SH. KARAMJIT SINGH RAI,HOSHIARPUR vs. INCOME TAX OFFICER , HOSHIARPUR

ORDER

PER N. K. CHOUDHRY, JM:

(A.Y. 2010-11) 2 Sh. Karamjit Singh Rai Vs. ITO from Smt. Naranjan Kaur wife of Sh. Udai Singh for a consideration of Rs.68,50,000/- and also incurred Rs.4,11,000/- qua registration charges at the time of registry. The query was raised by the Assessing Officer vide letter no. 4298 dated 21.11.2016 to verify the source of the said expenses, which remained un-replied. Thereafter various statutory notices have been issued to the assessee as appears from para no. 1 of the assessment order, which also remained unanswered by the assessee and therefore in constrained circumstances the Assessing Officer made the addition of Rs.72,61,000/- (Rs.68,50,000/- + Rs.4,11,000 registration charges) by treating as unexplained investment for purchase of land u/s 69 of the Act. The said addition was challenged by the assessee before the Ld. CIT(A) on various grounds including the jurisdiction of the Assessing Officer without complying the mandatory conditions as envisaged u/s 147 of the Act, however the Ld. CIT(A) dismissed the appeal of the assessee on legal grounds as well as on merits. Feeling aggrieved, the assessee challenged the impugned order before us on following grounds:

“1. That the appellant denies his liability to be assessed at total income of Rs.72,61,000/- as against returned income of NIL and accordingly denies his liability to pay tax and interest demanded thereon.

2. That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order u/s 144/147 and that too without assuming jurisdiction as per law and without complying with the mandatory conditions u/s 147 to 151 as envisaged under the Income Tax Act, 1961.

3. That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition of Rs.72,61,000/- u/s 69 of the Act, on account of unexplained investment in purchase

(A.Y. 2010-11) 3 Sh. Karamjit Singh Rai Vs. ITO property, without considering the facts of the case and without observing the principles of natural justice. 4. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

3. Having heard the parties at length and perused the material available on record. The grounds no. 1 and 3 are based upon the merits of the case and ground no. 4 is general in nature which does not require any adjudication, however ground no. 2 is a legal ground which requires consideration first, hence before proceeding to the merits of the case, we are inclined to decide the legal ground 2 first, which reads as under:

“2. That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order u/s 144/147 and that too without assuming jurisdiction as per law and without complying with the mandatory conditions u/s 147 to 151 as envisaged under the Income Tax Act, 1961.”

On the contrary, the Ld. DR relied upon the orders passed by the coordinate Bench in the case of Smt. Billo v. ITO (in decided on 12.12.2018) and by the jurisdictional High Court in the case of Rakesh Gupta v. CIT Panchkula and another (in

(A.Y. 2010-11) 4 Sh. Karamjit Singh Rai Vs. ITO CWP No. 27068 of 2016) decided on 27th April, 2018 and submitted that the order under challenge does not require any interference by this bench as the Ld. CIT(A) has extensively dealt with the facts and circumstances and passed the order on the reasons recorded u/s 147 of the Act by the Assessing Officer.

“As per information available with this office and on the perusal of record, it has come to notice that the assessee has purchased immoveable property situated in Vill. Moranwali, Garhshankar for Rs.68,50,000/- on 18.02.2010 from Smt. Niranjan Kaur W/o Sh. Udhay Singh Attorney holder of Sh. Jasbir Singh alias Judge Rai and Sh. Balbir Singh Sons of Sh. Udhay Singh. The assessee was asked to explain the source Rs.68,50,000/- invested in the purchase of the property, but he failed to file any explanation.

2. As such, the assessee has invested Rs.68,50,000/ plus registration charges of Rs. 4,11,000/- (Rs. 72,61,000/-) in purchase of property and not explained the source thereof; the same is required to be charged to tax in the assessment year 2010-11 under the relevant provisions of Income tax. The assessee has not filed his return of income for the assessment year 2010-11.

(A.Y. 2010-11) 5 Sh. Karamjit Singh Rai Vs. ITO

“7. It is undisputed that the Assessing Officer had 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 of the assessee. The Assessing Officer had not examined and corroborated 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 cannot be said that the same was based on the belief that the income chargeable to tax had escaped income. The Assessing Officer has to act on the basis of" reasons to believe" and not on " reasons to suspect". The Tribunal had, thus, 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 s. 148 of the Act for reassessment proceedings was not valid.”

In 2nd para it was observed by the A.O. that the assessee has invested Rs.68,50,000/ plus registration charges of Rs. 4,11,000/- (Rs. 72,61,000/-) in purchase of property and not explained the source thereof; the same is required to be charged to tax in the assessment year 2010-11 under the relevant provisions of Income tax. The assessee has not filed his return of income for the assessment year 2010-11.

In 3rd Para , the A.O. observed that " in view of the above facts, I have independently gone through the records and information available with the Department and after independent verification of the records with reference to above issue, I have reasons to believe that by reasons of omission and failure on the part of the assessee to disclose true and correct particulars of his income chargeable to tax as mentioned above and other unexplained income that may come to notice during investigation has escaped assessment within the meaning of section 147 of the Income tax Act, 1961.”

made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Explanation 1.- Production before the assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. 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. (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the assessing officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. (c) Where an assessment has been made, but- (i) income chargeable to tax has been under assessed; or (A.Y. 2010-11) 8 Sh. Karamjit Singh Rai Vs. ITO

(ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this act; or (iv) excessive loss or depreciation allowance or any other allowance under this act has been computed."

(A.Y. 2010-11) 9 Sh. Karamjit Singh Rai Vs. ITO (supra) has held that the Assessing Officer has to act on the basis of “reasons to believe” and not on “reasons to suspect”. The decisions relied upon by the revenue department are factually dissimilar, whereas the facts of the instant case are similar and identical to the facts of decision rendered by the jurisdictional High Court in the aforesaid case. As in the instant case, the initiations of proceedings u/s 147 of the Act are based upon no evidence and/or un- corroborative material. The Assessing Officer further failed to establish the nexus that the investment made by the AO represented assessee's income. The co-ordinate Bench in Sahil Mahajan Vs ITO Wrad 6(3) Pathankot (supra) has clearly held that the competent authority is required to indicate some link or nexus while recording reasons for belief that the consideration amount of property acquired is chargeable to tax and has escaped the assessment, which according to our considered view, in the instant case is missing and the proceedings u/s 147 of the Act itself are vague, hence in any sense cannot survive and therefore we do not have any hesitation to held that the Ld. CIT(A) was absolutely unjustified in upholding the reopening of the assessment u/s 147 of the Act, without appreciating the facts and circumstances of the case, explanation submitted and evidences placed on record judiciously. Hence on this ground itself, the assessment proceeding/order is liable to be quashed. Consequently stands quashed.

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