Income Tax Appellate Tribunal - Raipur
Assistant Commissioner Of Income Tax, ... vs Shri Bajrang Power And Ispat Ltd., ... on 29 May, 2024
आयकर अपील य अ धकरण यायपीठ रायपुर म।
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAIPUR BENCH, RAIPUR
BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER
AND
SHRI ARUN KHODPIA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No. 203/RPR/2022
नधारण वष / Assessment Year : 2012-13
The Assistant Commissioner of Income Tax,
Circle-1(1), Raipur (C.G.)
.......अपीलाथ / Appellant
बनाम / V/s.
Shri Bajrang Power and Ispat Limited
Village : Borjhara, Urla Guma Road,
Raipur (C.G.)
PAN : AACCB2944D
...... यथ / Respondent
Assessee by : Shri Amit Maloo Jain, Advocate
Revenue by : Shri S.L Anuragi, CIT-DR
सुनवाई क तार ख / Date of Hearing : 22.05.2024
घोषणा क तार ख / Date of Pronouncement : 29. 05.2024
2
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and
Ispat Limited
ITA No. 203/RPR/2022
आदे श / ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 31.08.2022, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short 'the Act') dated 31.12.2019 for the assessment year 2012-13. The revenue has assailed the impugned order on the following grounds of appeal:
"1. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC was justified in quashing the reassessment order as null and void and not as per the provisions of the Act.
2. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC was justified in not adjudicating the issue of addition of Rs.25,27,60,000/- made by the A.O u/s.68 of the Income Tax Act, 1961 on merits.
3. Any other ground that may be adduced at the time of hearing."
2. Succinctly stated, the assessee which is a public limited company engaged in the business of manufacturing and trading in sponge iron, had filed its return of income for A.Y.2012-13 on 29.09.2012 declaring an income of Rs.5,00,45,390/- and "book profit" u/s. 115JB of the Act of Rs.30,15,17,400/-.
3. Based on certain incriminating information received from the DDIT (Inv.)-1, Raipur, viz. (i) that the assessee company was a beneficiary of bogus purchase bills of Rs. 37.91 lacs (approx.) from Shri. Atish Agrwal, Proprietor: M/s Krishna Processors; and (ii) that the assessee company had received a huge amount of 3 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 share capital and premium from 7 Kolkata-based shell/ paper companies during the year under consideration, the A.O reopened the case of the assessee company u/s. 147 of the Act. Notice u/s. 148 of the Act dated 30.03.2019 was issued to the assessee company. The assessee company in response to the aforesaid notice filed its return of income on 23.04.2019 declaring the same income as was originally returned u/s. 139(1) of the Act.
4. During the course of the reassessment proceedings, the A.O on a perusal of the balance sheet of the assessee company observed that it had issued 5,85,200 shares of face value (FV) of Rs.10/- each at a premium of Rs.490/- per share and raised a share capital/premium of Rs.29,27,60,000/--. The assessee company on being called upon to furnish details of the new shareholders to whom shares were allotted during the year, vide its reply dated 28.12.2019 furnished the following details:
Sl. Name of the No of Date of Face Premium Total Value ( in No. allotees shares allotment value value of Rs.) allotted of share ( in share Rs.) (in Rs.)
(i) Banka Finance 6170 02.03.2012 10/- 490/- 30,85,000/-
& Securities Pvt. Ltd.
(ii) Sukanya 44000 2,20,00,000/-
Merchandise
Pvt. Ltd.
(iii) Bonus Dealcom 215950 10,79,75,000/-
Pvt. Ltd.
(iv) Priority 136000 6,80,00,000/-
Construction
Pvt. Ltd.
4
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and
Ispat Limited
ITA No. 203/RPR/2022
(v) Priority 49400 27.03.2012 2,47,00,000/-
Construction
Pvt. Ltd.
(vi) S.B Multimedia 80000 31.03.2012 10/- 490/- 4,00,00,000/-
Pvt. Ltd.
(vii) Shri Bajrang 54000 2,70,00,000/-
Ispat &
Plywood
Limited
Grand Total (in Rs.) 29,27,60,000/-
Further, the assessee company furnished the balance sheet, profit and loss account, and bank statements of the aforesaid investor companies. A.O. on perusal of the balance sheet of the assessee company observed that though most of the investor companies had not carried out any business but all of them had substantial amounts of share premium reserves which were raised by allotting shares at huge premiums to several private companies. Also, it was observed by the A.O. that the amounts so raised by the investor companies were shown as investments in unlisted equities with no break-up of the same available either in the return of income or in their audited balance sheets.
5. The A.O on verification of the bank statements and the returns of income of the investor companies, observed as under:
"(i) There was hardly any business activity in most of the shareholder companies during the year.
(ii) The shareholder companies to whom shares of Banka Finance & Securties Pvt. Ltd., Sukanya Merchandise Pvt. Ltd., Bonus Dealcom Pvt.5
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 Ltd., Priority Construction Pvt. Ltd. and Shri Bajrang Ispat & Plywood Ltd. were allotted in order to raise share premium/capital also do not have any business activities.
(iii) All the private limited companies involved in the process of raising share capital/premium and investment are unlisted companies. From the registered address shown these companies, it is observed that numbers of companies are using the same address.
The above characters are of those found in shell companies, which are formed to provide accommodation entries to beneficiaries to bring back their unaccounted income in their books either in the form of share capital or in the form of unsecured loans.
8. It is also relevant to mention here that the investor company Shri Bajrang Ispat & Plywood Limited is already an in-house companies of the Bajrang Group, in which funds were mobilized through allotment of shares to number of bogus private limited companies."
6. On verification, it was observed by the A.O. that all the allottee companies did not have their self-owned funds to invest in the shares of the assessee company. The A.O. was of the view that "Bajrang Group" had brought back its unaccounted income in its books of account by issuing shares to the aforementioned investor companies, viz. (i). Banka Finance & Securities Pvt. Ltd.; (ii). Sukanya Merchandise Pvt. Ltd.; (iii). Bonus Dealcom Pvt. Ltd.; (iv). Priority Construction Pvt. Ltd.; and (v). Shri Bajrang Ispat & Plywood Ltd. The A.O was of the view that the aforesaid five investor companies were dummies and conduits through whom accommodation entries in the form of share capital/premium of Rs.25,27,60,000/- was received in the working company of the group, i.e. Shri Bajrang Power and Ispat Ltd. during A.Y.2012-13, as under:
S. No. Name of the shareholders No. of shares Total Value Allotted 6 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022
1. Banka Finance & Securities 6170 30,85,000/-
Pvt. Ltd
2. Sukanya Merchandise Pvt. 44000 2,20,00,000/-
Ltd.
3. Bonus Dealcom Pvt. Ltd. 215950 10,79,75,000/-
4. Priority Construction Pvt. 185400 9,27,00,000/-
Ltd.
5. Shri Bajrang Ispat & 54000 2,70,00,000/-
Plywood Ltd.
Total 25,27,60,000/-
As the assessee company had failed to establish the creditworthiness of the shareholders and genuineness of the transactions of receipt of funds towards share capital/premium from the aforementioned investor companies, therefore, the A.O held the entire amount of Rs.25,27,60,000/- as unexplained cash credit u/s. 68 of the Act and made an addition of the same to its returned income. Accordingly, the A.O. vide his order passed u/s. 143(3) r.w.s. 147 of the Act dated 31.12.2019, after making the aforesaid addition determined the income of the assessee company at Rs.30,28,05,380/-.
7. Aggrieved the assessee company carried the matter in appeal before the CIT(Appeals). Before the CIT(Appeals), the assessee company had assailed both the validity of the jurisdiction that was assumed by the A.O. for initiating the reassessment proceedings as well as framing of the impugned assessment. Also, the assessee company had challenged the merits of the addition made u/s 68 of the 7 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 Act. The CIT(Appeals) after considering the multi-facet contentions of the assessee company based on which it had assailed both the initiation of the reassessment proceedings and framing of the impugned assessment, quashed the reassessment order passed by the A.O u/s. 143(3) r.w.s. 147 of the Act, dated 31.12.2019. As the assessee company had succeeded on legal grounds qua the validity of the assumption of jurisdiction by the A.O both for initiating the impugned proceedings and framing of the impugned assessment, therefore, the CIT(Appeals) refrained from adjudicating the merits of the case.
8. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
9. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
10. As the revenue has assailed before us the order of the CIT(Appeals), wherein he had quashed the reassessment for want of valid assumption of jurisdiction by the A.O, both at the stage of initiation of the reassessment proceedings as well as framing of the impugned assessment vide order passed by him u/s. 143(3) r.w.s. 147 of the Act, dated 31.01.2019, which, in our view, required consulting the assessment record, therefore, the Ld. Departmental Representative (for short, 'DR') was directed to produce the same.
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ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022
11. The Ld. D.R. on the next date of hearing of the appeal produced before us the assessment record. As the CIT(Appeals) had found favor with the multi-facet contentions of the assessee company and had quashed the rerassessment on the ground of invalid assumption of jurisdiction by the A.O both at the stage of initiating the reassessment proceedings as well as framing the impugned reassessment vide order passed u/s. 143(3) r.w.s. 147 of the Act, dated 31.01.2019, therefore, we shall deal with the respective facets of his observations chronologically, as under:
A. Re: Mechanical application of mind by the A.O while recording the "reasons to believe"
12. It transpires from a perusal of the order of the CIT(Appeals) that the assessee company had, inter alia, assailed the validity of the jurisdiction assumed by the A.O for initiating reassessment proceedings on the ground that the same was based on a mechanical application of mind by the A.O to the reports which he had received from the office of the Dy. DIT (Inv.)-1, Raipur. The assessee before the CIT(Appeals) to buttress his aforesaid claim had assailed the validity of the jurisdiction assumed by the A.O. by mechanically approving the report of the Dy. DIT(Inv)-1, Raipur without any independent application of mind by stating as under:
"1. Ground No. 1 and Ground No-2:
"On the fact and circumstances of the case, the Ld. A.O. has erred in for forming reason mechanically based on the report received from Investigation wing, Raipur with out analyzing the facts properly. Thus, forming reason to believe mechanically based on investigation wing report is unjustified, unwarranted and uncalled for ".
"On the fact and circumstances of the case, the Ld. A.O. has erred in reopening of the case based on reason to suspect and not on the basis of reason to 9 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 believe. Thus, the reopening in absence of proper reason to believe is bad in law and deserves to be cancelled"
That the case of the appellant was opened for reassessment by issuance of notice u/s 148 of the Act. The appellant has received the reasons recorded for reopening of the assessment u/s 147 of the I. T. Act, 1961 on 14.05.2019. Reason provided by the AO for reopening of the case is enclosed herewith. Kindly Refer Annexure-1 (Refer Page-1 to 4 of Paper Book (PB)). On perusal of the reason to believe provided by the Ld.A.O, it was observed that the case of the assessee was reopened for assessment on two grounds which are as under:
The assessee company has made purchases of Rs.37,91,351/- from M/s Krishna Processors (Prop. Shri Atish Agrawal). As per the information in possession of the DDIT (Inv)-1, Raipur, the firm is involved in bogus billing and the assessee company has purchased bogus bill from the said party. Considering the above facts and circumstances, it was believed by that the assessee company has inflated the expenses by Rs.37,91,351/- and therefore there is reason to believe that Rs. 37,91,351/- is the income of the assessee escaping from assessment.
ii. As per the information received from DDIT (Inv)-1, Raipur it is believed that the assessee has escaped income. Rs.29,27,60,000/- by channelizing its own unaccounted fund by way of issuance of shares to various parties/shell entities and has brought it into its book as accommodation entry.
That on the basis of the aforesaid information received from DDIT (Inv)-Raipur , the AO made the analysis and stated in para 3(b) in the letter of reason to believe provided for reopening of the case, that " preliminary verification made have shown that all the above mentioned shell companies referred to in Para 3(b) have nominal paid-up capital , high reserves and surplus on account of receipt of huge share premium, no dividend income, private companies as majority share holder, low turnover, nominal expenses and minimum fixed assets, which are all key elements of shell companies-. Further, on the basis of this analysis and on perusal of records available with this office including income tax returns, Audit Report , 360 degree profile , the AO formed an opinion that the appellant has received the amount of Rs.29,27,60,000/- from Seven companies by channelizing its own unaccounted money by way of raising share capital through shell companies and the said amount is escaped from assessment to determine the correct income of the assessee company.
1. That on perusal of the reasons formed by the AO it is found that the reason recorded by the AO is not his own reason but is formed mechanically on the basis of report received from DDIT (Inv) , Raipur. The reason so formed by the AO is nothing but a borrowed satisfaction from third party. Kindly refer para 1(b) of the reason recorded by the AO. Kindly refer Annexure-1(Refer Page-1 to 4 of PB). It is evident from the said para that all the information has been received by the AO from the office of DDIT (lnv), Raipur. Moreover all the enquires were conducted by DDIT (Inv), Raipur and not by the AO. Further, the 10 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 A.O. has only analyzed the balance sheet of the share applicant companies has not conducted any enquiry before forming the reason to believe of his own.
1. Further, the fact that the Ld.AO has not conducted any independent enquiries is also evident from the letter of reason to believe supplied by the AO as well as from the assessment order wherein there is no reference of any enquiries conducted before formation of reason to believe by the AO. At page 3 of the reason to believe letter, the AO has mentioned that preliminary verification made have shown that the share applicant companies have nominal paid up capital , high reserves and surplus and etc. In this regard it is submit before your honor that all the details including the audited financial statement of the share subscriber were already in the record of the AO as the same was duly furnished Burin the course of original assessment completed u/s 143(3) of the I.T.Act, 1961. Copy of written submission filed during original assessment proceeding enclosed. (Kindly refer Annexure-2) (Refer Page-5 to
13 of PB). In such circumstances it cannot be said that the AO has received any new information after completion of assessment and upon investigation of such new information the case of the appellant has been reopened. Merely stating that 360 degree profile has been done in the case of the appellant will not absolve the AO from his primary duties which he is require to perform as per law. At this juncture it is important to bring in notice of your honor that before opening the case for reassessment the AO has never ever called for any information either from the appellant nor from any of share subscriber. These fact itself proves that the AO has not carried any independent enquiry but has merely relied upon the information received from the third party. 1 It is further to submit before your honor that as per the provision of section 147, the case of any assessee can only be reopened , if the A.O. has "Reason to Believe'' that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of section 148 to 153, assess or re-assess such income. From the above mentioned extract, it is clear that A.O. must have "reason to believe" in order to open the case u/s 148. But in the present case, the A.O. has re-opened the case only on the basis of the information provided by the Investigation Wing, without carrying any independent enquiry or finding any evidence which can lean conclusion that the appellant has channelized its unaccounted income by taking accommodation entries in its books. Thus, in the absence of any enquiry or substantial evidence it can be said that the assessing officer has reopened the case merely on the basis of suspicion not on the basis of reason to believe. The information received by the AO may raise suspicion against the appellant but without any basis and without tangible material, reason to suspect however so strong cannot take place of reason believe. It is a settled principal of law that the highest degree of suspicion cannot reply the phrase reason to believe and therefore the assessee objects to the present reassessment proceeding. It is also understood from the said reason to believe that it not the own reason of the AO but a borrowed satisfaction which has been gathered by DDIT (Inv), Raipur and in such circumstances it cannot be said that there is proper reason to believe which is the primary condition for reopening of the case u/s 147. Therefore on the basis of above facts and circumstances it can be said that the 11 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 AO has proceeded mechanically while reopening the case by merely relying upon the information received from third party which is unjustified and not as per law.
The above contention of the assessee also finds support from the following judicial pronouncements:-
In the case of Akshar Builders and Developers vs. Assistant Commissioner of1lncome Tax & ANR. [(2019) 104 CCH 0026 (Mum HC)], it was held that "AO cannot proceed mechanically to issue reopening notice merely relying upon erroneous information that might have been supplied to him."
In the case of Azizur Rahman Faizur Rahman Vs. Income Tax Officer (2021) 63 CCH 0195 Mum Trib, it was held that "Reasons to believe must have rational connection with or relevant bearing on the formation of belief, i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income."
In the case of Neel Builders Pvt. Ltd. Vs. Income Tax Officer, (2020) 60 CCH 0335 Del Trib, it was held that "Reopening on the basis of report of investigation wing without independent application of mind by the Assessing Officer is not valid." In the case of Mohd Yameen Munna vs. Income Tax Officer [(2019) 56 CC 0004 (Delhi Tribunal)] it was held that "AO cannot reopen an assessment u/s 148 mere) based on an information revealing that there is an escapement of income on account of TCG without even verifying such information as to how much capital gains has escaped assessment." In the case of ITO vs. Lakhmani Mewal Das [(1976) 103 ITR 437 (SC)), it was held that "the words used in section 147 of the Act are 'reason to believe' and not 'reason to suspect'. Clearly, the tangible material available with the AO should be such as to reasonably lead the AO to believe that Assessee's income had escaped assessment. Even though such opinion may be his subjective opinion, nonetheless, it cannot be arbitrary or whimsical and must be one which a person could reasonably form on the basis of some tangible material." In the case of PCIT vs. Rajan N. Aswani (2018) 403 ITR 0030 it was held by Mumbai HC that `Where reasons recorded by AO for reassessment were not his own reasons therefore, reopening notice issued u/s 148 on basis of such reasons were without jurisdiction".
In the case Mumbai HC of Nupower Renewables Pvt. Ltd. vs. Assistant Commissioner Of income Tax (2018) 101 CCH 0305 Mum HC, it was held that "The above facts are the very reasons recorded by the Assessing Officer for issuing of the impugned notice. The only words added to the above letter in the recorded reasons are "In this case information received from the Office of the DIT (Investigation) Unit-4, Mumbai on 23rd March, 2017 vide letter dated 22ndMarch, 2017". This, of course, besides the introductory para and the concluding para where he records that he has reasons to believe that income chargeable to tax has escaped assessment. Thus, prima facie, there has been no independent application of mind on the part of the Assessing Officer to the 12 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 tangible material received from the Deputy Director of Investigation. The information received has to be examined in the context of the facts on record before coming to a view that income chargeable to tax has escaped assessment on account of failure to disclose fully and truly all relevant facts. In the absence of the above, it amounts to out sourcing of reasons to believe. Therefore, prima facie, it appears that the Assessing Officer has issued the impugned notice without himself coming to a reasonable belief that income chargeable to tax has escaped assessment: Thus, prima facie, the impugned notice is without jurisdiction."
In the case of PCIT vs. Meenakshi Overseas (P) Ltd (2017) 395 ITR 0677, it was held by Delhi HC that "Reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. Where reasons recorded by AO failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, then reassessment proceeding initiated against assessee should be quashed".
In the case of ITO & Anr Vs. S.K. Caterers (P) Ltd (2018) 53 CCH 0350 it was held by Delhi Tribunal that "information received from Investigation Wing could not be said to be tangible material per se without a further inquiry being undertaken by the Assessing Officer to establish link between tangible material and formation of reason to believe that income had escaped assessment".
1. Further , from the reason for reopening of the case , it seems that , the Ld. A.O. had no information other than the audited financial statement of the investor companies as the entire reason have been framed based on audited financial statement of the Investor company. In the reason for reopening of the case, the Ld. A.O has not mentioned about what sort of information was received from the Investigation wing, Raipur The Ld. A.O had no conclusive evidence to evident that any income had escaped from assessment. Further, the said contention of the appellant is further strengthened by the assessment order passed u/s.148 , where the Ld. A.O. has made the addition only on the basis of Audited financial statement of the Investor company which were already available at the time of original assessment proceeding. Further the Ld.A.O. had some informatic relating to only one share applicant company namely Banka Finance & securities P' Ltd (refer para 9.1 of the order) which was also not shared with the appellant company during re-assessment proceeding nor the same has been produced the same assessment order. If the AO is having any information then it is the du disclose it to the appellant and to provide proper opportunity of being hear then such evidence can be used against the appellant. All these elements the present case of the appellant and therefore such information, if any, cannot be used against the appellant being inadmissible evidence. Other than these the Ld. A.O. had no information 13 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 about any of the share applicant company. Also, it is important to bring in notice of your honour that the AO has not bought any evidence that the appellant has any unaccounted money which has been rotated in the garb of share application money. The AO has merely stated that, without any single evidence, that unaccounted income of the appellant has been routed back in the form of share application money. The entire proceeding have been reopened in absence of any concrete information and just to make roving inquiry by taking the shelter of section 148, which is not permissible under the provisions of the Income Tax Act, 961. The said contention of the assessee is supported by following judicial pronouncement are as under:
In the case of Principal Commissioner Of Income Tax Vs. Manzil Dinesh kumar Shah, (2018) 102 CCH 0008 Guj HC, it was held that reopening of the assessment would not be permitted for a fishing or a roving enquiry.
In the case of Huron Builders Pvt. Ltd. Vs. Income Tax Officer, (2019) 57 CCH 0110 Del Trib, it was held that Provision of section 147 cannot be invoked merely for selection of case for scrutiny so as to examine and assessing any income or claim or carrying out any roving and fishing inquiry.
In the case of RRB Securities Ltd. Vs. Joint Commissioner Of Income Tax, (2004) 23 CCH 0268 Del Trib, it was held that Proceedings under s. 147 cannot be started for making of roving or fishing enquiry; AO having proceeded to initiate proceedings under s. 147/148 only for making enquiry and verification vis-a-vis certain investment and capital gain made by the assessee, without specifying the basis of his belief that any item of income chargeable to tax has escaped assessment, initiation of proceedings for reassessment were not legally justified.
In view of above facts and circumstances, it is requested to your honour to annul the reassessment proceedings since it has been carried on the basis of reason to believe formed mechanically based on the report of investigation wing (Raipur) without any material evidence and to make roving enquiry, which is unjustified and against the spirit of the law."
13. The CIT(Appeals), had concurred with the aforesaid claim of the assessee company as regards dislodging of its concluded assessment by the A.O. by mechanically acting upon the information received from the Dy. DIT(Inv)-1, Raipur without any independent application of mind on his part, observing as under:
"Ground No. 1 & 2:- Vide these grounds, the appellant has challenged the reopening by the AO being done mechanically and based on mere reports from Investigation wing, Raipur. It was contended that the reopening was 14 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 based on mere reason to suspect and not on the basis of "reason to believe"
and sought the reopening to be cancelled.
After considering the reason recorded by the AO, findings in the assessment order and appellant's submissions, following issues emerge:
1. After referring to the reasons recorded by the AO for reopening, the appellant contended that the AO's 'reasons to believe' were not his own reasons but based mechanically on the report of the Investigation wing. It was emphasized that all the enquiries were conducted by the Investigation wing and the AC merely analyzed the balance sheet of the share applicant companies to reach reasons to believe about escapement of' income.
2. The appellant contended that all the relevant details of new share capital raised during the current assessment year were submitted in the original scrutiny assessment u/s.143(3) of the Act as the then A.O had raised specific query regarding the issue of share capital addition. It was only after verification of those details that the A.O did not make any additions in the original assessment u/s.143(3) of the Act. The A.O did not conduct any independent enquiry, neither brought out any new information in his possession which could show that the appellant's submission in the original scrutiny assessment was false and untrue and the appellant had channelized its unaccounted income by taking accommodation entries in its books. Thus, it was contended that in the absence of any enquiry or adverse evidence, it was argued that the A.O resorted to reopening on the basis of mere suspicion.
3. It was stated that the AO had no information other than audited financial statements of investor companies as the AO did not mention any information to show that any income had escaped. It was contended in the assessment order u/s.143(3) r.w.s 147, the AO has mentioned any such specific information to show that any income had escaped. It was contended that only in the assessment order u/s.143(3) r.w.s. 147, the A.O has mentioned about one share applicant company, M/s. Banka Finance & Securities Pvt. Ltd. in Para 9.1 of the current assessment order. The information about the paid Banka Finance & Securities Pvt Ltd was not mentioned in the reasons recorded by the AO. Thus, it was claimed that specific reason to reopen is missing! in the case of the appellant.
4. The appellant has relied on the various Court decisions such as a) Akshar Builders & Developers Vs. ACIT, 104 CCH 0026 (Bom HC), wherein it was held that the AO cannot proceed mechanically to issue reopening notice merely relying upon erroneous information that might have been supplied to him. b) Aziz Rohman Faizul Rahman Vs ITO 63 CCH 0195 (Mumbai ITAT), wherein it was held that reason to believe must have rational connection with or relevant bearing on the formation of belief, i.e. there must be live links between material coming to the notice of the AO and the formation of belief regarding escapement of income. c) In the case of ITO Vs. Lakhman Mewal Del, 103 ITR 437 (SC), it was held that the word mentioned in S.147 is 'reasons to believe' and not reasons to suspect. Clearly, the tangible material 15 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 available with the AO must be such as to lead the AO to believe that assessee's income had escaped d) PCIT vs. Manzil Dinesh Kumar Shah, 102 CCH 0008, (Guj. HC), wherein it was held that reopening is not permitted for fishing or roving enquiry. The appellant has demonstrated that the information available with the AO as noted in the reasons recorded clearly showed no live connect between the said information and conclusion about escapement of income.
5. The reasons recorded by the AO has two parts, one stating that the appellant company had made purchase of Rs.37,91,351/- from M/s. Krishna Processors (Prop. Atish Agrawal) and this concern was found by the DDIT (Inv.)-1, Raipur to be engaged in the bogus billing and second part stating that as per information from DDIT(Inv.)-1, Raipur, the appellant company had received huge share capital and premiums from Kolkata based paper companies/shell companies. In the analysis to these information, the A.O noted that the preliminary verifications indicated that all the share applicant companies were bogus having no business of their own and these companies had nominal paid up capital and huge reserves and surplus due to receipt of huge premium on shares. This led to the A.O to form 'reason to believe' that the appellant did not disclose fully and truly all material facts and proceeded to reopen the assessment beyond 4 years from the end of the relevant assessment year. The appellant contended that two clear facts which come out from the current asstt. Order are (a) the AO did not raise any query regarding bogus purchase of Rs.37,91,351/- as per information from investigation wing neither any explanation sought by AO even in the show cause notice and no such addition was even made by the AO while finalizing the order. (b) there is no live connection established by the AO between the issue of bogus purchase of Rs.37,91,351/- and the share capital raised being treated as own unaccounted money of the appellant. Thus, to the extent of availability of any tangible material connection and on this count, it can be clearly said that the AO reopened the assessment mechanically without proper application of mind. In the light of relevant Court decisions referred by the appellant, this contention cannot be brushed aside.
6. As 'regards the raising of share capital with huge premiums from Kolkata based companies, I find that in the reasons recorded, the AO has not referred to any tangible information which could establish that the share applicant companies were bogus / paper companies. The AO has merely referred to general statement on the basis of balance sheet of these companies. Hence, here again, the AO has failed to bring out any clear, tangible information in his possession to conclude that the share applicant companies were bogus / paper companies. Thus, on this count again, the AO failed to show that there was clear failure on the part of appellant to make "full and true disclosure of facts" based on tangible information. Therefore, on this count also, the AO has proceeded to form "reason to believe mechanically and without proper application of mind.
In view of relevant Court decisions relied on by the appellant and factual discussion hereinabove, it is apparent that the AO had received 16 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 information regarding bogus purchase entry of appellant worth Rs. 37,91,351/- from M/s Krishna Processors whose proprietor had accepted to be involved in providing bogus purchase accommodation entries for various parties. However, in the final assessment order, the AO neither confronted this issue nor made any addition on this issue meaning thereby that the said information had no live link for the escapement of any income of the appellant. Also, the reasons recorded do not indicate any such linkage of this bogus purchase information to led to the AO to form reasons to believe that income escaped by way of share capital and premiums raised during the year. In fact that the A.O had mentioned the facts from the financial statements of subscriber companies and 360 degree enquires without making specific findings to form reason to believe regarding escapement of income through share capital raised. This is a case of reopening beyond 4 years from the relevant AY and the imaginal assessment proceedings carried out enquiry on the share capital issue inclusive of premiums. The reasons recorded mentions general observations from the balance sheet of subscriber companies and there is no reference to any tang' le evidence with the AO to discredit the assessee's submissions in the original scrutiny. Thus, I am inclined to accept appellant's contention that the assessment was reopened mechanically based on Investigation wing report and merely on reasons to suspect. Hence, the re-opening in the current case cannot be sustained. Ground No. 1 & 2 are thus, allowed in favour of the appellant.
14. The Ld. CIT-D.R submitted that as the A.O had duly analyzed the information that was received by him vide letters dated 04.03.2019 and 19.03.2019 from the Dy. DIT(Inv)-1, Raipur, and had after due application of mind and recording his findings as regards the escapement of income of the assessee company arrived at a bonafide belief that the latter's income chargeable to tax had escaped assessment, therefore, he had validly assumed jurisdiction and reopened the concluded assessment. The Ld. D.R. submitted that the CIT(Appeals) had based on his perverse observations concurred with the assessee that the A.O. had reopened the case of the assessee by mechanically acting upon the information received from the Dy. DIT(Inv.)-1, Raipur, and had failed to independently apply his mind and carry out requisite verifications. The Ld. D.R. to support his aforesaid contention relied upon certain 17 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 judicial pronouncements, viz. (i). Yogendra kumar Gupta Vs. ITO (2014) 227 Taxman 374 (SC); (ii). Raymond Woolen Mills Ltd. Vs. ITO & Anr., 236 ITR 34 (SC); and (iii). R.K Malhotra Vs, Kasturbhai Lalbhai (1977) 109 ITR 537 (SC).
15. Per contra, Shri. Amit Maloo Jain, the Ld. Authorized Representative (for short, "A.R") relied on the order of the CIT(Appeals). The Ld. A.R submitted that the CIT(Appeals) had rightly struck down the assessment for want of valid assumption of jurisdiction by the A.O who had based on a borrowed satisfaction initiated the impugned reassessment proceedings by mechanically endorsing the information that was received from the Dy. DIT(Inv)-1, Raipur, i.e. without carrying out any verification and independently applying his mind to the material available before him. The Ld. A.R submitted that a perusal of the "reasons to believe" based on which the concluded assessment of the assessee company was reopened, reveals that the A.O had mechanically acted upon the reports of the Dy. DIT(Inv.)-1, Raipur, and had failed to carry out any verification as well as independently apply his mind to the material before dislodging the concluded assessment. The Ld. A.R. to fortify his aforesaid contention had drawn our attention to the "reasons to believe", Pages 47- 50 of APB. Elaborating further, the Ld. A.R. submitted that it was a fact borne from the record that the A.O. had summarily endorsed the information received from the Dy. DIT(Inv)-1, Raipur, and had not only failed to carry out the basic verification but had also not consulted the assessment record before forming a belief that the latter's income chargeable to tax had escaped assessment. The Ld. A.R to fortify his aforesaid contention submitted that the assessee company during the course of the 18 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 original assessment proceedings had submitted before the A.O that out of a total amount of Rs. 29.27 crore (approx.). received against fresh issue of share capital, Rs. 2.46 crore was received from two companies, viz. (i). Sukanya Merchandise (P) Ltd.: Rs. 2,20,00,000/-; and (ii). Banka Finance & Securities (P) Ltd.: Rs. 26,30,000/- in FY 2010-11 and not during the year under consideration. Carrying his contention further, the Ld. A.R submitted that though the aforesaid material fact that the assessee company had received share capital/premium of Rs. 2.46 crore (supra) from the abovementioned 2 investor companies during the preceding year was available in the assessment record, but the A.O while initiating the reassessment proceedings had not consulted the same and had proceeded with and reopened the assessee's case on the wrong premises that the assessee company was in receipt of share capital/premium of Rs. 29.27 crores (supra) from the 7 invest companies (including the aforesaid 2 companies) during the subject year, i.e A.Y 2012-13. The Ld. A.R. submitted that if the A.O. would have consulted the assessment record, then, the aforesaid serious infirmity would not have crept in the "reasons to believe"
based on which the concluded assessment of the assessee company was reopened.
It was, thus, submitted by the Ld. A.R that the aforesaid perverse observation of the A.O in the body of the "reasons to believe" revealed beyond doubt that he had mechanically acted upon the report/information that was received by him from the Dy. DIT(Inv.)-1, Raipur, and without carrying out the bare minimum verification and independent application of mind to the material before him reopened the concluded assessment of the assessee company for the subject year. The Ld. A.R. in support 19 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 of his contention that an A.O cannot reopen a concluded assessment by mechanically acting upon the information received from a third party and is obligated to apply his independent mind to the material before him had drawn support from certain judicial pronouncements, viz. (i). Kantibhai Dharamshibhai Narola Vs. Assistant Commissioner of Income Tax (2021) 436 ITR 302 (Guj.); and (ii). Prabhat Properties Private Limited Vs. Assistant Commissioner of Income Tax & Anr. (2024) 461 ITR 390 (Bom).
16. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both the parties in the backdrop of the aforesaid orders of the lower authorities qua the aforesaid issue, based on which, the assessment had been quashed by the CIT(Appeals). At the threshold, we may herein observe that insofar the observation of the A.O in the "reasons to believe" that the assessee company was a beneficiary of certain bogus purchase bills of Rs.37,91,351/- that were procured from Shri Atish Agrawal, Proprietor of M/s.
Krishna Processors is concerned, no adverse inferences on the said issue were thereafter drawn by him while framing the assessment vide his order u/s. 143(3) r.w.s. 147 of the Act, dated 31.12.2019.
17. Apropos the observation of the A.O in the "reasons to believe" that the assessee company had received share capital/premium of Rs.29,27,60,000/- from seven Kolkata-based shell/paper companies, we find that the A.O had made an addition of Rs. 25,27,60,000/- concerning the share capital/premium that was received by the assessee company from 5 companies (out of 7 companies). The Ld. 20 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 D.R had stated that the CIT(Appeals) based on his perverse and misconceived observations had wrongly held that as the A.O had acted mechanically on the report of the Dy. DIT(Inv.)-1, Raipur and reopened the concluded assessment of the assessee company, therefore, the assessment framed by him was liable to be vacated for want of valid assumption of jurisdiction on his part. Rebutting the aforesaid claim of the department, the Ld. AR supported the order of the CIT(appeals), and vehemently averred that as the A.O. had mechanically acted upon the report of the Dy. DIT (Inv.)-1, Raipur without any independent application of mind and carrying out the bare minimum verification at the stage of initiating the impugned proceedings, therefore, the first appellate authority had rightly quashed the impugned assessment for want of valid assumption of jurisdiction by the A.O.
18. Ostensibly, from a perusal of the assessment records that were produced before us, it transpires that the Dy. DIT(Inv.)-1, Raipur had, inter alia, vide his letter dated 19.03.2019 (received by the A.O on 25.03.2019), Pages 71 to 89 of the assessment record, inter alia, shared with him certain information a/w. supporting documents, as per which, the assessee company had received share capital/premium of Rs.29,27,60,000/- from seven shell/paper companies. On a perusal of the "reasons to believe", based on which, the concluded assessment of the assessee company was reopened by the A.O, Pages 47 to 50 of APB, we find that the same reads as under:
"Sub: Reason for reassessment proceeding u/s 147 of the Act in your case for AY 2012-13- regarding.21
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 Kindly refer to your letter dated 03.05.2019 which was received in this office on 14.05.2018 requesting to provide reason for reassessment proceeding u/s.147 of the Income tax Act, 1961 in your case for AY 2012- 13 vide issuance of notice u/s.148 of the Act. The reasons for reopening are as follows:
"Reasons for reopening of the assessment in case of Shri Bajrang Power & Ispat Pvt. Ltd. for AY 2012-13 u/s. 147 of the Act are as under:
1. Brief Details of information collected/received by the AO:
(a) Information was received from DD1T (Inv)-1, Raipur that Mr. Atish Agrawal is Proprietor in the current account of s Krishna Processers having A/c No. XXXXXXXXX880 maintained with Devendra Nagar Branch. The customer is a grain merchant with annual turnover of Rs.30 Lakh. However, he has received credits aggregating to Rs.7.93 crore via RTGS from various firms and entities with immediate cash withdrawals made by him.
(b) Further, information was received from DDIT (Inv)-1, Raipur that said company has received huge amount of Share capital/premium from Kolkata based shell/ paper companies in F.Y 2011-12.
2. Analysis of information collected/received:
(a) Statement of Shri Atish Agrawal was recorded on oath. Where he has stated he is proprietor of M/s. Krishna Processoers and M/s. Sarveshwari Rice Mill, both engaged in trading of rice, broken rice, rice husk etc. but there was no actual business in the firm. He was approached by one Shri Pawan Agrawal who suggested that bogus billing be done through both his firms. Since he was doing no business, Shri Atish Agrawal therefore accepted the offer of Shri Pawan Agrawal. He explained how he issued bogus bills for various parties and received payments through Cheque/RTGS in his firm's account, which he withdrew the cash by self cheque and cash was returned to various parties from whom cheque/ RTGS was received.
Further he stated that A/c No. 0047xxxxxxxx733 of M/s Krishna Processers at YES bank was used by him for banking transactions and cash withdrawals. On analysis of bank statement of above bank a/c, there were various beneficiaries from whom fund were received through cheque/RIGS and subsequently cash has been withdrawn and returned to the beneficiaries, details of whom are given below:
Shri Bajrang Power and Ispat Limited Sr. Date Amount (Rs.) No.
1. 12.05.2011 16,02,000/-22
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022
2. 18.05.2011 20,00,000/-
3 25.05.2011 1,89,351/-
Grand Total 37,91,351/-
Similar transactions were found in the account of M/s. Maa Sharda Process (Prop. Shri Rakesh Sharma), in which Shri Bajarang Power and Ispat is one of the beneficiaries.
(b) The details of share capital and premium received in the assessee company from Kolkata bases shell/paper company is as under:-
Sr. Name of the No. of Date of Face Premium Total value
No. Allottees Shares allotment value in (Rs.)
allotted. (Rs.)
1. M/s. Banka 6170 02.03.2012 10 490 30,85,000/-
Finance &
Securities P.
Ltd.
2. M/s. 44000 2,20,00,000/-
Sukanya
Merchandise
Pvt. Ltd.
3. M/s. Bonus 215950 10,79,75,000/-
Dealcom
Pvt. Ltd.
4. M/s. Priority 136000 6,80,00,000/-
Construction
Pvt. Ltd.
5. M/s. Priority 49400 27.03.2012 10 490 2,47,00,000/-
Construction
Pvt. Ltd.
6. M/s. S.B. 80000 31.03.2012 10 490 4,00,00,000/-
Multimedia
Pvt. Ltd.
7. M/s. Shri 54000 31.03.2012 10 490 2,70,00,000/-
Bajrang
23
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and
Ispat Limited
ITA No. 203/RPR/2022
Ispat &
Plywood Ltd.
Grant Total 29,27,60,000/-
Share capital/premium were received from mainly Kolkata based shell/paper companies as well as some of the group companies also like S.B. Multimedia P. Ltd. and Shri Bajrang Ispat & Plywood Ltd. On examination, it was seen that group companies also received money routed through Kolkata based paper company which was later routed to main company of the group, i.e, M/s SBPIL.
3. Findings of A.O. and basis of forming reason to believe and details of escapement of income:
(a) Preliminary verifications made have shown that all the above mentioned firms are bogus as referred to in Para 3 and have no actual business except for issuing of bogus bills.
(b) except for issuing of bogus bills. Preliminary verifications made have shown that all the above mentioned shell companies referred to in Para 3
(b) have nominal paid-up capital, high reserves and surplus on account of receipt of huge shares premium, no dividend income, private companies as majority shareholders, low turnover and operating income, nominal expenses and minimum fixed assets, which are all key elements of shell companies.
On the basis of the above discussion and on perusal of records available with this office, including Income Tax Returns, Audit Report, 360 degree profiles, I have reason to believe that the amount of atleast Rs.29,5,51,351/- chargeable to tax has escaped assessment for A.Y. 2012-13 within the meaning of Explanation 2(c) of Section 147 of the Income tax Act, 1961. Therefore, this is a fit case for issuance of notice u/s. 148 of the Income tax Act.
4. Applicability of the provisions of Section 147/151 to the facts of the case:
In this case a return of income was filed for the year under consideration and regular assessment u/s.143(3)/147 was made on 11.08.2014. Since, 4 years from the end of the relevant year has expired in this case, the requirement to initiate proceedings u/s.147 are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration 24 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 have been recorded above (refer paragraph 3). I have carefully considered the assessment records containing the submissions made by the assessee in response to various notices issued during the assessment/re-
assessment proceedings and have noted that the assessee as not fully and truly disclosed the following material facts necessary for his assessment for the year under consideration:
As discussed in Para 1 to 4.
It is evident from the above of facts that the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration thereby necessitating reopening u/s 147 of the Act.
Ostensibly, the A.O. based on the aforesaid information that was shared with him by the Dy. DIT (Inv.)-1, Raipur vide his letter dated 19.03.2019 (supra), had thereafter analyzed the said information and after due application of mind on the various facets of the same arrived at a bonafide belief that the income of the assessee chargeable to tax had escapement. As observed by us hereinabove, the A.O in the body of the "reasons to believe" after referring to the details of the information collected/received by his office, had thereafter, analyzed the same and recorded the findings regarding the formation of a bonafide belief on his part that the income of the assessee chargeable to tax had escapement. Apart from that, the A.O. not losing sight of the fact that the assessment in the case of the assessee company was earlier framed vide order passed by his predecessor u/ss. 143(3)/147 dated 11.08.2011, and a period of more than four years from the end of the subject year i.e A.Y 2012-13 had lapsed, observed that the case was being reopened for the reason that there was a failure on the part of the assessee company to disclose fully and truly all material facts necessary for its assessment for the subject year.25
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022
19. On a perusal of the "reasons to believe" recorded by the A.O., we are unable to persuade ourselves to subscribe to the claim of the Ld. AR that the A.O had mechanically recorded the "reasons to believe" without any independent application of mind and carrying out the bare minimum verification, which, thus, rendered the very initiation of proceedings in the absence of valid assumption of jurisdiction by him as invalid. In our view, the A.O. had after considering the information that was shared with him by the Dy. DIT(Inv.)-1, Raipur vide two reports/letters dated 04.03.2019 and 19.03.2019, duly analyzed the same and arrived at a bonafide belief that the income of the assessee company chargeable to tax had escapement. Apart from that, the fact that A.O. had in the "reasons to believe"(supra) categorically referred to the earlier assessment that was framed by his predecessor u/ss.
143(3)/147 of the Act, dated 11.08.2014, and had observed that the case of the assessee company was being reopened after the lapse of four years from the end of the relevant assessment year for the reason that it had failed to disclose fully and truly all material facts necessary for its assessment, further supplements the factum of due application of mind on his part to the material available before him, i.e the reports of the Dy. DIT (Inv.)-1, Raipur, dated 04.03.2019 and 19.03.2019, based on which, he had arrived at a bonafide belief that the income of the assessee company chargeable to tax had escapement.
20. At this stage, we may herein observe that what is required for validly initiating proceedings u/s.147 of the Act is the availability of some material based on which the department could reopen the case, and the sufficiency or correctness of the 26 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 material is not a thing to be considered at the stage of reopening of the case. The A.O. at the stage of reopening the concluded assessment is not required to conclusively establish that the income of the assessee chargeable to tax had escaped assessment, but what is required is the existence of a bonafide belief about escapement of the income of the assessee based on material available on record. Our aforesaid view is fortified by the judgment of the Hon'ble Apex Court in the case of Raymond Woollen Mills Ltd. Vs. Income-Tax Officer And Ors. (1999) 236 ITR 34 (SC), wherein it has been held as under:
"3. In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs."
21. We shall now deal with the judicial pronouncements that have been pressed into service by the Ld. AR to impress upon us that in the absence of independent application of mind by the A.O. to the information received by him from another officer/Investigation Wing of the department; or any other agency, the A.O. cannot validly assume jurisdiction for reopening a concluded assessment. The Ld. AR to fortify his aforesaid claim had pressed into service certain case laws which are being dealt with by us, as under:
27
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 (I). Kantibhai Dharamshibhai Narola Vs. Assistant Commissioner of Income Tax (2021) 436 ITR 302 (Guj.)
22. On a careful perusal of the aforesaid judicial pronouncement, we find that in the case before the Hon'ble High Court information was gathered by the A.O based on search proceedings conducted on M/s. K. Star Corporation that the latter had paid on-money for the purchase of a certain piece of land. As the assessee before the Hon'ble High Court was one of the partners of the seller of the land, therefore, information was shared with his A.O by the DCIT, Central Circle-4, Surat that the unaccounted cash payment made by the aforesaid purchaser of the land constituted unaccounted income of the seller. The A.O. based on the aforesaid information reopened the case of the assessee, i.e. one of the partners of the seller of the land, on the ground that he had not accounted for the on-money receipt falling to his share in his return of income for the subject year.
23. The Hon'ble High Court observed that the A.O. had failed to consider the "material" on record by applying his mind for arriving at an independent opinion that the income of the assessee chargeable to tax had escaped assessment. Accordingly, the Hon'ble High Court observed that as the A.O. had reopened the assessment not based on any independent finding but on a borrowed/dictated satisfaction of his counterpart, thus, quashed the assessment on the said count.
24. We have thoughtfully perused the aforesaid judicial pronouncement and are of the considered view that as the same is distinguishable on facts, therefore, the same would not assist the case of the assessee company before us. As observed 28 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 hereinabove, the A.O. in the present case before us had reopened the concluded assessment of the assessee company not based on the borrowed/dictated satisfaction of the Dy. DIT (Inv)-1, Raipur, but had taken a conscious view and only after analyzing the information received from the latter's office and recording a finding about the reasons which had led to the formation of a bonafide belief on his part that the income of the assessee company chargeable to tax had escaped assessment, reopened the case. Accordingly, the aforesaid case law relied upon by the Ld. AR being distinguishable on facts would not carry his contention any further. (II). Prabhat Properties Private Limited Vs. Assistant Commissioner of Income Tax & Anr. (2024) 461 ITR 390 (Bom).
25. It transpires from a perusal of the facts involved in the aforementioned case, that the department based on information received from ITO (I&CI), Unit-2(3), Mumbai, had pursuant to the order passed by SEBI in the cases of reversal trades and accommodation entries reopened the concluded assessment of the assessee company. On appeal, the Hon'ble High Court had quashed the assessment for the reason that there was no live link or nexus of the belief arrived at by the A.O regarding the escapement of income of the assessee with the order passed by the SEBI, which was stated to be the foundation for the reopening of the case. Unlike the aforesaid case as in the present case before us, there is a clear nexus established between the material available before the A.O and the formation of bonafide belief by him that the income of the assessee company chargeable to tax had escaped assessment, therefore, the same being factually distinguishable as 29 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 against those involved in the aforesaid judicial pronouncement, thus, would not carry the case of the assessee company any further.
26. We, thus, in terms of our aforesaid deliberations are of the considered view that as the A.O. in the present case after considering the information that was shared with his office by the Dy. DIT(Inv.)-1, Raipur, had duly analyzed the same and arrived at a bonafide belief that the income of the assessee company chargeable to tax had escapement, therefore, there is no substance in the contention of the Ld. AR that the A.O. had mechanically reopened its concluded assessment without independent application of mind and carrying out necessary verification on his part. Accordingly, the order passed by the CIT(Appeals) to the sasid extent is set aside. (B). Re: The A.O had reopened the concluded assessment of the assessee company based on a mere "change of opinion"
27. It transpires on a perusal of the order of the CIT(Appeals) that the assessee company had, inter alia, assailed the assumption of jurisdiction by the A.O for initiating reassessment proceedings on the ground that the same was based on a mere "change of opinion" which was not permissible as per the mandate of law. The assessee company had before the CIT(Appeals) assailed the validity of the jurisdiction assumed by the A.O on the aforesaid count based on its submissions, which reads as under:
" 1. Ground No. 4:
"On the fact and circumstances of the case, the Ld. A.O. has erred in reopening of the case u/s 148 merely on the basis of change.pf opinion as the A.O. has duly enquired and verified the genuineness of share application 30 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 Money received during the year under consideration and after due verification the share application received from the said companies are accepted as genuine. Thus, reopening of the case based on change of opinion is unjustified, unwarranted and uncalled for ".
1. That as has already been discussed in earlier grounds of appeal, the case of the appellant was already assessed u/s 143(3) of the Income Tax Act, 1961 and all the verifications were duly made by the AO on account of the transactions related to the issue of fresh equity shares. In course of original assessment proceedings, the then A.O. had verified the genuineness of share capital issued by the assessee company. In response to specific query raised during assessment proceeding, the assessee had submitted audited financial statement, bank accounts ITR and Computation of Total Income of share applicant companies. The then A.O. after considering these documents accepted the identity, credit worthiness and genuineness of transaction. It is also worthwhile to mention here that, during the course of original assessment, After considering all the documents filed by the appellant, the AO has treated the fresh share capital as genuine in the original assessment proceedings. The Ld. A.O. has now changed his mind on the same set of facts and has now formed reason to believe that share applicant companies have all key element of shell company. At one point of time, the A.O. has accepted the genuineness of transaction on the basis of documents available with him i.e. audited financial statement and on same set of facts, at another point of time, the AO has changed his opinion by stating that the share applicant companies has all essential of shell companies without bringing any new material on record. The Ld.A.O. has not brought, any new material on record in reason or in assessment order, from where it can be concluded that any unaccounted income of the appellant company has been brought back. It is nothing but change of opinion on same set of fact which is not permissible as held by various judicial authorities.
The Ld.A.O. has only mentioned that one of share .applicant namely Banka Finance & Securities Pvt. Ltd being operated by one Sh. Nagalia and he has appointed his employee Shri Anjani Banka as director of the company and Shri Anjani Banka has recorded his statement before DM' (Inv.) ,Unit-3 , Kolkata and has stated that the business of the company was nothing but providing accommodation entry. As regard to this the appellant has stated that Shri Anjani Banka was not the director of the said company during the year under consideration, therefore his statement is not at all relevant for the present proceeding . Further the appellant has requested to provide the copy of statement of Anjani Banka, however the statement was not provided to the appellant. Further during the assessment proceeding, the appellant has stated that as the statement was not provided, the statement should not be used against the assessee unless and until opportunity of cross examination provided to the assessee. In view of this as the statement was not provided and opportunity of cross examine `son was not given and moreover the statement is not at all relevant for the assessee as the same was not given by any authorized person, the said statement cannot be treated as a admissible evidence.
31
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 At this juncture it is important to bring in notice of your honor that even in the assessment order passed u/s 147 r.w.s. 143(3) the addition has been made entirely on the basis of the contents of the audited financial statements of the share subscribers. There is no nexus in the addition made and the information received. Hence it is evident that the case of the appellant has been reopened on the basis of change in opinion on the same material which was already available in the records of the AO. Reopening of the case merely because of change in opinion is unjustified and is bad in law. The above contention of the assessee also finds support from the following judicial pronouncements:-
• In the case of Ito vs. M/s Techspan India Private Ltd. & Anr. (SC) (2018), it was held by the Apex Court that "Section 147 of the IT Act dues not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to re-assess and not the power to review."
• In the case of JAGANNATH PROMOTERS & BUILDERS vs. DEPUTY COMMISSIONER OF INCOME TAX, (2021) 112 CCH 0124 Orissa HC, it was held that "There has to be some new material to justify the re-opening of the assessment, it cannot be based on a mere change of opinion on the basis of the same material."
• In the case of CAVINKARE PVT. LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX, (2021) 109 CCH 0399 Chen HC, it was held that "Reopening of the completed assessment based on change of opinion is not sustainable.' • In the case of Deputy Commissioner Of Income Tax & Ors. vs. Ds1 Software Ltd. & Ors.
[(2019) 55 CCH 0518 (Delhi Tribunal it was held that "That the power to reopen an assessment has been conferred by the Legislature not with the intention to enable the Assessing Officer to reopen the final decision made against the Revenue in respect of questions that directly arose for decision in earlier proceedings. If that were not the legal position, it would result in placing an unrestricted power in the hands of the assessing authorities. Thus, where the reasons recorded by the Assessing Officer disclose no more than mere change of opinion, the reassessment proceedings are liable to be quashed. • In the case of Pawan Sood vs. Income Tax Officer: (2019) 104 CCH 0102 (Allahabad HC) it was said that "Mere change of opinion while perusing same material could not be a "reason to believe " that a case of escaped assessment exists requiring assessment proceedings to be reopened." 32
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022
1. In view of above facts, circumstances and various judicial pronouncements, reopening of the present case deserves to be annulled since reason to believe formed for the reopening is merely a change opinion on the same sets of facts which is against the spirit of law."
28. We find that the CIT(Appeals) had concurred with the claim of the assessee company that the A.O had grossly erred in law and facts of the case by reopening its case based on a mere "change of opinion and, thus, exceeded the scope of the jurisdiction that was vested with him u/s. 147 of the Act. For the sake of clarity, the observation of the CIT(Appeals) on the aforesaid issue is culled out as under:
"2. The appellant contended that the current reopening can be considered as based on mere change of opinion. The appellant had demonstrated that on the basis of evidence of investor companies, the then A.O did not make any addition in the order u/s. 143(3) of the Act whereas on the basis of same facts and without any tangible material to disprove the earlier evidences of investor companies, the latter AO proceeded to reopen the assessment and made additions in the reopened assessment order. The reasons recorded by the AO don't mention any relevant information to discredit the evidences of investor companies filed in the original assessment proceeding. Only in para 9.1 of the current asstt. order, the AO mentioned about one share applicant u/s. Banka Finance & Securities Pvt. Ltd. was operated by Shri Manohar Nagalia, who had appointed Sh. Anjani Banka as Director of the company. Anjani Banka, in his recorded statement before DDIT (Inv.)-3, Kolkata had stated that business of the company was nothing but providing accommodation entries in lieu of commission. This company has share capital and premium to the tune of Rs.18,30,45,000/- and was purchased by one of the group companies of the appellant at only Rs.2 per share. This led to conclusion by the AO that the whole capital build up of M/s. Banka Finance & Securities Pvt. Ltd. was bogus and therefore, investment of Rs.30,85,000/- by the Banka Finance, was bogus as it lacked creditworthiness and genuineness. The appellant has contended that this piece of information was not mentioned in the reasons 4corded nor confronted to the appellant. Thus, it was contended that the addition of share capital was made without proper opportunity of being heard. l through the contents of reasons recorded by the AO and find that not mentioned about this piece of evidence at the time of formation have gone the AO had of "reasons to believe". Hence, the appellant's contention of reopening being based on mere change of opinion cannot be brushed aside. As regards the information about the Banka Finance & Securities Pvt. Ltd., I find that the appellant had stated in response to show cause notice that Shri Anjani Banka's statement was irrelevant for 33 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 current assessment year when share capital was raised as he was Director in F.Y. 2010-11 only. The AO did not controvert this reply of the appellant.
After going through the reasons recorded as well as findings in the assessment order, it is noted that the A.O had only once specific information from the DDIT (inv)-1 Raipur regards bogus purchase bills worth Rs.37,91,351/- pertaining to appellant but this information did not lead the A.O to conclude about bogus nature of share capital inclusive of premiums raised. In fact, the A.O did not make any addition of Rs.37,91,351/- in the current assessment order which further aggravates the issue of reasons to believe on the part of the A.O. Thus, it is clear that the reopening was made by the A.O based on vague information which could lead to mere reasons to suspect and also on mere change of opinion. Thus, Grounds No.3 & 4 are also allowed in favour of the appellant."
29. We have heard the Ld. Authorized Representatives of both the parties on the aforesaid issue in the backdrop of the orders of the lower authorities, as well as considered the judicial pronouncements that have been pressed into service by them to support their respective contentions.
30. The Ld. DR at the threshold submitted that as the A.O. at the stage of framing the original assessment vide his order u/s. 143(3) of the Act, dated 11.08.2014 had no occasion to consider the aforesaid material aspects, viz. (i). receipt of share capital/premium by the assessee company from paper/shell companies; and (ii). procuring of bogus purchase bills as a beneficiary by the assessee company, which facts were brought to his notice only pursuant to the information that was shared by the Dy. DIT (Inv.)-1, Raipur vide his letters dated 04.03.2019 and 19.03.2019, which in turn were based on certain investigations carried out by the department post original assessment framed in the case of the assessee company, therefore, observation of the CIT(Appeals) that the A.O had assumed jurisdiction for reopening the concluded assessment of the assessee company based on a mere "change of 34 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 opinion" cannot be sustained and is liable to be vacated. The Ld. DR in support of his aforesaid contention had pressed into service two judicial pronouncements, viz.
(i) Yuvraj Vs. Union of India 315 ITR 84 (Bombay); and (ii) Aswani Enterprises Vs. ACIT (2019) 417 ITR 223 (Mad.).
31. Per contra, the Ld. AR had relied on the order of the CIT(Appeals). The Ld. A.R. submitted that as the A.O. while framing the original assessment u/s. 143(3) of the Act, dated 11.08.2014 had at length verified and deliberated upon both the issues under consideration, viz. (i). genuineness of purchases made by the assessee during the year; and (ii). the authenticity of the transactions of receipt of share capital/premium by the assessee company from the aforementioned seven subscriber companies, and only after finding the same in order had accepted the same, therefore, reopening of its concluded assessment by the successor A.O, as rightly observed by the CIT(Appeals), was based on a mere " change of opinion" as against that arrived at by his predecessor, which was not permissible as per the mandate of law. The Ld. AR in support of his aforesaid contention had relied upon the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Kelvinator of India Ltd. 256 ITR 1 (Del) [which had been approved by the Hon'ble Apex Court in the case of CIT Vs. Kelvinator of India Pvt. Ltd. (2010) 320 ITR 561 (SC)].
32. We have heard the Ld. Authorized Representatives on the aforesaid issue, i.e. validity of the jurisdiction assumed by the A.O for reopening the concluded assessment of the assessee company based on a mere "change of opinion" [as claimed by the assessee company and approved by the CIT(Appeals]. We principally 35 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 concur with the Ld. AR that as the legislature had not conferred any power on the A.O. to review his order, therefore, he cannot take recourse to proceedings u/s. 147 of the Act for seeking a review of his earlier order. In other words, a mere fresh application of mind by the A.O. to the same set of facts as were there in the course of the original assessment proceedings would not justify reopening of the concluded assessment based on a mere "change of opinion". The Hon'ble High Court of Delhi in the case of CIT Vs. Kelvinator of India Ltd. 256 ITR 1 (Del) [which had been approved by the Hon'ble Apex Court in the case of CIT Vs. Kelvinator of India Pvt. Ltd. (2010) 320 ITR 561 (SC)], had observed that the department cannot take recourse to the provisions of Sec. 147 of the Act for the failure of the A.O to apply his mind in the original assessment proceedings to the material which according to him, is relevant and was available on record. The Hon'ble High Court of Bombay in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom) had, by drawing support from the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Kelvinator of India Ltd. (supra), had observed that where according to the A.O he had failed to apply his mind to the relevant material in making the assessment order, he cannot take advantage of his own wrong and reopen the assessment by taking recourse to the provisions of Sec. 147. The Hon'ble High Court had further observed that fresh application of mind by the A.O to the same set of facts for the reason that some material that was available on record while framing the original assessment was inadvertently excluded from consideration would not justify reopening of the assessment u/s 147 of the Act. For the sake of clarity, the 36 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 observations of the Hon'ble High Court of Delhi in the case of CIT Vs. Kelvinator of India (2002) 256 ITR 1 (Del), which thereafter had been approved by the Hon'ble Apex Court in 320 ITR 561, are culled out as under (relevant extract):
"10. It is further to be seen that the legislature has not conferred power on the AO to review its own order. Therefore, the power under s. 147 cannot be used to review the order. In the present case, though the AO has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the AO, nothing new has happened, therefore, no new material has come on record, no new information has been received; it is merely a fresh application of mind by the same AO to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator (supra) referred to above, has taken a clear view that reopening of assessment under s. 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for respondent No. 1 to issue notice under s. 148".
33. Also, the observation of the Hon'ble High Court of Bombay in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom), wherein as observed by us hereinabove a similar view had been taken, is culled out as under:
"7. We have heard the learned counsel appearing for both sides. We have also gone through the judgments on which reliance was placed by the learned counsel appearing for both sides.
8. In the order rejecting the objection filed by the petitioner to the notice under section 148, respondent No. 1 has observed "verification of assessment record reveals that the said details were called for but inadvertently the same were not taken into account while framing the assessment and, therefore, it cannot be said that there is a change of opinion." According to respondent No. 1, thus, the relevant material was available on record, but he failed to apply his mind to that material in making the assessment order. The question is, can respondent No. 1 take recourse to the provision of section 147 for his own failure to apply his mind to the material which, according to him, is relevant and which was available on record. We find that this situation has been considered by the Full Bench of the Delhi High 37 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 Court in its judgment in the case of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 and the Full Bench has observed thus (page 19) :
"The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong."
9. It is clear from the observations made above that the Full Bench of the Delhi High Court has taken a view that in a situation where according to the Assessing Officer he failed to apply his mind to the relevant material in making the assessment order, he cannot take advantage of his own wrong and reopen the assessment by taking recourse to the provisions of section 147. We find, ourself, in respectful agreement with the view taken by the Full Bench of the Delhi High Court.
10. It is further to be seen that the Legislature has not conferred power on the Assessing Officer to review its own order. Therefore, the power under section 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator [2002] 256 ITR1 referred to above, has taken a clear view that reopening of assessment under section 147 merely because there is a change of opinion 38 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for respondent No. 1 to issue notice under section 148.
11. In the result, therefore, petition succeeds and is allowed. Rule is made absolute in terms of prayer clause (a) with no order as to costs."
(emphasis supplied by us)
34. Although we concur with the claim of the Ld. A.R. that the reopening of a concluded assessment based on a mere "change of opinion" of the A.O. is not permissible, but are afraid that the facts involved in the case before us do not fall within the realm of the aforesaid mandate of law. As observed by the Hon'ble High Court of Bombay in the case of Asian Paints Ltd. Vs. DCIT (supra), it is where between the date of order of original assessment sought to be reopened and the date of formation of the opinion by the A.O, nothing new has happened, i.e, no new material has come on record, no new information has been received, then reopening of the concluded assessment will fall within the meaning of a mere fresh application of mind by the A.O to the same set of facts, which would be nothing but the reopening of the case based on a mere "change of opinion". However, in the case before us, after framing of the original assessment vide order u/s. 143(3) of the Act, dated 11.08.2014, the A.O was in receipt of letters dated 04.03.2019 (supra) and 19.03.2019 (supra) from the office of the Dy. DIT (Inv.)-1, Raipur, wherein, it was shared with the A.O that the assessee company, viz. (i). was a beneficiary of certain bogus purchase transactions; and (ii). received share capital/premium from seven shell/paper companies. It would be incorrect to say that after framing the original assessment vide order u/s. 143(3) of the Act dated 11.08.2014, no new information 39 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 was received by the A.O. As the A.O. after the culmination of the original assessment u/s. 143(3) of the Act, dated 11.08.2014 had received fresh information, i.e. letters dated 04.03.2019 and 19.03.2019 from the Dy. DIT(Inv.)-1, Raipur, therefore, we are unable to fathom as to on what basis, it is claimed by the Ld. AR that the reopening of the case of the assessee company is based on a mere "change of opinion" on the same set of facts as were available before the A.O. in the course of the original assessment proceedings. Also, it would be relevant to point out that the letter dated 19.03.2919 (supra) wherein the A.O was informed about receipt of share capital/premium by the assessee company from 7 investor companies was accompanied with supporting annexures which, inter alia, included a statement of one Shri Anjani Banka (supra) that was recorded by the Dy. DIT, Unit-3, Kolkata, wherein the aforesaid person had stated that he was a director of one of the share subscriber company, viz. M/s. Banka Financial and Securities Pvt. Ltd. which was engaged in providing accommodation entries in lieu of commission. As the aforesaid information a/w. the supporting annexures were not available before the A.O. in the course of the original assessment proceedings that had culminated vide his order u/s. 143(3) of the Act, dated 11.08.2014, therefore, we are unable to concur with the CIT(Appeals), who had observed that the reopening of the concluded assessment of the assessee company was based on a mere "change of opinion" and thus, had, inter alia, quashed the reassessment for want of valid assumption of jurisdiction by the A.O. We, thus, not being able to persuade ourselves to subscribe to the aforesaid observations of the CIT(Appeals) set-aside his order to the said extent. 40
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 (C). Re: A.O. had reopened the case based on a reason to suspect.
35. Ostensibly, the CIT(Appeals) had approved the claim of the assessee company that the A.O had assumed jurisdiction and reopened the concluded assessment of the assessee company based on a suspicion, and not a bonafide belief that its income chargeable to tax had escaped assessment.
36. The Ld. D.R. rebutted the aforesaid observation of the CIT(Appeals). Elaborating on his contention, it was submitted by him that as the A.O. had after analyzing the information that was shared by the Dy. DIT(Inv)-1, Raipur arrived at a bonafide belief that the income of the assessee company chargeable to tax had escaped assessment, therefore, the view arrived at by the CIT(Appeals) that the case was reopened on a suspicion being a perverse observation cannot be sustained and is liable to be vacated.
37. Per contra, the Ld. A.R relied on the order of the CIT(Appeals). It was submitted by him that as the A.O had reopened the concluded assessment of the assessee company not based on any bonafide belief that its income chargeable to tax had escaped assessment, but on a mere pretence and suspicion for making fishing and roving inquiries, therefore, the CIT(Appeals) had on the said count rightly vacated the reassessment order.
38. We have heard the Ld. Authorized Representatives of both the parties on the aforesaid issue in the backdrop of the observations of the lower authorities. We have given thoughtful consideration to the aforesaid observation of the CIT(Appeals) and 41 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 are unable to persuade ourselves to subscribe to the same. As observed by us hereinabove, the case of the assessee company was reopened by the A.O. based on information shared with him by the Dy. DIT (Inv.)-1, Raipur vide his letters dated 04.03.2019 and 19.03.2019 a/w. supporting annexures. In our view, the aforesaid information received by the A.O. falls within the meaning of "material", based on which, he had arrived at a bonafide belief that the income of the assessee company chargeable to tax had escaped assessment. Once again, we may reiterate, that at the stage of the reopening of the assessment what is required is a nexus between the material available on record and the formation of a bonafide belief by the A.O that the income of the assessee chargeable to tax had escapement. Neither the sufficiency of the material nor the quality of the belief arrived at by the A.O. can be called into question by the assessee at the stage of reopening of the case. Our aforesaid view is fortified by the judgment of the Hon'ble Apex Court in the case of Raymond Woollen Mills Ltd. Vs. Income-Tax Officer And Ors. (supra). We, thus, are unable to concur with the contention of the Ld. AR that reopening of the concluded assessment of the assessee company was prompted by a reason to suspect. As there was material before the A.O. to arrive at a bonafide belief that the income of the assessee company chargeable to tax had escaped assessment, therefore, we find no infirmity in the assumption of jurisdiction on his part for initiating the reassessment proceedings. Accordingly, we are unable to accept the view taken by the CIT(Appeals) to the extent he had concurred with the assessee company that 42 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 the A.O had reopened the concluded assessment based on a reason to suspect and, thus, had vacated the reassessment order on the said count. (D). Re: A.O had traversed beyond the scope of his jurisdiction by reopening the concluded assessment of the assessee in violation of the "1st proviso" to Section 147 of the Act
39. We find on a perusal of the order of the CIT(Appeals) that the assessee company had, inter alia, assailed the validity of the jurisdiction assumed by the A.O for initiating the reassessment proceedings on the ground that now when the assessment in its case was originally framed vide order u/s. 143(3) of the Act, dated 11.08.2014, therefore, in the absence of any failure on its part to fully and truly disclose all material facts necessary for its assessment, the concluded assessment could not have been reopened beyond the period of four years from the end of the relevant assessment year, i.e. A.Y.2012-13. The assessee had submitted before the CIT(Appeals) on the aforesaid issue, as under:
"Ground No.3 "On the facts and circumstances of the case, the Ld. AO has erred in reopening of the case u/s.148 irrespective of the fact that the case of the assessee was already assessed u/s 143(3) of I.T. Act, 1961. Further, the assessee has disclosed all material fact during the course of assessment proceeding u/s 143(3) of the Act. Thus, where there is no failure on the part of the assessee, the reopening is against the 1st proviso to section 147 and thus is invalid and void ab-initio ".
1. That the Ld. AO has reopened the case of the appellant by invoking the first proviso of section 147 of the I.T.Act, 1961 since the case of the appellant was already assessed u/s 143(3) of the Income Tax Act, 1961 and four year from the end of the relevant assessment year i.e. A.Y.2012-13 was expired on 31.03.2017 where as the case was reopened on 30.03.2019 i.e. after expiry of four years. The relevant provision of the first proviso of section 147 is produced as under:-
43
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 Provided that where an assessment under sub-section (3) of section 143 or this section been made for the relevant assessment year, no action shall be taken under this on after the expiry of four years from the end of the relevant assessment year, unless 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"
On perusal of above, it is evident that the A.O. can re-open the case after the expiry of four years only when there is any failure in disclosing the facts on the part of the appellant. In this regard it is to bring in notice of your honor that the case of the appellant has already been assessed u/s 143(3) of the I.71.'Act 1961-fbr the year under. consideration. In the questionnaire issued u/s 142(1), the then AO has specifically raised a detailed query regarding fresh issue of ' • equity shares and has also asked to furnish various documents to substantiate the transaction. In response to the above query the appellant submitted all the documents such as ITR, Computation of Income, Bank statement, Audit Report, Share Application Form and also furnished detail of share capital raised during the year. Copy of written submission dated 19.06.2014 and 07.07.2014 submitted during the course of original assessment proceedings is enclosed herewith. Kindly Refer Annexure-2(Refer Page-5 to 13 of PB). After due verification the then A.O. has assessed the income of the appellant company by passing order u/s 143(3) dated 11.08.2014 by treating the sham capital as genuine. Copy of assessment order is enclosed herewith. Kindly Refer Annexure-3 (Refer Page-14 to 34 of PB).
1. That from the above mentioned facts it is evident that the appellant had duly disclosed all the details along with the desired documents related to the fresh issue of shares to share subscriber companies, at the time of the original proceedings. Hence, there was no failure on the part of the appellant to disclose fully and truly all material facts necessary for assessment. It was for the AO at this stage to decide what inference should be drawn from the facts of the case. In the present case the AO based on the facts disclosed to him did nut doubt the genuineness of the transaction of issue of fresh share capital. The AO, while forming the reason to believe, has not bought any single evidence as to what is the failure on the part of the appellant during the course of original assessment proceedings. The assessee had fully and truly disclosed all material facts necessary for its assessment and, therefore, the revenue cannot take benefit of the extended period of limitation of 6 years. Further , the reopening has been made based on the audited financial statements of the share applicant company and is evident from the reason it self. . Further , no allegation ever framed by the Ld. A.O. with any material evidence that the reopening has been made due to this particular failure on the part of the appellant to truly disclose any material facts at time of assessment .The entire reason have been framed out of the assessment record, therefore the question of failure on the part of appellant does not arise. In such circumstances no case can be re-opened by invoking first proviso of 44 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 section 147 after expiry of four years from the end of the relevant assessment year. As has been held in the recent judgment of Hon'ble Supreme Court in the case of New Delhi Television Ltd Vs. DCIT (SC) (2020) 424 ITR 0607 that The revenue cannot take benefit of the extended period of limitation of 6 years if it is found that the assessee had fully and truly disclosed all material facts necessary for its assessment.
The contention of the assessee is also supported by various judicial pronouncements referred here under:-
In the case Mumbai HC of Commissioner of Income Tax vs. Marhatta Chamber of Commerce Industries and Agriculture 1(2019) 175 DTR 0137 (Bom) it was held that re-assessment proceeding is not sustainable if there is no failure on part of assessee to r disclose fully and truly all facts as contemplated under first proviso to s.147.
In the case of Gita Education Society Vs. Income Tax Officer (2019) 56 CCH 0064 (Delhi Tribunal) it was held that " Wherever first proviso to section 147 is applicable, the reasons recorded should show in what manner the assessee had failed to make a full and true disclosure of all material facts necessary for the assessment. The failure to do so would not be more irregularity but it would render the reopening of assessment after four year invalid.
In the case of Commissioner of Income Tax Vs. Suren International Pvt Ltd, 1(2013) 85 CCH 0040 Del HC], it was held that it would not be open for the AO to reopen the assessment already done beyond the period of four years unless the income has escaped assessment on account of failure, on the part of the assessee, to disclose all the material facts. 1. In view of above facts and circumstances of the case it is to submit that the re-assessment proceeding is not sustainable if there is no failure on part of appellant to disclose fully and truly all material facts as contemplated under first proviso to S.147. Therefore the entire reassessment proceedings deserved to be annulled."
40. As is discernible from the order of the CIT(Appeals), we find that he found substance in the claim of the Ld. AR that the reopening of its concluded assessment beyond the stipulated period of four years from the end of the assessment year, which lapsed on 31.03.2017, in the absence of any failure of the assessee company to fully and truly disclose all necessary facts for framing of its assessment was violative of the "1st proviso" to Sec. 147 of the Act, observing as under: 45
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 " Ground No. 3 & 4 Vide these grounds, the appellant contended that there was no failure on its part to disclose fully and truly all material facts during the course of assessment proceedings u/s.143(3) of the Act and hence, reopening was void ab initio. Relevant Court decisions were relied by the appellant to support its case and those decisions are reproduced in the appellant's submissions. It was also contended by the appellant that the reopening was based on mere `Change of opinion' which is not permissible under the Act and referred to relevant Court decisions to support i s contentions. The gist of appellant's contentions on these grounds of appeal can be summarized as under :-
1. The appellant referred to submission made in the course of original assessment u/s.143(3) of the Act in response to specific query raised on the issue of share capital and premium thereon. The appellant contended that not a single evidence was brought in the reasons recorded to show that there was failure on the part of the appellant to furnish full and true material facts during original assessment proceedings. It was contended that the reasons recorded were based on the audited financial reports of investor companies and without any mention of tangible information to make the said information as false or untrue. Reference to the decision of Hon'ble Supreme Court in the case of NDTV Vs. DCIT, 424 ITR 0607 was made, wherein the Hon'ble Apex Court held that the Revenue cannot take too, benefits extended period of limitation of 6 years if it is found that the assessee had fully and truly disclosed all material facts necessary for its assessment.
2. The appellant contended that the current reopening can be considered as based on mere change of opinion. The appellant had demonstrated that on the basis of evidence of investor companies, the then A.O did not make any addition in the order u/s. 143(3) of the Act whereas on the basis of same facts and without any tangible material to disprove the earlier evidences of investor companies, the latter AO proceeded to reopen the assessment and made additions in the reopened assessment order. The reasons recorded by the AO don't mention any relevant information to discredit the evidences of investor companies filed in the original assessment proceeding. Only in para 9.1 of the current asstt. order, the AO mentioned about one share applicant u/s. Banka Finance & Securities Pvt. Ltd. was operated by Shri Manohar Nagalia, who had appointed Sh. Anjani Banka as Director of the company.
Anjani Banka, in his recorded statement before DDIT (Inv.)-3, Kolkata had stated that business of the company was nothing but providing accommodation entries in lieu of commission. This company has share capital and premium to the tune of Rs.18,30,45,000/- and was purchased by one of the group companies of the appellant at only Rs.2 per share. This led to conclusion by the AO that the whole capital build up of M/s. Banka Finance & Securities Pvt. Ltd. was bogus and therefore, investment of Rs.30,85,000/- by the Banka Finance, was bogus as it lacked creditworthiness and genuineness. The appellant has contended that this piece of information was not mentioned in the reasons 4corded nor confronted to the appellant. Thus, it was contended that the addition of share capital was made without proper 46 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 opportunity of being heard. l through the contents of reasons recorded by the AO and find that not mentioned about this piece of evidence at the time of formation have gone the AO had of "reasons to believe". Hence, the appellant's contention of reopening being based on mere change of opinion cannot be brushed aside. As regards the information about the Banka Finance & Securities Pvt. Ltd., I find that the appellant had stated in response to show cause notice that Shri Anjani Banka's statement was irrelevant for current assessment year when share capital was raised as he was Director in F.Y. 2010-11 only. The AO did not controvert this reply of the appellant. After going through the reasons recorded as well as findings in the assessment order, it is noted that the A.O had only once specific information from the DDIT (inv)-1 Raipur regards bogus purchase bills worth Rs.37,91,351/- pertaining to appellant but this information did not lead the A.O to conclude about bogus nature of share capital inclusive of premiums raised. In fact, the A.O did not make any addition of Rs.37,91,351/- in the current assessment order which further aggravates the issue of reasons to believe on the part of the A.O. Thus, it is clear that the reopening was made by the A.O based on vague information which could lead to mere reasons to suspect and also on mere change of opinion. Thus, Grounds No.3 & 4 are also allowed in favour of the appellant."
41. We have heard the Ld. Authorized Representatives of both the parties on the aforesaid issue, i.e. validity of the jurisdiction assumed by the A.O. for reopening the concluded assessment of the assessee company in the backdrop of the mandate of "1st proviso" to Section 147 of the Act.
42. Admittedly, the original assessment was framed in the case of the assessee company for the year under consideration, i.e. A.Y.2012-13 vide order passed u/s. 143(3) of the Act, dated 11.08.2014. The concluded assessment of the assessee company was reopened vide notice u/s. 148 of the Act dated 30.03.2019, i.e., beyond the period of four years from the end of the assessment year.
43. On a perusal of the order sheet entries in the assessment records to which our attention was drawn by the Ld. AR during the hearing of the appeal, it transpires 47 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 that the A.O while framing the assessment in the case of the assessee company for the subject year, had in the course of the proceedings, i.e. on 27.06.2014, inter alia, called upon for the details of the shareholders to whom shares were issued by the assessee company during the subject year. In reply, the assessee company had on 18.07.2014 furnished the details of the share application money that was received and the details of the shares allotted during the subject year. Also, a perusal of the notice issued by the A.O u/s. 142(1)(ii) of the Act, dated 21.05.2014, Pages 737 to 739 of the APB, reveals that the assessee company vide Query No.18 was called upon to furnish the list of the shareholders whose number of shares had increased in the earlier years a/w. details from whom the shares were purchased. The assessee company vide its reply dated 19.08.2014, Pages 740-744 of APB, had inter alia, submitted before the A.O that it had during the subject year issued 5,85,520 shares at Rs.500/- per share, i.e at face value (FV) Rs.10/- and premium of Rs.490/- per share and had furnished complete list of the shareholders to whom the said shares were issued. For the sake of clarity, the aforesaid reply of the assessee company dated 19.08.2014 - Sr. No. 14 (of the reply) is culled out as under:
"18.) During the year under consideration there is a fresh issue of 5,85,520 shares, issued at Rs.500/- per share (face value of Rs.10/- & premium of Rs.490/-). List of shareholders to whom fresh issue of shares have been made is enclosed herewith. Also, Form no. 2 and share application form is enclosed herewith. Further, party wise details of share application money received & shares allotted along with copy of bank statement reflecting the amount received are enclosed herewith. (A-8)."
Once again, the assessee company vide its reply/submissions filed before the A.O on 07.07.2014, Pages 745 - 748 of APB. had submitted that it had issued 5,85,520 48 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 fresh equity shares at Rs.500/- with a face value (F.V) of Rs.10/- per share and premium of Rs.490/- per share a/w. list of the shareholders to whom the shares were issued. Also, we find that the assessee company vide its reply filed on 28.07.2014, Page 749-754 of APB had at Sr. No. 4 submitted before the A.O working of the share application money received and shares allotted during the year under consideration. For the sake of clarity, the reply of the assessee company a/w. relevant extract that was filed with the A.O in the course of the original assessment proceedings is culled out as under:
"4. Your honour has asked to furnish the working of share application money received and share allotted during the year under consideration. The same is enclosed herewith."
SHRI BAJRANG POWER & ISPAT LIMITED Statement showing party-wise Detail of share Application money received and share allotted during the FY 2011-12 Name of the party No of Face value Premium Total Opening Recd. Total Diff. Remark shares Balance During the Available year [A] [B] [C] [D]=[B]+[C] [E] [F] [G]=[E]+[F] [H]=[D]-[G] 1 M/s. Banka Finance 6,170 61,700 30,23,300 30,85,000 26,30,000 4,55,000 30,85,000 & Securities Private Limited 2 M/s. S.B Multimedia 80,000 8,00,000 3,92,00,000 4,00,00,000 - 4,00,00,000 4,00,00,000 Private Limited
3. M/s. Sukanya 44,000 4,40,000 2,15,60,000 2,20,00,000 2,40,00,000 45,00,000 2,85,00,000 65,00,000 Refund Merchandise Pvt.
Ltd.
49
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022
4. M/s. Bonus 2,15,950 21,59,500 10,58,15,500 10,79,75,000 - 11,29,75,000 11,29,75,000 50,00,000 Refund DealCom Pvt. Ltd.
5. M/s Priority 1,85,400 18,54,000 9,08,46,000 9,27,00,000 - 9,27,00,000 9,27,00,000 - -
Constructions Pvt.
Ltd.
6. SHIMMER - - - - - 2,00,00,000 2,00,00,000 2,00,00,000 Closing INVESTMENT Pvt. balance Ltd.
7. M/s. Shri Bajrang 54,000 5,40,000 2,64,60,000 2,70,00,000 - 2,70,00,000 2,70,00,000 -
Ispat and Plywood Limited 5,85,520 58,55,200 28,69,04,800 29,27,60,000 2,66,30,000 29,76,30,000 32,42,60,000 3,15,00,000
44. Ostensibly, the assessee company in the course of the original assessment proceedings had made a full and true disclosure of all material facts pertaining to the allotment of 5,85,520 equity shares to the aforementioned seven share subscriber companies under consideration. As the A.O after necessary vetting and deliberations, had found the aforesaid details filed by the assessee company in order, therefore, he had accepted the same and not drawn any adverse inferences. We are of the considered view that now when the assessee company had disclosed fully and truly all material facts regarding the 5,85,520 equity shares that were issued during the subject year to the aforementioned seven share applicant companies at Rs.500/- per share, i.e. face value (F.V) of Rs.10/- per share and premium of Rs.490/- per share, therefore, as stated by the Ld. AR, and rightly so, the concluded assessment of the assessee company that was originally framed vide order u/s. 143(3) of the Act, dated 11.08.2014 could not have been reopened beyond the 50 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 period of four years from the end of the relevant assessment year, i.e. after 31.03.2017. Apropos the information shared by the Dy. DIT (Inv)-1, Raipur vide his letter dated 04.03.2019 (supra) with the A.O. that the assessee company was a beneficiary of bogus purchase bills of Rs. 37,91,351/- from Shri. Atish Aggarwal, Proprietor: M/s Krishna Processors, the fact that the A.O had not drawn any adverse inference based on the aforesaid information while framing the reassessment in the case of the assessee company, thus, in itself proves that no failure could be attributed to the assessee company for coming up with a full and true disclosure on the aforesaid issue.
45. As the A.O. in the present case had reopened the concluded assessment of the assessee company vide notice u/s. 148 of the Act, dated 30.03.2019, i.e. beyond the prescribed time limit contemplated in the "1st proviso" to Section 147 of the Act, therefore, it can safely be concluded that he had exceeded his jurisdiction and initiated the impugned reassessment proceedings.
46. Admittedly, as stated by the Ld. A.R and, rightly so, in a case where an assessment had earlier been made under Section 143(3) of the Act, and action thereafter is sought to be taken for the reopening of the case u/s.147 after the expiry of four years from the end of the relevant assessment year, then, it would be necessary that the twin conditions contemplated in the statutory provision are satisfied, i.e. (i). the AO must have reason to believe that income chargeable to tax has escaped assessment; AND (ii). he must also have a reason to believe that such escapement had occurred because of failure on the part of the assessee of either of 51 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 the two conditions, viz. (a). to make a return of income under Section 139 or in response to notice issued under sub-section (1) of Section 142 or Section 148; or
(b). to disclose fully and truly all material facts necessary for his assessment for that purpose.
47. Coming back to the two conditions carved out in the "1st proviso" to Sec. 147 of the Act, as it is neither the case of the department nor a fact discernible from the record that the income of the assessee company chargeable to tax had escaped assessment for the reason that there was any failure on its part to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148, therefore, the first condition contemplated in the "1st proviso" to Sec. 147 is not satisfied by the assessee company.
48. We may herein observe that the Hon'ble Supreme Court in the case of New Delhi Television Ltd. vs. Deputy Commissioner of Income Tax (2020) 116 Taxmann.com 151 (SC), had, inter alia, held that though the assessee is obligated to disclose the "primary facts" but it is neither required to disclose the "secondary facts" nor required to give any assistance to the A.O by disclosure of the other facts and it is for the A.O to decide what inferences are to be drawn from the facts before him. It was observed by the Hon'ble Apex Court that the extended period of limitation for initiating proceedings under the "1st proviso" of Section 147 of the Act would only get triggered where the assessee had failed to disclose fully and truly all material facts necessary for its assessment. Now, in the case before us, we are unable to comprehend what facts the assessee company had failed to disclose which would 52 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 have otherwise justified bringing its case within the realm of the extended period contemplated in the "1st proviso" of section 147 of the Act. As the assessee company had disclosed fully and truly all the material facts as regards the aforesaid issue, i.e., furnishing of details as regards the 5,85,520 equity shares that were issued to the aforementioned seven share subscriber companies at Rs.500/- per share (face value Rs.10/- per share & premium of Rs.490/- per share) as was necessary for its assessment for the year under consideration, i.e., AY 2012-13; therefore, it could by no means be held to be in default to bring it within the sweep of "1st proviso" of Section 147 of the Act.
49. Analyzing the scope of the "1st proviso" to Sec. 147 of the Act, which contemplates that where assessment in the assessee's case had been framed u/s 143(3) of the Act, then no action under Sec. 147 shall be taken in its case after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax had escaped assessment for such assessment year for failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, the Hon'ble Supreme Court had dismissed the Special Leave Petition (SLP) filed by the revenue in ACIT Vs. Marico Limited, 117 taxmann.com 244 (SC), and impliedly approved the decision of the Hon'ble High Court of Bombay in the case of Marico Limited Vs. ACIT, WP NO.1917 of 2019 dated 21.08.2009. The Hon'ble High Court of Bombay in Marico Limited Vs. CIT (supra) [as approved by the Hon'ble Apex Court] had observed as follows:
53
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 "5. Upon hearing learned counsel for the parties and upon perusal of the documents and record, what we gather is that the notice of reopening of assessment has been issued beyond the period of four years from the assessment year. The reasons recorded by the Assessing Officer are elaborate and refer to various issues on which he wishes to carry out the reassessment. However, the central theme which passes though all these issues is that the Assessing Officer had gathered the information and material from the record of the assessment. For example in Paragraph No. 3 of the reasons which contains several sub-paragraphs which are different elements of the grounds for reassessment begins with the expression "On perusal of the record for the assessment year 2011-12, the following issues were found". Thus, with reference to various issues arise on the basis of the perusal of the record of the assessment year in question. Clearly, therefore, there is no material alien to the record which the Assessing Officer has referred to for issuing the impugned notice. Further, almost for every ground which is part of various sub-paragraphs of Paragraph No. 3, he has referred to either scrutiny or verification of the case records. In clear terms, therefore, the Assessing Officer was acting on the information available from the record of the assessment.
6. As is well known, in an instance where the Assessing Officer exercises power of reassessment beyond the period of four years from the end of relevant assessment year, an essential requirement is that the escapement of income chargeable to tax is due to the failure on the part of the assessee to disclose truly and fully all material facts. This is part of section 147 of the Act itself and is on number of occasions by various judgments of High Court and Supreme Court held to be mandatory pre-requirement. In view of such settled law, it is not necessary to refer to any judgment. Revenue is unable to bring to our notice any aspect or element which did not form part of the record and on the basis of which from the reasons recorded, it can be culled out that the Assessing Officer had formed a belief that income chargeable to tax had escaped assessment. In clear terms therefore, there was no failure on the part of the assessee to disclose truly and fully all material facts.
7. Counsel for the revenue however submitted that one of the issues raised by the Assessing Officer is that the activity carried on by the assessee does not amount to manufacturing activity. In the present petition, it is not necessary for us to comment on this aspect of the matter. What is important however is such belief also the Assessing Officer has formed on the basis of material already on record. Looked from any angle, the Assessing Officer cannot justify issuing the notice 54 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 of reopening of assessment beyond the period of four years from the end of relevant assessment year.
8. Under the circumstances, impugned notice is quashed. Petition allowed and disposed of accordingly."
We are of the considered view that as in the case before the Hon'ble Apex Court in Marico Limited (supra), the concluded assessment in the case of the present assessee company before us for the year under consideration, i.e., A.Y 2012-13 had been reopened vide notice u/s 148, dated 30.03.2019, i.e., beyond 4 years from the end of the relevant assessment year, without there being any failure on the part of the assessee company to fully and truly disclose all material facts necessary for its assessment, therefore, as observed by the CIT(Appeals) and, rightly so, the reopening of the concluded assessment of the assessee company would be hit by the "1st proviso" to Sec. 147 of the Act.
50. We, thus, concur with the view taken by the CIT(Appeals) that the original assessment of the assessee company for AY 2012-13 that was earlier framed under Sec. 143(3), dated 11.08.2014, de hors any failure on the part of the assessee company to fully and truly disclose all material facts necessary for its assessment could not have been reopened by the AO vide Notice u/s 148, dated 30.03.2019, i.e after the expiry of four years from the end of the relevant assessment year.
51. Apart from that, we may herein observe that as the concluded assessment of the assessee company that was originally framed vide order passed u/s. 143(3) of the Act, dated 11.08.2014, had been reopened by the A.O beyond the period of four years without establishing the assessee's failure to disclose fully and truly all 55 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 material facts necessary for assessment, the same, thus, on the said count also cannot be sustained. Our aforesaid view is supported by the judgments of the Hon'ble High Court of Delhi in the case of Pr. CIT Vs. Prabhu Dayal Aggrawal (2022) 115 CCH 349 (Del HC) and CIT Vs. Suren International Pvt. Ltd. (2013) 85 CCH 40 ( Del HC). Also, we may herein observe that though the A.O in the "reasons to believe" had stated that the assessee had not fully and truly disclosed the material facts necessary for its assessment for the subject year but the said observation would not suffice the requirement contemplated under the "1st proviso" to Section 147 of the Act. The A.O. in our considered view is obligated to arrive at a conclusion about the failure on the part of the assessee to disclose necessary facts for assessment after applying his mind and verification of the facts, which we find he had failed to do in the present case. Accordingly, we approve the view taken by the CIT(Appeals), wherein he had observed that the A.O. had exceeded his jurisdiction and reopened the concluded assessment of the assessee company in violation of the mandate of the "1st proviso" to Section 147 of the Act, i.e after the lapse of four years from the end of the relevant assessment year, i.e A.Y 2012-13. (E). Re: A.O had grossly erred in law and proceeded with and framed the assessment vide his order u/s. 143(3) r.w.s. 147 of the Act dated 31.12.2019 without passing an order rebutting the objections filed by the assessee company as regards the validity of the reassessment proceedings.
52. We find on a perusal of the order of the CIT(Appeals) that the assessee company had, inter alia, assailed the validity of the order passed by the A.O u/s. 143(3) r.w.s. 147 of the Act, dated 31.12.2019 for the reason that he had failed to 56 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 dispose of the objections that were raised by the assessee during the assessment proceedings, Pages 51-57 of APB.
53. The Ld. AR submitted that though the assessee company had filed with the A.O. objections to the reopening of its case u/s. 147 of the Act vide its letter dated 16.06.2019 (filed on 19.06.2019), but the A.O. without disposing of the said objections had proceeded with and framed the assessment vide his order u/s. 143(3) r.w.s 147 of the Act, dated 30.03.2019. Elaborating further, the Ld. AR submitted that though the assessee company had vide its letter dated 25.09.2019, Pages 209-213 of APB (uploaded on 28.09.2019) had once again submitted before the A.O that it had filed objections to the reopening of its case u/s. 147 of the Act but despite the said reminder he failed to dispose of the same.
54. We find on consulting the assessment records of the assessee company, that it is a matter of fact borne from the record that the assessee company vide its letter dated 16.06.2019 (supra) had filed before the A.O objections to the reopening of its case u/s. 147 of the Act, Pages 119-125 of the assessment record.
55. Further, a perusal of the order of the CIT(Appeals), reveals that he had concurred with the claim of the assessee company that as the A.O had failed to dispose off the objections to the reopening of its case, therefore, the assessment framed by him vide order passed u/s. 143(3) r.w.s. 147 of the Act, dated 31.12.2019 could not be sustained and was liable to be struck down. For the sake of clarity, the relevant observations of the CIT(Appeals) are culled out as under: 57
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 Ground No. 5 :-
Vide this ground, the appellant has challenged the reopening as null and void on the ground that the objection against reopening was not dealt with by the AO and reopened assessment order was finalized without passing speaking orders, against the objection to the reopening. The appellant referred to the decision of Hon'ble Supreme Court in the case of GKV Driveshaft India Ltd., 70 CCH 12641 (SC). wherein it was held that the AO had to dispose of objections passing speaking order before proceeding with the assessment.
I have gone through the current reopened assessment order and do not find any mention by the AO about objection to reopening and any speaking order passed by the AO against such objection. The appellant has enclosed copy of letter dated 16.06.2019 whereby detailed submission on facts as well as law was made against the reopening of the assessment. As the AO has not mentioned about any such order gassed against the objection to reopening, there is clear cut failure on the part of the AO in terms of Apex Court decision in the case of GKV Driveshaft and the AO was prohibited to proceed with the re-assessment proceeding without passing speaking order against objection of the appellant. Thus, this ground of appeal is also allowed in favour of the appellant.
In view of the above factual and legal positions discussed hereinabove in the grounds of appeal nos. 1 to 5, I find that reopening of assessment is not sustainable, and hence, this reassessment order is hereby quashed as null and void and not as per the provisions of the Act."
56. The Ld. D.R. supported the order of the A.O. on the aforesaid issue.
57. Per contra, the Ld. AR submitted that as the A.O had proceeded with and framed the assessment without disposing of the objections to the reopening of its case that were filed by the assessee company vide its letter dated 16.06.2019 (supra), thus, the same being in contradiction of the judgment of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO & Ors. (2022) 70 CCH 1264 (SC) could not be sustained and was liable to be struck down. The Ld. AR also relied upon the judgment of the Hon'ble High Court of Rajasthan in the case of M/s. K.C Mercantile (presently known as Genus Innovation Limited), Jaipur Vs. 58 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 DCIT, Circle-2, Jaipur, ITA No.292/2016. Also, support was drawn from the order of the ITAT, Jaipur in the case of Paresh Kumar Jain Vs. ITO (2020) 58 CCH 267 (Jaipur Trib) and ITAT, Delhi in the case of the Nimitaya Hotel and Resorts Ltd. & Anr Vs. ACIT, (2019) 71 ITR (Trib) 313 (Delhi).
58. We have thoughtfully considered the contentions of the Ld. Authorized representatives of both the parties on the aforesaid issue in the backdrop of the orders of the lower authorities, as well as considered the judicial pronouncements that have been pressed into service by the Ld. A.R. to drive home his contentions.
59. Although a perusal of the assessment record reveals that objections filed by the assessee company to the reopening of its case on 16.06.2019 (supra) had not been disposed of by the A.O, but to dispel all doubts the Ld. A.R was directed to place on record an "affidavit" of the assessee company under Rule 10 of the Appellate Tribunal Rules, 1963 to support its claim that no order disposing of its objections to the reopening of the case had been passed by the A.O. In compliance, the assessee company has filed an "affidavit" dated 07.05.2024, wherein it is deposed that the A.O had not passed the rebuttal order against the objections that were filed on 16.06.2019 (supra) by the assessee company against the reopening of its case. Also, in support thereof, a copy of the e-proceedings sheet had been placed on record by the assessee company.
60. Admittedly, it is a matter of fact borne from the record that the assessee company had in the course of the reassessment proceedings, vide its letter dated 59 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 16.06.2019 (filed with the A.O on 19.06.2019), Pages 51 to 57 of APB filed its objections to the reopening of its case u/s. 147 of the Act. Also, we find that the assessee company had thereafter vide its letter dated 25.09.2019 (uploaded on 28.09.2019), Pages 209-213 of APB, reminded the A.O about its objection to the reopening of its case that was earlier filed before him. However, as observed by us hereinabove, the A.O. had without disposing of the objections of the assessee company proceeded with and framed the reassessment vide his order u/s. 143(3) r.w.s. 147 of the Act, 31.12.2019. As stated by the Ld. AR, and rightly so, the framing of the reassessment by the A.O without disposing off the objections to the reopening of the case as were filed by the assessee company militates against the mandate of law. The Hon'ble Apex Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO & Ors (2022) 70 CCH 1264 (SC), had held that the assessee after obtaining a copy of the "reasons to believe" based on which its case had been reopened is entitled to file objections to the initiation of the proceedings, which the A.O is bound to dispose of by passing a speaking order before proceeding with the assessment. For the sake of clarity, the observations of the Hon'ble Apex Court are culled out as under:
"5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing 60 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 a speaking Order before proceeding with the assessment in respect of the abovesaid five assessment years."
(emphasis supplied by us) As the A.O. in the present case before us had failed to dispose of the objections to the reopening of the case as were filed by the assessee company before him, therefore, the same is clearly in defiance of the law declared by the Hon'ble Apex Court. In our view, the statutory obligation cast upon the A.O to dispose of by way of a speaking order the objections of an assessee as regards the assumption of jurisdiction for the reopening of its case comes with a purpose, i.e. in case objections are decided against the assessee, then the latter may assail the same by filing a Writ Petition before the Hon'ble High Court. Accordingly, in case the A.O fails to dispose of the objections and proceed with and frames the assessment without satisfying the aforesaid mandate of law, then, the assessee would stand divested of the statutory right vested with him as per the aforesaid judgment of the Hon'ble Apex Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO & Ors. (supra)
61. We find that the Hon'ble High Court of Rajasthan in the case of M/s. K.C Mercantile (presently known as Genus Innovation Limited), Jaipur Vs. DCIT, Circle-2, Jaipur, ITA No.292/2016 dated 07.11.2017, had observed, that in a case where the A.O had acted in defiance of the judgment of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO & Ors (supra.) and had framed the assessment without disposing of the objections, then there would be no justification in restoring the matter to the file of the A.O as the period of limitation would have already expired and the authority concerned would get extended time of 61 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 limitation which would not conform with the object of the Income Tax Act. Accordingly, the Hon'ble High Court in the aforesaid case after relying on a host of judicial pronouncements had set aside the remanding of the matter by the Tribunal, and had quashed the reassessment proceedings. For the sake of clarity, the observations of the Hon'ble High Court of Rajasthan in the aforesaid case are culled out as under:
"8. Before proceeding with the matter, it is not out of place to mention that the law declared by the Supreme Court in GKN Driveshafts (supra) clearly held that the preliminary objection is to be decided as the first, it cannot be decided subsequently. The argument which has been canvassed by the assessee is required to be considered very seriously more particularly in view of the observations made by the Supreme Court in the case of KSS Petron Private Ltd (supra) which is followed in Hotel Blue Moon (supra), the law declared by the Supreme Court is taken in true spirit whether it will open a second inning in his own. Section 153(3) is to be read very cautiously as 153 powers are given to the Department, the Court has to look into whether the law declared by the Supreme Court is given away or protected. In the present case, as the Assessing Officer has clearly ignored the law declared by the Supreme court, in that view of the matter, the issues which are raised in the matter, the Tribunal ought not to have remitted back for reassessment since period of limitation has already expired as the authority will get extended time of limitation beyond 9 months which is not the object of the Income Tax Act.
9. In that view of the matter, on issue No. 1 and 2, the order of reassessment passed by the Tribunal is declared null and void. The questions are answered in favour of assessee and against the Department.
10. The appeal of the assessee is allowed."
(emphasis supplied by us)
62. Also, we find that a similar view had been arrived at by the Hon'ble High Court of Bombay in the case of KSS Petron Private Ltd. Vs. The ACIT, ITA No.224/2014 03.10.2016, wherein it was held as under:
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ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 "7. On further Appeal, the Tribunal passed the impugned order. By the impugned order it held that the Assessing Officer was not justified in finalizing the Assessment, without having first disposed of the objections of the appellant. This impugned order holds the Assessing Officer is obliged to do in terms of the Apex Court's decision in GKN Driveshafts (India) Ltd., v/s. ITO 259 ITR 19. In the aforesaid circumstances, the order of the CIT(A) and the Assessing Officer were quashed and set aside.
However, after having set aside the orders, it restored the Assessment to the Assessing Officer to pass fresh order after disposing of the objections to re-opening notice dated 28th March, 2008, in accordance with law. 8 We note that once the impugned order finds the Assessment Order is without jurisdiction as the law laid down by the Apex Court in GKN Driveshafts (supra) has not been followed, then there is no reason to restore the issue to the Assessing Officer to pass a further/fresh order. If this is permitted, it would give a licence to the Assessing Officer to pass orders on re-opening notice, without jurisdiction (without compliance of the law in accordance with the procedure), yet the only consequence, would be that in appeal, it would be restored to the Assessing Officer for fresh adjudication after following the due procedure. This would lead to unnecessary harassment of the Assessee by reviving stale/ old matters. 9 In fact, to ensure that re-opening notices are disposed of, expeditiously the parliament itself has provided in Section 153(2) of the Act a period of limitation within which the Assessing Officer must pass an order on the notice of re-opening i.e. within one year from the end of the financial year in which the notice was issued. In fact, Section 153 (2A) of the Act as in force at the relevant time itself provides that an order of fresh Assessment, consequent to the order of Tribunal under Section 254 of the Act, would have to be passed within one year from the end of the financial year in which the order under Section 254 of the Act, was passed by the Tribunal and received by the Commissioner of Income Tax."
(emphasis supplied by us)
63. Also, the Hon'ble High Court of Delhi in the case of Ferrous Infrastructure Pvt. Ltd. and Ors. Vs. Deputy Commissioner of Income Tax (2015) 63 Taxmann.com 201 (Delhi) by adopting a similar view had quashed the reassessment proceedings for the reason that the A.O had failed to pass a speaking order disposing of the objections before proceeding with the assessment, observing as under:
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ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 "8. We may also point out that the second issue raised by the learned counsel for the petitioners also deserves some consideration. In GKN Driveshafts (supra), the Supreme Court had directed as under:-
"However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years."
(underlining added)
8. On going through the same, it is evident that the Assessing Officer has to pass a speaking order disposing of the objections "before proceeding with the assessment". In the present case, a separate speaking order has not been passed and the objections have been dealt with, if at all, in the re-assessment order itself. On this ground also, the petitioner is liable to succeed.
9. For all the reasons indicated above, the petition is allowed. The notice under Section 148 dated 30.08.2012 is quashed so also all proceedings pursuant to the said notice under Section 148 including the order dated 30.03.2014."
(emphasis supplied by us) Also, a similar view had been taken by the Hon'ble High Court of Karnataka in the case of Travellers Choice Vs. Income Tax Officer, (2010) 326 ITR 153 (Kar) and the Hon'ble High Court of Madras in the case of Jayanthi Natarajan Vs. ACIT, Non-Corporate Circle 1(1), WP No.1905 of 2017 dated 16.08.2017.
64. We, thus, respectfully following the aforesaid judicial pronouncements, wherein the Hon'ble High Courts had quashed the reassessment proceedings for the reason that the A.O had without disposing of the objections filed by the assessee to the reopening of its case, had proceeded with and framed the assessment in 64 ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and Ispat Limited ITA No. 203/RPR/2022 defiance of the judgment of the Hon'ble Apex Court in GKN Driveshafts (India) Ltd. Vs. ITO & Ors. (supra), concur with the view taken by the CIT(Appeals) who by adopting a similar reasoning had quashed the reassessment proceedings. Accordingly, the order of the CIT(Appeals) is upheld in terms of our aforesaid observations.
65. Resultantly, the Ground of appeal No.1 raised by the revenue is partly allowed in terms of our aforesaid observations.
66. Apropos the grievance of the department that the CIT(Appeals) had erred in not adjudicating the addition of Rs.25,27,60,000/- made by the A.O u/s. 68 of the Act considering the merits of the case, we are of the view that now when the CIT(Appeals) had quashed the reassessment proceedings, therefore, he was justified in not adverting to the merits of the case. Thus, the Ground of appeal No.2 raised by the revenue is dismissed in terms of our aforesaid observations.
67. Ground of appeal No.3 being general in nature is dismissed as not pressed.
68. In the result, the appeal of the revenue is partly allowed in terms of our aforesaid observations.
Order pronounced in open court on 29th day of May, 2024.
Sd/- Sd/-
ARUN KHODPIA RAVISH SOOD
(ACCOUNTANT MEMBER) (JUDICIAL MEMBER)
रायपुर/ RAIPUR ; दनांक / Dated : 29th May, 2024.
65
ACIT, Circle-1(1), Raipur Vs. Shri Bajrang Power and
Ispat Limited
ITA No. 203/RPR/2022
***SB
आदे श क त ल प अ े षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-1, Raipur (C.G.)
4. The Pr. CIT, Raipur-1 (C.G)
5. वभागीय त न ध, आयकर अपील य अ धकरण, रायपुर बच,
रायपुर / DR, ITAT, Raipur Bench, Raipur.
6. गाड फ़ाइल / Guard File.
आदे शानुसार / BY ORDER,
// True Copy //
Senior Private Secretary
आयकर अपील य अ धकरण, रायपरु / ITAT, Raipur.