ITAT KOLKATA on Mar 13, 2020 quashed the reopening of assessment and allow this appeal of the assessee on the ground that the re-opening is bad in law as the Assessing Officer has not independently applied his mind to the material and recorded reasons which are vague and merely based on borrowed satisfaction.
B.P.Mundra > Income Tax > Cases Income tax > 147 > ITAT KOLKATA on Mar 13, 2020 quashed the reopening of assessment and allow this appeal of the assessee on the ground that the re-opening is bad in law as the Assessing Officer has not independently applied his mind to the material and recorded reasons which are vague and merely based on borrowed satisfaction.
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147, AY 2011-12, bogus, borrowed satisfaction, In Favour of Assessee, Kolkata tribunal, Reason recorded, Satisfaction
Borrowed satisfaction, quashed the order, reason recorded
This is not a case where the Assessing Officer alleges in his reasons that the income subject to tax has escaped assessment. It is his case that "bogus income" has been offered to tax. When the Assessing Officer believes that this amount of Rs.5,00,500/- is not income at all, the question of income escaping assessment does not arise.
SHREYANS JAIN vs. INCOME TAX OFFICER
IN THE ITAT KOLKATA BENCH 'SMC'
SUDHAKAR REDDY, AM.
ITA No. 1602/Kol/2019 Mar 13, 2020
Section 147, 250 AY 2011-12
Decision in favour of: Assessee
Cases relied:
Proficient Commodities Pvt. Ltd. vs. DCIT in ITA Nos. 2307 & 2308/Kol/2017
Cases Referred to
Commissioner of Income-tax. IV v. Insecticides (India) Ltd [2013] 357 ITR 330 (Delhi)
CIT v. Atul Jain [2000] 299 ITR 383
Signature Hotels (E) Ltd. vs ITO and another, reported in 338 ITR 51 (Delhi)
Counsel appeared:
S.M. Surana, Advocate for the Petitioner.: Jayanta Khanra, JCIT for the Respondent
This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals) – 10, Kolkata, (hereinafter the "ld.CIT(A)"), passed u/s. 250 of the Income Tax Act, 1961 (the 'Act'), dt. 30/05/2019 for the Assessment Year 2011-12.
The ld. Counsel for the assessee challenges the reopening of assessment u/s 147 of the Act, as bad in law.
Heard rival contentions. The reasons recorded for reopening of assessment u/s 147 of the Act is as follows:-
Sub – Reasons recorded for re-opening u/s 147 of the IT Act, 1961 in your case For the AY 2011-12- matter reg.
Please refer to the above.
Information have been received from the DDIT (Inv.), Kolkata vide letter bearing no DDIT(Inv.)/Kol/NMCG/report/2017-18/10781 dated 12.03.2017 [addressed to Pr. CIT-12, Kolkata] regarding systematic evasion of taxes by clients/members of the NMCE (M/s National Multi-Commodity Exchange) during the different Financial Years by misusing the NMCE platform. The said communication was received at this end on 16.03.2018.
The said communication reveals that, by the Ahmedabad Directorate a focused survey action u/s 133A of the I T. Act'19&l was conducted at tile premise of NMCE and backup of the NMCE trade was taken. Based on this information, enquiry was carried out by the DDIT(Inv.), Unit-3(1), Kolkata who has furnished a detailed report explaining function of commodity market and how the NMCE platform was used for tax evasion. The Forwards Market Commission [FMC] reported that "clients/members of NMCE were found to be involved in creating artificial volume and suspected evasion of income Tax by misuse of NMCE platform". The DDIT(Inv), Unit-3(1), Kolkata has furnished list of assessees who have engaged themselves In this artificial profit earning/loss booking activities in the NMCE platform.
The assessee, SHREYANS JAIN (HUF)was involved in the above referred activities and has earned profit of us. 500 590/- through the broker, M/s. Ratna Kamal Holdings private Limited during financial year 2010-2011 to A.Y. 2011-2012 as datailed below:
F.Y.
Total Buy CRs.)
Total sale CRs.)
Difference CRs.)
P/L Booked
SHREYANS ]A1N (HUF)
7129500/-
199750/-
Ratna Kamal
Holdings Private Limited
In view of the above facts and after analyzing the information available 011 record, 1 have the reason to believe that tine assessee had suppressed its income which has been earned by artificial rigging n the NMCE platform to the tune of Rs. 500300/-which is/are reported as bogus by the directorate and v doing this, the assessee is found to have failed to disclose fully and truly all material facts necessary for assessment. Thus, income to that extent oi Rs. 500500/-as bogus commodity profit has escaped assessment in terms of section 147 of the Income Tax Act, 1961.
Objections, if any, in ibis regard may be submitted before the undersigned within 7(seven) days of receipt of this letter. On expiration of stipulated time, no objection will be entertained.
Thanking you-
(Ujjwal Kumar)
Income Tax Officer
Ward-36(2), Kolkata
3.1. A perusal of these reasons demonstrate that the allegation is that income offered by the assessee to the tune of Rs.5,00,500/- is "bogus income". Thus, this is not a case where the Assessing Officer alleges in his reasons that the income subject to tax has escaped assessment. It is his case that "bogus income" has been offered to tax. When the Assessing Officer believes that this amount of Rs.5,00,500/- is not income at all, the question of income escaping assessment does not arise. This, in my view, cannot be a ground for reopening of assessment as it is against the mandate of the Act.
3.2. Moreover, the assessee has, in the profit and loss account and balance sheet filed, disclosed these transactions and filed details pertaining to the same. This is clear from the computation of profit where the assessee has declared Rs.2,58,082.28/- as profit from speculation, after setting off business loss. The schedules as well as the computation of income give the details. There is no dispute on the quantum of loss claimed by the assessee. Thus, this is a case where the reopening in question is made without prima facie verification of the information received by the Assessing Officer and without application of mind to the information received from the investigation wing of the Department.
This Bench of the Tribunal in the case of Proficient Commodities Pvt. Ltd. vs. DCIT in ITA Nos. 2307 & 2308/Kol/2017, order dt. 02/11/2018, under similar circumstances held as follows:-
"5.1. We find that this Bench of the Tribunal in the case of ACIT vs. M/s. Adhunik Cement Ltd. in ITA No. 1375/Kol/2017; Assessment Year 2009-10, under identical facts and circumstances held as follows:-
7.1. The Hon'ble Delhi High Court in the case of Commissioner of Income-tax. IV v. Insecticides (India) Ltd [2013] 357 ITR 330 (Delhi) upheld the order of the ITAT Delhi Bench in ITA Nos. 2332-2333/Del/2010, holding as follows:-
"7. We may point out at this juncture itself that the Tribunal did not go into the question of merits. It only examined the question of the validity of the proceedings under Section 147 of the said Act. The Tribunal, in essence, held that the purported reasons for reopening the assessments were entirely vague and devoid of any material. As such, on the available material, no reasonable person could have any reason to believe that income had escaped assessment. Consequently, the Tribunal held that the proceedings under Section 147 of the said Act were invalid. I. T.A. No. 1375/Kol/2017 Assessment Year: 2009-10 M/s. Adhunik Cement Ltd
The Tribunal gave detailed reasons for concluding that the proceedings under Section 147 were invalid. Instead of adding anything to the said reasons, we think it would be appropriate if the same are reproduced:–
"In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The AO has further stated that the assessee company has failed to disclose fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned as to who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income-tax (Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the informations gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. Therefore, the details of entries or amount mentioned in the assessment order and in respect of which ultimate addition has been made by the AO, cannot be made a basis to say that the reasons recorded by the AO were with reference to those amounts mentioned in the assessment order. The reasons recorded by the AO are totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. In this respect, we may rely upon the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT v. Atul Jain [2000] 299 ITR 383, in which case the information relied upon by the AO for initiating proceedings u/s 147 of the Act did indicate the source of the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the information supplied was extremely scanty and vague and in that light of those facts, the Hon'ble Jurisdictional Delhi High Court held that initiation of proceedings u/s 147 of the Act by the AO was not valid and justified in the eyes of law. The recent decision of Hon'ble jurisdictional High Court of Delhi in the case of Signature Hotels (P.) Ltd. (supra) also supports the view we have taken above."
We do not see any reason to differ with the view expressed by the Tribunal. No substantial question of law arises for our consideration. The appeals are dismissed. There shall be no order as to costs.
7.2. The Hon'ble Delhi High Court in the case of Principal CIT vs G&G Pharma India Ltd. in ITA 545/2015 vide order dt. 08.10.2015 at paras 12 and 13 was held as follows:
"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 Feb. 2003, from four entries which were received by the assessee on a single date i.e. 10th Feb. 2003, from four entries which were termed as accommodation entries, which information was given to him by the Director Investigation, the A.O. 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'. The above conclusion is unhelpful in understanding whether the A.O. applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the A.O., if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the assessee, which must have been tendered along with the return, which was filed on 14th November, 2004 and was processed u/s 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the A.O. to have simply concluded: 'it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries'. In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decision discussed, the basic requirement that the A.O. must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment is missing in the present case.
A perusal of the reasons recorded demonstrate total non application of mind by the A.O. Thus applying the proposition laid down by the Jurisdictional High Court in G&G Eharma India (supra) we hold that the reopening of assessment is bad in law"
7.3. The Hon'ble Delhi High Court in the case of Signature Hotels (E) Ltd. vs ITO and another, reported in 338 ITR 51 (Delhi) has under similar circumstances held as follows:
"For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s 143(1) of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s 148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections. The Delhi High Court allowed the writ petition and held as under: '(i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The assessing Officer must have 'reasons to believe' that income chargeable to tax has escaped assessment. This is mandatory and the 'reason to believe' are required to be recorded in writing by the Assessing Officer.
(ii) A notice u/s 148 can be quashed if the 'belief' is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer when he recorded the reasons. There should be a link between the reasons and the evidence material available with the Assessing Officer.
(iii) The reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to Rs.5 lakhs during F.Y.2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income.
(iv) Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid up capital of Rs. 90 lakhs and was incorporated on January 4,1989, and was also allotted a permanent account number in September 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to the quashed.
7.4. In the case of CIT vs Atul Jain reported in 299 ITR 383 it has been held as follows:
"Held dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The A.O. did not verify the correctness of information received by him but merely accepted the truth of the vague information in a mechanical manner. The A.O. had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice u/s 148. What had been recorded by the A.O. as his 'reasons to believe' was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The A.O. had clearly substituted form for substance and therefore the action of the A.O. was not sustainable"
Applying the proposition of law laid down in these cases to the facts of the case we hold that the reopening is bad in law as the reasons recorded are without independent application of mind."
5.2. We also note that the coordinate bench of this Tribunal in ITA No. 660/Kol/2011 for AY 2002-03 in the case of DCIT Vs. Great Wall Marketing (P) Ltd. vide order dated 03.02.2016 has held as under:
" 8. We have heard the submissions of the learned counsel for the assessee both on the validity of initiation of re-assessment proceedings as well as the merits of the appeal. None appeared on behalf of the department.
8.1. We have considered the submissions of the learned counsel for the assessee. As far as the validity of initiation of re-assessment proceedings are concerned the reasons recorded by the AO for initiating proceedings u/s 148 are as follows :-
"No.DCIT/Cir-6/reasons for reopening/09-10 Dated 22/04/2009 To The Principal
Officer Greatwall Marketing (P) Ltd.
c/o Sri. S.M. Daga 11, Clive Row, Room No. 2.z-. Fir.
Kolkata- 700001.
Sub: Recorded Reasons for Reopening in the case of Greatwall Marketing (P) Ltd. for Asst. Yr. 02-03 Ref: Your letter dated 02/04/09 Please refer to the above.
As per information received from investigation wing New Delhi the introduced share capital during the year. had been received from corporate bodies which are non existent and whose capacity to invest ( credit worthiness ) could not be established. Therefore I have reasons to believe that unexplained cash credit had been introduced in your books of accounts in the name of introduction of share capital and receipt of share application money. In absence of satisfactory identity and credit worthiness of the other parties. the entire introduced capital and share application money will be treated as your income for that year.
I will therefore continue the proceedings for reassessment of your return u/s 147. Statutory notices u/s 143(2) and 142(1) are enclosed herewith.
Yours faithfully.
Sd/-
(Sanjay Mukherjee) DCIT/Cir-6/Kol"
8.2. The submissions of the learned counsel for the assessee before us was that the reasons recorded by the AO were mere information received from D.I.T.(Investigation), New Delhi. There was no independent application of mind by the AO based on which it can be said that he arrived at the satisfaction that the income of the assessee is chargeable to tax has escaped assessment. It was submitted that information received by the AO was vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which reasonable person can form belief regarding escapement of income. Reliance was placed by the learned counsel for the assessee on the decision of the Hon'ble Delhi High Court in the case of CIT vs Insceticides (India) Ltd 357ITR 330 and CIT vs SFIL Stock Broking Ltd. 325 ITR 285 (Delhi). In both the aforesaid decisions the reasons recorded by the AO for initiating proceedings u/s 148 of the Act the Hon'ble Delhi High Court upheld the order of the Tribunal quashing the proceedings. Reliance was also placed on the decision of ITAT, Kolkata 'C' Bench in the case of M/s. Controlla Electrotech (P)Ltd vs DCIT in ITA Nos.1443 & 1444/Kol/2014 wherein on identical facts the Tribunal was pleased to quash the reassessment proceedings. On merits the learned counsel for the assessee relied on the order of CIT(A).
We have given a careful consideration of the submissions made by the learned counsel for the assessee. It is clear from the reasons recorded by the AO that the AO acted only on the basis of a letter received from Investigation Wing, New Delhi. The reasons recorded does not give as to who has given the bogus entries to the assessee. The reasons recorded also does not mention as to on which dates and through which mode the bogus entries were made by the assessee. The reasons recorded which are extracted in the earlier part of the order does not show, what was the information given by DIT(Inv.), New Delhi. The date of the information received by the AO were not spelt out in the reasons recorded. The involvement of the assessee is also not spelt out, except mentioning the corporate bodies who had subscribed to the share capital of the assessee were non-existent and not creditworthy. On identical facts the Hon'ble Delhi High Court in the case of CIT vs Insecticides (India) Ltd (supra) has taken a view that the reasons recorded were vague and uncertain and cannot be construed as satisfaction on the basis of the relevant material on the basis of which a reasonable person can form a belief that income has escaped assessment. The Hon'ble Delhi High Court has also come to the conclusion that the reasons recorded did not disclose the AO's mind regarding escapement of income. The Hon'ble Delhi High Court ultimately held that initiation of proceedings u/s 148 of the Act was not valid and justified in the eyes of law. The facts and circumstances in the present case are identical to the case decided by the Hon'ble Delhi High Court. Following the said decision we hold that initiation of re-assessment proceedings is not valid. On this ground, the assessment is liable to be annulled."
Applying the propositions of law laid down in these case-law to the facts of this case we hold that the re-opening is bad in law as the Assessing Officer has not independently applied his mind to the material and has recorded reasons which are vague and based on borrowed satisfaction. Hence this ground of the assessee for both the Assessment Years are allowed."
Similar view has been taken by this Bench of the Tribunal in the case of Neeraj Umashankar Murarka in ITA No. 1653/Kol/2019, order dt. 15th January, 2020.
Applying the propositions of law laid down in the above case-law to the facts of this case, I uphold the contention of the assessee that the reopening of assessment is bad in law. Hence, I quash the reopening of assessment and allow this appeal of the assessee.
In the result, appeal of the assessee is allowed.
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