1|Page ITAT Bench G Appeal No. 877/Del-2012 Date of Hearing 23/04/2012 Synopsis of Submissions Shree Bhagwan Assessment Year.

ar.-2003 04 1. Ground No. 1: -

a) The assessment was completed on an invalid notice u/s 148 as the same was not served upon the assessee. The service of notice u/s 148 on assessee is the first and foremost condition for the AO to derive jurisdiction u/s 147/148. After receipt of the assessment order, the assessee requested the AO to provide the evidence for service of notice u/s 148. He supplied a page dated 30/3/2010 bearing the name of the assessee at s. no. 9 which, in fact, is not an evidence of service but a copy of internal record of the AO. This document does not indicate anywhere that notice u/s 148 was sent. Without prejudice, neither copy of any receipt from the post office nor serial no. of such a receipt has been provided for issue of any document. b) This ground was rejected by the Ld. CIT (A) on the basis of remand report wherein AO reported that notice u/s 148 was sent by speed post on last known address of the assessee. Here it is submitted that the address was not correctly mentioned as PIN Code was not given on the address. Moreover, there is no evidence that any notice u/s 148 was sent/ served on the assessee. c) The AO also mentioned that Shri G R. Madhad, AR, attended the proceedings on 25/11/2010. In fact the AR attended the proceedings in compliance to notice u/s 142(1) dated 18/11/2010 only to know the reason for issue of notice u/s 142(1) as no proceedings were pending against the assessee. The attendance of the AR in response to notice u/s 142(1) cannot even remotely imply that the attendance was in response to notice u/s 148. Section 292BB provides that where an assessee appeared in any proceedings or cooperated in any enquiry relating to assessment, then assessee shall be precluded from taking of any objection that the notice was not served. This section is not applicable in this case as the AR never appeared in response to notice u/s 148. He neither submitted any information nor cooperated in any proceedings before the AO. He simply filed his power of attorney on 25/11/2010. d) In view of the above, it is very clear that notice u/s 148, was not sent to the assessee at the correct address. Also the same was never served on him. The assessment has been completed on an invalid notice u/s 148, and therefore, the assessment is bad in law, arbitrary and unjustified which deserves to be annulled. 2. (i) Ground No. 2 & 3: Non application of mind before recording the reasons/ Vague Information a) A perusal of the reasons further indicates that notice u/s 148 has been issued in a mechanical manner on the basis of vague information from ADIT (Inv.), New Delhi received on 29/3/2010. The information received was that the assessee has deposited cash of Rs. 20,34,000/- in his savings bank account (Page 1, PB). The information did not say that the cash represents undisclosed income. The AO did not dwell upon the veracity and the basis of information received. He has not mentioned any material which has led him to believe that the cash deposited in the bank account represented undisclosed income which has escaped assessment. Therefore, notice u/s 148 is patently illegal. Reliance is placed on the following:
SIGNATURE HOTELS (P) LTD. vs. ITO & ANR., (2011) 338 ITR 51 (Del.)

2|Page 7. In the present case the undated reasons recorded by the AO for initiation of proceedings read as under : Information received from the office of the Director of IT (Inv.)-VI, New Delhi revealed that M/s Signature Hotels (P) Ltd. has introduced unaccounted money in its books of account during finanacial year 2002-03 through accommodation entry from M/s Swetu Stone PV for Rs. 5 lacs. In view of the above, I have reasons to believe that taxable income to the tune of Rs. 5.00 lac has escaped assessment within the meaning of s. 147 of the IT Act, 1961. 15. The aforesaid reasons do not satisfy the requirements of s. 147 of the Act. The reasons and the information referred to is extremely scanty and vague . There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the AO did not apply his own mind to the information and examine the basis and material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The CIT also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the AO did not independently apply his mind to the information received from the Director of IT (Inv.) and arrive at a belief whether or not any income had escaped assessment. CIT vs. Atul Jain, (2008) 299 ITR 383 (Del)

4. Similarly, in the case of Atul Jain, the reason for issuing a notice are as follows: As per information received from Dy. Director of IT (Inv.) Gurgaon, the assessee had taken bogus entry of capital gains Rs. 1,08,845 on 22 nd June, 1996 (asst. yr. 1997-98) by paying cash along with some premium and taking cheque of same amount. 17. The AO did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The AO has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice under s. 148 of the Act. Read in this light, what has been recorded by the AO as the reasons to believe is nothing more than a report given by him to the CIT. As held by the Supreme Court in Chhugamal Rajpal (supra), the submission of a report is not the same as recording of reasons to believe for issuing a notice. . 18. .. Therefore, the appeals are dismissed. b) Both the above judgments were considered by the Honble ITAT Delhi in its latest judgment dated 20/04/2012 in the case of Smt. Shakuntla Devi in ITA No. 3751/Del/2011 and held that the reassessment was invalid as under:6 We have carefully considered the submissions and perused the records. We note that the reasons recorded in this case as brought in paper book page no. 28 to 29 shows the following reasons for belief that income had escaped assessment. In view of the supplementary list of beneficiaries provided / received from DCIT, CentralIII, vide F.No. DCIT/ Central Circle-III/05-06 dated 27.1.2006 and 04/07.3.2005, the above mentioned assessee is a beneficiary of entry operator to the tune of ` 10,00,000/- in the assessment year 2002-03.

3|Page 6.4 Now we examine the present case on the anvil of the above two Jurisdictional High Court decisions. We find that circumstances are identical. The reasons recorded in the present case are also scanty and vague. There is no reference to any document or statement except mentioned of supplementary list of beneficiaries. This can not be regarded as material or evidence that prima facie shows or establishes escapement of income . It is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis of the information. Assessing Officer has accepted the information in a mechanical manner. Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice u/s. 148 of the Act. Thus, in our considered opinion, the Assessing Officer has clearly substituted form for substance and therefore the Assessing Officers action is not in accordance with law. Thus at the touchstone of the above two High Court decisions, we hold that reasons recorded in this case are not sufficient to warrant the reopening of the case. (c) Reliance is also placed on the following: Sarthak Securities Co. P. Ltd. vs ITO, 329 ITR 110 (Del)

.. No independent application of mind by assessing officer but acting under information from investigation wing Notice to be quashed. CIT vs. SFIL Stock Broking Ltd., (2010) 325 ITR 0285 (Del)

From the so called reasons, it is not at all discernible as to whether the AO had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment . Consequently, the Tribunal has arrived at the correct conclusion on facts...(Held) (ii) Borrowed satisfaction

a) The AO has issued the notice u/s 148 only on the satisfaction of the ITO investigation and not his own satisfaction because he has simply relied on the letter of ITO investigation without any verification. In fact, the reasons recorded are in form only and not in substance. It has been held by Honble Rajasthan High Court in the case of Commissioner of Income Tax vs. Shree Rajasthan Syntex Ltd., (2009) 313 ITR 231 (Raj.), that borrowed satisfaction is not sufficient to initiate proceedings u/s 147. Relevant extract is reproduced hereunder: That the reassessment proceedings had been initiated only on account of the opinion of the Assessing Officer of the lessee and the Tribunal was right in finding that it was borrowed satisfaction which was not sufficient to confer power on the Assessing Officer to initiate reassessment proceedings against the assessee. b) Even the jurisdictional ITAT, in the case of ITO vs. Vijendra Kumar, (2012) 67 DTR (Del) (Trib) 283 has held that the notice issued u/s 148 on borrowed satisfaction is invalid as under: No doubt sufficiency of reason cannot be agitated however the first hurdle that the formation of belief is of the concerned AO and not of some other AO has to be met. The blind acceptance in haste the view of another AO has not been rebutted by any cogent fact or argument and case law cannot address the issue. A perusal of the finding of the CIT (A) would show that appellate authority has held that the reason recorded is nothing but a copy of information as received from ITO, Agra who was of the opinion that the transaction is non-genuine. The CIT (A) has come to the conclusion that the AO has proceeded on borrowed satisfaction. The AO has been held to have proceeded in

4|Page issuing notice accepting the report of ITO, Agra as gospel truth without verifying the correctness of the information received. Being satisfied with the reasoning and conclusion arrived at by the CIT (A) and considering the same in the light of the settled legal principle the same is upheld (iii) Permission is Mechanical The Ld. AO filled up the performa report by simply indicating the information received from ADIT (inv.), New Delhi and forwarded the same to the Addl. CIT for his permission. No material linking the information to the alleged undisclosed income was forwarded to the Addl. CIT. He simply mentioned yes and returned the performa on the same date. He has not recorded anything as to how he has arrived at his satisfaction. He has not mentioned any material, which has led him to satisfy that the cash deposited in the bank represented undisclosed income. Therefore, he has given permission as a mere formality in a routine manner without any application of mind and hence, notice u/s 148 is illegal as the permissions is vitiated one. Reliance is placed on the following: The Central India Electric Supply Co. Ltd. vs ITO, ITA No. 17/1999 Dt. 28/01/2011 (Delhi High Court) 19. .. Even if the reasoning set out by the ITO was to be agreed upon, the least, which is expected, is that an appropriate endorsement is made in this behalf setting out brief reasons. Reasons are the link between the material placed on record and the conclusion reached by an authority in respect of an issue, since they help in discerning the manner in which conclusion is reached by the concerned authority. . This is completely absent in the present case. Thus, we find force in the contention of learned counsel for the appellant that there has not been proper application of mind by the Board and if a proper application had taken place, there would have been no reason to reopen the closed chapter in view of what we are setting out hereinafter. 25. ... The notice issued under Section 148 of the IT Act dated 15.12.1981 is quashed and all proceedings pursuant thereto are also accordingly quashed. Arjun Singh and ANR. vs. ADIT and ORS., (2000) 246 ITR 363 (MP) Merely vague, unspecific conjectures and surmises styled as reason to believe alone were forwarded to the CIT and not the alleged three reports on which the AO is said to have based his reasons. The CIT had no opportunity to apply his mind to the actual materials and accordingly, the sanction accorded by him is vitiated one. The CIT acted of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format Yes, I am satisfied, which indicates as if he was to sign on dotted lines. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the CIT did not apply his mind at all granting sanction. . (iv) Reasons to Suspect vs. Reasons to Believe Such a vague information as indicated in the reasons recorded may lead the Ld. AO to have reasons to suspect but cannot lead him to have reasons to believe Reasons to Suspect cant be equated to Reason to Believe. Belief cant be based on suspicion. Sec 147 requires the AO to have reasons to believe for escapement of income. The legislature in its wisdom has not used the words Reasons to Suspect. Reliance is placed on the following: CIT vs. Gupta Abhushan Pvt. Ltd., (2009) 312 ITR 166 (Delhi)

5|Page This is merely a reason to suspect and cannot be the same as a reason to believe which is a necessary pre-condition for any action under section 147 of the said Act. Dass Friends Builders (P) Ltd. vs. DCIT, (2006) 280 ITR 77 (All) 8. Under s. 147 of the Act, the words are has reason to believe and not reason to suspect. .. 13. The question whether the AO had reasons to believe is a question of jurisdiction, a vital thing, which can always be investigated by the court Indian Oil Corporation vs. ITO & Ors., (1986) 159 ITR 956 (SC) 32. From the certificate for the year 1963-64, it appears that a very large amount of money was being diverted from the company in India to London a very familiar pattern of colonial exploitation but it raises only a suspicion that there might not have been a full disclosure. Belief, however, cannot be based on suspicion. (v) Verification of Information vs. Section 147

In fact action u/s 147 has been initiated only for verification of information. By now, it is judicially settled that the proceedings u/s 147 / 148 cannot be initiated for verification of information received. Reliance is placed on the following: M/s Sheorey Digital Systems Ltd. vs. ACIT, (2009)TIOL564ITATMUM We therefore, hold that the Assessing Officer has reopened the assessment merely for the purpose of verification of the claim which is not permissible in law. (vi) Reasons recorded only to be considered for justification of notice u/s 148 Notice u/s 148 cannot be supported by any other fact than the reasons recoded. Reliance is placed on the following: Northern Exim (P) Ltd. vs. DCIT, 2012-TIOL-220-HC-DEL-IT 14. .We are to be guided only by the reasons recorded for reassessment and not by the reasons or explanation given by the Assessing Officer at a later stage in respect of the notice of re-assessment. .. The ratio laid down in all these cases is that, having regard to the entire scheme and purpose of the Act, the validity of the assumption of jurisdiction under Section 147 can be tested only by reference to the reasons recorded under Section 148(2) of the Act and the Assessing Officer is not authorised to refer to any other reason even if it can be otherwise inferred and/ or gathered from the records. He is confined to the recorded reasons to support the assumption of jurisdiction. He cannot record only some of the reasons and keep the others up his sleeves to be disclosed before the Court if his action is ever challenged in a Court of law. Prashant S. Joshi vs. ITO, (2010) 1 taxmann.com 103 (Bom.) 9.For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of section 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer..

6|Page (vii) Since, the notice u/s 148 is illegal and without jurisdiction, the same may kindly be quashed. Further, since the reassessment proceedings are based on illegal notice u/s 148, the reassessment order may kindly be annulled. 3. Ground No. 4: - a) The Ld. CIT (A) has held that bank account is itself a books of accounts in terms of section 68 of the IT Act (Page 13, CIT (A)s order). Section 68 can be invoked only if unexplained amount is credited in the books of the assessee. The assessee is a daily wage earner and has not maintained any books of accounts. Therefore, section 68 cannot be invoked in the case of the appellant. As regards bank account, it is by now judicially settled that bank account is not a books of accounts. Reliance is placed on the following: Ms. Mayawati vs. DCIT, (2008) 113 TTJ (Del) 178 20.4 Therefore, a pass book of the bank cannot be treated as a book of account of the assessee because this is provided by the banker, which is given to its customer and is only a copy of the customers account in the books maintained by the bank. The bank does not act as an agent of the customer nor can it be said that the banker maintains the pass book under the instructions of the customer (the assessee). 20.5 The relationship between the banker and customer is one of debtor and creditor only. Therefore, a cash credit appearing in assessees pass book relevant to a particular previous year, in a case where the assessee does not maintain books of account, does not attract the provisions of s. 68. Jawahar Lal Oswal vs. ACIT, (1999) 71 ITD 324 (Chd) IncomeCash creditAlleged giftsGifted amounted deposited in bankProvisions of s. 68 do not get attracted to entries in the bank pass-bookAddition made under s. 68 cannot be treated as one made under s. 69AAdditions rightly set aside by CIT(A) CIT vs. Bhaichand H. Gandhi, 141 ITR 67 (Bom.) Cash credits-Appearing in bank passbook-not in assessees books- Cash credit found only in bank passbook and not in the cash book maintained by assessee-would not be includable u/s 68 as passbook supplied by bank to assessee is not a book maintained by assessee. Smt. Madhu Raitani vs. ACIT, (2011) 10 ITR (Trib) (TM) 91 (Gauhati) 15.. It is an established position that existence of books of account maintained by the assessee is a condition precedent for addition under s. 68. In the case of the assessee, no such books having been maintained, there is no legal scope to intervene provisions of s. 68 and as such, in my opinion, the learned JM has rightly deleted the addition made on such premise. 16. It is pertinent to mention here that bank pass book, P&L a/c and balance sheet cannot be considered as books of account. 4. Ground No. 5: - a) Without prejudice to the above, it is further submitted that, the amount of Rs. 20,34,000/- being cash deposit in the bank account in the name of the appellant does not belong to the appellant. The appellant has no regular source of income and is surviving on daily wages whenever he gets any odd job. This bank account in the name of the appellant was opened by Shri Harish Pawar, a friend of the appellant. Mr. Harish Pawar deposited the cash belonging to him on various dates in this account and transferred the same to his bank account immediately thereafter and used this account to run his business of an entry operator, a fact which has also been admitted by the AO (Page 1 of the assessment order) . In fact there was a

7|Page TEP against Mr. Harish Pawar. While investigating his bank account, it was found that he has transferred the amounts to his account from the account of the appellant. Once the AO admits that Mr. Harish Pawar, an entry operator, used this bank account for providing accommodation entries, then it is obvious that the money does not belong to the account holder but to the person who took the cheque against cash. The appellant was totally ignorant about the transactions in this bank account. Mr. Harish Pawar got the cheque book signed from the appellant and kept the same alongwith passbook with him only and never passed it on to the appellant. The appellant had also filed an affidavit before the ADIT (Inv.), New Delhi deposing these facts. The authorities below have completely ignored the contents of the affidavit. b) In fact Since the amount does not belong to the appellant, it could not be added in the hands of the appellant. Otherwise also it is a common knowledge that the department has not been adding any amount in the hands of entry operators and their associates and the addition is being made only in the hands of real beneficiaries. 5. Ground No. 6: - The AO has made an addition of Rs. 1,10,000/- on the ground that this is the minimum amount chargeable to tax. The Ld. CIT (A) has also confirmed the same. Since there is no material to justify the addition of Rs. 1,10,000/- it may kindly be deleted.

V. K. Aggarwal A. R.