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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT (Appeals)-I, Raipur, dated 26.05.2016, which in turn arises from the order passed by the A.O under Sec. 143(3)/147 of the Income-tax Act, 1961 ( in short ‘the Act’) dated 27.03.2015 for assessment year 2009-10. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. That the Assessing Officer erred in invoking section 148 in the present case, without appreciating the facts and hence, the order passed by the Ld. Assessing Officer and confirmed by the ld. Commissioner of Income tax (Appeals)-1, Raipur is bad in law and therefore, the addition of Rs.9,53,492/- be deleted. 2. That in alternate, the ld. AO erred in making the addition of Rs.9,53,492 /- without having any material as regards bogus purchases. 3. That the appellant reserves the right to add, alter or amend any ground of appeal.”
Succinctly stated, on the basis of information received by the Assessing Officer from CIB that the assessee as a beneficiary had obtained accommodation bills for bogus purchases aggregating to Rs.9,53,492/-, the case of the assessee was reopened u/s 147 of the Act.
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During the course of assessment proceedings, the Assessing Officer backed by the aforesaid information that the assessee had booked bogus purchases of Rs.9,53,492/-, thus, brought the said amount to tax by dubbing the same as an unexplained investment. Accordingly, the Assessing Officer vide his order passed u/s 143(3) of the Act, dated 27.03.2015 determined the income of the assessee at Rs.12,42,930/-.
Aggrieved, the assessee carried the matter before the CIT(Appeals). However, the CIT(Appeals) not finding any infirmity in the view taken by the Assessing Officer upheld the addition made by him and dismissed the appeal.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter before us.
At the time of hearing of appeal, the Ld. Authorized Representative (in short ‘AR’) of the assessee took us through the facts of the case. Our attention was drawn by the Ld. AR to the copy of the ‘reasons to believe’ on the basis of which the case of the assessee was reopened u/s.147 of the Act, placed at Page 1 of the assessee’s per book (“APB”, for short). Adverting to the facts leading to the impugned addition, it was submitted by the Ld. AR that backed by the impugned information that the assessee in order to suppress its taxable income had booked bogus purchases of
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Rs.9,53,492/-, the Assessing Officer had vide a notice u/s.142(1) of the Act, dated 17.03.2015 called upon the assessee to furnish certain information viz. (i) produce purchase register for verification a/w. purchase list containing names and addresses of the respective parties ; (ii) produce the books of account i.e. cash book, ledger, journal, purchase/sale register, vouchers, bank statements; and (iii) furnish statement of income including profit & loss account, balance sheet a/w vouchers etc. It was submitted by the Ld. AR that in compliance to the aforesaid direction the assessee had vide his letter dated 26.03.2015 furnished the required information as was called, Page 5 to 6 of the APB. It was submitted by the Ld. AR that as the Assessing Officer had not furnished the details of the purchases of Rs.9,53,492/- which were allegedly claimed by him to be bogus, therefore, the assessee had vide its letter dated 26.03.2015 (supra) specifically requested him to furnish the said details. It was submitted by the Ld. AR that despite the assessee’s specific request for furnishing of the details as regards the purchases which were allegedly held to be bogus, the Assessing Officer had failed to furnish the requisite information. It was submitted by the Ld. AR that not only the Assessing Officer had proceeded with the assessment without making available the requisite details/information as regards the purchases which were alleged to be bogus, but even while framing the assessment he had not identified any such purchases which were held by him to be bogus. In the backdrop of
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his aforesaid contentions, it was submitted by the Ld. AR that the impugned addition of Rs.9,53,492/- (supra) having been made by the Assessing Officer on account of alleged bogus purchases in the thin air could not be sustained and was liable to be vacated. Alternatively, it was submitted by the Ld. AR that though the case of the assessee was reopened for the reason that he had allegedly made bogus purchases to suppress his profits, however, the addition was thereafter made in his hands on the ground that he had made unexplained investment as regards the purchases in question. It was submitted by the Ld. AR that the addition made by the Assessing Officer had no rationale nexus with the very basis on which the case of the assessee was reopened u/s.147 of the Act. It was further submitted by the ld. A.R that a perusal of the ‘reasons to believe’ on the basis of which the case of the assessee was reopened revealed beyond doubt that the A.O had merely acted upon the information shared with him by CIB and had failed to apply his mind to the material before him. Backed by his aforesaid contention, it was submitted by the ld. A.R that as the case of the assessee had been reopened by the A.O on the basis of a borrowed satisfaction, therefore, the assessment framed by him u/ss. 147/43(3) could not be sustained and was liable to be quashed.
Per contra, the Ld. Departmental Representative (in short ‘DR’) relied on the orders of the lower authorities. It was submitted by him that as the
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assessee had booked bogus purchases, therefore, the lower authorities had rightly made/sustained the addition of Rs.9,53,492/- pertaining to the same. Rebutting the challenge thrown by the assessee’s counsel to the validity of the jurisdiction assumed by the A.O u/s 147 of the Act, it was submitted by the ld. D.R that as the case of the assessee was reopened by the A.O after due application of mind to the material/information available before him, therefore, he had validly assumed jurisdiction u/s 147 of the Act.
We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements pressed into service by the ld. A.R. As the ld. A.R had assailed the validity of the jurisdiction assumed by the Assessing Officer for re-opening of the assessee’s assessment u/s.147 of the Act, therefore, we would first deal with the sustainability of the same. On a perusal of the ‘reasons to believe’ on the basis of which the case of the assessee was reopened by the Assessing Officer, we find that the same reads as under: “The assessee has filed return of income on 22-09-2009 showing total income at Rs.2,89,440/- after availing deduction under Chapter VIA of the Income Tax Act, 1961 at Rs.1,00,000/-. Subsequently, a piece of information has been received in this office from CIB which shows that the assessee during the year consideration has made bogus purchase to the tune of Rs.9,53,492/- thereby inflating the expenditure in order to reduce the total taxable income. Thus, I have reason to believe that Income Rs.9,53,492/- has escaped assessment within the meaning of
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section 147 of the I.T Act, 1961 during the F.Y.2008-09 relevant to AY 2009-10. Yours faithfully Sd/- (K.K. Purohit) Income Tax Officer, Ward-1(4) Raipur (C.G.)” 9. On a perusal of the aforesaid ‘reasons to believe’, we find that the case of the assessee was reopened by the Assessing Officer u/s.147 of the Act on the basis of the information received by him from CIB that the assessee had during the year under consideration booked bogus purchases to the tune of Rs.9,53,492/- and thus, inflated his expenditure with a purpose of suppressing his taxable income. In our considered view, though there was material/information with the Assessing Officer on the basis of which he could have arrived at a bonafide belief that the income of the assessee chargeable to tax has escaped assessment, however, we find that he had failed to apply his mind to the material/information before him and had reopened the case of the assessee by merely referring to the information that was received by him from CIB. As per the settled position of law, the reopening of a concluded assessment presupposes application of mind by the Assessing Officer to the material/information before him, on the basis of which he arrives at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. However, in the case before us, the Assessing Officer had merely acted in a mechanical manner on the information that was received by him from the CIB, and without
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applying his mind to the said information/material had reopened the case of the assessee u/s.147 of the Act. In our considered view, the Assessing Officer by reopening the case of the assessee on the basis of a borrowed satisfaction, had thus, wrongly assumed jurisdiction u/s.147 of the Act, which, thus, on the said count itself on the said count itself cannot be upheld and is liable to be quashed. Our aforesaid conviction is supported by the judgment of the Hon’ble Supreme Court in the case of Anirudh Sinhji Karan Sinhji Jadeja Vs. State of Gujarat (1995) 5 SCC 302. In its aforesaid order, it was observed by the Hon’ble Apex Court that if a statutory authority has been vested with a jurisdiction, then, he has to exercise it according to its own discretion. It was observed that if the discretion is exercised under the direction or in compliance with some other authorities instruction, then it will be a case of failure to exercise discretion altogether. In our considered view, the cases reopened on the basis of information received from the other departments are also governed by the aforesaid principle of making an independent inquiry and recording of satisfaction by the Assessing Officer issuing notice under Section 148 of the Act. Our aforesaid view is further supported by the order of a coordinate bench of the ITAT, “C” Bench, Mumbai in the case of Chetan Rajnikant Shah Vs. ITO, 24(1)(4), Mumbai, ITA No. 1948/Mum/2018, dated 22.02.2021. In its aforesaid order the Tribunal had after exhaustive deliberations observed as under :
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“On a perusal of the aforesaid reasons to believe we find that though the A.O had referred to the material/information on the basis of which the case of the assessee was sought to be reopened under Sec. 147 of the Act i.e the information received from the DGIT(Inv.), Mumbai, but then there is nothing discernible therefrom on the basis of which it could be gathered that there was any independent formation of a bonafide belief by the A.O that the income of the assessee chargeable to tax had escaped assessment. All that can be gathered from the aforesaid ‘reasons to believe’ is that the A.O by merely referring to the information received from the DGIT(Inv.), Mumbai, wherein it was conveyed that the assessee was a beneficiary of the accommodation entries given by two concerns, had observed, that he had a reason to believe that the income of the assessee in respect of such accomodation entries had escaped assessment. Although, the A.O had at the outset of his reasons observed that information was received from the DGIT(Inv.), Mumbai in respect of accommodation entries in the nature of sales, unsecured loans and share application money issued by the group companies controlled and managed by Shri Praveen Kumar Jain, however, he had not even done the bare minimum by pointing out the nature of the impugned accommodation entries that were allegedly stated to have been received by the assessee as a beneficiary. On a careful perusal of the ‘reasons to believe’, it can safely be gathered that the A.O had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai and had dispensed with the statutory obligation that was cast upon him as regards formation of an independent and a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. As observed by us hereinabove, the A.O by not even referring to the nature of the accommodation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, which as per the impugned information shared by the DGIT(Inv.), Mumbai were stated to have been received by the assessee as a beneficiary from Shri. Praveen Kumar Jain thus, clearly reveals that he had failed to apply his mind to the material on record to arrive a bonafide reason to believe that the income of the assessee chargeable to tax had escaped assessment. In sum and substance, a perusal of the aforesaid ‘reasons to believe’ though reveals a reference of the material/information received by the A.O from the DGIT(Inv.), Mumbai on the basis of which the case of the assessee was sought to be reopened, but at the same time it is witnessed by a non- application of mind and failure to arrive at an independent and
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bonafide belief on the part of the A.O that the income of the assessee chargeable to tax had escaped assessment. Although, we are not oblivious of the fact that an A.O at the stage of recording the reasons to believe is not required to conclusively establish that the income of the assessee chargeable to tax had escaped assessment, but then, in the case before us we find that the A.O has not even recorded a satisfaction that as per him a case has been made out for issuing a notice under Sec. 148 of the Act. In our considered view, when the basic requirement that A.O must apply his mind to the material on record in order to have reasons to believe that the income of the assessee chargeable to tax had escaped assessment is found amiss, the reopening of the assessment cannot be held to be justified. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Delhi in the case of PCIT Vs. Meenakshi Overseas Pvt. Ltd. (2017) 395 ITR 677 (Delhi). In the aforesaid case, the Hon’ble High Court observed that the A.O had proceeded to send a notice u/s 147/148 of the Act solely on the basis of information received from the DIT(Inv.). It was noticed by the High Court that after writing about the nature of the impugned accommodation entry and without mentioning the nature of transaction which was effected for alleged accommodation entry as well as dispensing with the date of recording of the reasons, the A.O, without any further verification, examination or any other exercise had jumped to the conclusion that the assessee had received accommodation entries. The Hon’ble High Court in the backdrop of the facts involved in the case before them observed that as the crucial link between the information made available by the DIT (Investigation) to the A.O and the formation of belief was absent, the reassessment proceeding initiated against the assessee was rightly quashed by the Tribunal. The High Court while concluding as hereinabove observed that while the report of the Investigation Wing might constitute the material on the basis of which the A.O forms the reasons to believe, but the process of arriving at such satisfaction/belief cannot be a mere repetition of the report of the Investigation wing. As observed by the Hon’ble High Court, the reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that the income of the assessee chargeable to tax had escaped assessment. Also, a similar view was earlier taken by the Hon’ble High Court of Delhi in the case of PCIT Vs. G & G Pharma India Ltd. (2016) 384 ITR 147 (Del). In the case before the Hon’ble High Court, it was observed that the A.O in his reasons to believe after setting out four entries which were stated to have been received by the assessee on a single date i.e 10th February, 2003
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from four entities which were termed as accommodation entries, which information was received from the Directorate of Investigation, had therein stated : “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 account by way of above accommodation entries.” In the backdrop of the aforesaid facts, it was observed by the Hon’ble High Court that it could not be gathered that as to whether the A.O had applied his mind to the material that he talks about since he did not describe what those material was. Observing, that without forming a prima facie opinion, on the basis of the aforesaid material, it was not possible for the A.O to have simply concluded that it was evident that the assessee company had introduced its own unaccounted money in its bank by way of accommodation entries. Accordingly, the High Court was of the view that as the basic requirement that the A.O must apply his mind to the material in order to have reasons to believe that the income of the assessee had escaped assessment was missing, the reopening of the assessment was not justified. Further, we find that the Hon’ble High Court of Delhi in the case of PCIT Vs. RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5 (Del), relying on its aforesaid order in the case of Meenakshi Overseas Pvt. Ltd. (supra) had observed, that as the A.O in the case before them had merely acted upon the information received from the Investigation Wing without undertaking any further enquiry on his part thus, the link between the tangible material and the formation of the reasons to believe that the income of the assessee had escaped assessment was not discernible therefrom and accordingly the reopening of the assessment u/s 147 was to be held as bad in law. Further, in the case of CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), it was inter alia observed by the Hon’ble High Court that in the case before them the A.O had received information from the Dy. Director of IT (Inv.), Gurgaon that the assessee had raised a bogus claim of having earned long-term capital gains on account of sale/purchase of shares by obtaining entries. After deliberating on the facts, it was inter alia observed by the Hon’ble High Court that a mere reference to the information received from the Dy. Director of IT (Inv.) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that the A.O had independently applied his mind to arrive at a belief that income has escaped assessment. Also in the case of CIT Vs. Kamdhenu Steel & Alloys Ltd. & Ors. (2014) 361 ITR 220 (Del), it was observed by the High Court that where the A.O had acted mechanically on the information supplied by the Directorate of IT(Inv.) about the alleged
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bogus/ accommodation entries provided by certain individuals/companies without applying his own mind, he was not justified in invoking jurisdiction under Sec. 147. 9. As observed by us at length hereinabove, the A.O in his ‘reasons to believe’ in the case of the assessee before us had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai that the assessee as a beneficiary had received accommodation entries from two concerns, and dispensing with even the bare minimum requirement of pointing out the nature of the impugned accommodation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, on the basis of vague and scanty information and without any further verification, examination or any other exercise had jumped to the conclusion that the income of the assessee in respect of the accommodation entries had escaped assessment for the year in question. Accordingly, in the backdrop of the aforesaid factual matrix it can safely be held that the A.O had blatantly failed to apply his mind to the material available on record for forming a belief that the income of the assessee had escaped assessment. We, thus, are of the considered view that as the A.O had acted mechanically on the information supplied by the Directorate of Income-tax(Inv.) that the assessee was a beneficiary of the alleged bogus/accommodation entries provided by the aforesaid entry provider, viz. Shri Praveen Kumar Jain, and had failed to apply his mind to the material available on his record, the reopening of the assessment by him u/s 147 of the Act could not be held to be justified.”
We, thus, in terms of our aforesaid observations quash the assessment framed by the A.O u/s. 147 r.w.s 143(3), dated 27.03.2015 for want of valid assumption of jurisdiction on his part. Thus, the Ground of appeal No. 1 is allowed in terms of our aforesaid observations.
Although we have quashed the assessment for want of jurisdiction on the part of the Assessing Officer, however, for the sake of completeness,
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we shall now deal with the merits of the addition made by the Assessing Officer which thereafter had been sustained by the CIT (Appeals).
As stated by the Ld. AR, and rightly so, we find that it is a matter of fact borne from the record that the Assessing Officer had neither in the ‘reasons to believe’ nor in the body of the assessment order referred to the details of the impugned purchases of Rs.9,53,492/- which were allegedly held by him to be bogus and had been booked by the assessee to suppress his income. On the contrary, we find that the assessee had not only furnished the complete details as were called for by the Assessing Officer u/s 142(1) of the Act, dated 17.03.2015; but had also vide his letter dated 26.03.2015 specifically requested the A.O for the details of the purchases which were held by him as bogus a/w details of the suppliers, bill numbers etc. However, we find that the Assessing Officer despite specific requests by the assessee had not only in the course of the assessment proceedings failed to furnish the details of the purchases of Rs.9,53,492/- that were alleged by him to be bogus, but even in the body of the assessment order there is no whisper as regards the details of any such purchases. In the backdrop of the aforesaid facts, we concur with the claim of the Ld. AR that the assessee had throughout remained divested of an opportunity to defend his case and in fact, had suffered the impugned addition of Rs.9,53,492/- (supra) without having been put to notice about
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the details of the purchases which were alleged to be bogus. Be that as it may, we are unable to persuade ourselves to subscribe to the aforesaid manner in which the impugned addition of Rs. 9,53,492/- (supra) had been made by the Assessing Officer i.e without confronting the requisite details to the assessee. Also, we find substance in the claim of the Ld. AR, that though the case of the assessee was reopened, for the reason, that he had allegedly booked bogus purchases of Rs.9,53,492/-, however, the addition was thereafter made by the Assessing Officer on the ground that the assessee had made an unexplained investment qua such purchases. In our considered view, as stated by the ld. A.R, and rightly so, the addition made by the Assessing Officer has no plausible nexus with the reasons on the basis of which the case of the assessee was reopened. On the one hand, the Assessing Officer had alleged that the assessee had booked bogus purchases to suppress his real income, however, on the contrary, he had made the addition in his hands on the ground that the purchases in question were in the nature of unexplained investment. In our considered view, as the very addition made in the hands of the assessee militates against the very reason on the basis of which the case of the assessee was reopened, therefore, the addition on the said count also is liable to be struck down. 12. We, thus, in terms of our aforesaid observation are neither inclined to subscribe to the jurisdiction assumed by the A.O for framing the
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assessment u/s 143(3) r.w.s 147 of the Act, dated 27.03.2015, not the reasoning adopted by him for making the impugned assessment. Be that as it may, the assessment framed by the A.O u/s 143(3) r.w.s 147 of the Act, dated 27.03.2015 is quashed for want of valid assumption of jurisdiction on his part.
Resultantly, the appeal of the assessee is allowed in terms of our aforesaid observations. Order pronounced on 21st day of February, 2022. Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD ACCOUNTANT MEMBER JUDICIAL MEMBER रायपुर/ RAIPUR ; �दनांक / Dated : 21st February, 2022 **SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुरब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. 6. गाड� फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
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Date 1 Draft dictated on 04.02.2022 Sr.PS/PS 2 Draft placed before author 07.02.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order