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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri Joginder Singh & Shri Rajendra
आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 21/09/2016 of the Ld. First Appellate Authority, Mumbai. The only ground raised in the present appeal pertains to upholding the addition of Rs.3 crores made on account of alleged ‘on money’ given to Kamla Group for purchase of flats.
2. During hearing, the Ld. counsel for the assessee, Shri Ashwini Kumar, explained that there was an information with the Directorate of Investigation that Kamla Group received ‘on money’ for sale of flats. As per the Revenue, Rs.3 crores were paid by the assessee as on money to Kamla Group for purchasing two flats bearing no.1201 and 1202. It was contended that the assessee booked two flats with M/s Kamla Group. The addition was explained to be on the basis of a pen-drive. It was contended that in spite of requesting the Assessing Officer to cross examine the concerned person, such opportunity was not provided to the assessee. The Ld. counsel further contended that whole order, there is no allegation that cash was in fact received from the assessee. It was also asserted that till date the assessee was never provided with the copy of statement, asked by the assessee or cross examination to the assessee by the Assessing Officer. It was also pleaded that the alleged information was also never provided to the assessee, so, the belief of the Assessing Officer that any on money was given by the assessee is without any evidence. Reliance was placed upon the decision COMMISSIONER OF INCOME TAX vs. SMT. PARAMJIT KAUR 311 ITR 38 (P & H) and UNITED ELECTRICAL COMPANY (P) LTD. vs. COMMISSIONER OF INCOME TAX & ORS. 258 ITR 317 (Del.). The ld. counsel further explained that the flats were in fact purchases for 2.14 crores, whereas, as per the stamp duly valuation authorities, the cost comes to 1.21 crores. Our attention was invited to copy of the agreement (pages 13 and 14 of the paper book) and further pages 15 & 16 of the paper book for agreement for flat no.1202. It was pleaded that the ld. Assessing Officer was not even in possession of the assessment order, therefore, there was no locus standi of the assessee to go before another Assessing Officer and to ask for the documents. It was pleaded that the observation of the Assessing Officer that cash was received is not borne out of facts. Our attention was invited to page 58 and 59 of the paper book, explaining that the concerned person was not looking after the sale from whom statement was recorded. It was pleaded that the finding of the Ld. Commissioner of Income Tax (Appeal) is not correct as the alleged persons were not dealing in cash. It was pleaded that the entire case of the Department is based upon the statement of two persons. Our attention was further invited to pages 19 to 31 and 32 to 51 of the paper book and more specifically to certain questions. It was pleaded that there is no evidence on record that assessee paid any cash to M/s Kamla Group. Reliance was placed upon the decision in COMMISSIONER OF INCOME TAX vs. P.V. KALYANASUNDARAM 294 ITR 49 (SC), COMMISSIONER OF INCOME TAX vs. VED PRAKASH CHOUDHARY 305 ITR 245 (Del.), SEPCO III ELECTRIC POWER CONSTRUCTION CORPORATION, IN RE 205 taxman 115 (AAR.).
2.1. On the other hand, the ld. DR, Shri Rajesh Kr. Yadav, defended the addition made by the Assessing Officer and confirmed by the Ld. Commissioner of Income Tax (Appeals) by inviting our attention to para 10 and 12 of the impugned order along with page-37 of the paper book. It was also pleaded that Kamla Group also made disclosure before the settlement commission, therefore, the addition was rightly sustained.
2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee declared total income of Rs.9,33,230/- in her return on 31/07/2012. The assessee purchased two flats bearing no. 1201 & 1202. The allotment letter of both these flats was filed before the Ld. Assessing Officer vide letter dated 04/02/2015. The assessee made payment of Rs.2,30,00,000/- and furnished the copy of bank statement along with source of such payment before the Assessing Officer. The schedule of payment have also been mentioned in para -5 (page-2 of the assessment order). As per the Revenue, there was information from investigation wing that buyers paid on money to the Kamla Group for different projects. As per the Revenue, the assessee paid Rs.3 crores during the period relevant to Assessment Year 2012-13 in cash, which was not disclosed in the return. The Ld. Assessing Officer had reason to belief that income had escaped assessment, therefore, the case of the assessee was reopened u/s 147/148 of the Act. In response to the same the assessee vide letter dated 22/03/2014 requested the ld. Assessing Officer that the original return filed on 31/07/2012 may be treated to be return filed in response to notice u/s 148 of the Act. In response to the notices issued u/s 143(2) and 142(1) of the Act, the assessee attended the proceedings and furnished the details called for during the case as has been admitted/acknowledged in para -4 of the assessment order. The assessee was issued show cause notice on 16/03/2015, which is reproduced hereunder:-
"Information has been received from Investigation Wing after a search and seizure action conducted on Kamala Group of cases on 09.01.2013. During the course of this search proceedings evidence related to inter alia payment of On-Money (cash) for purchases of flat were found. These evidences were confronted to the Directors/Partners of the Kamala Group and they accepted the fact that On-Money was received on sale of various flats. The information was forwarded to this office from the Investigation Wing that you have made a cash payment of RS.3,00,00,000/- to Yojana Infratech on June 2011 for purchase of Flat NO.1201 & 1202. You are therefore requested to show cause as to why the said amount of cash should not be assessed as your income from undisclosed sources. "
2.3. The assessee vide reply dated 20/03/2015 to the aforementioned show cause notice, replied as under “Regarding payment made to Yojna Infratech for purchase of flat no.1201 and 1202 in their project at Khar, I and my daughter have made payment by cheque as details given earlier. Regarding cash payment, as stated in your notice, I deny such payment made by me. I request to give me opportunity to cross examine a person who has made statement and also furnished material on which you rely.” 2.4. We find that in aforesaid reply, the assessee specifically denied of making any payment in cash to the assessee and requested for cross examine the person who made the statement.
2.5. It is also noted that the department recorded the statement u/s 132(4) of the Act, of Shri Nilesh Gawde and Shri Mahendra Rawa, employees of Kamla Group, in which they confirmed that cash was received from sale of flat developed by various entities of Kamla Group of companies. These statements, as per the Revenue, were further confirmed by the Director/partners of the group. The Ld. Assessing Officer at the last page of the assessment order has observed that it is a common practice by the builders to get cash in advance while booking the property. The denial of making any cash payment by the assessee to the group was not accepted by the Ld. Assessing Officer, therefore, the amount of Rs.3 crore, alleged to be made in cash was added to the income of the assessee.
2.6. On appeal, before the Ld. Commissioner of Income Tax (Appeals), the explanation of the assessee could not find favour and thus the addition made by the Assessing Officer was affirmed. The assessee is in appeal before this Tribunal.
2.7. We find that the whole basis of addition is based upon the statement tendered by two employees namely Shri Nilesh Gawde and Shri Mahendra Rawal of Kamla Group. In such a situation, we are expected to examine the contents of the statements, which is available at pages 19 to 51 of the paper book. In reply question no.7 with respect to providing details of commercial and residential project, Shri Nilesh K. Gawde specifically tendered that he was not looking after any project or sale related activities and therefore, he denied having any knowledge. In reply to question no.12, with respect to pen-drive, recovered during the course of search, it was replied that this pen-drive belongs to Mahendra, who was handling the cash department of Kamla Mill compound. A reply to question no.19, with respect to details of the directors and their nature of job, he specifically denied by saying that ‘I don’t know’. With respect to other firms, he specifically denied as is evident from pages 22 to 24 of the paper book (containing the statement). In reply to question no.21 with respect to entries in the Excel Sheets appearing in annexure ‘O’ as well as print out seized in annexure ‘A1’. It was specifically replied that the particular data was prepared by one Shri Mahendra Rawal and further tendered that his job is merely to enter data as directed by Shri Mahendra Rawal, who does the cross checking after data entry. In reply to question no.23, with respect to the transactions in regular books of accounts, it was contended that he does not know about the recording as he was not a person working in the accounts department.
2.8. So far as the statement of Shri Mahendra Rawal (pages 32 onwards of the paper book) is concerned, in reply to question no.9 whether he was a director or partner or proprietor in any company/firm, etc. he contended that he is Director in some of the companies and further confirmed that he is a partner in Aqua Marine. In reply to question no.14, with respect to work in M/s Kamla Mills Ltd. he tendered that he deals with the purchase of steel, bajari, cement, bricks, etc. In reply to question no. 17, whether he is having any role in sale in the aforementioned companies, he specifically denied of having any role. In reply to question no.18, with respect to sales and receipt of money, he said these are dealt with by one Shri Manmohan Taneja and he is not aware as from where the cash was coming/received out of sale and also whether it is entered in the books or not. In reply to question no.20, as to what was to be done of the cash, he said that the cash was used to send at the direction of Shri Nilesh Gowani. In reply to question no.21 as to who was dealing cash page-38, he has tendered that the cash was from Shri Manmohan Taneja and Shri Nilesh Gawde was to enter the same in the computer. That in reply of question no.22, to supply of the cash account, he tendered that he is not having any copy, diary or soft copy. In reply to question no.23, as to who is having the accounts of cash, he specifically denied that he is not aware about the same. In reply to question no.24, whether he was handling the cash presently, he specifically tendered that he has no knowledge about it. The contents of the statement either deny the receipt of cash and if received, it nowhere says that any cash was received from the present assessee on sale of two flats. The allegations are clearly vague. In such a situation, unless and until it is proved that any cash was received from the assessee, the addition cannot be said to be justified, which is purely on the basis of statement of some persons and no evidence has been collected that any cash was received from the assessee. Even if it is presumed that some cash was received by Kamla Group then it is the group which is expected to explain the source of the cash but certainly no addition can be made in the hands of the present assessee. Presumption cannot take the shape of evidence, however, strong it may be. So far as, the contention of the Ld. DR that Kamla Group made disclosure before the Settlement Commission does not prove that any cash was received from the present assessee. It is for the Kamla Group to explain the nature and source of such cash, if any, surrendered before any authority.
2.9. It is also noted that before the Ld. Assessing Officer/CIT(A) and also before this Tribunal, the assessee duly produced the computation of total income along with the acknowledgment of return filed by the assessee (pages 5 to 7 of the paper book), copy of letters submitted during assessment proceedings, balance sheet (pages 8 to 9 of the paper book), details of date-wise payment made by the assessee for purchase of flats (page-10 of the paper book), copy of allotment letters dated 01/06/2011, copies of statements recorded from Shri Nilesh Gawde and Mahendra Rawal (pages 19 to 51 of the paper book) and written submissions dated 19/07/2016 (page-60 and 61 of the paper book) filed before the Ld. Commissioner of Income Tax (Appeals).
2.10. If this issue is analyzed with the market rate/stamp duty recknores rates of 2011 (pages 13 to 18 of the paper book) are analyzed, the ld. Counsel explained before us that the ready recknor rate of the stamp duty valuation authority are lower than the payment made by the assessee, meaning thereby, at the relevant time, the ready recknor rates itself proves that the case of the assessee is genuine. There is no evidence on record, on behalf of the Revenue, that in fact any ón money’ was paid by the assessee to the builder/Kamla Group over and above the payments made through cheque/banking channel. So, from this angle also, we find merit in the contention of the assessee.
2.11. Now, we shall examine the allotment letters dated 01/06/2011 (pages 13 to 18 of the paper book). It is noted that Yojna Infratech, vide letter dated 01/06/2011, address to Mrs. Lalita Anand (present assessee) that two flats along with two open car parking space were allotted to the assessee, wherein, para 2, it has been clearly mentioned that the total consideration of the flat was Rs.2,14,00,000/-, which has to be deposited on the terms and conditions on the specified date provided at page -14 of the paper book). It is also noted (pages 17 & 18 of the paper book), the ready recknor rates of land + building for the residential building was Rs.1,67,600/-, which clearly establishes that the area-wise rates (ready recknor rates of valuation authority) are lower to the payment made by the assessee through banking channel.
2.12. Now, we shall deal with the cases relied upon by both sides. The Hon'ble Punjab And Haryana High Court in the case of COMMISSIONER OF INCOME TAX vs. SMT. PARAMJIT KAUR 311 ITR 38 (P & H) held as under:-
“This reference under s. 256(1) of the IT Act, 1961 (for short "the Act") has been made to this Court at the instance of the Revenue by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (for brevity "the Tribunal") arising out of its order dt. 19th April, 1996 in relating to the asst. yr. 1989-90 raising the following question of law :
Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in law in quashing the assessment order for the asst. yr. 1989-90 by holding that the notice under s. 148 is invalid ?
2. The facts are that the assessee filed her original return declaring nil income and the AO on receiving the information from Survey Wing of the IT Department that Neta Metal Works prepared a demand draft for a sum of Rs. 83,040 payable at Chandigarh in favour of M/s Coal India Ltd., which was not accounted in the assessee’s books of account, issued a notice under s. 148 of the Act. The AO after recording reasons framed assessment under s. 143(3) of the Act at an income of Rs. 83,040 on 2nd Sept., 1994. On appeal by the assessee, the first appellate authority upheld the validity of notice under s. 148 of the Act but set aside the assessment on the addition made by the AO and remitted the matter to him to frame a fresh assessment after allowing reasonable opportunity of being heard to her. The assessee took the matter in second appeal and the Tribunal vide its order dt. 19th April, 1996 held that since the AO had failed to incorporate material and his satisfaction for reopening the assessment, the same was invalid.
We have heard learned counsel for the parties.
4. Sec. 147 of the Act defines the power and jurisdiction of the AO for making an assessment or reassessment of escaped income. Sec. 148 of the Act, on the other hand, provides for initiation of the reassessment proceedings with issuance of a notice on the assessee concerned. Sec. 147 empowers the AO to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time it cannot be stated to be a plenary power. The AO can assume jurisdiction under the said provision provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The AO must record reasons showing due application of mind before taking recourse to reassessment proceedings. Still further the AO can assume jurisdiction for reassessment proceedings provided he has reasons to believe but the same cannot be taken recourse to on the basis of reasons to suspect.
5. In ITO & Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC), the Hon’ble Supreme Court while interpreting the provisions of s. 147 of the Act held as under :
.....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 ITO 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. It is no doubt true that the Court cannot go into the 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 far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words 'definite information’ which were there in s. 34 of the Act of 1922, at one time before its amendment in 1948, are not there in s. 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far- fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.
6. The Tribunal while allowing the appeal of the assessee came to the conclusion that it was essential for the AO before issuing notice to record his own satisfaction on the basis of material and should not have acted merely upon the information received from the survey circle. It was further noticed that the Dy. CIT(A) had recorded that there was not sufficient evidence for making addition of Rs. 83,040 in the hands of the assessee and the matter was remanded to him to further investigate for connecting the amount of the draft with the escaped income of the assessee still it was held that the initiation of reassessment was valid. The Tribunal concluded that contradictory findings had been recorded by the Dy. CIT(A) and held the reopening to be invalid.
7. It is undisputed that the AO had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of Rs. 83,040 which was not accounted in the books of account of the assessee. The AO had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The AO had thus acted only on the basis of suspicion and it cannot be said that the same was based on belief that the income chargeable to tax had escaped income (sic- assessment). The AO has to act on the basis of "reasons to believe" and not on "reasons to suspect". The Tribunal had, thus, rightly concluded that the AO had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, the issuance of notice under s. 148 of the Act for reassessment proceedings was not valid.
In view of the above, the question of law referred to this Court is answered against the Revenue and in favour of the assessee.”
2.13. In the aforesaid case, the Hon'ble High Court concluded/observed that section 147 empowers the AO to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time it ca nnot be stated to be a plenary power. The AO can assume jurisdiction under the said provision provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The AO must record reasons showing due application of mind before taking recourse to reassessment proceedings. Still further the AO can assume jurisdiction for reassessment proceedings provided he has reasons to believe but the same cannot be taken recourse to on the basis of reasons to suspect.—ITO & Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) relied on.
2.14. It was further observed by the Hon'ble High Court that The AO had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of Rs. 83,040 which was not accounted in the books of account of the assessee. The AO had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The AO had thus acted only on the basis of suspicion and it cannot be said that the same was based on belief that the income chargeable to tax had escaped assessment. The AO has to act on the basis of "reasons to believe" and not on "reasons to suspect". The Tribunal had, thus, rightly concluded that the AO had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, the issuance of notice under section 148 for reassessment proceedings was not valid and finally concluded that AO has to record reasons showing due application of mind before taking recourse to reassessment proceedings; AO having initiated reassessment proceedings simply on the basis of information received from the survey circle of the Department that the assessee had got prepared a demand draft which was not accounted in her books of account, without incorporating corroborative material and his own satisfaction that income has escaped assessment, issuance of notice under s. 148 was not valid.
2.15. In the present appeal also the Ld. Assessing Officer broadly relied upon the information received from the investigation wing and did not made any enquiry from the Kamal Group. As mentioned earlier and argued by the Ld. Counsel for the assessee to provide the information, if any, received by him, the Assessing Officer of the present assessee asked the assessee to get the documents from the Assessing Officer of the another group. We are in agreement with the argument of the ld. Counsel for the assessee that the present assessee has no locus standi to go to another Assessing Officer and ask for the documents of a different assessee. The ld. Assessing Officer of the present assessee was expected to independently examine the documents or the information, which pertains to the case of Kamal Group but that was not done. Even during hearing, cross examination was not provided by the Assessing Officer and at the instance of the Ld. First Appellate Authority, such opportunity was provided.
2.16. In another case from Hon'ble Delhi High Court in UNITED ELECTRICAL COMPANY (P) LTD. vs. COMMISSIONER OF INCOME TAX & ORS. 258 ITR 317 (Del.), it was observed/held as under:-
“2. Since a very short point is involved, with the consent of counsel for the parties we take up the matter for final disposal.
3. Challenge in this writ petition under Art. 226 of the Constitution of India is to the notice dt. 30th April, 2002, issued under s. 148 of the IT Act, 1961 (for short the Act), by the ITO, respondent No. 3 herein, seeking to reopen the assessment of the petitioner-company for the asst. yr. 1996-97.
The petitioner-company is engaged in the business of manufacturing of electrical goods. It filed its return of income for the asst. yr. 1996-97 on 30th Nov., 1996, declaring an income of Rs. 9,26,867. The return of income was accompanied by the statement of assessable income, various other documents and annexures, including the statutory tax audit report and the list of loans taken during the relevant previous year. One of the loans, for Rs. 7,40,000, raised by the petitioner was from a concern M/s Visa Fincap Ltd., New Delhi. According to the petitioner, the loan was taken on two different dates through account payee cheques; the sum of Rs. 33,860 was paid/credited as interest on the said amount during the relevant period; tax was deducted at source on the said amount which was paid to the credit of the Central Government; and the loan was repaid in April, 1997, by account payee cheque.
It seems that since notice under s. 143(2) of the Act was not received by the petitioner within 12 months from the date of filing of the return, it was taken that the return had been accepted. On 5th May, 2002, the petitioner received the impugned notice under s. 148 of the Act. Pursuant thereto, the petitioner filed its return declaring the same income which had been declared in the original return filed under s. 139(1) of the Act. Vide letter dt. 18th June, 2002, the petitioner requested the AO to supply a copy of the reasons recorded for reopening the assessment, which was done. Since the entire controversy revolves around the reasons for reopening the assessment, for the sake of ready reference, these are reproduced hereunder : "An intimation has been received from the AO having jurisdiction over M/s Visa Fincap Ltd. A-1, Laxmi Kunj, Sector 13, Rohini, Delhi. It has been stated that M/s Visa Fincap Ltd. has given loan of Rs. 7,40,000 to M/s United Electric Company (Delhi) (P) Ltd. Shri Vijay Kumar Jain, the director of M/s Visa Fincap Ltd. has admitted in his statement recorded on oath under s. 131 of the IT Act by the AO, Ward 17(4), New Delhi, that the loan transaction with the assessee-company i.e., M/s United Electric Co. (Delhi) is not genuine. Shri Vijay Kumar Jain also admitted that the assessee-company M/s United Electric Co. (Delhi) had given cash to M/s Visa Fincap Ltd. and the same amount was deposited into the bank by it and thereafter a cheque of equal amount was issued to the assessee-company M/s United Electric Co. (Delhi) (P) Ltd. and entry of loans were recorded in the account books. Similarly, before liquidating the loans, the assessee-company issued cheque in the name of M/s Visa Fincap Ltd. which was deposited into the bank and thereafter the cash of equal amount was withdrawn from the bank and was given to the assessee-company. I have reason to believe that income chargeable to tax of Rs. 7,40,000 has escaped assessment within the meaning of s. 147, Expln. 2(b) of IT Act.
Submitted to Addl. CIT, Range 18, with request to accord approval for issue of notice under s. 148 r/w s. 151(2) of IT Act. (Underlining, italicised in print, for emphasis) Sd/- (Sugan Chand Mittal) ITO, Ward 18(1), New Delhi Yes, I am satisfied that it is a fit case for issue of notice under s. 148 of the IT Act. Sd/- (N.K. Sharma) Addl. Commissioner of Income-tax, Range 18, New Delhi"
6. Since the purported belief of the AO was based on the statement of one Mr. V.K. Jain, the AO was requested to supply a copy thereof, which was supplied to the petitioner.
7. Alleging that in his statement recorded under s. 131 of the Act, the said V.K. Jain had nowhere stated that loan given to the petitioner was bogus, no adverse inference could be drawn against the petitioner towards the loan transaction and, therefore, no "reasons to believe" existed with the AO to initiate proceedings under s. 147/148 of the Act, the present petition was filed for quashing of notice dt. 30th April, 2002.
We have heard Mr. M.S. Syali, learned senior counsel for the petitioner, and Mr. R.D. Jolly, learned senior standing counsel for the Revenue, who has put in appearance on advance notice. The record of the AO has also been produced before us by Mr. Jolly and we have perused the same.
The main thrust of Mr. Syali’s argument is that the foundation for the belief of the AO that petitioner’s income has escaped assessment is based on the statement of V.K. Jain, wherein he is alleged to have stated that loan given by M/s Visa Fincap to the petitioner is bogus, whereas the copy of the statement of V.K. Jain, supplied to the petitioner by the AO does not show any such confession. Learned counsel would submit that the AO having solely relied on the said statement for his requisite belief, the entire proceedings for reopening the assessment have no legal foundation. Mr. Jolly, learned counsel for the Revenue, on the other hand, has submitted that power of reopening the assessment under the amended s. 147 being very wide, the AO is justified in reopening the assessment in order to investigate into the genuineness of the transaction between the petitioner and the said Visa Fincap.
Having considered the matter in the light of the material available on the record produced, we are of the view that the petition deserves to succeed.
Sec. 147 of the Act authorises the AO to assess or reassess income chargeable to tax, if he has reason to believe that the said income for any assessment year has escaped assessment. The power conferred under the said section, particularly after 1st April, 1989, is no doubt very wide but it cannot be said to be plenary. True, the amended provisions of s. 147 are contextually different from the pre1989 provision, inasmuch as the cumulative conditions spelt out in cl. (a) of old s. 147 namely, that income chargeable to tax had escaped assessment by reason of : (i) omission or failure on the part of the assessee to make a return of his income under s. 139 of the Act for any assessment year, or (ii) failure to disclose fully and truly all material facts necessary for his assessment for that year, are not present in the new main section but the crucial expression "reason to believe" still exists in the new provision. The amended s. 147 provides that where the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of ss. 148 to 153 and assess or reassess the income which has escaped assessment. For the present purpose, only ss. 148 and 151 are relevant. Sub-s. (2) of s. 148 of the Act mandates that before issuing notice to the assessee under sub-s. (1), for filing the return, the AO shall record his reasons for doing so. Therefore, formation of reason to believe and recording of reasons are imperative before the AO can reopen the completed assessment. Proviso to sub-s. (1) of s. 151 of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under s. 148 shall not be issued unless the Chief CIT or the CIT, as the case may be, is satisfied, on the reasons recorded by the AO concerned, that it is a fit case for the issue of such notice. These are some inbuilt safeguards to prevent arbitrary exercise of power by an AO to fiddle with the completed assessment.
In Bawa Abhai Singh vs. Dy. CIT (2001) 168 CTR (Del) 521 : (2002) 253 ITR 83 (Del), a Division Bench of this Court, speaking through Chief Justice Arijit Pasayat (as his Lordship then was), has said that the crucial expression "reason to believe" predicates that the AO must hold a belief....... by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons, inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information.
13. In Ganga Saran & Sons (P) Ltd. vs. ITO & Ors. (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC), their Lordships of the Supreme Court, inter alia, observed that the expression "reason to believe" is stronger than the expression "is satisfied". The belief entertained by the AO should not be irrational or arbitrary. Alternatively put, it must be reasonable and must be based on reasons which are material.
Thus, existence of tangible material, for the formation of opinion is a prerequisite for initiation of action under s. 147 of the Act. Therefore, what s. 147 of the Act postulates is that the AO must have reason to believe that income has escaped assessment. There should be facts before him that reasonably give rise to the belief, but the facts on the basis of which he entertains the belief need not at this stage be rebuttably conclusive to support his tentative conclusion. In case of challenge, it is open to the Court to examine whether there was material before the AO, having rational connection or relevant bearing to the formation of the belief that is claimed to have been held at the time when he issued the notice. But the Court cannot for the purpose of ascertaining validity of the notice examine the sufficiency of the reasons for the belief [See S. Narayanappa & Ors. vs. CIT (1967) 63 ITR 219 (SC)].
Explaining the scope of the expression "information", in the background of s. 132 of the Act, which logic is equally applicable to a case under s. 147 of the Act, in L.R. Gupta & Ors. vs. Union of India & Ors. (1992) 101 CTR (Del) 179 : (1992) 194 ITR 32 (Del), a Division Bench of this Court observed thus : "The expression 'information' must be something more than a mere rumour or a gossip or a hunch. There must be some material which can be regarded as information which must exist on the file on the basis of which the authorising officer can have reason to believe that action under s. 132 is called for any of the reasons mentioned in cl. (a), (b) or (c). When the action of issuance of an authorisation under s. 132 is challenged in a Court, it will be open to the petitioner to contend that on the facts or information disclosed, no reasonable person could have come to the conclusion that action under s. 132 was called for. The opinion which has to be formed is subjective and, therefore, the jurisdiction of the Court to interfere is very limited. A Court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether action under s. 132 is called for. But the Court would be acting without its jurisdiction in seeing whether the act of issuance of an authorisation under s. 132 is arbitrary or mala fide or whether the satisfaction which is recorded is such which shows lack of application of mind of the appropriate authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then in such a case, action taken under s. 132 would be regarded as bad in law." (Emphasis, italicised in print, supplied) 16. It is, thus, trite, that when a challenge is made to the action under s. 147 of the Act what the Court is required to examine is whether some material exists on record for the AO to form the requisite belief and the reasons for the belief have a rational nexus or a relevant bearing to the formation of such belief and are not extraneous or irrelevant for the purpose of the said section. But the sufficiency of the grounds, which induced the AO to act under the said section is not a justiciable issue. 17. In the instant case, as noticed above, the respondents have produced before us the original file containing the satisfaction note of the AO as also a copy of the statement of V.K. Jain. Copy of the statement supplied to the petitioner is the same as is available on the file of the AO. On a careful perusal of the statement, we find that, the facts mentioned in the "reasons" are de hors the facts available on record. The relevant portion of the statement of V.K. Jain, dt. 18th Feb., 2002, reads as under : "Q. 5 Can you give the names and addresses of the above persons from whom you were receiving cash and giving entries thereafter ? Ans. The names and addresses of the person concerned are the same as shown as loan creditors in the balance sheet filed during the asst. yr. 1995-96. At present the list along with addresses is not available with me. It will be provided on the next date of hearing. To reconcile the above amount sometimes my along with the name of my wife were also used." 18. Evidently, the statement is too general. It does not mention any name much less the name of the petitioner. It is not the stand of the respondents that a list of the creditors, which included the name of the petitioner, was furnished by V.K. Jain subsequently and the same was forwarded to the AO of the petitioner. Applying the aforenoted settled principles, governing an action under s. 147 of the Act, we have no hesitation in holding that there was no information on record, which could provide foundation for the AO’s belief that petitioner’s transaction with M/s Visa Fincap Ltd. was not genuine and its income had escaped assessment on that account. Therefore, the impugned action of the AO cannot be sustained.
What disturbs us more is that even the Addl. CIT has accorded his approval for action under s. 147 mechanically. We feel that if the Addl. CIT had cared to go through the statement of said V.K. Jain, perhaps he would not have granted his approval, which was mandatory in terms of proviso to sub-s. (1) of s. 151 of the Act as the action under s. 147 was being initiated after the expiry of four years from the end of the relevant assessment year. As highlighted above, the legislature has provided certain safeguards to prevent arbitrary exercise of powers by an AO, particularly after a lapse of substantial time from completion of assessment. The power vested in the CIT to grant or not to grant approval is coupled with a duty. The CIT is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the AO. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case, there has been no application of mind by the Addl. CIT before granting the approval.
For the foregoing reasons, we allow the petition and quash the impugned notice dt. 30th April, 2002. The rule is made absolute with no order as to costs.”
2.17. In the aforesaid case, the Hon'ble Delhi High Court held/observed that section 147 authorises the AO to assess or reassess income chargeable to tax, if he has reason to believe that the said income for any assessment year has escaped assessment. The power conferred under the said section, particularly after 1st April, 1989, is no doubt very wide but it cannot be said to be plenary. True, the amended provisions of s. 147 are contextually different from the pre-1989 provision, inasmuch as the cumulative conditions spelt out in cl. (a) of old s. 147 namely, that income chargeable to tax had escaped assessment by reason of : (i) omission or failure on the part of the assessee to make a return of his income under s. 139 for any assessment year, or (ii) failure to disclose fully and truly all material facts necessary for his assessment for that year, are not present in the new main section but the crucial expression "reason to believe" still exists in the new provision. The amended s. 147 provides that where the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of ss. 148 to 153 and assess or reassess the income which has escaped assessment. Sub-s. (2) of s. 148 mandates that before issuing notice to the assessee under sub-s. (1), for filing the return, the AO shall record his reasons for doing so. Therefore, formation of reason to believe and recording of reasons are imperative before the AO can reopen the completed assessment. Proviso to sub-s. (1) of s. 151 provides that after the expiry of four years from the end of the relevant assessment year, notice under s. 148 shall not be issued unless the Chief CIT or the CIT, as the case may be, is satisfied, on the reasons recorded by the AO concerned, that it is a fit case for the issue of such notice. These are some inbuilt safeguards to prevent arbitrary exercise of power by an AO to fiddle with the completed assessment. Thus, existence of tangible material, for the formation of opinion is a prerequisite for initiation of action under s.
Therefore, what s. 147 postulates is that the AO must have reason to believe that income has escaped assessment. There should be facts before him that reasonably give rise to the belief, but the facts on the basis of which he entertains the belief need not at this stage be rebuttably conclusive to support his tentative conclusion. It is, trite, that when a challenge is made to the action under s. 147 what the Court is required to examine is whether some material exists on record for the AO to form the requisite belief and the reasons for the belief have a rational nexus or a relevant bearing to the formation of such belief and are not extraneous or irrelevant for the purpose of the said section. But the sufficiency of the grounds, which induced the AO to act under the said section is not a justiciable issue. While coming to this conclusion, the Hon'ble Court duly considered the decisions in Bawa Abhai Singh vs. Dy. CIT (2001) 168 CTR (Del) 521 : (2002) 253 ITR 83 (Del) followed; Ganga Saran & Sons (P) Ltd. vs. ITO & Ors. (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC) and S. Narayanappa & Ors. vs. CIT (1967) 63 ITR 219 (SC) relied on; L.R. Gupta & Ors. vs. Union of India & Ors. (1992) 101 CTR (Del) 179 : (1992) 194 ITR 32 (Del) applied and finally concluded that a general statement made by a director of a creditor company that it was indulging in lending its name to certain parties without naming any party did not constitute reason to believe that the petitioner's loan transaction with the said company was bogus and its income had escaped assessment on that account; impugned notice under s. 148 of the Act was quashed.
2.18. In another case, the Hon'ble Delhi High Court in 305 ITR 245 (Del.) held as under:-
“The Revenue is aggrieved by an order dt. 8th Sept., 2006 passed by the Tribunal, Delhi Bench 'G’ in IT(SS) No. 107/Del/2003 relevant for the block period from 1st April, 1989 to 20th Feb., 2000.
Briefly the facts of the case are that a search was conducted at the residence of the appellant on 10th Feb., 2000. During the course of search, two memorandums of understanding (MoU) dt. 1st March, 1999 were recovered. These MoUs were entered into between the assessee, Ravi Talwar and Madhu Talwar. In terms of the MoUs, the assessee had paid Rs. 25 lakhs each to Ravi Talwar and Madhu Talwar towards part consideration for the purchase of agricultural land valued at Rs. 123.30 lakhs. The balance amount was to be paid on or before 30th April, 1999, failing which the amount of Rs. 25 lakhs each would be forfeited.
3. On the basis of the MoUs, the AO issued a questionnaire to Ravi Talwar and Madhu Talwar regarding receipt of the amount of Rs. 25 lakhs each but while they both admitted having signed the MoUs, they denied having received any amount. The AO concluded that the denials by the assessee of having made payments and of Ravi Talwar and Madhu Talwar of having received the amounts was only to escape payment of tax liabilities. Accordingly, an amount of Rs. 50 lakhs was added in the hands of the assessee under s. 69 of the Income-tax Act, 1961 (for short 'the Act’) as unexplained expenditure.
4. The view taken by the AO was not accepted by the CIT(A) and also by the Tribunal. Both concurrently were of the view that there was not enough evidence to add the amount in the hands of the assessee.
5. The CIT was of the view that all the parties had denied the transaction and in fact the property in question was eventually sold by Ravi Talwar and Madhu Talwar to M/s Delhi Tent and Decorators (P) Ltd. whose director gave a statement on 4th Feb., 2002 to the effect that he had purchased the agricultural land in question from Ravi Talwar and Madhu Talwar. It was also held that in view of the denial of receipt of any money by Ravi Talwar and Madhu Talwar, there ought to have been some independent corroboration of the payment but there was no such material forthcoming.
Insofar as the Tribunal is concerned, it was of the view that under the provisions of s. 132(4A) of the Act, there was a presumption about the correctness of the contents of the MoUs but relying upon the decision of the Karnataka High Court in CIT vs. P.R. Metrani (HUF) (2001) 169 CTR (Kar) 149 : (2001) 251 ITR 244 (Kar), it was held that the presumption was rebuttable. It was further held that the assessee had been able to successfully rebut the presumption.
Learned counsel for the Revenue reiterated the view expressed by the AO. Unfortunately, we are not in agreement with that view. 8. The facts of the case make it very clear that there were two MoUs entered into by the assessee with Ravi Talwar and Madhu Talwar in respect of the purchase of agricultural land. The two MoUs did record that "the purchase consideration shall be Rs. 123.30 lacs. The purchaser having paid to the vendor the sum of Rs. 25,00,000 part of the said purchase consideration as a deposit and shall pay the residual of said purchase consideration to the vendor on or before 30th April, 1999 when the purchase will be completed." 9. Notwithstanding this, the assessee as well as Ravi Talwar and Madhu Talwar denied the money transaction. In addition thereto, the case set up was that the agricultural land had, in fact, been sold to M/s Delhi Tent and Decorators (P) Ltd. by Ravi Talwar and Madhu Talwar. This was confirmed by Shri N.K. Mittal, one of the directors of M/s Delhi Tent and Decorators (P) Ltd. Quite clearly, the MoUs did not fructify. 10. Sec. 132(4A) of the Act uses the expression "it may be presumed". It is not obligatory on the assessing authority to make a presumption. Even if a presumption is required to be made, then, as held in CIT vs. S.M.S. Investment Corporation (P) Ltd. (1994) 207 ITR 364 (Raj), the presumption is a rebuttable one and relates to a question of fact. While coming to this conclusion, the Rajasthan High Court relied upon an earlier decision rendered by it in CIT vs. S.M.S. Investment Corporation (1988) 73 CTR (Raj) 184 : (1988) 173 ITR 393 (Raj).
11. Even in ITO vs. T. Abdul Majeed (1987) 64 CTR (Ker) 266 : (1988) 169 ITR 440 (Ker) it has been held as follows :
It is true that s. 132(4A) of the Act enables the Court to presume the truth of the contents of such books. However, it is a presumption which can be rebutted. Moreover, the presumption envisaged therein is only a factual presumption. It is in the discretion of the Court, depending upon other factors, to decide whether the presumption must be drawn. The expression used in the sub-section is 'may be presumed’ as is used in s. 114 of the Evidence Act, 1872. It is not a mandate that whenever the books of account are seized, the Court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the Court from doing so.
12. Insofar as the present case is concerned, the assessee had stated that in fact there was no transfer of money between him and Ravi Talwar and Madhu Talwar. On the other hand, Ravi Talwar and Madhu Talwar had denied receipt of any money from the assessee. In the fact of these denials, there ought to have been corroborative evidence to show that there was in fact such a transfer of money. Both the CIT as well as the Tribunal have come to the conclusion that there was no such material on record.
The AO relied on certain other transactions entered into by the assessee with Ravi Talwar and Madhu Talwar for drawing a presumption in respect of the transfer of money, but the Tribunal rightly held that those were independent transactions and had nothing to do with the MoUs, which were the subject matter of discussion. Even if there was something wrong with some other transactions entered into, that would not give rise to an adverse inference insofar as the subject MoUs are concerned.
14. In our opinion, no substantial question of law arises. Dismissed.”
2.19. The Hon'ble Delhi High Court, after considering the factual matrix, concluded that the facts of the case make it very clear that there were two MoUs entered into by the assessee with R and M in respect of the purchase of agricultural land. The two MoUs did record that "the purchase consideration shall be Rs. 123.30 lacs. The purchaser having paid to the vendor the sum of Rs. 25,00,000 part of the said purchase consideration as a deposit and shall pay the residual of said purchase consideration to the vendor on or before 30th April, 1999 when the purchase will be completed." Notwithstanding this, the assessee as well as R and M denied the money transaction. In addition thereto, the case set up was that the agricultural land had, in fact, been sold to DT (P) Ltd. by R and M. This was confirmed by N, one of the directors of DT (P) Ltd. Quite clearly, the MoUs did not fructify. Sec. 132(4A) uses the expression "it may be presumed". It is not obligatory on the assessing authority to make a presumption. Even if a presumption is required to be made, then, the presumption is a rebuttable one and relates to a question of fact. Insofar as the present case is concerned, the assessee had stated that in fact there was no transfer of money between him and R and M. On the other hand, R and M had denied receipt of any money from the assessee. In the fact of these denials there ought to have been corroborative evidence to show that there was in fact such a transfer of money. Both the CIT(A) as well as the Tribunal have come to the conclusion that there was no such material on record. The AO relied on certain other transactions entered into by the assessee with R and M for drawing a presumption in respect of the transfer of money, but the Tribunal rightly held that those were independent transactions and had nothing to do with the MoUs, which were the subject matter of discussion. Even if there was something wrong with some other transactions entered into, that would not give rise to an adverse inference insofar as the subject MoUs are concerned. No substantial question of law arises.. The Hon'ble Court relied upon the decision in CIT vs. S.M.S. Investment Corporation (P) Ltd. (1994) 207 ITR 364 (Raj) and ITO vs. T. Abdul Majeed (1987) 64 CTR (Ker) 266 : (1988) 169 ITR 440 (Ker) and finally held that since both assessee and alleged payees having denied to have advanced or received any amount as shown to have changed hands as per the MoU found during search, no addition could be made in block assessment in the absence of any further corroborative facts, the presumption under s. 132(4A) being a rebuttable one; no substantial question of law arose out of order of Tribunal deleting the addition.
2.20 In another case in CIT vs Prem Prakash Nagpal (2014) 220 taxman 168 (Del.), wherein, there was unexplained investment (investment in land/buildings, the Ld. Assessing Officer made certain additions u/s 69 of the Act on the basis of document found during search at place of third party, which indicated that the assessee has purchased a plot by consideration in cash. The Assessing Officer could not prove by evidence that such documents belongs to assessee and any ‘on money’ transaction has taken place. The Hon'ble High Court held that on the basis of documents could not be treated as conclusive proof of ‘on money’ transaction, therefore, addition could not be sustained. While coming to this conclusion, the Hon'ble Court duly considered the decision from Hon'ble Apex Court in CIT vs P. B. Kalyansundaram (2007) 294 ITR 49 (Supreme Court) and K.P. Vergese vs ITO (1981) 131 ITR 597 (Supreme Court). In another case, identically the Hon'ble Karnataka High Court in CIT vs D. Kanta (2012) 19 taxman.com 92 (Karnataka), where the assessee and his wife purchase land through the registered sale deed for a consideration of Rs.8.5 lakhs. A search action was carried out in the case of son of the vender from whom the assessee purchased said land. During search, the vendor died and his son in his statement stated that the assessee received a consideration of Rs.75 lakh. On the basis of this information, the assessment of the assessee was reopened. To buy peace, the assessee declared additional income of Rs.14 lakh. The Assessing Officer held that for the purposes of stamp duty and fees, the assessee paid additional stamp duty of Rs.7.5 lakh. He also ascertained form the Revenue authorities that the market price of the land was Rs.25 lakhs per acre. The actual consideration of the land was taken at Rs.75 lakh. On further appeal, the Tribunal upheld the order of the Ld. Commissioner of Income Tax (Appeals). The Hon'ble High Court held that since, the finding of the Assessing Officer was not based upon the material found during search and was merely based upon vendor’s son, the addition has to be deleted. In the light of the foregoing discussion and the cases discussed therein, it is clear that in the present case also, the Department merely relied upon the statement of two person who were employees of a different group and there was no evidence with the Assessing Officer that in fact any ‘on money’ was paid in cash. Even in the statement tendered by these two employees, it has not been mentioned that in fact any cash was received by the group from the assessee over and above the payments made through banking channel. Even if the other group has made any disclosure before the Settlement Commission does not prove that any cash was received from the present assessee. Thus, considering the totality of facts and ratio laid down in the aforesaid cases by Hon'ble High Courts and Hon'ble Apex Court, we direct the Ld. Assessing Officer to delete the addition, which has been made purely on suspicion. Thus, the appeal of the assessee is allowed.
Finally, the appeal of the assessee is allowed.
This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 19/04/2017.