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TMI Blog2010 (4) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the assessee in the cross-objections. 3. At this stage, it is pertinent to note that the addition of Rs. 10,52,62,889 on account of accommodation entries along with Rs. 10,52,629 being alleged commission paid for availing accommodation entries made by the Assessing Officer has been deleted by the CIT(A), which action of the CIT(A) has been disputed by the revenue in the appeal filed by it. 4. Grounds raised in the cross-objections are as under:-- "1. That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in upholding the validity of initiation of the reassessment proceedings which had been disputed before him as raised in ground No. 2. He has further incorrectly held that he is not adjudicating the ground raised when he impliedly adjudicated the ground so raised when he proceeded to determine the merit of the additions made. 2. That the learned Commissioner of Income-tax (Appeals) ought to have specifically held that the proceedings initiated were without jurisdiction and there was no material to conclude that there was any escapement of income and that there was any failure on part of the assessee to disclose all the material facts needed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done by 'layering' the cheques i.e., cheques were routed through many paper/dummy companies of Shri Ruia before reaching its destination - the beneficiaries. This is done by way of simultaneous clearance cheques drawn by one company favouring other through a series of credit/debit entries to hoodwink the department. All the cheques are immediately cleared under high value cheque clearance scheme. None of these companies have any business activities and activities only on paper are carried out by them. One illustration will further clarify this dubious mechanism of raising bogus capital moving cheques through the investment companies. 7.1 (iii) To understand the principle of laundering, suppose Mr. Ruia has floated 4 companies named A, B, C & D. Now he receives Rs. 25 lakhs from some beneficiary. This amount will be deposited in some Kuccha Bank A/c and a cheque from the same account in the form of purchase consideration, share investment, loan etc. will be issued to A. Again A will draw a cheque of Rs. 25 lakhs favouring company B. B will draw a cheque of similar amount favouring C. C will issue a cheque for exactly the same amount in favour of D and finally D will draw a cheque t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vivek M/s. Lakshya Exims Pvt. Ltd. 10,00,000 5-16-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 5,00,000 5-28-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 40,00,000 5-28-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 10,00,000 5-29-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 50,00,000 6-3-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 50,00,000 6-3-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 6-6-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 50,00,000 6-7-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 6-7-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 15,00,000 Date MM/DD/YY From To Amount 6-7-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 60,00,000 6-12-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 35,00,000 6-20-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 20,00,000 6-21-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 10,00,000 6-24-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 6-25-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 7-1-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 20,00,000 7-2-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 20,00,000 7-12-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 7-15-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 20,00,000 7-19- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited in assessment year 2003-04. The details of transactions are given in this letter and are reproduced as under:-- ****** (Entries as mentioned by DCIT, CC-VI, Kolkata) (already produced in para 5 of this order) In view of the above facts, I have reason to believe that the income of the assessee company which has been shown as bogus loans/share capital has escaped assessment to the above extent. Accordingly, proceedings are initiated under section 147 of Income-tax Act, 1961. Notice is issued under section 148 of Income-tax Act, 1961. Sd./- (Vinod Johri) Asstt. Commissioner of I. Tax, Circle 4(1), New Delhi." 7. Thereafter, the Assessing Officer issued notice under section 148 dated 30-6-2006, in response to which the assessee vide letter dated 17-7-2006 sought adjournment and ultimately on 8-8-2006, the assessee's AR appeared before the Assessing Officer and sought copy of reasons recorded by the Assessing Officer for reopening the case under section 147 of the Act. The reasons were then supplied to the assessee on the same day, i.e., 8-8-2006. Thereafter, the assessee vide letter dated 19-7-2006 filed its objections against the reopening the assessment. The assessee th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brics by the company, and after considering the assessee's submissions and Assessing Officer's order and the relevant facts, came to a conclusion that no addition of Rs. 10,52,62,889 and Rs. 10,52,629 as made by the Assessing Officer is not at all called for, and, therefore, the CIT(A) deleted the addition. The CIT(A) further mentioned that in the light of his finding on the basis of which the addition made by the Assessing Officer was deleted by him, he did not deem it necessary or expedient to consider and decide the grounds raised by the assessee regarding assumptions of jurisdiction under section 147 of the Act. 13. From the order of the ld. CIT(A), it is clear that the addition made by the Assessing Officer in the reassessment, has been deleted by the CIT(A) on its merit, and since the addition was deleted, he did not find it necessary or expedient to consider and decide the ground taken by the assessee regarding assumptions of jurisdiction under section 147 of the Act. However, in this appeal, the assessee has raised this ground for our consideration. All the facts relating to the ground regarding assumptions of jurisdiction under section 147 of the Act by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that on the basis of the information received from Investigation Wing, the Assessing Officer had sufficient reason to entertain a belief that income of the assessee had escaped assessment within the meaning of section 147 of the Act. He further submitted that at the time when notice under section 148 was issued, the Assessing Officer is required to entertain a prima facie belief based on some material that income had escaped assessment, and the sufficiency and correctness of the material is not a thing to be considered at that stage. He, therefore, submitted that in the light of the reasons recorded by the Assessing Officer for issuing the notice under section 148 of the Act, it is clear that the necessary condition for initiating proceedings under section 147 of the Act has been satisfied inasmuch as the Assessing Officer had relevant material available with him to entertain a reasonable belief that income had escaped assessment. The ld. DR placed reliance upon the following decisions:-- (i) Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) (ii) Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC) (iii) CIT v. Highgain Finvest (P.) Ltd. [2008] 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt cannot go into the sufficiency or adequacy of the material and substitutes its own opinion for that of the Assessing Officer on the point as to whether action should be initiated for reopening the assessment. At the same time, it is to be borne in mind that it is not any and every material, howsoever, vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. Action under section 147 of the Act cannot, therefore, be taken for reopening the assessment if the information is wholly vague, indefinite, far-fetched or remote. The reason for formation of the belief must be held in good faith and should not be mere pretence. The existent of the belief can be challenged by the assessee, but not the sufficiency of the reasons for the belief. Thus, the expression "reason to believe" does not mean purely subjective satisfaction on the part of the Assessing Officer. It is open to Court to examine whether the reasons for the formation of the belief have a rational connection with or relevant bearing on the formation of the belief and are not extraneous or irrelevant for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only issue whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the material would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC)." 21. In the case of Atul Jain/Smt. Vinita Jain (supra), the Hon'ble Delhi High Court has reiterated that there must be "reason to believe" warranting the issuance of a notice of reassessment by the Assessing Officer. If there are no reasons, then the entire foundation for initiating proceedings is bad and the notice initiating proceedings must be quashed. Mere satisfaction of the Assessing Officer for issuance of a notice is not enough, there must be reasons on record which led him to believe that a notice should be issued. After a foundation based on information is set-up, there must still be some reasons, which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but it is mandatory. The failure to fulfil that condition would vitiate the entire proceedings. (ii)The reasons for the formation of the required belief must have rational connection with or relevant bearing on the formation of belief. The rational connection postulates that there must be direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of the belief that there has been escapement of income of the assessee from the assessment in the particular year. (iii)It is not any and every material, howsoever, vague and indefinite or distant, remote or far-fetched, which would warrant the formation of the belief relating to the escapement of income of the assessment. (iv)If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one can properly instructed on facts and law could reasonably entertain a belief, the conclusion would be inescapable that the Assessing Officer could not have reason to believe. In such a case, the notice issued by him would be liable to be struck down as invalid. 25. In other words, it is well-settled that "reason to believe" under section 147 must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer for entertaining a belief that income had escaped assessment within the meaning of section 147 of the Act. The reasons so recorded by the Assessing Officer has already been reproduced in para 5 above of this order. On perusal of the reasons recorded by the Assessing Officer, it is clear that the Assessing Officer proceeded to initiate proceedings under section 147 of the Act, on the following assumptions:-- (i)That during the course of investigation and the search and seizure operation against Shri P.K. Ruia and his group companies, it was gathered that a large number of companies were floated and bogus entries were given to number of beneficiaries by charging commission and, in turn, beneficiaries paid cash to obtain, the bogus entries of loans. (ii)One of such beneficiaries, is the present assessee company and in view of the transactions between the assessee company and M/s. Vivek Leafin Pvt. Ltd., the assessee company has been showing bogus loans/share capital, which resulted in the escapement of the assessee's income from assessment to that extent. 29. It is, thus, clear that the Assessing Officer has initiated proceedings under section 147 of the Act, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entertained by the Assessing Officer that the assessee had raised bogus and credits during the year under consideration, which resulted into escapement of income. We find that the Assessing Officer has entertained a belief merely on the basis of unfounded and non-existent information supplied by DCIT, CC-6, Kolkata, that the assessee had raised bogus loans/share capital from group of companies controlled by Shri Ruia without making any effort to satisfy himself as to whether the information received from the office of the DCIT, CC - 6, Kolkata, that the assessee had raised loans/share capital is based on some relevant material or not. We find that the proceedings under section 147 of the Act have been initiated by the Assessing Officer in a mechanical manner and on vague grounds and without application of mind. We, therefore, hold that the initiation of proceedings made by the Assessing Officer under section 147 of the Act are purely based on mere suspicion and non-existent ground or fact, having no nexus or live link between the nature of the transaction between the assessee and M/s. Vivek Leafin Pvt. Ltd. and the formation of belief by the Assessing Officer. 30. There is no quar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Ispaat Ltd. was loss making company and on the other hand, it was also established that payment was received by M/s. Rathi Ispaat Ltd. for services rendered by it to the assessee, which was shown as income in its return and duly taxed by Income-tax Department. In that case, the Assessing Officer proceeded to initiate proceedings under section 147 of the Act on the assumption that the assessee has diverted her income amounting to Rs. 6.30 crores by way of showing the bogus payment to M/s. Rathi Ispaat Ltd., which was a loss making company, but that assumption of the Assessing Officer was found to be non-existent and factually incorrect. Similarly, in the case before us, the very basis for initiating proceedings under section 147 against the present assessee that the assessee raised bogus loans/share capital from group companies controlled by Shri Pawan Kumar Ruia, is factually incorrect and based on wrong premises and non-existent material. Therefore, aforesaid decision of Hon'ble Delhi High Court is squarely applies to the present case. Similarly, the decision of Hon'ble Delhi High Court in the case of Atul Jain/ Smt. Vinita Jain (supra), also supports the assessee's case, as in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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