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TMI Blog2017 (6) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... 99 2000-2001 29.11.2000 2001-2002 31.10.2001 As far as assessment years 1998-99 and 2000-01 are concerned, assessments were originally completed u/s. 143(3) of the Act, vide order dated 23.03.2001 and 13.12.2000 respectively. In respect of A.Y. 1999-2000 and 2001-02 returns were processed u/s. 143(1) of the Act. The AO having reason to believe that income has escaped assessment on account of bogus claim of payment of commission and brokerage to M/s. Narotam Agencies, re-opened assessment u/s. 147 of the Act for the aforesaid assessment years by issuing notices u/s. 148 of the Act on 31.03.2004 for A.Y. 1998-99 and on 26.03.2004 for A.Ys. 1999-2000, 2000-2001 and 2001-02. Ultimately, the AO completed assessments u/s. 143(3) r.w.s. 147 of the Act for the aforesaid assessment yeas on 11.03.2005. While doing so, the AO added back service/commission charges paid to M/s. Narotam Agencies by treating it as bogus. Being aggrieved of the assessment orders so passed, the assessee preferred appeals before the CIT(A), inter alia, on the ground that reopening of assessment is invalid. The CIT(A) however, rejected the ground raised by the assessee on the validity of the reasses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rival contentions and perused the materials on record keeping in view the decisions relied upon. Undisputedly, in all the assessment years under appeal, the AO has re-opened the assessment by assuming jurisdiction u/s. 147 of the Act. The reasons recorded for reopening the assessment in the aforesaid assessment years as communicated to the assessee reads as under: "Notices u/s. 148 have been issued and served on you for and from A.Ys 1998-99 to 2001-02. The reasons for reopening the said assessments are as under:- "As per information received from the Assessing Officer, Madras it is found that the commission paid by you to Shri D.D.Vyas, Prop. Of Shri Narotam Agencies, 12, Errabalu Chetty Street, Chenai-1, as per details given hereunder, has been found to be bogus. Therefore, I have reason to believe that the said commission claimed as expenses has escaped assessment." As could be seen from a plain reading of the reasons recorded, on the basis of information received from the AO, Madras, to the effect that commission paid to Shri D D Vyas, Proprietor of M/s. Narotam Agencies of Chennai is found to be bogus, the AO had formed belief that by claiming commission payment as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available before the AO at the time of recording of reasons in March 2004. Therefore, it becomes clear, at the time of recording reasons, the AO had no tangible material before him to form his belief that income has escaped assessment. In other words, the formation of belief by the AO is not on the basis of concrete material/information available on record but on mere hearsay and suspicion. It is well settled principle of law that expression 'reasons to believe' as used in section 147 postulates that the belief must be of a honest and reasonable person based on reasonable grounds. The AO is required to act not on mere suspicion but on direct or circumstantial evidence. It has been held that the expression "reason to believe" is stronger than the words "is satisfied". The belief entertained by the AO should not be arbitrary or irrational and it must be based on reasons which are relevant and material. Though, the court cannot investigate into adequacy or sufficiency of reasons for formation of belief but the court certainly can examine whether the reasons are relevant and have bearing on the matters with regard to which the AO is required to entertain belief before he can issue not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the Income-tax Officer has no jurisdiction to issue a notice under section 148. Front report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year, nor could it be said that he, as a consequence of information ill possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the - requirements of either clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared that certain creditors of the assessee were mere name-lenders and the loan transactions were bogus and, therefore, proper investigation regarding the loans was necessary. It was observed that the Income-tax Officer had not set out any reason for coming to the conclusion that it was a fit case for issuing a notice under section 148 of the income-tax Act, 1961. The material that he had before him for issuing notice had not been mentioned. The facts contained in the communications which had been received were only referred to vaguely and all that had been said was that from those communications, it appeared that the alleged creditors were name-lenders and the transactions were bogus. It was held that from the report submitted by the Income-tax Officer to the Commissioner it was clear that he could not have had reasons to believe that on account of the assessee's omission to disclose fully and truly all material facts, income chargeable to tax had escaped assessment. In our judgment, the law laid down by this court in the above case is fully applicable to the facts of the present case. There can be no manner of doubt that the words "reason to believe" suggest that the belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come being not on the basis of any tangible material available before him at the time of recording of reasons, the initiation of proceedings u/s. 147 is invalid and without jurisdiction, hence, deserves to be annulled. Consequentially the assessment orders passed in pursuance thereof being invalid are also quashed / annulled. Ground no.1 in all these appeals are allowed. 6. As we have held the assessment order to be invalid and quashed the assessment orders, ground no.2 raised by the assessee challenging the addition on merit have become inconsequential and infructuous requiring no adjudication. 7. Ground no.3, which is common in all these appeals, relates to refund of excess appeal fees paid by the assessee at the time of filing of appeal before the CIT(A). 8. As it emerges from the facts on record, at the time of filing appeals against the re-assessment orders before the CIT(A), the assessee instead of depositing the actual appeal fess of Rs. .1000 paid an amount of Rs. .10,000/- Before the first appellate authority, the assessee raised a specific ground claiming refund of the excess appeal fees paid by treating it as tax paid for the years under appeal. The learned CIT(A) how ..... X X X X Extracts X X X X X X X X Extracts X X X X
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