TMI Blog2015 (10) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings. In the present case it is difficult to accept that reasonable conclusion could be drawn that the Assessee had failed to disclose truly and fully all material facts necessary for its assessment. In the facts of this case, where the AO had already in the initial round examined and verified the entries in question, it would only be reasonable for the AO to examine the information received and to at least verify the same with the records of the concluded assessment proceedings. A plain examination of the same would have revealed that the Assessee had not claimed to have received any funds from Richie Rich as share capital. Further, the Assessee had also provided confirmation of the loans received as well as other details, during the said proceedings. It would also be relevant to note that the loans availed had been returned through banking channels during the period and this was also confirmed independently to the AO. In the given circumstances, the least that was required for the AO was to independently apply his mind to ascertain that the information provided was credible and sufficient for drawing a reasonable inference that the income of the Assessee had escaped assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) rightly came to the conclusion that no addition under Section 68 of the Act in respect of the transaction was sustainable. The Tribunal also noted the evidence and material produced by the Assessee, which remained uncontroverted, and upheld the order passed by the CIT(A) - Decided in favour of the Assessee - ITA 356/2013 - - - Dated:- 22-9-2015 - Dr. S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr Kamal Sawhney, Senior Standing Counsel with Mr Raghvendra Singh, Junior Standing Counsel For the Respondent : Mr Ved Jain and Mr Pranjal Srivastava ORDER Vibhu Bakhru, J 1. This appeal under Section 260A of the Income Tax Act, 1961 (hereafter the Act ) has been preferred by the Revenue impugning an order dated 9th November, 2012 passed by the Income Tax Appellate Tribunal (hereafter the Tribunal ) in ITA No.1202/Del/2011. The said appeal (ITA No.1202/Del/2011) was preferred by the Revenue to impugn an order dated 23rd December, 2010 passed by the Commissioner of Income Tax (Appeals) [hereafter the CIT(A)] allowing the appeal preferred by the Assessee against an assessment order dated 31st December, 2008 passed by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, the Assessee was also called upon to explain its agreement with Mahan Enterprises Ltd. In response thereto, the Assessee filed the Agreement entered into with Mahan Enterprises. The Assessee explained that it had entered into an arrangement with Mahan Enterprises Ltd., whereby, the said company had agreed to finance the cost and expenses required to be incurred by the Assessee in relation to an assignment from Gujarat Electricity Board. The issue as to sharing of revenue between the Assessee and Mahan Enterprises Ltd. was also debated before the AO. 4.2 During the course of the proceedings a letter dated 18th December, 2003 was filed by Mahan Enterprises Ltd. with the AO which, inter alia, confirmed that certain investments had been arranged by Mahan Enterprises Ltd. and out of the loans so arranged the Assessee had, subsequently, returned back loans to the extent of ₹ 1.07 crores. The said amount also included loan received from Richie Rich, which is sought to be taxed as unexplained credit in the re-assessment proceedings. 4.3 The AO received information from the Investigation Wing of the Income Tax Department that the Assessee had obtained accommodation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the re-assessment order before the CIT(A). The Assessee challenged the action of the AO in reopening the assessment under Sections 147/148 of the Act as well as challenged the addition of ₹ 55,15,400 on merits. The Assessee prevailed before the CIT(A). The CIT(A) held that the AO had not been able to make out the case to sustain the reopening of assessment under Section 147 of the Act. The CIT(A) noted that the notice under Section 148 of the Act had been issued after a lapse of 4 years from the end of the relevant assessment year and in the circumstances, reopening of assessment was permissible only if the proviso to Section 147 of the Act was satisfied; that is, income chargeable to tax had escaped assessment by reason of failure on the part of the Assessee to disclose fully and truly all material facts necessary for his assessment. The CIT(A) observed that the Assessee had provided all material in support of the loan availed from Richie Rich and the same was ignored by the AO. The CIT(A) was of the view that the Assessee had duly explained the entries in question and, therefore, the addition made by the AO to the assessable income of the Assessee under Section 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n question had been examined during the assessment proceedings. 7. Countering the arguments made by Mr Sawhney, Mr. Ved Jain, learned counsel appearing for the Assessee, contended that the Assessee had disclosed fully and truly all material facts during the initial assessment proceedings and, therefore, reopening of the assessment could not be sustained. He referred to the decision of this Court in Haryana Acrylic Manufacturing Company (supra) in support of his contention that the provisions of Section 147 of the Act could not be invoked after the expiry of four years from the relevant assessment year unless the AO came to the conclusion that the income had escaped by reason or failure on the part of the Assessee to file a return or to disclose fully and truly all material facts necessary for the assessment. He submitted that in the present case the Assessee had provided all necessary material and, thus, the reopening of assessment under Section 147 of the Act could not be sustained. 8. He also submitted that the judgment of Phool Chand Bajrang Lal (supra) was not applicable as the provisions of Section 147 had undergone a change. He drew the attention of this Court to paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of credible and tangible material, which was not in his possession during the initial assessment, believes that income of the Assessee has escaped assessment. 13. The Supreme Court in CIT v. Kelvinator of India Ltd.: 320 ITR 561 (SC) emphasised that the expression reason to believe as used in Section 147 of the Act must be read in context of the scheme of the Act and cannot be interpreted in a manner as conferring arbitrary power on the AO. Thus, such reason to believe must be based on tangible material and not on a change of opinion. The relevant extract from the said decision is quoted below: 6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble with the ITO at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be a disclosure of the true and full facts in the case and the ITO would have the jurisdiction to reopen the concluded assessment in such a case. 16. The next aspect to be examined is whether the material which was forwarded to the AO i.e. report of the Investigation Wing could reasonably lead to the inference that the income of the Assessee had escaped assessment. A copy of the said information has been placed on record. The Investigation Wing had reported that one Late Sanjay Mohan Aggarwal was one of the oldest and the most savvy entry operators and had been providing entries to several individuals and companies. It was also informed that S.M. Aggarwal had been summoned and his statement had been recorded. Though he had not accepted he was engaged in entry business but in an informal chat he had admitted to carrying on entry business. The Investi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC) ; Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). 18. In our view, once the tangible material available with the AO provides a live link with him forming a belief that income of an Assessee had escaped assessment, he would, subject to other statutory requirements, be entitled to reopen a concluded assessment. The question whether the AO has reason to believe that income has escaped assessment and is liable to be reopened under Section 147 of the Act has also to be viewed from the standpoint of the AO. Thus indisputably, in certain circumstances, such information as was received by the AO in this case may have provided the AO with a reason to believe that income of the Assessee had escaped assessment. In our view, the Tribunal erred in observing that the AO had reopened the assessment on the same material as was available during the initial assessment proceedings. 19. It is also relevant to note that, in the present case, the AO has sought to reopen the assessment bey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the inference, which the Income Tax Officer may draw from those facts. The Court further held that : mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the meaning of Section 34(1), but where on the evidence and the materials produced the Income-tax Officer could have reached a conclusion other than one which he has reached, a proceeding under Section 34(1)(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous. 22. The aforesaid decision was followed by the Supreme Court in a later decision in ITO v. Madnani Engineering Works Ltd.: (1979) 118 ITR 1 (SC). 23. The aforesaid decisions of the Supreme Court in Burlop Dealers Ltd. (supra) and ITO v. Madnani Engineering Works Ltd. (supra) were noticed by this Court in M/s Haryana Acrylic Manufacturing Co. (P) Ltd. (supra). The Court has held that once the Assessee had disclosed all facts which have been examined by the AO during the assessment proceedings, it would not be open for the AO to allege that the Assessee had not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective of the facts and circumstances of the particular case. 26. The decision in the case of Burlop Dealers Ltd. (supra) had been rendered in the context of Section 34(1)(a) of the Income Tax Act, 1922 and the decision of the Supreme Court in Phool Chand Bajrang Lal (supra) was delivered in the context of Section 147(a) of the Act as it existed prior to the amendment introduced w.e.f. 1st April, 1989, which was similarly worded as section 34(1)(a) of the 1922 Act. 27. Section 147 as it existed prior to 1st April 1989 read as under:- 147 If- (a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee had also provided confirmation of the loans received as well as other details, during the said proceedings. It would also be relevant to note that the loans availed had been returned through banking channels during the period and this was also confirmed independently to the AO. In the given circumstances, the least that was required for the AO was to independently apply his mind to ascertain that the information provided was credible and sufficient for drawing a reasonable inference that the income of the Assessee had escaped assessment on account of failure on the part of the Assessee to disclose truly and fully all material facts. Clearly, the examination of facts required at the threshold to form such a belief would be more detailed if the said transaction in question had already been subjected to scrutiny during the initial assessment. 31. In the present case, it does not appear that the AO applied its mind to the material available including the records of the earlier assessment proceedings. This is also apparent from the fact that during the assessment proceedings, the AO did not confront the Assessee with any new material or examine any other evidence other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus entries in its books after the conclusion of the assessment proceedings could in certain circumstances, provide tangible material for AO to reopen assessment and assume jurisdiction, but, in the facts of the present case, we are unable to accept that it would be open for the AO to proceed on the basis that income of the Assessee had escaped assessment on account of the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment for AY 2001-02. 35. In view of the above, we find no infirmity with the conclusion of the CIT(A) and the Tribunal that AO could not have assumed jurisdiction to reopen the assessment under Section 147/148 of the Act. 36. The next issue to be examined is whether any addition could have been made to the taxable income of the Assessee as unexplained credit under Section 68 of the Act. At the outset, it is relevant to observe that although the AO had reopened the assessment, the AO did not produce any material or confront the Assessee with any credible evidence that could lead to the inference that the entries pertaining to the loan from Richie Rich were bogus or accommodation entries. In the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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