Income Tax Appellate Tribunal - Agra
Rashi Buildcon (P) Ltd., Mathura vs Assessee on 29 May, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA No.407/Agra/2012
Assessment Year: 2004-05
M/s. Rashi Buildcon (Pvt.) Ltd. vs. Income Tax Officer - 3(3),
Saraswat Para, Farah, Mathura.
District Mathura.
(PAN : AAHCS 0929 E).
(Appellant) (Respondent)
Appellant by : Dr. Rakesh Gupta, C.A.
Respondent by : Shri K.K. Mishra, Jr. D.R.
Date of hearing : 29.05.2013
Date of pronouncement : 21.06.2013
ORDER
PER A.L. GEHLOT, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order dated 15.03.2012. passed by the ld. CIT(A)-I, Agra for the Assessment Year 2004-05.
2. The assessee has raised as many as 16 grounds of appeal. However, at the time of hearing the ld. Authorised Representative submitted that effectively there are two grounds of appeal. The first ground is in respect of reopening of 2 ITA No.407/Agra/2012 A.Y. 2004-05 completed assessment under section 147 of the Income Tax Act, 1961 ("the Act"
hereinafter) and another ground is in respect of addition of Rs.38,09,500/-.
3. The brief facts of the case are that return was processed under section 143(1) of the Act. Subsequently a notice under section 148 of the Act was issued on 27.03.2009 which was served on 31.03.2009. The reasons recorded for reopening is reproduced from page no.2 of the A.O.'s order as under :- (Page no.2) "Information has been received from ADIT(Inv)-1,Agra that M/s Rashi Buildcon Pvt. Ltd., Saraswatpara, Farah, Dist. Mathura has received following accommodation entries from M/s Aayushi Stock Brokers (formerly known as Cosmos Financial Services Pvt. Ltd., 38-4B/IF, Friends Centre, Sanjay Place, Agra :-
Instrument No. Instrument date Bank details Amount Clearing date 78483 10.10.2003 Canara bank, 1500000 11.10.2003 Kamla Nagar, Agra 78489 13.10.2003 ----do---- 1500000 14.10.2003 78490 14.10.2003 ----do---- 80000 15.10.2003
------------
3800000
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M/s Rashi Buildeon Pvt. Ltd., Farah (PAN AAHCS0929E) was earlier filing its return of income in the name of M/s Sagar Sopas Pvt. Ltd., Firozabad Bye pass Road, Agra with ITO 4(3), Agra. After change of name from M/s Sagar Sopas Pvt.Ltd. to M/s RAshi Buildcon Pvt., Farah, the company is filing return of income with ITO 3(3), Mathura.
M/s Rashi Buildcon Pvt. Ltd., Farah has received the accommodation entries amounting to Rs.38,00,000/- as above in the month of October, 03, i.e., pertaining to asst. year 2004-05, which appear to have escaped 3 ITA No.407/Agra/2012 A.Y. 2004-05 assessment. In view of these facts, I have reason to believe that income to the tune of accommodation entries amounting to Rs.38,00,000/- has escaped assessment for the asstt. Year 2004-05."
4. The A.O. after considering the assessee's submission noted that a survey under section 133A of the Act was carried out on 24.04.2001 in the case of M/s.
Aayushi Stock Brokers Pvt. Ltd. in which a large number of incriminating books of accounts, bills, loose papers, diaries etc. relating to Financial Years 2000-01 and 2001-02 were found and impounded. During the course of assessment, detailed enquiries were made by the A.O. from the persons who had made transactions with M/s. Aayushi Stock Brokers Pvt. Ltd. After considering the material on record, it was found by the A.O. that though the declared business of M/s. Aayushi Stock Brokers Pvt. Ltd. was that of a share broker but the said share broker was actually involved in money laundering business on a very large scale and in the grab of share booking business, the assessee was actually providing accommodation entries in the shape of bogus share money, share application money, long term capital gain and short term capital gain etc.
5. The A.O. made the addition of Rs.38,00,000/- on the basis of credit in bank entries account. The A.O. has also calculated the amount of expenditure for this purpose. The relevant finding of the A.O. is as under :- (Page no.8) 4 ITA No.407/Agra/2012 A.Y. 2004-05 "As per the facts and evidences discussed above and in totality of the circumstantial evidences apparent in this case it is evident that the alleged receipt of Rs.38,00,000/- (1500000 + 1500000 + 800000) in the bank, account no. KHCA000002939 of the assessee with Canara Bank, Kamla Nagar, Agra from M/s Aayushi Stock Brokers Pvt. Ltd. in the garb of sale consideration of shares of M/s Prash Printing & Publication (P) Ltd., M/s B.V. Finance & Leasing (P) Ltd. and M/s Anupam Tiles (P) Ltd. were sham transactions. The fact is that the assessee was requiring funds for investments and that is why he resorted to take shelter of accommodation entries buy becoming part of this racket. As such he ploughed back his own undisclosed money with the help of accommodation entry operators. The fact is that these shares were never purchased by the assessee in the financial year 2002-03, copy of bank account of M/s Aayushi Stock Broker, details of brokerage and other relevant details required during the course of assessment proceedings. All the documentary evidences brought on record and discussed above and the circumstantial evidences establish that the assessee has failed to substantiate the genuineness of the said credits.
The assessee has thus failed to discharge his onus in this regard to substantiate the genuineness of the credit entry of Rs.38,00,000/- in the bank account with Canara Bank, Agra. Hence, the amount of Rs.38,00,000/- is held to be unexplained and is ordered to be added to the income of the assessee as income from other sources. Besides that it is apparent that the entry of the alleged transactions of shares amounting to Rs.38,00,000/- would have been taken on commission @ 0.25%, the rate prevalent at that time for such entries as per the report of the Wing. Accordingly, a sum of Rs.9500/- is also added to the income of the assessee as explained expenditure within the meaning of section 69C of the I.T. Act, 1961.
I am satisfied that the assessee has concealed the income of Rs.38,00,000/- and Rs.9500/- by way of willful attempts of claiming accommodation credits entries as genuine transactions of shares and commission paid to entry provider as discussed above and is therefore, liable for the penalty under Section 271(1)(c) of the I.T. Act,1961."
5ITA No.407/Agra/2012
A.Y. 2004-05
6. Thus, the A.O. made addition of total amount of Rs.38,09,500/-.
7. Before the CIT(A) the assessee has challenged the reopening. The CIT(A), after considering the assessee's submission, confirmed the action of the A.O. for reopening of assessment under section 147 as under :- (Page nos.7 & 8) "However, facts the cases in the present appeal are different than the facts of all the case laws cited by the Ld. AR in his written submission. In present case, the fact of the case is that the original return filed by the assessee (appellant) was only processed u/s 143(1)(a) without doing any security or examining the correctness of the details of income declared by the assessee in the return of income and such acceptance of return of income u/s 143(1)(a) has been held by the Hon'ble Supreme Court in case of ACIT VS. Rajesh Jhavery Stock Brokers Pvt. Ltd. (2007) 161 TAXMAN 316 as not an assessment order and assessment proceeding for such returns can be initiated under 147, if the AO for whatever reason has reason to believe that income has escaped assessment and such reason confers jurisdiction upon him to reopen the case, if such reason provides a 'cause' or 'justification' to reopen the assessment proceeding. It has also been held by the Hon'ble Supreme Court in the above cited case that if the Assessing Officer has 'cause' justification to know or suppose that income has escaped assessment, it can be said to have reason to believe that an income had escaped assessment and the expression "reason to believe" cannot be read to mean that the assessing officer should have finally ascertained the fact by legal evidence or conclusion. The above decision of Hon'ble Supreme Court has been followed by the Hon'ble Punjab & Haryana High Court in a recent decision in case of Om International Vs. CIT (2011) 15 Taxman.com 184 in which, reopening of proceeding u/s 147 is held to be valid because return of income was earlier processed u/s 143(1)(a) only.
In the present case under appeal also, the initial return filed by the assessee was processed u/s 143(1)(a) only and information was 6 ITA No.407/Agra/2012 A.Y. 2004-05 received by the AO that bogus entries of Long Term Capital Gain was provided by certain brokers to a number of assessee in Agra in which, name of the assessee (appellant) was also included and hence, such information provided a 'cause' to the AO to reopen the case of the assessee (appellant) u/s 147 as pr the decision of Hon'ble Supreme Court in case of ACIT Vs. Rajesh Jhaveri Stock brokers Pvt. Ltd. (supra). After going through the case record, I have found that the AO has recorded the reason for escapement of income on the basis of the information provided by the Investigation Wing about receipt of Rs.38 lac shown by the assessee on account of sale of share being in fact, an accommodation entry and such information which provided trigger point to the AO is the 'cause' for the reopening of the assessment proceeding of the assessee(appellant) especially, when its earlier return was only processed u/s 143(1)(a) which is not an assessment at all and there is no clear evidence on record whether such return was not in possession of the AO. It is only imagination of Ld. AR that the AO has not seen the original return. In any way, the information about accommodation entry has nothing to do with the return of income because such accommodation entries are never declared in the return of income in the proper form. Therefore, I do not agree with the ld. AR that in absence of the return of income, the AO could not have reopened the assessment proceeding, specially when such return of income was not earlier assessed and accepted only u/s 143(1)(a). Therefore, I find that the AO is legally correct in reopening of the assessment proceeding of the assessee (appellant) u/s 147 and hence, notice issued by him u/s 148 and subsequent assessment order passed u/s 147/143(3) is also legally valid. Therefore, all grounds from Ground No.1 to 5 are dismissed."
8. The CIT(A) while dealing the issue on merit noticed that the main issue in dispute was as to how shares of three Companies i.e. M/s Pras Printing & Publishing Pvt. Ltd., M/s B.V. Financial & Leasing Pvt. Ltd. and M/s Anupam Tiles Pvt. Ltd. were acquired by the assessee and from which account of the assessee the payments were made to purchase these shares. The CIT(A) on his 7 ITA No.407/Agra/2012 A.Y. 2004-05 own enquiry found that in none of these sale and purchase bills any distinctive numbers of shares are mentioned. It was also found that shares of M/s Pras Printing & Publishing Pvt. Ltd., M/s. B.V. Finance & Leasing Pvt. Ltd and M/s. Anupam Tiles Pvt. Ltd have not been directly allotted to the assessee company. The CIT(A) after a detailed discussion observed that there should be some end to creation of such devices and these facts and circumstances clearly proves that the assessee failed to establish acquisition of any of such shares either of M/s Kedia Infotech Ltd. and M/s G.K. Consultant Ltd. or shares of three companies i.e. M/s Pras Printing & Publishing Pvt. Ltd, M/s B.V. Financial & Leasing Pvt. Ltd. and M/s Anupam Tiles Pvt. Ltd. claimed to have been sold during the year under consideration because there is no explained source of fund of Rs.38,00,000/- available with the assessee justifying acquisition of such shares. The CIT(A) held that the assessee has failed to establish the source of acquisition of shares of these three companies. The relevant finding of CIT(A) is reproduced as under :- (Page no.19) "6.5 In view of my above findings that the Ld. AR has failed to establish the source of acquisition of shares of three companies which have been claimed to be sold during the year under consideration for explaining the receipt of Rs.38 lac, I find that the AO is correct in holding that the amount of Rs.38 lac is unexplained and liable to be added as undisclosed income of the assessee(appellant) under the head income from other source and this amount is in the nature of unexplained money should be added as per provision of section 69A of the Income Tax, 1961 because if acquisition of alleged shares is not 8 ITA No.407/Agra/2012 A.Y. 2004-05 established, their sale claimed to have been made without mentioning their distinctive numbers in the sale bill cannot be said to be genuine sale of shares to explain receipt of Rs.38 lac.
Since the amount of Rs.38 lac has been found to be in the nature of an accommodation entry and such accommodation entry in the market are provided only on payment of certain commission and the O has computed a very reasonable amount of Rs.9,500/- @ 0.25% of the amount of entry. In my considered opinion such amount of commission for obtaining entry of Rs.38 lac is very much justified and hence, addition of Rs.9,500/- is also confirmed.
6.6 In view of my above decision, I confirm the addition of Rs.38 lac being unexplained money u/s 69A and also the amount of Rs.9,500/- as commission paid for obtaining the above entry to be added u/s 69C as unexplained expenditure, all the grounds taken by the appellant from Ground no.6 to 9 are dismissed."
9. In respect of reopening of the assessment under section 147 of the Act the ld. Authorised Representative submitted that the assessee challenged the reopening only on the ground that the reasons recorded were not in accordance with law. The reason recorded by the A.O. based on borrowed satisfaction. The ld. Authorised Representative submitted that in the reasons recorded, there was no reason to believe. He submitted that for reopening completed assessment under section 147, there must be reason to believe and not merely belief. The ld. Authorised Representative in support of his contention relied upon the following decisions:-
i) CIT V Batra Bhatta company 321 ITR 526 (Delhi)
ii) CIT vs. SFIL Stock Broking Ltd. 325 ITR 285 (Del)
iii) CIT vs. Smt. Paramjit Kaur, 311 ITR 38 (P&H)
iv) Sarthak Securities Co. (P) Ltd. vs. ITO, 329 ITR 110 (Del)
9
ITA No.407/Agra/2012
A.Y. 2004-05
v) Shree Rajasthan Syntex Ltd. vs. ACIT, 93 ITD 78 (Jd)
10. The ld. Authorised Representative submitted that the order of I.T.A.T., Jodhpur Bench in the case of Shree Rajasthan Syntex Pvt. Ltd, 93 ITD 78 (Jd) has been confirmed by the Hon'ble Rajasthan High Court reported in 313 ITR 231 (Raj).
11. On merit, the ld. Authorised Representative submitted that it is admitted fact that the assessee has sold shares which were purchased in earlier year. Ld. Authorised Representative in support of his contention drew our attention on page no.92 of the Paper Book where at Schedule-B investment as on 31.03.2003 has been placed. The same is reproduced as under :-
S.No. Particulars Figure as at Figure as
31.03.2003 at
31.03.2002
A. G.K. Consultants Limited 9231550/- 17572880/-
(1,12,820 shares @ 81.83 each)
B. Kedia Infotech Limited (92,000 - 2333120/-
shares @ 25.36 each)
C. Anupam Tiles Private Limited 1000000/- -
(1,00,000 shares @ 10 each)
D. Aspen Holdings Private Limited 1000000/- -
(10,000 shares @ 100 each)
E. B.V. Finance & Leasing Private 1100000/- -
Limited (11,000 shares @ 100
each)
10
ITA No.407/Agra/2012
A.Y. 2004-05
G. Prash Printing & Publications Pvt. 2000000/- -
Ltd. (4000 shares @ 500 each)
H. SIF Pipe & Metal Private Limited 250000/- -
(25,000 shares @ 10 each)
Total Investment 14581550/- 19906000/-
12. From the above investment schedule, the ld. Authorised Representative pointed out that the assessee has clearly shown the investment in three companies namely M/s. Anupam Tiles Pvt. Ltd. Rs.10,00,000/-, M/s. B.V. Finance & Leasing Pvt. Ltd. Rs.11,00,000/- out of which the assessee has sold 8,00,000 shares & M/s. Prash Printing & Publications Pvt. Ltd. Rs.20,00,000/- Ld. Authorised Representative further submitted that the assessee has submitted confirmation from M/s Aayushi Stock Brokers Pvt. Ltd. in support of the fact that the assessee received amount of Rs.38,00,000/- against the sale of shares through three different cheques of Rs.15,00,000/-, Rs.15,00,000/- and Rs.8,00,000/-, all are dated 10th October, 2003. The ld. Authorised Representative further referred page no.84 of the assessee's Paper Book where copy of Bank account of broker has been placed and submitted that the payment received to the assessee through cheques. Ld. Authorised Representative while referring page no.7 of AO's order submitted that survey under section 133A of the Act was carried out in case of Aayushi Stock Brokers Pvt. Ltd. on 24.04.2001 whereas the case of the assessee under consideration is for A.Y. 2004-05. The ld. Authorised Representative referred 11 ITA No.407/Agra/2012 A.Y. 2004-05 page no.76 of the Paper Book where copy of assessment order in case of Aayushi Stock Brokers Pvt. Ltd. has been placed where no such amount has been taken in case of Aayushi Stock Brokers Pvt. Ltd. Ld. Authorised Representative submitted that in this regard burden is on the Revenue. He relied upon the judgment of Hon'ble Delhi High Court in the case of CIT vs. Pradeep Kumar Gupta, 303 ITR 95 (Del). The ld. Authorise Representative further submitted that the A.O. made out the case that the amount received on sale of shares was not genuine whereas the CIT(A) has given finding that the purchase was not genuine, but in fact, the shares were purchased in last year and the same has been shown in the Balance Sheet of the assessee.
13. The ld. Departmental Representative, on the other hand, relied upon the orders of A.O. and CIT(A) and submitted that in such circumstances, the reasons recorded are in accordance with law and the A.O. has rightly reopened the assessment. The ld. Departmental Representative in his contention relied upon the following judgment:-
i) ITO vs. Purushottam Das Bangur & Another, 224 ITR 362 (SC)
ii) Consolidated Photo & Finvest Limited vs. ACIT, 281 ITR 394 (Del)
14. On merit, the ld. Departmental Representative relied upon the orders of Revenue Authorities and relied upon judgement of Hon'ble Punjab & Haryana 12 ITA No.407/Agra/2012 A.Y. 2004-05 High Court in the case of Balbir Chand Maini vs. CIT & Another, 340 ITR 161 (P&H). He has also relied upon the order of I.T.A.T. in the case of ITO vs. Shri Sayendra Sharma in ITA No.584/Agr/2008 vide order dated 25.06.2010.
15. We have heard the ld. Representatives of the parties, records perused and gone through decisions cited. Since the first effective ground of appeal is in respect of section 147 of the Act, to examine the issue, we would like to reproduce the relevant section 147 of the Act as under :-
" [Income escaping assessment.
147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any 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 facts59 necessary for his assessment, for that assessment year:
[Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject- matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] 13 ITA No.407/Agra/2012 A.Y. 2004-05 Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :--
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(c) where an assessment has been made, but--
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.]"
16. To appreciate the issue, we would like to refer certain judicial pronouncements which are as under:-
Phool Chnd Bajarang Lal And Another vs. ITO, 203 ITR 456 (SC) -- In this judgment it was held that from the plain phraseology of the sections of the Act, it appears that two conditions precedent which are required to be satisfied before an Income-tax Officer can acquire jurisdiction to proceed under clause (a) of section 14 ITA No.407/Agra/2012 A.Y. 2004-05 147 read with sections 148 and 149 of the Act, beyond the period of four years but within a period of eight years from the end of the relevant year, are : (a) that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to tax had either been under assessed or had escaped assessment and (b) that the Income-tax Officer must have reason to believe that such escapement or underassessment was occasioned by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.
Both these conditions must co-exist in order to confer jurisdiction on the Income- tax Officer. The Income-tax Officer is obliged, before initiating proceedings under section 148 of the Act, to record the reasons for the formation of his belief to reopen the assessment.
S.P. Agarwalla alias Sukhdeo Prasad Agarwalla vs. ITO [1983] 140 ITR 1010 (Cal.) - In this judgment it was held that a mere confessional statement by a third party (who is a lender of the assessee) that he was a mere name-lender and that all his transactions of loans were bogus, without naming the assessee as one who had obtained bogus loans, would not be sufficient to hold that the assessee's income had escaped assessment 15 ITA No.407/Agra/2012 A.Y. 2004-05 Purity Techtextile Pvt. Ltd. vs. ACIT 325 ITR 459 (Bomb) - In this judgment it was held that Validity of exercise of powers to re-open an assessment has to be decided with reference to reasons recorded while re-opening an assessment - Where the AO had no reason to believe that income had escaped assessment, reasons recorded while re-opening the assessment did not justify the exercise of the power u/s 148..
Dass Frirnds Builders P. Ltd. vs. DCIT(2006) 280 ITR 77(All) - In this judgment it was held that under section 147 of IT Act,1961, the words are "reason to believe" and not "reason to suspect" The belief entertained by the AAO must not be arbitrary or rational. It must be in good faith and not a mere pretence, should have a rational connection and relevant bearing on the formation of the belief, and should not be extraneous or irrelevant. The material should be relating to the particular year, which the assessment is sought to be reopened. It is not any and every material, however vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of income. Johri Lal (HUF) vs. CIT(1973 ) 88 ITR 439 (SC) - In this judgment it was held that when there is no material to show that the officer formed belief regarding 16 ITA No.407/Agra/2012 A.Y. 2004-05 escapement of income or recorded his reasons and obtained sanction for proceeding under s. 34(1)(a), whether the Tribunal can justify proceedings under s. 34(1)(a)? The formation of the belief by the Income-tax Officer before invoking s. 34(1)(a) is a condition precedent. The fulfillment of this condition is not a mere formality, it is mandatory. Therefore, the failure to fulfill that condition would vitiate the entire proceedings.
Joti Prasad vs. State of Haryana 1993 AIR 1167 (SC) - The Hon'ble Supreme Court while dealing with the meaning of expression" reason to believe" in section 26 Of the Indian Penal Code held that reason to believe is not the same as suspicion and a person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned.
ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) - In this judgment it was held that the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his 17 ITA No.407/Agra/2012 A.Y. 2004-05 belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched,. which would warrant the formation of the belief relating to escapement of the income of the assessee. from assessment. The fact that the words "definite information"
which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.
The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that 18 ITA No.407/Agra/2012 A.Y. 2004-05 income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied.
Ganga Saran and Sons P. Ltd. vs. ITO(1981) 130 ITR 1(SC) - In this judgment it was held that It is well settled as a result of several decisions of this court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under S. 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction. The important words under s. 147(a) are " has reason to believe " and these words are stronger than the words " is satisfied ". The belief entertained by the ITO must not be arbitrary or irrational. It must be 19 ITA No.407/Agra/2012 A.Y. 2004-05 reasonable or in other words it must be based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a hearing on the matters in regard to which he is required to entertain the belief before he can issue notice under S. 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that,. on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped .( See also.(2004) 271 ITR 113 (SC) Indra Prastha Chemicals P. Ltd v CIT) ITO vs. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239 (SC)/Raymond Woollen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC) - In these judgments it were held that Belief should not be arbitrary or irrational but based on relevant and material reasons - The important words under section 147 are 'has reason to believe' and these words are stronger than the words 'is satisfied'. The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court cannot of course investigate into the adequacy or sufficiency 20 ITA No.407/Agra/2012 A.Y. 2004-05 of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147.
S. Narayanappa vs. CIT [1967] 63 ITR 219 (SC) - In this judgment it was held that Belief must be in good faith, and cannot merely be pretence - The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith; it cannot merely be pretence - Sheo Nath Singh vs. AAC [1971] 82 ITR 147 (SC) - In this judgment it was held that Suspicion, gossip or rumour should not form the basis - The words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds, and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section Extraneous and irrelevant material should not be basis for conclusion 21 ITA No.407/Agra/2012 A.Y. 2004-05 CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC); ITO vs. Lakshmani Mewal Das [1976] 103 ITR 437 (SC). In these judgments it were held that there should be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact.
Commissioner of Income-tax, Delhi-XI vs. Batra Bhatta Company, 321 ITR 526 (Delhi). The brief facts of this case are that The assessee-company had sold its agricultural land and claimed exemption under section 2(14) on the ground that the agricultural land sold by it was not a capital asset and, consequently, no capital gains accrued in its hands. Its return was processed under section 143(1)(a). Subsequently, the Assessing Officer reopened the assessment on the ground that the claim of assessee, that the land was agricultural in nature and, hence, not a capital asset, required much deeper scrutiny. Thereafter, the Assessing Officer completed the assessment holding that the land sold by the assessee was a capital asset within the meaning of section 2(14) and, accordingly, determined long-term capital gain accrued to the assessee. On appeal, the Commissioner (Appeals) held that merely by saying that the issue required much deeper scrutiny, no belief could be said to have been formed entitling the assessing authority to issue a notice under section 148 in order to initiate reassessment proceedings; and that no new fact or 22 ITA No.407/Agra/2012 A.Y. 2004-05 any other material had been brought to the file from the date on which the earlier return had been processed to the date when the reasons were recorded and, therefore, the assuming of jurisdiction by the Assessing Officer under section 147 and the issuance of notice under section 148 were illegal. Therefore, the Commissioner (Appeals) annulled the assessment. The Tribunal upheld the order of the Commissioner (Appeals).On appeal the court held that a reading of the reasons recorded did not disclose that the Assessing Officer, in fact, had reasons to believe that any income had escaped assessment. It is not just the belief of the Assessing Officer that is material, but such a belief must be based on certain reasons. There was no indication as to on what information or on what material the Assessing Officer had harboured the belief that the claim of the assessee required deeper scrutiny. In fact, no new material was on record after the filing of the return till the issuance of notice under section 147. The proceedings under section 147 are not to be invoked at the mere whim and fancy of the Assessing Officer. It has to be seen in every case as to whether the invocation is arbitrary or reasonable one Merely because the Assessing Officer felt that the issue required 'much deeper scrutiny', it was not enough ground for invoking section 147. It is not belief per se that is a pre-condition for invoking section 147, but a belief founded on reasons. The expression used in section 147 is 'If the Assessing Officer has reason to believe' and not 'If the Assessing Officer believes'. There must be some basis 23 ITA No.407/Agra/2012 A.Y. 2004-05 upon which the belief can be built. It does not matter whether that belief is ultimately proved right or wrong, but there must be some material upon which such a belief can be founded. The court observed that in the instant case, both the Commissioner (Appeals) as well as the Tribunal had returned the concurrent finding of fact that there was no material before the Assessing Officer on the basis of which he could have maintained a belief that the agricultural land sold by the assessee was a capital asset within the meaning of section 2(14 ). In fact, the Assessing Officer did not even have such a belief. The expression 'requires much deeper scrutiny' indicates that the Assessing Officer was embarking on mere exploration without any belief, much less a belief based on reasons and materials. The court held that consequently, there was no error in the decision of the Tribunal. No substantial question of law arose for consideration of the High Court. The appeal was dismissed.
Sarthak Securities Co. (P.) Ltd. vs. Income-tax Officer, 329 ITR 110 (Del). The brief facts of this case were that the assessee had allotted certain shares to four companies on 31-3-2003 in accordance with its memorandum and articles of association. Said companies were active as per the records of the Registrar of Companies, were assessed to income-tax and had been allotted Permanent Account Number. The return filed by the assessee for the relevant assessment year was 24 ITA No.407/Agra/2012 A.Y. 2004-05 processed under section 143(1). However, thereafter, the Assessing Officer issued it a notice under section 148 on the ground that on the basis of information received from the investigation wing, he had reason to believe that the assessee had received accommodation entries from four companies as share application money or as unsecured loan. The assessee filed objections stating that the reasons did not disclose the basis on which the Addl. DIT had termed the receipt of money by the assessee from four incorporated bodies towards share application money as bogus accommodation entries; that blind acceptance of the information furnished by the Addl. DIT could not form reasons leading to the belief by the Assessing Officer of any escapement of income and the Assessing Officer had to independently apply his mind to the information received from the Addl. DIT and arrive at the belief that income had escaped assessment; and that even as per the alleged information provided by the Addl. DIT himself, all the four companies had bank accounts and payments were made by them to the assessee-company through banking channels. The Assessing Officer rejected the assessee's objections. On writ, the court held as under :-
"15. On scanning of the anatomy of the aforesaid provision, it is clear as crystal that the formation of belief is a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer is required to form an opinion before he proceeds to issue a notice. The validity of reasons, which are supposed to sustain the formation of an opinion, is challengeable. The reasons to believe are required to be recorded by the Assessing Officer.25 ITA No.407/Agra/2012
A.Y. 2004-05
16. In this regard, it is apt to reproduce a passage from N.D. Bhatt, IAC v. I.B.M. World Trade Corpn. [1995] 216 ITR 811 (Bom.) :--
"It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reason so recorded can be looked at for sustaining or setting aside a notice issued under section 148. In the case of Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714, a Division Bench of the Calcutta High Court has held that where a notice issued under section 148 of the Income-tax Act, 1961, after obtaining the sanction of the Commissioner of Income-tax is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the Commissioner of Income-tax has been obtained. The Income-tax Department cannot rely on any other material apart from the report."
17. In Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332 1 (Bom.), a Division Bench has opined thus :--
". . . the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record.26 ITA No.407/Agra/2012
A.Y. 2004-05 He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the court, on the strength of affidavit or oral submissions advanced."
[Emphasis supplied]
18. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 5001 (SC), it has been ruled thus :--
"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction." [Emphasis supplied] 27 ITA No.407/Agra/2012 A.Y. 2004-05
19. In this context, we may refer with profit to a Division Bench decision of this Court in SFIL Stock Broking Ltd.'s case (supra) wherein the Bench was dealing with the validity of the proceedings under section 147 of the Act. The Bench reproduced the initial issuance of notice and thereafter referred to the reasons for issue of notice under section 148 which was provided to the assessee. Thereafter, the Bench referred to the decisions in CIT v. Atul Jain [2008] 299 ITR 383 (Delhi), Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra), Jay Bharat Maruti Ltd. v. CIT [2009] 180 Taxman 192 (Delhi) and CIT v. Batra Bhatta Co. [2008] 174 Taxman 444 (Delhi) and eventually held thus :--
"9. In the present case, we find that the first sentence of the so-called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income-tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income-tax (Investigation) to issue a notice under section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. These three sentences are followed by the following sentence, which is the concluding portion of the so-called reasons :--
"Thus, I have sufficient information in my possession to issue notice under section 148 in the case of M/s. SFIL Stock Broking Ltd. on the basis of reasons recorded as above."
10. From the above, it is clear that the Assessing Officer referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under section 148. We are afraid that these cannot be the reasons for proceeding under section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on facts. 28 ITA No.407/Agra/2012
A.Y. 2004-05 The law is well-settled. There is no substantial question of law which arises for our consideration." [Emphasis supplied]
20. On a perusal of the aforesaid decisions, it is graphically clear that once the ingredients of section 147 are fulfilled, the Assessing Officer is competent in law to initiate the proceedings under section 147. To put it differently, the conditions precedent as engrafted in the said provision are to be satisfied.
21. At this juncture, it is profitable to refer to the authority in GNK Driveshafts (India) Ltd. v. ITO [2002] 125 Taxman 963 (SC) wherein their Lordships of the Apex Court have held thus :--
"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 notice 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 notice 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."
22. In Lovely Exports (P.) Ltd.'s case (supra), the Apex Court held thus :--
"2. Can the amount of share money be regarded as undisclosed income under section 68 of Income-tax Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment."29 ITA No.407/Agra/2012
A.Y. 2004-05
23. The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the Assessing Officer was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the Assessing Officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income, but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P.) Ltd.'s case (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee-company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted.
24. Resultantly, the initiation of proceedings under section 147 and issuance of notice under section 148 of the Act are hereby quashed. In the facts and circumstances of the case, there shall be no order as to costs"
Commissioner of Income-tax vs. Sfil Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) - In this case after the completion of the assessee's assessment the Deputy Director of Income- tax (Inv.) informed the Assessing Officer of the assessee that during the course of investigation, one SG, proprietor of R.K., had stated on oath that the transactions through certain bank account were only paper transactions in 30 ITA No.407/Agra/2012 A.Y. 2004-05 which the party was intending to take bills paid in cash and issue cheques/drafts showing the said amounts as sale of shares. It was further informed that the assessee was neither a share broker nor a member of any stock exchange and that it was doing the work of giving entries. Further, information was given that the entry of Rs.20,70,000 in account No. 003097 dated 28-2-1998 and 1-3-1998 was nothing but entry taken by paying cash. Thereafter, on the basis of the aforesaid information, a notice under section 148 was issued by the Assessing Officer to the assessee, which was allegedly the beneficiary of the bogus claim of long-term capital gain shown on sale/purchase of shares. Accordingly, reassessment was completed The court held that, in the present case, the first sentence of the so-
called reasons recorded by the Assessing Officer was mere information received from the Deputy Director of Income-tax (Inv.). The second sentence was a direction given by the very same Deputy Director of Income-tax (Inv.) to issue a notice under section 148 and the third sentence again comprised a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. It was clear that the Assessing Officer referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under section 148. These could not be the reasons for proceeding under section 147/148. From the so-called reasons, it was not at all discernible as to whether the Assessing Officer had 31 ITA No.407/Agra/2012 A.Y. 2004-05 applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. The court held that Therefore, the reassessment was not valid.
17. In the light of above back ground of discussions, we noticed that one of the conditions which must be satisfied before the A.O. can assume jurisdiction under section 147 of the Act that, he must have reason to believe that the income of the assessee has escaped assessment. If this condition is not fulfilled, the notice issued by the A.O. would be without jurisdiction. The important words under section 147 are "has reason to believe" and these words are stronger than the words "is satisfied ". The belief entertained by the A.O. must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the A.O. in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a hearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 148. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the A.O. could not have reason to believe 32 ITA No.407/Agra/2012 A.Y. 2004-05 that any part of the income of the assessee had escaped assessment under that circumstances the notice issued by him would be liable to be struck down as invalid.
18. The basis for initiating the reassessment proceedings is to be judged solely on the basis of reasons recorded by the Assessing Officer and the material and information referred to by him in the reasons for initiating such action. It is settled law that Assessing Officer cannot initiate the reassessment proceedings merely on the basis of suspicion or for the purpose of making roving and fishy inquires. The Assessing Officer cannot support the reopening of the assessment by collecting the material or by making inquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the Assessing Officer initiated action u/s 147 of the Act.
19. The expression "reason to believe" used in section 147 of the Act has special significance. It does not mean 'reason to suspect'. It is reasonable belief of a honest and reasonable person based upon reasonable grounds. The expression used is not 'satisfied'. The 'reason to believe' requires higher level of evidence and material than the requirement of 'satisfaction' of the Assessing Officer which 33 ITA No.407/Agra/2012 A.Y. 2004-05 essentially means the material which comes to the notice of Assessing Officer must be a definite, specific and direct and not unspecific or vague. This issue was considered by the Hon'ble Supreme Court in the case of Income-tax Officer, I Ward Distict VI Calcutta vs.. Lakhmani Mewal Dass, 103 ITR 437 where the Apex Court observed that "reason to believe" does not mean "reason to suspect". The reasons for the formation of the belief contemplated u/s 147 of the Act necessary for reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee. The apex Court further observed that it was not every material, howsoever vague and indefinite or distant, remote and far fetched, which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. Again this issue was considered by the Hon'ble Supreme Court in the case of Ganga Saran & Sons (P.) Ltd. vs. ITO reported in 130 ITR 1, where the apex court observed that expression "reason to believe" was stronger than the words 'satisfied'. The belief entertained by the A.O. must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. If there is no rational and intelligible 34 ITA No.407/Agra/2012 A.Y. 2004-05 nexus between the reasons and belief, the reopening of the assessment would be without jurisdiction and bad in law.
20. In the light of above discussions, if we consider the facts of the case under consideration, we noticed that reasons recorded in the case under consideration and reasons recoded in the case of Commissioner of Income-tax vs. Sfil Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) are similar. In the case under consideration, information has been received from ADIT (Inv)-1, Agra that M/s Rashi Buildcon Pvt. Ltd., Saraswatpara, Farah, Dist. Mathura has certain accommodation entries from M/s Aayushi Stock Brokers (formerly known as Cosmos Financial Services Pvt. Ltd., 38-4B/IF, Friends Centre, Sanjay Place, Agra.M/s Rashi Buildcon Pvt. Ltd., Farah (PAN AAHCS0929E)) was earlier filing its return of income in the name of M/s Sagar Sopas Pvt. Ltd., Firozabad Bye pass Road, Agra with ITO 4(3), Agra. After change of name from M/s Sagar Sopas Pvt. Ltd. to M/s Rashi Buildcon Pvt., Farah, the company is filing return of income with ITO 3(3), Mathura. It was further informed that M/s Rashi Buildcon Pvt. Ltd., Farah has received the accommodation entries amounting to Rs.38,00,000/- as above in the month of October, 03, i.e., pertaining to asst. year 2004-05, which appear to have escaped assessment. In view of these facts the A.O. has reason to believe that income to the tune of accommodation entries amounting to Rs.38,00,000/- has 35 ITA No.407/Agra/2012 A.Y. 2004-05 escaped assessment for the Assessment Year 2004-05. Thus, it is clear that the Assessing Officer referred to the information and the directions as 'reasons' on the basis of which he was proceeding to issue notice under section 148. Under the circumstances, these could not be the reasons for proceeding under section 147/148 of the Act. From the so-called reasons, it was not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Even before us, the Revenue failed to point out such material. As discussed above that one of the conditions which must be satisfied before the A.O. can assume jurisdiction under section 147 of the Act that, he must have reason to believe that the income of the assessee has escaped assessment. If this condition is not fulfilled, the notice issued by the A.O. would be without jurisdiction. In the case under consideration, the A.O. issued notice under section 148 of the Act without jurisdiction. In the light of the fact, the order of the A.O. is liable to be quashed, we do accordingly by allowing ground of appeal of the assessee on the issue.
21. As regards merit of the case, we find that under similar facts and circumstances the I.T.A.T., Agra Bench has taken a view in favour of the assessee in the case of Shri Ashok Kumar Lavaniya, Prop. Bajrang Automobiles, Agra in 36 ITA No.407/Agra/2012 A.Y. 2004-05 ITA No.112/Agr/2004 vide order dated 30.05.2008. The same has been followed by I.T.A.T. Agra Bench in case of Shri Baijnath Agarwal, Prop. M/s. Baijnath Scrap Centre in ITA No.133/Agr/2005 vide order dated 13.04.2010. It has also been noticed that on identical set of facts the I.T.A.T., Allahabad Bench in ITA Nos.84 & 85/Alld/2013 in the case of Shri Ashok Kumar Arora vs. ITO vide order dated 13.05.2013 has decided the issue as under :-
"13. We have heard the ld. Representatives of the parties and records perused. The important words under section 147 are 'has reason to believe' and these words are stronger than the words 'is satisfied'. The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court cannot of course investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147 as held in the case of Ganga Saran & Sons (P) Ltd vs. ITO [1981] 130 ITR 1 (SC), ITO vs. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239 (SC)/Raymond Woolen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC).
13.1 The Hon'ble Supreme Court in the case of S. Narayanappa vs. CIT [1976] 63 ITR 219 (SC) has held that the expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith; it cannot merely be a pretence.
13.2 The Hon'ble Supreme Court in the case of Sheo Nath Singh vs. AAC [1971] 82 ITR 147 (SC) held that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds, and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section.37 ITA No.407/Agra/2012
A.Y. 2004-05 13.3 On perusal of reasons recorded, we find that the reasons recorded are not in accordance with law as it was simply on the basis of assumption of the A.O. In the reasons recorded, it is stated that "share transactions on which long term capital gain has been claimed do not appear to be genuine". This supports to the fact that the reopening has been made on the basis of presumption and not on reasons to believe, thus, no reasons recorded are in accordance with law. The reasons do not reflect that the A.O. has reason to believe that there is an escapement of income. Once it is found that the reasons are not in accordance with law, the reopening is bad in law. We hold accordingly.
14. As regards the merit of the case, we find that the case of the assessee is covered by various orders on identical set of facts. In the case of Dalpat Singh Chaudhary vs. ACIT (supra), the I.T.A.T., Jodhpur Bench in a case where shares were sold through M/s. M.K.M. Finsec Pvt. Ltd., the I.T.A.T., Jodhpur Bench has decided the issue in favour of the assessee. The relevant finding is reproduced as under :-
"11. We have heard rival submissions and considered them carefully. After considering the submissions and perusing other material on record, we find that assessee deserves to succeed in his appeal. It is seen that assessee purchased shares of M/s Elite Capital & Management Services (P) Ltd., 61,700 shares for a consideration of Rs.92,550. These shares were purchased between 10th April, 2000 to 17th May, 2000. The payments were made in cash, copy of ledger account is placed at p. 228. The copy of certificate confirming the sale of shares to assessee is placed at p. 229 of the paper book. Copy of account of M/s Elite Capital & Management Services (P) Ltd. certifying that 61,700 shares have been demated in the name of the assessee is placed at p. 320 of the paper book. Thereafter the assessee sold shares numbering 20,000 on 28th Aug., 2001 through M/s MKM Finse (P) Ltd., copy of which is placed at p. 231 of the paper book. Thereafter assessee sold further 41,700 shares, copy of the same is placed at p. 232. These shares were sold vide bill dt. 24th Aug., 2001. Payments have been received through account payee cheque. The certificate from M/s Stock Holding Corporation Ltd. through whom the shares are 38 ITA No.407/Agra/2012 A.Y. 2004-05 delivered is placed at pp. 235 and 236 of the paper book. After going through details, it is clearly seen that assessee purchased shares in earlier year. They were shown in the balance sheet which was filed along with the return of income. The payments were made through books of account which has not been doubted. The shares belong to a listed company which is also not in doubt. The company itself has issued certificate that all these shares have been demated, copy of the same is placed on record. Once the purchase of shares is not doubted, then in our considered view, the sale of same shares should not have been doubted. If assessee has invested his own money under the garb of fictitious sale of shares then where the actual shares purchased by assessee which were duly demated have gone. This fact has not been considered either by AO or by learned CIT(A) who originally rejected the claim of the assessee. When this fact was brought to the notice of learned CIT(A) by filing miscellaneous application under section 154 that the assessee has purchased the shares of listed company and the AO has not made any enquiry, rather he has noted wrong fact, then learned CIT(A) realized this mistake and rectified his order under section 154 by allowing the claim of assessee. Only on the basis of statement of Shri Mahesh Batra, the AO has drawn adverse inference in case of assessee. It may be true that Shri Mahesh Batra may have indulged in issuing accommodation entries but it can also be possible that Shri Mahesh Batra may also be doing genuine transaction. It is not a case that he is only providing bogus entries. Statement of Shri Mahesh Batra is not available on record. The learned counsel of the assessee has stated that the statement of Shri Mahesh Batra has not been provided to them. The Department has not filed copy of the statement of Shri Batra. Therefore, in our view, since the purchase of shares is genuine, the sale of the same shares should have been treated as genuine. Similar issue came before the various Benches of the Tribunal and time and again the Benches have decided that without bringing any cogent material on record, the claim of assessee cannot be denied in regard to sale of shares."39 ITA No.407/Agra/2012
A.Y. 2004-05 14.1 The Hon'ble Delhi High Court in the case of CIT vs. Vishal Holding & Capital Pvt. Ltd., 200 Taxman 186 (Delhi) (Mag.), on identical set of facts has held as under :-
"6. We are of the view that the assessee had produced copies of accounts, bills and contract notes issued by M/s. MKM Finsec Pvt. Ltd. and had been maintaining books of account as per Companies Act. The assessee had also demonstrated the purchase and sale of shares over a period of time as seen from the balance sheet/s. In our opinion, the AO has simply acted on the information received from the Investigation Wing without verifying the details furnished by the assessee. The assessee has also produced best possible evidence to support its claim. Consequently the addition made by the AO cannot be sustained."
14.2 Hon'ble Allahabad High Court in the case of CIT vs. Sudeep Goenka in Income Tax Appeal No.468 of 2009, judgment dated 03.01.2013, held as under :-
"7. We have considered the arguments of the counsel for the parties. The CIT(A) after considering entire evidence of record found that purchase and sale transactions were proved. He further found that payment of the sale price was made to the assessee through bank channel and not in cash as such the transactions are actual transactions and not a fictitious accommodation entries. The sale transactions cannot be disbelieved only for the reason that the assessee could not give the identity of the purchasers. Arguments of the Senior Standing Counsel in this respect is not liable to be accepted. Similar controversy has been raised in the case of Shri Akash Goenka which was decided by a common judgment by the Tribunal. The Revenue filed Income Tax Appeal (Defective) No. 261 of 2009 in the case of Shri Akash Goenka which has been dismissed by this Court by judgment dated 18.11.2010 and thus judgment of the Tribunal has been upheld. The Senior Standing Counsel could not point out any distinguishing feature for not following the aforesaid judgement."40 ITA No.407/Agra/2012
A.Y. 2004-05 14.3 The I.T.A.T., Agra Bench in the case of ITO vs. Shri Rakesh Khetrapal in ITA No.226/Agra/2010, order dated 18.01.2013, has decided the issue in favour of the assessee. The relevant finding is reproduced as under :-
"4. We have considered the rival submissions and the material on record. The facts of the case of the assessee are similar to that of departmental appeal in the case of Ram Prakash Garg in ITA No. 237/2011 for the assessment year 2001-02, in which ITAT, Agra Bench dismissed the departmental appeal vide order of the even date, holding as under :
"5. We have considered the rival submissions and the material on record and do not find any justification to interfere with the order of the ld. CIT(A) in deleting the addition. The AO, on the facts of the case found that similar issue have been considered in the case of HUF of assessee and other family members Shri Rajesh Kumar Garg and Smt. Seema Garg who have also shown long- term capital gains of the similar nature of the same broker and of the same scrip in the assessment year under appeal, which were found to be bogus by the AO and additions have been confirmed by the ld. CIT(A) as well. However, the ld. Counsel for the assessee filed copy of the Tribunal order in their cases dated 31.03.2009 in which the ITAT, Agra Bench deleted the similar additions and no reliance was placed on the statement of Shri Mukesh Gupta and his wife. The order of the Tribunal has been confirmed by the Hon'ble Allahabad High Court vide order dated 15.02.2011. In the aforesaid decision, it was found that those assessees had obtained shares in preferential allotment directly from the companies and the purchases declared in the balance sheet of earlier years, which were accepted by the department. Shares were sold to the registered stock brokers and stock exchange. Brokers have confirmed that money was given through draft. Hon'ble Allahabad High Court, therefore, on consideration of these relevant considerations, confirmed the findings of the Tribunal that the sales are not sham transactions. According to the 41 ITA No.407/Agra/2012 A.Y. 2004-05 AO, the facts of these cases are identical to the case of the assessee, therefore, when in the identical cases of the family members of the assessee, additions have been deleted by the Tribunal and the order of the Tribunal have been confirmed by Allahabad High Court, therefore, on such reason itself, the departmental appeal is liable to be dismissed. Further, the assessee has filed proper evidences before the authorities below to show that shares of M/s. B.T. Technet Ltd. were allotted directly by this company @ 10/- per share and consideration was transferred through banking channel. All the allotment letters, drafts, certificates of the company are filed in the paper boo;. The profile of M/s. B.T. Technet is also filed in the paper book to show that it was a genuine company. The same were shown in the books of earlier years. Therefore, the purchase of shares and source of purchase could not have been disputed. Same shares were sold to the broker, M/s. CMS Securities Ltd. Delhi and all the contract notes, sale consideration through drafts have been filed in the paper book to support the contention of the assessee. The sale rate of Rs.114/- per share is also supported by the information received from M.P. Stock Exchange. Whatever statements of CMS Securities Ltd. through their directors were recorded were never confronted to the assessee. Therefore, the same cannot be read in evidence, which is also substantiated by the decision of Hon'ble Supreme Court in the case of Kishan Chand Chelaram vs. CIT, 125 ITR 713. Considering the totality of facts and circumstances, in the light of the decision of the jurisdictional Allahabad High Court in the group cases above, we do not find any justification to interfere with the order of the ld. CIT(A) in deleting the addition. The assessee on the basis of evidence and material on record has been able to prove that he has received entire sale consideration of shares through known sources. Therefore, no addition u/s. 68 could be made against the assessee. As a result, the departmental appeal fails and is dismissed."42 ITA No.407/Agra/2012
A.Y. 2004-05 4.1 Considering the facts of the case in the light of above order of the Tribunal and other decisions referred by the ld. Counsel for the assessee, we are of the view that the departmental appeal has no merit and is liable to be dismissed. The assessee purchased shares of M/s. Capital Trade Links Ltd. in earlier years directly from the company and consideration received is proved and the purchases made in earlier year have not been disputed by the Revenue Authorities. The assessee sold shares through two brokers and their copies of sale bills and contract notes are filed and sale consideration of share is given to the assessee through banking channel and the rates at which the shares are transferred are similar as approved by M.P. Stock Exchange. The ld. CIT(A) asked the Income-tax Authorities to produce all relevant evidences and material before him to prove that the assessee has accepted bogus accommodation entry, but no material was produced before him in this regard. Therefore, the ld. CIT(A) on proper appreciation of facts and material on record rightly deleted the addition. Further, whatever material was collected at the back of the assessee was not forwarded to the assessee. Therefore, same cannot be read in evidence against the assessee. Since, it is departmental appeal and no material is produced before us to rebut the findings of the ld. CIT(A), therefore, we do not find any justification to interfere with the order of the ld. CIT(A) in deleting the addition. In the result, the departmental appeal fails and is dismissed."
14.4 In the case under consideration, we find that the assessee has furnished the relevant details like contract notes, delivery notes, sale of shares and purchase bill etc. and in the light of the fact, we find that the cases under consideration are squarely covered by the above orders including the order of I.T.A.T., Agra Bench in ITA No.226/Agra/2010 in the case of ITO vs. Shri Rakesh Khetrapal (supra). The judgement in the case of Areva T&D, SA vs. Asstt. Director of Income Tax & Others, 349 ITR 127 (Delhi) relied upon by the ld. Departmental Representative is distinguishable on facts. We follow the above order of I.T.A.T., Agra Bench and other orders. Thus, addition of Rs.9,36,250/- for A.Y. 2002-03 in the case of Shri Ashok Kumar Arora is deleted."
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22. Since on identical facts the issue has been decided in favor of the assessee, to maintain consistency, we follow the above order of I.T.A.T. and in view of that we delete the addition of Rs.38,09,500/- made by the A.O., being the addition of Rs.38,00,000/- on account of shares and Rs.9,500/- on account of estimated commission. In view of principle of consistency which we have followed, the decisions cited by the ld. D.R. and Revenue does not help them.
23. Further, the judgements relied upon by the ld. Departmental Representative are distinguishable on facts as those judgements have been decided by the Court considering the facts of respective cases which are not similar to the facts of the case under consideration. The case under consideration has been decided after detailed discussions on the issue and after considering the facts of the case.
24. Other grounds relating to charging of interest which are consequential in nature.
25. In the result, appeal of the assessee is allowed.
(Order pronounced in the open Court)
Sd/- Sd/-
(BHAVNESH SAINI) (A.L. GEHLOT)
Judicial Member Accountant Member
44
ITA No.407/Agra/2012
A.Y. 2004-05
PBN/*
Copy of the order forwarded to:
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2. Respondent
3. CIT (Appeals) concerned
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5. D.R., ITAT, Agra Bench, Agra
6. Guard File.
By Order
Sr. Private Secretary
Income-tax Appellate Tribunal, Agra
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