TMI Blog2023 (1) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... on the information without even verifying and cross-checking the same with the facts on record available with him. The belief of escapement of income as recorded in the reasons is clearly not that of the Assessing officer but a borrowed relief and reassessment proceedings were thus held to be vitiated and not sustainable in law. Applying the aforesaid legal proposition in the present case, we refer to the reasons recorded by the Assessing officer before issuance of notice u/s 148 of the Act. What information is available with the Assessing officer is neither stated nor enclosed with the reasons so recorded by him and thus not discernable from the reasons so recorded. Merely the fact that the assessee has sold certain shares with certain value on the stock exchange cannot by itself be held as tangible material. Further we find that the Assessing officer has not just recorded a reason to belief rather recorded a conclusive finding that assessee is involved in manage trading of penny stock to convert his undisclosed income into exempt income. How the Assessing officer has reached such a conclusive finding and basis thereof is again not borne out from the reasons so recorded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded. In part six of the reasons so recorded, the Assessing officer has stated that the assessee has filed its return of income on 28.09.2013, which has been processed under section 143(1) on 31.12.2013 wherein the assessee has shown exempt income of Rs.99,13,946/- on account of long-term capital gains from the transaction on which securities transaction tax is paid and the case has not been taken up for scrutiny earlier. Merely the fact that the return of income has not been selected for scrutiny earlier cannot be a reason sufficient enough to hold that the income has escaped assessment - he whole focus of the Assessing officer is on M/s Access Global Ltd whose shares have been sold and sale consideration thereof has been shown in the return of income and he has infact failed to carry out preliminary enquiry and examine the return of income that the assessee had originally purchased shares of M/s Maple Good Ltd and on its amalgamation, was allotted shares of M/s Access Global Ltd in exchange for its existing holding and whose cost of acquisition has been claimed as eligible deduction and net sale consideration has been claimed as exempt as long term capital gains. Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: 1. That order passed u/s 250(6) of the Income Tax Act, 1961 passed by the Ld. Commissioner of Income Tax (Appeals)-I, Ludhiana is against law and facts on the file in as much as he was not justified to arbitrarily uphold the action of the Ld. Assessing Officer in initiating proceedings under sec. 147 of the Income Tax Act, 1961. 2. That he was further not justified to arbitrarily uphold the action of the Ld. Assessing Officer in making an addition of Rs. 1,04,07,648/- representing the sale proceeds of equity shares held by the appellant for more than one year by invoking the provisions of section 68 of the Income Tax Act, 1961. 3. That he was further not justified to arbitrarily uphold the action of the Ld. Assessing Officer in making an addition of Rs. 3,12,230/- on account of alleged expenses allegedly paid by the appellant for arranging the alleged entries in respect of long term capital gain by invoking the provisions of Section 69C of the Income Tax Act, 1961. 4. That he was further not justified to negate the claim of the appellant that the assessment framed by the Ld. Assessing Officer by ignoring the basic principles of natural justice and rely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the case of the assessee was reopened only on the basis of information received from the Investigation Wing which suffers with serious debility and lacks definiteness without describing the basic aspects of an alleged transaction, and in the absence of the same, the whole action of the AO stand vitiated. It was submitted in the instant case there is no nexus between the material relied upon and the belief formed for escapement of income, there is no independent application of mind, no proper satisfaction had been recorded and no independent conclusion has been drawn regarding escapement of income by the assessee. In this regard our reference was drawn to the reasons recorded by the AO prior to issuance of notice u/s 148 which are contained at pages 45 to 51 of the assessee s paper book. 5.3 Further in support of his contention, the Ld. AR has placed reliance on the following decisions: ACIT Vs. M/s Dhariya Construction Company [2010] 328 ITR 515 (SC) Pr. CIT Vs. M/s RMG Polyvinyl(I) Ltd. [2017] 396 ITR 5 (Del) Pr. CIT-6 Vs. Meenakshi Overseas(P.) Ltd. [2017] 395 ITR 677 (Del) CIT Vs. M/s SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Del) Sarthak Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer to form a belief that income has escaped assessment. It was further submitted that it would undoubtedly require application of mind on the part of the Assessing Officer when certain materials collected by other wings of the department is placed before him, however, there cannot be any straight jacket formula of the manner in which mind can be applied or shown to have been applied and the same may be gathered from the reasons recorded and other contemporaneous material on record. It was accordingly submitted that there is no infirmity in the action of the Assessing Officer in initiating the proceedings U/s 147 of the Act on the basis of information received from Pr. DIT (Investigation), Kolkata. It was further submitted that the notice u/s 147 has been issued after seeking approval from the competent authority which clearly show application of mind before granting approval on the part of the appropriate authority. 7. The Ld. Sr. DR accordingly supported the order and the findings of the Ld. CIT(A) and our reference was drawn to para 12 of the impugned order wherein the Ld. CIT(A) has discussed the ground so raised by the assessee challenging the reopening of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by him and he has to speak through the reasons. It is for the Assessing officer to form his opinion and record his reasons in clear and unambiguous terms and the reasons should not suffer from vagueness and should be self-explanatory. 9. In this regard, we refer to the decision of the Hon ble Delhi High Court in case of Meenakshi Overseas Pvt Ltd (supra) wherein it was held that the reopening of assessment under section 147 is a potent power not to be lightly exercised and certainly cannot be invoked, casually or mechanically. The heart of the provision is the formation of belief by the Assessing officer that income has escaped assessment. The reasons recorded have to be based on some tangible material and that should be evident from reading of the reasons. The Assessing officer 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 the investigation wing and in the said case, it was held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unaccounted cash is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be a known entry operator is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 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, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. 10. Following the aforesaid decision, the Hon ble Delhi High Court in its subsequent decision in case of RMG Polyvinyl ltd (supra) has held that the information received from the Investigation wing cannot be said to be tangible material per se without further enquiry being undertaken by the Assessing officer and there is no live link between the tangible material and formation of reasons to believe that income had escaped assessment and the relevant findings read as under: 12. Recently, in its decision dated 26th May, 2017 in ITA No. 692/2016 Pr. CIT v. Meenakshi Overseas, this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able with the Assessing Officer. However, the Supreme Court in Rajesh Jhaveri [2007] 291 ITR 500 did not say that it was not necessary for the Assessing Officer to form a belief and that the mere fact that there was some material on record was sufficient. 9. In the present case, we find that the first sentence of the so-called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income-tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income-tax (Investigation) to issue a notice under section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. These three sentences are followed by the following sentence, which is the concluding portion of the so-called reasons : Thus I have sufficient information in my possession to issue notice under section 148 in the case of SFIL Stock Broking Ltd. on the basis of reasons recorded as above. 10. From the above, it is clear that the Assessing Officer referred to the information and the two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not make any inquiry or investigation, if these companies were in fact paper companies . No effort has been made to establish the connection between the statement of Mr. Navneet Kumar Singhania and the five companies. 16. Mr. Chaudhary's submission that this court cannot dictate the manner and content of what is to be written in the reasons to believe is correct as a legal proposition. However, the court has to examine the reasons to believe to see if it satisfies the rigour of the provisions. The observations of this court in Multiplex Trading Industrial Co Ltd (supra) are relevant in this respect and are set out below; In our view, the question whether the assessee could have been stated to disclose fully and truly all material facts have to be examined in the light of facts of each case and also the reasons that led the Assessing Officer to believe that income of an assessee has escaped assessment. In a case where the primary facts have been truly disclosed and the issue is only with respect to the inference drawn, the Assessing Officer would not have the jurisdiction to reopen assessment. But in cases where the primary facts as asserted by the assessee for fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) the reasons to believe ought to spell out all the reasons and grounds available with the Assessing Officer for reopening the assessment-especially in those cases where the first proviso to section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the Assessing Officer on the same and if so, the conclusions thereof: (iii) where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of 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 quasi-judicial 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. 13. Similarly, the Coordinate Chandigarh Benches in case of Future Tech IT system Private Ltd (supra) has held that where the AO acted merely upon the report of the Investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ert his undisclosed income into exempt income. How the Assessing officer has reached such a conclusive finding and basis thereof is again not borne out from the reasons so recorded by him. 16. In the second part of the reasons, the Assessing officer stated that certain investigation has been conducted by the Principal Director of Income tax (Investigation), Kolkata in respect of accommodation entry of long-term capital gains and a report has been received in his office and then it goes about discussing the type of penny stock companies, the entities involved in the transaction and the different legs of the transaction and survey conducted at the premises of Ashok Kumar Kalyan where he has named some nine companies including Access Global Limited as penny stock company which is used for providing accommodation entry in form of long term capital gains. We find that these are general descriptions and how the same are relevant in the case of the assessee is not borne out from the reasons so recorded. Even the contents of the investigation report so stated to be received by the Assessing officer doesn t form part of the reasons so recorded and has thus not been shared with the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn exempt income of Rs.99,13,946/- on account of long-term capital gains from the transaction on which securities transaction tax is paid and the case has not been taken up for scrutiny earlier. Merely the fact that the return of income has not been selected for scrutiny earlier cannot be a reason sufficient enough to hold that the income has escaped assessment. The Assessing officer has to record reasons as to why the transaction so reflected in the return of income and claimed exempt is liable for taxation which has escaped assessment and such reasons to belief must be based on tangible material. As we have noted above, the whole focus of the Assessing officer is on M/s Access Global Ltd whose shares have been sold and sale consideration thereof has been shown in the return of income and he has infact failed to carry out preliminary enquiry and examine the return of income that the assessee had originally purchased shares of M/s Maple Good Ltd and on its amalgamation, was allotted shares of M/s Access Global Ltd in exchange for its existing holding and whose cost of acquisition has been claimed as eligible deduction and net sale consideration has been claimed as exempt as long te ..... X X X X Extracts X X X X X X X X Extracts X X X X
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