M/S. SHANKER LOGISTICES (P) LTD. ,KOLKATA vs. DCIT,CIR-7(1),KOLKATA, KOLKATA

The assessee in this appeal has agitated against the confirmation of addition of Rs.85,98,795/- by the ld. CIT(A) as made by the Assessing Officer treating the unsecured loans taken by the assessee as bogus and thereby making the addition of the aforesaid amount as unexplained income of the assessee. The assessee apart from challenging the additions on merits has also contested the validity of the reopening of the assessment.

Assessment Year: 2012-13 M/s Shankar Logistics (P) Ltd 3. At the outset, the ld. Counsel has invited our attention to the copy of the reasons recorded by the Assessing Officer for reopening of the assessment. A perusal of the said reasons recorded would reveal that the reasons recorded consists of three pages. In the first two pages, the name of various companies and their directors have been mentioned and it has been further stated that as per the information received from the Investigation Wing, the said companies are shell companies being used for providing accommodation entries on commission basis by their directors. In the third page, the Assessing Officer has mentioned the analysis of information vis-à-vis, the reasons to believe that the assessee has received an accommodation entry of Rs.20,00,000/- and that he has reasons to believe that the income of the assessee for the assessment year under consideration has escaped assessment. The relevant part of the reasons recorded is reproduced as under: “3. Analysis of information collected/ received and findings of the AO: From the aforesaid information a conclusion can be drawn that the assessee M/s Shanker Logistics Pvt. Ltd. PAN AAJCS8693 P is the beneficiary company during the AY 2012-13 and has taken entries from the aforesaid shell entities/ companies which do not have any real business and was operated only to bring their unaccounted money in the books. Thus, the assessee has introduced its unaccounted cash back in the books without paying any tax by taking bogus purchases or payment entries from these shell companies.

Basis of Forming reason to believe and details of escapement of income: There is specific information that the aforementioned companies are shell companies which provide accommodation entries to the various beneficiaries. Perusal of the bank accounts of the companies reveals that M/s Shanker Logistics Pvt. Ltd. was a beneficiary of the transactions of the above companies during the FY 2011-12. It can be concluded that M/s Shanker Logistics Pvt. Ltd. had used the company as a conduit to bring its own out of books income into the books of the company and thereby avoiding taxation on same and also to book bogus expense, Assessment Year: 2012-13 M/s Shankar Logistics (P) Ltd thereby reducing taxable income and thus escaping taxation. As such income to tune of Rs. 20,00,000/- has escaped assessment during the FY 2011-12. Therefore, in the light of the above discussion, I have reason to believe that income assessable to Tax amounting to Rs. 20,00,000/- has escaped assessment within the meaning of Section 147 of the I.T. Act, 1961 during the FY 2011-12. 6. Applicability of the provision of Section 147/151 to the facts of the case: In this case the assessee filed return of income for the AY 2012-13 on 10.09.2012. Assessment u/s 143(3) of the I.T. Act, 1961 was made on 14.11.2014 the requirement to initiate proceedings u/s 147 is reason to believe which has been recorded above. Therefore the provisions of clause (e) of Explanation 2 to Section 147 are applicable to the facts of this case. In this case more than four years have lapsed from the end of assessment year under consideration and escapement of income is more than Rs. 1,00,000/-. Hence, necessary approval to issue notice u/s 148 of the I.T. Act, 1961 for the assessment year 2012-13 may kindly be recorded by the Pr. CIT-3, Kolkata.” 3.1 The ld. Counsel referring to the aforesaid reasons recorded has submitted that the information received by the Assessing Officer from the Investigation Wing was vague. The only allegation in the reasons recorded is that the assessee has received an accommodation entry of Rs.20,00,000/-, however, there is no mention as to from whom/which entity, the accommodation entry has been received by the assessee and on what account i.e. whether the sum in the shape of share application money or loan or any other form. The Assessing Officer reopened the assessment after four years of the relevant assessment year on the basis of such vague information. The said information received by the Assessing Officer may have been relevant to make further enquiries if he suspects that the income of the assessee has escaped assessment. However, the said information in itself was not enough to form the belief that the income of the assessee has escaped assessment. That the Assessing Officer was supposed to correlate the said vague information Assessment Year: 2012-13 M/s Shankar Logistics (P) Ltd received from the Investigation Wing with the assessment records of the assessee and thereafter he could have formed the belief that the income of the assessee has escaped assessment. The ld. counsel has, therefore, submitted that the reopening in this case was bad in law. 3.2 The ld. Counsel for the assessee has further submitted that the assessment order involved in this case is A.Y 2012-13 and the reasons for reopening of the assessment were recorded on 26.03.2019. He has further submitted that the original assessment in this case was carried out u/s 143(3) of the Act. He, therefore, has submitted that Proviso to section 147 of the Act is attracted in this case, which provides that where original assessment has been carried out u/s 143(3) of the Act, no action shall be taken u/s 147 of the Act after the expiry of four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year. He has submitted that the assessee has fully disclosed all the material facts relating to the transactions carried out by the assessee. He has further invited our attention to the reasons recorded by the Assessing Officer to submit that there is no allegation either in the reasons recorded or otherwise that the income of the assessee has escaped assessment owing to any failure on the part of the assessee to fully and truly disclose the material facts necessary for the assessment. He, therefore, has contended that the reopening of the assessment was bad in law on the score also.

We find force in the contention raised by the ld. counsel for the assessee. We find that the Assessing Officer has reopened the Assessment Year: 2012-13 M/s Shankar Logistics (P) Ltd assessment merely based on the information received from investigation wing without verifying the veracity and truthfulness of such information. The information was wrong and the Assessing Officer reopened the assessment on the basis of borrowed satisfaction without correlating the same with the facts of the case. Even there is no allegation that the income of the assessee has escaped assessment due to non-disclosure of the facts necessary for the assessment and since the assessment has been reopened after four years of the end of relevant assessment year, hence, the exception provided under 1st Proviso to section 147 is attracted. The issue is covered by various decisions of the higher courts and even of the hon’ble supreme court. Hon’ble Supreme Court in the case of “Dr. Jagmittar Sain Bhagat & Ors vs Dir. Health Services, Haryana” in Civil Appeal No.5476 of 2013 decided on July 11, 2013, while relying upon another decision of the Hon’ble Supreme Court in the case of “Sushil Kumar Mehta v. Gobind Ram Bohra” (1990) 1 SCC 193 and further placing reliance on the other decisions of the Hon’ble Supreme Court in the cases of “Premier Automobiles Ltd. v. K.S. Wadke & Ors.”, (1976) 1 SCC 496; “Kiran Singh v. Chaman Paswan”, AIR 1954 SC 340; and “Chandrika Misir & Anr. v. Bhaiyalal”, AIR 1973 SC 2391 has observed that where a statute places obligation and enforces the performance in specified manner, “performance cannot be forced in any other manner.” Under the relevant provisions of section 147 & section 148 of the Income Tax Act, for assuming jurisdiction to reopen an assessment by the Assessing Officer, there is a condition precedent that the Assessing Officer must have reasons to believe that the income of the assessee for that year has escaped assessment. It has been held time and again that such reasons to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction Assessment Year: 2012-13 M/s Shankar Logistics (P) Ltd of the assessing authority, such reason should be held in good faith and cannot merely be a pretence. The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. Such an action of the Assessing Officer regarding formation of belief of escapement of assessment and thereby in starting proceedings u/s 147 is open to challenge in a court of law. The entire law as to what would constitute "reason to believe" has been summed up by the hon’ble Supreme Court in the case of “Income Tax Officer v Lakhmani Mewaldas” (1976) 103 ITR 437. Reliance in this respect can also be placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of 'CIT vs Paramjit Kaur' (2008) 311 ITR 38 (P&H), wherein, making identical observations, the Hon'ble High Court has held that in the absence of sufficient material to form satisfaction of the Assessing Officer that income of the assessee had escaped assessment, the issuance of notices u/s 148 of the Act was not valid.