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Income Tax Appellate Tribunal, DELHI BENCH, ‘SMC’: NEW DELHI
The present appeal has been preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)- Muzaffarnagar, dated 28/12/2018 pertaining to AY 2009-10.
The assessee has raised following grounds of appeal:-
“1. That the Ld. CIT(A) erred in holding that the re-assessment proceedings u/s 147/148 of the I.T. Act were valid and the re- assessment order passed was correct. 2. That the basic conditions for assuming jurisdiction under the above section are lacking and hence order u/s 147/144 is invalid.
That the reasons mainly of cash deposit in assessee’s bank account and not responding to the inquiry letters coupled with non filing of Income Tax Return are not valid reasons/information for taking action u/s 147/148 of I.T. Act.
4. That there is no material and information to suggest that the deposit in the assessee’s bank account constitute income chargeable to tax which has escaped assessment. 5. That the Ld. CIT(A) failed to analysis the various judicial verdicts even of Hon’ble Apex Court and Jurisdictional ITAT Delhi in right prospective, leading to gross injustice to the hapless appellant. 6. That since the impugned assessment order as well as impugned appellate order both suffer from incurable fundamental errors of law, the same are liable to be quashed in the interest of equity and justice. 7. That authorities erred on facts in maintaining an addition of Rs. 1812800 being money deposited in the bank account.” 3. A perusal of the above grounds of appeal reveals that the assessee in this case, inter alia, has contested validity of the reopening of the assessment.
At the outset, the ld. counsel for the assessee has submitted that the reasons recorded for reopening of the assessment were vague and do not constitute the reasons to believe that the income of the assessee for the year has escaped assessment. The ld. counsel for the assessee has invited my attention to the reasons recorded by the Assessing Officer ( in short ‘the AO’), which for the sake of ready reference are reproduced hereunder:-
“In this case, the AIR information was received for F.Y.2008- 09, that the assessee has deposited cash amounting to Rs.18,12,800/- in saving bank account in State Bank of Patiala. Verification letters were issued. No reply has been filed by the assessee till date. In the absence of any reply the source of cash deposits of Rs.18,12,800/- remains unexplained. I have therefore, reason to believe that an income chargeable to tax at Rs.18,12,800/- has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961.”
Pointing to the above reasons recorded, the Ld. Counsel for the assessee has submitted that only material available with the AO was the AIR information stating that there was cash deposit of Rs.18,12,800/- in the bank account of the assessee. The ld. counsel for the assessee has submitted that mere deposit in the bank account does not mean that the same was the taxable income of the assessee. That, except the aforesaid information, there was no other information to the AO to form the belief that the income of the assessee for the year under consideration has escaped assessment. So far as the mention that the AO had issued some verification letter to the assessee, the ld. counsel for the assessee has submitted that no such letter was received by the assessee. He has further invited my attention to section 133 of the Income Tax Act, wherein, the concerned Income Tax Authorities have been given power to call for information in respect of various matters for the purpose of this Act. The Section 133 reads as under:-
“Power to call for information. “133. The Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals) may, for the purposes of this Act,—
(1) require any firm to furnish him with a return of the names and addresses of the partners of the firm and their respective shares; (2) require any Hindu undivided family to furnish him with a return of the names and addresses of the manager and the members of the family; (3) require any person whom he has reason to believe to be a trustee, guardian or agent, to furnish him with a return of the names of the persons for or of whom he is trustee, guardian or agent, and of their addresses; (4) require any assessee to furnish a statement of the names and addresses of all persons to whom he has paid in any previous year rent, interest, commission, royalty or brokerage, or any annuity, not being any annuity taxable under the head "Salaries" amounting to more than one thousand rupees, or such higher amount as may be prescribed, together with particulars of all such payments made; (5) require any dealer, broker or agent or any person concerned in the management of a stock or commodity exchange to furnish a statement of the names and addresses of all persons to whom he or the exchange has paid any sum in connection with the transfer, whether by way of sale, exchange or otherwise, of assets, or on whose behalf or from whom he or the exchange has received any such sum, together with particulars of all such payments and receipts; (6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), will be useful for, or relevant to, any enquiry or proceeding under this Act:
Provided that the powers referred to in clause (6), may also be exercised by the Principal Director General or Director-General, the Principal Chief Commissioner or Chief Commissioner, the Principal Director or Director or the Principal Commissioner or Commissioner or the Joint Director or Deputy Director or Assistant Director: Provided further that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of Principal Director or Director or Principal Commissioner or Commissioner, other than the Joint Director or Deputy Director or Assistant Director, without the prior approval of the Principal Director or Director or, as the case may be, the Principal Commissioner or Commissioner: Provided also that for the purposes of an agreement referred to in section 90 or section 90A, an income-tax authority notified under sub-section (2) of section 131 may exercise all the powers conferred under this section, notwithstanding that no proceedings are pending before it or any other income-tax authority.” (emphasis supplied by me) 6. The ld. counsel for the assessee has further submitted that since no proceedings under the Act was pending against the assessee on the date of recording of the reasons and there is no mention in the reasons recorded that any permission was taken by the concerned AO/Income Tax Authority from the competent authority as mentioned in the second proviso to the Income Tax Act for exercising the power in respect of an enquiry in this case, therefore, the verification letter issued by the AO was without power/jurisdiction and no cognizance can be taken of the same. The ld. counsel for the assessee has also relied upon the following case laws :- i. Tajendra Kumar Ghal vs ITO (ITA No.970, 971/Del/2017), order dated 07.06.2017. ii. Bir Bahadur Singh Sijwali vs ITO (ITA No.3814/Del/2011), order dated 20.01.2015. iii. Shri Baby Yadav Alias Anita Yadav vs ITO (ITA No.5349/Del/2016), order dated 27.04.2017. iv. Harish Tyagi vs ITO, (ITA No.3849/Del/2019) order dated 19.03.2020. v. Shri Abdul Wahab vs ITO (ITA No.6762/Del/2017), order dated 08.03.2018. 7. The ld. DR, on the other hand, has relied upon the orders and findings of the lower authorities.
8. I find merit in the arguments of the Ld. AR. The case of the assessee is covered by various case laws, wherein, the Tribunal time and again has held that the mere deposit in the bank account does not mean that the same was the income of the assessee which has escaped assessment.
Apart from the above AIR information, there was no other information to the AO that the income of the assessee under consideration has escaped assessment. Moreover, the verification letter issued by the AO being not issued after taking approval of the competent authority cannot be taken cognizance of. Therefore, in this case, there was no valid reason available to the AO to form the belief that the income of the assessee has escaped assessment for the year under consideration. For the sake of completeness, the reference can made to the decision of the Co-ordinate Delhi Bench of the Tribunal in the case of Bir Bahadur Singh Sijwali vs ITO in vide order dated 20.01.2015. The relevant part of the order is reproduced hereunder:-
“7. It is well settled in law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor anything can be deleted from the reasons so recorded. Hon’ble Bombay High Court, in the case of Hindustan Lever Ltd. vs. R.B. Wadkar [(2004) 268 ITR 332], has, inter alia, observed that "……….It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons." Their Lordships added that "The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence….". Therefore, the reasons are to be examined only on the basis of the reasons as recorded. The next important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment and not merely need of an inquiry which may result in detection of an income escaping assessment. Undoubtedly, at the stage of recording the reasons for reopening the assessment, all that is necessary is the formation of prima facie belief that an income has escaped the assessment and it is not necessary that the fact of income having escaped assessment is proved to the hilt. What is, however, necessary is that there must be something which indicates, even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that an income has escaped assessment. Merely because some further investigations have not been carried out, which, if made, could have led to detection to an income escaping assessment, cannot be reason enough to hold the view that income has escaped assessment. It is also important to bear in mind the subtle but important distinction between factors which indicate an income escaping the assessments and the factors which indicate a legitimate suspicion about income escaping the assessment. The former category consists of the facts which, if established to be correct, will have a cause and effect relationship with the income escaping the assessment. The latter category consists of the facts, which, if established to be correct, could legitimately lead to further inquiries which may lead to detection of an income which has escaped assessment. There has to be some kind of a cause and effect relationship between reasons recorded and the income escaping assessment. While dealing with this aspect of the matter, it is useful to bear in mind the following observations made by Hon’ble Supreme Court in the case of ITO Vs Lakhmani Mewal Das [(1976) 103 ITR 437], “the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.
Let us, in the light of this legal position, revert to the facts of the case before us. All that the reasons recorded for reopening indicate is that cash deposits aggregating to Rs 10,24,100 have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening the assessment donot make out a case that the assessee was engaged in some business and the income from such a business has not been returned by the assessee. As we donot have the liberty to examine these reasons on the basis of any other material or fact, other than the facts set out in the reasons so recorded, it is not open to us to deal with the question as to whether the assessee could be said to be engaged in any business; all that is to be examined is whether the fact of the deposits, per se, in the bank account of the assessee could be basis of holding the view that the income has escaped assessment. The answer, in our humble understanding, is in negative. The Assessing Officer has opined that an income of Rs 10,24,100 has escaped assessment of income because the assessee has Rs 10,24,100 in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, it may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escaped assessment.
Learned Departmental Representative has referred to a number of judicial precedents in support of her stand that even deposits in the bank account, as having come to the notice of the Assessing Officer through AIR, can be reason enough for holding the belief that income has escaped assessment. She has relied upon the decisions in the cases of CIT Vs Nova Promoters & Finlease Pvt Ltd [(2012)342 ITR 169] but then none of the questions before Hon’ble High Court had anything to do with reopening of assessment and this decision can not, therefore, be taken as an authority on the legal issue which did not even come up for specific adjudication before Their Lordships. As for her reliance on Hon’ble Supreme Court’s judgment in the case of Phool Chand Bajrang Lal Vs ITO [(1993) 203 ITR 456], that was case in which Their Lordships concluded that the AO “rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and, therefore, income chargeable to tax had escaped assessment” and we are unable to see anything on the facts of the present case which are materially similar to the facts of the said case. As regards her reliance on the decision of a coordinate bench in the case of Mithila Credit Services Limited Vs ITO (ITA No. 1078/Del/2013; order dated 23.5.2014), it is important to bear in mind the fact that it was a case in which the Assessing Officer had reopened the assessment on the basis of receipt of information from Directorate of Investigation, and, as noted by the Assessing Officer in the reasons recorded for reopening the assessment, “the name of the assessee figures as one of the beneficiaries of these alleged bogus transactions” in the information given by the directorate. If the assessee was a beneficiary of such a scam, the income was indeed to have been taxed in its hands but then in the case before us the only reason for reassessment proceedings was the fact of deposit of bank account which by itself does not lead to income being taxed in the hands of the assessee. Learned Departmental Representative has referred to several other judicial precedents in support of the proposition that at the stage of initiation of reassessment proceedings, all that is to be seen as existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. To us, there cannot be any, and there is no, doubt on the correctness of this proposition but then, as we have elaborately explained earlier in this order, the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment. On the basis of reasons as recorded in this case, such an inference about income escaping assessment, in our humble understanding, cannot be drawn.
10. In view of the reasons set out above, as also bearing in mind entirety of the case, we are of the considered view that the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. We, therefore, quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.”
9. In view of this, the reopening made by the AO without being valid reasons is hereby quashed. Consequently the addition additions stand deleted. Appeal of the assessee stands allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 22.06.2022.