TMI Blog2019 (8) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... be quashed. Borrowed satisfaction by AO - The reopening of assessment cannot be held to be valid, even on this ground ,because if you go through reasons recorded by the AO, it is very clear that the AO has not applied his mind to the information received by him from the DGIT(Inv.). AO has merely issued reopening notice, on the basis of information received from the DGIT(Inv.). This is clearly breach of the settled position of law that reopening notice has to be issued by the AO on his own satisfaction and not on borrowed satisfaction. Case followed M/S. SHODIMAN INVESTMENTS PVT. LTD., [ 2018 (4) TMI 1287 - BOMBAY HIGH COURT] - Decided in favour of assessee. - ITA No.2283/Mum/2016, ITA No.3234/Mum/2016 - - - Dated:- 31-7-2019 - Shri G. Manjunatha, Accountant Member And Shri Ram Lal Negi, Judicial Member For the Assessee : Suchek Achalia, AR For the Revenue : Somnath Wajale, DR ORDER PER G.MANJUNATHA (A.M): These cross appeals filed by the assessee, as well as the revenue are directed against order of the Commissioner of Income Tax Appeals 10, Mumbai, dated 28/01/2016 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company is engaged in the business of dealing in diamonds, filed its return of income of AY 2007-08 on 29/10/2007, declaring total loss of ₹ 10,75,598/-. The assessment has been completed u/s 143(3) of the I.T.Act, 1961, on 11/09/2009, determining total loss at ₹ 9,77,188/- Subsequently, the case has been reopened u/s 147 of the I.T.Act, 1961, by issue of notice u/s 148, dated 28/03/2014, on the ground that income chargeable to tax had been escaped assessment, on account of accommodation entries of purchases obtained from suspicious/Hawala dealers from companies controlled and operated by Shri. Rajendra S.Jain. In response to notice, the assessee vide letter dated 26/04/2014 submitted that return filed u/s 139(1) on 29/10/2007 be treated as return filed in compliance to notice issued u/s 148 of the I.T.Act, 1961. Thereafter, the reasons for reopening has been communicated to the assessee. The assessee vide letter dated 08/06/2014 filed objections for reopening of assessment and the objections filed by the assesee has been disposed off vide order dated 07/10/2014. Thereafter, the case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act, were issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d explanation, in respect of additions made by the AO towards unexplained expenditure towards purchases from four parties. The Ld.CIT(A), after considering relevant submission of the assessee and also by relied upon various judicial precedents, rejected ground taken by the assessee challenging reopening of the assessment, on the ground that the AO has reopened, assessment on the basis of information received from DGIT (Inv.), which clearly proovs escapement of income and also assessment has been reopened after period of four years, as per the provisions of section 149 r.w.s. 151 of the I.T.Act, 1961. Therefore, there is no error in reopening of assessment. As regards additions made towards purchases from four parties amounting to ₹ 1,81,69,414/-, the. Ld.CIT(A) has observed that although, search and seizure carried out by the investigation wing clearly established the fact that Shri Rajendra S.Jain was involved in providing accommodation entries, but fact remains that the statement of Shri Rajendra S.Jain was subsequently retracted along with affidavit. Therefore, the issue cannot be looked into in isolation with retracted statement. The Ld.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has not applied his mind to the information received by him from the DGIT (Inv), which is evident from the fact that the assessment has been reopened, on the basis of information received from the DGIT (Inv.), without any application of mind on his own. It is a well settled position of law that reopening notice has been issued by the AO on his own satisfaction and not on borrowed satisfaction. In this regard, he relied upon, the following judicial precedents:- i) Tao Publishing (P.) Ltd. V DCIT,Circle-7,Pune [2015] 53 taxmann.com 146 (Bombay). ii) Sound Casting (P.) Ltd. Vs. DCIT [2013]33 taxmann.com 374(Bombay). iii) The Pr. Commissioner of Income Tax 5 vs. M/s. Shodiman Investments Pvt. Ltd. ITA NO, 1297 OF 2015 (Bombay High Court). iv) Shilpi Jewellers Pvt. Ltd. vs. Union of India Ors. in Writ Petition No. 3540 OF 2018 (Bombay High Court). v) Shri Ostwal Diamond Pvt. Ltd. vs. ITO, Ward 2(5) in ITA No.3653/Mum/20l7 2270/Mum/2018 (Mumbai ITAT). vi) The Principal Commissioner of Income Tax-17 vs. M/s Mohommad Haji Adam Co. in ITA NO. 1004 OF 2G16(Bombay High Court). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the end of relevant assessment year , unless, any income chargeable to tax has escaped assessment by reasons of the failure on the part of the assessee to disclose fully and truly all materials facts necessary for that assessment year. In this case, there is no dispute with regard to the fact that the assessment for the impugned assessment year has been completed u/s 143(3) of the I.T.Act, 1961. It is also not in dispute that assessment has been reopened, after four years from the end of relevant assessment year. Therefore, as argued by the Ld.AR for the assessee proviso to section 147of the Act, 1961 comes into operation and accordingly, the AO should allege that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In this legal background, if you gone through reasons recorded for reopening of assessment, which is part of paper book filed by the assesse, it is abundantly clear that nowhere in the reason recorded by the AO, there is allegation from the AO that there is a failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. Unless, the AO allege t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to disclose fully and truly all material facts necessary for assessment, is bad in law and liable to be quashed. 9. Coming to another aspect of the issue. The reopening of assessment cannot be held to be valid, even on this ground ,because if you go through reasons recorded by the AO, it is very clear that the AO has not applied his mind to the information received by him from the DGIT(Inv.). The Ld.AO has merely issued reopening notice, on the basis of information received from the DGIT(Inv.). This is clearly breach of the settled position of law that reopening notice has to be issued by the AO on his own satisfaction and not on borrowed satisfaction. This legal proposition is supported by the decision of Hon ble Bombay High Court in the case of Prl.CIT vs Shodiman Investments Pvt. Ltd . in Income Tax Appeal No.1297/2015, order dated 16/4/2018, where the legal position of law has been clearly reiterated and held that the AO cannot issue reopening notice, on the basis of borrowed satisfaction. This legal position has been reiterated by the Hon ble Bombay High Court in the case of Shilpi Jewellers Pvt.Ltd. vs Union of India Others in writ petition No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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