SH. FARUKH JEHAN ZEB ,SRINAGAR vs. INCOME TAX OFFICER, ANANT NAG

This appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) J&K, Jammu dated 14.02.2017

Farukh Ahmad Zeb v. ITO in respect of Assessment Year 2008-09, wherein the appellant assessee has raised the following grounds of appeal:

“1. That having regard to the facts and circumstances of the case, the impugned order of the Ld. CIT (Appeal) is bad both in law and on facts.

3. That having regard to the facts and circumstances of the case, that the Ld. CIT (A) has erred in upholding the assumption of jurisdictions for reassessment. The reassessment proceedings in this case were only based on presumption/ suspicion and were thus not validly initiated.

2. There are two issues by the appellant whereby objected to decision of the Ld. CIT (A) has erred by upholding the action of the AO that the reasons are recorded by the AO without application of mind to the information available on record and confirmation of quantum addition as well. There was a short delay of 8 days in filing the appeal has been Farukh Ahmad Zeb v. ITO condoned on oral request mad by the Ld. AR at the time of hearing and appeal admitted for hearing on merits.

3. Briefly the facts as per record are that the AO received STR information from Chief Manager J&K Bank Ltd., Pampore which revealed that the assessee has deposited cash in his bank account during the period from 1.4.2007 to 29-03-2008 as per details given in tabular form here under:

Bank account Number Amount of cash deposited 03345B9741 Rs. 68,72,524-00 0334CD901 Rs. 16,00,421-00 0334CD953 Rs. 14,96,450-00 Total Rs. 99,69,395

From perusal of the above bank statement it is revealed that total cash deposits made during the period from 1.4.2007 to 31.3.2008 was to the tune of Rs.99,69,395/-. the AO noted that most of the entries of deposits were narration as CW/FJR/J MU/FARUKH JEHAN/CWDR. The AO noticed that the assessee had not filed his return of income for the said assessment year, while recording his reasons for reopening, and issued

Farukh Ahmad Zeb v. ITO notice u/s 148 of the Income Tax Act on 09.03.2015. The assessee, however, did not file return in response to the notice u/s 148 of the Act.

Further notice u/s 142(1) of the Act along with questionnaire was also issued on 21.7.2015 and the assessee was asked to file certain information along with books of account, bills, vouchers and supporting other evidence on the date of hearing fixed for 31.7.2015. On the said date neither the assessee appeared nor any reply was filed. Another opportunity was given to the assessee on 17.11.2015 but no response was received from the assessee. Again a show cause notice was issued to the assessee fixing the case for hearing on 1.12.2015. The assesse filed an application with a request to make him available the copy of bank statement for the FY 2007- 08, and the same was provided to him. The AO provided final opportunity on 4.3.2016 asking the assessee as to why the amount of Rs.99,69,395/- should not be treated as income of the assessee. When no response was received from the assessee, the AO passed the order u/s 144 of the Income Tax Act, read with section 147 of the Act treating the said of Rs.99,69,395/- as unexplained cash credits under section 68 of the Income Tax Act.

Farukh Ahmad Zeb v. ITO 4. Being aggrieved by the assessment order the assesse has filed an appeal before the CIT(A) who has confirmed the finding of the Assessing Office (In short “the AO”) by observing as under:

“I have considered the facts of the case as stated in the assessment order under consideration. The AO had received STR information from Chief Manager J&K Bank Ltd, Pampore that cash deposits of Rs.99,69,395/- have been made in the three bank accounts maintained with Jammu & Kashmir Bank during the period from 1.4.2007 to 31.3.2008. When it was noticed that the assessee had not filed his return of income for the said assessment year, the AO, after recording his reasons, issued notice u/s 148 of the Income Tax Act on 09.03.2015. The assessee, however, did not file return in response to the notice u/s 148 of the Act. Thereafter, several opportunities were provided to the appellant to explain the source of the deposits but neither the appellant nor her authorized representative appeared nor any books of account or other relevant material were produced to explain the said deposits. The AO, therefore, passed the assessment order u/s 144 of the Income Tax Act read with section 147 of the Act treating the said deposits of Rs.99,69,395/- as unexplained cash credits under section 68 of the Income Tax Act. It was also stated in the assessment order that during the course of enquiry in the case, it was also gathered that the assessee had entered into a criminal conspiracy with some officials of Land Acquisition Department and was involved in embezzlement of compensation grants released by the land Acquisition Department by misappropriating the public money. A copy of FIR was also gathered by my predecessor from the Superintended of police Vigilance Department Srinagar in which it was mentioned that the Land Acquisition Collection Department had a CD account No. 588 with J&K Bank Lethpora, where the compensation money was deposited. Some persons fraudulently opened a new CD account No. 387 with the same bank and transferred the money from this account. In the local English Newspaper Greater Kashmir publication of April, 29, 2015, a news items was published titled "Highway Compensation Charge Sheet against 60 filed which as "Challan of the biggest embezzlement scam produced by Vigilance Organization Kashmir against the accused persons for embezzlement of more than Rs. 22 Crores from the accounts of Collector Land Acquisition Pulwama out of funds means for compensation to the land owners for 4- lanning of Highway". Perusal of the account of the assessee reveals that some amount has been transferred into his account CD account No. 262.

Farukh Ahmad Zeb v. ITO The assessee is not drawing this income in the forms of deposits from his business activity. Moreover, there is no evidence of any debits in this account which may indicate these amounts to be from business activity.

The fact that the assessee has embezzled this money also indicates that this money is not from his business proceeds. Hence, I treat this money as income from other sources. The entry of the deposits in the bank accounts remained thus un-explained and is required to e brought to tax as per the provisions section 68 of the Income Tax Act, 1961.

During the appellate proceedings, the appellant has taken the ground that no addition can be made under section 68 of the Income Tax Act where the assessee is not maintaining any books of account as Section 68 of the Income Tax Act provides that 'Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year'. According to the appellant, the three mandatory conditions have to be satisfied before invoking the provisions of section 68 of the Act. These are:- • The assessee must have received some cash or cheque during the year under consideration. • Such cash or sum must have been credited in the books of accounts of the assessee. Thus, there must exist books of accounts before making addition under this section. • The assessee offers no explanation about the source of such cash or cheque credited in his books of accounts.

However, in the case of the assessee, the AO has not verified the books of accounts of the assessee as is clearly established from the assessment order in which it is specifically mentioned that the assessee has not provided any information or the books of accounts for the relevant assessment year as such the case was finalised ex party u/s 144 of the Act. In the absence of the books of accounts of the assessee for the relevant assessment year, the AO cannot make addition under section 68 of the Act. The appellant, then, has referred to the definition of 'Books of accounts' as provided in section 2(12A) of the Income Tax Act which provides, "books includes ledgers, day books, cash books

Farukh Ahmad Zeb v. ITO whether kept in written form or as printouts of data stored in floppy, disk, table or any other electromagnetic data storage device." Thus, according to the appellant, bank statement or pass book cannot be regarded as books of accounts. The appellant has also placed reliance on the decisions of Hon'ble High Court of Gauhati in the case of Anand Ram Raitani Vs CIT (1997) 139 CTR, High Court Of Bombay in the case of CIT Vs Bhaichand H Gandhi, decision of jurisdictional ITAT Bench Amritsar in the case of Sh Sanjeev Kumar Vs ITO ITA 445-449/Asr/2015 and decision of ITAT Bench Delhi in the case of Ms Mayawati Vs DCIT (2008) 113 TTJ 0178 wherein it was held that Section 68 is not applicable where the assessee is not maintaining any books of account.

I have considered the above submission and also the judicial position on this issue. Though, I agree in principle that where no books of account are maintained by the assessee, no addition can be made under section 68 of the Act, however, in the present case, the situation is rather different. Here, the AO has received certain information that a sum of Rs.99,69,395/- has been deposited in the bank accounts of the assessee during the period from 1.4.2007 to 31.3.2008. It was then obligatory on his part to ask the assessee whether such deposits have been declared in his returns of income and also to explain the source of those deposits. The AO, therefore, has rightly issued notice u/s 148 of the Act when he did not find any returns of income filed by the assessee for that period. The assessee neither filed the return of income nor offered any explanations on the said deposits despite several opportunities were provided to him. When the assessee offered no explanation then the AO was left with no option but to treat these deposits as unexplained income of the assessee. It doesn't matter whether the addition was made under section 68 of the Income Tax Act. The fact remains that the appellant has not given any explanation on the source of the deposits of Rs.99,69,395/-. The appellant has also failed to show that she is assessed to tax and has declared these deposits in her return of income. The appellant has also not denied to have earned this income by way of embezzlement of compensation grants released by the Land Acquisition Department. In the absence of such details or explanation, the AO has rightly treated these deposits as income of the appellant from unexplained sources. Simply because the Assessing Officer has invoked a wrong section, the entire assessment order cannot be declared as null and void. Thus, the addition of Rs.99,69,395/- made by the AO u/s 144 read with section 147 of the Income Tax Act is confirmed.”

Farukh Ahmad Zeb v. ITO 5. The Ld. AR for the appellant submitted that the Ld. CIT (Appeals) has erred in law and on facts by confirming the actions of the AO of additions made u/s 68 of the Act on the basis of unexplained credits found in the books of accounts; that the Ld. CIT (A) ignored the jurisdictional ITAT Bench Judgment in the case of Sh. Sanjeev Kumar v/s ITO 449/Asr/2015; that the Ld. CIT (A) has erred in upholding the assumption of jurisdictions by AO without application of mind to the information available on record and accordingly consequent order passed is bad in law for reassessment proceedings only based on presumption/ suspicion and were thus not validly initiated. He filed a written synopsis which reads as under:

The present appeal has been made against the Order passed by the Hon’ble CIT (Appeals) Jammu, vide Appeal Order passed on 14.07.2017 confirming the order passed under section 144/147 by the Ld. Assessing Officer for the Assessment Year 2008-09.

I first of all take this opportunity to thank your Honour, for previous Adjournments provided to me.

In support of the Grounds of appeal filed with the present appeal, I hereby take this opportunity to submit the necessary facts and documents to this respected bench which may be perused by your good- self to decide the validity of the above-mentioned Order passed by the Ld. CIT (Appeals).

Farukh Ahmad Zeb v. ITO 2. That the Ld. CIT(Appeals) has passed the order by ignoring the Jurisdictional ITAT bench judgment in the case of Sh. Sanjeev Kumar Vs ITO (ITA No. 445- 449/Asr/2015) inspite of the fact that the same had been made into its notice during the Appeal proceedings by the appellant(through Counsel). Although the CIT (Appeals) vide Para 5 (Page 15 of the order, and Page No.15 to this Submission) has maintained that he agrees with the principle as determined in the said judgment, but on some baseless suspicion and without proven facts, he has amended his opinion and confirmed the additions made by the Ld. Assessing Officer. The Ld. CIT (Appeals) has accepted that the Ld. AO had invoked the wrong Section in the Assessment order, but has himself failed to provide the correct section applicable, if any, which also makes the assessment incomplete and bad in law.

It is pertinent to mention here that the basis of suspicion (Alleged Scam) on which the whole assessment as well as the appeal has been determined pertains to the Financial Year 2009-10 which can be confirmed from the copy of Order of Attachment issued by the Superintendent of Police, Vigilance Organization, Kashmir, copy of which has been attached herewith at Page No18, as well as the copy of FIR in which it is clearly mentioned that the embezzlement has taken place during the years 2009 and 2010 (See Page of the submission). Moreover, since the assessment had been completed u/s 144 of the Act, the appellant couldn’t provide his opinion to the Assessing officer regarding the source of the funds in the bank accounts. This non-compliance should not have been treated as the “Acceptance of the Embezzlement of the funds”, by the Ld. CIT(Appeals). (Please refer Page 16 of the Said Order, Page No to this Submission).

Farukh Ahmad Zeb v. ITO 4. Additional Informations: a. On perusal of the bank account No. 0334SB9741, attached herewith as Page No. 25. the total deposits in the bank account during the relevant year corresponding to the AY in appeal, was only Rs 41,55,995.00 were as in the Appellant Order, the bank deposits have been mentioned as 68,72,524.00. b. As per the appellant Account No. 0334CD901, as mentioned does not belong to the Appellant. Bank certificate attached as proof at page no. 28. c. Since the Case (Alleged Scam) is sub-judice, the appellant should not be treated as Convict rather than Suspect. Moreover, since the appellant was an individual without any government approved powers, the appellant was in no capacity to embezzle the funds.

It is therefore prayed to your honour quash the Appellant Order passed by the Ld. CIT (Appeals) as well as Assessment Order for bad in law and facts.

Admittedly, the appellant has not filed return of income for the assessment year under consideration. On the basis of specific STR information received from Chief Manager J&K Bank Ltd., Pampore, the AO has recorded proper reasons to belief u/s 148 of the act. Meaning thereby that the AO has valid reasons to belief for issuing notice u/s 148 of the Act, with proper application of mind to the specific information in his possession regarding cash deposits in his bank account amounting to Rs. Rs.99,69,395/- with the narration as CW/FJR/J MU/FARUKH JEHAN/CWDR, as discussed by the AO, in the assessment order.

In the case of “ACIT Vs Rajesh Jhaveri Stock Brokers P. 9.

Limited. 291 ITR 500, the Hon’ble Apex Court has observed as under:

“Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe

Farukh Ahmad Zeb v. ITO that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. 1TO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC) ; Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC).

The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the ovisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case

Farukh Ahmad Zeb v. ITO falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.

So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.”

“In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income- tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the Assessing Authority. The appellant will be entitled to take all the points before the Assessing Authority. The appeals are dismissed.”

“A perusal of the reasons recorded by respondent No. 2 shows that he had applied his mind to the relevant material and formed a belief that the petitioner

Farukh Ahmad Zeb v. ITO had not disclosed complete facts which could enable it to claim deduction under section 80-1 and, therefore, its income had not been properly assessed. At this stage, the court can neither go into the sufficiency or adequacy of the reasons recorded by respondent No. 2 nor can it interfere with the notice simply because on an overall reappraisal of material, a different opinion may be formed.”

“The power of reassessment can be validly exercised if satisfaction is arrived at after following due procedure that income had escaped assessment. Such satisfaction may involve change of opinion but was not at par with "mere change of opinion".

Farukh Ahmad Zeb v. ITO Act. The fact remains that the appellant has not given any explanation on the source of the deposits of Rs.99,69,395/-. The appellant has also failed to show that she is assessed to tax and has declared these deposits in her return of income. The appellant has also not denied to have earned this income by way of embezzlement of compensation grants released by the Land Acquisition Department. In the absence of such details or explanation, the AO has rightly treated these deposits as income of the appellant from unexplained sources. In our view, the Ld. CIT(A) was justified in holding that simply because the Assessing Officer has invoked a wrong section, the entire assessment order cannot be declared as null and void.

15. The Hon'ble Supreme Court of India in the case of “GKN Driveshafts (India) Ltd. v. ITO”, & Ors. (Supra) (2003) 179 CTR (SC) 11: (2003) 259 ITR 19 (SC) wherein the safety valve provided to protect the assessee from frivolous reassessment is not applicable to the facts of the present case and now if the assumption of jurisdiction by the AO for reopening the assessment is held illegal would amounts to substituting the decision of the authorities below, is unwarranted. In view of that matter, we are of the considered view that the Ld. CIT(A) was justified in upholding the reopening of the assessment.

16. Considering the factual matrix and legal intricacies of the law, we hold that the appeal of the assessee on the legal issue has been devoid of merit and substance. We find no infirmity in the order of the Ld. CIT(A) in confirming the reopening of the assessee for the reason of unexplained cash deposits in the bank account of the appellant. Therefore, the ground no. 1, 3 and 4 of the assessee are rejected.

Farukh Ahmad Zeb v. ITO 17. The Next issue is regarding appellant’s objection to confirming the actions of the AO of additions made u/s 68 of the Act on the basis of unexplained credits found in the books of accounts by ignoring the jurisdictional ITAT Bench Judgment in the case of Sh. Sanjeev Kumar v/s ITO ITA No. 445-449/Asr/2015.

“14. The submission is not well founded. This is merely a case of a wrong section being mentioned in the assessment order and in the order of CIT (A). All the jurisdictional facts for invoking section 68 existed. More importantly, the enquiries made by the Assessing Officer in the assessment proceedings were not stated to be under any particular provisions of the Act. The enquiries were merely factual relating to the source of acquisition of the money. Had the Assessing Officer on the very same facts mentioned section 68 instead of section 69-A it would not have been open to the assessee to contend that he had not been put to notice that the Assessing Officer intended invoking section 68 of the Act. If he could not have done so in respect of the assessment order, he cannot do so in respect of the orders in appeal by the CIT (A) or by the Tribunal.

Farukh Ahmad Zeb v. ITO Officer after considering the facts and circumstances of the case including the assessee's response, if any, thereto, makes an addition, which is justified and permissible under the provisions of the Act but inadvertently or even wrongly mentions a wrong provision of the Act, the assessment order cannot be set aside on that ground. It is open in such circumstances to the Appellate Authority or to CIT (A) or the Tribunal to uphold the addition under the correct section. This of course would be in circumstances where the error has not prejudiced the assessee in any manner whatsoever. At the cost of repetition, it is not even the assessee's case that during the assessment proceedings he was given to understand that the queries were raised by the Assessing Officer and/or that he responded to the same only on the basis of the provisions of section 69-A of the Act.”

(Supra) the assessee has not been prejudiced in any manner whatsoever on account of the Assessing Officer having mentioned the wrong section.

Farukh Ahmad Zeb v. ITO Where in the assessment proceedings the enquiries are made by the Assessing Officer of facts and the Assessing Officer after considering the facts and circumstances of the case including the assessee's response, if any, thereto, makes an addition, which is justified and permissible under the provisions of the Act but inadvertently or even wrongly mentions a wrong provision of the Act, the assessment order cannot be set aside on that ground. It is open in such circumstances to the Appellate Authority, the CIT (A) or the Tribunal to uphold the addition under the correct section.

This of course would be in circumstances where the error has not prejudiced the assessee in any manner whatsoever. At the cost of repetition, it is not even the assessee's case that during the assessment proceedings he was given to understand that the queries were raised by the Assessing Officer and/or that he responded to the same only on the basis of the provisions of section 69-A of the Act.

Order pronounced in the open court on 03.08.2023