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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 ..... ation) as gospel of truth and thus the reason to belief escapement of income is not that of the AO but at best be said to be action mechanically carried out by the AO on receipt of report from DDIT (Inv.). The repetition of certain portions of the investigation report of DDIT without any reasons independently recorded by the AO on the basis of borrowed satisfaction of the DDIT (Inv.) cannot be the basis for reopening of assessment u/s. 147 of the Act. Therefore, following the ratio laid down by the Hon ble Delhi High Court in the case of Meenakshi Overseas Pvt. Ltd [2017 (5) TMI 1428 - DELHI HIGH COURT] and various case laws as cited before us we hold that jurisdictional condition precedent in section 147 of the Act has not been satisfied by the AO for reopening the assessment. - Decided in favour of assessee. - I.TA No. 538/Kol/2018 (Assessment Year: 2005-06) - - - Dated:- 31-10-2019 - Shri A. T. Varkey, JM And Shri A.L. Saini, AM For the Appellant Shri Miraj D. Shah, Advocate, ld.AR For the Respondent Shri Supriya Pal, JCIT, ld. Sr.DR ORDER PER SHRI A.T. VARKEY, JM This is an appeal preferred by the assessee against the order of Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 undisclosed sources of income is given to the entry operator who in turn issues cheques which are given the colour share application money/share capital/unsecured loans etc. I have therefore, reason to believe that the undisclosed income of assessee during the year under consideration to the extent of ₹ 6.00,000/- has escaped assessment. Since, the assessee company is a beneficiary of the accommodation entries as per details given above, I have reasons to believe that the assessee had understated income. 4. The AO issued notice of reopening u/s. 148 of the Act dt. 7-3-2012 and thereafter, gave the reasons for reopening (supra) on 19-12-2012. The assessee objected to re-opening, which was turned down by the A.O vide letter dt. 21-01-2013.Thereafter, the AO added ₹ 6,00,000/- as well as share capital raised by the assessee to the tune of ₹ 71,57,000/-. Thus, made additions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 What was the information from the DIT (Inv) Delhi and what the AO did after obtaining the information . According to ld. AR, the information from DIT (Inv) can at best trigger reasons to doubt and then the AO promptly has to make some enquiry to find out whether the assessee has indulged in providing cash to the M/s. S.M Enterprises i.e. whether there was any deposit immediately before the cheque transfer like amount to assessee s account etc. In this case a reading of reasons recorded does not reveal any such enquiry conducted by the AO before recording of reasons to invoke the jurisdiction to reopen the assessment of assessee. According to Ld AR, the reasons recorded by the AO has not spelt out the nature of transactions namely whether it was given to assessee in the form of share application money, share capital/unsecured loans etc. Therefore, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide one. Therefore, I have reason to believe that an income of ₹ 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 ₹ 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, 1961 under Section 148 is being issued. 6. The action of the AO to reopen the assessment based on an information from DIT (Inv.) supra was challenged by the assessee against the very action of issue of notice u/s. 148 issued on 23/24-03-2011, wherein Hon ble High Court upheld tribunal s findings as under:- 12. Perusing the reasons for re-opening of the assessment in the present case, the ITAT came to the conclusion that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147 (1) of the Act requires the AO to have reasons to believe that any incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner 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 the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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, New Delhi v. Highgain Finvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under: It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 738 dated 8th April 2003 that this company was involved in the giving and taking bogu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med 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 that ... the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 assessment of assessee is on the foundation of the report from the DDIT (Inv.) and the reasons were recorded before the AO reopened the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has escaped assessment is not evident from a reading of the reasons as recorded by the AO (supra). We note that AO upon receipt of information from DDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate 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 from the DDIT has simply adopted the information received from the DIT (Investigation) as gospel of truth and thus the reason to belief escapement of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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