TMI Blog2010 (4) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... the cross-objections. 3. At this stage, it is pertinent to note that the addition of Rs. 10,52,62,889 on account of accommodation entries along with Rs. 10,52,629 being alleged commission paid for availing accommodation entries made by the Assessing Officer has been deleted by the CIT(A), which action of the CIT(A) has been disputed by the revenue in the appeal filed by it. 4. Grounds raised in the cross-objections are as under: "1. That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in upholding the validity of initiation of the reassessment proceedings which had been disputed before him as raised in ground No. 2. He has further incorrectly held that he is not adjudicating the ground raised when he impliedly adjudicated the ground so raised when he proceeded to determine the merit of the additions made. 2. That the learned Commissioner of Income-tax (Appeals) ought to have specifically held that the proceedings initiated were without jurisdiction and there was no material to conclude that there was any escapement of income and that there was any failure on part of the assessee to disclose all the material facts needed for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was done by layering the cheques i.e., cheques were routed through many paper/dummy companies of Shri Ruia before reaching its destination - the beneficiaries. This is done by way of simultaneous clearance cheques drawn by one company favouring other through a series of credit/debit entries to hoodwink the department. All the cheques are immediately cleared under high value cheque clearance scheme. None of these companies have any business activities and activities only on paper are carried out by them. One illustration will further clarify this dubious mechanism of raising bogus capital moving cheques through the investment companies. 7.1 ( iii ) To understand the principle of laundering, suppose Mr. Ruia has floated 4 companies named A, B, C D. Now he receives Rs. 25 lakhs from some beneficiary. This amount will be deposited in some Kuccha Bank A/c and a cheque from the same account in the form of purchase consideration, share investment, loan etc. will be issued to A. Again A will draw a cheque of Rs. 25 lakhs favouring company B. B will draw a cheque of similar amount favouring C. C will issue a cheque for exactly the same amount in favour of D and finally D will draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 5-6-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 5-13-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 15,00,000 5-13-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 5-15-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 5,00,000 5-15-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 10,00,000 5-16-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 5,00,000 5-28-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 40,00,000 5-28-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 10,00,000 5-29-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 50,00,000 6-3-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 50,00,000 6-3-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 6-6-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 50,00,000 6-7-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 25,00,000 6-7-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,00,000 10-29-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 10,00,000 11-18-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 20,00,000 11-18-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 20,00,000 12-3-2002 Vivek M/s. Lakshya Exims Pvt. Ltd. 3,62,889 Total = 10,53,62,889 Sd./- (P.P. Sarkar) DCIT, CC-IV, Kolkata" 6. On the basis of the above information, the then Assessing Officer i.e., ACIT, Circle-4(1), New Delhi, after recording following reasons on 30-6-2006 reopened the assessment under section 147/148 of the Act: "The assessee company filed return of income for assessment year 2003-04 on 28-9-2003 on total income of Rs. 18,19,479. The assessee company has shown income from trading and investment in shares and securities. During the course of Investigation and search and seizure operations in the case of Shri P.K Ruia and his group companies by the Directorate of Income-tax (Investigation), Kolkata, it was gathered that a large number of companies were floated and bogus entries were given to a number of beneficiaries whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer, therefore, disposed of the assessee s objections vide his order dated 29-11-2007, whereby he rejected the objections raised by the assessee. 9. The Assessing Officer then proceeded to complete the assessment after issuing notices under sections 142(1) and 143(2) of the Act issued from time to time and then ultimately completed the assessment on 6-12-2007 making the addition of Rs. 10,52,62,889, and Rs. 10,52,629 on account of unexplained sale of cotton knitted fabrics and commission paid for availing accommodation entries respectively. 10. Being aggrieved, the assessee preferred an appeal before the CIT(A) taking a ground, amongst others, that notice under section 147 of the Act was invalid and bad in law. 11. The CIT(A) framed the issue as to whether the proceedings under section 147 of the Act were without jurisdiction inasmuch as whether there was any material on record on the basis of the reasons recorded to hold that the income of the assessee company has escaped assessment. The CIT(A) also framed another issue whether addition made of Rs. 10,52,62,889 representing the realization from sale of cotton knitted fabric to M/s. Vivek Leafin Pvt. Ltd. could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated proceedings on assumptions that the assessee had raised loans/share capital by availing accommodation entries, though, in fact, the assessee company had neither raised any loans nor any share capital in the year under consideration. He further submitted that the proceedings under section 147 of the Act, has been initiated by the Assessing Officer on non-existent ground, and, thus, the proceedings initiated under section 147 of the Act are invalid being without jurisdiction. In support of his contention, the ld. counsel for the assessee has relied upon the following decisions: ( i ) United Electrical Co. (P.) Ltd. v. CIT [2002] 258 ITR 317 (Delhi) ( ii ) CIT v. Ved Co. [2008] 302 ITR 328 (Delhi) ( iii ) CIT v. Rainee Singh [IT Appeal No. 566 of 2009, dated 20-8-2009] by Hon ble Delhi High Court. ( iv ) ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) ( v ) Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) ( vi ) CIT v. Atul Jain/Smt. Vinita Jain [2008] 299 ITR 383 (Delhi). 15. The ld. DR, on the other hand, submitted that in the present case, no regular assessment under section 143(3) was made before issuing notice unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it must be based on reasons, which are relevant and material as held by the Hon ble Supreme Court in the case of Ganga Saran Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 . It is also well-settled that the Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Assessing Officer in coming to the belief, but the Court can certainly examine whether reasons are relevant and have a bearing on the matters in regard to which he is required to entertain a belief before he can issue notice under section 147/148 of the Act. If there is no rational or intelligible nexus or link between the reason to believe, so that, on such reasons, no one properly instructed on fact and law could reasonably entertain the belief, the conclusion would be inescapable that the Assessing Officer could not have reason to believe that any part of the assessee s income had escaped assessment, and the notice issued by him would be liable to be struck down as invalid. 18. Similarly, in the case of Lakhmani Mewal Das ( supra ) the Hon ble Apex Court of the land has held that the reasons for the formation of the belief contemplated by the section 147 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iciency and correctness of the material is not a thing to be considered at that stage. 20. Applying the decision in the case of Raymond Woollen Mills Ltd. ( supra ), and another, and in the case of ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC), the Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. ( supra ) has considered the scope and meaning of the words "reason to believe" used in section 147 of the Act, and, thus, held and observed as under: "Section 147 authorizes and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for 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 has 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 conclusions was to the effect that a proper investigation regarding the loans is necessary. 22. In the case of Atul Jain / Smt. Vinita Jain ( supra ), the Hon ble Delhi High Court has also made a reference to the decision of Hon ble Supreme Court in the case of Ganga Saran Sons (P.) Ltd. ( supra ), and its own decision in the case of United Electrical Co. (P.) Ltd. ( supra ) and in the case of Bawa Abhai Singh v. Dy. CIT [2002] 253 ITR 83 (Delhi), wherein it was observed that "reason to believe" postulates the foundation based on information and a belief based on reasons. 23. The expression "information" must be something more than a mere rumour or gossip or a hunch as so observed by the Division Bench of Delhi High Court in the case of L.R. Gupta v. Union of India [1992] 194 ITR 32. Of course, this was in the context of section 132 of the Act but as held in United Electrical Co. (P.) Ltd. s case ( supra ), the logic is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has submit-ted that there is no rational or intelligible nexus between the reasons and the beliefs entertained by the Assessing Officer that income of the assessee in the nature of bogus loans/share capital has escaped assessment. He further contended that the material relied upon by the Assessing Officer are extraneous or irrelevant for entertaining a belief that income has escaped assessment inasmuch as no loan or share capital has ever been introduced by the assessee in the books of account of the year under consideration, and that fact or position would be clear from the assessment order itself where the Assessing Officer has made the alleged addition on account of sale receipts of cotton knitted fabric sold to M/s. Vivek Leafin Pvt. Ltd., and no addition on account of any bogus loan or share capital has been made. 27. On the other hand, the ld. DR submitted that the reasons recorded by the Assessing Officer are specifically related to transaction between the assessee and M/s. Vivek Leafin Pvt. Ltd., suggesting that a bogus entry or transaction has been generated by way of availing accommodation entries, and, therefore, on the facts of the present case, it is established th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs sold by the assessee to M/s. Vivek Leafin Pvt. Ltd. From the details of the transactions between M/s. Vivek Leafin Pvt. Ltd. and the assessee, it is clear that the assessee company had neither raised any loans nor any share capital, and no addition on account of any bogus loans/share capital allegedly raised by the assessee from M/s. Vivek Leafin Pvt. Ltd., has been even made in the assessment order. It is, thus, beyond any doubt that the nature of the transaction referred to in the information supplied by DCIT, CC-VI Kolkata to DCIT, Circle - 4(1), New Delhi and referred to in the reasons recorded by the Assessing Officer in entertaining a belief required under section 147 of the Act has not been actually looked into and verified but it is found to be non-existent. The information supplied by DCIT, CC-VI, Kolkata, that assessee company has obtained bogus loans/share capital from M/s. Vivek Leafin Pvt. Ltd., a dummy company of Shri P.K. Ruia, is not based on facts found during the search. Thus, the Assessing Officer s belief that the income of the assessee company, in the nature of bogus loans/share capital, has escaped assessment to that extent is not based on any relevant mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of bogus loans/share capital had escaped assessment. As discussed above, the allegation regarding raising bogus loans/share capital by the assessee is undoubtedly found to be incorrect, and baseless. Therefore, it cannot be said that there are some prima facie material available on record on the basis of which anyone properly instructed on fact and law could reasonably entertained a belief that any part of the income of the assessee has escaped assessment within the meaning of section 147 of the Act. Therefore, the decisions relied upon by the ld. DR gives no assistance to the department rather they support the assessee s case that the reasons recorded by the Assessing Officer are irrelevant and have no bearing on the matters in regard to which the Assessing Officer was required to entertain a belief that income has escaped assessment. We, therefore, hold that the belief entertained by the Assessing Officer that the assessee has raised bogus loans/share capital and to that extent the assessee s income has escaped assessment, is arbitrary or unreasonable being based on irrelevant and non-existent material. We further hold that there is no rational or intelligible nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances, the action of the Assessing Officer in initiating proceedings under section 147 was found to be not sustainable. Similarly, in the present case, there is no information on record that the assessee has actually taken loans/share capital from the alleged companies. But, on contrary this basis has been found to be incorrect inasmuch as the amount received by the company M/s. Vivek Leafin Pvt. Ltd. is on account of receipt towards sale of cotton knitted fabrics sold by the assessee to M/s. Vivek Leafin Pvt. Ltd. 32. For the reasons aforesaid, we, therefore, hold that the action of the Assessing Officer in assuming the power conferred under section 147 of the Act is without jurisdiction, and is, thus, liable to be cancelled. Resultantly, the assessment order made by the Assessing Officer after invoking his jurisdiction under section 147 of the Act is cancelled being void, bad in law and without jurisdiction. 33. In the light of the decision we have taken above with regard to the validity of assessment made under section 147 of the Act that the assessment made by the Assessing Officer under section 147 being invalid and bad in law is liable to be cancelled and st ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
