Case Law Details

Case Name : Harmeet Singh Vs ITO (ITAT Delhi)
Appeal Number : ITA No. 1939/Del/2016
Date of Judgement/Order : 10/02/2017
Related Assessment Year : 2008-09
Courts : All ITAT (7807) ITAT Delhi (1856)

Harmeet Singh Vs ITO (ITAT Delhi)

At the time of hearing, Ld. Counsel of the assessee has only argued the legal ground and stated that the reopening action of the AO and confirmation thereof by the Ld. CIT(A) is in violation of mandatory jurisdictional conditions stipulated under the Act. It was further stated that the reopening action of AO u/s. 148 of the Act on non existing basis of cash deposits with Centurian Bank of Punjab which was not proved till passing of final order and an unsubstantiated & vague AIR information is sole basis of entire order. It was further stated that in this case reasons recorded are totally silent on a) contents of information available to Ld AO and b) no details whatsoever of any bank ale are mentioned and c) mere cash deposits is treated to be equivalent to income escaping assessment. It was the further contention that reopening in the case u/s 148 of the Act is without legal and valid mandatory service of notice u/s 148 of the Act. There is no nexus between the prima facie inference arrived in the reasons recorded and information available with the office of the AO. He further stated that the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee. It was the further contention of the Ld. Counsel of the assessee that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction. He further stated that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and there are merely presumption in nature. He stated that it is a case of mechanical action on the part of the AO as there is non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income.

Ld. DR relied upon the order passed by the authorities below and stated that the AO has properly recorded the reasons for reopening by due application of mind, hence, the appeal of the Assessee may be dismissed.

Held by ITAT

There is no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee; that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction; that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and there are merely presumption in nature; that it is a case of mechanical action on the part of the AO as there is non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, I am of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed.

FULL TEXT OF THE ITAT JUDGEMENT

The Assessee has filed the Appeal against the Order dated 8.5.2014 of the Ld. CIT(A)-Rohtak pertaining to assessment year 2008-09 and raised the following grounds:-

Jurisdictional Ground: Coram Non Judice

1. That on the facts, and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the reopening action of Ld A0 uls 148 made in violation of mandatory jurisdictional conditions stipulated under the Act;

2. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the reopening action of Ld AO U/S 148 on non existing basis of cash deposits with Centurian Bank of Punjab which was not proved till passing of final order and an unsubstantiated & vague AIR information is sole basis of entire order;

3. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the reopening action of Ld AO uls 148 wherefrom assessee’s affidavit that he has no bank a/c with Centurian Bank of Punjab (dated 22/512014) filed before Ld CIT-Appeals along with remand report dated 1811212014 stating HDFC bank statement being first time obtained in appellate proceedings vide letter dated 11.12.2014 by Ld A0, being post mortem exercise, cannot rescue an inherently invalid reopening;

4. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the reopening action of Ld A D uls 148, where reasons recorded are totally silent on a) contents of information available to Ld AO and b) no details whatsoever of any bank ale are mentioned and c) mere cash deposits is treated to be equivalent to income escaping assessment;

5. That on the facts and in the circumstances of the case and in law, Ld AO erred in reopening the case uls 148 of the Act, without legal and valid mandatory service of notice u/s 148 of the Act;

6. That on the facts and in the circumstances of the case and in law, Ld AO erred in sustaining the addition of Rs 14,69,823/-out of total addition of Rs 40,49,500 without considering the fact that assessee has fully explained its case and Ld AO passed the order u/s 1471144 on non existing basis,

7. That on the facts and in the circumstances of the case and in law, Ld AO erred in sustaining the addition of Rs 14,69,823/-out of total addition of Rs 40,49,500/- without considering the fact that impugned order passed is ex- parte to assessee without material on records.

PRAYER/RELIEF CLAIMED

1. To quash the impugned reopening order U/S 1471144 of the Act for non fulfillment of prior jurisdictional conditions;

2. To hold Ld AO wrongly made addition on merits;

3. Any other relief as deemed fit in circumstances of the case That the appellant craves leave to add, to, amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.

2. The brief facts of the case are that in this case assessment was made u/s. 144/147 of the I.T. Act, 1961 on 25.3.2014. An information in this case was available that the assessee has made cash deposits in his savings bank account maintained with Centurion Bank of Punjab. During the relevant assessment year, the assesse had not filed any ITR for assessment year 2008-09, therefore, the case was reopened under section 147 of the I.T. Act in pursuant to various notices. In response to the notices, the asssessee’s AR attended the proceedings and admitted that the assessee had not filed the return and in response to notice under section 148 of the I.T. Act, the AR filed return with an income of Rs. 1,06,490/-. The assessee was engaged in small scale business of sale / purchase of motor vehicles on commission basis. During the course of proceedings, the assessee was confronted with the fact that there were deposits in bank account and sought explanation for the same. However, on non-receipt of reply, a sum of Rs. 40,49,500/- was added as cash credit under section 68 of the I.T. Act and accordingly, the AO completed the assessment u/s. 143(3) of the Act at Rs. 41,55,990/- vide his order dated 25.3.2014.

3. Against the Order of the AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 11.1.2016 has partly allowed the appeal of the Assessee.

4. Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in Appeal before the Tribunal for challenging the legal issue raised vide ground no.1 & 2, as aforesaid.

5. At the time of hearing, Ld. Counsel of the assessee has only argued the legal ground and stated that the reopening action of the AO and confirmation thereof by the Ld. CIT(A) is in violation of mandatory jurisdictional conditions stipulated under the Act. It was further stated that the reopening action of AO u/s. 148 of the Act on non existing basis of cash deposits with Centurian Bank of Punjab which was not proved till passing of final order and an unsubstantiated & vague AIR information is sole basis of entire order. It was further stated that in this case reasons recorded are totally silent on a) contents of information available to Ld AO and b) no details whatsoever of any bank ale are mentioned and c) mere cash deposits is treated to be equivalent to income escaping assessment. It was the further contention that reopening in the case uls 148 of the Act is without legal and valid mandatory service of notice u/s 148 of the Act. There is no nexus between the prima facie inference arrived in the reasons recorded and information available with the office of the AO. He further stated that the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee. It was the further contention of the Ld. Counsel of the assessee that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction. He further stated that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and there are merely presumption in nature. He stated that it is a case of mechanical action on the part of the AO as there is non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income. To support his aforesaid contention, he relied upon the following case laws and attached the copies of the said decisions with his Paper Book.

–  Sh. Amrik Singh vs. ITO reported in 159 ITD 329 (Asr)

–   Delhi ITAT, SMC Bench decision in the case of Vinod Maheshwari order dated 9.9.2016.

–   Delhi ITAT – SMC Bench decision in case of Rahul Bhandari order dated 8.9.2016.

–  Delhi ITAT, SMC Bench decision in the case of Mariyam Ismail Rajwani

–   Praveen Kumar Jain vs. ITO in ITA No. 1331/D/2015 for the AY 2006-07 dated 22.1.2016.

–    Ahmedabad ITAT – SMC Bench decision in the case of Muni Devi order dated 15.9.2016

–   ITAT, Lucknow Bench in the case of Sh. Gyan Prakash Motwani order dated 31.8.2016

In view of the above, he requested that by following the aforesaid precedents the reassessment proceedings of the AO may be quashed by accepting the Appeal filed by the Assessee.

6. On the contrary, Ld. DR relied upon the order passed by the authorities below and stated that the AO has properly recorded the reasons for reopening by due application of mind, hence, the appeal of the Assessee may be dismissed.

7. I have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by the assessee’s counsel on the issue in dispute. In our view, it is very much necessary to reproduce the reasons recorded by the AO before issue of notice u/s. 148 for reopening of assessment which reads as under:-

“Reasons recorded for issuance of notice u/s. 148 of the I.T. Act in the case of Sh. Harmeet Singh, 2/54, Geeta Colony, New Delhi for the assessment year 2008-09.

27.03.2013 Information based on Non-filter AIR data available on the ITD system reveals that Sh. Harmeet Singh has deposited cash of Rs. 40,49,500/- in the saving bank account on various dates during the FY 2007-08 pertaining to AY 2008-09. Perusal of the database in the ITD system shows that the assessee has not filed any ITR for the AY 2008-09, thereby it can be concluded that the disclosed income is below taxable limits and in absence of disclosed sources of income /cash, it is reasonably concluded that income equivalent to the cash deposits has escaped assessment and the same is chargeable to tax for AY 2008-09. The onus to disclose the true and full particulars of income lies on the assessee, hence it can be concluded that assessee has failed to disclose sources of cash deposits. In view of the explanation 2 of proviso 2 of section 147 of the Act, since no return of income has been furnished and income exceeds taxable limits, case of the asessee needs to be reopened u/s. 147/148 of the Act to bring to tax the income equivalent to cash deposit of Rs. 40,94,500/- which has escaped assessment.

In the instant case, the Department is in possession of credible information relating to the deposit of cash which is sufficient for forming reason to believe for escapement of income. In the case of ITO vs. Lakhmani Mewal Das, Phoolchand Bajrang Lal & Anrthrs vs. ITO, Raymond Woolen Mills vs. ITO and Desh Raj Udyog vs. ITO, the Apex Court has held that failure to disclose fully and truly material facts is sufficient reason for forming the belief for escapement of income.

In view of the above facts, I have therefore, reason to believe that income of Rs. 40,94,500/- pertaining to the FY 2007­08 relevant to AY 2008-09 has escaped assessment and to bring to tax such income, proceedings u/s. 147/148 of the Act is being initiated.

Issue notice u/s 148 of the Act.

SD/-

ITO, Ward 36(1), New Delhi

8. After going through the reasons recorded by the ITO, Ward-36(1), New Delhi Rewari, I am of the view that there is no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee; that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction; that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and there are merely presumption in nature; that it is a case of mechanical action on the part of the AO as there is non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, I am of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. My view is supported by the following judgments/decisions:-

“A. Amrik Singh vs ITO reported in 159 ITD 329 (Asr) wherein it has been held as under and the decision of Bir Bahadur Singh Sijawali (Supra) has been followed in this case.

“44. It is this question which takes us back to the applicability/non-applicability of the decision in ‘Bir Bahadur Singh Sijwali (supra). The ratio thereof has not at all been disputed by the Department. In fact, the only dispute which has been raked up is the applicability or otherwise thereof to the facts of the present case, in view of the position that the initiation of the assessment proceedings U/S 147 in the present case stands preceded by the issuance of the alleged enquiry letter by the ITO. This dispute has been dealt with in detail in the foregoing paragraphs.

45. In ‘Bir Bahadur Singh Sijwali’ (supra), it has been held that where the AO issued a notice U/S 148 on the ground that there was ,fin escapement of income and the belief regarding such escapement of income was formed on the fallacious assumption of the AO that bank deposits constituted undisclosed income, over­looking the fact that the source of the deposits need not necessarily be the income of the assessee, the reassessment proceedings cannot be sustained. In the present case, similarly, the basis of initiation of the assessment proceedings U/S 147 was the information with the Department, of the deposits made by the assessee in his bank account.

46. ‘Bir Bahadur Singh Sijwali’ (supra), makes reference to ‘Hindusan Lever Ltd. vs. R.B. Wadkar’. 26R TTR 332 (Born.), to hold that the reasons recorded for reopening the assessment are to be examined on a standalone basis and nothing can be added to the reasons. It was also observed that the reasons 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. It was observed that it is necessary that there must be something which indicates, even if it does not establish, the escapement of income from assessment; that it is only on that basis that the AO can form a prima-facie belief that an income has escaped assessment; that merely because some further investigations have not been carried out, which, if made, could have led to detection of an income escaping assessment, this cannot be reason enough to hold the view that the income has escaped assessment; and that there has to be some kind of cause and effect of relationship between the reasons recorded and the income escaping 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: “the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.”

47. It was further ‘Observed as follows: “8. Let us, in the light of this legal position, revert to the facts of the case before us. All that the reasons recorded for reopening indicate is that cash deposits aggregating to Rs.l0,24,100/- have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening the assessment do not make out a case that the assessee was engaged in some business and the income from such a business has not been returned by the assessee. As we do not have the liberty to examine these reasons on the basis of any other material or fact, other than the facts set out in the reasons so recorded, it is not open to us to deal with the question as to whether the assessee could be said to be engaged in any business; all that is to be examined is whether the fact of the deposits, per se, in the bank account of the assessee could be basis of holding the view that the income has escaped assessment. The answer, in our humble understanding, is in negative. The Assessing Officer has opined that an income of Rs. 10,24, 1 00/- has escaped assessment of income because the assessee has Rs.l0,24,100/- in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, 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.”

48. The Tribunal concluded thus: “but then in the case before us the only reason for reassessment proceedings was the fact of deposit of bank account which by itself does not lead to income being taxed in the hands of the assessee. Learned Departmental Representative has referred to several other judicial precedents in support of the proposition that at the stage of initiation of reassessment proceedings, all that is to be seen is existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. There cannot be any, and there is no, doubt on the correctness of this proposition but then, as we have elaborately explained earlier in this order, 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, in our humble understanding, cannot be drawn.”

49. Now, in keeping with ‘Bir Bahadur Singh Sijwali’ (supra), this “information cannot form a valid basis for initiating assessment proceedings under section 147 of the LT. Act. As observed in ‘Bir Bahadur Singh Sijwali’ (supra), the mere fact that the deposits had been made in the bank account does not indicate that these deposits constitute income which has escaped assessment. 50. 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. Too, the AO proceeded on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee. That being so, in keeping with ‘Bir Bahadur Singh Sijwali’ (supra), the reasons recorded to initiate assessment proceedings under section 147 of the Act and all proceedings pursuant thereto, culminating in the impugned order, are cancelled. Ground No.2 is, accordingly, accepted.”

B. ITAT, Delhi Bench decision in case of Praveen Kumar Jain v ITO in ITA No. 1331/D/2015 for Assessment year 2006-07 dated 22.1.2015 wherein it has been held as under:-

“12. 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 assessee escaped assessment was found to be missing when the AO proceed to reopen the assessment which is in nature of a post mortem exercise after the event of reopening of the assessment. Therefore the reopening of the assessment was found to be invalid as it does not satisfy the requirement of law that prior to the reopening of the assessment the AO has to apply his mind to the material and conclude that he has reason to believe that income of the assessee has escaped assessment. Applying the above proposition of law it leaves no doubt in the mind that in the case on hand the AO has reopened the assessment mechanically without application of mind to conclude that the said amount of Rs.6 lac deposit in the bank account of the assessee constitutes the income of the assessee and the same has escaped assessment. The decision relied upon by the ld DR is not applicable in the facts of the present case because in the said case not only the accommodation entry were found by the investigation wing but the modus operandi was also detected and therefore it was found that the AO was having the sufficient material and information to form the believe that the income assessable to tax has escaped assessment. In view of the facts and circumstances as well as the decisions relied upon by the AR, the reopening is in the case of the assessee is not valid and the same is quashed. Since the reopening of the assessment held to be invalid therefore other grounds of the appeal become infractuous.”

C. ITAT, Delhi – SMC decision in the case of Munni Devi

“11. We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by the assessee’s counsel on the issue in dispute. In our view, it is very much necessary to reproduce the reasons recorded by the AO before issue of notice u/s. 148 for reopening of assessment which reads as under:-

“As per AIR information for FY 2006-07 received in this office, the assessee has made cash deposits of Rs. 49,42,000/- in bank account with Canara Bank, Pulhawas, Rewari. A query notice was issued to the assessee on 24.1.2012. But no response has been received from the assessee.

I, therefore have reason to believe that the assesse has deposited cash in his bank account out of his income from unexplained sources. Accordingly, income to the extent of Rs. 49,42,000/- and any other income which subsequently comes to the notice of the undersigned has escaped assessment within the meaning of section 147 of the I.T. Act, 1961. Issue notice u/s. 148 of the I.T. Act, 1961 for the assessment year 2007-08.

Sd/-
(O.P. Poonia)
Income Tax Officer,
Ward-2, Rewari”

12. After going through the reasons recorded by the ITO, Ward-2, Rewari, I am of the view that there is no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee; that even the communication dated 24.1.2012 could not be made a basis to assume jurisdiction in view of the fact that such an enquiry letter is an illegal enquiry letter and thus cannot be relied upon; that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction; that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and there are merely presumption in nature; that it is a case of mechanical action on the part of the AO as there is non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, I am of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. My view is supported by the following judgments/decisions:-

A. Bir Bahadur Singh Sijawali reported in 68 SOT 197 (Del) wh3rien it has been held as under:-

“Section 68, read with sections 147 and 148, of the lncome-tax Act, 1961 – Cash credits (Bank deposit) – Assessment year 2008-09 – Assessee deposited certain sum in his saving bank account but no return of income was filed by him – Assessing Officer issued notice under section 148 on ground that there was an escapement of income – Whether where Assessing Officer proceeded on fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that source of deposit need not necessarily be income of assessee, reassessment proceedings “was to be set aside – Held. yes [Paras 8 & 10. [In favour of assessee]

B. Amrik Singh vs ITO reported in 159 ITD 329 (Asr) wherein it has been held as under and the decision of Bir Bahadur Singh Sijawali (Supra) has been followed in this case.

“44. It is this question which takes us back to the applicability/non-applicability of the decision in ‘Bir Bahadur Singh Sijwali (supra). The ratio thereof has not at all been disputed by the Department. In fact, the only dispute which has been raked up is the applicability or otherwise thereof to the facts of the present case, in view of the position that the initiation of the assessment proceedings U/S 147 in the present case stands preceded by the issuance of the alleged enquiry letter by the ITO. This dispute has been dealt with in detail in the foregoing paragraphs.

In ‘Bir Bahadur Singh Sijwali’ (supra), it has been held that where the AO issued a notice U/S 148 on the ground that there was ,fin escapement of income and the belief regarding such escapement of income was formed on the fallacious assumption of the AO that bank deposits constituted undisclosed income, over­looking the fact that the source of the deposits need not necessarily be the income of the assessee, the reassessment proceedings cannot be sustained. In the present case, similarly, the basis of initiation of the assessment proceedings U/S 147 was the information with the Department, of the deposits made by the assessee in his bank account.

45. ‘Bir Bahadur Singh Sijwali’ (supra), makes reference to ‘Hindusan Lever Ltd. vs. R.B. Wadkar’. 26R TTR 332 (Born.), to hold that the reasons recorded for reopening the assessment are to be examined on a standalone basis and nothing can be added to the reasons. It was also observed that the reasons 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. It was observed that it is necessary that there must be something which indicates, even if it does not establish, the escapement of income from assessment; that it is only on that basis that the AO can form a prima-facie belief that an income has escaped assessment; that merely because some further investigations have not been carried out, which, if made, could have led to detection of an income escaping assessment, this cannot be reason enough to hold the view that the income has escaped assessment; and that there has to be some kind of cause and effect of relationship between the reasons recorded and the income escaping 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: “the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.”

47. It was further ‘Observed as follows: “8. Let us, in the light of this legal position, revert to the facts of the case before us. All that the reasons recorded for reopening indicate is that cash deposits aggregating to Rs.l0,24,100/- have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening the assessment do not make out a case that the assessee was engaged in some business and the income from such a business has not been returned by the assessee. As we do not have the liberty to examine these reasons on the basis of any other material or fact, other than the facts set out in the reasons so recorded, it is not open to us to deal with the question as to whether the assessee could be said to be engaged in any business; all that is to be examined is whether the fact of the deposits, per se, in the bank account of the assessee could be basis of holding the view that the income has escaped assessment. The answer, in our humble understanding, is in negative. The Assessing Officer has opined that an income of Rs.l 0,24, 1 00/- has escaped assessment of income because the assessee has Rs.l0,24,100/- in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, 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.”

48. The Tribunal concluded thus: “but then in the case before us the only reason for reassessment proceedings was the fact of deposit of bank account which by itself does not lead to income being taxed in the hands of the assessee. Learned Departmental Representative has referred to several other judicial precedents in support of the proposition that at the stage of initiation of reassessment proceedings, all that is to be seen is existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. There cannot be any, and there is no, doubt on the correctness of this proposition but then, as we have elaborately explained earlier in this order, 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, in our humble understanding, cannot be drawn.”

49. Now, in keeping with ‘Bir Bahadur Singh Sijwali’ (supra), this “information cannot form a valid basis for initiating assessment proceedings under section 147 of the LT. Act. As observed in ‘Bir Bahadur Singh Sijwali’ (supra), the mere fact that the deposits had been made in the bank account does not indicate that these deposits constitute income which has escaped assessment. 50. 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. Too, the AO proceeded on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee. That being so, in keeping with ‘Bir Bahadur Singh Sijwali’ (supra), the reasons recorded to initiate assessment proceedings under section 147 of the Act and all proceedings pursuant thereto, culminating in the impugned order, are cancelled. Ground No.2 is, accordingly, accepted.”

C. Apex Court judgment in the case of Parimisetti Setharamamma vs.  CIT reported in 57 ITR 532 has held as under:-

“By sections 3 and 4 the Act 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. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. The appellant admitted that she had received jewellery and diverse sums of money from Sita Devi and she claimed that these were gifts made out of love and affection. The case of the appellant was that the receipts did not fall within the taxing provision: it was not her case that being income the receipts were exempt from taxation because of a statutory provision. It was therefore for the department to establish that these receipts were chargeable to tax.”

D. ITAT, Delhi Bench decision in case of Praveen Kumar Jain v ITO in ITA No. 1331/D/2015 for Assessment year 2006-07 dated 22.1.2015 wherein it has been held as under:-

“12. 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 assessee escaped assessment was found to be missing when the AO proceed to reopen the assessment which is in nature of a post mortem exercise after the event of reopening of the assessment. Therefore the reopening of the assessment was found to be invalid as it does not satisfy the requirement of law that prior to the reopening of the assessment the AO has to apply his mind to the material and conclude that he has reason to believe that income of the assessee has escaped assessment. Applying the above proposition of law it leaves no doubt in the mind that in the case on hand the AO has reopened the assessment mechanically without application of mind to conclude that the said amount of Rs.6 lac deposit in the bank account of the assessee constitutes the income of the assessee and the same has escaped assessment. The decision relied upon by the ld DR is not applicable in the facts of the present case because in the said case not only the accommodation entry were found by the investigation wing but the modus operandi was also detected and therefore it was found that the AO was having the sufficient material and information to form the believe that the income assessable to tax has escaped assessment. In view of the facts and circumstances as well as the decisions relied upon by the AR, the reopening is in the case of the assessee is not valid and the same is quashed. Since the reopening of the assessment held to be invalid therefore other grounds of the appeal become infractuous.”

E. Amrik Singh vs ITO reported in 159 ITD 329 (Asr) wherein it has been held as under:-

“17. Thus, to reiterate, with effect from 01.07.1995, the condition that some proceeding must be pending is no longer applicable. Under the earlier provisions of section 133(6), the prescribed Authorities had the power to call for any information from any person which would be useful for, or relevant to, any proceeding under the Act. The amendment in subsection (6) empowers the prescribed Authorities to call for information for the purpose of any inquiry under the Act even in cases where no proceeding is pending. However, an Income Tax Authority below the rank of Director or Commissioner can exercise the said power in respect of an inquiry only with the prior approval of the Director or the Commissioner.

In the present case, the enquiry letter dated 13.03 .2008 was issued by the Income Tax Officer, i.e., an Officer below the rank of the Income Tax Authorities referred to in the second proviso to section 133(6). Thus, in keeping with the said second proviso to section 133(6), prior approval was required to be obtained from the competent Authority before exercising power under section 133(6).

19. There is nothing on record to suggest that any such prior approval was obtained herein. The letter, per se, also does not make mention of any such approval. Hence, the power exercised by the ITO, without compliance with the second proviso to section 133(6), would tantamount to an illegal exercise of power.

20. However, be that as it may, this is not detrimental to the cause of the Department. In the present case, the ITO did not merely ask for information from the assessee. This takes the case out of the ken of section 133(6), as shall presently be seen.”

13. In view of above, I am of the considered view that the above legal issue is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the decisions as discussed above. Hence, respectfully following the above precedents, I decide the legal issue in dispute in favor of the Assessee and against the Revenue and quash the reassessment proceedings being bad in law and illegal.

14. As I have already held that the reassessment is bad in law, I do not find it necessary to decide other issues which are on merits of the case.

15. In the result, the Assessee’s Appeal stands allowed.”

9. In view of above, I am of the considered view that the above legal issue is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the decisions as discussed above. Hence, respectfully following the above precedents, I decide the legal issue in dispute in favor of the Assessee and against the Revenue and quash the reassessment proceedings being bad in law and illegal.

10. As I have already held that the reassessment is bad in law, I do not find it necessary to decide other issues which are on merits of the case.

11. In the result, the Assessee’s Appeal stands allowed.

Order pronounced in Open Court on this 10-2-2017.

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Author Bio

Qualification: LL.B / Advocate
Company: KAPIL GOEL LEGAL
Location: NORTH DELHI, New Delhi, IN
Member Since: 23 Jun 2020 | Total Posts: 49
Mr.Kapil Goel B.Com(H) FCA LLB, Advocate Delhi High Court [email protected], 9910272804 Mr Goel is a bachelor of commerce from Delhi University (2003) and is a Law Graduate from Merrut University (2006) and Fellow member of ICAI (Nov 2004). At present, he is practicing as an Advocate View Full Profile

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