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TMI Blog2011 (10) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Rs. 9,71,710/-. Thereafter, an assessment under sec. 143(3) was made by the AO on 29.11.2004 determining the net loss at Rs. 9,56,710/- after disallowing deferred revenue expenditure of Rs. 15,000/-. Subsequently, the AO issued a notice u/s 148 on 21.09.2006 requiring the assessee to file its return of income within time specified in the notice. The assessee vide letter dated 17.10.2006 submitted that the return filed on 31.10.2002 may be treated as return filed in response to notice under sec. 148 of the Act. It has been stated by the AO that in this case, information was received from the Investigation Wing, New Delhi that the assessee was involved in giving and taking accommodation entries. The AO further stated that certain entries represented the unaccounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, learned CIT(A) held that the reopening of assessment u/s 147 of the Act was not valid inasmuch as no fresh material, let alone tangible material had come to the AO's possession so as to empower him to take recourse to the provisions of sec. 147 of the Act. The learned CIT(A) has taken a view that the reopening of the assessment was based merely on change of opinion, which was not sustainable in law. The learned CIT(A) relied on various decisions mentioned in his order in support of the view, he had taken. 9. The learned CIT(A) also considered the addition of Rs. 30,00,000/-made by the AO on its merit, and found that the assessee has been able to explain the amount of Rs. 30,00,000/- received by the assessee in the form of share application money in the light of the variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 of the I.T. Act, 1961 for the asstt. Year referred above. Hence notice u/s 148 is issued." 16. Identical reasons were recorded in the Assessment Year 2003-04 except with the variation in the Assessment Year. 17. The copies of these reasons are placed at Pages 12 & 13 of the Paper Book filed by the assessee for the Assessment Year 2002-03 and 2003-04 respectively. It was submitted by the learned counsel for the assessee that aforesaid reasons were supplied by the AO to the assessee in pursuance to the assessee's letter dated 26.06.2007, whereby the AO was requested to supply copy of reasons recorded for reopening the assessment. The assessee's letters dated 26.06.2007 are placed at Pages 11 & 12 of the Paper Book for the Assessment Year 2002-03 and 2003-04 respectively. Thereafter, the assessee filed objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. 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 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 his belief that there has been escapement of the income of the assessee in the particular year. It was further held therein that it is no doubt true that Court cannot go into the sufficiency or adequacy of the material and substitutes its own opinion for that of the AO on the point as to whether action should be initiated for reopening the assessment. At the same time, it is to be borne 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 the escapement of the income of the assessee from assessment. Action u/s. 147 of the Act can not, therefore, be taken for reopening the assessment if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 u/s. 147 (a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceedings 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 issue whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the material 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 (see ITO vs. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC)". 23. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse, 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 of the Act and has held as under:- 4. The aforesaid Section is wide but it is not plenary. We have to consider and examine the crucial expression "reason to believe" used in the said Section. The Assessing Officer must have "reason to believe" that an income chargeable to tax has escaped assessment. This is mandatory and the "reasons to believe" are required to be recorded in writing by the Assessing Officer. Sufficiency of reasons is not a matter, which is to be decided by the writ court but existence of belief is the subject matter of the scrutiny. A notice under Section 148 can be quashed if the "belief" is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reason. There sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 brokers who were allegedly lending their names to assessee and that a list had been circulated to various ITOs of the hundi brokers who were allegedly indulging in malpractices. The internal audit party appears to have discovered that some of the creditors whose credits had been accepted in the assessee's case fell within this category and raised an audit objection which was the immediate provocation for the reopening of the assessment. In this case also, as in the case before the Supreme Court, there is no live connection or link established between the information or the facts, in the possession of the ITO, and the genuineness of the particular loans recorded in the assessee's books. The mere fact that the names of the some of the creditors figured in a list made out by the department would be too general and vague to lead to an inference regarding the trut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 163, 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 the section. The first proviso to section 147 has no application in the facts of this case. The basis postulate which underlies section 147 is the formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. The Assessing Officer must have reason to believe that such is the case before he proceeds to issue a notice under section 147. The reasons which are recorded by the Assessing Officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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. In other words, the reasons recorded by the AO for initiating proceedings under sec. 147 of the Act, can only be looked at for sustaining or setting aside a notice issued u/s 148 of the Act. It is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of sec. 147, that income has escaped assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot 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 suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or del ..... X X X X Extracts X X X X X X X X Extracts X X X X
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