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TMI Blog2019 (11) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... her person was there to warrant assumption of jurisdiction in assessee s case except some general allegations. Moreover, not a single document is mentioned and referred to in the reasons recorded wherefrom the stated allegation, as levelled in the reasons, can be supported. These are fatal errors which strike at the very foundation of the validity of the re-assessment proceedings. CIT (A), in his adjudication on the validity of the reasons recorded, has simply stated that since the AO has taken care of the procedure to be followed as dictated in the case of GKN Driveshaft [ 2002 (11) TMI 7 - SUPREME COURT] nothing more was required to be seen and looked into. This observation, to our mind, is a very casual way of dealing with the detailed arguments of assessee made before him. Taking a holistic view on the facts of this case, we are of the considered view that reopening in the present case cannot be approved on the basis of the reasons recorded and the same is held to be without authority of law - AO has simply relied on the information from the CIT(Central)/DIT(Inv) to form a conclusion about escapement of income, which itself is flawed and cannot pass the test of 'reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing marginal relief of ₹ 3,000/- on a/c of alleged expenditure incurred by the assessee in obtaining the said entry. 2.3 Now the assessee is before this Tribunal (ITAT) in appeal and the main ground argued by the assessee before us relates to assumption of jurisdiction u/s 147 of the Act. The relevant ground as argued before us is reproduced below for the sake of ready reference: That notice issued u/s 148, subsequent order passed u/s 147 and impugned order passed by Ld CIT-Appeals all are bad in law, because of non fulfillment of mandatory jurisdictional conditions specified under the Act 3.0 The Ld. Authorised Representative (AR), at the outset, drew our attention to the reasons recorded u/s 148 of the Act. Elaborating his case, the Ld AR further drew our attention to a letter dated 04/12/2012 addressed to the DCIT, Central Circle 9, New Delhi and issued by the Income Tax Officer, Ward 15 (1), New Delhi and referring to the said letter, it was argued by the Ld. AR that when the reasons were recorded by AO, the basic information and material which was required to reopen the case was itself not available with the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch operation u/s 132 of the Act; ii) whether the said statement (if any) mentioned and correlated the assessee s impugned transaction; iii) existence of incriminating material (if any) unearthed from said search operation u/s 132 of the Act; iv) correlation of the said incriminating material to assessee s subject transaction; v) inquiry, if any, made by the AO on the subject matter with respect to the information received by the AO from another wing prior to the reopening of case u/s 148 of the Act; vi) any specific and particular tangible material to form valid belief to implicate the assessee s transaction as accommodation entry; and vii) live nexus between the search on Shri Aseem Gupta and the inference to hold the assessee s transaction as accommodation entry. It was submitted that these crucial facts were missing vis a vis the reasons recorded. 3.3 The Ld. AR pleaded for quashing of the reopening being based on invalid and unlawful reasons based on borrowed satisfaction and were grossly lacking independent application of mind. 3.4 Various case laws were also relied upon by the Ld. AR which were namely: i) Delhi ITAT G be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Heavily relying on aforesaid observations of the Hon ble Delhi High Court it was sought to be argued by the Ld. Sr. DR that no interference need be made in perfectly valid and justified reopening made in the present case. The Ld. Sr. DR prayed for the rejection of arguments of the Ld AR of assessee. 5.0 In the rejoinder, the Ld AR submitted that the assessee s case is not adversely affected by the aforesaid judgment in Sonia Gandhi s case (supra). It was argued by the Ld AR that the aforesaid judgment did not firstly deal with the aspect of lack of independent application of mind. Secondly, on the aspect of absence of tangible material and live nexus in the impugned reasons, it was submitted that there was no similarity to the reasons in the case of Sonia Gandhi (supra) which were based on nondisclosure of the taxing event, i.e. allotment of shares. Thirdly, it was submitted that non existence of requisite material in possession of the AO at the time of recording of reasons was manifest from the letter dated 4th December, 2012 and clearly distinguished the assessee s case from Sonia Gandhi s case (supra). 6.0 We have heard the rival submissions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact of the income having escaped assessment is proved to the hilt. What is, however, necessary is that there must be something tangible which indicates, even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that income has escaped assessment. Merely because detailed investigation was not carried out, and if so, could have led to detection of income escaping assessment, cannot be the reason enough to hold the view that income has escaped assessment. 6.2 It is also important to bear in mind the subtle but important distinction between factors which indicate an income escaping assessment and the factors which indicate a legitimate suspicion about income escaping assessment. The former category consists of the facts which, if established to be correct, will have a cause and effect relationship with the income escaping assessment. The latter category consists of the facts, which, if established to be correct, could legitimately lead to further inquiries which may lead to detection of an income which has escaped assessment. Therefore, there has to be some kind of a cause and effect r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonability of the grounds which lead to the formation of belief warranting reopening is tested from the point of view of whether or not they are germane to the formation of belief that income escaped assessment and after four years, an additional condition that escapement of income was due to fault of the assessee in not fully and truly disclosing the material facts at the time of original assessment is also to be fulfilled. 6.4 The Hon'ble Supreme Court, endorsing the Full Bench decision of the Hon'ble Delhi High Court in CIT vs. Kelvinator of India Ltd., held in its order reported in 320 ITR 561, .....that Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have link with the formation of belief. Therefore, if the fresh tangible material which the AO has in his possession is relevant to have nexus to the formation of belief then, of course, the AO would have the necessary jurisdiction to take action under the Act. What is required to be examined is not the adequacy or sufficiency of the grounds but the existence of belief. In our view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppropriate that the cash and other deposits belonging to beneficiaries should be substantively taxed in the hands of beneficiaries themselves. As per information received from the office of CIT-Central II New Delhi the assessee M/s Raghvi Finance P Ltd has taken following accommodation entries from following person (beneficiary) as per details hereunder: Name of beneficiary Amount (Rs) Cheque/DD No Date Bank detail Name of the company used for providing accommodation entry Raghvi Finance Limited 600,000 584196 17.06.2004 Corp Bank Pitampura N.D Moderate Credit Corp Limited In view of the report recd from o/o CIT (Central) II New Delhi and in view of facts narrated above it is clear that the assessee has not disclosed fully and truly all material facts necessary f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise as invalid on wellsettled parameters of section 148 of the Act. Second aspect which is notable in the reasons recorded is that there is no intelligible and rational connection in the reasons recorded and a mere conclusion is drawn from un-narrated information which does not fulfil the legal requirement u/s 148 of the Act. What we notice is that the reasons recorded mention conclusions drawn by the CIT-Central/investigation wing only which is taken as good enough to draw reasons recorded u/s 148 of the Act. We are fully conscious of the fact that the investigation wing of the Income Tax department is very important organ and arm collecting lot of significant information/s under the Act. However, the requirement of recording the reasons u/s 148 of the Act is vested in the AO only and nobody else. In the present case, the AO should have given relevant details in the reasons recorded vis a vis the crucial aspects of information shared by the CIT Central/ investigation wing (if any) which in his own independent opinion led him to formulate the belief for assuming jurisdiction for re-assessment and sans which we cannot approve the present reasons as valid and correct. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Inv.) and, thereafter, the AO has to take an independent decision to re-open or not. The AO should not act on the dictates of any other authority like in the present case the AO has acted on the mere information from the CIT (Central)/DIT(Inv.) because then it would be borrowed satisfaction. 6.10 ITAT Delhi G Bench had an occasion to consider an identical issue in the case of SBS Realtors (P) Ltd in ITA No. 7791/Del/2018 for Assessment Year 2009-10. Vide order dated 01.04.2019, the co-ordinate Bench held as under: 6. From a perusal of the above reasons, it is seen that the Investigation Wing has supplied certain information to the Assessing Officer with regard to receipt of cheques by the assessee from various companies who are considered to be S.K. Jain group companies by the Investigation Wing. As per the Investigation Wing, the above cheques paid by S.K. Jain group companies were accommodation entries to M/s SBS Realtors Pvt. Ltd. i.e., the assessee. However, what is the material found during the course of search of S.K. Jain group cases which had led to form the belief that all those companies are providing accommodation entries is not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it necessary to ensure that the assessee has not understated the income, he can issue the notice under Section 143(2). However, proviso to above Section provides the time limit within which such notice can be issued. Once that time limit is expired, in our opinion, the Assessing Officer cannot invoke Section 148 just for the purpose of verification. Therefore, in our opinion, in the case under consideration, the reopening of assessment for the purpose of verification of genuineness, identification and creditworthiness of the transaction is not permissible under law and is liable to be quashed. 8. The learned counsel for the assessee has also mentioned that the notice has been issued mechanically without application of mind and the satisfaction by the Assessing Officer is only the borrowed satisfaction of the Investigation Wing. The Assessing Officer, without applying his mind, has simply on the basis of information of the Investigation Wing jumped to the conclusion that there is escapement of income. From a perusal of the aforesaid reasons, we do not find any application of mind by the Assessing Officer for reaching to the conclusion that there was escapement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was beyond the purview of the courts and was not justified. The orders of the Appellate Tribunal could not be sustained. The Appellate Tribunal was directed to hear the Department s appeals on their merits. 9. On the other hand, learned counsel for the assessee has relied upon the catena of judgment before and after the date of above judgment of Hon'ble Delhi High Court wherein the notice under Section 148 simply on the basis of report of the Investigation Wing has been quashed. The same is as under:- (i) Sarthak Securities Co. P. Ltd. Vs ITO [2010] 329 ITR 110 (Delhi). (ii) Signature Hotels P. Ltd. Vs. ITO [2011] 338 ITR 51 (Delhi). (iii) PCIT Vs. G And G Pharma India Ltd. [2016] 384 ITR 147 (Delhi). (iv) PCIT Vs. RMG Polyvinyl (I) Ltd. [2017] 396 ITR 5 (Delhi). (v) PCIT Vs. Meenakshi Overseas Pvt. Ltd. [2017] 395 ITR 677 (Delhi). 10. Learned DR has also relied upon few decisions of Hon ble Gujarat High Court. However, when there are large number of decisions of Hon'ble Jurisdictional High Court, the same would be binding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Wing. There is no crucial link between the information made available to the Assessing Officer and the formation of belief of escapement of income. There is no basis for coming to the conclusion that the assessee received accommodation entries. The Investigation Wing alleged that the companies which issued cheques to the assessee company are companies of Shri S.K.Jain group and they are entry providers. However, the basis for such conclusion is missing. There is no mention that any document was seized from Shri S.K. Jain group or any director of the 12 companies which have given cheques to the assessee has given the statement that they have provided accommodation entries to the assessee. The Assessing Officer has simply reopened the case on the basis of information provided by the Investigation Wing without any independent application of mind. There is no tangible material which formed the basis for the belief that income has escaped assessment. 12. While taking the above view, we derive support from the latest decision of Hon'ble Jurisdictional High Court in the case of RMG Polyvinyl (I) Ltd. (supra) and Meenakshi Overseas Pvt. Ltd. (supra). In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd 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 is another conclusion the basis for which is not disclosed. Who is 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 there from. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. ************* 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. 37. For the aforementioned reasons, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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