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TMI Blog2017 (8) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... after this advice, AO had done anything in verification of such information to form the basis for his satisfaction that the income of the assessee had escaped assessment. Assessing Officer has arrived at the satisfaction in a mechanical manner without due application of mind and since there is no rational connection between the formation of the belief and the seized material. Assessing Officer has not discharged his obligation after such allegations, and, therefore, reasons recorded by the Assessing Officer in the instance case, in our opinion, are vague and/or no reasons at all. We, therefore, quash the re-assessment proceedings initiated by the Assessing Officer as void. - Decided in favour of assessee. - ITA Nos.-5750 And 5751/Del/2016 - - - Dated:- 18-8-2017 - SHRI B.P. JAIN, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER For The Assessee : Sh. K. Sampath, Adv. For The Revenue : Sh. Anshu Prakash, Sr. DR ORDER PER SHRI K.N. CHARY, J.M. These two appeals are filed by the assessee against the orders dated 19.09.2016 and 20.09.2016 in appeal nos. 204/HSR/TFR/14-15 and 205/HSR/TFR/14-15 on the file of the Ld. Commissioner of Income Tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details like the amounts received by these companies/persons, the cheque/P.O. No., the names of the issuing company, the mediator/middleman, bank etc. was tabulated and provided to this office. 7. As the undisclosed income of the beneficiary company which has been introduced by them in the form of share/capital/share premium/loan has escaped taxation, therefore, it was advised that these amounts be brought to tax by initiating action u/s 147/148 read with section 143(3) of the income-tax Act, 1961 for the relevant assessment year in the case of the above mentioned beneficiary company. 8. In the appraisal report of Sh. Surendra Kumar Jain Group prepared by this unit, it has been evidently established that Sh. Surendra Kumar Jain and Sh. Virendra Jain were in the business of providing accommodation entries and actually controlled more than 100 companies/proprietary firms/partnership firms. They controlled these entities through various persons by appointing them as directors/partners/proprietors apart from nominating them as authorized signatories for maintaining the bank accounts of these entities but in fact all these persons act only as their stooges. 9. During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any and are to be found in the material seized from the Jain Brothers, there is a total failure on the part of the Revenue whether really these companies provided accommodation entries, which the Revenue could have proved by referring to the modus operandi as to the mode of payment such as cash or cheque account nos. etc. Except the suspicion of the AO that the assessee might have obtained accommodation entries generally in the form of share capital/share premium/loan absolutely, there is no live link between the satisfaction of the AO and the material that was unearthed. In the alleged annexure A to the reasons recorded the list of names contained the assessee s name which obviously was based on the Jain s testimony, but in the absence of any seized document containing the requisite details as to the identity and other particulars involving the assessee and without further verification at the end of the AO, this cannot form a live link to fasten liability on the assessee. Lastly Ld. AR submitted that recording of satisfaction in this matter is not based on the result of the AO s investigation or opinion, but it is solely based on the advice referred to in paragraph no. 7. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishing the identity of the assessee or any link between the record showing the accommodation entry operations by Jain Brothers through their chain of companies and the investment in the assessee company. Paragraph 5 says that it is only as a result of post search investigation, it appeared to the investigation wing that the assessee had also obtained accommodation entries. A long distance has to be travelled by the Department to bridge the gap between the assessee obtaining the accommodation entries and appears to have obtaining the accommodation entries. Further it is clear from paragraph no. 7 that on obtaining such post search investigation material AO was advised that the amounts appeared to have been obtained by the assessee by way of accommodation entries to be brought to tax by initiating the action u/s 147/148 read with section 143(3) of the Act. Record does not reveal that after this advice, AO had done anything in verification of such information to form the basis for his satisfaction that the income of the assessee had escaped assessment. 8. It has been held by various decisions that the formation of belief contemplated by section 147 of the Act for the reopenin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, finality about orders made in judicial and quasi judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned judges in the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 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. The appeal is dismissed. 11. We find the Hon ble Delhi High Court in the case of Sarthak Securities Co. P. Ltd. vs. ITO reported in 329 ITR 110 has observed as under :- 9. In the present case, we find that the first sentence of the socalled reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income Tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income Tax (Investigation) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years. 22. In Lovely Exports (P) Ltd. (supra), the Apex Court held thus:- 2. Can the amount of share money be regarded as undisclosed income under Section 68 of Income Tax Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 23. The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence of four companies wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had invested their money received from undisclosed sources and taken back the amounts through a negotiable instrument. The amounts so invested were treated as undisclosed income and the Assessing Officer estimated 10% commission for the accommodation entry and thereupon made a further addition to the undisclosed investment. 10. For deciding whether the issuance of notice is vitiated or not, our attention has been drawn to Chhugamal Rajpal v. S.P. Chaliha and Ors. In that case, re-assessment proceedings were struck down by the Supreme Court on the ground that in the reasons recorded by him, the Income Tax Officer had vaguely referred to certain communications that he had received; he did not mention the facts contained in those communications except that from those communications it appears that these persons (alleged creditors) are name lenders and the transactions are bogus ; he did not come to any prima facie conclusion that the referred transactions are not genuine; he appeared to have a vague feeling that the referred transactions may be bogus transactions and finally, his conclusion was to the effect that a proper investigation regarding the loans is necessary. The Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. If there are no reasons, then the entire foundation for initiating the proceedings is bad and the notice initiating proceedings must be quashed. 14. At this stage, it is worth recalling that in Ganga Saran Sons Pvt. Ltd. v. Income-tax Officer and Ors., the Supreme Court noted that the expression reason to believe as occurring in Section 147 of the Act is stronger than the expression is satisfied . In other words, mere satisfaction of the Assessing Officer for the issuance of a notice is not enough - there must be reasons on record which have led him to believe that a notice should be issued. 15. In United Electrical Co. Pvt. Ltd. v. Commissioner of Incometax (2002) 258 ITR 317, this Court considered the entire issue afresh. It was observed that the expression reason to believe occurring in Section 147 of the Act is crucial. Reference was made to Bawa Abhai Singh v. Deputy Commissioner of Income Tax (2002) 253 ITR 86 wherein it was observed that reason to believe postulates a foundation based on information and a belief based on reasons. In so far as information is concerned, a Division Bench of this Court held in L.R. Gupta v. Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. We find the Hon ble Punjab Haryana High Court in the case of CIT vs. Smt. Parakjit Kaur reported in 311 ITR 38 has held as under :- Section 147 of the Act defines the power and jurisdiction of the Assessing Officer for making an assessment or reassessment of escaped income. Section 148 of the Act, on the other hand, provides for initiation of the reassessment proceedings with issuance of a notice on the assessee concerned. Section 147 empowers the Assessing Officer to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time it cannot be stated to be a plenary power. The Assessing Officer can assume jurisdiction under the said provision provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The Assessing Officer must record reasons showing due application of mind before taking recourse to reassessment proceedings. Still further the Assessing Officer ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee still it was held that the initiation of reassessment was valid. The Tribunal concluded that contradictory findings had been recorded by the Deputy Commissioner of Income-tax (Appeals) and held the reopening to be invalid. It is undisputed that the Assessing Officer had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of ₹ 83,040 which was not accounted in the books of account of the assessee. The Assessing Officer had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The Assessing Officer had thus acted only on the basis of suspicion and it cannot be said that the same was based on the belief that the income chargeable to tax had escaped income. The Assessing Officer has to act on the basis of reasons to believe and not on reasons to suspect . The Tribunal had, thus, rightly concluded that the Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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