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Notice u/s 148 for reassessment cannot be issued based on mere suspicion

It would be the proximity of the reasons with the belief of escapement of income, which would be the determinative factor for reopening of the assessment. The remoteness of the reasons would obviate the possibility of a belief and would bring the case in the realm of mere suspicion

Brief of the case

In the beginning of February 2012, elections were to be held for the U.P. State Assembly, the Election Commission had issued instructions that if cash of more than Rs. 2,50,000/- was found with any person, the same may be seized and enquiry made whether this cash was for distribution amongst the voters. Shri A.K. Dhir was stopped by U.P. Police on the border of Delhi and U.P. and as cash of Rs. 5 lakhs was found, this amount was seized. His statement was recorded by DDI (Investigation-1) Ghaziabad before whom the relevant copies of the bank accounts and extract of cash books were produced.

Based on this information the AO suspected that there was escapement of income of Rs. 2 lakhs and issued notice for reassessment u/s/ 148.

Question of Law

Whether notice u/s 148 for reassessment can be issued based on mere suspicion and without sufficient material based on which “reason to believe” can be inferred?

Contention of the Assessee

The assesse submitted that Rs. 5.00 lakh were found on 05.01.2012 with Shri Anil Kumar Dhir, Director of the Companies. He was carrying the amount from Delhi Offices to Ghaziabad Offices of two companies M/s Krown Agro Food P. Ltd. and M/s Krown Bakers P. Ltd. Income Tax Department (DD Investigation-I Ghaziabad) had started action on 05.01.2012 and intimation for this was also sent to Revenue Department before 26.10.2012, also confirmed by CIT-II New Delhi vide his letter F. No. CIT/Delhi- II/Hq.- II/Grievance Misc./2013-14/448 dated 03.06.2013 stating that as per concerned A.O., seized material has been received.

This shows that all material was in Delhi before 26.10.2012 (Copy attached) and if it did not reach revenue within time, it is not fault of assessee. So far as the assessee is concerned, the Department is one and department cannot take advantage of its fault of delay, specially where time barring is involved, when Hon’ble High Courts and Tribunal have been stressing timely action in these matters. Limitation is right of assessee and cannot be dispensed with. Still Department did not take any action even though it knew it that the limitation for sending the notice u/s 143(2) was 30th Sept., 2013. This shows there is a clear lapse on the part of the Department and no one can be allowed to take the advantage of one’s own wrong is settled law. The reason that because you did not take timely action, the assessee should suffer is wrong and against settled law. On this account alone, the action is arbitrary and bad in law.

Contention of the Revenue

The Revenue submitted that information had been received from ADIT (Inv.), Ghaziabad, that amount of Rs. 5,00,000/- has been found u/s 132A of the IT Act dated 25.05.2012 in the case of Sh. Anil Kumar Dhir who is the director of M/s Krown Agro Foods Pvt. Ltd. In consequence of this information, summons dated 05.01.2012 u/s 131(1A) was issued and he was examined on oath. When asked about the source of cash of Rs.5,00,000/- he stated that Rs.2,00,000/- was withdrawn from Andhra Bank, Lawrence Road, New Delhi-35 from the account of M/s Krown Agro Foods Pvt. Ltd. on 4.02.2012.

The assessee filed its return of income for the assessment year 2012-13 vide Ack. No. 4977819612770912 on 27.09.2012 declaring total income of Rs.2725/-. Appraisal report in the case of Anil Kumar Dhir who is the director of M/s Krown Agro Foods Pvt. Ltd. has been received from ITO, Ward 5(3), New Delhi on 25.11.2013. The information has been received after the expiry of twelve months specified in the proviso to subsection (2) of section 143 of the IT Act. I, therefore, have reason to believe that the income of Rs.2,00,000/- has escaped assessment within the meaning of section 147 of the IT Act, 1961.

Held by the High Court

It would be the proximity of the reasons with the belief of escapement of income, which would be the determinative factor for reopening of the assessment. The remoteness of the reasons would obviate the possibility of a belief and would bring the case in the realm of mere suspicion, which cannot be a ground for reopening of assessment.

The reason to believe recorded by the Assessing officer is not based on any material that had come to the knowledge of the Assessing Officer. There is a mere suspicion in the mind of the assessing officer and the notice under section 147/148 has been issued for the purpose of verification and for clearing the cloud of suspicion. The reasons to believe recorded do not show as to on what basis the Assessing Officer has formed a reasonable belief that the said amount of Rs. 2,00,000/- had escaped assessment. It is apparent the Assessing Officer suspects that the income has escaped assessment.

However, mere suspicion is not enough. The reasons to believe must be such, which upon a plain reading, should demonstrate that such a reasonable belief could be formed on some basis/ foundation and had in fact been formed by the Assessing Officer that income has escaped assessment. No such reasonable belief can be inferred from the purported reasons to believe recorded.

The words “reason to believe” indicate that the belief must be that of a reasonable person based on reasonable grounds emerging from direct or circumstantial evidence and not on mere suspicion, gossip or rumour. The “reason to believe” recorded in the case do not refer to any material that came to the knowledge of the Assessing Officer whereby it can be inferred that the Assessing Officer could have formed a reasonable belief that the said amount had escaped assessment. The purported belief that income has escaped assessment is not based on any direct or circumstantial evidence and is in the realm of mere suspicion. The requirement of law is “reason to believe” and not “reason to suspect”.

In the present case, since the purported reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rational basis, the action of reopening of the Assessment is thus clearly contrary to law and is unsustainable.

In view of the above, the impugned order dated is set aside and the proceedings initiated pursuant to the notice dated are hereby quashed.

Categories: Income Tax
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