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Income Tax Appellate Tribunal, “SMC” BENCH, KOLKATA
Before: SHRI RAJPAL YADAV, HON’BLE & DR. MANISH BORAD, HON’BLE
O R D E R
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The instant appeal is directed at the instance of the assessee against the order of the National Faceless Appeal Centre, Delhi, [hereinafter the “ld. CIT(A)”] dt. 12/04/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2013-14.
Though the assessee has raised various grounds on the legal issue as well as on merits, we will first take up the issue challenging the validity of re-opening of assessment u/s 147 of the Act.
Facts in brief are that the assessee is a HUF and filed its return of income on 26/07/2013 for Assessment Year 2013-14 declaring income of Rs.5,55,720/-. The assessee also claimed long term capital gain at /Kol/2023 Assessment Year: 2013-14 P.L. Goenka HUF 2 Rs.3,99,600/-. Reasons were recorded and subsequently re-assessment proceedings were carried out and additions were made in the hands of the assessee. Before us, the ld. Counsel for the assessee has challenged the validity of re-opening on the ground that there is no application of mind by the Assessing Officer for framing the reasons and the reopening is merely on the basis of borrowed satisfaction in the form of information received from the investigation wing. The reasons recorded by the Assessing Officer for reopening the assessee’s case, reads as under:-
“ Name of the assessee P. L. Goenka HUP Address of the assessee I 3A, Diamond Towers,30, D.H. Road, Kolkata-700027 PAN of the assessee AAFHP9930D Assessment Year 2013-14 Details of the Assessing officer I.T.O Ward-29(4), Kolkata Aayakar Bhawan/ having jurisdiction over the 4th Floor, 2, Gariahat Road South, Kolkata- assessee 700068 Information has been received from the A.D.I.T (Inv), Unit-l(l), Kolkata vide letter No. DDIT(Inv)/Unit-1(l)/Kolkata/2019-20/8005-5879-40458 dated 06.03.2020 that M/s Nectar Dealtrade Pvt. Ltd., M/s Moonview Vintrade Pvt. Ltd. and M/s Snowhill Dealtade Ltd. are struck off companies. They were maintaining accounts with ICICI Bank. On analysis of the bank statement it has been found that there has been lots of cross transaction in these bank accounts. There has been credit in these bank accounts mostly by way of transfers, RTGS credit and debit mostly by way of RTGS, Transfers. It has also been noticed that the entire fund coming into the bank accounts of the above mentioned entities are transferred out to sundry concerns immediately which clearly indicates that these accounts have been used only for layering purpose and the funds subsequently reaches to the main/beneficiary concerns. Submissions have been received from M/s Anugrah Stock Broking Pvt. Ltd., M/s Religare Securities Ltd, M/s Dynamic Equities Pvt. Ltd., M/s SMC Global Securities Pvt. Ltd, M/s Eureka Stock & Share Broking Services Ltd, M/s GCM Securities Ltd and M/s Religare Securities Ltd, It has been noticed from the trade ledger provided by the stock brokers that most of the transactions had been done in scrips which are in the nature of penny scrips such as Tuni Textile, Essar India, NCL Research. The above assessee is one of the beneficiary who received accommodation entry which was used to avail bogus LTCG/STCL to the extent of Rs. 5,36,750/- in Tuni Textile Scrip. The information provided by the D.D.I.T(Inv), Unit-2(1), Kolkata has been perused. It is found that during the course of investigation detailed enquiry has been made regarding the source deposits/credits in the bank accounts of the entities mentioned above. Eventually the partners/directors of the companies and the entry operators have admitted on oath that they have provided accommodation entries to the beneficiaries. Hence undoubtedly this is a scheme Assessment Year: 2013-14 P.L. Goenka HUF 3 of ORGANISED TAX EVASION accomplished through farrago of artificially inserted - transactions, having no commercial rationale, by a cartel of entry operators, broilers and exit providers. I have gone through the information available with the office and it is seen that the assessee filed return of income for the said assessment year on 26.07.2013 declaring total income fo Rs. 5,57,720/- which was duly processed u/s 143(1) of the Act on 18.01.2014. Based on the discussion above, I have reasons to believe the income chargeable to tax has escaped assessment to the tune of Rs, 5,36,750/- within the meaning of section 147 of the Income Tax Act and the assessee has not disclosed full and truly all material facts necessary for his assessment. Applicability of the provisions of section 147/151 to the facts of the case: In this case a return was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act as stipulated u/s 2(40) of the Act was made and the return was not processed u/s 143(1) as well. In view of the above, provisions of clause (b) of explanation 2 to section 147 are applicable to the facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence necessary sanction to issue notice u/s 148 has been obtained separately from Principal Commissioner of Income Tax as per provisions of section 151 of the Act.”
Referring to the above reasons it was submitted by the ld. Counsel for the assessee that, ld. Assessing Officer has acted only on the information and without believing that the income has escaped, has only referred to the bogus long term capital gain/short term capital loss and the sale consideration. Referring to the judgment of this Tribunal in the case of Jai Prakash Gupta vs. ITO in A.Y. 2013-14; order dt. 18/06/2021 and also referring to the standard operating procedures for recording satisfaction for reopening assessment u/s 147 of the Act issued by the CBDT vide its internal directive No. 247/140/2017-A&PC-1 dated 10/01/18, it was claimed that the legal requirement to reopen the assessment i.e., reason to believe that income chargeable to tax has escaped assessment, has not been satisfied. Therefore, notice u/s 148 of the Act issued for reopening the assessment, is bad in law and subsequently, all the actions taken by the Assessing Officer is null in the eyes of law.
Assessment Year: 2013-14 P.L. Goenka HUF 4 4.1. On the other hand, the ld. D/R vehemently argued supporting the order of both the lower authorities.
We have heard rival contentions and perused the material placed before us. Before proceeding to examine the reasons recorded, we would first like to go through the standard operating procedure of recording satisfaction for reopening assessment u/s 147 of the Act issued by the CBDT on 10/01/2018, which reads as under:-
“Subject: - Standard Procedure for recording satisfaction u/s 147 of the income Tax Act, 1961 -reg. Assessing Officers while recording satisfaction u/s 147 of the Income Tax Act, 1961 should follow the sequence as noted below: 1st paragraph: Reasons recorded will include details of the assessee, nature of business activity, brief details of return of income filed earlier along with details of processing of return/ scrutiny assessment/ reassessment proceeding. 2nd paragraph: it will contain details of information and material received/ collected/found by the AO subsequent to processing of original/ reopened assessment proceedings along with time period/ date of collection or receipt of information, in the cases where information is received from the investigation Wing or any other law enforcement agency, details of letter, brief summary of information along with relevant portion of such report and details of relied upon documents may be mentioned. 3rd paragraph: It will include analysis of information collected/received/found by the AO - details of parties involved, nature and details of transactions, details of relied upon material/ document and prima facie conclusion. 4th paragraph: It will contain enquiries made by the AO which must have a 'live link' with the information received/collected/found by the AO. The enquiries may include analysis of return of income, audited P&L A/c and balance sheet, assessment folder in eases where assessment have been made u/s 143(3)/ 147 of the Act, information as available on ITBA portal on ITS/ 360 degree profile, enquiry made from other agencies which may include scrutiny of Assessment Year: 2013-14 P.L. Goenka HUF 5 the information available on MCA website, information as available on internet website and details of other enquiries made by the AO through issue of letter u/s 133(6)/ summon u/s 131 from assessee and other relevant parties. 5th paragraph: It will contain summary of findings of the AO on the basis of analysis of information received/collected/found by the AO and the result of follow up enquiries made by the AO. 5th paragraph: It will include 'basis of reason to believe' along with nature and quantum of income escaping assessment. The AO will draw link between the findings and reasons to believe and will also give a categorical finding that reason to believe is based on his/her application of mind on the facts and information received/collected/found and it is not a case of change in opinion. 7th paragraph: It will give detail and instances along .with corroborative material to prove that the assessee had not disclosed full and truly all material facts necessary for his assessment or that the facts of the case are covered by the Explanation 1 to section 147 of the Act. This paragraph shall be included only in the cases where scrutiny assessment has been made and four years from the end of the relevant year had expired. 8th paragraph: This paragraph is required in cases involving income in relation to any assets (including financial interest in any entity) located outside India which is chargeable to tax and has escaped assessment. This paragraph will include details of assets, nature of income earned in relation to the assets. The AO must highlight that since it is a case of escapement of income in relation to assets located outside India, first Proviso to the section will not apply. The above procedure be brought to the notice of all officers working under your jurisdiction for compliance.”
Now, examining the reasons recorded in the light of the above standard procedures, we notice that the ld. Assessing Officer has not adhered to the standard procedures. Firstly, we notice that the ld. Assessing Officer has only referred to the information received from the Investigation wing and assessee is stated to be one of the beneficiaries of receiving accommodation entry to avail bogus short term capital gain/loss to the extent of Rs. 5,36,750/-. Now, admittedly, the return of Assessment Year: 2013-14 P.L. Goenka HUF 6 income already stood filed by the assessee on 26/07/2013 and very much available before the Assessing Officer. It was incumbent upon him that after receiving the information from the investigation he should have first layed his hands on the Income tax return filed by the assessee and then should have examined the information vis-à-vis the computation of income furnished and then has to form the belief that income subject to tax has escaped assessment. Now, in the income tax return assessee has disclosed long term capital gain at Rs.3,86,377/-. But the Assessing Officer in the reasons recorded has mentioned short term capital gain/loss which means that he was not sure of the transactions for which the reopening is carried out. Further, the ld. Assessing Officer has mentioned the figure at Rs.5,36,750/- as long term capital gain/short term capital loss. This observation is also factually incorrect because the sum of Rs.5,36,750/- is merely a sale consideration and exempt income u/s 10(38) of the Act has been claimed at Rs.3,86,377/- and it is a case of long term capital gain and not short term capital loss.
The above factual observation clearly indicates that the Assessing Officer has not made application of mind for re-opening the case of the assessee after four years as the assessee has furnished all the details of the alleged transactions in its income tax return. It is also evident that the Assessing Officer has not adhered to the standard operating procedures framed by the CBDT to record the reasons for re-opening. Under such circumstances, as there is no independent application of mind by the ld. Assessing Officer which forms the basis of reason to Assessment Year: 2013-14 P.L. Goenka HUF 7 believe that income has escaped assessment then such reopening of assessments is merely on borrowed satisfaction. This Tribunal in the case of Jai Prakash Gupta (supra) dealing with similar issue of reopening on the basis of information about the bogus long term capital gain has held as follows:-
12. Relying on the aforesaid decision of Hon'ble Courts it is clear that in the instant case the AO has simply reproduced the information from DIT(Inv) that since the assessee has transacted in this financial year in the scrip of M/s Essar India, the LTCG claim is bogus; and the AO while recording the reason concluded that by doing the said transaction there was an escapement of income of Rs. 5,55,624/- whereas when the assessment order was framed the AO has found that assessee has made LTCG of Rs. 9,70,583/-. It has to be borne in mind that when the AO got adverse information from the DIT(Inv) as a prudent and responsible officer, the AO should have made preliminary enquiry and collected materials which could have made him form the belief that there is escapement of income. It is noted that AO based on the information from DIT(Inv) neither furnished a copy of the same to assessee nor even recorded the gist of the information from DIT in the reasons recorded by him to conclude that LTCG on M/s Essar India is bogus. In the facts and circumstances discussed it is noted that the legal requirement to reopen i.e. reason to believe escapement of income" has not been satisfied. Since the requirement of law prescribed u/s 147 of the Act has not been met in the reasons recorded in the case of assessee, the AO did not have jurisdiction to reopen the assessment and therefore the very action of issuing notice u/s 148 is bad in law and consequently all action taken by the AO is null in the eyes of law and therefore quashed.”
Respectfully following the decision of the Tribunal, we are inclined to hold that the reopening u/s 147 of the Act was invalid as proper procedure to record the reasons for reopening of assessment have not been followed by the Assessing Officer and there is no independent application of mind before forming the reason to believe that income chargeable to tax has escaped assessment. Accordingly, the Assessment Year: 2013-14 P.L. Goenka HUF 8 notice u/s 148 of the Act is held to be bad in law and thus, the consequent proceedings are hereby quashed.
In the result, appeal of the assessee is allowed.