Conclusion: Proceedings under section 148 could not be initiated for verification of the sources of investment and therefore, the reasons recorded by AO were no reasons in the eye of law for assuming jurisdiction for issuing notice under section 148.
Held: AO had an information that assessee had purchased two immovable properties. Notice under section 148 was issued to assessee, which was complied with partially, culminating into assessment order on a total income at Rs. 76,42,270/-. CIT(A) raised various grounds regarding validity of re-opening and that the addition on merits had wrongly been made, furnished various evidences in support of its claim. However, CIT(A) rejected assessee’s appeal both on legal grounds as well on merits and confirmed the assessment order as such. It was held the judicial opinion and mandate of law is clear and loud that proceedings under section 148 cannot be initiated for verification of the sources of investment. Such an action of the AO in respect of the case on hand could not be approved in law and was therefore, quashed. The text of the reasons recorded proved that virtually there had been no application of mind by AO so as to form requisite satisfaction that investment in property was income of current year and which had escaped assessment; that the reasons recorded in the case in hand were no reasons in the eye of law, being completely barren and bald in nature as it was not mentioned that in what material terms the reply was lacking in nature; that the reasons did not show any mental exercise having been done by him before arriving at the satisfaction for escapement of income and thus, the AO made his conclusions, leaving the reader to guess for the material on basis of which of belief of escapement is founded. . The investment need not necessarily come from the income. It may be out of income exempted from tax, past savings, loans, gifts, liquidation of investment or sale of another property etc., notice under section 148 could not be issued for verification of information. There must be direct nexus between the material and belief of escapement. Thus, the reasons recorded by AO were no reasons in the eye of law for assuming jurisdiction in this case for issuing notice under section 148.
FULL TEXT OF THE ITAT JUDGEMENT
Present appeal, filed by the assessee, against the order dated 28.02.2018, passed by the learned CIT(A)-I, Agra in the matter of assessment framed vide order dated 30.03.2016 under section 144/148 of the Income Tax Act, 1961 for Assessment Year 2008-09 by the ITO-3(3), Mathura.
2. Brief facts of the case are that the AO had an information that assessee has purchased two immovable properties amounting to Rs.20,21,000/- + stamps of Rs. 1,62,200/- = Rs. 21,83,200/-. Notice under section 148 dated 27.03.2015 was issued to the assessee, which was complied with partially, culminating into assessment order on a total income at Rs. 76,42,270/-
3. Before the learned CIT(A), assessee raised various grounds regarding validity of re-opening and that the addition on merits has wrongly been made, furnished various evidences in support of its claim. However, the learned CIT(A) rejected the assessee’s appeal both on legal grounds as well on merits and confirmed the assessment order as such.
4. The learned CIT(A) has sustained re-opening on the ground observing as under:
“The appellant has contended before me that the reasons recorded by the A.O have been recorded by him without application of mind. I am not in agreement with this contention because in the reason itself, the AO has mentioned that he has considered the reply of the appellant regarding the investment in purchase of two immovable properties and found the reply unsatisfactory. With due respect to the judicial precedent cited by him, I am of the opinion that the appellant’s case is materially different and hence ground no. 1 & 2 are dismissed.”
5. Being aggrieved, assessee has come in appeal raising the following grounds:
1. “BECAUSE, upon due consideration of facts and in the overall circumstances of the case ‘appellant’ denies its liability to be assessed in terms of Notice dated 26.03.2015 said to be issued under section 148 of the ‘Act’.
2. BECAUSE, while confirming the reopening in the light of reasons recorded the Ld CIT(A) has not appreciated that the purported ’Reasons’ are No ‘Reasons’ in the eyes of Law. The so called ‘Reasons’ evidently do not show any application of mind on part of the ‘AO’ much less evidence to show that ‘satisfaction’ has been arrived by the ‘AO’ to show that any Income liable for Tax has escaped Assessment warranting recourse to Notice under section 148 of the Act.
3. BEACUSE, alleged unsatisfactory compliance to Letter as was issued by the ‘AO’ may be a ground only for ‘reasons to suspect’ for alleged escapement of income but does not give any valid foundation for reaching to ‘reasons to believe’ and thereafter arriving at the ‘satisfaction’ for escapement’ of Income warranting recourse to Notice under section 148 of the Act.
4. BECAUSE, the sanction as was mandatorily required to be accorded under section 151 of the Act before issuing Notice under section 148 of the Act was without application of mind in a mechanical manner, leading the Notice issued under section 148 of the Act to be held without jurisdiction and consequent assessment order passed in pursuance of such an invalid Notice to be held as void-ab-intio.
WITHOUT PREJUDICE TO THE ABOVE
5. BECAUSE, the Ld CIT(A) was highly unjustified in confirming addition of Rs. 53,00,000/- as was deposited in the Bank Account of the ‘appellant’ which got sourced from maturity of FDR amounting to Rs.49,00,000/- and bank withdrawals evidenced by information sought from the Bank under ‘RTI Act’ on the ground that such evidence was not filed before AO without appreciating the reasons on records for not being able to produce such evidence before the AO and adversely commenting about its genuineness without any evidence on records to support such an assumption.
6. BECAUSE, while making the addition of Rs. 21,82,700/- the Ld CIT(A) omitted to consider the explanation and evidences brought on records of the AO, explanation furnished before the Ld CIT(A) by the ‘appellant’. The Ld CIT(A) proceeded to confirm the addition on no valid basis.
7. BECAUSE, in any case and in any view of the matter impugned additions/disallowances and impugned assessment order is bad in law, illegal, unjustified, contrary to facts and law based upon incorrect assumption of facts and further without allowing adequate opportunity of hearing in violation of principals of natural justice and therefore, the additions made deserves to be quashed.
8. BECAUSE, the assessment order to the extent making addition is bad in law and against the facts of the case.
9. BECAUSE, assessee denies its liability against Interest charged under section 234A based on incorrect assumption of facts and Interest under section 234B and 234C is incorrectly “
6. It was submitted by the assessee that before recording reasons to believe a Letter dated 21.11.2014 was issued to the assessee, (APB-320) in compliance to which reply dated 02.02.2014 was furnished by the assessee submitting that assessee is an Income Tax assessee on records of Department, allotted PAN, his accounts are duly audited and property under question stood sourced from sale of land made by his father (ABP – 321-372). Thus, according to the assessee source of acquisition was explained and since thereafter nothing was heard from the side of Assessing officer and this was followed by notice under section 148 of the Act. He further submitted that Ld. CIT(A) while sustaining re-assessment proceedings omitted to consider that Letter dated 21.11.2014 was a mere non statutory letter and as such the learned Assessing officer has illegally and without authority of law has issued it and based on this unauthorized enquiry letter, proceedings under section 148 cannot be authorized under the law. He further submitted that even if the proceedings of enquiry are held to be legally initiated in that eventuality too the reasons recorded are totally barren and bald do not show any application of mind and proceedings were initiated for the purpose of verification of sources of investment in property, from the stage left in earlier proceedings. He placed reliance to various case laws, which wherever found applicable shall be appropriately discussed in this order.
7. Per contra, the learned D.R Shri Waseem Arshad, at the outset objected to the submissions made by the learned A.R and stated that since assessee had not challenged the validity of notice under section 148 of the Act before the authorities below therefore, it cannot be allowed to raise this objection at this belated stage and thereby taking the revenue by surprise. For this he placed reliance to Hon’ble Supreme Court Judgement in the case of ‘GKN Driveshafts (India) Ltd. v. ITO’, (2002) 125 Taxman 963(S.C) and ‘CIT vs. Safetag International India Pvt. Ltd.’, ITA No. 355, 412 of 2010 (Delhi High Court). He thereafter, submitted that the proceedings are validly initiated on the basis of complaint from an anonymous person which after verification was found to be correct as sources of investment in property could not be satisfactorily explained by the assessee and therefore, the learned Assessing officer was well within his jurisdiction to issue notice under section 148 of the Act. He further submitted that no objection was taken with regard to the legality of Letter dated 21.11.2014 issued by the Assessing officer and since the objection has been raised now therefore, the same cannot be entertained by the ITAT and according to him it will be in the fitness of the matter that the case be set-aside to the file of Assessing officer where assessee will again have the opportunity to explain his case on merits.
8. We have considered rival submissions, material on records and the case laws relied up by both the parties. It was made clear to the parties that as the case is being heard in respect of ground No. 1 to 3, pertaining to validity of proceedings under section 147 of the Act based on reasons recorded and therefore, if such grounds do not find favour with the view held by the Bench in such an eventually the case will be re-fixed for hearing in respect of other grounds raised in the memo of appeal to such a proposal the parties have readily agreed. The objection raised by the learned Sr. D.R regarding the admissibly and maintainability of ground challenging the validity of notice under section 148 of the Act, on the pretext that the assessee having raised no objection with regard to the proprietary of reasons recorded cannot at this stage of proceedings raise this issue. We hold that such an objection raised by the learned Sr. D.R cannot be approved under law.
9. As the objection raised by the assessee is a purely legal objection going to the root of the jurisdiction of the matter and in view of the Hon’ble Apex Court judgment in the case of ‘NTPC Vs CIT’, (1998) 229 ITR 383 (SC) (APB-9-12) it can be raised at this stage even for the first time. The Hon’ble Supreme Court while dealing with ground raised before the ITAT for the first time relating to legal issue has held that Tribunal should not be prevented from considering questions of law arising in assessment proceedings although not raised earlier. It was also held that under section 254 of the Act the Tribunal has jurisdiction to examine a question of law which though not arose before lower authorities but arose before it from facts as found by lower authorities and having a bearing on tax liability of assessee.
10. In the case of ‘Shri Abdul Majid Vs CIT’, (2006) 153 Taxman 131 (All) the Hon’ble Allahabad High Court framed following question of Law for its consideration at the instance of appeal preferred by the assessee:
“1. Whether on the facts and in the circumstances of the case, the Hon’ble ITAT, was in law justified in rejecting the additional grounds challenging the validity of assessment order on the basis of illegal initiation of proceedings u/s 148 without complying the provision of Section 148 (2)”
11. The Hon’ble High Court held that “the plea with regard to the jurisdiction of the Officer goes into the root of the matter, therefore, even if not raised at the first instance before the Assessing Authority, it can be raised before the Appellate Authority at a later stage. In this view of the matter, we are of the opinion that the Tribunal has erred in not allowing the additional ground challenging the validity of the assessment order on the basis of illegal initiations of the proceedings under Section 148 of the Act.”
12. In the case of ‘Km. Teena Gupta Vs. CIT’, (2017) 4 TMI 114 (All.) the Hon’ble Allahabad High Court set-aside the order passed by the ITAT wherein the ITAT refused to entertain the ground regarding the validity of re-assessment proceedings on the ground that assessee having raised no objection against validity of re-assessment proceedings itself, it had conceded the same and the assessee did not have any grievance at that time. Upon appeal by the assessee before the Hon’ble Allahabad High Court, the Hon’ble High Court held that it is settled law that the reassessment notice is a jurisdictional notice and it is equally settled law that ground of lack of jurisdiction may be raised at a subsequent stage as well. In the case, before the Hon’ble High Court the reassessment order was admittedly an ex-parte order and, therefore, the Hon’ble Court found that there was no occasion for the assessee to have conceded to their assessment proceedings. Further, the assessee therein had demonstrated that he had raised specific ground both before the learned CIT (Appeals) and also before the Tribunal, challenging the jurisdiction of the Assessing Officer. The Hon’ble High Court thus, found the approach of the Tribunal to be not in accordance with the law and thus, held that the issue of validity of reassessment proceedings is a jurisdictional issue. It goes to the root of the matter. The Tribunal ought to have examined the ground no.3 raised in the assessee’s appeal on its merit without being prejudiced by the facts that the reassessment order has been passed on the ex-parte basis in which the proceedings the assessee has not objected to the initiation of the reassessment. Accordingly, question no.1 is answered in favour of assessee and against the department.
13. The learned Sr. D.R placed heavy reliance to the Judgment of Hon’ble Delhi High Court ‘CIT vs. Safetag International India Pvt. Ltd.’, (supra). The perusal of the case reveals that it nowhere lays down any proposition of law for which the learned Sr. D.R has sought to rely upon it. In this case assessee did not ask for the reasons recorded, participated in the assessment proceedings and raised objection before the learned CIT(A) about the validity of notice under section 148 of the Act. However, the Hon’ble High Court directed the Revenue to supply copy of reasons to the assessee within four weeks and upon receipt of reasons assessee was required to make submission before learned CIT(A) based upon such reasons challenging the validity of re-assessment proceedings and learned CIT(A) shall decide this issue on merits after hearing the parties. From the reading of the Judgment it is not understood as to how reference to this case help the cause of the revenue in the case on hands. Therefore, the case is distinguishable on facts.
14. Further reliance on the Hon’ble Supreme Court in the case of ‘GKN Driveshafts (India) Ltd. v. ITO’, 125 Taxman 963 for the proposition that the Hon’ble Supreme Court had required that immediately after receipt of notice under section 148 of the Act assessee has to furnish return of income and seek reasons recorded and thereafter file objection. Thus, as per his submission since assessee did not file return of income in compliance to notice under section 148 of the Act and also has not filed objection he is precluded from challenging the validity of reasons at this belated stage. We are afraid to approve this submission too. In the case of GKN Driveshafts (India) Ltd. (supra) the Hon’ble Supreme Court has only provided step wise procedure and nowhere it has been held that if objections are not filed before learned Assessing officer such objection cannot be taken up at any further stage or the legal right of assessee would stands waived. It would be reading or making us to read something which is not there in the Judgment of the Hon’ble Supreme Court. No inference against the assessee is possible as far as substantive right is concerned. Thus, the reliance is misplaced.
15. The next objection raised by the learned Sr. D.R was that no objection regarding its claim that Letter dated 21.11.2014 is unauthorized in law was taken before the below authorities and therefore, the issue be remitted back to the file of Assessing officer.
16. Learned A.R of the assessee strongly opposed to such a suggestion of the Sr. D.R stating that assessee is under no obligation to guide the Assessing officer on law his duty is limited up to instruct the Assessing officer on facts of his case, applying the law on the peculiar facts of the case is the duty of the A.O. Learned Counsel referred to Hon’ble Supreme Court in the case of Parsuram Pottery Works Co. Ltd. vs. ITO 106 ITR 1. (S.C) The Hon’ble Court held that “It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well-versed with the law on the subject. Any remission on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.” In this view of the matter and particularly following the Hon’ble Supreme Court in the case of Parsuram Pottery Works Co. Ltd (supra) request of the learned Sr. D.R for setting aside the case is rejected.
17. We are alive of the settled position in law that the question of Jurisdiction is not a matter of acquiescence. The proprietary of notice under section 148, based upon reasons recorded is not dependent upon the objection or no objection by the assessee at the stage of assessment. If the reasons recorded, independently can withstand the test of judicial scrutiny, only such reasons will confer jurisdiction to issue notice and frame assessment in pursuance thereto. However, if the reasons recorded, upon being challenged at any stage of proceedings fails to withstand the test of judicial scrutiny, in that eventuality, upon such recorded reason no valid notice can be issued and any assessment framed consequent thereto even taking shelter of ‘No objection’ from the assessee could save the assessment from being held to be declared void-a b-intio. In this background of the case the objection raised by the learned Sr. D.R is rejected being devoid of substance and based on incorrect reading of the
18. Even though assessee raised no challenge at the stage of the learned Assessing officer and the order was passed ex-parte under section 144 of the Act, However, perusal of the appellate order passed by the learned CIT(A) reveals that assessee challenged the action of re-opening, particularly in the light of Amrik Singh Vs ITO (2016) 70 taxmann.com 26 before the learned CIT(A) by taking specific grounds. Learned CIT(A) extensively and elaborately discussed the issue and held re-opening to be valid in law as per his own understanding of the issue. Therefore, it cannot be said that assessee is challenging the legality of reopening for the first time before the ITAT. Thus, the objection raised by the learned Sr. D.R is rejected also on the ground, being based on without consideration of fact available on record.
19. Now we come to the validity of reopening based on reasons From the perusal of the reasons recorded it is evident that the reason for issuing notice dated 20.03.2015 under section 148, were recorded on 31 .03.2015 and that ld. DR contended that the assessee did not file satisfactory reply for the source of investment.
20. However, the objection of the learned A.R that Letter dated 11.2014 was not authorized under any provision of the Act remained undisputed. It also remained undisputed that no query, of the nature alleged in the reasons recorded was given to the assessee after he furnished replies dated 02.12.2014 in compliance to above Letter explaining that source of investment was sourced from sale of agriculture Land held and possessed by his Father. Therefore, vaguely stating that such reply was unsatisfactory, without mentioning as to how the same was unsatisfactory and in which material terms the reply was lacking only leads us to believe that re-assessment proceedings are initiated for the verification of source of investment. In such circumstances, at the first place as rightly relied upon by the learned A.R to the order passed by the Amritsar Bench in the case of Amrik Singh (Supra) wherein the Tribunal in identical circumstances quashed the assessment holding that:
“The letter itself makes no mention of the provision under which it has been issued. So the provisions have to be examined to ascertain as to under which provision it was issued; As per section 133(6), the concerned income tax authority may require any person, inter alia, to furnish information in relation to such points or matters, as in their opinion would be useful for, or relevant to, any enquiry or proceeding under the Act; Section 133(6) corresponds to section 38, of the Income-tax Act, 1922. It was amended in 1995 and the words ‘enquiry or’ were inserted before the word ‘proceedings’ and the second proviso was also inserted, by the Finance Act, 1995, with effect from 1-7-1995; The scope and effect of this amendment brought about in 1995 was explained by the CBDT in its Circular No. 717, dated 14- 8-1995. It was mentioned therein that the provisions of section 133(6) empower income-tax authorities to call for information which is useful for, or relevant to, any proceeding under the Act which means that these provisions can be invoked only in cases where the proceedings are pending and not otherwise. This acts as a limitation or restraint on the capability of the revenue to tackle evasion effectively. It is, therefore, thought necessary to have the power to gather information which after proper enquiry, will result in initiation of proceedings under the Act. With a view to having a clear legal sanction, the existing provisions to call for information have been empowered to requisition information which will be useful for or relevant to any enquiry or proceedings under the Income-tax Act in the case of any persons. The Assessing Officer, would, however, continue to have power to requisition information in specific cases in respect of which any proceeding is pending as at present. However, an income-tax authority below the rank of Director or Commissioner can exercise this power in respect of an inquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner; It is, therefore, evident that the pre-1995 amendment, section 133(6) could be invoked only in cases where some proceedings were pending, and not otherwise; The 1995 amendment brought in power to the revenue to gather information which, after proper inquiry, would result in initiation of proceedings under the Act. However, by virtue of the second proviso to the section, an income-tax authority below the rank of Commissioner can exercise this power in respect of an enquiry, in a case where no proceeding is pending, only with the prior approval of the Director or Commissioner; In the present case, the enquiry letter 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, prior approval was required to be obtained from the competent authority before exercising power under section 133(6); 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 Income-tax Officer, without compliance with the second proviso to section 133(6), would tantamount to an illegal exercise of power; However, be that as it may, this is not detrimental to the cause of the revenue. In the present case, the Income-tax Officer did not merely ask for information from the assessee. This takes the case out of the ken of section 133(6). The letter of enquiry being illegal, it was not obligatory on the assessee to respond to the same.”
Hence, non-response by the assessee to the enquiry letter cannot be said to constitute material before the Assessing Officer which could lead him to form any belief of escapement of income.
21. This leaves us, with only with a part of the reasons recorded which pertains to fact of purchase of property, sources of which allegedly remained unexplained at the stage of enquiry proceedings. As submitted before learned CIT(A) and also before us that no re-assessment proceedings can be initiated for the purpose of verification of sources of investment.
22. Reliance in this regard has rightly been placed to Lucknow Bench decision In the case of ‘Chunnilal Prajapati Vs ITO’, 2011 (2) TMI 1522 where the ITAT was required to adjudicate the legality of action under section 148, initiated on the basis of Report from the Investigation wing that assessee had invested in purchase of immovable property, sources of which remained unexplained before the Investigation wing and moreover assessee has not even filed his Return of Income. The reasons recorded as reproduced here as under:
“This fact came to knowledge through letter No. Addl. DIT/Inv./TEP/x – 120/04-05 dated 06.03.2006 sent by the Additional Director of Income-tax (Investigation), Lucknow, that Rs.5,38,860/- has been invested in purchase of land situated at 150, Rafi Ahmad Kidwai Nagar Scheme (Eldeco Green), Gomti Nagar, Lucknow, in the assessment year 1999-2000, by Shri Chunni Lal, Assistant Regional Transport Officer, 18, Civil Lines, Faizabad.
During the course of investigation no clear detail of the said investment amounting to Rs.5,38,860/- could be told. Therefore, I have sufficient reason to believe that the sum of Rs.5,38,860/- invested in the purchase of land by Shri Chunni Lal, Assistant Regional Transport Officer, 18, Civil Lines, Faizabad in assessment year 1999-2000, has escaped income-tax assessment. Since return of income for the said year has not been filed by’ the assessee. Therefore, keeping in view Explanation 2(a) of section 147 of the Income-tax Act, notice under section 148 is being issued.”
23. Based on the above reproduced Reasons challenge was made by the assessee regarding the validity of re-opening. The ITAT while quashing notice under section 148 held as under:
“From the above provisions, it is clear that the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment. However, it cannot be said that if there is any investment it is sufficient to believe that the income to that extent escaped assessment because there may be so many sources for making investment and it is not necessary that only on the basis of investment it can be presumed that the income to that extent escaped assessment. There should be a concrete finding before coming to the conclusion that any income has escaped assessment and merely on the basis of the information provided by any another Wing of the Income-tax Department, the Assessing Officer cannot believe that there was income which has escaped assessment”
24. The ITAT, Delhi Bench in the case of ‘Anil Singhal Vs ITO’,’ in ITA 2044/Del/2017 vide order dated 04.10.2017 was called upon to examine the legality of action initiated under section 147 where ‘reasons’ recorded were, as reproduced in the ITAT order in para-2 were as under:
“In this case as per information available with this office the assessee has purchased an immovable property for Rs.1,15,00,000/- during F.Y 2007-08 relevant to A.Y 2008-09.
To verify the source of investment in the property, letters dated 27.01.2015 & 06.02.2015 were issued to the assessee requesting therein to submit the copy of ITR of the relevant year filed by him. Further, Inspector of this ward has served the letter on the above assessee personally for fixing the date 10.03.2015 for compliance but on the date fixed assessee neither submitted the reply nor attended the office, which shows that the assessee is deliberately not furnishing the source of investment in respect of purchase of property.
In view of the above facts, I have reasons to believe that the income chargeable to tax has escaped assessment.
Issue notice under section 148 of the Income Tax Act, 1961.”
25. The ITAT quashed Notice under section 148 by observing that:
“From the reading of the reasons, it is quite evident that the ld. AO has not applied his mind while recording his reasons without assigning any valid reasons that no reasons have been given to make out a case that income of the assessee has escaped assessment for the impugned assessment year. Such vague reasons without the application of mind cannot give rise to acquisition or jurisdiction by the ld. AO for the reassessment and therefore same are directed to be quashed.”
26. In the case of ‘CIT Vs Smt Maniben Valji Shah’, 283 ITR 453 the Hon’ble Bombay High Court quashed assessment based on notice under section 148 of the Act where proceedings under section 147 was initiated to verify the source of Investment made in purchase of house. It was held by the Hon’ble High Court that:
“Reassessment Reasons to believe fishing enquiry impugned notice clearly indicates that the AO merely wanted to know the details of sources of funds invested by the assessee in purchasing a flat AO had no basis to reasonably entertain a belief that any part of income of the assessee had escaped assessment and that such escapement was by reasons of any omission or failure on the part of the assessee to disclose fully and truly all material facts action of the AO in reopening the assessment was not valid.”
27. In the case of ‘Bakulbhai Ramanlal Patel Vs ITO’, 56 DTR 0212 the Hon’ble Gujarat High Court held that:
“Where the reasons recorded reflect that the matter requires detailed investigation and further verification, the AO has reason to suspect and not reason to believe that income chargeable to tax has escaped assessment and therefore, the assumption of jurisdiction by the AO is invalid and as such, the impugned notice under s. 148 is not sustainable and is quashed.”
28. Thus, the judicial opinion and mandate of law is clear and loud that proceedings under section 148 cannot be initiated for verification of the sources of investment. Such an action of the AO in respect of the case on hand cannot be approved in law and is therefore, quashed.
29. The text of the reasons recorded do proves that virtually there has been no application of mind by the learned Assessing officer so as to form requisite satisfaction that investment in property is income of current year and which has escaped assessment; that the reasons recorded in the case in hand are no reasons in the eye of law, being completely barren and bald in nature as it is not mentioned that in what material terms the reply is lacking in nature; that the reasons do not show any mental exercise having been done by him before arriving at the satisfaction for escapement of income and thus, the AO made his conclusions, leaving the reader to guess for the material on basis of which of belief of escapement is founded. The so called reasons instead of being reasons to believe are reasons to suspect and sought to extend the scope of enquiry from the stage where it was left vide enquiry letter. The investment need not necessarily come from the income. It may be out of income exempted from tax, past savings, loans, gifts, liquidation of investment or sale of another property etc., notice under section 148 cannot be issued for verification of information, but here the jurisdictional satisfaction is the essential requirement has to be shown that there has been reason to believe that there was income chargeable to tax. The reasons recorded by the Assessing officer should speak his mind and the basis for coming to conclusion that investment had been sourced from income, which should have been disclosed and had not been shown therefore, there was escapement of income. There must be direct nexus between the material and belief of escapement. This mental exercise must be self-evident from the reasons recorded. Reasons must be self-speaking and self-defending as held by the Hon’ble Delhi High Court in the case of CIT Vs Indo Arab Air Services 283 CTR 0092 (Del) that:
“There is a long distance to travel between a suspicion that income had escaped assessment and forming reasons to believe that income had escaped assessment. The purported reasons do not show any such exercise by the learned Assessing officer and hence we have no hesitation in holding that the learned Assessing officer has exceed his authority in wrongly acquiring the jurisdiction in the matter.”
30. In view of the above discussion, we are of the considered view that the reasons recorded by the learned Assessing officer, are no reasons in the eye of law for assuming jurisdiction in this case for issuing notice under section 148 of the Act.
31. We therefore, quash the assessment orders u/s 144 read with section 147 of the Act dated 30.03.2016 passed in consequence to notice dated 03.2015 for Assessment Year 2008-09 in the present appeal.
32. Since, the assessment order itself is quashed being void-ab-intio, hence all other issues on other legal and on merits of the addition, in the impugned assessment proceeding, are rendered to be academic and infructuous.
33. In the result appeal is allowed.