Important Judgments in the written submissions when assessee is an agriculturist, trader, notice u/s 148 not received, cash deposit with the bank treated as income, 144 Assessment without gathering any material by A.O. and reopening u/s 147 without any tangible material.

Written submissions in respect of Shri Xxxxxxxx for the A.Yr. 2011-12 before the Hon’ble Commissioner of Income Tax (Appeals), Faceless 

Introduction of the Assessee

The assessee is not an educated person and not at all well versed with computer work and he cannot access to the computer. The department may have sent the notices through net but in person notices has not been received by the assessee .It is true by heart that the assessee has never received any notice from the department in hand and by post .At the most the order u/s 144/147 sent by speed post was even received by some other person in the village and some child from the neighborhood handed over the order to the assessee and he without delay contacted xxxxxxx, Advocate. In the same way if he would have received the notices he would have contacted department or some CA so that he could have discharged his onus to prove the source of cash deposited with the bank.

The assesse is an individual and a farmer too. During the F.Yr.2010-11 the assesse is having two sources of Income.

(a) Agriculture Income

(b) Income from sale and purchase of Vegetables and grains.

The assessee himself and his family members owns near about 16 acres of Agriculture Land in Uttar Pradesh. He is having these two sources of Income over the past so many years. The entire agriculture produce is sold in the market in cash. Sale purchase of Vegetables and grains is also done in cash . He is innocent, not well educated but most trusted person in the market. He has never turned out from his commitments in business.

Best Judgement Assessment made by AO u/s 144

The case of the assessee was decided ex parte u/s 144 of the Income tax Act , 1961 in which a demand of Rs. 1778010.00 has been created which is quite illegal baseless and not justified .

The assesse could not appear before the Income tax officer during the course of assessment proceedings and reason for non appearance was that no notice was received by the assesse at his residential address which is “xxxxxxx, Xxxx, xxxxx, xxxxx but perhaps notices were sent at Xxxx, xxxxx, xxxxx which is wrong address and this address does not belong to the assessee, But in fact no notice was received by the assesse at his correct  address and this was the root of the exparte assessment made by the assessing officer. The assesse is not an educated person and he is not known to the computer system. If he would have received the notices he would have contacted the Income tax officer, Ward no. x(x), xxxxx or appoint some CA so that he could have discharged his onus to prove the source of cash deposited with his saving bank account No. –xxxxxx– with Xxx Bank, xxxxx . This account was opened long back Dt. 24.06.2004 and that time occupation written on the pass book is Agriculture and Allied AC. Basically he is a farmer and the main source of Income is Agriculture Income

No notice u/s 148 and u/s 142(1) was ever received by the assesse during the course of assessment proceedings u/s 144. In the absence of notice the assessment framed in bad and prayed to be quashed.

Principal of natural justice must be on rational and scientific basis and the same must be specified in the order.

That in this case Ld. AO before passing an order doesn’t comply with basic condition i.e. opportunity of being heard. That must be guided by rules of justice, equity and Good conscience. We place our reliance on number of land mark judgements on the same ground of appeal. Some are reproduced as under.

1. Dhanalakshmi Pictures Vs. ITO reported as (1983) 144-ITR-452 (Mad) Hon’ble Madras High court.)

2. C.N.Menon Vs. ITO reported as (1974) 96 ITR 148 (Ker) Hon’blekerala High court.

Held The Income Tax Officer was, therefore, bound to give an opportunity to the petitioner to explain about the nature and source .

The entire order is non speaking, without application of mind, unjustified. AO has not enquired by sending his inspector at the known address of the assesse to nail the truth of the assessee. Before taking this drastic step he is bound to apply his own mind and he is not supposed to add the entire cash deposited with the bank as income of the assessee. The entire addition is based on conjectures and surmises. He was not confirmed about the income of the assessee and he passed order just to name it in the list of cases decided. He has not calculated net profit on presumptive basis. It may be 8% or more but he had not tried but added the entire cash which is not possible with the remotest possibility with any man or woman on this planet. How vague the assessment order is which is without emotions, without application of mind and without due care and without following the principle of natural justice. There is no scope in the entire Act for a vague assessment hence the Hon’ble CIT is prayed to quash the order passed by the AO illegally.

For any best judgment order, computation of income must be on rational and scientific basis, and the same must be specified in the order. The Ld. AO fails to do so. No proposal notice for the addition of Rs. 2541700.00 was sent to the assessee.

In this regard the assessee relies on the following judgement

Prabhakar Mallappa Panadare Vs. Agriculture Income Tax, Hon’ble high court of karnatka , reported as (1970) 77-ITR-349 (Kar) (144)

However, the principles to be followed by the lncome – tax officer while making a best judgment assessment have been clearly laid down by the Privy Council as also by this Court in a number of decisions. In commissioner of Income- Tax v. Laxminarain Badri das(1), their Lordships of the Privy Council observed as follows

“The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In that sense, too, the assessment must be to some extent arbitrary”.

Since the law relating to “best judgment assessment” is the same both in the case of income-tax assessment and the sales-tax assessment and the following observations of this Court in Raghubar Mandal Harinder Mandal v. State of Bihar,(2) a case under the Bihar Sales Tax Act, would be material

(1) (1937) S I.T.R. 170 (PC).(144)

(2) (1957) 7 STC 770 at p. 778.(144)

“No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess: but the estimate must be related to some evidence or material and it must be something more than mere suspicion.”

Brij Bhushan Lal Praduman Kumar Vs. CIT (1978) 115 ITR 524 (SC)

Held: – “The authority making a best judgement assessment must make an honest and fair estimate of the Income of the assesse and though arbitrariness cannot be avoided in such an estimate, the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case .

The entire cash deposited with the bank cannot be income of the assessee. There was sufficient time with AO to finalize the assessment before 31.12.2018 but AO decided the case ex parte u/s 144 Dt. 08.12.2018 which is too earlier.

Huge demand of Rs. 1778010/- has been created. Even under presumptive taxation u/s 44AD profit is calculated @ 8% of the Turnover.

The addition of Rs. 2541700/- by AO is being challenged before you as Rs. 2541700/- is not income of the assessee. The entire cash deposited with the bank can never be the income of the assessee. The AO has looked at the one side of the bank statement but ignored the other side. Best judgement assessment demands looking at the complete document, not half. If looking at the document is half then the assessment has not been done with the legal frame of mind and the assessment done is bad in law and spirits.

The income of the assessee is below taxable limit. This was the reason for non-filing of return by the assessee. However now the assessee has filed his ROI online vide e filing Ackd.  No. xxxxxxx  Dt 02.01.2019 before filing appeal.

The Ld. AO indulged in speculation, surmises and conjectures in treating the cash deposit of Rs. 2541700/- as complete income of the assessee.  Before making best judgment assessment the AO is duty bound to gather all material including history and past records of the assessee to come at a genuine conclusion. He cannot pass the assessment order with blind eyes which he has done in the case of the assessee.

The AO will decide the case u/s 144 taking into consideration all the relevant material on record and will gather all the relevant material which he has not done . The assessment made u/s 144 is illegal, bad and void ab initio.

The AO has relied only on the information as provided by the bank u/s 285BA of the Income tax Act, 1961. In the presence of bank statement, he has not looked to the complete bank statement and gathered the material fully before passing the order u/s 144 of the Act.

He has passed the order on the basis of the gathered material but truly he has not gathered any material. There is no material with the AO before passing the order u/s 144 of the Act.

Denial of Principal of Natural Justice to the assessee

In a recent decision of Rajasthan High Court in Income Tax appeal no. 117/2004 decided on 21-01-2014 in the case of CIT v Ram Singh, the Court laid the importance of giving reasons in the orders and held as under:

“Recording of reasons is part of fair procedure and reasons are harbinger between the mind of the maker of the decision in the controversy and the decision or conclusion arrived at and they always substitute subjectivity with objectivity and as observed in Alexander Machinery (Dudley) Ltd. Crabtree, 1974 L.C.R. 120, failure to give reasons amounts to denial of justice and this is what was also observed by the Apex Court in 2005 (2) SC 329 Mangalore Ganesh Beedi Works Vs. CIT &Anr.” (144)

Every act of the officer is based on probabilities, conjecture and surmises.

The case of the assesse was decided ex- party u/s 144 of the Income tax Act 1961 not following the principal of natural justice. The entire assessment has been done at the back of the assesse which is contrary to the legal position.

That the Ld. AO passed the order only on non existing basis .The impugned order passed is ex-parte to Assessee without material on record. Prayer is made to quash the impugned order u/s 147/144 of the Act for non fulfillment of prior jurisdictional conditions.

Apex Court judgment in the case of Parimisetti Sethramamma Vs CIT reported in 57 ITR 532 has held as under: –

By section 3 and 4 of the Income Tax Act, 1961 imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax .Even withdrawls from the same bank and redeposit of it has been treated as income of the assessee.

Sources of cash

The sources of cash with the assessee is as under

Cash has been received out of retail trading of vegetables and grains

Cash received on sale of Agriculture produce to the Aarti (Commission Agents)

Cash withdrawls from the same bank

Opening cash in hand .as on 1.04.2010

The assesse is a farmer and has done business of sale and purchase of vegetable and grains at a very small level. The assesse do not require to present the books of accounts as his income is below taxable but to link the cash deposited with the bank as no income of the assesse but opening cash and withdrawls from the same bank ,sale proceeds of the assesse and  cash deposited is out of cash in hand with the cash book . The cash book is produced for verification .Here Punjab and Haryana High court judgement in the scase of Surencder Pal singh is relied on by the assessee.

The I.T.O Ward no. x(x), xxxxx treated the entire cash of Rs.2541700.00 deposited with SB A/c of the assessee as income of the assessee which cannot be possible and it is a mere presumption of the AO which is proved before the Hon’ble CIT (A) by producing cash book and other relevant documents contained in the Paper Book submitted alongwith these written submissions.

In this way the cash deposited by the assesse in his saving bank account is nothing but cash deposited out of the cash book .summary of cash flow statement and day to day cash book is also enclosed.

Request for Fresh Start of the proceedings

The entire addition made by the AO is based on doubt or suspicion. Suspicion however strong cannot take the place of evidence as laid down by the Hon’ble Apex Court in the case of Dhakeshwari Cotton Mills Ltd .Vs CIT (1955) AIR 65 (1955 SCR 011941)

The Hon’ble CIT is requested further to start the proceedings at the stage when proceedings were concluded at the AO level in view of the judgement of Hon’ble Karnatka High court in Sri Shankar Khandasari Sugar Vs. CIT 193 ITR 669.

The revenue must act fairly in the matter of assessment as much as it is interested in collecting the tax. In the absence of any prejuduice to the revenue and the basis of the tax under the Act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the act. An appeal is but a continuation of the original proceedings and what the Income tax officer could have done, the appellate authority could also do.

How the assesse has acquired the ownership of agriculture land ?

During the F.Yr. 2005-06 the assesse has sold agriculture land of Rs. 29062500.00 and assesse has received a sum of Rs. 22375000.00 out of the sale proceeds. The same money was used for the purchase of agriculture land at Xxxx, xxxx, xxxxx near about 16 Acres. He purchased this land measuring 16 Acres in the name of himself, his two sons XXX and XXX. During his life time assesse shall remain owner of the land .and after his death both the sons shall become the owners of the land.

Agriculture Income earned by the assessee

The net Agriculture Produce is sold in the market. The assesse has earned after debiting Expenses a net Income of Rs. 800000.00 in cash. This Agriculture produce has been sold in the market in the m/o Sep. 2011 as usually Dhan is sold in the market in the months of Sep. The agriculture produce is sold in the market to the aarti( Commission Agents). The wheat is sold in the market in the months of April and May 2010. The expenses for earning Agriculture Income are as under:

Rent of the Tractor

Expenses for cutting of the crops

Labor rexpenses

Other Income from the retail trading (Agriculture Income)

The vegetables are purchased from Farmers those who grow crops in their Agriculture land .Gheeya , Tori , Aloo , and Mattar are purchased . Then these are sold in the XXXXX market from where we earn good profit. When these items are purchased from village and again sold in the market . We bring the vegetables to the market at XXXXX using two tractors .The total turnover for this sale has come out to Rs. 1650000.00 and assesse has shown profit of Rs. 157000.00 which is approx. 8% of the total turnover.

Reasons Recorded

Copy of reasons recorded for issuing notice u/s 148 was never supplied to the assessee.

The reasons recorded are highly vague, far fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and therefore merely presumption in nature.

Thus it was a mere suspicion of the AO, that prompted him to initiate assessment proceedings under section 147, which is neither countenanced , nor sustainable in law.

In the case of ITAT, Delhi Bench decision in the case of Parveen Kumar Jain Vs ITO No. 133/D/2015 for the A.Yr. 2006-07 Dt. 22.01.2015 wherein it has been held as under:

Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assesse escaped assessment was found to be missing when the AO proceeded to reopen the assessment.

At the time of formation of belief by the ITO that the income has escaped assessment , the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment.

The observations of the Hon’ble Supreme Court in the case of ‘ITO vs.Lakhman iMewal Das’103 ITR 437(SC), were reproduced as under:

It may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escapement assessment.”

The ITO has not considered the debit entries of the bank

At the time of recording of the reasons the AO has not looked at the bank but formed an opinion/ guess work that the assessee has escaped income to the tune of Rs. 2541000.00. At the time of recording of the reasons the ITO was not having bank statement. The information was obtained through AIR. No further probe was made by the AO at the time of formation of belief and reasons recorded .The AIR information is not sufficient. No notice u/s 133(6) Dt. 28.02.2018 was received by the assessee. Other notices too returned undelivered as ITO has mentioned in the order himself at page No. 3 and Para No. 2.

In Hindustan Lever Ltd. Vs. R.B. Wadkar 26 ITR 332(Bom), It was observed that the reasons recorded must point out to an income escaping assessment and not merely need of an enquiry, which may result in detection of an income escaping assessment . That there has to be some kind of cause and effect of relationship between the reasons recorded and the income escaping assessment.

The text of reasons recorded styled as “reasons to believe” is in the present case is nothing but reason to suspect.

The assesse has relied on the judgment of High court of Delhi in the case of signature Hotels (P) Ltd. 338ITR 51 (Delhi) where in it was held that “

“the reasons and the information referred to were extremely scanty and vague .There was no reference to any document or statement except AIR information

It is submitted that the reasons to believe has no nexus and live link with the escapement of Income of the assessee.

The reasons recorded are totally silent on three issues

(a) Mere cash deposit is treated to be equivalent to income escaping assessment (Reasons)

(b) No details of BOI are mentioned. (Reasons)

(c) Contents of information available to the Ld. AO (Reasons). Information is available but not contents of the information.

That the initiation of reassessment proceedings is illegal being void-ab-initio  in as much as the reasons recorded are not in accordance with the provisions contemplated u/s 147 of the Act as well as judicial pronouncements. Rather reasons have been recorded in a mechanical manner and without application of mind.

The Assessee has relied on judgment of M/s Deepraj Hospital P Ltd. Vs. ITO in the ITAT Agra I.T.A no. 41/Agra 2017(147) as in the case of the assessee the reasons recorded are based on borrowed satisfaction through AIR which without application of mind . AO was not having bank statement at the time of recording the reasons. The bank statement was obtained by AO during the course of assessment proceedings as AO has mentioned in the order himself at Page No. 5 at the top para.

Merely stating the reasons in a letter addressed by the AO, is not enough. Then, the reasons to believe escapement of income need to spell out all the reasons and grounds available with the AO for reopening the assessment. The reasons must also paraphrase any investigation report, which may form the basis of the reasons and any enquiry conducted by the AO thereon, as also the conclusions thereof.

In the case of CIT vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66(Bom.) has held that though the reopening of assessment was within time, since the reasons recorded for reopening of the assessment were not furnished to the assesses till date the completion of assessment, the reassessment order cannot be upheld.(147)

Rajendra Goud Chepur v. ITO (AP&T)(HC) (prima facie reasons)

The mere cash deposit is not Prima facie reasons and material with the AO which makes him satisfied that Income of the Assessee has escaped assessment.

After 1.4.1989, the Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion – CIT vs. Kelvinator of India (320 ITR 546 / 228 CTR 488 / 187 Taxman 312)

The reasons recorded for reopening of assessment was never supplied to the assessee even after filing of the return by the assessee and not supplied by the AO even after demand in writing by the assessee. Copy of letter written to the AO forms the part of the Paper book.

The assesse has relied on the judgment of High court of Delhi in the case of signature Hotels (P) Ltd. 338ITR 51 (Delhi) where in it was held that “

“the reasons and the information referred to were extremely scanty and vague .There was no reference to any document or statement except AIR information. The AIR could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The AIR information was not a pointer and did not indicate escapement of income. Further it was apparent that the assessing officer did not apply his own mind to the information and examine the basis and material of the information. The assessing officer accepted the plea on the basis of vague information in a mechanical manner. The commissioner also acted on the same basis by mechanically giving her approval; therefore proceedings under section 148 were to be quashed.

Irrelevant and non existing reasons : Vague and General reasons not permissible.

Balakrishna H. Wani vs. ITO 321 ITR 519 (Bom)

Notice based on suspicion and surmise – Notice is not valid. The requirement of law is “reason to believe” and not reason to “suspect”.

The AIR Information

The AIR could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The AIR information was not a pointer and did not indicate escapement of income. Further it was apparent that the assessing officer did not apply his own mind to the information and examine the basis and material of the information. The assessing officer accepted the plea on the basis of vague information in a mechanical manner. The commissioner also acted on the same basis by mechanically giving her approval; therefore proceedings under section 148 were to be quashed.

The ITO has opened the case of the assesse on the basis of AIR information which is a borrowed information. Therefore, information received by the AO throws only doubt or suspicion. Suspicion , however strong cannot take the place of evidence as laid down by the Hon’ble Apex Court in the case of Dhakeshwari Cotton Mills Ltd. Vs CIT (1955) AIR 65 (1955 SCR 01 1941).

The only information with the assessing officer is that the assessee has deposited cash more than 10 lakhs with his saving bank account and no other information is there with the assessing officer. This is just an information based on AIR but no definite information. On the basis of this information, the assessing officer believed that entire deposit of cash in the saving bank account by the Assessee is income of the Assessee .the assessing officer reopened assessee’s assessment merely on the basis of AIR information and no separate reason disclosing satisfaction of Assessing Officer for formation of belief that income of Assessee had escaped assessment had been recorded, notice issued u/148 of the Act was to be quashed and assessment made in pursuance thereof was to be annulled.”

Similarly in the case of CIT v. Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC) it was held that mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facie opinion based on tangible material which provides the nexus or the link having reason to believe that income has escaped assessment.

It is submitted by the Assessee here that  that the AO had initiated the reassessment proceedings only on the basis of information as per AIR which as per his presumption was not verifiable due to non appearance of assessee’s Income tax return for AY 2011-12 in the Income tax department IT system. It was submitted that the reasons to believe are de hors, vague and does not lead to formation of belief for the escapement of income on the part of the assessee. It was submitted that the reasons to believe has no nexus and live link with the escapement of income of the assessee.

This is only a wild guess work of the AO that cash deposit is income of the assessee. AIR information is not sufficient. The AO has checked one limb of the bank account and not checked debit entries at the time of assessment.

Re-opening based on borrowed satisfaction of the Assessing Officer is not valid – (CIT v. Greenworld Corporation 314 ITR 81)

Reasons to believe

No bank statement was with the Assessing officer at the time of formation of belief and reasons recorded but it was obtained at the time of making assessment u/s 144 of the Act. He formed the opinion for escapement of income without bank statement. PCIT gave approval without this very important document u/s 151 and assessment made without checking debit entries of the bank. Hence the opinion framed , approval given and assessment framed all is bad , illegal to be made null and void.

Peak figure

AO has not bothered to arrive at a reasonable figure looking at peak figure of the cash deposited with the bank and also ignored withdrawals from the same bank which is unjustified. The cash deposited is nothing but out of the gross receipts of the assesse and also withdrawls from the same bank to some extent and agriculture income of the assessee and opening cash in hand.

 [TS-6716-ITAT-2016(HYDERABAD)-O]: Peak credit & unexplained Credit – Only peak credit to be taxed u/s. 68, huge cash deposits in the savings bank account of assessee cannot be taxed – ITAT rules in favour of assessee; Holds that assessee having furnished the bank statement, AO could have verified and noticed that there were credits and corresponding debits which would give an indication that some amount has been recycled and that in such cases ordinarily, peak credit is to be taken into consideration for making an addition; Observes that AO made assessment as per Sec. 144 because assessee did not appear despite repeated reminders, however AO should keep in mind the normal turnover of the assessee, the expected profit in each year, based on the earlier year’s income declared and accepted and the material available to make the addition;

The ITO has not recognized the peak credit principal. He has recognized credit entries with the bank but not debit entries. There are multiple debit and credit entries in the form of cash deposit and cash withdrawals.. He has to look to the credit entries as well as debit entries and reach at some decent conclusion and has to look at the peak figure .

Approval u/s 151 of the Income tax Act .

The approval from the Principal commissioner of Income tax, XXXXX has been obtained in a mechanical manner without any concrete finding, without looking at the bank account of the assesse . without preparing separate notes . Mere writing “I am satisfied “is an abuse and misuse of powers enshrined in the Act. Regarding this issue assesse has relied on the Judgment of ITAT, Delhi Bench, ITA No. 988/Del/2018 in the case of Sunil Aggarwal Vs. ITO, Ward No. 1(3) (3), Haridwar.

The Hon,ble Supreme Court of India in the case of CIT Vs. S.Gayanka Lime and Chemical Ltd. Reported in (2015) 64 taxmann.com 313(SC) in the Head notes has held that (Section 151, read with section 148 of the Income tax Act , 1961 – Income escaping assessment –Sanction for issue of notice ( Recording of Satisfaction) – High court by impugned order held that where joint commissioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice u/s 148 , reopening of assessment was invalid – Whether special leave petition filed against impugned order was to be dismissed – Held ,yes( in favor of the assesse )

The approval obtained from Pr. CIT, XXXXX was never supplied to the assesse neither on mail , nor on income tax portal and not in person and not by speed post which is mandatory requirement hence the entire assessment is prayed to be quashed .

Return of Income not filed by the assessee

The Income of the assessee was below taxable limit, therefore he was not required to file his return of Income for the relevant assessment year. He has NOT FILED THE RETURN OF Income before finalization of the assessment but later on he filed his correct return.

Here it is seen that the income of the assessee is non-taxable .The reason for non-filing of the return is non-taxable income of the assessee which never exceeded the taxable amount.

Reopening of assessment 147

The assessee has relied on the following judgement in the case of Harmeet Singh, Delhi Vs. ITO new Delhi

Wherein stated that the reopening the assessment purely on the ground that the cash deposit with bank is income of the assesse is purely a doubt that it is income of the assesse not a confirmed finding, not any tangible evidence with ITO to form the opinion that the income of the assesse has escaped assessment , the reopening is bad enough . In the absence of any tangible material in the case of the assesse in hand the reopening and issue of the notice u/s 148 is bad and hence you are requested to make the entire assessment null and void.

there was no tool with the AO for reopening of the assessment. Merely looking at the credit entry of the bank is no base unless all the debit entries are also looked.

The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power.

Explanation 2 of s. 147 authorizes the AO to reopen an assessment wherever there is an “understatement of income”, the AO is not entitled to assume that there is “understatement of income” merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction u/s 147 on the basis of suspicions and presumptions cannot be sustained.(WP. No. 36483/2016, dt. 13.02.2017) (AY. 2012-13)

NarainDutt Sharma Vs ITO (ITAT Jaipur),2018(4)TMI 427

In the instant case, pursuant to receipt of AIR information from an external agency that cash has been found deposited in assessee’s savings bank account, there has been no further examination by the AO. In the instant case, the AO has thus failed to examine the AIR information so received which would have provided the nexus or the vital link to form a prima facie opinion that income of the assessee had escaped assessment for the impunged assessment year. In absence of necessary nexus between the tangible material and formation of belief, the reassessment proceedings cannot be sustained in the instant case.

The reopening u/s 147 of the Act  is challenged .

The reopening is bad only on the basis of cash deposited with bank not seen bank account not seen debit entries. It is purely guess work of the AO that income has escaped. The AO proceeded on the fallacious assumption that bank deposits in cash constituted undisclosed income and overlooked facts that the cash deposits need not necessarily be the income of the assesse. It can be the gross receipts but entire cash deposits can not be the income of the assesse . The assesse has relied on the judgment IN the ITAT Delhi bench “A” Bir Bahadur Sijwali VS ITO, Ward 1, Haldwani Appeal No. 3814(Delhi) of 2011.

Reopening of assessment u/s 147

1. Proceedings initiated u/s 147 and the notice issued u/s 148 is wrong, bad-in-law, the facts and circumstances of the case.

2. No valid material and ground justifying the reasons recorded. The reasons are wholly irrelevant, general, vague and wrong.

3. Reasons recorded based on borrowed satisfactions.

4. The Assessee has not filed his return of Income. No Bank Statement was called for by ITO in the absence of complete Bank statement looking at the entries the formation of belief that the cash deposited with the Bank is nothing but income of the Assessee is wrong. That the reasons have been recorded on mere surmises incorrect presumption and wrong assumption of facts.

5. That the condition precedent for taking action u/s 147 of the Act in the case of Assessee are wholly non- existent and cannot be said to be valid in the eyes of law because section 147 of the Act mandates that it is exclusively the satisfaction of assessing authority based on some direct, correct and relevant material and which could lay the foundation for issuing notice u/s 148 of the Act.

6. The text of reason recorded styled as “reason to believe” in the present case is nothing but reason to suspect. On mere surmises and presumption that too on incorrect facts as recorded in the reasons, the proceedings u/s 147 of the Act cannot be validly initiated more so in the absence of any adverse material or information directly gathered by your good self. If there is any adverse material or information in possession of your good self the same may kindly be communicated to the Assessee in the interest of natural justice.

7. That without prejudice to the above mentioned submission and at the most if there is any information though neither the same has been mentioned in the reason recorded nor otherwise confronted with the Assessee, the said information is clearly termed as borrowed satisfaction and until unless the belief is directly not of the officer recording reasons the initiation u/s 147 is invalid and without jurisdiction.

Aventis Pharma Ltd. vs. ACIT (2010) 323 ITR 570 (Bom)

Issue of notice u/s 148 of the Act

CIT v. ManibenVelji Shah (2006) 283 ITR 453 (Bom.)(High Court)

The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. The notice is invalid.

Rajendra Goud Chepur v. ITO (AP&T)(HC)

The mere cash deposit is not Prima facie reasons and material with the AO which makes him satisfied that Income of the Assessee has escaped assessment.

Notice issued u/s 148

The notice u/s 148 is issued when a definite information is there not for an enquiry. The notice has been issued on the presumption that the cash deposited with the bank is income of the assesse. This is only a presumption.

Issue of notice u/s 148

The initiation of assessment proceeding u/s 148 was without jurisdiction since the notice was never served on the assessee personally and returned back to the AO as the address on the notice was wrong which do not belong to the assessee.

Furnishing reasons to Assessee : What is reasonable time

The Supreme Court in the case of GKN Driveshaft (India) Limited v. ITO (2003) 259 ITR 19 (SC) had clarified that the Assessing, Officer is bound to furnish reasons within a reasonable time. The term ‘reasonable time’ is interpreted by the High Court of Delhi, in the case of Haryana Acrylic Manufacturing Co. v. CIT (2009) 308 ITR 38 (Del.), in following manner:

A notice under section 148 without the communication of the reasons therefore is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time. In a case where the notice has been issued within the said period of six years but the reasons have not been furnished within that period, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go HAND-IN- HAND. The expression ‘within a reasonable period of time’ as used by the  Supreme Court in the case of GKN Driveshaft (India) Ltd. (supra) cannot be stretched to such an extent that it extends even beyond the six years’ period stipulated in section 149. Then, the validity of the notice under section 148 and any proceedings pursuant thereto could not be upheld.

The above decision of Delhi High Court is further followed by ITAT Delhi bench in the case of Shri Balwant Rai Wadhwa  v. ITO, in ITA No. I.T.A. No.4806/Del/10. The ITAT bench held that if reason are not supplied to the Assessee within the period of 6 years then it would be constructed that assessment has not been validly reopened.

The AO who decided the case u/s 144 who has not looked at the surrounding circumstances to find out the reality of the transactions. The assessee too has relied on the judgement of the Hon’ble Supreme Court of India in the case of Sumati Dayal Vs CIT 214 ITR 101 and also in the case of CIT Vs. Durga Prasad More , 82 ITR 540 . The ITO has looked nothing, felt nothing, enquired nothing but considered the entire cash deposit with the bank as undisclosed income of the assessee which gross violation of the judgements.

We may just mention that the coordinate bench in the case of S. Venkat Reddy v. ITO [TS-6716-ITAT-2016(Hyderabad)-O] in similar facts and circumstances after relying on the judgment of the Hon’ble Supreme Court in the case of P. K. Noorjahan [TS-5002-SC-1997-O], has held that merely the assessee’s failure to explain the source of cash will not automatically attract the addition of the cash deposit. Other attending circumstances are also to be considered like the capacity of the assessee to earn etc.

The assessee is a farmer. He cannot earn this much income out of the land which he is having. He can earn this much income with having extraordinary infrastructure but no infrastructure with the assessee except land. Failure to explain the source of cash before AO will not attract addition to the income of the assessee.

Bank deposits – Mere deposits in the banks cannot be presumed as undisclosed income hence reassessment was held to be bad in law

Allowing the appeal of the assessee, the Tribunal held that; mere deposits in the banks cannot be presumed as undisclosed income hence reassessment was held to be bad in law. The Assessing Officer’s fallacious assumption that bank deposits constituted undisclosed income, over-looking fact that source of deposits need not necessarily be income of assessee and, therefore, action of Assessing Officer was not justified. (Related Assessment year 2006-07) – [Gurpal Singh v. ITO (2016) 159 ITD 797 (ITAT Amritsar)]

Sector 69 A of the Income Tax Act.

Section 69A is a deeming provision and it cannot be initiated based on suspicion. Merely deposits cannot be treated as income from undisclosed sources within the meaning of section 69A of the Act.

The Ld. AO has erred on facts and in law in making addition of Rs. 2571700.00 as the requirement of application of mind is missing in the present case as it is cardinal principal of taxation that all receipts are not income and all incomes are not taxable incomes. This applies squarely to the to the present facts as held in the case of Mahavir Prasad Vs. ITO ITAT Delhi 9.10.2017

The cash flow statement or cash book is placed on record and every instance of cash deposited the assessee is having sufficient cash balances. The deposits with the bank has been made out of the cash available in the cash book. Deposits has not been made from undisclosed sources . As held in Dy CIT, Range 2, Lucknow Vs. Pawan Aggarwal ITA No. 374/LKW/2013 A.Yr. 2009-10.

The assessee has relied on the judgement of ITAT Delhi in the case of Ashok Kumar , Ghaziabad Vs. ITO Ward No. 1(1) ,Ghaziabad on 3.12.2018. ITA No. 2740/Del/2018 A.Yr. 2011-12 and other appeals decided with a common order wherein held the initiation of proceedings u/s 147 and issue of notice u/s 148 of the Act has been held invalid. Copy of the complete judgement is enclosed with the Paper Book submitted today before CIT(A) , XXXXX on 15.10.2019  .

Prayer

In view of the above stated facts and grounds of appeal and relying on the judgments enclosed and books of accounts produced, the Hon’ble CIT is expected to delete the entire addition made in this case as the same is visible that gross receipts are never income of the assessee. (Prayer)

The appellant also craves to add or amend the grounds of appeal if required at the time of hearing of appeal and also prays to produce if required additional evidence under Rule 46A of the Income Tax Rules, 1962 at the time of hearing or before it and further prays to accept additional grounds of appeal under section 250(5) of the Act .

Thanking You,

Yours Faithfully,

For Xxxxxxxx

(xxxxxx Advocate)

Author Bio

Qualification: LL.B / Advocate
Company: S.K.Jain & Co.
Location: Faridabad, Haryana, India
Member Since: 16 May 2019 | Total Posts: 39
I am S.K.Jain , Tax Consultant cum Advocate practising in Income Tax , GST , Company Matters . The name of the concern is S.K.Jain & Co. and I am prop. of this concern . I am in practice for the last 30 years . Those who have joined the profession recently and want to discuss on the particular i View Full Profile

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