Case Law Details
Devansh Exports Vs ACIT (ITAT Kolkata)
From the aforesaid reasons it is evident that other than the vague information given by DIT (inv) there is no other material the AO collected after preliminary enquiry which could have enabled him at the time of recording reasons to come to a conscious independent conclusion that “income of the assessee has escaped assessment”. The information given by DIT(Inv) can only be a basis to ignite/trigger “reason to suspect” for which reopening cannot be made for further examination to be carried out by him in order to strengthen the suspicion to an extent which can form the belief in his mind that income chargeable to tax has escaped assessment.
No quantification of income escaping assessment has been spelt out by the AO in the reasons recorded for justifying reopening u/s. 147 of the Act. It has to be kept in mind that merely on an allegations leveled by DIT (Inv.) can only raise suspicion in the mind of the AO which is not the sufficient/requirement of law for reopening of assessment.
The ‘reasons to believe’ is not synonymous to ‘reason to suspect’. ‘Reason to suspect’ based on an information can trigger an enquiry to find out whether there is any substance or material to substantiate that there is merit in the information adduced by the DIT(Inv.) and thereafter the AO has to take an independent decision to re-open or not. And the AO should not act on dictate of any other authority like in this case DIT(Inv.) because then it would be borrowed satisfaction.
In this case, as discussed above, the AO after referring to the investigation report erroneously concludes that the iron ore exported by the assessee company to its AE in Hongkong and was ultimately routed to China where the prices of the iron ore was high compared to the prices of sale shown by the assessee company to its AE at Hongkong and by that process has shifted the profit from India to Hongkong. It has to be kept in mind that the variation of price of the iron ore varies from date of shipment and as discussed above FOB rates cannot be compared with the market rate and the prima facie view of profit shifting cannot be formed by the vague information given by the DIT (Inv.) and which required some exercise from the part of AO which he admittedly did not do and has blindly copied the contents of the DIT(Inv) report and proceeded to reopen the original assessment completed u/s. 143(3) which action of AO cannot be countenanced. During the original assessment framed u/s. 143(3) on 15.03.2013,the AO himself has taken note that M/s. S. K. Resources, Hongkong was a sister concern of the assessee and that the assessee had exported iron ore to the said concern and the details of which were taken note by the AO during the original assessment proceeding. In such a scenario, when the AO was in receipt of the information from the DIT(Inv.) he ought to have made enquiries to unravel the truth. It has to be remembered that information is not synonymous to truth. The AO failed to quantify the escapement of income in the reasons recorded. As stated earlier, we note that AO simply on the basis of the investigation report has formed an erroneous conclusion that there is an escapement of income. The AO is a quasi judicial authority empowered to reopen the completed assessment only in a given case wherein there is reason to believe escapement of chargeable income to tax which is the jurisdictional fact and sine qua non to assume jurisdiction to reopen a completed assessment. It must be kept in mind that reasons to believe postulates foundation based on information and belief based on reason. Even if there is foundation based on information there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment. It has to be kept in mind that the Hon’ble Supreme Court in Ganga Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the expression “reason to believe” occurring in sec. 147 “is stronger” than the expression “if satisfied” and such requirement has to be met by the AO in the reasons recorded before usurping the jurisdiction u/s. 147 of the Act. It must be kept in mind that information adverse against the assessee may trigger “reason to suspect” then the AO is duty bound to make reasonable enquiry to collect material which would make him belief that there is in fact an escapement of income which requirement of law has not been fulfilled in this case by the AO. The AO simply taking note of the DIT(Inv.) letter has borrowed the satisfaction without independent application of mind to form reason warrant holding a belief that income chargeable to tax has escaped assessment. Just because a letter has been received from the DIT(Inv.) the AO cannot reopen the completed assessment u/s. 143(3) of the Act. In this case, the original assessment has been u/s. 143(3) of the Act was completed on 15.03.2013. From a perusal of reason recorded by AO, we note that it is not the case of the AO that the assessee has misled the AO during the original assessment proceedings or failed to produce any material necessary for assessment to the income of the assessee. In the light of the above, the AO based on the reasons recorded as set out above could not have initiated a fishing enquiry to find out the veracity of the information given by the DIT(Inv.). The reasons recorded by AO does not stand the test as laid by plethora of judicial precedence as discussed above which is necessary to assume jurisdiction u/s 147 of the Act, therefore, in the light of the aforesaid facts and circumstances of the case as discussed , we find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee fails. Since the AO failed to do so as discussed, the assumption of jurisdiction by him to reopen itself is corum non judice and, therefore, all subsequent action is null in the eyes of law and therefore, we quash the reopening and consequent reassessment order framed by him.
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