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TMI Blog2019 (7) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... d his suggestion/dictatum without application of his mind so as to come to an independent conclusion that he has reason to believe that income has escaped assessment and thus he has acted upon borrowed satisfaction, therefore the consequent reassessment made is invalid, illegal and abinitio void, which deserves to be annulled/quashed. 3. That the appellant has duly discharged the initial onus laid on it in terms of section 68 of the Act, now it is settled law that if the appellant produces the names, addresses, PAN details of the shareholders then the onus on the appellant to prove the source of share application money discharges and in such case if the AO is not satisfied regarding the creditworthiness of the shareholders, then the revenue is free to proceed to reopen the individual reassessment of the shareholders whose source is doubted but no addition can be sustained U/S 68 of the Act in case of the appellant. 4. a) That it is settled law that in respect of contribution to share capital, the same cannot be assessed in the hands of the appellant, unless the department is able to show that the amount received towards share capital actually emanated from the coffers of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of suggestion/dictum of DGIT(Inv.), New Delhi without application of mind being constitutes borrowed satisfaction. Since, this is a legal issue which goes to the root of the matter and hence taken up for adjudication on priority. 3. The Ld. DR raised objection to legal ground that since, no challenge to reassessment proceedings U/s 147 of the IT Act was raised by the assessee before the AO, hence, it cannot be taken up at this stage. In reply, the Ld. AR of the assessee relied upon following authoritative decisions including the jurisdictional High Court on this issue: 1. Smt. Raj Rani Gulati Vs. Commissioner of Income-tax (2013) 33 taxmann.com 670 (Hon'ble Allahabad High Court) 2. CIT, Central-I, Mumbai Vs. Pruthvi Brokers & Shareholders (2012) 23 taxmann.com 23 (Hon'ble Bombay High Court) 3. Inventors Industrial Corpn. Ltd. Vs. Commissioner of Income-tax (1992) 194 ITR 548 (Hon'ble Bombay High Court) 4. E. Jewellery Vs. Income-tax Officer, Ward 20(3)-1, Mumbai (2011) 9 taxmann.com 28 (Hon'ble ITAT Mumbai Bench `H') 5. Nandlal Sachdeva Vs. Income-tax Officer (2012) 20 taxmann.com 224 (Hon'ble ITAT Indore Bench) 6. Income Tax Officer Vs. XS Cad India (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained share capital from accommodation entry out of income earned by the assessee from undisclosed sources in cash. 5. Aggrieved assessee, filed appeal before the Ld.CIT(A) taking up the disputed legal issue, vide ground nos.3(a), (b), (c), (d) and (e), as under: "3. a) Because as no valid reassessment proceeding U/S 147 of the Act read with section 148 of the Act has been initiated in the case of the assessee company, therefore the reassessment order passed U/S 143(3)/147 of the Act is illegal, bad in law and abintito void and deserves to be quashed/cancelled. b) Because the reassessment made is bad in law because prior to the completion of reassessment the reasons recorded were never communicated to the assessee company. c) Because at the time of recording reasons for initiating proceedings U/S 147 of the Act, the learned AO did not have return of income of the assessee company and even did not know about the nature of alleged undisclosed income, therefore reassessment proceedings has been initiated solely on the basis of `reasons to suspect' and not `reasons to believe' and thus reassessment order made on the basis thereof deserves to be quashed/vitiated. d) Beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. This has indeed become a menace and needs to be checked. Not only that this causes, abetment of tax avoidance but it also results in money laundering which is a crime. In order to check this menace of 'Entry business' the Investigation Wing has been carrying out search and seizure operations on various entry operators from time to time. Apparently this case is also of a similar kind. The requirement u/s 147 is that the AO should have "reasons to believe" that any income chargeable to tax has escaped assessment. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tness of the material is not a thing to be considered at this stage as held by the Supreme Court in the case of Raymond Woollen Mills Ltd. Vs. ITO (1999) 236 ITR 34 (SC), and also as held in the case of Great Arts Pvt. Ltd. Vs. ITO (2002) 257 ITR 639 (Delhi). The assessee cannot challenge sufficiency of belief - ITO Vs. Lakhmani Mewal Das (1976) 103 ITR (SC). In another case Hon'ble SC in case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 has held that at the stage of issue of notice, the only 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. Further, it is observed that the appellant had not raised any objections before the AO regarding the validity of the proceedings. From the facts mentioned in the assessment order, it is apparent that the appellant had fully cooperated during the assessment proceedings. Therefore, as per the "doctrine of waiver", it can be presumed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a genuine opinion, that what is to be seen is the existence of, prima facie, some material which could form the basis of the reasons of belief of escapement of income and not the sufficiency thereof to conclusively prove escapement of income, the AO's satisfaction for formation of such a belief being his subjective satisfaction. 13. The ld. Counsel for the assessee has contended that the ld. CIT(A) has erred in confirming the AO's action of issuance of notice u/s 148 of the Act, by holding such action to be in accordance with law. Relying on 'PCIT vs. Meenakshi Overseas (P) Ltd.', 154 DTR 100 (Del.), the ld. Counsel has contended that mere reliance on the information received, without having acted thereon before recording the reasons, showing non-application of mind on the part of the AO, is unsustainable in law. The ld. Counsel has also placed on reliance on 'Sabh Infrastructure Ltd. Vs. ACIT', order dated 25.9.2017, passed by the Hon'ble Delhi High Court in Writ Petition (C) 1357/2016. 14. The ld. DR, on the other hand, has relied on the following decisions to contend that information received from the Investigation Wing of the Department, is information on the basis of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. 'Meenakshi Overseas' (supra) is by the Hon'ble Delhi High Court, whereas the decisions cited by the ld. DR are from other different High Courts. Of all these, 'Brij Mohan Agarwal' (supra) is by the Hon'ble Allahabad High Court, i.e., the jurisdictional High Court qua the assessee. However, that decision is essentially factspecific. It does not lay down any proposition of law, as such. The Civil Writ Petition filed by the assessee was decided by the Hon'ble High Court on merits, having taken into consideration the investigation report of the Investigation Wing of the Department, as conveyed to the AO, the assessee's record, the Department's counter-affidavit (alongwith its annexures) to the Writ Petition and the rejoinder affidavit filed by the assessee. It was held that from the findings of the Investigation Wing and as per the record, the AO of the assessee (Respondent No.1 in the Writ Petition) had reason to believe that the assessee had diverted and, thus, concealed his income by disclosing it to be sale proceeds of shares, which was not correct, as no real transaction of shares had ever taken place. It was held that in view of the investigation made by the Investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; (iii). where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed along with the reasons; (iv) the exercise of considering the Assessee's objections to the reopening of assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed." 22. Thus, in deference to "Sabh Infrastructure Limited" (supra), it is incumbent on the AO, while communicating the reasons for the reopening of the assessment, to provide the standard form, used for obtaining approval of the superior officers. Merely stating the reasons in a letter addressed by the AO, is not enough. Then, the reasons to believe escapement of income need to spell out all the reasons and grounds available with the AO for reopening the assessment. The reasons must also paraphrase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vague report of DIT(Inv.) and that the assessee has received accommodation entry however, the AO has not verified such report by way of enquiry/discussion of the material on the basis of which he formed a prima facie opinion that income has escaped assessment or its office record to establish and demonstrate link between tangible material and formation of reason to believe that income has escaped assessment, so as to justify the reassessment. In support, the Ld.AR relied on the following authoritative decisions: 1. Principal Commissioner of Income-tax-6 Vs. Meenakshi Overseas (P) Ltd. (2017) 82 taxmann.com 300 (Delhi High Court) 2. Signature Hotels (P.) Ltd. Vs. Income-tax Officer (2011) 338 ITR 51 (High Court of Delhi) 3. Principal Commissioner of Income-tax-4 Vs. G & G Pharma India Ltd. (2017) 81 taxmann.com 109 (High Court of Delhi) 4. Principal Commissioner of Income-tax Vs. RMG Polyvinyl (I) Ltd. (2017) 83 taxmann.com 348 (High Court of Delhi) 5. CIT Jallendhar Vs. Smit. Paramjit Kaur (2008) 168 Taxman 39 (High Court of Punjab & Haryana) 6. ITO Vs. Bajaj & Company Pvt. Ltd. (ITA No.2989/DEL/2009 (ITAT Delhi Bench `A') 9. He further submitted that the reasons to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court of Delhi in the case of "PCIT Vs. G&G Pharma India Ltd.(Supra)", (2017) 81 Taxmann.com 109, contended that reopening of assessment by the AO based on the information received from Director of Investigation without making any effort to discuss the material on the basis of which he formed a prima facie opinion that income has escaped assessment, the basic requirement of section 147 of the Act that the AO should apply independent mind in order to form reasons to believe that income has escaped assessment, is not fulfilled. 13. In the case of "PCIT Vs. RMG Polyvinyl (I) Ltd.", (Supra) 396 ITR 5, it was held that where information was received from investigation wing and the assessee was beneficiary of accommodation entries but no further inquiry was under taken by AO, said information could not be said to be tangible material as per se and, thus, reassessment on said basis was not justified. Finally, the Ld. AR submitted that the impugned initiation of reassessment proceedings, notice and all consequent proceedings and orders are not valid and bad in law therefore, the same may kindly be quashed. 14. The Ld. AR cited the judgment of "CIT Vs. Vegetable Products Ltd.", (1973) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment in the case of the assessee. Therefore, the conclusion of the AO on the basis of general nature of information received by him, indeed constitute a borrowed satisfaction. 18. It is seen that the reasons are solely founded on the information received from the DCIT(Inv.)-II, New Delhi and its suggestion to issue notice u/s 148 of the Act to bring to tax the undisclosed income regarding the accommodation entry of Rs. 85,00,000/- obtained by the assessee. In fact, the crucial link between the information made available to the AO and formation of his belief is absent. The tangible material which forms the basis for the belief that income has escaped assessment, must be evident from a reading of the reason so that the reasons become self-evident selfspeaking. 19. As per section 147(1) of the Act, the AO should have 'reason to believe' that any income chargeable to tax has escaped assessment, and the formation of reason to belief is subject matter of examination and that the AO being quasi-judicial authority is expected to arrive at the subjective satisfaction independently on an objective criterion. We understand that the report of the investigation wing might constitute the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of mind by the AO to material received from DDIT(Inv.) and the AO, has just stated about the information received and suggestion of the DDIT(Inv.) to the alleged escapement of income. As to what the AO did with the information made available to him is not discernible from the reasons. 22. We are of the considered opinion that the AO has proceeded to initiate reassessment proceedings u/s 147 of the Act and to issue notice u/s 148 of the Act without any application of mind and examination of the so called material and information received from the investigation wing to establish any nexus, even prima facie, with such information, by way of borrowed satisfaction and. 23. Following Deepraj Hospital Pvt. Ltd.(supra), we accept the grievance of the assessee justified. As such, the impugned order, notice u/s 148 of the Act and reassessment proceedings u/s 147 are not sustainable in the eyes of law. 24. In view of above, as such, the impugned proceedings, notice u/s 148 of the Act and all consequent orders are quashed. Therefore, other grounds of the assessee on merits become academic and nothing further survives for adjudication. 25. In the result, by the assessee is allowed. Or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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