Case Law Details
Shri Ram Mohan Rawat Vs ITO (ITAT Jaipur)
Reasons recorded by the AO for formation of belief that income assessable to tax has escaped assessment are based on two counts. One, the assessee has made bogus purchases and the second, that the purchases are not verifiable as the as the assessee has not filed the return of income. Thus the formation of belief is based on these two factual aspects that the assessee has made bogus purchases which are not verifiable as assessee has not filed the return of income. The reasons for non-verifiable of the purchases made by the assessee due to non filing of the return of Income as stated by the AO is absolutely incorrect and wrong and contrary to the record when the assessee has filed the return of income electronically on 29.10.2007. This fact was also subsequently accepted by the AO that the assessee filed the return of income under section 139(1). The second aspect of the reasons that the assessee has made bogus purchases is also not based on any enquiry or verification of record by the AO but this is simply reproduction of information received from the Investigation Wing. The said information is also incomplete as regards the details of the purchases and the parties from whom such purchases were made by the assessee. Thus the reasons recorded by the AO manifest that there is no application of mind and the averments as recorded in the reasons are very vague and general and rather inconsistent with the facts available on record so far as the filing of return of income by the assessee. The formation of belief on such incorrect and vague reasons would lead the reopening of the assessment as invalid.
Thus making the wrong statement in the reasons recorded and ignoring the relevant and correct facts available on record established that the AO has not applied his independent mind while forming the opinion. The Chandigarh Bench of the Tribunal in case of Baba Kartar Singh Dukki Educational Trust vs. ITO (supra) has also considered an identical issue and held that the AO proceeded for reopening of the assessment for non-existent and factually incorrect reasons and has not applied his mind.
When the AO has initiated the proceedings on the basis of non-existent and factually incorrect facts and reasons without application of mind and without verification of the facts available on record, then the proceedings initiated under section 147/148 are not sustainable in law. The same are set aside and consequential reassessment order is quashed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against the order dated 29.06.2018 of Id. CU (Appeals)-1, Jaipur for the assessment year 2007-08. The assessee has raised the following grounds of appeal :-
” 1. That on the facts and in the circumstances of the case, the Id. Lower authorities grossly erred in issuing notice u/s 148 of the Income-tax Act, 1961 which is issued without proper sanction, is without any reason to believe, and is violation of section 147, 148, 149 & 151 of the Act and the entire proceedings of reassessment deserves to be quashed.
2. that on the facts and In the circumstances of the case, the Id. CIT (Appeals) grossly erred in restricting the trading addition to the extent of Rs. 3,23,575/- and in rejecting the books of account.
3. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”
Ground No. 1 is regarding validity of reopening of assessment.
2. The assessee Is an Individual and proprietor of M/S. Rawat Jai Corporation carrying on business of trading, import and export of precious and semi precious stones. The assessee filed his return of income under section 139(1) of the IT Act on 29.10.2007 declaring total income of Rs. 2,28,220/-. Subsequently, the AO initiated the reassessment proceedings by issuing notice under section 148 on 28.03.2014. The assessee raised the objection against the notice issued under section 148 which was disposed off by the AO by separate order dated 2nd January, 2015. The reassessment was completed by the AO whereby the AO made addition in respect of the alleged bogus purchases made by the assessee from one party, namely, M/s. Avi Exports, Surat. The assessee challenged the action of the AO before the Id. CIT (A) and also challenged the validity of reopening of the assessment based on the reasons recorded by the AO, but could not succeed.
3. Before the Tribunal, the Id. Counsel for the assessee has submitted that reasons recorded by the AO are based on wrong facts and without application of mind. He has referred to the reasons recorded at page 14 of the paper book and submitted that the AO has stated in the reasons that the assessee has made bogus purchases as per the information provided by the Investigation Wing and further alleged that the assessee has not filed the return of income. Hence the AO opined that the purchases to the extent of Rs. 24,02,235/- are not verifiable and formed the belief that the income to that extent has escaped assessment. The Id. Counsel has pointed out that this statement of the AO as recorded in the reasons is factually incorrect as the assessee filed his original return of income on 29.10.2007. the return was filed on-line which was subsequently accepted by the AO that the assessee has filed the return of income. Therefore, the formation of belief by the AO on the basis of incorrect facts recorded in the reasons renders the reopening invalid and liable to be quashed. He has further submitted that even in the objections filed by the assessee against the notice issued under section 148 the assessee has specifically raised this objection about the wrong and incorrect information mentioned in the reasons which clearly shows that the AO has not applied his mind while forming the opinion/belief that the income assessable to tax has escaped assessment. The AO while disposing off the objections vide order dated 2nd January, 2015 has not dealt with this specific factual objection raised by the assessee. Therefore, the said order of the AO rejecting the objection raised by the assessee Is also contrary to the facts. In’ support of his contention, he has relied upon the following decisions :-
Mumtaz Haji Mohmad Memon vs. ITO
(Special Civil Application No. 21030/2017 dated 21.03.2018 (Guj.HC)
Baba Kartar Singh Dukki Educational Trust vs. ITO
(ITA No.444-446/CHD/2014 dated 29.05.2015 Chandigarh Tribunal)
Nirmala Agarwal vs. ACIT
(ITA 995-996/JP/2016 dated 11.04.2018)(Jaipur Tribunal)
Rajendra Prasad Choudhary vs. ACIT
(ITA 1495-1496/JP/2018 dated 12.06.2019) (Jaipur Tribunal)
Thus the Id. Counsel has submitted that the reopening based on incorrect a reasons recorded by the AO is not sustainable in law and liable to be quashed.
4. n the other hand, the Id. D/R has relied upon the orders of the authorities below and submitted that the AO has duly considered the objections of the assessee and disposed off the same by a separate speaking order. The assessee has not disputed the fact that there is a purchase made by the assessee from M/s. Avi Gems, Surat which was found by the Investigation Wing being engaged in providing accommodation entries of bogus sales.
5. I have considered the rival submissions as well as the relevant material on record. The AO has reopened the assessment by recording the reasons as under
” As per information, the assessee has made bogus purchases of Rs. 24,02,235/- during the year under consideration as per information provided by DGIT (Inv.), vide his office letter dated 14.03.2014.
Since assessee has not filed the return of income, purchases amounting to Rs. 24,02,235/- are not verifiable. in view of above given facts, I have reason to believe that Rs. 24,02,235/- has escaped assessment in term of section 47 of .T. T Act, 1961.
It is a fit case for issuance of notice u/s 148 of IT Act, 1961.
Dated : 27.03.2014.
sd/-
(Umesh Jalthar)
Income Tax Officer,
Ward 2(1), Jaipur.”
Thus the reasons recorded by the AO for formation of belief that income assessable to tax has escaped assessment are based on two counts. One, the assessee has made bogus purchases and the second, that the purchases are not verifiable as the as the assessee has not filed the return of income. Thus the formation of belief is based on these two factual aspects that the assessee has made bogus purchases which are not verifiable as assessee has not filed the return of income. The reasons for non-verifiable of the purchases made by the assessee due to non filing of the return of Income as stated by the AO is absolutely incorrect and wrong and contrary to the record when the assessee has filed the return of income electronically on 29.10.2007. This fact was also subsequently accepted by the AO that the assessee filed the return of income under section 139(1). The second aspect of the reasons that the assessee has made bogus purchases is also not based on any enquiry or verification of record by the AO but this is simply reproduction of information received from the Investigation Wing. The said information is also incomplete as regards the details of the purchases and the parties from whom such purchases were made by the assessee. Thus the reasons recorded by the AO manifest that there is no application of mind and the averments as recorded in the reasons are very vague and general and rather inconsistent with the facts available on record so far as the filing of return of income by the assessee. The formation of belief on such incorrect and vague reasons would lead the reopening of the assessment as invalid. The Hon’ble Gujarat High Court in case of Mumtaz Hajl Mohmad Memon vs. ITO (supra) while considering an identical Issue has observed in para 10 & 11 as under :-
” 10. We are conscious that in the present case, the return filed by the assessee was not taken in scrutiny. Nevertheless, in such a case also the requirement that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, would apply. Reference in this respect can be made to the decision of this Court In case of Inductotherm (India) P. Ltd. vs. M. Gopalan, Deputy Commission of Income-Tax reported in (2013) 356 1TR 481 (Cuff Validity of the reasons recorded by the Assessing Officer would therefore be one of the Issues.
11. In this context, we have noted that the reasons proceeded on two fundamental grounds. One, that the property In question was sold fora sum of Rs. 41495,0001 and two; that the assessee had not filed the return and that therefore his 1/3′d share out Of the sale proceeds was not offered to tax. Both these factual grounds are totally incorrect as is now virtually admitted by the Revenue. It IS undisputed that the assessee had actually filed the return of Income for the said assessment year and income also offered his share of the declared sale consideration to tax as capital gain. The Assessing Officer may have dispute with respect to computation of such capital gain, he cannot simply dispute the fact that the assessee did file the return. Importantly, even the second factual assertion of the Assessing Officer in the reasons recorded is totally incorrect. He has referred to said sum of Rs. 418,95,0001 as a sale price of the property. The assessee had produced before the Assessing Officer, the sale deed in which, the sale consideration disclosed as Rs. 50 faiths.”
Thus making the wrong statement in the reasons recorded and ignoring the relevant and correct facts available on record established that the AO has not applied his independent mind while forming the opinion. The Chandigarh Bench of the Tribunal in case of Baba Kartar Singh Dukki Educational Trust vs. ITO (supra) has also considered an identical issue and held that the AO proceeded for reopening of the assessment for non-existent and factually incorrect reasons and has not applied his mind. The Tribunal has concluded in para 19 as under :-
” 19. In view of the above discussion, I hold that the AO had taken an irrelevant fact into consideration and reopened the assessments on the basis of suspicion. further more, the Assessing Officer proceeded for re-opening of the assessment on non-existent and factually Incorrect basis/reasons and has not applied his mind and did not verify the assessment records/returns filed by We assessee prior to recording of the reasons, therefore, re-opening of the assessments for assessment year 2001-02, 2002-03 and 2003-04 is laved and liable to be set aside/quashed. Accordingly, the orders of the authorities below are not sustainable and hence deserve to be quashed I order accordingly’
Accordingly, in view of the above facts and circumstances of the case, when the AO has initiated the proceedings on the basis of non-existent and factually incorrect facts and reasons without application of mind and without verification of the facts available on record, then the proceedings initiated under section 147/148 are not sustainable in law. The same are set aside and consequential reassessment order is quashed.
6. Since the reopening is set aside and quashed, therefore, the ground no. 2 raised on the merits of the addition becomes Infructuous.
7. In the result, the appeal of the assessee is allowed.
Order is pronounced In the open court on 10/10/2019.
