasons to believe.

16.2 Furthermore, the law requires that the reasons to believe should be of the AO having jurisdiction over the assessee and such reason to believe should not be of any other agency or other person not having jurisdiction over the assessee.

16.3 It is quite common that the Assessing Officers are in receipt of information from the Investigation Wing or from the District Valuation Officer or Audit objections or from other source. These informations indicate the escapement of income of the particular assessee. However, the law does not mandate that an Assessing Officer should act on the dictate of any other authority ipso facto for initiating the proceedings under section 148 of the Act. However, if it’s done so by the AO, then it would tantamount to "borrowed satisfaction" which cannot be the basis for issue of notice u/s 148 of the Act. Thus, it is the satisfaction of the AO having jurisdiction over the assessee for initiating the proceedings under section 148 of the Act after application of mind on the information received from outside, indicating about the escapement of income.

16.4 Thus, upon receiving the information which can only raise a suspicion and therefore may trigger for further enquiry by the AO before he arrives at reasons to believe that the income having escaped assessment. Thus, the information received, at the best, can be termed as allegations which can only raise a suspicion in the mind of the authorities, based on which an enquiry can be triggered to find out whether there is any material leading to formation of reason to believe. Thus the With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 15 mandate of law is for the Assessing Officer to undertake independent inquiry and through due diligence and application of mind to convert the information into reason to believe. The inquiry necessitates analysis of information as well as collection of additional material that would make him to believe that the information in his possession can lead to reason to believe for escapement of income.

16.5 Now, in the light of the above discussion, we analyze the reasons recorded in the given facts and circumstances, as extracted below:

In this case information has been received from the Investigation Wing Ahmedabad that the assessee has received credit of Rs.18,42,50,000/- in the Bank account from M/s.Rachna Finlease Pvt. Ltd. It is further gathered that the M/s.Rachna Finlease Pvt. Ltd is a non filter of return of Income Tax and the enquiry conducted by the Investigation wing has made it clear that the creditworthiness of M/s.Rachna Finlease Pvt. Ltd. is not proved. Therefore, the credit of Rs.18,42,50,000/- received by M/s.Ambe Tradecorp Pvt. Ltd. is unexplained cash credits. On the basis of information received, I have reasons to believe that said income of Rs.18,42,50,000/- of the assessee has escaped assessment and the case is therefore, required to be reopened u/s.147 of the IT Act by way of issuing notice u/s.148 of the IT Act.

16.6 In this case, the information has been received from the Investigation Wing Ahmedabad that the assessee has received credit of Rs. 18,42,50,000/- in the Bank account from M/s. Rachna Finlease Pvt. Ltd. It is further gathered that the M/s.Rachna Finlease Pvt. Ltd. is a non-filer of return of Income Tax and the enquiry conducted by the Investigation wing has made it clear that the creditworthiness of M/s. Rachna Finlease Pvt. Ltd. is not proved. Therefore the credit of Rs. 18,42,50,000/- received by M/s. Ambe Tradecorp Pvt. Ltd., is unexplained cash credits.

16.7 From the above, it is revealed that the proceedings under section 147 of the Act have been initiated on the information received from the investigation wing Ahmedabad that the assessee has received credit of ₹18.42 crores in the bank account from M/s Rachna Finlease private Ltd which is not filing income tax return. The contents of the reasons recorded for initiating the proceedings under section 147 of the Act can be summarised as under:

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 16 i. The assessee has received a sum of ₹ 18,42,50,000/- from M/s Rachna Finlease private Ltd through the banking channel. ii. M/s Rachna Finlease private Ltd is non-filer of income tax return. iii. The enquiries conducted by the investigation wing makes clear that the creditworthiness of M/s Rachna Finlease private Ltd was not proved.

16.8 Based on the above information received from the investigation wing, the AO has derived his reasons to believe that income of the assessee has escaped assessment. In other words, there is nothing discernible from the reasons recorded suggesting that the AO upon receiving the information from the investigation wing has conducted any enquiry to form his believe that income has escaped assessment. What appears from the above reasons recorded is this that the AO based on the information from the investigation wing has initiated the proceedings under section 147 the Act without application of his mind. Such reasons recorded represents the borrowed satisfaction based on the information received from the investigation wing.

16.8 We also note that the amount received by the assessee from M/s Rachna Finlease private Ltd stands at ₹39.05 crores whereas the investigation wing alleges to have received a sum of ₹ 18,42,50,000.00. Furthermore, the amount received by the assessee from M/s Rachna Finlease Private Ltd was duly recorded in its books of accounts.

16.9 There were enquiries conducted by the investigations wing which made clear that creditworthiness of M/s Rachna Finlease private Ltd was not proved. Again, it was the satisfaction of the investigation wing that M/s Rachna Finlease private Ltd lacks creditworthiness and there was no satisfaction of the AO qua such fact indicating that creditworthiness of M/s Rachna Finlease private Ltd was in doubt.

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 17 16.10 Now the question arises whether the proceedings under section 147 of the Act can be initiated merely on the basis of the information received from the investigation wing. The answer stands in negative. There is no mention in the reasons recorded whether the amount of receipt in the bank account of the assessee represents the loan, repayment of loan, share capital, sale proceeds or any other transaction or the income of the assessee. To our understanding, merely transaction carried out through banking channel cannot give reasons to form believe that amount involved in such transaction represent income of the assessee which has escaped assessment in the circumstances when the payer is not filing return of income. That information can trigger to be used to initiate the proceedings in the case of the M/s Rachna Finlease Private Ltd being non-filer of income tax return. On the contrary, the assessee has filed its return of income disclosing the transaction for receiving the amount from M/s Rachna Finlease Private Ltd in its books of accounts. Thus the mere information that certain amount received by assessee was not giving any rise to form believe that the income has escaped assessment. Furthermore, the AO has not carried out any investigation to reach to the prima facie conclusion that amount credited represent income which has escaped assessment. As such the AO, has reacted based on the information received from the investigation wing without the application of mind. In this fact and circumstances we find important to refer judgment of Hon’ble Delhi High Court in case of Signature Hotels Pvt Ltd vs. Income Tax Officer and [(2011) [2012] 20 taxmann.com 797 / 338 ITR 51 (Delhi)], where the Hon’ble bench Held as under: “Where information was received from investigation wing that assessee was beneficiary of accommodation entries, but no further inquiry was undertaken by assessing officer, said information could not be said to be tangible material per se and, thus, reassessment on said basis was not justified.”

16.11 We also draw support and guidance from the another judgment of Hon’ble Delhi High Court in case of Principal Commissioner of Income-Tax v Meenakshi Overseas Pvt Ltd [(2017) 82 taxmann.com 300 / 395 ITR 677 (Delhi)], the relevant finding of the Hon’ble Bench extracted below: "That while the report of the Investigation Wing might have constituted material on the basis of which the Assessing Officer formed the reasons to believe, the process of arriving at such With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 18 satisfaction could not be a mere repetition of the report of investigation. In the assessee's case, the crucial link between the information made available to the Assessing Officer and the formation of belief was absent. The "reasons to believe" recorded were not reasons but only conclusions and a reproduction of the conclusion in the investigation report received from Director (Investigation). It was a "borrowed satisfaction". The expression "accommodation entry" was used to describe the information set out without explaining the basis for arriving at sch a conclusion. The basis for the statement that the entry was given to the assessee on his paying "unaccounted cash" was not disclosed. Who was the accommodation entry giver and how he could be said to be a "known entry operator" were not mentioned the source for all the conclusion was the investigation report? The tangible material which formed the basis for the belief that income had escaped assessment must be evident from a reading of the reasons. The reasons failed to demonstrate the link between the tangible material and the formation of the reason to believe that income had escaped assessment. The Assessing Officer had not independently considered the tangible material which formed the basis for the reasons to believe that income had escaped assessment. No error had been committed by the Appellate Tribunal in concluding that the initiation of the reassessment proceedings under section 147/148 to reopen the assessments for the assessment year 2004-05, was not legal." "This court notices that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. It was not a case where the share applicants are merely provided confirmation letters. They had provided their particulars, PAN details, assessment particulars, mode of payment for share application money, i.e., through banks, bank statements, cheque numbers in question, copies of minutes of resolutions authorizing the applications, copies of balance sheets, profit and loss accounts for the year under consideration and even bank statements showing the source of payments made by the companies to the assessee as well as their master debt with Registrar of Companies particulars. The Assessing Officer strangely failed to conduct any scrutiny of documents and rested content by placing reliance merely on a report of the Investigation Wing. This reveals spectacular disregard to an Assessing Officer's duties in the reman proceedings which the Revenue seeks to inflict upon the assessee in this case. No substantial question of law arises. The appeal is dismissed."

16.12 In view of the above and after considering the facts in totality, we are of the opinion that proceedings under section 147 of the Act has been initiated by the AO without the application of mind and therefore the proceedings are void ab initio. Accordingly, we allow the technical ground raised by the assessee.

17.1 In the result, the CO filed by the assessee is partly allowed.

With C.O.No.189/Ahd/2019 Asstt. Year 2010-11 19

Order pronounced in the Court on 07/02/2022 at Ahmedabad.