TMI Blog2019 (8) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Delhi High Court in a number of decisions has held that reopening of assessment on the basis of report of the Investigation Wing without independent application of mind by the Assessing Officer is not in accordance with law and accordingly the reassessment proceedings have been quashed. Tribunal in the case of M/s SBS Realtors (P) Ltd. vs. ITO [ 2019 (4) TMI 357 - ITAT DELHI] has also quashed the reassessment proceedings based on the information provided by the Investigation Wing without any independent application of mind. It was held that there was no tangible material which formed the basis for the belief that income has escaped assessment. - Decided in favour of assessee. - 1375/Del/2019, 1721/Del/2019, 1722/Del/2019, 1523/Del/2019, 1524/Del/2019 - - - Dated:- 21-8-2019 - Shri R.K. Panda, Accountant Member For the Assessee : Shri Kapil Goel, Advocate For the Revenue : Shri S.L. Anuragi, Sr.DR ORDER The above batch of appeals filed by the respective assessees are directed against the separate orders of the CIT(A)-19, New Delhi, relating to Assessment Year 2011- 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,97,998/- on sale of shares of Splash Media Infrastructure Ltd. ( also known as Luharuka Media Infra Ltd.). From the various details furnished by the assessee, the Assessing Officer inferred that such long-term capital gain shown by the assessee is not natural but is an arranged one. The Assessing Officer referred to the countrywide investigation conducted by the Directorate of Investigation, Calcutta to unearth the organized racket of generating bogus entries of long-term capital gain which is exempt from tax. He analysed the modus operandi of generating such long-term capital gain by unscrupulous persons to help converting the unaccounted money of certain persons and to accommodate other entities who want to book short-term loss. Rejecting various explanations given by the assessee, the Assessing Officer held that the amount of ₹ 20,97,998/- claimed by the assessee as exempt long-term capital gain on sale of shares of M/s Splash Media is not genuine. He, therefore, brought the same to tax u/s 68 of the IT Act. Further, he made addition of ₹ 1,04,900/- being 5% of the exempt long-term capital gain as commission for earning such bogus long-term capital gain u/s 69 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , modify, amend and delete the grounds of appeal during the course of hearing. 8. The ld. counsel for the assessee drew the attention of the Bench to the copy of reasons recorded, copy of which is placed at page 40 of the paper book. He submitted that the reasons recorded by the Assessing Officer are on the basis of vague information and there is no cause and effect relationship. The reasons do not show as to how this transaction is tainted. Referring to the decision of the Hon'ble Bombay High Court in the case of South Yarra Holdings vs. ITO, vide Writ Petition No.3398 of 2018, order dated 1st March, 2019 , he submitted that the Hon'ble Bombay High Court in the said decision has held that reopening of an assessment has to be done by an Assessing Officer on his own satisfaction. It is not open to an Assessing Officer to issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147 (1) of the Act requires the AO to have reasons to believe that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be invalid. Referring to the decision of the Tribunal in the case of Raghav Technology P. Ltd. vs. ITO, vide ITA No.1144/Del/2018, order dated 29th April, 2019 , he submitted that here also where the Pr. CIT while giving approval has simply mentioned: Yes. I am satisfied. The Tribunal, following various decisions including the decision of the Hon'ble Delhi High Court in the case of N.C. Cables Ltd. and United Electrical Company Pvt. Ltd., has held that the reassessment proceedings should be treated as not in accordance with law since the approval has been given in a mechanical manner without due application of mind by the approving authority. He accordingly submitted that since both the approving authorities have given the approval in a mechanical manner, therefore, such reassessment proceedings are to be held as not in accordance with the law and has to be quashed. 13. So far as the merit of the case is concerned, the ld. counsel for the assessee submitted that the shares were purchased during the F.Y. 2009-10 relevant to assessment year 2010-11 and were sold during the assessment year 2011-12. The shares were held for more than 12 months. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 454 (Bombay); v) Acorus Unitech Wireless (P) Ltd. vs. ACIT (2014) 362 ITR 417 (Del); vi) Amit Polyprints (P) Ltd. vs. DCIT (2018) 94 taxmann.com 393 (Guj); vii) Aaspas Multimedia Ltd. vs. DCIT (2017) 83 taxmann.com 82 (Guj); viii) Murlibhai Fatandas Sawiani vs. ITO 2016-TIOL-370-HC-AHM-IT; ix) Ankit Agrochem (P) Ltd. vs. JCIT (2018) 89 taxmann.com 45 (Raj); x) Rakesh Gupta vs. CIT (2018) 93 taxmann.com 271 (P H); xi) Abhishek Jain vs. ITO (2018) 94 taxmann.com 355 (Del); xii) Home Finders Housing Ltd. vs. ITO (2018) 94 taxmann.com 84 (SC); xiii) Baldevbhai Bhikhabhai Patel vs. DCIT (2018) 94 taxmann.com 428 (Guj). 15. So far as the second limb of the argument of the ld. counsel for the assessee that the approving authorities have given the approval in a mechanical manner is concerned, he submitted that the law does not mention anywhere the manner in which the approving authority has to give its approval. The judicial decisions relied on by the ld. counsel for the assessee also nowhere mention as to how it shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of bogus long-term capital gain. The reasons so recorded by the Assessing Officer has already been reproduced in the preceding paragraphs and, therefore, the same is not being reproduced here to avoid repetition. However, a perusal of the column No.12 and 13 of the form for recording the reasons for initiating the proceedings u/s 147 and for obtaining the approval of the Addl./Joint CIT, copy of which is placed at page 40 of the paper book, reveals that the JCIT while giving his approval has mentioned as under:- Recommended for approval u/s 147 of the Act. 19. Similarly, the Pr. CIT, while giving his approval has mentioned as under:- Yes. I am satisfied. 20. I find the coordinate Bench of the Tribunal in the case of M/s Virat Credit Holdings Pvt. Ltd. (supra) while deciding an identical issue has quashed the reassessment proceedings where the approving authorities while giving approval has simply mentioned Yes. I am satisfied. The relevant observations of the Tribunal from para 10 onwards read as under:- 10. First of all, ld. AR for the assessee company drew our attention towards sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in case cited as CIT vs. S. Goyanka Lime Chemical Ltd. - (2015) 64 taxmann.com 313 (SC) examined the identical issue as to according the sanction for reopening the assessment u/s 148 of the Act by merely recording Yes. I am satisfied. And held that reopening on the basis of mechanical sanction is invalid by returning following findings :- Section 151, read with section 148 of the Income-tax Act, 1961 - Income escaping assessment - Sanction for issue of notice (Recording of satisfaction) - High Court by impugned order held that where Joint Commissioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice under. section 148, reopening of assessment was invalid - Whether Special Leave Petition filed against impugned order was to be dismissed - Held, yes [In favour of assessee] Search and Seizure- Procedure for black Assessment- Search was conducted at residential and business premises of Assessee and notice for block assessment u/s. 158-BC was issued- For block period, returns were filed that were processed u/s. 143 (1)- However, notice u/s. 148 was issued by AO, on basis of certain re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal holding that there was no proper application of mind by concerned sanctioning authority u/s Section 151 as a pre- condition for issuing notice u/s 147/148- Held, Section 151 stipulates that CIT (A), who was competent authority to authorize reassessment notice, had to apply his mind and form opinion- Mere appending of expression 'approved' says nothing- It was not as if CIT (A) had to record elaborate reasons for agreeing with noting put up-At same time, satisfaction had to be recorded of given case which could be reflected in briefest possible manner- In present case, exercise appears to have been ritualistic and formal rather than meaningful, which was rationale for safeguard of approval by higher ranking officer-Revenue's appeal dismissed. 16. Furthermore, perusal of the noting sheet dated 09.03.2010 to 30.12.2010 made available to the Bench for perusal shows that only AO has recorded that Addl.CIT has considered the reasons recorded before according the sanction, however even no prima facie material is there, if Addl.CIT has applied his mind by considering the reasons recorded before according the sanction. We are of the considered view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 quasijudicial 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. 17. In view of what has been discussed above, reassessment opened by the AO in this case is not sustainable in the eyes of law, hence hereby quashed. Consequently, cross objection filed by the assessee company stands allowed and the appeal filed by the Revenue has become infructuous. 21. I find the Tribunal in the case of Raghav Technology Pvt. Ltd. (supra) while deciding an identical issue has also quashed the reassessment proceedings under similar circumstances by observing as under:- 8. I have considered the rival arguments made by both the sides and perused the material available on record. It is an admitted fact that the case of the assessee was reopened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to authorize the reassessment notice has to apply his mind and form an opinion. Mere appending of the expression approved says nothing. It is not as if the commissioner has to record elaborate reasons for agreeing with the noting put up before him. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. When such exercise appears to have been ritualistic and formal rather than meaningful which is the rationale for the safeguard of an approval by a higher ranking official, the finding of the Tribunal quashing the reassessment proceedings cannot be disturbed. 12. I find the Hon'ble Supreme Court in the case of Chhugamal Rajpal vs. S.P. Chaliha Ors (supra) has held that where the commissioner had mechanically recorded permission and the important safeguards provided in the section 147 and 151 were lightly treated by the officer and the commissioner, the notice issued u/s 148 was held as invalid. The various other decisions relied on by the ld. counsel for the assessee in the paper book also support his case. Since, in the instant case, admittedly, the ld. PCIT while granting approval has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income chargeable to tax has escaped assessment, that re-opening notice is to be issued. 24. The Hon'ble High Court in the case of PCIT vs. Meenakshi Overseas Pvt. Ltd., vide ITA 692/2016, order dated 26th May, 2017, has observed as under:- 19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: The information so received has been gone through. One would have expected him to point out what he found when he went through the information. In oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. I find the coordinate Bench of the Tribunal in the case of M/s SBS Realtors (P) Ltd. vs. ITO, vide ITA No.7791/Del/2018, order dated 1st April, 2019 , has also quashed the reassessment proceedings based on the information provided by the Investigation Wing without any independent application of mind. It was held that there was no tangible material which formed the basis for the belief that income has escaped assessment. The various other decisions relied by the ld. counsel also supports his case. Since, in the instant case, the reopening of the assessment has been made on the basis of information received from the Investigation Wing and there is no independent application of mind by the Assessing Officer and such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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