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TMI Blog2019 (11) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiries were conducted by the office of the Directorate of Income Tax (Investigation), New Delhi upon the entry providers. The Investigation/enquiries carried out and the data of such beneficiaries as complied by the DIT (Investigation) was examined. It was been gathered that the assessee is amongst the beneficiaries of bogus accommodation entries. The assessee has received bogus accommodation entries detailed below: Beneficiary bank name Beneficiary bank branch Value of entry taken Instrument no. by which entry taken Date which entry taken Name of account holder of entry giving account Bank from which entry given Branch of entry giving bank A/c No Entry giving account 1 2 3 4 5 6 7 8 9 Standard Chartered New Delhi 150000 117631 17/10/04 S.M.Enterprise Corporation Bank Paschim Vihar 52778 Standard Chartered New Delhi 200000 117635 05/11/04 S.M.Enterprise Corporation Bank Paschim Vihar 52778 Standard Chartered New Delhi 250000 117643 23/11/04 S.M.Enterprise Corporation Bank Paschim Vihar 52778 The modus operandi involves in such bogus accommodation transactions is that cash generated out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, who (entry operator) in turn issues cheque(s) in the form of share application money/share capital/unsecured loans etc. Thereafter, the AO has formed his opinion that he has reasons to believe that Rs. 6 lakhs has escaped assessment. From a mere reading of the reasons recorded by the AO to invoke the jurisdiction to reopen the assessment, according to the ld.AR it is vague and cannot give rise to the condition precedent for usurpation of the jurisdiction u/s. 147 of the Act. According to the ld. AR the condition precedent to reopen the assessment is "reason to believe, escapement of income", which is absent in the reasons recorded by the AO to reopen the assessment. According to him, reason to believe, postulates foundation based on information and belief based on reason. According to ld. AR even if there is a foundation based on information is existing, still there must be reason warrant holding a belief that income chargeable to tax has escaped assessment. So according to ld. AR when we look at the reassessment nowhere it is stated who is the accommodation entry provider and how the AO has come to such an opinion /conclusion. According to him it is not discernable as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which entry given SBH Branch of entry given bank KB A/c No. Entry giving account 50038 Information so received has been gone through. The above said instruments are in the nature of accommodation entry, which the Assessee has taken after paying unaccounted cash to the accommodation entry given, who is a known entry operator as per the report of the Investigation Wing. In view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason to believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment so far as this amount is concerned. Therefore, this case is fit for issuing notice under Section 148 of the Income Tax Act, 1961. In this case the assessment was made under Section 143(1) not under Section 143(3) of the I.T Act, 1961. I am therefore satisfied that the said income, on account of accommodation entry worth Rs. 5,00,000 received by the Assessee has escaped assessment and accordingly after recording the above said reasons as laid down under the provisions of Section 148(2) of the income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 Rs. 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 information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered 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 issuance of the notice under section 148." 29.3 The Court was not inclined to interfere in the above circumstances in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does not also examine the return already filed to ascertain if the entry has been disclosed therein. 30.1 In Commissioner of Income Tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry provided were set out in the 'reasons to believe'. However, the Court found that the AO had not made any effort to discuss the material on the basis of which he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act. 32. In Oriental Insurance Company Limited v. Commissioner of Income Tax 378 ITR 421 (Del) it was held that "therefore, even if it is assumed that, in fact, the Assessee's income has escaped assessment, the AO would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional pre-condition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise." 33. In Rustagi Engineering Udyog (P) Limited (supra), it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. 38. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs." 8. Per contra, learned Departmental Representative opposing contentions of the learned AR submitted when the AO receives information from the DDIT(Investigation) that an assessee who is residing in his jurisdiction has laundered undisclosed cash through an accommodation entry provider, he( AO) has to re-open the assessment to tax the escaped income. According to him, the AO received information that M/s. S.M Enterprises has provided accommodation entry to the assessee on various dates. After taking note of this information the AO has acted to initiate re-opening proceedings by issuance of 148 notice. Accordingly, before issuance of notice as reasons were recorded, wherein he has taken note of the information received from DDIT(Inv.), Delhi that an accommodation entry provider, M/s. S.M. Enterprises has provided to a beneficiary who in this case was the assessee. Therefore, action of the AO to re-open the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment is vague and is only reproduction of the information, which the AO received from the DDIT (Inv.). Moreover, even the information from DDIT is not given/supplied in full. Though we are of the opinion that it is not necessary to copy/repeat verbatim the report of DDIT (Inv), the AO ought to have mentioned the relevant facts pertaining to that of assessee to enable the reader of reasons recorded how the AO had formed the belief based on the reasons recorded that income of the assessee has escaped assessment. Here it is absent. On reading of the reasons recorded as set out above does not bring out how the AO has come to the conclusion that assessee had utilized the services of the account holder of entry giving account of M/s. S.M Enterprises. Thus, crucial link between the information made available to the AO and formation of belief of escapement of income is absent. The Hon'ble High Court of Delhi in Meenakshi Overseas Pvt. Ltd (supra) has observed that the reasons must be self evident; they must speak for themselves and there must be tangible material, which is absent in this present case. We note that tangible material, which formed the basis for the belief that income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 147 of the Act. The reasons to believe escapement of income which is recorded by the AO prior to reopening of the assessment must necessarily demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. Thus, we note that the reasons recorded by the AO to reopen the assessment of the assessee in the present case do not satisfy the requirement of section 147 of the Act. Information referred to by the AO in the reasons recorded (supra) is extremely scanty and vague. There is no reference to any document or statement, except reference of investigation report of DDIT (Inv.), Delhi and a general modus operandi of entry operators/providers and conclusions of the AO without any basis. Thus, the reasons recorded by the AO does not in fact have any reasons to believe the escapement of income. Further, it is evident that the AO did not apply his own mind to examine the basis/material of an information receipt from DDIT(Inv). The AO accepted the information passed on DDIT (Inv.), which was vague in a mechanical manner which goes on to show that AO did not independently apply his mind on receipt of information fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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