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TMI Blog2014 (12) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... ustification and that if the AO had a cause or justification to know that income had escaped assessment it could be said that the AO had reason to believe that the income had escaped assessment - the proceedings u/s 147 cannot be initiated - requirement of fresh material or facts has been interpreted by the court because Sec. 34(1)(b) states that the AO has in consequence of information in his possession ‘reason to believe’ - ‘Reason to believe’ should have arisen in consequence of the information and as the information cannot be based without material or facts, therefore, it has been interpreted by the Court that there must be fresh facts or tangible material with the AO - in Sec. 147, as was in existence prior to 1.4.1989, under sub-clause (b) similar language has been used as had been used in Sec. 34(1)(b). The reasons recorded cannot be regarded to be arbitrary, irrational - The reasons refer to the material i.e. the statement of the partner of the firm recorded u/s 132(4) during the course of the search - It clearly states that during the course of search conducted on Polar group of cases which included the Assessee, two laptop computers were found and seized from the posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on which the A.O had reopened the assessment was wholly vague, indefinite, farfetched and remote. (3) That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in annulling the assessment when the matter was setaside to the file of CIT(A) by the Hon ble ITAT to re-decide the issue regarding non issue of notice u/s 143(2) of the Act, after taking into consideration Madras High Court decision as reported in 294 ITR 233 in the case of Areva T and D India Ltd vs ACIT. 2. Since all these 12 appeals filed by the Revenue involve common facts except for the change in the figures, therefore, both the ld. DR and ld. AR agreed that all these appeals be disposed off on the basis of the facts involved in the case of Rameshwarlal Sajjan Kumar in ITA No. 579/Kol/2010 and whatever view this Tribunal takes in the case of Rameshwarlal Sajjan Kumar, the same may be followed in other cases also. 3. The brief facts of this case are that the original assessment was made u/s 143(3) determining total loss at ₹ 29,44,890/- vide order dt. 15.2.2002. Subsequently, a search and seizure operation was carried out on Polar group on 9.1.1999 and in the course of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sd/- (R.P. Nag) A.C.I.T, CC.XVI, Kolkata 3.1 Subsequently, re-assessment u/s 147/143(3) was completed on 29.12.2006 determining the taxable income at ₹ 2,85,65,940/-. The additions made include the cash loan of ₹ 2,64,53,891/- and the interest thereon amounting to ₹ 50,56,938/-. The Assessee went in appeal before the CIT(A) who vide order dt. 7.3.2007 annulled the assessment by observing as under : 11. Considering the fact and that the service of notice u/s. 143(2) is mandatory, it makes no difference, whether a revised return was filed by the assessee in response to notice u/s. 148 or request was made to treat the earlier return filed u/s. 139 as return filed in response to the notice u/s. 148 of the Act. Further, it is also of no significance that the assessing officer continued the assessment proceeding by issuing notice u/s. 142(1) and due compliance of the same was made by the assessee. Recently, this issue was considered and examined in details by Hon'ble ITAT, Ahmedabad and it was held that notice u/s. 142(1) cannot be deemed as notice u/s. 143(2) of the Act. Accordingly, it was held that non-issue of notice u/s. 143(2) will invalidate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court has observed as under :- that it was admitted that the notice under section 148 was valid. The facts showed that (i) the original return as well as the subsequent return filed in response to the notice under section 148 of the Act, were the same and there was no difference in the contents of both the returns; (ii) the assessee himself participated in all the proceedings objecting to the reassessment; (iii) the objections of the assessee were not considered by the Assessing Officer; (iv) there was a valid reopening of the assessment, but there were procedural irregularities committed by the Assessing Officer in completing the reassessment. [Matter remanded with a direction to the Assessing Officer to consider the matter afresh, particularly the objections by the assessee for the reopening and issue of notice under section 143(2)] Keeping in view the fact that the case law was not considered by the Ld. CIT(Appeals), we consider it fit to set aside the issue to the file of the Ld. CIT(Appeals) to redecide the same after taking into consideration the Madras High Court decision as reported in 294 ITR 233 (supra). The assessees are at liberty to substantiate their clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the nature of non issue of notice u/s 143(2) of the I.T. Act in respect of a completed assessment order. Therefore it is not possible for the undersigned to either remove or ask the Assessing Officer to remove the irregularity of non issue of notice u/s 143(2) of the I.T. Act in respect of an assessment order which is already completed. 4. My predecessor had passed the order on 28.02.2008 and till that date finance act 2008 was not implemented. A new section 292BB was added in the Income Tax Act vide Finance Act 2008. The section is narrated as under: 292BB. Notice deemed to be valid in certain circumstances. Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was- (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation at the time of making original assessment. This information was not utilized to make any addition to total income for the Assessment Year under appeal in the original assessment made u/s 143(3) on 15.02.2002. However Assessing Officer inferred from the same information, which was available with him even at the time of making the original assessment, that the preference shares of ₹ 54,00,000/- issued during the Assessment Year under appeal were bogus in light of the confession made by Sri Sunil Kumar Agrawal vide his statement dated 26.03.1999. 4.2 I had called for the statement of Sri Sunil Kumar Agrawal dated 26.03.1999 from the Assessing Officer during the appellate proceedings and examined the same. Appellant is already aware of this statement as apparent from his submission. This is a 10 page statement with annexure running into 46 pages. In this statement Sri Sunil Kumar Agrawal admitted that the polar Group companies had inflated the bills to suppress the income and the excess amount paid on such bills was received back in cash and the total amount of such suppressed income since 1988-89 upto 1998-99 was about ₹ 16-17 Crore. Sri Sunil Kumar Agrawal furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal or as evident from the assessment order and also on account of the fact that many of the loans and capital taken by the group concerns were genuine as per the statement of Sri Sunil Kumar Agarwal. On the basis of above mentioned statement of Sri Sunil Kurnar Agarwal and the evidence of seized printouts of laptop in possession of Assessing Officer, the Assessing Officer could have at best considered the reopening of the assessments of Assessment Years 1997-98 and/ or Assessment Year 1998-99 but in absence of any similar evidence for Assessment Year 1999-00 the drawing of similarity of any loan or capital taken during the Financial Year relevant for Assessment Year 1999- 00 is only a suspicion and not any belief. 4.3 Appellant has relied on the decision of H ble Supreme Court in case of ITO Vs Lakhmani Mewal Das. 103 ITR 437. In this decision, H ble Supreme Court has held as under: ..the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich creditor of loan or capital even in earlier Assessment Years is genuine or non genuine. Therefore it is quite apparent that the Assessing Officer has formed a reason to reopen the assessment on the information which is wholly vague, indefinite, far-fetched and remote. 4.4 The facts of the present case clearly show that an Assessing Officer who has a proper understanding of Income Tax Act cannot hold a belief that the loan or capital credited in the books of account during the year under appeal is not genuine on the basis of information about some unspecified loan or capital of preceding years. In fact the same information was available with the Assessing Officer even during the original assessment year and at that time this information was not considered to be sufficient to hold that the loan or capital credited during the year could be non genuine. The above mentioned decision of H ble Supreme Court is applicable in the present case and therefore I hold that the notice issued by Assessing Officer u/s 148 was invalid and therefore the reassessment order of the Assessing Officer is annulled.) Against the said order, the Revenue has come in appeal by taking the aforesaid g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of which two Laptop Computers were seized from the possession of Shri Sunil Agarwal, one of the main person of the Polar Group Print out of the data available in these two Laptop was generated and named as LP-1 to LP-10. These had undisclosed entries of business transaction and loan transaction of the entire Polar Group of Cos. In the statement recorded u/s. 132(4), Shri Sunil Agarwal confirmed that he had taken cash loan from the market which were not disclosed in the regular book of account and he introduce this money into the various concerns of the Polar Group of Cos as loan or share capital. Another Key person, Shri Anil Agarwal, also confessed this mal practice in his statement recorded u/s. 132(4). One Shri B .P. Agarwal, a trusted employee of the Polar Group of Cos has also confirmed this in his statement u/s. 132(4). It therefore appears that in the course of the search several vital information regarding unaccounted loan transaction of the Polar Group of Cos was discovered and these are listed as below: 1. Two Laptops seized from the possession of Shri Sunil Agarwal. 2. Statement of Shri Sunil Agarwal u/s. 132(4) 3. Evidence of unaccounted loan transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for his comments thereto and conclusions drawn accordingly. From the above discussion it is clear that orders have been passed in the case of Polar Group of Cos. Without adequate inquiries or discussion. In fact no findings has been arrived at by the Ld. AO. The Re-opening u/s. 147 which took place in March-2006, has to be understood against this background of an inadequate inquiry by the Assessing Officer. At best what was examined was the regular books of account maintained by the Polar Group of Cos. Undisclosed portion of income generated by Polar Group of Cos. which became evident from the search was never taken up nor commented upon by the Ld. AO. Therefore, initiation of proceedings u/s. 147 was both reasonable and logical in view of various material evidences which had been generated through action u/s. 132(1). (C) Re-assessment proceedings have been challenged by the Assessee. Re-assessment has been challenged by the assessee at both pre-assessment stage and post assessment stage. At the pre-assessment stage reasons for re-opening were given to the asseesee and his objections were disposed off by a specific order which was conveyed to the assessee by the AO th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in view of the provisions of Sec. 292BB of the IT Act, notice u/s. 143(2) will be deemed to have been served as this issue was never raised by the assessee in course of assessment proceedings. However, it becomes apparent that the Ld.CIT(A),Central-II., has not adhered to the specific directions given by the Ld. Hon ble ITAT C Bench Kolkata in its order dtd. 16.10.2008. The Hon ble ITAT had clearly directed that the issue of non service of notice u/s. 143(2) should be decided after taking into the consideration, the Madras High Court decision as reported in 294 ITR 233. This specific directions of the Ld.ITAT C Bench have been ignored by the CIT(A) on the pretext that it is not within his powers to issue notice u/s. 143(2) of the IT Act or to direct the Assessing Officer to issue such notice in respect of and assessment order which already stands completed. He also stated that it is not within his powers to set- aside the assessment in order to remove irregularities. These are, however, irrelevant, issues because what the Ld. CIT(A) had to decide was only the applicability of the judgment of Madras High Court in the present case. Initial injustice was done to the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is only a case of change of opinion. No. 3. From the seized material the AO had no evidence that there was any unaccounted loan pertaining to A.Y. 1999-2000. As far as the first ground is concerned, this issue has already been examined by the Assessing Officer at the pre-assessment stage in his letter dated 02.11.2006 addressed to the assessee. In this letter on page No. 2 he has clearly pointed out that with the approval of administrative CIT cases upto 6 years can be re-opened. There is no legal dispute or difference of opinion in this matter. Ld. CIT(A) has agree with the second and third grounds taken by the assessee and held at para 4.4 of his order as stated below :- 4.4. The facts of the present case clearly show that an Assessing Officer who has a proper understanding of Income Tax Act cannot hold a belief that the loan or capital credited in the books of account during the year under appeal is not genuine on the basis of information about some unspecified loan or capital of preceding years. In fact the same information was available with the Assessing Officer even during the original assessment year and at that time this information was not considered to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer had every reason to believe that loan transactions also pertain to A.Y. 1999-2000. The very first line on Page No. 12 of the order of CIT(A) states as following :- In his statement Shri Sunil Kr. Agarwal admitted that the Polar Group had inflated the bills to suppress the income and excess amount paid on such bills was received back in cash and the total amount of such suppressed income since 1988-89 upto 1998-99 was about 16 to 17 crores. From the above statement it is amply clear that unaccounted cash transaction were very much been conducted by the Polar Group right up to F.Y. 1998-99 which pertain to A.Y. 1999-2000. Inspite of such clear cut evidence, the Ld. CIT(A) has held that no cash transaction has taken place between 1.4.1998 to 31.3.1999. The observations and conclusions of the Ld. CIT(A) are therefore actually incorrect and faulty. Finally, I will also like to mention that with effect from A.Y. 1989-99 reopening of cases can be done by the AO if he has reasons to believe that income has escaped assessment even though there was no failure on the part of the assessee. In this context, I will draw your attention to the following cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso to Sec. 147. Moreover, in the aforesaid case, the initiation of the proceedings u/s 147 was on the basis of the intimation u/s 143(1)(a). Therefore, this judgement will not assist the Revenue. It does not hold that the AO is at liberty to change his opinion on the same material at a later date. 6. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below as well as the material and the relevant provisions of the Income Tax Act. We have gone through the case laws as has been relied on before us from both the sides. Before deciding the issue involved, it is expedient to discuss the relevant provisions. The relevant provisions of Sec. 147 are reproduced as under : 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired under section 92E; (c) where an assessment has been made, but (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4. For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012. 6.1 From reading of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med the requisite belief. Whether the material would conclusively prove escapement of income was not the concern for the Court to look at that stage. This is because the formation of belief was within the realm of subjective satisfaction of the Assessing Officer. 6.3 We have carefully gone through the reasons recorded as well as the order of CIT(A). We noted that in this case when the Assessee went in appeal before the CIT(A) against the re-assessment order dt. 29.12.2006, CIT(A) on the basis of non-serving of notice u/s 143(2) quashed the assessment but did not decide the other issues involved in the grounds of appeal taken by the Assessee. The Revenue challenged the order of CIT(A) on the ground that CIT(A) was wrong in annulling the assessment made u/s 147/143(3) just on technical reasons without going into the merits of the case relying on the order of the Hon'ble Madras High Court as reported in the case of Areva T and D India Ltd. Vs. Asst. CIT, 294 ITR 233 (supra). The Tribunal although set aside the issue to the file of CIT(A) to re-decide the same after taking into consideration the decision of Hon'ble Madras High Court in Areva T and D India Ltd. Vs. Asst. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd we cannot adjudicate that issue. Even during the course of the argument also, the ld. AR did not raise any such issue even though the issue involved, in our opinion, is a legal issue. We noted that in respect of validity of the proceedings, the Assessee raised two issues before CIT(A); one relating to issue that the proceedings initiated u/s 143(3) are barred by limitation as notice u/s 148 was issued after expiry of 4 years and other issue is that there are no reasons to believe and the material available was already before the AO. The CIT(A), we noted, has not given any finding in respect of the issue taken by the Assessee that initiation of the proceedings are barred by limitation in view of proviso to Sec. 147 but the CIT(A) decided in favour of the Assessee on the issue that the same information was available with the AO even during the original assessment by observing as under : 4.4 The facts of the present case clearly show that an Assessing Officer who has a proper understanding of Income Tax Act cannot hold a belief that the loan or capital credited in the books of account during the year under appeal is not genuine on the basis of information about some unspecifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is clearly applicable in the case of the Assessee in view of the proposition of law as pronounced by the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) as reasons recorded clearly stipulates that the income chargeable to tax has been under assessed. No decision was brought to our knowledge by the ld. counsel how the explanation 2(c) will not apply in the case of Assessee. The Ld counsel went on arguing that the same very material was available with the assessing officer at the time of assessment, and therefore the reasons to believe recorded are vague and based on suspicion. We also noted that the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) nowhere took the view that some fresh tangible material should come subsequently in the possession of the AO while taking action u/s 147 The Hon'ble Supreme Court while comparing the old provisions of Sec. 147 and the provisions as has been substituted w.e.f. 1.4.1989 has clearly laid down under para 17 of its decision that under the substituted Sec. 147 for reasons to believe existence of only the first condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time 2[* * *) and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section: 6.10 We noted that Sec. 34 authorises the AO to take action for re-assessment under two situations; the first situation is given in Sec. 34(1)(a) and second is given in Sec. 34(1)(b). Sec. 34(1)(a) empowers the AO to assess or re-assess the escaped income, where the AO has reason to believe, due to the omission or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that the Hon'ble Court has interpreted that the word subsequent information requires fresh facts and material or if there are existing facts, then, there must be enquiry into the materials available. Thus, we noted that requirement of fresh material or facts has been interpreted by the court because Sec. 34(1)(b) states that the AO has in consequence of information in his possession reason to believe . Reason to believe should have arisen in consequence of the information and as the information cannot be based without material or facts, therefore, it has been interpreted by the Court that there must be fresh facts or tangible material with the AO. We noted that in Sec. 147, as was in existence prior to 1.4.1989, under sub-clause (b) similar language has been used as had been used in Sec. 34(1)(b). For ready reference the said section 147 as was in existence prior to 1.4.1989 is reproduced as under :- 147. If (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act: if he has information from which it may be said, prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court exercising powers under article 226 of the Constitution to set aside or vacate the notice for reassessment on a reappraisal of the evidence. In a petition under article 226 of the Constitution, the taxpayer may challenge the validity of a notice under section 147 of the Income-tax Act, 1961, on the ground that either of the conditions precedent does not exist, but an investigation whether the inferences raised by the Income-tax Officer are correct or proper cannot be made. Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information must, it is true, have come into the possession of the Income-tax Office after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Sushil Kumar Agarwal while framing the original assessment, on the basis of which reasons to believe have been recorded. Thus, with the amendment brought to Sec. 147 of the Act on and from 1.4.1989 and the elucidation on the scope of the authority and jurisdiction of the officer u/s 147 of the Act, we are of the firm view that the proceedings initiated by the AO u/s 147 are valid and the AO could have taken the action u/s 147 on the basis of the material available on record. There is no need of any fresh tangible material for coming to the reason to believe that the income has escaped assessment in view of explanation 2 clause (c) of Sec. 147. 6.14 In the case of Praful Chunilal Patel 236 ITR 832 as relied by ld. A.R, we noted that their Lordships of the Hon ble jurisdictional High Court have held as under : The power to make assessment or reassessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, the reopening of assessment was held to be valid. 6.17 Section 147 permits the reopening of an assessment and the issuance of notices, etc., if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year... The scope of the phrase reasons to believe - introduced in 1989 - has been considered by the Supreme Court in various decisions. In Phool Chand Bjarang Lal v. ITO [1993] 203 ITR 456 (SC), the court held as follows (page 477) : Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the court of 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 non-specific information. To that limited extent, the court may look into the conclusion arrived 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons, only prima facie satisfaction of the AO is necessary. The court also cannot investigate the adequacy or sufficiency of the reasons which weighed with the AO in coming to the belief. In our opinion, the reasons recorded are relevant and has a bearing on the income of the Assessee. The AO is not required to have a purely subjective satisfaction. The belief must be held in good faith. It cannot merely be pretence as has been held by the Hon'ble Supreme Court in the case of Narayanappa (S.) v. CIT, 63 ITR 219 (SC). We do not agree with the finding of the CIT(A). The AO has not inferred that the preference shares of ₹ 54 lacs issued during the assessment year were bogus. The AO, we found, has inferred in the reasons that the capital introduced by the Partners are out of undisclosed loan arranged by Shri Sunil Kumar Agarwal. We noted from the finding of CIT(A) in para 4.2 that Shri Sunil Kumar Agarwal in his statement has admitted that Polar group of companies has inflated the bills to suppress the income and the excess amount paid on such bills was received back in cash and the total amount of such suppressed income since 1988-89 upto 1998-99 was about ₹ 16-17 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the sufficiency of the material and on that basis has quashed the initiation of the re-assessment proceedings. 6.20 We noted Delhi High court in the case of AGR Investment Ltd. vs. Addl. CIT, 333 ITR 146 dealt with the similar issue for which the Ld. AR was duly made aware of during the course of hearing. In this case, we noted that the Delhi High Court has taken the view that the reasons recorded by the Assessing Officer amply demonstrate that the income has escaped assessment and they held that there was application of mind on the part of the Assessing Officer. Delhi High Court did not quash the notice issued u/s. 148. While holding so, the Delhi High Court has discussed various decisions on this issue as under : The questions that emerge for consideration are whether there has been application of mind or change of opinion, whether the objections have been properly dealt with and whether there is a mere suspicion or reason to believe. Regard being had to the aforesaid issues, we think it appropriate to refer to certain citations in the field. In Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC), while dealing with the validity of commencement of reassessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income-tax Officer would be without jurisdiction. The important words under section 147(a) are 'has reason to believe' and these words are stronger than the words 'is satisfied'. The belief entertained by the Income-tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Incometax Officer in coming to the belief, but the court can certainly-examine whether the reasons are relevant and 'have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a). It there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe that any part of the income of the assessee had escaped as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier. (emphasis added) In Sheo Narain ]aiswal v. ITO [1989J 176 I1R 352 (Patna), it was held that reassessment proceedings can be initiated under section 147(a) of the Act if the Income-tax Officer has reason to believe that there has been escapement of income and that the said income escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that period or year. Both conditions are conditions precedent for the assumption of jurisdiction under section 148 of the Act. In Phool Chand Bajrang Lal v. ITO [1993J 203 I1R 456, the apex court has held thus (page 477) : From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts v. ITO (1999] 237 ITR 614 (MP), it was held as follows (page 616) : It is also established that the notice issued under section 148 of .,' . the Act should follow the reasons recorded by the Income-tax Officer, for reopening of the assessment and such reasons must have a material bearing on the question of escapement of income by the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Whether such reasons are sufficient or not, is not a matter to be decided by the court. But the existence of the belief is subject to scrutiny if the assessee shows circumstances that there was no material before the Income-tax Officer to believe that the income had escaped assessment. (emphasis added) In H. A. Nanji and Co. v. ITO [1979] 120 ITR 593 (Cal), it has been held that at the time of issue of notice of the reassessment, it is not incumbent on the Income-tax Officer to come to a finding that income has escaped assessment by reason of the omission or failure of the assessee to disclose fully and truly all material facts necessary for assessment. It has been further held that the belief which the Income-tax Officer enterta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was, not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. (underlining is ours) In Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC), it has been ruled out(page 511) : Section 147 authorises and permits the Assessing Officer to assess or, reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e three sentences are followed by the following sentence, which is the concluding portion of the so-called reasons : Thus, I have sufficient information in my possession to issue notice under section 148 in the case of M/s. SFIL Stock Broking Ltd. on the basis of reasons recorded as above. From the above, it is clear that the Assessing Officer referred to the information and the two directions as reasons on the basis of which he was proceeding to issue notice under section 148. We are afraid that these cannot be the reasons for proceeding under section 147/148 of the said Act. The first part is only an information and the second and the third part of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correction on facts. The law is well settled. There is no substantial question of law which arises for our consideration.(emphasis is ours) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in CIT v. Lovely Exports (P) Ltd. (2009) 319 ITR (St) 5 (SC) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee-company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that the learned counsel for the petitioner has submitted with immense vehemence that the petitioner had entered into correspondence to have the documents but the Assessing Officer treated them as objections and made a communication. However, Officer treated them as objections and made a communication. However, on a scrutiny of the order, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee-company through the banking channel. Regard being had to the aforesaid fact situation, the court had interfered. Thus, the said decision is also distinguishable on the factual score. 6.21 In the case of ITO vs. Purushottam Das Bangur and Another, 224 ITR 362 (SC) as relied heavily by ld. DR , we noted that the apex court held as under:- Held, reversing the decision of the High Court, that the letter of the Deputy Director referred to the statement containing financial information regarding the company in question which was annexed to the letter. The statement contained information derived from the Bombay Stock Exchange Directory indicating that during the period 1965 70, the company had prospered, that the book value per equity share had risen from ₹ 318.55 for the year ending December 31, 1965, to ₹ 401 for the year ending December, 31, 1970, the earning per share had risen from ₹ 8.37 per to ₹ 44/- per share and that the dividend percentage had al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may contradict the same. If the Assessing Officer does not have the material, the reasons cannot be regarded to be bona fide and the initiation of the proceedings can be quashed. If the initiation is valid and subsequently, the assessee proves that there is no escapement of income, the assessment so framed could be quashed/cancelled. We noted that in the decisions relied on by the learned AR, the decision of the Hon ble Supreme Court reported in 224 ITR 362 (SC) which has settled the position of law has not been discussed. The law pronounced by the Supreme Court is the law of land and is binding on all the courts what to talk of this Bench of the Tribunal. The decision of Apex Court in the case of Johri Lal (HUF) vs. CIT (supra), Sheo Nath Singh vs. AAC (supra) and Ganga Saran Sons (P) Ltd. vs. ITO (supra) also, in our opinion, will not assist the assessee as in the case of the assessee, the Assessing Officer while recording the reasons has the relevant material to form the belief from which a person of ordinary prudence could form as held by us in earlier paragraph. 7. We, therefore, set aside the order of CIT(A) in respect of all the assessees on this issue and hold that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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