Case Law Details

Case Name : Smt. Sapna Chauhan Vs. ITO (ITAT Agra)
Appeal Number : ITA No. 137 & 138/Ag/2018
Date of Judgement/Order : 22/03/2019
Related Assessment Year : 2009-10 and 2010-11

Smt. Sapna Chauhan Vs ITO (ITAT Agra)

It is 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-ab-intio. In this background of the case the objection raised by the Ld. Sr. D.R is rejected being devoid of substance.

From the perusal of the reasons recorded it is evident that escapement is assumed on account of alleged non furnishing of sources of investment in policy premiums of Birla Sun Life Insurance Co. Limited , which was allegedly questioned vide Letter dated 14.08.2015. Letter dated 14.08.2015 has been filed which was issued under section 133(6) of the Act (APB-1 7) which nowhere requires the assessee to prove the sources of investment in premiums paid against policy of Birla SunlifeInsurance. Vide this notice the learned Assessing officer has only called upon the assessee to furnish year wise and policy wise break up of premiums paid against policy of Birla Sunlife Insurance. In fact this notice refers to a notice dated 05.06.2015 which was issued by the learned Assessing officer in past and remained non-complied with. Copy of notice dated 05.06.2015 is also placed in paper book (APB-1 6) evenin this notice assessee was only required to furnish year wise and policy wise break up of premiums paid against policy of Birla Sunlife Insurance. Therefore, it is clear that assumption of jurisdiction based on the reasons that assessee was asked to explain the source of investment vide letter dated 14.08.2015 and he has not furnished the sources of investment leading to formation of satisfaction regarding escapement of income is found to be wrong, which seriously prejudices the validity of reasons recorded.

Fact of investment in premium paid is akin to cash deposits in saving bank account as both being Investment and are assessable under section 69 of the Act, and such fact alone cannot be a reason for ‘escapement of income’ and to clothe the learned Assessing officer with jurisdiction to issue notice under section 148 of the Act.

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 ‘satisfaction’ that any income has escaped assessment. The text of the reasons recorded do virtually proves that the reasons recorded in the case in hands are no reasons in the eye of law. The so called ‘reasons’ instead of being ‘reasons to believe’ are solely ‘reasons to suspect’. The investment in premium paid need not necessarily come from the income. It may be out of 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 of 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 learned Assessing officer should speak his mind and the basis for coming to conclusion that investment in premiums 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. The purported reasons do not show any such exercise by the learned Assessing officer and hence he wrongly acquired the jurisdiction in the matter.

In view of the reasons as above andfactual matrix of the case, we are of the considered view that the reasons recorded by the Assessing officer, are no reasons in the eye of law for assuming jurisdiction in this case.

As the assessment orders itself are quashed being void-ab-initio, all other issues on merits of the addition, in the impugned assessment proceedings, are rendered to be academic and infructuous.

FULL TEXT OF THE ITAT JUDGEMENT

Both these appeals by the assessee are directed against separate orders passed by the Ld. CIT(A)-II, Agra, dated 30.11.2017. Assessee has raised 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 16.03.2016 said to be issued under section 148 of the ‘Act’.

2. BECAUSE, the purported ’Reasons’ are No ‘Reasons’ in the eyes of Law. The so called ‘Reasons’ do not show any application of mind on part of the AO’ to show that any Income liable for Tax has escaped Assessment warranting recourse to Notice under section 148 of the Act.

3. BECAUSE, the Assessment order dated 30.12.2016 framed under section 143(3) of the ‘Act’ is void-ab-inito having been completed without service of any Notice under section 143(2) of the Act’ upon the Appellant.

WITHOUT PREJUDICE TO THE ABOVE

4. BECAUSE, appellant’ has no ‘undisclosed sources’ of Income, therefore, no addition could be made for ‘unexplained deposit’.

5. BECAUSE, ‘appellant’ has sufficiently and satisfactorily explained the cash deposits in his bank account and the addition has been made on presumptions and surmises in utter ignorance of the settled legal position that in re-assessment proceedings the onus is on the ‘LEARNED ASSESSING OFFICER’ to prove that cash deposits represents ‘Income’ which has escaped assessment.

6. BECAUSE, in any case and in any view of the matter impugned additions/disaiowances and impugned assessment order is bad in law, illegal, unjustified barred by limitation, 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.

7. BECAUSE, the ‘appellant’ denies levy of interest under section 234B amounting to Rs. 18,414/, of the ‘Act’. Alternatively the Interest has excessively and incorrectly been

8. BECAUSE, the assessment order dated 30.12.2016 to the extent making addition is bad in law and against the facts of the case.

The appellant’ craves leave to add, alter or vary the grounds of appeal before or at the time of hearing.

2. Since, assessee has raised a common ground in these appeals for both the assessment years regarding the validity of reasons recorded, which are identical in both the cases with the only variation in amount and assessment year therefore, both the appeals are heard together and being adjudicated by this common order.

3. The Ld. A.R of the assessee Shri Anurag Sinha, Advocate submitted that the purported ’reasons’ are ‘no reasons’ in the eye of Law. The so called ‘reasons’ are based on incorrect assumption of facts as assessee was never questioned to explain source of investment whereas in the reasons recorded escapement is assumed for alleged failure of the assessee to explain sources of investment. According to the submission of Counsel to even if there was any failure to explain sources of investment such failure alone will not necessarily leads to the satisfaction of escapement of income. Proceedings under section 147 cannot be initiated for the purpose of verification of sources of investment. Thus, according to the Ld. A.R the reasons recorded do not show any application of mind on part of the LEARNED ASSESSING OFFICER to show that any Income liable for Tax has escaped Assessment warranting recourse to Notice under section 148 of the Act. He invited attention to the ‘reasons recorded’ for A.Y 2009-10 placed in paper book (APB-15)which is being reproduced as under:

REASONS RECORDED U/S 148(2) OF INCOME-TAX ACT, 1961

“In this case as per STR information received vide letter F.No. Addl. CIT/R-5/Fzd./STR/2014-15/1090 dated 14.12.2014 from Addl. Commissioner of Income-tax Range-5, Firozabad, the assessee have deposited substantial amounts of policy premiums with the “Birla Sun Life Insurance Co. Ltd,” in the year 2008-09 to 2011-12. The assessee was asked to explain the source of same vide this office letter dated 14.08.2015. The assessee vide his reply dated 24.08.2015 submitted the details of investments made in Birla Sun Life Insurance Co. Ltd. as under:-

Financial Year Premium deposited
2008-09 2,74,518/-
2009-10 3,35,000/-
2010-11 3,09,858/-
2011-12 4,00,000/-

The Bank Statement of A/c No. 86551010001097 of the Assessee for the period of F.Y.-2008-09 to 2011-12 were called for from the Branch Manager, Syndicate Bank, Etawah. On going through the statement it is found that there was –NIL- balance in the bank, whereas assessee deposited premium of Rs.2, 74,518/- in F. Y.-2008- 09 for which assessee has not furnished any explanation. As per reply of the assessee as well as from ITD system it is seen that assessee had submitted her return of income showing income of Rs. 1,54,680/- for A. Y.-2009-101, whereas she deposited Rs. 2,74,518/- against premium of insurance policies. In view of the facts of the case, I am left with no option but to form a strong belief that income amounting to Rs. 2,74,518/- has escaped assessment within the meaning of section 147 of Income tax Act, 1961.

Proposal is being sent to the Principal Commissioner of Income Tax-II, Agra through Additional Commissioner of Income tax, Range-5, Firozabad for seeking approval to issue notice u/s 148 of Income tax Act, 1961.”

4. Per contra, the Ld. D.R ShriWaseemArshad, made a preliminary objection submitting that assessee since had not challenged the validity of notice under section 148 of the Act at any stage before the authorities below therefore, he 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 Judgment 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 credible report indicating suspicious transaction and therefore, the LEARNED ASSESSING OFFICER was well within his jurisdiction to issue Notice u/s 148 of the Act. He further submitted that no return of income was filed in compliance to notice u/s 148 of the Act.Reliance was placed to the following Judgements:

1. ACIT Vs Shri Jatinder Machanda, ITA.No. 4060/Del./201 1- ITAT Delhi

2. CIT Vs Oasis Hospitalities (Pvt.) Ltd. Delhi High Court

3. CIT VsKamdhenu Steel & Alloys Ltd. Delhi High Court

4. M/s Kays jewels Private Ltd. Vs Union of India And Anr. Writ Tax No. 721 of 2015 – Allahabad High Court

5. CIT VsShriShyam Sunder Infrastructure, ITA 236/2014 – Delhi High Court

6. M/s Crown Consultants Pvt. Ltd. Vs. CIT, Writ Petition No. 2595 of 2013 – Bombay High Court

7. M/s Amaya Infrastructure Pvt. Ltd. Vs. ITO Writ Petition No. 787 of 2016 – Bombay High Court

8. M/s Pankaj Hospital Ltd. Vs. CIT and another Writ Tax No. 83 of 2014 – Allahabad High Court

9. M/s Ginni Filaments Vs. CIT Writ Tax No. 1402 of 2014- Allahabad HC

10. DGIT Vs. M/s. Spacewood Furnishers Pvt. Ltd. Civil Appeal No. 4394 of 2015 – Supreme Court

11. Paramount Communication ltd. vs. CIT Petition for Special Leave to Appeal (C) No. 16930 of 2017

5. We have considered rival submissions, material on records and the case laws relied up by both the parties. First we would deal with the objection raised by the Sr. D.R regarding the admissibly and maintainability of ground challenging the validity of notice u/s 148 of the Act. The Ld Sr. R has objected that assesse 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 Ld. Sr. D.R cannot be approved under law.

6. As the objection raised by the assessee is a purely legal objection and in view of the Hon’ble Apex Court judgement 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 thought 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.

7. In the case of Shri Abdul MajidVs CIT(2006) 153 Taxman 131 (All.)(APB-24-26)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)”

The Hon’ble High Court held that

“Further, it has been 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.”

8. In the case“Km.Teena Gupta Vs. CIT”,(2017) 4 TMI 114 (All.)(APB-27-31 ) the Hon’ble Allahabad High Court set-aside the order passed by the Hon’ble ITAT wherein the Hon’ble 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 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 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.

9. The Ld. Sr. D.R placed heavy reliance to the Judgment of Hon’ble Delhi High Court and CIT vs. Safetag International India Pvt. Ltd.(supra) perusal of the case reveals that it nowhere lays down any proposition of law for which the Ld. 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 Ld. 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 CIT(A) based upon such reasons challenging the validity of re-assessment proceedings and 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.

10. Further reliance on the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2002) 125 Taxman 963 for the proposition that the Hon’ble Supreme Court has required that immediately after receipt of notice u/s 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 u/s 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 assesse is possible as far as substantive right is concerned. Thus, the reliance is misplaced.

11. 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-ab-intio. In this background of the case the objection raised by the Ld. Sr. D.R is rejected being devoid of substance.

12. Even on facts of the case it is also a matter of fact that notwithstanding that assessee raised no challenge at the stage of the learned Assessing officer. However, perusal of the appellate order passed by the Ld. CIT(A) reveals that assessee challenged the action of re-opening before the Ld CIT(A) by taking specific grounds. The Ld. CIT(A) extensively and elaborately discussed the issue and held re-opening to be valid in law as per her own understanding over the issue. Therefore, it cannot be said that assessee is challenging the legality of reopening for the first time before the Hon’ble ITAT. Thus, the objection raised by the Sr. D.R is rejected being based on without consideration of fact available on record.

13. Now coming to the validity of reopening based on reasons recorded. From the perusal of the reasons recorded it is evident that escapement is assumed on account of alleged non furnishing of sources of investment in policy premiums of Birla Sun Life Insurance Co. Limited , which was allegedly questioned vide Letter dated 14.08.2015. Letter dated 14.08.2015 has been filed which was issued under section 133(6) of the Act (APB-1 7) which nowhere requires the assessee to prove the sources of investment in premiums paid against policy of Birla SunlifeInsurance. Vide this notice the learned Assessing officer has only called upon the assessee to furnish year wise and policy wise break up of premiums paid against policy of Birla Sunlife Insurance. In fact this notice refers to a notice dated 05.06.2015 which was issued by the learned Assessing officer in past and remained non-complied with. Copy of notice dated 05.06.2015 is also placed in paper book (APB-1 6) evenin this notice assessee was only required to furnish year wise and policy wise break up of premiums paid against policy of Birla Sunlife Insurance. Therefore, it is clear that assumption of jurisdiction based on the reasons that assessee was asked to explain the source of investment vide letter dated 14.08.2015 and he has not furnished the sources of investment leading to formation of satisfaction regarding escapement of income is found to be wrong, which seriously prejudices the validity reasons recorded.

14. The next part of the ‘reasons recorded’ states that “As per reply of the assessee as well as from ITD System it is seen that assessee had submitted here return of income showing income of Rs 1,54,680/- for A.Y. 2009-10 whereas she had deposited Rs. 2,74,518/- against premium of insurance policies. In view of the facts of the case I am left with no option but to form a strong belief that income amounting of Rs. 2,74,518/- has escaped assessment within the meaning of section 147 of the I.T Act 1961 .”

15. Reading of this part of reasons recorded suggests that according to the learned Assessing officer since assessee filed Return of Income showing Taxable Income of Rs. 1,54,680/- and she had deposited premium of insurance policies amounting to Rs. 2,74,518/- therefore, escapement of income is proved. This also cannot be valid ground for arriving at the satisfaction for escapement of income.

16. This reasoning adopted by the learned Assessing officer for arriving at the ‘satisfaction’ for escapement of income is based on no valid ground. Notice issued under section 148 of the Act on the basis of identical reasons was found to be invalid in law by the Hon’ble Gujarat High Court in the case of Jayesh Govindbhai Balar vs. ITO(2016) 71 taxguru.in 221 (Gujarat). The Hon’ble High Court held that:-

“9. It is by now well settled that to support a notice for reopening of assessment, the justification must come from the reasons recorded by the Assessing Officer for issuing such notice. The Assessing Officer cannot rely on any material outside the reasons recorded in order to support his conclusion that income chargeable to tax had escaped assessment or that the same was on account of failure on the part of the assessee to disclose truly and fully all material facts.

10. In this context, if we revert to the reasons recorded, they contain two elements. The assessee had purchased two immovable properties valued at Rs.61. 76 lacs and Rs.54.59 lacs respectively, whereas, he had filed return disclosing income of Rs.2.47 lacsonly. The Assessing Officer was of the opinion that when assessee had purchased two properties at such sizable cost, he could not have shown income of only Rs.2.44 lacs. He therefore, concluded that ‘income to the extent of huge transaction of Rs. 1,16,35,500/- … had escaped assessment for AY 2008-09…’. This reason completely lacks logic. There is no direct co- relation between the purchase of properties by the assessee and his disclosure of the income during a particular period. The reason is vague and relies on the presumptions on the part of the Assessing Officer. He seems to be presuming that when the assessee had made purchase worth such huge amounts, he must disclose sizable income”

17. Hon’ble Bombay High Court in the case of CIT VsSmt. Maniben Valji Shah reported as (2006) 283 ITR 453 (Bom.) found reopening to invalid in law where proceedings under section 147 was initiated to verify the source of Investment made in purchase of house was quashed. It was held by the Hon’ble High Court:

“Reassessment Reasons to believe fishing enquiry impugned notice clearly indicates that the ld. AO merely wanted to know the details of sources of funds invested by the assessee in purchasing a flat ld. 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 ld. AO in reopening the assessment was not valid.”

18. In the case of Chunnilal Prajapati Vs ITO 2011 (2) TMI 1522 the Lucknow Bench of 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 ChunniLal, 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 ShriChunniLal, 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.”

19. Based on the above reproduced ‘Reasons’ challenge was made by the assessee regarding the validity of re-opening. The Hon’ble 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”

20. The ITAT, Delhi Bench in the case of Anil Singhal Vs ITO in ITA No. 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.”

21. The Hon’ble 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.

22. We are in agreement with the submission of the Ld. Counsel of the assessee that the fact of investment in premium paid is akin to cash deposits in saving bank account as both being Investment and are assessable under section 69 of the Act, and such fact alone cannot be a reason for ‘escapement of income’ and to clothe the learned Assessing officer with jurisdiction to issue notice under section 148 of the Act. ITAT, Delhi in the case of BirBahadur Singh Sijwali vs. ITO(2015) 68 SOT 197 (Delhi –Trib.) wherein it was held that (page 2 – 6):-

“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 10,24,100 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 10,24,100 has escaped assessment of income because the assessee has Rs 10,24,100 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 escaped assessment.

9. Learned Departmental Representative has referred to a number of judicial precedents in support of her stand that even deposits in the bank account, as having come to the notice of the Assessing Officer through AIR, can be reason enough for holding the belief that income has escaped assessment. She has relied upon the decisions in the cases of CIT v. Nova Promoters &Finlease (P.) Ltd [2012] 342 ITR 169 (Delhi) but then none of the questions before Hon ’ble High Court had anything to do with reopening of assessment and this decision cannot, therefore, be taken as an authority on the legal issue which did not even come up for specific adjudication before Their Lordships. As for her reliance on Hon’ble Supreme Court’s judgment in the case of Phool Chand BajrangLal v. ITO [1993] 203 ITR 456 that was case in which Their Lordships concluded that the LEARNED ASSESSING OFFICER “rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and, therefore, income chargeable to tax had escaped assessment” and we are unable to see anything on the facts of the present case which are materially similar to the facts of the said case. As regards her reliance on the decision of a coordinate bench in the case of Mithila Credit Services Ltd. v. ITO [IT Appeal No. 1078/Delhi of 2013; dated 23.5.2014], it is important to bear in mind the fact that it was a case in which the Assessing Officer had reopened the assessment on the basis of receipt of information from Directorate of Investigation, and, as noted by the Assessing Officer in the reasons recorded for reopening the assessment, “the name of the assessee figures as one of the beneficiaries of these alleged bogus transactions” in the information given by the directorate. If the assessee was a beneficiary of such a scam, the income was indeed to have been taxed in its hands 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 as existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. To us, 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. On the basis of reasons as recorded in this case, such an inference about income escaping assessment, in our humble understanding, cannot be drawn.”

23. 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 ‘satisfaction’ that any income has escaped assessment. The text of the reasons recorded do virtually proves that the reasons recorded in the case in hands are no reasons in the eye of law. The so called ‘reasons’ instead of being ‘reasons to believe’ are solely ‘reasons to suspect’. The investment in premium paid need not necessarily come from the income. It may be out of 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 of 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 learned Assessing officer should speak his mind and the basis for coming to conclusion that investment in premiums 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. The purported reasons do not show any such exercise by the learned Assessing officer and hence he wrongly acquired the jurisdiction in the matter.

24. Before, we part with the matter it is considered expedient to deal with the cases relied upon by the Ld. Sr. D.R. for the revenue. Reliance to ‘ACIT vs Shri Jatinder Machanda’, ITA No. 4060/Del ./201 1 -ITAT Delhi is misplaced as in this case appeal preferred at the instance of the Department was dismissed by the ITAT. In addition to the above issue decided was regarding addition made under section 68 of the Act which was concluded by the finding that the revenue had failed to bring on record anything which could show that it was assessee’s own money which has been deposited in the bank account of the donor. In the case of Jatinder Manchanda (supra) no question of validity of proceedings under section 148 was under consideration before the ITAT. Therefore, the case is of no relevance to the issue under consideration.

25. In‘CIT vs Oasis Hospitalities (Pvt.) Ltd.’, Delhi High Court, reliance is also misplaced as in this case, bare reading of the text makes it apparent that no question of validity of proceedings under section 148 was under consideration before the ITAT. Therefore, the case is distinguishable on

26. Further reliance to ‘CIT vs Kamdhenu Steel & Alloys Ltd.’, (2014) 361 ITR 0220 (Delhi) is misplaced as in this case also the Hon’ble Delhi High Court while quashing Notice under section 148 has held that learned Assessing officer had merely referred to certain investigation carried out by the Directorate of IT (Inv.) in respect of bogus/accommodation entries provided by certain individuals/companies. He had not applied his mind. He did not even care to see the apparent mistake in the particulars where three entries were repeated twice each. There was nothing on record to show that the assessee had not disclosed all material particulars or had suppressed any information. Reassessment noticewas thus held to be rightly quashed by the ITAT. It is not understood as to what purpose it serves for the revenue to rely upon this Judgement rendered in favour of the assessee.

27. The case of‘M/s Kays Jewels Private Ltd. vs Union of India’, in Writ Tax No. 721 of 2015 by the Hon’ble Allahabad High Court is also misplaced as in this case as evident from the limited text reproduced in the Synopsis referring to Para-14, it is apparent that the case was decided by the Hon’ble High Court on ‘change of opinion’ that too in favour of the assessee, which is not the case in appeal on hands. Therefore, the case is distinguishable on facts.

28. Reliance to ‘CIT vs Shri Shyam Sunder Infrastructure’, ITA 236/2014 – Delhi High Court is misplaced as in this case assessee therein challenged the legality of Notice under section 148 on the ground of lack of territorial jurisdiction of the learned Assessing officer framing the assessment. The Hon’ble High Court while reversing the order passed by the Hon’ble ITAT held that in view of the specific provision contained in section 124(3) as the assessee responded to the learned Assessing officer’ snotice issued under section 148 it has lost is capacity to urge the ground of lack of jurisdiction in view of specific bar in section 124(3)(a) of the Act. In the case on hands assessee has not raised any ground challenging the territorial jurisdiction of the learned Assessing officer. Therefore, the case is distinguishable on facts.

29. Next ‘M/s Crown Consultants Pvt. Ltd. vs. CIT’, inWrit Petition No. 2595 of 2013 – Bombay High Court is misplaced as in this case as can be made out after reading of Para-7 of the Judgment delivered by the Hon’ble High Court in its Writ Jurisdiction that the case of the revenue was that assessee has not reported a loan of Rs. 1,19,42,900/- received from Directors and their family members in the financial statement furnished along with the Return of income. Thus, there was a failure to truly and fully disclose all material facts necessary for assessment. The Petitioner for the first time contended before the Hon’ble High Court that such Loan from family members is shown as Margin Money in the Balance Sheet. The Hon’ble High Court found that such an objection has been raised before them for the first time and therefore at the Writ stage there was a reasonable belief on part of thelearned Assessing officer to come to a prima-facie view that income chargeable to tax has escaped assessment. In the case under consideration no such question is involved and no objection is being raised for the first time. Therefore, the case is distinguishable on facts.

30. The Ld. DR’smisplaced reliance to ‘M/s Amaya Infrastructure Pvt. vs. ITO’, in Writ Petition No. 787 of 2016 – Bombay High Court asinthis case, we find that the petitioners have filed detailed information called for by the Assessing Officer under Section 142(1) and 143(2) of the Act and thus participated in the assessment proceedings. Therefore, the case referred and relied upon by the revenue is distinguishable on facts.

31. In the case of‘M/s Pankaj Hospital Ltd. vs. CIT’ in Writ Tax No. 83 of 2014 – Allahabad High Courtreferred by the revenueis again misplaced as in this case the facts are entirely different as evident from the reading of the Judgment. In the referred case appellant, before the Hon’ble High Court in Writ submitted that during the course of the assessment under Section 143(3), the AO had issued a Notice under Section 142 requiring the assessee inter alia to furnish a disclosure in respect of the share applicants, the amounts received and the source, the mode in which payments were received together with confirmatory letters and PAN card details of the investors. It has been stated that in response thereto the assessee had by its letter (Annexure 3) made a disclosure including that in regard to the four companies which are now alleged to be bogus. Hence, it has been submitted that there was no failure on the part of the assessee to disclose fully and truly all the necessary facts relevant to the assessment and in view of the proviso to Section 147(1), the reopening of the assessment beyond the period of four years is contrary to law.The Hon’ble High Court while sustaining Notice under section 148 held though the reopening of the assessment in the present case is beyond the period of four years but the Assessing Officer was satisfied that the condition stipulated in the first proviso to Section 147 was duly fulfilled. Therefore, the case is distinguishable on facts.

32. Reliance to ‘M/s Ginni Filaments vs. CIT’, in Writ Tax No. 1402 of 2014- Allahabad HC is misplaced as in this case assessee had not valued its Closing Stock as per provisions of Section 1 45A of the Act. Notice under section 148 was issued which was challenged in Writ Jurisdiction. The Hon’ble High Court while sustaining Notice under section 148 held that at this stage, it can be said that there is relevant material on the record to form a reasonable belief that the taxable income of the assessee has escaped assessment, in view of section 145-A of the Act. From the reading of the Judgment it is not understood that what proposition of law laid down in the referred case matches with the controversy involved in the case on Therefore, the case is distinguishable on facts.

33. Again, reliance to Director General of Income Tax vs. M/s. Space wood Furnishers Pvt. Ltd.Civil Appeal No. 4394 of 2015 – Supreme Court is misplaced as in this case the issue involved was that the warrant of authorization under Section 132, which is required to be founded on a reasonable belief of the authorized official regarding the existence of the conditions precedent to the exercise of the power to issue the same. The case has no parity on facts therefore, distinguishable.

34. DR. Reliance to ‘Paramount Communication Ltd. vs. CIT’, Petition for Special Leave to Appeal (C) No. 16930 of 2017 is misplaced as the facts of the case as can be read out from the limited reproduction given in the synopsis furnished by the Sr. D.R shows that it is distinguishable on facts and no such question has been decided while dismissing SLP as is involved in the case on hands.

35. In view of the reasons as above andfactual matrix of the case, we are of the considered view that the reasons recorded by the Assessing officer, are no reasons in the eye of law for assuming jurisdiction in this case.

36. We therefore, quash the assessment orders u/s 144 read with 147 of the Act both dated 30.12.2016 passed in consequence to notices both dated 16.03.2016 respectively for Assessment Years 2009-10 & 2010.

37. As the assessment orders itself are quashed being void-ab-initio, all other issues on merits of the addition, in the impugned assessment proceedings, are rendered to be academic and infructuous.

ITA No.137 &138/Ag/2018  (Asst. Year: 2009-10 & 2010-11)

38. In the result,both the appeals in ITA No.137 for A.Y 2009-10 and appeal in ITA No. 138 for A.Y 2010-11 are allowed.

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