M/S GRAND SLAM PVT. LTD.,,NEW DELHI vs. ITO, NEW DELHI

PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 11/02/2013 of the Ld. Commissioner of Income-tax (Appeals)-XV, New Delhi [in short “the CIT-(A)”] for assessment year 2003-04 raising following grounds:

“1) The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in upholding the action of the learned Assessing Officer in wrongly assuming jurisdiction in terms of Section 147, inasmuch as, the reasons did not disclose the basis on which the DIT, Investigation had termed the income of hiring of

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studio equipment from Hopewin Admark & Consultancy (Pvt.) Ltd. as bogus accommodation entries. 1.1) The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in upholding the action of the learned Assessing Officer in assuming the information provided by DIT(Investigation) as gospel truth without verification or application of mind. 2) Without prejudice to the above grounds of appeal, the learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the learned Assessing Officer’s action in making an addition of Rs.15,00,000/- as income from undisclosed sources u/s 68 of the Act without recognizing that the impugned income of Rs.15,00,000/- has already been disclosed as income from hire of studio equipment in the audited Profit & Loss Account of the relevant previous year and consequently the learned Assessing Officer further erred in taxing the same income twice. 3) The appellant craves leave to add, alter or amend the ground of appeal at a later stage.

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section 148 of the Act 19/03/2010 requiring the assessee to file the return of income. In response, the assessee filed a letter dated 06/04/2010 to treat the return filed u/s 13a(i) of the Act as the return filed in response to the notice under section 148 of the Act. Thereafter, notice under section 143(2) of the Act was issued and complied with. A copy of reasons recorded by the Assessing Officer was also supplied to the Authorized Representative of the assessee on his request. During the assessment proceedings, the Assessing Officer obtained bank statement of M/s Hopewin Admark Consultants private limited and observed that the assessee had received an amount of Rs.15,00,000/- from the said party during the year under consideration. The assessee submitted that said amount was received towards studio equipment given on hire to said party and the amount in question has already been taken into income and tax has been paid on the same. The Assessing Officer, on the other hand, observed that the summon issued under section 131 of the Act to the party received back unserved and the assessee also did not file proof in support of identity of the party, present name and address, copy of return of income filed, balance sheet and profit and loss account of the said party, the party could not be produced etc. The Assessing Officer gathered audit report and trading account from the Assessing Officer of said party and observed that expenses corresponding to the payment of Rs. 15 lakh were not debited in the profit and loss account of said party. Thus, according to the Assessing Officer, the amount in question was not business income but it was unexplained credit under section 68 of the Act. The Assessing Officer assessed the said unexplained credit of Rs.15,00,000/-under the head ‘income from other sources’. 2.1 Before the Ld. Commissioner of Income-tax (Appeals), the assessee challenged the validity of the reassessment proceedings as

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well as the addition on merit. The Ld. CIT-A upheld the validity of the reassessment proceedings as well as upheld the addition of Rs. 15 lakhs. Aggrieved, the assessee is in the appeal, before the Tribunal raising the grounds as reproduced above. 3. In grounds No. 1 and 1.1 the assessee has challenged the validity of the reassessment proceedings on the ground that the reasons did not disclose the basis of reopening the assessment and the information provided by the DIT (Investigation) was a gospel truth and the assessment has been reopened without verification or application of the mind. 3.1 Before us, the Ld. counsel of the assessee submitted a paper book containing pages 1 to 100 and made arguments supporting the grounds. The arguments made by the Ld. counsel are summarized as under:

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3.2 On the contrary, the learned Senior DR justified the issue of notice under section 148 of the Act on the basis of information received from the DIT (Investigation) relying mainly on the following decisions:

3.2.1 The Ld. Senior DR further submitted that at the time of reopening, the only prima facie material is required. He placed reliance on following decisions:

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based upon information from the DIT (Investigation) relating to accommodation entries:

3.3 We have heard the rival submission and perused the relevant material on record. The Ld. counsel of the assessee has relied on the decision of Hon’ble Delhi High Court in the case of Sh. Atul Jain and Smt. Vinita Jain (supra). In the aforesaid case, the Hon’ble High Court has noted the reasons recorded as under:

“In the case of Smt. Vinita Jain, the reasons for issuing a notice, as recorded by the AO, read as follows :

"As per information received from Dy. Director of IT (Inv.), Gurgaon, the assessee had taken bogus entry of capital gains Rs. 2,12,635 on 27th June, 1995 (asst. yr. 1997-98) by paying cash along with some premium and taking cheque of same amount."

Similarly, in the case of Atul Jain, the reasons for issuing a notice are as follows :

"As per information received from Dy. Director of IT (Inv.) Gurgaon, the assessee had taken bogus entry of capital gains Rs. 1,08,845 on 22nd June, 1996 (asst. yr. 1997-98) by

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paying cash along with some premium and taking cheque of same amount."

3.4 The Hon’ble Delhi High Court in the aforesaid case held as under:

“17. Looked at in the light of the decisions placed before us and the law laid down therein, it is necessary to appreciate the information available with the AO in the present case. The only information is that the assessees had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague. Insofar as the basis for the reasons is concerned, even this is absent. The AO did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The AO has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice under s. 148 of the Act. Read in this light, what has been recorded by the AO as the "reasons to believe" is nothing more than a report given by him to the CIT. As held by the Supreme Court in Chhugamal Rajpal (supra), the submission of a report is not the same as recording of reasons to believe for issuing a notice. The AO has clearly substituted form for substance and, therefore, the action of the respondent falls foul of the law laid down by the Supreme Court in Chhugamal Rajpal which is clearly applicable to the facts of this appeals.”

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(Emphasis supplies externally)

3.5 Further, in the case of Signature Hotels Private Limited (supra) relied upon by the Ld. counsel of the assessee, the Hon’ble Delhi High Court noted the reasons recorded as under:

“7. In the present case the undated reasons recorded by the AO for initiation of proceedings read as under:

"Information received from the office of the Director of IT (Inv.)-VI, New Delhi revealed that M/s Signature Hotels (P) Ltd. has introduced unaccounted money in its books of account during financial year 2002-03 through accommodation entry from M/s Swetu Stone PV for Rs. 5 lacs.

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 s. 147 of the IT Act, 1961."

3.6 In the aforesaid case, the Hon’ble High Court quashed the proceedings under section 148 of the Act with the following findings:

“15. The aforesaid reasons do not satisfy the requirements of s. 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 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 AO did not apply his own mind to the information and examine the

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basis and material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The CIT also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the AO did not independently apply his mind to the information received from the Director of IT (Inv.) and arrive at a belief whether or not any income had escaped assessment.

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recorded by the AO do not make reference to any statement of Mahesh Garg or Shubhash Gupta. This may not also be necessary, if the statements were on record and it is claimed and prima facie established that they were examined by the AO before or at the time of recording reasons. On the other hand, in the present case, information as enclosed as Annexure, has been referred. This is the only material relied upon by the AO. The said Annexure has been quoted above. In this connection, we may notice that M/s Swetu Stone (P) Ltd. is an incorporated company and the petitioner has pleaded and stated that the said company has a paid-up capital of Rs. 90 lacs. The company was incorporated on 4th Jan., 1989 and was also allotted a permanent account number in September, 2001. To this extent, there is no dispute. In these circumstances, we feel the judgments of the Delhi High Court in CIT vs. SFIL Stock Broking Ltd. (2010) 233 CTR (Del) 69 : (2010) 41 DTR (Del) 98 : (2010) 325 ITR 285 (Del) and Sarthak Securities Co. (P) Ltd. vs. ITO (2010) 236 CTR (Del) 362 : (2010) 47 DTR (Del) 201 : (2010) 329 ITR 110 (Del) in which CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 (SC) : (2008) 6 DTR (SC) 308 has been applied and followed, are applicable. We may notice here that the respondent in their counter-affidavit have stated that Swetu Stone (P) Ltd. is unidentifiable and, therefore, the aforesaid decisions should not be applied and the ratio of the decision dt. 7th Jan., 2011 in Writ Petn. (Civil) No. 7517 of 2010, AGR Investment Ltd. vs. Addl. CIT & Anr. [reported at (2011) 239 CTR (Del) 378 : (2011) 50 DTR (Del) 97—Ed.] should be applied. In the said decision, decisions in the case of Sarthak Securities Company (P) Ltd. (supra) and SFIL Stock Broking Ltd. (supra) were distinguished by giving the following reasons:

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"22. ….In SFIL Stock Broking Ltd. (supra) the Bench has interfered as it was not discernible whether the AO had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. (P) Ltd. (supra) the Division Bench had noted that certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transaction and the AO was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score."

(Emphasis supplied externally)

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3.7 In the case of SFIL Stock Broking Ltd. (supra), the Hon’ble Delhi High Court has noted the reasons recorded by the Assessing Officer as under:

“3. Subsequently, the reasons for issuance of the notice under s. 148 were provided to the assessee and the said reasons, as recorded, were as under :

"Information received from Dy. Director of IT (Inv), 107, Sushant Lok, Gurgaon vide his letter No. DDIT (Inv)/GGN/02- 03/271, dt. 17th March, 2003 received in my office on 25th March, 2003, that one of my assessees M/s SFIL Stock Broking Ltd. had made bogus claim of long-term capital gains shown as earned on account of sale/purchase of shares taken through bank account No. CA-3097, Corporation Bank, Karol Bagh, New Delhi in the name of R.K. Aggarwal & Co. by obtaining entries for Rs. 6,00,000, Rs. 7,00,000 and Rs. 7,70,000 on 28th Feb., 1998, 28th Feb., 1998 and 1st March, 1998 respectively. He has directed the AO to get notices issued under section 148. Subsequently, I have been directed by the Addl. CIT-R8, New Delhi vide his letter No. Addl. CIT R-8/2002-03/572, dt. 26th Aug., 2003 to initiate proceedings under s. 148 in respect of cases pertaining to this ward.

Thus, I have sufficient information in my possession to issue notice under s. 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above."

3.8 The Hon’ble High Court in the aforesaid case held as under:

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“9. In the present case, we find that the first sentence of the so- called reasons recorded by the AO is mere information received from the Dy. Director of IT (Inv.). The second sentence is a direction given by the very same Dy. Director of IT (Inv.) to issue a notice under s. 148 and the third sentence again comprises of a direction given by the Addl. CIT to initiate proceedings under s. 148 in respect of cases pertaining to the relevant ward. These three sentences are followed by the following sentence, which is the concluding portion of the so-called reasons :

"Thus, I have sufficient information in my possession to issue notice under s. 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above."

(Emphasis supplied externally)

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3.9 On the other hand, in the cases relied upon by the Ld. Senior DR, the Hon’ble Delhi High Court in the case of Nova Promoters and Finlease Private Limited (supra) observed as under:

“21. It is not in dispute in the present case that the assessment was reopened on the basis of information received from the investigation wing of the department about the existence of accommodation entry providers and their "modus operandi" in which the assessee was also found to be involved. Even the Tribunal has recorded, while dealing with the assessee's cross objections challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague, and referred to transactions entered into by the assessee during the year under consideration. It has further been recorded by the Tribunal that as per the information of the investigation wing, the names of the persons issuing the cheques, the cheque amounts, dates etc., were also mentioned providing a link between the entry providers and the assessee. We are aware of the legal position that at the stage of issuing the notice under section 148 the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax at escaped assessment. However, once that stage is crossed and the reassessment proceedings are set in motion, the material on the basis of which the requisite belief was formed by the Assessing Officer has to be appraised and examined. That material on the basis of which the notice under section 148 was issued becomes relevant in the course of the reassessment proceedings. ……………………………………………..…”

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3.10 In the case of AGR Investments Ltd (supra), the Hon’ble High Court noted the reasons recorded by the Assessing Officer as under:

“6. Upon receipt of the said objections, the same were dealt with vide Annex. P-2, dt. 28th June, 2010. In para 3, the authority concerned referred to its earlier decision and reproduced the same. We think it appropriate to reproduce the relevant portion of the same whereby the objections have been rejected :

"Reasons recorded in writing for reopening the case under s. 148—M/s AGR Investment Ltd.—Asst. yr. 2003-04.

Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/ accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter alia reported as under:

'Entries are broadly taken for two purposes:

It has been revealed that the following entries have been received by the assessee :

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Beneficiary’s Beneficiary’s Beneficiary’s Value Name Bank Name Bank Name Entry Taken

AGR Investment Ltd. SBI Pahar Ganj 400000 AGR Investment Ltd. SBI Pahar Ganj 300000 AGR Investment Ltd. SBI Pahar Ganj 300000 AGR Investment Ltd. SBI Pahar Ganj 500000 AGR Investment Ltd. SBI Pahar Ganj 700000 AGR Investment Ltd. SBI Pahar Ganj 500000 Total 2700000

Instrument Date on Name of No. by which entry account which entry taken holder of taken entry giving account 141581 23-May-02 SAAR Enterprises (P) Ltd. 141852 28-May-02 SAAR Enterprises (P) Ltd. 141957 28-May-02 Tulip Engg. (P) Ltd. 141854 9-Jun-02 SAAR Enterprises (P) Ltd. 141955 9-Jun-02 Tulip Engg. (P) Ltd. 141959 20-Jun-02 Tulip Engg. (P) Ltd.

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Bank from Branch of A/c No. which entry entry giving entry giving given bank account Corpn. Bank Paschim 52116 T Vihar h Corpn. Bank Paschim 52116 e Vihar t Corpn. Bank Paschim 52174 r Vihar a Corpn. Bank Paschim 52116 n Vihar s Corpn. Bank Paschim 52174 a Vihar c Corpn. Bank Paschim 52174 t Vihar i

The transactions involving Rs.27,00,000/- mentioned in the manner above, constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed.

On the basis of this new information, I have reason to believe that the income of Rs. 27,00,000 has escaped assessment as defined by s. 147 of the IT Act. Therefore, this is a fit case for the issuance of the notice under s. 148...............”

3.11 In the aforesaid case, the Hon’ble High Court analyzed the decisions in the cases of Raymond Woollen Mills Ltd. vs. ITO & Ors.

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(1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC), Praful Chunilal Patel vs. M.J. Makwana, Asstt. CIT (1998) 148 CTR (Guj) 62 : (1999) 236 ITR 832 (Guj); Ganga Saran & Sons (P) Ltd. vs. ITO & Ors. (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC); Birla VXL Ltd. vs. Asstt. CIT (1996) 130 CTR (Guj) 281 : (1996) 217 ITR 1 (Guj); Sheo Narain Jaiswal & Ors. vs. ITO & Ors. (1989) 176 ITR 352 (Pat); Phool Chand Bajrang Lal & Anr. vs. ITO & Anr. (1993) 113 CTR (SC) 436 : (1993) 203 ITR 456 (SC); Anant Kumar Saharia vs. CIT & Ors. (1999) 151 CTR (Gau) 556 : (1998) 232 ITR 533 (Gau); Bombay Pharma Products vs. ITO (1999) 153 CTR (MP) 350 : (1999) 237 ITR 614 (MP); H.A. Nanji & Co. vs. ITO (1979) 120 ITR 593 (Cal); N.D. Bhatt, IAC & Anr. vs. I.B.M. World Trade Corporation (1993) 115 CTR (Bom) 103 : (1995) 216 ITR 811 (Bom); Hindustan Lever Ltd. vs. R.B. Wadkar (2004) 190 CTR (Bom) 166 : (2004) 268 ITR 332 (Bom); Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30 : (2007) 291 ITR 500 (SC); SFIL Stock Broking Ltd. (2010) 325 ITR 285 ( Delhi); GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2002) 257 ITR 702 (Delhi) Sarthak Securities Co. (P) Ltd. vs. ITO, Writ Petn. No. 6087 of 2010, decided on 18th Oct., 2010 [reported at (2010) 236 CTR (Del) 362 : (2010) 47 DTR (Del) 201—Ed.]. In the background of above decision, the Hon’ble High Court held as under:

“23. The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that the learned counsel for the petitioner has submitted with immense vehemence that the petitioner had entered into correspondence to have the documents but the AO treated them as objections and made a communication. However, on a scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied

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manner. He has taken note of the fact that transactions involving Rs. 27 lakhs mentioned in the Table in Annex. P-2 constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income. The AO has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the Director of IT (Inv.-V) as regards the transactions entered into by the assessee company with number of concerns which had made accommodation entries and they were not genuine transactions. As we perceive, it is neither a change of opinion nor does it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceeding under s. 147 of the Act. The reason to believe has been appropriately understood by the AO and there is material on the basis of which the notice was issued. As has been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), the Court, in exercise of jurisdiction under Art. 226 of the Constitution of India pertaining to sufficiency of reasons for formation of the belief, cannot interfere. The same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), the Bench has interfered as it was not discernible whether the AO had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. (P) Ltd. (supra), the Division Bench had noted that

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certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transactions and the AO was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score.

3.12 In the case of India Terminal Connector System Ltd. (supra), the Hon’ble High Court noted the reasons recorded as under:

“4. Subsequently, a notice under Section 148 of the Act dated 28th March, 2008 was issued and the assessee filed a letter dated 10th

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June, 2008 stating that the original returned filed may be treated as the return filed in response to the said notice. The allegation against the assessee was that they had received accommodation entries of Rs.42,03,250/- as per information received from the Investigation Wing. The reasons recorded by the Assessing Officer have been mentioned in the order passed by the tribunal and read as under:-

"1. In this case, the assessment was completed u/s 143(3)(i) on 25.10.2001 as a total income of Rs.39,73,740/- against the returned income of Rs.3873870/-. 2. Certain investigations were carried out by the Directorate Income Tax (Investigation)-I, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee company figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. The name and other particulars of the above said assessee are as under:- Name of Name of Name of Instrument Operator’s Date on Amount the Bank of the No. no. and which (in Rs.) assessee/ Beneficiary operator Bank entry beneficiary taken M/s. Indian OBC, GT Sekhawati 21154 1200235, 25-Jan- 50000 Terminal Road Finance Innovative 01 Connector Pvt. Ltd. Wazirpur Systems Ltd. -do- -do- Chintpuni 50058, SB, 16-Jan- 50000 Credits DG 01 -do- -do- Particulars 50050, SB 16-Jan- 50000 Manage DG 01 Finlease Pvt. Ltd.

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-do- Profan 269453 5035, Indian 15-Mar- 12014 Finance & Bank, Ch. 01 Investment Chowk, Pvt. Ltd. Delhi -do- Teem 900116 2789 Vijaya 13-Apr- 50050 Metals Ltd. Bank, Ram 00 Nagar -do- Dinanath 7461 1200217, 14-Mar- 50075 Luhariwala Innovative 01 Spinning Wazirpur Mills Pvt. Ltd. -do- OBC M. V. 916209 567, 14-Mar- 50060 Marketing Feedrer 01 Pvt. Karol Bagh

In view of the above information, it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries. Therefore, I have reasons to believe that the income amounting to Rs.42,03,250/- has escaped assessment, which is required to be assessed to tax under the provisions of section 147 of the IT Act, 1961."

3.13 As far as initiation of reassessment proceeding on the basis of reasons recorded, the Hon’ble High Court in the aforesaid case held as under:

“8. We have already reproduced the reasons given by the Assessing Officer. The reasons given by the Assessing Officer are clear and specific. The investigation had been conducted and on the basis of information received, the Assessing Officer formed a prima facie or tentative opinion that the assessee had received bogus credit entries of Rs.42,03,250/- from the parties mentioned in the table. The reasons mention the name of the operator,

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the instrument number, the bank account and the date on which the entry was made. The amount involved in respect of each entry was mentioned. The Assessing Officer has further recorded that the assessee company had introduced its unaccounted money in the bank by way of accommodation entries. In view of what was recorded and stated in the "reasons to believe", it is not possible to agree with the findings recorded by the tribunal that the Assessing Officer had failed to state/record that the assessee had not made true and full disclosure of the material facts and the said factum was not mentioned and cannot be elucidated from the reasons. Reasons recorded by the Assessing Officer have to be read as a whole in entirety and in a holistic manner. Mere reproduction of the language of the Section is not sufficient. We have to read and understand the reasons recorded and whether on the basis of said reasons the Assessing Officer had come to the conclusion or drawn an inference that the assessee had not made full and true disclosure of material facts. As per the "reasons to believe" mentioned above, the Assessing Officer had come to a prima facie or a tentative opinion that the assessee had introduced his unaccounted money in the form of accommodation entries. The name of the operator, who had given the accommodation entry and the amount thereof is mentioned. At this stage, a final finding or conclusion is not required to be recorded by the Assessing Officer. Recording of reasons is for initiation of the reassessment proceedings, which is the starting point. Referring to the said aspect in AGR Investment Limited versus Additional Commissioner of Income Tax and Another, (2011) 333 ITR 146 (Del.), it has been observed that the phrase "reasons to believe" would mean the cause or justification for the

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Assessing Officer to know or suppose that income had escaped assessment. It does not mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. At that stage, the final outcome of the proceedings is not relevant. The only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether or not the material would conclusively prove escapement is not the aspect or concern at that stage but this aspect has to be examined subsequently in the reassessment proceedings. Further, we have to ascertain whether the Assessing Officer had applied his mind to the information and independently arrived at the belief on the basis of the material which was produced before him. In AGR Investment Limited (supra), the Division Bench had referred to an earlier decision in Sarthak Securities Company Private Limited versus ITO, 174 (2010) DLT 161(DB). In the said case also reassessment proceedings were initiated on the basis of information received from Directorate of Investigation regarding bogus/accommodation entries. The decision in Sarthak Securities Company Private Limited (supra) was elucidated and explained.”

3.14 In a recent decision, in the case of Principal Commissioner of Income Tax Vs. Paramount Communication Private Limited [2017] 392 ITR 444 (Del) the Hon’ble Delhi High Court noted the reasons recorded as under:

“ ………………... The relevant reasons furnished in respect of each assessment year read as follows:

"Assessment year 2003-04

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Return declaring loss of Rs. 1,99,75,520 was filed by the assessee on November 22, 2003. Assessment under section 143(3) was completed on March 24, 2006 at a total loss of Rs. 1,24,75,520. Information was received from the Directorate of Revenue Intelligence, Regional Unit, Jaipur and passed on this office that Central Excise Commissioner, Jaipur - 1 detected bogus purchase made by the assessee company from M/s. Kashish Impex Pvt. Ltd. and the information received for the period September 17, 2002 to May 20, 2005 and the amount of purchases (bogus) for the period under consideration amounted to Rs. 1.64 crores has escaped taxation.

Assessment year 2004-05 Return declaring loss of Rs.1,39,50,580 was filed by the assessee on October 29, 2004. Assessment under section 143(3) was completed on December 22, 2006 at a total loss of Rs.34,02,989. Information was received from the Directorate of Revenue Intelligence, Regional Unit Jaipur and passed on this office that Central Excise Commissioner, Jaipur - 1 detected bogus purchases made by assessee company from M/s. Kashish Impex P. Ltd. and the information received for the period September 17, 2002 to May 20, 2005 and the amount of purchases (bogus) for the period under consideration amounted to Rs. 6.20 crores. In view of the above, I have reason to believe that income to the tune of Rs. 6.20 crores has escaped taxation. Put up for approval and sanction for issue of notice under section 148 of Income-tax Act, 1961.

Assessment year 2005-06

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Return declaring nil income was filed by the assessee on October 8, 2005. Assessment under section 143(3) was completed on December 22, 2006 at a total loss of Rs.1,81,99,014. Information was received from the Directorate of Revenue Intelligence, Regional Unit Jaipur and passed on this office that the Central Excise Commissioner, Jaipur 1 detected bogus purchases made by the assessee company from M/s. Kashish Impex Pvt. Ltd. and the information received for the period September 17, 2002 to May 20, 2005 and the amount of purchases (bogus) for the period under consideration amounted to Rs. 74.08 lakh.

In view of the above, I have reason to believe that income to the tune of Rs. 74.08 lakh has escaped taxation."

3.15 With reference to above reasons recorded, the challenge of jurisdiction in reopening the assessment was considered by the Hon’ble Delhi High Court in the aforesaid case, and after considering the arguments of the Revenue and the Ld. counsel of the assessee, the Hon’ble Delhi High Court held as under:

1) As far as the assessment year 2004-05 is concerned, this court is of the opinion that in the reference to the bogus purchase made by the assessee from M/s. Kashish Impex Pvt. Ltd. and the information received for the period September 17, 2002 to May 20, 2005 and the amount of bogus purchase for the period under consideration amounted to 1.64 crores was entirely based upon the information received from the Directorate of Revenue Intelligence (DRI) Regional Unit at Jaipur. This in turn was based upon information given by the Central Excise Department. While it is true

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that the court is conscious that the reassessment notice should not have been routinely issued, at the same time, the nature of power is wide enough that when there is an escapement of income and the Revenue has information ruling that this escapement is also relatable to suppression of material facts (which could include false claims), the power to reopen concluded assessment can validly be exercised. The consideration which ought to weigh with the Revenue and are considered valid are the existence of tangible material or information in the light of the judgment in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). 2) Having regard to the contents of the notice for the assessment year 2003-04, the court is unable to agree with the findings of the Income-tax Appellate Tribunal. It constitutes reference to tangible material "outside" the record, i.e., information based upon the investigation of the Commissioner of Central Excise with respect to the purchases made by the assesses. However, as far as the second issue is concerned, the court is of the opinion that even the rectified order does not address the issues squarely. Thus, such arguments could be validly raised. At the same time, the court notices that for both the assessment years 2004-05 and 2005-06, the note discloses the source of the information, i.e., Directorate of Revenue Intelligence, Local Unit at Jaipur, sending information based upon the Commissioner of Central Excise's investigations. To require the Revenue to disclose further details regarding the nature of documents or contents thereof would be virtually rewriting the conditions in section 147. After all, section 147 merely authorizes the issuance of notice to reopen with conditions. If the court were to dictate the manner and contents of what is to be written, the statutory conditions

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would be added as it were. In this context, it needs to be emphasized that the court would interpret the statute as they stand in their own terms, but at the same time being conscious of the rights of the citizens. So viewed, Kelvinator (supra) strikes just balance. To add further conditions to the nature of discussion/reasons that the officer authorizing the notice would have to discuss in the note or decision would be beyond the purview of the courts and would not be justified. For the above reasons, this court is of the opinion that the impugned order—and the consequential order of January 5, 2017 cannot be sustained. They are accordingly set aside. The question of law urged by the Revenue is answered in its favour. The parties are directed to be present before the Income-tax Appellate Tribunal on March 6, 2017. The Income-tax Appellate Tribunal shall proceed to hear the Revenue's appeals on its merits and render decision in accordance with law. All rights and contentions of the parties with respect to the merits are reserved. _______ (emphasis supplied externally)

3.16 We find that In the case of Raymond Woollen Mills Vs. ITO (1999) 236 ITR 34, the Hon’ble Supreme Court held that if prima facie some material exist on the basis of which Department can reopen the case, it is sufficient to initiate the reassessment proceeding and the sufficiency or correctness of the material is not a thing to be considered at this stage. The same view has been expressed by the Hon’ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Broker (P) Ltd (2007) 291 ITR 500 (SC) as under:

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“16. Sec. 147 authorises and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the AO has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of the AO is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO (1991) 98 CTR (SC) 161 : (1991) 191 ITR 662 (SC), for initiation of action under s. 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction [see ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC); Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC)].

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3.17 In the light of above decisions, we can summarize:

(i) That the reasons recorded should not be vague and scanty and same should be specific . (ii) That at the stage of issuing the notice under section 148 of the Act, the merits of the matter are not relevant and what is required is relevant material to form only a prima facie belief or opinion that income chargeable to tax at escaped assessment. (iii) That the Assessing Officer is not required to carry out detailed investigation at the stage of recording reasons. (iv) That the Assessing Officer himself should apply mind to the material or information and record reasons, and not on the direction of the higher authority. (v) Mentioning primary source of information is sufficient and further details of nature of documents or contents thereof is not required.

3.18 Now, we proceed to examine the reasons recorded in the instant case in the light of the finding of the Hon’ble High Court and Supreme Court in cases discussed above. 3.19 The Assessing Officer in the assessment order has reproduced the reasons recorded for reopening of the assessment as under:

“As per information received from the office of the DIT(Inv.), New Delhi, the assessee company has taken following accommodation entry totaling to Rs.9,00,930/-

Value of Date or From whom taken Instrument No. entry taken entry

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Rs.6,00,615/- 22.02.2003 Hopewin Admark Chq. 00781511 Consultants Pvt. Learned (A/c. No. 24394, State Bank of Bikaner & Jaipur, New Rohtak Road, Delhi) Rs.3,00,315/- 25.02.2003 Hopewin Admark Chq. 00781512 Consultants Pvt. Ltd. (A/c. No. 24394, State Bank of Bikaner & Jaipur, New Rohtak Road, Delhi)

The said amount has been credited into assesseee’s bank account with State Bank of Bimaner & Jaipur, New Delhi by way of transfer entry. On investigation made by the investigation wing it has been found that assessee is a beneficiary of taking the aforesaid accommodation entry. I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries; therefore, I have reasons to believe that the income amount to at least Rs.9,00,390/- has escaped assessment. The escapements of income has been clearly on account of failure on the part of the assessee to truly & fully disclose all material facts necessary for assessment. Thus, it is a fit case for initiation of proceedings u/s 147 of the Act.”

3.20 On perusal of the reasons recorded above, we are of the opinion that the Assessing Officer has reopened the assessment on the basis of specific information that assessee has received accommodation entries from M/s Hopewin. The Assessing Officer has mentioned value of the accommodation entries received, date of entries received, bank accounts from which the entries received and the instrument numbers through which the entries were received. In such circumstances, the reasons recorded cannot be said as scanty and vague as against the observation of the Hon’ble High Court of Delhi in the case of Sh. Atul Jain and Smt. Vinita Jain (supra) and signature Hotels (Pvt.) Ltd. (supra). 3.21 The nature of accommodation entries, whether those have shown by the assessee as loan, income or share capital etc, can be known only

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after examination of the books of accounts or records of the assessee and which can be done only in the reassessment proceedings after reopening of the assessment. Thus, contention of the Ld. counsel that in the reasons recorded, the Assessing Officer has not mentioned as what kind of accommodation entries were obtained and its nexus to the conclusion has not been explained, is not in accordance with law explained by the Hon’ble Supreme Court in the case of Raymond Woollen Mills Ltd. (supra), Rajesh Jhaveri (supra) and Paramount Communications Pvt. Ltd. (supra) 3.22 On perusal of the reasons recorded, we do not agree with the allegation of the Ld. counsel of the assessee that the reasons recorded are ad-hoc and recorded in summary manner. 3.23 The reasons recorded have duly mentioned the source of information as the Director of Income Tax (Investigation), which is a departmental authority and a credible source of information. The information is gathered by the Director of Income-tax (Investigation) through search and survey proceedings which are measures provided under the Act. 3.24 The reasons recorded itself manifest that the Assessing Officer has seen that the entries in question belonged to the assessee and those entries are specific as regard to value, date, bank account, instrument number etc. In the case of SFIL Stock Broking Ltd. (supra), the Assessing Officer in the reasons recorded has referred to the directions of the higher authority, and thus it is held that the Assessing Officer has not applied his own mind while recording the reasons, whereas in the present case we do not find mention of any such direction of the higher authorities prior to recording of reasons. Thus, we do not find any strength in the arguments of the Ld. counsel that the Assessing Officer has not applied his mind before issue of notice under section 148 of the

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Act and jurisdiction has been assumed in mechanical manner. Whether the Assessing Officer was having reason to believe that income had escaped assessment, is to be examined on the basis of the reasons recorded itself and not on the basis what has been mentioned in the assessment order, which is a subsequent action. Thus the contention of the Ld. consul that in the assessment order, the Assessing Officer has mentioned that the assessee as beneficiary of accommodation entry of introducing own unaccounted money in the garb of share capital or in the garb of sale of shares, is not relevant for examining the validity of reassessment proceeding. 3.25 We agree with the contention of the Ld. counsel that only the information available with the Assessing Officer at the point of time of issue of notice under section 148 of the Act has to be considered and subsequent improvements are not allowed as considered by the ld. CIT(A). We find that in the material available before the Assessing Officer as has been shown by the Ld. Senior DR, it was mentioned that M/s Hopewin was engaged in providing accommodation entries and this fact was admitted by Sh. Vishal Aggarwal, son of the Director of the company. The Director, Mrs. Manju Aggarwal admitted in her statement that all affairs of the company were used to be looked after by Sh. Vishal Agrawal. 3.26 Thus, we can summarize that the reasons recorded by the Assessing Officer are specific and he has duly applied mind on the material available before him and recorded the requisite belief that income has escaped assessment. In view of above, we are of considered opinion, that the Assessing Officer assumed jurisdiction validly and notice under section 148 of the Act has been issued after forming requisite belief as required under the provisions of section 147 of the Act.

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Accordingly, we uphold the validity of the reassessment proceeding and grounds No. 1 and 1.1 of the appeal are dismissed. 4. In ground no. 2, the assessee has challenged addition of Rs.15,00,000/- as income from undisclosed sources under section 68 of the Act, upheld by the Ld. CIT-A. 4.1 Before us, the Ld. counsel of the assessee invited our attention to the paper book at pages 34 and 35, which are invoices issued by the assessee company to M/s Hopewin and submitted that the assessee company had received hire charges of studio equipments from M/s Hopewin through account payee cheque. The Ld. counsel further referred to details of hire charges available on page 15 to 17 of the paper book and submitted that during the year under consideration the assessee received hire charges of Rs.39,07,739/- including Rs.15,00,000/- from M/s Hopewin. The Ld. counsel also submitted that assessee was a regular business and disclosed studio income in profit and loss account of earlier years also. The Ld. counsel submitted that under section 68 of the Act only addition in respect of credit which is outstanding at the end of the year as a liability or share capital can only be added whereas in the instant case it was business income. He further submitted that Assessing Officer has already collected audited accounts of the assessee company from the Income Tax Department and, therefore, identity of the said party was established. He further submitted that the party had made payment by cheque against the bill for hiring charges and, therefore, the assessee company was not concerned with the accounting treatment given by the customer in its books of accounts. The Ld. counsel submitted that the Assessing Officer has only relied upon the Investigation of the DIT (Investigation). He further submitted that the Ld. CIT-(A) has not considered the above facts. He also

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submitted without prejudice that the addition so made by the Assessing Officer has resulted into a double addition. 4.2 On the other hand, the learned Senior DR relied on the finding of the lower authorities and submitted that the assessee failed to discharge its onus in terms of section 68 of the Act and particularly genuineness of the transaction. 4.3 We have heard the rival submission and perused the relevant material on record. In the case, it is contested by the Ld. counsel that no addition could be made under section 68 of the Act as the amount being the business income. In our opinion, the contention of the Ld. counsel is not correct. As per the provisions of section 68 of the Act, whenever any sum is found credited in the books of the assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer satisfactory, then the Assessing Officer may charges said sum so credited to income tax as income of the assessee of that previous year. In the instant case , the assessee has claimed that said credit as business income, however, on verification by the Assessing Officer, the said payment has not been found debited in the profit and loss account of M/s Hopewin as business expenditure. The summon issued to the said party for appearing before the Assessing Officer returned unserved. The assessee also failed to produce the said party before the Assessing Officer. As the amount in question was appearing as credit in books of account and the assessee has failed to discharge its onus to explain the nature of the credit, in our opinion, the action of the Assessing Officer in invoking section 68 of the Act is justified. 4.4 The Assessing Officer has observed that the amount in question was not appearing as business expenditure in the profit and loss account

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of M/s. Hopewin, whereas the claim of the assessee that amount in question was business income. But the assessee neither before the Ld. CIT-(A), nor before us, rebutted this finding of the Assessing Officer. Thus, the assessee has failed to discharge its responsibility and more particularly so when the Assessing Officer communicated the finding of the learned Director of Income-tax (Investigation) that M/s Hopewin was engaged in providing accommodation entry. The assessee was required to prove with evidences to support its contention that said receipt was from hire charges of the studio equipments. The assessee was required to provide detail of the equipments, agreement with M/s Hopewin regarding hiring of equipment, the places where the equipments were supplied or installed and other evidences to establish that M/s Hopewin was given those equipments on hire. Though the existence of the party got verified from the audited financial statement collected by the Assessing Officer of the present case from the Assessing Officer of the party, we observed that the assessee not only failed in producing the party but also failed to furnish any documentary evidence to establish that the receipt in question was against hiring of the studio equipments. In the circumstances, in our opinion, the action of the Ld. CIT-A in upholding the receipt of Rs.15,00,000/- from M/s Hopewin as income from undisclosed sources under section 68 of the Act is justified and accordingly, we uphold the same. 4.5 However, we agree with the arguments of the Ld. counsel that it amounts to double addition. The assessee has claimed that the said receipt of Rs.15,00,000/- is included under the head ‘business income’. In those circumstances, if the said sum is added again under section 68 of the Act, definitely, it will amount to double addition. In our opinion, in such circumstances, the Assessing officer is required to reduce the said amount from the business income. We feel it appropriate to restore this

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issue to the file of the Assessing Officer for verification of facts, whether the credit of Rs.15 lacs was part of business income recorded in books of accounts or it was in addition to the business income recorded in the books of accounts and decide in view of our findings above. We order accordingly. It is needless to mention that assessee shall be afforded sufficient opportunity of hearing on the issue. The ground No. 2 is partly allowed for statistical purpose. 4.6 In the result, the appeal of the assessee is allowed partly for statistical purpose.

The decision is pronounced in the open court on 9th June, 2017.

Sd/- Sd/- (I.C. SUDHIR) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 9th June, 2017. RK/-(D.T.D) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi