ACIT, CIR-40, KOLKATA, KOLKATA vs. SUNDARLAL MOHANLAL SARDA & OTHERS, KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.116/Kol/2014 Assessment Year :007-08

ACIT, Circle-40, V/s. Sundarlal Mohanlal 18, Rabindra Sarani, Sarda & Others (AOP), Podder Court, 4th Floor, H.O Suit No.64, 6th Kolkata-001 Floor, 8, A.J.C. Bose Road, Kolkata-11 [PAN No.AABAS 7905G] .. अपीलाथ� /Appellant ��यथ�/Respondent

C.O. No.12/Kol/2014 (a/o ITANo.116/Kol/2014) Assessment Year: 2007-08 Sundarlal Mohanlal V/s. ACIT, Circle-40, Sarda & Others (AOP), 18, Rabindra Sarani, H.O Suit No.64, 6th Podder Court, 4th Floor, 8, A.J.C. Bose Floor, Kolkata-001 Road, Kolkata-11 Co-objector .. ��यथ�/Respondent

Shri A.K. Gupta, FCA, आवेदक क� ओर से/By Assessee Md. Usman, CIT-DR राज�व क� ओर से/By Revenue 23-08-2017 सुनवाई क� तार�ख/Date of Hearing 31-10-2017 घोषणा क� तार�ख/Date of Pronouncement

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 2 आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal as well as Cross Objection (CO) by the Revenue and assessee is directed against the order of Commissioner of Income Tax (Appeals)-XII, Kolkata dated 31.10.2013. Assessment was framed by ACIT, Circle-40 Kolkata u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 25.03.2013 for assessment year 2007-08. 2. The assessee has raised the following grounds of appeal in its cross objection:- “1. That on the facts and circumstances of the case the learned CIT(A) erred in upholding the action of the AO of reopening the assessment u/s 147 as the relevant material was already disclosed in the accounts filed along with the return of income. There was no failure in disclosure of material fact and that the reopening of the assessment was bad in law and ab initio void and the notice issued u/s 148 for reassessment be cancelled.” 3. The assessee in its CO has challenged the validity of reassessment proceedings initiated u/s 147 of the Act on the ground that all the material facts were disclosed in the return of income on the basis of which the proceedings u/s 147 of the Act were initiated. 4. Briefly stated facts are that the Assessee is an AOP and engaged in the business of extraction and sale of iron ore, ROM and lumps. The assessee was awarded a mining lease for a period of 20 years from the State Government of Orissa vide order dated 14.08.2001. The assessee carried on the mining activities up to A.Y.2006-07 and accordingly it has been assessed in the earlier years. However, the assessee in the year under consideration transferred the mining lease rights to M/s. Sarda Mines Pvt. Ltd. (SMPL) in terms of agreement dated 22.06.2006 with SMPL. The transfer of mining lease rights to M/s. SMPL by the assessee was duly approved by the order of State Govt. of Orissa dated 07.06.2006.

4.1 The assessee along with the transfer of mining lease rights, has also transferred movable/immovable asset and mining lease expenditure for Rs.7,36,91,121/- and Rs.2,08,52,219/- respectively. The assessee duly disclosed the

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 3 consideration received by it from M/s SPML in its books of accounts and accordingly the same was offered to tax. However, the AO observed that the consideration received by the assessee towards transfer of movable/immovable assets and mining lease expenditure has not been disclosed in the return of income. Therefore the AO initiated the reassessment proceedings u/s 148 of the Act after recording the reasons to believe as detailed under :- "From the reliable sources, it has come to notice that M/s Sunder Lal Mohan Lal Sharda & others had received Rs. 20852219/- as mining lease expenditure and Rs.73691121 as Transfer of Mining lease (Capital Expenditure) from M/s Sharda Mines Pvt. Ltd. (Total Rs.94543340) during the financial year 2006-07, but failed to offer the amount i.e. Rs. 94543340 for taxation" As such I am of the view that income to the tune of Rs. 94543340 has escaped assessment for assessment year 2007-08. To assess the income escaped of Rs. 94543340 (Rs. Nine Crore Forty Five Lac Forty three thousand three hundred and forty only) Notice u/s 148 of the Income Tax Act is being issued for assessment year 2007-08." 4.2 However, the assessee has challenged the reasons recorded by the AO vide his letter dated 19.11.2012 / 29.11.2012 on the ground that all the material information pertaining to the transfer of movable/immovable properties and capital expenditure incurred on mining lease were duly accounted for in the books of account and offered to tax in the computation of income. As such there is no escapement of income as alleged by the AO in the reasons recorded for reopening of the assessment u/s 147 of the Act.

However, the AO rejected the claim of the assessee on the ground that jurisdiction for initiation of the proceedings u/s 148 of the Act can be assumed on the basis of the prima facie materials available on record. The AO in support of his claim has relied on the following judgments of the Hon’ble Supreme Court :- i) CIT vs Rajesh Jhaveri stock brokers Pvt. Ltd. Reported in 161 ITR 316 ii) Raymond Woollen Mills Ltd. Vs ITO 236 ITR 34 (SC).

4.3 Finally the AO held that proceedings u/s 147 of the Act had been initiated in accordance with the provisions of law and rejected the petition of the assessee. Being aggrieved by the order of AO the assessee preferred an appeal before the ld. CIT(A). The assessee before the ld. CIT(A) submitted that it has not received any

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 4 consideration for the transfer of mining lease to M/s SMPL. Therefore there is no question of any escapement of income. In fact the assessee has received consideration from M/s. SMPL on other counts as detailed under :- Sl.No. particulars Amount 1. Transfer of movable/immovable properties Rs.7,36,91,121 2. Capital expenditure on mining lease Rs.2,08,52,219 4.4 The assessee further submitted that the amount as discussed above was duly disclosed in the income tax return as detailed under :- “4.3 The appellant received Rs. 7,36,91,121/- as consideration for transfer of movable and immovable assets. In the computation of income filed along with the return of income the appellant showed Short Term Capital loss as under: Full Value of Consideration 8,23,63,778.00 Less: deduction u/s 48 Opening WDV as on 01.04.2006 Rs 12,84,92,585/- Addition during FY 2006-07 Rs 67,53,134/- ( 13,52,45,719) TOTAL (5,28,81,941) The amount of Rs 8,23,63,778/- includes the above figure of Rs 7,36,91,121/- . The WDV of these assets was Rs. 13,52,45,719/- and the appellant showed Short Term Capital Loss in the computation of income. The appellant has disclosed the amount in the accounts and also showed it in the computation of income as Short Term Capital Loss in view of the provisions of s.50. 4.4. The amount of Rs. 2,08,52,219/- was received against other assets. The appellant had capitalized certain expenses, which had been shown in the Schedule "C" of the Balance Sheet under the head "Capital Expenditure not represented by assets owned by AOP". It consisted of the following:- 1 . Mining Lease Expenditure (including royalty for trees) Rs. 1.51,01,320/- 2. Capital Expenditure on 33 KV Electric Line Rs. 38,67,866/- 3. Capital Expenditure on BSNL Tower Rs. 18,04,293/- TOTAL Rs.2,07,73,479/- The amount of Rs. 2,08,52,219/- included Rs. 78,740/- received on account of sundry expenses like consultation charges etc. recovered. It is submitted that these expenses were capitalized in the accounts by the appellant and hence were recovered from the purchaser of mine. There was neither loss nor gain on this account. The AO erred in considering this amount as received for transfer of mining lease.”

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 5 The assessee further submitted that all the above facts were duly recorded in the books of accounts and brought to the notice of the AO at the time of assessment. The assessee also submitted that there is no provision in the Mining Concession Rule 1960 for charging any premium on the transfer of mining lease. The assessee was not the owner of the mining lease but was merely holding the lease rights on the mines for a period of 20 years.

The assessee further submitted that Shri N.D. Chandak working as asstt. Manager Finance in SMPL appeared before the ACIT (TDS) Bhubaneshwar during TDS proceedings. The ACIT (TDS) Bhubaneshwar during hearing observed from the submission of Shri Chandk, certain facts as reproduced under : “1. Payment in respect of Mining lease transfer. - During the financial year 2006-07 the company got the mining lease from S.L.M.L. Sarda and others vide an agreement dated 22.06.2006. The company made the following payments to S.L.M.I. Sarda and others. i) Mining lease expenditure - Rs. 20852219/- ii) Capital expenditure (purchase of asset) - RS.73691121/- The deductor company was asked to furnish the details of agreement with S.L.M.L. Sarda & others in respect of the mining lease expenditure and capital expenditure mentioned above. Mr. N.D. Chandak, Asst. Manager Finance appeared and explains that no purchase agreement in respect of purchase of asset or mining lease expenditure was executed between the two entities. It was also found the amount was paid to S.L.M.L. Sarda & others for the lease transfer of the mines. The deductor company did not pay any sale tax in respect of purchase of assets/machinery. On enquiry Mr.. Chandak explained that non of these payment was offered for taxation by S.L.M.L. Sarda & others. So it is clear from above discussion that: a. That the mining lease expenditure amounting Rs. 20852219/- & the alleged Capital expenditure amounting Rs. 73691121/- were paid to S.L.M.L. Sarda & others as premium for transfer of mining lease. But since the law did not allow such type of premium so no agreement was executed. b. The deductor company did not deduct any tax from the payments mentioned above.” 5. The above information was communication to the AO having jurisdiction over the assessee and in view of above the AO invoked the provisions of section 147 of the Act for the escapement of the income. But the AO in the reasons recorded has not referred to the above proceedings under section 201(1)/201(1A) of the Act. The assessee further submitted that the submission made by Shri Chandak during the TDS proceedings cannot be relied upon as he was acting as an employee of

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 6 SMPL. Moreover, Shri Chandak was not aware of all the facts. In fact a lot of letters were exchanged between the assessee and M/s.SMPL for the transfer of assets on different dates such as 24.06.2006, 28.06.2006, 01.07.2006, 03.10.2006 and 04.10.2006. In view of the above, the assessee pleaded before ld. CIT(A) that the reopening u/s 147 of the Act is void and deserves to be held as invalid.

The ld. CIT(A) after considering the submissions of the assessee has held that the initiation of proceedings u/s 147 of the Act is invalid by observing as under:- “I have considered facts of the case, the remand report of the AO as well as the arguments advanced on behalf of the appellant. In this case, the return filed by the appellant declaring loss of Rs.14,95,34,954/- was processed under sec. 143(1) of the Act. Reassessment proceedings can be validly initiated in case return of income is processed only under section 143(1) of the Act and no scrutiny assessment is undertaken, it would be a case of formation of no option and, hence, in such cases assessment order itself records that issue was raised and is decided in favour of assessee; reassessment proceedings in said cases will be hit by principle of ‘change of opinion’. In Raymond Woollen Mills Ltd. V. ITO [1999] 236 ITR 34 (SC), the Hon’’ble Apex Court has held that in determining whether commencement of reassessment proceedings is valid, the court has only to see whether there is prima facie some material on the basis of which the department opened the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. Therefore, in view of the ratio laid down by the Apex Curt, the initiation of proceedings under sec. 147 and issue of notice under sec. 148 of the Act cannot be held to be invalid or bad in law. The same is, therefore confirmed and this ground of appeal is dismissed.” Being aggrieved by the order of ld. CIT(A) the assessee came in CO before us.

6.1 Similarly the ld. AR drew our attention on page-11 of the paper book where the details of capital expenditure incurred by the assessee were placed. The ld. AR further drew our attention on the depreciation schedule under the Income Tax Act and demonstrated that all the movable/immovable assets were transferred to M/s.

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 7 SMPL. The depreciation schedule under the income tax is placed at page 123 of the paper book. The ld. AR in support of his claim relied on the following judgments: 1. Bombay High Court in the case of Prashant S Joshi vs ITO reported in 324 ITR 154 2. Bombay High Court in the case of NDT System Vs ITO reported in 363 ITR 603 3. Delhi High Court in the case of CIT vs Living Media India Ltd. Reported in 359 ITR 106 4. Delhi High Court in the case of CIT vs Orient Craft Ltd. Reported in 354 ITR 536 5. Gujarat High Court in the case of Ashram Ashram vs ITO(Exemption) reported in 386 ITR 222 6. Madras High Court in the case of Martech Pripherals P.Ltd vs DCIT and reported in 394 ITR 733

On the other hand, the ld. DR submitted that information was received from the Income Tax office (TDS Division) (Bhubaneswar) having jurisdiction over SMPL wherein the employee of SMPL has categorically submitted that the consideration received by the assessee on account of movable/immovable properties and mining capital expenditure was not offered to tax. The ld. DR further submitted that the reopening u/s 147 of the Act was initiated on the basis of the information received from ACIT Office TDS Division, Bhubaneswar. The ld. DR vehemently relied on the order of the Authorities below.

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 8 confronted to the assessee. Moreover, we find that Shri Chandak is an employee of SMPL and therefore the statement cannot be relied upon by the AO.

Besides the above, we find that it was alleged by the AO that the consideration received by the assessee as discussed above were not offered to tax. However, on perusal of the statement of income as well as financial statement of the assessee we find that all necessary details were disclosed in the income tax return and balance sheet. As such the basis on which the reopening was initiated was not based on the reason to believe for escapement of income, rather it was based on reasons to suspect for escapement of income. Moreover, we find that the AO has not clearly recorded the reasons to believe for the escapement of income. The AO himself is not confident whether the income of the assessee has escaped assessment as he has not brought any tangible material in the reasons recorded for the escapement of income. However the ld. DR tried to justify the action of AO by submitting that the information was received from office of TDS Division, Bhubaneswar and therefore the proceedings under section 147 of the Act were initiated. However on perusal of the reasons recorded we find that there is no reference made by the AO to the information received from the office of TDS Division, Bhubaneswar. Thus the argument of the ld. DR cannot be accepted. Moreover the reasons recorded by the AO for reopening the case cannot be improved further as held by the Bombay High Court in the case of Prashant S Joshi vs ITO reported in 324 ITR 154. The relevant extract of the order is reproduced below : “ The reasons, which are recorded by the Assessing Officer for reopening an assessment, are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power, for it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well-settled that the question as to whether there was reason to believe, within the meaning of section 147 that income had escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons which are recorded cannot be supplemented by affidavits. The

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 9 imposition of that requirement ensures against an arbitrary exercise of power under section 148”.

Similarly on perusal of the reasons recorded it is evident that the assessing officer has recorded very vague reasons which are general in nature. No specific material, which indicated the escapement of income was brought on record. Similarly defects if any in the books of accounts maintained by the assessee was also not mentioned. No specific items of income or the receipts which escaped from income was brought on record in reasons, leave alone the quantum. The assessing officer has not mentioned any material which was suggesting and indicating escapement of income. No finding was given by the assessing officer with regard to the non disclosure of income. From plain reading of the reasons recorded by the assessing officer shows, that the reasons were recorded, without application of mind and the assessing officer wants to reopen the assessment without having any tangible material. It is settled issue that even in the cases where the assessments were completed u/s. 143(1), for reopening of the assessments, there should be reason to believe that the income has escaped assessment as held by Hon’ble Delhi High Court in the case of CIT vs Orient Craft Ltd reported in 354 ITR 536 wherein after considering the judgment of Hon’ble Supreme Court in the case of CIT vs Rajesh Jhaveri stock brokers Pvt. Ltd reported in 161 ITR 316, the issue was decided in favour of assessee. The relevant extract of the judgment is reproduced below. “13. Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 10 whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full- fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 14. Certain observations made in the decision of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) are sought to be relied upon by the revenue to point out the difference between an "assessment" and an "intimation". The context in which those observations were made has to be kept in mind. They were made to point out that where an "intimation" is issued under section 143(1) there is no opportunity to the assessing authority to form an opinion and therefore when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of "change of opinion". It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised. On the contrary, from the observations (quoted by us earlier) it would appear clear that the court reiterated that "so long as the ingredients of section 147 are fulfilled" an intimation issued under section 143(1) can be subjected to proceedings for reopening. The court also emphasised that the only requirement for disturbing the finality of an intimation is that the assessing officer should have "reason to believe" that income chargeable to tax has escaped assessment. In our opinion, the said expression should apply to an intimation in the same manner and subject to the same interpretation as it would have applied to an assessment made under section 143(3). The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) would also appear to be self-defeating, because if an "intimation" is not an "assessment" then it can never be subjected to section 147 proceedings, for, that section covers only an "assessment" and we wonder if the revenue would be prepared to concede that position. It is nobody's case that an "intimation" cannot be subjected to section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke section 147 it should play by the rules of that section and cannot bog down. In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 11 the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements. 15. In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income "on going through the return of income" filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in Kelvinator of India Ltd. (supra). The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-à-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147. 16. For the above reasons, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the Revenue. The appeal of the Revenue is accordingly dismissed. There shall be no order as to costs.”

There is a vast difference between the issue of notice u/s. 143(2) and notice issued u/s. 148. For reopening the assessment and issue of notice u/s. 148, the assessing officer should have a reason to believe that the income chargeable to tax has escaped assessment. For having a reason to believe there must be tangible material which indicates income escaped assessment. Mere suspicion, or the surmises the assessing officer is not permitted to reopen the assessment. There should be strong belief based on material is required for reopening the assessment u/s. 147. Suspicion or guess work is not sufficient to reopen the assessment u/s. 147 of the I.T. Act. Though from the records it is transpired that the reopening was done on the basis information received from office of TDS (Bhubneshawar) but assessing officer did not mention specifically in the reasons recorded which part of the information constitutes the basis for formation of reasonable belief for escapement of income in the reasons recorded. The nexus of the information received from the TDS office of Bhubneshawar was not brought on record in the reasons for escapement of income.

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 12 The assessing officer cannot improve the reasons already recorded, subsequently by referring to the books of account or the explanations. Hon'ble Gujarat High Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332/137 Taxman 479 (Bom.) held that reopening notice is to be justified on the basis of reasons recorded at the time of issuing the impugned notice. The impugned notice must stand or fail on the reasons recorded. Thus, reasons recorded cannot be supplemented by further reasons or filing an affidavit or making oral submissions. The reasons are made on the point of assessing officer and must be self explanatory and should not keep the assessee guessing. It cannot be justified on the basis of inferences or interpretations. Similarly in the case of Sunbarg Tradelink (P.) Ltd. v. ITO [2016] 74 taxmann.com 16 (Guj.) held that where the assessing officer has no material to suggest that the assessee company had received accommodation entries against cash receipts, the notice for reopening the assessment based on such reasons was completely wrong and has to be set aside. The Hon'ble ITAT Coordinate Bench, Ahmedabad in the case of ITO v. Amit Shah [2016] 71 taxmann.com 256/159 ITD 767 has adjudicated the issue on similar facts and held that the important point is that even though the reasons recorded may not necessarily prove the escapement of income at the stage of recording the reasons, such reasons must point out to income escaping the assessment or not merely need any inquiry which may require adjudication of income escaping assessment. In the present case, at best the case of the assessing officer falls in the second category. Further Amit K. Shah's case(supra), Hon'ble Bombay High Court in the case of Khubuchandani Healthparks (P.) Ltd. v. ITO [2016] 68 taxmann.com 91/384 ITR 322 has held that notice u/s. 148 would be without reasons for absence of reasons to believe that income had escaped assessment even in case where assessment has been completed earlier by intimation u/s. 143(1). Hon'ble Madras High Court in the case of PVP Ventures Ltd. v. Asstt. CIT [2016] 65 taxmann.com 221 has held that justification for reopening the assessment has to be tested only on the strength of recording reasons for reopening the assessment u/s 148 of the Act. From the above discussion and judicial pronouncements, recording of proper reasons and the application of mind is necessary which must be bona fide and not in mechanical manner. Where the notice issued without application of mind on the part of the assessing officer, the same is

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 13 liable to be quashed. The reasons recorded by the assessing officer must disclose the process of reasoning by which he hold the reason to believe that the income chargeable to tax has escaped assessment for the relevant assessment year. The material relied upon by the assessing officer should appear on the record. In the instant case, it is clear that the assessing officer has recorded vague and general reasons without application of mind. The assessing officer did not establish or whisper from the reasons recorded regarding the basis for escapement of any income. It appears from the reasons recorded that assessing officer has reopened the assessment merely because some information was received from the TDS office of Bhubneshawar which is not permissible in law in the instant case. Therefore, we reverse the order of the Ld.CIT (A). Hence the ground raised in the CO by the assessee is allowed.

Now coming to the Revenue’s appeal in ITA No.116/Kol/2014.

ITA No.116/Kol/2014 & CO. 12/Kol/2014 A.Y. 2007-08 ACIT, Cir-40, Kol. Vs. Sundarlal Mohanlal Sarda & Others Page 14 4. That on the facts and circumstances of the case Ld. CIT(A) erred in deleting the addition of Rs. 1,48,88,604/- made on account 'of lower rate of sales shown in stock transferred to M/S. Sarda Mines (P) Ltd. as u/s. 40(A)(a) of the Income Tax Act including the fact that the sale made at variant rates in the same period is not reasonable and justified. 5. That the appellant craves the leaves to add, 'alter, modify, include or delete any ground of appeal. 10. As we have already decided that the reassessment proceedings framed u/s 147 of the Act is not valid in the eyes of law. Therefore, the issues raised by the revenue do not require any separate adjudication. Thus, the appeal filed by the Revenue becomes academic and infructuous. Accordingly the same is dismissed. 11. In the result, Revenue’s appeal is dismissed as infructuous. 12. In combine result, assessee’s CO is allowed and that of Revenue’s appeal is dismissed as infructuous. Order pronounced in the open court 31/10/2017 (�या'यक सद�य) (लेखा सद�य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) *Dkp, Sr.P.S Kolkata, )दनांकः- 31/10/2017 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-Sundralal Mohanlal Sarda & Others (AOP) HO Suit No.64, 6th Floor, Kolkaata-001 2. राज�व/Revenue-ACIT, Circle-40, 18, Rabindra Sarani, Poddar Court, 4th Fl, Kol-001 3. संबं4धत आयकर आयु5त / Concerned CIT Kolkata 4. आयकर आयु5त- अपील / CIT (A) Kolkata 5. 8वभागीय �'त'न4ध, आयकर अपील�य अ4धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड= फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ4धकरण, कोलकाता ।