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TMI Blog2019 (12) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... in law. There is no independent application of mind by the AO to the information received from the investigation wing. Suspicion cannot take place of proof or evidence. Though it is true that conclusive evidences need not be brought on record at the time of recording of reasons, there should be some verification which should lead to the formation of belief that income subject to tax has escaped assessment. Vague statement, wrong recording of facts in the reasons recorded for re-opening, render the re-assessment is bad in law. - I.T.A. Nos. 2000 & 2001/Kol/2018 - - - Dated:- 4-12-2019 - Shri J. Sudhakar Reddy, Accountant Member AND Shri S.S. Godara, Judicial Member For the Appellant : Sh. Subash Agarwal, Adv. For the Respondent : Sh. Supriyo Pal, JCIT, Sr. DR ORDER Per J. Sudhakar Reddy, AM :- Both these appeals filed by the assessee are directed against separate orders of the Commissioner of Income Tax (Appeals)-3, Kolkata [ CIT(A) for short] dated 17.07.2018 u/s 250 of the Income Tax Act, 1961 ( the Act for short) for AYs 2009-10 2010-11 respectively. As the issues arising in both the appeals are common, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity, creditworthiness and genuineness of the transactions. He submitted that no independent enquiry was made by the AO and it is not known as to what is the nature of enquiry made and as to who has done the spot verification and what was the report considered by the AO for coming to such a conclusion. He submitted that the conclusions drawn by the AO while recording the reasons are not based on any facts or material and that there were lacking of details and that this point out to non-application of mind by the AO. He also pointed out that nothing new was discovered during survey and what was already on record is said to have been found. He relied on some case laws in support of his arguments, which would be discussing as and when required. 7. On merits the ld. Counsel for the assessee submitted that in both the cases, adequate opportunity was not given to the assessee and that the AO as well as the ld. CIT(A) had not properly appreciated the evidence filed and arguments made by the assessee and that under those circumstances the issues may be restored to the file of the AO for fresh adjudication in accordance with law, as was being done by the Tribunal in similar cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below, as well as case law cited we hold as follows. 11. We first take up the re-opening of assessment for the AY 2009-10. 12. The reasons recorded for re-opening are extracted for ready reference: It has been reported by DDIT (Inv.), Unit-4(1), Kolkata that the aforesaid assessee company maintained two bank accounts in Oriental Bank of Commerce bearing accounts no - 03921131001285 11011131000575. The above bank account were opened by Shri Vishnu Parasramka and Shri Trilak Chan Parasramka. In the aforesaid bank accounts, all the credit were being done only on cash since the opening of the accounts as reported by DDIT(lnv). On examination of FIU-IND' data base, it was found that the total cash of ₹ 9,99,999/- were deposited in the bank accounts on many occasions. It has further been reported that the high value cash transactions had been routed through 21 no of companies as per list forwarded by DDlT(lnv). Considering the above facts there is a reason to believe that ₹ 9,99,999/- was unexplained cash deposit in the assessee's Bank account and to unearth the cash transactions routed through several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down that a rational and intelligible nexus is to be found between the material and the reason recorded for the purpose of re-opening of assessment. The Supreme Court in the cases of ITO vs. Lakhmani Mewal Das reported in 103 ITR 437 (SC) and Ganga Saran Sons vs. ITO 130 ITR 1 (SC) held as follows: a) Income Tax-officer vs. Lakhmani Mewal Das 103 ITR 437 (SC): As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reasons of failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year. [Para 18] In the instant case, the last date of the relevant assessment year was 31-3-1997 and from that date, if four years were counted, the period of four years expired on 1-3-2001. The notice issued was dated 5-11-2002, and received by the assessee on 7-11-2002. Under those circumstances, the notice was clearly beyond the period of four years. [Para 19] The reasons recorded by the Assessing Officer nowhere stated there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. The reasons are required to be read as they were recorded by the Assessing Officer. 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 recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go into the question of merits. It only examined the question of the validity of the proceedings under Section 147 of the said Act. The Tribunal, in essence, held that the purported reasons for reopening the assessments were entirely vague and devoid of any material. As such, on the available material, no reasonable person could 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 ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted money in its bank by way of accommodation entries . In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decision discussed, the basic requirement that the AO. must apply his mind to the materials in order to have 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 AO. 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 16.3 The Hon ble Delhi High Court in the case of Signature Hotels (P) Ltd. vs ITO and another, reported in 338 ITR 51 (Delhi) has under similar circumstances held as follows: For the AY. 2003-04, the retur n of income of the assessee company was accepted u/s 143(1) of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s 148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The AO. did not verify the correctness of information received by him but merely accepted the truth of the vague information in a mechanical manner. The A.O. had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice u/s 148. What had been recorded by the AO. as his 'reasons to believe' was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The A.O. had clearly substituted form for substance and therefore the action of the A.O. was not sustainable 17. Applying the propositions of law laid down on above facts of the case, we have to hold that the re-opening of the assessment for the AY 2009-10 is bad in law. 18. Now, we take up the re-opening of assessment for the AY 2010-11. 19. The reasons recorded for re-opening are extracted for ready reference: In the instant case, a survey u/s 133A(1) of the I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng bank accounts as well as PAN nos. The assessee has raised share capital of ₹ 90 lakhs during the year and this was disclosed in the annual accounts attached with the income tax return. It is a recorded and disclosed fact. To record in the reasons that this was discovered during survey is not factually correct. A disclosed fact already on record cannot be discovered. Similarly the recording that information was received from the investigation wing is vague. No particulars are given. The director has sought for time to provide details. It is not a case of failure to prove the identity etc. Identity, creditworthiness and genuineness of a transaction cannot be proved in spot enquiry during survey. Hence as in the case of reasons recorded for re-opening for AY 2009-10 the re-opening of assessment for AY 2010-11 is also bad in law. 23. We also find that there is no independent application of mind by the AO to the information received from the investigation wing. Suspicion cannot take place of proof or evidence. Though it is true that conclusive evidences need not be brought on record at the time of recording of reasons, there should be some verification which should le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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