TMI Blog2023 (3) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... l lines by the Assessing officer simply relying upon the report and conclusion drawn upon by Investigation Wing Kolkata without carrying out any preliminary enquiry and investigation and establishing the necessary nexus between material and formation of belief that income has escaped assessment. There is clearly no independent application of mind by the AO as can be discernable from the reasons so recorded - Appeal of assessee allowed. - ITA NO. 1341/Chd/ 2018 - - - Dated:- 17-3-2023 - SHRI. AAKASH DEEP JAIN , VP And SHRI. VIKRAM SINGH YADAV , AM For the Assessee : Shri Ashwani Kumar , C. A For the Revenue : Smt. Gagan Kundra, JCIT , Sr. DR ORDER PER VIKRAM SINGH YADAV , A. M. : This is an appeal filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax(Appeals)-1, Ludhiana., [hereinafter referred to as CIT(A) ] dt. 04/09/2018 pertaining to A.Y. 2013-14, wherein assessee has raised the following grounds of appeal: 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 arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the order of the AO both on legality as well as on merits of the case. The Ld. CIT(A) after considering the submissions of the assessee dismissed the appeal so filed by the assessee vide the impugned order dt. 04/09/2018 and against the said order and the findings of the Ld. CIT(A), the assessee is in appeal before us. 4. During the course of hearing, the Ld. AR submitted that the reassessment proceedings under section 147 were initiated by way of notice under section 148 dt. 30/03/2017 based on information received from Pr. DIT (Investigation) Kolkata regarding entry of bogus LTCG at platform of Calcutta Stock Exchange. It was submitted that the AO acted merely on the information supplied by the Pr. DIT(Investigation), Kolkata, he didn t carry out any further examination/verification and he did not apply his independent mind and the proceedings were initiated only on the basis of information received from Investigation Wing, Kolkata. 5. It was submitted 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 alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer to rely on the exercise undertaken by other Wings of the Departments, if the material so collected through enquiry and investigation provides prima facie information, which enables the Assessing 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. The Ld. Sr. DR accordingly supported the order an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, the notice issued under section 148 and consequent reassessment proceedings were set-aside and the relevant findings therein read as under: 8. We have heard the rival contentions and purused the material available on record. It is a settled legal proposition that for assumption of jurisdiction u/s 147, the Assessing Officer has to form a prima facie opinion on the basis of tangible material that there is an escapement of income, the opinion formed may be subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion, the reasons recorded and/or the documents available on record must show a nexus and relevancy to the opinion formed by the Assessing Officer regarding escapement of income. The reasons are required to be read as they were recorded by the Assessing officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the Assessing officer to disclose and open his mind through the reasons recorded by him and he has to speak through the reasons. It is for the Assessing officer to for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is absent. He straightaway records the conclusion that the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver) . The AO adds that the said accommodation was a known entry operator the source being the report of the Investigation Wing . 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... 22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying unaccounted cash is another conclusion the basis for which is not disclosed. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment and basis of formation of such belief could be discerned from the material available on record and in the instant case, mere receipt of information from DDIT (Investigations) and directions to issue notice under section 148 cannot be called as reasons to believe that income has escaped assessment as it is not clear whether Assessing officer had applied his mind to the information so received and independently arrive at a belief that income has escaped assessment and the relevant findings read as under: 8. After having heard the counsel for the parties, we are inclined to agree with the submissions made by the respondent/assessee. We find that the Supreme Court in Rajesh Jhaveri [2007] 291 ITR 500 made it absolutely clear that before an Assessing Officer issues a notice under section 148, thereby reopening the assessment under section 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief. The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the Assessing Officer. However, the Supreme Court in Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons so recorded and merely the statement of Mr Navneet Kumar Singhania that companies in question were paper companies is insufficient to reopen the assessment unless the Assessing officer had any further information after making further enquiries into the matter and the relevant findings read as under: 15. The assessment proceedings, especially those under section 143(3) of the Act, have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis. It is well-settled that a mere conjecture or surmise is not sufficient. There have to be reasons to believe and not merely reasons to suspect that income has escaped assessment. In this case, the reasons failed to mention what facts or information was withheld by the petitioner. Merely relying upon the statement of Mr. Navneet Kumar Singhania that the companies in question were paper companies , by itself, is insufficient to reopen the assessment, unless the Assessing Officer had further information that these companies were non-existent after making further inquiries into the matter. It is clear that the Assessing Officer did not make any inquiry or investigation, if these companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. the assumption of jurisdiction under sections 147 and 148 of the Act was erroneous. The notice dated March 20, 2015 and the subsequent order dated February 1, 2016 deserve to be and are hereby quashed. 19. Before parting with the case, the court would like to observe that on a routine basis, a large number of writ petitions are filed challenging the reopening of assessments by the Revenue under sections 147 and 148 of the Act and despite numerous judgments on this issue, the same errors are repeated by the concerned Revenue authorities. In this background, the court would like the Revenue to adhere to the following guidelines in matters of reopening of assessments: (i) while communicating the reasons for reopening the assessment, the copy of the standard form used by the Assessing Officer for obtaining the approval of the Superior Officer should itself be provided to the assessee. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the Assessing Officer to the assessee is to be avoided; (ii) the reasons to believe ought to spell out all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not sustainable in law. 15. 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. In the first part, the Assessing officer states that as per information available with him, the assessee is involved in manage trading of shares of penny stocks in order to convert its undisclosed income into exempt income thereby the assessee has not paid the due taxes on the undisclosed income and thereafter, it talks about the details of transactions in terms of scrip sold by the assessee, quantity of scrip sold, rate and trade value. 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 inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess Global Ltd under the scheme of amalgamation approved by the Hon ble Calcutta High Court and merely the fact that the assessee has sold shares of M/s Access Global Ltd, how the same can lead to reasonable belief that its assessee s undisclosed income which has been routed back in form of sale consideration and income has escaped assessment is not borne out of the reasons so recorded. We find that the whole focus of the Assessing officer is on M/s Access Global Ltd and he has infact failed to carry out even preliminary enquiry 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 there is thus no finding that the purchases so made were bogus and therefore, where the purchases have not been doubted, how the sale have been held to be bogus is again not borne out of the reasons so recorded. 18. 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/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the notice u/s 148 was issued on 30/03/2017. 20. In light of aforesaid discussions and respectfully following the decisions referred supra, we are of the considered view that in the instant case, the Assessing officer has simply relied upon the report and conclusion drawn upon by Investigation Wing Kolkata without carrying out any preliminary enquiry and investigation and establishing the necessary nexus between material and formation of belief that income has escaped assessment. There is clearly no independent application of mind by the Assessing officer as can be discernable from the reasons so recorded and in view of the same, we are of the considered view that that the Assessing officer doesn t have the legal basis to acquire jurisdiction for reassessment u/s 147 and thus, the notice issued under section 148 and consequent reassessment proceedings are liable to be set-aside. [Emphasis supplied] 8. In the instant case as well, we find that the reasons have been recorded on identical lines by the Assessing officer simply relying upon the report and conclusion drawn upon by Investigation Wing Kolkata without carrying out any preliminary enquiry and inve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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