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TMI Blog2020 (9) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the Assessing Officer - No incorrectness of the facts in the reasons recorded. Borrowed satisfaction of AO - reference of the entries obtained from M/s RK Agrawal and Co. The Assessing Officer has reproduced all the four entries with details of the amount, date of transaction, bank account from which entry was given, instrument number etc. the Assessing Officer has also mentioned that no scrutiny assessment under section 143(3) of the Act was completed in the case of the assessee and therefore no information relating to the transaction was available on record. Assessing Officer has formed his belief on the analysis of credible information received from the Investigation Wing and satisfaction recorded on said information, cannot be said as borrowed satisfaction. We may also like to point out here that the Assessing Officer can issue notice under section 133(6) of the Act during pendency of the assessment proceeding and not authorised to carry out enquiry invoking section 133(6) of the Act prior to recording of reasons and reopening of the assessment. We reject the contention of assessee that Assessing Officer has not applied mind while recording the reasons and he record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 of the Act when reasons recorded in present case as evident from cursory look to the same (enclosed herewith) are based on non independent application of mind and based on borrowed satisfaction only ergo reopening proceedings, resultant assessment order u/s 147/143(3) and CIT-A order may please be quashed as void ab initio. 2. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the assumption of jurisdiction u/s 147/148 of the Act on basis of invalid reasons as glaring from jurisdictional error made in reasons recording that i) already for block period of 01.04.1995 to 07.03.2002 an assessment is already framed u/s 158BC of the Act vide order dated 25/03/2004 including subject period (order enclosed herewith) which aspect has been aborted from reasons recorded thus vitiating the entire reopening exercise , ii) further in reasons recorded no discussion is there on nature of alleged transaction and somewhere in reasons it is wrongly mentioned that assessee is a company which confirms our plea for invalid reopening and iii) further in reasons recorded no effort is made to throw light on any statement of any person and any prior enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing legal in the nature and not requiring investigation of new facts, same were admitted in view of the settled law as held in the case of M/s. NTPC vs. CIT reported in 229 ITR 383. 3.2 Briefly stated facts of the case are that the assessee an individual, is proprietor of a concern, namely, M/s Yadav & Company, which was engaged in share trading brokerage. The assessee filed its regular return of income for the year under consideration on 30/10/2000 declaring income of ₹ 12,413/- and agriculture income of ₹ 2,91,334/-. In the case of the assessee, a search under section 132 of the Income-tax Act, 1961 (in short 'the Act') was carried out at his residence on 07/03/2000 and undisclosed income unearthed therein, was subjected to block assessment proceedings under section 158BC of the Act for the block period from 01/04/1995 to 07/03/2000. The block assessment order was passed on 25/03/2004. 3.3 Subsequent to the block assessment, the Assessing Officer received information from the Investigation Wing that M/s Yadav and company i.e. the proprietary concern of the assessee, had obtained certain bogus/accommodation entries of ₹ 10,10,000/- from M/s R.K. Agrawal & Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, relied on the order of the lower authorities and submitted that the contention of the non-application of the mind and borrowed satisfaction are not getting established in the facts of the case. On the merit also, she submitted that the assessee failed to show that those very entries of accommodation have already been assessed in the block period, and therefore the Assessing Officer is justified in making the impugned addition. 7. We have heard rival submission of the parties and perused the orders of the lower authorities and the material relied upon by the parties. In the additional grounds raised, the learned Counsel of the assessee has challenged validity of the reasons recorded; therefore, it is relevant to reproduce the same for ready reference: "Enquiries were made by the Directorate of Investigation on the various persons who were indulged- in providing accommodation entries/bogus shares application money/bogus capital gain In the course of enquiries before Investigation Wing these persons had provided the details of various persons to whom such accommodation/bogus entries were provided. Based on the enquiries made, the Directorate of Investigation has provided the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax, Central Range-31, New Delhi within the meaning of section 147 and accordingly proceedings u/s. 148 is to be initiated for the A.Y. 2000 &-01." 7.1 The learned Counsel of the assessee has challenged the validity of the reasons recorded, firstly, on the ground of the nonapplication of the mind by the Assessing Officer. He has pointed out two alleged incorrectness of the facts recorded by the Assessing Officer. He has referred that in para 3 of the reasons recorded the assessee has been referred as company, whereas the assessee is an individual. In our opinion, this contention of the learned Counsel is not correct. The Assessing Officer has referred the proprietary concern, namely, M/s Yadav and company as company. In the immediate preceding para, the Assessing Officer has reproduced the transaction of M/s Yadav and company with M/s RK Agarwal & Co and thus the reference of the company is towards M/s Yadav and company and the Assessing Officer nowhere mentioning the status of the assessee as company. Another alleged incorrectness of the fact has been raised by the Learned Counsel in last para of the reasons recorded. He submitted that mention of the fact that case has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation wing to form basis of his reasons to believe and no independent verification has been done invoking section 133(6) of the Act. The learned counsel relied on the decision in the case of PCIT vs Meenakshi Overseas P Ltd 395 ITR 677, wherein Hon'ble Delhi High Court has observed as under: "23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. 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." 7.3 In the present case, the learned Assessing Officer has analysed report of the Investigation Wing and formed basis of the reasons after specific reference of the entries obtained from M/s RK Agrawal and Co. The Assessing Officer has reproduced all the four entries with details of the amount, date of transaction, bank account from which entry was given, instrument number etc. the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1996) 217 ITR 597 (SC); Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC)]. 17. The scope and effect of s. 147 as substituted with effect from 1st April, 1989, as also ss. 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of s. 147, separate cls. (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under s. 147(a) two conditions were required to be satisfied firstly the AO must have reason to believe that income profits or gains chargeable to income-tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under s. 148 r/w s. 147(a). But under the substituted s. 147 existence of only the first condition suffices. In other words if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tizens. So viewed, Kelvinator of India (supra) strikes just balance. To add further conditions to the nature of discussion/reasons that the officer authorising the notice would have to discuss in the note or decision would be beyond the purview of the Courts and would not be justified. For the above reasons, this Court is of the opinion that the impugned order - and the consequential order of 05.01.17 cannot be sustained. They are accordingly set aside. The question of law urged by the Revenue is answered in its favour. The parties are directed to be present before the ITAT on 06.03.2017. The ITAT shall proceed to hear the Revenue's appeals on its merits and render decision in accordance with law. All rights and contentions of the parties with respect to the merits are reserved." 7.3.2 The SLP filed by the assessee against the above decision of the Hon'ble Delhi High Court has been rejected by the Hon'ble Supreme Court in (2017) TIOL-253-SC-IT. Further, Hon'ble Gujarat High Court in the case of Pushpak Bullion (P) Ltd. Vs. DCIT (2017) 85 taxmann.com 84 (Guj.) has held that where Investigation Wing of the department had during the course of investigation in a case of a third pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained bank account in the same branch of the same bank. The assessee had claimed sizeable purchases from such entity during the year under consideration." 7.3.3 Similar findings have been given by the Hon'ble Gujarat High Court in the case of Ankit Financial Services Vs. DCIT (2017) 78 taxmann.com 58 (Guj.). The Hon'ble Supreme Court in the case of S. Ganga Saran & Sons (P.) Ltd. Vs. ITO (1981) 3 SCC 143 on the issue of adequacy or sufficiency of reasons, has held as under: "6. It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdiction to issue notice under Section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words under Section 147(a) are "has reason to believ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de Rajesh Jhaveri Stock Brockers (P.) Ltd.'s case (supra)]. It is also well settled the sufficiency and adequacy of the reasons which have led to formation of a belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the court." 7.3.5 The Hon'ble High Court of Gujarat in the case of Aradhana Estate (P) Ltd. Vs. DCIT (2018) 91 taxmannn.com 119 (Gujarat) on the issue of recording of 'reasons to believe' for reopening of assessment held as under: "8. Section 147 of the Act provides inter-alia that if the Assessing Officer has the reason to believe that any income chargeable to tax has escaped assessment, he may subject to the provisions of section 148 to 153 of the Act, assess or reassess such income. Proviso to section 147 of-course requires that where the assessment under sub-section (3) of section 143 of the Act has been made for the relevant assessment year, no action shall be taken under this section after the expiry of the four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on part of the assessee to make return under section 139 or in response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck Broker (P) Ltd. (supra) held that at the stage of reopening sufficiency of such reasons is not to be gone. The relevant finding of the Hon'ble Court is reproduced as under: "13. The next contention that the Assessing Officer did not demonstrate any material enabling him to form a belief that income chargeable to tax has escaped assessment is fallacious. The Assessing Officer recorded detailed reasons pointing out the material available which had a live link with formation of belief that the income chargeable to tax had escaped assessment. At this stage, as is often repeated, we would not go into sufficiency of such reasons. In this context, reference can be made to decision of Supreme Court in case of Raymond Woolen Mills Ltd. (supra). In case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC), it was observed as under : "The expression reason to believe in section 147 would mean cause or justification. If the Assessing Officer has cause or If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng recorded in the assessment order. As long as, there is honest and reasonable opinion formed by the Assessing Officer and the "reasons to believe" are not mere "reasons to suspect", the courts should not interject to stop the adjudication process and scrutiny on merits. Absolute certainty is not required at the time of issue of notice and at the same time, "reasons to believe" must not be based on mere suspicion, gossip or rumour. The said test and criteria, we have no hesitation in holding, is satisfied in the present case. There is evidence and material on record to justify issue of notice under Section 147/148 of the Act." 7.4 Relying on the decision of the Hon'ble Supreme Court and Hon'ble High Court referred above we are of the opinion that the Learned Assessing Officer has formed his belief on the analysis of credible information received from the Investigation Wing and satisfaction recorded on said information, cannot be said as borrowed satisfaction. We may also like to point out here that the Assessing Officer can issue notice under section 133(6) of the Act during pendency of the assessment proceeding and not authorised to carry out enquiry invoking section 133(6) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at only where a provision is not made in Chapter XIV-B of the Act providing for a special procedure for assessment will other provisions of the Act be made applicable. 19. Sec. 158BB of the Act provides for modality of computation of undisclosed income of the block period. Such undisclosed income of the block period has to be the aggregate of the total income of the previous years falling within the block period. If the different aggregates which are provided for in cls. '(a)' to '(f)' are seen, it becomes clear that the computation of undisclosed income is first made in accordance with the provisions of the Act, thereafter reduction or increase as is provided in different clauses has to be made, and the Explanation indicates the exceptions. Clause (f) under sub-s. (1) of s. 158BB of the Act provides for reducing the aggregate total income computed for the block period by the aggregate of the total income, in case where assessment for undisclosed income had been made earlier under cl. (c) of s. 158BC, on the basis of such assessment. In other words, it only means that where previous assessment has been framed under Chapter XIV-B of the Act the aggregate of such total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f reassessing the so-called escaped undisclosed income Revenue will resort to the limitation under s. 153 of the Act, because undisclosed income has to be assessed in the manner provided and by adopting the procedure provided in Chapter XIV-B of the Act. Nor is it possible to resort to limitation under s. 158BE of the Act because the said period of limitation has already expired. At the cost of repetition in this context one has to refer to the language employed in s. 158BA of the Act where there is a positive mandate to the AO to assess the undisclosed income in accordance with the provisions of Chapter XIV-B of the Act, notwithstanding anything contained in any other provisions of the Act. As against that s. 158BH states that except as otherwise provided in Chapter XIV-B of the Act, all other provisions of the Act shall apply to assessment made under Chapter. Therefore, once period of limitation has been prescribed under s. 158BE of the Act the time-limit for completion of assessment of undisclosed income has to be as provided under the said section. If the contention of Revenue is accepted s. 158BE becomes unworkable. The limitation prescribed from the date of last of the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, the AO is bound to assess all undisclosed income after processing the entire material available with AO. The AO cannot be heard to state that undisclosed income has escaped assessment because the officer failed to apply his mind to the material available on record, there being no lack of disclosure. 23. The last of the amendments made by Finance Act, 2002 as explained in CBDT Circular No. 8 of 2002, dt. 27th Aug., 2002 further goes to support the stand of the petitioners. The legislature has provided that the block assessment of undisclosed income is to be based not only on the evidence found at the time of search, but also on the basis of material and information gathered during the inquiries made after the search proceedings. However, on the basis of evidence found during the search proceedings certain further inquiries are undertaken by the AO resulting in collection of material or information gathered during such inquiries. The assessment for the block period shall also include computation of such income as a consequence of such inquiries. Thus, there would be no scope for any income escaping or remaining undisclosed when the special procedure laid down by Chapter XIV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific definitions of the two terms, "assessment year" and "block period", the submission on behalf of Revenue that the term "assessment year", wheresoever it appears in the group of ss. 147 to 153 of the Act, be substituted by the term "block period" cannot be accepted, because on a plain reading of the said provisions, viz., s. 147 to s. 153 of the Act, the entire scheme becomes unworkable. The principles of interpretation also do not permit such an exercise. 27. It is well-settled that a Court is not empowered to either add words to a statute or substitute words while interpreting a provision. The Court can only read and interpret the language employed by the statute. Only in the event of a provision not conveying the intended meaning, in other words, a plain reading resulting in absurd situation, can the Court import words to make sense out of the provision. However, at the same time, even a purposive interpretation does not permit the Court to substitute the statutory language unless and until the provision as it stands would not result in the provision being workable. If the language of the statute is capable of a plain meaning withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be different depending on the accounting period adopted in terms of s. 3 of the Act. To obviate this situation the definition of block period was amended. This becomes clear from Circular No. 762, dt. 18th Feb., 1998 issued by CBDT extracted hereinbefore. 30. The apex Court decision on which great emphasis has been placed on behalf of Revenue in fact goes to support the view adopted in the present case. The controversy before the apex Court was in relation to the rate of tax which was to be applied to the undisclosed income assessed in terms of Chapter XIV-B of the Act. The apex Court itself has observed, as can be seen from the portion wherein emphasis is supplied by this Court, that the Supreme Court was concerned mainly with computation of undisclosed income under s. 158BB(1) of the Act. This Court has already noticed that s. 158BH of the Act provides for invoking other machinery provisions to an assessment made under Chapter XIV-B of the Act and does not require other provisions of the Act to be applied to a block assessment to be made under Chapter XIV-B of the Act. 31. The apex Court decision also provides for a harmonious construction on the basis of reading of the mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Chapter XIV-B of the Act." 7.7 As regard to the decision in the case of Sunil Kumar Jain (supra), the citation of ITR stated by the Learned Counsel was not found to be correct and it was found reported at 266 CTR 0354. In the case of Sunil Kumar Jain (supra) the Hon'ble Chattisgarh High Court observed as under: "20. The Suresh-Gupta case is related to the block assessment but the question whether sections 147/ 148 of the Act were applicable in the block assessment or not, was not involved therein. However, in Peerchand case, this very question was involved and was answered in favour of the Department. Sections 147/148 Should Be Strictly Construed 21. Kangia, Palkhivala and Vyas on The Law and Practice of IncomeTax, Volume-II, Ninth Edition, page 1826 explains the scope of the section 147 of the Act as follows: This section imposes no charge on the subject but deals merely with the machinery of assessment, Bhimraj v CIT 32 ITR 289, affirmed in 41 ITR 221 (SC); Radhakant v. Johri 39 ITR 182; Chhaganlal v ITO 46 ITR 351, 357; Dalmia v CIT 194 ITR 700, affirmed in 236 ITR 480 (SC) on another issue; CIT v Saraf 207 ITR 217; Sardar Harvinder v ACIT 227 ITR 512; and in interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he word 'the block period'. The reason seems to be simple that the block assessment itself is the re-assessment proceedings. There was no necessity for providing reassessment of the reassessment proceedings. 29. The Gujarat High Court has considered this question in detail in Cargo Clearing Agency (Gujarat) v. Joint Commissioner of Income Tax {(2008) 218 CTR (Guj) 541} (the Cargo-Clearing case) and has held that sections 147/ 148 of the Act are not applicable to the assessment under Chapter XIVB of the Act. We agree with the same and are unable to subscribe to the view taken by the Gauhati High Court in the Peerchand case. 30. The material for notice for reassessment under section 148 of the Act is the same as was for passing order under section 263 of the Act. The order under section 263 of the Act has been set aside by the Tribunal on the ground that the initial order passed by the AO was not prejudicial to the interest of the Revenue. 31. In view of above, the CIT-A has held that once the order under section 263 has been set aside, the same material cannot be used for notice under section 148 of the Act. However, neither the Tribunal has gone into this question n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 147 of the Act. On being specifically asked by the Bench, to demonstrate, as how and where the accommodation entries received from M/s RK Agrwal & Co have already been included in the amount of ₹ 10134 of accommodation entries considered in the block assessment order. But the Learned Counsel neither could clearly state that the entries of 'RK Agrwal and Company' stands already appear in the entries considered in the block assessment order, nor he could file any documentary evidence to support his claim. Further the contention that only commission income should be assessed in case of the accommodation entries from M/s RK Agrwal & Co was also not convincing as possibility of entire amount of accommodation entries as unexplained cash credit under section 68 cannot be denied, in addition to the commission earned on accommodation entries of ₹ 10134 lakhs. The onus is on the assessee to discharge the responsibility of substantiating that in case of RK Agrwal and company only commission income was earned. The assessee has neither produced those parties for statement alongwith documentary evidences to support that only commission income was earned. In view of the fai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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