MAHAVIR METAL AND ALLOYS,MUMBAI vs. INCOME TAX OFFICER, MATRUMANDIR NANA CHOWK, MUMBAI

We have heard both the sides, perused the material on record and examine the position in law.

During the course of hearing it was contended on behalf of the Appellant that there was no application of mind on the part of the Assessing Officer while recording reasons for reopening assessment. Assessing Officer has failed to appreciate the correct facts. It was contended by the Learned Authorized Representative for the Appellant that the reasons recorded failed to meet the requirement of Section 147 of the Act and were, therefore, bad in law. Per contra, the Learned Departmental Representative relied upon the orders passed by the authorities below and submitted that the reassessment proceeds were initiated after following the due process and after recording reasons in writing which clearly state that the Appellant had failed to make full and true disclosure of facts.

In the case of Hindustan Lever Ltd. vs. R.B. Badkar 268 ITR 332 (Bom) the Hon’ble Bombay High Court has, while examining re-opening assessment in a case where assessment was 3 Assessment Year: 2011-12 previously framed under Section 143(3) of the Act, held that the reasons are to be read as they have been recorded by the Assessing Officer. Neither any addition/substitution can be made to the reasons recorded nor can any inference be drawn. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission. Therefore, the reasons recorded must be self-explanatory disclosing application of mind by the Assessing Officer. Further, the reasons recorded must identify the link between the tangible material and formation of belief that income as escaped assessment. Accordingly, we proceed to examine the reasons recorded for reopening the assessment which read as under:

Information was received that a Search & seizure action has been carried out by the DGIT (Inv.), Mumbai in the case of Shri. Rajendra Jain / Sanjay Choudhary / Dharmichand Jain and their Group Concerns on 3.10.2013. During the course of search/survey action, it was revealed that these group concerns were merely providing accommodation entries through various benami concerns operated and managed by them. It was also found that these concerns are indulged into fraudulent transactions of issuing accommodation/hawala entries which purportedly shows transaction of purchase and sale of materials and bogus unsecured loans and advances.

Details of the hawala entities from whom the assessee has obtained accommodation entries for the year under consideration are given as under:

Shri Rajendra S. Jain in his statement recorded on oath on 05.10.2013 has accepted that he and his group concerns are indulged In providing accommodation entries only. The name of above entry is appearing in this statement of Shri Rajendra S. Jain.

In this case, return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceedings u/s 147 is reason to believe which has been recorded in para- 5 & 6 above. It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provisions of clause (b) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.” (Emphasis Supplied)

The above reasons recorded for reopening the assessment state that the return for the assessment year 2011-2012 was processed under Section 143(1) of the Act. The reasons recorded do not make reference to the assessment order, dated 19/03/2014, passed under Section 143(3) of the Act. Further, we note that in 5 Assessment Year: 2011-12 paragraph 7 of the reasons recorded [as reproduced in notice under section 142(1) dated 08/10/2018] the Assessing Officer has gone on to state that for the assessment year 2011-2012 no scrutiny assessment under Section 143(3) of the Act was framed on the Appellant and that in absence of scrutiny assessment it would be deemed that income liable to tax had escaped assessment. Thus, it is clear that the Assessing Officer had formed the brief that income had escaped assessment on the basis of incorrect understanding of facts. While forming belief that income had escaped assessment the Assessing Officer had failed to take into consideration the fact that regular scrutiny assessment was framed on the Appellant under Section 143(3) of the Act and had incorrectly invoked provisions contained in Clause (b) of Explanation 2 to Section 147 of the Act to conclude that in the present case income shall be deemed to have escaped assessment. Thus, there is no link between the tangible material and the formation of belief that income has escaped assessment. Further, we note that in the reasons recorded for reopening assessment it has been stated that the Appellant has taken accommodation entry of INR 65,20,767/-. However, the nature of such accommodation entry being an accommodation entry for bogus purchases or for bogus unsecured loan has not been stated. The fact that CIT(A) has restricted the addition made under Section 68 of the Act to INR 20,00,000/-, being the loan credited during the relevant previous year, also supports the contention of the Appellant that the Assessing Officer had failed to apply mind and/or examine the records to find out the amount credited during the relevant previous year. In view of the aforesaid we find merit in the contention advanced on behalf of the Appellant to the effect that the Assessing Officer had proceeded to initiated the assessment proceedings without due application of mind and on the basis of incorrect understanding of facts. Therefore, we hold that the reasons recorded for reopening the assessment fail to 6 Assessment Year: 2011-12 satisfy the requirements of Section 147 of the Act. Accordingly, the notice, dated 04/03/2015, issue under Section 148 of the Act initiating reassessment proceedings for the Assessment Year 2011-12 under Section 147 of the Act as well as the consequent re-assessment order, dated 30/03/2019, passed under Section 143(3) read with Section 147 of the Act are quashed. Thus, Ground No. 1 raised by the Appellant is allowed. All the other grounds raised by the Appellant are dismissed having been rendered infructuous.