TEJ SINGH,MATHURA vs. ITO 1(3)(4), MATHURA

This appeal is filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals)-1, Agra [“Ld. CIT(A)”, for short], dated 25/09/2018 for Assessment Year 2009-10.

“1. Because on due consideration of facts and circumstances of the case and material available on record, learned ‘CIT (Appeals)’ has erred in upholding the validity notice dated M.03.2016 issued under section 148 of the ‘Act’.

ITA No.08/Agr/2019 Tej Singh vs. ITO

2. Because while upholding the validity of notice dated 31.03.2016 issued under section 148 of the ‘Act’, learned ‘CIT(Appeals)’ despite holding that reasons won recorded on the basis of incomplete information, has erred in not appreciating that mere the fact of sale of property for any amount could not lead to the reason to le for escapement of income without any further material and reason with ‘AO’ that the sale of property gave rise to income ‘chargeable to tax’ and such income exceed 'maximum amount not chargeable to tax’ and in case of notice being issued after the end of four years from relevant assessment year, by further amount of not less than Rs.1 lac. In doing so, learned ‘CIT(Appeals)’ further erred in not binding himself with the decisions of this Hon'ble Tribunal besides others, in the case of "Badam Singh Rajpali (ITA No. 358/Agra/2011) and ‘Chander Devi (ITA No. 401/Agra/2015)’ which were duly referred and relied upon before him.

3. Because on due consideration of facts and circumstances of the case learned CIT (Appeals) has erred in holding that notice dated 31.03.2016 issued under section 148 of the ‘Act’ was duly served on account of purported remark contained on the envelop regarding refusal thereof, without properly appreciating the submissions made before him particularly to the fact that the said envelop had reaches Naujheel Post Office on 5.04.2016 and the attempt to deliver the envelop could have been made on or after 6.04. 2016 whereas the addressee Sri Tej Singh had expired on 6.04. 2016 and thus was not in the position to refuse delivery thereof.

ITA No.08/Agr/2019 Tej Singh vs. ITO shifted the onus of the ‘AO’ to the ‘appellant’ without any proper and justified reason.

6. Because on due consideration of facts and circumstances of the case, material available on record and submissions made, learned ‘CIT (Appeals)’ email in holding that the transactions of sale of land did not constitute business transaction and thus amenable of being charged as ‘capital gains’.

7. Because, without prejudice to the above, learned ‘CTT (Appeals)’ erred in not quantifying, the amount of income chargeable as ‘capital gains’ and remitting the matter to the file of ‘AO’ for verification of genuineness of purchase deed ignoring the fact that the purchase deed had been submitted as ‘additional evidence’ and remand report had been called from the ‘AO’ and the ‘AO’ had not raised any objection with regard to the genuineness while submitting remand report. Learned ‘CIT (Appeals)’ thus erred in setting aside the assessment, which is legally not permissible.

8. Because the order under appeal is illegal, bad in law and against the principles of natural justice.

9. Because, the ‘appellant’ craves leave to add, delete, modify or substitute grounds of appeal. ”

No return of income was filed by the appellant under section 139(1) or in response to the notice under section 148. Information was received by the A.O. that during the year under consideration, the appellant had sold an Immovable property for a sale consideration of Rs. 50,40,273/- Since no response was made by the appellant to the AO's inquiry letters issued under section 133(6) on 25.01.2016 and 19.02.2016, after obtaining the statutory sanction under section 151, a notice under section 148 was issued by him on 30.03.2016. This ITA No.08/Agr/2019 Tej Singh vs. ITO notice was returned unserved by the posts department with the remark that it was refused. The subsequent notices issued under section 142(1) and section 274 r.w.s. 271(1)(b) were not answered by the appellant. Thereafter, a show- cause notice under section 144 was issued by the AO. on 16.11.2016 and on its non-service through the speed post, ITI was deputed to serve it personally on the appellant. Vide his report dated 06.12.2016, the ITI has reported that Shri Tej Singh had expired and the said notice was refused by the legal heirs of the appellant on the ground that Shri Tej Singh had expired and the notice was not in the name of his legal heirs. Consequently. a fresh notice dated 13 12.2016 was issued under section 144 in the name of Shri Tej Singh represented by his three sons as legal heirs. This notice, too, was returned by the posts department with the remark that "the recipient had died and hence returned". The same notice in the name of Shri Tej Singh represented by his three sons as legal heirs had to be therefore served through the ITI and on 27.12.2016, it was served on Shri Baghiram who received it as one of the three legal heirs of his father, Late Shri Tej Singh No response to the same notice was made by Shri Baghiram till the date of the passing of the re-assessment order.

On the basis of facts collected by the A.O., the sale consideration of Rs. 50,40,273/- from sale of land was treated as income of Shri Tej Singh. Besides, a sum of Rs. 1,20,000/- was estimated by the A.O. as his income from other sources. Thus, the assessed income was computed at Rs. 51,60,273/-’.

ITA No.08/Agr/2019 Tej Singh vs. ITO

4. Aggrieved by the assessment order dated 29/12/2016, the legal heirs of the assessee preferred an appeal before the CIT(A) , the Ld. CIT(A) vide order dated 20/11/2017 upheld the validity of the assessment order and directed the A.O. to allow the cost of acquisition of the property and also deleted addition of Rs. 1,20,000/-. Aggrieved by the order of the CIT(A), the legal heirs of the assessee preferred the present Appeal on the Grounds mentioned above.

5. Ground No. 1 & 2 are regarding validity of notice issued u/s 148 of the Act. The Ld. AR submitted that Ld. CIT(A) despite holding that ‘reasons were recorded on the basis of incomplete information’, has erred in not appreciating that mere the fact of sale of property for any amount could not lead to the ‘reason to believe’ for escapement of income, without any further material and the reason with ‘AO’ that the sale of property gave rise to income ‘chargeable to tax’ and such income exceed 'maximum amount not chargeable to tax’ and in case of notice being issued after the end of four years from relevant assessment year, by further amount of not less than Rs.1 lac. In doing so, Ld. CIT(A) further erred in not binding himself with the decisions of the Tribunal besides others, in the case of "Badam Singh Rajpali (ITA No. 358/Agra/2011) and ‘Chander Devi (ITA No. 401/Agra/2015)’ which were duly referred and relied upon before him. The Ld. AR further submitted that, while recording the reasons for escapement of taxable income, the A.O. did not know about the cost of acquisition of the property sold by Late Sh. Tej Singh and A.O was not ITA No.08/Agr/2019 Tej Singh vs. ITO aware of the property sold was capital asset or not, hence the reasons were recorded by the A.O. without application of mind.

ITA No.08/Agr/2019 Tej Singh vs. ITO

“The undersigned is in possession that the assessee has sold immovable property of Rs. 5040273/- during the year under consideration i.e. in the F.Y. 2008-09 relevant to assessment year 2009-10. The assessee neither submitted ITR for A.Y. 2009-10 nor submitted submission explaining source of sold property as above. Hence, I have reason to believe that amount of sold property of Rs. 5040273/- as above is chargeable to tax, has escaped assessment and notice u/s 148 may be issued after prior approval of Ld. Pr. Commissioner of Income Tax -1, Agra."

“4. We have considered the rival submissions and the material on record. The reasons for reopening of assessment have been incorporated in the impugned order, which is also reproduced above. Copy of same is also filed at page 11 of the paper book. According to section 147 of the IT Act, the essential ingredient of this section has been that “if the Assessing Officer has reason to belief that any income chargeable to tax has escaped assessment in any assessment year……..” Therefore, before invoking jurisdiction u/s. 147 of the IT Act, the Assessing Officer shall have reason to believe that any income chargeable to tax has escaped assessment. The AO for the reasons recorded for reopening of assessment as mentioned above has 5 not mentioned anything in the reasons if he was having reasons to believe that income chargeable to tax has escaped assessment. He has merely received information from ITO 6(3), Jhansi that the assessee has sold the land on 05.08.2003 at the higher rate as against Government value. The AO has not verified the information issued notice u/s. 133(6) to the assessee and required to confirm the transaction as to how the capital gains arise out of the transaction. It would mean that there was no definite information received from ITO 6(3), Jhansi that the ITA No.08/Agr/2019 Tej Singh vs. ITO assessee earned any capital gains out of the sale transaction of land in question. There was no material with the AO to prima facie prove that the assessee earned capital gain because he wanted the assessee to intimate as to how capital gain arises out of the transaction. Since no reply was submitted in this regard before the AO, therefore, the AO presumed that the income chargeable to tax has escaped assessment and he initiated proceedings u/s. 147 of the IT Act. The reasons recorded by the AO, therefore, do not satisfy the requirement of section 147 of the IT Act. The AO had not examined the information received from the ITO 6(3), Jhansi before recording the reasons for reopening of assessment. The AO had acted only on the basis of suspicion and it could not be said that it was based on belief that income chargeable to tax had escaped assessment. The Assessing Officer had to act on the basis of “reason to believe” and not on “reason to suspect”. The information received from ITO 6(3) did not indicate as to how capital gains arise in the case of assessee and the AO merely accepted truth in vague information in a mechanical manner and put the assessee under obligation to file reply to the same. Merely because no reply was filed, the AO acted in haste and initiated proceedings u/s. 147 of the IT Act without recording satisfaction for initiation of proceedings in the matter. Hon’ble Supreme Court in the case of Sheo Nath Singh vs. Appellate Asst. Commissioner of Income-tax, 82 ITR 147 held –

“The words “reason to believe” suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the ITA No.08/Agr/2019 Tej Singh vs. ITO conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.”

4.1 Hon’ble Delhi High Court in the case of CIT vs. Atul Jain & Smt. Vinita Jain, 299 ITR 383 held – “There must be “reason to believe” warranting the issuance of a notice of reassessment by the Assessing Officer. If there are no reasons, then the entire foundation for initiating the proceedings is bad and the notice initiating proceedings must be quashed. Mere satisfaction of the Assessing Officer for the issuance of a notice is not enough, there must be reasons on record which led him to believe that a notice should be issued. After a foundation based on information is set up, there must still be some reasons which warrant the holding of a belief so as to necessitate the issuance of a notice under section 148 of the Income-tax Act, 1961. The assessee purchased shares and subsequently sold these shares at a much higher value. For the assessment year 1997- 98, the assessees disclosed long-term capital gains arising from the transaction. On the basis of the information received by the Deputy Director (Investigation), the Assessing Officer issued notice under section 148. The files were then put up before the Commissioner and in response to the question whether the Commissioner was satisfied that income had escaped assessment, he wrote “yes”. Thereafter, the Assessing Officer reassessed the income and charged interest and levied penalty. The Commissioner (appeals) allowed relief partly but ITA No.08/Agr/2019 Tej Singh vs. ITO the Tribunal concluded the issue in favour of the assessees. On appeal:

Held, dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The 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 had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice under section 148. What had been recorded by the Assessing Officer as his “reasons to believe” was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The Assessing Officer had clearly substituted form for substance and therefore the action of the Assessing Officer was not sustainable.

4.2 Hon’ble Punjab & Haryana High Court in the case of CIT vs. Smt. Paramjit Kaur, 311 ITR 38 held –

“The assessee filed her original return declaring nil income. The Assessing Officer initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of Rs.83,040 which was not accounted in the books of account

ITA No.08/Agr/2019 Tej Singh vs. ITO of the assessee. On appeal by the assessee the first appellate authority upheld the validity of the notice under section 148 of the Income-tax Act, 1961, but set aside the assessment on the addition made by the Assessing Officer and remitted the matter to him to frame a fresh assessment. On second appeal, the Tribunal held that since the Assessing Officer failed to incorporate the material and its satisfaction for reopening the assessment, the same was invalid. On a reference :

Held, that the Assessing Officer had not examined the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The Assessing Officer had thus acted only on the basis of suspicion and it could not be said that it was based on belief that the income chargeable to tax had escaped income. The Assessing Officer had to act on the basis of “reasons to believe” and not on “reasons to suspect”. The Tribunal rightly concluded that the Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and therefore the issuance of notice under section 148 of the Act for reassessment proceedings was not valid.”

4.3 Considering the reasons for reopening of assessment in the light of above discussion and the case laws referred to above, we are of the view that the AO has not satisfied the ingredients of section 147 of the Act in the reasons recorded for reopening of assessment. Therefore, the AO has not correctly assumed jurisdiction u/s. 147 / 148 of the IT Act. Accordingly, we set aside the orders of the authorities below and quash the reassessment proceedings. It would Page 12 of 23

ITA No.08/Agr/2019 Tej Singh vs. ITO result in deletion of all the additions. Ground No. 1 of appeal of assessee is, accordingly, allowed. In view of 9 this, the other grounds have only academic interest and as such, we do not find it necessary to decide the issue on merits."

“9. I have heard the parties and have perused the material on record. The observations of the ld. CIT(A) in the impugned order and the arguments of the ld. Representatives for both the parties have been considered. The following are the reasons (APB 20) recorded by the AO to initiate proceedings u/s 147 of the Act against the assessee: “Reasons for initiating proceeding u/s 147 in the case of Sri Pataria S/o Sri Mani Ram, Village Maholi Distt. Mathura for A.Y. 2006-07. As per the information received from ITO-3(1), Mathura, the assessee introduced his land in term of capital amounting to Rs.30,00,000/- to become the partners in the Bhakti Promotors & Builders vide Partnership deed, dated 01/Aug/2005, which appears to have been escaped from being taxed, as there is no information with this office that he files his Page 13 of 23

ITA No.08/Agr/2019 Tej Singh vs. ITO return of income. Therefore, I have reason to believe that Capital Gain arising from transfer of this land has escaped from being taxed.”

Section 149(1)(b) of the Act states that no notice u/s 148 shall be issued for the relevant assessment year, if four years, but not more than six years, have elapsed from the end of the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts to, or is likely to amount to, Rs.1 lac, or more for that year. Thus, the requirement of section 149(1)(b) of the Act clearly is that notice u/s 148 of the Act can only be issued if the income escaping assessment amounts to, or is likely to amount to Rs.1 lac. In the reasons recorded, as a reading thereof would show, there is no mention that income amounting to Rs.1 lac or more is believed to have escaped assessment. It has not been disputed that the escapement believed on account of transfer of land as capital introduced into the firm. The reasons recorded do not reveal the AO to be in possession of any material or information recording either the nature of the land, or even the locus/situation thereof, and the date, cost or mode of acquisition of the land by the assessee, much less any about either the eligibility of the transfer to tax, or the amount of capital gain arising there-from. Now, obviously, in the absence of any of the said basic requisite evidence, the AO could possibly have not become aware, though so observed by the ld. CIT(A), of the quantum of capital gain. As such, there is neither anything evident, nor evincible from the reasons recorded, about any income chargeable to tax escaping assessment.

ITA No.08/Agr/2019 Tej Singh vs. ITO

11. The ld. CIT(A) as well as the Department before this Bench, on the other hand, would have as upheld the reasons, by offering a justification which is based on mere supposition, i.e., the AO was aware of the quantum of capital contribution, which would lead to earning of capital gain exceeding one lac rupees, sans the reasons meeting the mandate of the law. True, Rs.30 lacs is an amount much larger than the amount of Rs.1 lac. But then, the former figure represents the capital contribution made, whereas the latter amount is that laid down u/s 149(1)(b) of the Act, as a pre requisite, to be recorded in the reasons as minimum income chargeable to tax which has escaped assessment. As rightly contended, it is “Capital Gain” and not “Capital Contribution”, which is taxable.

12. In the above view of the matter, the distinction erroneously sought to be drawn by the ld. CIT(A), between the facts of the present case and those in “Mahesh Kumar Gupta” (supra) and “Amar Nath Agarwal” (supra), is, really, non-existent.

13. At this juncture, it would be apt to reproduce herein, the relevant portion of “Mahesh Kumar Gupta” (supra):

“11. The reason assigned for reopening is that the petitioner after converting the leasehold land into freehold sold the property within three years after converting the land into freehold resulting into short term capital gain in view of the Karnataka High Court's decision referred to above. What

ITA No.08/Agr/2019 Tej Singh vs. ITO income is said to have been escaped does not find mention therein. Even assuming for the sake of argument, the income was liable to be taxed as short term gain unless there is any material before the authority concerned that it exceeds the limit of Rs. 1 Lakh, extended period of limitation of six years will not be available to the department. The normal period of limitation is four years for giving the notice under section 148 and where the escaped income is likely to amount to Rs.1 Lakh or more, the extended period of limitation of six years would be attracted. This objection of the petitioner has been rejected by the impugned order on the ground that since the permission has been granted by the Joint/Additional Commissioner, Income Tax, statutory requirement stands fulfilled vide para-3 of the order which is reproduced below:-

"You have also objected that it is not mentioned in the reasons of taking action U/S 148 that the escaped income is more that 100000/-. In this connection this to inform that it is mentioned in notice U/S148 itself that the notice is being issued after proper sanction of Joint/Addl. Commissioner of Income Tax. This fulfills the requirement of law, you have provided the reasons of initiating action U/S148 not computation of income. The computation of income will be provided after proper hearing & giving proper opportunities to be heard."

12. The stand of the department as is evident from the above quoted paragraph has no legs to stand. The Joint/Additional Commissioner, Income Tax was not aware about the fact that the income chargeable to tax which has escaped the assessment is Rs.1 Lakh or more for the relevant Assessment Year. The proviso to section 151 (1) fortifies our view which says that after the expiry of four years

ITA No.08/Agr/2019 Tej Singh vs. ITO from the end of the relevant Assessment Year no notice under section 148 shall be issued or unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice. On a true and proper constructions of the proviso it is imperative that the Assessing Officer in his reason should state that the escaped income is likely to be Rs.1 Lakh or more so that the Chief Commissioner or the Commissioner may record his satisfaction. The sanctioning authority must be aware that it has exercised power of extended period of limitation under 149 (1) (b) of the Act. Exception has been carved out by clause (b) to section 149(1) in respect the income chargeable to tax which has escaped assessment, amounts to Rs.1 Lakh or more. To fall within exception clause the relevant facts should have been recorded by the Assessing Authority in its order while recording the reason so that a sanctioning authority may apply its mind to the proposition while granting the sanction.

1. 1. GKN Driveshafts (India) Ltd. Vs. ITO [2002] 259 ITR 19/125 Taxman Taxman 963 (SC) 2. Dr. H.S. Bawa Vs. CIT, [2012] 25 Taxmann.com 15/210 Taxman 57 (P & H).

3. Vikram Kothari (HUF) Vs. State of U.P., [2011] Taxmann.com 280/200 Taxmann.com 152 (Alld).

4. Export Credit Guarantee Corporation of India Vs. Addl. CIT [2013] 30 Taxmann.com, 211 (Bom).

5. Asstt.CIT Vs. Rajesh Jhavri, [2007] 291 ITR 500/161 Taxman 316 (SC). 12

ITA No.08/Agr/2019 Tej Singh vs. ITO

6. Chief Commissioner (Admn.) (U.P.) V. Kanhaiya Lal Kapoor, [2005] 147 Taxman, 12 (All).

7. Pooran Mal Vs. Director of Inspection, [1974) 93 ITR 505 (SC) 8. Deep Chand Daga Vs. ITO [1970] 77 ITR, 661 (MP) and, 9. Fisher Xomox Sanmar Ltd. V. Assistant CIT, [2007] 294 ITR 620 [2008] 168 Taxman 251 (Mad.)

16. For the reasons given above, we find sufficient force in the argument of the learned counsel for the petitioner that on the basis of the reasons recorded by the Assessing Officer, the initiation of the reassessment proceedings relevant to the Assessment Year 2000-2001 by means of the notice dated 23.3.2007 after more than four years is clearly barred by time.”

14. Then, in “Amar Nath Agarwal” (supra), it has been held as follows: Page 18 of 23

ITA No.08/Agr/2019 Tej Singh vs. ITO

reasons to believe that the income had escaped assessment. In the instant case, admittedly, the notice was issued after four years but before six years. In our opinion, the reasons so recorded by the Assessing Officer was not sufficient to intiate proceedings under Section 148 of the Act. We find from the reasons recorded by the Assessing Officer that no such reasons has been recorded to the effect that the escaped income in likely to be Rs.1 lac or more except for the assessment year 2001-02.

ITA No.08/Agr/2019 Tej Singh vs. ITO falling under section 34(1A), action can be taken only where the income which has escaped assessment is likely to amount to Rs.1 lakh or more. In other words, it is only in regard to cases where the escaped income is of a high magnitude that the restriction of the period of limitation has been removed.”

15. The ratio decidendi of both the decisions of the Hon’ble Jurisdictional High Court evidently is that in the absence of anything in the reasons recorded to suggest that the income chargeable to tax which has escaped assessment is one lac rupees or more, the notice issued u/s 148 of the Act beyond four years of the end of the relevant assessment year, is invalid. This ratio, in my considered opinion, is applicable to the present case with full force and the ld. CIT(A) has erred in holding that the decisions in both these cases are distinguishable.

16. For the foregoing discussion, respectfully following the decisions “in Mahesh Kumar Gupta” (supra) and “Amar Nath Agarwal” (supra), finding force in the grievance raised by the assessee in this regard, the same is accepted. The CIT(A)’s order on this issue is reversed. The notice (PB-19) dated 25.03.2013, issued u/s 148 of the Act and all proceedings pursuant thereto, culminating in the order under appeal, are held to be null and void-ab initio.

17. As such, nothing further survives for adjudication.”

ITA No.08/Agr/2019 Tej Singh vs. ITO

10. Considering the fact that the ratio decidendi of the above decisions are that in the absence of anything in the reasons recorded to suggest that the income chargeable to tax which has escaped assessment i.e. one lakh rupees or more, the notice issued u/s 148 of the act beyond four years of the end of the relevant Assessment Year, is treated as invalid, therefore, in our considered opinion, the said ratio is applicable to the present case in to-to and the Ld. CIT(A) erred in upholding the validity of the assessment order, accordingly, we allow Ground No. 1 & 2 of the assessee by setting aside the orders of the Lower Authorities.