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Facts
The assessee deposited Rs. 27,91,500/- in a joint savings bank account, but did not file a return of income for AY 2011-12. The Assessing Officer (AO) reopened the assessment under Section 147, alleging income escapement due to unexplained cash deposits. The assessee challenged the validity of the reassessment proceedings.
Held
The Tribunal held that the reasons recorded by the AO for reopening the assessment were invalid. Specifically, the AO failed to mention the bank account number, the nature of transactions, and did not verify the source of the deposits, indicating a non-application of mind and reliance on borrowed satisfaction. The reassessment proceedings and the consequent assessment order were quashed.
Key Issues
Whether the reasons recorded by the Assessing Officer for reopening the assessment under Section 147 of the Income Tax Act were valid and demonstrated due application of mind.
Sections Cited
147, 148, 46A, 151
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
Assessee by :Shri Chetan Agarwal, AR Respondent by :Shri Abhimanyu Singh Yadav, Sr. DR Date of Hearing : 04/09/2024-refixed for hearing on 31.12.2024 Date of Pronouncement : 17/03/2025 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2011-12, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘Ld. CIT(A)/NFAC’], dated 21.11.2023, which in turn arises out of an assessment order passed by the Assessing Officer, vide order dated 10.10.2018.
The grounds of appeal raised by the assessee are as follows:
1.Ld. Commissioner of Income tax (Appeals), National Faceless Appeal Centre has erred in law and facts in dismissing the ground of appeal related to of assessment in violation of principles of natural justice. 2.Ld. Commissioner of Income tax (Appeals), National Faceless Appeal Centre has misplaced the judicial pronouncements while deciding the issue related to validity of assessment.
3.Ld. Commissioner of Income tax (Appeals), National Faceless Appeal Centre has erred in law and facts in holding the view that no reasons are assigned for not submitting the evidences before assessing officer. 4.Ld. Commissioner of Income tax (Appeals), National Faceless Appeal Centre has erred in law and facts in denying the request for admission of new evidences in terms of Rule 46A of the I.T. Rules, 1962.
Ld. Commissioner of Income tax (Appeals), National Faceless Appeal Centre has erred in law and facts in holding the view that the lapse on part of tax consultant for performance of his duties cannot be a base for relief.
Ld. Commissioner of Income tax (Appeals), National Faceless Appeal Centre has erred in law and facts in not appreciating merits of explanation for source of cash deposits in joint savings accounts.
At the outset, Learned Counsel for the assessee, informs the Bench that assessee does not wish to press ground Nos. 3 to 6, raised by the her, therefore, we dismiss ground Nos. 3 to 6 raised by the assessee.
Now the effective ground of appeals, are ground Nos.1 and 2, in which, the assessee has challenged the validity of re-assessmentproceedings under section 147/148 of the Act.
5. Succinctly, the factual panorama of the case is that assessee before us is an Individual. In the assessee`s case, the department came to notice that during the relevant previous year, the assessee has deposited aggregate cash of Rs.27,91,500/- in her saving bank account jointly held with Shri Nandlal Jamnadas Ratapiya, maintained with the Junagadh Commercial Co. Op. Bank Ltd. As the assessee did not file her return of income for the year under consideration, the source of aggregate cash of Rs.27,91,500/- deposited during therelevant previous year in her saving bank account maintained with the Junagadh Commercial Co. Op. Bank Ltd remain unexplained. In view of these facts, the case wasreopened u/s 147 of the I Act after recording the reasons regarding income escaping assessment within the meaning of Section 147 of the Act. The notice u/s 148 of the /AY.2011-12 Prabhaben Nandlal Ratpiya Act, dated 24.03.2018 was issued and duly served upon the assessee. As per AIR information, during the relevant previous year, the assessee has deposited aggregate cash of Rs.27,91,500/- in her saving bank account No.130018/3106 jointly held with Shri Nandlal Jamnadas Ratapiya, maintained with the Junagadh Commercial Co. Op Bank Ltd., Keshod Branch, Keshod. The assessee was requested to explain the source of aggregate cash of Rs.27,91,500/-deposited in her saving bank account No.130018/3106 jointly held with Shri Nandlal Jamadas Ratapitya, maintained with the Junagadh Commercial Co. Op Bank Ltd., Keshod Branch, Keshod. However, the assessee could not furnish any details/explanation in this regard. Therefore, an addition of Rs.27,91,500/- was made to the total income of the assessee.
6. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A).The Ld. CIT(A), after hearing the assessee and having gone through the submission and documents of the assessee, confirmed the findings of the assessing officer.
7.Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us.
Learned Counsel for the assessee, submitted that reasons recorded by the assessing officer are bad in law. In the reasons recorded by the assessing officer, the assessing officer did not mention the bank account number of the assessee and also did not mention the amount escaped from assessment. Therefore, it is a complete non-application of mind, on the part of the assessing officer and therefore, reasons were recorded in a mechanical manner, hence, reassessment proceedings may be quashed.
/AY.2011-12 Prabhaben Nandlal Ratpiya 9.On the other hand, Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue submitted that reasons recorded by the assessing officer are perfect reasons and these reasons are as per law and there is only a typographical error in the reasons recorded, which does not mean that the reasons are vitiated, therefore reassessment proceedings cannot be quashed merely because there is a typographical error in not mentioning the bank account number in the reasons recorded by the assessing officer. The Ld. DR for the Revenue, also submitted written submission before the Bench, which we have gone through. The ld DR has also primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have gone through the facts of the case, the reasons recorded for reopening u/s 147 of the Act, the submission and the various decisions of the Courts including those relied upon by the assessee. Since, the assessee has challenged the reopening of assessment and also challenged the reasons for reopening of the assessment, therefore, it is appropriate to go through the reasons recorded by the assessing officer,which are reproduced below: “Reasons for reopening of the assessment in case of above names assessee For AY.2011-12 u/s 147 of the Act: - As per information/details available, the assessee did not filed his return of income for AY.2011-12. Credible information/source information has been received to the effect that the assessee has deposited aggregate cash of Rs.27,91,500/- in his savings bank account(s) maintained with Junagadh Comm. Co-Operative Bank Ltd during the year under consideration. Since the assessee did not file his return of income, the source of cash deposited in his bank account remains unexplained and required to be taxed. In view of the above, I have reason to believe that the income chargeable to tax has escaped to the extent of Rs.27,91,500/- for the A.Y.2011-12 within the meaning of section 147 of the I.T., Act, 1961. The above income has escaped assessment by reason of failure on the part of the above-named assessee who /AY.2011-12 Prabhaben Nandlal Ratpiya failed to disclose fully and truly all material facts necessary for the assessment year 2011-12 within the meaning of section 147 of the I.T. Act. In this case no return of income was filed for the year under consideration, accordingly, in this case, no assessment was made and the only requirement to initiate proceeding u/s. 147 is reason to believe which has been recorded above. It is pertinent to mention here that in this case the assessee has chosen not to file return of income for the year under consideration although the total income of the assessee had exceeded the maximum amount which is not chargeable to tax as discussed above and the assessee was assessable under the Act. In view of the above, the provisions of clause (a) of Explanation 2 to Section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue the notice u/s. 148 has been obtained separately from the Principal Commissioner of Income-tax-3, Rajkot as per the provisions of Section 151 of the Act.”
Having gone through the above reasons recorded, by the assessing officer, we find the following, inconsistency and irregularities in the reasons recorded by the assessing officer: (i)The above reasons recorded by the assessing officer does not mention the bank account number, which was escaped assessment.
(ii)The nature of transactions have not been mentioned, in the reasons recorded. (iii)There is non-application of mind of the assessing officer. The assessing officer has not verified the bank account number before issuing notice u/s 148 of the Act.
(iv)Mere deposit in the bank account does not constitute that income escaped assessment, the money in the bank account may be deposited out of the past savings / by sale of investment etc, which was not verified by assessing officer and hence there is complete non-application of mind.
The Ld. AO had not applied his mind and acted on mere information basis. The Ld. AO even failed to prove direct nexus with the information and reason recorded for reopening.The above reasons recorded by the assessing officer does not mention the bank account number, which was escaped assessment.The nature of transactions have not been mentioned, in the reasons record. There is non-application of mind of the assessing officer. The assessing officer has not verified the bank account number before issuing notice u/s 148 of the Act.Mere deposit in the bank account does not constitute that income escaped assessment, the money in the bank account may be deposited out of the past savings / by sale of investment etc, which was not verified by assessing officer and hence there is complete non-application of mind.Hence, the Ld. AO reopened assessee`s case on mere borrowed satisfaction and without verifying details.
The reasons must show due application of mind to the information. Assessing officer also cannot reopen assessment merely because he has been directed to do so by a superior officer. Hon`ble Delhi High Court held that the AO cannot reopen the assessment merely on the basis of information received without applying his mind to the information and forming an opinion, CIT vs. Sfil Stock Broking Ltd, 325 ITR 285 (Del) Therefore, the reasons of the AO for reopening assessment should be based on direct and circumstantial evidence; such reasons could not be based on simply suspicion, rumor or gossip.
An error discovered on a reconsideration of the same material (and no more) does not give AO power to assume jurisdiction to make reassessment. The aforesaid view on the above proportion has been reiterated by the Apex Court in A.L.A.Firm vs. CIT 183 ITR /AY.2011-12 Prabhaben Nandlal Ratpiya 285.Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion. The Hon’ble Supreme Court in ITO vs LakhmaniMewal Das [1976 ]103 ITR 437 has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s 147 of the Act. The Hon’ble Court first held that the section provides that there must exist “reasons to believe“ and not “reasons to suspect”. The following were the relevant observations:
“The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere presence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed.”
The purpose behind the relevant provisions imposing condition precedent for initiating reassessment proceedings is to ensure finality of proceedings. The Act also provides that such reason must be recorded in writing before issue of notice of reassessment so as to judge the existence of such belief before initiating reassessment proceedings by issue of notice u/s 148 of the Act. The above requirements are meant to ensure that powers to initiate reassessment proceedings are not exercised in an arbitrary manner. The Courts have analysed and explained in several cases as to what could be the valid reason to believe escapement of income, which would enable the Assessing Officer to successfully reopen the assessment. It has been held that the words ‘reason to believe’ are stronger than the words ‘reason to suspect’ or ‘reason to doubt’. It /AY.2011-12 Prabhaben Nandlal Ratpiya requires more than merely ‘satisfaction’ of the Assessing Officer. The belief entertained by the Assessing Officer must not be arbitrary or irrational. The expression ‘reason to believe’ does not mean purely subjective satisfaction of the Assessing Officer. The belief must be held in good faith. It cannot be merely pretence. Again, the belief must be of an honest and reasonable person based upon reasonable grounds. The Assessing Officer may act upon direct or circumstantial evidence, but his belief must not be based on mere suspicion, gossip or rumours. The Assessing Officer would be acting without jurisdiction, if the reasons for his belief are not material or relevant. There should be nexus between the information coming into possession of the AO and his belief on the basis of such information that income of the Assessee chargeable to tax has escaped assessment. In view of the aforesaid discussion, in our view, the reasons recorded by the Assessing Officer suffer from an infirmity of being misconceived in law and, therefore, initiation of proceeding thereupon is bad in law. Consequently, the assessment finalized by the Assessing Officer u/s 147 of the Act dated 10.10.2018 is held to be invalid and bad in law, and is hereby quashed.
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 result, appeal of the assessee is allowed.