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TMI Blog2020 (11) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... me the assessment or reassessment starts only after serving of notice u/s 148 of the Act i.e. nine (9) months from the end of financial year in which the notice u/s 148 of the Act was served upon the assessee. Therefore, admittedly in this case, the notice u/s. 148 of the Act was served upon the assessee by e-mail on 22.09.2016, so the limitation time of nine months starts from the end of financial year, so in this case the end of financial year after serving notice is 31.03.2017, so as per Section 153 of the Act, the Assessing Officer should frame the assessment before the expiry of nine months from the end of the financial year in which the notice u/s. 148 of the Act was served, therefore, in this case, the Assessing Officer has time to frame the assessment till 31.12.2017 and the Assessing Officer in the instant case has framed the assessment on 11.12.2017 that is well within the time prescribed by section 153(2) of the Act and, therefore, his framing of assessment after reopening is legal as per the statute. We reverse the order of ld. CIT(A) and we hold that Assessing Officer after issuing the notice u/s 148 for AY 2009-10 within the limitation period on 31.03.2016, had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities can only raise suspicion in the mind of the AO (which fact we have pointed out earlier) which is not sufficient/requirement of law for reopening of assessment. We find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee falls. - Decided in favour of assessee. - ITA No. 1826/Kol/2018 - - - Dated:- 20-11-2020 - Shri J.Sudhakar Reddy, AM And Shri A. T. Varkey, JM For the Appellant : Shri Jayanta Khanra, JCIT, Ld. Sr. DR For the Respondent : Shri Manish Tiwari, FCA, Ld.AR ORDER SHRI A. T. VARKEY, JM This is an appeal preferred by the revenue against the order of Ld. CIT(A)-2, Kolkata dated 04-06-2018 for the assessment year 2009-10. 2. Grounds of appeal raised by the Revenue are as under:- 1) For that the Ld. (Appeals) -2, Kolkata has erred on facts and in law in holding that the terms issue and serve are used interchangeably, by relying on the decision of the Hon ble Supreme Court in the case of Benarasi Debi Vs. ITO, disregarding the fact that the Hon ble Apex Court, in a subsequent decision in the case of R.K. Upadhyay Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction of AO. Ground nos. 1 2 raised before the Ld. CIT(A) read as under:- 1. That on the facts and in the circumstances of the case, the Ld.AO is wrong and unjustified in passing order u/s. 147/144 of the Income Tax Act, 1961 as the proceeding were already time barred on 31.03.2016. 2. That on the facts and in the circumstances of the case, Ld. AO is wrong and unjustified in rejecting the submission of the assessee-company regarding the validity of notice u/s. 148 and the proceedings being barred by limitation on 31.03.2016. 4.The Ld. CIT(A) was pleased to allow the legal issue raised by the assessee before him by holding as under:- I have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellant company as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The facts of the case is that the AO issued notice u/s. 148 of the I.T Act, 1961 on 31.03. 2016 for re-opening of assessment after obtaining necessary approvals. However, the notice was not served on the appellant company. The appellant therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 31.12.2017. The above interpretation of AO is incorrect in view of the decision of Hon ble Apex Court in the case of Banarasi Debi v ITO reported in 53 ITR 100 where in it was held that the expression issued and served are used as interchangeable terms and in legislative practice of our country they are sometimes used to convey the same idea. In other words, the expression issued is used in a limited as well as wider sense. The word issued u/s. 4 of the Indian Income Tax (Amendment) Act 1959, must not be given a limited meaning i.e issued means sent . It is a settled law that the expression serve means the date of issue of notice. The Hon ble Delhi High Court in VRA Cotton Mills (P) Ltd v. Union of India (CWP No. 18193 of 2011, dated 27.09.2011) has held as follows:- In view of the said judgement, the date of receipt of notice by the addressee is not relevant to determine, as to whether the notice has been issued within the prescribed period of limitation. The expression serve means the date of issue of notice. The date of receipt of notice cannot be left to be undermined dependent upon the will of the addressee. Therefore, to bring certainly and to avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order u/s. 147/144 being passed on 11.12.2017 is barred by limitation and should be quashed/annulled. On one hand the AO s contention is that the notice u/s. 148 of the Act was issued and dispatched on 31.03.2016 thus the requirement of issue of notice as contained in section 149 of the is fulfilled and since the service of notice u/s. 148 of the Act to the appellant was made through e-mail dated 22.09.2016 i.e. in financial year 2016-17, the period of nine months will be reckoned from the end of the financial year 2016-17 being on 31.12.2017. The purpose of a limitation period is that the same must have a clear cut and fixed tenure at both ends. A limitation period would lose its effect unless it has a start date at the beginning and end date at its conclusion. Section 148 read with section 149 has fixed the opening date as 31.03.2016, and section 153(2) has fixed the end date of passing the order u/s. 147/144 upto 31.12.2016. Therefore, the contention of the AO that the issue of notice u/s. 148 of the Act dated 31.03.2016 would not be date of service of notice u/s. 148 of the Act would be violating the norms fixed by the Act. Alternatively, even if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was- (a) Not served upon him; or (b) Not served upon him in time; or (c) Served upon him in an improper manner; Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment] The section 148 relates to issue of notice where income has escaped assessment says as under:- 148 (1) Before making the assessment, reassessment or re-computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue is before us. 5. We have heard rival submissions and gone through the facts and circumstances of the case. First of all, we note that the Ld. CIT(A) has erroneously allowed the legal issue which was raised by the assessee wherein the ld. CIT(A) was of the opinion that issuance / serving of notice for reopening u/s 148 of the Act and subsequent framing of re-assessment order was not as per Section 149 and 153 of the Act. Before adjudicating the question regarding the legality of issuance of notice u/s. 148 of the Act was within the statutory limitation period or not? As to whether by merely issuing notice u/s 148 of the Act, confers jurisdiction on Assessing Officer to re-open an assessment or serving the notice on the assessee is necessary to legally assume jurisdiction to reopen; And next question is in respect of the limitation period prescribed for framing an assessment after validly assuming jurisdiction to re-open will be discussed (infra). Before doing so, let us refresh certain basic settled concepts in the field of taxation. First of all it has to be kept in mind that the concept of assessment is governed by the time barring rule and the assessee acquires a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period ROI . So, as discussed (supra) we must note that Parliament has specifically prescribed i) Time limit for Assessing Officer to issue notice for reopening u/s 148 of the Act and (ii) Time limit for completion of assessment/re-assessment/recomputation. This important aspect must be kept in mind. So coming to the time limit prescribed for completion of assessment / re-assessment / re-computation after re-opening is concerned it is found prescribed in sub-section (2) of Section 153 of the Act which reads No order of assessment, reassessment or re-computation shall be made u/s. 147 of the Act after the expiry of nine months from the end of the financial year in which the notice u/s. 148 of the Act was served. Keeping these legal provisions in mind, in the present case, we note that the limitation period for issuing notice of reopening u/s. 148 of the Act as prescribed in Section149 of the Act gives the outer limit of six years from the end of the relevant assessment year which in this case for AY 2009-10 is admittedly on 31.03.2016. So by issuing notice even though on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2016. So, the revenue succeeds on this score and we reverse the order of ld. CIT(A) and we hold that Assessing Officer after issuing the notice u/s 148 for AY 2009-10 within the limitation period on 31.03.2016, had got jurisdiction to re-open the assessment for AY 2009-10 and after having served the assessee notice u/s 148 on 22.09.2016 has passed the assessment order within the prescribed time u/s. 153(2) of the Act on 11.12.2017, so these actions of Assessing Officer are legal and valid in the eyes of law. 6. However, since we did not hear the appeal on merits at the time of hearing on 22.09.2020, we refixed the appeal on 01.10.2020 and after letting both parties again on notice thereafter the appeal was heard in the virtual court on 16.10.2020 wherein the Ld. AR has raised another important legal issue under Rule 27 of ITAT Rules, 1963 which according to him, if found valid would go to the root of the reopening of assessment. According to Ld. AR, the assessee is entitled as per Rule 27 of ITAT Rules, 1963 to support the impugned order of Ld. CIT(A) orally also on an alternate ground and since the assessee is raising a legal issue, it can be raised even for the first tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which he had in his possession which is nothing but general information from investigation wing, Kolkata in respect of some persons (not specific) indulging in unscrupulous activities as entry operators in Kolkata. According to him, this reason recorded by the AO gives the impression that AO got this general information about undesired activity of some (no-name given) entry operators and is not a specific information against the assessee. So, according to Ld. AR, the AO got carried away by this general information as regarding the modus operandi of some entry operators, which made the AO arbitrarily picking up the case of assessee for AY 2009-10, since the assessee had shown while filing ROI that it has raised share capital. Moreover, according to Ld. A.R., the AO has not issued notice u/s 148 of the Act after recording his own satisfaction/belief regarding escapement of income but on borrowed satisfaction of some officer of DDIT, Investigation. According to ld. A.R, the law is settled that re-opening notice has to be issued by AO after forming his own requisite satisfaction u/s. 147 of the Act not based on borrowed / dictated satisfaction of Investigation Wing/Superior Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or whether it is share capital or loan etc. So, according to Ld. AR, the recorded reasons are completely silent on the nature of income (if any) which is alleged to have escaped assessment, so, non-application of mind by the AO can be discerned by his omission to do so. So in the light of the aforesaid submissions, according to Ld. AR, the reasons recorded by the AO to reopen the assessment does not satisfy the essential legal requisite to reopen the assessment. So, according to him, the action of AO to assume jurisdiction is void ab initio. So, the Ld. AR urged us to quash the assessment passed by the AO being without jurisdiction. 8. Further, the Ld. AR submitted that even if the information given by the DIT (Inv.) is adverse against the assessee, at the most it may trigger reason to suspect ; then the AO has to make reasonable enquiry and collect material which would make him believe that there is in fact an escapement of income. Without doing so, the jurisdictional fact necessary to usurp jurisdiction to reopen the regular assessment cannot be invoked by the AO. For the said proposition, the Ld. AR drew our attention to following case laws: i) PCIT Vs. Meenakshi Oversea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148. 29.3 The Court was not inclined to interfere 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. HighgainFinvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (I). There again the details of the entry provided were set out in the 'reasons to believe'. However, the Court found that the AO had not made any effort to discuss the material on the basis of which he formed 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 precondition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise. 33. In Rusta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. 38. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs. 10. We also note that the coordinate bench of this Tribunal in ITA No. 660/Kol/2011 for AY 2002-03 in the case of DCIT Vs. Great Wall Marketing (P) Ltd. vide order dated 03.02.2016 has held as under: 9. We have given a careful consideration of the submissions made by the learned counsel for the assessee. It is clear from the reasons recorded by the AO that the AO acted only on the basis of a letter received from Investigation Wing, New Delhi. The reasons recorded does not give as to who has given the bogus entries to the assessee. The reasons recorded also does not mention as to on which dates and through which mode the bogus entries were made by the assessee. The reasons recorded which are extracted in the earlier part of the order does not show, what was the information given by DIT(Inv.),New Delhi. The date of the information re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Videsh Sanchar Nigam Ltd. s case (supra) against the Revenue in the present facts. 10. Besides, the submissions made on behalf of the Revenue that in view of the decision of the Apex Court in Rajesh Jhaveri Stock Brokers (P) Ltd.'s, case (supra), the Assessing Officer is entitled to re-open the Assessment for whatever reasons and the same cannot be subjected to jurisdictional review, is preposterous. First of all, taking out a word or sentence from the entire judgment, divorced from the context and relying upon it, is not permissible (see CIT v. Sun Engg. Works (P) Ltd. [l992] 64 Taxman 442/198 ITR 297 (SC). It may be useful to reproduce the context in which the sentence in Rajesh Jhaveri Stock Brokers (P) Ltd. 's case (supra) being relied upon by the Revenue to support its case, was made. The context, is as under: The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitutions. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word 'reason' in the 'reason to believe' would mean cause or justification. Therefore, it can only be the basis of forming the belief. However, the belief must be independently formed in the context of the material obtained that there is an escapement of income. Otherwise, no meaning is being given to the words 'to believe' as found in Section 147 of the Act. Therefore, the words 'whatever reasons' in Rajesh Jhaveri Stock Brokers (P) Ltd.'s, case (supra), only means whatever the material, the reasons recorded must indicate the reasons to believe that income has, escaped assessment. This is so as reasons as recorded alone give the Assessing Officer power to re-open an assessment, if it reveals/indicate, reasons to believe that income chargeable to tax has escaped assessment. 12. The re-opening of an Assessment is an exercise of extra-ordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before re-opening notice, is issued. These reasons, must indicate the material (whatever reasons) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;\ 16. Therefore, the question; as framed does not give rise to any substantial question of law. Thus, not entertained. 12. The Coordinate Bench of this Tribunal in ITA Nos. 764 to 766/Kol/2014 in M/s. Classic Flour Food Processing Pvt. Ltd. Vs. CIT for AY 2009-10, 2007-08 and 2008-09 vide order dated 05.04.2017 has held as under: 7. As far as the additional grounds of appeal raised by the assessee are concerned, it can be seen from the additional grounds that the assessee wants to contend that the very initiation of proceedings u/s 147 of the Act was bad in law and therefore proceedings u/s 263 of the Act cannot be initiated on an order which is invalid in law. It is the further contention of the assessee that in the reasons recorded for reopening of the assessments u/s 147 of the Act, the AO has mentioned that there was unexplained investment in construction of hotel and resorts at Mandarmoni, PurbaMidnapore and such unexplained investment in the construction which ought to have been brought to tax as income of the assessee has escaped the assessment. It is the case of the assessee that in the assessment order passed u/s 147 of the Act, the AO did not make any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that the proceedings u/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s 147 of the Act can be challenged. The Mumbai bench of the Tribunal in this regard has placed reliance on several decisions, the principal decision being that of the Hon ble Supreme Court in the case of Kiran Singh Ors. V. ChamanPaswan Ors. [1955] 1 SCR 117 wherein the Hon ble Supreme Court observed as follows :- It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties. 10. The ITAT Mumbai bench made a reference to another decision of the Hon ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions laid down in the said section namely reason to believe the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied then it cannot be said the AO has validly assumed jurisdiction u/s 147 of the Act. If the validity of proceedings u/s 147 of the Act has not been challenged by the assessee by filing appeal against the order u/s.147 of the Act, can it be challenged in the appeal against an order u/s 263 of the Act revising the invalid order u/s 147 of the Act. This issue has been analysed by the Hon ble Mumbai Bench of the tribunal in the case of M/s. Westlife Development Ltd. (supra) and 147 proceedings has been equated to primary proceedings and the proceedings u/s 263 passed equated to collateral proceedings. It has further been held based on various judicial pronouncements of the Hon ble Supreme Court that if the primary proceedings are non-est in law or void on the ground of lack of jurisdiction then the validity of such proceedings can be challenged even in an appeal arising out of collateral proceedings. We have already set out the ratio laid down in these decisions and we do not wish to repeat the same. Suffice it to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - PurbaMedinipur. As asked for, we are furnishing the information along with enclosures for your kind perusal.- I. Total Amount invested up to 31.03.2010 is ₹ 3,38,43,644.00 and source of fund is given hereunder: - Share Capital ₹ 1,88,30,000.00 Unsecured Loan . ₹ 1.65.16,005.00 Total ₹ 3,53,46,005.00 We are enclosing herewith the list of share holders and loaners up to 31.03.2010 showing names, address and PAN of the respective parties for your ready reference. The figures relating to 2009-10 included with the above are subject to audit. The above two lists are the clear evidence in support of credit worthiness of our company, 2. A separate year wise list of Investment in Hotel AjoyMinar is enclosed as asked for. 3 We are enclosing herewith photo copy of Audited Balance Sheet for the years 2006-07, 2007-08 2008-09. The Audit of Accounts for the year ending 31st March2010 is under progress. The same, if required, will be furnished when the same will be signed by the auditor. 4 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. 15. We are also of the view that as rightly contended by the ld. Counsel for the assessee that the reasons recorded are vague and belief regarding escapement of income is on mere pretence. In this regard the decision of ITAT Kolkata bench in ITA No.671/Kol/2015 dated 18.09.2015 in the case of Dr.Papiya Dutta vs ITO is relevant and it has been held in the aforesaid decision as follows :- It is clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled. I order accordingly. 16. In the present case also the re-assessment proceedings have been initiated only for the purpose of verification and examination which is not the scope of reassessment proceedings. It would be the case of rather reasons to suspect rather than reasons to belief that there was escapement of income. It is a case of the AO seeking to make fishing and roving inquiry without any basis. We have no hesitation in concluding that initiation of reassessment proceedings in the present case was not valid as the mandatory requirement of such 147 has not been satisfied. We therefore hold that reassessments orders for A.Y.2007-08 and 2008-09 dated 30.12.2011 were invalid. Consequently order passed u/s 263 of the Act dated 21.03.2014 for A.Y.2007- 08 and 2008-09 are also held to be invalid and quashed. Thus the appeals being ITA No.765 and 766/Kol/2014 are allowed. 13. The Hon ble Delhi High Court in the case of Commissioner of Income-tax, IV v. Insecticides (India) Ltd[2013] 357 ITR 330 (Delhi) upheld the order of the ITAT Delhi Bench in ITA Nos. 2332-2333/Del/2010, holding as follows:- 7. We may point out at this juncture itself that the Tribunal did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003, from four entries which were termed as accommodation entries, which information was given to him by the Director Investigation, the A.O. stated: I have also perused various materials and report from Investigation Wingand on that basis it is evident that the assessee company has, introduced its own unaccounted money in its bank account by way of above accommodation entries . The above conclusion is unhelpful in understanding whether the A.O. applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the A.O., if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the assessee, which must have been tendered along with the return, which was filed on 14th November, 2004 and was processed u/s 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the A.O. to have simply concluded: it is evident that the assessee company has introduced its own unaccounted mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by entry operators. The unaccounted cash of beneficiaries were transferred to the bank A/cs of the beneficiaries through these dubious A/cs of fake entities. The assessee has reportedly enjoyed bogus accommodation entries to the tune of ₹ 4.08 Crores in F. Y. 2008-09. In view of this, I have reason to belief that a sum of ₹ 4.08 Crores which is unaccounted money of the assessee and chargeable to tax has escaped assessment within the meaning of sec. 147. 17. Having perused the reasons recorded by the AO before reopening and when the validity of the order u/s. 147 of the Act depends upon the AO rightly assuming jurisdiction as contemplated by law to make an order of assessment u/s. 147 of the Act, let us understand the settled position of law on the legal issue at hand. We note that before the AO assumes jurisdiction to re-open it is necessary that the conditions laid down in the said section 147 has to be satisfied viz., AO should record reason to believe that the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied at the first place, then it cannot be said the AO has validly assumed jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as other Hon ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact and law (mixed question of fact and law) the reason to believe escapement of income (supra). 18. The AO, who is a quasi judicial authority is empowered to reopen the completed assessment only in a given case wherein there is reason to believe escapement of chargeable income to tax which is the jurisdictional fact law and sine qua non to assume jurisdiction to reopen a completed assessment. It must be kept in mind that reasons to believe postulates foundation based on information and belief based on reason. Even if there is foundation based on information there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment. It has to be kept in mind that the Hon ble Supreme Court in Ganga Saran Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the expression reason to believe occurring in sec. 147 is stronger than the expression if satisfied and such requirement has to be met by the AO in the reasons recorded before usurping the jurisdiction u/s. 147 of the Act. It must also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or transferring of unaccounted cash for the benefit of beneficiaries. This information was the basis or the foundation for the Assessing Officer to form up his belief that income of assessee has escaped assessment. This information per-se is general information/modus-operandi adopted by entry operators which is in vogue for decades and which is a common knowledge in the business circle. It has to be kept in mind that reason to believe escapement of income should be that of a prudent persons and when we test the validity of reasons recorded, we have to evaluate whether the information on which the AO acted upon can pass the common prudent man s test. Here in this case, the information which the AO gives in his reasons recorded is a common/general information which by no stretch of imagination can be termed as a foundation to form the belief of escapement of income of the assessee. A reading of the reason even cannot trigger a reason to suspect leave alone reason to believe because there is no specific inputs connecting the case of assessee. Other than the general statement, no specific inputs are mentioned in the reasons recorded to have any nexus or connection with the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to give the details of the enquiry report, viz, where and when was the enquiry conducted ? It pertains to which F.Y/A.Y? What are the names of entry operators? Which are the fake bank accounts identified by the wing? And how they are connected to assessee? Moreover though the Assessing Officer used the expression accommodation entry in his reasons recorded, he has not bothered to explain the basis for arriving at such findings and who are the accommodation entry providers etc is not found mentioned in the reasons recorded to reopen , so the contents of the information from investigation wing which AO relies doesn t have any factual information to act upon against the assessee qua AY 2009-10. 22. From the aforesaid reasons recorded by AO it is evident that other than the general information given by Investigation Wing there is no other material the AO collected himself after preliminary enquiry which could have enabled him at the time of recording reasons to come to a conscious independent conclusion that income of the assessee has escaped assessment . According to us, the information given by the Investigation Wing can only be at the best be a basis to ignite/trigger [ t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that the AO after referring to the vague unknown investigation report which describes the general modus operandi of entry providers concludes that a sum of ₹ 4.08 cr. is unaccounted money of the assessee which has escaped assessment because assessee has introduced ₹ 4.08 cr. as accommodation entries, without specifying the nature of accommodation entry like whether it is income/expense/capital/share/loan etc. So, it is clear from the aforesaid averments that AO based on some Investigation Wing s information has erroneously concluded that unaccounted money of assessee has been transferred back to it through dubious bank accounts and not as per his independent view after a preliminary enquiry conducted by him. Thus from the reading of the totally vague information which is nothing but general information, which the AO based his reason to reopen can be termed at best as AO had reason to suspect only and not reason to believe. As stated earlier, it has to be remembered that information is not synonymous to truth. At the cost of repetitions, we note that AO simply on the basis of some investigation report of the Wing which is general information has jumped into conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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