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TMI Blog2018 (10) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for reopening of the assessment, which is kept at page 40 and 41 of the paper book. 4. Thereafter the assessee filed its objection before the AO to the proposed reopening of the assessment vide letter dated 13.08.2015 which is found placed at pages 42 to 46 of the paper book. However, it was brought to our notice that the AO did not dispose of the objection as per the mandatory direction of the Hon'ble Supreme Court in GKN Driveshaft (India) Ltd. Vs. ITO & Ors. (2003) 259 ITR 19 (SC) which he is bound by law to obey and according to ld AR, the AO ought to have disposed off the objection raised by the assessee, which omission on the part of the AO itself makes the order fragile in the eyes of law. Despite this illegal omission, we note that thereafter the AO framed the reassessment vide order dated 18.09.2017 after the DRP direction on 29.08.2017 wherein the ld DRP did not adjudicate the legal issue raised before it on the reasoning that the ld DRP does not have the power to annul the assessment. Aggrieved by the aforesaid decision of ld DRP and assailing the action of the AO in assuming jurisdiction to reopen the regular-assessment u/s. 143(3) of the Act, the assessee is before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT Vs. Tupperware India Pvt. Ltd. (2016) 236 Taxman 494 (referred to page 3 para 6 and 9) viii) DCIT Vs. National Bank for Agriculture and Rural Development ITA No.4964/Mum/2014 (referred to page 10- 13 para 12) 6. It has been brought to our notice that since the objection raised by the assessee against the reopening has not been disposed of as per the direction of the Hon'ble Supreme Court in GKN Driveshaft (India) Ltd., supra, which omission to do so by AO also makes the order of the AO bad in law The Ld. AR drew our attention to the decision of the Hon'ble High Court of Delhi in ACIT Vs. Meenakshi Overseas (P) Ltd. (2017) 82 taxmann.com 300 (Del) wherein it has been held as under: "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 information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying "unaccounted cash" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and the formation of the belief or the reason to believe that income has escaped assessment. 27. Each case obviously turns on its own facts and no two cases are identical. However, there have been a large number of cases explaining the legal requirement that requires to be satisfied by the AO for a valid assumption of jurisdiction under Section 147 of the Act to reopen a past assessment. 28.1 In Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra), the reasons for reopening as recorded by the 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 Rs. 5 lakh during the F.Y. 2002-03 relating to A.Y. 2003-04. Details are contained in Annexure. As per information amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under: "Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, 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 etc., in the form of gifts, share application money, loans etc. 2. To inflate expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. It has been revealed that the following entries have been received by the assessee:...." 29.2 The details of six entries were then set out in the above 'reasons'. These included name of the beneficiary, the beneficiary's bank, valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from the above. The return of income for the assessment year 1997-98 was filed by the Assessee on 4th March 1998 which was accepted under Section 143 (1) at the declared income of Rs. 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of Rs. 5,00,000 (as mentioned above) has escaped the assessment within the meaning of the proviso to Section 147 and clause (b) to the Explanation 2 of this section. Submitted to the Additional CIT, 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 income h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the reasons to believe "should have a link with an objective fact in the form of information or materials on record..." It was 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 further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment." 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court ultimately held that initiation of proceedings u/s 148 of the Act was not valid and justified in the eyes of law. The facts and circumstances in the present case are identical to the case decided by the Hon'ble Delhi High Court. Following the said decision we hold that initiation of reassessment proceedings is not valid. On this ground, the assessment is liable to be annulled." 8. The Hon'ble Bombay High Court in Pr.CIT Vs. Shodiman Investiments (P) Ltd. (2018) 93 taxmann.com 153 (Bom) it has been held as under: "9. We find that at the time of re-opening of the Assessment, the Assessing Officer did not provide the reasons recorded in support of the re-opening notice in its entirety, to the Respondent-Assessee. This was contrary to and in defiance of the decision of the Apex Court in GKN Driveshafts v. ITO [2002] 125 Taxman 963/ [2003]259 ITR 19. The entire objects of reasons for re- opening notice as recorded being made available to an Assessee, is to enable the Assessing Officer to have a second look at his reasons recorded before he proceeds to assess the income, which according to him, has escaped Assessment. In fact, non furnishing of reasons would make an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sentence being relied upon was made in the context of the change in law that under the amended provision 'reason to believe' that in case of escaped assessment, is sufficient to re-open the assessment. This unlike the earlier provision of Section 147(a) of the Act which required two conditions i.e. failure to disclose fully and truly all facts necessary for assessment and reason to believe that income has escaped assessment Thus, the observations being relied upon must be read in the context in which it rendered. On so reading the submission, will not survive. 11. Further, a reading of the entire decision, it is clear that the reasonable belief on the basis of tangible material could be, prima facie, formed to conclude that income chargeable to tax has escaped assessment. Mr. Mohanty, learned counsel is ignoring the fact that 6the words 'whatever reasons' is qualified by the words 'having reasons to believe that income has escaped assessment'. The words whatever reasons only means any tangible material which would on application of the facts on record lead to reasonable belief that income chargeable, to tax has escaped, assessment This material which, forms the basis, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee is entitled to challenge the very act of re-opening of Assessment and assuming jurisdiction on the part of the Assessing Officer. 13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does- not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. 14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding re-opening noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings u/.s 147 of the Act. In this regard the Ld. Counsel for the assessee placed before us two decisions one rendered by Lucknow Bench of ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai 'G' Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016. In both the decisions a view has been taken by the Tribunal that when an Assessment order passed u/s 147 of the Act was illegal the CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon'ble Mumbai bench of the Tribunal has specifically framed the following questions :- " 1.Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10-2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended. Because the provisions of limitation are provided in the same. 20. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of this order. The gist of the reasons recorded by the AO is that the assessee had made investments of about Rs. 4 crore in construction of hotel/resort at Mandarmoni, Purba Midnapore. It is the further allegation in the reasons recorded that to a notice u/s 133(6) of the Act, the Assessee had in reply admitted investment of only Rs. 3.38 crores in construction of hotel and that source of funds for such construction was out of share capital and secured loan. It is also not disputed that the value of investments as stated by the assessee in its reply to the notice u/s 133(6) of the Act, was duly shown as the investment in construction of hotel with the balance sheet of the assessee. The AO has however inferred that there is a difference in the value of investment in construction of hotel as shown in the books of account and as per the information in possession of the AO which is a sum of Rs. 4 crores. Another reason given by the AO is that the difference in the amount of investment in construction might have been met by the Assessee out of income not disclosed. It has also been mentioned that the source of investment with regard to the actual cost of construction requires inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically referred to or incorporated in the reasons recorded. In the reasons recorded the AO has not disclosed the basis of this conclusion that the assessee made an investment of Rs. 4 crores in the construction of a hotel at Mandarmoni. We find that in this regard that Hon'ble Bombay High Court in the case of Hindustan Lever Ltd., Vs. R.B.Wadkar (2004) 268 ITR 0332 the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the AO to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the AO to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee, unless the reasons to believe about the escapement of income exist, no recourse can be taken to the provisions of section 147. It was held that where an Assessing Officer ventures to initiate reassessment proceedings with an object of finding some material about the escapement of income, such reassessment cannot legally stand and the law doe s not permit the Assessing Officer to conduct inquiries after the initiation of reassessment ITA No. 671 / KOL/2015 Assessment year: 2008 - 2009 proceedings, to find if there is an escapement of income. It was held that the scope of section 147 cannot encompass such an action under which certain examination is to be conducted for forming a reason to believe as to the escapement of income. If the facts of the present case including especially the reasons recorded by the Assessing Officer for reopening the assessment a reconsidered in the light of the decision of the Coordinate Bench of this Tribunal in the case of Deputy Director of income Tax (International Taxation)-21, Mumbai - vs.- Societe International De Telecommunication (supra), I am of the view that the initiation of reassessment proceeding itself was bad in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice at which the iron ore were exported to Mrs. SK Resources during the year was much less than the prevailing market price of China but the said M/s. SK Resources Ltd. would sell the goods to the end users of the prevailing market price. This entire arrangement thus resulted in profit being shifted from India to Hong Kong It is seen from the audited accounts and other details available in assessment record of the assessee that during the financial year 2009-10, it exported 55,936 MT of iron ore to M/s. SK Resources Ltd. at a total consideration of Rs. 13,90,97,755/-. As per DIT (Inv)'s above letter, the FOB rate of such sale were @ varying from $11 to $65 per MT depending on the date of shipment. However, the market price of the same goods prevailing in China during that period varied from $71.50 to $114.50 per MT. It is therefore clear that the transaction between the assessee and M/s. SK Resources Ltd. is in the nature of International Transaction within the meaning contained in sec. 92B of the Act and the rate of transaction as disclosed by assessee to its Associate Enterprise is Associate Enterprise is much less than the prevailing market price or below the arm's length pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said goods prevailing in China during that period varied from 71.50$ to 114.50$ per MT. From the aforesaid information of DIT(Inv.) the AO concluded that the transactions between the assessee and its AE at Hongkong was in the nature of international transaction within the meaning contained in sec. 92B of the Act and the rate of transaction as disclosed by the assessee to its AE is much less than the prevailing market price or below the ALP as defined in sec. 92 of the Act. From these facts narrated the AO concluded that he had sufficient reason to believe that the assessment of the assessee's case in the relevant year escaped assessment and, therefore, requires reopening u/s. 147 of the Act. So from the aforesaid facts narrated by the AO based on the information given by the DIT (Inv.) clearly reveals that assessee had exported 55.936 MT iron ore to its sister concern M/s. S. K. Resources Ltd., Hongkong for a total consideration of Rs. 13,90,97,755/-. This fact is not a new information since we note from the original assessment order dated 15.03.2013 passed u/s. 143(3) of the Act for the year under consideration which is placed at pages 30 to 36 of the paper-book, wherein these f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich could have enabled him at the time of recording reasons to come to a conscious independent conclusion that "income of the assessee has escaped assessment". The information given by DIT(Inv) can only be a basis to ignite/trigger "reason to suspect" for which reopening cannot be made for further examination to be carried out by him in order to strengthen the suspicion to an extent which can form the belief in his mind that income chargeable to tax has escaped assessment. No quantification of income escaping assessment has been spelt out by the AO in the reasons recorded for justifying reopening u/s. 147 of the Act. It has to be kept in mind that merely on an allegations leveled by DIT (Inv.) can only raise suspicion in the mind of the AO which is not the sufficient/requirement of law for reopening of assessment. The 'reasons to believe' is not synonymous to 'reason to suspect'. 'Reason to suspect' based on an information can trigger an enquiry to find out whether there is any substance or material to substantiate that there is merit in the information adduced by the DIT(Inv.) and thereafter the AO has to take an independent decision to re-open or not. And the AO should not act on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that the Hon'ble Supreme Court in Ganga Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the expression "reason to believe" occurring in sec. 147 "is stronger" than the expression "if satisfied" and such requirement has to be met by the AO in the reasons recorded before usurping the jurisdiction u/s. 147 of the Act. It must be kept in mind that information adverse against the assessee may trigger "reason to suspect" then the AO is duty bound to make reasonable enquiry to collect material which would make him belief that there is in fact an escapement of income which requirement of law has not been fulfilled in this case by the AO. The AO simply taking note of the DIT(Inv.) letter has borrowed the satisfaction without independent application of mind to form reason warrant holding a belief that income chargeable to tax has escaped assessment. Just because a letter has been received from the DIT(Inv.) the AO cannot reopen the completed assessment u/s. 143(3) of the Act. In this case, the original assessment has been u/s. 143(3) of the Act was completed on 15.03.2013. From a perusal of reason recorded by AO, we note that it is not the case of the AO that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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