TMI Blog2022 (12) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO applying his mind extracted the relevant details pertaining to the assessee. In the first paragraph of the reasons, information of penny stock was noted. Based on this in second paragraph, relevant details about the alleged bogus transaction of the assessee were identified. In the third paragraph, the AO has clearly identified the escapement of income and in the last paragraph, the satisfaction of the AO is recorded. Thus, there was a tangible material on which the AO applied his mind independently. Hence, it is not correct to state that reopening has been made on the basis of borrowed satisfaction. Also undisputed that the assessee has transacted in shares of Splash Media and earned Rs. 14,91,646.90 and has declared an amount of Rs. 13,93,293 as a long-term capital gain on the sale of shares in its return of income. Thus when new and tangible material in form of a report from the Directorate of Investigation, Kolkata was received, reassessment proceedings were initiated. The expression reason to believe imports the cumulative presence of the following four elements viz. some tangible material or materials to establish that income has escaped assessment; nexus betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law, the Ld. CIT(A), NFAC was correct in quashing the assessment order without going into the merit of the case by treating the notice issued u/s 148 as 'bad in law ignoring the fact that the Assessing Officer has issued the notice u/s 148 after properly applying the provisions of section 147 of the Income Tax Act, 1961. 3. This appeal is filed consequent to CBDT Circular No.3 of 2019 dated 06.09.2019. 4. The appellant prays that the order of Ld. CIT(A), NFAC on the above ground be reversed and that of the Assessing Officer be restored. 5. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 4. The only grievance of the Revenue is against quashing of reassessment proceedings under section 147 of the Act by the learned CIT(A). 5. The brief facts of the case pertaining to this issue are: The assessee is a HUF. For the year under consideration, the assessee filed its return of income on 28/06/2011 declaring a total income of Rs.12,21,449. Based on the information received from the Directorate of Investigation, Kolkata, reassessment proceedings in the case of the assessee were initiated and notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 10(38) of the Act and made the addition of Rs. 14,91,647, under section 68 of the Act being the sale proceeds received by the assessee on sale of shares. The AO also disallowed commission at the rate of 3%, charged for providing arranged long-term capital gain, under section 69C of the Act. 6. In its appeal before the learned CIT(A), the assessee raised grounds challenging the invocation of jurisdiction under section 147 of the Act as well as the addition made by the AO under section 68 of the Act. Vide impugned order dated 17/10/2021, learned CIT(A) allowed the appeal filed by the assessee on jurisdiction issue and held that the conclusion of the AO that income has escaped assessment in the case of the assessee by trading in the bogus penny stocks of Splash Media was based entirely on the satisfaction of the Directorate of Investigation, Kolkata, and there was no independent application of mind on the part of the AO. The relevant observations of learned CIT(A), in this regard, are as under: In view of the above, the notice issued by the AO to the Appellant under Section 148 of the Act on the basis of aforesaid reasons to believe which reflect the borrowed s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47 OF THE I.T. ACT, 1961 The assessee has filed the return of income for A.Y.2011-12 on 28.06.2011. declaring total income at Rs. 1221449/-. As per the report/information available with this office that the Directorate of Investigation, Kolkata, has undertaken the accommodation entry of Long Term Capital Gain(LTCG) investigation and as a result, they have been able to identify a very large number of beneficiaries who have taken a huge amount bugs entries of LTCG/STCL through listed penny stock. The investigation reveals that the trading in the penny stock was a manipulated affair to generate entries of bogus Long term Capital Gains/Short Term Capital Loss facilitating tax evasion by a large number of persons. As per the said information, the assessee has earned Long Term Capital Gains through trading in the following penny stock. F.Y. Scrip Name Buy or Sell Qty Qty (Normalized) Trade Count Trade Value 2010 11 Splash Media SELL 20000 2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered in their facts based on reasons recorded for initiating the reassessment proceedings, and thus no decision can be treated as direct precedent unless similar circumstances exist as in the present case. In Perfect Capital Services Ltd vs ITO, ITA No. 387/Del./2014, we find that SMC bench of the Tribunal set aside the reassessment proceedings on the basis that the reasons recorded by the AO do not demonstrate any application of mind on the material/information received from Director (Investigation). Further, in PCIT vs G G Pharma India Ltd, in ITA No. 545 of 2015, vide judgment dated 08/10/2015, the Hon ble Delhi High Court set aside the reassessment proceedings by observing as under: 12. In the present case, after setting out four entries, 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 given to him by the Directorate of Investigation, the AO 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the material and the reason to conclude that income has escaped assessment. 15. Further in Shri Udit Kumar Dagar vs ITO, 2019 (5) TMI 430, the coordinate bench of the Tribunal set aside the reassessment proceedings as the same was initiated merely based on DIT (Investigation) report. 16. In the present case, it is pertinent to note that no scrutiny assessment was conducted in the case of the assessee and therefore the only data available with the AO was the data provided along with the income tax return and the report/information received subsequently from the office of Directorate of Investigation, Kolkata. The said information constitutes new and tangible material for initiating the reassessment proceedings in the case of the assessee. 17. It is also to be noted that the AO in the reasons recorded has categorically mentioned that the assessee has entered into 5 trades where 2000 shares of Splash Media were sold by the assessee having sales value of Rs. 14,91,646.90 during the financial year. Though this information was received from Investigation Wing, Kolkata but the AO applying his mind extracted the relevant details pertaining to the assessee. In the first paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable 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 Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). 19. Therefore, if there is relevant material based on which a reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings under section 147 of the Act can be validly initiated. Further, it is also well settled that the sufficiency or correctness of the material is not a thing to be considered at the stage of recording the reasons. The existence of a valid reason to believe is a sine qua non to exercise the jurisdiction under Section 147 of the Act. The expression reason to believe imports the cumulative presence of the following four elements viz. some tangible material or materials to establish that income has escaped assessment; nexus between such material and the belief of escapement of income from assessment as envisaged under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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