Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA
आदेश/O R D E R
PER BENCH:
These appeals relate to the same assessee and are filed against separate orders passed by the ld.Commissioner of Income-Tax (Appeals), Ahmedabad (in short “CIT(A)) u/s 250(6) of the Income Tax Act, 1961( hereinafter referred to as “Act’).The orders passed pertain to AssessmentYears(A.Y) 1996-97 to 2000-01.While the assessee and the Department have filed cross appeal for Asst.Year 1996-97, for the remaining years only the assessee has come up in appeal. The threeappeals of the assessee in 1753/Ahd/2008 are in relation to the orders passed by the ld.CIT(A) confirming levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short]. Remaining appeals are in relation to orders passed by the ld.CIT(A) in quantum proceedings for the impugned years.
We shall first be dealing with the appeals filed in quantum proceedings for A.Y 1996-97 to A.Y 2000-01.
ITA 435 & 332/Ahd/2005 : Asst. Year 1996-97 appeal by assessee and Revenue resp.
ITA 1152/Ahd/2005 Asst. Year 1997-1998 ITA 529/Ahd/2006 Asst. Year 1998-1999
ITA No.435/AHD/2005 ( 9 Appeals) 3
ITA 1113/Ahd/2006 Asst. Year 1999-2000 ITA 1559/Ahd/2006 Asst. Year 2000-2001
At the outset it was clarified that earlier appeals of the Revenue for all the years before us was dismissed by the ITAT treated as withdrawn on account of tax effect involved in the same being within the limit specified by CBDT vide its circular dated 08- 08-19 for withdrawing appeals filed to the ITAT. That subsequently in pursuance to miscellaneous application filed by the Department the appeal for A.Y 1996-97 was revived vide order in MA. No.48/Ahd/2020 dated 05/10/2020, while the Miscellaneous application seeking revival of appeals for the other years was dismissed by the ITAT vide order in MA. No52 to 57/Ahd/2022 order dated 2.6.2023. That therefore the departments appeal for only one assessment year A.Y 1996-97.
Further it was common ground that the issue involved was identical in all theyears. Therefore all the appeals were taken up together for hearing with the appeal in for Asst.Year 1996-97 treated as the lead case, deriving all facts therefrom.
Taking up first the assesses appeals ld.counsel for the assessee contended that in all the cases the assessee had raised an additional legal ground challenging validity of the assessment framed under section 147 of the Act. He pointed out that a common ground was raised in all the years before us, which he pointed out from the appeal of the assessee pertaining to Asst.Year 1996-97 which reads as under: “The Ld. CIT (A) erred on facts and in law in upholding action of Assessing Officer in issuing notice u/s 148 and making consequential assessment u/s 147 without appreciating that neither notice issued u/s 148 was valid nor
ITA No.435/AHD/2005 ( 9 Appeals) 4 conditions specified to assume jurisdiction to make assessment u/s 147 were satisfied in as much as there was no independent recording of reasons by Assessing Officer within the meaning of section 148(2).”
The ld.counsel for the assessee contended that he would begin his arguments on the legal ground first.
The ld.counsel for the assessee pointed out that the assessment in all the impugned years was framed under section 147 of the Act, and he wished to challenge the validity of the assessment so framed on the following grounds: i) The reasons recorded of escapement of income for reopening the case of the assessee was one consolidated reason for all the years involved. There was no specific finding of escapement of income for any of the specific years, and it was a just a general reason for all the years involved; ii) That there was no belief of the AO of income of the assessee having escaped assessment but it was a borrowed belief ; iii) That in Asst.Year 1999-2000, reopening had been sanctioned/ approved by the CIT which was against the provisions of law in this regard, as prescribed under section 151 of the Act.
The Ld.DR countered by stating that -
• Before the ld.CIT(A) in Asst.Year 1996-97, the assessee had withdrawn his objection to the approval to the reopening of the case not being in accordance with provision of section 151 of the Act; ( 9 Appeals) 5 • that the satisfaction of the AO was not a borrowed satisfaction, and it was based on the report of the CBI of the disproportionate assets found with the assessee, which was shared with the Income Tax authorities, and the assessee was a non-filer of the return of income.
This was countered by the ld.counsel for the assessee stating that the report of the CBI in any case was only a preliminary report and the disproportionate assets case made out on the assessee was subsequently dropped on the death of the assessee. It was also pointed out that the list of assets made out by the CBI ,on which the Department relied heavily for reopening the case of the assessee included many assets found in the name of the wife of the assessee, and his father also, both of whom were acknowledged by the CBI to be salaried employees in their preliminary report. The ld.counsel for the assessee also pointed out that except for Asst.Year 1996-97, for the rest of years, returns were filed by the assessee. • Copy of the reasons recorded for reopening casesof the assessee for all the years was filed before us in PB pertaining to Asst.Year 1996-97 at page no.43. • Copy of the charge-sheet of the CBI framed in the case of the assessee along with statements- of assets annexed thereto was also filed before us. • Order of the CBI court dated 29/07/2020 abating all proceedings against the assessee in the disproportionate assets case on his demise was also placed before us.
Reliance was placed on numerous case laws, copies of which were also filed before us.
ITA No.435/AHD/2005 ( 9 Appeals) 6
Having heard thecontentions of the assessee and the Revenue on the legal ground raised, we shall now proceed to adjudicate the issue.
Before proceeding to do so a brief background of the case needs mention.
The CBI,SPE, Gandhinagar conducted a search at the assesses residence on 29-05-2000 and found immoveable properties owned by him on the said date to the tune of Rs. 64,22,791/- all accumulated within the period 01-01-1995 to 29-05-2000.CBI investigation revealed that the main source of income of the assessee was his salary and his wife’s salary. Based on information available relating to his legal source of income and his likely savings therefrom, the CBI observed that the assessee had acquired assets disproportionate to his income to the tune of Rs.47,20,831/-. Basis this report of the CBI the AO reopened the case of the assessee by issuing notice u/s 148 of the Act and framed assessment for all the impugned years before us, making addition on account of investment in the disproportionate assets found by the CBI as being from unexplained sources. The facts as aforestated are derived from para 2-5 of the assessment order for A.Y 1996-97which are reproduced hereunder:
ITA No.435/AHD/2005 ( 9 Appeals) 7
Since the assessee has challenged the validity of the assessment framed u/s 147 of the Act in all the impugned years before us, pointing out insufficiency in the reasons recorded for reopening the case of the assessee, it is pertinent first to reproduce the reasons filed before as under:
ITA No.435/AHD/2005 ( 9 Appeals) 8
A perusal of the reasons as abovereveals: • that one common reason was recorded for all the years reopened by the AO i.e. 1996-97 to 2000-01 which are impugned before us. ( 9 Appeals) 9 • that the AO has picked up consolidated figure of the disproportionate assets attributed by the CBI report to the assessee for all the impugned years i.e A.Y 1996-97 amounting to Rs.47.20 lakhs, to reopen the case for all the years. • the AO has alsorecorded the fact that the income relating to the disproportionate assets has not been disclosed by the assessee and which exceeds Rs. 1 lac in all the years.
On the basis of this information, he has assumed jurisdiction to reopen the case of the assessee for all the impugned years i.e. 1996-97 and 2000-01.
The charge sheet filed by the CBI basis which the reopening was resorted to was also perused by us. The same reveals the CBI to have found the family background of the assessee revealing his wife also to be working with SBI, Ahmedabad and father to have retired from service with the Central Railways and earning pension.The list of assets found with the assessee by the CBI annexed to its report reveals assets comprising primarily of bank accounts, FD’s , PPF , NSC and investment in two flats and a cellar. The list mentions some investments being made in the name of the assesses wife and father and it also mentions the date of investment. The CBI report finds the assessee to have acquired assets disproportionate to his income amounting to Rs.47,20, 831/-
14. To adjudicate the validity of the reopening resorted to by the AO u/s 147 of the Act in the present appeals before us, it is pertinent to bring out the law regarding reopening of cases.Section 147 of the Act is reproduced for clarity:
ITA No.435/AHD/2005 ( 9 Appeals) 10
If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
15. It is but evident from a bare perusal of the provision that power u/s 147 of the Act to assess/ reassess an assessee can be exercised by the AO for an assessment year only if he has reason to believe that income for thesaid assessment year( emphasis)has escaped assessment. Assessment under the taxation laws is year specific. Therefore belief ofescapement of income for a valid assumption of jurisdiction to assess income u/s 147 of the Act must be year specific. Law does not permit reopening basis a consolidated belief of escapement of income for several years together, particularly which does not specify AO’s belief of income escaping assessment for the different years concerned. AO u/s 147 of the Act can reassess income only when he forms a belief of income of that year having escaped assessment.Reasons recorded therefore for reopening cases have to provide basis of belief of escapement of income year specific.
Further the AO’s belief must be based on some tangible material, having a live link or nexus with the income allegedly escaping assessment. Reassessment cannot be resorted to on the basis of vague, indefinite or remote information.The Hon’ble apex court has laid down the law in this regard in the case of Income Tax Officer Vs Lakhmani Mewal Das 103 ITR 437 wherein they have categorically held as under:
ITA No.435/AHD/2005 ( 9 Appeals) 11
..The reasons for the formation of the belief contemplated by section 147(a) of the Income-tax Act, 1916 for reopening of an assessment 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 Income-tax Officer 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 Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. 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 under the section are not plenary and cannot be casually exercised.The belief of escapement of income of the AO must be that of a reasonable man familiar with the basic values of justice and fairness.Also the belief must be of the AO alone.Where reassessment proceedings are initiated on the basis of information received from other departments/sources without examining them, it cannot be said that the same was based on belief of the AO that income had escaped assessment. The following decisions of Hon’ble High Courts, referred to before us by the Ld.Counsel for the assessee, clearly hold the belief to be that of the AO and not a borrowed belief for a valid assumption of jurisdiction to reassess u/s 147 of the Act:
Commissioner of Income Tax v Sfil Stock Broking Ltd.(2010) 325 ITR 285 (Del) wherein the Hon’ble High Court held as under:
Held that, in the present case, the first sentence of the so-called reasons recorded by the Assessing Officer was mere information received from the Deputy Director of Income-tax (Inv.). The second sentence was a direction given by the very same Deputy Director of ITA No.435/AHD/2005 ( 9 Appeals) 12
Income-tax (Inv.) to issue a notice under section 148 and the third sentence again comprised a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. It was clear that the Assessing Officer referred to the information and the two directions as ‘reasons’on the basis of which he was proceeding to issue notice under section 148. These could not be the reasons for proceeding under section 147/148. From the so-called reasons, it was not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Therefore, the reassessment was not valid.
Principal Commissioner of Income Tax-5 vs Shodiman Investments (P) Ltd (2020) 422 ITR 337 (Bom) wherein the Hon’ble High Court reiterated the proposition holding as under:
14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding re-opening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that re- opening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction.
Applying the law on reopening of assessments u/s 147 of the Act as noted above by us to the facts of the case we find merit in the contention of the Ld.Counsel for the assessee that the jurisdiction assumed by the AO to reopen the case of the assessee was invalid.The reasons for arriving at this finding are very obvious and evident from the reasons recorded by the AO reproduced above by us which reveal: No specific recording of escapement of income for theassessment year reopened by the AO.Consolidated reasons recorded for all impugned years.Reasons are vague
ITA No.435/AHD/2005 ( 9 Appeals) 13
The AO has recorded one consolidated reason for reopening all the impugned assessment years which reasons are vague, mentioning therein that -
“CBI Gandhinagar report revealed that Sh. Chavan acquired disproportionate assets to the extent of Rs.47,20,831/-during the period 1995-96 to 2000-01. On verification of the said details it is seen that the said income has not been disclosed by him in any assessment since 1995, which is exceeding Rs. 1 lakhs”
The reasons record the consolidated figure of disproportionate assets found by the CBI pertaining to all the impugned years before us. There is no recording of income escaping assessment for each particular assessment year being sought to be reassessed. The reasons are clearly vague mentioning income escaping assessment exceeding Rs. 1 lacs that too when all details of assets found with the assessee by way of CBI report were available with the AO mentioning even the date of investment.
As stated abovethe law empowers him to reopen the assessment for a particular A.Y only on his satisfaction of income having escaped assessment for the said year. In the absence of the samethe said reasons cannot therefore , we hold, empower the AO to reopen the case of the assessee for the assessment years involved. Belief of escapment of income borrowed from the preliminary report of the CBI with no application of mind by the AO to the same.
Clearly and obviously the belief of the AO is not his own but that of the CBI. The AO has merely borrowed the belief of the CBI.There is nothing in the reasons to suggest that the AO made any ITA No.435/AHD/2005 ( 9 Appeals) 14 effort to cross check and verify the information contained in the CBI report in any manner. He has not even considered the information in the report that certain assets were in the name of his wife and father who had regular sources of income. The CBI report mentions the date of investment also. The AO has made no effort to even determine the quantum of income escaping assessment as per his belief for each year involved.The AO appears to have simply borrowed the belief of the CBI in its preliminary report attributing all assets found during search to the assessee and recording consolidated belief of escapement of income based on the figure mentioned by the CBI in its report. There is complete lack of application of mind by the AO, we hold, while forming belief of escapement of income.
Pertinent is the law laid down by the apex court that such preliminary report of CBI does not constitute information for forming any adverse belief against an assessee. The Hon’ble Apex Court in the case of Union of India Vs Ajit Jain and Another 260 ITR 80 (SC) affirmedthe order of the Hon’ble Delhi High Court in Ajit Jain vs Union of India reported in 242 ITR 302 (Del) holding so.The relevant findings of the Hon’ble High Court in this regard are as under:
“14. It is in the light of the above principles of law that we take up the question whether the intimation given by the CBI to respondent No. 5 would constitute 'information' and could it be said to be relevant for formation of the belief that the money found in the possession of the petitioner had not been or would not be disclosed for the purpose of the Act. We called for the file containing the reasons recorded and the order passed by respondent No. 4 authorising the search in the room occupied by the petitioner. A xerox copy of the file containing the information and the orders passed by the said respondent has also been placed on record. We are constrained to observe that action under section 132, in the instant case, on the basis of material on record, has left much to be desired. The file starts with a note dated 11-1-1996, by the ADI, Unit IV(2), to the effect that he had received information from the ITA No.435/AHD/2005 ( 9 Appeals) 15
Superintendent, CBI, that the petitioner, staying in Hotel Chola Sheraton, had been interrogated in connection with some criminal case being investigated by the CBI and that cash of Rs. 8.5 lakhs was found in his possession, which was undisclosed. The note records that 'considering the circumstances, this is the case fit for action under section 132 of the Income-tax Act. Warrant of authorisation to search the person may be issued'. The note was submitted to the Additional Director, Unit-IV, who forwarded the same to the Director of Income-tax (Investigation) with his recommendation that 'in the above circumstances explained by the ADIT' warrant of authorisation may be issued. On this recommendation, the Director of Income-tax passed the following order :
"I have gone through the note above. I agree that action under section 132 of the Income-tax Act is necessary in this case.
Authroisation issued accordingly. Sd/ -11-1-1996."
We have no hesitation in holding that on the basis of the aforenoted information, without anything more, respondent No. 4—a Director of Income-tax, in charge of investigations, as a reasonable person, could not entertain a belief that the said amount in the possession of the petitioner represented his undisclosed income which had not been and would not be disclosed by him for the purposes of the Act. The information provided by the CBI was very general in nature. The mere fact that the petitioner was in possession of the said amount could not straightaway lead to the inference that it was his undisclosed income.”
Though the Hon’ble court in the said case dwelt on the existence of information for validating search action u/s 132 of the Act on the assessee, the principles of the interpretation of the term “reason to believe”, based on information that an assessee is in possession of assets undisclosed, to conduct a valid search operation u/s 132 of the Act, was adopted by the Hon’ble court from its interpretation in terms of section 147 of the Act. The Hon’ble court held that mere intimation by CBI of assessee being in possession of assets was not sufficient information to form belief of escapement of income.
ITA No.435/AHD/2005 ( 9 Appeals) 16
In the present case the report of the CBI lists all assets clearly mentioning the fact of the names of different persons in which it was found invested, including his wife and father. The report notes the fact of both the relatives having sources of income and thereafter goes on to state that the assets are disproportionate to the disclosed source of income of the assessee and his wife. Clearly it is just a preliminary report of the CBI, who have in a general manner attributed all assets found to belong to the assessee.This report of the CBI certainly cannot be said to qualify as information leading to belief of escapement of income of the assessee.
The decision of the Hon’ble Delhi High Court in the case of PCIT vs Andaleep Sehgal (2021), 124 taxmann.com 246(Del), affirmed by the Hon’ble Apex court (2021) 124 taxmann.com 247(SC) strengthens our finding as above. In the said case, reopening resorted to by the AO based solely on investigation of Enforcement Directorate was set aside finding no independent inquiry conducted by the AO for arriving at his belief of escapement of income. The Hon’ble Court held the belief of the AO in the said case to be borrowed belief not sufficient to empower him to reassess the assessee u/s 147 of the Act.The relevant findings of the Hon’ble Court are reproduced hereunder:
13. The Court finds that in none of the above grounds is there any reference to any inquiry conducted by the AO or the CIT (A) on examining the above documents, which were available with the AO. The crucial element of explaining how, on the basis of such record, the AO formed the reason to believe that income had escaped assessment is missing. As pointed out by the ITAT in para 17 "the entire case is based upon borrowed investigation stated to have been conducted by Enforcement Directorate and no evidence has been brought on record to connect assessee with the amount of US $ 62,000, rather it is a case of zero investigation."
ITA No.435/AHD/2005 ( 9 Appeals) 17
It is one thing to state that the above documents were available but an entirely different thing to state that on examining those documents the AO found the live link for forming the reason to believe that the sum added had escaped assessment. It must be recalled that these were re-assessment proceedings and not at the stage where it was enough to form a prima facie view for re-opening the assessment. In the re-assessment proceedings the AO was expected to undertake a full-fledged inquiry into the documents produced before him to come to the conclusion that the addition sought to be made was justified. As pointed out by the ITAT or that the AO seems to have done is to simply borrow the conclusions drawn by the ED without making any independent inquiry himself into the matter. Even before the ITAT, the Revenue was unable to show the precise documents or material on the basis of which the AO formed the reason to believe that 60,000 US$ had been paid as bribe to the Iraqi officials and therefore was required to be added to the income of the Assessee.”
In view of the above, the CBI report, we hold, could not have constituted information for the AO to form belief of escapement of income.
For reasons detailed above, we have no hesitation in holding that reopening resorted to by the AO in all the impugned years before us being not in accordance with law. The orders passed by the AO u/s 147 of the Act in all the impugned years, we hold, are invalid and accordingly quashed.
The appeal of the assessee in quantum proceedings are therefore allowed on the legal ground.
Since we have quashed the assessment orders , we are not dealing with the grounds raised by the assessee on merits, since it is only an academic exercise.
The appeal of the Revenue for A.Y 1996-97 also does not survive in view of our order above holding all assessments to have been invalidly framed and hence quashed.
ITA No.435/AHD/2005 ( 9 Appeals) 18
Further, since we have held all the assessment orders to be invalid, the penalty levied under section 271(1)(c) of the Act, as a consequence, has no legs to stand upon, and therefore, penalty appeals for Asst.Year 1996-97 to 1998-99 of the assessee are also allowed.
In effect, all the appeals of the assessee are allowed. Appeal of the department is dismissed.