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TMI Blog2011 (11) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee vide letter dated 23.04.2007 submitted that the return originally filed on 31.10.2003 may be treated as returned filed in response to notice under sec. 148 of the Act. In the assessment order, it has been stated by the AO that information was received from the Investigation Wing, New Delhi that the assessee was involved in giving and taking accommodation entries, which represent the unaccounted money of the assessee. In the course of reassessment proceeding, the AO vide letter dated 18.06.2007 asked the assessee to prove the genuineness of certain transactions, which were listed in the body of the assessment order. In reply thereto, the assessee submitted that the amounts mentioned in the show cause notice were received by the assessee on account of share application money, in support of which, the assessee filed copy of bank statement, balance-sheet, copy of acknowledgement of filing the return of income etc. However, the AO was not satisfied with the assessee's explanation and treated the amount of Rs. 10,50,000/- received by the assessee as undisclosed income of the assessee. 4. Being aggrieved, the assessee preferred an appeal before the learned CIT(A). 5. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that proceedings were validly initiated by the AO under sec. 147 of the Act. 9. We have heard both the parties and perused the material on record. 10. In initiating proceedings u/s 147 of the Act, the reasons recorded by the AO are placed at Page 60 of the Paper Book, which are as under:- "It has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.6.2006 that the above named company was involved in giving and taking bogus entries/transactions during the F.Y. 2002-03. From the information gathered by the DIT (Inv.)-I, New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company. The assessee company has failed to disclose fully and truly all the material facts and source of these funds routed through bank accounts of the assessee company. I therefore have reasons to believe that the income has escaped assessment within the meaning of section 147 of the I.T. Act, 1961 for the asstt. Year referred above. Hence notice u/s 148 is issued. Sd/- DCIT, Cir.11(1), N. Delhi." The aforesaid reasons were provided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiency or adequacy of the material and substitutes its own opinion for that of the AO 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 u/s. 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 AO. 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 the purpose of the section. To this limited extent, the action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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)". 16. In the case of CIT v. Atul Jain, Smt. Vinita Jain [2008] 299 ITR 383 (Delhi), 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 AO. 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 AO 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 warrant the holding of a belief so as to necessitate the issuance of a notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be recorded in writing by the Assessing Officer. Sufficiency of reasons is not a matter, which is to be decided by the writ court but existence of belief is the subject matter of the scrutiny. A notice under Section 148 can be quashed if the "belief" is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reason. There should be a link between the reasons and the evidence/material available with the Assessing Officer. However, as we are dealing with initiation of proceedings, it is not necessary that the material should conclusively prove the escapement. The "reasons to believe" would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and do not mean that the Assessing Officer should have finally ascertained the said fact by legal evidence or reached a conclusion, as this is determined and decided in the assessment order, which is the final stage before the Assessing Officer. 5. Before dealing with the facts of the case, we may notice some judgments of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was the immediate provocation for the reopening of the assessment. In this case also, as in the case before the Supreme Court, there is no live connection or link established between the information or the facts, in the possession of the ITO, and the genuineness of the particular loans recorded in the assessee's books. The mere fact that the names of the some of the creditors figured in a list made out by the department would be too general and vague to lead to an inference regarding the truth or otherwise of the loans recorded by the assessee. We are wholly unable to find any material point of distinction between the facts of the present case and those considered by the Supreme Court in the case of Lakhmani Mewal Das [1976] 103 ITR 437.' 6. The view taken by the Supreme Court in Lakhmani Mewal Das (supra) was followed in Ganga Saran and Sons Private Limited versus Income-Tax Officer-1, [1981] 130 ITR 1 (SC). The mater was again examined by the Supreme Court in Phool Chand Bajrang Lal and Another versus Income-Tax Officer and Another, [1993] (203) ITR 456 (SC). In the said case, information was received by the Assessing Officer that the third company had never actually advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... underlies section 147 is the formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. The Assessing Officer must have reason to believe that such is the case before he proceeds to issue a notice under section 147. 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sec. 147, that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer. The imposition of that requirement ensures against an arbitrary exercise of powers under sec. 148 of the Act. 22. Now, the factual matrix of the present case has to be considered on the anvil of proposition of law enumerated above. 23. In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. Therefore, the details of entries or amount mentioned in the assessment order and in respect of which ultimate addition has been made by the AO, cannot be made a basis to say that the reasons recorded by the AO were with reference to those amounts mentioned in the assessment order. The reasons recorded by the AO are totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. In this respect, we may rely upon the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT v. Atul Jain [2008] 299 ITR 383, in which case the information relied upon by the AO for i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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