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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-3’, NEW DELHI
Before: BEFORE SHRI J. SUDHAKAR REDDY
This is an appeal filed by the Assessee directed against the order of Ld.CIT(A), Muzaffarnagar dated 28.3.2016 pertaining to the A.Y. 2009-10.
Facts:- The assessee is an individual and is admittedly an agriculturist having no other source of income. There were certain deposits made in the assessee’s bank account. On receipt of AIR information the Assessing Officer (A.O.) recorded reasons that income which is subjected to tax has escaped assessment and issued notice of reopening under section 148 of the Income Tax Act, 1961 (the Act). Thereafter, an order was passed under section 144 of the Act by the Assessing Officer on 27.3.2015 making an addition of Rs.9,15,000/- u/s 69 of the Act. The assessee carried the matter in appeal.
Before the first appellate authority he submitted that he is an agriculturist and does not have any other income. It was submitted that the ancestral agricultural land was sold to one Mr . Haji Mohd. Momin S/o Mr.Shokat Ali at Rs.7 lakhs per biga and thereafter on behalf of Mr.Haji Mohd. Momin, the agreement holder, the land was sold in favour of Mr Giriraj Kishore, S/o Shri Shivcharan Lal. In other words it was contended that the amount in question is nothing but sale proceeds of ancestral agricultural land. The Ld.CIT(A) found inconsistencies in the claim of the assessee, as value of sale consideration disclosed in the registered sale deed is much less than the amount mentioned in the unregistered agreement. Affidavit and other evidences produced by the assessee were rejected and addition confirmed.
Aggrieved the assessee is before us challenging the reopening of assessment by issue of notice under section 148 of the Act as well as the addition on merits.
After hearing Rival contentions I find that the reasons recorded by the A.O. that income subject to tax may have escaped assessment is based on AIR information that certain Bank deposits found in the account of the assessee with Punjab National Bank, Muzaffarnagar. The issue is whether the A.O. can come to a conclusion based on such AIR information that cash deposits have been made in his bank account, that income assessable to tax had escaped assessment, with any enquiry or application of mind. The assessee is an agriculturist having no other source of income.
4.1. In the case of Pravin Kumar Jain vs. ITO the Delhi SMC 1 Bench in ITA 1331/Del/15 order dt. 22.1.2016 at paras 8 and 9 observed as follows. “8. I have considered the rival submission as well as the material on record. The AO has reopened the assessment by recording the reason which are reproduced at Page 2 of the Assessment order as under:-
"Reasons for the belief that the income has escaped assessment in the case of M/s Shalimar Trading Corp. for the assessment year 2006-07. In this case, information is received by this office from the ITO (Inv), Unit-V(1), New Delhi vide his letter dated 28.03.2013 therein stating that M/s Shalimar Trading Corp. had deposited cash amounting to Rs.6,00,000/- in Bank A/c No.1819 maintained with Ramgarhia Co-operative Bank Limited, Desh Bandu Gupta Road, Pahar Ganj, New Delhi, the sources of which are not in commensurate with his business activities. Further, sources of cash 'deposited and its utilization is not known and remained unexplained.
After perusal of the details received from the ITO (Inv), Unit-V(1), New Delhi, the details of Income tax Return filed by M/s Shalimar Trading Corp. for A.Y. 2006- 07 were tried to be taken out from lTD System. However, the same were not found available there. Thus, as per our record, the assessee has not filed any return income for A.Y,2006-07. Therefore, I have reasons to believe that income chargeable to tax amounting to Rs. 6.00.000/- for the F.Y. 2005-06 relevant to A.Y. 2006-07 has escaped assessment and it is a fit case for initiation of proceedings u/s 147 of the Act.
Proposal in the prescribed form for the A.Y. 2006-07 (F.Y. 2005-06) is submitted herewith for kind consideration and necessary approval u/s 151(2) of the I.Tax Act,1961 as the same is getting barred by limitation on 31/3/2013.
If approved, notice u/s 148 of the act may be issued.
As it is manifest from the reasons recorded by the AO that the AO proposed to reopen the assessment by issuing notice u/s 148 on the basis of information received that the assessee deposit cash amount of Rs.6 lac in the bank account. The AO has recorded in the reasons that the assessee has not filed return of income for the Assessment Year 2006-07. This fact recorded by the AO that the assessee has not filed the return of income for the Assessment Year under consideration has turned out to be incorrect as the assessment order begins with the narration of fact that manual return declared Rs112030/- filed on 31.03.2007. Thus at the time of passing the assessment order the AO was aware that return for the year under consideration filed on 31st March 2007. Therefore, it is clear that the AO proceed to reopen assessment on the basis of incorrect assumption of the fact that the assessee has not filed any return income for the year under consideration. This wrong assumption of fact also lead to the consequential reopening by the AO without verifying the record available with the AO as filed by the assessee being return of income and the other details and record along with return of income. Thus, it is clear that the AO reopen the assessment under wrong presumption of fact and without verifying the material information already available with the AO in the shape of return of income filed by the assessee. This fact of filing of return was also recorded by the learned Commissioner of Income-tax (Appeals) at Page 3 of the impugned order. Further, the recourse of reopening u/s 148/147 is not to first issue the notice and then to proceed to investigate and find out if there was income assessable to tax which has escaped assessment rather it is pre requisite for issuing the notice u/s 148 that the AO on the basis of tangible material and information has legitimate reason to believe that income assessable to tax has escaped assessment. The belief must be based on a material which has direct nexus to the income assessable has escaped assessment and should not be guess work and to ascertain the same through the process of investigation. The provision of section 148/147 can not be used such investigation to ascertain where income assessable to tax has escaped assessment. It is apparent that the reason for reopening was only on information of deposit of cash of Rs.6 lac in the bank account. Therefore the reason for reopening was for further investigation to find out the source of the cash deposit by the assessee as the AO has not recorded anything that this deposit of cash is from particular source which is not disclosed by the assessee in the books of account or in the return of income. The deposit of cash in the bank account of the assessee does not establish any live nexus between the information and formation of the believe that there was escapement of the income by the assessee. There may be end number of reasons and sources of deposit of cash in the bank which may not constitute the same as income of the assessee and therefore merely deposit of cash in bank itself would not lead to the conclusion or believe that the said amount is assessable income of the assessee and escapement of assessment. In the case in hand there are number of withdrawals and deposits in the bank account of the assessee in question. It is clear from the details of the bank account that prior to the deposit of this amount of Rs.6 lac there was withdrawals of about Rs.14 lac from the said bank account, therefore in the absence of any other information or material to indicate the source of this deposit other than withdrawals from the bank account the AO was not having any tangible material to believe that this deposit of Rs.6 lac constitute the income of the assessee for which the source has not been disclosed by the assessee or the assessee is not in a position to disclose the source. Accordingly the reopening is nothing but to investigate the matter to ascertain whether this deposit would constitute the income of the assessee which has escaped the assessment or not. In the case of the C.M. Mahadeva Vs. CIT, Hon'ble Karnataka High Court while dealing with identical facts of reopening has observed in Para 16 to 19 has under:-
"16. The facts of the aforesaid case are quite similar to the one on hand. In the present case also the reason for reopening is for further investigation to find out the source of investment for the purchase of the property, which is not permissible in law.
Further in the case of Income Tax Officer Vs. Lakhmani Mewal Das reported in (1976) 103 ITR 439, the Apex Court has held that "the reasons for the formation of the belief must have a 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 Income Tax Officer and the formation of his 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."
In the present case, what we find is that there is no nexus or live link between the material which had come to the notice of the Assessing officer, and the formation of his belief that there was escapement of income by the assessee which may be assessable to tax. Merely by mentioning the income of the assessee in the assessment year, and the investment made by him for the purchase of residential property, it cannot be concluded that the difference would automatically be the income which had escaped assessment.
The submission of learned counsel for the respondent-Revenue, that reading of the first paragraph of the reason records along with the third paragraph, would amount to the Assessing Officer concluding that the difference between the purchase price of the property and income of the assessee in that year was the reason for which reassessment notice was given, is not worthy of acceptance. Definite and specific reason have to be recorded by the Assessing Officer before the issuance of notice under section 148 of the Act, as reply has to be given by the assessee to such reason which are recorded in the notice. Nothing can be left for the party to conjecture and then presume that such could be a reason for the Assessing officer to believe that there has been escapement of income from assessment to tax.”
(ii) Also in the case of Munni Devi vs. ITO in ITA 3534/Del/2014 for Assessment Year 2007-08 the SMC II Bench of Delhi Tribunal held as follows.
11. We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by the assessee’s counsel on the issue in dispute. In our view, it is very much necessary to reproduce the reasons recorded by the AO before issue of notice u/s. 148 for reopening of assessment which reads as under:- “As per AIR information for FY 2006-07 received in this office, the assessee has made cash deposits of Rs. 49,42,000/- in bank account with Canara Bank, Pulhawas, Rewari. A query notice was issued to the assessee on 24.1.2012. But no response has been received from the assessee. I, therefore have reason to believe that the assesse has deposited cash in his bank account out of his income from unexplained sources. Accordingly, income to the extent of Rs. 49,42,000/- and any other income which subsequently comes to the notice of the undersigned has escaped assessment within the meaning of section 147 of the I.T. Act, 1961. Issue notice u/s. 148 of the I.T. Act, 1961 for the assessment year 2007-08. Sd/- (O.P. Poonia) Income Tax Officer, Ward-2, Rewari
After going through the reasons recorded by the ITO, Ward-2, Rewari, I am of the view that there is no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee; that even the communication dated 24.1.2012 could not be made a basis to assume jurisdiction in view of the fact that such an enquiry letter is an illegal enquiry letter and thus cannot be relied upon; that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction; that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and there are merely presumption in nature; that it is a case of mechanical action on the part of the AO as there is non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, I am of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. My view is supported by the following judgments/decisions:-
A. Bir Bahadur Singh Sijawali reported in 68 SOT 197 (Del) wh3rien it has been held as under:- "Section 68, read with sections 147 and 148, of the lncome-tax Act, 1961 - Cash credits (Bank deposit) - Assessment year 2008-09 - Assessee deposited certain sum in his saving bank account but no return of income was filed by him - Assessing Officer issued notice under section 148 on ground that there was an escapement of income - Whether where Assessing Officer proceeded on fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that source of deposit need not necessarily be income of assessee, reassessment proceedings "was to be set aside - Held. yes [Paras 8 & 10. [In favour of assessee]
B. Amrik Singh vs ITO reported in 159 ITD 329 (Asr) wherein it has been held as under and the decision of Bir Bahadur Singh Sijawali (Supra) has been followed in this case. "44. It is this question which takes us back to the applicability/non- applicability of the decision in ‘Bir Bahadur Singh Sijwali (supra). The ratio thereof has not at all been disputed by the Department. In fact, the only dispute which has been raked up is the applicability or otherwise thereof to the facts of the present case, in view of the position that the initiation of the assessment proceedings U/S 147 in the present case stands preceded by the issuance of the alleged enquiry letter by the ITO. This dispute has been dealt with in detail in the foregoing paragraphs.
In 'Bir Bahadur Singh Sijwali' (supra), it has been held that where the AO issued a notice U/S 148 on the ground that there was ,fin escapement of income and the belief regarding such escapement of income was formed on the fallacious assumption of the AO that bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee, the reassessment proceedings cannot be sustained. In the present case, similarly, the basis of initiation of the assessment proceedings U/S 147 was the information with the Department, of the deposits made by the assessee in his bank account.
'Bir Bahadur Singh Sijwali' (supra), makes reference to 'Hindusan Lever Ltd. vs. R.B. Wadkar'. 26R TTR 332 (Born.), to hold that the reasons recorded for reopening the assessment are to be examined on a standalone basis and nothing can be added to the reasons. It was also observed that the reasons must point out to an income escaping assessment and not merely need of an enquiry which may result in detection of an income escaping 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."
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.l0,24,100/- 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.l 0,24, 1 00/- has escaped assessment of income because the assessee has Rs.l0,24,100/- 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."
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 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."
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 LT. 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.
Thus, it was a mere suspicion of the AO, that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law. Too, the AO 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, in keeping with 'Bir Bahadur Singh Sijwali' (supra), 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. Ground No.2 is, accordingly, accepted."
C. Apex Court judgment in the case of Parimisetti Setharamamma vs. CIT reported in 57 ITR 532 has held as under:- "By sections 3 and 4 the Act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. The appellant admitted that she had received jewellery and diverse sums of money from Sita Devi and she claimed that these were gifts made out of love and affection. The case of the appellant was that the receipts did not fall within the taxing provision: it was not her case that being income the receipts were exempt from taxation because of a statutory provision. It was therefore for the department to establish that these receipts were chargeable to tax."
D. ITAT, Delhi Bench decision in case of Praveen Kumar Jain v ITO in for Assessment year 2006-07 dated 22.1.2015 wherein it has been held as under:-
"12. Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceed to reopen the assessment which is in nature of a post mortem exercise after the event of reopening of the assessment. Therefore the reopening of the assessment was found to be invalid as it does not satisfy the requirement of law that prior to the reopening of the assessment the AO has to apply his mind to the material and conclude that he has reason to believe that income of the assessee has escaped assessment. Applying the above proposition of law it leaves no doubt in the mind that in the case on hand the AO has reopened the assessment mechanically without application of mind to conclude that the said amount of Rs.6 lac deposit in the bank account of the assessee constitutes the income of the assessee and the same has escaped assessment. The decision relied upon by the ld DR is not applicable in the facts of the present case because in the said case not only the accommodation entry were found by the investigation wing but the modus operandi was also detected and therefore it was found that the AO was having the sufficient material and information to form the believe that the income assessable to tax has escaped assessment. In view of the facts and circumstances as well as the decisions relied upon by the AR, the reopening is in the case of the assessee is not valid and the same is quashed.
Applying the propositions laid down in the above case laws to the facts of the present case I hold that the reopening of assessment is bad in law as the reasons recorded were without application of mind to the material on record.
In the result the appeal by the assessee is allowed. Order pronounced in the open court on 23rd January, 2017.