TMI Blog2013 (4) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... MEWAL DAS [ 1976 (3) TMI 1 - SUPREME COURT] , relied upon. - ITA No. 1819/Mum/2012 - - - Dated:- 17-4-2013 - B. R. Mittal (Judicial Member) And Rajendra (Accountant Member) For the Appellant : Rakesh Joshi For the Respondent : Girija Dayal ORDER B. R. Mittal (Judicial Member) The assessee has filed this appeal for Assessment Year 2003-04 against order of Ld. CIT(A) dated 01.02.2012 taking the following grounds: 1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in reopening the assessment completed u/s. 143(3) of the Income Tax Act, 1961 without considering the facts and circumstances of the case. 2. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Assessing Officer in reopening the case u/s 148 of the IT Act on the basis of the statement of third party, without considering the facts and circumstances of the case. 3. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Assessing Officer in passing order without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of giving bogus bills and bogus share capital entries. That during the postsearch operations, it was found that assessee company have taken bogus purchases bills to the tune of ₹ 3,11,25,000/- during the financial year 2002-03, relevant to A.Y. 2003-04. As such, the Assessing Officer has reason to believe that the income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment to the extent of ₹ 3,11,25,000/- within the meaning of Section 147 of the Income Tax Act. 7. In response to above, assessee vide its letter dated 16.12.2010 filed its objection to the reopening of the assessment u/s 147 by issue of notice u/s 148 of the Act. The Assessing Officer vide its order dated 21.12.2010 rejected the objection of the assessee. A copy of the said order is placed in the paper book at pages 7 to 9. In the said order, Assessing Officer has stated in para 4 5 as under: 4. In response to the same, the authorized representative of the assessee vide its letter dated 16.12.2010 has objected the reopening of the assessment. The grounds on which the assessee has objecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a number of its companies including M/s.M/s. Talent Infoway Ltd. During the post-search operation, it was found that the appellant and taken bogus purchase bills to the tune of ₹ 3,11,25,000/- relevant to A.Y. 2003-04 from M/s.M/s.Talent Infoway of which Shri Mukesh Choksi was the Director. The reasons recorded were made available to the appellant and the objection of the appellant considered and rejected by way of speaking order passed by the Assessing Officer. The case was reopened on the basis of statement recorded u/s 132(4) of the I.T. Act,1961 of the Director Mr. Mukesh Choksi admitting providing accommodation entries through shell companies floated by him including M/s. Talent Infoway. Statement recorded u/s 132(4) has great evidentiary value and since the case was reopened on the basis of such statement it cannot held to be without any material basis. This ground of appeal is dismissed. Hence this appeal by the assessee before the Tribunal. 11. (i) Ld. AR submitted that there was a search on Mukesh Choksi on 25.11.2009 and his statement u/s 132 of the Act was recorded. In the said statement Shri Mukesh Choksi stated that he was a director in various concerns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reassessment proceeding initiated by Assessing Officer was not valid. The Ld. AR submitted that above case squarely apply to the facts of the case of the assessee. The Ld. AR also referred the decision of the Hon ble Madras High Court in the case of P.S. Veerappa Vs CIT 127 ITR 247 and submitted that if hundi loans were accepted as genuine in original assessment and subsequent reopening of assessment u/s 147 of the Act on the ground that there was prevalent at the relevant time, a hundi racket which did hawala business was not justified as the statement of hundi banker must have relation to a particular credit of the assessee. The Ld.AR submitted that Shri Mukesh Choksi in his statement nowhere stated that he provided accommodation entry to the assessee in the financial year 2002-03 and therefore it could not be stated that income chargeable to tax escaped assessment on account of failure on the part of the assessee to disclose wholly and truly the material facts of purchase of software. The AR submitted that the assessee had actually purchased software from M/s. Talent Infoway Ltd. and referred pages 42 to 50 of the paper book which are the copies of the invoices of purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware. Ld DR referred question 52 of the statement of Shri Mukesh Choksi and submitted that he stated that he was charging commission varying from 1.5% to 2.5% for giving accommodation entries towards long term/short term gains/losses/speculation profits/loss to the tune of ₹ 900 crores during the last six years. Ld. DR submitted that the assessing officer rightly and validly initiated reassessment proceedings as the assessee failed to disclose all material facts at the time of making the original assessment u/s 143(3) of the Act. Since the claim of the assessee of making purchases was not genuine, he submitted that reassessment proceedings initiated are valid and the order of CIT(A) be confirmed. 13. We have carefully considered the submissions of the Ld. Representatives of both the parties and the orders of the authorities below. We have also considered the statement of Shri Mukesh Choksi placed at pages 25 to 39 of the paper book as well as the copies of invoices placed at pages 42 to 50 of the paper book. We have also considered the original assessment order dated 17th March 2006 passed u/s 143(3) of the Act, copy placed at pages 10 to 11 of the paper book along with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting forth such other particulars as may be prescribed; and the provision of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:] ------------ ----------- ------------- (2) The Assessing Officer shall before issuing any notice under this section record his reasons for doing so. 15. In the case before us, the original assessment was made on 17.03.2006 u/s 143(3) of the Act and reopening of the assessment has admittedly taken place beyond a period of four years from the end of the relevant assessment year. On perusal of the relevant provisions reproduced hereinabove, it would appear that there are two conditions which have to be satisfied before Assessing Officer acquires valid jurisdiction to initiate reassessment proceedings u/s 147 of the Act. He must have reason to believe that income chargeable to tax has escaped assessment and secondly since original assessment was made u/s 143(3) of the Income Tax Act, he must have reason to believe that income chargeable to tax has escaped assessment inter-alia by reason of the failure on the part of the an assessee to disclose fully and tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the ITO will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is not responsibility of the assessee to advice, the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment . Their lordships of the Apex Court has held that the grounds or reasons which lead to the formation of the belief contemplated by section 147 of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the ITO to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate are not is not a matters for the court to investigate. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant 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 this 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 further stated that it is not any and every material howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. Their lordships further held that the live links or close nexus, which should be there between the material before the ITO and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter s failure or omission to disclose fully and truly all material facts was missing, and it was held that the said material could not have led to the formation of the belief that the income of the assessee had escaped assessment because of his failure or omission to disclose the fully and truly all material facts. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pened the assessment merely on suspicion. The Tribunal observed as under: In the instant case, as a result of investigation and raids conducted by the Department from time to time, a number of bankers made admissions in writing that they did havala business and on the basis of such admissions a list pertaining to Madras area was compiled giving the names of such hundi brokers. The name of the hundi banker, Seth Paleraj Govindram, who is alleged to have given a hundi loan of ₹ 15,000 on 2 nd Jan. 1959 to the appellant, finds a place in the list. A statement has been recorded from the said hundi banker on 9 th Feb. 1965 wherein he has categorically admitted that he has been doing havala business. Another list of hundi bankers in Madras, who have not themselves made admission in writing but in respect of whom certain borrowers had stated in writing that their loan transactions with these bankers were bogus, was complied and in this list the name of Dwarkadas Chaithram, who is alleged to have given a loan of ₹ 20,000 to the appellant on 6 th March, 1959, finds a place. It is on the basis of these investigations conducted by the IT Department, the ITO came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee failed to disclose fully and truly all material facts due to which assessment to the extent of ₹ 3,11,25,000/- escaped assessment. We observe that Assessing Officer has no other material to form the above belief that the said purchases were bogus by the assessee in financial year 2002-03, nor in the statement made by Shri Mukesh Choksi, there is any reference of said purchases by the assessee from M/s. Talent Infoway Ltd. There is nothing in the said statement that said concern issued bogus bills to the assessee in the financial year 2002-03. There is no specific reference/confession in respect of the transaction with the assessee that the said purchases made by the assessee were bogus. In view of above decision of the Hon ble Apex Court (supra), we observe that in the absence of any confession related to the transaction with the assessee, it could not be said that there is a live link or close nexus between the material before the assessing Officer and the statement of Shri Mukesh Choksi to form a belief that there is an escapement of income for assessment year 2003-04 because of assessee s failure or omission to disclose fully and truly all material facts. The said nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year. It is not authorized to refer to any other reason even if it can be otherwise inferred and/or gathered from the reports. The Hon ble Allahabad High Court has also held in the case of Dass Friends Builders Pvt. Ltd. vs. DCIT 280 ITR 77 that u/s 147 of the Act the words has reason to believe and not reason to suspect . ITAT Delhi Bench in the case of ACIT vs. Star Ferro Alloys Pvt. Ltd. 90 ITD 63 has held that proceedings u/s 147 of the Act could not be resorted to for making roving inquiries. 22. Considering the above cases and the ratio laid down therein, we hold that the Assessing Officer has failed to establish that the assessee did not disclose fully and truly all material facts at the time of making the original assessment u/s 143(3) of the Act. Assessing Officer s belief that income chargeable to tax has escaped assessment relating to assessment year under consideration viz Assessment Year 2003-04 is based only on the statement of Shri Mukesh Choksi which is a general statement and no reference of any transaction with assessess is mentioned therein nor any material has been brought on record in the assessment order that there was any material which came to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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