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TMI Blog2019 (5) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... letter has been received from the DIT(Inv.) the AO cannot reopen the assessment even if original assessment was u/s. 143(1). AO based on the reasons recorded as set out above could not have initiated a fishing enquiry to find out the veracity of the information given by the DIT(Inv.). The reasons recorded by AO does not stand the test as laid by plethora of judicial precedence as discussed above which is sine qua non to assume jurisdiction u/s 147 we find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee falls. Since the AO failed to validly assume jurisdiction u/s. 147 the assumption of jurisdiction by him to re-open the assessment itself is qorum non judice and, therefore, all subsequent action is null in the eyes of law and therefore, we quash the reopening and consequent reassessment order framed by him. AO had made some enquiry (Pre-reopening) at least then he would have definitely stumbled across the order of the Tribunal passed in ACIT Vs. Swastik S. Ghuwalewala [ 2013 (5) TMI 1005 - ITAT KOLKATA] wherein the Tribunal has held that the purchase and sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f mind has proceeded to reopen the assessment only on the basis of a general report given by the Directorate of Investigation in respect of certain bogus LTCG which was not relevant to assessee s case. According to Ld. Counsel, before the AO decides to reopen the assessment, he has to satisfy the condition precedent to assume jurisdiction and for that he took our attention to the expression used in sec. 147 of the Act which uses the expression that AO should have reason to believe escapement of income. According to ld Counsel, the expression reason to believe postulates a foundation based on information and belief based on reasoning. According to ld Counsel, even after there is a foundation based on information is there, still there must be some reasons warrant holding a belief that income chargeable to tax has escaped assessment. The Ld. AR reminded us that the expression used by Parliament is Reason to believe which is stronger than the expression satisfied and in the present case such requirement as contemplated by law has not been met in the reason recorded by the AO before venturing to re-open the assessment which vitiates the assumption of jurisdiction by AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accommodation entry giver is not mentioned. How he can be said to be a known entry operator is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or 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 som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DIT (Inv.-1), New Delhi that the assessee has introduced money amounting to ₹ 5 lakh during the F.Y. 2002-03 relating to A.Y. 2003-04. Details are contained in Annexure. As per information amount received is nothing but accommodation entry and assessee is a beneficiary. 28.2 The Annexure to the said proforma gave the Name of the Beneficiary, the value of entry taken, the number of the instrument by which entry was taken, the date on which the entry was taken, Name of the account holder of the bank from which the cheque was issued, the account number and so on. 28.3 Analysing the above reasons together with the annexure, the Court observed: 14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to ₹ 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. It has been revealed that the following entries have been received by the assessee:.... 29.2 The details of six entries were then set out in the above 'reasons'. These included name of the beneficiary, the beneficiary's bank, value of the entry taken, instrument number, date, name of the account in which entry was taken and the account from where the entry was given the details of those banks. The reasons then recorded: The transactions involving ₹ 27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed. On the basis of this new information, I have reason to believe that the income of ₹ 27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 The AO was not merely reproducing the information received from the investigation but took the effort of referring to the deposition made during the survey by the Chartered Accountant that the Assessee company was involved in the giving and taking of bogus entries. The AO thus indicated what the tangible material was which enabled him to form the reasons to believe that income has escaped assessment. It was in those circumstances that in the case, the Court came to the conclusion that there was prima facie material for the AO to come to the conclusion that the Assessee had not made a full and true disclosure of all the material facts relevant for the assessment. 31. In Commissioner of Income Tax v. G G Pharma (supra) there was a similar instance of reopening of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self 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. 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e identical to the case decided by the Hon ble Delhi High Court. Following the said decision we hold that initiation of reassessment proceedings is not valid. On this ground, the assessment is liable to be annulled. 8. The Hon ble Bombay High Court in Pr.CIT Vs. Shodiman Investments (P) Ltd. (2018) 93 taxmann.com 153 (Bom) it has been held as under: 9. We find that at the time of re-opening of the Assessment, the Assessing Officer did not provide the reasons recorded in support of the re-opening notice in its entirety, to the Respondent-Assessee. This was contrary to and in defiance of the decision of the Apex Court in GKN Driveshafts v. ITO [2002] 125 Taxman 963/ [2003]259 ITR 19. The entire objects of reasons for re- opening notice as recorded being made available to an Assessee, is to enable the Assessing Officer to have a second look at his reasons recorded before he proceeds to assess the income, which according to him, has escaped Assessment. In fact, non furnishing of reasons would make an Assessment Order bad as held by this Court in CIT v. Videsh Sanchar Nigam Ltd. [2012] 21 taxmann.com 53, 340 ITR 66. In fact, partial furnishing of reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason to believe' that in case of escaped assessment, is sufficient to re-open the assessment. This unlike the earlier provision of Section 147(a) of the Act which required two conditions i.e. failure to disclose fully and truly all facts necessary for assessment and reason to believe that income has escaped assessment Thus, the observations being relied upon must be read in the context in which it rendered. On so reading the submission, will not survive. 11. Further, a reading of the entire decision, it is clear that the reasonable belief on the basis of tangible material could be, prima facie, formed to conclude that income chargeable to tax has escaped assessment. Mr. Mohanty, learned counsel is ignoring the fact that 6the words whatever reasons is qualified by the words having reasons to believe that income has escaped assessment . The words whatever reasons only means any tangible material which would on application of the facts on record lead to reasonable belief that income chargeable, to tax has escaped, assessment This material which, forms the basis, is not restricted, but the material must lead to the formation of reason to believe that income cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uming jurisdiction on the part of the Assessing Officer. 13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does- not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. 14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding re-opening notice from the DDIT (Inv.) This is clearly in breach of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as well as initiation of proceedings u/.s 147 of the Act. In this regard the Ld. Counsel for the assessee placed before us two decisions one rendered by Lucknow Bench of ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai G Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016. In both the decisions a view has been taken by the Tribunal that when an Assessment order passed u/s 147 of the Act was illegal the CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon ble Mumbai bench of the Tribunal has specifically framed the following questions :- 1.Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10-2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the benefit of revenue and not for assessee. 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment years has escaped assessment. In this regard the reasons recorded by the AO for initiating proceedings u/.s 147 of the Act for A.Y.2007-08 and 2008-09 has already been set out by an order in the earlier part of this order. The gist of the reasons recorded by the AO is that the assessee had made investments of about ₹ 4 crore in construction of hotel/resort at Mandarmoni, Purba Midnapore. It is the further allegation in the reasons recorded that to a notice u/s 133(6) of the Act, the Assessee had in reply admitted investment of only ₹ 3.38 crores in construction of hotel and that source of funds for such construction was out of share capital and secured loan. It is also not disputed that the value of investments as stated by the assessee in its reply to the notice u/s 133(6) of the Act, was duly shown as the investment in construction of hotel with the balance sheet of the assessee. The AO has however inferred that there is a difference in the value of investment in construction of hotel as shown in the books of account and as per the information in possession of the AO which is a sum of ₹ 4 crores. Another reason given by the AO is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sought to defend the action of the AO by submitting that there was a survey in the business premises of the assessee and in such survey there was evidence to show that the assessee had invested a sum of ₹ 4 crores in construction of a hotel at Mandarmoni. We are of the view that this submission of the ld. DR cannot be accepted. The law is well settled that the reasons recorded by the AO have to be tested on the basis of specific wordings of the reasons so recorded. No external material can be shown to justify the conclusion arrived at in the reasons recorded unless these materials are specifically referred to or incorporated in the reasons recorded. In the reasons recorded the AO has not disclosed the basis of this conclusion that the assessee made an investment of ₹ 4 crores in the construction of a hotel at Mandarmoni. We find that in this regard that Hon ble Bombay High Court in the case of Hindustan Lever Ltd., Vs. R.B.Wadkar (2004) 268 ITR 0332 the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight have possibly involved introduction of her un accounted money by the assessee. It is thus clear that the assessment was reopened by the Assessing Officer on the basis of suspicion and in order to make fishing and roaming enquiries, which, in my opinion, is not permissible. It is a settled position of law that the assessment can be reopened under section 147/148 on the basis of 'reason to believe' and not 'reason to suspect'. As held by the Coordinate Bench of this Tribunal in the case of Deputy Director of inc me Tax (International Taxation )-21, Mumbai -vs.- Societe International De Telecommunication ( supra) cited by the Id. counsel for the assessee, unless the reasons to believe about the escapement of income exist, no recourse can be taken to the provisions of section 147. It was held that where an Assessing Officer ventures to initiate reassessment proceedings with an object of finding some material about the escapement of income, such reassessment cannot legally stand and the law doe s not permit the Assessing Officer to conduct inquiries after the initiation of reassessment ITA No. 671 / KOL/2015 Assessment year: 2008 - 2009 proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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. 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/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 supplied was extremely scanty and vague and in that light of those facts, the Hon'ble Jurisdictional Delhi High Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 12. Per contra, the Ld. DR supporting the order of the authorities below submitted that though the assessee claimed LTCG from sale of shares which happened on the platform of stock exchange still the abnormal price rise of scrips defies all logic and is against human probabilities. And while adjudicating the LTCG claim of assessee one should test it on the test of human probability and cited decisions of Hon ble Apex Court, High Courts and Tribunal in following cases: i) CIT Vs. P. Mohankala 291 ITR 278 (SC), ii) CIT Vs. Durga Prasad More (1971) 82 ITR 540 (SC), iii) Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC), iv) Das sons Vs. CIT (2003) 264 ITR 435 (Delhi), v) Smt. Phoolwati Devi 314 ITR (AT) 1 (Del.), vi) CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parliament has given power to AO to reopen the assessment, if the condition precedent as discussed above are satisfied, and not otherwise. It should be kept in mind that the concept of assessment is governed by the time-barring rule and the assessee acquires a right as to the finality of proceedings. Queitus of the completed assessment is the Fundamental Rule and exception to this rule is Re-opening of assessment by AO under section 147 or exercise of Revisional jurisdiction by CIT under section 263 of the Act. Therefore, the Parliament in its wisdom has provided safeguards for exercise of the reopening of assessment jurisdiction to AO; and revisional jurisdiction of CIT by providing condition precedent which is sine qua non for assumption/usurpation of jurisdiction. In the case of reopening of assessment, the reason to believe escapement of income is the jurisdictional fact and law (mixed question of fact and law) and for revisional jurisdiction the order of the AO should be erroneous as well as prejudicial to the revenue. Unless the condition precedent is not satisfied, the AO or the CIT can exercise their reopening jurisdiction or revisional jurisdiction respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other authority, because then it will be against one of the basic feature of the Constitution of India ie, the Rule of Law, wherein the Parliament has empowered this reopening jurisdiction only to that of Assessing Officer and that is why if the reason to believe escapement of income is not that of AO, the assumption of jurisdiction to re-open, has been held to be vitiated and resultantly bad in law, since it will be on the basis of borrowed satisfaction. 17. From the aforesaid understanding of law governing the issue at hand, we have to examine the reasons already set out above and test whether the condition precedent necessary to usurp the re-opening jurisdiction can be discerned from perusal of the reasons recorded by the AO in the instant case (supra). From the gist of the reasons recorded by the AO, we understand that the AO received information from DIT (Inv.), Kolkata dated 21.09.2015 that the investigation carried out by the Directorate revealed that a very large number of persons had taken entries of huge bogus long term capital gain in an organized manner through share transactions of penny stock companies listed with Calcutta Stock Exchange with the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO says that he has reason to believe that the assessee has suppressed his income by using LTCG treating it as exempt to the tune of ₹ 2,38,54,750/- which is/are reported as bogus by the Directorate . (which means that as per the report of directorate LTCG claim of assessee is bogus) And thereafter, he concludes that he has reason to believe that income to the extent of ₹ 2.38 cr. has escaped assessment. Thus, from a reading of the reasons recorded by AO to justify re-opening of assessment, clearly show that the AO has taken note of the information from the DIT(Inv.) and taken the contents of the information given by DIT (inv) as gospel of truth against the assessee [without any verification or enquiry] to form a conclusion about escapement of income without independent application of mind by himself is nothing but an action taken by AO based on the strength of borrowed belief of DIT (inv) and not that of AO, which vitiates the very assumption of jurisdiction by AO to re-open the assessment, which finding of us will be clear when we analyze the reasons recorded in detail infra. 18. From the aforesaid reasons recorded by AO it is evident th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the reality from the angle of human probability. Thereafter, the AO says that he has reason to believe that the assessee had suppressed its income by using LTCG treating it as exempted to the tune of ₹ 2,38,54,450/-; which is/are reported as bogus by the directorate. So it is clear from the aforesaid averments that AO based on directorate s report (DIT Investigation s Report) has taken a view that LTCG claim of assessee is bogus, and not as per his independent view after a preliminary enquiry. Because the AO himself records in the reasons to re-open that the claim of assessee (LTCG) need to be looked into from the surrounding circumstances to find out the reality , which admission of AO goes on to show that AO had reason to suspect only and not reason to believe. This statement of AO clearly shows that the information given by DIT(Inv.) need further probe to find out the reality. So the AO admits that the information given by DIT(Inv.) has not rendered him to make up his mind to believe that income chargeable to tax has escaped assessment. At the cost of repetition we say that an adverse information against an assessee may trigger reason ..... X X X X Extracts X X X X X X X X Extracts X X X X
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