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TMI Blog2023 (8) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... test the material himself and apply his own mind to the material, if any, which has given rise to alleged information from DIT(Inv.). AO is duty bound to test the alleged information himself in the light of relevant material and weigh the credibility of information and consequently disclose his process of reasoning to arrive at the reason to belief contemplated under S. 147. On appraisal of the reasons recorded under Section 148(2) and approval thereon under Section 151 of the Act and in the light of contentions raised on behalf of the assessee, it is noticed that the case has been reopened on the last date of the limitation period for two reasons, namely, accommodation entry in the form of share capital recieved and allegation of undisclosed fictitious profit derived from transactions on NMCE platform. AO has proceeded under Section 147 r.w. Section 148 of the Act on the basis of information received from DDIT (Inv.) New Delhi and DDIT (Inv.) Kolkata. The DDIT (Inv.) New Delhi has alleged the assessee company to be beneficiary of accommodation entry in form of share capital from Shalini Holdings Pvt. Ltd. whereas the DDIT (Inv.) Kolkata has alleged misuse of NMCE platform which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legations. No culpability can be inferred at the stage of reopening notice based on quality of information gathered against the assessee. The Pr. CIT has granted approval without observing the inconsistency and glaring inadequacy in the approval memo placed before him wherein the scope of reopening was curtailed to mere case of alleged escapement qua Explanation- 2 disregarding other overwhelming conditions of the main provision thereof. Pr.CIT weighed and endorsed the action of reopening u/s 151 apparently without any application of mind to such deficiencies in approval memo. The reasons so recorded, thus has no leg to stand in the eyes of law when tested at the counters of prerequisites of Sections 147 and 151 of the Act. We thus find overwhelming potency in the plea of the assessee that reasons recorded and approval granted thereon under Section 151 do not meet the requirement of law at all and thus the issuance of notice under Section 148 based on cryptic and nondescript reasons combined with a mechanical approval of the Pr.CIT that too on a narrow compass under Section 151 is not permissible in law. We thus have no hesitation to hold that the notice issued under Section 148 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isconceived and merely on arbitrary basis. (iii) That the notice u/s 133 (6) was duly complied with by the share applicant during remand proceedings and the existence and identity of the share applicant having been accepted by the assessing officer in remand report, the impugned order is contrary to facts and not sustainable under the law. (iv) That appellant having discharged the burden of proof and in absence of any adverse material, the addition u/s 68 is on the basis of conjectures and surmises. 3(i) That on facts and circumstances of the case, the Ld. CIT(A) has grossly erred in upholding addition of Rs. 2, 35,49,859 /- being profit earned from transactions undertaken on NCME platform without appreciating that such profit has duly been accounted for and corroborated from audited accounts. (ii) That the allegation of fictitious profits is unsubstantiated, whimsical and merely on the basis of information from investigation wing without verifying the books of account and there exists no valid basis of presuming any undisclosed income in respect of transaction carried out at NCME platform which is a recognized stock exchange particularly when the entire profit arising out of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rule 11 of Income Tax (Appellate Tribunal) Rules, 1963 owing to the fact that objections raised in additional grounds are legal in nature for which relevant facts are stated to be emanating from existing records. 5. Concurrently, the Revenue by way of its grounds of appeal has also challenged the part relief granted to the Assessee by the CIT(A). The Grounds raised are also reproduced hereunder: 1. That the order of the Ld. CIT(A) is not correct in law and on facts. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the additions of Rs. 1,50,00, 000/- made by the A. O. without verifying the capacity of the lenders and genuineness of the transactions. 3. Whether the Ld. CIT(A) was correct in law and facts in deleting the addition made by the A.O. without examining the source of share capital invested in Assessee Company 6. Briefly stated, the assessee-company is a brokerage house engaged in the services of commodities. The assessee has inter alia executed transactions towards commodities trading on by using National Multi-Commodity Exchange (NMCE) platform through certain brokers and sub- brokers. The assessee filed its return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fictitious gains from transactions carried out on NMCE [National Multi Commodity Exchange] platform. The CIT(A) upheld the additions made by the Assessing Officer alleging indulgence in tax evasion practices by the assessee by claiming fictitious profits/ losses by using NMCE platform. The CIT(A) also declined to interfere with the additions made amounting to Rs. 14,12,991/- by the Assessing Officer alleging unexplained expenditure on account of commission paid to indulge in obtaining fictitious profits by misusing NMCE platform. 8. Aggrieved by the first appellate order wherein some relief was granted by the CIT(A), both the Assessee and Revenue have filed respective appeal as captioned above. 9. The grounds of appeal raised by the assessee in ITA No.7291/Del/2019 are three fold; (i) challenge to the assumption of jurisdiction under section 147 / 148 r. w. s 151 (ii) wrong assumption of jurisdiction under S. 147 instead of statutory path available under s. 153 C of the Act and (iii) challenge to the action of the Assessing Officer (AO) in making certain additions /disallowances on merits in pursuance of the assumption of jurisdiction under s. 147 of the Act. 10. The Revenue, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Jain were engaged in the business of providing accommodation entries by providing RTGS/Cheques/PO/DD in lieu of cash, to a large number of beneficiary companies through various paper and dummy companies floated controlled by them. 2. Further, it has been revealed from the aforesaid information / details that M/ s. Bhaijee Commodities Pvt. Ltd has received accommodation entries in the form of share capital/premium during the financial year 2009-10 relevant the AY 2010-11 from the following companies managed and controlled by S K Jain Group: Sr. No. Name of Company operated by SK Jain Group Name of the Beneficiary company PO/ Cheque No./ RGT S Dated Bank Amount (Rs.) 1. M/ s. Shalini Holding Pvt l td. M/ s. Bhaijee Commodities Pvt. Ltd. RTGS 06.04.2009 Axis 50,00,000 Total: 50,00,000 3. Now, the Income Tax Return of assessee company i.e. M/s Bhaijee Commodities Pvt Ltd has been downloaded from the ITD system.On comparative examination of return of Income of the assessee company for A. Y. 2009-10 2010-11, the following has been observed with regard to the share capital and share premium of the assessee company:- Sr. No. Particulars A. Y 2009-10 A. Y. 2010-11 Increase (+)/ Decrease ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit Advent Commodities 11,79,079 AAACB 8905 G Bhaijee Commodities Pvt. Ltd Profit Fairdeal Vincom Pvt 1,32,81,789/- AAACB 8905 G Bhaijee Commodities Pvt. Ltd Profit Gulistan Vaniya 2,96,750/- AAACB 8905 G Bhaijee Commodities Pvt. Ltd Profit Gubert Merchant 17,37,000/- AAACB 8905 G Bhaijee Commodities Pvt. Ltd Profit Hemant Saraogi 49,57,554/- AAACB 8905 G Bhaijee Commodities Pvt. Ltd Profit Manobir Synthetic 10,22,850/- AAACB 8905 G Bhaijee Commodities Pvt. Ltd Profit Rupam Traders 8,22,700/- AAACB 8905 G Bhaijee Commodities Pvt. Ltd Profit Yashwi commodities Pvt. Ltd. 2,52,137/- Total 2,35,49,853/- 7. On perusal of the above table, it appears that M/s Bhaijee Commodities Pvt. Ltd. made use of non-genuine NMCE transactions to book contrived gains. The total amount of transactions in the form of fictitious gains involves Rs. 2, 35,49,859 /-. On perusal of the ITR of M/s. Bhaijee Commodities Pvt., it is observed that the profit so earned has not been reflected by the assesses company. At the same time, as per prevalent market practice, payment of commission ranging from 3 % to 6%, amounting to Rs. 14, 12,991/- (Rs. 2, 35,49,859 /- @ 6%) were also made by assessee outside its books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income escaped assessment. The CIT(A) also found merit in the assumption of jurisdiction in the first appeal. 15. The contentions of the Assessee on lack of jurisdiction under s. 147 are broadly outlined here under; (i) The reasons recorded would make it evidently clear that the Assessing Officer has acted in a mechanical manner and without application of mind and without objectively ascertaining the facts before recording the reasons towards alleged escapement. The assessment has been reopened on the basis of borrowed satisfaction without independent application of mind and thus consequential action and proceedings are illegal and bad in law. On facts, all the commodities transactions mentioned in the reasons were duly recorded in the books of account and the profits arising thereon has been duly incorporated in the taxable income and there was no failure on the part of the assessee to disclose all material facts. Similarly, no reference to any adverse material is placed on record to suspect the propriety of share capital issued at par to Shalini Holdings . Placing reliance on the judgment rendered in the case of Pr. CIT vs. RMG Polyvinyl (I) Ltd. 396 ITR 5 (del.), the Ld. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has allegedly obtained fictitious gains involving Rs. 2,35 ,49, 859/- by such process to route its unaccounted money in the books of account. 16.2 With reference to reasons so recorded, the assessee contends that; (i) all the commodity transactions carried out by the Assessee are already recorded in the books and are fully verifiable from the audited accounts and consequently there is no case of any omission or failure to disclose trading transactions and all material facts thus were duly incorporated while filing the return of income. The AO, on the other hand, neither provided transaction-wise details even before the Tribunal giving rise to alleged fictitious profits nor it is available in the possession of the AO. The so called belief formed towards escapement and initiation of vexatious proceedings is without such elementary details. The onus has been shifted on the assessee in vaccum without being in possession of even most basic and preliminary details. The AO has dismally acted on dotted line at the dictate of the investigation wing without application of mind to such facts. (ii) despite categorical objections filed by the assessee in the course of the assessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. There is nothing tangible brought out to suspect the propriety of the subscription. Impliedly, the onus to prove propriety was shifted on the assessee in the garb of reassessment proceedings. To support the bonafides of the subscriber on merits, the Assessee contends that Capital and Reserve of M/s. Shalini Holdings is in the vicinity of Rss.124.87 crore and therefore, company of such huge net worth cannot be regarded as accommodation entry provider more so where no evidence has been collected despite extreme action of search. The important fact of allotment of shares at par resulting in creation of valuable rights as a shareholder has not been weight at all. (iv) With regard to share/commodity transactions at the platform of NMCE Exchange, the assessee submits that the Assessing Officer himself alleges that the assessee has obtained fictitious profit rather than actual profit by misuse of the Exchange Platform. The assessee thus submits that it is a bizarre observation and it is difficult to understand as to why the assessee will obtain fictitious profit and pay taxes thereon and how such action is prejudicial to the interest of the Revenue to provide basis for reopening the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edly made in paragraph 8(ii) of the reasons recorded where the allegations in the reasons recorded is qua Bhaijee Portfolio Ltd. Based on such factually incorrect reasons thus, the assessee could not be included in the clutches of vexatious reassessment proceedings. The PCIT has also merrily granted approval under S. 151 to reopen the case of assessee despite such allegation qua a different entity showing obvious non application of mind, first by the AO and by the PCIT as a sequel thereto. The Assessing Officer in the reasons recorded has alleged fictitious gains aggregating to Rs.2, 35,49,859/- and further alleged that profits so earned has not been reflected in the books of accounts. Such observations are factually incorrect. While making wild allegations against the assessee, the commodity transactions giving rise to alleged fictitious gains are not identified at all. The details of transactions giving rise to fictitious profits has not been made available till date either. The assessee claims that notwithstanding the lack of identification by the AO, all the transactions executed on the NMCE platform were duly reflected and included in the books of accounts as asserted again an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll transactions carried on the NMCE platform duly incorporated in the return ignored (h) the reasons recorded by the Assessing Officer clearly on borrowed satisfaction of the other officer of the Department and proceeded on dotted lines without the availability of so called material in possession of the Assessing Officer and no analysis of material if any and without confronting the same to the assessee and thus the belief held is pretense (h) the assessment has been reopened on hypothesis and wrong inferences (i) the approval granted by the Pr.CIT under Section 151 is mechanical and perfunctory and without application of mind for multiple reasons namely, the name of other entity mentioned for commodity transaction and scope of approval for reopening was confined by AO to Explanation 2 to Section 147 and consequent approval thus does not travel beyond existence of allegation of escapement. To put it differently, the approval given is not qua other mandatory pre-conditions inbuilt in the provisions of s. 147 of the Act. 19. The assessee thus contends that for multiple reasons on standalone and cumulative basis, the reopening under Section 147 of the Act does not meet the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assumption of jurisdiction under Section 147 in the absence of any statutory dictate adverse to exercise of wide powers under s. 147 which is coupled with duty. 22. On merits, the assessee contends that in the remand proceedings, the Assessing Officer as per the remand report dated 4th July, 2019 has clearly made an averment to the effect that the shareholder company namely Shalini Holdings Pvt. Ltd. [now known as Alstone Textiles (India) Ltd.] has provided documentary evidences in support of purchase of shares of the assessee company. The bank statement of shareholder company shows that the shareholder company has made payment of Rs.50 lakh through banking channel on 06.04. 2009. Copy of ITR along with balance sheet was also obtained by the Assessing Officer and submitted before the CIT(A) in the remand proceedings. The subscriber gas also confirmed the subscription. The assessee thus contends that on the face of tell-tale evidences and in the absence of any incriminating material shown against the assessee except bald information from DDIT(Inv.), the addition could not be made and sustained under Section 68 merely on the basis of baseless perception and conjectures. The ld. co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion from other officer of the deptt. The information received per se cannot be regarded as belief . It can possibly give birth to requisite belief. Thus, it was incumbent upon Assessing Officer to test the material himself and apply his own mind to the material, if any, which has given rise to alleged information from DIT(Inv.). He is required to form his independent reason to believe on escapement. It is well settled that the formation of belief is a statutory function which cannot be relegated. Also, the formation of belief being statutory power cannot be exercised without application of mind. Various Courts have also consistently observed that the belief of AO must be induced by reasons and a mere belief in existence of reasons or to say, contents of reasons does not provides source of power for exercise of jurisdiction. 25. In the absence of material, the alleged information from other officer of the deptt. has to be reckoned as abstract, bald and bare one and thus has no rational probative value and could be acted upon by the AO under law. The AO is duty bound to test the alleged information himself in the light of relevant material and weigh the credibility of information an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific material in support. No material has been referred in the note of the Investigation Wing which may possibly implicate the subscription receipts by the assessee in any objective manner. The report primarily revolves around the modus operandi of S K Jain Group. Likewise, the allegation of fictitious profits is qua other entity. The so called belief formed by the Assessing Officer towards escapement of chargeable income is thus without the availability of relevant or tangible material and merely follows the opinion expressed by the investigation wing. The reasons assigned by the Assessing Officer towards escapement is dehors any tangible material which may give rise to a prima facie belief to attack the propriety of the share subscription. Likewise, the allegation of fictitious profits is also bald one and premised in incorrect recording of facts. The particulars of transaction giving rise to alleged unaccounted fictitious profits is not made available at any stage of the proceedings beginning with issuance of notice under Section 148 till the matter is traveled to the Tribunal. No instance of unreported profits has been identified even in the assessment as well. The onus has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisites of Sections 147 and 151 of the Act. 27. It is also noticed that in the similar fact situation, the reassessment under Section 147 on the grounds of fictitious transaction at NMCE platform has been cancelled by the Co-ordinate Bench in Gangeshwari Metal Pvt. Ltd. vs. ITO reported in (2020) 60 CCH 154 (Delhi Tribunal) relevant to Assessment Year 2010-11. The Co- ordinate Bench in that case observed that the Assessing Officer has proceeded merely on the basis of report given by the investigation wing without any application of mind and the Assessing Officer was not even aware of the actual profits earned by the assessee from commodities. The reopening action of the Assessing Officer was discarded and quashed by the Co-ordinate Bench. 28. We also bear in mind the observations made by the Hon ble Delhi High Court in the case of Pr. CIT vs. G G Pharma Pvt. Ltd., 384 ITR 147 (Del) Sarthak Securities Co. (P) Ltd. 329 ITR 110 (Del.) wherein it was held that it is the basic requirement of law that Assessing Officer himself applied his mind to the underlying material which led him to hold belief that the income of the assessee has escaped assessment and such reference to the material ..... X X X X Extracts X X X X X X X X Extracts X X X X
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