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TMI Blog2021 (2) TMI 1385X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to re-open as held by the Hon ble Supreme Court in Lakhmani Mewal Das [ 1976 (3) TMI 1 - SUPREME COURT] . The information given by the investigation wing at best can trigger reason to suspect and not reason to belief which is the requirement of law for re-opening u/s 147 of the Act. In such a case i.e. reason to suspect, then AO is bound to conduct preliminary inquiry and collected some material which would make him believe that there is in fact an escapement of income. Unfortunately from a reading of the reason s recorded (supra) does not reveal as to what investigation he under took when he got the information from the investigation wing. viz what inquiry was conducted, on whom such inquiry was conducted, what were the evidences or material or admission found in such inquiries and how that material was linked with the case of the assessee. In absence of all such facts being mentioned in the reasons, the reasons-recorded by the AO do not provide any link between the information from DDIT(Inv) and reason warrant holding escapement of income chargeable to tax. Since this link is missing, the reasons recorded does not satisfy the jurisdictional condition precedent in terms of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us courts and hence the reopening be declared to be bad in law and the reassessment order be quashed. 12. For that the reopening of assessment u/s 148 of the IT Act 1961 was on borrowed satisfaction and not on any independent application of mind by the assessing officer and hence the reopening be declared to be bad in law and the reassessment order be quashed. 13. For that the reopening of assessment u/s 148 of the IT Act 1961 was without any relevant material having link to escapement of income and hence the reopening be declared to be bad in law and the reassessment order be quashed. 14. For that the sanction u/s 151 of the IT Act 1961 before the reopening of assessment u/s 148 of the IT Act 1961 was mechanical and without application of proper mind and the sanction was bad in law and hence the reopening be held to be bad in law. 15. For that the facts and circumstances of the case the notice u/s 143(2) of the IT Act 1961 was without jurisdiction and bad in law and hence the entire assessment order is bad in law and the same should be quashed. 3. For adjudicating the legal issue of jurisdiction of AO to reopen the assessment we need to examine the reasons recorded by AO before in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed above the said transaction is not verifiable from the return of income furnished by the assessee. The AO also had no such information before receiving the said report along with the data as mentioned above . 6. Considering the facts and circumstances of the case, I have reason to believe the income of Rs. 6,03,140/- have escaped income needs to be assessed followed by recovery of tax arrears. 7. In this case return of income was filed for the year under ocnsideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provision of clause (b) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. 8. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 is required to be obtained separately from Pr. CIT as per the provisions of Section 151 of the Act. 4. When the legal issue of jurisdiction of AO to re-open the assessment is challenged, first of all let us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn; Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. 5. From a plain reading of Section 147 of the Act it can be seen that the basic requirement of reassessment u/s 147 of the Act is that the AO of the assessee must have reason to believe that any income chargeable to tax has escaped assessment. The Hon ble Supreme Court in ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 held that such belief must be the belief of the jurisdictional AO and made the following observations: The reasons for the formation of the belief must have a rational connection with or relevant bearing of the formation of the belief . Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the material to the information was discussed in the case of CIT vs. SFIL Stock Broking Ltd. by Hon ble Delhi High Court reported in (2010) 325 ITR 285 (Delhi), wherein it was held that mere information is not a material and that even existence of material would not be sufficient to invoke reopening proceedings u/s 147 of the Act : After having heard the counsel for the parties, we are inclined to agree with the submissions made by the respondent / assessee. We find that the Supreme Court in Rajesh Jhaveri (supra) made it absolutely clear that before an Assessing Officer issues a notice under Section 148, thereby re- opening the assessment under Section 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief. The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the Assessing Officer. However, the Supreme Court in Rajesh Jhaveri (supra) did not say that it was not necessary for the Assessing Officer to form a belief‟ and that the mere fact that there was some material on record was sufficient. 8. The Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed. 10. In the light of the aforesaid judicial precedents in respect of re-opening u/s 147 of the Act we have to analyse the reasons recorded by the AO to see whether the condition precedent to re-open u/s 147 of the Act has been complied or not. As noted (supra) it is settled position of law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor can anything be deleted from the reasons so recorded. Hon ble Bombay High Court in the case of Hindustan Lever (surpa) has inter-alia, observed 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 further added that The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion the evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mewal Das (supra) as follows: The reasons for the formation of the belief must have a rational connection with or relevant bearing of the formation of the belief . Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee from the assessment in the particular year because of his failure to disclose fully truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material substitute its own opinion for that of the ITO on the point as to whether actions should be initiated for reopening assessment. At the same time we have to bear in mind that it is not that any or every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee. 13. And also it has to be kept in mind that information adverse may trigger reason to suspect , then AO to make reasonable enquiry and collect material which would make him believe that there is in fact an escapement of income. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax (Investigation), Ahmedabad at the premise of NMCE and backup of the NMCE trade was taken. Aftter analysis of this data, 85 entites was identified was identified who had booked contrived losses in excess of Rs. 10 crores and information was shared with concerned Director General of Income Tax (Inv). In this context, the list of 50 clients was forwarded to the DGIT (Inv), Kolkata jurisdiction to verify whether the contrived losses booked on NMCE were used to set off any income / profit available in the books. From a reading of 3rd para it is discerned that this paragraph talks about carrying out of survey proceedings u/s 133A of the Act, by the Pr. DIT (Inv), Ahmedabad at NMCE where 85 entries were identified which all booked/contrived losses in excess of Rs. 10 crores of which 50 cases were forwarded to DGIT(Inv) Kolkata for verification. Thus, it is noted that this para contained a general statement of certain official action under taken by the department with some statistical figure which does not spell out any wrong doing on the part of the assessee. Other than mere information/allegation of misuse of NMCE by same unscrupulous elements, nothing against the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation wing. viz what inquiry was conducted, on whom such inquiry was conducted, what were the evidences or material or admission found in such inquiries and how that material was linked with the case of the assessee. In absence of all such facts being mentioned in the reasons, the reasons-recorded by the AO do not provide any link between the information from DDIT(Inv) and reason warrant holding escapement of income chargeable to tax. Since this link is missing, the reasons recorded does not satisfy the jurisdictional condition precedent in terms of section 147 of the Act. Thus, it is discernible that in this case the AO has simply noted the contents of the letter from DDIT(Inv) which is general vague and the contents has been taken as gospel truth to conclude that he (AO) has reason to believe escapement of income. As noted earlier this action of AO is based on the borrowed satisfaction of DDIT(Inv) and at best the information supplied to AO could have triggered Reason to suspect and not the reason to believe. So recording of reasons by the AO before re-opening the assessment is bad for non-application of mind to the information he received; and the AO failed to independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court that if power is conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. It is trite that when a statute requires a thing to be done in a certain manner, it shall be done in that manner alone and the court would not expect it being done in some other manner. [Refer State of Bihar vs . J.A.C. Saldanha Ors. Reported in 1980 AIR 326(SC)]. Satisfaction recorded should be independent and not borrowed or dictated satisfaction. (1995) 5 SCC 302 it has been held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or compliance with some higher authorities instruction, then it will be a cases of failure to exercise discretion altogether. 19. For completeness let us have a look at para 7 of the recorded reason, wherein it was stated: In this case return of income was filed for the year under consideration but no assessment as stipulated u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t: F O trading (Premium) 2,85,941 4 Brokerage 5,83,352 5 Trading in shares 14,02,662 6 Dividend received 4,500 7 Interest on FD 3,47,339 8 Gross Revenue 29,73,249 21. Moreover it has been brought to our notice that there is factual errors in the reasons recorded by the AO (supra). According to Ld. A.R in the reasons recorded it is stated that the assessee had made profit in NMCE through one broker i.e. M/s PKC Commodities Ltd for a sum of Rs. 6,03,140. This is not factually correct. Firstly, from M/s PKC Commodities, the assessee earned Rs. 23,89,890. Secondly, the assessee had used service form other two brokers in NMCE trading: it made commodity profit of Rs. 20,01,112 through broker M/s AN Commodity Broking (P) Ltd also a loss of Rs. 1,85,568 through broker M/s Rajeshwari Commodity Sales (P) Ltd. It was brought to our notice that while objecting to the proposed reopening, the AR made a written submission on 26/06/2018 stating the following fact: You have stated that we have only earned a profit of Rs. 6,03,140/- by trading through PKC Commodities Ltd. on NMCE platform whereas our records show that we received a net profit of Rs. 23,89,890.34 through them after paying for the bro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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