TMI Blog2011 (10) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... two appeals, filed by the revenue, are directed against common order dated 02.03.2010 passed by the learned Commissioner of Income-tax (Appeals) in the matter of an assessment made by the Assessing Officer under sec. 147/143(2) of the Income-tax Act, 1961 (the Act) for the Assessment Years 2002-03 and 2003-04. 2. In both the years, a common and identical ground has been raised by the revenue stating that the learned CIT(A) has erred in holding that the reopening of assessment in terms of sec. 147 of the Act, was not a justified action by the AO. 3. The reassessment proceedings initiated by the AO have been held to be not sustainable in law by the learned CIT(A) in the Assessment Year 2002-03. In the Assessment Year 2003-04 also, the learned CIT(A) followed his view taken in the Assessment Year 2002-03 after finding that the reasons recorded by the AO in both the Assessment Years were ad verbatim. The detailed order has been passed by the learned CIT(A) in the A.Y. 2002-03, which has been followed in the A.Y. 2003-04 by the common impugned order. 4. In the A.Y. 2002-03, the assessee filed its return of income on 31.10.2002 declaring a total loss of ₹ 9,71,710/-. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings were completed mechanically in hurried manner without complying/following the various provisions of law as well as the judgments of various High Courts. It was, thus argued that the reopening of the assessment was itself illegal and without jurisdiction. It was also argued that reopening of the assessment was illegal in the light of the fact that the original assessment was already completed under sec. 143(3) of the Act after making full enquiry and investigation with regard to the fresh share capital received by the assessee company and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for making assessment of the assessee. It was also argued that the action of reopening of the assessment was nothing but a mere change of opinion. It was also argued that in the absence of any direct nexus or live link or direct material/evidence, no legal action u/s 147 could be taken and in support thereof, reliance was placed upon the decision of Hon ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das, 103 ITR 437 (SC). 8. After considering the assessee s submissions and the reasons recorded by the AO, learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Years. 14. We shall first decide as to whether the learned CIT(A) was justified in holding that the reopening of the assessment u/s 147 of the Act by the AO is not valid in the eyes of law. 15. In the course of hearing of these appeals, the learned counsel for the assessee invited our attention to the reasons recorded by the AO under sec. 148 of the Act for initiating proceedings u/s 147 of the Act, which are reproduced herein as under:- It has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.6.2006 that the above named company was involved in giving and taking bogus entries/transactions during the F.Y. 2001-02. From the information gathered by the DIT(Inv.)-1, New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company. The assessee company has failed to disclose fully and truly all the material facts and source of these funds routed through bank accounts of the assessee company. I, therefore have reasons to believe that the income has escaped assessment within the meaning of section 147 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and Sons Pvt. Ltd. vs. 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 AO 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 u/s. 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 AO 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. 20. Similarly, in the case of ITO Others vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), 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 Act for reopening of the assessment must have rational connections or relevant bearing on the formation of belief. Rational connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dalurband Coal Co. Pvt. Ltd. (1996) 217 ITR 597 (SC), the Hon ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) 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 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. vs. ITO [1991] 191 ITR 662, for initiation of action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally, his conclusions was to the effect that a proper investigation regarding the loans is necessary. 24. In the case of CIT vs. (i) Atul Jain, and (ii) Smt. Smita 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 Das Sons vs. ITO (supra), and its own decision in the case of United Electrical Co. Pvt. Ltd. vs. CIT (2002) 258 ITR 317 and in the case of Bawa Abhai Singh vs. Deputy CIT (2002) 253 ITR 53 (Del.), wherein it was observed that reason to believe postulates the foundation based on information and a belief based on reasons. 25. 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 vs. 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. Ltd. (supra), the logic is equally applicable to a case u/s. 147 of the Act. 26. Recently, in the case of Signature Hotels (P) Ltd. Vs. ITO, 338 ITR 51, the Hon ble jurisdictional High Court of Delhi has considered the object and scope of sec. 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivil No. VII, New Delhi, and Another versus Dwarka Dass and Brothers, [ 1981] 131 ITR 571 (Del) has held as under : The Supreme Court, affirming the decision of the High Court, held that there was nothing to show that the confession of M.K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent and the live link or close nexus which should be there between the material before the ITO and the belief which he was to form was missing or was, in any event, too tenuous to provide a legally sound basis for reopening the assessment .. The position in the present case falls within the same category. At the time of the original assessment all the facts relating to the cash credits in question were fully disclosed. This has been found by the learned judge at page 960 (of 118 ITR) and indeed this is the accepted position on the basis of which even the proposal of the ITO to the Commissioner (set out at page 964) proceeded. Thereafter, the only material received by the ITO appears to be that the revenue authorities had carried out certain investigations, that they had discovered the existence of bogus hundi broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reasons 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. After referring the aforesaid decision of the Hon ble Bombay High Court, the Hon ble Delhi High Court further observed as under:- 11. The aforesaid paragraph in IBM World Trade Corporation (supra) was cited with approval in Prashant S. Joshi Versus Income-Tax Officer and Another, 2010 (324) ITR 154 (Bom.) and it was held as under:- Section 147 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has esca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulfill that condition would vitiate the entire proceedings. (ii) The reasons for the formation of the required belief must have rational connection with or relevant bearing on the formation of belief. The rational connection postulates that there must be direct nexus or live link between the material coming to the notice of the AO and the formation of the belief that there has been escapement of income of the assessee from the assessment in the particular year. (iii) It is not any and every material, howsoever, vague and indefinite or distant, remote or far-fetched, which would warrant the formation of the belief relating to the escapement of income of the assessment. (iv) If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one can properly instructed on facts and law could reasonably entertain a belief, the conclusion would be inescapable that the AO could not have reason to believe. In such a case, the notice issued by him would be liable to be struck down as invalid. (v) The reasons recorded by the AO cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons, which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the informations gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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