$~

* IN 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 Appellant : Mr Kamal Sawhney, Senior Standing Counsel
with Mr Raghvendra Singh, Junior Standing
Counsel.
For 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 Income Tax Act, 1961

(hereafter Act) has been preferred by Revenue impugning order

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

(hereafter Tribunal) in ITA No.1202/Del/2011. said appeal (ITA




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

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

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

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

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

pursuant to reopening of assessment under Section 147 of Act.


2. controversy involved in present appeal relates to action of

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

examined and verified by AO during initial assessment proceedings

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

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

the Investigation Wing that Assessee had obtained accommodation

entries from certain entry operators during relevant period. The

Assessees challenge to initiation of re-assessment proceedings as well

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

sustained by CIT(A) as well as Tribunal.


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

questions were framed for consideration:-




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

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

4. Briefly stated, relevant facts necessary to consider controversy

involved in present appeal are as under:-


4.1 Assessee filed its return of income for Assessment Year

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

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

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

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

Subsequently, another questionnaire was issued to Assessee on 21 st

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

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

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

enclosing therewith details of unsecured loans alongwith copies of

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

pertaining to unsecured loans. This also included details pertaining to



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

of assessment proceedings, Assessee was also called upon to explain

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

filed Agreement entered into with Mahan Enterprises. Assessee

explained that it had entered into arrangement with Mahan Enterprises

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

required to be incurred by Assessee in relation to assignment from

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

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


4.2 During course of proceedings letter dated 18th December,

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

confirmed that certain investments had been arranged by Mahan Enterprises

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

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

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

unexplained credit in re-assessment proceedings.


4.3 AO received information from Investigation Wing of the

Income Tax Department that Assessee had obtained accommodation




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

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

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

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

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

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

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

aforesaid notice, Assessee requested AO to treat return as

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

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

assessment.


4.4 Thereafter, AO proceeded with reassessment proceedings and

called upon Assessee to furnish details in respect of certain transactions

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

Assessee with reasons for initiating proceedings under Section 147/148

of Act.


4.5 Assessee objected to reopening of assessment vide letter

dated 12th December, 2008. According to Assessee, 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 Assessee had escaped

assessment.


4.6 Assessee also filed detailed response enclosing all evidence that

was readily available with it to support genuineness of entries

pertaining to transaction with Richie Rich. This included Ledger

Accounts of Richie Rich in books maintained by Assessee; bank

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

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

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

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

company master details of Richie Rich with Registrar of Companies.


4.7 AO did not dispose of objections filed by Assessee and

proceeded to reassess income of Assessee for relevant assessment

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

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

unexplained cash credit in name of Richie Rich.




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

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

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

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

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

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

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

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

and in circumstances, reopening of assessment was permissible only if

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

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

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

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

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

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

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

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

was erroneous.




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

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

November, 2012 order impugned in present appeal. Tribunal

had held that Assessee had disclosed all relevant material at time

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

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

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

disclosed by Assessee during initial assessment. Tribunal also

observed that reasons recorded by AO for reopening of assessment

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

Assessee to disclose all material facts. 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 reopening of assessment could not

be sustained as necessary condition for invoking Section 147 of Act

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

been made on account of change in AOs opinion, which was not

permissible.




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

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

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

proceeded to reopen assessment on basis of information obtained

from Investigation Wing and same constitutes fresh material that was

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

out that observation of Tribunal that reasons recorded by AO

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

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

contended that Tribunal had not examined issue regarding addition

made under Section 68 of Act on merits.


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

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

contention that information obtained by AO subsequent to the

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

assessment even though transaction in question had been examined

during assessment proceedings.




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

learned counsel appearing for Assessee, contended that Assessee had

disclosed fully and truly all material facts during initial assessment

proceedings and, therefore, reopening of assessment could not be

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

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

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

four years from relevant assessment year unless AO came to the

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

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

necessary for assessment. He submitted that in present case the

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

assessment under Section 147 of Act could not be sustained.


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

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

change. He drew 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 learned counsel for parties.


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

assume jurisdiction to reopen assessment based on information

received from Investigation Wing of department. It is now well

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

Assessees 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 reasonable belief could be formed that income of an

assessee has escaped assessment. language of Section 147 requires the

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

believe that income of Assessee has escaped assessment must be bonafide

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

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

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

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

change of opinion, which is not permissible.




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

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

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

be reopened after expiry of four years from end of relevant

assessment year unless condition as specified under proviso to

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

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

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

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

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

assessment.


12. Indisputably, entries relating to funds availed by Assessee

from Richie Rich during relevant year had been scrutinised by AO

during regular assessment proceedings and had been explained by the

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

reopen assessment unless AO, on basis of credible and tangible

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

believes that income of Assessee has escaped assessment.




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

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

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

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

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

change of opinion. relevant extract from said decision is quoted

below:


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




ITA 356/2013 Page 13 of 32
Department, then, in garb of reopening assessment,
review would take place. One must treat concept of "
change of opinion" as in-built test to check abuse of
power by Assessing Officer. Hence, after 1st April,
1989, Assessing Officer has power to reopen, provided
there is " tangible material" to come to conclusion that
there is escapement of income from assessment. Reasons
must have live link with formation of belief. Our
view gets support from changes made to section 147 of
Act, as quoted hereinabove. Under Direct Tax
Laws (Amendment) Act, 1987, Parliament not only deleted
words " reason to believe" but also inserted word "
opinion" in section 147 of Act. However, on receipt of
representations from companies against omission of the
words " reason to believe", Parliament reintroduced the
said expression and deleted word " opinion" on the
ground that it would vest arbitrary powers in Assessing
Officer.


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

formed such opinion is report from Investigation Wing of the

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

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

initial assessment proceedings.


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

under:-


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



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


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

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

lead to inference that income of Assessee had escaped

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

Investigation Wing had reported that one Late Sanjay Mohan Aggarwal was

one of oldest and 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 informal

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

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

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




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

transactions with Assessee. investigation report also indicated that

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


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

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

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

proceedings for reassessment is for AO to form reasonable belief on

tangible material that income of Assessee has escaped assessment. In

Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers

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

following words:-


16. Section 147 authorises and permits 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. word "reason" in 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 income had escaped
assessment. expression cannot be read to mean that the
Assessing Officer should have finally ascertained fact
by legal evidence or conclusion. function of the
Assessing Officer is to administer statute with solicitude
for public exchequer with inbuilt idea of fairness to
taxpayers. As observed by 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 relevant time) fulfilment of two
requisite conditions in that regard is essential. At that stage,
final outcome of proceeding is not relevant. In other
words, at initiation stage, what is required is "reason to
believe", but not established fact of escapement of
income. At stage of issue of notice, only question is
whether there was relevant material on which reasonable
person could have formed requisite belief. Whether the
materials would conclusively prove escapement is not
concern at that stage. This is so because formation
of belief by Assessing Officer is within 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 tangible material available with AO provides

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

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

reopen concluded assessment. question whether AO has reason to

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

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

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

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

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

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




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

assessment proceedings.


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

to reopen assessment beyond period of four years. As indicated

hereinbefore, same would not be permissible unless condition as

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

had escaped assessment on account of Assessees 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 initial assessment and Assessee had provided all necessary

evidences to establish genuineness of transactions. In view of the

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

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

the Assessee to either file 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 import of 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 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, assessing authority will, for
purpose of computing or determining proper tax
due from assessee, require to know all facts which
help him in coming to correct conclusion. From the
primary facts in his possession whether on disclosure by
assessee, or discovered by him on basis of the
facts disclose, or otherwise, assessing authority has to
draw inferences as regards certain other facts; and
ultimately, from primary facts and further facts
inferred from them, authority has to draw proper
legal inferences, and ascertain on correct interpretation
of taxing enactment, proper tax leviable.



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

referred to above passage from its decision in Calcutta Discount

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

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

Tax Officer about inference, which Income Tax Officer may draw

from those facts. Court further held that :




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



22. aforesaid decision was followed by Supreme Court in later

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

(SC).


23. aforesaid decisions of 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 Assessee had disclosed all facts which have

been examined by AO during assessment proceedings, it would not

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

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

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

in context of 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) reasons recorded

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

truly and fully all material facts necessary for assessment. said

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

based on tangible material obtained subsequent to conclusion of the

assessment, forms belief that income of Assessee has escaped

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

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

assessment after expiry of four years from end of relevant assessment

year since issue had been examined in initial assessment.


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

to disclosed fully and truly all material facts have to be examined in light

of facts of each case and also reasons that led AO to believe that

income of Assessee has escaped assessment. In case where primary

facts have been truly disclosed and issue is only with respect to the

inference drawn, AO would not have jurisdiction to reopen

assessment. But in cases where primary facts as asserted by 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), Supreme Court had

observed as under:-


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



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

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

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

delivered in context of Section 147(a) of 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 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) Assessing Officer has reason to believe that,
by reason of omission or failure on part of an
assessee to make return under section 139 for any
assessment year to 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 part of the
assessee, 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 provisions of sections 148 to 153,
assess or reassess such income or recompute loss or the
depreciation allowance, as case may be, for the
assessment year concerned (hereafter in sections 148 to
153 referred to as relevant assessment year).
Explanation 1: for 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
rate; or
(c) where such income has been made subject of
excessive relief under this Act or under Indian Income-
tax Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowance
has been computed.
Explanation 2: Production before Assessing
Officer of account books or other evidence from which
material evidence could with due diligence have been
discovered by Assessing Officer will not necessarily
amount to disclosure within meaning of this section."




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

under:-


"147. If 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 course of proceedings under this
section and in sections 148 to 153 referred to as relevant
assessment year):
Provided that where assessment under sub-
section (3) of section 143 or this section has been made for
relevant assessment year, no action shall be taken under
this section after expiry of four years from end of
relevant assessment year, unless any income chargeable
to tax has escaped assessment for such assessment year by
reason of failure on part of assessee to make a
return under section 139 or in response to 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 Assessing
Officer of account books or other evidence from which
material evidence could with due diligence have been
discovered by Assessing Officer will not necessarily
amount to disclosure within meaning of foregoing
proviso.
Explanation 2: For 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
assessee although his total income or total income of
any other person in respect of which he is assessable under
this Act during previous year exceeded maximum




ITA 356/2013 Page 24 of 32
amount which is not chargeable to income-tax;
(b) where return of income has been furnished by
assessee but no assessment has been made and it is
noticed by Assessing Officer that assessee has
understated income or has claimed excessive loss,
deduction, allowance or relief in return;
(c) where assessment has been made, but
(i) income chargeable to tax has been
underassessed; or
(ii) such income has been assessed at too low rate;
or
(iii) such income has been made 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 Amendment in Section 147 of Act

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

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

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

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

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

assessment for that year. After Amendment, only one singular

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

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

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

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




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

applicable where income of Assessee has escaped assessment on

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

received and to at least verify same with records of concluded

assessment proceedings. plain examination of same would have




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

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

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

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

returned through banking channels during period and this was also

confirmed independently to AO. In given circumstances, least

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

ascertain that information provided was credible and sufficient for

drawing reasonable inference that income of Assessee had escaped

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

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

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

in question had already been subjected to scrutiny during initial

assessment.


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

the material available including records of earlier assessment

proceedings. This is also apparent from fact that during assessment

proceedings, AO did not confront 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 Assessee which was

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

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

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

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

to furnish same within reasonable time. Court further held that that

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

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

speaking order.


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

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

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

notice, also provided its response in respect of alleged accomodation

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

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

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

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




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

Assessee; permitting Assessee to file objections; and passing a

speaking order disposing of 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 basis of lawful reasons. It

was further held that deviation from directions issued by Supreme

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

proceedings. Although AO is required to provide reasons, receive

objections and pass speaking order thereon, only after notice under

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

part of safeguards which have been inbuilt for ensuring that the

assessments are reopened only for lawful reasons and in transparent

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

jurisdiction under Section 147 and 148 of Act.


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

the Revenue that information received by AO regarding passing of bogus

entries in its books after conclusion of assessment proceedings could

in certain circumstances, provide tangible material for AO to reopen

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




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

that income of Assessee had escaped assessment on account of the

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

facts necessary for its assessment for AY 2001-02.


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

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

reopen assessment under Section 147/148 of Act.


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

been made to taxable income of Assessee as unexplained credit

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

although AO had reopened assessment, AO did not produce any

material or confront Assessee with any credible evidence that could lead

to inference that entries pertaining to loan from Richie Rich were

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

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

the AO during initial assessment.


37. Assessee on other hand produced ample evidence to indicate

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



ITA 356/2013 Page 30 of 32
Assessee had filed copy of agreement between 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 letter with AO explaining arrangement

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

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

crores. Indisputably, this included amount obtained by Assessee from

Richie Rich. Assessee also produced copy of Account of Richie

Rich in its books, bank statements showing transactions with Richie

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

pointed out that transaction in question had been examined during the

regular assessment proceedings. AO simply rejected contention as

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

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

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

availed by Assessee from Richie Rich had been returned several years

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

confirmation. Assessee had also produced balance sheet and bank

account of Richie Rich reflecting entries. On examination of the




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

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

Tribunal also noted evidence and material produced by Assessee,

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


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

favour of Assessee and against Revenue.


39. appeal is, accordingly, dismissed.


40. In circumstances, 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
COMMISSIONER OF INCOME TAX II v. M/S MULTIPLEX TRADING & INDUSTRIAL CO. LTD