TMI Blog2019 (7) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... anted by the CIT u/s 151 was in a mechanical manner or upon due application of mind - HELD THAT:- We find that on the proforma which is available in the paper book, the Commissioner has simply written Yes I agree which does not in any manner shed any light as to whether there was any application of mind at all by the Pr.CIT, who was duty bound to have looked in to carefully the reasons recorded by the AO and seen the history behind the assessment which was proposed to be reopened by the AO. When a superior authority is given power by the legislature, to grant sanction to do an act by an authority below him, then that power needs to be exercised with due care and circumspection and after due application of mind. We note that the coordinate Bench of this Tribunal on similar facts circumstances in the case of Hirachand Kanunga Vs DCIT [ 2015 (5) TMI 757 - ITAT MUMBAI] held that a mere mention of approved in the report by the Commissioner and thereby according sanction for reopening of assessment u/s 147 did not amount to recording of proper satisfaction u/s 151(1) of the Act and hence held the notice issued u/s 148 to be bad in law. We are therefore of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopened after the expiry of four years vide notice u/s 148 dated 22.03.2016. In response, the assessee filed return of income on 18.05.2016 and requested the AO to supply the reasons recorded prior to reopening of the assessment. Vide letter dated 14.06.2016 the AO supplied the reasons recorded for reopening of the assessment which read as follows: A survey operation u/s 133A was concluded in the case of M/s. Ashika Group. It is found from the evidence that M/s. Yaduka Financial Services Ltd. (Formerly known as M/s. PR Vanijya Pvt. Ltd.) raised Share Capital of ₹ 86,30,000/- during the Financial Year 2008-09 relevant to the Assessment Year 2009-10. On perusal of the letter number DDIT (Inv.)/U-2(2)/2015-15/Kol/3628 dated 23.02.2016. It is found that M/s. Yaduka Financial Services Ltd. has allotted shares to different companies are paper/bogus/shell companies. Shares have been allotted on 31.03.2009 to all the allottee companies at high premium @ ₹ 190 per share. Hence, it is observed that it was nothing but accommodation entry in the form of bogus share capital routed through the paper/bogus shell companies. Thus it is detected that M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the order passed by the AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) observed that condition precedent for reopening of the assessment after expiry of four years was that the AO was required to point out the specific failure on the assessee s part to disclose true and correct particulars in the course of original assessment. The Ld. CIT(A) observed that the AO had failed to set out the omission or failure on the assessee s part to disclose true and correct particulars in his recorded reasons and for that reason he held that the reopening of assessment was invalid and stood vitiated in law. The Ld. CIT(A) accordingly cancelled the assessment framed by the AO u/s 147/143(3) dated 26.12.2016. Being aggrieved, the Revenue is now in appeal before us and has raised the following grounds of appeal: i) That the Ld. CIT(A) erred in facts and circumstances of the case in deleting the addition of ₹ 86,24,30,000/- on account of share application Money received on the ground that the proceedings initiated u/s t47 after 4 years from the end of the assessment is bad in law since there was no reasonable belief that the income has escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is found by the AO that the assessee company raised share capital of ₹ 86,24,30,000/- by issuing shares to different companies which are paper/bogus/shell companies. Thus it was clearly held that the said amout ₹ 86,24,30,000/- was nothing but accommodation entry in the form of bogus share capital/entry provider routed through the jamakharchi/shell/paper companies. Thus it is crystal clear that there was failure on the part of the assessee company to submit the full and true information, the assessee company gave misrepresentation about the facts before the AO. Thus the AO clearly had the substantial new material in form of information on the basis of which Assessing Officer formed a belief/reason that income of assessee has escaped assessment. Following are the case laws which clearly support the action of AO. 1. The order of the High Court of Gujrat in the case of Peass Industrial Engineers(P) Ltd. v.s DCIT. SCA No.3250 of 2016 Section 68, read with section 147, of the Income-tax Act, 1961 - Cash credit (Bogus entries) - Assessment year 2011-12 - Whether what is required at stage of issuing notice under section 148 is a reason to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation before the reopening is made. If it is a new look at the old facts, unprovoked by any knowledge of any fact or law coming to the possession of the department subsequent to the original assessment either from records or from any direction or decision, it would be nothing but mere change of opinion and such a change of opinion would not be justified. 4. In CIT-Kol-II v Eureka Stock and Share Stock Share Broking Services Ltd.(2017) 291CTR313 (Cal), although the relevant issue had been examined by the Assessing Officer in the original assessment, the Hon ble jurisdictional High Court held that there was no change of opinion with the following observations : The assessee, by its letter dated February 8, 2003, misrepresented the facts. He also actively misled the assessing officer into believing that in order to earn brokerage income, the share broker has to purchase or sale various shares . . on their own account also. This does not mean that this is a loss to the assessee. .. The suggestion made by the assessee, it was not disputed by Mr. Khaitan, was factually incorrect. The assessing officer, who succeeded, realised that the assessee had misr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the facts as under: 20. This Court has examined the belief of the Assessing Officer to a limited extent to inquiry as to whether there was sufficient material available on record for the Assessing Officer to form a requisite belief whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director, CBI, Mumbai, intimated to the DIT (Investigation), Mumbai. A case is registered against Mr. Arun Dalmia, Harsh Dalmia and during the search at their residence and office premises, the substantial material indicated that 20 dummy companies of Mr. Arun Dalmia were engaged in money laundering and the income-tax evasion. The said entities included Basant Marketing Pvt. Ltd. also. From the analysis of details furnished and the beneficiaries reflected, which are spread across the country, the CIT, Koklata, suspected the accommodation entry related to the assessment year 2006-07 as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons is not to be gone into by this Court. Information furnished at the time of original assessment, when by subsequent information received from the Principal Director of Income Tax (Investigation), Ahmedabad, itself found to be controverted, the objection to the notice of reassessment under section 147 of the Act must fail. Thus it can be argued that the reopening was justified where subsequent information proved that information furnished at the stage of original assessment was not correct. 7. In the case of DCIT Central Circle 1, Jodhpur v Sambhav Energy Ltd.(2017) 80 taxmann. Com389 (Raj), the original assessment was finalized u/s 153A read with section 143(3) of the Act. The reasons to believe that income had escaped assessment were based on seized documents which were not taken into consideration earlier. It was held that the reasons were not based on mere suspicion but on good faith. Although there was no fresh material for the formation of the reasons to believe that the income had escaped assessment, the Assessing Officer noticed with good faith that certain documents escaped consideration and resulted in escapement of income. Hence, it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the order u/s 143(3). The ld. AR therefore submitted that there was no failure on the part of the assessee to disclose true and full material facts prior to completion of order u/s 143(3). In the circumstances therefore the reopening of assessment after four years was claimed to be impermissible. The ld. AR drew our attention to the correspondence between the ACITCC2(1) and the DDIT(Inv) Unit 2(2), Kolkata to show that no tangible material was gathered by the Investigation Wing which in any manner could lead one to believe that income of the assessee for the AY 2009-10 to the extent of ₹ 86,27 Crs had escaped assessment. In the letter dated 23.02.2016 there was only a mention of the fact that the receipt of share capital may be bogus and therefore the DDIT(Inv) had recommended that thorough enquiries should be made by the AO during the course of assessment to take suitable action as per law. In the same report the DDIT(Inv) had himself opined that the focus of his survey report was bogus LTCG for which detailed enquiries were conducted but due to paucity of time cash/money trail could not be made in the case of share capital. The ld. AR therefore submitted that even the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 28.02.2016 and within 8 days of the said letter, the DCIT, Circle 6(2), Kolkata recorded his satisfaction and sought sanction from the Pr.CIT-2, Kolkata. The ld. AR therefore submitted that the facts on record demonstrated that without objectively examining the information received and without conducting any worthwhile enquiry of his own the AO proceeded to initiate reassessment proceedings. The ld. AR further submitted that the fact that the assessee had issued fresh capital and thereby raised ₹ 86.27 crores during FY 2008-09 was known to the AO in the regular assessment proceedings u/s 143(3) which were completed in 2011. As such no new material or information came in AO s possession through DDIT s letter. The only allegation which prompted the AO to proceed with reassessment proceedings was the information to the effect that the allottees of the shares were allegedly paper / shell companies. However in support of this allegation the AO did not have in his possession any tangible material except for unverified information received from DDIT(Inv) who himself had desired detailed enquiry by the AO. The ld. AR pointed out that since in the regular assessment these very ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment. The reasons should not merely disclose need for an inquiry which may result in detection of an income escaping assessment. Undoubtedly, at the stage of recording the reasons for reopening the assessment, all that is necessary is the formation of prima facie belief that an income has escaped the assessment and it is not necessary that the fact of income having escaped assessment is proved to the hilt. What is, however, necessary is that there must be something tangible which indicates, even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that an income has escaped assessment. Merely because detailed investigation was not carried out and if so, could have led to detection of income escaping assessment, cannot be the reason enough to hold the view that income has escaped assessment. It is also important to bear in mind the subtle but important distinction between factors which indicate an income escaping the assessments and the factors wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue. In Bawa Abhai Singh s case [2002] 253 ITR 83 (Delhi), a Division Bench of this court of which one of us (D. K. Jain J.) is a Member, clearly held (page 88) : The crucial expression is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. 11. It is necessary to examine whether there was any reason to believe to have had such an exercise. The term reason to believe cannot be considered or evaluated in a water tight compartment and scope and applicability may vary from case to case, depending upon the facts and circumstances. The power under sections 147 / 148 comes into existence if he had reason to believe that income has escaped assessment. Formation of reason to believe that income escaped assessment has to be that of a prudent person. The reasons for such belief have to be recorded in writing on the basis of material in the possession of AO. While the words reason to believe are wide in their import, it cannot include a mere suspicion or ipse dixit of the AO. The belief of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed in his charge. From the letter dated 23.02.2016 which is at Pages 8 9 of the paper book, we note that the said survey proceedings were conducted by the Investigation Wing in May 2015 and the main focus of the investigation was the alleged bogus LTCG. In the said proceedings an effort was also allegedly made to find out the genuineness of the share allotments made by the concerned companies. It was allegedly found that during the investigation it was noted that allottee companies were bogus / paper/ shell companies. In the said letter the DDIT further stated that due to paucity of time, the cash/money trail could not be made in the case of share capital. He further informed that out of 97 share applicants who had subscribed to the shares of the assessee, 34 companies were shell companies controlled by identified accommodation entry operators. In support of this finding the said DDIT(Inv) made reference to the concerned entry operator s statements recorded by the Investigation Wing on several occasions and these statements according to DDIT(Inv) was a valid reason within the meaning of Section 147 for reopening of the assessment. Since the recipient of the letter did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Ashika Group in the month of May 2015 and in the course of the said survey certain information was allegedly gathered by the Investigation Wing in respect of transactions of the assessee during the FY 2008-09. However the letter of the DDIT(Inv) as well as the letter of the ACIT, CC-2(1), Kolkata is found to be conspicuously silent as to in what manner the information gathered in the case of Ashika Group was relatable to the assessee s transactions involving issue of shares. We find that the letter of the DDIT(Inv) is conspicuously silent with regard to identities of the persons who had subscribed to the capital of the assessee or the names of the alleged entry operators who had controlled the so called 34 shell / paper companies. We also note that even though the letter of the DDIT(Inv) admitted that the capital was subscribed by 97 companies in his opinion the alleged accommodation entries in the form of share capital were given only by 34 companies. The letter of the DDIT(Inv) was however silent with regard to identities of the share subscriber companies as also the alleged 34 shell / paper companies. 15. We find that on receipt of the letter from the ACIT, CC-2(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even as per the letters relied upon by the AO no tangible material or information was available before the AO on the basis of which he could have formed reason to believe that the entire share subscription amount received represented income escaping assessment. We therefore find merit in the ld. AR s submission that after the completion of assessment, no tangible or credible information was received by the AO on the basis of which he could have validly formed reason to believe that income chargeable to tax had escaped assessment. We find that even though the identity, creditworthiness and genuineness of the share subscription transactions were accepted in the regular assessment, the present reassessment proceedings were initiated by the AO upon mere change of opinion.The opinion with regard to escapement income was formed only on the basis of letters dated 23.02.2016 25.02.2016 written by DDIT(Inv) ACIT, CC-2(1), Kolkata respectively and without any independent enquiry by the AO himself. We therefore hold that the initiation of reassessment suffered from infirmity because it was based upon change of opinion by the AO without there being any material change in the underlyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble High Court that the reopening is not permitted under the law unless it is based on fresh tangible material and that if the reasons to believe are not based on new, tangible materials , the reopening amounts to an impermissible review. It has been further observed that : The foundation of the AO s jurisdiction and the raison d etre of a reassessment notice are the reasons to believe . Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective trigger , the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the re-opening of assessment amounts to review or change of opinion arises. In other words, if there are no reasons to believe based on new, tangible materials , then the reopening amounts to an impermissible review. Here, in the instant case before us, there is nothing cogent to show what triggered the issuance of notice of reassessment as no tangibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and unsubstantiated averments, the DDIT s letter was bereft of any specific facts on the basis of which the AO could validly form his reasons to believe that assessee s income had escaped assessment. We also find that in the said letter, the DDIT had himself admitted that no enquiry with regard to cash trail was conducted by him in respect of allotment of shares due to paucity of time and had recommended in-depth enquiry by the AO. Yet treating the information so received from the DDIT(Inv) to be foundational fact, the AO without himself conducting any further enquiry and application of his own mind objectively, recorded his satisfaction that entire share subscription monies received from all 94 share applicants totaling ₹ 86,24,30,000/- represented income escaping assessment within the meaning of Section 147 of the Act. We therefore find that even though it was not the DDIT s case that all share applicants were paper or shell companies, the AO without having any material or facts and without conducting any enquiry of his own, proceeded to form reason to believe that the entire share subscription amount received was in the nature of income escaping assessment. On these fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... think it would be appropriate if the same are reproduced:- In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The AO has further stated that the assessee company has failed to disclose fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned as to who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income-tax (Inv.), N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the AO were with reference to those amounts mentioned in the assessment order. The reasons recorded by the AO are totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. In this respect, we may rely upon the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT v. Atul Jain [2000] 299 ITR 383, in which case the information relied upon by the AO for initiating proceedings u/s 147 of the Act did indicate the source of the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the information supplied was extremely scanty and vague and in that light of those facts, the Hon'ble Jurisdictional Delhi High Court held that initiation of proceedings u/s 147 of the Act by the AO was not valid and justified in the eyes of law. The recent decision of Hon'ble jurisdictional High Court of Delhi in the case of Signature Hotels (P.) Ltd. (supra) also supports the view we have taken above. 9. We do not see any reason to differ with the view expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. The Hon ble Delhi High Court in the case of Signature Hotels (P) Ltd. vs ITO and another, reported in 338 ITR 51 (Delhi) under similar circumstances held as follows: For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s 143(1) of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s 148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections. The Delhi High Court allowed the writ petition and held as under: (i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The assessing Officer must have reasons to believe that income chargeable to tax has escaped assessment. This is mandatory and the reason to believe are required to be recorded in writing by the Assessing Officer. (ii) A notice u/s 148 can be quashed if the belief is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieve for issuing a notice. The A.O. had clearly substituted form for substance and therefore the action of the A.O. was not sustainable 23. Useful reference in this regard is further made 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. How he can be said to be a known entry operator is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 ₹ 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 the Beneficiary, the value of entry taken, the number of the instrument by which entry was taken, the date on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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, value of the entry taken, instrument number, date, name of the account in which entry was taken and the account from where the entry was given the details of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of ₹ 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 has escaped assessment. It was in those circumstances that in the case, the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the conclusion in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to jurisdictional review, is preposterous. First of all, taking out a word or sentence from the entire judgment, divorced from the context and relying upon it, is not permissible (see CIT v. Sun Engg. Works (P) Ltd. [l992] 64 Taxman 442/198 ITR 297 (SC). It may be useful to reproduce the context in which the sentence in Rajesh Jhaveri Stock Brokers (P) Ltd. 's case (supra) being relied upon by the Revenue to support its case, was made. The context, is as under: The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitutions. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed to confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to, income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s found in Section 147 of the Act. Therefore, the words 'whatever reasons' in Rajesh Jhaveri Stock Brokers (P) Ltd.'s, case (supra), only means whatever the material, the reasons recorded must indicate the reasons to believe that income has, escaped assessment. This is so as reasons as recorded alone give the Assessing Officer power to re-open an assessment, if it reveals/indicate, reasons to believe that income chargeable to tax has escaped assessment. 12. The re-opening of an Assessment is an exercise of extra-ordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before re-opening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of re-opening . Assessment and its reasons which would evidence the linkage/nexus to the conclusion that income chargeable to tax has escaped Assessment This is a settled position as observed by the Supreme Court In S. Narayanappa v. CIT [1967] 63 ITR 219, that it is open to examine whether the reason to believe has rational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held as under: 9. We have given a careful consideration of the submissions made by the learned counsel for the assessee. It is clear from the reasons recorded by the AO that the AO acted only on the basis of a letter received from Investigation Wing, New Delhi. The reasons recorded does not give as to who has given the bogus entries to the assessee. The reasons recorded also does not mention as to on which dates and through which mode the bogus entries were made by the assessee. The reasons recorded which are extracted in the earlier part of the order does not show, what was the information given by DIT(Inv.),New Delhi. The date of the information received by the AO were not spelt out in the reasons recorded. The involvement of the assessee is also not spelt out, except mentioning the corporate bodies who had subscribed to the share capital of the assessee were non-existent and not creditworthy. On identical facts the Hon'ble Delhi High Court in the case of CIT vs Insecticides (India) Ltd (supra) has taken a view that the reasons recorded were vague and uncertain and cannot be construed as satisfaction on the basis of the relevant material on the basis of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogus / paper/ shell companies. It is further claimed that the shares were allotted on 31.03.2009 to all the allotee companies at a premium of ₹ 190/share. Hence it was observed that it was nothing but accommodation entry in the form of bogus share capital routed through paper / bogus / shell companies. We however find that merely with reference to information passed on by the DDIT(Inv), Unit 2(2), Kolkata, the AO could not straightaway reach even prima facie conclusion that all the 94 allotee companies were paper / bogus / shell companies. In fact from the perusal of the DDIT s letter, discussed in the foregoing, it was apparent that the DDIT himself had admitted that the survey operations and subsequent enquiries were focused only on the issue of bogus LTCG in the case of Ashika Group. He had also admitted that no enquiry with regard to cash trail of share capital issued was carried out by him due to paucity of time. In this background, the DDIT had merely recommended that detailed enquiry should be carried out by the AO. We also find that even the DDIT in his letter had alleged that out of 97 allottees, only 34 bodies corporate were suspected to be paper / bogus / shell com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case and hence not applicable. 29. For the reasons set out above we find that the AO has simply gulped the information from DIT(Inv) to form a conclusion about escapement of income, which itself is flawed and cannot pass the test of reason to believe as laid by judicial precedents as discussed above. We therefore hold that since there was no rationale nexus between the information received by the AO with formation of his belief, the initiation of reassessment proceedings stood vitiated and consequently therefore the order passed also was bad in law. 30. We further find that even though the assessment was reopened after expiry of four years from the end of the relevant assessment year, the recorded reasons did not make out a case that the assessee had suppressed any material facts or misguided the AO during original assessment completed u/s 143(3). In the original assessment proceedings the AO had requisitioned the details of share subscribers. The assessment u/s 143(3) was passed only after the AO had obtained such information and thereafter had conducted his independent enquiries on test check basis under Section 133(6) of the Act It is only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s possession must have an inevitable link with escapement of income which triggers the AO to form a belief that there is an escapement of income, however, when this information is regarding an assessment year which is four years before then an additional requirement of law has to be also satisfied, i.e., even if there is an escapement of income, still it has to be seen whether the assessee has furnished true and full disclosure of the material facts before the AO during the original assessment. If the assessee has made true and full disclosure of material facts regarding the new information which is now in the hand of the AO, then the AO cannot reopen the assessment. The Apex Court has time and again underscored the necessity of fresh tangible material should be such on the basis of which the AO could demonstrate with reasonable certainty that the facts, material and information disclosed at the time of original assessment by the assessee did not amount to true full disclosure of material facts necessary for assessment. 34. After perusing the records submitted during original assessment u/s143(3), we find that the substance in the contention of the assessee that true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the same by incorporating it in the reasons to believe that income chargeable to tax has escaped assessment. Then only the AO can assume jurisdiction or else he cannot. So while determining the validity of the action of AO when he intends to re-open a scrutinized assessment after the expiry of 4 years from the end of the relevant assessment year is concerned, one has to keep in mind the aforesaid condition precedent which is the jurisdictional fact, necessary for the successful usurpation of jurisdiction. For that we need to again take a look into the reasons recorded for re-opening :- A survey operation u/s 133A was conducted in the case of M/s Ashika Group. It is found from the evidence that M/s Yaduka Financial Services Ltd. (Foemerly known as M/s PR Vanijya Pvt. Ltd.) raised Share Capital of ₹ 86,30,000/- during the Financial year 2008-09 relevant to the Assessment year 2009-10. On perusal of the letter number DDIT(Inv.)/U-2(2)/2015-15/Kol/3628 dated 23.02.2016. It is found that M/s Yaduka Financial Services Ltd. has allotted shares to different companies are pape/bogus/shell companies. Shares have been allotted on 31.03.2009 to all the allott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer has jurisdiction to start proceedings after the expiry of four years. 36. Useful reference can also be made to the judgment of the Hon'ble Bombay High court in the case of Hindustan Lever Ltd. Vs. ACIT (supra). The relevant observations of the Hon ble Court were as follows: 19. In the case in hand it is not in dispute that the assessment year involved is 1996- 97. The last date of the said assessment year was 31st March, 1997 and from that date if four years are counted, the period of four years expired on 1st March, 2001. The notice issued is dated 5th November, 2002 and received by the assessee on 7th November, 2002. Under these circumstances, the notice is clearly beyond the period of four years. 20. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, the Hon ble High Court held as under: In a case where assessment is made under section 143(3) and is sought to be reopened after the expiry of four years from the end of the relevant assessment year, in order to assume jurisdiction under section 147, one of the conditions precedent is that the recorded reasons should point out the failure on the part of the assessee to disclose fully and truly the material facts necessary for assessment. Once the Assessing Officer comes to a finding that there was failure or there was no improper disclosure on the part of the assessee, he forms the belief which is recorded and assumes jurisdiction under section 147. In the instant case, the assessments for both the assessment years were made under section 143(3). There was no dispute that the notices under section 147 were issued beyond four years from the end of the relevant assessment years. Thus, in order to initiate action under section 147 after the expiry of four years from the end of relevant assessment years, there should have been either failure or non-disclosure on the part of the assessee. From the recorded reasons it was found that the Assessing Officer wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly impugned notices under section 147/148 were to be quashed. 38. In the case of Assam Co. Ltd Vs Union of India (150 Taxman 571), the Hon ble Gauhati High Court has held as under: 43. As noticed hereinabove, except in W.P. (C) No. 1163 and W.P. (C) No. 1258 of 2003, the impugned notices had been issued before the expiry of four years from the end of the relevant assessment year. The attempt made on the part of the respondents to contend that the omission on the part of the assessees to mention in their return that the cess on green tea leaves was paid under the 1990 Act amounts to failure to make full and true disclosure of all material facts necessary for assessments has to be mentioned only to be rejected. There is no dispute that at the time of assessment, the assessees were permitted deduction on the above count and the composite income under rule 8(1) was accordingly computed. At no point of time was any reservation expressed by the respondent authorities as to the nature of the payment or the entitlement of the assessees to be extended the benefit of deduction thereof on the basis of the disclosure made in the returns. The respondent authorities th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied by the AO do not disclose that there was any failure on the part of the assessee to provide all the material facts, then it will have to be presumed that the assessee did not fail to make full and true disclosure of all material facts and hence the jurisdictional requirement set out in first proviso to Section 147 for initiating reassessment, after the expiry of period of four years, shall be held to be not fulfilled. The relevant observations of the Hon ble High Court is extracted below: 9. The learned counsel for the Petitioner rightly pointed out that the ground that the Petitioner had failed to disclose all the relevant material was not incorporated in the Reasons supplied to the Petitioner. The object of furnishing Reasons for reopening, is to put the assessee to notice as to why the Assessing Officer has reason to believe that income has escaped assessment. Apart from this position, in the present case the Reasons supplied do not state that there was any failure on the part of the Petitioner to provide material particulars. That an assessee has not made a full and true disclosure of facts, is one of the jurisdictional requirement for proceeding with reasse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion. The reasons recorded read as under : Reasons recorded for issue of notice under section 148 Reg. : Shri Nikhil K. Kotak, Ahmedabad. Assessment year 1992-93 The assessee had claimed exemption under section 54 of ₹ 11,36,477, i.e., l/3rd share of ₹ 34,09,430 for investment in new house against the income from long-term capital gain. The details of investment was as under : Rs. (1) Purchase cost of new house 23,62,500 (2) Cost of improvement on new asset 10,46,930 34,09,430 The exemption under section 54 was actually allowable on the cost of purchase of new asset (i.e., residential house) or cost of construction of new asset only. Thus, the cost of improvement of the property incurred later on will not be qualified for exemption under Section 54. The incorrect exemption granted resulted in underassessment of income of ₹ 3,48,977. 7. On a plain reading of the aforesaid reasons recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly and truly all material facts necessary for the assessment of the assessee. We therefore do find any reasons to interfere with the findings of the ld. CIT(A) holding that the initiation of reassessment proceedings was bad in law as it did not satisfy the conditions precedent in proviso to Section 147 of the Act. 43. Now let us examine the sanction granted by the Commissioner of Income-tax u/s 151 of the Act was in a mechanical manner or upon due application of mind. 44. In the present case the AO recorded the reasons to reopen on 08.03.2016 and the Pr. CIT granted sanction on 17.03.2016.In the present case the assessment was reopened after expiry of four years from the end of the relevant assessment year and therefore in terms of Section 151 it was incumbent on the jurisdictional Commissioner to accord his approval before the notice u/s 148 could be issued. The relevant Section 151(1) provides that no notice u/s 148 shall be issued by an AO after the expiry of four years unless the Commissioner is satisfied, and on the reasons recorded by the AO that it is a fit case for the issue of notice. The reading of the relevant provision indicates that the satisfacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case in Chhugamal Rajpal vs. S.P. Chaliha Ors. 79 ITR 603 (SC) and Hon ble High Court of Madhya Pradesh in Arjun Singh vs Asstt. Director of Income Tax (M.P.) reported in (2000) 246 ITR 363 (MP). 46. We also rely on the judgment of the Hon ble Madhya Pradesh High Court in the case of CIT Vs S. Goyanka Lime Chemicals Ltd[2015] 231 Taxman 703. The relevant extracts of the judgment is as follows: 3. A search was conducted at the residential and business premises of the assessee on 12.12.2002. Thereafter, notice for block assessment under section 158-BC was issued for the block period 1.4.1998 to 12.12.2002 and for each of the assessment years, returns were filed which were processed under section 143(1). However, notice under section 148 was issued by the Assessing Officer on 31.12.2004, on the basis of certain reasons recorded. The assessee objected to the same before the Assessing Officer, this was rejected by the Assessing Officer and he completed the assessment under section 143(3) read with section 147, of the Act. Appeals were filed before the Commissioner of Income Tax (Appeals) and the Appellate Authority found that the reason re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.' 8. If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 148, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration. 9. As far as explanation to Section 151, brought into force by Finance Act, 2008 is concerned, the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so, the said amended provision does not help the revenue. 10. In view of the concurrent findings recorded by the learned appellate authorities and the law laid down in the case of Arjun Singh (supra), we see no question of law involved in the matter, warranting reconsideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of the provisions of Sec. 151(1) with the proviso clearly show that no such notice shall be issued unless the Addl. Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issue of notice which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the AO. 10. In the present case the letter which is placed on record shows that the Addl. Commissioner has simply sanctioned the proposal for initiating proceedings u/s. 147 in group cases of beneficiaries of Mahasagar Securities P. Ltd. Nowhere the Addl. CIT has recorded his dissatisfaction. The Hon'ble Supreme Court in the case of Chhugamal Rajpal v. S.P. Chaliha [1979] 79 ITR 603 observed that the important safeguards provided in Sec. 147 and 151 were lightly treated by the Income-Tax Officer as well as the Commissioner. 11. In the light of the above mentioned reasons, in our considerate view, Section 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval . 13. The observations of the Hon'ble High Court are very much relevant in the instant case as in the present case also the Commissioner has simply mentioned approved to the report submitted by the concerned AO. In the light of the ratios/observations of the Hon'ble High Court mentioned hereinabove, we have no hesitation to hold that the reopening proceedings vis- -vis provisions of Sec. 151 are bad in law and the assessment has to be declared as void ab initio. 50. We are therefore of the opinion that the Commissioner had mechanically accorded permission. Thus, we hold that the sanction granted by the Commissioner u/s 151 is invalid and so, the notice of the AO dated 22.03.2016 is bad in law and has to be necessarily struck down. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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