Income Tax Appellate Tribunal - Delhi
M/S. Basesar Properties Pvt. Ltd., ... vs Ito, Hisar on 18 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'B' NEW DELHI
BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER
&
SHRI K.N. CHARY, JUDICIAL MEMBER
ITA Nos.-5750 & 5751/Del/2016
(Assessment Years: 2007-08 & 2008-09)
Basesar Properties Pvt. Ltd. vs ITO
466, 1st Floor, Auto Market, Ward 1
Hisar. Hisar
AADCB0554C
Assessee by Sh. K. Sampath, Adv.
Revenue by Sh. Anshu Prakash, Sr. DR
Date of Hearing 03.08.2017
Date of Pronouncement 18.08.2017
ORDER
PER SHRI K.N. CHARY, J.M.
These two appeals are filed by the assessee against the orders dated 19.09.2016 and 20.09.2016 in appeal nos.
204/HSR/TFR/14-15 and 205/HSR/TFR/14-15 on the file of the Ld. Commissioner of Income Tax (Appeals)-Hisar (hereinafter for short called as "Ld. CIT(A)"). Since the facts and the grounds for adjudication involved in these two appeals are identical. It is just and convenient to dispose them off by way of a common order.
2ITA Nos. 5750 & 5751/Del/2016
2. Briefly stated facts are that the returns of income of the assessee for the assessment years 2007-08 and 2008-09 were processed u/s 143(1) of the Income Tax Act (hereinafter for short called as the 'Act') but subsequently pursuant to a search and survey action conducted by the Investigation Wing of the Department in the case of one Sh. Surendra Kumar Jain and Sh.
Virendra Kumar Jain on 14.09.2010 and post search investigation, the concluded assessments of the assessee were reopened and after obtaining documentary evidence from the assessee regarding the issue of share and share application money from certain companies, AO added a sum of Rs. 96,90,000/- in respect of the AY 2007-08 and Rs. 61,28,600/- in respect of the AY 2008-09. Appeals preferred by the assessee challenging the said additions were dismissed by way of impugned orders and, therefore, the assessee is before us challenging the legality and validity of the reopening proceedings as well as the additions made on account of the share application money, share premium and alleged payment of commission u/s 68 of the Act.
3ITA Nos. 5750 & 5751/Del/2016
3. Assessment orders in respect of both the years are almost identical but for the change in the names of the companies applied for allotment of shares in the assessee company and the amount that was added in respect of these two years. For proper appreciation of the companies on either side it has become necessary to extract paragraph nos. 4 to 10 of these assessment orders which are identical in both the cases:
"4. As name and details of many of the beneficiary companies/persons were not found recorded in the seized documents, sincere efforts were made by the Wing to identify the exact names and PAN details of the beneficiary companies/persons.
5. As a result of post search investigation in the case of Sh. S.K. Jain Group, it appeared that the M/s Basesar Properties Pvt. Ltd., 466, 1st Floor, Auto Market, Hisar has obtained accommodation entries from Sh. S.K. Jain Group during the Financial Year 2006-07 & 2007-08.
6. The company obtained the accommodation entries generally in the form of share capital/share premium/loan. The details like the amounts received by these companies/persons, the cheque/P.O. No., the names of the issuing company, the mediator/middleman, bank etc. was tabulated and provided to this office.
7. As the undisclosed income of the beneficiary company which has been introduced by them in the form of share/capital/share premium/loan has escaped taxation, therefore, it was advised that these amounts be brought to tax by initiating action u/s 147/148 read with section 143(3) of the income-tax Act, 1961 for the relevant assessment year in the case of the above mentioned beneficiary company.
8. In the appraisal report of Sh. Surendra Kumar Jain Group prepared by this unit, it has been evidently established that Sh. Surendra Kumar Jain and Sh. Virendra Jain were in the business of providing accommodation entries and actually controlled more than 4 ITA Nos. 5750 & 5751/Del/2016 100 companies/proprietary firms/partnership firms. They controlled these entities through various persons by appointing them as directors/partners/proprietors apart from nominating them as authorized signatories for maintaining the bank accounts of these entities but in fact all these persons act only as their stooges.
9. During the course of search proceedings in the case of S.K. Jain Group, it was found that a number of companies were running from the residential as well as business addresses related to Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain. However, all the books of accounts and other relevant papers of these companies were found from the residence of Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain itself and nothing was found at the other addresses, which were mentioned in the statutory records of these companies.
10. This clearly shows that these companies were being run by Sh. Surendra Kumar Jain and Virendra Kumar Jain and they controlled these companies through dummy directors/principal officers of these companies. This could be established by a careful examination of seized material, including the computer hard discs and tally data, which contain the books of accounts of these companies along with other important and confidential documents of these companies. These documents should have not been in the possession of Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain had they not been the actual controller of these companies."
4. Now coming to the argument of the Ld. AR his contention is that as could be seen from the assessment order the AO entirely relied upon the facts found in the case of Sh. Surendra Kumar Jain and another, without verification of the information that he got from the investigation wing of the Department or confronting the assessee with such material for reopening the assessment the AO substituted the information received from the investigation wing to his satisfaction. Assessment order clearly shows that no 5 ITA Nos. 5750 & 5751/Del/2016 material whatsoever was put to the assessee before the AO reopened the matter and on the other hand, the words like 'appears' in paragraph no. 5, and 'advised' in paragraph no. 7 and the expression in paragraph no. 10 clearly indicate that the AO was not sure of any material whatsoever forming a live link between the seized material and satisfaction of the AO. Further he submitted that as could be seen from paragraph no. 6 of the assessment order but the AO stated that the assessee was obtaining accommodation entries generally in the form of share capital/share premium/loan from the accommodation entry providers. Ld. Counsel argued that except tabulating the names of the companies that invested money in the assessee company and are to be found in the material seized from the Jain Brothers, there is a total failure on the part of the Revenue whether really these companies provided accommodation entries, which the Revenue could have proved by referring to the modus operandi as to the mode of payment such as cash or cheque account nos. etc. Except the suspicion of the AO that the assessee might have obtained accommodation entries generally in the form of share capital/share premium/loan absolutely, there is no live link 6 ITA Nos. 5750 & 5751/Del/2016 between the satisfaction of the AO and the material that was unearthed. In the alleged annexure 'A' to the reasons recorded the list of names contained the assessee's name which obviously was based on the Jain's testimony, but in the absence of any seized document containing the requisite details as to the identity and other particulars involving the assessee and without further verification at the end of the AO, this cannot form a live link to fasten liability on the assessee. Lastly Ld. AR submitted that recording of satisfaction in this matter is not based on the result of the AO's investigation or opinion, but it is solely based on the advice referred to in paragraph no. 7.
5. In so far as the merits of the matter are concerned it is the submission of the Ld. AR that the list of complete names and addresses of the share applicants with PAN details, copies of share application forms, copies of bank statements of the share applicants, copies of the bank account of the assessee and the copies of the Income tax returns of the share applicants was produced before the authorities below, and even after the assessee establishing the identity and capacity of the applicants and 7 ITA Nos. 5750 & 5751/Del/2016 genuineness of transaction through banking channels was established, instead of making enquiry into this aspect, the AO made additions solely basing on suspicion as to the source of source. Suspicion, however, grave it is, it cannot take the place of legal evidence or proof and fastening a financial liability of a considerable magnitude is impermissible under law.
6. Per contra, it is the argument of the Ld. DR that the post search investigation basing on the material seized at the search and seizure operations establishes the introduction of assessee's own money through accommodation entry providers by way of cheques and during the reassessment proceedings when confronted with such material, as recorded by the AO at paragraph no. 25, the assessee was speechless and could not give any satisfactory reply to the Department as such AO is justified in making addition. He further submitted that the information was furnished by the investigation wing after thorough examination of the material that was found at the premises of Jain Brothers and also the material that was obtained post search investigation. He heavily relied upon the orders of the authorities below.
8ITA Nos. 5750 & 5751/Del/2016
7. Now coming to the legal ground raised by the assessee questioning the illegality and validity of the reassessment proceedings for reassessment u/s 147 of the Act is concerned, record is clear that the survey was not in the premises of assessee and it was in the premises of Jain Brothers. Paragraph no. 4 of the assessment order extracted above clearly shows that no names and details of any of the beneficiary companies or persons were found recorded in the seized documents necessitating the investigation wing to identify the exact name and PAN details of the beneficiary companies/persons through some more efforts. It is, therefore, clear, at the outset, that nothing was recovered in the search and seizure establishing the identity of the assessee or any link between the record showing the accommodation entry operations by Jain Brothers through their chain of companies and the investment in the assessee company. Paragraph 5 says that it is only as a result of post search investigation, it appeared to the investigation wing that the assessee had also obtained accommodation entries. A long distance has to be travelled by the Department to bridge the gap between the assessee obtaining the accommodation entries and appears to have obtaining the 9 ITA Nos. 5750 & 5751/Del/2016 accommodation entries. Further it is clear from paragraph no. 7 that on obtaining such post search investigation material AO was advised that the amounts appeared to have been obtained by the assessee by way of accommodation entries to be brought to tax by initiating the action u/s 147/148 read with section 143(3) of the Act. Record does not reveal that after this advice, AO had done anything in verification of such information to form the basis for his satisfaction that the income of the assessee had escaped assessment.
8. It has been held by various decisions that the formation of belief contemplated by section 147 of the Act for the reopening of assessment must have a rational connection between the formation and the belief. There must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and formation of belief that there has been escapement of the income of the assessee from assessment in a particular year because of his failure to disclose fully and truly all material facts.
In absence of any independent application of mind by the 10 ITA Nos. 5750 & 5751/Del/2016 Assessing Officer but acting under information from the Investigation Wing cannot be a ground to reopen the assessment.
9. We find the Hon'ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das reported in 103 ITR 437 has observed as under :-
As stated earlier, 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 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 after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping 11 ITA Nos. 5750 & 5751/Del/2016 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. The live link or close nexus which should be there between the material before the Income tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned judges in the High Court, in out opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs."
10. We find the Hon'ble Delhi High Court in the case of CIT vs. SFIL Stock Broking Ltd. reported in 325 ITR 285 has held as under :-
"8. After having heard the counsel for the parties, we are inclined to agree with the submissions made by the respondent / assessee. We find that the Supreme Court in Rajesh Jhaveri (supra) made it absolutely clear that before an Assessing Officer issues a notice under Section 148, thereby re- opening the assessment under Section 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief. The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the Assessing Officer. However, the Supreme Court in Rajesh Jhaveri (supra) did not say that it was not necessary for the Assessing Officer to form a „belief‟ and that the mere fact that there was some material on record was sufficient.
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 12 ITA Nos. 5750 & 5751/Del/2016 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 sentence 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 u/s 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. The law is well settled. There is no substantial question of law which arises for our consideration.
The appeal is dismissed."
11. We find the Hon'ble Delhi High Court in the case of Sarthak Securities Co. P. Ltd. vs. ITO reported in 329 ITR 110 has observed as under :-
"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 sentence are followed by the following sentence, which is the concluding portion of the so- called reasons:-13
ITA Nos. 5750 & 5751/Del/2016 "Thus, I have sufficient information in my possession to issue notice u/s 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. The law is well settled. There is no substantial question of law which arises for our consideration." [Emphasis is ours]
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. Income Tax Officer and Others, (2003) 179 C54 (SC) 11 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. (supra), the Apex Court held thus:-
14ITA Nos. 5750 & 5751/Del/2016 "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."
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. (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."
15ITA Nos. 5750 & 5751/Del/2016
12. We find the Hon'ble Delhi High Court in the case of CIT vs. Shri Atul Jain reported in 299 ITR 383 has observed as under :-
8. "The Revenue has preferred two separate appeals against the combined order passed by the Tribunal. We heard submissions made by learned Counsel for the parties and are of the view that there is no error in the opinion expressed by the Tribunal and that no substantial question of law arises for our consideration.
9. Broadly speaking, the view taken by the Assessing Officer (and which is canvassed before us) was that the assessees had invested their money received from undisclosed sources and taken back the amounts through a negotiable instrument. The amounts so invested were treated as undisclosed income and the Assessing Officer estimated 10% commission for the accommodation entry and thereupon made a further addition to the undisclosed investment.
10. For deciding whether the issuance of notice is vitiated or not, our attention has been drawn to Chhugamal Rajpal v. S.P. Chaliha and Ors. . In that case, re-assessment proceedings were struck down by the Supreme Court on the ground that in the reasons recorded by him, the Income Tax Officer had vaguely referred to certain communications that he had received; he did not mention the facts contained in those communications except that from those communications "it appears that these persons (alleged creditors) are name lenders and the transactions are bogus"; he did not come to any prima facie conclusion that the referred transactions are not genuine; he appeared to have a vague feeling that the referred transactions may be bogus transactions and finally, his conclusion was to the effect that a proper investigation regarding the loans is necessary. The Supreme Court was of the view that the conclusion of the Income Tax Officer was that there is a case for investigating the truth of the alleged transactions but that is not the same thing as reasons for issuing a notice under Section 148 of the Act. In the decision of the Supreme Court also, when the matter was sent to the Commissioner, in the proforma against the question "Whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148" he noted "Yes" and affixed his signatures. The Supreme Court was of the view that upon reading the report given by the Income Tax Officer (which is not the same as reasons for issuing a notice), the Commissioner could not have 16 ITA Nos. 5750 & 5751/Del/2016 come to the conclusion on the material before him that it is a fit case for issuance of a notice under Section 148 of the Act.
11. From the decision of the Supreme Court, it is clear that a mere statement of facts in the form of a report is not a substitute for reasons that are required to be recorded before issuing a notice under Section 148 of the Act. The Supreme Court also noted that substance cannot be substituted by form and it is in that context that the Supreme Court expressed the view that by merely saying "Yes", the Commissioner did not fulfilll the duty cast upon him.
12. In P. Munirathnam Chetty and P. Satyanarayana Chetty v.
Income-tax Officer , the Andhra Pradesh High Court analyzed Chhugamal Rajpal and distinguished it on the ground that since the Income Tax Officer had given reasons for issuing a notice to the assessed, the mere fact that the Commissioner recorded "Yes" in respect of the question "Whether the Commissioner is satisfied that it is a fit case for issue of notice under Section 148" would not by itself vitiate the proceedings. What follows from this is that if there are reasons recorded for issuing a notice and the Commissioner applies his mind to those reasons and even if he merely says "Yes" in respect of his satisfaction, that is good enough; but if reasons are not recorded by the Assessing Officer (as in Chhugamal Rajpal) then in any case the proceedings would be vitiated, and even if the Commissioner says "Yes" in the appropriate column, that would not save the notice from being vitiated.
13. The above two decisions lead to the conclusion that there must be reason to believe warranting the issuance of a notice by the Assessing Officer. If there are no reasons, then the entire foundation for initiating the proceedings is bad and the notice initiating proceedings must be quashed.
14. At this stage, it is worth recalling that in Ganga Saran & Sons Pvt. Ltd. v. Income-tax Officer and Ors. , the Supreme Court noted that the expression "reason to believe" as occurring in Section 147 of the Act is stronger than the expression "is satisfied". In other words, mere satisfaction of the Assessing Officer for the issuance of a notice is not enough - there must be reasons on record which have led him to believe that a notice should be issued.
15. In United Electrical Co. Pvt. Ltd. v. Commissioner of Income- tax (2002) 258 ITR 317, this Court considered the entire issue afresh. It was observed that the expression "reason to believe"
occurring in Section 147 of the Act is crucial. Reference was made 17 ITA Nos. 5750 & 5751/Del/2016 to Bawa Abhai Singh v. Deputy Commissioner of Income Tax (2002) 253 ITR 86 wherein it was observed that "reason to believe" postulates a foundation based on information and a belief based on reasons. In so far as "information" is concerned, a Division Bench of this Court held in L.R. Gupta v. Union of India that:
The expression 'information' must be something more than a mere rumour or a gossip or a hunch.
Of course, this was in the context of Section 132 of the Act but as held in United Electrical, the logical is equally applicable to a case under Section 147 of the Act.
16. After a foundation based on information is set up, there must still be some reasons which warrant the holding of a belief so as to necessitate the issuance of a notice under Section 148of the Act.
17. Looked at in the light of the decisions placed before us and the law laid down therein, it is necessary to appreciate the information available with the Assessing Officer in the present case. The only information is that the assesseds had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague. In so far as the basis for the reasons is concerned, even this is absent. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice under Section 148 of the Act. Read in this light, what has been recorded by the Assessing Officer as his "reasons to believe" is nothing more than a report given by him to the Commissioner of Income Tax. As held by the Supreme Court in Chhugamal Rajpal, the submission of a report is not the same as recording of reasons to believe for issuing a notice. The Assessing Officer has clearly substituted form for substance and, therefore, the action of the Respondent falls foul of the law laid down by the Supreme Court in Chhugamal Rajpal which is clearly applicable to the facts of these appeals.
18ITA Nos. 5750 & 5751/Del/2016
18. For these reasons, we are of the view that there is no error in the decision rendered by the Tribunal and no substantial question of law has arisen for our consideration. Therefore, the appeals are dismissed."
13. We find the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Smt. Parakjit Kaur reported in 311 ITR 38 has held as under :-
"Section 147 of the Act defines the power and jurisdiction of the Assessing Officer for making an assessment or reassessment of escaped income. Section 148 of the Act, on the other hand, provides for initiation of the reassessment proceedings with issuance of a notice on the assessee concerned. Section 147 empowers the Assessing Officer to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time it cannot be stated to be a plenary power. The Assessing Officer can assume jurisdiction under the said provision provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The Assessing Officer must record reasons showing due application of mind before taking recourse to reassessment proceedings. Still further the Assessing Officer can assume jurisdiction for reassessment proceedings provided he has reasons to believe but the same cannot be taken recourse to on the basis of reasons to suspect.
In ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, the hon'ble Supreme Court, while interpreting the provisions of section 147 of the Act, held as under (page 448) :
" . . . 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 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 19 ITA Nos. 5750 & 5751/Del/2016 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 Tribunal while allowing the appeal of the assessee came to the conclusion that it was essential for the Assessing Officer before issuing notice to record his own satisfaction on the basis of material and should not have acted merely upon the information received from the survey circle. It was further noticed that the Deputy Commissioner of Income-tax (Appeals) had recorded that there was not sufficient evidence for making addition of Rs. 83,040 in the hands of the assessee and the matter was remanded to him to further investigate for connecting the amount of the draft with the escaped income of the assessee still it was held that the initiation of reassessment was valid. The Tribunal concluded that contradictory findings had been recorded by the Deputy Commissioner of Income-tax (Appeals) and held the reopening to be invalid.
It is undisputed that the Assessing Officer had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of Rs. 83,040 which was not accounted in the books of account of the assessee. The Assessing Officer had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The Assessing Officer had thus acted only on the basis of suspicion and it cannot be said that the same was based on the belief that the income chargeable to tax had escaped income. The Assessing Officer has to act on the basis of " reasons to believe" and not on " reasons to suspect". The Tribunal had, thus, rightly concluded that the Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, the issuance of notice under section 148 of the Act for reassessment 20 ITA Nos. 5750 & 5751/Del/2016 proceedings was not valid.
In view of the above, the question of law referred to this court is answered against the Revenue and in favour of the assessee."
14. In the instant case, the Assessing Officer has arrived at the satisfaction in a mechanical manner without due application of mind and since there is no rational connection between the formation of the belief and the seized material. Assessing Officer has not discharged his obligation after such allegations, and, therefore, reasons recorded by the Assessing Officer in the instance case, in our opinion, are vague and/or no reasons at all.
We, therefore, quash the re-assessment proceedings initiated by the Assessing Officer as void. Since the assessee succeeds on the legal ground, we, therefore, refrain ourselves from adjudicating the grounds on merits being academic in nature.
15. In the result, both the appeals are allowed.
Order pronounced in the open court on 18.08.2017 Sd/- Sd/-
(B.P. JAIN) (K. NARSIMHA CHARY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 18.08.2017
*Kavita Arora
21
ITA Nos. 5750 & 5751/Del/2016
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
TRUE COPY
ASSISTANT REGISTRAR
ITAT NEW DELHI
Draft dictated on 10.08.2017
Draft placed before author 14.8.2017
Draft proposed & placed before
the second member
Draft discussed/approved by 18.8.17
Second Member.
Approved Draft comes to the 18.8.17
Sr.PS/PS
Kept for pronouncement on 18.8.17
File sent to the Bench Clerk 18.8.17
Date on which file goes to the
AR
Date on which file goes to the
Head Clerk.
Date of dispatch of Order.