Reasons for formation of belief must have rational connection with formation of belief

Milind Madhukar Edke Vs ITO (ITAT Pune)

In the present case, ITAT prima-facie find that, the reason to believe that the income of the assessee has escaped assessment is found to have formed on incorrect facts as regards to filing of ITR, further without any enquiry into the transaction reported in AIR and without bringing any cogent material to showcase that the said bank deposits made into saving bank account per se represent the income of the assessee. Further in the absence of any material vis-à-vis findings of the Ld. AO suggesting that, the facts were indeed duly analysed, and  equired enquiries were conducted before forming a belief for recording reasons so has to invoke the reassessment jurisdiction, the reopening of the same u/s 148 of the Act is found misplaced.

In our considered view, the reasons recorded in present case at best can be treated to be reason to suspect which is not sufficient for reopening the case under section 148 of the Act. While recording the reasons to believe merely relying upon financial information cannot be treated as good enough to reopen the case. There can be multiple capital sources of cash deposits available to the assessee and unless and until it is brought out in the reasons to believe as to how the cash deposits represent income or investment from undisclosed sources same cannot give justification to reopen the case u/s 148 of the Act, and for the reason we see that the requirement of application of mind is missing in the present case on the face of reasons recorded, thus the cardinal principle of taxation that all receipts are not income and all income are not taxable income applies squarely to present facts.

It is a well settled law that, the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Whereas in the absence of nexus between the prima facie inference arrived in the reasons recorded and information vis-a-vis material much less tangible, credible, cogent and relevant to form a reason to believe could not be made a basis to assume jurisdiction, hence cannot be relied upon; thus the proceedings initiated are purely 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 which deserve to be quashed in the light of judgement of Hon’ble Apex Court in “ITO Vs Lakhmani Mewal Das” reported in 103 ITR 437,

Thus the legal grounds raised is adjudicated in favour of appellant, consequently the meritorious grounds turned academic calling no adjudication.

Please become a Premium member. If you are already a Premium member, login here to access the full content.