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Facts
The assessee, an old widow, engaged in agricultural activities on 30 acres of land, had reassessment proceedings initiated against her u/s 147 based on information of cash deposits and time deposits. The Assessing Officer (AO) recorded reasons alleging Rs. 47.77 lakhs of escaped income, though actual bank statements showed a lower cash deposit and no time deposits. The CIT(A) sustained an addition of Rs. 5.61 lakhs (peak deposit in SBI) after deleting an addition for bank FD interest.
Held
The Tribunal held that the reassessment proceedings were invalid from the outset (void ab initio) because the reasons recorded by the AO were factually incorrect and based on wrong figures, and the approval granted by the higher authorities under Section 151 was mechanical, without proper application of mind. Furthermore, the Tribunal found that the agricultural income from the 30 acres of land was sufficient to explain the cash deposit of Rs. 5.61 lakhs.
Key Issues
1. Whether reassessment proceedings initiated u/s 147 based on factually incorrect reasons and mechanical approval u/s 151 are legally valid. 2. Whether the cash deposit in the bank account was adequately explained by agricultural income.
Sections Cited
133(6), 143(3), 147, 148, 148A(d), 151(1), 250, Rule 34(4) of Income Tax Appellate Tribunal Rules 1963
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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. UDAYAN DASGUPTA & SH. BRAJESH KUMAR SINGH
ORDER Per: Udayan Dasgupta, J.M.: This appeal filed by assessee against order of Ld. CIT (A), NFAC, Delhi, passed u/s 250 dated 15.04.2024 emanated from the order of the ld. Jurisdictional AO, dated 09/12/2019, passed u/s 147 r.w.s.143(3) of the Act 1961.
Condonation of delay: This appeal is belatedly filed by 52 days. The delay is explained through an affidavit by the assessee stating that she is an old widow from rural background, living alone (her husband expired long back in the year 2013), and she is residing in a village of Tharial, and her only source of income is from agricultural activity on the agricultural lands left behind by her husband. It was stated that she is not literate enough to operate computers and receive emails and has no knowledge of electronic mode of communication. The appeal order passed by the Ld. CIT (A), on 15/04/2024, has been issued in the email id of her son,( who is living separately), and she was not aware of the same. Subsequently, on being informed by her son at a much later date, regarding disposal of the appeal, she contacted her lawyer, who guided her to file this appeal before the tribunal after a delay of 52 (fifty-two) days. Since the delay was not intentional on her part, she prayed for condonation of the delay and for admission of this appeal for decision on merits. The Ld. DR has no objection. In absence of any wilful neglect on her part the delay is condoned and the appeal is admitted for hearing on merits.
The grounds of appeal
taken by the assessee in Form 36 are as follows: “1. That on the facts & in circumstances of the case and in law the Ld. CIT (A) erred in confirming the addition made by Ld. Assessing Officer & dismissing the appeal.
2. That on the facts & in circumstance of the case & in law the Ld. Assessing Officer has erred in making addition of Rs. 5,61,923/ on peak credit basis.
3. That on the facts & in circumstance Ld. CIT (A) erred by not treating notice issued u/s 148 and order passed was beyond the time prescribed limitation.
4. That the appellate order to the above extent is against facts & law.
5. That appellant craves for leave to add or amend any or all the grounds taken in appeal.”
The facts emerging from records are that the lady assessee is engaged in agricultural activity on about 30 acres (thirty acres) of agricultural land left behind by her deceased husband, located at village Jaini Khalki , Madhopur, Tehsil and Dt Pathankot ( duly certified by the Gram Panchayat vide his certificate dated 01/10/2023, as evidence thereof). As per written submissions filed she has no income other than agricultural income and interest on bank fixed deposits, renewed from year to year, and she is a non-filer.
On the basis of information in possession of the AO that the assessee has deposited cash in SBI and has also made investment in time deposit, together totalling to Rs.47,77,923/- , and in absence of any return on record , coupled with no response to inquiry notice u/s 133(6) of the Act 61, proceedings were initiated by the AO vide notice u/s 148, dated 26th March, 2019, after obtaining necessary approval u/s 151(1) from higher authorities. 5.1 In the absence of any representation in course of scrutiny proceedings, exparte order has been passed by the AO, determining total income at Rs.7,73,490/- (comprising additions of Rs.5,61,923/- on account of bank peak deposit in SBI and Rs. 2,11,570/- on account of interest on bank FD), without any discussion regarding the issues of cash deposit in bank and investments in bank fixed deposits, as contained in recorded reasons.
6. The matter was carried in appeal before the first appellate authority, where detail submissions were filed by the Ld. AR along with supporting documentary evidences and the Ld. first appellate authority deleted the addition of Rs. 2,11,570/- arising on account of bank FD interest, and sustaining the remaining addition of Rs. 5.61 lakhs on account of peak deposit in bank account.
7. Now the assessee is before the Tribunal on the grounds contained in the memo of appeal and has also filed additional grounds being legal grounds and prayed for its admission in view of the Hon’ble Apex court judgment in the case of NTPC vs CIT [229 ITR 383 SC]. (i) Non mentioning of DIN in the body of the assessment order, (ii) Initiation of proceedings u/s 147 by the AO being unsustainable in law.
The additional grounds are admitted being legal grounds following the law laid down by the Hon’ble Apex court in the case of NTPC vs CIT (supra).
At the very onset the Ld. AR of the assessee submitted that the first of the additional grounds regarding non mentioning of DIN on the body of the assessment order is “not pressed” and hence the same is treated as withdrawn. 9.1 In respect of the second ( additional ground ) , the Ld. AR took us through the copy of the recorded reasons ( placed in page 1 to 3 of the PB ) and to the copy of the approval granted by the Ld. PCIT granted u/s 151(1) of the Act dated 25/03/2019 ( PB page – 4), and submitted that in the instant case the reasons recorded for initiation of the proceedings itself is factually incorrect where it is specifically recorded in serial number -6 of the form for recording reasons , that “ quantum of income which has escaped assessment Rs.47,77,923/- ” , and in the Annexure – A to the reasons it is specifically written giving the break up , that the assessee has made cash deposit of Rs. 15,42,923/- plus Rs. 14,35,000/- with State Bank of India and Time deposit of Rs. 18,00,000/- with SBI, Patiala, during FY 2011-12 relevant to the assessment year 2012-13, totalling Rs. 47.77 lakhs.
Thereafter, the Ld. AR of the assessee produced before us the copy of approval granted by the Ld. PCIT, dated 25th March, 2019, where the approval granting authority has stated “I have examined the records and perused the reasons recorded by the assessing officer. Considering the facts on record, I am satisfied that it is a fit case for issuing notice u/s 148 of the income tax Act, 1961.” 10.1 Referring to the above recorded reasons, the Ld. AR of the assessee submitted that it is apparent from the records that the initiation of proceedings has been done by the AO, recording incorrect facts, without any application of mind by the AO, where he has specifically written that the cash deposited in SBI and investment made in Time Deposits totalled to Rs. 47.77 lakhs, (without even stating the bank account number), whereas, in course of assessment after due examination of bank statements the said deposit amount was found to be only Rs. 15.42 lakhs, and after allowing benefit of cash withdrawals, the peak deposit of Rs. 5,61,923/- was considered as unexplained, which proves that reasons recorded by the AO was on borrowed information, without any individual enquiry conducted by him, and without any application of mind to the bank account of the assessee, where deposits are alleged to have been made. 10.2 He further submitted that the recording of investment in time deposits amounting to Rs. 18 (eighteen) lakhs, alleged to have been made by the assessee during the year (FY 2011-12), is also non – existent, proven to be incorrect and false upon inquiry at subsequent stage and the AR argued that had proper enquiry been made with bank authorities, before recording the reasons, the Ld. PCIT, while according sanction u/s 151 of the Act 61, might have taken a different view in the matter. 10.3 The Ld. AR further submitted that the sanction u/s 151, of the Act , has been issued by the Ld. PCIT , in a mechanical manner , without any application of mind, and had he actually applied his mind to the materials on record or even looked into the concerned bank account with SBI , available on record , the gross difference in imaginary figures as quoted in the reasons recorded and the figures actually existing, could not have been overlooked , which proves that the approval has been granted without any application of mind and without going through materials placed before him.
10.4 The assessee relied upon various decisions of various courts and tribunal in support of his contention that reopening of assessments on the basis of incorrect recording of facts and figures are liable to be quashed because the grounds on the basis of which reassessment notices were issued were not found to exist , and for support he relied on the decision of the Hon’ble jurisdictional Punjab and Haryana High court in the case of CIT vs Atlas Cycle Industries reported 180 ITR page 319, and prayed for deletion of the assessment. 10.5 The Ld. AR further, submitted that mere deposit of cash in bank account does not automatically constitute undisclosed income and it does not enable the AO to form an automatic belief that income has escaped assessment, because each reason has to be considered on a standalone basis because the deposit of cash may flow from any source and it is not necessarily the income of the assessee. On this issue he relied on ITAT, Delhi in the case of Bir Bahadur Singh Sijwali vs ITAT [2015] 53 taxmann.com 366 (ITAT Delhi). 10.6 He further relied on the jurisdictional ITAT / Amritsar judgments in the case of (i) Gurpal Singh vs ITO [2016] 71taxmann.com108, and also on (ii) Ashwani Kumar vs ITO in ITA 129/ASR/2015 dated 23/02/206, to present his argument that there cannot be any presumption or assumption that mere bank deposits constituted undisclosed income, of the assessee, more so in the instant case, where there is no such deposit of the amount incorrectly recorded.
10.7 The Ld. AR further submitted on merits of the case, that the assessee is the owner of 30 (thirty acres) of agricultural land (inherited on demise of her husband) where she carries on agricultural activity with her son, as evidenced by certificate issued by the local Panchayat, and her share of agricultural yearly earnings, after all expenses , considering the plot of land size of thirty acres, are more than sufficient to cover the cash deposit of a meagre amount Rs.5.61 lakhs ( Rs. Five Lakhs Sixty-one thousand) only, and as such he prays that considering all aspects of the matter the addition sustained by the Ld. first appellate authority may please be deleted.
The Ld. DR relied on the order of the Ld. CIT (A), but could not render any explanation, regarding the huge difference in figures contained in the recorded reasons of Rs. 47.77 lakhs and the figures actually appearing in the bank statement of SBI and also to the false recording of investment alleged to have been made in time deposits, when no such investments has been actually made during the year at all.
We have heard the rival submission and considered the materials on record, and we find that in the instant case, the fact that the assessee is the owner of thirty acres of agricultural land (inherited from her deceased husband) is not in dispute as certified by the local panchayat authority, and it is also factually not disputed that the assessee has no other source of income except agricultural income (and bank interest from old fixed deposits renewed down the years). Taking a very practical approach in the matter, total yearly agricultural income, generated from thirty acres of agricultural land cultivated jointly by the widow assessee and her son, after meeting all agricultural expenses, will be certainly good enough to cover a meagre deposit of Rs.5.61 lakhs in her bank account. On the facts on record, to arrive at a very logical conclusion, we are of the view, that the addition on account of meagre cash deposit of Rs.5.61 lakhs, in bank account, stands explained to have been derived out of agricultural income of the assessee and needs to be deleted.
On legal aspect of the matter also we find that in the instant case there is no independent application of mind by the A.O. to the information available before him to form the basis for recording the reasons. The reasons recorded by the A.O. are also incorrect on factual figures as noted above and the reasons failed to demonstrate the link between the alleged tangible material and the formation of reasons to believe that income chargeable to tax has escaped assessment. Moreover, we also fail to understand, as to how the AO conducting inquiry u/s 133(6), with banking authorities, has recorded an incorrect figure in the reasons recorded pertaining to cash deposited in bank and investments in time deposit when no such investment existed.
It is well settled that reopening based on wrong reasons to believe is bad in law: (i) ITO vs Sunbarg TradeLink Pvt Ltd [2016] 74taxmann.com16 (Gujrat HC), (ii) ITO vs KMV Collegiate Sr Secondary School (Amritsar Bench [2017] 163 ITD 653 ( Asr ) (iii) ITO vs Sukhvir Singh [2024] 165taxmann.com 197(Asr), (iv) Smt Monika Rani as reported in 2019 (ITAT Chandigarh), (v) DCIT vs Kissan Fats Ltd (Chandigarh).
Moreover, in the instant case the approval granting authority has issued the approval on incorrect factual figure of Rs. 47.77 lakhs, when the actual figures are easily discernible from the bank statement of SBI itself, which indicates non application of mind by the higher approval granting authorities and we are of the opinion that approval in this case has been granted in a mechanical manner. The Hon’ble Madhya Pradesh High Court in CIT Vs. S. Goyenka Lime and 16. Chemicals Ltd (56 taxmann.com 390), where a similar issue was raised, the Hon’ble court held that such mechanical approval, without proper application of mind, rendered the reassessment invalid. The Supreme Court had dismissed the Special Leave Petition (SLP) filed by the revenue, thereby upholding the high court’s decision.
Similarly, the Delhi High Court in PCIT Vs. NC Cables Ltd (391 ITR 11) also held that approval granted in such a manner is insufficient and considered a mechanical process. (Relevant portion reproduced) Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed.
Similarly, the Hon’ble Bombay High Court in the case of Tele performance 18. Global Service (P.) Ltd. v. ACIT (2024) 298 Taxman 769 (Bom)(HC) has held in this case where approval under section 151 was obtained and granted without application of mind as in the approval, quantum of income, which had escaped assessment, was mentioned as Rs. 63,16,784, whereas, as per draft order under section 148A(d), income that had escaped assessment was stated to be Rs. 97,06,911, order under section 148A(d) and consequent notice under section 148, were liable to be quashed.
As such considering the law laid down by various High courts on this issue , we have no hesitation in holding that in the instant case before us , there has been no application of mind by the AO while recording the reasons which are factually incorrect and based on wrong figures and subsequently , the approval granted by higher authorities are also mechanical in nature without any application of mind to the materials on record, and as such the initiation of proceedings by issue of notice u/s 148 itself is legally invalid rendering the entire proceedings void ab initio .
In the result the appeal of the assessee is allowed.