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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Shri A.L.Saini, AM]
PER SHRI A.T. VARKEY, JM
This is an appeal preferred by the assessee against the order of Ld. CIT (Appeals) , 14, Kolkata dated 31-10-2016 for the assessment year 2005-06.
The main grievance of the assessee is against the action of the A.O in re-opening the assessment u/s. 147 r.w.s 148 of the Income-tax Act, 1961 (hereinafter, ‘the Act).
Brief facts of the case are that the assessee had filed its returned income for the AY 2005-06 on 30-10-2005 disclosing total income at Rs. 12,700/-. The return was processed u/s. 143(1) of the Act. However, later on the case was re-opened on the basis of an information received from the DIT (Investigation), New Delhi about assessee company being beneficiary of accommodation entry. The reasons recorded for re-opening are as under:-
“ Investigation/enquiries were conducted by the office of the Directorate of Income Tax (Investigation), New Delhi upon the entry providers. The Investigation/enquiries carried out and the data of such beneficiaries as complied by the DIT (Investigation) was examined. It was been gathered that the assessee is amongst the beneficiaries of bogus accommodation entries. The assessee has received bogus accommodation entries detailed below:
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Beneficiary Beneficiary Value of Instrument Date Nameof Bank from Branch A/c No bank name bank entry no. by which accountholder which entry of entry Entry branch taken which entry of entry giving given giving giving entry taken account bank account taken 1 2 3 4 5 6 7 8 9 Standard New Delhi 150000 117631 17/10/04 S.M.Enterprise Corporation Paschim 52778 Chartered Bank Vihar Standard New Delhi 200000 117635 05/11/04 S.M.Enterprise Corporation Paschim 52778 Chartered Bank Vihar Standard New Delhi 250000 117643 23/11/04 S.M.Enterprise Corporation Paschim 52778 Chartered Bank Vihar
The modus operandi involves in such bogus accommodation transactions is that cash generated out of undisclosed sources of income is given to the entry operator who in turn issues cheques which are given the colour share application money/share capital/unsecured loans etc. I have therefore, reason to believe that the undisclosed income of assessee during the year under consideration to the extent of Rs.6.00,000/ has escaped assessment. Since, the assessee company is a beneficiary of the accommodation entries as per details given above, I have reasons to believe that the assessee had understated income.’’
The AO issued notice of reopening u/s. 148 of the Act dt. 7-3-2012 and thereafter, gave the reasons for reopening (supra) on 19-12-2012. The assessee objected to re-opening, which was turned down by the A.O vide letter dt. 21-01-2013.Thereafter, the AO added Rs. 6,00,000/- as well as share capital raised by the assessee to the tune of Rs.71,57,000/-. Thus, made additions of Rs.77,57,000/- and also disallowed Rs.60,300/- on account of expenses as well as fee to R.O.C of Rs.17,500/- was also disallowed. Thus, made additions of Rs.78,34,800/-. Aggrieved the assessee preferred an appeal before the Ld. CIT(A), who was pleased to dismiss the same and confirmed the order of the A.O. Learned CIT(A) has disposed of the legal issue raised by the assessee by following his decision for the A.Y 2003-04 in assessee’s own case, which was reopened on similar reasoning. Aggrieved the assessee is in appeal before us
At the outset learned AR assailing the decision of ld. CIT(A) drew our attention to the reasons recorded for reopening from which it is discerned that investigation was conducted by the DIT (Investigation), New Delhi upon accommodation entry providers and in that process the DIT (Investigation) has compiled a data of beneficiaries. According to the AO, the assessee is amongst the beneficiaries of bogus accommodation entries. Thereafter, he has drawn a chart to show that assessee company has received accommodation entries. The ld.AR
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drew our attention to the chart in the reasons recorded and stated that these were normal bank transactions between the assessee company and account holder named, M/s S.M Enterprise. In the reasons recorded the AO only stated the common knowledge about modus operandi of giving bogus accommodation transaction wherein the beneficiary gives to the entry operator the cash which it had generated from undisclosed sources of income, who (entry operator) in turn issues cheque(s) in the form of share application money/share capital/unsecured loans etc. Thereafter, the AO has formed his opinion that he has reasons to believe that Rs. 6 lakhs has escaped assessment. From a mere reading of the reasons recorded by the AO to invoke the jurisdiction to reopen the assessment, according to the ld.AR it is vague and cannot give rise to the condition precedent for usurpation of the jurisdiction u/s. 147 of the Act. According to the ld. AR the condition precedent to reopen the assessment is “reason to believe, escapement of income”, which is absent in the reasons recorded by the AO to reopen the assessment. According to him, reason to believe, postulates foundation based on information and belief based on reason. According to ld. AR even if there is a foundation based on information is existing, still there must be reason warrant holding a belief that income chargeable to tax has escaped assessment. So according to ld. AR when we look at the reassessment nowhere it is stated who is the accommodation entry provider and how the AO has come to such an opinion /conclusion. According to him it is not discernable as to ‘What was the information from the DIT (Inv) Delhi and what the AO did after obtaining the information’’. According to ld. AR, the information from DIT (Inv) can at best trigger “reasons to doubt” and then the AO promptly has to make some enquiry to find out whether the assessee has indulged in providing cash to the M/s. S.M Enterprises i.e. whether there was any deposit immediately before the cheque transfer like amount to assessee’s account etc. In this case a reading of reasons recorded does not reveal any such enquiry conducted by the AO before recording of reasons to invoke the jurisdiction to reopen the assessment of assessee. According to Ld AR, the reasons recorded by the AO has not spelt out the nature of transactions namely whether it was given to assessee in the form of share application money, share capital/unsecured loans etc. Therefore, according to the ld. AR, the reasons recorded nowhere shows that the AO has applied his mind while recording reasons to assume jurisdiction u/s. 147 of the Act. Thus, according to the ld. AR, the reasons recorded by the AO goes on to show that AO has simply adopted the information received from the DIT (Investigation) as Gospel of truth and thus the reason to belief escaped of income is not his (AO) and it was thus borrowed satisfaction of DDIT and not his own, which vitiates the usurpation of jurisdiction u/s. 147 of the Act. Thereafter, he cited several case law
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including that of PCIT Vs. Meenaksi Overseas Pvt. Ltd reported in (2017) 5 TMI 1428, wherein the Hon’ble Delhi High Court on similar set of facts upheld the action of Tribunal, wherein the Tribunal quashed the assessment order. In that case, the AO had information from DIT Investigation, New Delhi that the assessee has received an amount of Rs. 5 lakhs, wherein reasons recorded as under:-
“Reasons for the belief that income has escaped assessment:
In this case, information has been received from the Director of Income Tax, (Investigation) New Delhi that the Assessee has received amount of Rs. 5,00,000/ as follows:
Beneficiary’s Name Meenakshi Overseas P.Ltd Beneficiary Bank Name State Bank of Hyderabad Beneficiary Bank Branch Karol Bagh Value of entry taken 5,00,000 Instrument no. by which entry 8628 taken Date on which entry 31.03.2004 Name of A/c Holder of entry Shubham electronic & Electric giving account Bank from which entry given SBH Branch of entry given bank KB A/c No. Entry giving account 50038
Information so received has been gone through. The above said instruments are in the nature of accommodation entry, which the Assessee has taken after paying unaccounted cash to the accommodation entry given, who is a known entry operator as per the report of the Investigation Wing. In view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason to believe that an income of Rs.5,00,000 has escaped assessment in the AY 200405 due to failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment so far as this amount is concerned. Therefore, this case is fit for issuing notice under Section 148 of the Income Tax Act, 1961. In this case the assessment was made under Section 143(1) not under Section 143(3) of the I.T Act, 1961.
I am therefore satisfied that the said income, on account of accommodation entry worth Rs. 5,00,000 received by the Assessee has escaped assessment and accordingly after recording the above said reasons as laid down under the provisions of Section 148(2) of the income Tax Act, 1961 under Section 148 is being issued.”
The action of the AO to reopen the assessment based on an information from DIT (Inv.) supra was challenged by the assessee against the very action of issue of notice u/s. 148 issued on 23/24-03-2011, wherein Hon’ble High Court upheld tribunal’s findings as under:-
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“12. Perusing the reasons for reopening of the assessment in the present case, the ITAT came to the conclusion that it was apparent that the AO proceeded to send a notice under Section 147/148 of the Act "solely on the basis of information received from the DIT(I)."
After writing about information received, the AO "jumped to the conclusion that said tabulated instrument are in the nature of accommodation entry." This was done without further verification, examination or any other exercise. The ITAT also noted that the AO "has not mentioned nature of transaction which was effected for alleged accommodation entry and even without mentioning the date of recording of reasons." Following the decision of this Court in Commissioner of Income Tax v. G&G Pharma (2015) 3841TR 147 (Del.), the ITAT held that the AO had not applied his mind at the time of initiating the proceedings of reassessment under Section 147 of the Act. The ground Nos. 1 (a) to 1 (d) of the Assessee's appeal were, accordingly, allowed.”
This assessee’s appeal was allowed in respect of legal issue, which was challenged by the Revenue, wherein the Hon’ble Delhi High Court held as under:-
“ 22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying "unaccounted cash" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom.
Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be selfevident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing.
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.
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 5 I.T.A No 538/Kol/2018 A.Y 2005-06 Divya Secfin Pvt. Ltd.
proviso to Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment.
The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the precondition 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.
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 (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 (lnv. 1), New Delhi that the assessee has introduced money amounting to Rs. 5 lakh during the F Y. 200203 relating to A. Y. 200304. 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 IncomeTax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 200203 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.
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. 6 I.T.A No 538/Kol/2018 A.Y 2005-06 Divya Secfin Pvt. Ltd.
There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment."
28.4 The Court in Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra) quashed the proceedings under Section 148 of the Act. The facts in the present case are more or less similar. The present case is therefore covered against the Revenue by the aforementioned decision.
29.1 The above decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under:
"Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been interalia reported as under:
"Entries are broadly taken for two purposes:
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.
29.2 The details of six entries were then set out in the above 'reasons'. These included name of the beneficiary, the beneficiary's bank, value of the entry taken, instrument number, date, name of the account in which entry was taken and the account from where the entry was given the details of those banks. The reasons then recorded:
"The transactions involving Rs. 27,00,000/, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed.
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On the basis of this new information, I have reason to believe that the income of ~ 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. Highgain Finvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under:
"It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 738 dated 8th April 2003 that this company was involved in the giving and taking bogus entries/ transactions during the financial year 199697, 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 199798 was filed by the Assessee on 4th March 1998 which was accepted under Section 143 (1) at the declared income of ~ 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of ~ 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 199798, if approved."
30.2 The AO was not merely reproducing the information received from the investigation but took the effort of referring to the deposition made during the survey by the Chartered Accountant that the Assessee company was involved in the giving and taking of bogus entries. The AO thus indicated what the tangible material was which enabled him to form the reasons to believe that income has 8 I.T.A No 538/Kol/2018 A.Y 2005-06 Divya Secfin Pvt. Ltd.
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.
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 CIT4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act.
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 precondition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise."
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.
Recently in Agya Ram v. CIT (supra), it was emphasized that the reasons to believe "should have a link with an objective fact in the form of information or materials on record ... " It was further emphasized that "mere allegation in reasons cannot be treated equivalent to material in eyes of law. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessments."
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."
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In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'.
The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.
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.
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.”
Per contra, learned Departmental Representative opposing contentions of the learned AR submitted when the AO receives information from the DDIT(Investigation) that an assessee who is residing in his jurisdiction has laundered undisclosed cash through an accommodation entry provider, he( AO) has to re-open the assessment to tax the escaped income. According to him, the AO received information that M/s. S.M Enterprises has provided accommodation entry to the assessee on various dates. After taking note of this information the AO has acted to initiate re-opening proceedings by issuance of 148 notice. Accordingly, before issuance of notice as reasons were recorded, wherein he has taken note of the information received from DDIT(Inv.), Delhi that an accommodation entry provider, M/s. S.M. Enterprises has provided to a beneficiary who in this case was the assessee. Therefore, action of the AO to re-open the assessment of assessee is on the foundation of the report from the DDIT (Inv.) and the reasons were recorded before the AO reopened the assessment to tax the escaped income, which is valid. Therefore, this Tribunal should not interfere with the order passed by the ld. CIT(A).
We have heard rival submissions and gone through the records. We note there is striking similarity in respect of facts of assessee’s case vis-à-vis that of M/s Meenakshi Overseas Pvt. Ltd (supra) as decided by the Hon’ble Delhi High Court. We note that in Meenakshi Overseas Pvt. Ltd’s case also the AO in the reasons recorded to re-open the assessment had prepared a chart similar to that has been prepared by the AO while recording the reasons. In the case of assessee the accommodation entry operator is named as M/s. S.M
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Enterprises, whereas in the case of M/s. Meenakshi Overseas, it was M/s. Shubham Electronic & Electronic. We note that from perusal of the reasons recorded in this case also reveals “reasons to believe” are not really reasons, but only conclusions one after the other. In the present case also the expression “accommodation entry” has been used by AO to describe the information set out without explaining the basis for arriving at such a conclusion. It is not understood as to how the AO came to the conclusion that M/s. S.M. Enterprises is an accommodation entry operator. The reasons states at the beginning itself that AO has gathered that assessee is beneficiary of bogus accommodation entry operator. How the AO gathered that assessee is a beneficiary is not is not discernable from the reasons recorded. If it is from the report of the DDIT (Inv.) then the AO should have revealed that essential facts in the reasons, so that it can be understood. Thus we are unable to understand what was the basis for the AO to come such a conclusion. In the chart given with the reasons recorded the name of accountholder of entry giving account is stated to be M/s. S.M Enterprises, but how the AO concluded that the said entity is an accommodation entry operator/provider is not discernable. So that basis of the conclusions made by the AO even if it is the report of DDIT (Inv), then the AO ought to have brought out these facts which could have formed the basis of conclusion is absent in the reasons recorded by the AO, which exposes the fact that the reasons recorded by AO to re-open the assessment is vague and is only reproduction of the information, which the AO received from the DDIT (Inv.). Moreover, even the information from DDIT is not given/supplied in full. Though we are of the opinion that it is not necessary to copy/repeat verbatim the report of DDIT (Inv), the AO ought to have mentioned the relevant facts pertaining to that of assessee to enable the reader of reasons recorded how the AO had formed the belief based on the reasons recorded that income of the assessee has escaped assessment. Here it is absent. On reading of the reasons recorded as set out above does not bring out how the AO has come to the conclusion that assessee had utilized the services of the account holder of entry giving account of M/s. S.M Enterprises. Thus, crucial link between the information made available to the AO and formation of belief of escapement of income is absent. The Hon’ble High Court of Delhi in Meenakshi Overseas Pvt. Ltd (supra) has observed that the reasons must be self evident; they must speak for themselves and there must be tangible material, which is absent in this present case. We note that tangible material, which formed the basis for the belief that income has escaped assessment is not evident from a reading of the reasons as recorded by the AO (supra). We note that AO upon receipt of information from DDIT (Inv) has invoked the jurisdiction of reopening u/s. 147 casually and mechanically by reproducing certain portions of the
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investigations report without applying his mind as to how he came to the conclusions set out by him i.e assessee is beneficiary of accommodation entry through an operator. As per section 147(1) of the Act, the contention precedent for invoking reopening is that the AO should have “reasons to believe” that any income chargeable to tax has escaped assessment. The expressions “Reasons to believe “ postulates foundation based on information and belief based on reasons. Even when there is a foundation based on information is existing, still there must be reason warrant holding a belief that income chargeable to tax has escaped assessment. Thus, when the AO receives a communication from the DDIT (Inv.) of this nature, then the AO has prima-facie “reasons to suspect”. Thereafter, he is bound to make/conduct reasonable enquiry and collect material, which could make him belief that there is in fact an escapement of income. We note that Hon’ble Supreme Court in Ganga Vs. ITO reported in 130 ITR 1 (SC) has held that expression “reasons to believe” as occurring in section 147 is stronger than expression “satisfy” and such requirement need to be met when the validity of the reasons are tested. The reasons recorded by the AO to invoke reopening u/s. 147 when challenged for want of jurisdiction, then it has to be evaluated on a stand- alone basis and the department/AO cannot supplement the same by bringing other evidences/material to strengthen the reasons recorded. The “ reason to believe” in section 147 is that of the AO. The AO after going through the information in his possession has to arrive at a subjective satisfaction independently on an objective criteria that he has reasons to belief escapement of income. While the report of the Investigation Wing might constitute the material/foundation, but belief he forms cannot be a mere repetition of the report of investigation. It has to be kept in mind that the condition precedent to invoke the jurisdiction of reopening is the recording of reasons to believe and not reasons to suspect. This is the precondition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe escapement of income which is recorded by the AO prior to reopening of the assessment must necessarily demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. Thus, we note that the reasons recorded by the AO to reopen the assessment of the assessee in the present case do not satisfy the requirement of section 147 of the Act. Information referred to by the AO in the reasons recorded (supra) is extremely scanty and vague. There is no reference to any document or statement, except reference of investigation report of DDIT (Inv.), Delhi and a general modus operandi of entry operators/providers and conclusions of the AO without any basis. Thus, the reasons recorded by the AO does not in fact have any reasons to believe the escapement of income. Further, it is evident that the AO did not apply
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his own mind to examine the basis/material of an information receipt from DDIT(Inv). The AO accepted the information passed on DDIT (Inv.), which was vague in a mechanical manner which goes on to show that AO did not independently apply his mind on receipt of information from the DDIT has simply adopted the information received from the DIT (Investigation) as gospel of truth and thus the reason to belief escapement of income is not that of the AO but at best be said to be action mechanically carried out by the AO on receipt of report from DDIT (Inv.). Thus, the repetition of certain portions of the investigation report of DDIT without any reasons independently recorded by the AO on the basis of ‘borrowed satisfaction’ of the DDIT (Inv.) cannot be the basis for reopening of assessment u/s. 147 of the Act. Therefore, following the ratio laid down by the Hon’ble Delhi High Court in the case of Meenakshi Overseas Pvt. Ltd (supra) and various case laws as cited before us we hold that jurisdictional condition precedent in section 147 of the Act has not been satisfied by the AO for reopening the assessment. Therefore, the very usurpation of jurisdiction u/s. 147 of the Act is bad in law and is held to be void ab initio. Therefore, we are inclined to quash the same.
In the result, the appeal of the Assessee is allowed.
Order Pronounced in the Open Court on 31 - October -2019.
Sd/- Sd/- Arjun Lal Saini A.T. Varkey Accountant Member Judicial Member Dated 31/10/ 2019 PP(Sr.P.S.) Copy of the order forwarded to: Appellant/Assessee : M/s. Divya Secfin Pvt. Ltd. 27 Weston Street, 5th Floor, 1. Room No. 525, Kolkata-17. Respondent/Department: I.T.O., Ward 1(1), Aaykar Bhavan, P-7 Chowringhee 2 Sq., 7th Fl., Kolkata-69. 3. CIT, 4. CIT(A), Kolkata. 5. DR, Kolkata Benches, Kolkata **PP/SPS True Copy By By Order Assistant Registrar ITAT Kolkata
13 I.T.A No 538/Kol/2018 A.Y 2005-06 Divya Secfin Pvt. Ltd.