Reasons recorded on incorrect information are invalid and results in invalidation of reopening

Madan Mohan Tiwari Vs ITO (ITAT Delhi)

Once information received by AO were shown in objections as incorrect, entire jurisdiction on such reasons cease to exist and thus reopening should be dropped. Such non application of mind therefore at recording reasons as well as disposal of objections invalidate entire reopening.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeal has been preferred by the assessee against the order dated 08.10.2018 of the Ld. Commissioner of Income Tax (Appeals)-31, New Delhi, (hereinafter referred to ‘CIT(A)’) for the Assessment Year 2008-09. The assessee has raised following grounds of appeal:-

“1.  Challenge to assessment u/s. 147 of I.T. Act 1961 — Tax Effect- Rs,37,08,964/-

1.1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order was void, invalid, non est as AO had formed belief of income escapement without application of mind.

1.2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order was void, invalid, non est as AO had no evidence of not finding ITR in his computer system.

1.3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order was void, invalid, non est as Delhi HC order in Sonia Gandhi vs ACIT DATED 10.09.2018 was not applicable in present case as Assessing Officer had no germane material to the issue and hence he was required to do further investigation upon receipt of survey report.

2. Challenge to non dispatch of s.143(2) notice. Tax Effect –Rs.6579,313/-.

2.1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order was void, invalid, non est as the s.143(2) notice was never dispatched by Assessing Officer.

2.2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that relevant mater was whether speed post receipt dated 25.07.2013 was forged or not and not forensic examination.

3. Challenge to disposal of objection to issuance of s.148 notice by non speaking order.-Tax Effect-Rs/65,79,313/-

3.1.       On the facts and in the circumstances of the case, the

Ld. CIT(A) erred in law and on facts in not appreciating that since factual error of non filing of ITR dated 12.10.2010 was not addressed in Assessing Officer letter dated 30.12.2013 rejecting assessee objection to issuance of s.148 notice dated 05.02.2013 Merely comprehensiveness of Assessing Officer disposal letter does not make it speaking order.

4. Challenge to assessment being only change of opinion-Tax Effect Rs.65,79,313/-

4.1.On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order was void, invalid, non est as assessment was merely change of opinion.

5. Challenge to assessment being made during pendency of earlier assessment proceedings. -Tax Effect-Rs.65,79,313/-

5.1.On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order was void, invalid, non est as Assessing Officer could not have done assessment proceedings when assessment proceedings were already pending in an earlier proceeding challenged.

6. Challenge to violation of natural justice.-Tax Effect Rs.65,79,313/-

6.1.On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order was invalid due to violation of natural justice caused by Assessing Officer by not giving copy of survey report even when demanded by assessee during course of assessment proceedings, not giving copy of bank statements collected by him through s.131 notices and not giving show cause notice for proposed additions.

6.2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order was invalid due to violation of continuing with assessment before disposal of objection to issuance of s.148 notice.

6.3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that Assessing Officer could not have decided that income was from profession and not business income without providing opportunity to appellant to prove that appellant was not carrying on business but was carrying on profession of engineering.

6.4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that Assessing Officer could not have proceeded with assessment without waiting for 30 days after passing order of rejection to objections made by assessee for s.148 issuance.

7. Challenge to assessment order framed on reasons other than those on which belief for escapement of income was formed. -Tax Effect- Rs. 65,79,313/-

7.1.On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that assessment order has not been framed on reasons forming belief of income escapement.

8. Challenge to no addition made on reasons on which belief for escapement of income was formed. -Tax Effect-Rs. 65,79,313/-

8.1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that no addition has been made on reasons forming belief of income escapement.

9. Challenge to year of taxation.-Tax Effect-Rs.65,79,313/-.

9.1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that once assessee is entitled to file return under presumptive taxation i.e. s.44AD books of account are not required to be maintained or provided to Assessing Officer for claiming income on mercantile basis, on percentage contract completion method.

9.2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that bifurcation of receipts cannot be said to be prima facie arbitrary without appreciating the fact that bifurcation had been done as per mercantile accounting system of accounting.

9.3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that Assessing Officer could not have made addition without seeking reasons for difference in receipts as per Form No.s26AS (at Rs.1,76,11,272/-) and as shown by the appellant at Rs.37,80,885/-.

10. Challenge to making assessment order not as per provisions of s.143(3)-Tax Effect-Rs.65,79,313/-.

10.1 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that AO had claimed in his order that s.148 notice was issued on 30.03.2013 while factually it was 05.02.2013 made assessment order invalid.

10.2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law and on facts in not appreciating that use of forged speed post receipt dated 25.07.2013 made assessment order invalid.”

2. A perusal of the above grounds of appeal would show that the assessee apart from contesting the addition made by the lower authorities on merits has also taken legal ground relating to the validity of the reopening of the assessment u/s 147 r.w.s. 148 of the Act stating that the Assessing Officer did not have a valid reason to assume jurisdiction to reassess the income of the assessee u/s 147 of the Act.

3. The assessee at the outset has brought our attention to the reasons recorded by the Assessing Officer for reopening of the assessment dated 05.02.2013. A copy of which has reproduced by the Ld. CIT(A) in page 92 of the impugned order and for the sake of ready reference reproduced under:-

“The reasons recorded by the Assessing Officer dated 05.02.2013 are as follows

M.M. Tiwary,
1451, Kalkaji,
New Delhi

A survey was conducted in this case on 23/04/2012 by Investigation Wing, Delhi wherein it is stated that Shri M. M. Tiwary Prop. Of M/s M.M. Engineering Services has received Rs.1.00 Crore in F.Y.2007-08

On going through the AST System it is found that assessee has not filed return for A.Y. 2008-09 and on examining 26AS, it is found that assessee has total receipt of Rs.1,76,11,272/- during the year. Further, it is stated in the survey report that during the survey proceedings u/s 133A, it was found that Shri Madan Mohan Tiwary and his family members are maintaining 61 bank account in various banks and were having 39 debit cards.

Therefore on the basis of the facts narrated above, I have reasons to believe that the income of the assessee amounting to Rs.1,76,11,272/- has escaped assessment in the hands of the assessee for which the assessment of the assessee needs to be reopened Under Section 147/148 of the I.T. Act, 1961.

Sd/-
(M.L. Gupta)
Income Tax Officer,
Ward 22(1),New Delhi

4. A perusal of the above reasons recorded would show that the Assessing Officer had got information through Investigation Wing that the assessee has received Rs.1.60 crore from M/s M. M. Engineering Services. Further, the Assessing Officer after going through the AST System noted that the assessee had not filed return of the income for the Assessment Year under consideration i.e. AY 2008-09. Further, from the examining of the Form No.26AS , the Assessing Officer noticed that the total receipts of the assessee during the year was of Rs.1,76,11,272/-. On this basis of these reasons, the Assessing Officer formed belief that the income amounting to Rs.1,76,11,272/- of the assessee had escaped assessment. He, therefore, issued notice u/s 148 of the Income Tax Act, 1961 (hereinafter referred to ‘the Act’) to the assessee. On receipt of the notice, the assessee filed his objection against the aforesaid reasons recorded by the Assessing Officer for reopening of the assessment. The contents of the said objections 30.12.2013, the sake of ready reference are reproduced under:-

Date: 25/07/2013

“The Income Tax Officer

Ward 22(1)
New Delhi

Sub Objections to the issue of Notice u/s 147/148 of the Income-Tax Act, 1961 in the case of Shri Madan Mohan Tiwari for Assessment Year 2308-09

Sir

In connection with the above it is submitted as follows –

(1) The original return in the above case for Assessment Year 2008-09 was filed declaring therein an income ojf Rs. 2,80,070/- in response to notice u/s 142 of the Income Tax Act, 1961 vide reply dated 12.10.2010.

(2) Subsequently, notice u/s 148 of the Income Tax Act, 1961 was issued to the Assessee.

(3) In response to the above notice, reply/letter was filed on behalf of the Assessee in Your Honour’s office on 12-03-2013 stating there in that the return filed by the Assessee in response to notice u/s 142 of the Income Tax 1961 vide reply dated 12 10.2010 may kindly be treated as a return filed in response to the notice u/s 148 of the Income-tax Act. 1961 Simultaneously, a request was, also made for furnishing the Assessee with a copy of the reasons recorded for recourse to the reassessment provisions u/s148 of the Income-tax Act. 1961.

(4) The Assessee have been supplied with the copy of the reasons recorded for resorting to the provisions u/s 148 of the Income-tax Act, 1961 which read as follows –

“A survey was conducted in this case on 23/04/2012 by Investigation Wing, Delhi wherein it is stated that Shri M. M. Tiwary Prop, of M/s. M.M, Engineering Services has received Rs. 1.60 crore in F.Y. 2007-08.

On going through the AST System it is found that assessee has not filed return for A.Y, 2008-09 and on examining 26AS it is found that assessee has total receipt of Rs. 1,76,11,272/- during the year. Further it is stated in the survey report that during the survey proceedings u/s 133A it was found that Shri Madan Mohan Tiwary and his family members are maintaining 61 bank accounts in various banks and were having 39 debit cards.

Therefore, on the basis of the facts narrated above, I have reason to believe that the income of the assessee amounting to Rs. 1,76,11,272/- has escaped assessment in the hands of the assessee for which the assessment of the assessee needs to be reopened under section 147/148 of the I.T. Act, 1961.”

(5) In this connection, the Assessee hereby records its preliminary objections to the issue of notice u/s 148 and resort to the reassessment provisions incorporated u/s 147/148 of the Income-tax Act,. 1961 as follows;-

(i) Before proceeding further it would be pertinent to reproduce the provisions relating to reassessment of escaped income as incorporated in S 147 of the Income-tax Act, 1961 the relevant parts of which read as follows.- :

Income escaping assessment

147. 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 recomputed 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);

Provided that where an assessment under sub-section (3) of ‘ Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.”

(ii) The above provisions make it clear that an Assessing Officer if he has “reason to believe” that any income chargeable to tax has escaped assessment for any assessment year, 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 section 147; or

> Re compute

• • • The loss
    • The depreciation allowance; or
    • Any other allowance, as the case may be

For the relevant assessment year.

(iii) Further the Explanation 2 to section 147 (not reproduced supra) clarifies that, for the purposes of section 147, the following are also to be deemed to be cases where income chargeable to tax has escaped assessment:-

> Where no return of income has been furnished by the assessee although

• • • His total income or
    • The total income of any other person in respect of which he is assessable under this Act.
    • During the previous year exceeded the maximum amount which is not chargeable to income-tax.

> where a return of income has been furnished by the assessee but no assessment has been done and it is noticed by the Assessing Officer that the assessee –

• • • has understated the income, or
    • has claimed excessive loss, deduction, allowance or relief in the return;

> where an assessment has been made, but

• • income chargeable to tax has been under assessed; or
  • income chargeable to tax has been assessed at too low a rate; or
  • income chargeable to tax has been made the subject of excessive relief under the Income-tax Act, 1961 or
  • excessive loss or depreciation allowance or any other allowance has been computed under the Act.

(iv) Thus S. 147 of the Income-tax Act, 1961 authorises and permits ah Assessing Officer to (re)assess income chargeable to tax if he has reason to believe that the said income for any assessment year has escaped assessment. The expression “escaped assessment” clearly connotes a very basic postulate that the income for a particular assessment year went unnoticed by the Assessing Officer and because if not being noticed by him for any reason, it escaped assessment. Accordingly there should be a complete and direct conclusion as to income escaping assessment so as to resort to the reassessment provisions.

(v) Section 148 to 151 set out the frame work, procedure and the conditions -governing the reassessment provisions incorporated in section 147. The said sections successively deal with:-

(a) Form of notice and recording of reasons for issue (S. 148);

(b) Time limit for issue (S, 149);

(c) (c) Enlargement of time limit in certain cases and restriction thereon(Section 150);

(d) (d) Sanction to be obtained for issue of notice (S. 151);

(vi) The relevant parts of Section 148 relating to issue of notice and recording of reasons for the same read as follows’-

Issue of notice where income has escaped assessment “148 – (1) Before making the assessment, reassessment or re-computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139”

(vii) The above statutory framework makes it clear that the issue of a notice under Section 148 seeking action under section 147 is dependent on recording of a satisfaction as to escapement of income as a threshold’ requirement. Accordingly, sections 147 and 148 are to be considered as twin sections and where action is invalid under section 147, notice under section 148 becomes invalid in consequence. The conditions specified in the section for initiating reassessment proceedings are overriding conditions, the fulfillment of all of which alone would confer jurisdiction-on an Assessing Officer to make a re- assessment.

(viii) For restoring to reassessment the most noted requirement is that the Assessing Officer should have reason to believe that income chargeable for the relevant assessment year has escaped assessment……… makes it clear that while the Assessing officer in initiating re-assessment proceedings are very wide, at the same time they are not all-encompassing in nature. These powers are vitally controlled by the words ‘reason to believe’ employed by the section, The reasons for formation of belief for reopening an assessment must have a rational connection or relevant bearing on the formation of the belief. The existence or otherwise of such a belief, on the part of the Assessing Officer, is hot a mere question of limitation but the very foundation of his jurisdiction. These words import the presence of the following four essential ingredients.

i. some material or materials and not mere fancy, imagination, speculation, suspicion;

ii. a nexus between such material and the belief of escapement of income from assessment;

iii. an application of mind by the Assessing Officer to such material; and

iv. an inference based on reason drawn tentatively by the officer that income has escaped assessment.

(ix) The entire gamut of the scope and extent of the re­assessment provisions also engaged the attention of the Hdn’ble Supreme Court in the base of M/s Plarashuram Pottery Works Co Ltd v ITO f(1977) 106 ITR 1 (SC)] wherein the following remarks were made

“It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.”

The essential principle as to the rule of finality of an assessment is that the Assessing Officer cannot change his mood and try to reopen a closed state of affairs. But if it is a case where the reopening is sought in consequence of some default on the part of the assessee or in consequence of information in possession of the officer which leads to a reasonable belief that there has been an escapement and if that information is not the product of a change of mood but is attributable to concrete material noticed by him, then the above principle may not apply.”

(x) In the instant case a review of the reasons recorded for resorting to assessment proceedings and consequent issue of notice u/s 148 would make it clear that basis for the formation of the opinion that income has escaped assessment is the survey carried out by” investigation Wing In this connection it is submitted that there is no tangible evidence to lead to the conclusion that the Assessee’s income has “escaped assessment” so as to call for reassessment proceedings. In this connection, it is submitted that the notice u/s 142(1) of the Income-tax Act, 1961 was issued on 13-09-2010 to the Assessee in response to which a return of income along with Computation of Income, Balance Sheet and Income and Expenditure Account was duly filed on 12-10-2010. As such there is no tangible evidence of escapement of income to warrant a revisit of the assessment and resorting to assessment proceedings u/s 147/148 of the Income Tax Act, 1961 and accordingly the basis of recording of “reason to believe” as to escapement of income does not exist in the instant case.

(xi) In the light of these facts, it is clear that issue of notice u/s 148 is only based on a change of opinion and the reasons to believe for the conclusion as to escapement of income are only conjectural and tangible and concrete which are the touchstones against which any action has to be judged. Accordingly, it is humbly submitted that the action of issues of notice u/s 148 is void, ab-initio and deserves to be filed and not dealt with further at this stage itself,

(xii) The above view is also reinforced with reference to the following judicial decisions:-

> Reason to belief a salutary safeguard

“Reason to believe” is a common feature in taxing statutes, it has been considered to be the most salutary safeguard on the exercise of power by the officer concerned. It is made of two words “reason” and “to believe”. The word “reason” means cause or justification and the word “believe” means to accept as true or to have faith in it. Before the officer has faith or accepts a fact to exist there must be a justification for it. The belief may not be open to scrutiny as it is the final conclusion arrived at by the officer concerned, as a result of mental exercise made by him on the information received. But, the reason due to which the decision is reached can always be examined. When it is said that reason to believe is not open to scrutiny what is meant is that the satisfaction arrived at by the officer concerned is immune from challenge .but –where the satisfaction is not based on any material or it cannot withstand the test of reason, which is an integral part of it, then it falls through and the court is empowered to strike it down. Belief may be subjective but reason is objective. ‘

Gangs Prasad Maheshwari & Others vs ClT – [(1983) 139 ITR 1043 (All.)]

Mahesh Kumar Agrawal v. DCIT – [(2003) 180 GTR 517 (Cal.)]

> No Reason to believe on suspicion, gossip or rumor

There can be no manner of doubt that the words “reason to believe” suggest that the belief must be- that of an honest and reasonable person based upon reasonable grounds and that the Assessing Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumor. The Assessing Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court, (Sheo Nath Singh v. ACIT Central, Calcutta – [(1971) 82 ITR 147 (SC)]

> Belief’ in Good faith and not pretence

The word “reason to believe’ means that a. reasonable man, under the circumstances, would form a belief which will impel him to take action under the law. The formation of opinion has to be in good faith and not on mere pretence.

Ajit Jain v. Union of India and Others [(2000) 242 ITR 302 (Delhi)]

> Reason to believe’ must be on substantial or tangible material

The careful selection of these words by the statute and the drastic nature of the powers necessarily point to a judicial application of the mind to some substantial material by the officer acting with a sense of responsibility.

It would also postulate that information in possession of the AD is not a mere canard or an unverified piece of gossip but information which, in the circumstances, may be regarded as fairly reliable.

C Venkata Reddy vs ITO [(1967) 66 ITR 212 (Mysore)] > Tangible material

The existence of tangible material for formation of opinion, is a pre­requisite

L.R Gupta vs Union of India and Others – [(1992) 194 ITR 32 (Del)]

> Belief induced by reason and not mere belief In existence of reasons

The expression ‘reason to believe’ predicates that the Assessing Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of. reasons on which the belief is founded, and not merely a belief in the existence of reasons ind…. belief.

Calcutta Discount Go. Ltd. v. AO — [(1961) 41 ITR 191 (SC)] : Bhadarmal Hazarimal v. 1.T.0 – [(1975) 100 ITR 159 (Gau)]

In view of the above, it is clear that there is no ground to conclude that income has escaped assessment in the case of the Assessee and, accordingly, it is prayed that the notice in question may kindly be filed.

Thanking you,

Yours faithfully,

MADAN MOHAN TIWARI

5. A perusal of the aforesaid objections would show that the assessee inter-alia had brought to the knowledge of the Assessing Officer that the assessee had duly filed the return of income for the year under consideration. Further, the assessee had duly pleaded that the aforesaid amount of Rs.1,76,11,272/-was not income of the assessee rather the same was contractual receipts and that the assessee had returned the income in his return of income. However, the Assessing Officer dismissed the objections of the assessee by observing as under:-

Office of the
Inconre Tax Officer, Ward-22(1)
Room No. 1015, E-2 Block, Pratyaksh Kar Bhawan Civic Centre, J.L.
Nehru Marg, New Delhi.
******

F.No. ITO/W-22fl)/Scrutiny/2012-13/1048

Dated:30.12.2013

To,

Shri Madan Mohan Tiwari Prop. M/s M.M. Engineering.

J-145, Kalkaji,

New Delhi – 110019.

Sir,

Sub: Proceedings u/s 148 of the I.T. Act, 1961 in the case of Shri Madan Mohan Tiwari for the A.Y. 2008-09 – Objection to the issue of Notice u/s 147/148 of the I.T.Act, 1961 – reg.

Please refer to you letter dated 25.07.2013 raising objections against initiation of reassessment proceedings u/s 148 of the I.T. Act for the A.Y. 2008-09.

2. In this connection, it is informed that the notice u/s 148 of the Income Tax Act, 1961 was issued on the basis of the information received by the Assessing Officer. On the basis of the said information the then AO had the reason to believe that income to the tune of Rs.1,76,11,272/- chargeable to tax had escaped assessment for the A.Y. 2008-09 and required to be reassessed. The reasons for reopening of assessment were duly recorded and after obtaining the approval of the then Addl. CIT, Range-22. , New Delhi in terms of section 151 of Income Tax Act, 1961. Subsequently, a notice u/s 148 dated 05.02.2013 was issued and served to you.

3. The assessee vide letter dated 25.07.2013 has raised the following objections regarding re-opening of assessment u/s 148 of the I.T. Act, 1961.

3.1 In the beginning the assessee has given brief of his case that the return was filed in response to notice u/s 142 vide reply dated 12.10.2010 and thereafter notice u/s 148 was issued. The assessee has requested reason recorded for recourse to the assessment provisions u/s 148 of I.T.Act, 1961. The assessee has reproduced the provisions relating to reassessment of escaped income as incorporated in S. 147 and mentioned the relevant parts in his letter. The assessee has also mentioned the frame work of Section 148 to 151 of the I.T.Act, 1961.

3.2. The assessee has further stated that in the instant case a review of the reasons recorded for resorting to assessment proceedings and consequent issue of notice u/s 148 would make it clear that basis for the formation of the opinion that income has escaped assessment is the survey carried out by Investigation Wing. In this connection it is submitted that there is no tangible evidence to lead to the conclusion that the Assessee’s income has “escaped assessment” so as to call for reassessment proceedings. In this connection, it is submitted that the notice u/s 142(1) of the Income tax Act, 1961 was issued on 13.09.2010 to the Assessee in response to which a return of income along with computation of income, balance sheet and income and expenditure account was duly filed on 12.10.2010. As such there is no tangible evidence of escapement of income to warrant a revisit of the assessment and resorting to assessment proceedings u/s 147/148 of the Income Tax Act, 1961 and accordingly the basis of recording of “reason to believe” as to escapement of income does not exist in the instant case.

3.3. In the light of these facts, it is clear that issue of notice u/s 148 is only based on a change of opinion and the reasons to believe for the conclusion as to escapement of income are only conjectural and not tangible and concrete which are the touchstones against which any such action has to be judged. Accordingly, it is humbly submitted that the action of issues of notice u/s 148 is void, ab-initio and deserves to be filed and not dealt with further at this stage itself. In support of his contention on “reason to believe” assessee has given references to the following judicial decisions:

a. Ganga Prasad Maheshwari & Others vs CIT –[(1983) 139 ITR 1043 (All.)]

b. Mahes Kumar Agrawal v DCIT-[(2003) 180 CTR 517 (Cal.)]

c. Sheo Nath Singh v ACIT Central, Calcutta –[(1971) 82 ITR 147(

d. SC)]

e. Ajit Jain v. Union of India and others [(1992) 242 ITR 302 (Delhi)]

f. Ventakata Reddy vs ITO [(1967) 66 ITR 212 (Mysore)]

g. R. Gupta vs Union of India and others –[(1992) 194 ITR 32 (Del)] &

h. Calcutta Discount Co. Ltd. vs Assessing Officer-[(1961) 41 ITR 191 (SC)]

i. Bhadarmal Hazarimal v ITO-[(1975) 100 ITR 159 (Gau)]

3.4. In view of the above, the assessee has stated that it is clear that there is no ground to conclude that income has escaped assessment in the case of assessee and accordingly, it is prayed that the notice in question may kindly be filed.

3.5. In “nutshell”, the assessee begs to submit that looking to the overall facts and circumstances of the case, there was no occasion or justification, either factual or legal, to initiate such reassessment proceedings and the same are not valid in the eyes of law and same deserve to be terminated at this stage itself.

4. From the assessee’s objections the following main issues arises:

a) The reason for re-opening reassessment u/s 148 of the I.T. Act, 1961 for the escapement of income, are erroneous and untenable and nothing but the mere belief without any authentic material and copy of documents.

b) The information provided by the Directorate of Income Tax (Investigation) through survey on 23/04/2012 or others is not sufficient to re-open the assessment when the assessing officer does not have the valid proof in advance.

c_ On going through the AST System it is found that assessee has not filed return for A.Y. 2008-09 and on examining 26AS it is found that assessee has total receipt of Rs.1,76,11,272/- is not sufficient reason relating to reassessment of escaped income.

5 Coming to the objection as mentioned above, it is brought to your notice that it has already been mentioned that the relevant assessment in your case was reopened on the basis of information/Survey report received from the Income Tax Officer, Ward-1(2), Hyderabad during camp at New Delhi vide his letter F.No. ITO-Ward- 1 (2)/Hyd/Survey Report/2012-13 dated 24.04.2012.

5.1 In this case, the assessee has filed his return of income in response to notice issued u/s 142(1) in respect of A.Y. 2008-09 declaring total income of Rs 2,80,070/-.

5.2 As per the information provided by the Addl. Commissioner of Income Tax, Range-1′ Hyderabad, that M/s Air Liquide Engineering India Pvt Ltd paid Rs.1.60 crores in FY 2007-08, Rs.40 lakhs in FY 08-09 and Rs.32,23,100/- in FY 09-10 to M/s M.M. Engineering India Pvt Ltd (Proprietary concern of Sri M.M. Tiwari, J-145, Kalkaji, Delhi) as representation and consultancy fees. M/s Air Liquide Engineering India Pvt Ltd filed an application before the Hon’ble Settlement Commission, Chennai Bench and the Hon’ble Commission permit enquiry in connection with the transactions with M/s M.M. Engineering Enterprises. As part of the enquiry, Sri M.M. Tiwari was summoned u/s 131

5.3 by the undersigned to produce books of accounts etc. and give evidence. However, Sri M.M. Tiwari did not bother to appear in response to the summons nor did he file any evidence. To understand the correct facts, Investigation Wing, Delhi was requested to conduct a survey.

5.4 A survey u/s 133A was conducted by Unit-IV, Directorate of Investigation, New Delhi. During survey it was revealed that Sri M.M. Tiwari, is not maintaining books of accounts and could not furnish any evidence related to his income and expenditure. He did not produce even copies of returns of income for verification. H simply stated that all the information is available with Income Tax Department. It is also noticed that he and his family members are maintaining 61 bank accounts at various banks in New Delhi and Patna and that they are maintaining 31 debit/credit cards. Wife of Sh M.M. Tiwari also owns two flats.

5.5 Preliminary enquiries indicates that Sri M.M. Tiwari is receiving substantial amounts from companies like M/s Air Liquidee Engineering (I) Pvt. Ltd. as consultancy and representation fees.

5.6 These informations are enough to form a belief that income chargeable to tax has escaped assessment.

6. For supporting the reopening of assessment u/s 148 reliance has been placed on the following case laws:

I  Asst. CIT Vs Rajesh Jhaveri Stock Brokers Pvt. Ltd (2007)(SC)291 ITR 500

It is important that the AO has cause for justification to know or suppose the income had escaped assessment. It can be said to have reason to belief that income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the facts by legal evidence or conclusion. Reason to believe has been interpreted and the apex court held that what is required is reason to believe and 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 escapement of income is not the concern at that stage.

II Calcutta Discount Co. Ltd Vs ITO 236 ITR 34

It was held that it was the duty of the assessee to disclose all facts which had a bearing on the question, what inferences should be drawn from the facts so disclosed was a matter to be examined by the ITO. The Court further held that the ITO could issue a notice for reopening the assessment if he had reason to believe that the income, profit for gains has been under assessed and such under assessment was due to non disclosure of material facts by the assessee. The adequacy or otherwise of the grounds of such belief was not open to investigation by the Courts.

III Calcutta Discount Co. Ltd Vs ITO 236 ITR 34

Where the Court held that if no conscious consideration of the material available on record is made and a mistake has been committed, it will not prevent the competent officer to exercise the power u/s 147 – application of mind or not.

7. Initiation of the proceedings u/s 148 of the Act, is wholly legal as all the statutory conditions laid down for reopening of assessment were complied with as follows:

a) There was information in the possession of the AO to form reason to believe that income has escaped assessment.

b) Reason were duly recorded vide order sheet entry dated 05.02.2013

c) Approval of Addl. Commissioner of Income Tax was obtained.

d) Notice u/s 148 dated 05.02.2013 was issued and served.

As well as the assessment was reopened on valid reasons after due application of mind as before reopening of assessment all the relevant material pertaining to the relevant assessment year was gone through.

8. As far making available the details and result of enquires conducted by the Investigation wing is concerned, the same has already been briefed and contained in the reasons recorded and provided to the assessee. At this stage, the full disclosure of details and result of enquiries are not required to be made available. However during the course to assessment proceeding, the principle of natural justice shall be duly followed.

9. In view of the above, I am of the considered view that there is no merit in the various argument put forward by you against the reopening of assessment. Accordingly, I intent to proceed, further with the reassessment providing.

10. You are further requested to provide certain information / explanations in respect of the points as under:

a) Your education qualification 85 Source of income.

b) Copy of Audit report or statement for the AY 2008-09.

c) State of affairs for the last two assessment years (i.e 2006-07 & 2007-08) along with copy of retum(s) and computation of income.

c) Please provide copy of agreement to whom services/consultancy given.

d) Statement of all Bank accounts in your name or in which you are a joint holder.

e) Details of all credit / debit cards held by you as individual or jointly.

f) All Books of accounts and bills/vouchers of expenditure.

11. This may also be treated as notice u/s 142(1) of income tax act 1961. Compliance to this notice is to made before the undersigned on or before 06.01.2014 at 11:30A.M. either in person or through an authorized representative. Failure to compliance, will be treated as you have nothing to submit/explain against as above and the matter be disposed off on the merits and facts available on record.”

6. A perusal of the above decision of the Assessing Officer would show that the Assessing Officer did not deal with objection of the assessee that assessee had duly filed his return of income and further that that the entire amount of receipt noted by the Assessing Officer from Form No.26AS was not income of the assessee rather the same was contractual receipt out of which the assessee has returned the taxable income in the Income Tax return. The assessee had contended that information on the basis of which, the Assessing Officer had reopened the assessment was wrong and that the true facts were brought to the knowledge of the Assessing Officer. However, the Assessing Officer totally ignored the above factual position and proceeded to frame the re­assessment which was bad in law.

7. On the other hand, the Ld. DR has submitted that the assessee had not shown all the receipts of Rs.1,76,11,272/- in the return of income. She has further submitted that it has been noted by the Ld. CIT(A) that the behavior of the assessee during the survey proceedings was not cooperative due to which the Assessing Officer could not get the correct information about the filing of the return.

8. We have considered the rival submission and have also gone through the record. We find that the Assessing Officer had formed the belief that the income of the assessee had escaped assessment on the basis of information that the assessee had total receipt of about Rs.1.76 crores as per Form No.26AS and further that the assessee had not filed the return of income for the year under consideration. However, on the receipt of notice u/s 148 of the Act, the assessee filed objections against the reopening of the assessment stating therein that the information on the basis of which the Assessing Officer had form belief of escapement of income was, in fact, a wrong information. In fact, the assessee had duly filed his return of income and further all the receipts could not be construed as the income of the assessee. In our view, as per the above factual position, when it has been brought to the knowledge of the Assessing Officer that the information on the basis of which he (Assessing Officer) had formed belief of escapement of income was in fact a wrong information, then the very belief of the Assessing Officer of escapement of income of the assessee on the basis of such information also ceased to exist. The Assessing Officer, under the circumstances, should have applied his mind afresh to the fresh information brought to his knowledge. If after duly considering the records including the ITR of the assessee, the Assessing Officer would have been still of the view that there was reason to believe that the income of the assessee has escaped assessment, then under those circumstances, the Assessing Officer was supposed to record fresh reasons to believe that the income of the assessee has escaped assessment, whereupon, the assessee should have been given an opportunity to file his objections and the Assessing Officer was accordingly supposed to proceed in accordance with law. However, in this case, despite, it was
brought to the knowledge of the Assessing Officer that the information on the basis of which he has formed belief of escapement of income of the assessee, was wrong, still the Assessing Officer proceeded to frame the assessment on the basis of the aforesaid wrong information which was basis for formation of his belief. Under these circumstances, it cannot be said that the Assessing Officer has proceeded in accordance with law. Framing of the assessment on the basis of information, which was wrong information to the very knowledge of the Assessing Officer, in our view, cannot be held to be justified, nor the same can be said to be an information to form the belief that the income of the assessee has escaped assessment. The reassessment framed on the basis of such wrong information and wrong belief is not sustainable in the eyes of law and the same is hereby quashed.

9. In the result, the appeal of the assessee is stands allowed.

Order was pronounced in the Open Court on 06/10/2021.