PRAVEEN KUMAR JAIN,DELHI vs. ITO, NEW DELHI

O R D E R This appeal of the assessee is directed against the order dated 18.12.2014 of ld. CIT(A), New Delhi for the Assessment Year 2006-07. 2. The assessee has raised the following grounds:- “

Jurisdictional Grounds on validity of reopening proceedings y/s 148

1. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not quashing the patently invalid reopening action u/s 148 which is full of errors and omissions as evident from: Addition of cash deposit being withdrawn on same date (05.11.2005) from bank a/c

2. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not accepting assessee's genuine and bonafide explanation for deposit of cash of Rs 600,000 being sourced from available cash withdrawal of even date from very same bank and rejecting the same on mere conjectures and surmises and hearsay. Addition beyond reasons : Low household withdrawals reduced to Rs55,000

3. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not fully deleting part addition sustained of Rs 58,000 on account of alleged low household withdrawals beyond the scope of reopening and without any cogent material on records. That the appellant craves leave to add, to, amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal. a. That on mere cash deposit without anything more reasons are farmed which is invalid without looking to available ROI/ITR filed on Page No. 2 31/3/2007 with ITO Ward 25(2) New Delhi etc (page 2 of impugned order); b. As evident from pages 5/6 of impugned order Ld AO has simply acted on farfetched information supplied by investigation wing without independent application of mind; c. That affixture service made of jurisdictional notice u/s 148 as apparent and vivid from inspector report on records is patently bad on face of it; (page 6/7 of impugned order) d. That vague and mechanical approval is accorded by JCIT Range 39 which is ex facie bad and inadequate; (page 2 of impugned order); c. That on basis of invalid issuance of notice u/s 143(2) (dated 23.01.2014) without prior ROI u/s 148 (refer reasons and order) assessment is framed by Ld AO u/s 143(3) which is patently bad; 3. The assessee also filed a petition for admission of additional grounds and raised the additional grounds as under:- 4. Additional ground Validity of Reopening u/s 148 “• That on the facts and in the circumstances of the case and in law, learned C1T-A erred in not quashing the reopening action ofLd AO where as apparent from page2, of impugned assessment order it is glaring that reopening is made on mere Cash deposits which is not "tangible material' providing 'live nexus' with income escapement on just borrowed satisfaction without independent application of mind. (covered by Delhi ITA T A bench order in case of Bir Bahadur case dated 20/1/2015) • That on the facts and in the circumstances of the case and in law, learned CIJ-A erred in not quashing the reopening action of Ld AO whereas affixture service of jurisdictional reopening notice u/s 148 as evident from page 6/7 of impugned order is patently bad. • That on the facts and in the circumstances of the case and in law, learned CYT-A erred in not Quashing the reopening action of Ld AO where assessment having been framed u/s 143(3)/147 of the Act on basis of invalid issuance of notice u/s 143(2) dated 23.012014 without prior RO1 on records.”

4. Argument on admission of the additional grounds are heard. Since all the additional grounds raised

by the assessee are purely legal in nature go to the root of the matter therefore, in view of the of series of precedent including the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383, the additional grounds raised by the assessee challenged the validity of reopening is admitted for hearing and adjudication.

5. The ld AR of the assessee has submitted that in the reasons recorded by the AO for reopening of the assessment, the AO stated that as per record the Page No. 3 assessee has not filed return of income for the year under consideration, whereas the assessee had duly filed its return of income with ITO Ward-25(2), New Delhi vide acknowledgement dated 31st March 2007. The ld AR has pointed out that in the binging of the assessment order the AO itself has admitted this fact that the manual return declared an income of Rs.1,12,030/- was filed on 31st March 2007 with ITO Ward-25(2), New Delhi. Thus the ld AR has submitted that the AO has proceeded under wrong presumption of fact that the assessee has not filed return of income and accordingly proposed to reopen the assessment by issuing a notice u/s 148 on the basis of information received from ITO (Investigation) regarding deposit of cash amounting Rs. 6 lac in the bank account of the assessee. The ld AR has further contended that from the reasons recorded by the AO it does not indicate how a deposit of Rs.6 lac in the bank account of the assessee can be an income assessable to tax and has escape assessment. The AO has not received any new material or information which was not already with the AO to believe that this amount of Rs.6 lac is an income of the assessee which has escaped assessment. In order to form the believe there must be direct nexus or link between the material coming to the notice of the AO and formation of the believe that there has been escapement of income of the assessee from the assessment. The ld AR has forcefully contended that a sum deposited in the account itself is not sufficient to form an opinion that this was assessable income of the assessee and has escaped assessment. Therefore the said deposit itself does not constituted income which has escaped assessment. In support of his contention he has relied upon the following judgments:- 1. Bir Bahadur Singh Sijwali Vs ITO 2. ITA No.795/2009-Karnataka High Court- Shri C.M. Mahadeva Vs. CIT 3. ITA NO.877/Del/2012-Shree Bhagwan Vs. ITO 4. 545/2015- ITAT Delhi in the case of PR. CIT-4 Vs.G & G PHARMA INDIA LTD 5. ITA No. 811/Del/2015-Gordon Vs. ITO

6. On the other hand the ld DR has submitted that the AO has recorded the reasons for reopening and clearly mentioned that in this case information received from the investigation wing about the cash deposit of Rs.6 lac in the bank account of the assessee maintained with Ramgaria Cooperative Bank Ltd. and the source of which are not commensurate with business activity of the Page No. 4 assessee. Thus there was a fresh information and tangible material of deposit of cash in the bank account with the AO to form the believe that income assessable to tax has escaped assessment. She has contended that when the information was specific and not general or vague and referred to the transaction in the bank account of the assessee during the year under consideration then the sufficiency of reason and establishing on merits of the matter are not required at the stage of issuing of notice u/s 148. She has also relied upon the judgment of the Hon’ble High Court in the case of CIT Vs. Nova Promoters Finlease Pvt. Ltd. 342 ITR 169.

Page No. 5 9. As it is manifest from the reasons recorded by the AO that the AO proposed to reopen the assessment by issuing notice u/s 148 on the basis of information received that the assessee deposit cash amount of Rs.6 lac in the bank account. The AO has recorded in the reasons that the assessee has not filed return of income for the Assessment Year 2006-07. This fact recorded by the AO that the assessee has not filed the return of income for the Assessment Year under consideration has turned out to be incorrect as the assessment order begins with the narration of fact that manual return declared Rs112030/- filed on 31.03.2007. Thus at the time of passing the assessment order the AO was aware that return for the year under consideration filed on 31st March 2007. Therefore, it is clear that the AO proceed to reopen assessment on the basis of incorrect assumption of the fact that the assessee has not filed any return income for the year under consideration. This wrong assumption of fact also lead to the consequential reopening by the AO without verifying the record available with the AO as filed by the assessee being return of income and the other details and record along with return of income. Thus, it is clear that the AO reopen the assessment under wrong presumption of fact and without verifying the material information already available with the AO in the shape of return of income filed by the assessee. This fact of filing of return was also recorded by the learned Commissioner of Income-tax (Appeals) at Page 3 of the impugned order. Further, the recourse of reopening u/s 148/147 is not to first issue the notice and then to proceed to investigate and find out if there was income assessable to tax which has escaped assessment rather it is pre requisite for issuing the notice u/s 148 that the AO on the basis of tangible material and information has legitimate reason to believe that income assessable to tax has escaped assessment. The belief must be based on a material which has direct nexus to the income assessable has escaped assessment and should not be guess work and to ascertain the same through the process of investigation. The provision of section 148/147 can not be used such investigation to ascertain where income assessable to tax has escaped assessment. It is apparent that the reason for reopening was only on information of deposit of cash of Rs.6 lac in the bank account. Therefore the reason for reopening was for further investigation to find out the source of the cash deposit by the assessee as the AO has not recorded anything that this deposit of cash is from particular source which is not disclosed by the assessee in Page No. 6 the books of account or in the return of income. The deposit of cash in the bank account of the assessee does not establish any live nexus between the information and formation of the believe that there was escapement of the income by the assessee. There may be end number of reasons and sources of deposit of cash in the bank which may not constitute the same as income of the assessee and therefore merely deposit of cash in bank itself would not lead to the conclusion or believe that the said amount is assessable income of the assessee and escapement of assessment. In the case in hand there are number of withdrawals and deposits in the bank account of the assessee in question. It is clear from the details of the bank account that prior to the deposit of this amount of Rs.6 lac there was withdrawals of about Rs.14 lac from the said bank account, therefore in the absence of any other information or material to indicate the source of this deposit other than withdrawals from the bank account the AO was not having any tangible material to believe that this deposit of Rs.6 lac constitute the income of the assessee for which the source has not been disclosed by the assessee or the assessee is not in a position to disclose the source. Accordingly the reopening is nothing but to investigate the matter to ascertain whether this deposit would constitute the income of the assessee which has escaped the assessment or not. In the case of the C.M. Mahadeva Vs. CIT, Hon’ble Karnataka High Court while dealing with identical facts of reopening has observed in Para 16 to 19 has under:- “16. The facts of the aforesaid case are quite similar to the one on hand. In the present case also the reason for reopening is for further investigation to find out the source of investment for the purchase of the property, which is not permissible in law.

“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.10,24,100 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.10,24,100 has escaped assessment of income because the assessee has Rs.10,24,100 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 Page No. 8 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 escaped assessment.

Page No. 9 11. The scope and jurisdiction of Section 148 was also discussed by the Hon’ble jurisdictional High Court in the case of Pr. Commissioner of Income Tax Vs. G&G Pharma India Ltd. (supra) in para 12 and 13 has held as under:-

“12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: “I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries.” The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: “it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries”. In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement 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 is missing in the present case.