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TMI Blog2019 (3) TMI 1670X X X X Extracts X X X X X X X X Extracts X X X X ..... rded without any tangible material and without any live nexus. Reasons fail on following significant aspects like wrong mentioning of return filing status in reasons format, no description at all about composition of income escapement alleged to be of ₹ 2.93 crores which amount is also not correct , mechanical and ritualistic approval of PCIT who has also not bothered to examine reasons independently thus reducing the approval to a empty ritual. AO has not even cared and taken pains to describe the composition of income escapement of ₹ 2.93 crores which has fractured the entire reopening and reasons are based on the dictate and/or satisfaction of some other authority that is ITO Ward 11(3) New Delhi which is not countered by Ld DR and Ld CIT(A) in impugned order. On basis of aforesaid discussions and respectfully following the precedents, as aforesaid, we accept both the pleas raised by Ld AR and reject the arguments of Ld DR and hold that Ld CIT(A) wrongly approved the reopening action of AO and thus reverse the findings of Ld CIT(A) on these count and accordingly hold that AO wrongly reopened the case of assessee u/s 147 on basis of mechanical reasons simply bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order for fist time which is sufficient to quash the reopening) ; further fatal defect of incorrect mention of no return filing by assessee in reasons recorded/communicated to assessee is wrongly treated by Ld CIT(A) in his order at para 8.3.1 to 8.3.3 as inadvertent error thereby validating the incorrect reasons which is impermissible and Ld CIT(A) has incorrectly referred to section 292B to cure fatally defective reasons recorded/communicated to assessee; 1.4 That on the facts and in the circumstances of the case and in law, ld CIT(A) erred in sustaining the order passed by AO u/s 147/143(3) without appreciating that approval of higher authority (PCIT Faridabad) is also without requisite application of mind and is given in mechanical manner; 2. That on the facts and in the circumstances of the case and in law, ld CIT(A) erred in not deleting the addition made by AO which was also unlawful and made in violation of principles of natural justice as no back material including statements of Mr Himanshu Verma during his search cross examined to assessee during assessment proceedings despite repeated requests made in this regard which is sufficient to strike down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A), who vide his impugned order dated 31.1.2019 has dismissed the appeal of assessee. Aggrieved with the order of the Ld. CIT(A), assessee is in appeal before the Tribunal. 3. Ld counsel for the assessee while arguing the appeal has made preliminary submissions before us on legal issues of validity of extant reopening action u/s 148 of the Act and on violation of principle of natural justice which is evident from belated supply of statements at fag end of assessment proceedings (on 15/12/2017) and lack of cross examination of those persons whose statements is extensively relied by AO while drawing adverse inference u/s 68 of the Act which as per argument of Ld AR has made the order a nullity. Elaborating his case Ld AR submitted with reference to compilation of 44 pages containing reasons recorded on 3.03.2017 and relevant case laws, that reasons recorded on 03/03/2017 (which is also reproduced by AO on first two pages of assessment order) states as under: Reason for initiation of proceedings u/s 147 of the Income Tax Act,1961: As per information received from the income tax officer ward 11(3) New Delhi vide office letter F.No ITO /W- 11(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons are based on wrong and incorrect facts as evident from AO s narration of no return filing where assesssee has admittedly filed regular return 30.09.2011 and figure of ₹ 2.93 crores is found to be non existing qua assessee and correct figure as finally noted in assessment order is ₹ 1.75 crores; c) reasons recorded lack and fail on live nexus test and there is no coherence in reasons recorded which is flashing from the following portions of reasons recorded on going through the list of accommodation entries provider and the assessee has introduced his own money which has not been offered for taxation from which it clear that just on basis of a list belief is formed by AO and thereafter without any sort of description of background information if any available to AO in reasons recorded bald inference is drawn that the assessee has introduced his own money which has no back up or foundation in reasons recorded; d) reasons recorded nowhere communicates the description of how income escapement of ₹ 2.93 crores is deduced and what are the components of the same like name of share subscriber entity, amount of share subscribed, date of share subscription ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld CIT(A) that there is gross violation of principle of natural justice and no cross examination is offered for revenue s witness whose statements is heavily relied by AO to draw adverse inference u/s 68 of the Act (reference was made to assessment /AO order sheet entry dated 15/12/2017 page 12 of assessment order where only statements were purveyed at fag end of assessment proceedings without cross examination being offered for the same) and Ld CIT(A) without making legitimate efforts to cure that fatal defect by directing AO for doing the needful for offering cross examination, has arbitrarily proceeded to hold at para 10.8.5 that AO has not committed any irregularity by not allowing cross examination of Mr Himanshu Verma. Ld AR has drawn our attention to revenue office manual in this regard which extract is placed on records before us where it is clearly mandated that AO is under duty to offer cross examination before any statement is relied against the assessee and a case law compilation is placed on records by Ld AR to support his case on violation of principle of natural justice. 4. On the other hand, Ld DR vehemently rebutting the submissions of Ld AR has vehementl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by third person on the account of accommodation entry . In ITO versus Lakhmani Mewal Das, [1976] 103 ITR 437 (SC), the Supreme Court affirmed the decision of the High Court and held that there was nothing to show in the confession made by a third party related to the loan taken by the assessee much less a loan which was shown to have advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provide legal sound basis for initiation of assessment proceedings under Section 147. After referring to this judgment, a Division Bench of Delhi High Court, in Income-Tax Officer, Special Civil No. VII, New Delhi, and Another versus Dwarka Dass and Brothers, [1981] 131 ITR 571 (Del) has held as under: ....The Supreme Court, affirming the decision of the High Court, held that there was nothing to show that the confession of M.K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent and the live link or close nexus which should be there between the material before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness consisting entirely of name lending. Noticing the judgment in Lakhmani Mewal Das (supra) it was held that the nature of information which was available was vastly different. In the case of Lakhmani Mewal Das (supra), the information was extremely vague and scanty whereas in the case of Phool Chand Bajrang Lal (supra), the information was specific, unambiguous and clear. 6.4 In the present case the undated reasons recorded by the Assessing Officer for initiation of proceedings read as under: Information received from the office of the DIT (Inv.)-VI, New Delhi revealed that M/s Signature Hotels (P) Ltd. has introduced unaccounted money in its books of account during F.Y. 2002-03 through accommodation entry from M/s Swetu Stone PV for ₹ 5.00 lac. In view of the above, I have reasons to believe that taxable income to the tune of ₹ 5.00 lac has escaped assessment within the meaning of section 147 of the I.T. Act, 1961. 6.4 However, the aforesaid reasons are not the same/identical when we compare the reasons recorded by the Assessing Officer in the approval proforma for initiation of action under Section 147/148. The reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer and Another, 2010 (324) ITR 154 (Bom.) and it was held as under: Section 147 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 163, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The first proviso to section 147 has no application in the facts of this case. The basis postulate which underlies section 147 is the formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. The Assessing Officer must have reason to believe that such is the case before he proceeds to issue a notice under section 147. The reasons which are recorded by the Assessing Officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the illegality strikes at the root of the order.( (vide: Upen Chandra Gogoi v. State of Assam Ors., AIR 1998 SC 1289; Mangal Prasad Tamoli (Dead) by L.Rs. v. Narvadeshwar Mishra (Dead) by L.Rs. Ors. , AIR 2005 SC1964; and Ritesh Tiwari Anr. v. State of U.P. Ors., AIR 2010 SC 3823)). 6.10. So examining validity of extant reopening strictly on basis of reasons recorded which are approved by PCIT and are communicated to assessee , we find it very difficult to fathom and understand what was in mind of AO so that he has reopened the present case . As evident from reasons which are reproduced elsewhere in this order it would be clear like broad day light that reasons are recorded without independent application of mind on part of AO who has recorded reasons on basis of rumor and suspicion only . When we read reasons line by line we find that reasons are simply and solely based on undescribed and un-narrated letter of ITO Ward 11(3) New Delhi like a borrowed satisfaction. Phrases like on going through the list of accommodation entries provider and the assessee has introduced his own money which has not been offered for taxation clearly tells the tale that rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. These are specific directions given by the Supreme Court in all cases where notices under section 148 of the said Act are issued. Surely, the Assessing Officer could not have construed these specific directions to be a mere empty formalities or dead letters? There is a strong logic and purpose behind the directions issued by the Supreme Court and that is to prevent high-handedness on the part of Assessing Officers and to temper any action contemplated under section 147 of the said Act by reason and substance. In fact, even section 148 (2) stipulates that the Assessing Officer shall, before issuing any notice under the said section, record his reasons for doing so. The Supreme Court has only carried forward this mandatory requirement by directing that the reasons which are recorded be communicated to the assessee within a reasonable period of time so that at that stage itself the assessee may point out any objections that he may have with regard to the initiation of action under section 147 of the said Act. The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I do swear in the name of God/or I do solemnly affirm that what I shall state will be the truth, the whole truth and nothing but the truth . v. A witness should first be examined by the party producing him (assessee or the AO), followed by cross-examination by the other party. After the crossexamination there can be a reexamination by the original party. vi. The statement recorded from a departmental witness cannot be used against the assessee unless the assessee is given an opportunity to cross-examine the witness. A statement without such cross examination would not be admissible evidence. A copy of the statement so recorded should be given to the assessee. In case the assessee does not wish to cross-examine the witness, that fact should be recorded in the order sheet as well as in the body of the statement. The signature of the assessee should be obtained on such noting. Offences relating to depositions attract various penal consequences under the Indian Penal Code as well. 3.2.7 Granting copies An assessee should be provided with copies of statements before the latter are utilised against him for the purpose of assessment. Granting of copies should be recorded in the orderPag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Pvt Ltd order dated 28.01.2019 in ITA 2144/Del/2015 placed at pages 7 to 17 of compilation on records. Similar is decision of The Hon ble Gujarat High Court in the case of Vijay Harishchandra Patel vs. ITO (2018) 400 ITR 167 (Guj.) (HC) where also it was held that When the original ground for reopening the assessment did not survive, the Assessing Officer had sought to proceed further with the assessment on totally different grounds, which was impermissible. Despite the fact that the assessee had duly submitted that he had filed his return, wherein the very same issue had been examined, instead of dropping the proceedings, the Assessing Officer had sought to proceed further for reasons which were alien to the reasons recorded for reopening the assessment. Thus the very intent and purpose behind submitting the objections by an assessee and passing an order thereon, was frustrated. Considering the fact that a return had been fled disclosing the sale of the immovable property, the very foundation on which the reopening of the assessment was based, in the reasons recorded was unsustainable. Therefore, on the reasons recorded, the Assessing Officer could not have formed the belief th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.11.3 Next decision relied is Ahmedabad C bench ITAT decision in case of Rajendra Amin in ITA 2880/Ahd/2015 order dated 30.11.2016 wherein it is held that: 4. We have heard both the sides. Case file perused. It is not is dispute that the Assessing Officer s main ground as extracted hereinabove is that the assessee had not filed his return for the impugned assessment year. The same turns to be contrary to page (s) 16 to 18 of the paper book wherein the assessee s return in question is stated to have been filed on 19.12.2011 declaring total income as ₹ 27,02,520/- including long term capital gains of ₹ 35,35,765/- on sale of the impugned immovable property in question. The Assessing Officer s order dated 09.02.2015 disposing of assessee s objection to reopening reads that the said return had not been filed u/s.139(1) of the Act. The CIT(A) on the other hand is of the view that the said return was not filed with the Assessing Officer issuing Section 148 notice. The fact however remains that the filing of assessee s return in question (supra) is not otherwise in dispute. We put up a specific query to Ld. Departmental Representative to prove that assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al was right in cancelling the reassessment as both the grounds on which the reassessment notice was issued were not found to exist, and, therefore, the Income-tax Officer did not get jurisdiction to make a reassessment. 13.2. Since the facts are totally different as A.O. had reason to believe that ₹ 10 lakhs has escaped assessment on account of ₹ 5 lakhs received from two companies referred to above, which was ultimately found to be incorrect and nonexistent, therefore, there may not be any application of mind on the part of the A.O. to proceed to initiate the re-assessment proceedings. There is no other material available on record except the information received from the Investigation Wing. The A.O. on the basis of the information and material received from Investigation Wing has recorded reasons for reopening of the assessment which was ultimately found to be incorrect and non-existent. It is well settled law that when no new material other than examined by the A.O originally found on record for the purpose of initiating the re-assessment proceedings, the proceedings under section 148 of the I.T. Act would be invalid and bad in law. We rely upon decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced 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 s.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 the I.T. Act, 1961, which was not produced for our pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal 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 he 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 escaped assessment and allowed the appeal of the assessee. On appeal: Held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieve 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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 inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Assessing Officer in the last para the information received from the investigation wing is considered with reference to the return of income available on record, having satisfaction with the application / information received in the case of the assessee, I have reason to believe that income has escaped assessment. However, he has not mentioned the factum of quantum income of ₹ 10 lacs of share application money and the name of the suspicious accommodation entry providers for A. Y. 2008-09 to establish/substantiate reason to believe and the escaped assessment within meaning of the provision of section 147 of the IT Act 1961. 17. The above information in the reasons recorded clearly shows that the Assessing Officer has simply relied on the information received from the investigation wing without verifying the same with reference to the facts of the case; that the Assessing Officer has not even mentioned the name of the entity from whom so called entry of share application money was accepted by the assessee, instrument number, bank account and date on which the entry was made which are essential information to support the application of mind by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation wing is set out to enable the reader to appreciate how the conclusions flow there from then there is no independent application of mind by the AO to the tangible material which form the very basis of the reasons to believe that income has escaped assessment. 20. In the instant case, as we have noted above, the note of satisfaction recorded by the AO in para 10 of the reasons is based on the information received from the director of investigation wing and the AO without making any effort to examine and discuss the material received from the Investigation Wing with the support of tangible material gathered by way of conducting inquiry shall be held as without application of the mind since, he has used the same to form reason to believe that income had escaped assessment. This also shows that the AO proceeded to initiate reassessm ent proceedings on the basis of borrowed satisfaction w ithout any application of mind and exercise on the information received from the Investigation W ing of the Department. Therefore, we have no hesitation to hold that the AO proceeded to initiate reassessment proceedings u/s. 147 of the Act and to issue notice u/s. 148 of the A ct on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . From the reasons, it is evident that the impugned notice has been issued on the basis of information received from the Deputy Collector Income Tax (Investigation) alleging that M/s Nivyah Infrastructure Telecom Services Ltd is a penny stock listed on the Bombay Stock Exchange and that the petitioner had dealt with the same leading to escapement of income. On receipt of information, the least that is expected of the Assessing Officer is to examine the same in the context of the facts of this case and satisfy himself whether the information received does prima facie lead to a reasonable belief that income chargeable to tax has escaped assessment. In this case, the reasons indicate that the Assessing Officer has not carried out such exercise and accepted the report of the Deputy Collector of Income Tax (Investigation) Mumbai to conclude that the petitioner had dealt with Nivyah Infrastructure and Telecom Services Ltd during the previous year relevant to the assessment year 201112. Admittedly, there was no company by name M/s Nivyah Infrastructure Telecom Services Ltd in existence during that year for consideration. This clearly shows that the Assessing Officer acted on the sat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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