SHRI NARESH KUMAR YADAV,LUCKNOW vs. INCOME TAX OFFICER- 1(5), LUCKNOW

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “SMC”, LUCKNOW BEFORE SHRI. A. D. JAIN, VICE PRESIDENT ITA No.186/LKW/2020 Assessment Year: 2011-12 Shri Naresh Kumar Yadav v. ITO-1(5) Vill. And Post Madiyaon Lucknow Lucknow TAN/PAN:AEBPY8040D (Appellant) (Respondent) Appellant by: Shri Prashant Kumar Verma, Advocate Respondent by: Shri Harish Gidwani, D.R. Date of hearing: 12 07 2022 Date of pronouncement: 26 07 2022 O R D E R This is assessee’s appeal against the order of the ld. CIT(A)-1, Lucknow, dated 11.10.2019, for Assessment Year 2011- 12, raising the following original Grounds of Appeal: 1. Because, the whole assessment order impugned in the present appeal stands wholly vitiated as there can be no reason to believe that income has escaped assessment u/s 147/144 on the ground of mere cash deposits in the bank account amounting to Rs.12,98,000/- therefore, the entire assessment proceedings are liable to be held as nullity and without jurisdiction. 2. Because, the assessment order impugned in the present appeal stands wholly vitiated as there can be no reason to believe on the basis of AIR information that income has escaped assessment u/s 147/144 on the ground of mere cash deposits in bank account amounting Rs.12,98,000/-. Therefore, the entire assessment proceedings are liable to be held as nullity and without jurisdiction.

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still under treatment for Kidney related disease. In support of the contentions of the assessee, the Medical Reports and the prescriptions of the Doctor attending to the wife of the assessee have been placed on record. Finding that since there was reasonable cause for delay in filing of the appeal, we condone the delay. 4. The brief facts of the case are that the assessee is a Class IV Government employee, working in the Indian Railways. For the year under consideration, the assessee did not file return of income, as his income was below the taxable limit. The case of the assessee was selected for scrutiny. As per information available with the Department, the assessee had a deposit of Rs.12,98,000/- in cash in his Saving Bank account being maintained with Bank of India. The contention of the assessee before the Assessing Officer was that the amount of Rs.12,98,000/- lying deposited in his bank account was the amount accumulated by deposit in various previous years. The Assessing Officer accepted the explanation of the assessee with regard to the deposit of Rs.9,00,000/-, but considered the balance amount of Rs.3,98,000/- as unexplained and added it to the income of the assessee. 5. Aggrieved, the assessee preferred an appeal before the ld. CIT(A), who dismissed the same. The assessee is now in further appeal before us. 6. Before us, the ld. Counsel for the assessee has submitted that the assessment order passed by the Assessing Officer, on the formation of belief that the cash found to have been deposited in the bank account was the escaped income of the assessee, is liable to be held as null and void; that there being no material to form any reason to believe that the income

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has escaped assessment, the CIT (A) too has wrongly upheld the assessment framed by the Assessing Officer; and that no reassessment can be framed merely on the presumption that the cash deposited in the bank was the escaped income of the assessee. The ld. Counsel for the assessee, placing reliance on the decision of the Amritsar Bench of the Tribunal in the case of ‘Sh. Amrik Singh vs. Income Tax Officer’, in ITA No.630/Asr/2015, order dated 11.5.2016, contended that where the Assessing Officer proceeds on a fallacious assumption that the bank deposits constitute undisclosed income and overlooks the fact that the source of the deposit need not necessarily be the income of the assessee, the reassessment proceedings are required to be set aside and quashed. 7. On the other hand, the ld. D.R. has placed strong reliance on the orders of the Authorities below. The ld. D.R., placing reliance on the judgment of the Hon'ble Gujarat High Court at Ahmedabad, in Special Civil Application No.18778 of 2016, in the case of ‘Bankim Mohanlal Desai vs. ITO’, submitted that a non-statutory query letter dated 16.08.2017, requesting the assessee to furnish the proof with reference to the deposits in the bank account, followed by reminder dated 20.02.2018, was issued and duly served on the assessee, but no reply has been furnished by the assessee; and that therefore, the Assessing Officer has rightly held that there was sufficient reason to believe that income has escaped assessment for A.Y. 2011-12. The ld. D.R., further, placing reliance on the order of the Delhi Bench of the Tribunal in the case of ‘Smt. Billo vs. ITO’, in ITA No.3817/Del/2018, submitted that since the assessee has not filed any return in response to notice under section 148 of the

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I.T. Act, the reassessment proceedings initiated by the Assessing Officer cannot be held to be invalid. 8. In rejoinder, the ld. Counsel for the assessee has submitted that non-reply of the non-statutory query letter cannot be a valid reason for reopening of the assessment. With regard to the case laws, on which reliance has been placed by the ld. D.R., it was the submission of the ld. Counsel for the assessee that in the case of ‘Bankim Mohanlal Desai vs. ITO’ (supra), the facts are completely different, as in that case, the issue relates to purchase of immovable property, whereas in the present case, the issue relates to cash deposits in the Savings Bank account of the assessee. Likewise, as per the ld. Counsel for the assessee, in the case of ‘Smt. Billo vs. ITO’ (surpa), the reason for reopening recorded by the Assessing Officer is different, inasmuch as in the present case, the bank details, such as name and address of the Bank, Bank Account number and dates of deposits have not been mentioned, and therefore, the reasons recorded by the Assessing Officer are bad in law. 9. We have heard the rival parties and have gone through the material placed on record. 10. The first issue arisen for consideration is the legal force, sanctity and value of the non-statutory query letter dated 16.8.2017 followed by a reminder dated 20.2.2018 and also the effect of the assessee's response/non response thereto. 11. The enquiry letter dated 16.8.2017 and the reminder letter dated 20.2.2018, which are identically worded, are as follows (scanned and reproduced for ready reference):

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provision they were issued. Now section 133(6), which is relevant for our present purposes, reads as under: "Section 133: The Assessing Officer, the Deputy Commissioner (Appeals), the joint Commissioner or the Commissioner (Appeals) may, for the purposes of this Act,- (6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), will be useful for, or relevant to, any enquiry or proceeding under this Act."

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proceedings were pending, and not otherwise, as taken note of in 'D.B.S. Financial Services Pvt. Ltd. vs. Smt. M. George, Second Income Tax Officer and Others', 207 ITR 1077 (Bom.) and 'Grindlays Bank Ltd. vs. Income-Tax Officer and Others', 231 ITR 612 (Cal.). 17. The 1995 amendment brought in power to the Department to gather information which, after proper inquiry, would result in initiation of proceedings under the Act. However, by virtue of the second proviso to the section, an Income Tax Authority below the rank of Commissioner can exercise this power in respect of an enquiry, in a case where no proceeding is pending, only with the prior approval of the Director or Commissioner, as held in 'Karnataka Bank Limited vs. Secretary, Govt. of India', 255 ITR 508 (SC) and U.G. Upadhya, General Manager, Janatha Co-operative Bank Ltd; UDUPI vs. Director of Income Tax And Another', 255 ITR 502 (Kar.) [the S.L.P. where- against was dismissed by the Hon'ble Supreme Court vide their order reported at 251 ITR (St.) 51]. 18. In 'Karnataka Bank Ltd. vs. Secretary, Government of India' (supra), the Hon'ble Supreme Court observed as under: "It is clear from the mere reading of the said provision that it is not necessary that any inquiry should have been commenced with the issuance of notice or otherwise before section 133(6) could have been invoked. It is with the view to collect information that power is given under section 133(6) to issue notice, inter-alia, requiring a banking company to furnish information in respect of such points or matters as may be useful or relevant. The second proviso makes it clear that such information can be sought for even when no proceeding under the Act is pending, the only safeguard being that before this power can be invoked the approval of the Director or the Commissioner, as the case may be, has to be obtained. In the instant case, the notice

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date July 7, 2000, indicates that it was at the instance of the Director of Income-tax (Investigation) that the information was sought for". (emphasis supplied)

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years. In reply, reiterating the aforesaid position of assessment proceedings, the assessee stated that as no proceedings were pending, there was no question of any summons being issued. The assessee then received a letter alongwith fresh summons from the ITO, stating that section 131(1) could be invoked even where no proceedings were pending and the purpose of the information called for was with a view to investigate whether the above assessment should be reopened u/s 147 or not. The assessee filed a writ petition before the Hon'ble High Court. The Hon'ble High Court held, (i) that no proceedings were pending when the ITO issued the summons and, therefore, the summons were liable to be quashed; (ii) that the reason for issuing the summons, as stated by the ITO in his letter, was to investigate whether the assessment for the first two years should be reopened u/s 147; (iii) that it was for the ITO to first decide whether he had reason to believe that the income had escaped assessment; (iv) that only if he decided that question in the affirmative, could he initiate proceedings u/s 147 and only thereupon could he become entitled to invoke section 131(1); and (v) that, therefore, the impugned summons were liable to be quashed. For holding so, the Hon'ble High Court observed that the Officers mentioned in section 131(1) of the I.T.Act, 1961, are conferred with the same powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit; that the Code of Civil Procedure confers upon a Court powers, for the exercise whereof, existence of a suit or a proceeding is a sine qua non, that in pari materia, therefore, powers in respect of matters mentioned in section 131(1) of the Act, namely, (a) discovery and inspection; (b) enforcing the attendance of any person and examining him on oath; (c) compelling the production of books of account and other documents; and (d) issuing commissions, can

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be exercised only if a proceeding is pending before the concerned officer and not otherwise. Now, it may be argued that what was being dealt with in 'Jamnadas Madhavji & Co. and Another' (supra), was a summons u/s 131(1), whereas what has been issued in the present case is a simple enquiry letter. This, however, does not change the position and the question remains substantially the same. The assessee, even through the enquiry letter, has been asked, inter-alia, to produce evidence. This, in keeping with 'Jamnadas Madhavji & Co. and Another' (supra), cannot be done sans pendency of some proceeding before the Income Tax Authority. At this juncture, it would be appropriate to reiterate that as finds mention in the impugned order, the assessee had not filed any return of income with the Department. As such, obviously, no proceeding whatsoever was pending before the Authority at the relevant time, i.e., at the time of issuance of the enquiry letter. 30. Also, as available from the concluding portion of the judgment in 'Jamnadas Madhavji & Co. and Another' (supra), their Lordships held that the ITO had, at that stage, i.e., when no proceedings were pending before him, no authority in law to invoke section 131(1) of the I.T. Act against the assessee. It was on holding so, that it was held that consequently, the ITO had no power to issue the impugned summons, having no sanction of law. Therefore, in 'Jamnadas Madhavji & Co. and Another' (supra), in the absence of pendency of any proceeding, the very invocation of the provisions of section 131(1) of the Act has been held to be without due authority of law. 31. 'Jamnadas Madhavji & Co. and Another' (supra), was followed by the Hon'ble Calcutta High Court in 'ITO and Another vs. James Joseph & Others', 204 ITR 254 (Cal.).

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non-compliance. The assessees approached the Hon'ble High Court by way of a writ petition. The Hon'ble High Court, inter- alia, quashed the summons issued u/s 131 of the I.T. Act, 1961, section 37 of the Wealth Tax Act, 1957 and section 36 of the Gift Tax Act, 1958. It was observed that a plain reading of section 131(1) of the I.T. Act makes it clear that the powers thereunder can be exercised only " for the purposes of the Act", which must mean for the purposes of the proceedings under the Act pending before the concerned Authority; that the powers of the Income Tax Authorities u/s 131(1) are powers of the Court of law; that while exercising these powers, the Income Tax Authorities have a quasi- judicial capacity; that these powers must be exercised strictly for the purposes set out in sub-section (1) of section 131 of the Act, and not for any extraneous purposes; that the powers u/s 131 can be exercised only if proceedings are pending before the Authority concerned under the I.T. Act; and that the same is the position under the Wealth Tax Act and the Gift Tax Act. 34. In 'Rina Sen vs. CIT & Others', 235 ITR 219 (Patna); the assessee constructed a house between 1967 and 1973. Return of income for the assessment year 1982-83 disclosed rental income, which was accepted by the ITO. In 1992, a notice was issued by the Assistant Valuation Officer, in terms of section 131(1)(d) of the Act, to produce documents regarding the house. It was held that since no Income tax proceedings were pending against the assessee in respect of the earlier years, the notice issued in terms of section 131(1)(d) of the Act, was not valid. It was observed that notice u/s 131(2) in respect of assessment year 1991- 92 could not be construed as an initiation of proceedings for the earlier years. 'Jamnadas Madhavji & Co. and Another' (supra), was referred to.

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production of evidence, etc., inspite of the fact that no proceedings are pending before such Authority. 37. The position under section 131(2), which relates to inquiry or investigation concerning agreement with a foreign country or specified territory and adoption by Central Government, of agreements between specified associations for double taxation relief, is exactly similar to that of matters concerning section 131(1A). Under section 131(2) also, the Authority can exercise powers under section 131(1) even in the absence of pendency of proceedings before them. Section 131(2) reads as follows: "Section 131(2): For the purpose of making an inquiry or investigation in respect of any person or class of persons in relation to an agreement referred to in section 90 or section 90A, it shall be competent for any income-tax authority not below the rank of Assistant Commissioner of Income-tax, as may be notified by the Board in this behalf, to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before it or any other income-tax authority." 38. It is thus seen that whereas both, sections 131(1A) and 131(2) deal with the situation where the powers under section 131(1) can be exercised inspite of absence of pendency of proceedings and specific mention of such enablement is made by the legislature in both of these provisions, there is no such enablement contained in section 131(1). In other words, the legislative intent is clear from the words employed in sections 131(1), 131(1A) and 131(2), respectively. Whereas, in sections 131(1A) and 131(2), the Authorities are enabled to exercise the powers u/s 131(1) even in the absence of pendency of

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proceedings before them, there is no such enablement contained in section 131(1). Now, it is trite that the legislature chooses its words with utmost care and where the language employed in a provision is clear and unambiguous, there is no scope of interpretation thereof. So, once enablement of exercise, by Income Tax Authorities, of power of a Civil Court while trying a suit, where no proceedings are pending, is not envisaged by the provisions of section 131(1), no such enablement can be read into the section, particularly in view of the existence of such enablement by the express language contained in sections 131(1A) and 131(2). This is apart from the decided cases discussed hereinabove. 39. In this regard, in 'Jamnadas Madhavji & Co. and Another' (supra), it was observed that under section 131(1A), if the Assistant Director of Investigation has reason to suspect that any income has been concealed, then, for an inquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred u/s 131(1), notwithstanding that no proceedings with respect to such person are pending before him or before any other Income Tax Authority; that it is thus, obvious, that whereas an officer mentioned in section 131(1) can exercise powers thereunder only if a proceeding is pending before him, the officer mentioned in section 131(1A) can exercise such powers notwithstanding that no such proceedings are pending before him, or before any other officer. 40. For the above reasons, since in the present case, no proceeding was pending before the ITO when he issued the non- statutory query letter dated 16.8.2017, requiring the assessee to, inter-alia, produce evidence, such letter of inquiry is not valid in the eye of law. It does not require any cognizance to be taken of.

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And that being so, the assessee was not obliged to respond to this invalid and non est so-called letter of enquiry, requiring the assessee, inter-alia, to produce evidence. Quod erat demonstrandum. 41. Therefore, finding no merit in the contention of the Department that the assessment of the assessee under section 147 was preceded by the issuance of a letter of query by the ITO, the same is rejected. 42. Now, the Assessing Officer recorded the following reasons for initiating the assessment proceedings under section 147 of the I.T. Act in the present case: “Reasons for reopening of the assessment in case of Shri Naresh Kumar Yadav for Assessment Year 2011-12 under section 147 of the I.T. Act. 1. Assessee is a Central Government employee and has not filed his return of income for F.Y. relevant to A.Y. 2011-12. 2. As per ITS details of AIR Transactions, i.e. RRR No. 990000000004853, RRR Date 30.08.2011 line no. 30921, assessee has deposited cash of Rs.12,98,000/- in a saving bank account during F.Y. 2010-11 relevant to A.Y. 2011- 12. 3. A non-statutory query letter dated 16.08.2017 followed by reminder dated 20.02.2018 was issued and duly served upon the assessee. No compliance has been made by the assessee in response to the letters issued. 4. In this case no scrutiny/regular assessment u/s 143(3) was made for the year under consideration. 5. The assessee has deposited Rs.12,98,000/- in cash in his savings bank account during F.Y. for the relevant A.Y. 2011-12 . Since assessee has failed to explain the source of cash deposit response to non-statutory query letters, Therefore, I have reason to believe that an amount more than Rs.1 Lakh has escaped assessment for A.Y. 2011-12.

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assessment. It was observed that it is necessary that there must be something which indicates, even if it does not establish, the escapement of income from assessment; that it is only on that basis that the AO can form a prima-facie belief that an income has escaped assessment; that merely because some further investigations have not been carried out, which, if made, could have led to detection of an income escaping assessment, this cannot be reason enough to hold the view that the income has escaped assessment; and that there has to be some kind of cause and effect of relationship between the reasons recorded and the income escaping assessment. The observations of the Hon'ble Supreme Court in the case of 'ITO vs. Lakhmani Mewal Das', 103 ITR 437 (SC), were reproduced, as under: "the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment." 49. It was further observed as follows: "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

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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 escapement assessment." 50. The Tribunal concluded thus: "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. Learned 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 is existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. There cannot be any, and there is no, doubt on the correctness of

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this proposition but then, as we have elaborately explained earlier in this order, the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment, in our humble understanding, cannot be drawn." 51. Now, in keeping with 'Bir Bahadur Singh Sijwali' (supra), this information cannot form a valid basis for initiating assessment proceedings under section 147 of the I.T. Act. As observed in 'Bir Bahadur Singh Sijwali' (supra), the mere fact that the deposits had been made in the bank account does not indicate that these deposits constitute income which has escaped assessment. 52. As for the reliance placed by the Department on the case of ‘Bankim Mohanlal Desai vs. ITO’ (supra), the facts are completely different, as in that case, the issue dealt with by the Hon'ble Court relates to the purchase of immovable property, whereas in the present case, the issue relates to cash deposits in the Savings Bank account of the assessee. In the case of ‘Smt. Billo vs. ITO’ (supra), the reasons for reopening recorded by the Assessing Officer are different, inasmuch as, in that case, the bank details, such as name and address of the Bank, Bank Account number and date of deposits have been mentioned, but in the reasons recorded in the present case, no such details were given. Neither of these decisions deals with the issue as to the validity of non-statutory query letter issued by the Assessing Officer, when no proceeding was pending before him at the time of issuance of such letter, requiring the assessee to, amongst other things, produce evidence; as to whether such query letter requires any cognizance thereof to be taken; and, as such, as to

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whether the assessee is obliged in law to respond to such a query letter. 53. Thus, herein, it was a mere suspicion of the Assessing Officer that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law. Too, the Assessing Officer proceeded on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee. That being so, for the preceding discussion, the revised Grounds are accepted. Consequently, the reasons recorded to initiate assessment proceedings under section 147 of the Act and all proceedings pursuant thereto, culminating in the impugned order, are cancelled. 54. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 26/07/2022.

Sd/- [A. D. JAIN] VICE PRESIDENT DATED:26/07/2022 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order Assistant Registrar