KESHNATH SAHU, DHAMTARI,DHAMTARI vs. INCOME TAX OFFICER, WARD-DHAMTARI, DHAMTARI

“1. On the facts and circumstances of the case, CIT(A) had erred in confirming the addition of Rs.1,50,000/- made by the Assessing Officer being the amount given as unsecured loan by the assessee. 2. The appellant craves to add, leave, urge, alter, modify or withdraw any ground before or at the time of hearing.”

Succinctly stated, the assessee, a salaried employee had filed his return of income for A.Y.2014-15 on 11.03.2015, declaring an income of Rs.2,09,790/-.

During the course of scrutiny assessment proceeding in the case of one M/s. Shakti Construction (PAN: ABDFS3741A), it was observed by the A.O that there were additions of substantial amounts in the capital account of the respective partners which were claimed to have been sourced out of unsecured loans taken by them during the year under consideration. On a perusal of the records, it was observed by the A.O that the assessee, viz. Shri Keshnath Sahu had advanced an unsecured loan of Rs.1,50,000/- through his bank account to Shri. Inder Lal Ramrakhyani, a partner of M/s. Shakti Construction. It was observed by the AO that the assessee had disclosed a miniscule income in his return of income for the year under consideration, wherein he had neither paid any tax either during the year or in the immediately preceding two years. On further perusal of the bank account of the assessee, it was observed by the A.O that the aforesaid amount of cash that was deposited in a single go in his bank account was, thereafter, transferred to Shri Inder Lal Ramrakhyani (supra). It was further noticed by the A.O that the assessee except for the aforesaid transaction in his bank account had not carried out any other transaction during the year under consideration. On the basis of the aforesaid facts, the A.O holding a conviction that the assessee was found to be the 4 Keshnath Sahu Vs. ITO, Ward-Dhamtari owner of unexplained money of Rs.1.50 lac (supra) which was deposited in his bank account in cash on 08.06.2013, reopened his case u/s.147 of the Act. Notice u/s.148 of the Act dated 30.03.2021 was issued to the assessee. In compliance, the assessee had filed his return of income for A.Y.2014-15 on 23.04.2021, declaring an income of Rs.2,09,790/-.

As is discernible from the assessment order, the assessee, on being queried about the nature and source of the cash deposit of Rs.1.50 lac (supra) in his bank account, had submitted that the same was sourced out of his accumulated savings that were generated out of his salary income that was earned over the years. Apart from that, it was stated by the assessee that he was also in receipt of interest income from his savings bank account a/w. that which was received on the unsecured loan advanced to Shri Inder Lal Ramrakhyani (supra). As the A.O was not satisfied with the aforesaid explanation of the assessee, therefore, he held the amount of Rs.1.50 lac (supra) as the unexplained income of the assessee u/s.69 of the Act. Accordingly, the A.O vide his order passed u/ss. 147 r.w.s. 144B dated 28.01.2022 determined the income of the assessee at Rs.3,59,790/-.

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success.

The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.

I have heard the Ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

At the very outset of hearing of appeal, the Ld. Authorized Representative (for short ‘AR’) for the assessee had assailed the validity of the jurisdiction that was assumed by the A.O for initiating proceedings u/s.147 of the Act. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that proceedings u/s.147 of the Act were initiated in the case of the assessee de-hors holding of any bonafide belief by the A.O that any income of the assessee chargeable to tax had escaped assessment. Carrying his contention further, it was submitted by the Ld. AR that a bare perusal of the “reasons to believe” recorded in the case of the assessee, which formed the very basis for initiation of proceedings u/s.147 of the Act, revealed, that the same had been done on a protective basis qua the cash deposit of Rs.1.50 lac in his bank account on 08.06.2013, while for, the assessment proceedings on a substantive basis were initiated in the hands of Shri Inder Lal Ramrakhyani (supra) as a ultimate beneficiary of the funds. The Ld. AR in order to buttress

On the basis of his aforesaid contention, it was submitted by the Ld. AR, that as per the settled position of law proceedings u/s.147 of the Act could not be initiated for framing of a protective assessment. Elaborating on the reasons to support his said contention, it was submitted by the Ld. AR that as the initiation of proceedings u/s.147 of the Act presupposes escapement of income of the assessee chargeable to tax, therefore, as had been expounded by the Hon’ble Courts in host of judicial pronouncements, a mere doubt of the department that income may be brought to tax in the hands of the assessee on a contingency which may emerge in future, therein, would not satisfy the condition of formation of a bonafide belief which was a sine-qua-non for initiating proceedings u/s.147 of the Act. In order to support his aforesaid claim the Ld. AR had relied on the judgments of the Hon’ble High Court of Bombay in the case of DHFL Venture Capital Fund Vs. Income Tax Officer, (2013) 358 ITR 471 (Bom) and that of Pavan Morarka Vs. Assistant Commissioner of Income Tax, (2022) 325 CTR 377 (Bom.). Also, support was drawn by the Ld. AR from the order of the ITAT, Bangalore in the case of DCIT Vs. Bullion Investments & Financial Services (P) Ltd. (2010) 123 ITD 568 (Bang.). On the basis of his aforesaid contention, it was submitted by the Ld. AR that as the A.O had wrongly assumed jurisdiction and initiated proceedings

Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities.

As the assessee has assailed the validity of the jurisdiction assumed by the A.O for initiating proceedings u/s.147 of the Act, therefore, I shall first deal with the maintainability of the same.

Admittedly, it is a matter of fact borne from the “reasons to believe” that proceedings u/s.147 of the Act had been initiated in the case of the assessee for making an addition of Rs.1.50 lac (supra), i.e cash deposit in his bank account, on a protective basis. For the sake of clarity and to dispel all doubts the relevant extract of the “reasons to believe” is culled out as under:

On a perusal of the judgment of the Hon’ble High Court of Bombay in the case of DHFL Venture Capital Fund Vs. Income Tax Officer (supra), I find substance in the aforesaid claim of the Ld. AR. As observed by the Hon’ble High Court, as recourse to Section 148 presupposes formation of a reason to believe by the A.O that income of the assessee chargeable to tax had escaped assessment, therefore, the same would mean there is a reason in prasenti, meaning thereby, a reason which is present to his mind when he forms a belief that the income of the assessee had escaped assessment. It was further observed by the Hon’ble High Court that recourse to Section 148 cannot be founded in law on a hypothesis of what would be the position in future should an appeal before the appellate authority, being the Tribunal or the High Court, result in a particular outcome. In sum and substance, it was observed by the Hon’ble High Court that the statute does not contemplate the reopening of an assessment u/s. 148 on such a hypothesis or a contingency which may emerge

I have given a thoughtful consideration to the issue in hand, and find substance in the claim of the Ld. AR that recourse to proceedings u/s.147 of the Act would not be permissible for framing of a protective assessment. I, say so, for the reason that reopening is permissible only when the A.O gives a clear finding that ascertainable income has escaped in the hands of a definite assessee. As taking recourse to framing of a protective assessment in itself pre-supposes and has as its foundation, a probability, that on arising of a contingency in the future, say, order of an appellate authority/court would result into escapement of income in the hands of the assessee, the fundamental requirement for assuming of jurisdiction u/s 147 of the Act, i.e formation of a bonafide belief that the income of the assessee chargeable to tax had escaped assessment is found to be seriously amiss. Expectation that an income may arise in the hands of an assessee – i.e, based on a contingency in the future, can by no means justify assumption of jurisdiction u/s 147 of the Act. Looking at the issue from another angle, i.e now when the AO holding a bonafide belief that the income of another person, viz. Shri. Inder Lal Ramrakhyani (supra) had escaped assessment, and on the said basis had initiated proceedings u/s 147 of the Act on a substantive basis in the case of the said person, then, it is beyond comprehension that the AO after holding a belief that the amount of Rs. 1.50 lac (supra) was the income of Shri. Inder Lal Ramrakhyani (supra), could have thereafter simultaneously held the said

As I have quashed the assessment framed by the A.O vide his order passed u/s.147 r.w.s. 144B dated 28.01.2022 for want of valid assumption of jurisdiction on his part, therefore, I refrain from adverting to other contentions advanced by the Ld. AR, i.e both as regards the validity of the assumption of jurisdiction as well as sustainability of the addition made on the merits of the case which are, thus, left open.

Resultantly, the appeal filed by the assessee is allowed in terms of my aforesaid observations.