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TMI Blog2014 (7) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... se untruthfulness of facts revealed. The Assessing Officer required jurisdiction to reopen u/s 147 r.w. section 148 of the Act, where the information must be specific and reliable – Relying upon Phool Chand Bajrang Lal And Another Versus Income-Tax Officer And Another [1993 (7) TMI 1 - SUPREME Court] - since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but is open to an assessee to establish that there exists no belief or that the belief is not at all a bona fide one or based on vague, irrelevant and non-specific information - To that limited extent, the Court may look at the view taken by the Income-tax Officer and can examine whether any material is available on record from which the requisite belief could be formed by the AO and whether that material has any rational connection or a live link with the formation of the requisite belief - It is also immaterial that at the time of making original assessment, the AO could have found by further inquiry or investigation as to whether the transactions were genuine or not - If on the basis of subsequent valid information, the AO forms a reason to believe o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax [2014 (3) TMI 154 - DELHI HIGH COURT] followed - assumption of jurisdiction on the part of the AO is based on fresh information, specific and reliable and otherwise sustainable under the law, challenge to reassessment proceedings warrant no interference – Decided against Assessee. - Special Civil Application No. 4299 of 2014 - - - Dated:- 6-5-2014 - Mr. Akil Kureshi And Ms. Sonia Gokani,JJ. For the Petitioner : Mr. Manish J. Shah For the Respondent : Mrs. Mauna M. Bhatt JUDGMENT 1. The present petition has been preferred under Article 226 of the Constitution of India challenging the notice of reopening issued under section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') in connection with the assessment year 2006-07 in the following factual background : 1.1 The petitioner for the said assessment year submitted a return of income reflecting his total income at ₹ 64,65,144/-. A notice under 143(2) of the Act followed by a notice under section 142(1) of the Act were issued on June 21, 2007 and September 19, 2008 respectively. In the said notices, details of unsecured loans received by the petitioner were required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of Loans and Advances from Basant Marketing Pvt. Ltd. Kolkata. The assessee has taken accommodation entry of ₹ 8,71,00,000/-, in the form of Loans and advances from Basant Marketing Pvt. Ltd. Kolkata. Therefore I have reason to believe that an amount of ₹ 8,71,00,000/- has escaped the assessment within the meaning of section 147 of the IT Act. 1.5 Yet another correspondence dated March 05, 2014 for the post notice period deserves reproduction at this stage, which is in the form of a show cause notice, which reads as under : During the year under consideration loans and advances of ₹ 8,71,00,000/- has been received by the assessee from M/S Basant Marketing Pvt. Ltd. As per the information received from DCIT (Central) XXVIII, Kolkata dated 12.02.2013 M/s Basant Marketing (P) Ltd has provided accommodation entries to various beneficiaries during the year and the assessee is one of them. Further it has been stated that M/s Basant Marketing (P) Ltd. is a dummy company of Arun Dalmiya on the basis of substantial material found during the search by CBI, Mumbai. Therefore you are required to show cause as to why the amount of ₹ 8,71,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had taken accommodation entries of ₹ 8.71 crore in the form of loans and advances from Basant Marketing Pvt. Ltd., which was a dummy company engaged in money laundering business and, therefore, the Assessing Officer held that the income of the assessee chargeable to tax had escaped the assessment. 2.3 It is the say of the respondent that the Assessing Officer was in receipt of the information contained in the report of the DCIT, Kolkata dated March 04, 2014, which was in the nature of the tangible material and on the basis of such information, after due application of mind, the Assessing Officer recorded reasons for reopening the assessment. It is alleged that there is an omission or failure on the part of the assessee to disclose fully and truly all material facts, which were necessary for the assessment. On definite and reliable information, the Assessing Officer has formed an opinion and reasonable belief. However, no response was made to the subsequent show cause notice dated March 05, 2014. Accordingly, it is urged that the petition may not be entertained. 3. The learned counsel Shri J.P. Shah appearing with the learned counsel Mr.M.J. Shah for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to believe that the income chargeable to tax has escaped the assessment, the Court need not interfere. Reliance is placed on the following decisions : (1) Dishman Pharmaceuticals and Chemicals Ltd. v. Dy. CIT [2012] 346 ITR 228 (Guj.). (2) Phul Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC). 5. We have, thus, heard both the sides and also undertaken the exercise of closely examining the material on record. At this stage, it is needed to be noted that we deemed it necessary to call for the original file with regard to the satisfaction of the Assessing Officer in forming the belief that the income chargeable to tax escaped the assessment, reference to which shall be made at an appropriate stage in this judgment. 6. This being a challenge to the reopening notice issued under section 148 of the Act, having been issued on completion of period of four years from the end of relevant assessment year, the law on the subject requires reproduction at this stage. 7. Section 147(1) of the Act reads as under : Income Escaping Assessment. 147(a) If the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment beyond the period of four years in the case of an assessee firm which had parted such an amount from Kolkata based company. The assessee also had filed confirmatory letters from the said company in support of its loan transactions. Interest paid to the Kolkata company by the assessee was permitted by the Assessing Officer for nearly five years. However, on the basis of some communication received from the Income-tax Officer based on Kolkata, the genuineness of the loan transactions had been questioned. The Managing Director of the Kolkata company admitted that the company was a mere name lender and no amount had been advanced during last three assessment years. Such transactions being bogus on the basis of these information, reassessment proceedings were initiated. When such notice was challenged before the Apex Court, it held that this was not a case of the Income-tax Officer drawing any fresh inference which she could have framed at the time of original assessment on the basis of the material placed before her by the assessee relating to the loan by the Kolkata company. It was the case of acquiring fresh information specific in nature and reliable, relating to the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, it was further held that there is no set format in which such reasons must be recorded. It is not the language but the contents that assume importance. It also further states that such reasons must emerge from the reasons recorded and cannot be supplied through an affidavit filed before the Court. 10. What amounts to subjective satisfaction on the part of the Assessing Officer when he holds the reason to believe, has been discussed at length in various judicial pronouncements. 10.1 In the case of Central Provinces Manganese Ore Co. Ltd. v. ITO reported in 191 ITR 662, the assessee was a non-resident company, whose head office was in London and one office was in India. The proceedings of reassessment under section 148 had been initiated. The customs authority came to know that the assessee had declared very low prices in respect of all the consignments of manganese ore exported by it. On due investigation, it found that the assessee systematically under-invoiced the same. In the challenge to reopening assessment, the Supreme Court sustained such notice on the ground that the appellant had not produced their books of accounts kept at London or the original contracts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some prima facie grounds for believing that there had been some non-disclosure of material facts. Whether these grounds are adequate or not, for arriving at the conclusion that there was non-disclosure of material facts, would not be open for the court's investigation. (Calcutta Discount Co. Ltd.1). At the stage of examining the validity of the notice under Section 148/147, the enquiry is only to see whether there are reasonable grounds for the ITO to believe, and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind. (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). 10.5 Delhi High Court in the case of Acorus Unitech Wireless (P.) Ltd. v. Asstt. CIT reported in (2014) 43 taxmann.com 62 (Delhi), was examining the reassessment notices issued and the proceedings conducted under section 148 of the Act. The writ petitioner, a company incorporated under the Companies Act, was served with a notice of reopening. It requested for a copy of the reasons which led to the reopening. Reasons had been supplied after a gap of about nine months. It was by way of a letter that the reasons to believe that the income char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee may have also relied upon. 10.6 Delhi High Court in the case of Kamdhenu Steel and Alloys Ltd. (supra), was dealing with the case of additions made by the Assessing Officer under section 68 of the Act on account of unexplained share applicable money, where it has taken into account the decision rendered by the very Bench in the case of CIT v. Oasis Hospitalities (P) Ltd. [2011] 333 ITR 119 (Del.), wherein it is held that the initial burden of proving the genuineness is upon the assessee, however, once he proves the identity of credits/share applications by either furnishing PAN or copies of the bank accounts and shows the genuineness of the transaction by showing money in the banks, is by account payee cheques or draft, etc. then the onus to prove the same would shift to the Revenue; and then the question which assumes importance at this stage is to what the Revenue is supposed to do to dislodge the initial burden discharged by the assessee. In a matter before the Delhi High Court, registered letters written to the Company returned undelivered and the Assessing Officer believed that these companies were not existing at the given address. Thereafter, no attempt was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to disclose fully and truly all the material facts. The Assessing Officer noted that the assessee had paid interest to IDBI. The copy of the ledger account of interest paid was also with the Assessing Officer and these details of borrowings of interest were part of the assessment proceedings. The Court noticed that on verification of records, the Assessing Officer had based his reasons, which were the part of original assessment. In absence of anything to indicate that there was failure on the part of the assessee to disclose fully and truly all the material facts, such notice was quashed. 10.8 The same was the case in the case of Shardaben K. Modi (supra). There was no independent material and the statement recorded of the some of the assessee, was made the basis of reopening. The Court held that in absence of any evidentiary value of the statement recorded under section 133A of the Act, use of such statement cannot be permitted without any corroborative evidence and the only piece of document was such statement. Accordingly, the notice issued under section 148 of the Act was not permitted to be proceeded. 11. At this stage, we may record that this Court had an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the some facts and material which was available which the I.T.O. at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the true and full facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and nonspecific information. To that limited extent, the Court may look into the conclusion arrived at by the Income tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if one the basis of subsequent information, the Income tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the proceedings under Section 147 of the Income Tax Act were initiated. The Commissioner also granted sanction by saying yes . The Court held that this was not a case where the I.T.O thought that it was a case for investigation nor was there any documentary evidence to support his report. Merely because the Commissioner said 'yes' against the question as to whether such was a fit case for issuance of the notice under Section 148, he was alleged of having acted mechanically. The Court, therefore, observed and held that in order to obviate such impression and to infuse more confidence in the assessee, the Commissioner ought to have atleast briefly stated the reasons as to why the sanction was accorded for proceedings under section 147 of the Act. 11.4 In case of K.C.P Limited v. Income tax Officer (Supra), the assessee had sold certain machinery and had shown three fourths of sale price as profits. The assessment was accordingly finalized. Depreciation also was allowed at the time of original proceedings. However, later on, it was realized that the same was in excess due to assessee's failure to disclose availment of initial depreciation. Therefore, the reasses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come tax Officer (supra) was concerned with the reassessment proceedings where information was given by the Director of Income tax (Investigation) that the amount received by assessee from other company was nothing but accommodation entry and assessee was beneficiary. In absence of any application of mind on the part of the Assessing Officer for his having formed a belief that the income chargeable to tax has escaped assessment which is a mandatory requirement, the Court held that the jurisdiction assumed by the Assessing Officer for the purpose of reassessment proceeding was invalid. The Court also held that, ..The 'reasons to believe' would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and does 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. 12.7 Delhi High Court in case of Central India Electric Supply Company Limited v. Income tax Officer, Company Circle X, New Delhi (Supra) was dealing with a case of reopening. Such reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the investment made in three companies and the assessment was completed under Section 143 (3) on 1st July 2008, after scrutiny. In the reasons recorded for reopening assessment under Section 147, the Assessing Officer has noted the fact that the return of the assessee for the A.Y 2006-07 was filed on 6th December 2006 where he declared his come at ₹ 1,46,710/=, such return was processed under Section 143 (1) and her case was selected for scrutiny through CASS and accordingly, the assessment order was passed on 1st July 2008 assessing her income at ₹ 1,51,890/=. From the sources of investment, the Assessing Officer is of the belief that the companies who funded the investment were found to be bogus. The investments were not found to be recorded in the books of account of the assessee as they were squared off during the financial year itself and the explanation offered by the assessee was not found to be satisfactory, in as much as, the statement recorded under Section 131 (1)(a) of Shri Ashwin C. Jain husband of the petitioner on 8th February 2013 wherein he admitted that such name sake transactions had been undertaken by him were in the name of his family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as the companies are found to be bogus and in the books of account of the assessee, such investments were not found and were squared off during the financial year itself. 17.7 To such last portion of reasons recored ie., absence of reflection of such investment in the books of account and the same having been squared off during the finance year itself has been rigorously challenged by the petitioner. It as contended that this is completely bereft of facts, and therefore assumption of jurisdiction should be held invalid. 17.8 In our mind, even if the assessee is in a position to point out that such investments were part of his books of account and were not squared off in the years itself, the far more vital in the reasons recorded is the aspect of the companies from whose fund investments were made in the Assessing Officer's belief are bogus, such details had been culled out from the statement recored by none other than husband of the petitioner who also had stated that he had carried out the transactions in the name of his family members. It is not being disputed by the petitioner that her husband Mr.Ashwin Jain who gave his statement was not truthful in so contending. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the Assessing Officer had all the powers to further probe into the controversies of the transactions as reflected in the return at the time of original assessment proceedings also need not be gone into at this stage. As again held by the Court in case of Phool Chand Bajrang Lal [Supra], ..one has to look to the purpose and intent of the provisions. One of the purposes of Section 147 apperas to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would, be travesty of justice to allow the assessee that latitude. 19.1 In the instant case also, we noticed that the Assessing Officer on the basis of material provided by the investigating wing; particularly the statement recorded under section 131 (1)(a) notices the falsehood in the disclosure made by the assessee at the time of original assessment. Assuming that the dealing of the petitioner was only with one company and not all of the three companies. In wake of the information received by the Assessing Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the shares . The assessee had stated during the assessment proceedings that the sale of shares during the relevant assessment years was a casual transaction in the nature of mere change of investment. The Income tax Officer found later that those sales were really in the nature of trading transactions. The case of the Revenue was that the assessee ought to have stated that they were trading transactions and that his assertion that they were casual transactions, in the nature of change of investment, amounted to omission or failure to disclose fully and truly all material facts necessary for his assessment for that year within the meaning of section 34. This contention of the Revenue was rejected holding that the true nature of the transaction, being a matter capable of different opinions, is not a material or primary fact but a matter of inference and hence, it cannot be said that there was an omission or failure of the nature contemplated by section 34 on the part of the assessee. Now, what needs to be emphasized is that the obligation on the assessee to disclose the material facts - or what are called, primary facts - is not a mere disclosure but a disclosure which is full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to believe that on account of the failure - indeed not a mere failure but a positive design to mislead - of the assessee to disclose all material facts, fully and truly, necessary for the assessment for that year, income had escaped assessment ? We are of the firm opinion that it does. It is necessary to reiterate that we are now at the stage of the validity of the notice under section 148/147. The enquiry at this stage of the only to see whether there are reasonable grounds for the Income tax Officer to believe and not whether omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind.' 12. In view of the discussion held hereinabove, adverting to the facts, in the present case, the scrutiny of return of income filed for the assessment year 2006-07 was undertaken. The notice under section 143(2) of the Act was issued. Due to change in incumbency, the Assessing Officer also issued notice under section 143(2) of the Act on September 19, 2008 along with notice under section 143(1) of the Act, calling for certain information. It was also noted during such scrutiny that the assessee was engaged in the business of trading in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank along with necessary details. 15. In the wake of these facts and material, the scrutiny assessment was finalised and that the demand was made under section 14A and 94(7) of the Act. 16. Ostensibly, thus, there was disclosure and the occasion would not arise to term this as the assessee not having disclosed fully and truly all the material facts necessary for assessment. However, in essence, if the unsecured loans obtained from Basant Marketing Pvt. Ltd. from the material supplied by them, the DCIT, Kolkata reveals that the same was as a result of accommodation entry in the form of loans and advances from Basant Marketing Pvt. Ltd. to the tune of ₹ 8.71 crore, the case of the assessee would surely be covered under the said provision of law as it would not amount to full and true disclosure on the part of the assessee. At this stage, the reasons recorded shall have to be regarded, which have been based on the information contained in the report of the DCIT, Kolkata, dated March 24, 2013, wherein it had been noticed that the assessee company obtained accommodation entry in the form of loans and advances from Basant Marketing Pvt. Ltd. and, therefore, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficiency of reasons recorded by the Assessing Officer need not be gone into by this Court. Of course, the Assessing Officer when forms his belief on the basis of subsequent new and specific information that the income chargeable to tax has escaped assessment on account of omission on the part of the assessee to make full and true disclosure of primary facts, he may start reassessment proceedings as fresh facts revealed the non-disclosure full and true. Such facts were not previously disclosed or it can be said that if previously disclosed, they expose untruthfulness of facts revealed. 20. The Assessing Officer required jurisdiction to reopen under section 147 read with section 148 of the Act, where the information must be specific and reliable. As held by the Apex Court in the case of Phul Chand Bajrang (supra), since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but is open to an assessee to establish that there exists no belief or that the belief is not at all a bona fide one or based on vague, irrelevant and non-specific information. To that limited extent, the Court may look at the view taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director, CBI, Mumbai, intimated to the DIT (Investigation), Mumbai. A case is registered against Mr.Arun Dalmia, Harsh Dalmia and during the search at their residence and office premises, the substantial material indicated that 20 dummy companies of Mr.Arun Dalmia were engaged in money laundering and the income-tax evasion. The said entities included Basant Marketing Pvt. Ltd. also. From the analysis of details furnished and the beneficiaries reflected, which are spread across the country, the CIT, Koklata, suspected the accommodation entry related to the assessment year 2006-07 as well, this information has been provided to Director General of Income-tax, Kolkata, who in turn, communicated to the Chief Commissioner of Income-tax, Ahmedabad. Further revelation of investigation as could be noticed from the record examined (file) deserves no reflection in this petition. Insistence on the part of the petitioner t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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