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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-2’, NEW DELHI
Before: SHRI H.S. SIDHU
This appeal filed by the Assessee against the Order dated 29.1.2014 passed by the Ld.CIT(A), Muzaffarnagar for Assessment Year 2009-10.
2. The only solitary ground raised by the assessee before the Tribunal is that the notice issued u/s. 148 and reassessment order passed u/s. 147 r.w.s. 143(3) are illegal, bad in law and without jurisdiction.
The brief facts of the case are that in this case it was gathered by the AO that the assessee had claimed interest of Rs. 1,48,307/- as expenditure in the return originally filed on 27.8.2009. However, the same did not relate to business activities and as such expenditure claimed at Rs. 1,48,307/- was not allowable as per Act. Based on such inference, the AO initiated action u/s. 147 by way of notice u/s. 148 of the Act dated 7.4.2011. In response to notice u/s. 148 of the Act, it was submitted by the assessee that the return filed originally on 27.8.2009 be treated as return filed in response notice u/s. 148 of the Act. Thereafter, the AO completed the assessment at Rs. 8,07,200/- vide his order date 31.1.2013 passed u/s. 143(3)/147 of the I.T. Act, 1961.
4. Against the aforesaid order of the AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 29.1.2014 has dismissed the Appeal of the assessee.
Now the Assessee is in appeal before the Tribunal.
At the time of hearing Ld. Counsel for the assesse stated that the assessee has raised 16 grounds of appeal out of which the Assessee has challenged the ground challenging the Notice u/s. 148 of the I.T.
Act and the reassessment order passed u/s. 147 read with section 143(3) of the I.T. Act as well as the additions made by the AO and confirmed by the Ld. CIT(A on merits also. He further stated that firstly he wants to argue the issue of notice u/s. 148 which is illegal, bad in law and without jurisdiction. He further stated that the AO has issued notice dated 24.1.2011 to the assessee u/s. 147 of the I.T.
Act, 1961 for the assessment year 2009-10 in which the AO has stated that the return filed on 27.8.2009 by the assessee in which the assessee has claimed deduction of interest at Rs. 1,48,307/-. The AO has examined the balance sheet attached with the return of income which shows out of borrowed capital the substantial funds are invested in no business assets. Therefore, the deduction u/s. 36(1)(iii) of the Act is required to be restricted to the borrowed funds invested in the business assets. Ld. Counsel for the assessee stated that AO has recorded his reasons dated 7.4.2011 for issuing of notice u/s. 147 of the I.T. Act on the same reasons mentioned in the Notice, but no fresh material was available with the AO, except the material already filed by the assessee with the return of income. Therefore, the issuance of notice u/s. 148 of the I.T. Act is illegally bad in law and without jurisdiction, keeping in view of the various decisions referred by the Hon’ble Delhi High Court in the case of CIT vs. Orient Craft Ltd. 354 ITR 536 (Delhi) and CIT vs. Atul Kumar Swami 362 ITR 693 (Delhi). He has also filed the copy of these judgments with the Paper Book filed by the Assesse alongwith the relevant papers which the assessee has filed with the Paper Book containing pages 1 to 59.
Ld. DR relied upon the orders of the authorities below and requested that the appeal of the Assessee may be dismissed.
I have heard both the parties and perused the relevant records, especially the orders of the authorities below. No doubt that the assessee has raised 16 ground in his appeal, but at the time of hearing before me, he mainly argued the ground No. 1 in which he has challenged the notice issued u/s. 148 of the I.T. Act and reassessment proceedings. As argued by the Ld. Counsel for the assessee that in the notice dated 24.1.2011 and in the reasons recorded by the AO on 7.4.2011, the AO has stated that in the return filed by the assessee, the assessee has claimed deduction of interest of Rs. 1,48,307/-. But after perusing the balance sheet attached with the Return shows that out of borrowed capital the substantial funds are invested in no business assets. Therefore, the deduction u/s. 36(1)(iii) of the I.T.
Act, 1961 is restricted to the borrowed funds invested in the business assets. For the sake of convenience, the contents of the notice dated 24.1.2011 issued by the AO u/s. 147 of the I.T. Act, 1961 as well as the reasons recorded by the AO u/s. 147 of the I.T. Act, 1961 dated 7.4.2011 are reproduced as under:-
“F.No. ACFPB7654J/W-1(1)MZR/10-11 Office of the Income Tax Officer Ward 1(1), Muzaffarnagar Dated : 24.1.2011 To Sh. Rakesh Bandhu, 212, South Civil Lines,
Muzzafarnagar Sub:- Notice u/s. 147 of the I.T. Act, 1961 for the AY 2009-10 – Reg.
In the return filed on 27.8.2009 vide RR No. 1568 you have claimed deduction of interest at Rs. 1,48,307/-. The balance sheet attached with the return shows out of borrowed capital the substantial funds are invested in no business assets. Therefore, deduction u/s. 36(1)(iii) of the I.T. Act, 1961 is required to be restricted to the borrowed funds invested in the business assets.
You are required to show cause on 3.2.2011 at 3.30 PM to why notice u/s. 148 of the I.T. Act, 1961 may not be issued to assess the escaped income. Sd/-
(V.K. NIGAM) INCOME TAX OFFICER WARD 1(1), MUZAFARNAGAR”
REASONS RECORDED “OFFICE OF THE INCOME TAX OFFICER, WARD 1(1), MUZAFFARNAGAR
Name & address of the assessee Shri Rakesh Bandhu 1-Mandi Kohna, Sarafa Bazar, Muzafarnagar
2. PAN/GIR No. ACFPB7654J
3. Status Individual
Assessment year 2009-2010
REASONS UNDER SECTION 147 OF THE I.T. ACT, 1961 07.4.2011 The assessee filed return on 27-08-2009 vide R. R. No.1568 declaring income of RS.164520/- The assessee vide letter dated 24-01-2011 was asked to show cause on 03-02-2011 at 3:00 P.M. as to why notice under section 148 of the Income Tax Act, 1961 may not be issued for the following reasons; .
" In the return filed on 27-08-2009 vide R. R. No.1568 you nave claimed deduction of interest at Rs.148307/- The balance sheet attached with the return shows out of borrowed capital the substantial funds are invested in no business assets. Therefore deduction under section 36(1 )(iii) of the Income Tax Act, 1961 is required to be restricted to the borrowed funds invested in the business income
The assessee sought time on 03-02-2011, 23-02-2011, 04-03-2011 and 22--03-2011. However, till date no reply has been received. Moreover after issue of notice under section 148 of the Income Tax Act, 1961 the assessee shall have opportunity to explain his case in the course of settlement of objections to the notice under section 148. Therefore, on the basis of facts mentioned in the show cause dated 24-1-2011. I have reason to believe that income chargeable to tax estimated at RS.75000/- has escaped assessment.
Issue notice under section 148 of the Income Tax Act, 1961. Sd/- (V.K. NIGAM) INCOME TAX OFFICER WARD 1(1), MUZAFARNAGAR”
8.1 After going through the orders passed by the Revenue Authorities and the arguments advanced by the Ld. Counsel for the Assessee alongwith the judgments cited by the assessee in the case of CIT vs. Orient Craft Ltd. 354 ITR 536 (Delhi) and CIT vs. Atul Kumar Swami 362 ITR 693 (Delhi), I find that the in one of the decisions i.e. in the case of CIT vs. Orient Craft Ltd. (Supra), the Hon’ble has held as under (Head Notes):-
“Held, dismissing the appeal, that the reasons disclosed that the Assessing Officer reached the belief that there was escapement of income ‘on going through the return of income’ filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This was nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer. The reasons recorded by the AO did confirm the apprehension about the harm that a less strict interpretation of the words ‘reasons to believe’ vis-à-vis an intimation issued under section 143(1) could cause to the tax regime. There was nothing in the reasons recorded to show that any tangible material had come into the possession of the AO subsequent to the issue of the intimation. The notice reflected an arbitrary exercise of the power conferred under section 147.”
8.2 When I examined the facts of the assessee’s case in light of the ratio laid down by the above decision of the Hon’ble Jurisdictional High Court, I find that the above decision would be squarely applicable. I find that no fresh material is brought by the Revenue on record but the assessment has been reopened on the basis of the return of income and the documents submitted alongwith the return of income. Therefore, in view of the above decision of the Hon’ble Jurisdictional High Court, reopening of assessment is not valid.
Hence, the same is quashed and accordingly, the assessment order passed in pursuance of the notice issued under section 148 is also quashed.
Since while adjudicating ground no.1, I have already quashed the assessment order, the other grounds raised by the Assessee do not require any adjudication on merits.
10 In the result, the appeal filed by the Assessee stand allowed.