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Commissioner Of Income Tax Ii Vs. M/s Multiplex Trading & Industrial Co. Ltd.
October, 19th 2015
$~

*      IN THE HIGH COURT OF DELHI AT NEW DELHI
17.

+                       ITA 356/2013
COMMISSIONER OF INCOME TAX ­ II                            ..... Appellant

                        versus

M/S MULTIPLEX TRADING & INDUSTRIAL
CO. LTD.                                                 ..... Respondent


Advocates who appeared in this case:
For the Appellant    : Mr Kamal Sawhney, Senior Standing Counsel
                       with Mr Raghvendra Singh, Junior Standing
                       Counsel.
For the Respondent   : Mr Ved Jain and Mr Pranjal Srivastava.


CORAM:
HON'BLE DR. JUSTICE S.MURALIDHAR
HON'BLE MR. JUSTICE VIBHU BAKHRU
%                 ORDER
                  22.09.2015

VIBHU BAKHRU, J

1.     This appeal under Section 260A of the Income Tax Act, 1961

(hereafter the `Act') has been preferred by the Revenue impugning an order

dated 9th November, 2012 passed by the Income Tax Appellate Tribunal

(hereafter the `Tribunal') in ITA No.1202/Del/2011. The said appeal (ITA




ITA 356/2013                                                   Page 1 of 32
No.1202/Del/2011) was preferred by the Revenue to impugn an order dated

23rd December, 2010 passed by the Commissioner of Income Tax (Appeals)

[hereafter the `CIT(A)] allowing the appeal preferred by the Assessee

against an assessment order dated 31st December, 2008 passed by the

Assessing Officer (hereafter `AO') in respect of Assessment Year 2001-02

pursuant to reopening of the assessment under Section 147 of the Act.


2.      The controversy involved in the present appeal relates to the action of

the AO in reopening the assessment in respect of transactions that had been

examined and verified by the AO during the initial assessment proceedings

which culminated in the assessment order dated 31st December, 2003. The

assessment was re-opened based on information received by the AO from

the Investigation Wing that the Assessee had obtained accommodation

entries from certain entry operators during the relevant period. The

Assessee's challenge to the initiation of re-assessment proceedings as well

as the addition made to the Assessee's taxable income pursuant thereto, was

sustained by the CIT(A) as well as the Tribunal.


3.     This appeal was admitted on 6th January, 2014 and the following

questions were framed for consideration:-




ITA 356/2013                                                        Page 2 of 32
               "(a)   Is the impugned decision of the ITAT justified
                      and correct inasmuch as it holds that the
                      reopening of assessment of the petitioner was
                      not in accordance with law; and

               (b)    Whether the ITAT fell into error in not
                      upholding the Revenue's contentions that the
                      other accounts have to be added on merits
                      under Section 68 of the Income Tax Act."

4.     Briefly stated, the relevant facts necessary to consider the controversy

involved in the present appeal are as under:-


4.1    The Assessee filed its return of income for the Assessment Year

(hereafter the `AY') 2001-02 declaring an income of `27,83,483/- under

Section 115JB of the Act. The said return was picked up for scrutiny and

the AO issued notice under 143(2) of the Act on 11th October, 2002.

Thereafter, the Assessee was issued a questionnaire on 7th November, 2002.

Subsequently, another questionnaire was issued to the Assessee on 21 st

March, 2003. The return filed by the Assessee was discussed and the

Assessee was also called upon to file details of the unsecured loans. In

response to the queries, the Assessee sent a letter dated 12 th December, 2003

enclosing therewith the details of unsecured loans alongwith copies of

confirmation, copies of income tax returns and copies of ledger accounts

pertaining to the unsecured loans. This also included details pertaining to



ITA 356/2013                                                       Page 3 of 32
Richie Rich Overseas Pvt. Ltd. (hereafter `Richie Rich'). During the course

of the assessment proceedings, the Assessee was also called upon to explain

its agreement with Mahan Enterprises Ltd. In response thereto, the Assessee

filed the Agreement entered into with Mahan Enterprises. The Assessee

explained that it had entered into an arrangement with Mahan Enterprises

Ltd., whereby, the said company had agreed to finance the cost and expenses

required to be incurred by the Assessee in relation to an assignment from

Gujarat Electricity Board. The issue as to sharing of revenue between the

Assessee and Mahan Enterprises Ltd. was also debated before the AO.


4.2    During the course of the proceedings a letter dated 18th December,

2003 was filed by Mahan Enterprises Ltd. with the AO which, inter alia,

confirmed that certain investments had been arranged by Mahan Enterprises

Ltd. and out of the loans so arranged the Assessee had, subsequently,

returned back loans to the extent of `1.07 crores. The said amount also

included loan received from Richie Rich, which is sought to be taxed as

unexplained credit in the re-assessment proceedings.


4.3    The AO received information from the Investigation Wing of the

Income Tax Department that the Assessee had obtained accommodation




ITA 356/2013                                                    Page 4 of 32
entries from certain entry operators during the financial year 2000-01. This

included a sum of `55,15,400/- from Richie Rich and `2 Lacs from Adam

Impex Pvt. Ltd. On receiving this information, the AO recorded as a reason

to believe that the income of the Assessee for AY 2001-02 had escaped

assessment and, accordingly, issued a notice dated 31st March, 2008 under

Section 148 of the Act.      Thereafter, the AO issued a notice dated 7th

November, 2008 under Section 143(2) of the Act.           In response to the

aforesaid notice, the Assessee requested the AO to treat the return as

originally filed as a return in response to the notice under Section 148 of the

Act. The Assessee also sought the reasons for the re-opening of the

assessment.


4.4    Thereafter, the AO proceeded with the reassessment proceedings and

called upon the Assessee to furnish details in respect of certain transactions

reflected in its bank account. Subsequently, the AO also provided the

Assessee with the reasons for initiating proceedings under Section 147/148

of the Act.


4.5    The Assessee objected to the reopening of the assessment vide a letter

dated 12th December, 2008.        According to the Assessee, the reasons




ITA 356/2013                                                       Page 5 of 32
recorded were wrong; without application of mind; and there was no

tangible evidence, which indicated that income of the Assessee had escaped

assessment.


4.6    The Assessee also filed a detailed response enclosing all evidence that

was readily available with it to support the genuineness of the entries

pertaining to the transaction with Richie Rich. This included the Ledger

Accounts of Richie Rich in the books maintained by the Assessee; a bank

statement; and confirmation of accounts. Subsequently, before the CIT(A),

the Assessee also produced a copy of the income tax return filed by Richie

Rich for the AY 2001-02; copy of the balance sheet of Richie Rich for the

AY 2001-02; copy of the bank statement of Richie Rich; copy of the

`company master details' of Richie Rich with the Registrar of Companies.


4.7    The AO did not dispose of the objections filed by the Assessee and

proceeded to reassess the income of the Assessee for the relevant assessment

year. The AO passed an assessment order dated 31st December 2008,

whereby the AO made a further addition of `55,15,400/- on account of

unexplained cash credit in the name of Richie Rich.




ITA 356/2013                                                       Page 6 of 32
4.8    The Assessee preferred an appeal against the re-assessment order

before the CIT(A). The Assessee challenged the action of the AO in

reopening the assessment under Sections 147/148 of the Act as well as

challenged the addition of `55,15,400 on merits. The Assessee prevailed

before the CIT(A). The CIT(A) held that the AO had not been able to make

out the case to sustain the reopening of assessment under Section 147 of the

Act. The CIT(A) noted that the notice under Section 148 of the Act had been

issued after a lapse of 4 years from the end of the relevant assessment year

and in the circumstances, reopening of assessment was permissible only if

the proviso to Section 147 of the Act was satisfied; that is, income

chargeable to tax had escaped assessment by reason of failure on the part of

the Assessee to disclose fully and truly all material facts necessary for his

assessment. The CIT(A) observed that the Assessee had provided all

material in support of the loan availed from Richie Rich and the same was

ignored by the AO. The CIT(A) was of the view that the Assessee had duly

explained the entries in question and, therefore, the addition made by the

AO to the assessable income of the Assessee under Section 68 of the Act,

was erroneous.




ITA 356/2013                                                      Page 7 of 32
4.9    The Revenue, being aggrieved by the decision of CIT(A), preferred an

appeal before the Tribunal, which was rejected by the order dated 9th

November, 2012 ­ the order impugned in the present appeal. The Tribunal

had held that the Assessee had disclosed all the relevant material at the time

of original assessment and, therefore, the pre-condition under the proviso to

Section 147 of the Act had not been met. The Tribunal further held that the

reopening of assessment was not based on any fresh material but material

disclosed by the Assessee during the initial assessment. The Tribunal also

observed that the reasons recorded by the AO for reopening of assessment

did not contain any allegation that there was any failure on the part of the

Assessee to disclose all material facts. The Tribunal relied upon the

decisions of this Court in Wel InterTrade P. Ltd. & Anr. v. ITO: 308 ITR

22 (Del.) and Haryana Acrylic Manufacturing Company v. CIT & Anr.:

308 ITR 38 in support of its view that the reopening of assessment could not

be sustained as the necessary condition for invoking Section 147 of the Act

had not been met. The Tribunal was also of the view that the addition had

been made on account of a change in AO's opinion , which was not

permissible.




ITA 356/2013                                                       Page 8 of 32
5.     Mr Sawhney, learned counsel appearing for the Revenue, contended

that the Tribunal had erred in observing that no fresh material had been

relied upon for reopening of assessment. He contended that the AO had

proceeded to reopen the assessment on the basis of information obtained

from the Investigation Wing and the same constitutes fresh material that was

not available with the AO at the time of initial assessment. He also pointed

out that the observation of the Tribunal that the reasons recorded by the AO

did not contain the allegation that there was a failure on the part of the

Assessee to disclose all material facts, was factually incorrect. He further

contended that the Tribunal had not examined the issue regarding addition

made under Section 68 of the Act on merits.


6.     Mr Sawhney relied upon the decision of the Supreme Court in Phool

Chand Bajrang Lal v. Income-Tax Officer: 2003 ITR 456 in support of his

contention that information obtained by the AO subsequent to the

assessment could lead to a belief that income chargeable to tax had escaped

assessment even though the transaction in question had been examined

during the assessment proceedings.




ITA 356/2013                                                     Page 9 of 32
7.     Countering the arguments made by Mr Sawhney, Mr. Ved Jain,

learned counsel appearing for the Assessee, contended that the Assessee had

disclosed fully and truly all material facts during the initial assessment

proceedings and, therefore, reopening of the assessment could not be

sustained. He referred to the decision of this Court in Haryana Acrylic

Manufacturing Company (supra) in support of his contention that the

provisions of Section 147 of the Act could not be invoked after the expiry of

four years from the relevant assessment year unless the AO came to the

conclusion that the income had escaped by reason or failure on the part of

the Assessee to file a return or to disclose fully and truly all material facts

necessary for the assessment. He submitted that in the present case the

Assessee had provided all necessary material and, thus, the reopening of

assessment under Section 147 of the Act could not be sustained.





8.     He also submitted that the judgment of Phool Chand Bajrang Lal

(supra) was not applicable as the provisions of Section 147 had undergone a

change. He drew the attention of this Court to paragraph 25 and 26 of the

decision in Haryana Acrylic Manufacturing Company (supra) in support

of this contention.




ITA 356/2013                                                       Page 10 of 32
9.     We have heard the learned counsel for the parties.


10.    The first and foremost issue to be addressed is whether the AO could

assume jurisdiction to reopen the assessment based on the information

received from the Investigation Wing of the department. It is now well

settled that the AO can reopen the assessment if he has reason to believe the

Assessee's income has escaped assessment. However, his reasons to believe

must not be based on surmises, conjectures or occasioned by change in

opinion but must be based on some tangible and credible material on the

basis of which a reasonable belief could be formed that income of an

assessee has escaped assessment. The language of Section 147 requires the

AO to have a reason to believe and not a reason to suspect. The reason to

believe that income of an Assessee has escaped assessment must be bonafide

and reasonable. It is also settled that the material on which the AO forms his

opinion must not be the same material which had been considered at the

time of the initial assessment, as in that case, the proceedings under Section

147 of the Act would amount to reviewing the assessment order merely on a

change of opinion, which is not permissible.




ITA 356/2013                                                       Page 11 of 32
11.    By virtue of the proviso to Section 147 of the Act, an assessment,

which has been concluded under section 143(3) of the Act - that is, the

return filed by the Assessee was scrutinised and verified by the AO - cannot

be reopened after the expiry of four years from the end of the relevant

assessment year unless the condition as specified under the proviso to

Section 147, is met; that is, the income of an Assessee has escaped

assessment on account of failure on the part of the Assessee to make a

return, either under Section 139(1) of the Act or pursuant to a notice under

Section 142(1) of the Act, or is occasioned by the failure on the part of the

Assessee to disclose fully and truly all material facts necessary for the

assessment.


12.    Indisputably, the entries relating to funds availed by the Assessee

from Richie Rich during the relevant year had been scrutinised by the AO

during the regular assessment proceedings and had been explained by the

Assessee. In the circumstances, it would be impermissible for the AO to

reopen the assessment unless the AO, on the basis of credible and tangible

material, which was not in his possession during the initial assessment,

believes that income of the Assessee has escaped assessment.




ITA 356/2013                                                      Page 12 of 32
13.    The Supreme Court in CIT v. Kelvinator of India Ltd.: 320 ITR 561

(SC) emphasised that the expression "reason to believe" as used in Section

147 of the Act must be read in context of the scheme of the Act and cannot

be interpreted in a manner as conferring arbitrary power on the AO. Thus,

such `reason to believe' must be based on `tangible material' and not on a

change of opinion. The relevant extract from the said decision is quoted

below:


                 "6. On going through the changes, quoted above,
          made to section 147 of the Act, we find that, prior to the
          Direct Tax Laws (Amendment) Act, 1987, reopening could
          be done under the above two conditions and fulfilment of
          the said conditions alone conferred jurisdiction on the
          Assessing Officer to make a back assessment, but in
          section 147 of the Act (with effect from 1st April, 1989),
          they are given a go-by and only one condition has
          remained, viz., that where the Assessing Officer has reason
          to believe that income has escaped assessment, confers
          jurisdiction to reopen the assessment. Therefore, post-1st
          April, 1989, power to reopen is much wider. However, one
          needs to give a schematic interpretation to the words "
          reason to believe" failing which, we are afraid, section 147
          would give arbitrary powers to the Assessing Officer to
          reopen assessments on the basis of " mere change of
          opinion", which cannot be per se reason to reopen. We
          must also keep in mind the conceptual difference between
          power to review and power to reassess. The Assessing
          Officer has no power to review ; he has the power to
          reassess. But reassessment has to be based on fulfilment of
          certain preconditions and if the concept of " change of
          opinion" is removed, as contended on behalf of the




ITA 356/2013                                                       Page 13 of 32
          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 Assessing Officer. Hence, after 1st April,
          1989, the Assessing Officer 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 section 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 section 147 of the Act. However, on receipt of
          representations from the companies against omission of the
          words " reason to believe", Parliament reintroduced the
          said expression and deleted the word " opinion" on the
          ground that it would vest arbitrary powers in the Assessing
          Officer.


14.    In the present case the material on the basis of which the AO has

formed such opinion is a report from the Investigation Wing of the

department. This would certainly be fresh material and cannot be considered

to be the same material which was available with the AO at the time of

initial assessment proceedings.


15.    In Phool Chand Bajrang Lal (supra), the Court had explained as

under:-


           "Acquiring fresh information, specific in nature and
           reliable in character, relating to the concluded assessment



ITA 356/2013                                                        Page 14 of 32
           which goes to expose the falsity of the statement made by
           the assessee at the time of original assessment is different
           from drawing a fresh inference from the same facts and
           material which was available with the ITO at the time of
           original assessment proceedings. The two situations are
           distinct and different. Thus, where the transaction itself
           on the basis of subsequent information, is found to be a
           bogus transaction, the mere disclosure of that transaction
           at the time of original assessment proceedings, cannot be
           said to be a disclosure of the `true' and `full' facts in the
           case and the ITO would have the jurisdiction to reopen
           the concluded assessment in such a case."


16.    The next aspect to be examined is whether the material which was

forwarded to the AO i.e. report of the Investigation Wing could reasonably

lead to the inference that the income of the Assessee had escaped

assessment. A copy of the said information has been placed on record. The

Investigation Wing had reported that one Late Sanjay Mohan Aggarwal was

one of the oldest and the most savvy entry operators and had been providing

entries to several individuals and companies. It was also informed that S.M.

Aggarwal had been summoned and his statement had been recorded. Though

he had not accepted he was engaged in entry business but in an informal

chat he had admitted to carrying on entry business. The Investigation Wing

had detected the accounts and the entities, which were allegedly used for the

entry business. The same included Mahan Enterprises Ltd. as well as Richie




ITA 356/2013                                                          Page 15 of 32
Rich. A list of entries had also been provided, which included certain bank

transactions with the Assessee. The investigation report also indicated that

the entries were provided as gifts or subscription to share capital.


17.    Section 147 of the Act does not postulate that the AO arrives at a final

conclusion and ascertains, as a fact, that the income of the Assessee had

escaped assessment. All that is required at the stage of initiation of

proceedings for reassessment is for the AO to form a reasonable belief on

tangible material that the income of the Assessee has escaped assessment. In

Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers

Pvt. Ltd.: 291 ITR 502, the Supreme Court explained the above in the

following words:-


          "16. Section 147 authorises and permits the Assessing
          Officer to assess or reassess income chargeable to tax if he
          has reason to believe that income for any assessment year
          has escaped assessment. The word "reason" in the phrase
          "reason to believe" would mean cause or justification. If the
          Assessing Officer has cause or justification to know or
          suppose that income had escaped assessment, it can be said
          to have reason to believe that an income had escaped
          assessment. The expression cannot be read to mean that the
          Assessing Officer should have finally ascertained the fact
          by legal evidence or conclusion. The function of the
          Assessing Officer is to administer the statute with solicitude
          for the public exchequer with an inbuilt idea of fairness to
          taxpayers. As observed by the Supreme Court in Central



ITA 356/2013                                                           Page 16 of 32
          Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR
          662, for initiation of action under section 147(a) (as the
          provision stood at the relevant time) fulfilment of the two
          requisite conditions in that regard is essential. At that stage,
          the final outcome of the proceeding is not relevant. In other
          words, at the initiation stage, what is required is "reason to
          believe", but not the established fact of escapement of
          income. At the stage of issue of notice, the only question is
          whether there was relevant material on which a reasonable
          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 (see ITO v. Selected Dalurband Coal
          Co. P. Ltd. [1996] 217 ITR 597 (SC) ; Raymond Woollen
          Mills Ltd. v. ITO [1999] 236 ITR 34 (SC)."


18.    In our view, once the tangible material available with the AO provides

a live link with him forming a belief that income of an Assessee had escaped

assessment, he would, subject to other statutory requirements, be entitled to

reopen a concluded assessment. The question whether the AO has reason to

believe that income has escaped assessment and is liable to be reopened

under Section 147 of the Act has also to be viewed from the standpoint of

the AO. Thus indisputably, in certain circumstances, such information as

was received by the AO in this case may have provided the AO with a

reason to believe that income of the Assessee had escaped assessment. In

our view, the Tribunal erred in observing that the AO had reopened the




ITA 356/2013                                                          Page 17 of 32
assessment on the same material as was available during the initial

assessment proceedings.


19.    It is also relevant to note that, in the present case, the AO has sought

to reopen the assessment beyond the period of four years. As indicated

hereinbefore, the same would not be permissible unless the condition as

specified in proviso to Section 147 was met and the income of the Assessee

had escaped assessment on account of Assessee's failure to disclose truly

and fully all material facts for assessment of its income. Indisputably, the

issue regarding unsecured loans from Richie Rich had been examined by the

AO in the initial assessment and the Assessee had provided all the necessary

evidences to establish the genuineness of the transactions. In view of the

same, it has been contended that the conditions as contained in the proviso

to Section 147 have not been met as there has been no failure on the part of

the Assessee to either file the return of income or to disclose fully and truly

all material facts.


20.    In Calcutta Discount Company v. Income Tax Officer: 41 ITR 191

the Supreme Court considered the import of the words "omission or failure




ITA 356/2013                                                       Page 18 of 32
to disclose fully and truly all material facts necessary for his assessment"

and observed as under:


          "The words used are "omission or failure to disclose fully
          and truly all material facts necessary for his assessment
          for that year". It postulates a duty on every assessee to
          disclose fully and truly all material facts necessary for his
          assessment. What facts 'are material and necessary for
          assessment will differ from case to case. In every
          assessment proceeding, the assessing authority will, for
          the purpose of computing or determining the proper tax
          due from an assessee, require to know all the facts which
          help him in coming to the correct conclusion. From the
          primary facts in his possession whether on disclosure by
          the assessee, or discovered by him on the basis of the
          facts disclose, or otherwise, the assessing authority has to
          draw inferences as regards certain other facts; and
          ultimately, from the primary facts and the further facts
          inferred from them, the authority has to draw the proper
          legal inferences, and ascertain on a correct interpretation
          of the taxing enactment, the proper tax leviable."



21.    In CIT v. Burlop Dealers Ltd.: (1971) AIR 1635, the Supreme Court

referred to the above passage from its decision in Calcutta Discount

Company (supra) and held that if an Assessee has disclosed primary facts

relevant to the assessment, he is under no obligation to instruct the Income

Tax Officer about the inference, which the Income Tax Officer may draw

from those facts. The Court further held that :




ITA 356/2013                                                          Page 19 of 32
          "mere production of the books of account or other
          evidence from which material facts could with due
          diligence have been discovered does not necessarily
          amount to disclosure within the meaning of
          Section 34(1), but where on the evidence and the materials
          produced the Income-tax Officer could have reached a
          conclusion other than one which he has reached, a
          proceeding under Section 34(1)(a) will not lie merely on
          the ground that the Income-tax Officer has raised an
          inference which he may later regard as erroneous."



22.     The aforesaid decision was followed by the Supreme Court in a later

decision in ITO v. Madnani Engineering Works Ltd.: (1979) 118 ITR 1

(SC).


23.     The aforesaid decisions of the Supreme Court in Burlop Dealers Ltd.

(supra) and ITO v. Madnani Engineering Works Ltd. (supra) were noticed

by this Court in M/s Haryana Acrylic Manufacturing Co. (P) Ltd. (supra).

The Court has held that once the Assessee had disclosed all facts which have

been examined by the AO during the assessment proceedings, it would not

be open for the AO to allege that the Assessee had not truly and fully

disclosed all material facts. In our view, the decision in the case of M/s

Haryana Acrylic Manufacturing Co. (P) Ltd. (supra) must be understood

in the context of the facts of that case. It is also relevant to note that in M/s




ITA 356/2013                                                         Page 20 of 32
Haryana Acrylic Manufacturing Co. (P) Ltd. (supra) the reasons recorded

by the AO did not even mention that the Assessee had failed to disclose

truly and fully all material facts necessary for the assessment. The said

decision cannot be read as an authority for the proposition that if the AO,

based on tangible material obtained subsequent to the conclusion of the

assessment, forms a belief that the income of an Assessee has escaped

assessment on account of bogus entries passed by the Assessee in its books

of accounts, the AO would, nonetheless, be precluded from reopening of the

assessment after expiry of four years from the end of the relevant assessment

year since the issue had been examined in the initial assessment.


24.    In our view, the question whether the Assessee could have been stated

to disclosed 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 AO 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 AO would not have the jurisdiction to reopen

assessment. But in cases where the primary facts as asserted by the Assessee

for framing of assessment are subsequently discovered as false, the

reopening of assessment may be justified.




ITA 356/2013                                                        Page 21 of 32
25.    In Phool Chand Bajrang Lal (supra), the Supreme Court had

observed as under:-


                "The judgment in Burlop Dealers' case (supra)
         cannot be understood as laying down any such proposition
         that even where the ITO gets some fresh information which
         was not available at the time of the original assessment,
         subsequent to the conclusion of the original assessment
         proceedings, which enables him to form a reasonable belief
         that the income of the assessee had escaped assessment
         because of the omission or failure of the assessee to
         disclose true and full facts during the assessment
         proceedings, he cannot reopen the assessment. The
         observations in Burlop's case, noticed above, were made in
         the peculiar fact-situation of that case and cannot be
         construed to be of universal application irrespective of the
         facts and circumstances of the particular case.



26.    The decision in the case of Burlop Dealers Ltd. (supra) had been

rendered in the context of Section 34(1)(a) of the Income Tax Act, 1922 and

the decision of the Supreme Court in Phool Chand Bajrang Lal (supra) was

delivered in the context of Section 147(a) of the Act as it existed prior to the

amendment introduced w.e.f. 1st April, 1989, which was similarly worded as

section 34(1)(a) of the 1922 Act.


27.    Section 147 as it existed prior to 1st April 1989 read as under:-




ITA 356/2013                                                         Page 22 of 32
              "147 If-
              (a) the Assessing Officer has reason to believe that,
       by reason of the omission or failure on the part of an
       assessee to make a return under section 139 for any
       assessment year to the Assessing Officer or to disclose
       fully and truly all material facts necessary for his
       assessment for that year, income chargeable to tax has
       escaped assessment for that year, or
              (b) notwithstanding that there has been no omission
       or failure as mentioned in clause (a) on the part of the
       assessee, the Assessing Officer has in consequence of
       information in his possession reason to believe that income
       chargeable to tax has escaped assessment for any
       assessment year,
       he may, subject to the provisions of sections 148 to 153,
       assess or reassess such income or recompute the loss or the
       depreciation allowance, as the case may be, for the
       assessment year concerned (hereafter in sections 148 to
       153 referred to as the relevant assessment year).
              Explanation 1: for the purposes of this section, the
       following shall also be deemed to be cases where income
       chargeable to tax has escaped assessment, namely:--
              (a) where income chargeable to tax has been under-
       assessed; or
              (b) where such income has been assessed at too low
       a rate; or
              (c) where such income has been made the subject of
       excessive relief under this Act or under the Indian Income-
       tax Act, 1922 (11 of 1922); or
              (d) where excessive loss or depreciation allowance
       has been computed.
              Explanation 2: Production before the Assessing
       Officer of account books or other evidence from which
       material evidence could with due diligence have been
       discovered by the Assessing Officer will not necessarily
       amount to disclosure within the meaning of this section."




ITA 356/2013                                                          Page 23 of 32
28.    Section 147 after the amendment w.e.f. 1st April, 1989 reads as

under:-


                 "147. If the Assessing Officer has reason to
          believe that any income chargeable to tax has escaped
          assessment for any assessment year, he may, subject to the
          provisions of sections 148 to 153, assess or reassess such
          income and also any other income chargeable to tax which
          has escaped assessment and which comes to his notice
          subsequently in the course of the proceedings under this
          section and in sections 148 to 153 referred to as the relevant
          assessment year):
                 Provided that where an assessment under sub-
          section (3) of section 143 or this section has been made for
          the relevant assessment year, no action shall be taken under
          this section after the expiry of four years from the end of
          the relevant assessment year, unless any income chargeable
          to tax has escaped assessment for such assessment year by
          reason of the failure on the part of the assessee to make a
          return under section 139 or in response to a notice issued
          under sub-section(1) of section 142 or section 148 or to
          disclose fully and truly all material facts necessary for his
          assessment, for that assessment year.
                 Explanation 1: Production before the Assessing
          Officer of account books or other evidence from which
          material evidence could with due diligence have been
          discovered by the Assessing Officer will not necessarily
          amount to disclosure within the meaning of the foregoing
          proviso.
                 Explanation 2: For the purposes of this section, the
          following shall also be deemed to be cases where income
          chargeable to tax has escaped assessment, namely:--
                 (a) where no return of income has been furnished by
          the assessee although his total income or the total income of
          any other person in respect of which he is assessable under
          this Act during the previous year exceeded the maximum




ITA 356/2013                                                         Page 24 of 32
         amount which is not chargeable to income-tax;
                (b) where a return of income has been furnished by
         the assessee but no assessment has been made and it is
         noticed by the Assessing Officer that the assessee has
         understated the income or has claimed excessive loss,
         deduction, allowance or relief in the return;
                (c) where an assessment has been made, but--
                (i) income chargeable to tax has been
         underassessed; or
                (ii) such income has been assessed at too low a rate;
         or
                (iii) such income has been made the subject of
         excessive relief under this Act; or
                (iv) excessive loss or depreciation allowance or any
         other allowance under this Act has been computed.]"


29.    It is at once seen that the Amendment in Section 147 of the Act

brought about a material change in law w.e.f. 1st April, 1989. Section 147(a)

as it stood prior to 1st April 1989 required the AO to have a reason to believe

that (a) the income of the Assessee has escaped assessment and (b) that such

escapement is by reason of omission or failure on the part of the Assessee to

file a return or to disclose fully and truly all material facts necessary for his

assessment for that year.       After the Amendment, only one singular

requirement is to be fulfilled under Section 147(a) and that is, that the AO

has reason to believe that income of an Assessee has escaped assessment.

However, the proviso to Section 147 of the Act provides a complete bar for

reopening an assessment, which has been made under Section 143(3) of the




ITA 356/2013                                                         Page 25 of 32
Act, after the expiry of four years.      However, this proscription is not

applicable where the income of an Assessee has escaped assessment on

account of failure on the part of the Assessee to make a return or to disclose

fully and truly all material facts necessary for his assessment. Thus, in order

to reopen an assessment which is beyond the period of four years from the

end of the relevant assessment year, the condition that there has been a

failure on the part of the Assessee to truly and fully disclose all material

facts must be concluded with certain level of certainty. It is in the aforesaid

context that this Court in M/s Haryana Acrylic Manufacturing Co. (P) Ltd.

(supra) explained that the ratio of the decision in Phool Chand Bajrang Lal

(supra) may not be entirely applicable since the same was in respect of

Section 147(a) as it existed prior to the amendment.


30.    In the present case it is difficult to accept that reasonable conclusion

could be drawn that the Assessee had failed to disclose truly and fully all

material facts necessary for its assessment. In the facts of this case, where

the AO had already in the initial round examined and verified the entries in

question, it would only be reasonable for the AO to examine the information

received and to at least verify the same with the records of the concluded

assessment proceedings.     A plain examination of the same would have







ITA 356/2013                                                       Page 26 of 32
revealed that the Assessee had not claimed to have received any funds from

Richie Rich as share capital.     Further, the Assessee had also provided

confirmation of the loans received as well as other details, during the said

proceedings. It would also be relevant to note that the loans availed had been

returned through banking channels during the period and this was also

confirmed independently to the AO. In the given circumstances, the least

that was required for the AO was to independently apply his mind to

ascertain that the information provided was credible and sufficient for

drawing a reasonable inference that the income of the Assessee had escaped

assessment on account of failure on the part of the Assessee to disclose truly

and fully all material facts. Clearly, the examination of facts required at the

threshold to form such a belief would be more detailed if the said transaction

in question had already been subjected to scrutiny during the initial

assessment.


31.    In the present case, it does not appear that the AO applied its mind to

the material available including the records of the earlier assessment

proceedings. This is also apparent from the fact that during the assessment

proceedings, the AO did not confront the Assessee with any new material or

examine any other evidence other than what was already available in the




ITA 356/2013                                                       Page 27 of 32
initial assessment period.


32.    There is yet another safeguard provided to the Assessee which was

sought to be side-stepped by the AO. The Supreme Court in the case of

G.K.N Driveshafts (India) Ltd. v. ITO: (2003) 259 ITR 19 (SC); (2003) 1

SCC 72 had held that if an Assessee if so desirous, could seek reasons for

issuance of notice under Section 148 of the Act and the AO would be bound

to furnish the same within a reasonable time. The Court further held that that

the noticee would be entitled to file objections against the issuance of the

notice and the AO would be bound to dispose of the same by passing a

speaking order.


33.    In the present case, the Assessee filed its objections by a letter dated

12th December, 2008 and requested the AO to drop the proceedings. The

Assessee by its letter dated 18th December, 2008 sent in response to another

notice, also provided its response in respect of the alleged accomodation

entries, which were reported by the Investigation Wing. However, the

objections filed by the Assessee were not disposed of by the AO and he

proceeded to frame the assessment. This Court in M/s Haryana Acrylic

Manufacturing Co. (P) Ltd. (supra) had observed that the requirements




ITA 356/2013                                                       Page 28 of 32
regarding recording the reasons to believe; communicating the same to the

Assessee; permitting the Assessee to file the objections; and passing a

speaking order disposing of the objections are all designed to ensure that the

AO does not reopen assessments, which have been finalized, on his mere

whim and fancy and that he does so only on the basis of lawful reasons. It

was further held that a deviation from the directions issued by the Supreme

Court in G.K.N Driveshafts (India) Ltd.(supra) would entail nullifying the

proceedings.   Although the AO is required to provide reasons, receive

objections and pass a speaking order thereon, only after the notice under

Section 148 of the Act has been issued; these requirements are an integral

part of the safeguards which have been inbuilt for ensuring that the

assessments are reopened only for lawful reasons and in a transparent

manner. If the said safeguards are flouted, it would invalidate the exercise of

jurisdiction under Section 147 and 148 of the Act.


34.    Thus, although we are in agreement with the contention advanced by

the Revenue that information received by the AO regarding passing of bogus

entries in its books after the conclusion of the assessment proceedings could

in certain circumstances, provide tangible material for AO to reopen

assessment and assume jurisdiction, but, in the facts of the present case, we




ITA 356/2013                                                       Page 29 of 32
are unable to accept that it would be open for the AO to proceed on the basis

that income of the Assessee had escaped assessment on account of the

failure on the part of the Assessee to disclose fully and truly all material

facts necessary for its assessment for AY 2001-02.


35.    In view of the above, we find no infirmity with the conclusion of the

CIT(A) and the Tribunal that AO could not have assumed jurisdiction to

reopen the assessment under Section 147/148 of the Act.


36.    The next issue to be examined is whether any addition could have

been made to the taxable income of the Assessee as unexplained credit

under Section 68 of the Act. At the outset, it is relevant to observe that

although the AO had reopened the assessment, the AO did not produce any

material or confront the Assessee with any credible evidence that could lead

to the inference that the entries pertaining to the loan from Richie Rich were

bogus or accommodation entries. In the absence of such material, it was

clearly not permissible for the AO to take a view contrary to one taken by

the AO during the initial assessment.


37.    The Assessee on the other hand produced ample evidence to indicate

that the entries in question were genuine. During the initial assessment, the



ITA 356/2013                                                       Page 30 of 32
Assessee had filed a copy of the agreement between the Assessee and

Mahan Enterprises Ltd., which indicated that certain activities of the

Assessee were to be funded by Mahan Enterprises Ltd. Mahan Enterprises

Ltd. had also directly filed a letter with the AO explaining an arrangement

and had also confirmed that it had arranged funds for the Assessee and

further, that the Assessee had also refunded sums to the extent of `1.07

crores. Indisputably, this included the amount obtained by the Assessee from

Richie Rich. The Assessee also produced a copy of the Account of Richie

Rich in its books, bank statements showing the transactions with Richie

Rich, as well as confirmation from Richie Rich. The Assessee had also

pointed out that the transaction in question had been examined during the

regular assessment proceedings. The AO simply rejected the contention as

non-tenable. The confirmation produced by the Assessee was faulted as not

being of a current date. We are unable to find any justification for these

views and, therefore, the assessment order cannot be sustained. The funds

availed by the Assessee from Richie Rich had been returned several years

ago and there was no justification for the AO to insist on a fresh

confirmation. The Assessee had also produced the balance sheet and bank

account of Richie Rich reflecting the entries. On examination of the




ITA 356/2013                                                     Page 31 of 32
evidence, the CIT(A) rightly came to the conclusion that no addition under

Section 68 of the Act in respect of the transaction was sustainable. The

Tribunal also noted the evidence and material produced by the Assessee,

which remained uncontroverted, and upheld the order passed by the CIT(A).


38.    In view of the above, the second question is answered in negative, in

favour of the Assessee and against the Revenue.


39.    The appeal is, accordingly, dismissed.


40.    In the circumstances, the parties are left to bear their own costs.




                                                      VIBHU BAKHRU, J




                                                      S. MURALIDHAR, J
SEPTEMBER 22, 2015
MK/RK




ITA 356/2013                                                         Page 32 of 32

 
 
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