These appeals by the assessees arise against the orders dated 27-8-2004 and 26-8-2004 of the learned Commissioner of Income-tax (Appeals)-XXV, New Delhi, raising the following identical grounds :—
"1. That having regard to the facts and circumstances of the case the ld. CIT(A) has erred in law and on facts and in confirming the decision of the Assessing Officer in reopening of the assessment under section 147, more so when statutory conditions prescribed under sections 145 to 151 of the Act were not complied with.
2. In any view of the matter and in any case, reopening of the impugned assessment is bad in law and against the facts and circumstances of the case.
3. That on the facts and circumstances of the case, the ld. CIT(A) has erred in confirming, the treating of the amount of Rs. 2,33,899/1,19,730 (subsequently reduced by Rs. 20,201 to Rs. 2,13,698/10,341 to 1,09,389) as income from other sources by the Assessing Officer as against the amount of Rs. Nil shown under income from Long Term Capital Gain and that too without giving adequate opportunity of being heard and without confronting the material and evidences gathered at the back of the assessee.
4. That on the facts and circumstances of the case, the learned CIT(A) has erred in confirming the levy of interest under section 234B of the Act amounting to Rs. 53,148/63,692 (subsequently enhanced/reduced to Rs. 76,151/22,413) levied by the Assessing Officer.
5. That on the facts and circumstances of the case, the ld. CIT(A) has erred in confirming for not granting the opportunity of cross examination by the Assessing Officer.
6. The appeal order is against the facts and records of the case."
2. In the case of Shri Atul Jain, the amount of Rs. 1,19,370 in place of Rs. 2,33,899 in the case of Smt. Vinita Jain, is under challenge. All other grounds in appeal are identical.
3. In the case of Mrs. Vinita Jain, the appellant had ostensibly purchased 4300 shares of M/s. Globe Commercials Ltd. on 21-3-1995 at the rate of Rs. 3.05 per share i.e., for a total consideration of Rs. 13,115 (plus service tax of Rs. 10.75) through one M/s. Maheshwari Sons, Stock & Share Broker. Subsequently, the subject 4300 shares of M/s. Globe Commercials Ltd. were ostensibly sold by the appellant on 22-4-1996 @ Rs.49.50 per share (net of service tax) thereby fetching a total consideration of Rs. 2,12,635. The shares were sold through another broker Shri Satish Kumar Goel, proprietor of M/s. R.K. Aggarwal & Co. (and who was later found to be a practicing Chartered Accountant). The aforesaid rates of Rs. 3.05 and Rs.49.50 were stated to be those which had prevailed at the relevant time on the Delhi Stock Exchange and the Magadh Stock Exchange. The assessee had disclosed the alleged long-term capital gain arising from the aforesaid transactions in her return of income which was filed by her on 1-7-1997. Subsequently intra departmental information was received by the Assessing Officer to the effect that the present assessee had taken a bogus entry of long-term capital gains after paying the equivalent amount in cash (plus premium for taking the accommodation entry) to the broker Shri Satish Kumar Goel, Proprietor of M/s. R.K. Aggarwal & Co. The Assessing Officer was informed that Shri Satish Kumar Goel had admitted to this fact in a confessional statement dated 14-2-2000 which was deposed by him on oath before the Investigation Wing of the department at Gurgaon. The Assessing Officer was informed that the subject company M/s. Globe commercials Ltd. had also appeared before the DDI (Inv.), Gurgaon through its authorized representatives and it had categorically confirmed that the name of the present appellant Smt. Vinita Jain did not figure in its share transfer records. The Company had unambiguously denied that the subject 4300 shares were ever transferred in its records to the name of the appellant. Lastly, the Assessing Officer was informed that the subject shares of M/s. Globe Commercials Ltd. had not at all been transacted either on the Delhi Stock Exchange or on the Magadh Stock Exchange. On receipt of the said information, the Assessing Officer invoked his powers conferred by section 47 of the Act.
4. The Assessing Officer after examination of evidence and information supplied by the DDIT(Inv.) Gurgaon came to the conclusion that the assessee has invested her own money from undisclosed sources and taken back the same in the shape of cheque/draft amounting to Rs. 2,12,635. Accordingly, the amount so invested was treated as undisclosed investment by the assessee and by estimating 10 per cent as commission paid for raising this accommodation entry a further addition of Rs. 21,264 was made to the undisclosed investment of Rs. 2,12,635 as stated hereinabove.
5. In the case of Shri Atul Jain, the appellant had ostensibly purchased 2200 shares of M/s. Globe Commercials Ltd. on 21-3-1995 @ Rs.3.05 per share i.e., for a total consideration of Rs. 6,715 (plus service tax of Rs. 5.50) through one M/s. Maheshwari Sons, Stock & Share Broker. Subsequently, the subject 2200 shares of M/s. Globe Commercials Ltd. were ostensibly sold by the appellant on 22-4-1996 @ Rs.49.50 per share (net of service tax) thereby fetching a total consideration of Rs. 1,08,845. The shares were sold through another broker Shri Satish Kumar Goel, Proprietor of M/s R.K. Aggarwal & Co. (and who was later found to be a practicing Chartered Accountant). The aforesaid rates of Rs. 3.05 and Rs. 49.50 were stated to be those which had prevailed at the relevant time on the Delhi Stock Exchange and the Magadh Stock Exchange. The assessee had disclosed the alleged long-term capital gain arising from the aforesaid transactions in her return of income which was filed by him on 28-1-1998. The assessing authority after examining the evidence on record and information supplied by the DDIT(Inv.), Gurgaon came to the conclusion that the assessee has invested his own money from undisclosed sources and taken back the same in the shape of cheque/draft amounting to Rs. 1,08,845 by paying 10 per cent amount as commission. Both of which were added as undisclosed investment amounting to Rs. 1,08,845 and Rs. 10,845 payment made therefrom as assessee’s income from other sources. In both these cases, the leaned CIT(A) has upheld the addition by recording a finding that the appellants have failed to discharge the initial onus of proving the genuineness of the subject transaction and the gist of circumstances against her/him is complete.
6. Shri Rakesh Gupta, learned counsel for the assessees contends that the action taken under section 147 of the Act cannot be held valid for several reasons. Firstly that the Assessing Officer did not record any reasons for formation of belief that the income of the assessee has escaped assessment. It is only in the proforma for obtaining the approval of Commissioner of Income-tax, the reason for the belief that income has escaped assessment in the case of Smt. Vinita Jain are stated as under :—
"As per information received from DDIT(Inv.) Gurgaon, the assessee had taken bogus entry of capital gains Rs. 2,12,635 on 27-6-95 (assessment year 1997-98) by paying cash along with some premium and taking cheque of same amount."
Likewise reasons taken in the proforma sent in case of Sh. Atul Jain are as under:—
"As per information received from DDIT (Inv.) Gurgaon, the assessee has taken bogus entry of capital gains Rs. 1,08,845 on 22-6-1996 (assessment year 1997-98) by paying cash alongwith some premium and taking cheque of same amount."
7. These reasons do not disclose satisfaction of the Assessing Officer. Furthermore, the Assessing Officer did not carry out any independent enquiry himself to find out whether the transaction of sale entered by the assessee is bogus. The reasons do not state as to which shares have been transacted and even the account or name of the party with whom such transaction is carried is not spelled out in the reasons. There is thus no independent application of mind by the Assessing Officer. The reopening in this case has been done because the DDIT(Inv.) Gurgaon believes that the transaction of capital gains is bogus. The very starting point to initiate the proceedings is thus illegal and vitiated.
8. Secondly the satisfaction is by CIT and not by the Assessing Officer. The Ld. CIT in para 12 of the approval proforma has accorded his satisfaction by saying "yes". He has not applied mind to the reasons. There is always a distinction between the reasons recorded and the report of the Assessing Officer for seeking approval in the proforma. Reference was made to the Apex Court judgment in the case of Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603 . Thirdly he states that as per section 151(2) of the Act, the approval was to be taken from Joint CIT whereas the Assessing Officer has acted contrary to law and obtained approval of learned CIT. When a statute requires, a thing to be done in a certain manner, that thing has to be done in that manner alone. Doing of that thing in any other mariner is prohibited. In S. Sewa Singh Gill v. CIT [1962] 46 ITR 152 , the Hon’ble Punjab & Haryana High Court has held that where statute required a particular officer to decide a certain matter that matter must be decided according to the judgment of that officer and not under the directions of a superior. The Hon’ble Patna High Court also in Elphin Stone Picture Palace v. U.O.I [1969] 74 ITR 115, has held that where power to do a certain thing is vested in the authority and that authority does not exercise that power itself but acts according to the dictates of another authority not having such a power without applying itself to the propriety or otherwise of that order, such order is illegal. It was, therefore, contended that the action taken under section 147 must be held vitiated and notice be directed to be quashed.
9. It was further contended that the assessment in this case has been completed on 27-2-2004 without serving any notice under section 143(2) of the Act within the statutory period of twelve months. In the light of Special Bench judgment in the case of Raj Kumar Chawla v. ITO [2005] 94 ITD 1 (Delhi) (SB) the assessment so made is liable to be quashed.
10. On merit, Shri Gupta contends that the revenue has raised no doubts about the genuineness of shares purchased by the appellant. These assessees in fact had discharged the initial burden that lay upon them by bringing on record the documentary evidence to establish the fact that the shares factually held by them stood sold at the prevalent market rate. Broker note & share quotations alongwith evidence for purchase & sale of shares had been brought on record. The payment was received through an account payee cheque. The Assessing Officer, however, acted on the basis of oral evidence given by Shri Satish Goel, broker or Globe Commercial Ltd. before the investigating authority. The appellant was not even confronted with the testimony of these persons nor any opportunity allowed to cross-examine any of them. If a regard is had to the judgment of Apex Court in Kishin Chand Chela Ram v. CIT [1980] 125 ITR 713, such statements cannot be taken as legal material. The onus that lay upon revenue to show that capital gains is bogus has not been discharged. The addition so sustained is therefore liable to be deleted.
11. On the other hand Ms. Pramila Sharan, the learned Departmental Representative while supporting the action to be valid contends that proceedings in this case were initiated on the basis of information received from DDIT(Inv.), Gurgaon. In the enquiry conducted by the DDIT (Inv.), Gurgaon, the said Shri Satish Goel has clearly admitted that all the transactions in his account with Corporation Bank, Karol Bagh are bogus. He had also stated that cash was received from all the beneficiaries, deposited in the said bank account and in turn cheques or drafts were issued from the said account which was shown as sale proceeds of shares but in actuality no such transaction had taken place. In view of this categorical stand taken by him coupled with the fact that the company M/s. Globe Commercial Ltd. whose shares are claimed to have been transacted has also denied of any such transaction, it was not necessary for the Assessing Officer to make any further enquiry or confront the assessee with any specific transaction in the said account for recording a prima facie satisfaction about the escapement of income. In a similar situation, the Hon’ble Punjab & Haryana High Court in the case of Shri Pal Jain v. ITO [2004] 267 ITR 540, has upheld the initiation of proceedings under section 147 of the Act and dismissed the writ.
12. The learned DR then contends that the reasons are duly recorded in the form for recording the reasons for initiating proceedings under section 148 of the Act. It also states of the belief of Assessing Officer that income has escaped assessment. The same reasons in this form were sent for requisite approval. It, therefore, cannot be said that there was no satisfaction of the Assessing Officer for taking action under section 147 of the Act. As regards according approval by CIT in place of JCIT, it was submitted that the approval by a higher authority was necessary to show transparency in the action of the Assessing Officer so that there is no arbitrariness shown by him when he reopens the assessment. The purpose is better served when such an approval was accorded by learned CIT. In fact the satisfaction for taking action under section 147 of the Act is to be of the Assessing Officer and in this case in appeal, the record reveals that the Assessing Officer after being satisfied that income has escaped assessment proceeded to take approval from his superior authority. Such an action of the assessing authority cannot be held vitiated. She further contends that the assessment in this case was completed much before the expiry of period of twelve months from the date of reply filed by the assessee in response to notice under section 148 of the Act. If the notice under section 143(2) was not served, then that at best could be held to be a procedural irregularity and matter can be sent back to Assessing Officer to take action from the stage from where irregularity supervened.
13. On merit, the learned DR supports the findings reached by Ld. CIT(A) that the onus that lay upon the appellant has not been discharged. The appellant’s name did not appear in the records of Globe Commercial Ltd., whose shares are claimed to have been transacted for alleged capital gains. The company had also denied of assessee’s name in its records. If the assessee failed to prove the genuineness of the transaction carried by it, there lay no burden on revenue to bring any further material after the very transaction was found bogus by taking accommodation entry only. A prayer, therefore, was made to uphold the decision taken by the authorities below.
14. I have heard the parties and after considering material on record and precedents referred by both the parties, find that the reasons recorded do not show any application of mind by the Assessing Officer himself. The reopening in this case has been done because the DDIT(Inv.), Gurgaon believes that the transaction of capital gains is bogus. The very starting point for initiation of proceedings is illegal. The Hon’ble Patana High Court in the case of Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352 has held as under :—
"The requisite belief under section 147 of the Act must be that of the Income-tax Officer concerned and not of any other officer. If the Income-tax Officer does not form any belief, but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction under section 148 of the Act was bad for non-satisfaction of the condition precedent."
15. In the present case in appeal, the proforma in which reasons are recorded reveal that the learned Commissioner of Income-tax has conveyed his satisfaction merely by stating "yes" to the reasons recorded in the same report. No separate reasons disclosing satisfaction of the Assessing Officer for formation of belief that income of the assessee has escaped assessment has been recorded. He appears to have only a vague feeling that the assessee had taken bongus entry of capital gains and did not come to prima facie conclusion that the transactions to which he referred are not genuine transactions. There is however a distinction in the reasons recorded and the report of Assessing Officer seeking approval in the proforma. Thus the requisite satisfaction disclosing reasons envisaged under section 148 not being available on record and having regard to the judgment of Supreme Court in the case of Chhugamal Rajpal v. S.P. Chaliha 79 ITR 603 (SC), the initiation of proceedings are held vitiated and notice so issued under section 148 is directed to be quashed and assessment made is annulled. Having annulled the assessment, I do not consider necessary to render any decision in the merits of other grounds in appeals.
16. In the result, both the appeals stand allowed.
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