GAJENDRA PAL SHARMA,MEERUT vs. ITO WARD 1(2), GHAZIABAD

To verify the transaction as reported in the AIR information, the Assessing Officer issued and served notice u/s 133(6) of the Act to the assessee and in response no compliance was made by the assessee.

In the course of assessment proceedings, the Assessing Officer was not satisfied with the explanation of the assessee and made an addition of Rs. 70,95,000/- u/s 69 of the I T Act.

When the assessee went in appeal before the ld. CIT(A), the ld. CIT(A) restricted the addition to Rs. 41,47,382/-.

Aggrieved further, the assessee is in appeal before us.

Before us, the ld AR of the assessee vehemently contested the validity of the notice u/s 148. The ld. counsel for the assessee stated that the Assessing Officer issued notice u/s 148, simply on the basis of AIR Information received from sub-registrar to verify the source of investment made in purchase of house and without possession of any tangible material. The ld AR argued that the AO recorded incorrect facts as the Assessing Officer has considered entire value in the hand of assessee only as unexplained investment while assessee had only 50% ownership in the said property. There is no application of mind by Assessing Officer to form requisite satisfaction that investment in property is income of current year which has escaped assessment. It was also argued that the PCIT granted approval u/s 151 in a mechanical manner. It was further argued that the Assessing Officer has reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. Hence, notice u/s 148 dated 30.03.2019 is liable to be quashed.

In support of the above submissions, the ld. counsel for the assessee placed reliance on various judgements. In the case of CIT Vs Smt Maniben Valji Shah 283 ITR 453, the Hon'ble Bombay High Court quashed assessment based on notice under section 148 of the Act where proceedings under section 147 was initiated to verify the source of Investment made in purchase of house.

The ld AR relied on the decision of the Hon'ble Gujarat High Court in the case of Bakulbhai Ramanlal Patel Vs ITO', 56 DTR 0212 for the proposition that where the reasons recorded reflect that the matter requires detailed investigation and further verification, the AO has reason to suspect and not reason to believe.

The ld AR relied on the Hon'ble Bombay High Court in case of Tata Sons Limited Writ Petition No. 2545/2010 decided on 3/2/2022for the proposition that where the re-opening of the assessment was based on incorrect facts, the notice for re-opening was unsustainable. Reliance in that regard was also placed on the decisions in Punia Capital Pvt. Ltd. Writ Petition No. 1091/2022 decided on 15/2/2023 and Ankita A. Choksey411 ITR 207.

The ld AR also referred to the Delhi High Court in the case of Northern Exim Pvt. Ltd. vs. DCIT (2013)357 ITR 586 which 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.

On the issue of mechanical nature of PCIT’s approval, the ld AR relied on CIT v. S. Goyanka Lines & Chemical Ltd. (2016) 237 Taxman 378 (SC) and Pr CIT vs M/s NC Cable Ltd, (Del HC)

The ld. counsel for the assessee, on merits, submitted that the assessee during the year under consideration along with wife Mrs Meena Sharma has purchased residential property for Rs. 90,95,000/- (purchase cost 8500000+ stamp duty 550000) on 16.02.2012.That for purchase of residential property assessee took housing loan of Rs. 20,00,000/- from Canara Bank, sold plot of land for Rs. 784,000/- and took unsecured loan from friends & relatives. That the above property was purchased in co-ownership where the Assessee and his wife have equal ownership in above residential property. Assessee share comes to Rs. 45,42,500/- (90,95,000/2) but the Ld. AO has treated total purchase value of residential property as unexplained investment in the hand of assessee only after allowing the credit of housing loan.

It was stated that the details of purchase consideration amounting to Rs. 85,00,000/- is given in conveyance deed at page no. 41 itself. The ld AR submitted that the assessee filed evidences in support of bank loan, sale of plot of land and unsecured loan taken from friends and relatives under rule 46A. The ld AR stated that the ld. CIT(A) while justifying the reopening the case, held that the source of investment remained unexplained but restricted the addition to Rs 41,47,382/- on the ground that similar amount has been added by the Assessing Officer of Smt Meena Sharma in her hands.

Per contra, the ld. DR relied upon the orders of the authorities below. The ld DR vehemently contested the ld AR’s arguments that the notice u/s 148 was not valid. The ld DR took us to the reasons recorded and argued that the AO first received an information u/s 285BA of the I T Act from the office of Sub-Registrar relating to purchase of immovable property. Thereafter, the AO examined the ITR of the assessee where he found that the income and receipt declared in the ITR was not consummate with the investment made. Accordingly, to verify the transaction, notice u/s 133(6) was issued to the assessee. At this point the ld DR vehemently contended that the ld AR is factually incorrect when he states that notice u/s 148 was issued to verify the transaction whereas in fact notice u/s 133(6) was issued to verify the transaction.

The ld DR stated that the AO, simultaneously issued Notice u/s 133(6) on 24.08.2018to Sub- Registrar-V Ghaziabad for details of transaction who provided a copy of Purchase Deed to the AO on 10th September, 2018.Purchase Deed mentioned that property is Joint property and PAN Number of both Parties were available on Purchase deed. The ld DR argued that the AO thus confirmed the authenticity of the AIR information. It was further argued by the ld DR that at this point of proceedings, the AO considered the entire investment in the hands of the assessee as the purchase deed of the property does not mention that 50% of investment was made by his wife.

We have heard the rival submissions and have perused the relevant material on record. Having heard the rival submission we find that the issue to be adjudicated first is the validity of assumption of jurisdiction by the AO. We find the reasons recorded for the reopening u/s 148 states as below:

From the examination of the reasons recorded as above, we find that the AO recorded his reasons on 25.03.2019 mentioning the reasons for reopening. On receipt of information relating to purchase of immovable property, the AO examined the ITR of the assessee which showed the assessee had declared salary income of Rs 3,43,253/- and capital gain of Rs 1,45,566/- which led the AO to believe that the income and receipt declared in the ITR was not commensurate with the investment Rs 90,95,000/- made. Accordingly, to verify the transaction, notice u/s 133(6) on 13.08.2018 was issued to the assessee which remained uncompiled with. We therefore find for a fact that for verification of the transaction, the AO had issued notice u/s 133(6).

We also find that the AO had also issued notice u/s 133(6)

We therefore are not inclined to accept that the Assessing Officer issued notice u/s 148 just on the basis of AIR Information to verify the source of investment made in house and without possession of any tangible material. We also decline to agree with the assessee argument that as the AO did not specify the name of the property in which investment was made, he had no tangible material. We are of the considered opinion that the AO had tangible material before him in the form of AIR information, verified from the Sub-registrar office and the ITR of the assessee, devoid of any information on investment or source of investment in the property. We are supported on this issue by the Hon’ble Supreme court which held in the case of Raymond Wollen Mills Pvt Ltd Vs ITO (1999) 236 ITR 34 (SC), that the sufficiency or correctness of the material is not a thing to be considered at this stage.

We also agree with the revenue contention that the AO formed a ‘reason to believe’ and not ‘reason to suspect’. The AO had verified information in his possession that the assessee had made investment in the said property. Besides, the AO had in front of him the ITR of the assessee showing meager income not commensurate with the investment made. Following the principal of natural justice, the AO gave the opportunity to the assessee to explain the investment before taking recourse to section 148 of the IT Act. In absence of any explanation in response to the notice u/s 133(6), in respect of investment, the AO formed a ‘reason to believe’ and reopened the assessment u/s 148 of the I T Act. It does not lie in the mouth of the assessee now to say that the AO should have verified from the AO of the wife of the assessee whose name/PAN featured in the purchase deed when he himself failed to avail the opportunity to explain the entire transaction. We are of the view that that there was sufficient tangible material on record which justifies the prima facie belief of the AO regarding the escapement of taxable income. The facts noted above clearly demonstrate that the AO indeed had tangible material having a live link to the “reasons to believe” for arriving at a prima facie opinion that the income has escaped assessment.

The reliance on Maniben Valji Shah and Bakulbhai Ramanlal Patel are factually distinguishable. In Maniben Valji Shah the Bombay High Court held that “there is no question of the assessing officer having any basis to reasonably entertain the belief that any part of the income of the assessee had escaped the assessment and that such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts.” In Bakulbhai Ramanlal Patel the reasons recorded by the AO itself states that various cash payments/receipts are to be investigated or verified. In such factual matrix the Court held that the AO has reason to suspect and not reason to believe.

Coming to the issue of mechanical application of mind by the PCIT while granting approval u/ 151(2), we note that the PCIT recorded her approval as under:

We find that the case of N C Cables relied upon by the assessee, is factually distinguishable. In that case, the Delhi High court found that the CIT had merely appended the expression “approved”. In fact, this decision supports the case of Revenue as it observed further as follows:

Similarly, the reliance placed on the case of Madhya Pradesh High Court decision in the case of S Goyenka Lime & Chemicals Ltd, is factually distinguishable. This case relied on the case of Arjun Singh (246 ITR 363(SC) where the satisfaction of CIT which merely stated “I am satisfied” was considered as mechanical without application of mind and also the fact that the satisfaction was recorded on the ground that the satisfaction was in less than 24 hours of time. In the instant case, the PCIT has recorded, in brief detail, her satisfaction based on the objective materials in the shape of reasons recorded by the AO.

We are also not inclined to accept that the AO has recorded incorrect facts in reopening the case. The AO has correctly recorded the facts available to him with respect to the investment made of Rs 90,95,000/-. At this point of proceedings, the AO had no factual materials to establish that the joint holder of the property had made any investment in the said property, especially when the assessee did not cooperate in the inquiry. The case of Tata Sons relied upon as also the case of Northern Exim Pvt Ltd are again factually distinguishable.

The Hon’ble Delhi High Court in the case of EXPERION DEVELOPERS PVT LTD dated 13.02.2020 (supra) supports the view that in the instant case the approval accorded by the PCIT was not mechanical as follows:

Now that the jurisdictional issue is adjudicated, we proceed to evaluate the case on merits which is Ground No. 2that pertains to addition of Rs. 70,95,000/- made u/s 69 by the Assessing Officer. In appeal Ld. CIT(A) restricted the addition to Rs. 41,47,382/-.

The assessee is now in appeal before us and has contended that during the year under consideration assessee along with wife Mrs Meena Sharma has purchased residential property for Rs. 90,95,000/- on 16.02.2012. For purchase of residential property, assessee took housing loan of Rs. 20,00,000/- from Canara Bank, used the sale proceeds from sale of plot of land for Rs. 7,84,000/- and Rs 11,00,000/- from sale of residential house. It was stated that unsecured loans of Rs 18,55,000/- were taken by assessee's wife Mrs Meena Sharma from friends & relatives. It was submitted that Rs 4,99,881/- received on sale of jewellery as also cash available of Rs 8,00,0000/- was also used. It is submitted that the assessee and his wife used funds out of their savings of Rs 19,58,197/- lying in SBI, Vijaya Bank, and Syndicate Bank and capital accumulated of Rs 4,57,920/-. It is stated that the Assessing Officer has treated total purchase value of residential property as unexplained investment in the hands of assessee after allowing only the credit of housing loan. It is argued by the ld AR that the property was purchased in co-ownership and the assessee and his wife have equal ownership in the residential property. It is stated that the Assessee’s share comes to Rs. 45,42,500/-but the Assessing Officer treated total purchase consideration as belonging to assessee only.

Regarding source of payment the ld. counsel for the assessee stated that the assessee submitted all necessary facts and documents before Assessing Officer as well as Ld. CIT(A).It was submitted that during the course of appellate proceedings, the assessee has filed application under rule 46A with documentary evidence in respect of unsecured loans taken by wife Mrs Meena Sharma. It was argued that the assessee had duly discharged onus as required by section 68 of the Act.

The ld. CIT(A) at Para 5 has discussed remand report received from Assessing Officer and there is no finding given in respect of unsecured loans taken by assessee's wife Mrs Meena Sharma. Further, the Assessing Officer has mentioned that sale proceeds of Rs. 37 lakhs were received in May 2012 but he ignored that out of such sale proceeds two cheque of Rs. 600000/- and Rs. 500000/- were given on 12.03.2012 and 15.03.2012 which were cleared on 01.06.2012.

It is submitted that in remand report the Assessing Officer has again treated total purchase consideration as unexplained investment in the hands of the assessee while assessee owns 50% ownership in the residential property purchased during the year. The CIT(A) has also not given any finding on unsecured loans taken by assessee's wife. The ld. CIT(A) has allowed the relief to assessee to the extent of Rs. 29,47,618/-i.e. addition made in the hand of assessee's wife where the assessment order in her case was passed u/s 147/143(3) of the Act in place of correct relief amount of Rs. 35,47,500/-.

In view of above facts and submissions, the ld. counsel for the assessee concluded that it is clear that during the year under consideration assessee has made investment in residential property for Rs. 45,47,500/- only. Source of payment made to purchase of residential property was duly proved in the light of documents filed by the assessee before Assessing Officer as well as ld. CIT(A). Therefore, the ld. counsel for the assessee prayed to kindly delete the addition of Rs. 41,47,382/-.

On the other hand, the ld. DR relied upon the orders of the authorities below.

We have heard the rival submissions and have perused the relevant material on record. On merits we find that the residential house was purchased on 16.02.2012 in joint name along with his wife and the total purchase cost was Rs. 90,95,000/- (purchase cost Rs 85,00,000/-+stamp duty Rs 5,95,000/-). The assessee therefore is required to explain source of 50% investment in the said property.

Regarding source of payment made for the purchase of the property, we find from the copy of sale deed of plot and residence, bank accounts and confirmation of loan a/cs, pertaining to both the assessee and his wife Smt Meena Sharma, has been produced before us as under: i) Payment at Rs 10,00,000/- and Rs 8,00,000/- were made from a/c no. 30656944019 of SBI which is in joint name of Mrs Meena Sharma & Gajendra Pal Sharma. In SBI a/c, on 01.07.2011 Rs 930,000/- were transferred from a/c no. 718601010009950 of Vijaya Bank and Rs 800,000/- were transferred from a/c no. 88902200025446 of Syndicate Bank. In Vijaya Bank on 11.04.2011 assessee received Rs 784000/- which is on account of sale of plot and out of available bank balance a sum of Rs. 930,000/- has been transferred to SBI account. Similarly, In Syndicate Bank a/c No. 88902200025446 assessee's wife had opening balance of Rs 356,789/- and she received unsecured loan of Rs 4,00,000/- on 23.06.2011 from Manoj Jain. Out of available bank balance, a sum of Rs 800000/- has been transferred to SBI account. ii) Payment Rs 500000+600000+800000+900000 were made to seller from a/c no. 1149101028730 maintained with Canara bank in the name of assessee's wife Meena Sharma. In said account assessee received unsecured loans of Rs.18,55,000/-(100000+ 100000+ 100000+ 755000+ 150000+650000) and a part from unsecured loans in said account, Rs 2,25,000/- was transferred by assessee from a/c 31787921027 with SBI.

We find from the perusal of the documents before us that the assessee has duly explained the source of his share of the investment made in the property purchased. As far as the veracity of unsecured loan taken by the wife of the assessee and amount received on account of jewellery is concerned the same may be decided at appropriate time in appropriate case as the neither the AO nor the CIT(A) has examined/ adjudicated on this issue. We therefore direct the AO to delete the addition of Rs 41,47,382/- on account of unexplained investment made u/s 69. The ground no 2 is accordingly allowed. is partly allowed.