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TMI Blog2018 (6) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) No valid material and ground justifying the reason recorded. The reasons are wholly, irrelevant, general, vague and wrong. iii) Reasons recorded based on borrowed satisfaction. 3. Because considering the facts of the case and the legal position the assessment deserves to be quashed. The Ld. CIT(A) has arbitrarily erred in confirming the Assessing Officer's action of issuing notice u/s 148 by holding the same to be in accordance with the provisions of law. 4. Because the Ld. CIT(A) has wrongly, illegally and arbitrarily confirmed the addition of Rs. 7,00,000/- made by the Assessing Officer u/s 68 of the Income Tax Act treating the receipt of share application money to be an unexplained cash investment. 5. Because the Ld. CIT(A) has erred both in law and on facts in rejecting the appellant's submission and the documents filed to prove the identity of the share applicant, their creditworthiness and genuineness of transaction. The Ld. CIT(A) has arbitrarily and wrongly held that genuineness of the transaction of share application money and the creditworthiness of the creditors are not proved. 6. Because Ld. CIT(A) has also legally erred in rejecting the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. As the balance sheet was before your goodself at the time of reasons recorded and the initiation of proceedings u/s 147 of the Act. 3. That the reason recorded by your goodself for having a belief that income has escaped assessment. The assessee has invested a sum of Rs. 7,00,000/- during the assessment year 2010-11, consideration which not been reflected by him in income tax return is not disclosed on the picture of amount. Therefore, source of Rs. 7,00,000/- is not disclosed before the Department. 4. That on perusal of the reason recorded, considering the balance sheet and on comparing the figures it apparently seems that the reasons have been recorded on mere surmises, incorrect presumption and wrong assumption of facts. In the reason recorded it is not even mentioned that how and on what basis/information/material whether or not in your possession, if any, your goodself is satisfied and has formed a belief that income of Rs. 7,00,000/- has escaped assessment. 5. That the condition precedent for taking action u/s 147 of the Act in the case of assessee firm are wholly non-existent and cannot be said to be valid in the eyes of law because section 147 of the Act mandate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in (2008) 299 ITR 383 (Del). The Hon'ble High Court approved the findings as recorded by the Hon'ble ITAT. ii) Hon'ble Allahabad High Court in the case of Indra Prastha Chemicals (P) Ltd vs. CIT reported in 271 ITR 113 wherein the facts of the case are that a notice u/s 148 of the Act was issued by the Assessing Officer on the basis of the report submitted by the Inspector of Income tax, the Hon'ble High court quashed the notice as the report submitted by the Inspector did not have any relevant material to point out that any income has escaped assessment. 9. That formation of the required belief by the Assessing Officer is a condition precedent. Without such belief, he will have no jurisdiction to initiate proceedings u/s 147 of the Act. The fulfillment of this condition is not a mere formality but it is mandatory. Any failure to fulfill that condition would vitiate the entire 148 proceedings as has been held by the Apex Court in the case of:- i) Johri Lal (HUF) vs. CIT reported in 88 ITR 439 ii) Sheo Nath Singh vs. AAC reported in 82 ITR 147 . iii) Ganga Saran & Sons (P) Ltd vs. ITO reported in 130 ITR 1. iv) ITO vs. Lakhmani Mewal Das reported in 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act. Further, Hon'ble Jaipur High Court in the case of Kishore Textiles vs. ITO (1995) 82 Taxman 312 (JP) (AT) held that where original assessment was made u/s 143(1) of I.T. Act in a summary manner, and hence where returned income was accepted in a mechanical manner without even writing a formal order, there is no question of change of opinion of the Assessing Officer and hence reopening of the assessment was valid. As it is evident that the assessee in his return of income has not disclosed the of all the parties from whom share allotted application, invested amount, purchased have been made in the year under consideration and the mode of payment being adopted by the assessee for making payment to these purchase/invested parties. Therefore, it could not be understood as to/ how the assessee is claiming that he has disclosed all the material facts in the return of income filed by him for the year under consideration u/s 139 (1) of I.T. Act. Mere filing of return of income along with Tax Audit report u/s 44AB of I.T. Act. is not found enough to establish the facts that all purchase/invested amount/purchased/share application and allotted share made by assessee in the year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 5 para 2 to page 7 para 10), contending, inter alia, that: "2. That on receipt of reason recorded objection regarding validly/issuance of notice u/s 148 of the Income Tax Act was filed. The Assessing Officer has summarily rejected the objection filed by passing a separate order mainly giving emphasis on section 147 of the Income Tax Act whereas section 147 of the Income Tax Act itself says "if the Assessing Officer has reason to believe". In the present case this basic requirement of section 147 of the Income Tax Act is absent as there is no own reason to believe of the Assessing Officer. 3. That in the assessment framed u/s 147 read with section 143(3) of the Income Tax Act, the Assessing Officer has mentioned at page 2 that search and survey action was conducted by the Income Tax Department in the case of Shri Surendra Kumar Jain and Shri Virendra Kumar Jain and incriminating documents were seized and impounded. During the proceedings it was revealed that Shri Surendra Kumar Jain and Shri Virendra Kumar Jain are engaged in the business of providing accommodation entries. The assessee has obtained accommodation entries amounting to Rs. 7,00,000/- from Shri Surendra Jain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery fairly be said that reason recorded does not exist in the Assessment Order and hence the assessment framed u/s 147 read with section 143(3) of the Income Tax Act deserves to be quashed. Hon'ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd reported in 331 ITR 236 has held that "Power to assess such other income only if income referred to in notice of reassessment has been assessed". 9. That reason recorded and consequent issue of notice u/s 148 of the Income Tax Act is also wrong and bad in law as it is not the own belief of the Assessing Officer but it is based on the information received from Commissioner of Income Tax, Aligarh. Under these facts as mentioned above the assessee company presume that even the Assessing Officer has not verified and examined the information received by him perhaps in the absence of any material with him as the same was not shown/supplied to the assessee though specific request was made. Thus it is clearly a borrowed satisfaction based on the information received from some other authorities which is legally wrong and does not fulfill the conditions as laid down in section 147 of the I. T. Act. 10 That the condition precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Aligarh Road, Hathras. Sub: Notice u/s 250(4) of the Income Tax Act, 1961 and Rule 46A of the Income Tax Rules, 1962 In connection with enquiries at the appellate stage for A.Y. 2010-11 - regarding - Sir, With reference to the papers attached alongwith the above mentioned notice dated 09.06.2015, the parawise submission per serial number of the notice is as under:- 1. (i) That during the course of entire assessment proceedings the assessee asked for the material to be provided which has been used against the assessee as mentioned in the Assessment Order while making the impugned addition u/s 68 of the Income Tax Act for so called bogus share application money received. In the objection filed before the Assessing Officer it was specifically submitted "if there is any adverse material or information in possession of your goodself the same may kindly be communicated to the assessee in the interest of natural justice to enable the assessee to file further objection, if required". The assessee was never confronted with these papers. (ii) That all the documents which are filed before Ld. CIT(A) alongwith the written submission were filed before the Assessing Officer. Neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y transaction of the assessee as on the entire page no where the name of assessee company is noted and hence no adverse inference can be drawn against the assessee from this paper. Considering the facts of the case and the submission as mentioned above not a single paper as attached with the notice u/s 250(4) can be used as an evidence against the assessee for making the impugned addition. That though already submitted during the course of assessment proceedings and before Ld. CIT(A) the assessee further wish to submit as under:- i) Reason recorded for initiating proceedings are totally wrong and against the facts of the case. ii) The assessee fully discharge their onus of proving the share application money received, share allotted to be genuine. iii) All the transaction/receipt of share application money was duly got confirmed by the investor in direct enquiry made by the Assessing Officer u/s 133(6) of the I. T. Act. iv) Without prejudice to all the submission, this is the first year of incorporation of company and hence by no stretch of imagination it can be presumed that there is any unexplained income or accumulation. If any detail or information is further requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of assessee is not mentioned and hence there cannot be any theory of the department that the assesses has given any cash. iii. Page 36 of Annexure "A-24" cannot be relied upon as on the entire paper name of assessee not mentioned. iv. No relation or any transaction either with Mr. Surendra Kumar Jain or with Mr. Vivek Bansal or with Mr. Vijay Gupta. It was specifically mentioned in the written submission filed during remand proceeding that department has not given any opportunity to get Mr. Vivek Bansal / Mr. Vijay Gupta confronted with the assessee. Even in the remand proceeding the Assessing Officer has not given any opportunity. In the absence of the same the name of these persons cannot be used against the assessee. 5. That in the remand report the Assessing Officer has given his comments only on the so called documents which were given to the assessee for the first time in the course of remand proceedings. All these documents were duly explained and once again the assessee respectfully submits that from these papers in cannot be perused that the assessee has received any accommodation entry in lieu of cash. It is also important to mention here that there is no evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. Therefore, we have to decide whether the material in possession of the AO was sufficient to from a reason to believe. Without doubt, the AO had received a report from the Investigation Wing of the Department which had comprehensively detailed the relevant facts. These facts were obtained by carrying out search and seizure operation and subsequent investigation. The provisions of search and seizure are ultimate tools in the hands of the Department and the facts gathered as a result of a search, provide a comprehensive picture of the modus operandi of the related entities. This comprehensive picture cannot be obtained by investigating a particular entity in isolation. The authorities in the inventing wing are statutory authorities who have been vested with specific powers under various provisions of the Act. A report compiled by such statutory authorities by carrying out search operation and investigation in accordance with the provisions of law, is good enough material to form a reasonable opinion in respect of an object which is covered under such report. The only reason why the requirement of "reasons to believe" has been provided in the law is because legislature intended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. In view of the above, I am of the firm opinion that AO's action of issuing notice u/s 148 is based on bonafide belief and his action is in accordance with the provisions to law. In view of the above, appellant's grounds challenging the AO's action of assuming jurisdiction u/s 148 are not accepted. These grounds of appeal are dismissed accordingly." 12. Thus, in short, the ld. CIT(A) observed that the report of the Investigation Wing, a statutory Authority, is good material for the AO to form reason of escapement of income and the AO is not required to investigate the veracity of the facts narrated in the material received by him from the Investigation Wing, where such facts were already investigated by the Investigation Wing and a report was made available to the AO. The ld. CIT(A) observed that there is no allegation of any vested interest of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els (P) Ltd. Vs. ITO', 338 ITR 51 (Del), it has been held that the reasons must be self-evident and they must speak for themselves; that the tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons; and that where the link between the information made available to the AO and the formation of belief is absent, the reasons are not sustainable. It has further been held that where there is no independent application of mind by the AO to the tangible material which forms the basis of the reasons and the reasons fail to demonstrate the link between the tangible material and the formation of the reasons to believe escapement of income, the reasons are unsustainable. 16. In the present case, like in 'Meenakshi Overseas' (supra), the link between the information available with the AO and the formation of belief by the AO is missing. No independent application of mind by the AO to the material forming the basis of the reasons recorded is evincible from the reasons. The AO, in the reasons, has just stated the information received and his conclusion about the alleged escapement of income. As to what the AO did with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent one, as is trite, where there is a cleavage of opinion between different High Courts on an issue and none of the decisions has been rendered by the jurisdictional High Court, the view in favour of the assessee needs to be followed. Hence, in deferential keeping with 'Meenakshi Overseas' (supra), the reasons recorded by the AO to form belief of escapement of income are found to be no reasons in the eye of the law. 21. Then, in "Sabh Infrastructure Limited" (supra), the Hon'ble Delhi High Court has, vide para 19 of the report, laid down the guidelines as follows, in the matters of re-opening of assessment: (i). while communicating the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the Superior Officer should itself be provided to the Assessee. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the Assessee is to be avoided; (ii). the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment - especially in those case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. This is in direct contravention of the principle of natural justice, as reiterated in "Sabh Infrastructure Limited" (supra). As noted, in the present case, the alleged material was only supplied to the assessee in the remand proceedings, where too, the objections of the assessee were not met. The ld. CIT(A) also did not deal with these objections of the AO. 24. Therefore, the reasons recorded by the AO are found to be not in accordance with law. Accordingly, they are cancelled. Too, in view of "Sabh Infrastructure Limited" (supra), none of the other decisions cited by the Department are of any aid to it. Consequently, the reassessment proceedings, culminating in the order under appeal, are also not sustainable in the eye of law and they too are cancelled. Nothing further survives for adjudication. 25. In the result, the appeal is allowed. I.T.A No. 40/Agra/2017 26. This is assessee's appeal for assessment year 2009-10, taking the following grounds: "1. Because the Ld. CIT(A) has wrongly, illegally and arbitrarily confirmed the action of the Assessing Officer for which specific grounds were taken before him challenging the validity of initiation of proceedings u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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