TMI Blog2020 (9) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... Borrowed satisfaction of AO - reference of the entries obtained from M/s RK Agrawal and Co. The Assessing Officer has reproduced all the four entries with details of the amount, date of transaction, bank account from which entry was given, instrument number etc. the Assessing Officer has also mentioned that no scrutiny assessment under section 143(3) of the Act was completed in the case of the assessee and therefore no information relating to the transaction was available on record. Assessing Officer has formed his belief on the analysis of credible information received from the Investigation Wing and satisfaction recorded on said information, cannot be said as borrowed satisfaction. We may also like to point out here that the Assessing Officer can issue notice under section 133(6) of the Act during pendency of the assessment proceeding and not authorised to carry out enquiry invoking section 133(6) of the Act prior to recording of reasons and reopening of the assessment. We reject the contention of assessee that Assessing Officer has not applied mind while recording the reasons and he recorded the reasons on the basis of the borrowed satisfaction. Whether no notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction u/s 147/148 of the Act when reasons recorded in present case as evident from cursory look to the same (enclosed herewith) are based on non independent application of mind and based on borrowed satisfaction only ergo reopening proceedings, resultant assessment order u/s 147/143(3) and CIT-A order may please be quashed as void ab initio. 2. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the assumption of jurisdiction u/s 147/148 of the Act on basis of invalid reasons as glaring from jurisdictional error made in reasons recording that i) already for block period of 01.04.1995 to 07.03.2002 an assessment is already framed u/s 158BC of the Act vide order dated 25/03/2004 including subject period (order enclosed herewith) which aspect has been aborted from reasons recorded thus vitiating the entire reopening exercise , ii) further in reasons recorded no discussion is there on nature of alleged transaction and somewhere in reasons it is wrongly mentioned that assessee is a company which confirms our plea for invalid reopening and iii) further in reasons recorded no effort is made to throw light on any statement of any person a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport of the investigation wing. 3.1 The additional grounds, being legal in the nature and not requiring investigation of new facts, same were admitted in view of the settled law as held in the case of M/s. NTPC vs. CIT reported in 229 ITR 383. 3.2 Briefly stated facts of the case are that the assessee an individual, is proprietor of a concern, namely, M/s Yadav Company, which was engaged in share trading brokerage. The assessee filed its regular return of income for the year under consideration on 30/10/2000 declaring income of ₹ 12,413/- and agriculture income of ₹ 2,91,334/-. In the case of the assessee, a search under section 132 of the Income-tax Act, 1961 (in short the Act ) was carried out at his residence on 07/03/2000 and undisclosed income unearthed therein, was subjected to block assessment proceedings under section 158BC of the Act for the block period from 01/04/1995 to 07/03/2000. The block assessment order was passed on 25/03/2004. 3.3 Subsequent to the block assessment, the Assessing Officer received information from the Investigation Wing that M/s Yadav and company i.e. the proprietary concern of the assessee, had obtained certain bogu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the telescoping should be given to the assessee. 6. The Learned DR, on the other hand, relied on the order of the lower authorities and submitted that the contention of the non-application of the mind and borrowed satisfaction are not getting established in the facts of the case. On the merit also, she submitted that the assessee failed to show that those very entries of accommodation have already been assessed in the block period, and therefore the Assessing Officer is justified in making the impugned addition. 7. We have heard rival submission of the parties and perused the orders of the lower authorities and the material relied upon by the parties. In the additional grounds raised, the learned Counsel of the assessee has challenged validity of the reasons recorded; therefore, it is relevant to reproduce the same for ready reference: Enquiries were made by the Directorate of Investigation on the various persons who were indulged- in providing accommodation entries/bogus shares application money/bogus capital gain In the course of enquiries before Investigation Wing these persons had provided the details of various persons to whom such accommodation/bogus entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 from M/s. R.K. AGARWAL AND CO. which is nothing but the unaccounted money of the assessee i.e. M/s. Yadav Co., introduced in the books of accounts under the garb of entries received from M/s. R.K.. Aggarwal Co. In view of the above, I have reason to believe that income at least, the extent of ₹ 10,10,000/- for the A.Y. 2001-02 had escaped assessment within the meaning of the provisions of Section 147. To bring to tax the income which has escaped assessment, I propose to issue notice under section 148 of the Income Tax Act, 1961. Since this case has not been taken in the scrutiny u/s 143(3) for the above mentioned assessment year the proposal is being submitted to the Additional Commissioner of Income Tax, Central Range-31, New Delhi within the meaning of section 147 and accordingly proceedings u/s. 148 is to be initiated for the A.Y. 2000 -01. 7.1 The learned Counsel of the assessee has challenged the validity of the reasons recorded, firstly, on the ground of the nonapplication of the mind by the Assessing Officer. He has pointed out two alleged incorrectness of the facts recorded by the Assessing Officer. He has referred that in para 3 of the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no reference or discussion with respect to the return of income filed by the assessee and it did not seem to be an unintentional error. According to the Hon ble High Court, in view of the incorrect recording of the facts, the entire basis of the reopening gets vitiated. But in the instant case before us, there being no incorrectness of the facts in the reasons recorded, the ratio of the above decision cited by the learned Counsel is not applicable over the facts of the instant case. 7.2 Another contention to assail the reasons recorded, raised by the Learned Counsel of the assessee is that the satisfaction of the Assessing Officer is borrowed. He submitted that the Assessing Officer has merely relied on the report of the investigation wing to form basis of his reasons to believe and no independent verification has been done invoking section 133(6) of the Act. The learned counsel relied on the decision in the case of PCIT vs Meenakshi Overseas P Ltd 395 ITR 677, wherein Hon ble Delhi High Court has observed as under: 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction [see ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC); Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC)]. 17. The scope and effect of s. 147 as substituted with effect from 1st April, 1989, as also ss. 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of s. 147, separate cls. (a) and (b) laid down the circumstances under which income escaping assessment for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ys 2004-05 and 2005-06, the note discloses the source of the information, i.e. DRI Local Unit at Jaipur, sending information based upon the Commissioner of Central Excise's investigations. To require the Revenue to disclose further details regarding the nature of documents or contents thereof would be virtually rewriting the conditions in section 147. After all, Section 147 merely authorises the issuance of notice to reopen with conditions. If the Court were to dictate the manner and contents of what is to be written, the statutory conditions would be added as it were. In this context, it needs to be emphasized that the court would interpret the statute as they stand in their own terms, but at the same time being conscious of the rights of the citizens. So viewed, Kelvinator of India (supra) strikes just balance. To add further conditions to the nature of discussion/reasons that the officer authorising the notice would have to discuss in the note or decision would be beyond the purview of the Courts and would not be justified. For the above reasons, this Court is of the opinion that the impugned order - and the consequential order of 05.01.17 cannot be sustained. They are accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the subjective satisfaction of the Assessing Officer. At this stage therefore, what we have on record and emerging from the reasons recorded is that there is strong prima facie material to suggest that the purchases shown to have been made by the assessee from M/s. Shiyon Enterprises were bogus. The investigation wing of the department had during the course of investigation in case of Shri Chandrakant Patel found materials suggesting that he had indulged in providing accommodation entries and bogus bills. This was further supplemented by the fact that in the current account of M/s. Shiyon Enterprises maintained at Jhaveri bazar branch of Union Bank of India, cheques issued were preceded by substantial cash deposits in the account. The assessee had also maintained bank account in the same branch of the same bank. The assessee had claimed sizeable purchases from such entity during the year under consideration. 7.3.3 Similar findings have been given by the Hon ble Gujarat High Court in the case of Ankit Financial Services Vs. DCIT (2017) 78 taxmann.com 58 (Guj.). The Hon ble Supreme Court in the case of S. Ganga Saran Sons (P.) Ltd. Vs. ITO (1981) 3 SCC 143 on the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o scrutiny assessment, the belief formed by the AO after due examination of the material on record that the income of the assessee chargeable to tax during the relevant assessment year has escaped assessment cannot be said to be arbitrary or irrational or there exists no rational and intelligible nexus between the reasons and the belief. 16. It is true that the reasons recorded or the material available on record must have nexus to the subjective opinion formed by the AO regarding the escapement of the income but then, while recording the reasons for belief formed, the AO is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the AO had cause or justification to know or suppose that income had escaped assessment [vide Rajesh Jhaveri Stock Brockers (P.) Ltd.'s case (supra)]. It is also well settled the sufficiency and adequacy of the reasons which have led to formation of a belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the court. 7.3.5 The Hon ble High Court of Gujarat in the case of Aradhana Estate (P) Ltd. Vs. DCIT (2018) 91 taxmannn.com 119 (Gujarat) on the issue of recording ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew point, the Assessing Officer had sufficient material at his command to form such a belief. Such materials did not form part of the original assessment proceedings and was placed before the Assessing Officer only after the assessment was completed. Since on the basis of such materials, Assessing Officer, as we have recorded, came to a reasonable belief that income chargeable to tax had escaped assessment, merely because these transactions were scrutinised by the Assessing Officer during the original assessment also would not preclude him from reopening the assessment. His scrutiny during the assessment will necessarily be on the basis of the disclosures made by the assessee. 7.3.6 The Hon ble High Court relying the Supreme Court in the case of Rajesh Jhaveri Stock Broker (P) Ltd. (supra) held that at the stage of reopening sufficiency of such reasons is not to be gone. The relevant finding of the Hon ble Court is reproduced as under: 13. The next contention that the Assessing Officer did not demonstrate any material enabling him to form a belief that income chargeable to tax has escaped assessment is fallacious. The Assessing Officer recorded detailed reasons pointing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l is according dismissed. 7.3.8 In the case of Sky Light Hospitality LLP Vs. ACIT WP(C) 10870/2017 and CM No. 44503/2017, on the sufficiency of reason to believe , the Hon ble Delhi High Court held as under: 9. After going through the reasons, we are satisfied that the reasons to believe show and establish a live link and connect with the inference drawn that income had escaped assessment, which is required for issuance of notice under Section 147/148 of the Act. Reasons to believe refer to several facts and information that had come to knowledge and was available with the Assessing Officer. At this stage, when notice is issued under Section 147/148 of the Act, firm and conclusive findings are not required for merits would be examined and thereafter final finding recorded in the assessment order. As long as, there is honest and reasonable opinion formed by the Assessing Officer and the reasons to believe are not mere reasons to suspect , the courts should not interject to stop the adjudication process and scrutiny on merits. Absolute certainty is not required at the time of issue of notice and at the same time, reasons to believe must not be based on mere s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reproduced as under: 18. Under s. 158B of the Act block period and undisclosed income have been defined. Sec. 158BA of the Act opens with non obstante clause and provides that in a case of search initiated after 30th June, 1995 the AO shall proceed to assess the undisclosed income in accordance with provisions of Chapter XIV-B of the Act, notwithstanding anything contained in any other provisions of the Act. Therefore, provisions of s. 158BA(1) of the Act have to be read in conjunction with s. 158BH of the Act. The legislature has provided a special procedure for assessment of search cases and assessment has to be framed in accordance with the provisions of Chapter XIV-B of the Act. On a harmonious reading of both s. 158BA and s. 158BH of the Act it becomes clear that only where a provision is not made in Chapter XIV-B of the Act providing for a special procedure for assessment will other provisions of the Act be made applicable. 19. Sec. 158BB of the Act provides for modality of computation of undisclosed income of the block period. Such undisclosed income of the block period has to be the aggregate of the total income of the previous years falling within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit for completion of block assessment has been provided in s. 158BE of the Act. It indicates that the same has to be within one year/two years from the end of the month in which the last of the authorizations for search under s. 132 of the Act was executed etc. For the present, it is not necessary to refer to the other provisions of the said section. However, Expln. 2 as appearing in s. 158BE of the Act gives an indication as to what would be the date on which an authorization shall be deemed to have been executed. Under cls. (a) and (b) of Expln. 2 different points of time have been specified. But in no case, can one envisage the applicability of period of limitation prescribed under s. 153 of the Act for completion of assessments and reassessments. The Revenue cannot contend that for the purpose of reassessing the so-called escaped undisclosed income Revenue will resort to the limitation under s. 153 of the Act, because undisclosed income has to be assessed in the manner provided and by adopting the procedure provided in Chapter XIV-B of the Act. Nor is it possible to resort to limitation under s. 158BE of the Act because the said period of limitation has already expired. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of nondisclosure of material facts considering the fact that everything which was undisclosed has already been unearthed at the time of search and the definition of undisclosed income itself indicates that not only what has been seized or recovered, but even income or property which has not been or would not have been disclosed for the purpose of the Act has been roped in. Furthermore, s. 158BB of the Act also provides not only for requisition of books of accounts or other documents, but on the basis of evidence found as a result of search and such other materials or information as are available with the AO, undisclosed income of the block period shall be computed. Therefore, even if, assuming for the sake of argument, some income has not been disclosed in the return furnished under s. 158BC of the Act, the AO is bound to assess all undisclosed income after processing the entire material available with AO. The AO cannot be heard to state that undisclosed income has escaped assessment because the officer failed to apply his mind to the material available on record, there being no lack of disclosure. 23. The last of the amendments made by Finance Act, 2002 as explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act specifically relates to a specific assessment year and different time-limits are provided at different stages which are all inter-linked and commence from the end of the relevant assessment year. The definition of assessment year as provided in ss. 2(9) of the Act means the period of 12 months commencing on the first day of April every year. This definition cannot by any stretch of imagination be made applicable to the term block period which has been defined by s. 158B(a) of the Act. On a plain reading the concept of block period cannot take within its fold the meaning of an assessment year. Similarly, the term assessment year by its very definition, cannot be read to mean block period . 26. In light of this specific distinction in the statutory scheme brought about by specific definitions of the two terms, assessment year and block period , the submission on behalf of Revenue that the term assessment year , wheresoever it appears in the group of ss. 147 to 153 of the Act, be substituted by the term block period cannot be accepted, because on a plain reading of the said provisions, viz., s. 147 to s. 153 of the Act, the entire scheme becomes unworkabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicate and specify the period of previous years which would comprise block period. Revenue, therefore, cannot contend successfully that wherever the term 'assessment year is used in the group of sections from ss. 147 to 153 of the Act the said term has to be replaced by the term 'block period . Furthermore, the amendment which is retrospectively made in the definition of the block period by the Finance (No. 2) Act, 1996, itself indicates that originally the term block period meant as consisting of 10 previous years prior to the previous year in which the search was conducted and also the period of current previous year upto the date of search, but, before adoption of uniform previous year, in case of different assessees, 'block period would be different depending on the accounting period adopted in terms of s. 3 of the Act. To obviate this situation the definition of block period was amended. This becomes clear from Circular No. 762, dt. 18th Feb., 1998 issued by CBDT extracted hereinbefore. 30. The apex Court decision on which great emphasis has been placed on behalf of Revenue in fact goes to support the view adopted in the present case. The controvers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eams of procedure, as laid down by the apex Court, provisions of Chapter XIV-B of the Act shall prevail and have primacy. 33. Thus, viewed from any angle, the stand of Revenue does not merit acceptance. Once assessment has been framed under s. 158BA of the Act in relation to undisclosed income for the block period as a result of search there is no question of the AO issuing notice under s. 148 of the Act for reopening such assessment as the said concept is abhorrent to the special scheme of assessment of undisclosed income for block period. At the cost of repetition it is required to be stated and emphasized that the first proviso under s. 158BC(a) of the Act specifically provides that no notice under s. 148 of the Act is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act. 7.7 As regard to the decision in the case of Sunil Kumar Jain (supra), the citation of ITR stated by the Learned Counsel was not found to be correct and it was found reported at 266 CTR 0354. In the case of Sunil Kumar Jain (supra) the Hon ble Chattisgarh High Court observed as under: 20. The Suresh-Gupta case is related to the block assessment but the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words too far? 25. Often the block assessment is in respect of the years for which the assessment has already been done under the Act. The block assessment is a kind of re-assessment, on the basis of material found in the search. This is also indicated by first proviso to section 158J3C (a) of the Act. 26. Section 158BC is titled as 'Procedure for Block Assessment'. The first proviso (see below), The relevant portion of the proviso is as followsto section 158BC(a) of the Act provides that for the purpose of proceedings under Chapter XIVB of the Act, no notice under section 148 of the Act is required to be issued. 27. In case sections 147/ 148 of the Act are applicable to the block assessment, it will amount to reassessment of the reassessment proceeding. 28. Section 147 of the Act has not used the word 'the block period'. The reason seems to be simple that the block assessment itself is the re-assessment proceedings. There was no necessity for providing reassessment of the reassessment proceedings. 29. The Gujarat High Court has considered this question in detail in Cargo Clearing Agency (Gujarat) v. Joint Commissioner of Income Tax { ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the block assessment completed prior to issue of notice u/s 148 of the Act. 7.11 The additional grounds No. 1 2 of the appeal raised by the assessee are accordingly dismissed. The third ground was not pressed; accordingly same is dismissed as not pressed. 8. As far as merit of the case is concerned, the learned Counsel of the assessee referred to the order of the block assessment and submitted that in the block assessment, commission income at the rate of 1.5% has been assessed on the transaction of ₹ 10134 lakhs. According to him, the transaction in question in the present proceeding also covered in those transactions. He also submitted that once commission income has been assessed in case of the accommodation entries in the block assessment order, addition for the entire amount of accommodation entries cannot made in the present proceedings under section 147 of the Act. On being specifically asked by the Bench, to demonstrate, as how and where the accommodation entries received from M/s RK Agrwal Co have already been included in the amount of ₹ 10134 of accommodation entries considered in the block assessment order. But the Learned Counsel neither could ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
