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TMI Blog2025 (3) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... rise to prove that there is escapement of income and that the assessee has failed to disclose fully and truly all material facts necessary for the assessment, then he/she could have formed reasons to believe for issuing notice to reopen the assessment beyond four years.
Also, the facts remain undisputed that the AO has alleging that the assessee company have received accommodation entry during F.Y 2010-11 is totally wrong and misleading because the AO has himself observed in the assessment order that the alleged accommodation entry was actually received by M/s Frankdeal Traders Pvt. Ltd. upto F.Y 2008-09.
Both these facts indicate that there is a complete contradiction of information mentioned by the Assessing Officer in the reasons recorded. Therefore, the reasons recorded are merely on borrowed satisfaction and reasons to suspect and therefore, we fail to find any infirmity in the detailed findings of the ld. CIT(A) quashing the reassessment proceedings on holding this to be illegal and bad in law. All the grounds raised by the Revenue are hereby dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. on 27.12.2010 and subsequently under the scheme of amalgamation approved by the Hon'ble High Court of Calcutta, M/s Frankdeal Traders Pvt. Ltd. was merged with the assessee company. Prior to the merger as on 31.03.2009, the total amount of share capital and security premium appearing in the audited balance sheet of M/s Frankdeal Traders Pvt. Ltd. amounted to Rs. 20.13 crore. The ld. Assessing Officer thereafter has made certain observations about the merged company namely M/s Frankdeal Traders Pvt. Ltd. stating that M/s Frankdeal Traders Pvt. Ltd. is a paper/shell company managed by entry operators and by taking over M/s Frankdeal Traders Pvt. Ltd., the assessee company has received funds by liquidating the investments appearing in the balance sheet of erstwhile M/s Frankdeal Traders Pvt. Ltd. prior to its merger. Since M/s Frankdeal Traders Pvt. Ltd. was merged with the assessee company during the F.Y 2010-11, there was credit of Rs. 9,09,00,371/- in the bank account of M/s Frankdeal Traders Pvt. Ltd. on account of following: Particulars Amount Interest on loan received 1,28,687 Loan received during the year 1,00,00,000 Repayment of loan advanced 76,65,184/- Sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (Entry Operator) who was reported to be the assessee group. Statement of Sri Jain was also recorded on the said date, in which he admitted providing accommodation entries. Sri Anand Jain was confronted with the statement of the entry provider, which was admitted in the statement of Sri Anand Kumnar Jain also. In the assessment years 2011-12, 2012-13 & 2013-14, additions were made mainly on account of liquidation of investments, which were accommodation entries, whose vivid details where never furnished in the course of assessment proceedings. A brief detail of modus operandi is reproduced underneath for your ready reference: Entry Operators float companies which have no actual business and capital is raised through issuance of shares. The subscribers of these shares also happen to be dubious companies of identical nature. The transactions made by these companies generally have three limbs. The first limb is the creation of the shell companies with substantial share capital which is balanced with inventories in the form of shares in other shell companies. The second limb is the transfer of such shell companies to persons who desire to use such substantial share capital compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, the Assessee declared a total income of Rs. 12,42,740. The assessment was finally completed by the Assessing Officer (AO) on the total income of Rs. 68,31,740 which, inter alia, included an addition of Rs. 50 lakhs on account of a gift received by the Assessee from Mrs. Gianna Fissore Rs. 2 lakhs on account of low house withdrawals and Rs. 37,162 on account of deemed dividend under Section 2 (22) (e) of the Act. For AY 2005-06, the income was assessed at Rs. 82,51,126 which, inter alia, included an addition of Rs. 2 lakhs on account of low house withdrawals and Rs. 62,70,496 on account of deemed dividend under Section 2 (22) (e) of the Act corresponding to the additions made on protective basis in the hands of Business Park Overseas Pvt. Ltd. (BPOPL), Countrywide Promoters & Developers Pvt. Ltd. (CPDPL) and Poonam Promoters & Developers Pvt. Ltd. (PPDPL), in which companies the Assessee was a substantial shareholder. For the AY 2006-07, the income was assessed at Rs. 1,35,87,112 which, inter alia, included two additions of Rs. 12,77,193 and Rs. 90,26,389 on account of deemed dividend under Section 2 (22) (e) of the Act corresponding to the additions made on protective basis in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of search which were not produced or not already disclosed or made known in the course of original assessment. It may be noted that on the day of search as stated in the background of the case, statements of both director and entry operator were recorded on the same day and the director/representative of the assessee company offers no explanation about the same as he was confronted with the statement of the entry operator on the very day of search. Hence, the property in the form of unquoted investments which was liquidated through entry operator was never known to the assessing officer in the course of assessment u/s 143(3) but emerged on the date of search, i.e., on 22.11.2017 and very much a part of incriminating material on record. In view of the above, the onus was on the assessee to establish the credibility of the companies, whose stocks were held as stock-in-trade and subsequently, liquidated to other corporate entities of dubious authority, cannot be overlooked. As apparent from the order for the AY 2011-12, assessee's accounts were credited with payments received from MRS Commercial Pvt. Ltd. Desire Vintrade Pvt. Ltd., Arvid Pratishthan India Pvt. Ltd., Buniyad T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopening is merely on the basis of reasons to suspect without any enquiry to form the reasons to believe that the income has escaped from assessment for the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. We observe that the assessee company was subjected to search action u/s 132 of the Act on 22.11.2017. Prior to the search, the assessee company acquired another company namely M/s Frankdeal Traders Pvt. Ltd. from 01.04.2010 and the said scheme was duly approved by the Hon'ble High Court of Calcutta vide order dated 19.07.2011. Since the company namely M/s Frankdeal Traders Pvt. Ltd. was amalgamated with the assessee company from 01.04.2010, the assets and liabilities of M/s Frankdeal Traders Pvt. Ltd. as on 31.03.2010 merged with the assets and liabilities of the assessee company as on 01.04.2010. It is not in dispute that the assessee company as well as M/s Frankdeal Traders Pvt. Ltd. filed the regular return of income for assessment year 2011-12 and have furnished their audited financial statement to the Income Tax Authorities as well as duly uploaded on the portal of Ministry of Corporate Affairs. Now, the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crore and the remaining amount are the amount received from repayment of loans/advances, interest received on loan, sale of stocks which were purchased in the preceding year. All these facts loudly speaks from themselves that prior to recording reasons for reopening the assessment of the assessee's case beyond four years, the Assessing Officer firstly merely acted on borrowed satisfaction and secondly failed to make any enquiry to reach to a point that he has reasons to believe that income has escaped assessment and thirdly failed to record satisfaction that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. We further note that all the abovementioned facts have been duly taken into consideration by the ld. CIT(A) quashing the reassessment proceedings observing as under: "Decision I have gone through the above submissions of the Appellant and have considered the facts and evidences on record. Decision on Ground No. 3 The above ground of appeal impugns the assessment order of the A0 on the ground that the reasons recorded by the Ld. Assessing Officer are itself erroneous and bad in law and, hence, the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AO who had passed the order impugned in the present appeal. Borrowed Satisfaction In this case, the reasons recorded by the AO are being reproduced as under: "Date: 27/03/2018 There is an information in the possession of the department vide letter no Capseal Vyapaar Pvt. Ltd/AABCC4992 M/D CIT/C-3/GHY/2017-18 dated 24-03-2018 in which it has been informed that M/s Capseal Vyapaar Pvt. Ltd. bearing PAN AABCC4992M received accommodation entries of Rs. 20,13,00,000/- during the F.Y 2010-11 relevant to the A. Y 2011-12 from penny stock company/paper company. In view of the above, I have reason to believe that income chargeable to tax has escaped assessment coming within the meaning of section 147 read with proviso thereto, by reason of failure on the part of assessee to disclose full and truly all material facts necessary for the assessment. As the time limit for issue of notice as provided u/s 149 is expiring on 31/3/2018, your honour is requested to sanction permission u/s 151 read with proviso thereto to issue notice u/s 148 to the Income Tax Act, 1961." From a perusal of the assessment folder, it is seen that "reasons to believe" were recorded by the A0 on 27/03/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 148 of the Act. Thus, the satisfaction arrived at by the AO that income had escaped assessment in the case of the Appellant was not his own but was completely that of the Investigation Wing that income had escaped assessment in the case of the Appellant. In other words, the satisfaction arrived at by the AO that income had escaped assessment in the case of the Appellant was borrowed from the Investigation Wing. Any notice issued under Section 148 of the Act on the basis of borrowed satisfaction is bad in law and, consequentially, the ensuing proceedings are bad in law. In support of my contentions above, I derive strength from the judicial pronouncements cited below. In support of my conclusion, I derive strength from the judicial pronouncements given below. In the case of Nokia India Private Ltd. vs. The Deputy Commissioner (CT)-IV [on 09.12.2014; W.P. Nos.22066 to 22072 of 2014 & connected MPs], it was averred/held, as follows, by the Hon'ble Madras High Court: "The assessing authority being a quasi-judicial authority should adjudicate the case independently with due application of mind. Therefore, to draw adverse inference on the ground that the petitioner did not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 617, 123 TAXMANN 433], the Hon'ble Delhi High Court, held as hereunder: 19. What would constitute 'reason to believe' is no longer res integra. 20. In Calcutta Discount Co. Ltd. (supra) the Apex Court clearly held that once the primary facts are before the Assessing Authority he requires no further assistance by way of disclosure. It was observed by the Apex Court that: "It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessed- to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessed must disclose what inferences - whether of facts or law - he would draw from the primary facts." In the case of Piramal Enterprises Ltd. vs. DCIT [Writ Petition No.2958 of 2016 dated 15.02.2017], the Hon'ble Bombay High Court, held as under: "Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 and 2 of the revenue being devoid of merits are dismissed." Decision on the Additional Ground of Appeal MECHANICAL APPROVAL OF THE "REASONS TO BELIEVE" BY THE APPROVING AUTHORITY Vide additional ground of appeal duly admitted per reasons detailed supra, the Appellant had challenged the reassessment proceedings for the want of approval/sanction of the approving/sanctioning authority being mechanical. However, no submissions were filed by the Appellant with regards to the additional ground of appeal. However, since the Appellant has raised a challenge to the Sanction for issue of Notice, it would be pertinent to refer to the provisions of section 151 of the Act. As per Section 151, no notice shall be issued under Section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. And in any other case no notice shall be issued under Section 148 by an Assessing Officer, who is below the rank of Join ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice u/s. 148", the Hon'ble Pr. CIT-2, Kolkata has affixed a rubber stamp inscribing "Yes, I am satisfied". Since, for the above assessment year, the requisite sanction was required to be given by the then Hon'ble Pr. CIT, in view of Section 151(1), it is clear from the above discussion that there was no "satisfaction" of the then Hon'ble Pr. CIT which was required to be in explicit terms. Furthermore, if at all it is construed that the then Hon'ble Pr. CIT had indeed accorded his sanction, it is vivid and clear that for the above assessment year, the satisfaction was required to be recorded by the then Hon'ble Pr. CIT and not the Addl. CIT. It is also submitted with utmost reverence to the then Hon'ble Pr. CIT that apparently, from the approval recorded and words used by way of rubber stamp affixed that "Yes, Lam satisfied.", it seems that his sanction was merely mechanical and the then Hon'ble Pr. CIT did not apply his independent mind while according sanction since no reasons have been cited by the then Hon'ble Pr. CIT for his being satisfied to accord the sanction to initiate the reopening of assessment in the case of the Appellant under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting out brief reasons. Reasons are the link between the material placed on record and the conclusion reached by an authority in respect of an issue, since they help in discerning the manner in which conclusion is reached by the concerned authority. Thus, we find force in the contention of learned counsel for the appellant that there has not been proper application of mind by the Board." In the case of Pr. Commissioner of Income Tax-06 vs M/s N.C Cables Ltd. ITA 335/2015 dated 11/01/2017), it was held/averred, as follows, by the Hon'ble Delhi Pradesh High Court: "11. Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... places obligation and enforces the performance in specified manner, "performance cannot be forced in any other manner." Under the relevant provisions of section 147 & section 148 of the Income Tax Act, for assuming jurisdiction to reopen an assessment by the Assessing Officer, there is a condition precedent that the Assessing Officer must have reasons to believe that the income of the assessee for that year has escaped assessment. It has been held time and again that such reasons to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority, such reason should be held in good faith and cannot merely be a pretence. The reasons to believe must have a rational connection with or relevant bearing on 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 Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". ..... X X X X Extracts X X X X X X X X Extracts X X X X
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