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TMI Blog2022 (3) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had shown credit entries. First Assessing Officer had confronted the assessee with the adverse report from the very same source which has now prompted the present incumbent/second Assessing Officer to issue notice under section 148 of the Act (i.e. Investigation Wing of the Department, Kolkata). Taking cognisance of the adverse report from the same source the first Assessing Officer had issued show-cause notice dated December 10, 2015 (supra) and alleged that these two companies (M/s. Samkit Finance Pvt. Ltd. and M/s. Saphire Conclave Pvt. Ltd.) were not found to be existing. So it is noted that the first Assessing Officer (Assistant Commissioner of Income-tax) had raised serious doubt about the existence of these two companies based on the Investigation Wing report itself and after conducting enquiry and verification and after approval from Joint Commissioner of Income-tax under section 153D has passed the reassessment order dated March 31, 2016 accepting the nature and source of the credit entries from these two companies also. So we find that the first Assessing Officer has made the reassessment after discharging his duties as an investigator as well as that of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction of the Assessing Officer and allow the cross-objection of the assessee. - I.T. A. No. 32/Patna/2021 And C.O. No. 6/Patna/2021 - - - Dated:- 17-12-2021 - P. M. Jagtap (Vice-President) And A. T. Varkey (Judicial Member) For the Department : Sanjay Mukherjee , Commissioner of Income-tax, Departmental representative For the Assessee : S. K. Tulsiyan , Advocate ORDER A. T. VARKEY (JUDICIAL MEMBER). - 1. This is an appeal preferred by the Revenue and cross-objection filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals)-Patna-3 dated February 5, 2021 for the assessment year 2012-13. 2. At the outset, the learned counsel for the assessee Shri S. K. Tulsiyan contended that the assessee has preferred legal issue in its cross-objection against the order of the learned Commissioner of Income-tax (Appeals) who has erroneously dismissed the same. So, according to him, if this legal issue is considered and adjudicated and if found to be valid then it goes to the root of the impugned reassessment order and therefore the legal issue raised by the assessee may be first examined and adjudicated. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) erred in upholding the action of the Assessing Officer in initiating proceedings under section 147 vide notice dated March 29, 2019 without existence of conditions for the initiation of the said proceedings. 2. That on the facts and in law and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the learned Assessing Officer initiating proceedings under section 147 for the assessment year 2012-13 even though the assessee had duly filed return of income disclosing all material facts and the same was assessed under section 153A read with section 143(3) vide order dated March 31, 2016. 3. That on the facts and in law and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the learned Assessing Officer in initiating proceedings under section 147 merely on a change of opinion. 4. That on the facts and in law and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the learned Assessing Officer initiating proceedings under section 147 merely on the basis of assumptions, presumptions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 142(1) of the Act, the Assessing Officer confronted the assessee with the aforesaid adverse information of Investigation Wing about the share-subscribers of the shares of the assessee-company. From a perusal of the said notice it is discerned that the Assessing Officer based on the investigation report was of the view that the assessee was infusing unaccounted fund from dubious sources through accommodation entry to it in the form of share capital/premium and therefore the assessee was put to notice by the Assessing Officer as to why the share application money/share capital/share premium claimed to have been received by the assessee during the year from eleven (11) share subscribers should not be added under section 68 of the Act and also the assessee was given opportunity to produce evidence in respect of share subscribers, i. e., to prove their identity, genuineness of the transaction and creditworthiness. The assessee had replied to the aforesaid detailed show-cause notice (SCN) by letter dated October 6, 2015 (refer pages 6 and 7 of the paper book) and December 14, 2015 (refer pages 8 to 11 of the paper book) and submissions placed at pages 12 to 19 of the paper book. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounts of the share applicants prior to cheques were issued by them for share application money. Thus on the strength of the aforesaid facts supported by evidence (supra) according to the assessee it has discharged the burden casted on it as per section 68 of the Act, to prove the nature and source of the credit entry which in this case was share capital and premium the assessee had collected from eleven (11) share subscribers and thus proved the identity of the share applicants, their creditworthiness and genuineness of the transactions. Therefore it was pleaded before the Assessing Officer that section 68 addition proposed by him in show-cause notice is not warranted in this case, because the nature and source of the credit entries have been proved/explained. The Assessing Officer after going through the aforesaid documents after conducting enquiry and after verification of the same did not find any infirmity in the documents/information filed by the assessee in respect to the share application/capital/premium collected and so the Assessing Officer being satisfied with the nature and source of the credit entries in the form of share capital and premium, passed the reassessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening jurisdiction. For that we have to first go through the contents of the reasons recorded by the Assessing Officer to reopen the assessment and test whether the Assessing Officer had successfully usurped the jurisdiction. So let us read the reasons recorded by the Assessing Officer for reopening the already completed reassessment under section 153A read with section 143(3) of the Act dated March 20, 2016 (supra) recorded by the Assessing Officer is as under : Information was received in this case from the Deputy Director of Income-tax (Investigation), Unit-3, Kolkata that this assessee has taken accommodation entries from Shri Mukesh Banka of Banka group in the form of bogus unsecured loan or in other forms. Unaccounted cash transaction of paper/shell companies of Banka group through which the assessee, M/s. Shree Vishnu Vishal Paper Mills Pvt. Ltd. has benefitted, is as under : Account Name Tras. Date FY Tras. Amount (in Rs.) Beneficiary Name Beneficiary PAN Ben. Account No. Bank Name Samkit Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AAHCS8837K 291300210002505 PNB Total 2,04,00,468 These appear to be bogus transactions done by the assessee as a cover for real income on which no tax has been paid and requires further verification. Therefore, on the basis of this tangible material on record, I have reason to believe, within the scope and meaning of terms contained in section 148(2) read with section 147 of the Act, that the assessee's income to the tune of ₹ 2,04,00,468 has escaped assessment for the assessment year 2012-13. The income escaped was on account of failure on the part of the assessee to disclose fully and truly all material facts. Therefore, the case of the assessee for the assessment year 2012-13 needs to be reopened under section 147 of the Act to bring to tax the income escaped. 7. The assessee objected to the aforesaid reasons by filing an objection dated November 20, 2019 (refer pages 83 to 89 of paper book) wherein the assessee brought to the notice of the Assessing Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer that it had disclosed all material facts truly and fully as required as per the law during the already concluded reassessment proceedings dated March 31, 2016 under section 153A/143(3) of the Act, i. e., the precise material/adverse material from Investigation Wing was confronted to the assessee in the show-cause notice under section 142(1) dated December 10, 2015 and the Assessing Officer under section 153A/143(3) after enquiry and verification accepted the nature and source of share capital and premium which includes the transaction with M/s. Samkit Finance Pvt. Ltd. and M/s Saphire Conclave Pvt. Ltd. Therefore according to Shri S. K Tulsiyan, the condition precedent as per first proviso to section 147 of the Act has not been satisfied by the Assessing Officer before usurping the jurisdiction under section 147 of the Act. Thus it was brought to the notice of the present incumbent Assessing Officer that issuing of notice under section 148 for reassessment is bad because the condition precedent as prescribed by first proviso to section 147 is not satisfied and requested him to drop the reassessment proceedings being bad for non-satisfaction of first proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the learned Commissioner of Income-tax (Appeals) who vide impugned order dated February 5, 2021 held that the Assessing Officer has rightly reopened the case of the assessee and, therefore, according to him, the issuance of notice under section 148 of the Act is valid (refer page 24 of the impugned order of the learned Commissioner of Income-tax (Appeals)). However, the learned Commissioner of Income-tax (Appeals) was pleased to delete the addition made to the tune of ₹ 2,04,00,468 on the merits after calling for the remand report from the Assessing Officer and clearly noted that in the earlier scrutiny proceedings under section 153A/143(3), the Assessing Officer had gone through the very same issues/facts on which the present proceedings have been reopened/initiated and the learned Commissioner of Income-tax (Appeals) took note of the fact that despite calling for remand report, the Assessing Officer, failed to conduct proper enquiry on this issue and failed to bring any material on record to rebut the evidence submitted by the assessee to prove the nature and source of credit entries, so he was pleased to delete the addition ordered by the Assessing Officer. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rised representative, Shri S. K. Tulsiyan, the Assessing Officer has not validly recorded the reason to believe escapement of income of the assessee for the year under consideration. According to Shri S. K. Tulsiyan, the assessee had undergone thorough scrutiny under section 153A/143(3) of the Act on the very same issues based on the investigation report from the wing itself and after enquiry the Assessing Officer had accepted the nature and source of credit entries (share capital and premium) and was passed by the Assistant Commissioner of Income-tax/Assessing Officer on March 31, 2016 after approval of the Joint Commissioner of Income-tax under section 153D of the Act. Therefore according to Shri S. K. Tulsiyan, the Assessing Officer/Assistant Commissioner of Income-tax while framing the assessment order under section 153A/143(3) after issuance of notice under section 142(1) of the Act and after confronting the assessee with the adverse Investigation Wing report against all the eleven (11) share subscribers (including the two (2) share subscribers the present Assessing Officer has raised doubts about based on the report of Investigation Wing) had called for details of the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication of equity shares (b) Copy of board resolution of the respective company (c) Income-tax acknowledgment copy (d) Certificate of incorporation (e) Copy of bank statement duly marked (f) Copy of balance-sheet of the company showing the amount of shares shown in the audited balance-sheet assets side. 13. According to Shri S. K. Tulsiyan by filing the aforesaid documents to substantiate the identity, creditworthiness and genuineness of the credit entries, the assessee brought to the notice of the predecessor Assessing Officer under section 153A/143(3) of the Act that the sums credited are in the nature of share capital and premium from them and these two entities among others are share subscribers ; the predecessor Assessing Officer going through the documents and after conducting enquiry and verification of the same had completed the assessment with the prior approval of the Joint Commissioner of Income-tax, Range dated March 31, 2016 under section 153D of the Act without drawing any adverse view against the nature and source of the credit entries for them (M/s. Saphire Conclave Pvt. Ltd. and M/s. Samkit Finance Pvt. Ltd.). It was pointed out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was admittedly after four (4) years, the additional conditional precedent, jurisdictional fact i. e., the Assessing Officer's satisfaction that there was failure on the part of the assessee to disclose truly and fully the material facts necessary for assessment (regarding the issue i. e., the share capital/ premium from M/s. Samkit Finance Ltd. and M/s. Saphire Conclave Ltd. was given by the assessee in the earlier scrutiny) the learned authorised representative wondered as to how there can be failure on the part of the assessee. So this essential condition precedent is absent. In this case, according to Shri S. K. Tulsiyan the Assessing Officer by reopening the assessment, is trying to review the action of the earlier Assessing Officer to have accepted the nature and source of share capital and premium from M/s. Samkit Finance Pvt. Ltd. and M/s. Saphire Conclave Pvt. Ltd. which action of the Assessing Officer according to Shri S. K. Tulsiyan is not permissible and the present Assessing Officer has no authority of law to do so. Moreover according to Shri S. K. Tulsiyan it can be seen that the Assessing Officer has formed his belief regarding escapement of income based on the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment : year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have led to detection to an income escaping assessment, cannot be reason enough to hold the view that income has escaped assessment. It is 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 and 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. In order to validly reopen, the requirement is that there has to be some kind of cause and 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 the hon'ble Supreme Court in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) wherein the hon'ble Supreme Court has taken note of the additional condition precedent required as per the first proviso under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC), the hon'ble Supreme Court held (page 11) : It is well-settled as a result of several decision of this court that two distinct condition must be satisfied before the Assessing 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. . . The important words under section 147(a) are has reason to believe and these words are stronger than the words is satisfied . The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Income-tax Officer in coming to the belief the court can certainly examine whether the reason are relevant and have a bearing on the matter in regard to which he is required to entertain the belief before he can issue notice under section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities, i. e. M/s. Samkit Finance Pvt. Ltd. and M/s. Saphire Conclave Pvt. Ltd. before the present Assessing Officer, (hereinafter the Second Assessing Officer ) the Assessing Officer formed the belief of escapement of income. Even though it was brought to the notice of second Assessing Officer that the transaction with M/s. Samkit Finance Pvt. Ltd. and M/s. Saphire Conclave Pvt. Ltd. had been thoroughly scrutinized by the earlier proceedings under section 153A/ 143(3), he did not agree and went ahead to reassess the transaction which had been accepted by the first Assessing Officer, is akin to review the action of the first Assessing Officer which is not permitted by law. So first of all we have to see whether the first Assessing Officer had examined about these two entities in his reassessment order dated March 31, 2016. For that let us have a look at the relevant portion of the first Assessing Officer's show-cause notice dated December 10, 2015 in respect of eleven (11) share subscribers but since we are only concerned about M/s. Samkit Finance Pvt. Ltd. and M/s. Saphire Conclave Pvt. Ltd. which had subscribed to the share of erstwhile (earlier assessee's name was M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor Shri Sanjay Kumar Modi M/s. Pioneer Commosale Pvt. Ltd. for ₹ 1,19,992. The above facts clearly shows that the assessee-company was in the practice of infusing unaccounted fund from dubious sources through the accommodation entries. It further finds support from the statement given by one of the director Shri Ashok Kumar Bagaria under section 132(4) in which it was categorically admitted that huge funds were poured into the coffer of the company by the help of accommodation entries. Therefore, considering the similar nature of transactions made with all the above companies and singularity of the occasion of issue of shares, it appears that the above companies being paper companies utilised as the conduits for providing accommodation entries solely managed by the accommodation entry operators. Therefore it is required to explain that why the share application money/share capital/premium claimed to have received by you during the year should not be taken as the receipts the source and nature of which remained unexplained and taken as income chargeable to tax under section 68 of the Income-tax Act. Further it appears from the financial statements submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of incorporation of Registrar of Companies of each share subscribing companies which shows that they are all registered companies under the Companies Act. (viii) PANs of all the share subscribing companies were furnished (ix) And all of these share subscribing companies are assessed to tax. (x) The assessee-company has filed copy of their balance-sheet which reflected the shares of the assessee-company in their respective books of account on the assets side. (xi) Their CIN, address were also furnished. (xii) The assessee-company after the receipt of share application money has allotted the shares to the respective applicants after approval by its Board. (xiii) After the approval in the Board meeting, the return of allotment in form 2 has been filed with the Registrar of Companies. (xiv) Then share certificate has been issued for the allotted shares. 24. Before the earlier Assessing Officer, the assessee had submitted the copy of form 2 filed before the Registrar of Companies, Patna along with the filing receipt with the copy of present/current correspondence address of the applicant companies. Further it was brought to the notice of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me issue which has undergone scrutiny by his predecessor Assessing Officer is nothing but review of the action of first Assessing Officer dated March 31, 2016, which power it is settled that the Assessing Officer (second) does not enjoy. So the impugned actions of the second Assessing Officer can at best be termed as change of opinion after review of earlier assessment which is not a jurisdictional ground to legally/validly usurp reopening jurisdiction. And therefore the action of the second Assessing Officer is held to be bad in law on this score alone. Moreover, we find substantial merit in the contention of the learned authorised representative Shri S. K. Tulsiyan that the second Assessing Officer has believed escapement of income on the strength of borrowed satisfaction of the Investigation Wing without conducting preliminary enquiry which action is also bad in law. Moreover, it is noted that in this case the first proviso to section 147 is attracted, and as discussed supra, the assessee has discharged the burden casted upon it and has disclosed during reassessment dated March 31, 2016 fully and truly all material facts necessary for assessment which culminated in the Assistant ..... 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