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TMI Blog2022 (3) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... /reassess the assessee's income. And pursuant to the assessee's request for copy of the "reasons for reopen the assessment", the AO furnished the copy of the reasons recorded vide letter dated 25.07.2018 (Refer page 66 of PB). Pursuant to the receipt of the reasons recorded, the assessee filed its objection to the proposed action of reopening the scrutinized assessment vide letter dated 23.08.2018 which is placed at page 67 to 77 of PB, which was disposed off by the AO vide order dated 25.09.2018 which is placed at page 78 to 79 of PB. Thereafter the AO after issuing statutory notices u/s 143(2) and section 142(1) of the Act framed the reassessment at a sum of Rs. 23,91,96,130/- by making addition of Rs. 14,66,34,169/- on account of unexplained discrepancy in stock. 4. Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld. CIT(A), who while adjudicating the legal issue raised by the assessee against the validity of the reopening made u/s 147/148 of the Act was pleased to hold that the action of the AO to reopen the assessment was bad in law. And it is brought to our notice that the Ld. CIT(A) on merits also concluded that the addition made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. 8. From a bare reading of the aforesaid provision it is clear that the AO before reopening an assessment should have reason to believe, escapement of income. It is settled position of law that reason to believe, postulates foundation based on information and belief based on reason. It should be borne in mind that even if there is foundation based on information, there still must be reason warrant holding of a belief that income chargeable to tax has escaped assessment. This is the jurisdictional condition precedent to validly re-open an assessment. Further, one should understand the subtle distinction between the " reason to suspect" and the "reason to believe". An information adverse may trigger " reason to suspect" and the AO to make reasonable enquiry and collect material, which would make him believe that there is in fact escapement of income. Only in the later case, the AO can validly re-open the assessment and not in the former case. And the additional condition precedent required as per first proviso u/s 147 for reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a standalone basis. Nothing can be added to the reasons so recorded, nor can anything be deleted from the reasons so recorded. The Hon'ble Bombay High Court in the case of Hindustan Lever [2004] 267 ITR 332 has inter-alia, observes that ".............. it is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reason not recorded by him. He has to speak through the reasons." Their Lordship added that "The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion & the evidence.........". From the aforesaid decision of the Hon'ble Court, it should be borne in mind that reasons (which was recorded by AO before he issues notice u/s 148 of the Act) are to be examined only on the basis of the reasons as recorded by the AO. 11. Further it has to be kept in mind that the jurisdictional condition for re-opening an assessment ie, "reason to believe" escapement of income should be that of the assessee's AO and not that of any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also important to bear in mind the subtle but important distinction between factor which indicate an income escaping the assessment and the factors which indicates a legitimate suspicion 'about income escaping the assessment,. The former category consists of the facts which, if established to be correct, will have a cause & effect relationship with the income escaping assessment. The later category consists of facts, which , if established to be correct, could legitimately lead to further inquiries which may lead to detection of an income which has escaped assessment. There has to be some kind of cause & effect relationship between reasons recorded and the income escaping assessment. While dealing with this matter it is useful to bear in mind the following observation of Hon'ble Supreme Court in ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 wherein the Hon'ble Supreme Court has taken note of the additional condition precedent required as per first proviso u/s 147 for reopening the assessment after four (4) years . The relevant portion has held as follows: "The reasons for the formation of the belief must have a rational connection with or relevant bearing of the formation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pritam Beria has accepted that he has provided various bogus accommodation entries to the various beneficiaries through various shell/paper companies controlled and managed by him and his brother Shri Prawesh Beria for commission Shri Pritam Beira has also accepted that all the directors of these entities/companies are dummy directors appointed by him. In this regard names of many persons/companies who have received accommodation entries from these shell/paper companies controlled and managed by Shri Prawesh Beria/Shri Pritam Beria has been received. On perusal of the information received it is seen that one of such beneficiary was M/s Turtle Ltd. PAN:AABCT 1375 R, an assessee under this jurisdiction, which has received an amount of Rs. 25,00,000/- during the FY 2011-12, as accommodation entry from M/s Venkatesh Realcon Pvt. Ltd. (vide a/c no. 910020028579964), a company controlled/ managed by Shri Pritam Beria. As, the above transactions has been verified from cash trails and bank statement available in the case, hence I have reason to believe that Rs. 25,00,000/- is actually undisclosed income of assessee M/s Turtle Ltd. during the FY 2011-12, which was escaped assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain discrepancy exists in stock valuation to the tune of Rs. 14.70 crores, which fact according to him have escaped assessment for AY 2012-13. 16. In the aforesaid context, is noted that the original scrutiny assessment u/s 143(3) of the Act was framed on 16.03.2015 and notice for reopening the assessment u/s 148 was issued on 31.03.2018 for the AY 2012-13 which action of the AO to issue the notice is beyond the period of four (4) years from the end of the relevant assessment year. Therefore when we are applying the law as discussed (supra), in this case the additional condition prescribed in the first proviso to Section 147 also need to be satisfied i.e. escapement of income was due to the failure on the part of the assessee to disclose truly and fully all material facts during the assessment, which is sine qua non for successfully re-opening the relevant assessment year. From a perusal of the reasons recorded (supra) nowhere it can be seen that AO had alleged any failure on the part of the assessee to disclose true and full material facts in the original assessment proceedings. Since there is no whisper or mention about this important condition in the reasons recorded before is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emicals Ltd. vs. DCIT reported in 319 ITR 282 at para 7 the Court has upheld the same principles. 17. Moreover we note that the Ld. CIT(A) has given a finding of fact at para 8, page 22 of his impugned order that the issue regarding valuation of stock was duly enquired into by the earlier AO in the original assessment proceedings which culminated in the assessment order u/s 143(3) dated 16.03.2015. The Ld. CIT(A) has noted that the AO during the assessment proceedings in the notice issued u/s 142(1) on 10.10.2014 had specifically raised query on this issue by asking question no. 8 which is reproduced as under: "8. Valuation of Stock (i) Quantity and value-wise details of opening stock/inventory and closing stock/inventory. (ii) Please furnish a detailed note on the method followed by you for valuation of raw material input as also inventories and treatment of Modvat/Cenvet. Whether cost or market price has been adopted for valuation of stock may be explained. Whether FIFO or LIFO is applied may be stated. (iii) Explain whether the prescribed guidelines and the amended provisions of Section 145A has been followed or not? If so, the impact of such adjustments to the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no power to review. The Court further held that AO has power to reopen the assessment u/s 147 provided there is tangible material to come to the conclusion that there is escapement of income from assessment and the reasons must have live link with the formation of belief. Thus the AO must have some sort of tangible material to establish that he has 'reason to believe' that the income chargeable to tax has escaped assessment. * The Hon'ble Calcutta High Court in the case of Amrit Feeds Ltd. Vs. ACIT reported in 239 CTR 82 has observed that if in the original assessment the AO has raised specific query in the requisition u/s 142(1) and in response to the same the assessee has furnished details and explanations which were considered by the AO and the claim of assessee was accepted than AO cannot reopen assessment for the reason that deduction was wrongly allowed." 19. In the light of the aforesaid discussion we uphold the action of the Ld. CIT(A) to hold the impugned reopening of the AO was bad in law. Since we sustained the impugned action of Ld. CIT(A) holding the action of AO to reopen as bad in law, therefore we are not inclined to go into the merits of the case since it is ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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