SUBHASH CHAND GOYAL,HANSI vs. ITO, HISAR

1) That on the facts and in the circumstances of the case and under law Learned Assessing Officer in initiating proceedings under S.147 of Income Tax Act, 1961, is without jurisdiction and void as after dropping proceedings initiated under S.154 of the Act, has assumed jurisdiction under S.147 of Act. 2) That on the facts and in the circumstances of the case and under law Learned Commissioner of Income Tax(Appeals) erred in sustaining order of learned Assessing Officer that the expenditure incurred by assessee as an MLA was not an allowable deduction under S.57(iii) of Income Tax Act, 1961 out of allowances received by assessee. 3) That on the facts and in the circumstances of the case and under law Learned Commissioner of Income Tax(Appeals) erred in rejecting the applicability of rule of consistency to the facts of the case. 4) That Learned Assessing Officer erred in charging interest under S.234D and S.244A of the Act.”

Briefly stated the facts necessary for adjudication of the issue involved in both the aforesaid appeals are : the assessee being an MLA and Minister of the Haryana Government derived income from salary and allowances along with income from other sources.

AO noticed that the assessee claimed deduction against salaried income which is not allowable and the deduction claimed under the head ‘income from other sources’ on account of expenses claimed was also not found to be in accordance with law and consequently, notice u/s 148 of the Income-tax Act, 1961 (for short ‘the Act’) was issued on 03.12.2008 after recording reasons u/s 147 of the Act. Due to non-filing of the return of income within prescribed period of 30 days, notice u/s 142(1) of the Act was issued on 02.03.2009 to which reply was filed claiming that original notice u/s 148 dated 03.12.2008 was not served upon/ received by the assessee. So, fresh notice was served and in response thereof, assessee pleaded to treat the aforesaid return of income as reply to the notice issued to him.

Consequent upon the issue of notice u/s 143 (2) of the Act, assessee put in appearance through his Authorized Representative and he was called upon to show-cause to disallow the claim of exemption of Rs.24,000/- u/s 10(17)(iii) and expenses of Rs.4,53,180/- claimed against allowances received being MLA.

Finding the submissions made by assessee not tenable, AO rejected the claim of the assessee u/s 57(iii) of the Act and assessed the net taxable income at Rs.7,06,733/- for AY 2004-05 and Rs.6,94,628/- for AY 2005-06 respectively.

We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

Ld. AR for the assessee challenging the impugned order contended inter alia that AO by applying his independent mind, issued letter dated 24.07.2008, available at page 6 of the paper book-2, considered this case not fit for reopening but ld. Addl.CIT coerced the AO to issue the notice for reopening the case; that after receipt of letter from Addl.CIT, AO recorded the reasons to reopen the assessment which are not sustainable in the eyes of law.

Now before proceeding further, we would like to peruse the reasons recorded by the AO for reopening of the assessment u/s 147 of the Act which are reproduced for ready perusal as under :-

In the backdrop of the facts and circumstances of the case and arguments addressed by the ld. AR for the parties to the case, the sole question arises for determination is :-

Undisputedly, it is settled principle of law that the AO is required to reach at an independent conclusion by applying his own mind that “he has reason to believe that the income of the assessee has escaped assessment”, to assume the jurisdiction for reopening of the assessment u/s 147 / 148 of the Act.

Bare perusal of the reasons recorded by the AO qua initiation of proceedings u/s 147 of the Act apparently go to prove inter alia that he has simply acted on the basis of directions issued by Addl.CIT dated 29.07.2008, lying at page 8 of the paper book-2; that when the AO vide letter dated 24.07.2008, available at page 6 of the paper book-2, addressed to Addl.CIT has categorically held that, “in view of the detailed reply filed by the assessee, the action of reopening of assessment was not considered fit” the question does not arise to apply the mind again by the AO at the time of recording reasons on 03.12.2008, available at page 12 of the paper book; that the AO in the reasons recorded for reopening assessment u/s 147 has nowhere disclosed the reasons to depart from his earlier satisfaction that the case is not fit for reopening, which fact goes to prove that the reopening has merely been made at the directions of Addl.CIT which is not permissible under law.

Undisputedly, when the AO has came to the conclusion that this case is not fit for reopening as per letter dated 24.07.2008, available at page 6 of paper book-2 written to Addl.CIT, there is no question of independently recording satisfaction to initiate the proceedings u/s 147. AO has merely acted upon the directions issued by Addl.CIT to reopen the assessment u/s 147 whereas AO was required to arrive at a prima facie conclusion that the income of the assessee has escaped assessment for AYs 2004-05 and 2005-

Reasons recorded by AO even do not disclose as to how much income has escaped assessment for the years under assessment which shows that he has not applied his mind what to talk of recording satisfaction. Forming an opinion merely on the basis of information or directions issued by superior authorities does not amount to satisfaction of the AO to reopen the case u/s 147 of the Act.

So, when initiation of the proceedings u/s 147 of the Act in this case is itself bad in law, the consequent assessment u/s 148/143(3) is not sustainable and as such are liable to be quashed.