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Goodluck Commercials Ltd. Versus The Income Tax Officer Ward No. 12 (2) , New Delhi

Reopening of the assessment u/s 147/148 - additions u/s 68 and on commission under section 69A - independent application of mind - information received from Investigation wing - Held that:- A.O. recorded incorrect facts in reasons for reopening of assessment. The reasons failed to demonstrate that the link between the tangible material and the formation of the reasons to believe that income has escaped assessment. The A.O. had not independently considered the tangible material which formed the b .....

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sis of the reasons to believe that income has escaped assessment. The conclusion of the A.O, at best, are reproduction of the conclusion of the Investigation report. Thus, it is clearly a borrowed satisfaction. Appeal of the assessee is allowed. - ITA.No.915/Del./2017 - Dated:- 13-9-2017 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER For The Assessee : Shri O.P. Mody, Advocate. For The Revenue : Shri T. Vasanthan, Sr.D.R ORDER This appeal by assessee has been directed against the order of the Ld. CIT(A) .....

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1) of the I.T. Act. An information was received from O/o. DIT (Investigation), New Delhi, vide letter dated 31st January, 2007 and dated 05th February, 2007 that assessee had taken accommodation entry of ₹ 34,50,200 from various entities credited in assessee s Bank Account maintained with State Bank of India. The above information and enquiries made by the Investigation Wing led to the belief that the transaction is clearly an accommodation entry and belief was formed that assessee had tak .....

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umar Jindal under section 131 of the I.T. Act on 15th April, 2004, in which, he had admitted that through the various companies floated by him, he had carried out the business activities of providing bogus accommodation entries. The A.O. after giving an opportunity of being heard to the assessee, made addition of ₹ 34,50,200 under section 68 of the I.T. Act and also made addition of ₹ 3,450 on account of commission for providing such accommodation entries. The total addition was made .....

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ayment of the debt of earlier years. In case of Riya Investment ₹ 2 lakhs was paid on behalf of M/s. Jagan Institute of Management of Society being the amount due to the assessee from them under their instructions. Copies of their ledger account is filed at page 9 of the paper book. Page-10 is the letter of M/s. Riya Investments in which they have confirmed repayment of the above amount. Copy of the account and letter of M/s. Jagan Institute of Management are filed at page 12 and 11 of the .....

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d., as due to the assessee. Learned Counsel for the Assessee, therefore, submitted that all amounts were outstanding for earlier years which have been repaid in the assessment year under appeal. Therefore, A.O. has merely copied the report of the Investigation Wing in the reasons and without applying the mind, reopened the assessment. In support of his contention, he has relied upon the decision of the Hon ble Delhi High Court in the case of Pr. CIT vs. G And G Pharma India Ltd., (2016) 384 ITR .....

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pon the decision of Hon ble Supreme Court in the case of Raymond Woollen Mills Ltd., vs. ITO (1999) 236 ITR 34 (SC) in support of the proposition that at the stage of reopening of the assessment, prima facie some material is to be seen which is the basis for reopening of the assessment but sufficiency or correctness of such material could not be considered. He has also relied upon the decision of Hon ble Supreme Court in the case of Yogendra Kumar Gupta vs. ITO (2014) 227 Taxman 374 (SC) in whic .....

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have to be seen, may be which is the repayment of the loan. 5. I have considered the rival contentions and perused the material on record. It is well settled law that validity of re-assessment proceedings, have to be judged on the basis of the reasons recorded by A.O. for reopening of the assessment. The assessee has filed copy of the reasons recorded under section 148 of the I.T. Act for the purpose of reopening of the assessment at page-1 of the paper book and the same is reproduced as under : .....

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taken Dt. of entry From whom taken Rs.2,20,000 19.01.2000 Ika Processors & Distributors Pvt. Ltd., (A/c No.19041 with UBI, Azadpur). Rs.2,00,200 15.01.2000 Riya Investment (A/c No.28265 with UBI, Azadpur) Rs.1,00,000 20.12.1999 Precision Agencies Pvt. Ltd., (A/c.No.43145 with SBI, Shakti Nagar) Rs.5,30,000 21.12.1999 Precision Agencies Pvt. Ltd., (A/c.No.43145 with SBI, Shakti Nagar) Rs.7,00,000 04.01.2000 Precision Agencies Pvt. Ltd., (A/c.No.43145 with SBI, Shakti Nagar) Rs.5,00,000 01.10. .....

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Bagh, new Delhi. Return of income filed also shows that assessee has bank account with Bank of Baroda, Shalimar Bagh and UCO Bank. On investigation made by the investigation wing it has been found that assessee is a beneficiary of taking the aforesaid accommodation entries of ₹ 34,50,200/-. In view of the above information, it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entry. Prima facie, the investigations and enquirie .....

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this is a fit case for initiation of proceedings under section 147 of the Income Tax Act, 1961. Submitted for kind perusal and approval as per provisions of Section 151(2) of the Act. Sd/-Arun Kumar Dt.28.03.07 5.1. Learned Counsel for the Assessee has filed copies of the ledger account and letters of various parties who are mentioned in the reasons recorded above who have allegedly provided accommodation entry to assessee to show that either the amounts were opening balance or the amounts have .....

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the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: The information so received has been gone through. One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the .....

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alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of ₹ 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... 22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the info .....

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t to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of .....

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ings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147will not apply. In other words, even though the reopening in the present case was after the expiry of four ye .....

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n independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material an .....

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AO in a proforma and placed before the CIT for approval read thus: 11. Reasons for the belief that income has escaped assessment.- Information is received from the DIT (Inv.-1), New Delhi that the assessee has introduced money amounting to ₹ 5 lakh during the F.Y. 2002-03 relating to A.Y. 2003-04. Details are contained in Annexure. As per information amount received is nothing but accommodation entry and assessee is a beneficiary. 28.2. The Annexure to the said proforma gave the Name of t .....

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#8377; 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. .....

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basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment. 28.4. The Court in Signature Hotels Pv .....

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andewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter-alia reported as under: Entries are broadly taken for two purposes: 1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets .....

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in which entry was taken and the account from where the entry was given the details of those banks. The reasons then recorded: The transactions involving ₹ 27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed. On the basis .....

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of revealing what is contained in the investigation report specific to the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does .....

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ng the financial year 1996-97, as per the deposition made before them by Shri Sanjay Rastogi, CA during a survey operation conducted at his office premises by the Investigation Wing. The particulars of some of the transaction of this nature are as under: Date Particulars of cheque Debit Amt. Credit Amt 18.11.96 305002 5,00,000 Through the Bank Account No. CA 4266 of M/s. Mehram Exports Pvt. Ltd. in the PNB, New Rohtak Road, New Delhi. Note: It is noted that there might be more such entries apart .....

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T, Range -12, New Delhi for approval to issue notice under Section 148 for the assessment year 1997-98, if approved. 30.2. The AO was not merely reproducing the information received from the investigation but took the effort of referring to the deposition made during the survey by the Chartered Accountant that the Assessee company was involved in the giving and taking of bogus entries. The AO thus indicated what the tangible material was which enabled him to form the reasons to believe that inco .....

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he entry provided were set out in the 'reasons to believe'. However, the Court found that the AO had not made any effort to discuss the material on the basis of which he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Cou .....

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met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise. 33. In Rustagi Engineering Udyog (P) Limited (supra), it was held that ...the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped assessment. Concededly, the AO had no tangible material in regard to any of the transactions pertaining to the relevant assessment years. Althoug .....

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as further emphasized that mere allegation in reasons cannot be treated equivalent to material in eyes of law. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessments. 35. In the decision of this Court dated 16th March 2016 in W.P. (C) No. 9659 of 2015 (Rajiv Agarwal v. CIT) it was emphasized that even in cases where the AO comes across certain unverified information, it is necessary for him to take fur .....

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essment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the .....

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ch satisfaction, would not be a mere repetition of the report of Investigation Wing. In the assessee s case, the crucial link between the information made available to the A.O. and the formation of the belief was absent. The reasons to believe recorded were not reasons but only conclusions and the reproduction of the conclusion in the Investigation Report received from the Director of Investigation. It was a borrowed satisfaction. The expression accommodation entry was used to describe the infor .....

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the reasons. Learned Counsel for the Assessee filed copy of the ledger account and letters of the parties who are named in the reasons recorded under section 148 of the I.T. Act, to show that the amounts were due to the assessee from earlier years and the amounts in question are repayment of the debts in assessment year under appeal. The A.O. recorded incorrect facts in reasons for reopening of assessment. The reasons failed to demonstrate that the link between the tangible material and the form .....

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