TADISETTI MURALI MOHAN,GUNTUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), GUNTUR

PER S. BALAKRISHNAN, Accountant Member :

2 and related to one assessee, for the sake of convenience, these appeals are clubbed, heard together and disposed off in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order.

Before the Ld. CIT(A)-NFAC also the assessee did not respond to various notices and hence considering the non-compliance to the notices, the Ld. CIT (A) dismissed the assessee’s appeal.

Aggrieved by the order of the Ld. CIT (A)-NFAC, the assessee is in appeal before the Tribunal.

1. “The Ld. CIT(A) is erred in facts and law while passing the order.

2. The Ld. CIT(A) ought to have appreciated that the notice issued U/s. 148 of the Act is invalid as it is issued without proper jurisdiction.

3. The Ld. CIT(A) would have appreciated that the Assessing Officer erred in invoking the provisions of section 68 of the Act.

4. The Ld. CIT(A) would have considered that the Assessing Officer is not justified in making an addition of Rs. 5,60,54,868/- as unexplained investment U/s. 68 of the Act.

5. Without prejudice to the above ground, the Assessing Officer and Ld. CIT (A) have not considered the fact that the reopening of the assessment is without recording reasons.

6. The Ld. CIT (A) would have observed that the reopening of the assessment is bad in law as the Assessing Officer reopened the assessment only for verification of investment made by the appellant.

7. The appellant craves to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.”

5. Grounds No.1 & 7 are general in and nee no adjudication.

6. With respect to Ground No.2 which is a legal ground, the Ld. AR accepted that this legal ground was firstly raised before the Tribunal. The Ld. AR referred to the reasons for reopening which is filed in paper book page 10. The Ld. AR submitted that the 5 case was reopened for the impugned assessment year after four years but before six years. The Ld. AR referred to section 149(1)(b) of the Act wherein the reasons recorded for reopening should specify that there is an escapement of income above Rs.1 lakh and a proper satisfaction should be recorded by the Ld. AO.

In this regard, the Ld. AR submitted that the Ld. AO has not mentioned or reopened the case in accordance with the provisions of section 149(1)(b) of the Act. In support of his contention that in the absence of anything in reasons recorded to suggest that the income chargeable to tax has escaped assessment, the notice issued for reassessment after four years of close of relevant assessment year was invalid, the Ld. AR placed heavy reliance on the decision of the Hon’ble Karnataka High Court in the case of Novo Nordisk India (P.) Ltd vs. DCIT [2018] 95 taxmann.com 225 (Karnataka). The Ld. AR also referred to the decision of the Hon’ble Allahabad High Court in the case of Mahesh Kumar Gupta vs. CIT [2013] 33 taxmann.com 409 (Allahabad). The Ld. AR therefore pleaded that the order of the Ld. AO be quashed.

Per contra, the Ld. DR vehemently argued that the Ld. AO has quantified the escapement of income but however has failed

6 to mention section 149(1)(b) of the Act. The Ld. DR referred to the reasons for reopening submitted in page 9 of the paper book wherein the escapement of income by way of unexplained investment is quantified in the reasons for reopening.

Countering the argument of the Ld. DR, the Ld. AR submitted that the satisfaction note of the Ld. AO is not in accordance with the provisions of section 149(1)(b) of the Act and mere inference cannot be a compliance to section 149(1)(b) of the Act. In response the Ld. DR relied on the observations of the Hon’ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd [2007] 161 taxman 316 (SC) wherein it was observed that if the Ld. AO has cause or justification that income for any assessment year has escaped assessment, it can be said that the Ld. AO had reason to believe that the income has escaped assessment. In response, the Ld. AR argued that the scrutiny assessment was completed U/s. 143(3) of the Act on 27/3/2015 wherein all the facts have been placed before the Ld. AO at the time of scrutiny assessment. The Ld. AR further submitted that the Ld. AO has merely changed his opinion without any fresh tangible material on record and he relied on the decision of the Hon’ble Supreme court in the case of Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). Countering the arguments of the Ld. DR, the Ld. AR relied on the decision of the jurisdictional High Court in the case of Tecumseh Products India (P.) Ltd. v. Assistant Commissioner of Income-tax [2014] 47 taxmann.com 121 (Andhra Pradesh) wherein it was held that a notice U/s. 148 should mention about the failure on the part of the assessee to disclose the material facts during the assessment proceedings however, this is not mentioned in the notice issued U/s. 148 of the Act in the case of the assessee.

Time limit for notice. 149. (1) No notice under section 148 shall be issued for the relevant assessment year,— (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year; (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. Explanation.—In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of six years from the end of the relevant assessment year.

8 Explanation.—For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

“12. On perusal of these provisions, it is significant to analyze the reasons for invoking the provisions of Section 147 which would go to the root of the matter. It is the statutory requirement to bring forth the case of the escaped assessment particularly with reference to Section 149(1)(b) which contemplates about the escaped assessment amounts to or is likely to amount to One Lakh Rupees or more if the time limit has elapsed 4 years but not more than 6 years. It is not in dispute that the present case falls under the said provision. It is also not in dispute that the reasons assigned by the respondent No.1 for invoking Section 147 of the Act do not specify that the escaped assessment amounts to or is likely to amount to Rs.1,00,000/- or more for the relevant assessment year as evinced from the reasons placed on record by the petitioner before the Court. Section 151(1) of the Act provides that no notice shall be issued under Section 148 of the Act by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner of Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. It is mandatory for the Assessing Officer in his reasons recorded, to state that the escaped assessment amounts to, or is likely to be Rs.1,00,000/- or more, to bring it within the ambit of Section 149(1)(b) of the Act. It is based on the reasons assigned by the Assessing Officer, the Commissioner/Sanctioning Authority on application of mind can take a decision whether it is a fit case for issuance of notice under Section 148. The material aspect for invoking the extended period of limitation under Section 149 (1)(b) not being forthcoming, further proceedings in pursuance to the said

9 notice cannot be sustained. The notice issued being not in conformity with the provisions of the Act, it being the base or the foundation, edifice built upon it, has to fall.”

ITA No. 34/Viz/2023 (AY: 2015-16)

10 12. This appeal filed by the assessee against the order of the Ld.

CIT(A)-NFAC in DIN & Order No. ITBA/NFAC/S/250/2022- 23/1047116895(1), dated 09/11/2022 arising out of the order passed U/s. 144 r.w.s 147 of the Act for the AY 2015-16.

Therefore, the Ld. AO completed the assessment to the best of his judgment U/s. 144(1)(b) of the Act and made the addition towards unexplained investment of Rs. 13,99,42,750/-.

Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A)-NFAC. Before the Ld. CIT(A)-NFAC also the assessee did not respond to various notices and hence considering the non-compliance to the notices, the Ld. CIT (A) dismissed the assessee’s appeal. Aggrieved by the order of the Ld. CIT (A)-NFAC, the assessee is in appeal before the Tribunal.

“1. The Ld. CIT(A) is erred in facts and law while passing the order. 2. The Ld. CIT(A) ought to have appreciated that the notice issued U/s. 148 of the Act is invalid as it is issued without proper jurisdiction. 3. The Ld. CIT(A) would have appreciated that the Assessing Officer erred in invoking the provisions of section 68 of the IT Act.

4. The Ld. CIT(A) would have considered that the Assessing Officer is not justified in making an addition of Rs. 13,99,42,750/- as unexplained investment U/s. 68 of the Act.

12 5. Without prejudice to the above ground, the Assessing Officer and Ld. CIT(A) have not considered the fact that the reopening of the assessment is without recording reasons. 6. The Ld. CIT (A) would have observed that the reopening of the assessment is bad in law as the Assessing Officer reopened assessment only for verification of investment made by the appellant.

7. The appellant craves to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.”

15. Grounds No. 1 and 7 are general in nature and therefore they need no adjudication.

16. With respect to Ground No.2 regarding jurisdiction of the Ld. AO to reopen the case of the assessee U/s. 148 of the Act, the Ld. AR submitted that the case was selected for limited scrutiny for verifying the huge cash deposits in the Savings Bank account of the assessee and also for transferring of one or more properties during the year. The Ld. AR further submitted that the case was not converted into full scrutiny by following the procedures laid down in the CBDT Circular. The Ld. AR also referred to the written submissions wherein he as placed reliance in the case of Jindal Photo Films Limited vs. DCIT [1998] 105 Taxman 386 (Del.) wherein the Hon’ble Delhi High Court held that discovery of new and important matters or knowledge of fresh facts which are not present at the time of original assessment would constitute a 13 ‘reason to believe of income having escaped assessment’within the meaning of section 147 of the Act and such facts would have been discovered by Assessing Authority but were not so discovered at the time of original assessment may not constitute a new information. The Ld. AR further submitted that in the present case there is no fresh new material for any new information before the Ld. AO to reopen the case U/s. 148 of the Act. The Ld. AR also placed heavy reliance in the case of KLM Royal Dutch Airlines vs. ADIT [2007] 159 Taxman 191 in support of his contention.

Per contra, the Ld. DR submitted that the Ld. AO in his order has clearly mentioned that he has not looked into the other issues as selection of the scrutiny under CASS was for the limited issue ie., for verification of cash deposits and sale of immovable properties. The Ld. DR submitted that there was a short span of time to the Ld. AO to cause material to convert the case into complete scrutiny. In response, the Ld. AR argued that the Ld. AO has powers to issue notice U/s. 133(6) of the Act but has failed to do so. The Ld. AR further submitted that the assessee being a salaried employee, the provisions of section 69B of the Act are not applicable to the assessee. In response, the Ld.

14 DR submitted that the assessee has not submitted the balance sheet as he is a salaried individual and hence pleaded that the matter may be remanded back to the file of the Ld. CIT(A) for verification of reasons.

“15. Applying this line of decisions to the facts of the present case, the inescapable conclusion that would have to be reached is that while assessment proceedings remain inchoate, no 'fresh evidence or material' could possibly be unearthed. If any such material or evidence is available, there would be no restrictions or constraints on its being taken into consideration by the Assessing Officer for framing the then current assessment. If the assessment is not framed before the expiry of the period of limitation for a particular assessment year, it would have to be assumed that since proceedings had not been opened under section 143(2), the return had been accepted as correct. It may be argued that thereafter recourse could be taken to section 147, provided fresh material had been received by the Assessing Officer after the expiry of limitation fixed for framing the original assessment. So far as the present case is concerned we are of the view that it is evident that, faced with severe paucity of time, the Assessing Officer had attempted to travel the path of section 147 in the vain attempt to enlarge the time available for framing the assessment. This is not permissible in law.”

“19. Reverting back to the case at hand, it is clear from reasons placed by the Assessing Officer on record as also from the statement made in the counter-affidavit that all that the ITO has said is that he was not right in allowing deduction under section 80-I because he had allowed the deduc- tions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase ‘reason to believe’ in his order, admittedly, between the date of orders of assessment sought to be reopened and the date of forming of opinion by the ITO nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order dated 28-2-1994 passed by the Commissioner (Appeals) was before the Assessing Officer. That order stands till today. What the Assessing Officer has said about the order of the Commissioner (Appeals) while recording reasons under section 147 he could have said even in the original orders of assessment. Thus, it is a case of mere change of opinion which does not provide jurisdiction to the assessing officer to initiate proceedings under section 147.”

Subsequently, on verification of the balance sheet for the AY 2014-15, the Ld. AO found that there is an increase in the investment amounting to Rs. 5,50,00,000/- which does not commensurate with the sources declared by the assessee. The Ld. AO therefore with the prior approval of the Additional Commissioner of Income Tax, Range-1, Guntur issued notice U/s. 148 of the Act to the assessee on 25/09/2018. Subsequently, notice U/s. 142(1) of the Act was also issued on 9/10/2019. The assessee did not respond to the notices issued on 28/-03/2019, 09/10/2019, 21/11/2019 and 18/12/2019 and therefore, the Ld. AO issued a show cause notice on 24/12/2019 requesting the assessee as to why the said investment made during the FY 2013- 14 should not be treated as unexplained investment U/s. 69 of the Act? Since the assessee did not file any reply to the said show cause notice, the Ld. AO completed the assessment to the best of his judgment U/s. 144(1)(b) of the Act by treating the amount of Rs. 5,50,00,000/- as unexplained investment U/s. 69 of the Act.

Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT (A)-NFAC. Since there was no response even before the Ld. CIT(A)-NFAC, the Ld. CIT(A)-NFAC concluded that since there is no compliance to the notices issued which shows that the assessee is not interested in pursuing his appeal and accordingly dismissed the assessee’s appeal. Aggrieved by the order of the Ld. CIT (A)-NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:

“1. The Ld. CIT(A) is erred in facts and law while passing the order.

2. The Ld. CIT(A) ought to have appreciated that the notice issued U/s. 148 of the IT Act, 1961 is invalid as it is issued without proper jurisdiction.

3. The Ld. CIT(A) would have appreciated that the Assessing Officer erred in invoking the provisions of section 68 of the Act.

4. The Ld. CIT(A) would have considered that the Assessing Officer is not justified in making an addition of Rs. 5,50,00,000/- as unexplained investment U/s. 68 of the IT Act.

7. The appellant craves to add to, amend or modify the above grounds of appeal

either before or at the time of hearing of the appeal, if it is considered necessary.”

24. The Grounds No.1 & 7 are general in nature need no adjudication.

19 25. With respect to Ground No.2 questioning the jurisdiction of the Ld. AO for reopening the case of the assessee U/s. 148 of the Act, the Ld. AR submitted that the source of investment is satisfied in the case of completion of assessment in the investee company and argued that the reopening of the case of the assessee by the Ld. AO is merely based on suspicion and no fresh tangible material is available before the Ld. AO for reopening the case.

Per contra, the Ld. DR submitted that no assessment was carried out in this impugned assessment year and a mere intimation U/s. 143(1) was issued to the assessee. The Ld. DR therefore submitted that the reopening of the case U/s. 148 of the Act is valid in law. Ld. DR placed heavy reliance on the judgment of the Hon’ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd reported in [2007] 291 ITR 500 (SC) wherein it was held that if the Assessing Officer has reason to believe that the income has escaped assessment, the Ld. AO is justified in reopening the case. The Ld. DR further submitted that the so long as the ingredients of section 148 are fulfilled, the Ld. AO is free to initiate proceedings U/s. 147 of the Act and failure to take steps U/s. 143(3) will not render the Ld.

20 AO powerless to initiate reassessment proceedings even when the intimation U/s. 143(1) has been issued. Countering the arguments of the Ld. DR, the Ld. AR referred to the same decision of Hon’ble Apex Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd (supra) and submitted that when the Assessing Officer does not have a relevant material on which a reasonable person could have formed a requisite belief, reopening of the case is bad in law. The Ld. AR further submitted that the Hon’ble Supreme Court also observed that whether the materials would conclusively prove that the escapement is not the concern at that stage. The Ld. AR further submitted that in the instant case, there is no material available before the Ld. AO for him to have a reason to believe that the income escaped assessment and hence the judgment of the of the Hon’ble Apex Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd (supra) cannot be applied to the instant case. The Ld. AR further referred to Explanation-2(b) to section 147 of the Act and argued that these provisions are not specified and hence notice U/s. 148 of the Act cannot be issued because there is no understatement of income or the assessee has claimed any excessive loss or no fresh material is available before the Ld. AO to initiate the proceedings U/s. 148 of the Act. The Ld. AR placed heavy reliance on the 21 decision of the Hon’ble Delhi High Court in the case of Rajiv Agarwal vs. ACIT [2017] 88 taxmann.com 846 (Delhi).

22 observe that at the initiation stage what is required is “reason to believe” but not the established fact of escapement of income.

Further, in the case of Rajesh Jhaveri Stock Brokers Pvt Ltd (supra), the Hon’ble Supreme Court held that the Assessing Officer was required to be satisfied on the two conditions that the Ld. AO must have reason to believe that income chargeable to income tax has escaped assessment and secondly reason to believe that there is omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment. At the stage of initiation of notice whether the materials available before the Ld. AO would conclusively prove the escapement is not his concern but there should be some tangible material available before the Ld. AO for him to have a reason to believe that the income has escaped assessment. The argument of the Ld. DR that so long as the ingredients of section 147 of the Act are fulfilled the Assessing Officer is free to initiate the proceedings, could not be accepted in the absence of any relevant fresh tangible material available before the Ld. AO. In the instant case, we find that there is no tangible material available with the Ld. AO constituting reason to believe that the income has escaped assessment and secondly there is no failure on the part of the assessee to disclose fully or truly all material facts before the Ld. AO. Therefore, the case relied on by the Ld. DR is of no assistance for him. Further, in the case of Rajiv Agarwal vs. ACIT (supra), the Hon’ble Delhi High Court has held as follows:

“11. Secondly, the Assessing Officer's belief that income of an assessee has escaped assessment must be based on tangible material. It has been explained in a number of decisions that there must be a "close nexus" or "live link" between tangible material and the reason to believe that income has escaped assessment. It follows that the material on the basis of which reassessment proceedings can be initiated must be credible material which could lead to such belief. Clearly, an unsubstantiated complaint cannot be the sole basis for forming a belief that income of an assessee has escaped assessment. Even in cases where the Assessing Officer comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an assessee has escaped assessment, form a believe that income of the assessee has escaped assessment. Plainly, in this case, the assessee had not acquired any material to form such belief. On the contrary, when it is pointed out to the Assessing Officer that SHPL had not assigned any policy to Rajiv Agarwal, the said fact was completely overlooked. Similarly, in the case of Vijay Laxmi Agarwal, the Assessing Officer failed to take into account the fact that the assessee had paid a sum of Rs. 2,08,000, which was more than surrender value of the policy, for assignment of the policy in her favour. This too was completely ignored by the Assessing Officer.”

24 28. With respect to Grounds No. 3, 4, 5 & 6, since the legal ground raised by the assessee vide Ground No.2 is decided in favour of the assessee, the adjudication of these grounds on merits becomes academic. Accordingly, these grounds are dismissed.