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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI N.K.CHOUDHRY, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
आदेश /O R D E R PER BENCH
This appeal by the revenue and the cross objection by the Assessee are directed against the order of ld.Commissioner of Income Tax (Appeals)-3 [for short, “ld. CIT(A)”], Visakhapatnam, dated 07/10/2020 for the A.Y. 2016-17.
All the grounds of appeal are related to the validity of issuing notice u/sec. 148 of the Act. In this case, a search u/sec. 132 was conducted on 09/12/2014 and the Assessee has admitted the additional income for the A.Ys. 2009-10 to 2015-16 on account of unsecured loans. For the A.Y. 2016-17, the Assessee has not filed the return of income within the time prescribed u/sec. 139(1) of the Act, therefore the AO conducted survey u/sec. 133A on 15/02/2018 and after the survey, the Assessee has filed it’s return of income for the A.Y. 2016-17 on 19/03/2018 admitting total income of Rs.5,30,57,790/- and paid the self-assessment tax thereon. The AO has issued notice u/sec. 148 on 30/03/2019 calling for the return of income. In response to the notice issued,
C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society) the Assessee has filed a letter dated 28/09/2019 stating that the return of income filed on 19/03/2019 may be treated as return in response to the notice issued u/s 148. Subsequently, the AO issued notice u/sec. 143(2) and 143(1) and completed the assessment on total income of Rs. 8,46,78,304/-. During the assessment proceedings, the AO found that the Assessee has taken unsecured loan of Rs.9,14,37,645/- during the year and out of which, for a sum of Rs. 3,16,20,514/-the assessee failed to furnish confirmation letters therefore added back to the returned income u/s 68 of the act.
Against the order of the AO, the Assessee went on appeal before the ld. CIT(A) and raised a legal ground stating that notice u/sec. 148 was not valid as there was no tangible material to prove the income escapement of income. The Assessee submitted before the ld. CIT(A) that the notice u/sec. 148 was issued in the case of the Assessee on suspicion and there was no material to believe that the income had escaped from assessment. The Assessee further submitted that as per the reasons recorded for issuing of notice, it was stated that the Assessee has shown unsecured loans of Rs.23,40,50,450/- which appears to be suspicious and disproportionate to the gross receipts of the Assessee. Thus, the ld.AR argued that there was no specific issue with regard to escapement of income and the AO has taken the entire outstanding unsecured loans in the balance sheet as suspicious and disproportionate for forming the basis for issue of notice u/sec. 148 without any basis, therefore, argued before the ld. CIT(A) that on suspicion there is no case for reopening the assessment. The AO must have a reasonable belief to form
C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society) opinion that income chargeable to tax had escaped assessment. In the instant case, there was no such reason exists and only a suspicion, therefore, reopening of the assessment is bad in law. The ld.AR also relied on the decision of this Tribunal in the case of DCIT Vs. Dr. M.J. Naidu [(2017) 85 taxmann.com 206 (Vskp. Trib.)]. The ld. CIT(A) after careful consideration of the arguments, facts and the case-laws relied upon by the Assessee held that the issue of notice u/sec. 148 is bad in law, and accordingly quashed the notice and cancelled the assessment. Against the order of the ld. CIT(A), the Department is in appeal before this Tribunal.
During appeal hearing, ld.DR strongly supported the issue of notice u/sec. 148 and submitted that in the instant case, the Assessee had not filed the return of income within the due date. The AO issued notice u/sec. 148 after conducting survey and recording the reasons. Ld.DR further submitted that it is observed from the earlier years records that the Assessee was regularly accounting the donations as unsecured loans. The modus operandi of the Assessee was accepting the donations and accounting the same under the garb of unsecured loans. In earlier years, the Assessee himself had admitted the undisclosed income representing the unsecured loans. Therefore, submitted that the reasons recorded by the AO rightly support the forming the belief to reopen the assessment and there is no defect in recording the reasons, hence, argued that the reopening of assessment should be upheld and requested to set aside the order of the ld. CIT(A) and restore back the file to the ld. CIT(A) to adjudicate the issue on merits.
C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society) 5. Per contra, ld.AR supported the order of the ld. CIT(A) and also requested the tribunal to uphold the order of the ld. CIT(A).
We have heard both the parties and perused the material placed on record. In the instant case, the AO has reopened the assessment by issuing notice u/sec. 148 of the Act after recording the reasons. The reasons recorded by the AO was reproduced in ld. CIT(A)’s order which reads as under:-
“4. It is observed from the return that the Assessee’s gross collections were Rs. 290 crore and excess of income over expenditure was Rs. 5.30 crore. The Assessee has showed unsecured loans of Rs. 23,40,50,450/- which appears to be suspicious and disproportionate to the turnover/gross receipts of the Assessee for the year under consideration. The unsecured loans as showed by the Assessee for the Asst. Years 2009-10 to 2015-16 were found bogus and admittedly the donations wrongly accounted for in the books of account as unsecured loans.
In view of the above and also the fact that the return was filed belatedly and only after the survey operation, I have reason to belief that income of Rs. 23,40,50,450/- chargeable to income tax has escaped assessment within the meaning of the explanation to section 147 of the Income Tax Act, 1961. Hence, I am of the view that it is a fit case for reopening the assessment u/s. 148 for Asst. Year 2016-17.
On perusal of the reasons recorded by the AO it shows that there was outstanding unsecured loans of Rs. 23,40,50,450/- in the balance sheet and the AO suspected the entire outstanding of unsecured loans on the basis of admission given by the assessee for earlier years i.e. 2009-10 to 2015-16. In the wording for reopening the assessment the AO used the words that unsecured loans appears to be suspicious and disproportionate to the turnover/gross receipts of the Assessee. The Assessee reported the turnover of Rs. 290 crores and excess of income over
C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society) expenditure was Rs. 5.30 cores. How the AO landed in a conclusion that 23.40 crores unsecured loans were suspicious and disproportionate to the turnover was not mentioned. Further, in para 5 of the reasons, the AO held that outstanding unsecured loans of Rs. 23.40 crores was believed to be escapement of income chargeable to income tax, whereas in the assessment order the AO found that unsecured loans accepted during the year was only Rs.9,14,37,645/-. Thus, the AO has not even made minimum exercise for ascertaining the unsecured loans accepted during the year, under consideration before reopening of the assessment. Without even ascertaining the unsecured loans accepted during the year in the reasons recorded, the AO viewed that the entire sum of Rs. 23.40 crores outstanding as per the balance sheet was suspicious and escaped from the assessment chargeable to tax. Thus, the above facts clearly show that the AO reopened the assessment only with a suspicion without having sufficient reasons to form the belief for escapement of income. There is no dispute that from para four of the reasons recorded it is clear that the AO suspected the unsecured loans and held that income escaped assessment merely because of the Assessee had admitted the undisclosed income in respect of unsecured loans in the earlier years and the same cannot be a ground for reason to hold that unsecured loans are bogus in the impugned year also. The unsecured loans outstanding in year under consideration need not be suspected merely because the assessee had admitted the same as income in the earlier years. For Income tax purpose each year is independent and the issue has to be decided on facts independently. From the above, it is very clear that the AO reopened assessment merely on suspicion and the ld. CIT(A)
C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society) quashed the notice following the order of this tribunal in the case of Dr. M.J. Naidu (supra). For the sake of clarify and convenience, we extract the relevant part of the order of ld. CIT(A) which reads as under:-
“9. In view of the above decision, I hold that the issuance of notice u/s 148 of the Act is not valid as the reopening of the assessment was made basing on the suspicion developed in the mind of the Assessing Officer without having any tangible material in his possession to demonstrate that he has reason to believe that income escaped assessment. In my opinion, there is substantial difference between the words "reason to believe" and the words "appears to be suspicious". If the matter is taken to its logical end, it is to be noted that for issue of notice u/s 148 of the Act, the Assessing Officer himself should be confident that income escaped assessment. But in the case on hand, the position is different as while recording the reasons for issuance of notice u/s 148 of the Act, the Assessing Officer has used the terminology "appears to be suspicious". Unless the Assessing Officer is satisfied himself that he has "reason to believe" that income escaped assessment, he cannot open the doors of the provisions of section 148 of the Act. It may be stated here that issuance of notice u/s 148 of the Act is not "mechanical" and the notice should be issued on the basis of concrete evidence and tangible material in his possession, which formed basis for issue of a notice u/s.148 of the I.T.Act.
10. The ITAT, Visakhapatnam Bench, Visakhapatnam in the case of Deputy Commissioner of Income Circle-2(1), Vijayawada Vs. Dr. K J. Naidu, [2017] 85 com 206, has held that mere suspicion or the surmises or merely because of survey is conducted, the assessing officer is not permitted to reopen the assessment. There should be strong belief based on material is required for reopening the assessment u/s 147. Suspicion or guess work is not sufficient to reopen the assessment u/s.
While, the Hon'ble ITAT, Visakhapatnam in the above mentioned case (extracted in the written submissions of the appellant) held that there should be strong belief on the basis of the material available with the Assessing Officer for issuance of a notice u/s.148, in the case on hand, the Assessing Officer has no such strong belief, but rather he observed in the reasons mentioned for issuance of notice u/s.148 that the unsecured loans "appears to be suspicious". Hence, there is no case for the Assessing Officer to issue a notice u/s.148 of the I.T. Act.
C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society)
11. In the case of Rajendra Goud Vs. ITO, the Hon'ble AP & Telangana High Court (in WP No.36483/2016, dt. 13.02.2017) (A.Y.2012-13), has held that the invocation of the jurisdiction u/s.147 on the basis of suspicious and presumptions cannot be sustained. It was further held that two conditions are to be satisfied for invocation of the power u/s.147, Viz., the existence of a reason to believe, and (2) the escapement of any income chargeable to tax from assessment. The reason to believe on the part of the assessing officer, should arise out of concrete facts. Reopening of the assessment proceedings u/s.147 of the I.T. Act cannot be ordered merely on the presumption that the returned income is very shockingly lower than the total gross receipts. 11(a) In my opinion, the decision of the Hon'ble ITAT, Viskhapatnarn cited by the appellant which is discussed above applies to the appellant's case on all fours as the circumstances prevailing in the appellant's case and the case decided by the Hon'ble ITAT, Visakhapatnam are almost identical.
Having regard to the above discussion, I hold that there is no case for issue of a notice u/s 148 of the I.T.Act, 1961 and hence the same is quashed holding that the notice issued u/s 148 of the Act is not valid in view of the circumstances prevailing in this case. Accordingly, the reopening of the assessment by issuance of notice u/s 148 of the I.T. Act, 1961 is held to be void and the same is accordingly quashed. Since the notice issued u/s 148 itself is held to be not valid, the consequential assessment completed u/s 143(3) r.w.s. 147 of the I.T. Act, 1961 on 30/12/2019 also becomes invalid and the same is accordingly cancelled.”
In the instant case, the ld. CIT(A) has followed the order of this tribunal in the case of Dr. M.J. Naidu (supra) and the tribunal held that on mere suspicion the notice u/sec. 148 cannot be issued and the same is held to be invalid. For the sake of clarity and convenience, the relevant part of this tribunal in para No. 6.1 which reads as under:-
“6.1. On perusal of the reasons recorded it is evident that the assessing officer has recorded very vague and reasons which are general in nature. No specific material, which indicated the C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society) escapement of income was brought on record. Similarly defects if any in the books of accounts maintained by the assessee was also not mentioned. No specific items of income or the receipts which escaped from income was brought on record in reasons, leave alone the quantum. For both the assessment years, the reasons are identically worded, leaving the assessment year blank for guess work of the assessee. Surprisingly the same reasons were recorded in both the cases of M. Madhavi and Dr. M.J.Naidu. The assessing officer has not mentioned any material which was impounded in the case of the assessee indicating escapement of income. No finding was given by the assessing officer with regard to the overstatement of expenditure, understatement or suppression of the receipts, suppression of any assets or overstatement of liability which leads to escapement of income. From plain reading of the reasons recorded by the assessing officer shows, that the reasons were recorded, without application of mind and merely because the survey was conducted and the assessing officer wants to reopen the assessment without having any tangible material. It is settled issue that even in the cases where the assessments were completed u/s 143(1), for reopening of the assessments, there should be reason to believe that the income has escaped assessment. There is a vast difference between the issue of notice u/s 143(2) and notice issued u/s 148. For reopening the assessment and issue of notice u/s 148, the assessing officer should have a reason to believe that the income chargeable to tax has escaped assessment. For having a reason to believe there must be tangible material which indicates income escaped assessment. Mere suspicion, or the surmises or merely because of survey is conducted the assessing officer is not permitted to reopen the assessment. There should be strong belief based on material is required for reopening the assessment u/s 147. Suspicion or guess work is not sufficient to reopen the assessment u/s 147 of the I.T.Act. Though the statements were recorded and the material was impounded the assessing officer did not mention specifically which part of the statement and what material impounded constitutes basis for formation of reasonable belief for escapement of income in the reasons recorded. The nexus of the statement recorded and the impounded material for escapement of income was not brought on record in the reasons. Even the assessing officer did not mention the assessment year and it was left blank which shows the casual attitude of the assessing officer in reopening the assessment. The assessing officer cannot improve the reasons already recorded, subsequently by referring to the books of accounts or the explanations. Hon’ble Gujarat High Court in the case of C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society) Hindustan Unilever Ltd. Vs. Army Wadkar, ACIT [268 ITR 332] held that reopening notice is to be justified on the basis of reasons recorded at the time of issuing the impugned notice. The impugned notice must stand or fail on the reasons recorded. Thus, reasons recorded cannot be supplemented by further reasons or filing an affidavit or making oral submissions. The reasons are made on the point of assessing officer and must be self explanatory and should not keep the assessee guessing. It cannot be justified on the basis of inferences or interpretations. Similarly in the case of Sambag Vs. ITO (74 taxman.com 16) held that where the assessing officer has no material to suggest that the assessee company had received accommodation entries against cash receipts, the notice for reopening the assessment based on such reasons was completely wrong and has to be set aside. The Hon’ble ITAT Coordinate Bench, Ahmedabad in the case of ITO Vs. Vapi Vadva Vs. Amit Kesava has adjudicated the issue on similar facts and held that the important point is that even though the reasons recorded may not necessarily prove the escapement of income at the stage of recording the reasons, such reasons must point out to income escaping the assessment or not merely need any inquiry which may require adjudication of income escaping assessment. In the present case, at best the case of the assessing officer falls in the second category. Further [71 taxman.com 256] (Ahd), Hon’ble Bombay High Court in the case of Kubuchandani Health Parks (P) Ltd. Vs. ITO, Ward 6(3)(4) [68 taxman.com 91] Bombay held that notice u/s 148 would be without reasons for absence of reasons to believe that income had escaped assessment even in case where assessment has been completed earlier by intimation u/s 143(1). Hon’ble Madras High Court in the case of PVP Ventures V Corporate Circle 5(2) Chennai [65 taxmann.com 221] has held that justification for reopening the assessment has to be tested only on the strength of recording reasons for reopening the assessment u/s 148. From the above discussion and judicial pronouncements, recording of proper reasons and the application of mind is necessary which must be bonafide and not in mechanical manner. Where the notice issued without application of mind on the part of the assessing officer, the same is liable to be quashed. The reasons recorded by the assessing officer must disclose the process of reasoning by which he hold the reason to believe that the income chargeable to tax has escaped assessment for the relevant assessment year. The material relied upon by the assessing officer should appear on the record. In the instant case, it is clear that the assessing officer has recorded vague and general reasons without application of mind. The assessing officer did not establish or whisper from the reasons recorded regarding the C.O.No. 11/VIZ/2021 (M/s. Ravindra Bharathi Educational Society) escapement of any income. It appears from the reasons recorded that assessing officer has reopened the assessment merely because survey was conducted in this case which is not permissible in law. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Appeal of the revenue is dismissed. Since we upheld the quashing of notice by the Ld.CIT(A) and dismissed the appeal of the revenue, we consider it is not necessary to adjudicate the assessment on merits.”
Since the ld. CIT(A) followed the order of this Tribunal and the ld.DR did not bring any material to controvert the finding of the ld. CIT(A), we do not find any reason to interfere with the order of the ld. CIT(A) and the same is upheld.
Cross Objection is filed supporting the order of the ld. CIT(A). Since the appeal of the revenue is dismissed, the cross objection has become infructuous, hence, dismissed.
In the result, appeal filed by the revenue and cross objection filed by the assessee are dismissed.
Order Pronounced in open Court on this day 24th of Sep., 2021.