Draft submissions regarding reasons recorded u/s 148(2) of the Income Tax Act, 1961 provide detailed insights into the legal implications of notice issuance and the necessity of furnishing reasons to the assessee. These submissions, accompanied by relevant case law, highlight the importance of procedural compliance and the consequences of non-compliance, aiming to ensure fair and just assessment proceedings.
Draft submissions regarding reasons recorded u/s 148(2) of the Income Tax Act, 1961 (under the old provisions of the Act) and judgements regarding the issue.
Copy of reasons recorded for issue of notice u/s 148 were never supplied to the assessee and reasons recorded are not in accordance with law.
Copy of reasons recorded not supplied to the assesse.
Copy of reasons recorded were never supplied to the assessee. The assesse obtained the copy from ITO, Ward No. 22(1), XXXXXX Dt. 06.3.2023
The recording of reasons for reopening of assessment and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. On non-furnishing of the reasons the assessee has relied on the following judgement.
CIT Vs. Trend Electronics (2015) 379 ITR 456 (Bom.)
The Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd. v. Income-tax Officer, 259 ITR 19(SC) has held as under:
“When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the noticee is to file the return and, if he so desires, to seek reasons for issuing the notice. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order.”
The AO has made no application of mind at the time of recording of the reasons and sent to the PCIT, XXXXXX for approval who in turn has also not applied his mind. The assessee has relied on the judgment in the case of Harmeet Singh, Delhi Vs. ITO, New Delhi ITA No. 1939/Del/2016 A.Yr. 2008-09
where in stated that the reopening the assessment purely on the ground that the cash deposited with the bank is income of the assessee is purely a doubt that it is income of the assessee not a confirmed finding, not any tangible evidence with the ITO to form the opinion that the income of the assessee has escaped assessment. The reopening is bad enough. In the absence of any tangible material, in the case of the assessee in hand the reopening and issue of the notice u/s 148 is bad and hence requested to make the entire assessment null and void.
The reasons recorded are totally silent on three issues.
Mere cash deposit with bank is treated to be equivalent to income escaping assessment.
No details of whatsoever of bank are mentioned. No bank account No. has been mentioned.
Information is there regarding cash deposit by assessee but not contents of information available to the Ld. AO.
The Ld. AO erred in reopening the case u/s 147 of the Act, without legal and valid mandatory service of notice u/s 148 of the Act.
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.
Relying on “Signature Hotels (P) Ltd. Vs. ITO’, 338 ITR 51 (Del), it has been held that the reasons must be self-evident and they must speak for themselves; that the tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons; and that where the link between the information made available to the AO and the formation of belief is absent, the reasons are not sustainable. It has further been held that where there is no independent application of mind by the AO to the tangible material which forms the basis of the reasons and the reasons fail to demonstrate the link between the tangible material and the formation of the reasons to believe escapement of income, the reasons are unsustainable.
The Ld. AO erred in reopening the case u/s 148 of the Act, without legal and mandatory service of notice u/s 148 of the Act. The information with the AO was restricted to cash deposit in Bank A/c but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that the cash deposits represented income of the assessee.
The reasons recorded are highly vague, far-fetched not by any stretch of imagination lead to conclusion of escapement of income and therefore merely presumption in nature. This is a case of mechanical action on the part of the AO and there is no application of mind so as to show that he formed an opinion based on any material that such deposits represented income. On the basis of AIR information reasons were recorded, the AO is having no material with him at the time of recording of reasons even he is having no bank statement.
In the case of the assessee and on the basis of above cited judgments, it is clear that the AO was not having any cogent reason, material for Reopening of the assessment. On the basis of extraneous material (AIR) in his possession he opened the assessment and tried to find out if any income is there which has escaped for assessment. The cash deposit with the Bank of Rs. 35,41,700.00 by the assessee is not reason to believe that income has escaped assessment. That prima-facie reason and material should be with the AO that there is escapement of some income. The deposit of cash with saving Bank A/c is not a Prima-facie reason and material with the AO who resorted to reopen assessment even in the absence of Bank statement. The Hon’ble supreme court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500(SC) where in issuance of notice u/s 148 has been validated when prima-facie reason and material should be with the Assessing officer that there is escapement of income.
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. Lakhmani Mewal 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.”
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 obtained it by writing a letter to the bank dt. 22.11.2018 u/s 133(6) of the Act.
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.
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.
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.
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. No notice was received by the assesse u/s 148 of the Act, otherwise assesse would have applied for copy of reasons recorded.
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, XXXXXX 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.
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