TMI Blog2022 (8) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... of the reasons to believe which would reveal any application of mind by the AO qua the material/information before him, on the basis of which he had arrived at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment u/s.147. We though are not oblivious of the settled position of law that an A.O at the stage of reopening of a concluded assessment u/s. 147 of the Act is not required to conclusively prove escapement of income of the assessee from chargeability to tax, but the statutory obligation so cast upon him i.e. formation of bona-fide belief on the basis of material available before him that the income of the assessee chargeable to tax had escaped assessment cannot be lost sight of. Our aforesaid view is fortified by the order of a co-ordinate Bench of the Tribunal i.e. ITAT, C Bench, Mumbai in the case of Chetan Rajnikant Shah [ 2021 (2) TMI 1053 - ITAT MUMBAI] wherein quashed the reopening of the assessment, for the reason that there was failure on the part of the assessee to arrive at an independent and a bonafide belief that the income of the assessee chargeable to tax had escaped assessment, As the A.O in the case before us had clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see could not be verified. In our considered view, not only the aforesaid details of cash deposits in the bank accounts of the assessee were very much there before the A.O in the course of the original assessment proceedings, but in fact the same had duly been considered and accepted by him as the duly accounted sale proceeds of the assessee. On the basis of our aforesaid deliberations, we are of a strong conviction, that as stated by the Ld. AR, and rightly so, as the case of the assessee had been reopened with a purpose to re-visit the assessment on the basis of a mere change of opinion, which we are afraid is not permissible in the eyes of law, thus, the assessment framed by the AO is liable to be struck down for want of jurisdiction on his part on the said count. As per the mandate of law even where a concluded assessment is sought to be reopened by the A.O within a period of 4 years from the end of the relevant assessment year, it is must that the A.O has fresh material or information with him that had led to the formation of belief on his part that the income of the assessee chargeable to tax has escaped assessment. Our aforesaid view is fortified by the judgments of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned succeeding years remains the same as are involved in the case of the assessee before us, therefore, we find no justification on the part of the department in adopting an inconsistent approach. Our aforesaid view is fortified by the judgment of the Hon ble Supreme Court in the case of Radhasoami Satsang [ 1991 (11) TMI 2 - SUPREME COURT] We, thus, in terms of our aforesaid observations finding no infirmity in the deletion of the addition made by the AO u/s 68 of the Act, uphold his well reasoned order. Decided against revenue. - ITA No. 82/RPR/2017 CO. No. 02/RPR/2022 - - - Dated:- 4-8-2022 - Shri Ravish Sood, Judicial Member And Shri Arun Khodpia, Accountant Member For the Assessee : Shri R.B Doshi, AR For the Revenue : Shri Sanjay Kumar, Sr. DR ORDER PER RAVISH SOOD, JM: The present appeal filed by the Revenue is directed against the order passed by the CIT(Appeals), Bilaspur, dated 30.11.2016, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short the Act ) dated 15.03.2016 for assessment year 2008-09. Also, the assessee is before us as a cross-objector. Before us the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.147 is illegal inasmuch as reopening was resorted to without application of mind on the part of the A.O. Re-assessment proceedings are liable to be quashed. Initiation of re-assessment proceedings is illegal inasmuch as the failure on the part of the assessee, as required by the first proviso to sec.147, has not been brought out in the reasons recorded. 2. The cross objector reserves the right to add, amend or alter any of the ground/s of cross objection. 2. Succinctly stated, the assessee who is engaged in the business of trading of Kosa cloth yarn and manufacturing of cloth for shirting and sarees under the name and style of M/s. Balaji Handloom, had filed his return of income for the assessment year 2008-09 on 30.09.2018 declaring an income of Rs.4,96,950/-. The return of income filed by the assessee was initially processed as such u/s. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. Original assessment was, thereafter, framed by the A.O vide his order passed u/s. 143(3), dated 18.06.2010 determining the income of the assessee at Rs.5,85,063/-. 3. Subsequently, on the basis of informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee to the validity of the jurisdiction that was assumed by the A.O to reopen his case u/s.147 of the Act was concerned, the CIT(Appeals) not finding favour with the contentions advanced by the assessee dismissed the same. As regards the addition of the cash deposits of Rs. 5,22,81,663/- that was made by the A.O by treating the same as unexplained cash credits u/s.68 of the Act, it was observed by the CIT(Appeals) that the assessee who was an importer of yarn from China would receive the goods at Chennai from where his forwarding agents as per his standing instructions would directly send the goods to the purchasers i.e, the weavers who were spread across the country. It was observed by the CIT(Appeals) that though the assessee because of beggaries of the occupation of the weavers may not be in a position to furnish their complete details as was sought by the AO, however, for the said standalone reason could not have justifiably recharacterized his duly accounted sale transactions as unexplained cash credits u/s. 68 of the Act. Accordingly, the CIT(Appeals) holding a conviction that the cash deposits in the bank accounts represented the sale proceeds of the assessee whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that had led to the aforesaid delay of 1722 days in filing the present cross-objection, it was submitted by the ld. AR that in light of the peculiarity of the facts the same may in all fairness be condoned. In order to fortify the facts as were stated before us, the ld. AR took us through the application filed by Shri. Alochan agrawal, L/heir of the assessee a/w an affidavit that was filed by him in support therer of, as well as the medical reports of the assessee (since deceased). In support of his contention that a liberal approach be adopted and the delay involved in filing the cross-objection be condoned the ld AR had relied on the order of the Tribunal in the case of Shri. Nakoda Ispat Limited, ITA No. 109/BLP/2011, wherein the tribunal after referring to the judgments of the Hon ble Supreme Court in the case of National Thermal Power Company Limited vs. CIT (1998) 229 ITR 383 (SC) and Collector Land Acquisition vs. Mst. Katiji Others, 167 ITR 471 (SC) had condoned a delay of 1498 days. Also, support was drawn by the ld. AR from the order of the ITAT, Delhi in the case of ITO Vs. Vishnu Impex Pvt. Ltd. (2015) 45 CCH 590 (Del), wherein a delay of 1297 days in filing of cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel who was unaware of the intricacies involved in the appeals before the appellate forums, therefore, for the said reason the L/heir of the assessee, viz. Shri. Alochan Agrawal remained unaware of his statutory right of assailing the validity of the jurisdiction that was assumed by the AO for reopening the case of his father under Sec. 147 of the Act. Although a substantial period of delay is involved in filing of the cross-objection by the assessee (through L/heir), but considering the aforesaid peculiar set of reasons which had led to the same and do not smack of any malafide conduct or a lackadaisical approach of Shri. Alochan Agrawal, L/heir of the assessee, we are of the considered view that the delay of 1722 days, though substantial, in all fairness merits to be condoned. We, thus, in terms of our aforesaid observations condone the delay of 1722 days involved in filing of the present cross-objection by the L/heir of the assesssee. Before parting, we may herein observe, that as the assessee even otherwise by way of the present cross-objection is assailing the validity of the jurisdiction that was assumed by the AO for reopening his case u/s 147 of the Act, which being pure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FT RTGS modes during the financial year 2007-08. On perusal of copy of bank statements it was found that there were frequent cash deposits throughout the year. As stated by the Investigation Wing, the cash deposits made by the assessee could not be verified. Therefore, there are sufficient reasons to believe that substantial amount has remained to be assessed/taxed. I have, therefore, reason to believe that considerable amount has escaped assessment within the meaning of the provision of section 147 of the I T Act, 1961. On a bare perusal of the aforesaid reason to believe , we find that as stated by the Ld. AR, and rightly so, the case of the assessee was reopened by the A.O by merely referring to the information that was received by him from the DDIT(Inv.)-III, Raipur regarding huge cash deposits that were frequently made in the bank accounts of the assessee throughout the year under consideration, and there is no independent application of mind on his part qua the aforesaid information so received by him. As can safely be gathered from a perusal of the aforesaid reasons to believe, the A.O had merely referred to the information that was received by him from DDIT(Inv.)- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed into service by them to drive home their respective contentions. As the assessee has assailed the validity of the jurisdiction assumed by the A.O for reopening his case under Sec. 147 of the Act thus, we shall first deal with the same. On a perusal of the reasons to believe stated to have been recorded on 19th March, 2014 on the basis of which the case of the assessee was reopened u/s 147 of the Act, the same, as conveyed to the assessee by the A.O vide his letter dated 21st January, 2015 read as under: Information was received vide letter No. DGIT(Inv.)/Information/P/2012- 13 dated 07th March, 2014 in respect of beneficiaries of Accommodation Entries in the nature of Sales, Unsecured Loans and Share Application Money issued by the Group of Companies controlled and managed by Praveen Kumar Jain. The information contains specific details of the Transactions and the Name Address and PAN of the beneficiaries along with the names of the Companies controlled and managed by Praveen Kumar Jain giving the Accommodation entries. As per the said information, it is seen the Assessee, Chetan Rajnikanth Shah, Prop. Chat Impex is a beneficiary of the said Accommodation Entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, the A.O by not even referring to the nature of the accommodation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, which as per the impugned information shared by the DGIT(Inv.), Mumbai were stated to have been received by the assessee as a beneficiary from Shri. Praveen Kumar Jain thus, clearly reveals that he had failed to apply his mind to the material on record to arrive a bonafide reason to believe that the income of the assessee chargeable to tax had escaped assessment. In sum and substance, a perusal of the aforesaid reasons to believe though reveals a reference of the material/information received by the A.O from the DGIT(Inv.), Mumbai on the basis of which the case of the assessee was sought to be reopened, but at the same time it is witnessed by a non-application of mind and failure to arrive at an independent and bonafide belief on the part of the A.O that the income of the assessee chargeable to tax had escaped assessment. Although, we are not oblivious ofthe fact that an A.O at the stage of recording the reasons to believe is not required to conclusively establish that the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the A.O in his reasons to believe after setting out four entries which were stated to have been received by the assessee on a single date i.e 10th February, 2003 from four entities which were termed as accommodation entries, which information was received from the Directorate of Investigation, had therein stated : I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries. In the backdrop of the aforesaid facts, it was observed by the Hon ble High Court that it could not be gathered that as to whether the A.O had applied his mind to the material that he talks about since he did not describe what those material was. Observing, that without forming a prima facie opinion, on the basis of the aforesaid material, it was not possible for the A.O to have simply concluded that it was evident that the assessee company had introduced its own unaccounted money in its bank by way of accommodation entries. Accordingly, the High Court was of the view that as the basic requirement that the A.O must apply his mind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, on the basis of vague and scanty information and without any further verification, examination or any other exercise had jumped to the conclusion that the income of the assessee in respect of the accommodation entries had escaped assessment for the year in question. Accordingly, in the backdrop of the aforesaid factual matrix it can safely be held that the A.O had blatantly failed to apply his mind to the material available on record for forming a belief that the income of the assessee had escaped assessment. We, thus, are of the considered view that as the A.O had acted mechanically on the information supplied by the Directorate ofIncome-tax(Inv.) that the assessee was a beneficiary of the alleged bogus/accommodation entries provided by the aforesaid entry provider, viz. Shri Praveen Kumar Jain, and had failed to apply his mind to the material available on his record, the reopening of the assessment by him u/s 147 of the Act could not be held to be justified. 10. On the basis of our aforesaid observations, we are of a strong conviction that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial facts that were necessary for his assessment, therefore, there is substance in the claim of the Ld. AR that as per the mandate of the first proviso to section 147 the concluded assessment of the assessee could not have been validly reopened beyond a period of four years from the end of the relevant assessment year. Our aforesaid view is supported by the judgments of the Hon ble High Court of Delhi in the case of Pr. CIT Vs. M/s. Superior Films Pvt. Ltd., ITA No.153 of 2020 dated 19.07.2021 (Del) and in the case of CIT Vs. Viniyas Finance Investment Pvt. Ltd., ITA No.271 of 2012, dated 11.02.2013 (Del). Also, a similar view had been taken by the Hon ble High Court of Bombay in the case of Ananta Landmark Pvt Ltd vs Deputy Commissioner Of Income Tax, WP No.2814 of 2019 dated 14.09.2021 (Bom). 14. At this stage, we may herein observe that the Hon ble High Court of Delhi in the case of Haryana Acrylic Manufacturing Company Vs. CIT (2009) 308 ITR 38 (Del. HC), had observed, that in any case where the reasons did not even contain an allegation that the escapement of income had occasioned due to failure on the part of the assessee to disclose fully and truly all material fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 16. It is the claim of the Ld. AR that as the concluded assessment of the assessee had been reopened by the AO on the basis of a mere change of opinion i.e, on the basis of the same set of facts as were there before his predecessor while framing the original assessment u/s.143(3), dated 18.06.2010, therefore, the same as per settled position of law cannot be sustained and is liable to be struck down on the said count. In order to support his aforesaid claim the Ld. AR had relied on the judgment of the Hon ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). 17. After having given a thoughtful consideration to the issue before us, we find substance in the aforesaid claim of the Ld. AR. On a perusal of reasons to believe on the basis of which the case of the assessee had been reopened by the A.O u/s.147 of the Act, it transpires that the same is not based on any fresh tangible material coming to the notice of the A.O after the culmination of the original assessment proceedings vide his order passed u/s. 143(3), dated 18.06.2010, but on the basis of the same set of facts as were there before his predecessor while framing the origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament re-introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion of Circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... series of judgments of various High Courts and the Supreme Court, which have been referred to in the judgment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) referred to above, that under s. 147 assessment cannot be reopened on a mere change of opinion. We further find that the Hon'ble High Court of Bombay in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom) had observed, that as no new information /material was received by the A.O, therefore, the fresh application of mind by him to the same set of facts and material which were available on record at the time of framing of the assessment, but had inadvertently remained omitted to be considered would tantamount to review of order which is not permissible as per law, and had held as under: 10. It is further to be seen that the legislature has not conferred power on the AO to review its own order. Therefore, the power under s. 147 cannot be used to review the order. In the present case, though the AO has used the phrase reason to believe , admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the AO, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief. 24. In the present case, for all the assessment years in question, and a fortiorari for asst. yr. 2004-05, what the AO has purported to do is to reopen the assessment on the basis of a mere change of opinion. That the AO had no tangible material is evident from the circumstance that the reasons which have been disclosed contain a reference to the same basis, namely the existence of a nil surplus/deficit in Form 1 which was drawn to the attention of and was present to the mind of the AO during the assessment proceedings un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lthough we have quashed the assessment framed by the A.O for want of valid assumption of jurisdiction on his part, however, for the sake of completeness, we shall now deal with the claim of the Revenue that the CIT(Appeals) had erred in law and the facts of the case in vacating the addition of Rs.5,22,81,663/- made by the A.O u/s.68 of the Act. 20. As observed by us hereinabove, the A.O had acted upon the information that was received from DDIT (Inv.)-II, Raipur and called upon the assessee to put forth an explanation as regards the nature and sources of cash deposits of Rs. 5,22,81,663/- in his bank accounts during the year under consideration. Although, it was the claim of the assessee that the cash deposits in question represented the sale proceeds of yarn, however, the same was rejected by the A.O for the reason that the assessee had failed to place on record the complete names of the purchasers a/w their addresses. 21. On appeal, the CIT(Appeals) was of the view that though it was an admitted fact that the assessee had imported silk yarn from China and sold the same to the various weavers who were spread across the country, but on account of beggaries of their occupation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals), it is a matter of fact borne from record that the assessee had imported silk yarn from China, which, thereafter, had been sold to the various weavers etc. who were spread across the country. Although the A.O had dubbed the aforesaid amount of Rs.5,22,81,663/- as unexplained cash credits u/s.68 of the Act, however, we find that at the same time he had accepted the sales as were duly accounted by the assessee in his books of account. In sum and substance, though the A.O had on the one hand accepted that the amounts in question were the sale proceeds that stood credited in the books of account of the assessee and had brought the profit resulting therefrom as disclosed by the assessee to tax in his hand, but at the same time had held the said amounts as unexplained cash credits within the meaning of section 68 of the Act. Apart from that, the re-characterization of the duly accounted sales of the assessee which were earlier accepted by the AO in the original assessment that was framed by him vide his order passed under Sec. 143(3), dated 18.06.2010, without rejecting his books of accounts under Sec. 145(3) of the Act is beyond comprehension. In sum and substance, the recharacter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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