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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI RAM LAL NEGI & SHRI O. P. MEENA
Rinakumar A Shah v. ITO 2(2)(4)Surat /I.T.A. No. 172/AHD/2017/A.Y.07-08 Page 1 of 12
IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI RAM LAL NEGI, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. No.172/AHD/2017: Assessment Year: 2007-08 Shri Rinakumar A. Shah, Vs. Income Tax Officer, B-1, Arpan Apartment, Nanpura, Ward- 2(2)(4) Surat Surat PAN: AHBPS 2120 D Appellant Respondent
Assessee by Shri Rasesh Shah, CA Revenue by Shri O. P. Meena. Sr. D.R. Date of hearing 27.03.2019 Date of pronouncement 30.04.2019
ORDER PER O. P. MEENA, AM 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-1, Surat (in short “the CIT (A)”) dated 12.11.2016, pertaining to Assessment Year 2007-08, which in turn has arisen from the assessment order passed under section 143 (3) dated 23.03.2015 of Income Tax Act, 1961 (in short ‘the Act’) by the Income Tax Officer, Ward- 2(2)(4), Surat (in short “the AO”). 2. Ground no. 1 states that on the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income tax (Appeals) has erred in confirming the action of the Assessing Officer in reopening assessment u/s.147 of the Act and thereby framing assessment u/s.147 of I.T Act.
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Briefly, stated the facts of the case are that the AO has received AIR information that the assessee has three bank account – one with Prime Co- operative Bank and remaining two bank account with Surat Co-operative Bank, Nanpura, Surat in which huge cash deposits were made. Therefore, the case was reopened u/s.147 of the Act after issue of notice under section 148 of the Act on 21.03.2014 and after recording the reason for belief and taking prior approval of higher authorities. 4. Being dissatisfied, the assessee preferred an appeal before the CIT (A). Before whom, it was submitted that the assessee has filed return of income declaring total income of Rs. 1,10,940 for the assessment year 2007-08. The assessment was reopened under section 147 of the Act by issue of notice under section 148 of the Act on 21.03.2014 on the ground of AIR information. The assessee vide letter dated 05.03.2015 stated that original return of income may be treated as filed in response to notice under section 148 of the Act. The assessee has requested the AO to provide copy of bank account on the basis of which notice under section 148 of the Act was issued. However, the same was not provided. The AO has mentioned in show cause notice that total deposits in bank account to the tune of Rs.37,10,700 in the alleged bank account, whereas the addition was made at Rs. 80,77,695 after issue of notice under section 133(6) during the year under consideration which needs to be enquired. This goes to prove that the AO did not have the details of cash deposits in bank account at the time of reopening of assessment, therefore, notice under section 148 of the Act
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was issued mechanically to make roving enquiries without any reason to believe, hence same is liable to be quashed in the light of decision of Hon`ble Supreme Court in the case of ITO & Ors v. Lakshmani Mewal Das [1976] 103 ITR 437 (SC) wherein it was held that the powers of ITO to reopen the assessment, though wide, are not plenary. The words of statute are “reason to believe” and not “reason to suspect”. The fact that the AO has mentioned different figures in show-cause notice and suddenly made addition of different figure at the time of assessment order without giving any opportunity of being heard. Hence, notice under section 148 of the Act was issued for making roving enquiry; hence, assessment reopened is not valid. However, the AO observed that verification of order sheet noting dtd. 13.03.2015 shows that the assessee was duly provided copy of all bank account of which the assessee has failed to provide explanation. Therefore, controversy raised in respect of bank account number is not correct. With regard to contention that deposit in said bank account mentioned in reason to believe at Rs. 37,10,700 and ultimately addition was made for Rs.80,77,695 as bank account was accepted as undisclosed hence, it is immaterial whether it is “x” amount or “x”+ amount till the escapement of income was exceeding Rs. 1 lakhs. Therefore, relying on the decision in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) held that sufficiency of reason is not open to question in question of law. Hence, this ground of appeal was dismissed.
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Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee took us through the reason recorded for reopening of assessment placed at Paper Book Page No. 72 to 73 which read as under :- “In this case AIR data has been generated from ITD application and it is noticed that during F.Y. 2006-07 relevant to A.Y. 2007-08, the assessee has deposited Rs. 37,10,70/- in bank account. On verification of the record, it is found that the assessee has not filed his Return of Income. The failure on the part of the assessee to make a return u/s. 139 of I.T. Act,, the income chargeable to tax to the extent of Rs. 37,10,700/- has escaped assessment within the meaning of sec. 147 of the Act. I have, therefore, reason to believe that income of Rs.37,10,700/- has escaped assessment within the meaning of section 147 of I. T. Act. It is therefore, necessary to initiate action u/s.147 of I.T. Act,1961 in the case of the assessee for A.Y. 2007- 08.” 6. The learned counsel for the assessee drawing our attention to the reason for reopening of assessment submitted that the AO has mentioned in the reason for reopening of assessment that there was failure on the part of the assessee to file a return of income under section 139 of the Act. Whereas the assessee has already filed return of income on 21.11.2007 declaring total income of Rs. 1,10,940 vide acknowledgement and computation of income placed at Paper Book Page No. 29 to 32. Therefore, it was contended that the reopening of assessment was made on incorrect facts and without verification of return of
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income filed by the assessee. Hence, assumption of jurisdiction u/s.147 of the Act is illegal. The learned counsel for the assessee has placed reliance on the judgement of Hon’ble Gujarat High Court in the case of Sunrise Education Trust v. Income Tax Officer [2018] 92 Taxman 74 (Gujarat) wherein it was held that when the AO in the reasons recorded proceeded on the erroneous footing that the assessee has not filed return of income at all and when it is not in dispute that the assessee did file the return of income for the assessment year under consideration, which was duly acknowledged by the department, then, it has to be held that the entire reasoning thus proceeded on the wrong premises that the assessee had never filed the return. This, itself would be sufficient to annual the notice of reopening the assessment. 7. The learned Counsel further submitted that the AO was not having the details of bank account in at the time of issue of notice under section 148 of the Act. It is evident from the fact that in the show cause notice, the AO has mentioned that total deposit to the tune of Rs.37,10,700/- in the alleged undisclosed account, whereas the AO has ultimately made the addition of Rs.80,77,695/- after the issue of notice under section 133 (6) of to the bank during the course of assessment proceedings under consideration. This fact establish that the AO did not even have the details of cash deposits at the time of reopening of the assessment. Therefore, the notice under section 148 has been issued for making roving inquiry is without any reason to believe that there was escapement of income. Therefore, the notice issued under section 148 is liable to be quashed
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in the light of the ratio laid down by the Honourable Supreme Court in the case of ITO & Ors v. Lakshmani Mewal Das [1976] 103 ITR 437 (SC). The learned Counsel further placed reliance in the case of Mumtaz Haji Mohmd Memon v. Income Tax Officer, Ward- 6(1)(1) Special Civil Application No. 21030 of 2017 dated 21.03.2018 of Hon’ble Gujarat High Court wherein the reasons recorded for reopening of assessment is stated that “However, on verification from ITD system, it is seen that the assessee has not filed return of income for A.Y. 2010-11. Since, the assessee has not filed return of income, capital gain earned on the sale of immovable property has not been offered for taxation by the assessee. Therefore, the property sale transactions made by her during the financial year 2009-10 are unexplained/undisclosed. In view of the above facts, the AO had reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the IT for A.Y. 2010-11 by an amount of Rs. 3 9, 65, 000/-and it is a fit case for reopening the assessment for A.Y. 2010- 11.” The Honourable Court observed that “11. In this context, we have noted that the reasons proceeded on two fundamental grounds. One, that the property in question was sold for a sum of Rs. 1, 18, 95, 000/- and two; the assessee has not filed the return that therefore his one 3rd share out of the sale proceeds was not offered to tax. Both these factual grounds are totally incorrect as is now virtually admitted by the Revenue. It is undisputed that the assessee had actually filed the return of income for the said assessment year and income also offered his share of declared sale consideration to tax as capital gain. The Assessing Officer may have dispute with respect to the computation of such capital gain, he cannot simply dispute the fact that the assessee did not file the return. Importantly, even the second factual assertion of the Assessing Officer in the reasons recorded is totally incorrect. He has referred to said sum of Rs. 1, 18,95,000/-as a sale price of the property. The Assessee had produced before the Assessing Officer, the sale deed in which, the sale consideration disclosed was at Rs. 50 lakhs.” 8. The Hon`ble High Court, in view of the foregoing, observed that reasons recorded, in fact, ignored that fact that the sale consideration as per the sale deed was Rs. 50 lakhs and that the assessee had by filing of the return offered his share
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of such proceeds by way of capital gains. Accordingly, the Hon`ble High Court has quashed the impugned notice for reopening of assessment. Similarly, in the case of the assessee, the assessee filed the return of income and comment figures of cash deposits were not before the AO. Hence, facts of said case are squarely applicable to the case of the assessee”. Therefore, it was urged before us to quash the notice for reopening of assessment. The learned counsel for the assessee further placing reliance in the case of Vishal Dilip Rai v. ITO Valsad [I.T.A.No. 1863/Ahd/2016/SRT dated 26.09.2018] of Co-ordinate Bench of Surat Tribunal in which following the decision of Hon`ble High Court of Gujarat in the case of Sunrise Education Trust v. Income Tax Officer [2018] 92 Taxman 74 (Gujarat) quashed the reopening of assessment as the reasons mentioned that the assessee has not filed return whereas the assessee did file the return of income. The learned counsel for the assessee further relied in the case of Bir Bahadur Singh v. ITO [2015] 53 Taxmann.com 366 (Delhi-Trib) wherein it was held that where the AO proceeded with fallacious assumption that bank deposits constituted undisclosed income and overlooked the facts that source of deposit need not necessary be income of the assessee, reassessment proceedings was therefore, quashed. 9. Per contra, the ld. Sr. D.R. supported the order of Ld. CIT (A) and submitted that there was an AIR information with the AO that the assessee has not disclosed the cash deposits in bank account. Therefore, the AO was right in initiating reassessment proceeding u/s.147 of the Act. However, he could not
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controvert the fact that the assessee did file return of income for the assessment year 2007-08 on 21.11.2007. 10. We have heard the rival submissions and perused the relevant material on record. The learned counsel for the assessee has alleged that the AO in his reason record for reopening of assessment stated that the assessee has not filed any return of income for the assessment year under consideration whereas the assessee has duly filed return of income for the assessment year under consideration. Therefore, the AO has assumed wrong facts, hence, reassessment proceeding are liable to be quashed. In order to appreciate the facts in proper perspective, it would be relevant to reproduce the reason recorded by the AO which are appearing at Paper Book Page No. 72-73 as under:-
“In this case AIR data has been generated from ITD application and it is noticed that during F.Y. 2006-07 relevant to A.Y. 2007-08, the assessee has deposited Rs. 37,10,70/- in bank account. On verification of the record, it is found that the assessee has not filed his Return of Income. The failure on the part of the assessee to make a return u/s. 139 of I.T. Act, the income chargeable to tax to the extent of Rs. 37,10,700/- has escaped assessment within the meaning of sec. 147 of the Act. I have, therefore, reason to believe that income of Rs.37,10,700/- has escaped assessment within the meaning of section 147 of I. T. Act. It is therefore, necessary to initiate action u/s.147 of I.T. Act, 1961 in the case of the assessee for A.Y. 2007-08.” 11. The perusal of above reasons would show that the AO has proceeded to reopen the assessment on the ground that the assessee has not filed his return of income and the assessee did not disclose cash deposits of Rs.37,10,700/- in bank account. However, we find that the assessee did file his return of income on 21.11.2007, i.e. before issue of notice under section 148 of the Act on 21.03.2014.
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Further, the addition was made on account of cash deposits in bank account was at Rs.80,77,695/- after obtaining copy of bank account from bank authorities under section 133(6) of the Act during the course of assessment proceedings. These facts would reveal that both the grounds of reopening of assessment are factually incorrect as it is undisputed fact that the assessee has did file return of income for the assessment year under consideration. Further, the cash deposits in bank account were at Rs.80,77,695/- and not at Rs.37,10,700/- as mentioned in reasons for reopening of assessment and show-cause notice issued for making addition meaning thereby that the AO was not gone through the bank account and notice under section 148 of the Act was issued for making roving enquiries without verification of record. Thus, the notice under section 148 of the Act was issued without verification of assessment record and return of income filed by the assessee. Therefore, relying on the decision of Hon’ble Gujarat High Court in the case of Mumtaz Haji Mohmad Memon v. ITO Ward- 6(1) (1) Ahmedabad [SCA No. 21030 of 2017-dated 21.03.2018] (supra) the notice for reopening of assessment is liable to be quashed. The Hon’ble High Court observed as under:- “However, on verification from ITD system, it is seen that the assessee has not filed return of income for A.Y. 2010-11. Since, the assessee has not filed return of income, capital gain earned on the sale of immovable property has not been offered for taxation by the assessee. Therefore, the property sale transactions made by her during the financial year 2009-10 are unexplained/undisclosed. In view of the above facts, the AO had reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the IT for A.Y. 2010-11 by an amount of Rs. 3 9, 65, 000/-and it is a fit case for reopening the assessment for A.Y. 2010-11.”
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The Honourable Court observed that “11. In this context, we have noted that the reasons proceeded on two fundamental grounds. One, that the property in question was sold for a sum of Rs. 1, 18, 95, 000/- and two; the assessee has not filed the return that therefore his one 3rd share out of the sale proceeds was not offered to tax. Both these factual grounds are totally incorrect as is now virtually admitted by the Revenue. It is undisputed that the assessee had actually filed the return of income for the said assessment year and income also offered his share of declared sale consideration to tax as capital gain. The Assessing Officer may have dispute with respect to the computation of such capital gain, he cannot simply dispute the fact that the assessee did not file the return. Importantly, even the second factual assertion of the Assessing Officer in the reasons recorded is totally incorrect. He has referred to said sum of Rs. 1, 18,95,000/-as a sale price of the property. The Assessee had produced before the Assessing Officer, the sale deed in which, the sale consideration disclosed was at Rs. 50 lakhs.” The Hon`ble High Court, in view of the foregoing, observed that reasons recorded, in fact, ignored that fact that the sale consideration as per the sale deed was Rs. 50 lakhs and that the assessee had by filing of the return offered his share of such proceeds by way of capital gains. Accordingly, the Hon`ble High Court has quashed the impugned notice for reopening of assessment. Similarly, in the case of the assessee, the assessee filed the return of income and comment figures of cash deposits were not before the AO. Hence, facts of said case are squarely applicable to the case of the assessee”
We also note that the AO had not examined the cash deposits in bank account on the basis of which reopening of assessment has been made as the said bank account were not in his possession at the time of issue of notice under section 148 of the Act. Hence, the reasons recorded for reopening of assessment are not valid in the light of ratio laid down in the case of ITO & Ors v. Lakshmani Mewal Das [1976] 103 ITR 437 (SC) wherein it was held that the powers of ITO to reopen the assessment, though wide, are not plenary. The words of statute are
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“reason to believe” and not “reason to suspect” From the copy of acknowledgement of return of income placed at Paper Book Page No. 29-32, we are satisfied that the assessee has did file return of income for the assessment year under consideration whereas the AO has proceeded on the wrong premises that the assessee had never filed return of income for the relevant assessment year. Thus, respectfully following the ratio of judgement of Hon`ble Jurisdictional High Court in the case of Sunrise Education Trust v. Income Tax Officer [2018] 92 Taxman 74 (Gujarat) (supra) wherein it was held that when the AO in the reasons recorded proceeded on the erroneous footing that the assessee has not filed return of income at all and when it is not in dispute that the assessee did file the return of income for the assessment year under consideration, which was duly acknowledged by the department, then, it has to be held that the entire reasoning thus proceeded on the wrong premises that the assessee had never filed the return. This, itself would be sufficient to annual the notice of reopening the assessment. In view of the above and in the light of ratio laid down by the Hon`ble High Courts of Gujarat as quoted above and respectfully following the same, we hold that entire reasoning recorded by the AO for initiation of reassessment proceeding and issuance of notice under section 148 of the Act was on the wrong and incorrect facts that the assessee has never filed the return of income, and in fact, it was filed. This view is further supported by decision of Co-ordinate Bench of Surat Tribunal in the case of Vishal Dilip Rai v. ITO Valsad [I.T.A.No. 1863/Ahd/2016/SRT dated 26.09.2018] in which following the decision of
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Hon`ble High Court of Gujarat in the case of Sunrise Education Trust v. Income Tax Officer [2018] 92 Taxman 74 (Gujarat) quashed the reopening of assessment as the reasons mentioned that the assessee has not filed return whereas the assessee did file the return of income. Therefore, are we are inclined to hold that the initiation of reassessment proceeding u/s.147 of the Act and notice under section 148 of the Act of the Act and all subsequent proceedings and orders have been issued, conducted, passed without having valid jurisdiction, and therefore, the same are bad-in-law and hence, we quash the same. Accordingly, legal ground no. 1 above of the assessee is allowed and notice under section 148 of the Act with impugned reassessment proceeding of the AO /CIT (A) are quashed. 13. Ground No. 2 relates to confirming of addition of Rs.80,77,695/- on account of undisclosed turnover. Since, we have quashed the initiation of reassessment proceedings, notice and al subsequent proceedings and orders thereof, this ground of appeal on merits becomes infructuous hence, and we are not adjudicating the same having become infructuous. 14. In the result, the appeal of the assessee stands allowed on legal ground. 15. The order pronounced in the open Court on 30.04.2019. Sd/- Sd/- (RAM LAL NEGI) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 30th April, 2019/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat