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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-II’ : NEW DELHI
Before: SHRI H.S. SIDHU
The Assessee has filed the Appeal against the Order dated 8.5.2014 of the Ld. CIT(A)-Rohtak pertaining to assessment year 2007-08 and raised the following grounds:-
That the order passed by the Learned CIT (Appeals) Rohtak is contrary to the facts, written submissions and provisions of Law.
2. That the Learned CIT (A) Rohtak has grossly erred in not considering the Learned Tehsildar certificates where the amount of Rs. 4942000/- the sales price of agricultural land is duly mentioned with the rate of per acre.
3. That the Learned CIT(A) Rohtak has also erred in not considering the duly sworned affidavit of Sh. Mohar Singh the husband of appellant who had deposited a sum of Rs. 4942000/- in the appellant's bank account with its sources against which the proceedings were initiated.
4. That sustain it in the additions of Rs. 3301000/- made by AO by the appellate Authority is quite arbitrary, excessive & unjustified.
5. That the non-consideration the request of appellant before AO to call the concerned persons for examination and to confirm original copy of the agreement to sell & amount received as per agreement at Rs. 4942000/- is against the Law & justice of the case.
6. That to sustain the addition of Rs. 50240/- as agricultural income by the Learned CIT(A) Rohtak is against Law, facts & documents on record.
7. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal before & also at the time of hearing.
Assessee has also filed an Application for admission of additional ground of Appeal vide its Application dated 29.8.2016 in which the assessee has stated that in view of the settled decisions in the case of NTPC 229 ITR 383 (SC), (legal ground can be raised for first time in collateral and second round also).
The legal ground can be very well raised for first before the ITAT which goes to the root of the matter and pertains to the assumption of jurisdiction. For the sake of convenience, the legal additional ground raised by the asseseee are reproduced as under:-
1. That the Learned Income Tax Officer has erred both in law and on facts in initiating proceedings u/s. 147 of the Act and, further completing assessment under section 143(3)/147 of the Act without satisfying the statutory pre-conditions for initiation of the proceedings provided under the Act and, as such are void ab initio and without jurisdiction.
Ld. Counsel of the Assessee requested that keeping in view of the decision of the Hon’ble Supreme Court of India in the case of NTPC 229 ITR 383 (SC) (Supra), the additional ground raised by the assessee may be admitted and decided first.
On the contrary, Ld. DR strongly opposed the admission of additional ground (legal) raised by the assessee.
After hearing both the parties as well as perusing the additional ground alongwith the orders passed by the Revenue Authorities, I am of the considered view that in view of the decision of the Hon’ble Supreme Court of India in the case of NTPC Limited 229 ITR 383 (Supra), the additional ground raised by the assessee vide its Application dated 29.8.2016 are purely legal ground and did not require fresh facts which is to be investigated and goes to the root of the matter. In the interest of justice, I admit the aforesaid additional ground raised by the assessee, in view of the case law of NTPC Limited (Supra) and proceed to decide the additional ground first.
The brief facts of the case are that in this case on the basis of AIR information available, the assessee had deposited cash of Rs. 49,42,000/- on 10.8.2006 in her saving bank account no. 7666 with Canara Bank, Palhawas, Rewari during the financial year 2006-07 relevant to the year under proceeding. Notice u/s. 148 of the I.T. Act, 1961 was issued on 16.3.2012 after recording the reasons. Assesee filed her return of income of Rs. 50,240/-. Notices u/s. 143(2)/143(1) were issued on 12.10.2012 and the reasons recorded were duly supplied to the assessee. In compliance of notices, Assessee’s Representative attended the assessment proceedings and furnished the information and details and written reply. After perusing the same the AO added the additions and assessed the income of the assessee at Rs. 33,82,160/- by completing the assessment u/s. 143(3)/148 of the I.T. Act, 1961 vide his order dated 6.3.2013.
Against the Order of the AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 08.5.2014 has dismissed the appeal of the Assessee.
Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in Appeal before the Tribunal for challenging the legal issue raised vide additional as well as the addition in dispute, as aforesaid.
At the time of hearing, Ld. Counsel of the assessee has only argued the legal ground and stated that there is no nexus between the prima facie inference arrived in the reasons recorded and information available with the office of the AO. He further stated that 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. He further stated 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. It was the further contention of the Ld. Counsel of the assessee that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction. He further stated 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. He stated 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. To support his aforesaid contention, he relied upon the following case laws and attached the copies of the said decisions with his Paper Book.
- Bir Bahadur Singh Sijawali reported in 68 STO 197 (Del) - Sh. Amrik Singh vs. ITO reported in 159 ITD 329 (Asr) - Apex Court decision in the case of Parimisetti Sehtharamamma vs. CIT reported in 57 ITR 532. - Praveen Kumar Jain vs. ITO in for the AY 2006-07 dated 22.1.2015. - Saraf Gramodyog Sansthan vs. ITO reported in 108 ITD 115 (Agra).
In view of the above, he requested that by following the aforesaid precedents the reassessment proceedings of the AO may be quashed by accepting the Appeal filed by the Assessee.
On the contrary, Ld. DR relied upon the order passed by the authorities below and stated that the AO has properly recorded the reasons for reopening by due application of mind, hence, the appeal of the Assessee may be dismissed.
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. 50.
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. Since the reopening of the assessment held to be invalid therefore other grounds of the appeal become infractuous.
E. Amrik Singh vs ITO reported in 159 ITD 329 (Asr) wherein it has been held as under:-
"17. Thus, to reiterate, with effect from 01.07.1995, the condition that some proceeding must be pending is no longer applicable.
Under the earlier provisions of section 133(6), the prescribed Authorities had the power to call for any information from any person which would be useful for, or relevant to, any proceeding under the Act. The amendment in subsection (6) empowers the prescribed Authorities to call for information for the purpose of any inquiry under the Act even in cases where no proceeding is pending. However, an Income Tax Authority below the rank of Director or Commissioner can exercise the said power in respect of an inquiry only with the prior approval of the Director or the Commissioner.
In the present case, the enquiry letter dated 13.03 .2008 was issued by the Income Tax Officer, i.e., an Officer below the rank of the Income Tax Authorities referred to in the second proviso to section 133(6). Thus, in keeping with the said second proviso to section 133(6), prior approval was required to be obtained from the competent Authority before exercising power under section 133(6).
There is nothing on record to suggest that any such prior approval was obtained herein. The letter, per se, also does not make mention of any such approval. Hence, the power exercised by the ITO, without compliance with the second proviso to section 133(6), would tantamount to an illegal exercise of power.
However, be that as it may, this is not detrimental to the cause of the Department. In the present case, the ITO did not merely ask for information from the assessee. This takes the case out of the ken of section 133(6), as shall presently be seen."
In view of above, I am of the considered view that the above legal issue is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the decisions as discussed above. Hence, respectfully following the above precedents, I decide the legal issue in dispute in favor of the Assessee and against the Revenue and quash the reassessment proceedings being bad in law and illegal.
As I have already held that the reassessment is bad in law, I do not find it necessary to decide other issues which are on merits of the case.
In the result, the Assessee’s Appeal stands allowed.
Order pronounced in Open Court on this 15-09-2016.