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TMI Blog2016 (1) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried out in the case of M/s. Mahasagar Securities Pvt. Ltd. and its group concerns on 25.11.09 and that during the course of search action, it was found that M/s. Mahasagar Securities Pvt. Ltd. and its group concerns were engaged in fraudulent billing activities and in the business of providing bogus speculation profit/loss, short term/long term capital gain/loss etc. The name of the assessee was also listed in the list of beneficiaries extracted from the computer data of Shri Mukesh Chokshi, the Director of said M/s. Mahasagar Securities Pvt. Ltd. The assessment of the assessee was, thus, reopened which was originally processed under section 143(3) of the Act. The AO accordingly in the reopened assessment proceedings held that the purchase and sale transactions of the shares carried out by the assessee was bogus and he accordingly taxed the entire sale consideration of shares of Rs. 44,22,227/- under the head 'Income from other sources'. Being aggrieved, the assessee preferred appeal before the Ld. CIT(A). 3. The Ld. CIT(A) confirmed the additions so made by the AO. 4. Before us, the Ld. A.R. of the assessee has stated that the issue is squarely covered with the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based on the report received from the Investigation Wing and there is no independent application of mind by the AO. In support of his contention, the Ld. Counsel placed reliance on the decision of the Hon'ble Delhi High Court in the case of Sarthak Securities Co. P. Ltd. 329 ITR 110. 6.1. The second proposition put forth by the Ld. Counsel is that there is no proper sanction/approval as per the provisions of Sec. 151(2) of the Act. In support of this contention, reliance was placed on the decision of the Tribunal Mumbai Bench in the case of Shri Amarlal Bajaj in ITA No. 611/M/04. 6.2. The las t propos i t ion made by the Ld. Counsel i s that the assessment has been framed in haste without allowing the time after rejection of objection. It is the say of the Ld. Counsel that once the AO rejects the objection filed by the assessee, then in such a case the AO should not proceed further in the matter for a period of 4 weeks. Reliance was placed on the decision of the Hon'ble Jurisdictional High Court in the case of Asian Paints Ltd. 296 ITR 90 and Aroni Commercials Ltd. 362 ITR 403. 7. Per contra, the Ld. Departmental Representative strongly supported the orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no application of mind. In our considered opinion, formation of belief that income has escaped assessment is a condition precedent. We find that the facts of the present case are identical to the facts of the case decided by the Hon'ble Delhi High Court in the case of Sarthak Securities Co. P. Ltd (supra) wherein also the original return was processed and intimation was sent u/s. 143(1) of the Act accepting the return. The notice u/s. 148 of the Act was issued by the AO alleging that he has reason to believe income chargeable to tax for the assessment was 2003-04 has escaped assessment within the meaning of Sec. 147 of the Act and accordingly required the assessee to file the return for the assessment year in consideration. The assessee submitted the return of income as filed earlier should be treated as the return in compliance with the notice under reference. The assessee also requested to provide a copy of the reasons recorded it/s. 148(2) and the approval for issuance of notice. While furnishing the reasons, the ITO also initiated reassessment proceedings by issuing formal notice. On a writ petition, the Hon'ble High Court held as under: "Held, allowing the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate: 26/03/2010 The Deputy Commissioner of Income-Tax, Circle-1,Kalyan Sub . Proposal for initiating proceedings u/s 147 in group cases of benef iciaries of Mahasagar Securi ties Pvt. Ltd. (now Alag Securities Pvt. Ltd.) share scam -reg. Ref . Statement dated 11/12/2009 u/s 131 of Shri M. C. Chowksi by DDIT, Mumbai. Please refer to the above. On perusal of the proposals for initiating proceedings u/s 147, you are hereby directed to issue notice u/ 148. The proposals in the following cases are approved: (1) Mr. Gaiitamchand M. Kanunga (2) Mr. Gautamchand M. Kanunga (HUF) (3) Mr. Hirachand M. Kanunga (HUF) (4) Mr. Hirachand M. Kanunga (5) Miss Sonamn G. Kanunga (Minor) through Shri Gautamnchand M. Kanunga (6) Miss Lavina V. Kanunga (Minor) through Shri Vimaichand M. Kanunga (7) Master Kenil G. Kanunga (Minor) through Shri Gautamnchand M. KanUnga (8) Master Nilesh H. Kanunga (Minor) through Shri Hirachand M. JKanunga (9) Sint. Manjula H. Kanunga (10) Miss. Deepika H. Kanunga (Minor) through Shri Hirachand M. Kcmnunga (11) Miss. Simnran H. Kanunga (Minor) through Shri Hirachand M. Kanunga (12) 5mm' Damayanti Ramesh Gada (13) Shri. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case the letter which is placed on record shows that the Addl. Commissioner has simply sanctioned the proposal for initiating proceedings u/s. 147 in group cases of beneficiaries of Mahasagar Securities P. Ltd. Nowhere the Addl. CIT has recorded his dissatisfaction. The Hon'ble Supreme Court in the case of Chhugamal Rajpal Vs S.P. Chaliha & Others 79 ITR 603 observed that the important safeguards provided in Sec. 147 and 151 were lightly treated by the Income-Tax Officer as well as the Commissioner. 11. In the light of the above mentioned reasons, in our considerate view, Section 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case as in the present case also the Commissioner has simply mentioned "approved" to the repor t submitted by the concerned AO. In the light of the ratios/observations of the Hon'ble High Court mentioned hereinabove, we have no hesitation to hold that the reopening proceedings vis-à-vis provisions of Sec. 151 are bad in law and the assessment has to be declared as void ab initio. 14. Proceeding further, a perusal of the assessment order show that the AO has supplied the reasons recorded on 15.11.2010. The assessee filed his objection on 25.11.2010. The objections filed by the assessee were rejected on 14.12.2010 and the as sessment order was made on 24.12.2010. Thus the AO did not wait for four weeks from the date of the rejection of the objections and thereby violated the principles enunciated by the Hon'ble Jurisdictional High Court in the case of Asian Paint Ltd. (supra) wherein the Hon'ble High Court has observed as under: "Reassessment-Notice u/s. 148- Objections by assessee-If the AO does not accept the objections filed by the assessee against reopening of assessment, he is not to proceed further in the matter for a period of four weeks f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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