Issue of reopening notice u/s. 148 by ACIT-Jaipur illegal as jurisdiction lies with ITO-Delhi

Arun Bhardwaj Vs ACIT (ITAT Jaipur)

ITAT Jaipur held that issuance of notice under section 148 of the Income Tax Act by ACIT, Jaipur, is illegal and liable to be quashed since ITO-Delhi has jurisdiction over the case of the assessee. Accordingly, order of CIT(A) set aside.

Facts- The assessee is an Individual and was residing in Delhi. The case of the assessee was reopened u/s. 147 of the Act on the basis of information about professional receipt of Rs. 19,75,000/- and credit card bill payment of Rs. 2,89,995/-. Notice u/s. 148 of the IT Act, dated 25.03.2017 was issued and served on the assesee.

In response to the notice, the assessee filed his return of income on 23.04.2017 declaring total income of Rs. 9,80,460/- and mentioned his address located at C-70, Shakti Nagar Ext., Delhi. Notice u/s. 142(1) along with query was issued to the assessee on 12.07.2017. Again notice u/s. 142(1) and notice u/s. 143(2) of the IT Act, 1961 was issued on 11.08.2017 which also remained unattended by the assessee. Further, a show cause letter was issued on 11.08.2017 but the same was also not responded. Finally, the AO holding that since the assessee did not comply with any of the notices issued during the assessment proceedings, completed the assessment ex parte vide order dated 22.11.2017 at an assessed income of Rs. 21,65,000/- after making addition of Rs. 11,84,540/- which included unexplained income of Rs. 8,94,545/- and unexplained expenditure of Rs. 2,89,995/-.

CIT (A) partly allowed the appeal of the assessee. Being aggrieved, the present appeal is filed.

Conclusion- Held that assessee has demonstrated with adequate evidence to prove that the jurisdiction over the case of the assessee lies with ITO Ward 70(3) Delhi whereas notice under section 148 has been issued by ACIT Circle-1, Jaipur which is not correct in terms of the Income Tax Act. We find force in the contention of the ld. A/R. Therefore, considering the factual and legal aspects of the matter, notice under section 148 and consequent proceedings undertaken on the strength of such illegal notice are quashed. The order of the ld. CIT (A) is set aside.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

This is an appeal filed by the assessee against the order of ld. Addl/JCIT (A)-8, Delhi dated 30.06.2024 passed under section 250 of the I.T. Act, 1961, for the assessment year 2010-11. The assessee has raised the following grounds of appeal :-

1. Initiation and complete proceeding is illegal. Under the facts and circumstances of the case, ld. CIT (A) grossly erred in confirming the invalid and illegal action of ld. AO while complete assessment proceeding including initiation u/s 147/148 is illegal, invalid and without jurisdiction and barred by limitation, hence may kindly be quashed.

2. Violation of Natural Justice. Under the facts and circumstances of the case, ld. CIT (A) grossly erred in confirming the impugned assessment proceedings/order as the same has been framed in violation of the principles of natural justice without granting to the assessee a fair, proper and reasonable opportunity including without issuing specific SCN to the assessee.

3. Under the facts and circumstances of the case, ld. CIT (A) grossly erred in confirming the action of ld.AO in making addition of Rs. 8,94,545/- on account of professional or technical services without appreciating the facts available on records and without considering them in their true perspective and sense therefore complete addition should be deleted.

4. Under the facts and circumstances of the case, ld. CIT (A) grossly erred in confirming the action of ld. AO in confirming the action of ld. AO for charging Interest u/s 234A, 234B & 234C of the Act.

5. The appellant reserved his right to add, amend or alter the grounds of appeal on or before the date of appeal hearing.

2. The appeal filed by the assessee is delayed by 21 days. The ld. A/R has filed condonation application dated 20.11.2024 stating that “ That reason for late filing was that the order would have been served on the assessee’s e-mail address on time, but the assessee mistakenly missed the said e-mail while checking. As a result, he was unaware of the impugned order for a long time. That when the assessee checked his email Id and got aware about the impugned order dated 30.06.2024, he immediately approached his counsel and the counsel of the appellant immediately filed it on 19.09.2024. Due to aforesaid reason the appeal could not be filed within time.” The ld. A/R relied on the judgments of the Hon’ble Supreme Court in the case of Mool Chandra vs. UOI (CA No. 8435-8436 of 2024 (@S.L.P. (Civil) Nos. 2733 – 2734 of 2024 dt. 5.8.2024 and in the case of Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC) and requested for taking a liberal approach for condonation of delay. The ld. A/R further relying on the judgment of Hon’ble Supreme Court in the case of Vedbai vs. Shantaram Baburam Patil & Others, 253 ITR 798 (SC) submitted that the Apex Court have again reiterated that the expression “sufficient cause” should receive a liberal construction and held that advancing of substantial justice should be of prime importance. The ld. A/R, therefore, prayed that looking to the above facts and circumstances and settled legal position, the delay of 21 days caused may kindly be condoned.

3. Considering the reasons mentioned in the said application, we feel that the reasons mentioned by the assessee constitute sufficient cause for not filing the appeal within the time before us. Therefore, taking a lenient view and considering the principles laid down in the case of Collector, Land Acquisition vs. Mst. Katiji, 1987 AIR 1353 (SC), we condone the delay of 21 days in filing the appeal before us.

4. The brief facts of the case are that the assessee is an Individual and was residing in Delhi. During the year under consideration the assessee had income from professional receipt from the company named Synergy Property Development Services Pvt. Ltd., Delhi. The assessee did not file his return of income under section 139(1) of the I.T. Act, 1961 for the relevant year. The case of the was reopened under section 147 of the Act on the basis of information about professional receipt of Rs. 19,75,000/- and credit card bill payment of Rs. 2,89,995/-. Notice under section 148 of the IT Act, dated 25.03.2017 was issued and served on the assesee. In response to the notice, the assessee filed his return of income on 23.04.2017 declaring total income of Rs. 9,80,460/- and mentioned his address located at C-70, Shakti Nagar Ext., Delhi. Notice under section 142(1) along with query was issued to the assessee on 12.07.2017 requiring the assessee to furnish certain details/documents which remained unattended by the assessee. Again notice under section 142(1) and notice under section 143(2) of the IT Act, 1961 was issued on 11.08.2017 which also remained unattended by the assessee. Further, a show cause letter was issued on 11.08.2017 but the same was also not responded. Finally, the AO holding that since the assessee did not comply with any of the notices issued during the assessment proceedings, completed the assessment ex parte vide order dated 22.11.2017 at an assessed income of Rs. 21,65,000/- after making addition of Rs. 11,84,540/- which included unexplained income of Rs. 8,94,545/- and unexplained expenditure of Rs. 2,89,995/-. Being aggrieved by the order of the AO, the assessee preferred appeal before the ld. CIT (A). The ld. CIT (A) partly allowed the appeal of the assessee by deleting the addition of Rs. 2,89,995/- on account of credit card payment as unexplained expenditure.

5. Aggrieved by the order of the ld. CIT (A), the assessee is in appeal before us  Before us, the ld. A/R of the assessee submitted his written submission which are reproduced as under :-

“Submission  

Ground No. 1

A) Without territorial jurisdiction :

In this case the learned AO has grossly erred in law & facts in the circumstances in selecting the case and assessing the income without having territorial jurisdiction, thus, the complete proceedings is bad in law and liable to be quashed.

In this case it is pertinent to mention that entire assessment proceedings had been conducted by the Ld. ACIT Circle-1, Jaipur and from the beginning of the assessment proceedings i.e. with notice u/s 148 of the act to the conclusions by way of assessment order all the notice and including assessment order had been Sent at the address located at “11, SHIV PATH, SURAJ NAGAR W, CIVIL LINES, JAIPUR-302006 RAJASTHAN”, and this address belonged to the territorial jurisdiction of ACIT, Circle-1, Jaipur, Rajasthan,

Further it is pertinent to mention that during the questioned assessment year the assessee was residing at “C-70, SHAKTI NAGAR ENTENTION DELHI-110052”, more importantly the assessee, while filing his income tax return in response to the notice u/s 148 of the act mention his address of Delhi, which comes under the territorial jurisdiction this address is belonged to the Income Tax Officer Ward 70(3) New Delhi.

Further, it is worth mentioning here that this address of Delhi is being quoted continuously by the assesse appellant from long time on his all statutory documents including Income Tax Return as the assessee is an Income Tax payer since long back and filling his Income Tax return from many years on the address belonged to Delhi and mentioned in point number (iii) of this ground copies of Acknowledgment of Income Tax Returns (ITR V) since AY 2010-11 to 2019-20 are being annexed with the submission at (ANNEXURE 2 & 4)PB “18-46”for your kind perusal.

Further we submit that the assessee is an individual and therefore territorial jurisdiction should be followed according to under section 124 of the Income Tax Act, 1961.

From the perusal of the documents and other material as available on record it is very much clear that assessee is an Individual and carrying out his professional activities from Delhi at above mentioned address and residing on same place at Delhi, it can be verified with the Copies of Acknowledgment of ITR as Annexed for the period from AY 2010-11 to 2019-20. In addition to these evidences Copy of Bank Statement for the period from 01.04.2009 to 31.03.2010 is also being annexed and marked as Annexure 47-54 for your kind perusal where it is specifically mentioned that assessee appellant has been residing at C-70, SHAKTI NAGAR EXTENTION, DELHI-110052 and was carrying out his business operation from that place, at that time also.

Therefore in view of above context it is stated that in impugned case the assessment was being done by the Income Tax Authority ACIT Circle-1, Jaipur while by virtue of Section 124 of the Income Tax Act, 1961 it comes under the territorial jurisdiction of ITO Ward-70(3), Delhi. It is also established that before initiating this assessment proceedings the Income Tax Department neither exercised the powers as conferred under section 120 (Territorial Jurisdiction of Income Tax Authorities) nor under section 127 of the Income Tax Act, 1961 (Power to transfer cases), henceforth complete re-assessment proceedings should be quashed and treated as void ab initio.

The relevant provisions of Income Tax Act, 1961 are being reproduced hereunder:

“120. Jurisdiction of income-tax authorities.-

(1) Income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or, as the case may be, assigned to such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities.

(Explanation-For the removal of doubts, it is hereby declared that any income-tax authority, being an authority higher in rank, may, if so directed by the Board, exercise the powers and perform the functions of the income-tax authority lower in rank and any such direction issued by the Board shall be deemed to be a direction issued under sub-section (1))

(2) The directions of the Board under sub-section (1) may authorize any other income-tax authority to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the other income-tax authorities who are subordinate to it.

(3) In issuing the directions or orders referred to in sub-sections (1) and (2), the Board or other income-tax authority authorised by it may have regard to any one or more of the following criteria, namely :-

(a) territorial area ;

(b) persons or classes of persons ;

(c) incomes or classes of income ; and

(d) cases or classes of cases.

124. Jurisdiction of Assessing Officers.-

(1) Where by virtue of any direction or order issued under sub-section (1) or subsection (2) of section 120, the Assessing Officer has been vested with jurisdiction over any area, within the limits of such area, he shall have jurisdiction-

(a) in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession is situate within the area, and

(b) in respect of any other person residing within the area.

(2) Where a question arises under this section as to whether an Assessing Officer has jurisdiction to assess any person, the question shall be determined by the Principal Director-General or the Principal Chief Commissioner or the Principal Commissioner; or where the question is one relating to areas within the jurisdiction of different Principal Directors-General or Principal Chief Commissioners or Principal Commissioners, by the Principal Directors-General or Principal Chief Commissioners or Principal Commissioners concerned or, if they are not in agreement, by the Board or by such Principal Director-General or Principal Chief Commissioner or Principal Commissioner as the Board may, by notification in the Official Gazette, specify.

(3)………………..

(4)……………….

(5) Notwithstanding anything contained in this section or in any direction or order issued under section 120, every Assessing Officer shall have all the powers conferred by or under this Act on an Assessing Officer in respect of the income accruing or arising or received within the area, if any, over which he has been vested with jurisdiction by virtue of the directions or orders issued under sub-section (1) or sub-section (2) of section 120.

1. 127. Power to transfer cases.-

(1) The Principal Director-General or Principal Chief Commissioner or Principal Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him ;

Explanation- In section 120 and this section, the word ‘case’, in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.”

Our aforesaid view is supported by the following judgements:-

DIRECTLY COVERED MATTER;

In the matter of Jeeri Keerthana Reddy V/s ITO (ITA NO. 3224/MUM/2023)Hon’ble ITAT MUMBAI BENCH on 15/01/2024 held as follows:-

“11. Material facts in this case are not in dispute, apart from being matters of record. It is undisputed that the assessee had obtained her PAN from Mumbai where she was residing from 2008 to 2012 as her father was a Central Government employee, then posted in Mumbai. According to assessee, she initially migrated to New Delhi in the year 2012 and then to Bangalore in the year 2015 on account of her marriage. She is a practising lawyer practising at Bangalore. It is also a matter of record that the first return of income was filed by the appellant relevant to assessment year 2016-17, as according to her, in the prior years she had no taxable income. The assessment which is subject matter of challenge in this appeal is for assessment year 2017­18. It is further undisputed that the assessee upon receipt of notice under Section 143(2) of the Act had raised an objection to the territorial jurisdiction of AO within 30 days as mandated by Section 124(3) of the said Act. The record further discloses that she had also made request for change of address/migration of PAN to Bangalore on the basis of her residence/place of profession. The address was changed in the records prior to passing of the assessment order and subsequent thereto, the PAN has been migrated on 26.02.2021. The record also discloses that notices were served to the appellant on her Bangalore address. Thus, for all practicalpurposes, it is not in dispute that at the time when the impugned action was taken and the assessment order was passed, the appellant was residing and was carrying on her profession at Bangalore. The question is whether the AO at Mumbai could have assumed jurisdiction in the matter ?

12. The jurisdiction of various income tax authorities has to be reckoned on the basis of statutory provisions, which confer such jurisdiction; both territorial, pecuniary or otherwise. Sub-section (1) of Section 120 of the Act provides that income tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred or assigned to them under the Act, in accordance with such directions as the Central Board of Direct Taxes (‘Board’ for short) may issue from time to time. Section 124 of the Act thereafter becomes relevant for the purpose which pertains to the jurisdiction of AO and it reads thus (to the extent relevant) :-

“124. (1) Where by virtue of any direction or order issued under sub­section (1) or sub-section (2) of section 120, the Assessing Officer has been vested with jurisdiction over any area, within the limits of such area, he shall have jurisdiction— (a) in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession is situate within the area, and (b) in respect of any other person residing within the area.” (Emphasis supplied)”

13. It can thus be seen that by virtue of any direction or order issued under Sub-section (1) or (2) of Section 120 of the Act, the AO has been vested with jurisdiction over an area within the limits of which the assessee is carrying on business or profession and in respect of any other person residing within the said area. Thus, a conjoint reading of Sections 120 and 124(1) of the Act, with the directions or orders issued by the Board, would indicate that the territorial jurisdiction of the AO is determined on the basis of place where the assessee resides and/or carries on his business or profession. As per notification (copy of which is produced on record at page 114 of the paper book), the jurisdiction of ITO Ward 19(2)(4), Mumbai as notified under Section 120 of the Act extends to Ward D of the Municipal Corporation of Greater Mumbai, excepting the areas set out in the said notification. We, therefore, find that the AO of Ward 19(2)(4), Mumbai lacked territorial jurisdiction to pass the impugned assessment order. As noticed earlier, it is not in dispute that such an objection was raised within the stipulated time and was not dealt with by the AO.

14. A perusal of para 5 of the order of CIT(A) would also go to show that CIT(A) has not dealt with this aspect, inasmuch as ground nos. 1 and 2 were separate and distinct grounds, than those on merits and thus, the disposal of the grounds on merits cannot “amount to disposal” of grounds nos. 1 and 2 as held by the CIT(A).

15. In the view which we are inclined to take, it is not necessary to multiply authorities on the point. However, a brief reference can be made to the decision of Hon’ble Madras High Court in Abdul AzeezHaroonvs DCIT (IT) [2020] 115 com 289 (Madras) and the decision of Pune Bench of this Tribunal in Capstone Securities Analysis Pvt. Ltd. vs. Dy. Commissioner of Income Tax, Circle1(1), Pune [2017] 85 taxmann.com 270 (Pune – Trib.) (supra) which has been confirmed by the Hon’ble Bombay High Court in Principal Commissioner of Income Tax vs Capstone Securities Analysis Pvt. Ltd. [2023] 457 ITR 775 (Bombay) (supra).

16. In the case of Abdul AzeezHaroon (supra), the assessee was a nonresident Indian. After the assessment was completed in respect of the relevant year, Commissioner (International Taxation) issued a reopening notice against the assessee at his address at Madurai (Tamil Nadu). The assessee contended that he was residing at Madurai prior to period relating to assessment year 2011- 12 and admittedly no return of income was filed by him during his stay at Madurai as he had no taxable income during that period. From assessment year 2010-11 assessee had shifted to Shimoga (Karnataka) where he was carrying on business and thus, the return of income from assessment year 2012-13 onwards were filed at Shimoga. The Hon’ble Madras High Court after considering notification dated 15.11.2014 in the context of facts of the case found that the appropriate officer to assess the petitioner was the officer at Shimoga.

17. In Capstone Securities Analysis Pvt. Ltd. (supra) the assessee-company had originally filed its return of income at Mumbai. After shifting of its registered office from Mumbai to Pune, it sought transfer of jurisdiction of AO from Mumbai to Pune, which was purportedly transferred under the order of the competent authority on 14.11.2014. Consequent to the said order, CIT(A) vide order dated 19.12.2014 had transferred the jurisdiction of assessee-company from Mumbai to Pune.

18. In that case, on behalf of the assessee, validity of the assessment order was challenged on the ground that it was passed after the jurisdiction of the AO was transferred by the competent authority from Mumbai to Pune, which objection has been upheld by this Tribunal, which order came to be confirmed by the Hon’ble Bombay High Court in Principal Commissioner of Income Tax vs Capstone Securities Analysis Pvt. Ltd. [2023] 457 ITR 775 (Bombay) (supra).

19. It is trite that an order which is passed without jurisdiction (which is an issue which goes to the root of the matter) is nonest in the eyes of law. Considering the fact that at the time of assessment, the appellant-assessee was residing and carrying on her profession at Bangalore, the assumption of jurisdiction by the AO at Mumbai was invalid. The change of address in the records and/or migration of PAN are not strictly relevant in the matter where the jurisdiction is governed by the statutory provisions as contained in Section 120 read with Section 124 of the Act and the notification issued by the Board.

20. Thus, in our opinion, the appeal has to succeed on ground nos. 1 and 2 alone. The appeal accordingly stands allowed as aforesaid.

Order pronounced in the open court on 15/01/2024.”

In the matter of Bidi Supply Co. v. Union of India (1956) 29 ITR 717 (SC), the Constitution Bench has held that;

(a) that the order of transfer, which was expressed in general terms without any reference to any particular case (i.e. assessment year) and without any limitation as to time, was not contemplated by section 5(7A) and was beyond the competence of the Central Board of Revenue; the sub- section contemplated only the transfer of an assessment case for particular year actually pending before an Income-tax Officer;

(b) that the petitioner was, therefore, entitled to the benefit of the provisions of section 64(1) and (2) and had the right along with other bidi merchants to have its assessment proceedings before the Income Tax Officer of the area in which its place of business was situate;

(c) that the order was calculated to inflict considerable inconvenience and harassment to the petitioner; the books of accounts would have to be produced hundreds of miles away from Calcutta, the partners or principal officer would have to be away fro the head office to comply with the order, and extra expenditure would have to be incurred by way of railway fare, etc.; that “the state” which included the income tax department had by an illegal order denied to the petitioner, as compared with other bidi merchants who were similarly situate, equality before the law and the assesse had the right to complain of an infraction of its fundamental rights under article 14 of the Constitution;

(d) that therefore the order was liable to be set aside and an injunction would be issued.

In the matter of M. RamasamyAsari v. Second ITO (1964) 51 ITR 57 (Mad), the Division Bench has held (headnote): “In regard to the business income of an assessee it is only the Income-tax Officer having jurisdiction over the place where his business activities are concentrated who would have jurisdiction to assess ; where the assessee has no business it is the place of residence that determines jurisdiction. No other officer except the officer having territorial jurisdiction, either over the place where the assessee is carrying on business or over the place where he is residing, if there is no business, would have jurisdiction, and any assessment passed by any other officer would be illegal.”

B) INITIATION UNDER SECTION 147 OF THE ACT IS BAD IN LAW;

(i) Borrowed Satisfaction without applying the mind,

Under the law & facts of the case the Ld. AO has grossly erred in reopen the case on the basis of AIR information and without verifying the correctness of the information and therefore re-assessment proceeding is absolutely bad in law and without jurisdiction and further AO not recorded his satisfaction re-assessment is based on borrowed satisfaction which was not sufficient to confer power on the AO to initiate re-assessment proceedings against the assessee.

CIT Vs. Shree Rajasthan Syntex Ltd. (2009) 313 ITR 231 (Raj.) SLP dismissed: (2009) 313 ITR (St.) 27 (SC)

Sun Pharmaceutical Industries Lt. Vs. Dy. CIT (2016) 287 CTR (Del.) 621

Submission;

The impugned case was re-opened on the basis of AIR Information as received by the Ld. AO that the assessee has made payment for credit card bills of Rs. 2,89,995/- and received fees for professional or technical services for Rs. 19,75,000/-, and the above amount was treated by the Ld. AO as unexplained income merely on the basis of AIR information while the assessee has filed his Income Tax Return under section 148 and duly declared his income as also shown in Form 26AS. The Ld. AO has made the addition without making further enquiry and without applying their mind. The Ld. AO arbitrarily issued notice u/s 148 by becoming a part of mechanical process where he did not apply his mind for taking the decision whether this case is fit for issuing notice under section 147/148 or not.

Further, the impugned initiation of assessment proceedings had started by the Ld. AO on borrowed satisfaction but not their own which is mandatory condition of the law as provided for re –opening of any assessment, section 147 of Act clearly specify.

In the instant case the Ld. AO had claimed that assessee received income from professional services and paid some credit card expenses on the basis of AIR but could not conduct any enquiry regarding both the facts and without conducting any enquiry/investigation re-opened the case and issued the notices which is completely based on presumptions/assumptions and deserve to be declared as null and void ab initio.

Here in impugned case AO’s self-satisfaction regarding escapement of income is not bringing on record which is mandatory condition of law under section 147 of Income Tax Act, 1961, it could have been come only after conducting enquiry and investigation but Ld. AO did not make such therefore complete re-assessment proceedings come under suspicious circle, various honorable courts propounded and led on this aspect and issue direction to handle such situation.

In this case the Ld. AO did not make necessary efforts for discharging his liability and merely on the information as received from AIR re-open the assessment and the act was not tenable under law hence deserve complete re-assessment proceedings illegal and void ab initio.

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. The AO was also required to examine whether the cash deposits were disclosed in the return of income to form an opinion that income has escaped assessment.

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

This contention has been also favored by many honorable courts in their landmark judgments as follows;

CIT V s. Shree Rajasthan Syntex Ltd. (2009) 313 ITR 231 (Raj) SLP dismissed (2009) 313 ITR (St.) 27 (SC)

Sun Pharmaceutical industries lt. V s. Dy. CIT (2016) 287 CTR (Del.) 621.

ACIT VsDhariya Construction Co. Purity Tech Textiles PVT. Ltd Vs. ACIT.

CIT VsKamdhenu Steel and Alloys Ltd. Nova Promoters and FinleasePvt. Ltd.

Krown Agro Foods Pvt. Ltd. Vs. ACIT Varshaben Sanatbhai Patel Vs

(ii) Initiation is in very hyper mechanical manner,

Under the facts and circumstances of the case the Ld. AO has grossly erred in initiating the section 147 as the initiation is based on the borrowed satisfaction therefore being a hyper mechanical proceeding without application of mind of Ld. AO, it should be quashed.

Submission;

In the impugned case the Ld. AO has reopened the case merely on the basis of information as received from AIR and further no enquiry has been done on behalf of the Ld. AO thus the reopening is completely based on the borrowed satisfaction which is also not based on tangible material.

Further after going through the reasons recorded by the Ld. AO/ACIT, Circle-I, Jaipur for reopening and the approval thereof by the Ld. Pr. Commissioner of Income tax-I, it is noted that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has been escaped by the assessee during the year under consideration.

Interestingly, reason are vague and are not based on any tangible material as well as are not acceptable in the eye of law. The AO has mechanically issued notice u/s 148 of the Act, on the basis of information as received from Annual information return (AIR). Further, the Ld. PCIT has written “yes” and put his signature for approved the notice which established that he has not recorded proper satisfaction/approval, before issue of notice u/s 148.

By observing all the facts it is noted that for initiating the assessment proceedings there are some inbuilt safeguards to prevent the arbitrary exercise of power by an Assessing officer on the assessee. If the Ld. PCIT has given his approval after verifying the facts as submitted by the Ld. AO, perhaps he would not have granted his approval, which was mandatory condition to initiate the reassessment proceedings. In the instant case the Ld. PCIT has approved the reasons recorded after considering the AO’s contention which itself on the mechanical manner. The power vested in the commissioner to grant or not to grant approval is coupled with a duty. The commissioner is required to apply his own findings or own thought process before given his approval but in this case he has not taken any efforts to cross check the observation of AO which clearly grab from the copy of reasons recorded as attached and marked as Annexure 57-59 in which the Ld. PCIT has simply mentioned “yes” and he has even not written any sentence in support of his approval and signed the document. Thus it can be observed that it is only a mechanical approval without application of mind.

Our aforesaid view is supported by the following judgements:-

In the matter of “ShriAnshuman Singh” ITA No. 733 & 739/JP/2023 dated 10/04/2024 Honble ITAT Jaipur held as follows:-

“We have heard both the parties and perused the materials available on record. It is noted from the assessment order that the AO on the basis of information available in ITS of the assessee made two additions i.e. Rs.50,15,829/- and Rs.13,36,329/- by observing at para 3 & 4 of his assessment order dated 30-11- 2017 u/s 147 r.w.s. 144 of the Act. However, in first appeal, the ld. CIT(A) has dismissed the appeal of the assessee on the ground of non-appearance and not controvering the order of the AO. The moot question raised by the ld AR of the assessee is that order passed by the AO is illegal and bad in law and it lacks jurisdictional error on the point of no satisfaction of competent authority. The Bench has meticulously gone through the orders of the lower authorities and taken in the consideration the oral arguments advanced by the ld. AR of the assessee encountering the assessment order as invalid and beyond jurisdiction. It is noted on perusal of the reasons recorded and approval u/s 151 by the competent authority indicates that Pr. CIT has not applied his mind on the reasons recorded by lower authorities and he has only expressed or mentioned ‘Yes’ on the reason forwarded (PBP-5). It is worthwhile to mention that as per decision of Hon’ble Delhi High Court in the case of Pr. CIT vs. N. C. Cables Ltd.(2017) 98 CCH 0010 where in it has been held that Section 151 of the Act clearly stipulates that the CIT, who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression ‘approved’ or ‘Yes’ says nothing. It is not as if the CIT has to record elaborate reasons for agreeing with the noting put up before him. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed. It is also noted that the ld. AR of the assessee has advanced his paper book at Pages 3 to 5 as to reasons recorded for no satisfaction by the ld. Pr. CIT, the satisfaction if any was of the AO, who is not competent in the present case. In the case of N.C. Cables (supra) following case laws were relied therein.

i. Maruti Clean Coal And Power Ltd. vs. ACIT (2018) 400 ITR 0397 (Chhattisgarh)

ii. CIT vs. S. Goyanka Lime & Chemicals Ltd. (2015) 231 TAXMAN 0073 (MP)

iii. PAC AIR SYSTEMS P. LTD. vs. ITO (2020) 58 CCH 0001 Del Trib

iv. GORIKA INVESTMENT AND EXPORT (P) LTD. vs. ITO (2018) 53 CCH 0168 Del Trib.

TARA ALLOYS LTD. vs. ITO (2018) 63 ITR (Trib) 0484 (Delhi) And the ld. CIT(A) kept mum on this very legal plea, which shows his contradictory approach.

Therefore the notice, reasons recorded assessment all are the illegal bad void ab-initio and barred by limitation and liable to be quashed.

It is also noted that the Joint CIT has forwarded a letter of consolidated approval of 26 assessee’s vide his order 23.03.2017 (PB5A-5C) and this shows as to how the Ld. Pr. CIT has acted in formal way. On inspection of the assessment record, it has also been noticed that there was no approval in original letter or documents and there is no tick on the name of the assessee (vide Sr. No. 13 at PB-5B). It is surprising as to how an approval can be given of all the 26 different assessee’s in one documents whereas all are the independent or separate assessee and their reasons are different. Hence in view of the above facts and circumstances of the case the action taken u/s 148 of the Act and consequent proceedings needs to be quashed for which we rely on the following judgements.

(1) Shri SatyanarayanBairwa vs. ITO Ward 2(4), Jaipur ITA No. 867 & 869 JP/2018, dated 15/09/2021 (Jaipur ITAT), relevant part of judgement is as follows;

“19. We have considered the rival contentions of both the parties and perused the material available on record. From perusal of the record, we observed that the A.O. has reopened the case of the assessee for escaping the income of Rs.1,15,00,500/- on account of cash deposit in his bank account and assessee has not filed his return of income and issued notice u/s. 148 of the Act on 29.03.2016 after recording reasons that income of assessee had escaped assessment in the meaning u/s 147 of the Act. Thereafter the AO framed assessment u/s. 144 r.w.s. 147 of the Act by making addition of Rs.1,15,00,000/- and the ld. CIT(A) upheld the order of AO. Before us the ld. A/R has drawn our attention to the reasons recorded and satisfaction of the Pr. CIT and Addl. CIT placed at page No. 10-11 of the assessee’s paper book where the Addl. CIT has mentioned only “Recommended” and Pr. CIT has mentioned only “Yes”, which shows no application of mind and proper satisfaction by them on the reasons recorded by the AO. In this regard, we draw strength from the decison in the case of Pr. CIT vs. N. C. Cables Ltd.(2017) 98 CCH 0010 Del HC wherein it has been held that Section 151 of the Act clearly stipulates that the CIT, who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression ‘approved’ says nothing. It is not as if the CIT has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed.”

We also draw strength from the decision in the case of CIT vs. S. Goyanka Lime & Chemicals Ltd. (2015) 231 TAXMAN 0073 (MP) wherein it has been held that While according sanction, the Joint Commissioner, Income Tax has only recorded so “Yes, I am satisfied” If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 147, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration.

The ld. A/R has also drawn our attention on the approval of the Pr. CIT placed at page Nos. 7-8 of the paper book and also from the assessment record placed before us, we found that he has given one consolidated approval of 56 different assessee’s in one shot through one letter dated 29.03.2016 which is even not signed by him but signed by ITO (T&J), who is not a competent authority to give and signed the approval letter, which shows how the PR. CIT has acted in very formal way. When we examined of the assessment record, it is gathered that the approval was in photocopy and not in original or there was no original letter or documents of approval. Further the name of the assessee was at Sr. 46 out of 56 assessee’s and even there was no tick on the name of the assessee in the approval list, which creates a doubt that the approval has been received before the issue of notice u/s 148 of the Act as the approval letter lying on the file after issuance of the notice u/s 148 or not before or attached with the notice u/s 148 and may reach in the office of the AO after 31.03.2016. Thus, in our view, approval u/s 151 cannot be given of all the 56 assessee’s in a single documents, as all assessee’s are the independent and separate also the reason recorded are different in each case and it is not possible that there shall be same reasons. Looking to these facts and record it is also held that the procedures and way of approval and satisfaction is not proper. Here AO initiated proceedings u/s. 147 r.w.s. 148 on basis of information furnished and CIT gave approval without applying his mind in slipshod manner. As approval/sanction given by CIT was without recording his own independent satisfaction as noted above, therefore the reopening was not sustainable as per above judicial pronouncements and irregularities noted. There were clear irregularities and violation of the provision of Sec. 151 of the Act and very foundation of the issuance of the notice u/s 148 was not as per law. Then in that eventuality, we are of the view that the issuance notice 148 of the Act and all the consequent proceedings and assessment order passed was not in accordance with law. The case laws relied upon by the ld. DR are not tenable in the facts and circumstances of present case, therefore, considering the totality of facts and circumstances of the case as well as the judicial pronouncements qua the issue under consideration, we find merit in the contention of the ld AR, therefore, we quash the proceedings U/s 147 of the Act.

Once, we quash the proceeding U/s 147 of the Act, therefore, there is no need to adjudicate the other grounds raised in this appeal.”

Hence, in view of the above facts, circumstances of the case and case laws cited hereinabove, the Bench feels that there is jurisdictional error and the order passed by AO does not survive. Thus the appeal of the assessee is allowed.

3.1 As regards the penalty appeal of the assessee, it is not required to deal with for the reason that when the quantum appeal has been allowed then consequently penalty order of the ld. CIT(A) is infructuous

4.0 In the result, both appeals of the assesee are allowed Order pronounced in the open court on 10 /04/2024.”

In Principal Commissioner of Income Tax v. N. C. Cables Ltd; [2017] 88 taxmann.com 649/391 ITR 11 (Delhi), therein the reasons recorded for re­opening of assessment under Section 148; after the expiry of 4 years, which required approval of the Commissioner of Income Tax, when put up to the approving authority, was approved by a single word i.e. ‘Approved’. The mere expression ‘approved’ denotes nothing, was the finding of the High Court of Delhi.

Principal Commissioner of Income Tax v. Pioneer Town Planners Pvt. Ltd.; [2024] 160 taxmann.com 652/465 ITR 356 (Delhi) also indicated the mere phrase ‘Yes’ having been appended as approval which was held to be mechanical, on the face of it. The question dealt with was as to whether simply penning down a ‘Yes’ would be requisite satisfaction, as per Section 151 of the Act. N. C. Cables (supra) was relied on to find the approval to be not in consonance with the approval required under Section 151.

Chhugamal Rajpal v. S. P. Chaliha and Other; [1971] 79 ITR 603 (SC) was a case in which it was found that even the Income Tax Officer had not come to a prima facie conclusion that the loan transactions to which he referred were not genuine transactions and he appeared to have entertained only a vague feeling that they might be bogus transactions, which conclusion did not fulfill the requirement of Section 151(2). It was held that the Assessing Officer has to give reasons for issuing a notice under Section 148 and there should be some prima facie grounds before him, for taking such action. Therein, the reasons recorded by the Income Tax Officer that proper investigation regarding some loans is necessary, was itself faulted. The conclusion of the Assessing Officer was only that there is a case for investigation as to the truth of the alleged transactions, which was held to be not a reason to issue notice under Section 148. Further, the Commissioner had noted the word ‘Yes’ as an approval without anything more.

Honorable Madhya Pradesh High Court in the matter of CIT VS. GOYANKA LIME & CHEMICAL LDT. has held that;

“7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so “Yes, I am satisfied”. In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:-

“The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format “Yes, I am satisfied” which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.”

8-If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 148, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration.

9-As far as explanation to Section 151, brought into force by Finance Act, 2008 is concerned, the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so, the said amended provision does not help the revenue.”

The same contention as mentioned above also considered by the Honorable Jaipur Income Tax Appellate Tribunal, Jaipur Bench ‘B’ in the matter of Shri Ram Niranjan Tibra, Om prakash Morwal & Shri Parman and R. Verma Vs. ITO, WD-1, ITA No. 637,657 & 658/JP/2018;

“In a series of decisions as relied upon by the Ld. Counsel of the assessee, the coordinate Benches of the Tribunal have taken a consistent view that mere signing against a particular column of the format is nothing but a mechanical approval without application of mind. Hence in view of the above facts and circumstances of the case, we hold that the reopening of the assessment is not valid and the same is liable to be quashed.”

(iii) Without providing opportunity of cross examination;

The Ld. AO has grossly erred in initiating the proceedings under section 147 of the on the basis of third party statement recorded behind assessee`s back and further not contra vended to him. Denial of opportunity to the assessee to cross examine the witnesses whose statements were made the sole basis of the impugned order is a serious flaw rendering the order a nullity in as much as it amounted to violation of principles of natural justice. (Andman timber industries V/s Commissioner of Central Excise (SC) 281 CTR (2015)241)

Submission;

(i) The impugned assessment order is based on the AIR, that assessee has made payment for credit card bills and received fees for technical services and he could not file the income tax return so that Ld. AO alleged that assessee has unexplained income/expenditure which should be added in the total income of the assessee without considering the fact that the assessee has deposited sufficient amount of tax through TDS in the government account which also reflected in the form 26AS.

(ii) The Ld. AO made an opinion on the basis of information as received by him without providing opportunity of being heard and violated the fundamental right of assessee appellant. Cross examination is fundamental right of the assessee, specially where a huge addition is being done on the basis of AIR and such information are not related as unexplained income.

(iii) Here it is noted that the evidence collected by the department is not worthy of credence as there is no independent evidence on the record, therefore, we are of the view that addition with the help of this much information cannot be made. Therefore, addition made is not sustainable in law.

(iv) It is necessary in the interest of justice that all relevant evidence must be submitted, the party must be informed on the evidence on which reliance is placed and to allow witnesses to be questioned and to allow evidence and cross-examination on the same.

(v) Any statement which is recorded by the Department, an assessee is entitled to get the copy of the statement/information so collected, using evidence behind the back of the assessee is against the principles of natural justice. Also where copies of reports or documents or statement of third party is relied upon for making an addition, it is the duty of the Department to allow the assessee not only to examine such documents but also to cross-examine the party.

(vi) In support of our contention, we relied upon the decision of Hon’ble Supreme Court in case of Andaman timber industries V/s Commissioner of Central Excise (SC) 281 CTR (2015) 241 wherein the hon’ble Supreme Court has held that the denial of opportunity to the assessee to cross examination the witness whose statements were made the sole basis of assessment is a serious flaw rendering the order a nullity in as much as it amounts to violation of principles of natural justice.

(vii) Same contention had also been pressed by following the above mentioned judgment of APEX court, by honorable jurisdictional, ITAT Bench of Jaipur held in the ITA Number 368/JP/2017 in the matter of Pramod Jain and other Vs. DCIT Circle-3, Jaipur;

“Therefore the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity.”

(viii) The Mumbai Special of the Tribunal in case of GTC Industries Vs. ACIT (Supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed and held that;

“It is quite a trite law that suspicion howsoever strong may be but cannot be the basis or addition except for some material evidence on record. Theory of Preponderance of Probability is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assesse. Once nothing has been proved against the assesse which aid of any direct material especially when various rounds or investigation have been carried out, then nothing can be implicated against the assesse.”

In the light of the aforementioned submission and legal position, the ld. A/R requested that the appeal of the assessee be allowed by deleting the adition.

6. On the other hand, the ld. D/R placing reliance on the judgment of Hon’ble Supreme Court in the case of PCIT vs. M/s. I-Ven Interactive Ltd. dated 18th October, 2019 (AIR 2019 Supreme Court 5561), supported the order of the ld. CIT

(A).

Ground No. 1

7. We have heard the rival submission and perused the material on record. We note before the Ld CIT(A), the assessee has challenged the notice under section 148 on the ground of jurisdiction. The ld. AR for the assesee submitted that the assessee has been residing at Delhi and also carrying on his professional activities from Delhi only since last so many years. In support of the same, he has provided the copies of ITR acknowledgements of the assessee from the assessment years 2010-11 to 2019-20 and has also provided copy of bank statement for the period from 01.04.2009 to 31.03.2010, wherein the address of the assessee has been mentioned as C-70, Shakti Nagar Extension, Delhi-110 052.Further We note The ld. A/R submitted that the notice under section 148 of the IT Act which has been issued by ACIT Circle-1, Jaipur is without jurisdiction. By virtue of section 124 of the IT Act, 1961 it comes under the territorial jurisdiction of ITO Ward 70(3), Delhi, therefore, the jurisdiction of the case of the assessee lies with ITO Ward 70(3), Delhi. In support of his contention, he has relied on the order of the Coordinate Bench of the Tribunal, Mumbai in the case of Jeeri Keerthana Reddy vs. ITO in ITA No. 3224/Mum/2023 dated 15.01.2024. The ld. A/R has also submitted that in the instant case the Income-tax Department did not exercise powers as conferred under section 120 or section 127 of the IT Act, 1961, therefore, the notice and the subsequent proceedings needs to be quashed. The ld. A/R has demonstrated with adequate evidence to prove that the jurisdiction over the case of the assessee lies with ITO Ward 70(3) Delhi whereas notice under section 148 has been issued by ACIT Circle-1, Jaipur which is not correct in terms of the Income Tax Act. We find force in the contention of the ld. A/R. Therefore, considering the factual and legal aspects of the matter, notice under section 148 and consequent proceedings undertaken on the strength of such illegal notice are quashed. The order of the ld. CIT (A) is set aside.

8. Since we have allowed Ground No. 1 by quashing the proceedings, we do not feel to adjudicate other grounds which have become academic in nature.

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

Order pronounced in the open court on 08/01/2025.