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Income Tax Appellate Tribunal, SURAT (SMC
Before: SHRI DR. A. L. SAINI
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2011-12, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], National Faceless Appeal Centre (in short ‘the NFAC’), dated 11.10.2022, which in turn arises out of an assessment order passed by Assessing Officer u/s 144 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 15.12.2017.
The grounds of appeal
raised by the assessee are as follows: “1. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in passing ex-parte order u/s. 250.
2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in dismissing the appeal without passing speaking order.
ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in reopening the assessment u/s. 147 after issuing notice u/s. 148 of the Act and passing the reassessment order.
4. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in making the addition of Rs.17,36,110/- on account of Rs.13,68,110/- as unexplained credit entries and Rs 3,68,000/- as unexplained cash deposits u/s. 69A of the Act.
5. It is therefore prayed that the above addition made by the assessing officer may please be deleted.
6. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
3. At the outset, Ld. Counsel for the assessee informs the Bench that appeal filed by the assessee is barred by limitation by two hundred eight (208) days. The assessee has filed a petition for condonation of delay, requesting the Bench to condone the delay. The contents of the petition filed by the assessee for condonation of delay is reproduced below: “1. The assessee begs to prefer this application for condonation of delay in relation to Appeal filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre dated 11.10.2022. There is a delay of 208 days in filing the appeal before Honorable Tribunal against the order passed by CIT(A), NFAC dated 11.10.2022.
2. My father Mr. Arunbhai Patel has been working in the Gulf and mostly residing outside India and we do not have any business in India. During A.Y 2011-12, I was aged 24 and I also left India on 18.12.2013 and was staying in USA for 6 years and the next date of arrival in India was on 04.09.2020 when COVID period was going on and I was still exploring any option for business and hence I travelled to Dubai and Nepal for further exploration of business. All my family members are also settled outside India including my father Mr. Arunbhai Patel, my mother Mrs. Kokilabpn Patel, and my brother Mr. Himanshu Patel. Hence, I seldom visited my native place Valsad, Gujarat. During the period, the assessment order was passed ex-parte and as I was not in India, the Form-35 was e- filed through assistance by a consultant Mr. Aditya Shah from Aditya P. Shah and Co, Chartered Accountants who mentioned his own email id adityashahco@gmail.com in Form 35. Ultimately, the case was transferred to Faceless Appeal Centre and I was unaware of the new Faceless system of appeal proceedings and the factum of issue of notice ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel u/s 250 or even the factum of ex-parte order of Ld. CIT(A) being passed was not within my knowledge. It was only when Mehul Shah, partner of the firm Rasesh Shah and Co. was travelling to Dubai in end of April 2023 and he met my brother Mr. Himanshu Patel through a common connect and my brother Mr. Himanshu Patel shared my Income Tax login credentials to understand the status and procedure of e-proceedings, it was discovered that an ex-parte order is already passed by Ld. CIT(A). I was immediately advised to file further appeal before Honorable Tribunal to represent my case.
Therefore, in the facts and circumstances of the case, the applicant prays to this Honorable Income Tax Appellate Tribunal: (a) To condone the delay of 208 days in filing the Appeal No. ITA 456/SRT/2023 and to extend the time for filing the same inclusive and up to the date of filing the appeal; (b) Also, that the case is a meritorious one and requires consideration to grant such other and further relief as deemed fit by Honourable Income Tax Appellate Tribunal.”
Therefore based on the contents of the petition for condonation of delay, Ld. Counsel submitted that assessee was out of India and after coming in India, the assessee took immediate step to file the appeal. The assessee was not aware about the order of the ld. CIT(A) since he was out of India, therefore he could not instruct to his Authorized Representative (AR) to file the appeal before the Tribunal. The Ld. Counsel also submitted that the part delay in filing the appeal is attributable to Covid 19 pandemic and therefore Ld. Counsel contended that the delay may be condoned.
On the other hand, Learned Senior Departmental Representative (ld. Sr. DR) for the Revenue submitted that the assessee has not explained the sufficient reasons to condone the delay, hence such delay should not be condoned.
I have heard both the parties on this preliminary issue and I find that assessee has been residing in United States of America (USA) for last six years and he arrived in India on 04.06.2020 when
ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel Covid 19 pandemic was prevailing therefore assessee could not file appeal on time before the Tribunal. Assessee`s father Mr. Arunbhai Patel has been working in the Gulf and mostly residing outside India and assessee does not have any business in India. During A.Y 2011- 12, the assessee also left India on 18.12.2013 and was staying in USA for 6 years and the next date of arrival in India was on 04.09.2020 when COVID period was going on. I note that the reasons given in the affidavit for condonation of delay were convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing this appeal. Having heard both the parties and after having gone through the affidavit as well the delay condonation, application, I am of the considered opinion that in the interest of justice, the delay deserves to be condoned. I, accordingly, condone the delay.
At the outset, Shri Mehul Shah, Learned Counsel for the assessee, stated that technical issue raised by the assessee goes to the root of the matter. The ld Counsel stated that ground No.3 raised by the assessee relates to the fact that learned CIT(A) has erred in confirming the action of Assessing Officer in reopening the assessment u/s 147 after issuing notice u/s 148 of the Act and passing the reassessment order. The Ld. Counsel argued that reasons recorded by the Assessing Officer are bad in law and therefore the reassessment proceedings itself is bad in law and hence the entire assessment order may be quashed. The Ld. Counsel for the assessee, took me through the reasons recorded by the Assessing Officer which is reproduced below:
ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel
ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel 8. The Ld. Counsel for the assessee stated that the reassessment proceeding was initiated by the Assessing Officer, based on the reason, that assessee has credited Rs.17,36,110/- in his bank account including cash deposit of Rs.3,68,000/-. The Ld. Counsel further stated that out of Rs.17,36,110/-, the amount of Rs.5,00,000/- was contra-entry in the bank account on account of cheque dishonoured and the same has not been excluded in the reasons recorded by the assessing officer. The Ld. Counsel, took me through bank statement which is placed at page no.1 of the paper book, wherein Rs.5,00,000/- is a contra-entry on account of cheque dishonoured on dated 09.02.2011. Another amount of cheque dishonoured to the tune of Rs.25,000/- mentioned in the bank statement, is also on account of cheque dishonoured, vide dated 03.03.2011 in the bank statement. These two figures, Rs.5,00,000/- and Rs.25,000/-, have been picked up by the Assessing Officer, and treated them, as if the income has escaped from assessment by Rs.5,25,000/-, (Rs.5,00,000 + Rs.25,000). The Ld. Counsel further clarified that amount of Rs.5,00,000/- and amount of Rs.25,000/-, were on account of cheque dishonoured, which were considered by the Assessing Officer in the total amount of Rs.17,36,110/- and stated that the income has escaped assessment, to the extent of Rs.17,36,110/-. However, in real sense, the amount of Rs.5,00,000/- and Rs.25,000/- were on account of cheque dishonoured and therefore it does not come in the definition of escaped income and therefore the reasons recorded by the Assessing Officer are defective. The amount of Rs.5,00,000/- and Rs.25,000/- respectively were disclosed on the face of the bank statement which was examined by the assessing officer before reasons were recorded. The Ld. Counsel also relied on the judgment of Co-ordinate Bench of ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel ITAT, Delhi in the case of Bir Bahadur Singh Sijwali vs. ITO, Ward- 1, Haldwani, (2015) 53 taxmann.com 366. 9. On the other hand, ld. Sr. DR for the Revenue submitted that reasons recorded by the Assessing Officer are based on reliable information. Just because there was a typographical error in quoting the figures, in the reasons so recorded, does not mean that the reasons recorded are defective, hence reassessment proceedings are valid.
I have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. I find that there is a patent error in the reasons recorded by the assessing officer. I note that reassessment proceeding was initiated by the Assessing Officer, based on the reason, that assessee has credited Rs.17,36,110/- in his bank account including cash deposit of Rs.3,68,000/-. So far cash deposit of Rs. Rs.3,68,000/- is concerned, I note that it should not be reason that income has escaped assessment. That is, where the assessee deposited Rs.3,68,000/- in his saving bank account but he had not filed return of income, the Assessing Officer should not have proceeded on fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that source might be other than assessee's own income. For that reliance can be placed on the judgment of Co- ordinate Bench of ITAT, Delhi in the case of Bir Bahadur Singh Sijwali vs. ITO, Ward-1, Haldwani, (2015) 53 taxmann.com 366, wherein it was held 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
ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel 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 donot 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 donot 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 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.
Learned Departmental Representative has referred to a number of judicial precedents in support of her stand that even deposits in the bank account, as having come to the notice of the Assessing Officer through AIR, can be reason enough for holding the belief that income has escaped assessment. She has relied upon the decisions in the cases of CIT v. Nova Promoters & Finlease (P.) Ltd [2012]342 ITR 169/206 Taxmann 207/18 taxmann.com 217 (Delhi) but then none of the questions before Honble High Court had anything to do with reopening of assessment and this decision can not, therefore, be taken as an authority on the legal issue which did not even come up for specific adjudication before Their Lordships. As for her reliance on Honble Supreme Courts judgment in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxmann 627, that was case in which Their Lordships concluded that the AO "rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and, therefore, income chargeable to tax had escaped assessment" and we are unable to see anything on the facts of the present case which ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel are materially similar to the facts of the said case. As regards her reliance on the decision of a coordinate bench in the case of Mithila Credit Services Ltd. v. ITO [IT Appeal No. 1078/Delhi of 2013; dated 23.5.2014], it is important to bear in mind the fact that it was a case in which the Assessing Officer had reopened the assessment on the basis of receipt of information from Directorate of Investigation, and, as noted by the Assessing Officer in the reasons recorded for reopening the assessment, "the name of the assessee figures as one of the beneficiaries of these alleged bogus transactions" in the information given by the directorate. If the assessee was a beneficiary of such a scam, the income was indeed to have been taxed in its hands 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 as existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. To us, 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. On the basis of reasons as recorded in this case, such an inference about income escaping assessment, in our humble understanding, cannot be drawn.”
So far balance amount of Rs.13,68,110/- (Rs.3,68,000- Rs.17,36,110), I note that the bank statement of the assessee, which is placed at page no.1 of the paper book, wherein I find that amount of Rs.5,00,000/- is a contra-entry on account of cheque dishonoured on dated 09.02.2011. I find that another amount of cheque dishonoured to the tune of Rs.25,000/- mentioned in the bank statement, is also on account of cheque dishonoured, vide dated 03.03.2011 in the bank statement. Thus, if I exclude these two figures, that is, Rs.5,00,000/- and Rs.25,000/-, the balance amount in the reasons recorded comes to Rs.8,43,110/- (Rs.13,68,110- Rs.5,00,000- Rs.25,000).
ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel 12. Thus, the entire factual position narrated above clearly explains that reasons were recorded by the assessing officer stating that amount of Rs.17,36,110/- has escaped assessment, whereas the real amount of income escaped assessment may be Rs. 8,43,110/-, thus there is a patent error in recording the reasons by the assessing officer, hence reassessment proceedings are not valid. I note that Article 265 of the Constitution of India lays down that, “No tax shall be levied or collected except by authority of law”. The Hon’ble Supreme Court of India has held that the this provision under Article 265 of the Constitution of India is applicable not only for levy but also for the collection of taxes and the expression “assessment” within its compass covers both the aspects carried out by the executive functionary. Chottabhai Vs. Union of India 1962 SCR Supl.2 1006 Therefore, it is required that whole of the process of taxation must follow the procedures which are valid under the law and must adhere to law i.e. substantive one as well as procedural one too. Therefore, in other words it is provided in the Constitution of India that every step should be taken to ensure that levy and collection of the taxes is strictly in accordance with law – not only substantive one but the procedural law, as well.
Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion. The Hon’ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s.147 of the Act. The Hon’ble Court first held that the section ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel provides that there must exist “reasons to believe” and not “reasons to suspect”. The following were the relevant observations: “The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 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. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed.”
The purpose behind the relevant provisions imposing condition precedent for initiating reassessment proceedings is to ensure finality of proceedings. The Act also provides that such reason must be recorded in writing before issue of notice of reassessment so as to judge the existence of such belief before initiating reassessment proceedings by issue of notice u/s.148 of the Act. The above requirements are meant to ensure that powers to initiate reassessment proceedings are not exercised in an arbitrary manner. As noted above reasons were not recorded in the assessee`s case as per the scheme of the Act, hence I quash the reassessment proceedings.
In view of the reasons set out above, as also bearing in mind entirety of the case, I am of the considered view that the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. I, therefore, quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits of the additions, in the ITA.456/SRT/2023/AY.2011-12 Bhavin Arunbhai Patel impugned assessment proceedings, are rendered academic and infructuous.
In the result, the appeal is allowed in the terms indicated above.
Order is pronounced on 12/10/2023 in the open court.