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TMI Blog2020 (6) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 21.08.20018. The AO disposed off these objections on 27.08.2018. 3. Thereafter, the AO issued a letter to the assessee dated 28.08.2018, replying to the objections raised by the assessee to the re-opening of assessment u/s 147 of the Act. In this letter, the AO asked the assessee to ignore his reply dated 27.08.2018. Thereafter the AO passed an order u/s 143(3) r.w.s. 147 of the Act on 11.12.2018 determining the total income of the assessee at Rs.50,39,020/-. 4. Aggrieved, the assessee carried the matter in appeal challenging both the reopening of assessment as well as the addition on grounds of merit. The first appellate authority upheld the order of the AO. Further, aggrieved, the assessee is in appeal before me on both the issue of validity of re-opening of assessment as well as the validity of the addition on Rs.15 lakhs made in support of transaction related to sale of 15 thousand shares of M/s. Mogra Commerce Pvt. Ltd. to M/s. Medimix Sales Pvt. Ltd. 5. The ld. Counsel for the assessee challenges the re-opening of assessment on the ground that (a) the information based on which the re-opening was initiated, that the assessee receives Rs.12 lakhs from one M/s. Medimix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that all these parties are assessed to income tax and evidence regarding the same has been furnished. He submitted that the transaction of purchase and sale of shares are recorded in the books of account and disclosed to the Department, the addition of the sale proceeds u/s 68 of the Act is arbitrary and illegal. He submitted that the assessee had already disclosed this amount as income as it was its sales and making an addition once again is bad in law. 10. The ld. DR on the other hand, submitted that the assessee company has no real business and it was a jama-kharchi company. He argued that all these companies were part of the chain of companies incorporated for circulating funds. He submitted that reopening was made, based on specific information received from the Investigation Wing of the Department. He relied on the order of the ld. CIT(A) and submitted that the AO has conducted verification, applied mind and thereafter recorded reasons and reopened the assessment. On the addition of Rs.15 lakhs he submitted that the identity, creditworthiness of the party as well as the genuineness of the transaction was not proved by the assessee and hence he argued that the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all material fact necessary for assessment and from this material on record, there is enough reason to believe that income has escaped assessment in the hand of M/s. BHAGWANT MERCHANTS (P). LTD. amounting to Rs. 12,00,000/- for the A.Y. 2011-12 as per provision of section 147 of the I.T. Act, 1961. Since more than four years have elapsed form the end of the relevant assessment year 2011-12 the case is put up to the Pr.ClT-5, Kolkata for his kind perusal and grant of sanction u/s. 151(1) of the I. T. Act, if satisfied." 13. The allegation in the reasons that the assessee company had received Rs.12 lakhs from M/s. Medimix Sales Pvt. Ltd. is factually incorrect. No addition has been made on this basis also. In the reply rejecting, the objections raised by the assessee to the reopening, the AO stated that the assessee had advanced recoverable in cash or kind of Rs.33,50,000/- and that it raised deposits of Rs.2,35,226/-. The AO further, states that he has received tangible material and reliable information that the assessee has raised securities premium account of Rs.38 lakhs during the previous year. He further states that the re-opening was made after obtaining sanction of the Pr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings 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 fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned as to who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose 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 ofCIT 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 the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the information supplied was extremely scanty and vague and in that light of those facts, the Hon'ble Jurisdictional Delhi High Court held that initiation of proceedings u/s 147 of the Act by the AO was not valid and justified in the eyes of law. The recent decision of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of mind by the A.O. 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" 7.3. 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 A.Y. 2003-04, the return 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 notice and the order on objections. The Delhi High Court allowed the writ petition and held as under: '(i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The assessing Officer must have 'reasons to believe' that income chargeable to tax has escaped assessment. This is mandatory and the 'reason to believe' are required to be recorded in writing by the Assessing Officer. (ii) A notice u/s 148 can be quashed if the 'belief i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elieve' 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" 8. Respectfully applying the propositions of law laid down in the judgments cited above to the facts of the case, we have no other alternative but to hold that the reopening of the assessments is bad in law. Hence we quash the re-opening of amount." 17. The Hon'ble Gujarat High Court in the case of Mumtaz Haji Mohmad Memon vs. ITO, Ward-6(1)(1) dated 21.03.2018 at para 11 & 12 stated as follows: "11. In this context, we have noted that the reasons proceeded on two fundamental grounds. One, that the property in question was sold for a sum of Rs. 1,18,95,000/and two; that the assessee had not filed the return and that therefore his 1/3rd share out of the sale proceeds was not offered to tax. Both these factual grounds are totally incorrect as is now virtually admitted by the Revenue. It is undisputed that the assessee had actually filed the return of income for the said assessment year and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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