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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD
आदेश /O R D E R
This appeal is filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-16, New Delhi dated 07.08.2019 for the AY 2011-12. The assessee in his appeal raised the following grounds: -
1. “That the order of the Ld. CIT(A) is bad in law and is against the facts and circumstances of the case.
That the impugned assessment so framed is bad in law and on facts, in as much as, the initiation of proceedings u/s 147 of the Act and, further completion of assessment u/s 144/147 of the Act was without satisfying the statutory preconditions (i.e. without application of mind and without there being any tangible material) as envisaged in aforesaid section and was without jurisdiction and was liable to be quashed, as such.
I.T.A.No.445/Del/2020
3. That having regard to the fact that the proceedings u/s 147 were initiated by the AO on factually incorrect premise that the appellant has not filed any return whereas the return of income has already been filed by the appellant u/s 139(1), the Ld. CIT(A) has grossly erred in not quashing the assessment proceedings because the assumption of jurisdiction by the AO on factually wrong facts is bad in law and consequently renders the impugned assessment also bad.
4. That the Ld. CIT(A) has erred in not quashing the impugned proceedings because both the AO as well as the Ld. PCIT (who accorded the necessary approval for re-opening) have initiated the impugned proceedings without duly applying their respective minds in a mechanical manner, which not only renders the impugned re-opening bad but also the consequent assessment.
5. That having regard to the fact that the Ld. AO has failed to follow the procedure for framing the assessment u/s 144, the Ld. CIT(A) has grossly erred in not setting-aside the impugned assessment being framed in contravention of the provisions of section 144.
6. That having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the addition of Rs. 15,24,650/- out of total addition of Rs. 28,83,000/- made by the AO on account of cash deposit in the bank accounts.
7. That the above grounds are independent of one another and the appellant craves the leave to add, modify, amend or delete any of the grounds of the appeal at the time of hearing.” 2. The assessment of the assessee was reopened by issue of notice u/s 148 based on AIR/CIB Information that the assessee had deposited cash of Rs.28,83,000/- in his Bank account during FY 2010-11 relevant to AY 2011-12. The reassessment was completed u/s 144/147 on 10.12.2018 treating the amount of Rs.28,83,000/- as an unexplained money of the assessee u/s 69 A of the Act. 2
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3. Before the Ld. CIT(A) the assessee challenged the reopening of assessment as well as the addition on merits and the Ld. CIT(A) sustained the reopening of assessment and also the addition made u/s 69A of the Act.
4. The Ld. Counsel for the assessee submits that based on an AIR Information that the assessee had deposited Rs.28,83,000/- in his bank account during FY 2010-11 relevant to AY 2011-12 the Assessing Officer recorded his reasons to believe that the income had escaped assessment and after getting the approval from Ld.PCIT the Assessing Officer issued notice dated 31.03.2018 u/s 148 of the Act. The Ld. Counsel for the assessee submits that the reasons recorded by the AO as well as the approval issued by the Ld.PCIT for issue of notice u/s 148 are undated. The Ld. Counsel for the assessee referring to page 2 & 3 of the Paper Book which are the reasons recorded for reopening of the assessment submits that AO has categorically mentioned that the assessee had deposited cash amounting to Rs.28,83,000/- in his account with ICICI Bank.
Ld. Counsel submits that in the reasons recorded the bank details such as account number, nature of account and address of the branch is not mentioned. The Ld. Counsel further submits that in the reasons recorded it was specifically mentioned that the assessee
I.T.A.No.445/Del/2020 did not file any return for AY 2011-12. The Ld. Counsel submits that in fact the assessee filed return of income on 30.07.2011 and the copy of acknowledgement of filing of return was placed at page 8 of the Paper Book. The Ld. Counsel for the assessee submits that in the reasons recorded the AO has mentioned only one bank account, whereas the deposits were made into two bank accounts one is HDFC Bank and the other one is ICICI Bank. The Ld. Counsel for the assessee submits that the AO has simply gone by the AIR Information and no verification was made by the AO. The Ld. Counsel submits that even the bank statements were not available with the AO when the reasons were recorded and there is complete non-application of mind by the AO.
5. The Ld. Counsel further submits that the Pr. CIT has given approval without any application of mind and the approval is undated. The Ld. Counsel submits that the reasons have been recorded by the AO on the strength of factually incorrect premise that the assessee did not file any return for the year under consideration, whereas as a matter of fact assessee had already filed his return for the year under consideration u/s 139(1) on 30.07.2011 declaring income of Rs.1,53,663/-. The Ld. Counsel further submits that prior to issue of notice u/s 148 dated
I.T.A.No.445/Del/2020 31.03.2018 the assessee had been served with a notice dated 03.08.2012 seeking information about the filing of return of income for the year under consideration and the assessee vide his reply dated 03.09.2012 informed the Income Tax Officer, Ward 30(2), New Delhi that he has already filed return of income on 30.07.2011 vide acknowledgement no. 3001000609. Ld. Counsel submits that copy of notice and the reply of the assessee are placed at pages 6 and 7 of the Paper Book. Therefore, the Ld. Counsel for the assessee submits that as the matter of record that the fact of filing the return of income by the assessee for the year under consideration was very much within the knowledge of the AO at the time of recording of reasons as the individual transaction statement for the FY 2010-11 dated 10.03.2018 containing the details of AIR Information as well as details of filing return of income for the year under consideration is very much available on record. Therefore, the Ld. Counsel for the assessee submits that the reasons recorded for reopening by the AO suffer from a material factual discrepancy and goes to the root of the matter and renders the reasons to nullity and void. Therefore, it is submitted that any proceedings emanating from void reasons are nothing but illegal and void and, as I.T.A.No.445/Del/2020 such, is liable to be quashed. In support of the above contention the ld. Counsel placed reliance on the following decisions: -
1. Sagar Enterprises vs. ACIT 124 taxman 641 (Guj.); 2. Northern Exim Pvt. Ltd. vs. DCIT 20 taxmann.com 466 (Del.); 3. Vijay Harishchandra Patel vs. ITO (Guj.); 4. Jagat Singh vs. ITO (ITA No. 2749/Del/2018). 6. The Ld. Counsel for the assessee further submits that as the reopening of assessment was only on the basis of AIR Information and since there is no application of mind by the AO, the reassessment proceedings are void ab initio and are liable to be quashed. The Ld. Counsel for the assessee placed reliance on the following decisions in support of the above contention:
PCIT vs. Meenakshi Overseas Pvt. Ltd. 395 ITR 677 (Del.); 2. Amrik Singh vs. ITO 159 ITD 329 (Asr.); 3. Bahadur Singh Sizwati vs. ITO 68 SOT 197 (Del.); 4. Raj Kumar Duggar (HUF) vs. ITO 12 DTR 16 (Del.). 7. The Ld. Counsel further submits that the Ld. PCIT who has accorded his approval u/s 151 of the Act acted in a mechanical manner without due application of mind. Ld. Counsel submits that the Ld. AO has acted in casual and mechanical manner without independently applying his mind on the AIR Information and the material available on record. It is submitted that the individual transaction statement (ITS) of the assessee dated 10.03.2018, wherein AIR Information is reported it has been categorically mentioned that assessee has made cash deposits into two banks but I.T.A.No.445/Del/2020 the AO in his reasons has mentioned that cash deposit has been made only in ICICI Bank. In the ITS it has been shown that the assessee had filed return of income for the year under consideration on 30.07.2011 with acknowledgement no. 609 declaring taxable income of Rs.1,53,660/- but the AO in his reasons has stated that the assessee did not file any return of income.
The Ld. Counsel further submits that on perusal of the recorded reasons it is noticed that the reasons recorded is undated as the date of recording of reasons by the AO is not mentioned.
Therefore, in the absence of date on the reasons recorded it cannot be made out that the reasons were recorded prior to issue of notice u/s 148 or thereafter.
It is submitted that on perusal of the reasons recorded the AO has reopened the assessment simply based on AIR Information without any verification of facts and without applying his own mind to the information, if any, collected before recording the reasons.
It is also submitted that Ld. PCIT also accorded approval which is also undated without any application of mind. For the proposition that an approval granted without an application of mind is bad in law reliance is placed on the Delhi High Court decision in the case of PCIT vs. N.C. Cables Ltd. [391 ITR 11]. 7
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On the other hand, the Ld. DR strongly supported the orders of the authorities below.
Heard rival submissions perused the orders of the authorities below and the case laws relied on. The first contention of the assessee is that the assessment was reopened without application of mind and on wrong assumption of facts. The reasons recorded for reopening of assessment by AO are as under:
REASONS TO BELIEVE IN THE CASE OF SH. NADEEM HASAN, PAN:ACCPH8788G FOR AY 2011-12 1. The department is having information that the assessee has deposited cash of Rs.28,83,000/- with ICICI Bank Ltd. during the FY 2010-11 relevant to AY 2011-12. 2. It appears that entire investment of Rs.28,83,000/- is unaccounted and it is likely that there is an escapement of income of more than Rs.1 lakh.
A perusal of data on AST Systems reveals that the assessee has not filed return of income for the AY 2011-12, hence, I am satisfied and have reasons to believe that the assessee has not fully disclosed his income and income to the extent of Rs.28,83,000/- for AY 2011-12 has escaped assessment and hence it is a fit case for initiation of proceedings in terms of section 147 of the IT Act, 1961.
The explanation 2 below provisions of section 147 reads as under: “147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
I.T.A.No.445/Del/2020 Provided…….. Explanation 2.- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income tax”.
It is pertinent to mention that in the case of CIT Vs. Nova Promoters & Finalise Private Limited [ITA No. 342 of 2011] dated 15.02.2012, the Hon’ble Delhi High Court which is the jurisdiction High Court has held that as long as there is a ‘live link’ between the document/information which was placed before the Assessing Officer at the time when reasons for reopening were recorded, proceedings u/s 147 would be valid. The Court also held- “We are aware of the legal position that at the stage of issuing the notice u/s 148 the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie opinion that income chargeable to tax has escaped assessment”.
Further more, in the case of Jyoti Goyal vs. ITO (ITA No. 1259/Del/2010), the Hon’ble ITAT Delhi held that: “As regards, the other contentions of the assessee that the reopening was done in a mechanical manner without application of mind, we find there is nothing on record to support such a contention. There is a live link between the information which was available with the Assessing Officer and his formation of belief that income has escaped assessment, sufficiency of such information cannot be gone into while deciding the issue of validity of reopening. The Assessing officer can also not make enquiries as no proceedings were pending before him for the relevant assessment year. In the above view of the matter, we are in agreement with finding of the Ld. CIT(A) that the reopening of assessment u/s 147 of the Act, was valid”.
The live link between the material available on ITD system and the reasons for belief that income has escaped assessment has been sufficiently demonstrated. Since, no assessment has been completed u/s 143(3) of the Act, and period of 4 years has elapsed, hence, the proposal is forwarded to the Pr. Commissioner of Income Tax-16, New Delhi for consideration and necessary approval in accordance with the proviso appended with section I.T.A.No.445/Del/2020
151(1) of the IT Act, 1961 for issuance of notice u/s 148 of the IT Act. Sd/- (Prem Pal Singh) Income Tax Officer Ward 46(4), New Delhi.”
On perusal of the reasons recorded it is noticed that the AO stated that assessee has deposited cash of Rs.28,83,000/- with ICICI Bank Ltd. during the relevant assessment year i.e. 2011-12. On perusal of the ITS dated 10.03.2018 which is placed at page 1 of the paper book filed by the assessee it suggests that assessee had deposited Rs.11,68,500/- in HDFC Bank Ltd. and Rs.17,14,500/- in ICICI Bank Ltd. In the reasons recorded the AO stated that entire investment of Rs.28,83,000/- is unaccounted and it is likely that there is an escapement of income of more than Rs.1 lakh. The AO also records that assessee has not filed return of income for the AY 2011-12 and, therefore, he satisfied that he has reasoned to belief that the assessee has not fully disclosed his income and income to the extent of Rs.28,83,000/- has escaped assessment. These are the only reasons recorded for reopening of assessment of the assessee. However, on perusal of the copy of acknowledgement of return of income filed by the assessee which is placed at page 8 of the paper book, it is clear that the assessee has filed his return of income on 30.07.2011 declaring income of Rs.1,53,660/- vide
I.T.A.No.445/Del/2020 acknowledgement no. 3001000609. This fact was also recorded in the ITS dated 10.03.2018 which is very much available with the AO when the reasons were recorded and notice was issued u/s 148 dated 31.03.2018. Therefore, it is abundantly clear that based on wrong assumption of facts the AO believed that the income of the assessee had escaped assessment. Firstly as per AIR information AO was of the view that there is a deposit of Rs.28,83,000/- in ICICI bank which is factually wrong since there were deposits in two bank accounts one is ICICI and the other is HDFC Bank. Secondly, the assessee even though filed return of income the AO records that no return was filed by the assessee and, therefore, income had escaped assessment. It is also observed that the reasons recorded are undated and, therefore, it is doubtful as to whether these reasons recorded were before issue of the notice u/s 148 or thereafter. The AO in the reasons also records that he has demonstrated the live link between the materials available on ITD System and the reasons for belief that income had escaped assessment. However, the facts as recorded above suggest that there is no live link between the material available and the reasons for belief that income had escaped assessment. From perusal of the reasons recorded for reopening of assessment it is noticed that the I.T.A.No.445/Del/2020 reasons recorded only based on AIR Information and nothing else.
The AO has not verified the facts, not examined the bank statements and formed belief that income had escaped assessment prior to issue of notice u/s 148 of the Act. There is complete non- application of mind by the AO.
As per the provisions of section 147 in order to form belief that income has escaped assessment the AO ought to have formed an opinion on the basis of the material possessed by him exhibiting the facts that income has escaped assessment. A perusal of the reasons recorded for reopening of assessment in this case would indicate that the basis of reasons recorded is AIR Information stating cash deposits of Rs.28,83,000/- as an unexplained investment and also that the assessee did not file any return of income for the year under consideration. It is pertinent to mention that the AO has not analyzed the information in right perspective and sought to reopen by conceiving a wrong fact that the assessee did not file return of income and, as such, the bank deposit represents unexplained investment. The mere information from annual information returns which is made as the basis for reopening without describing the contents of information i.e. when was the statement received, the bank account details and most importantly copy of bank account
I.T.A.No.445/Del/2020 which is made as the basis of reopening was never gone through by the AO while recording the reasons. This is very much clear from the reassessment order that the AO recorded a finding that during the course of assessment proceedings information u/s 133(6) of the Act were called from HDFC Bank Ltd. and ICICI Bank and there was no compliance made by both the banks till date. Therefore, the AO never had with him any copy of bank statement before recording of reasons for reopening of assessment and issue of notice u/s 148.
Therefore, without going to the contents of the entries in the bank accounts merely deposits cannot be treated as income escaping assessment.
On going through the reasons recorded by the AO, I find that there is no nexus between the prima facie inferences arrived in the reasons recorded and the information. The information was restricted to cash deposit in bank account but there was no material much less tangible, cogent, credible and relevant material to form a reason to believe that cash deposits represented income of the assessee. The reasons recorded in the present case at best can be treated to be reasons to suspect which is not sufficient for reopening the assessment u/s 148 of the Act. The requirement of I.T.A.No.445/Del/2020 application of mind is missing in the present case on the face of it in the reasons recorded.
In the case of PCIT vs. Meenakshi Overseas Pvt. Ltd. (supra) it has been held that if there was no independent applicable of mind by AO to tangible material and reasons, failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment and, therefore, reassessment was not justified. vs. DCIT (supra) held that if reasons recorded for issue of notice u/s 148 are factually incorrect that cannot therefore, form the basis for the belief that income had escaped assessment. Similar view has been taken by the Hon’ble Gujarat High Court in the case of Sagar Enterprises vs. ACIT (supra).
In the case of PCIT vs. G.G. Pharma India Ltd. [384 ITR 147] the Hon’ble High Court held that reopening only on the basis of information received that the assessee has introduced unaccounted money in the form of accommodation entries without showing in what manner the AO applied independent mind to the information renders the reopening void. In the case on hand also the AO simply relied on the AIR Information and not made any verification of facts
I.T.A.No.445/Del/2020 and independent application of mind to the materials available on record to come to conclusion that there is an escapement of income in assessee’s case.
Further it is observed that the Ld. PCIT also mechanically issued permission to reopen the assessment without going into the facts available on record. Even in the Form for seeking approval, in Column 8, the AO records that no return has been filed by the assessee even though factually incorrect and the PCIT did not apply his mind while granting approval as he has simply gone by what is recorded by the AO which is factually wrong. The satisfaction recorded by the PCIT is in mechanical manner and without application of mind.
In the case of Yum Restaurants Asia Pte Limited Vs. DDIT [397 ITR 665] the Hon’ble Delhi High Court held as under:
“12. In the present case, having started off on a wrong note that the original assessment was scrutinized and an order was passed u/s 143(3) of the Act, the Assessing Officer proceeded to put up the note to the Director of Income Tax as is evident from the title of the note but, through the Additional Director of Income Tax. Both the Additional Director of Income Tax and the Director of Income Tax appear to have concurred with the reasons for reopening the assessment but without applying their minds to the fact that the return originally filed was only processed u/s 143(1) of the Act and not under section 143(3) of the Act. Had the Additional Director of Income Tax realized this mistake, he would not have put up the file further for the approval of the Director of Income Tax. Clearly, therefore, at the level of Additional Director of Income Tax there was non-application of mind. Had the Director of Income Tax realized the mistake, he would have declined to make a noting and would have returned the file to the Additional Director of Income Tax drawing his attention to section 15
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151(2) of the Act which did not require any further approval by the Director of Income Tax where the return originally filed is only processed under section 143(1) of the Act. On the contrary, the Director of Income Tax again recorded his concurrence with the views of the Assessing Officer and the Additional Director of Income Tax. Therefore, at the second level also plainly there was non-application of mind.” 20. In view of the above discussion, I hold that the reassessment made u/s 144 r.w.s. 147 by the AO is bad in law. Thus, the reassessment order is quashed. As I have allowed the appeal of the assessee on preliminary ground of jurisdiction of reopening of assessment various other grounds raised by the assessee including grounds on merits are not decided as they become only academic at this stage.
In the result, the appeal of the assessee is partly allowed as indicated above.
Order pronounced in the open court on 18/05/2022