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TMI Blog2019 (3) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, is bad and illegal. The A.O. was not justified in assuming jurisdiction under section 147/148. Reopening of the assessment in the matter is bad in law and illegal, as such, same cannot be sustained in law - Decided in favour of assessee - ITA.No.366/Del./2016 - - - Dated:- 12-2-2019 - Shri Bhavnesh Saini, J.M. And Shri L.P. Sahu, A.M. For the Assessee : Smt. Rano Jain, Advocate Shri Pranshu Singhal, C.A. For the Revenue : Shri Amit Katoch, Sr. D.R. ORDER PER BHAVNESH SAINI, J.M. This appeal by assessee has been directed against the Order of the Ld. CIT(A)-17, New Delhi, Dated 02.12.2015, for the A.Y. 2005-2006. 2. Briefly the facts of the case are that information has been received from the Investigation Wing that the assessee-company has indulged in accommodation entries. The Investigation Wing reported that a report of inquiries made by DIT (Inv.), New Delhi, into the accommodation entries given by entry operators has been received. The said report of the Investigation Wing of the Department with information of entry operators and beneficiaries contained in the CD was forwarded by the then DIT (Inv.)-1, New Delhi, and the said report al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present appeal has challenged the reopening of the assessment under section 147/148 of the I.T. Act, 1961 and addition of ₹ 1.90 crores under section 68 of the I.T. Act, 1961. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below and filed copy of the reasons recorded under section 148 of the I.T. Act for reopening of the assessment at pages 16 and 17 of the paper book. The same reads as under : M/s. Key Components (Pvt.) Ltd., Asstt. Year 2005-06 A Report on enquiries made by the Directorate of Income Tax (Investigation), New Delhi into accommodation entries given by entry operators has been received. The said report of Investigation Wing of the department with information on entry operators and beneficiaries contained in the C.D, was forwarded by the then DIT(Inv.)-I, and the said report along with relevant information was forwarded to this office through proper channel. As per the information received from the DIT (Inv.), New Delhi revealed that during the F.Yr. 2004 - 05 relevant to A.Yr.2005 - 06, M/S Key Components (Pvt.) Ltd, has taken the following accommodation entries. It has been revealed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of papers they were asked to sign. They were made directors of companies, partners of firms and proprietor of different concerns solely for operation of these accounts. Actually, many of them were not even aware of the tax implications etc. Their only concern was with the thousand rupees given to them by the entry operators. 3. Summing up, the report as a result of these extensive enquiries carried out by the D.I.T. (Inv.), New Delhi has established the non-genuineness of transactions, whether shown by beneficiaries as inflow of Share Capital or receipt of Gifts or consideration for sale-purchase. The creditworthiness of the persons/persons controlling the concerns who have given these credit entries/share capital/gifts /sale consideration has also not been established. 4. In the instant case of the assessee, M/S Key Components Pvt. Ltd. has taken the accommodation entries noted below :- Beneficiary s name Beneficiary s Bank name Branch Value of Entry Inst. No. Date of entry Name of Account Holder of entry giving Bank from which entry given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , modus operandi of the entry provider, summing-up of enquiry of Investigation Wing, information received from Investigation Wing and facts stated by the A.O. that assessee has taken accommodation entry. The A.O. without verifying anything concluded that assessee has taken accommodation entry. The A.O. has not brought any material on record on the basis of which any nexus could have been established between material and the escapement of income. The reasons do not show any application of mind nor the same show any belief independently arrived at by the A.O. which is the basic pre-requisite for issue of notice under section 148 of the I.T. Act. Learned Counsel for the Assessee, therefore, submitted that reopening of the assessment is illegal and bad in law and liable to be quashed. She has relied upon the following decisions in support of her contention. (i) Decision of Hon ble Delhi High Court in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., 395 ITR 677. (ii) Decision of Hon ble Delhi High Court in the case of Pr. CIT vs. G G Pharma India Ltd., 387 ITR 147. (iii) Decision of Hon ble Delhi High Court in the case of Pr. CIT vs. RMG Polyvinyl (I) Ltd., 396 ITR 5 (iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-genuine transactions. The A.O. reproduced the same facts in the reasons and straightaway concluded that the findings of the report of Investigation Wing shows the creditworthiness of the lender has not been established, therefore, these transactions SEEM to be non-genuine. The record reveals that vide Order dated 16.05.2018, the Ld. D.R. was directed to produce copy of the report of the DIT (Inv.) referred to and recorded by the A.O. in the reasons. However, till date, no such report has been produced on record for verification of the Tribunal. It may be noted that though in the reasons the A.O. has mentioned that value of the entry was of ₹ 5,00,545/- but ultimately the A.O. made addition of ₹ 5 lakhs in the case of M/s. V.R. Traders Pvt. Ltd., in which case accommodation entry is stated to have been received. There is, thus, a factual error in the reasons recorded for reopening of the assessment regarding the amount of the accommodation entry. In the present case, the A.O. has merely reproduced the precise information which he has received from Investigation Wing of the Revenue Department and reproduced the same in the reasons recorded under section 148 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied- a post mortem exercise of analysing materials produced subsequent to the. reopening will not make an inherently defective reassessment order valid. ; The assessee filed returns for the assessment year 2003-04 which was processed under section 143(3) of the Income-tax Act, 1961. Based on information received from the Directorate of Investigation about four entries, stated to have been received by the assessee on a single date, i.e., February 10, 2003} from four entities which were termed as accommodation entries, the Assessing Officer issued notice to the assessee for reassessment for the assessment year 2003-04 on March 19, 2010 stating that it was evident that the assessee company had introduced its own unaccounted money in its bank by way of accommodation entries. The assessee's appeal was dismissed by the Commissioner (Appeals). The Tribunal concluded, from the reasons recorded, that the1 Assessing Officer issued notice only on the basis of information received from the Investigation Wing but without coming to an independent conclusion for reason to believe that income had esc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, who had deprived himself of that opportunity by proceeding on the erroneous premise that the assessee had not filed a return for the assessment year, 2004-05, when in fact it had. In his assessment order, the Assessing Officer had, instead of adding a sum of ₹ 78 lakhs, even going by the reasons for reopening of the assessment, added a sum of ₹ 1.13 crores and the basis for such addition had not been explained. No error was committed by the Appellate Tribunal in holding that reopening of the assessment under section 147 was bad in law. No question of law arose. 6.2. The ITAT, Delhi E-Bench in the case of M/s. MRY Auto Components Ltd., vs. ITO (supra), on identical facts, following the decision of the Hon ble Delhi High Court in the case of Meenakshi Overseas Pvt. Ltd., (supra), set-aside and quashed the reopening of the assessment. The findings of the Tribunal in paras 2 to 7 are reproduced as under : 2. Briefly the facts of the case are that information was received from Investigation Wing of Department to the effect that the assessee was a beneficiary in accommodation entry racket being run by certain persons. It had reportedly received certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Trading Pvt. Ltd., SBBJ NRR 24620 Therefore, I have reason to believe that an income of ₹ 10,01,105/- plus commission @ 2% thereon amounting to ₹ 20,022/- totaling toRs.10,21,127/- has escaped assessment during the assessment year. Onthe basis of this information, I have reason to believe that the incomes described above have escaped assessment and the case is fit for issuing. Notice u/s 148 of Income Tax Act, 1961. 2.1. The A.O. noted that assessee has not filed any objections to the validity of the notice issued under section 148 of the Act. The assessee informed the A.O. that it has had no transaction with M/s. Kuldeep Textiles (P) Ltd., as noted in the reasons. The assessee filed details to show that addition to the amounts mentioned above from RahulFinlease P. Ltd., and Division Trading Pvt. Ltd., it had received money allegedly towards share capital from the three other companies as well. The total amount of money received from these entities towards share capital is noted at page-3 of the assessment order totaling to ₹ 27 lakhs from five parties. The A.O. after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver) . The AO adds that the said accommodation was a known entry operator the source being the report of the Investigation Wing . 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of ₹ 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... 22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying unaccounted cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. 27. Each case obviously turns on its own facts and no two cases are identical. However, there have been a large number of cases explaining the legal requirement that requires to be satisfied by the AO for a valid assumption of jurisdiction under Section 147 of the Act to reopen a past assessment. 28.1. In Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra), the reasons for reopening as recorded by the AO in a proforma and placed before the CIT for approval read thus: 11. Reasons for the belief that income has escaped assessment.- Information is received from the DIT (Inv.- 1), New Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings under Section 148 of the Act. The facts in the present case are more or less similar. The present case is therefore covered against the Revenue by the aforementioned decision. 29.1. The above decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under: Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter-alia reported as under: Entries are broadly taken for two purposes: 1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc. 2. To inflate expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. It has been revealed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anjay Rastogi, CA during a survey operation conducted at his office premises by the Investigation Wing. The particulars of some of the transaction of this nature are as under: Date Particulars of cheque Debit Amt. Credit Amt 18.11.96 305002 5,00,000 Through the Bank Account No. CA 4266 of M/s. Mehram Exports Pvt. Ltd. in the PNB, New Rohtak Road, New Delhi. Note: It is noted that there might be more such entries apart from the above. The return of income for the assessment year 1997-98 was filed by the Assessee on 4th March 1998 which was accepted under Section 143 (1) at the declared income of ₹ 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of ₹ 5,00,000 (as mentioned above) has escaped the assessment within the meaning of the proviso to Section 147 and clause (b) to the Explanation 2 of this section. Submitted to the Additional CIT, Range -12, New Delhi for approval to issue notice under Section 148 for the assessment year 1997-98, if approved. 30.2. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entertained a suspicion that the Assessee s income has escaped assessment, such suspicion could not form the basis of initiating proceedings under Section 147 of the Act. A reason to believe - not reason to suspect - is the precondition for exercise of jurisdiction under Section 147 of the Act. 34. Recently in Agya Ram v. CIT (supra), it was emphasized that the reasons to believe should have a link with an objective fact in the form of information or materials on record... It was further emphasized that mere allegation in reasons cannot be treated equivalent to material in eyes of law. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessments. 35. In the decision of this Court dated 16th March 2016 in W.P. (C) No. 9659 of 2015 (Rajiv Agarwal v. CIT) it was emphasized that even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion. In the case of Meenakshi Overseas Pvt. Ltd., (supra), the A.O. in the reasons has even mentioned that he has gone through the information so received which is lacking in the instant case. TheA.O. being a quasi-judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. The A.O. however, merely repeated the report of Investigation Wing in the reasons and formed his belief that income chargeable to tax has escaped assessment without arriving at his satisfaction. The reason to believe contain no reason but the conclusion of A.O. without any basis. Thus, there is no independent application of mind by the A.O. to the report of Investigation Wing which form the basis for reasons to believe that income has escaped assessment. The conclusion of the A.O. in the reason are at best reproduction of conclusion of the Investigation report. It is borrowed satisfaction not permissible in law. The reasons fail to demonstrate the link between the alleged tangible material and the formation of the reason to believe that income has escaped assessment. The issue is therefore, identical in the present appeal as has been considered and de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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