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TMI Blog2021 (11) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... f the reasons and even the approval granted mechanically by the concerned sanctioning authority - On perusal of the reasons so recorded, it is noted that it talks about certain information available on record with the Assessing officer. What is the nature and the source of such information and what the contents of such information and more importantly, how the said information pertains to or connected with the assessee and whether such information forms a tangible material in possession of the Assessing officer for forming a reasonable belief that income has escaped assessment is not discernable from the reasons so recorded. We agree with the contentions of the ld AR that possession of ITS information that the assessee has received certain amount could be basis for making further enquiries and in absence of such enquiries being conducted prior to recording of the reasons, there is absence of tangible material in possession of the Assessing officer at the time of recording of reasons and subsequent enquiries after recording of the reasons could not be used to supplement the reasons so recorded by the AO. Reasons so recorded talks about the assessee receiving gross receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side. Where the reassessment proceedings have been quashed and set-aside appeal of assessee allowed. - ITA. No. 219/JP/2020 - - - Dated:- 6-10-2021 - Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM For the Assessee : Sh. Vinod Kumar Gupta (CA) And Sh. Deepak Sharma (CA) For the Revenue : Smt. Monisha Choudhary (JCIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-2, Jaipur dated 30.12.2019 wherein the assessee has raised the following grounds of appeal. 1. The impugned order u/s 147 r.w.s 144 dated 18.12.2017 is bad in law and on facts of the case, for want of jurisdiction and for various other reasons and hence, the same may kindly be quashed and in any case, the impugned addition be deleted. 2. The ld. CIT(A) erred in law as well as on the facts of the case in confirming the action of the AO by framing the assessment u/s 144 despite the assessee regularly attended the proceedings. The impugned order having been framed u/s 147 r.w.s. 144 dated 18.12.2017 in gross breach of natural justice, kindly be quashed. 3. The very action taken u/s 147 r/w 148 is bad in law wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the concerned sanctioning authority. It was submitted that the assessee was a minor girl, studying in Class 12th during the previous year relevant to impugned assessment year. It was submitted that the nature of income which has been brought to tax is commission income which requires the person to work as an agent of the principal for which existence of an agency contract is a pre-requisite. The assessee being a minor was not eligible to enter into any kind of agreement in view of section 11 of Indian Contract Act, 1872. It was further submitted that mere deduction of TDS does not implies that certain services have been provided by the minor assessee. It was accordingly submitted that the addition made by the AO and sustained by the ld. CIT(A) applying the proviso to section 64(1A) of the Act is completely unjustified being contrary to the law and facts. It was accordingly submitted that both on factual and legal basis, the addition made by the Assessing Officer and confirmed by the ld CIT(A) deserves to be deleted. Further, he has relied on the written submissions and contents thereof read as under:- 1. Notice u/s 148 issued by Non Jurisdictional AO: 1.1 At the outset it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 10.02.2012 (Para 15 to 25) (Case Law#2) Tejpal Singh Vs ITO in ITA No. 3087/Del/2017 vide order dated 22.11.2017 (Case Law#3) 2. Reasons Recorded on Incorrect Assumption of Facts: 2.1 A perusal of the reasons recorded reveals that the AO was of belief that the assessee has received the gross receipts amounting to ₹ 21,60,840/- and on this ground the action of initiation u/s 148 was taken, whereas in fact, the assessee received the amount of ₹ 14,28,318/- only as evident from the bank statements submitted by the assessee as well as obtained by the AO u/s 133(6). 2.2 At Para-6 of assessment order, Ld.AO has categorically stated that bank statements were obtained and examined. At Page-2 of assessment order, Ld.AO proceeded to determine the commission income at ₹ 21,60,840/- on the sole ground that ledger or confirmation of party was not submitted, however, the factual position clarified by the assessee that commission of ₹ 14,28,318/- only was received has been admitted after due examination of bank statements, without recording anything contrary. 2.3 Therefore, the ground so taken by the AO to form belief of escapement is factually inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order is quashed. Harjeet Singh Vs ITO in ITA No.2013/DEL/2015 (Delhi Trib.) vide order dated 12.11.2018 10. It can be seen from the above that there is no mention of any cheque number and amount shows is ₹ 10 lacs. As per bank statement which is at page 36 of the paper book on 09.09.2004 there is a cheque entry of ₹ 1 lacs cheque number is 00884535/-. It can be seen that the Assessing Officer has proceeded on wrong assumption fact. The amount of ₹ 10 lacs is not supported by any cheque number whereas the allegation is that the assessee has received accommodation entry from Sh. Gupta through Deposits in proprietors accounts Transfer to 1st intermediately company Date Particulars Amount Bank Ch.No. Date Intermediate Amount 18-09-04 Cash deposit 200)300 Federal 763281 08/09/04 Fenderal Chandrabrabha Fin. 200000 Transfer by cheque to Actual beneficiary MEDIATORY SOURCE OF EXTRA FUND IF INTERMIDIATORY COMPANY Date Amount Actual beneficiary Address PAN No. Mediatory Address PAN 400000 Cash deposit Mahalaxmi Finance co. 09/09/04 1000000 Harjeet 11/01, Gurudwara Road, Jangpura, .Bhogal, new delhi110014. AARPS3442 H Aneja Ji 5C/13, New Rohtak Road, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before recording the reasons, from Bank or from the father of assessee, but nothing of this sort was done. This shows that the AO has merely gone by the report of ITS. In this regard reliance is placed on the decision of Hon ble Delhi HC in the case of Meenakshi Overseas Pvt Ltd Vs ITO (2017) 395 ITR 677 (Delhi HC) wherein the Hon ble Court returned the finding that 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. 3.5 Thus, from the reasons recorded it clearly gets manifested that Ld.AO simply made the totals of figures appearing in Form 26AS without any verification or examination of the same. 3.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Jain at whose premises the search was conducted and P C Agarwal, so called mediator in these transactions. Given that search proceedings in respect of these two persons have formed the basis for the present reassessment proceedings in the hands of the assessee, it was essential to at least examine the statements of these three persons and seized material if any found during the course of search which in any ways indicate that these two persons have carried out certain transactions with the assessee and prima facie these transactions are suspected to be accommodation entries and not actual transactions. However, there is nothing in the reasons so recorded that the Assessing officer has gone through the statements so recorded during the course of search and the seized material to show prima facie linkage of assessee s undisclosed income being routed back in form of share capital. This shows that the Assessing officer has merely gone by the report of the DIT, Investigation Wing and the said report even didn t have the statements of these persons which either find mention in the report or as enclosures when the same was forwarded to the Assessing officer. Therefore, it transpires th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO and only conclusions have been drawn. Therefore, in absence of these pre conditions, the assumption of jurisdiction u/s 147 has no legal basis and resultantly the assessment made u/s 148 deserves to be quashed. In support of our contention we rely upon the following case laws: 4. Non Application of mind by Concerned Sanctioning Authority: 4.1 The copy of approval granted by PCIT-II, Jaipur vide letter dated 25.03.2017 is placed at PBP 2 To 3. A perusal of the Approval letter reveal that the approval has been granted merely mentioning Yes against the column which queried whether the Pr.CIT is satisfied on the reasons recorded by the AO that it is a fit case for the issue of notice u/s 148 . This shows that PCIT-II, Jaipur has not recorded proper satisfaction and without application of mind gave the approval in mechanical manner. In support of our contention we rely upon the following case laws: CIT Vs S Goyanka Lime Chemical Ltd (2015) 64 taxmann.com 313 (SC) Section 151, read with section 148 of the Income-tax Act, 1961 - Income escaping assessment - Sanction for issue of notice (Recording of satisfaction) - High Court by impugned order held that where J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions of assessee and documents produced in reassessment proceedings, AO added back a sum of ₹ 1,35,00,000-CIT(A) held against assessee on legality of reassessment notice but allowed assessee's appeal on merits holding that AO did not conduct appropriate enquiry to conclude that share inclusion and advances received were from bogus entities-Tribunal allowed assessee's appeal on merits Revenue appealed against appellate order on merits- Assessee's cross appeal was on correctness of reopening of assessment- Tribunal upheld assessee's cross-objections and dismissed Revenue's appeal holding that there was no proper application of mind by concerned sanctioning authority u/s Section 151 as a pre- condition for issuing notice u/s 147/148- Held, Section 151 stipulates that CIT (A), who was competent authority to authorize reassessment notice, had to apply his mind and form opinion- Merly appending of expression 'approved' says nothing-It was not as if CIT (A) had to record elaborate reasons for agreeing with noting put up-At same time, satisfaction had to be recorded of given case which could be reflected in briefest possible manner- In present case, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctfully following the aforesaid precedent i.e. ITAT, SMC, Bench, New Delhi decision dated 21.8.2019 in the case of Gopal Chand Manudhra and Sons; DamyantiMundhra; Ramdev Mundhra; Shriya Devi Mundhra and Gopal 24 Chand Mundhra vs. ITO, Wards 55(5), New Delhi decided in ITA No. 1375; 1721; 1722; 1523- 1524/Del/2019 respectively relevant to assessment year 2011- 12, the reassessment is hereby quashed and accordingly the additional ground no. 2 is allowed. Since the assessee succeeds on this legal ground challenging the validity of reassessment proceedings, the addition on merit is not being adjudicated being academic in nature. The appeal filed by the assessee is accordingly allowed. Dharmendra Kumar Vs ITO in ITA No.2728/Del/2018 vide order dated 16.10.2019 held as under: 5. I have heard both the parties and carefully considered the case laws and the relevant documents available on record especially the assessment order, impugned order, reasons/satisfaction/approval recorded for issue of notice u/s. 148 of the Act as well as the Paper Book filed by the Assessee containing pages 1-41 of the Paper Book in which he has attached the copy of AIR information; copy of reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Class-12th at Saint Anselm s School, Mansarovar, Jaipur at the relevant point of time. 5.1 At the outset, it is submitted that Ld. AO proceeded to assess the commission in the hands of appellant on the ground that income has been earned out of manual work done by him or activity involving application of his skills, talent or specialized knowledge and experience. In this regards, following peculiar facts need kind consideration: (i) During the subjected assessment year, the appellant was studying in Class-12, as regular student with Saint Anslems School, Jaipur. The same is evident from the her 12th Class Marks Sheet which is placed hereunder. (ii) The nature of income is commission, which requires the person to work as an agent of the principal for which existence of an agency contract is a pre-requisite. Assessee being a minor was disqualified for entering into any kind of agreement in view of section 11 of India Contract Act, 1872. For the sake of convenience the same is being reproduced hereunder: Section 11 of India Contract Act, 1872 11. Who are competent to contract.-every person is competent to contract who is of the age of majority according to the law to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been possessed by appellant. First, the appellant being a full time student, it is improbable that she was having any time or skills to run an agency to earn commission income. Moreover, at that time, appellant was mere 17 years of age, therefore it cannot be said that she was having sort of experience in the agency business as in preceding years no such income has been earned by her. Thus these bald assertions are nothing more than surmises in the absence of any evidence to prove the same. (vi) Ld. AO as well as CIT(A) Proceeded to tax the alleged commission income in the hands of appellant on the ground that vide duly notarized affidavit she has admitted the income in her hands. A perusal of Affidavit dated 17.08.2017 reveals that only certain factual position were mentioned i.e. the bank account in which commission was received and amount of commission received. In the affidavit, it was no-where admitted that appellant was working as an agent and received the commission in her own capacity or provided any service to M/s Eve Jewels Limited. There is no denial from the fact that amount was received in the bank account of appellant. More importantly, affidavit dated 17.08.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so to section 64(1A), the clubbing provisions shall not apply in respect of income as arises or accrues to the minor child on account of any manual work done by him or activity involving application of his skill, talent or specialized knowledge and experience. In the case of the assessee, she received income on which tax was deducted at source by EVE Miracle Jewels Limited. The assessee provided certain services for which commission was paid by the deductor which proves that assessee s own efforts were involved in earning the income. Further, even if it is assumed that the income earned was not due to the efforts of the assessee, why the same was not clubbed by her father while filing his return of income for the year 2010-11. Since father has not clubbed the income, it proves that assessee s claim is an afterthought only to escape tax in her hand. Therefore in view of the above facts claim of the assessee was rightly rejected by the AO and entire commission income of ₹ 21,60,840/- was brought to tax in her hands and which has rightly been confirmed by the ld CIT(A). It was accordingly submitted that there is no infirminity in the findings and order of the ld CIT(A) and same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is chargeable to tax has escaped assessment. 10. On perusal of the reasons so recorded, it is noted that it talks about certain information available on record with the Assessing officer. What is the nature and the source of such information and what the contents of such information and more importantly, how the said information pertains to or connected with the assessee and whether such information forms a tangible material in possession of the Assessing officer for forming a reasonable belief that income has escaped assessment is not discernable from the reasons so recorded. 11. It has been submitted by the ld AR that the reasons were recorded on the basis of Individual Transaction Statement (ITS) showing the details of Form 26AS in which certain entries were appearing showing total payment of ₹ 21,60,840/- and TDS deducted of ₹ 2,17,807/- and on the basis of said information, the reasons have been recorded. It has been further submitted that after recording the said reasons, a notice u/s 133(6) dated 22.08.2017 was issued to Punjab National Bank to obtain copies of bank statements of the account in which such alleged receipts were credited. It was accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the said notice u/s 133(6) was issued on 3.08.2015 subsequent to recording of reasons by the AO on 25.03.2015. Therefore, we find that as on the date of recording of reasons by the AO, only piece of information in possession of the AO was the CIB report that the assessee has sold certain immoveable property and the AO was not even having a copy of the sale deed or the specifics of the immoveable property, which to our mind, raises a question mark on the tangible nature of such information in terms of whether it is real or actual rather than imaginary and whether it actually relates to the assessee or not. Where the AO still wishes to rely on the report of CIB, given that such report is more of a generic report and not containing exact specifics of of immoveable property and other particulars of the transaction, it is expected that the AO on receipt of such report should carry out further examination before arriving at the prima facie view that income has escaped assessment and the matter is fit for issuance of notice u/s 148 of the Act. Such examination is required to be carried out before issuance of notice u/s 148 as the same is required for the Assessing officer to form his ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in transactions with the assessee and prima facie these transactions are suspected to be accommodation entries and not actual transactions. However, there is nothing in the reasons so recorded that the Assessing officer has gone through the statements so recorded during the course of search and the seized material to show prima facie linkage of assessee s undisclosed income being routed back in form of share capital. This shows that the Assessing officer has merely gone by the report of the DIT, Investigation Wing and the said report even didn t have the statements of these persons which either find mention in the report or as enclosures when the same was forwarded to the Assessing officer. Therefore, it transpires that there is no further examination which has been carried out by the Assessing officer. The fact that the assessee has filed its return of income u/s 139(1) was very much in the knowledge of the Assessing officer and the latter could have verified the transactions with the reported transactions in the financial statements and could have asked for more information to establish the necessary nexus, however nothing of that sort has been done by the Assessing officer and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmodation 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 the conclusions flow there from. 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. 24. The reopening of assessment under Section 147 is a potent power no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrowed 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 has been committed by the ITAT in the impugned order in concluding that 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. Subsequently, the Hon ble Delhi High Court in case of RMG Polyvinyl Ltd. (supra) has held as under:- 12.Recently, in its decision dated 26th May, 2017 in ITA No. 692/2016 Pr. CIT v.Meenakshi Overseas, this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act should be discernable from the reasons so recorded and the reasons alone should be considered for determining whether the Assessing Officer is in possession of the material/information basis which he has formed the reasonable belief that the income of the assessee has escaped assessment for the impugned assessment year. For assumption of jurisdiction u/s 147, the Assessing Officer must form a prima facie view on the basis of tangible material in his possession that there is an escapement of income, the opinion so formed may be subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion, the reasons recorded and/or the documents available on record must show a link/nexus and relevancy to the opinion formed by the Assessing Officer regarding escapement of income and the reasons are required to be read as they were recorded by the Assessing officer. And it is for the Assessing officer to disclose and open his mind through the reasons recorded by him and he has to speak through the reasons that the income chargeable to tax has escaped assessment. In the instant case, we find that the reasons so recorded are silent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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