ITO, WARD-1(3), BHUBANESWAR vs. SMT. CHINMAYEE RATH, ANGUL

आयकर अपीऱीय अधिकरण, “एस.एम.सी” न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH CUTTACK BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER आयकर अपीऱ सं./ITA No.468-471/CTK/2017 (नििाारण वषा / A.Ys :2009-10, 2010-11, 2011-12 & 2012-13) ITO, Ward-1(3), Bhubaneswar Vs. Smt. Chinmayee Rath, C/o- M/s Sevak Nursing Home (P) Ltd., Ballar Chawk, Talcher NH, Angul-759101 स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No. : AGEPR 4615 G (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. निर्ााररती की ओर से /Assessee by : Shri S.S.Mishra/P.K.Panda, AR राजस्व की ओर से /Revenue by : Shri D.K.Pradhan, DR सुनवाई की तारीख / Date of Hearing : 28/12/2017 घोषणा की तारीख/Date of Pronouncement 28/12/2017 आदेश / O R D E R These are the appeals filed by the revenue against the order of the CIT(A)-1, Bhubaneswar, dated 16.8.2017. 2. In all the appeals the sole grievance of the revenue is that the CIT(A) is not justified in quashing the assessment proceedings initiated u/s.147 of the I.T.Act, 1961 in case of the assessee. 3. Brief facts of the case are that the assessee contended before the CIT(A) that the AO did not have jurisdiction to make an assessment u/s.147 r.w.s.143(3) of the Act. The assessee filed copy of reasons recorded by the AO by way of certified copy. The recorded reasons by the AO for the assessment year 2009-2010 are as under :- "The assessee filed his return of income on 15.09.2009 disclosing the total income at Rs.3,31,280/-. In the said return, the assessee has shown income from salary at Rs.4,20,000/-. The assessee is a director in M/s. Sevak Nursing Home Pvt. Ltd., Ballhar Chhak, Talcher. In the case of the above companies, a survey u/s.133A was conducted on 01.08.2013 at Talcher. During the course of

2 ITA No.468 to 471/CTK/2017 survey proceedings, it was found that the company has not maintained any bank account in its name since its inception. Cash received during these years by the nursing home, after incurring daily expenses were deposited in the director's personal account as stated by the managing director of the company. Also the director has utilized the profit/income of the company for his individual benefit. But the details of the money drawn from the income/profit of the company and expenditure made have not been explained satisfactorily by the managing director of the company during the course of survey. Also the assessee director has not shown correct turnover and fixed assets in the return of income. In view of the above, I have reasons to believe that income chargeable to tax has escaped assessment as far as there is underassessment of income to the above extent, within the meaning of section 147 of the I. T. Act, 1961. Therefore, proceedings u/s.147 of the Act is initiated." The reasons recorded by the AO for assessment year 2010-2011 are as under: "The assessee e-filed his return of income on 13.12.2010 disclosing the total income at Rs.3,90,500/-. In the said return, the assessee has shown income from salary at Rs.4,80,000/-. The assessee is a director in M/s. Sevak Nursing Home Pvt. Ltd., Ballhar Chhak, Talcher. In the case of the above companies, a survey u/s.133A was conducted on 01.08.2013 at Talcher. During the course of survey proceedings, it was found that the company has not maintained any bank account in its name since its inception. Cash received during these years by the nursing home, after incurring daily expenses were deposited in the director's personal account as stated by the managing director of the company. Also the director has utilized the profit/income of the company for his individual benefit. But the details of the money drawn from the income/profit of the company and expenditure made have not been explained satisfactorily by the managing director of the company during the course of survey. Also the assessee director has not shown correct turnover and fixed assets in the return of income. In view of the above, I have reasons to believe that income chargeable to tax has escaped assessment as far as there is underassessment of income to the above extent, within the meaning of section 147 of the I. T. Act, 1961. Therefore, proceedings u/s.147 of the Act is initiated."

3 ITA No.468 to 471/CTK/2017 The reasons recorded by the AO for assessment year 2011-2012 are as under: "The assessee filed his return of income on 23.05.2012 disclosing the total income at Rs.4,81,260/-. In the said return, the assessee has shown income from salary at Rs.5,70,000/-. The assessee is a director in M/s. Sevak Nursing Home Pvt. Ltd., Ballhar Chhak, Talcher. In the case of the above companies, a survey u/s.133A was conducted on 01.08.2013 at Talcher. During the course of survey proceedings, it was found that the company has not maintained any bank account in its name since its inception. Cash received during these years by the nursing home, after incurring daily expenses were deposited in the director's personal account as stated by the managing director of the company. Also the director has utilized the profit/income of the company for his individual benefit. But the details of the money drawn from the income/profit of the company and expenditure made have not been explained satisfactorily by the managing director of the company during the course of survey. Also the assessee director has not shown correct turnover and fixed assets in the return of income. In view of the above, I have reasons to believe that income chargeable to tax has escaped assessment as far as there is underassessment of income to the above extent, within the meaning of section 147 of the I. T. Act, 1961. Therefore, proceedings u/s.147 of the Act is initiated." The reasons recorded by the AO for assessment year 2012-2013 are as under: "The assessee e-filed his return of income on 10.07.2013 disclosing the total income at Rs.4,80,000/-. In the said return, the assessee has shown income from salary at Rs.6,00,000/-. The assessee is a director in M/s. Sevak Nursing Home Pvt. Ltd., Ballhar Chhak, Talcher. In the case of the above companies, a survey u/s.133A was conducted on 01.08.2013 at Talcher. During the course of survey proceedings, it was found that the company has not maintained any bank account in its name since its inception. Cash received during these years by the nursing home, after incurring daily expenses were deposited in the director's personal account as stated by the managing director of the company. Also the director has utilized the profit/income of the company for his individual benefit. But the details of the money drawn from the income/profit of the company and expenditure made have not been explained satisfactorily by the managing director of the company during the course of survey.

4 ITA No.468 to 471/CTK/2017 Also the assessee director has not shown correct turnover and fixed assets in the return of income. In view of the above, I have reasons to believe that income chargeable to tax has escaped assessment as far as there is underassessment of income to the above extent, within the meaning of section 147 of the I. T. Act, 1961. Therefore, proceedings u/s.147 of the Act is initiated." 4. The CIT(A) decided issue by observing as under :- 3.2 I have considered the matter with reference to the reasons recorded by the AO before issue of notice u/s.148. On a plain reading of the reasons recorded, it becomes clear that the contention of the assessee that the assessment proceeding was initiated u/s.147 on the basis of mere allegation and not information appears to be correct. The AO had not mentioned in the reasons recorded u/s.147 as to the amount of income that had escaped assessment and the manner in which the same was earned. It is settled law that the reasons recorded for initiating proceeding u/s.147 are to be such that the same would lead a reasonable person to believe that income chargeable to tax has escaped assessment. From the reasons recorded by the AO, it is clear that only certain facts were stated in the so-called reasons without any whisper therein about the income escaping assessment and the quantum of such income. In fact, it is seen from records that the AO has recorded the same or similar reasons reopening the assessment not only for this AY but for the subsequent 3 AYs 2010-11 to 2012-13. The reasons recorded appear to have been copied from one year and pasted in another year with changes in the figures available in the relevant return. This clearly shows that the AO was not sure whether any income had escaped assessment for these years and if so under which head of income and how much. 3.2.1 In the case of Sheo Nath Singh vs. ACC (1971) 82 ITR 147, the Hon'ble Apex Court has held that the words 'reason to believe' suggest that the' belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. 3.2.2 It is also clear from the decisions of the Hon’ble Supreme Court in the case of Chhugamal Rajpal v. S.P.Chaliaha 79 ITR 603 and ITO v. Lakhmani Mewal Das 103 ITR 437 that initiation of action u/s.147 and for issuing notice to the assessee u/s.148(1), the AO must have in his possession specific information or material to show that the particular transactions of the assessee were not genuine or were fictitious and the AO must have arrived at a prima facie conclusion on the basis of such specific information or material that the particular transactions were not genuine or were fictitious. The Hon'ble Gujarat High Court in the case of Saradbhai M. Lakhani v. ITO 231 ITR 779, 783, 785 has opined that the validity or otherwise

5 ITA No.468 to 471/CTK/2017 of the reasons for initiation of reassessment proceeding should be gone into on the basis of facts mentioned and the reasons recorded prior to such initiation. It is not open to the Revenue to justify such initiation on the basis of further reasons to be supplied in the form of affidavits. The Hon'ble court further held that where the reasons recorded do not bring out any ground, making out an objective satisfaction arrived at by the officer, no reason other than those recorded by the officer can possibly be urged to sustain such initiation. It is essential that before any action is taken by the officer, the officer should substantiate his satisfaction. 3.2.3 In view of the above discussion and taking into consideration the aforesaid legal position, I am of the view that the AO has not recorded any valid reasons before initiating proceeding u/s.147. The reasons recorded by him before issue of the notice u/s.148 cannot lead a reasonable and honest person to believe that income chargeable to tax has escaped assessment for the AY 2009-10. The facts stated in the reasons recorded by the AO can raise suspicion in the minds of a person that there might be some irregularity leading to suppression of income in the return of income. But for a valid proceeding to be initiated u/s.147, what is required as per law is 'reason to believe' and not 'reason to suspect'. As a logical conclusion of the aforesaid discussion, the reassessment proceeding in this case is quashed since no valid reasons have been recorded by the AO to believe that income - chargeable to tax has escaped assessment for the AY 2009-10. 3,2,4 It may be relevant to refer here to Explanation-2 (b) of section 147 which provides as under: "where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee – - has understated the income or - has claimed excessive loss, deduction, allowance or relief in the return;" From the reasons recorded by the AO, it is not found that the AO has noticed any understatement of income or any excess claim of loss, deduction, allowance or relief by the assessee in the return. Hence, Explanation-2(b) is of no help to save the proceeding u/s.147. In other connected appeals i.e. ITA Nos.469, 470 & 471/CTK/2017, the CIT(A) has given the similar and identical findings as quoted above but the assessment years have been mentioned as 2010-2011, 2011-2012 & 2012-2013 in the respective appeals.

6 ITA No.468 to 471/CTK/2017 5. At the time of hearing the DR could not point out any specific error in the order of the CIT(A). In absence of the same, I find no good reason to interfere with the order of the CIT(A). It is confirmed and the ground of appeal raised in all the appeals is dismissed. 6. In the result, all appeals of the revenue are dismissed. Order pronounced in the open court on this 28/12/2017. Sd/- (N. S. SAINI) ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 28/12/2017 प्र.कु.मम/PKM, Senior Private Secretary आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. Appellant- 2. प्रत्यथी / The Respondent- 3. आयकर आयुक्त(अपील) / The CIT(A), आयकर आयुक्त / CIT 4. निभागीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, कटक / DR, ITAT, Cuttack 5. गार्ड फाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यापपत प्रतत //True Copy//

(Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack