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TMI Blog2017 (5) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... URALIDHAR CHANDER SHEKHAR JJ. Appellant Through: Mr. Rahul Chaudhary, Senior standing counsel. Respondent Through: Mr. Kapil Goel, Advocate. O R D E R Dr. S. Muralidhar, J. 1. This appeal under Section 260A of the Income Tax Act, 196 ( Act ) by the Revenue is directed against the impugned order dated 22nd March, 2016 passed by the Income Tax Appellate Tribunal ( ITAT) in ITA No. 3148/Del2013 for the Assessment Year ( AY ) 2004-05. 2. Admit. 3. The following question of law is framed for consideration: Whether the ITAT erred in law and on facts in quashing the assessment proceedings under Section 147/148 of the Act? 4. The facts in brief are that the Assessee, Meenakshi Overseas Private Limited, filed its return of income on 30th October, 2004 for the AY 2004-05 declaring its income as ₹ 2,050. The return was processed under Section 143(1) of the Act on 25th November, 2004. 5. It is stated that information was received from the Director of Income Tax (Investigation), New Delhi [ DIT(I) ] that during the year under consideration, the Assessee had received accommodation entries. Notice under Section 148 of the Act was issued after tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly after recording the above said reasons as laid down under the provisions of Section 148 (2) of the Income Tax Act, 1961 under Section 148 is being issued. 7. In response to the said notice served on it, the Assessee wrote a letter dated 25th April, 2011 stating that the original return of income under Section 139 of the Act be treated as return filed in compliance with the notice under Section 148 of the Act. 8. An assessment order was passed by the AO on 30th November 2011 under Section 143 (3) read with Section 147 of the Act treating the credit received from Shubham Electronics Electricals Pvt. Ltd. as unexplained income under Section 68 of the Act. Besides from the statement of the Assessee's bank account it was found that there were other credit entries that remained unverified, unsubstantiated and unexplained. As a result, an amount of ₹ 74,50,000 after including ₹ 5,00,000 in respect of Subham Electricals Pvt. Ltd. was treated as unexplained credits under Section 68 of the Act and added to the total income of the Assessee as income from undisclosed sources. 9. The Assessee then appealed before the Commissioner of Income Tax (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Additional Commissioner of Income Tax (2011) 336 ITR 146 (Del.), AG Holding v. Income Tax Officer (2013) 352 ITR 364 (Del), Mr. Chaudhary submitted that the adequacy or sufficiency of the material of the basis on which the belief was formed by the AO for reopening of the assessment could not be enquired into at this stage. 14. Mr. Chaudhary referred to the fact that it became apparent in the assessment proceedings that credible information was received in the case of one Mr. Mahesh Garg, accommodation entry provider. Statements were made during investigation by former directors who admitted that Mr. Garg was providing accommodation entries to various persons including the Assessee. This itself shows the formation of belief by the AO that the escaped assessment was justified. 15. Countering the above submissions, Mr. Kapil Goel, learned counsel for the Respondent/Assessee first pointed out that the Court is not obliged to examine the reasons with reference of any material that may be disclosed subsequently by the Revenue either at the stage of considering the objections by the Assessee to the reopening or during the re-assessment proceedings. The reasons for the reopenin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajiv Agarwal v. ACIT (decision dated 16th March, 2016 in Writ Petition (Civil) No. 9659 of 2015). 18. It must be noted at the outset that by an order dated 4th November, 2016, this Court had directed that the file by which reasons to believe for the escapement of income was recorded by the AO for the purpose of reassessment shall be produced for consideration by the Court. The said file has been produced today by Mr. Chaudhary, learned counsel for the Revenue. It is seen that the reasons recorded by the AO for re-opening the assessment has been extracted verbatim by the ITAT in para 2 of the impugned order. 19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: The information so received has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147 (1) of the Act requires the AO to have reasons to believe that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment. 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does not also examine the return already filed to ascertain if the entry has been disclosed therein. 30.1 In Commissioner of Income Tax, New Delhi v. Highgain Finvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under: It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 138 dated 8th April 2003 that this company was involved in the giving and taking bogus entries/ transactions duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act. 32. In Oriental Insurance Company Limited v. Commissioner of Income Tax 378 ITR 421 (Del) it was held that therefore, even if it is assumed that, in fact, the Assessee s income has escaped assessment, the AO would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional pre-condition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise. 33. In Rustagi Engineering Udyog (P) Limited (supra), it was held that ...the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X
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