CA Vinamar Gupta
AIR Information without lawful enquiry is not sufficient to hold a belief that cash deposit is Income and hence can not form reason to believe that Income has escaped assessment, says ITAT Amritsar
The ITAT Amritsar, in a recent Judgment has pronounced that the Income tax department should not issue Enquiry letters which do not with stand the touchstone of the legal bounds in which they are to be issued. ITAT Amritsar, in Amrik Singh, ITA 630/ASR/2015, pronounced on 11-05-2016, has dissected the provisions of the law to bring the real spirit behind issuing an Enquiry Letter. Further the ITAT has dealt with an important issue of practice of making assessment on the basis of stand alone AIR Information . In this Article the author has tried to bring out the words of wisdom shared by the bench on these two important issues:
Facts of The case:
The appellant is not an assessee and had not filed any income tax return. The department found some cash deposit with bank on the basis of AIR Information provided by a bank and an Enquiry letter was issued to explain the source of cash deposit. The opportunity went unavailed by the assessee and therefore the Assessing officer formed an opinion that income had escaped assessment. Assessment proceedings u/s 147 were initiated and the assessee opted not to file return even in response to notice u/s 148. Because of continuous non compliance on behalf of the assesse, the entire cash depost was treated as income of the assessee and the addition made was confirmed by the CIT(A). Against the order of the CIT(A) , the assessee filed an appeal before the Amritsar Bench of the ITAT.
Decision of ITAT Bench
The ITAT Bench first of all posed a querry, which goes to the root of the issue, as to under which section the enquiry letter has been issued. To this the department replied that it was a general enquiry letter. The reply didn’t deter the Bench from its effort to find out whether such enquiry letter can be issued with in the purview of the existing provisions of the law.
The Bench undertook an in depth examination of section 133(6) and section 131.
Observation of ITAT on Section 133(6)
An Income Tax Authority may require any person, inter-alia, to furnish information in relation to such points or matters, as in their opinion would be useful for, or relevant to, any enquiry or proceeding under the Act.
History of Section 133(6)
Section 133(6) corresponds to section 38 of the Income Tax Act, 1922. It was amended in 1995 and the words ‘enquiry or’ were inserted before the word ‘proceedings’ and the second proviso was also inserted, by the Finance Act, 1995, w.e.f. 1.7.1995. This second proviso, as amended by the Finance (No.2) Act, 1998, w.e.f. 1.10.1998, reads as follows:
Proviso to Section 133(6)
“Provided further that the power in respect of an enquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of Director or Commissioner without the prior approval of the Director or, as the case may be,the Commissioner.”
CBDT Circular on Section 133(6)
Then the Bench took note of CBDT Circular No. 717 dated 14-08-1995, which was issued to explain the above amendment and it says that :
“………………………….
41.2 At present the provisions of sub-section (6) of section 133 empower income-tax authorities to call for information which is useful for, or relevant to, any proceeding under the Act which means that these provisions can be invoked only in cases where the proceedings are pending and not otherwise. This acts as a limitation or restraint on the capability of the Department to tackle evasion effectively. It is, therefore, thought necessary to have the power to gather information which after proper enquiry, will result in initiation of proceedings under the Act.
41.3. With a view to having a clear legal sanction, the existing provisions to call for information have been empowered to requisition information which will be useful for or relevant to any enquiry or proceedings under the Income-tax Act in the case of any persons. The Assessing Officer, would, however, continue to have power to requisition information in specific cases in respect of which any proceeding is pending as at present. However, an income-tax authority below the rank of Director or Commissioner can exercise this power in respect of an enquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner………..”
Observations on Pre Amendment Position of S.133(6)
The bench concluded that the pre-1995 amendment section 133(6) could be invoked only in cases where some proceedings were pending, and not otherwise, as taken note of in ‘D.B.S. Financial Services Pvt. Ltd. vs. Smt. M. George, Second Income Tax Officer and Others’, 207 ITR 1077 (Bom.) and ‘Grindlays Bank Ltd. vs. Income-Tax Officer and Others’, 231 ITR 612 (Cal.).
Observations on Post Amendment Position of S.133(6)
The 1995 amendment brought in power to the Department to gather information which, after proper enquiry, would result in initiation of proceedings under the Act. However, by virtue of the second proviso to the section, an Income Tax Authority below the rank of Commissioner can exercise this power in respect of an enquiry, in a case where no proceeding is pending, only with the prior approval of the Director or Commissioner, The ITAT drew support from ‘Karnataka Bank Limited vs. Secretary, Govt.of India’, 255 ITR 508 (SC) and ‘U.G. Upadhya, General Manager, Janatha Co-operative Bank Ltd’; ‘UDUPI vs. Director of Income Tax And Another’, 255 ITR 502 (Kar.) [the S.L.P. where-against was dismissed by the Hon’ble Supreme Court vide their order reported at 251 ITR (St.) 51].
Application of Analysis on S.133(6) to facts of the case
The ITAT held that since in the present case no proceedings were pending when the inqury letter had been issued by the Income tax officer and no prior approval of the CIT is on record, the enquiry letter does not withstand the rigours of section 133(6).
Switching to Section 131
However the ITAT said that even this does not go to annihilate the case of the department and it should be checked whether S.131 empowers the department to issue such inquiry letter, when no proceedings are pending against the assessee.
Section 131 reads as under:
131(1) The Assessing Officer, Deputy Commissioner (Appeals)], Joint Commissioner, Commissioner (Appeals), Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner and the Dispute Resolution Panel referred to in clause (a) of sub-section (15) of section 144C shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely :—
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
(c) compelling the production of books of account and other
documents; and
(d) issuing commissions.
Analysis of Section 131(1) by ITAT
The ITAT observed that ,”……. section 131(1) confers on the Income Tax Authorities mentioned therein, the same powers as those vested in a court under the CPC, when trying a suit. The operative words in the section, for our present purposes, are ‘when trying a suit’. Section 131(1) of the I.T. Act, by conferment of the powers as envisaged therein, equates the powers of the Income Tax Authorities with those of a Court. And it provides for vesting on the Income Tax Authorities, the powers vested in a Court when trying a suit. Now, in juxtaposition to the trial of a suit by a Court, what would the equivalent before the Income Tax Authorities be? But obviously, proceedings under the Income Tax Act. Else, there would be no scope at all for the exercise of such power.
As a natural corollary, therefore, it follows that it is only during the pendency of some proceeding before it, that an Income Tax Authority can exercise the power vested on them under section 131(1), and not otherwise. The ITAT also drew support from Jamnadas Madhavji & Co. and Others vs. J.B. Panchal, ITO and Another’, 162 ITR 331 (Bom.) followed in James Joseph & Others’, 204 ITR 254 (Cal.). The ITAT Bench also supported its observation by :
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