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TMI Blog2022 (12) TMI 1529X X X X Extracts X X X X X X X X Extracts X X X X ..... e light of this crucial fact, it is discerned that AO s reasons recorded for reopening the assessment was based on information from the Investigation Wing, which can at best be termed as Reason to suspect and not Reasons to believe. When there was adverse information, AO ought to have made preliminary enquiries and collected material which could make him form belief that there is in fact escapement of income, which in the facts discussed the AO failed to do. Therefore, we hold that the jurisdictional requirement that is Reason to believe, escapement of income as occurring in section 147 of the Act has not been met by the AO in the reasons recorded in the instant facts of the case. Therefore, we are inclined to quash the notice issued u/s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Id. CIT(A) has erred in upholding the addition of Rs.37.56,525/ made by the Respondent by making comparison with notional Income and notional brokerage expenses. 3. At the outset the learned Authorized Representative (AR) of the assessee does not want to press ground no. 1, so, it stands dismissed. Ground No. 2 is against the action of the Assessing Officer (AO) to have reopened the assessment u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) which is a legal issue, which will be decided first. 4. Brief facts of the case is that the assessee had filed return of income for AY 2007-08 on 12/10/2007 showing total income of Rs.6,66,800/-. The AO notes that he received information from the DGIT(Inv.) Mumbai, that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the action of the AO to have reopened the assessment u/s 147 of the Act, without satisfying the condition precedents ie, The AO ought to have recorded reason to believe escapement of income. For adjudicating this legal issue let us have a look at the reasons recorded by the AO to reopen the assessment which is reproduced as under: The assessee has filed return of Income for AY 2007-08 on 12/10/2007 showing total Income of Rs6,66,800. A search seizure action u/s 132 of the IT Act, 1961 was carried out by Investigation wing of Mumbai on 01/10/2013 in the case of Praveen Kumar Jain. The group provided accommodation entries of bogus sales through various benami concerns operated managed by Praveen Kumar Jain. The entire bogus nature of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodation entry from Shri Pravin Kumar Jain in the relevant assessment year i.e, AY 2007-08. Thus, according to the AO as per the information he received, the assessee has obtained accommodation entry in the form of Bogus Sales amounting to Rs.3,00,52,199/-. Therefore, according to the AO he has reason to believe that income of the assessee to the tune of Rs.3,00,52,199/- has escaped assessment. 7. On the aforesaid reasons recorded, the AO has reopened the assessment of the assessee. This action of the AO has been challenged by the assessee on the ground that the AO did not had met in the reasons recorded, the essential condition precedent i.e, reasons to believe, escapement of income which is necessary for usurping the jurisdiction u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigation Wing, was of the view that the assessee has booked bogus sales of Rs. 3,00,52,199/- with a concern/entity of Shri Pravin Kumar Jain (Entry Operator). On the basis of this information, the AO was of the opinion that Rs.3,00,52,199/- has escaped assessment. However, we note from the assessment order passed pursuant to the reopening itself has accepted that assessee has purchased the goods as well as he made the sale; and therefore, AO was of the opinion that assessee might have purchased goods from the Grey Market and has availed the services of the Shri Pravin Kumar Jain entities for bogus bills. So, he taxed the profit embedded in the turnover of Rs.3,00,52,199/- at the rate of 12.5%. The observation of the AO is reproduced as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls, which is commonly known as Grey market and this be so, the assessee has been benefited by providing margin of grey market. 9. In the light of the aforesaid action of the AO (after reopening) it is noted that the information on the basis of which the AO formed the opinion of escapement of income to the tune of Rs.3,00,52,199 i.e. bogus sales was not correct and instead, the AO after investigation has accepted the purchases as well as sales of goods shown by the assessee in the assessee s book. In the light of this crucial fact, it is discerned that AO s reasons recorded for reopening the assessment was based on information from the Investigation Wing, which can at best be termed as Reason to suspect and not Reasons to believe. When ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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