TMI Blog2013 (6) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... der :- (Page no.2) Information has been received from ADIT(Inv)-1,Agra that M/s Rashi Buildcon Pvt. Ltd., Saraswatpara, Farah, Dist. Mathura has received following accommodation entries from M/s Aayushi Stock Brokers (formerly known as Cosmos Financial Services Pvt. Ltd., 38-4B/IF, Friends Centre, Sanjay Place, Agra :- Instrument No. Instrument date Bank details Amount Clearing date 78483 10.10.2003 Canara bank, Kamla Nagar, Agra 1500000 11.10.2003 78489 13.10.2003 ----do---- 1500000 14.10.2003 78490 14.10.2003 ----do---- 80000 15.10.2003 3800000 M/s Rashi Buildeon Pvt. Ltd., Farah (PAN AAHCS0929E) was earlier filing its return of income in the name of M/s Sagar Sopas Pvt. Ltd., Firozabad B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was requiring funds for investments and that is why he resorted to take shelter of accommodation entries buy becoming part of this racket. As such he ploughed back his own undisclosed money with the help of accommodation entry operators. The fact is that these shares were never purchased by the assessee in the financial year 2002-03, copy of bank account of M/s Aayushi Stock Broker, details of brokerage and other relevant details required during the course of assessment proceedings. All the documentary evidences brought on record and discussed above and the circumstantial evidences establish that the assessee has failed to substantiate the genuineness of the said credits. The assessee has thus failed to discharge his onus in this regard to substantiate the genuineness of the credit entry of ₹ 38,00,000/- in the bank account with Canara Bank, Agra. Hence, the amount of ₹ 38,00,000/- is held to be unexplained and is ordered to be added to the income of the assessee as income from other sources. Besides that it is apparent that the entry of the alleged transactions of shares amounting to ₹ 38,00,000/- would have been taken on commission @ 0.25%, the rate prevale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. CIT (2011) 15 Taxman.com 184 in which, reopening of proceeding u/s 147 is held to be valid because return of income was earlier processed u/s 143(1)(a) only. In the present case under appeal also, the initial return filed by the assessee was processed u/s 143(1)(a) only and information was received by the AO that bogus entries of Long Term Capital Gain was provided by certain brokers to a number of assessee in Agra in which, name of the assessee (appellant) was also included and hence, such information provided a cause to the AO to reopen the case of the assessee (appellant) u/s 147 as pr the decision of Hon ble Supreme Court in case of ACIT Vs. Rajesh Jhaveri Stock brokers Pvt. Ltd. (supra). After going through the case record, I have found that the AO has recorded the reason for escapement of income on the basis of the information provided by the Investigation Wing about receipt of ₹ 38 lac shown by the assessee on account of sale of share being in fact, an accommodation entry and such information which provided trigger point to the AO is the cause for the reopening of the assessment proceeding of the assessee(appellant) especially, when its earlier return was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese three companies. The relevant finding of CIT(A) is reproduced as under :- (Page no.19) 6.5 In view of my above findings that the Ld. AR has failed to establish the source of acquisition of shares of three companies which have been claimed to be sold during the year under consideration for explaining the receipt of ₹ 38 lac, I find that the AO is correct in holding that the amount of ₹ 38 lac is unexplained and liable to be added as undisclosed income of the assessee(appellant) under the head income from other source and this amount is in the nature of unexplained money should be added as per provision of section 69A of the Income Tax, 1961 because if acquisition of alleged shares is not established, their sale claimed to have been made without mentioning their distinctive numbers in the sale bill cannot be said to be genuine sale of shares to explain receipt of ₹ 38 lac. Since the amount of ₹ 38 lac has been found to be in the nature of an accommodation entry and such accommodation entry in the market are provided only on payment of certain commission and the O has computed a very reasonable amount of ₹ 9,500/- @ 0.25% of the amount of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (92,000 shares @ 25.36 each) - 2333120/- C. Anupam Tiles Private Limited (1,00,000 shares @ 10 each) 1000000/- - D. Aspen Holdings Private Limited (10,000 shares @ 100 each) 1000000/- - E. B.V. Finance Leasing Private Limited (11,000 shares @ 100 each) 1100000/- - G. Prash Printing Publications Pvt. Ltd. (4000 shares @ 500 each) 2000000/- - H. SIF Pipe Metal Private Limited (25,000 shares @ 10 each) 250000/- - Total Investment 14581550/- 19906000/- 12. From the above investment schedule, the ld. Authorised Representative pointed out that the assessee has clearly shown the investment in three companies namely M/s. Anupam Tiles Pvt. Ltd. ₹ 10,00,000/-, M/s. B.V. Finance Leasing Pvt. Ltd. ₹ 11,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Balbir Chand Maini vs. CIT Another, 340 ITR 161 (P H). He has also relied upon the order of I.T.A.T. in the case of ITO vs. Shri Sayendra Sharma in ITA No.584/Agr/2008 vide order dated 25.06.2010. 15. We have heard the ld. Representatives of the parties, records perused and gone through decisions cited. Since the first effective ground of appeal is in respect of section 147 of the Act, to examine the issue, we would like to reproduce the relevant section 147 of the Act as under :- [ Income escaping assessment. 147. 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 153, 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 this section, or re compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s judgment it was held that from the plain phraseology of the sections of the Act, it appears that two conditions precedent which are required to be satisfied before an Income-tax Officer can acquire jurisdiction to proceed under clause (a) of section 147 read with sections 148 and 149 of the Act, beyond the period of four years but within a period of eight years from the end of the relevant year, are : (a) that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to tax had either been under assessed or had escaped assessment and (b) that the Income-tax Officer must have reason to believe that such escapement or underassessment was occasioned by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Both these conditions must co-exist in order to confer jurisdiction on the Incometax Officer. The Income-tax Officer is obliged, before initiating proceedings under section 148 of the Act, to record the reasons for the formation of his belief to reopen the assessment. S.P. Agarwalla alias Sukhdeo Prasad Agarwalla vs. ITO [1983] 140 ITR 1010 (Cal.) - In this judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned. ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) - In this judgment it was held that 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a hearing on the matters in regard to which he is required to entertain the belief before he can issue notice under S. 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that,. on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped .( See also.(2004) 271 ITR 113 (SC) Indra Prastha Chemicals P. Ltd v CIT) ITO vs. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239 (SC)/Raymond Woollen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC) - In these judgments it were held that Belief should not be arbitrary or irrational but based on relevant and material reasons - The important words under section 147 are has reason to believe and these words are stronger than the words is satisfied . The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter, the Assessing Officer completed the assessment holding that the land sold by the assessee was a capital asset within the meaning of section 2(14) and, accordingly, determined long-term capital gain accrued to the assessee. On appeal, the Commissioner (Appeals) held that merely by saying that the issue required much deeper scrutiny, no belief could be said to have been formed entitling the assessing authority to issue a notice under section 148 in order to initiate reassessment proceedings; and that no new fact or any other material had been brought to the file from the date on which the earlier return had been processed to the date when the reasons were recorded and, therefore, the assuming of jurisdiction by the Assessing Officer under section 147 and the issuance of notice under section 148 were illegal. Therefore, the Commissioner (Appeals) annulled the assessment. The Tribunal upheld the order of the Commissioner (Appeals).On appeal the court held that a reading of the reasons recorded did not disclose that the Assessing Officer, in fact, had reasons to believe that any income had escaped assessment. It is not just the belief of the Assessing Officer that is material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year was processed under section 143(1). However, thereafter, the Assessing Officer issued it a notice under section 148 on the ground that on the basis of information received from the investigation wing, he had reason to believe that the assessee had received accommodation entries from four companies as share application money or as unsecured loan. The assessee filed objections stating that the reasons did not disclose the basis on which the Addl. DIT had termed the receipt of money by the assessee from four incorporated bodies towards share application money as bogus accommodation entries; that blind acceptance of the information furnished by the Addl. DIT could not form reasons leading to the belief by the Assessing Officer of any escapement of income and the Assessing Officer had to independently apply his mind to the information received from the Addl. DIT and arrive at the belief that income had escaped assessment; and that even as per the alleged information provided by the Addl. DIT himself, all the four companies had bank accounts and payments were made by them to the assessee-company through banking channels. The Assessing Officer rejected the assessee s objections. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer 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 advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atta Co. [2008] 174 Taxman 444 (Delhi) and eventually held thus :- 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 sentences 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 under section 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 147/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Inv.) to issue a notice under section 148 and the third sentence again comprised 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. It was 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. These could not be the reasons for proceeding under section 147/148. From the so-called reasons, it was 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. The court held that Therefore, the reassessment was not valid. 17. In the light of above back ground of discussions, we noticed that one of the conditions which must be satisfied before the A.O. can assume jurisdiction under section 147 of the Act that, he must have reason to believe that the income of the assessee has escaped assessment. If this condition is not fulfilled, the notice issued by the A.O. would be without jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court in the case of Income-tax Officer, I Ward Distict VI Calcutta vs.. Lakhmani Mewal Dass, 103 ITR 437 where the Apex Court observed that reason to believe does not mean reason to suspect . The reasons for the formation of the belief contemplated u/s 147 of the Act necessary for reopening of an assessment must have a rational connection 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 ITO and the formation of his belief that there has been escapement of income of the assessee. The apex Court further observed that it was not 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. Again this issue was considered by the Hon ble Supreme Court in the case of Ganga Saran Sons (P.) Ltd. vs. ITO reported in 130 ITR 1, where the apex court observed that expression reason to believe was stronger than the words satisfied . The belief entertained by the A.O. must not be arbitrary or irrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 147 of the Act that, he must have reason to believe that the income of the assessee has escaped assessment. If this condition is not fulfilled, the notice issued by the A.O. would be without jurisdiction. In the case under consideration, the A.O. issued notice under section 148 of the Act without jurisdiction. In the light of the fact, the order of the A.O. is liable to be quashed, we do accordingly by allowing ground of appeal of the assessee on the issue. 21. As regards merit of the case, we find that under similar facts and circumstances the I.T.A.T., Agra Bench has taken a view in favour of the assessee in the case of Shri Ashok Kumar Lavaniya, Prop. Bajrang Automobiles, Agra in ITA No.112/Agr/2004 vide order dated 30.05.2008. The same has been followed by I.T.A.T. Agra Bench in case of Shri Baijnath Agarwal, Prop. M/s. Baijnath Scrap Centre in ITA No.133/Agr/2005 vide order dated 13.04.2010. It has also been noticed that on identical set of facts the I.T.A.T., Allahabad Bench in ITA Nos.84 85/Alld/2013 in the case of Shri Ashok Kumar Arora vs. ITO vide order dated 13.05.2013 has decided the issue as under :- 13. We have heard the ld. Representatives of the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. As regards the merit of the case, we find that the case of the assessee is covered by various orders on identical set of facts. In the case of Dalpat Singh Chaudhary vs. ACIT (supra), the I.T.A.T., Jodhpur Bench in a case where shares were sold through M/s. M.K.M. Finsec Pvt. Ltd., the I.T.A.T., Jodhpur Bench has decided the issue in favour of the assessee. The relevant finding is reproduced as under :- 11. We have heard rival submissions and considered them carefully. After considering the submissions and perusing other material on record, we find that assessee deserves to succeed in his appeal. It is seen that assessee purchased shares of M/s Elite Capital Management Services (P) Ltd., 61,700 shares for a consideration of ₹ 92,550. These shares were purchased between 10th April, 2000 to 17th May, 2000. The payments were made in cash, copy of ledger account is placed at p. 228. The copy of certificate confirming the sale of shares to assessee is placed at p. 229 of the paper book. Copy of account of M/s Elite Capital Management Services (P) Ltd. certifying that 61,700 shares have been demated in the name of the assessee is placed at p. 320 of the paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es should have been treated as genuine. Similar issue came before the various Benches of the Tribunal and time and again the Benches have decided that without bringing any cogent material on record, the claim of assessee cannot be denied in regard to sale of shares. 14.1 The Hon ble Delhi High Court in the case of CIT vs. Vishal Holding Capital Pvt. Ltd., 200 Taxman 186 (Delhi) (Mag.), on identical set of facts has held as under :- 6. We are of the view that the assessee had produced copies of accounts, bills and contract notes issued by M/s. MKM Finsec Pvt. Ltd. and had been maintaining books of account as per Companies Act. The assessee had also demonstrated the purchase and sale of shares over a period of time as seen from the balance sheet/s. In our opinion, the AO has simply acted on the information received from the Investigation Wing without verifying the details furnished by the assessee. The assessee has also produced best possible evidence to support its claim. Consequently the addition made by the AO cannot be sustained. 14.2 Hon ble Allahabad High Court in the case of CIT vs. Sudeep Goenka in Income Tax Appeal No.468 of 2009, judgment dated 03.01.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted the similar additions and no reliance was placed on the statement of Shri Mukesh Gupta and his wife. The order of the Tribunal has been confirmed by the Hon ble Allahabad High Court vide order dated 15.02.2011. In the aforesaid decision, it was found that those assessees had obtained shares in preferential allotment directly from the companies and the purchases declared in the balance sheet of earlier years, which were accepted by the department. Shares were sold to the registered stock brokers and stock exchange. Brokers have confirmed that money was given through draft. Hon ble Allahabad High Court, therefore, on consideration of these relevant considerations, confirmed the findings of the Tribunal that the sales are not sham transactions. According to the AO, the facts of these cases are identical to the case of the assessee, therefore, when in the identical cases of the family members of the assessee, additions have been deleted by the Tribunal and the order of the Tribunal have been confirmed by Allahabad High Court, therefore, on such reason itself, the departmental appeal is liable to be dismissed. Further, the assessee has filed proper evidences before the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved by M.P. Stock Exchange. The ld. CIT(A) asked the Income-tax Authorities to produce all relevant evidences and material before him to prove that the assessee has accepted bogus accommodation entry, but no material was produced before him in this regard. Therefore, the ld. CIT(A) on proper appreciation of facts and material on record rightly deleted the addition. Further, whatever material was collected at the back of the assessee was not forwarded to the assessee. Therefore, same cannot be read in evidence against the assessee. Since, it is departmental appeal and no material is produced before us to rebut the findings of the ld. CIT(A), therefore, we do not find any justification to interfere with the order of the ld. CIT(A) in deleting the addition. In the result, the departmental appeal fails and is dismissed. 14.4 In the case under consideration, we find that the assessee has furnished the relevant details like contract notes, delivery notes, sale of shares and purchase bill etc. and in the light of the fact, we find that the cases under consideration are squarely covered by the above orders including the order of I.T.A.T., Agra Bench in ITA No.226/Agra/2010 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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