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TMI Blog2019 (2) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... without verification, is bad in law. The assessee has produced all evidence to prove that the transactions are genuine and that he had participated as an arbitrager. There is no proof of cash changing hands. The FMC audit had cleared the transactions of the company. A plain look at the reasons demonstrates that the re-opening was based on the information which was never examined or verified by the Assessing Officer before recording reasons for reopening of assessment. Re-opening is bad in law as the Assessing Officer has not independently applied his mind to the material and has recorded reasons which are vague and based on borrowed satisfaction. Hence this ground of the assessee for both the Assessment Years are allowed. - Decided in favour of assessee. - I.T.A. No. 2307/Kol/2017, I.T.A. No.2308/Kol/2017 - - - Dated:- 2-11-2018 - Sri J. Sudhakar Reddy, Accountant Member And Sri S.S. Viswanethra Ravi, Judicial Member For the Assessee : Shri Somnath Ghosh, Advocate For the Revenue : Shri Goulen Hangshing, CIT, DR ORDER PER J. SUDHAKAR REDDY, AM :- Both these appeals by the assessee are directed against the separate but identical orders of the ld. Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce no addition/disallowance can be made in the assessee s hands, based on such a report. He further submitted that certain statements were recorded by the Assessing Officer and they were relied upon without giving copies of the same to the assessee. He pointed out that in none of the statements the name of the assessee was taken and that no adverse material was found against the assessee. He submitted that his request for copies of statements and opportunity to crossexamine were denied to the assessee. He submitted that factual inaccuracies creptinto the order of the Assessing Officer and had brought the same to the notice of the bench. He pointed out that Shri Manoj Desai has never admitted in his statement that the assessee had indulged in booking bogus losses. He pointed out that it was categorically stated that the assessee arbitrages in the same commodity in two different exchanges whereby if in one exchange there is a loss and in the other one there is profit. He reiterated that this is an undisputed fact that the activities of the assessee were in the nature of arbitrage with a miniscule 1% of brokerage. He pointed out that it is not in dispute that 99% of the trading ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20/-. In the case of the assessee information was received from the Forward Market Commission (FMC), the regulatory authority of commodity exchange that the assessee M/s. Proficient Commodities Private' Limited had taken accommodation entries inform of bogus losses through National Multi Commodity Exchange (NMCE). The total loss incurred by the assessee on National Multi Commodity Exchange (NMCE) was ₹ 13,49,40,920/- during the F.Y. 2010-11. I have therefore, reasons to believe that the income of the assessee to the extent of ₹ 13,49,40,920/- has escaped assessment. A notice u/s 148 of the I.T. Act, 1961 is issued. A perusal of the above reasons demonstrate non-application of mind by the Assessing Officer to the information received from Forward Market Commission. A perusal of the assessment order demonstrates that in the report of the FMC there is no allegation whatsoever made that the assessee had booked bogus losses. The information was general in nature and the assessee company was not named. The Assessing Officer was duty bound to apply his mind to the information received prior to coming to the conclusion that he has reason to believe that income sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As such, on the available material, no reasonable person could have any reason to believe that income had escaped assessment. Consequently, the Tribunal held that the proceedings under Section 147 of the said Act were invalid. I.T.A. No. 1375/Kol/2017 Assessment Year: 2009-10 M/s. Adhunik Cement Ltd 8. The Tribunal gave detailed reasons for concluding that the proceedings under Section 147 were invalid. Instead of adding anything to the said reasons, we think it would be appropriate if the same are reproduced:-- In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The AO has further stated that the assessee company has failed to disclose fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned as to who had given bogus entries/transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. Therefore, the details of entries or amount mentioned in the assessment order and in respect of which ultimate addition has been made by the AO, cannot be made a basis to say that the reasons recorded by the AO were with reference to those amounts mentioned in the assessment order. The reasons recorded by the AO are totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. In this respect, we may rely upon the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT v. Atul Jain [2000] 299 ITR 383, in which case the information relied upon by the AO for initiating proceedings u/s 147 of the Act did indicate the source of the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the information su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision discussed, the basic requirement that the A.O. 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. A perusal of the reasons recorded demonstrate total non application of mind by the A.O. Thus applying the proposition laid down by the Jurisdictional High Court in G G Pharma India (supra) we hold that the reopening of assessment is bad in law 7.3. The Hon'ble Delhi High Court in the case of Signature Hotels (P) Ltd. vs ITO and another, reported in 338 ITR 51 (Delhi) has under similar circumstances held as follows: For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s 143(1) of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s 148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections. The Delhi High Court allowed the writ petition and held as under: '(i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verify the correctness of information received by him but merely accepted the truth of the vague information in a mechanical manner. The A.O. had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice u/s 148. What had been recorded by the A.O. 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 A.O. had clearly substituted form for substance and therefore the action of the A.O. was not sustainable Applying the proposition of law laid down in these cases to the facts of the case we hold that the reopening is bad in law as the reasons recorded are without independent application of mind. 5.2. We also note that the coordinate bench of this Tribunal in ITA No. 660/Kol/2011 for AY 2002-03 in the case of DCIT Vs. Great Wall Marketing (P) Ltd. vide order dated 03.02.2016 has held as under: 8. We have heard the submissions of the learned counsel for the assessee both on the validity of initiation of re-assessment proceedings as well as the merits of the appeal. Non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded by the AO for initiating proceedings u/s 148 of the Act the Hon'ble Delhi High Court upheld the order of the Tribunal quashing the proceedings. Reliance was also placed on the decision of ITAT, Kolkata 'C' Bench in the case of M/s. Controlla Electrotech (P)Ltd vs DCIT in ITA Nos.1443 1444/Kol/2014 wherein on identical facts the Tribunal was pleased to quash the reassessment proceedings. On merits the learned counsel for the assessee relied on the order of CIT(A). 9. We have given a careful consideration of the submissions made by the learned counsel for the assessee. It is clear from the reasons recorded by the AO that the AO acted only on the basis of a letter received from Investigation Wing, New Delhi. The reasons recorded does not give as to who has given the bogus entries to the assessee. The reasons recorded also does not mention as to on which dates and through which mode the bogus entries were made by the assessee. The reasons recorded which are extracted in the earlier part of the order does not show, what was theinformation given by DIT(Inv.),New Delhi. The date of the information received by the AO were not spelt out in the reasons recorded. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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