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TMI Blog2017 (7) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... For The Assessee : Shri K.C. Devdas For The Revenue : Smt. U. Minichandran ORDER PER J. SUDHAKAR REDDY, A.M. This appeal is filed by the assessee directed against the order of the CIT(A)-9, Hyderabad dated 11.01.2016 on the following grounds : 1. The order of the CIT (Appeals)-9 (CIT(A)) in holding that the reassessment proceedings are valid is wholly unsustainable on facts and in law. 2. The Ld. CIT(A) failed to note that the learned Assessing Officer merely relied on the information received from DGIT (Investigations), Mumbai to reopen the assessment and neither the assessment order nor the reasons communicated indicate that the Assessing officer had applied his mind to the issue and therefore the entire reassessment proceedings are invalid, without jurisdiction, has no legs to stand and hence must be quashed. 3. The Ld. CIT(A) erred in confirming the addition of ₹ 75 lakhs U/s.68 of the I.T. Act, 1961. 4. The Ld. CIT(A) failed to note that the entire evidence and proof for the receipt of ₹ 75 lakhs by way of share application money and premiums were filed which has not been dispatched by any of the authorities and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is bad in law as the Assessing Officer has not applied his mind to the communication from the DGIT (Inv.) Mumbai and merely reopened the assessment. (b) Sanction from Addl. CIT under section 151 (2) has not been obtained. (c) The addition made under section 68 of the Act is bad in law as the assessee has filed evidence of the identity, creditworthiness and genuineness of the transaction and these evidences remain un-controverted by the Assessing Officer (d) There is no investigation done or evidence collected by the Assessing Officer to disprove the evidence filed by the assessee. The A.O. had without evidence merely rejected the evidence filed by the assessee on surmises and conjectures. (e) The addition was made based on a so-called statement of Mr. K. Praveen Kumar Jain which was never provided to the assessee. Mr. K. Praveen Kumar Jain filed an affidavit before the DGIT (Inv.), Mumbai retracting the statement and consequently, his statement cannot form the basis for making the addition. (f) The statement was obtained behind the back of the assessee and an opportunity of cross-examination has not been provided. Hence, the statements in question cannot be used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Rival contentions were heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, we hold as follows. 5.1. We first take-up the issue of reopening. Reasons for reopening are as follows : The assessee company M/s Komal Agrotech Pvt. Ltd engaged in the business of wholesale trading in fooD grains and pulses has filed its ROI for A.Y. 2007-08 on 28.10.2007 admitting a total income of ₹ 7,89,890 from a gross turnover of ₹ 12,92,07,096. However, intimation has been received from the DGIT(Inv), Mumbai stating that during a search and seizure operation conducted on 01.10.2013 in the case of Sri Praveen Kumar Jain group, it came to light that Sri Praveen Kumar Jain has been controlling various dummy/paper companies whose only function has been to provide accommodation entries to other companies towards sales, unsecured loans and share application money. During the relevant previous year, three of such companies, namely M/s Javda India Impex Ltd., M/s Kush Hindustan Entertainment Ltd., M/s Olive Overseas Pvt. Ltd., have provided accommodation entries of ₹ 25,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case. 13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity. ( ii) Signature Hotels Pvt. Ltd. vs. ITO (2011) 338 ITR 51 (Del) held as follows:- Allowing the petition, that the reassessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(3). Thereafter, after the expiry of four years from the end of the AY, he issued a notice u/s 148 reopening the assessment on the ground that the records showed that an amount of ₹ 25L had to been added to the capital account for which the assessee had offered no explanation and that the same constituted undisclosed income u/s 68. The assessee challenged the reopening on the ground that there was no failure 011 its part to make a disclosure or material facts and the reopening was based on change of opinion. The department relied on the Full Bench verdict in Usha International 348 ITR 485 and argued that as the AO did not apply his mind at all to the question regarding the said capital contribution, it could not be said that there was a change of opinion . HELD by the High Court allowing the Petition: ( i) In the recorded reasons. no details are provided as to what such information is which excited the AO's notice and attention. The reasons must indicate specifically what such objective and new material facts are, on the basis of which a reopening is initiated u/s 148. This reassessment is clearly not on the basis of new (or tangible ) information or facts t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (2013) 354 ITR 536 (Del) held as follows :- Dismissing the appeal, that the reasons disclosed that the Assessing Officer reached the belief that there was escapement of income on going through the return of income filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This was nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer. The reasons recorded by the Assessing Officer did confirm the apprehension about the harm that a less strict interpretation of the words reason to believe vis-a-vis an intimation issued under section 143(1) could cause to the tax regime. There was nothing in the reasons recorded to show that any tangible material had come into the possession of the Assessing Officer subsequent to the issue of the intimation. The notice ref1ected an arbitrary exercise of the power conferred under section 147. ( vii) Sarthak Securities Co. P Ltd. vs. ITO (2010) 329 ITR 110 (Delhi) held as follows:- Allowing the petition, that the formation of belief was a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing a notice under section 148. What had been recorded by the Assessing Officer as his reasons to believe was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The Assessing Officer had clearly substituted form for substance and therefore the action of the Assessing Officer was not sustainable. ( Emphasis ours). 5.4. As the reasons recorded are mechanical and without application of mind whatsoever by the Assessing Officer to the information received from the DGIT (Inv.), Mumbai, we apply the proposition of law laid down by the High Court in this matter and hold that the reopening is bad in law. 6. On the second contention of the assessee that necessary approval under section 151(2) has not been obtained. We hold that this ground is devoid of merits as the Ld. D.R. has produced the record to prove that an approval has been obtained from the Addl. CIT for reopening of assessments under section 151(2) of the Act. Hence this argument of the assessee is dismissed. 7. Coming to the merits of the case, we find that the assessee has filed the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely Exports 319 ITR (Sat.5) (S.C.) the Hon ble High Court held as follows : As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer (sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect - Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of ₹ 1,11,50,000 may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavits for the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr.Mahes Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of S. 68 of the Income Tax Act, 1961. 7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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