Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH : SMC : NEW DELHI
Before: SHRI C.M. GARG
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : SMC : NEW DELHI
BEFORE SHRI C.M. GARG, JUDICIAL MEMBER ITA No.4076/Del/2019 Assessment Year: 2010-11 Sahil Bajaj, Vs. ITO, 152, Office Complex, Ward-4(1), Jhandewalan Extn., Phase-1, Gurgaon. New Delhi. PAN: AJEPB8980F (Appellant) (Respondent) Assessee by : Shri Shaantanu Jain Advocate & Shri Gurjeet Singh, CA Revenue by : Shri Om Prakash, Sr. DR Date of Hearing : 19.01.2023 Date of Pronouncement : 14.03.2023 ORDER This appeal filed by the assessee is directed against the order of the CIT(A)-1, Gurgaon, dated 13.02.2019, for Assessment Year 2010-11. 2. The assessee has raised the following grounds of appeal:- “1. That the assessment framed is without jurisdiction and contrary to law. 2. That having regards to the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the action of Ld. AO in framing the impugned assessment order u/s 143(3)/147 of the Act and that too without assuming jurisdiction as per law and without complying with the mandatory conditions of Section 147 to 151 of the Income Tax Act, 1961. 2.1. That in any case and in any view of the matter, the Ld. CIT(A) has erred in upholding the action of Ld. AO in framing the impugned assessment order u/s 143(3)/147 of the Act is bad in law and against the facts and circumstances of the case.
ITA No.4076/Del/2019
2.2 That reasons recorded are based upon presumption and thus are not valid in the eyes of law as no belief can be formed on the basis of the reasons recorded. 2.3 That the Ld. AO has not recorded any reason by using his independent application of mind to show that he has a "reason to believe” that the income has escaped assessment and as such the same are not valid in the eyes of law. 2.4 That the information of cash deposit with the Department is not a valid basis to invoke Section 147 of the Act and in view of this, the impugned assessment order passed by the Ld. AO is contrary to law, illegal and void ab initio. 2.5 That assessment order passed u/s 147 of the Act is bad in law as no new fresh/tangible material has come to the knowledge of the Ld. A.O. 2.6 That the re-opening of the assessment is bad in law for the reason that the sanction granted u/s 151 of the Act is not valid in the eyes of the law and the same is mechanical and has been done without independent reasoning and application of mind by the sanctioning authority. 3. That having regards to the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in upholding the action of Ld. AO in making an addition of Rs. 26,85,727/- on account of cash deposits by treating it as alleged unexplained cash deposit and that too by recording incorrect facts and findings and without observing the principle of natural justice. 3.1 That in any case and in any view of the matter, action of Ld. CIT(A) in upholding the action of Ld. AO in making the addition of Rs. 26,85,727/- on account of cash deposit by treating it as alleged unexplained cash deposit or undisclosed income, is bad in law and against the facts and circumstances of the case. 4. That the levy of interest is disputed and as such unsustainable in law. 5. The Appellant craves leave for adducing necessary evidence, amendments and Explanations including written one to the aforesaid grounds and also additional grounds in the course of hearing of the appellate proceedings. It is therefore, prayed that it be held that, additions so made are not in accordance with law and the and appeal of the appellant be allowed.”
ITA No.4076/Del/2019
Application of the assessee for admission of additional ground
The ld. Counsel of the assessee submitted that the assessee wants to raise additional ground which are purely legal and do not require any fresh material or facts to be investigated and which goes to the root of the matter. Therefore, the additional ground of the assessee challenging the assumption of jurisdiction by the AO for initiation of reassessment proceedings, issuance of notice u/s 148 of the Act and passing reassessment order may be admitted. The ld. Counsel has also relied on the judgement of the Hon’ble Supreme Court in the case CIT vs. NTPC Ltd., 229 ITR 383 (SC) and submitted that the additional ground raised by the assessee may be admitted for adjudication.
Replying to the above, the ld. Sr. DR submitted that the AO has validly assumed jurisdiction to issue notice u/s 148 of the Act by recording the ‘reasons to believe’ in accordance with the provisions of section 147 of the Act and, therefore, the legal ground and the contentions of the assessee deserve to be dismissed.
Replying to the above, the ld. Counsel of the assessee submitted that the assessee does not want to challenge the validity of jurisdiction u/s 141 of the Act and, therefore, does not want to press the additional ground No.1.7. hence, the same may kindly be dismissed as ‘not pressed.’ The ld. Counsel further submitted that the ground No.1 to 1.6 of the assessee are purely legal in nature and squarely covered by the various judgements of the Hon’ble jurisdictional High Court of Delhi and coordinate Benches of the Tribunal and the same may be adjudicated without any extraneous material and these grounds goes to the root of the matter. Therefore,
ITA No.4076/Del/2019
these additional grounds challenging the validity of assumption of jurisdiction by the AO may kindly be admitted for adjudication.
On careful consideration of the above, I am of the view that grounds No.1 to 1.6 of the assessee have been sought to be raised as additional grounds and contentions therein clearly shows that these are purely legal grounds which go to the root of the matter and can be adjudicated on the basis of the material available on record, therefore, respectfully following judgement of Hon’ble Supreme Court in NTPC Ltd. (supra), the additional grounds No.1 to 1.6 of the assessee are admitted for adjudication and consideration. Accordingly, the application of the assessee for admission of additional ground is partly allowed.
Pressing into service, the additional grounds of the assessee, the ld. Counsel submitted that as per the order of ITAT F Bench dated 29.03.2022 in ITA No.7579/Del/2017 for AY 2009-10 in the case of Udesh Sharma vs. ITO, the Tribunal held that the AO while recording reasons for selection of the case for initiation of reassessment proceedings on the basis of AIR information, then, the AO is duty- bound to create a link between the tangible material in the form of AIR information and the formation of reasons to belief for escapement of income and without connecting the AIR information with the formation of reason to belief the reasons recorded by the AO has to be held as insufficient, vague and based on un- substantiated reasoning, uncorroborated material and lack of evidence, hence tantamount to be based on borrowed satisfaction and, accordingly, does not sound valid reasons in the eyes of law for reopening of case u/s 147 of the Act and for initiation of reassessment proceedings. The ld. Counsel drew our attention to copy of
ITA No.4076/Del/2019
the reasons recorded by the AO on 14.03.2017 placed at page 5 of the assessee’s paper book as annexure-1 and submitted that in the first para, the AO merely noted the facts regarding deposits by the assessee to the two banks and, thereafter recorded payments of four credit cards bills with respective banks. The ld. Counsel further submitted that in para 2 of the reasons, the AO mentioned regarding issuance of letter dated 21.02.2017 to the assessee and non-compliance by the assessee. The ld. Counsel further submitted that thereafter, without any further verification, the AO in para 3, jumped to record that he has reason to believe that income to the extent of Rs.47,74,473/- chargeable to tax has escaped assessment for AY 2010-11 within the meaning of section 147 of the Act. The ld. Counsel submitted that the AO has not created any connection or link between the AIR information/tangible material with the formation of reason to believe that income has escaped assessment by way of any further verification from the respective banks and assessment records of the assessee, therefore, in view of the order of the ITAT Delhi in the case of Udesh Sharma (supra), the issue is squarely covered in favour of the assessee and, therefore, reopening of assessment proceedings u/s 147 of the Act and issuance of notice u/s 148 of the Act may kindly be held as void ab initio and bad in law being initiated by the AO without assuming valid jurisdiction as per the said provisions of the Act.
Replying to the above, the ld. Sr. DR strongly supported the action of the AO and submitted that the AO issued a letter to the assessee dated 21.02.2017 which was not replied to by the assessee, therefore, the AO has no alternative, but, to proceed to initiate reassessment proceedings and to issue notice u/s 148 of the Act and, hence, it has to be held that the AO assumed valid jurisdiction to initiate
ITA No.4076/Del/2019
reassessment proceedings and to issue notice u/s 148 and, thus, he was validly empowered to frame reassessment order u/s 143(3) r.w.s 147 of the Act. 9. On careful consideration of the above rival submissions, first of all, we find it appropriate to reproduce the reasons recorded by the AO dated 14.03.2017 before issuing notice u/s 148 of the Act which is as follows:-
On careful and vigilant perusal of the reasons recorded by the AO, I note that in para 1, the AO noted the details received from the ITS for FY 2009-10 relevant to AY 2010-11 and noted the factum of deposit by the assessee to two bank accounts and payment of four credit card bills during the relevant financial period. Thereafter,
ITA No.4076/Del/2019
the AO mentioned about the issuance of letter dated 21.02.2017 and without any verification held that the amounts deposited by the assessee to his bank accounts and payment of credit card bills remained unexplained. In third and last para, the AO directly jumped to the conclusion that he has reason to believe that the income to the extent of Rs.47,74,473/- chargeable to tax has escaped assessment for AY 2010-11. It is pertinent to mention here that the copy of first appellate order dated 13.02.2019 clearly reveals that the ld.CIT(A) noted that no separate addition can be made on account of credit card payments out of the same bank accounts and addition on account of credit card payments was deleted. This conclusion supports the contention of the assessee that the AO has not even verified the detailed effect of taxability out of information available at ITS details (CIB/AIR/TDS/OLTAS). Therefore, the AO, without creating or establishing any link between tangible material/information with formation of reason to believe by way of any further verification and examination, proceeded to initiate reassessment proceedings and issued notice u/s 148 of the Act.
In the case of Udesh Sharma vs. ITO (supra), the coordinate Bench of the Tribunal by taking respectful cognizance of the judgement of the jurisdictional High Court in the case of PCIT vs.RMG Polyvinyl (I) Ltd., 396 ITR 5 (Del), CIT vs. SPL’s Siddhartha Ltd., 345 ITR 223 (Del) and judgement in the case of PCIT vs. Meenakshi Overseas Pvt. Ltd., 395 ITR 677, held as follows:-
“6.7 The Hon‟ble High Court in the referred cases clearly held that it is established principle of law that if a particular authority has been designated to record his/her satisfaction on a particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be “independent” and not “borrowed” or „dictated‟ satisfaction.
ITA No.4076/Del/2019
6.8 From the judgments referred above, inference can also be drawn that demonstration of link between the tangible material and the formation of the reasons to believe that income had escaped assessment is necessary for reopening the case u/s 147/ 148 of the Act and the information received from the Investigations Wing or AIR cannot be said to be a tangible material per se without further inquiry being undertaken by the AO. The conclusion of the AO, based on the Investigation Report or AIR information indeed is a borrowed satisfaction. 6.9 Admittedly in this case, the AO while recording reasons for selection of the case on the basis of AIR information observed that the Assessee has deposited cash of Rs. 44,00,500/- in his S.B. Account during the F.Y. 2008-09 and therefore issued a verification letter dated 30.10.2015 to the Assessee who failed to respond the same, therefore inference was drawn by the AO that the source of deposit in saving bank account remained unexplained as the Assessee has not filed return of income for the A.Y. 2009-10. 6.10 We may observe that it was the bounden duty of the Assessee to comply with verification letter issued by the AO, which the Assessee deliberately disregarded and therefore in the absence of return of income, the AO had rightly drawn the inference that source of deposit in saving bank account remained unexplained and this fact goes against the Assessee, however considering the peculiar facts and circumstances of the case, as the AO except issuing verification letter to the Assessee, has not made proper efforts to find out the veracity and authenticity of information and any corroborative evidence/material thereto and without connecting tangible material and the formation of the reasons to believe for escapement of income but only acted on the information while forming belief qua escapement of the income and initiation of proceedings u/s 147/148 of the Act, we are of the considered opinion that the reasons recorded in the instant case are insufficient, vague and based on un- substantive reasoning, uncorroborated material and lack of evidence and hence tantamount to be based on borrowed satisfaction and accordingly does not sound valid reasons in the eyes of law, for reopening of the case. 6.11 On the aforesaid discussions, the re-opening of the assessment proceedings u/s 147 of the Act by the AO and affirmation by the Ld. Commissioner was totally unjustified and therefore deserve quashing, hence ordered accordingly.”
In view of the foregoing discussion, I have no hesitation to hold that the initiation of reassessment proceedings u/s 147 of the Act, issuance of notice u/s 148 of the Act and all consequent proceedings and orders are void ab initio and bad in law 8
ITA No.4076/Del/2019
as the AO did not assume valid jurisdiction to initiate reassessment proceedings, to issue notice u/s 148 of the Act and to pass the impugned reassessment order. Therefore, the same deserves to be quashed. Accordingly, the legal grounds of the assessee are allowed and initiation of reassessment proceedings, notice u/s 148 of the Act and consequent reassessment order dated 22.12.2017 u/s 143(3) r.w.s. 147 of the Act for AY 2010-11 are hereby quashed. Since, in the earlier part of this order, I have allowed the appeal of the assessee on legal grounds, therefore, other grounds of the assessee on merits are not being adjudicated as having become academic.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 14.03.2023. Sd/- (C.M. GARG) JUDICIAL MEMBER Dated:14th March, 2023. dk Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi