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TMI Blog2013 (6) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... of the A.O.'s order as under :- (Page no.2) "Information has been received from ADIT(Inv)-1,Agra that M/s Rashi Buildcon Pvt. Ltd., Saraswatpara, Farah, Dist. Mathura has received following accommodation entries from M/s Aayushi Stock Brokers (formerly known as Cosmos Financial Services Pvt. Ltd., 38-4B/IF, Friends Centre, Sanjay Place, Agra :- Instrument No. Instrument date Bank details Amount Clearing date 78483 10.10.2003 Canara bank, Kamla Nagar, Agra 1500000 11.10.2003 78489 13.10.2003 ----do---- 1500000 14.10.2003 78490 14.10.2003 ----do---- 80000 15.10.2003 3800000 M/s Rashi Buildeon Pvt. Ltd., Farah (PAN AAHCS0929E) was earlier filing its return of income in the name of M/s Sagar Sopas Pvt. Ltd., Firozabad Bye pass Road, Agra with ITO 4(3), Agra. After change of name from M/s Sagar Sopas Pvt.Ltd. to M/s RAshi Buildcon Pvt., Farah, the company is filing return of income with ITO 3(3), Mathura. M/s Rashi Buildcon Pvt. Ltd., Farah has received the accommodation entries amounting to ₹ 38,00,000/- as above in the month of October, 03, i.e., pertaining to asst. year 2004-05, which appear to have escaped assessment. In view of these facts, I have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assessment proceedings. All the documentary evidences brought on record and discussed above and the circumstantial evidences establish that the assessee has failed to substantiate the genuineness of the said credits. The assessee has thus failed to discharge his onus in this regard to substantiate the genuineness of the credit entry of ₹ 38,00,000/- in the bank account with Canara Bank, Agra. Hence, the amount of ₹ 38,00,000/- is held to be unexplained and is ordered to be added to the income of the assessee as income from other sources. Besides that it is apparent that the entry of the alleged transactions of shares amounting to ₹ 38,00,000/- would have been taken on commission @ 0.25%, the rate prevalent at that time for such entries as per the report of the Wing. Accordingly, a sum of ₹ 9500/- is also added to the income of the assessee as explained expenditure within the meaning of section 69C of the I.T. Act, 1961. I am satisfied that the assessee has concealed the income of ₹ 38,00,000/- and ₹ 9500/- by way of willful attempts of claiming accommodation credits entries as genuine transactions of shares and commission paid to entry p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also included and hence, such information provided a 'cause' to the AO to reopen the case of the assessee (appellant) u/s 147 as pr the decision of Hon'ble Supreme Court in case of ACIT Vs. Rajesh Jhaveri Stock brokers Pvt. Ltd. (supra). After going through the case record, I have found that the AO has recorded the reason for escapement of income on the basis of the information provided by the Investigation Wing about receipt of ₹ 38 lac shown by the assessee on account of sale of share being in fact, an accommodation entry and such information which provided trigger point to the AO is the 'cause' for the reopening of the assessment proceeding of the assessee(appellant) especially, when its earlier return was only processed u/s 143(1)(a) which is not an assessment at all and there is no clear evidence on record whether such return was not in possession of the AO. It is only imagination of Ld. AR that the AO has not seen the original return. In any way, the information about accommodation entry has nothing to do with the return of income because such accommodation entries are never declared in the return of income in the proper form. Therefore, I do not agree with the ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee(appellant) under the head income from other source and this amount is in the nature of unexplained money should be added as per provision of section 69A of the Income Tax, 1961 because if acquisition of alleged shares is not established, their sale claimed to have been made without mentioning their distinctive numbers in the sale bill cannot be said to be genuine sale of shares to explain receipt of ₹ 38 lac. Since the amount of ₹ 38 lac has been found to be in the nature of an accommodation entry and such accommodation entry in the market are provided only on payment of certain commission and the O has computed a very reasonable amount of ₹ 9,500/- @ 0.25% of the amount of entry. In my considered opinion such amount of commission for obtaining entry of ₹ 38 lac is very much justified and hence, addition of ₹ 9,500/- is also confirmed. 6.6 In view of my above decision, I confirm the addition of ₹ 38 lac being unexplained money u/s 69A and also the amount of ₹ 9,500/- as commission paid for obtaining the above entry to be added u/s 69C as unexplained expenditure, all the grounds taken by the appellant from Ground no.6 to 9 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 10,00,000/-, M/s. B.V. Finance & Leasing Pvt. Ltd. ₹ 11,00,000/- out of which the assessee has sold 8,00,000 shares & M/s. Prash Printing & Publications Pvt. Ltd. ₹ 20,00,000/- Ld. Authorised Representative further submitted that the assessee has submitted confirmation from M/s Aayushi Stock Brokers Pvt. Ltd. in support of the fact that the assessee received amount of ₹ 38,00,000/- against the sale of shares through three different cheques of ₹ 15,00,000/-, ₹ 15,00,000/- and ₹ 8,00,000/-, all are dated 10th October, 2003. The ld. Authorised Representative further referred page no.84 of the assessee's Paper Book where copy of Bank account of broker has been placed and submitted that the payment received to the assessee through cheques. Ld. Authorised Representative while referring page no.7 of AO's order submitted that survey under section 133A of the Act was carried out in case of Aayushi Stock Brokers Pvt. Ltd. on 24.04.2001 whereas the case of the assessee under consideration is for A.Y. 2004-05. The ld. Authorised Representative referred page no.76 of the Paper Book where copy of assessment order in case of Aayushi Stock Brokers Pvt. Ltd. ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts59 necessary for his assessment, for that assessment year: [Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this judgment it was held that a mere confessional statement by a third party (who is a lender of the assessee) that he was a mere name-lender and that all his transactions of loans were bogus, without naming the assessee as one who had obtained bogus loans, would not be sufficient to hold that the assessee's income had escaped assessment Purity Techtextile Pvt. Ltd. vs. ACIT 325 ITR 459 (Bomb) - In this judgment it was held that Validity of exercise of powers to re-open an assessment has to be decided with reference to reasons recorded while re-opening an assessment - Where the AO had no reason to believe that income had escaped assessment, reasons recorded while re-opening the assessment did not justify the exercise of the power u/s 148.. Dass Frirnds Builders P. Ltd. vs. DCIT(2006) 280 ITR 77(All) - In this judgment it was held that under section 147 of IT Act,1961, the words are "reason to believe" and not "reason to suspect" The belief entertained by the AAO must not be arbitrary or rational. It must be in good faith and not a mere pretence, should have a rational connection and relevant bearing on the formation of the belief, and should not be extraneous or irrelevant. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finalit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reasonable or in other words it must be based on reasons which are relevant and material. The Court cannot of course investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO 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. S. Narayanappa vs. CIT [1967] 63 ITR 219 (SC) - In this judgment it was held that Belief must be in good faith, and cannot merely be pretence - The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith; it cannot merely be pretence - Sheo Nath Singh vs. AAC [1971] 82 ITR 147 (SC) - In this judgment it was held that Suspicion, gossip or rumour should not form the basis - The words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds, and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer that is material, but such a belief must be based on certain reasons. There was no indication as to on what information or on what material the Assessing Officer had harboured the belief that the claim of the assessee required deeper scrutiny. In fact, no new material was on record after the filing of the return till the issuance of notice under section 147. The proceedings under section 147 are not to be invoked at the mere whim and fancy of the Assessing Officer. It has to be seen in every case as to whether the invocation is arbitrary or reasonable one Merely because the Assessing Officer felt that the issue required 'much deeper scrutiny', it was not enough ground for invoking section 147. It is not belief per se that is a pre-condition for invoking section 147, but a belief founded on reasons. The expression used in section 147 is 'If the Assessing Officer has reason to believe' and not 'If the Assessing Officer believes'. There must be some basis upon which the belief can be built. It does not matter whether that belief is ultimately proved right or wrong, but there must be some material upon which such a belief can be founded. The court observed that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the assessee's objections. On writ, the court held as under :- "15. On scanning of the anatomy of the aforesaid provision, it is clear as crystal that the formation of belief is a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer is required to form an opinion before he proceeds to issue a notice. The validity of reasons, which are supposed to sustain the formation of an opinion, is challengeable. The reasons to believe are required to be recorded by the Assessing Officer. 16. In this regard, it is apt to reproduce a passage from N.D. Bhatt, IAC v. I.B.M. World Trade Corpn. [1995] 216 ITR 811 (Bom.) :- "It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reason so recorded can be looked at for sustaining or setting aside a notice issued under section 148. In the case of Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714, a Division Bench of the Calcutta High Court has held that where a not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of affidavit or oral submissions advanced." [Emphasis supplied] 18. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 5001 (SC), it has been ruled thus :- "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 Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 parts 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 correct conclusion on facts. The law is well-settled. There is no substantial question of law which arises for our consideration." [Emphasis supplied] 20. On a perusal of the aforesaid decisions, it is graphically clear that once the ingredients of section 147 are fulfilled, the Assessing Officer is competent in law to initiate the proceedings under section 147. To put it differently, the conditions precedent as engrafted in the said provision are to be satisfied. 21. At this juncture, it is profitable to refer to the authority in GNK Driveshafts (India) Ltd. v. ITO [2002] 125 Taxman 963 (SC) wherein their Lordships of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, 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 Lovely Exports (P.) Ltd.'s case (supra) 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. 24. Resultantly, the initiation of proceedings under section 147 and issuance of notice under section 148 of the Act are hereby quashed. In the facts and circumstances of the case, there shall be no order as to costs" Commissioner of Income-tax vs. Sfil Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) - In this case after the completion of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is not fulfilled, the notice issued by the A.O. would be without jurisdiction. The important words under section 147 are "has reason to believe" and these words are stronger than the words "is satisfied ". The belief entertained by the A.O. 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 A.O. in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a hearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 148. If 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 A.O. could not have reason to believe that any part of the income of the assessee had escaped assessment under that circumstances the notice issued by him would be liable to be struck down as invalid. 18. The basis for in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfied'. The belief entertained by the A.O. 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. If there is no rational and intelligible nexus between the reasons and belief, the reopening of the assessment would be without jurisdiction and bad in law. 20. In the light of above discussions, if we consider the facts of the case under consideration, we noticed that reasons recorded in the case under consideration and reasons recoded in the case of Commissioner of Income-tax vs. Sfil Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) are similar. In the case under consideration, information has been received from ADIT (Inv)-1, Agra that M/s Rashi Buildcon Pvt. Ltd., Saraswatpara, Farah, Dist. Mathura has certain accommodation entries from M/s Aayushi Stock Brokers (formerly known as Cosmos Financial Services Pvt. Ltd., 38-4B/IF, Friends Centre, Sanjay Place, Agra.M/s Rashi Buildcon Pvt. Ltd., Farah (PAN AAHCS0929E)) was earlier filing its return of income in the name of M/s Sagar Sopas Pvt. Ltd., Firozabad Bye pass Road, Agra with ITO 4(3), Agra. After change of name from M/s Sagar Sopas Pvt. Ltd. to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under :- "13. We have heard the ld. Representatives of the parties and records perused. The important words under section 147 are 'has reason to believe' and these words are stronger than the words 'is satisfied'. The belief entertained by the ITO 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 cannot of course investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO 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 as held in the case of Ganga Saran & Sons (P) Ltd vs. ITO [1981] 130 ITR 1 (SC), ITO vs. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239 (SC)/Raymond Woolen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC). 13.1 The Hon'ble Supreme Court in the case of S. Narayanappa vs. CIT [1976] 63 ITR 219 (SC) has held that the expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith; it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee is placed at p. 320 of the paper book. Thereafter the assessee sold shares numbering 20,000 on 28th Aug., 2001 through M/s MKM Finse (P) Ltd., copy of which is placed at p. 231 of the paper book. Thereafter assessee sold further 41,700 shares, copy of the same is placed at p. 232. These shares were sold vide bill dt. 24th Aug., 2001. Payments have been received through account payee cheque. The certificate from M/s Stock Holding Corporation Ltd. through whom the shares are delivered is placed at pp. 235 and 236 of the paper book. After going through details, it is clearly seen that assessee purchased shares in earlier year. They were shown in the balance sheet which was filed along with the return of income. The payments were made through books of account which has not been doubted. The shares belong to a listed company which is also not in doubt. The company itself has issued certificate that all these shares have been demated, copy of the same is placed on record. Once the purchase of shares is not doubted, then in our considered view, the sale of same shares should not have been doubted. If assessee has invested his own money under the garb of fictitious sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal No.468 of 2009, judgment dated 03.01.2013, held as under :- "7. We have considered the arguments of the counsel for the parties. The CIT(A) after considering entire evidence of record found that purchase and sale transactions were proved. He further found that payment of the sale price was made to the assessee through bank channel and not in cash as such the transactions are actual transactions and not a fictitious accommodation entries. The sale transactions cannot be disbelieved only for the reason that the assessee could not give the identity of the purchasers. Arguments of the Senior Standing Counsel in this respect is not liable to be accepted. Similar controversy has been raised in the case of Shri Akash Goenka which was decided by a common judgment by the Tribunal. The Revenue filed Income Tax Appeal (Defective) No. 261 of 2009 in the case of Shri Akash Goenka which has been dismissed by this Court by judgment dated 18.11.2010 and thus judgment of the Tribunal has been upheld. The Senior Standing Counsel could not point out any distinguishing feature for not following the aforesaid judgement." 14.3 The I.T.A.T., Agra Bench in the case of ITO vs. Shri Rakesh Khetrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper evidences before the authorities below to show that shares of M/s. B.T. Technet Ltd. were allotted directly by this company @ 10/- per share and consideration was transferred through banking channel. All the allotment letters, drafts, certificates of the company are filed in the paper boo;. The profile of M/s. B.T. Technet is also filed in the paper book to show that it was a genuine company. The same were shown in the books of earlier years. Therefore, the purchase of shares and source of purchase could not have been disputed. Same shares were sold to the broker, M/s. CMS Securities Ltd. Delhi and all the contract notes, sale consideration through drafts have been filed in the paper book to support the contention of the assessee. The sale rate of ₹ 114/- per share is also supported by the information received from M.P. Stock Exchange. Whatever statements of CMS Securities Ltd. through their directors were recorded were never confronted to the assessee. Therefore, the same cannot be read in evidence, which is also substantiated by the decision of Hon'ble Supreme Court in the case of Kishan Chand Chelaram vs. CIT, 125 ITR 713. Considering the totality of facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.226/Agra/2010 in the case of ITO vs. Shri Rakesh Khetrapal (supra). The judgement in the case of Areva T&D, SA vs. Asstt. Director of Income Tax & Others, 349 ITR 127 (Delhi) relied upon by the ld. Departmental Representative is distinguishable on facts. We follow the above order of I.T.A.T., Agra Bench and other orders. Thus, addition of ₹ 9,36,250/- for A.Y. 2002-03 in the case of Shri Ashok Kumar Arora is deleted." 22. Since on identical facts the issue has been decided in favor of the assessee, to maintain consistency, we follow the above order of I.T.A.T. and in view of that we delete the addition of ₹ 38,09,500/- made by the A.O., being the addition of ₹ 38,00,000/- on account of shares and ₹ 9,500/- on account of estimated commission. In view of principle of consistency which we have followed, the decisions cited by the ld. D.R. and Revenue does not help them. 23. Further, the judgements relied upon by the ld. Departmental Representative are distinguishable on facts as those judgements have been decided by the Court considering the facts of respective cases which are not similar to the facts of the case under consideration. The case under co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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