TMI Blog2022 (1) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Further, the Assessing Officer would also advert to the objections of the assessee against the reopening of the assessment. The grounds raised by the assessee are allowed for statistical purpose - ITA No. 7127/Del/2019 - - - Dated:- 18-1-2022 - SHRI KUL BHARAT , JUDICIAL MEMBER Appellant by : None Respondent by : Shri Om Prakash, Sr. DR ORDER Per Kul Bharat, JM This appeal by the assessee is directed against the order of the Ld. CIT(A)--7, New Delhi dated 17th June, 2019, pertaining to the Assessment Year 2011-12. The assessee has raised following grounds of appeal:- 1. On the facts and in the circumstances of the case Ld. CIT(A) has erred both on facts and in law in upholding the impugned order passed by the respondent illegally, violating the principles of natural justice, without fair and objective application of mind to the facts of the case and the law applicable and without being guided by the binding decisions of courts and tribunals and hence liable to be set aside and quashed and declared non est. in law. 2.1 On the facts and circumstances of the case, the learned Ld. CIT(A) has erred, both on facts and in law, in sustaining the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority. The assessee has not provided any new address to the Registry. Therefore, the appeal was taken up for hearing in the absence of the assessee. 3. The facts giving rise to the present appeal are that the assessee Company filed its return of income on 13/10/2011 declaring income at ₹ 850/-. Thereafter, the assessment of the assessee was reopened on the basis that information was received that the assessee had made investment in shares of M/s. Mirzapur Chemicals Works Pvt. Ltd. during the Financial Year 2010-11. The Assessing Officer was of the view that the amount of ₹ 10 lacs has escaped assessment in the case of the assessee. Therefore, the A.O. issued notice u/s. 148 after taking approval from the competent authority. In response thereto, the assessee filed its return of income through electronical mode on 26/09/2018 at ₹ 852/- in response to the notice, Shri Pramod Kumar C.A., attended the hearings the Assessing Officer, therefore, on the basis that the Directors of M/s. Mirzapur Chemicals Works Pvt. Ltd. fail to attained the office of the Assessing Officer made addition of ₹ 10 lacs. 4. Aggrieved against this, the assessee preferred appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in section 147. In nutshell the assessee strongly submits that looking to the overall facts and circumstances of the case, them was no occasion or justification, either factual or legal, to issue notice u/s. 148 and the reassessment proceedings based on such reasons are not valid in the eyes of law and the assessment therefore deserve to be held as void as no material/information was available with the Assessing Officer at the time of recording reason to believe . 3. Reliance is placed on following recent judgments: Pr GIT G G Pharma India Ltd. (Honble Delhi High Court) (2016) 384 ITR 147 In ACTT v. Dhariya Construction Co. (2010) 328 ITR SIS the Supreme Court in a short order held as under: Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the DVO. Opinion of the DVO per se is not an information for the purposes of reopening assessment u/s. 147 of the IT Act, 1961. The A.O. has to, applying his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the civil appeal. The Department was not entitled to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement of law, 38. The question framed is answered in the negative, i.e., in favour of the Assesses and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs. Emphasis Added) 4. It is further submitted that from the assessment order, it is evident that the Ld. Assessing Officer has relied completely on the information sent by the ITO HQ)(I CI), Lucknow, He has not formed his own belief for the issue of notice (as held by Ranchi bench of the High court of Patna in the case of Jaiswal others Vs. TTO others (176 ITR 352) which is very important The information contained in the letter is very limited does not detail the exact nature of the transactions nature of The escapement of the income. Similarly in case of CIT v. Atul Jain (2007) 164 Taxman 33 (Delhi) It' was held that merely because some intra-departmental information was received by assessing officer to the effect that assessee had taken a bogus entry of long term capital gain after paying equivalent amount in cash together with premium for accommodation entry, assessing officer was not justified in mechanically reopening assessment on basis of such info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t given by him to the Commissioner, of Income-tax. As held by the Supreme Court in Chhugamal Rajpal (1971) 79 ITR 603, the submission of the report is not the same, as recording of reasons to believe for issuing a notice. The Assessing Officer has dearly substituted form for substance and, therefore, the action of the respondent fails foul of the law laid down by the Supreme Court in Chhugamal Rajpal (1971) 79 ITR 603 which is clearly applicable to the facts of these appeals. It is submitted that the report of the ITO(HQ)(I CI), Lucknow if any, may be a source of investigation, and it is therefore, the law has placed a rider to it, before the report, being used as material for subjecting the assesses to re-assessment proceedings, after receipt of report, the Assessing Officer has to apply his mind and after performance of that mental exercise of his own he could form the requisite formation of belief that the income of the assessed liable to tax for a particular year has escaped assessment The Assessing Officer thereafter can issue notice to the appellant Assessee respectfully submits that there existed no 'material', which could lead to formation of 'be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s along with the judicial pronouncements of various courts include the jurisdictional High Court, make it very clear that notice issued u/s. 148 is void and deserves to be quashed and assessment made in pursuance thereof also deserves to be annulled. 5. In our case there is no reason to believe that the income has escaped assessment The A.O. recording reasons has not satisfied himself-far escapement of income and issued notice on the basis of information received from the ITC(HQ)(I CI), Lucknow. 6. It is clear that at the time of recording of reason your office does not have REASON TO BELIEVE rather have REASON TO SUSPECT with purely subjective satisfaction and issued notice in a mechanical system/order. There is no material available on record except the information of ITO(HQ)(I CI), Lucknow which is totally insufficient to reach to any conclusion. 7. Your office does not have ANY REASON TO BELIEVE that the assessee's income for the above said assessment year have escaped assessment and has merely satisfied and worked in mechanical order and just followed the directions of senior authorities. 8. Mere stating the facts or finding of the case basis on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the Assessing Officer referred to the information and the two directions as reasons on the basis of which he was proceeding to issue notice u/s. 148. These could not be he reasons on the basis of which he was proceeding to issues notice u/s. 148. These could not be the reasons for proceeding u/s. 147/148. 4. Signature Hotels P. Ltd. v. ITO (2011) 338 ITR 51 Delhi The aforesaid Section is wide but it is not plenary, We have to consider and examine the crucial expression reason to believe used in the said Section. The Assessing Officer must have reason to believe that an income chargeable to tax has escaped assessment. This is mandatory and the reasons to believe are required to be recorded in writing by the Assessing Officer. 5. ITO v. Lakshya Exim. P. Ltd. and Lakshya Exim P. Ltd. Vs. ITO (2010) 39 SOT 220 Delhi Whether, on facts, it was apparent that proceedings under section 147 had been initiated by Assessing Officer on a nonexistent ground inasmuch as there was no material on record to entertain a belief that assesses had raised bogus loam or share capital from V Ltd. -Held, Yes - Whether, therefore, assumption of power by Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he process of law can be abused easily to achieve the ulterior objectives. No democracy can survive in case investigation is readily set out against constitutional-, functionaries without cogent material. 'We find the documents seized from Birla and Sahara groups to be random computer entries diaries, emails and Excel Sheets. These are not maintained on a regular basis as books of account, said the Bench, virtually putting a stamp of approval on the Income Tax Settlement Commission's recent decision, based on a forensic test, to discard the Sahara Diary and documents as constituting evidence. The Bench relied heavily on the Hon'ble Supreme Court judgment in the V.C. Shukla case in which it had ruled that diary entries alone cannot be treated as evidence unless corroborated by other independent details. When we examine this with the findings in the V.C. Shukla case, we are of the considered opinion that no case is made out against anyone a warrant directing investigation against any person., it said. We are of the opinion that in the peculiar facts and circumstances of this case, no case is made out to direct investigation against political personalities, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Thus no adverse inference can be drawn against the assessee relying on the report of the ITO(HQ)(I CI), Lucknow. C. The Ld. Assessing Officer has relied upon information collected at the back of the assessee without affording a proper opportunity to cross-examine; 15. As necessary documents, relied upon by the report of the ITO(HQ)(I CI), Lucknow, have not been provided to the assessee, the assessee could not seek opportunity to cross-examine the person(s) whose statement (if any) has been relied upon by the Ld. Assessing Officer. 16. Thus the principal of natural justice has been completely ignored, over-ruled and disregarded in the present case.' 16. On going through the reasons recorded, the assessee observed as under:- The contents of report of the ITO(HQ)(I CI), Lucknow are completely missing. The material collected by way UO(HQ)(I CI), Lucknow has not been specified. Who carried out the investigation and on whom the investigation was conducted. Who has recorded the reasons and when. The name and capacity of person(s) who's statement(s) were recorded, if any. Contents of the statements) rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe that the assessee company is at fault for not disclosing the correct particulars of Income to the extent of an amount of ₹ 10,00,000/-, is escaped assessment due to failure on the part of assesses. 23, It is painfully stated that the impugned material/information was never confronted to the assesses at any stage of assessment. The reliance placed by the Assessing Officer on such material for making the addition, without confronting the same to the assesses and without adequate opportunity of cross examination, flouts all the principles of natural Justice and is not legally sustainable. Case Laws: Multitex Filtration Engineers P. Ltd. V. Dy CIT (2007) 13 SCI' 208 (DELHI) It was held that where assesses company was found to have received certain amounts as share application money from two companies promoted by one 'S' and addition of such Share application money was made to assessee's income under section, 68 since addition made by lower authorities suffered from a primary infirmity in sense that same had been made without testing alleged evidence available with assessing officer in spite of specific request by assessee for cross examinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation for meeting the inference that the authority seeks to draw from it. Similar views we have heard both the parties and perused the material available on record expressed in the case of Collector of Central Excise Vs. Sanwarmal Purohit, (1969) Assam LR (Hon'ble Supreme Court) 11; Prakash Cotton Mills Vs. B.V. Rangwati AIR 1971 Bom 386, 392). 25. In the case of S.L. Kapoor Vs. Jagmohan AIR 1981 Hon'ble Supreme Court. 136, 145 it was observed that to put it differently, the requirements of natural justice are met only if opportunity to represent is given in view of proposed action. The demands of natural justice are not met even if the very person proceeded against has furnished the information on which the action is based, if it is furnished in a casual way or for some other purpose. The person proceeded against must know that he is being required to meet the allegations which might lead to a certain action being taken ayahs him. If that is made known the requirements are met. In the case of Nagulakonda Venkata Subba Rao v. CIT (1957) 31 ITR 781 (AP) it was held that in discharge of their duties, the officers receive a good deal of information which is not at all ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with concept of burden of proof, onus of proving is always on the person who makes the claim and not on the Revenue. While dealing with the issue of deciding the burden of proof, Hon'ble Supreme Court in the cases of CIT Vs. Diurgaprasad More 82 ITR 540 and Sumati Dayal Vs. CIT 214 ITR 801 has held that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real and that Taxing Authorities are entitled to look into surrounding circumstances to find out the reality and the matter has to be considered by applying the lest of human probabilities. The Hon'ble court also held that, It is no doubt, true that in all case in which a receipt is sought to be taxed as income: the burden lies on the Department prove that it is the taxing provision and if a receipt is in the 'nature of income',, the burden to prove that it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. In the case of Durgaprasad More (Supra), the Hon'ble High Court went on to add that a party who relies on a recital in a Deed has to establish the truth of this recital, otherwise it will be very easy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e one side and the tax gatherer and his perhaps not so successful advisors on the other side. Hon'ble Court further held that it was for the Court to take stock to determine the nature of new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices would be related to the existing legislation with the aid of emerging techniques of interpretation as was done in Ramsay, Burmah Oil and Dawson to expose the devices for what they really are and to refuse to give judicial benediction. 4.6. It is also a settled legal proposition that if no evidence is given by the party on whom the burden is cast, the issue must be found against him. Therefore, onus is always on a person who asserts a proposition or fact, which is not self evident, The onus, as a determining factor of the whole case can only arise if the Tribunal, which is vested with the authority to determine, finally all questions of fact, finds the evidence pro con, so evenly balanced that it can come to no conclusion, then, the onus will determine the matter, Needless to say that the onus is heavy or light, depending on the facts and circumstances of each case. There cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred certain land to hank - Assesses claimed to have incurred long-term and short-term capita flosses an share trading transactions - Accordingly, if set off said losses against capita/gain earned on sale of land - Assessing Officer found that assesses entered into sham and bogus share trading transactions resulting in capital loss with purpose to reduce tax liability arose on capital gain - Assessing Officer, therefore, discarded capital losses - Commissioner (Appeals) confirmed order of Assessing Officer - Tribunal also confirmed order of Assessing Officer, and while doing so, referred to a decision of Supreme Court in case of Sumati Dayal v. CIT [1995] 214 JTR 801/80 Taxman 89 to held that evidence produced must be analysed by applying theory of surrounding circumstances and human probabilities - Assessee alleged that without bringing said case to notice of parties, revenue had caused prejudice to is case all in violation of principles of natural justice and of rule 11 - Whether since decision of Supreme Court in Sumati Dayal case (supra) ms cited by Tribunal only for purpose of reiterating well settled and established position of law, it could not be said to have caused preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the use of colourable devices and by resorting to dubious: methods and subterfuges. Thus, it cannot he said that all lax planning is illegal/illegitimate. Moreover, Reddy, J. himself says the agrees with the majority. In the judgment of Reddy, J. there are repeated references to schemes and devices in contradistinction to legitimate avoidance of tax liability (Paras 7-10, 17 and 18. In our view, although Chinappa Reddy, J. makes a number of observations regarding the need to depart from the Westminster and tax avoidance - these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between Mc Dowell and Azadi Bachao or between McDowell and Mathuram Agarwal. 15. The aforesaid observations of the Supreme Court makes it very dear that a colourable device cannot be a part of tax planning. Therefore where a transaction is sham and not genuine as in the present case then it cannot he considered to be a part of tax planning or legitimate avoidance of tax liability. The Supreme Court in fact concluded that there is no conflict between its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a science. 10. The point we are trying to drive home is that when a bogus entry is found in accounts, there cannot be a better solution than a remove that entry. The legitimate way of removing the entry would be, as every student of accountancy would agree, is to do what has been omitted to be done or undo what has been wrongly done. Smt. Kiran Navin Doshi 11. Now, so far we were only assuming that the purchases are bogus. Coming to the facts of the case, were the purchases worth ₹ 86,500/-. Really bogus. There is no doubt about it. The investigations got done by the Assessing Officer leave hardly any doubt about it. The failure on the part of the assessee to snow cause strengthens the department 'his stoic' silence of the assesses also blunts the assessees's argument that Shri Hukamchand's statement was recorded at its back. It may have been recorded at its back, but the results thereof were informed to the assessee and that is what the assesses was asked to explain and failed to do so. Thus, now we are not assuming but are concluding that the purchases of ₹ 86,500 were, in fact bogus. In case of bogus 'mines, in our opinion, what cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. . . (782). 41. In the present case we find that the Commissioner of Income-tax (Appeals) as also the Tribunal has recorded a categorical, finding of fact that the applicant did not make purchases to the extent he has shown The purchases in question have conclusively been provided to be bogus. If the purchases of the gas cylinders have not been made and on the other hand have been found to be bogus by all the authorities including the Tribunal, the question of legitimate outgoings in the form of purchases of the gas cylinders would not arise. Therefore, the Tribunal was justified in not giving benefit of the alleged amount spent towards the purchases of gas cylinders. 7.18. In Samurai Software (P.) Ltd. v. Commissioner of Income-tax [2008] 299 ITR 324 (RAJ.), it was held as under: 8. The Tribunal considered the matter in paragraph 8 of its order thus: We have cam fully considered the rival submissions of the parties material available on record purchases totaling to ₹ 4,37,048 were not fund recorded in the seized books of account of the assessee-company. No surrender was made on behalf of the company by any of the directors of the assessee-company. The surrender was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said to be unjustified. 11. In the case of Indian Woollen Carpet Factory vs. Income-tax Appellate Tribunal 120023125 TAXMAN 763 (RAJ.) it was held as under: If the transactions were genuine and if the parties had migrated somewhere else, their latest addresses should have been supplied and burden was on the assessee to prove the genuineness of the transactions, when the assessee claimed that the purchases were genuine. It was true that no loan had been taken from the parties. The case before the Assessing Officer was H that the assessee claimed some purchases from same parties, whom he could not produce or those parties were not available when the summon under section 131 was issued. Therefore, the Initial dispute was with regard to genuineness of the transaction regarding purchase of wool from me parties the assessee had failed to discharge the onus to prove the genuineness of the transactions were found bogus, 4.12 In Sanjay Oilcake industries vs. Commissioner of Income-tax [2009] 316 ITR 274 was held as under. 12. Thus, it is apparent that both CIT(A) and the Tribunal have concurrently accepted the finding of the AO that the apparent sellers who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes net indulge in conjectures, surmises or suspicions. The apex Court expressed a similar view in the case of Summati Dayal vs. CIT (1995) 125 CTR (SC) 124; (1995) 214 ITR 801 (SC) and held that the decision of an adjudicating body based on surrounding circumstances and human probabilities is not bad in law and deserves to be upheld. In the case of McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), the apex Court held that colourable devices are not part of legitimate tax planning, Going by the ratio of - these decisions, we are of the view that the assesses firm cannot be dissociated from the scheme of declaration of gold under the Amnesty Scheme in Smt. Kiran Navin Doshi the names of the family members of the partners of the assesses - firm, as different, individuals could not have hit Upon the same idea of acquiring gold in the year of account relevant for the asst, yr, 1978-79 and declaring such gold under the Amnesty Scheme and getting the gold valued by the same valuer on the same day and filing their returns under the Amnesty Scheme on the same day, i.e. 30th March, 1987, and subsequently getting the gold, the ornaments to the assessee-firm in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he administrative realities and oilier factors of a given case, can he exasperating. We can neither be financial nor financial but should he flexible yet firm in this jurisdiction. 4.15. in GTC Industries Ltd. v. Assistant Commissioner of Income-tax [1998] 65 ITD 380 (BQM), it was held as under: 105. In our opinion right to cross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, 'audi alteram partem. The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence and is the creation of Court. It is part of legal and statutory justice and not a part of natural justice, therefore, it cannot be hid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross-examination. Adverse evidence and materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks Pvt. Ltd. w.r.t. the investment made and also the Directors of Mirzapur Chemical Works Ltd. were failed to attend the office of undersigned in response to summon issued u/s. 131 of the Act. This fact was brought to the knowledge of A.R. and was asked to show cause as to why ₹ 10,00,000/- should not be added to the income of the Assessee. On being confronting on this, vide notesheet entry dated 04.12.2018, A.R. agreed for the addition to buy peace and further litigation in the matter. Accordingly, I hereby add back ₹ 10,00,000/- to the income of assessee for the year under consideration as its unconfirmed investment in shares of M/s. Mirzapur Chemicals Works Pvt. Ltd. u/s. 69 of the Act. (Addition: ₹ 10,00,000/-) 10. From the above finding of the Assessing Authority, it is clear that the addition was made purely on the basis that the Director of M/s. Mirzapur Chemicals Works Pvt. Ltd. failed to attend the office of the assessing authority. It is seen that the Authorized Representative had categorically stated before the Assessing Officer that the Directors of M/s. Mirzapur Chemicals Works Pvt. Ltd. were out of station. The Assessing Officer had not giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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