CHANDER JAIN,NEW DELHI vs. DCIT, CIRCLE-63(1), NEW DELHI

Both these appeals are disposed of by this common order for the sake of convenience.

First we will take ITA No. 745/Del/2014.

Vide application dated 07.09.2017 the assessee raised additional grounds by which the notice issued u/s 148 was challenged on the ground that the AO has erred in assuming the jurisdiction for reassessment.

Since, the additional ground goes to the root of the matter we decided to proceed to adjudicate the same first. The DR strongly objected to the additional grounds raised by the assessee stating that the same was not raised before the lower authorities. We do not find any force in the objection of the DR. The Hon’ble Supreme Court in the case of NTPC 229 ITR 383 has clearly laid down that a point of law which requires no verification of fact can be raised at any stage.

The additional ground is admitted. Facts on record show that the original return was filed on 18.01.2010 declaring a total income of Rs. 1,56,038/- which was processed u/s 143(1) of the Act. Subsequently, a notice u/s 148 of the Act was issued on 18.03.2012. The reasons for reopening the assessment read as under: ANNEXURE-A Sh. Chander Jain, House No. 4682, Gali Umrao Singh, Pahari Dhiraj, Delhi 110 006. A.Y. 2009-10

A perusal of the aforementioned reasons show that there is a reference of query letter dated 11.01.2012 and 25.01.2012. There is also a reference that no reply has been received from the assessee till date. Thereafter, the AO observed that since cash was found to be deposited in the savings bank account. He had reasons to believe that the source of the above cash deposits is income from undisclosed sources and, accordingly, reassessment proceedings were initiated.

On identical set of facts, the Coordinate Bench in the case of Ashwani Kumar in order dated 23.02.2016 has held as under: “7. The facts are not disputed. A bare perusal of the reasons recorded for issuance of notice u/s 148 of the Act, shows that the only material available before the AO was the AIR Information of the assessee having deposited an amount of Rs. 11.60 lakhs in his savings bank account. Remarkably, the reasons recorded did not even mention the bank in which such savings bank account was maintained. The assessee, as available from the first page of the assessment order, was issued a notice u/s 148 of the Act, in pursuance to the aforesaid reasons. The assessment order u/s 143(3) of the Act is dated 25.03.2013. The assessee had filed the return of income on 05.10.2005 and it had been stated in response to the notice u/s 148 of the Act that this return be treated as having been filed in response to this notice. In ‘Bir Bahadur Singh Sijwali’ (supra), like in the present case, the reasons recorded indicated that cash deposits had been made in the bank account of the assessee. The Tribunal held that the mere fact that the deposits having been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. It was observed that the reasons recorded did not make out a case that the assessee was engaged in some business and the income from such a business had not been returned by the assessee. In the case at hand also, the reasons recorded do not contain any such recital. The Tribunal held that the factum per se, of deposits in the bank account of the assessee could not be made the basis for holding the view that income had escaped assessment, over-looking that the sources of the deposits need not necessarily be the income of the assessee; and that as such, the reasons recorded were not sufficient to believe escapement of income; that rather, they were reasons to suspect escapement of income, which was not enough for issuance of a notice u/s 148 of the Act.”

A similar view was taken by the Delhi Bench in the case of Bahadur Singh Sijwali 53 taxmann.com 366. The relevant findings read as under: “8. 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 do not 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 do not 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.

Ld. 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 (P) Ltd. [2012] 342 ITR 169/206 Taxmann 207/18 taxmann.com 217 (Delhi) but then none of the questions before Hon’ble High Court had anything to do with reopening of assessment and this decision cannot, 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 Courts judgment in the case of Phool Chand Bajrang Lal vs. ITO [1993] 203 ITR 456/69 Taxman 627, 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 Ltd. vs. ITO [IT Appeal No. 1078/Delhi of 2013, dated 23.05.2014], 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. Ld. 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 then 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.

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.”

In the light of the judicial decisions discussed hereinabove and on finding parity in facts with the facts of the case in hand, we are of the considered view that the assumption of jurisdiction by the AO by issuing notice u/s 148 of the Act is bad in law. We, accordingly, quash the notice issued u/s 148 of the Act, thereby, quashing the assessment order.

Before parting, the DR strongly pays reliance on the decision of the Hon’ble Supreme Court in the case of Raymond Woollen Mills Limited 236 ITR 34. We find that the facts of the case in hand are clearly distinguishable from the facts of the case considered by the Hon’ble Supreme Court. Firstly, the Hon’ble Supreme Court had observed that it cannot strike down the reopening of the case in the facts of this case. The Hon’ble Supreme Court further observed that it will be opened to the assessee to prove that the assumption of facts made in the notice was erroneous. We have already explained the error in the facts in the reasons recorded for reopening the assessment. Therefore, the decision relied upon by the DR would do no good to the Revenue.

In the result, the assessment is quashed and since, the assessment is quashed, we do not find it necessary to well into the merits of the case. Additional ground is allowed.

CIT(A) erred in confirming the levy of penalty u/s 271(1)(c) of the Act amounting to Rs. 11.38 lakhs.

Facts on record show that the penalty has been levied on the additions made by the AO in the assessment order dated 31.01.2013 framed u/s 143(3)/147 of the Act.

In we have quashed the assessment order itself. When the foundation (assessment) is removed the super structure (penalty) must fall. The AO is directed to delete the penalty so levied.

The appeal filed by the assessee is accordingly allowed.