Case Law Details

Case Name : Shri Parmod Kumar Sahai Vs ITO (ITAT Delhi)
Appeal Number : ITA No.-5758/Del/2013
Date of Judgement/Order : 20/12/2019
Related Assessment Year : 2006-07
Courts : All ITAT (7804) ITAT Delhi (1855)

Shri Parmod Kumar Sahai Vs ITO (ITAT Delhi)

No reopening permissible on basis of invalid enquiry made under section 133 without approval of competent authority when no proceedings were pending

We have perused second paragraph of the assessment order which refers to the inquiry made by the Assessing Officer before issue of notice u/s 148 of Income Tax Act on 07.12.2007. The Assessing Officer, in the absence of any proceedings pending before him, has no authority to conduct any inquiry, except when prior permission has been taken by the Assessing Officer for conducting the inquiry u/s 133 of I.T. Act from the competent authority specified in second proviso to Section 133 of I.T. Act. There is nothing on record to show that the Assessing Officer had obtained prior approval of the competent authority specified in second proviso to 5.133 of I.T.Act. to undertake such inquiry. As noted in foregoing paragraph no. 8 of this order, the ld. DR had admitted that no proceedings were pending before the AO prior to issue of notice u/s 148 of I.T.Act. Thus, we find that the Assessing Officer has conducted inquiries without authority of law before issue of notice u/s 148 of I.T.Act. Thus, the assumption of jurisdiction by the AO u/s 147 of I.T.Act read with section 148 of I.T.Act is based on inquiries conducted without the authority of law. We are of the firm view that assumption of jurisdiction u/s 147 r.w.s. 148 of I.T.Act on the basis of inquiries conducted without the authority of law lacks legitimacy Assumption of jurisdiction must be held to be unauthorized, when the inquiries made for assuming the jurisdiction were unauthorized in law; and the assessment order passed in pursuance of unauthorized assumption of jurisdiction u/s 147 r.w.s. 148 of I.T. Act, also lacks legitimacy. On this ground also, the assessment order dated 22.12.2008 deserves to be annulled. With the annulment of assessment order, grounds 2 and 3 of appeal are merely academic, hence not decided.

10. In view of the discussion in foregoing paragraphs (9) and (9.1) of this order; we set aside the impugned order dated 23.08.2013 of Ld. CIT(A); and annul the aforesaid assessment order dated 22.12.2008. For statistical purposes, the appeal is allowed. Order pronounced in the open court on 20/12/2019

FULL TEXT OF THE ITAT JUDGEMENT

This appeal is preferred by the department against order dated 23.08.2013 passed by the Ld. CIT (Appeals)-Meerut for assessment year 2006-07.

2. Following grounds of appeal have been raised in this appeal :

“1. That the assumption of jurisdiction u/s 147/148 as made by the A.O. and sustained by the C.I.T.(Appeal) is invalid, based on suspicion arbitrary, not sustainable under the law.

2. That without prejudice to the ground no. 1 above the C.I.T.(Appeal) had erred on facts and under the law, in the absence of cogent material, to allow the expenses on adhoc basis @ 20% of the receipt in substitution of estimate made by the AO and consequently the income enhanced to Rs. 15,57,710/- from assessed by AO Rs. 3,23,022/- is arbitrary, unjust and at any rate very excessive.

3. That disallowance of Rs. 1,55,680/- out of the various expenses had made by the AO is arbitrary, unjust and at any rate very excessive.”

3. The assessee filed return of income on 10.08.2006 showing income of Rs. 1,67,342/-. The case was not selected for scrutiny by the Assessing Officer which is evident from the fact that no notice u/s 143(2) of Income Tax Act was issued by the Assessing Officer, the time limit whereof was available up to 30th September, 2007. However, notice u/s 148 of Income Tax Act read with Section 147 of IT Act was issued on 7th December, 2007. Assessment order u/s 143(3)/148 of Income Tax Act was passed on 12.12.2008 wherein an addition of Rs. 1,55,680/- was made to the returned income and the total income was assessed at Rs. 3,23,022/-. The aforesaid addition of Rs. 1,55,680/- was made by the Assessing Officer taking adverse view of absence of supporting vouchers for expenditure claimed as per profit and loss account. The assessment order has been passed in Hindi, but English translation of the assessment order is available on record. The relevant portion of the translated version of the assessment order is reproduced as under :-

During the year, assessee was in receipt of professional / technical fees amounting to Rs. 19,47,316/-. The assessee declared income of Rs. 1,55,770/- by computing income u/s [email protected]% and in form no. 16A, under the head nature of payment ‘contract section 194C’ was hand written. A letter was written. A letter was written to the director of the company for verification of form No. 16A on 14/03/2007. The letter was served through speed post No. 19/2444 on 15/03/07. In response to that, the company has filed written reply on 20/03107 and stated that an amount of Rs.l 9,47,306/- was paid to the assessee on A/c of profession/ technical Fees out of which Rs.1,09,128/- has bccn deposited into Central Govt. Account on account of TDS. Further on 28/03/07, a letter was received from company wherein it was written that aforesaid payment was paid to the contactor assessee, out of which Rs.1,09,128/- was deducted as TDS and paid into the Central Govt. Account. It is surprising that the company has issued two letters in respect of verification of TDS and the nature of payment are different in both the letters. In one letter it has been written that payment was made on account of profession/ technical fees and in other letter, payment of contract. Therefore, for such clarification , latter was served through speed post no. 2595 on 12-04-2007. In response to that a latter dated 13-04-2007 issued from company was received on 23-04-2007, wherein it was written that latter dated 20-03-2007 was issued by the company and on 28-07-2007, company did not issue any latter and thus this latter does not pertain to company.

On 24/04/07, notice 271B was issued to the assessee for 02/05/2007, which was served on 24-04-2007 through speed post no. 206. In the response to the notice, the assessee attended himself on 03-05-2007 and adjourned for 14-05-2007 but on the date fixed 14-0-2207, no body attended nor filed any adjournment application. On 06-08-2007, notice u/s 271B was issued for 17-08-2007. In response to the notice, on 17-08-2007 explanation of the assessee was received and after that on penalty u/s 271B of the 1.T Act was imposed at Rs.9,735/- by passing the order on 13/09/2007.

During the year, assessee was in receipt of profession/ technical fee of Rs. 19,47,136/-. Assessee has filed his return of income by computing income u/s 44AD, where as the income of the assessee falls u/s 194J. A notice u/s 148 of the Act 1961 was issued on 07/12/2007, by forming of belief that income of Rs.19,47,136/- has escaped assessment. Notice was served on 10/12/2007 through speed post No.2656. In response to the notice the assessee attended on 17/12/07 and written request was made for issuring the reasons recorded before issuing the notice tv’s 148. On 26/12/07, letter was issued to the assessee and directed to file return of income then reasons for issuing notice u/s 148 will be issued. The letter was served on 28/12/07 through speed post No. 2733.

On 29/08/2008, notice u/s 142(1) was issued for 17/09/2008, notice was served on 04/09/2008 through speed post No. 671. In response to the notice, the A.R. of the assessee Mr. H.K.Paliwal attended on 17/09/08 and written request was made by him for issuing the reasons recorded before issuing the notice u/s 148 so that assessee may file his return of income in response to notice uls 148.

On 04/11/08, notice u/s 142(1) was issued for 11/11/08, wherein it was written that assessee did not file return of income in response to notice u/s 148 and directed him to file the return of income. The notice was served on 04/11/08 through speed post. In response to notice, the A.R. of assessee Shri. H.K Paliwal attended on 11/11/08 and the reasons for issuing of notice u/s 148 was given to him. The case was adjourned for 17/11/08. On fixed date 17/11/08 the counsel of the assessee Shri. M.M Chawra attended and on request the case was adjourned for 24/11/2008, but on fixed date, no body attended nor filed any adjournment application. On 24/11/08 notice u/s 142(1) was issued for 28/11/08. Notice was served upon assessee on 25-11-2008. In response to the notice, assessee counsel attended on 28/11/08 and return of income in response to notice u/s 148 was filed vide receipt No.9332. The income Tax Return has been placed on file.

On 28/11/08, notices u/s 143(2) and 142(1) were issued for 05/12/08, where in informations as per serial No.1 to 7 were required. The notice was served on 28/11/08 through speed post. In response to notice, counsel of assessee attended on 05/12/08 and filed reply partly for remaining details, the case was adjourned for 12/12/08. On fixed date 12/12/08, assessee counsel attended the proceedings and Filed the required informations alongwith explanation. The case was adjourned for 16/12/08. On 16/12/08, on request of the assessee counsel, the case was adjourned for 19/12/08. On fixed date of hearing 19/12/08, assessee’s counsel attended and case adjourned for 22-12-2008 for justify the expenditure as claimed in profit & loss account. On fixed date 22-12-2008, assessee counsel attended and filed written submission in respect of vouchers relating to expenditure that he has reflected the actual expenditure and the same have only been shown in his Profit & Loss A/c. It is clear from the Bank A/c of the assessee that the total receipts are entered/ credited in the bank A/c and further withdrawals from the bank A/c are in fact for the purpose of meet out the expenditure as claimed in Profit & Loss A/c. Case was discussed. During the course of discussion, the counsel of the assessee agreed for disallowance of expenditure and make an addition to the income of the assessee for not producing the vouchers as per details below; 1. Office Expenditure Rs.66,000, 2.Office Rent Rs. 60,000, 3.Printing And Stationary Rs.22,500. 4.Repair and Maintenance Rs.12,000, 5.Misc. Expenses Rs.17,365. The total sum of Rs.17,787/- i.e. 10% of total aforesaid expenditure of Rs.1,77,865/- may be disallowed and add to the total income of the assessee. Also, assessee agreed to disallow 25% of 1.Vehicle Exp. Rs.72,000, 2.Travelling and conveyance Rs.2,10,000, 3.Telephone Exp. Rs.48,000 total expenditure Rs.3,30,000/- for this personal use. Assessee request was not accepted.

During the year, the assessee was in receipt of profession fees of Rs.19,47,136/- in response to notice u/s 148, the assessee filed his return of income by computing income @8% u/s 44AD at Rs.1,55,771/- and during the course of scrutiny proceedings the assessee has filed the statement of income on the basis of Profit & Loss Account and shown the receipts of Rs.19,47,136/- from drilling & work and declared Net Profit of Rs. 1,55,771/- after dedecting Expenses of Rs. 17,91,395/- under different heads.

relevant portion

5. Aggrieved, the assessee filed appeal before the Ld. Commissioner of Incomen Tax (Appeals), Meerut. Vide the impugned appellate order dated 23.08.2013, the Ld. CIT(A) enhanced the total income of the assessee and directed the Assessing Officer to take the total income at the enhanced figure of Rs. 15,57,710/-. The relevant portion of the aforesaid impugned appellate order dated 23.08.2013 of the Ld. CIT(A) is reproduced as under :-

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6. Aggrieved again, the assessee filed the present appeal before Income Tax Appellate Tribunal (‘ITAT’, for short) against the aforesaid impugned appellate order dated 28.03.2013 of the Ld. CIT(A). During the appellate proceedings in ITAT, a synopsis was filed from the assessee’s side, which is reproduced below for ready reference :-

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7. At the time of hearing before us, the Ld. Counsel for the assessee placed reliance on the aforesaid synopsis. He further submitted that the reasons recorded by the Assessing Officer, if any, for his belief that income has escaped assessment has not been supplied by the Assessing Officer to the assessee. He further drew our attention to paragraph 3.2 of the impugned appellate order dated 28.03.2013 of the Ld. CIT(A) to highlight that the assessment records were not produced by the Assessing Officer even before the Ld. CIT(A) despite the requisition made by the Ld. CIT(A) vide letters dated 26.06.2013 and 01.07.2013. The Ld. Counsel for the assessee submitted that on this basis alone the assessment order dated 22.12.2008 deserves to be annulled, because the Assessing Officer has not established that there were sufficient reasons to assume jurisdiction u/s 147 read with Section 148 of Income Tax Act. The Ld. Counsel further submitted that the assessee had disclosed the entire amount of business receipts totaling Rs. 19,47,136/- in the return of income and had offered income @ 8% of the receipts u/s 44AD of Income Tax Act. When the entire business receipts have already been disclosed, the Ld. Counsel for the assessee contended, it cannot be said that any income had escaped assessment because the assessee had already offered income @ 8% of the receipts applicable for Section 44AD of Income Tax Act.

8. The Ld. Departmental Representative supported the orders of the Assessing Officer and the Ld. CIT(A). However, in all fairness, the Ld. Departmental Representative admitted that reasons recorded by the Assessing Officer, if any, for coming to the belief that income had escaped assessment, are not available. The Ld. DR also admitted, that apart from the assessment order dated 12.12.2008, which was passed after the assumption of jurisdiction u/s 147 read with section 148 of I.T.Act; there was nothing else which can be produced to support the belief that income had escaped assessment. To a specific query from the Bench as to whether any proceedings were pending before the Assessing Officer at the time when inquiries were conducted by the Assessing Officer prior to issue of notice u/s 148 of Income Tax Act on 07.12.2007 ; Ld. DR further admitted that no proceedings were pending before the Assessing Officer prior to issue of notice dated 07.12.2007 u/s 148 of Income Tax Act.

9. We have heard both the sides patiently and perused the materials on record carefully. It is not in dispute that reasons recorded by the Assessing Officer for coming to the belief that income had escaped the assessment, was neither supplied by the Assessing Officer to the assessee ; nor the assessment records were produced before the Ld. CIT(A). The reasons so recorded, if any, have neither been provided to the Ld. CIT(A), nor is there any offer from Revenue’s side to produce the same before the Income Tax Appellate Tribunal. In fact, as mentioned in foregoing paragraph 8 of this order, the reasons recorded by the Assessing Officer, if any, for coming to the belief that income had escaped assessment, are not available. The Ld. Departmental Representative had also admitted at the time of hearing before us, that apart from the assessment order dated 12.12.2008 there was nothing else which can be produced to support the belief arrived at that income had escaped assessment. The validity of assumption of jurisdiction by the Assessing Officer u/s 147 read with Section 148 of Income Tax Act is to be examined on the basis of the reasons recorded by the Assessing Officer for coming to the belief that income had escaped assessment. Such reasons have to be recorded before assumption of Jurisdiction u/s 147 of I.T.Act ( i.e. before issue of notice u/s 148 of I.T.Act). Any developments which take place after assumption of jurisdiction u/s 147 of I.T.Act (i.e. 148 of I.T.Act) has no relevance for deciding whether the AO had reason to believe, before assumption of jurisdiction u/s 147 of I.T.Act ( i.e. before issue of notice u/s 148 of I.T.Act) that income had escaped assessment. When such reasons are not made available by Revenue either to the assessee or to the appellate authorities [Ld. CIT(A) as well as ITAT]; we have to conclude that the onus has not been discharged by Revenue to justify assumption of jurisdiction u/s 147 of I.T.Act through issue of notice under section 148 of Income Tax Act. When the assumption of jurisdiction u/s 147 read with section 148 of I.T.Act lacks validity, the resultant assessment order lacks legitimacy.

On this ground alone, the aforesaid assessment order dated 12.12.2008 deserves to be annulled. However, we further note that the Assessing Officer has not furnished reasons for issue of notice u/s 148 of I.T.Act to the assessee in spite of order of Hon’ble Supreme Court in the case GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19 whereby the Assessing Officer is bound to provide reasons recorded by him for issue of notice u/s 148 of I.T.Act to the assessee once the assessee has filed return in response to the notice issued u/s 148 of Income Tax Act.

9.1 Moreover, we have perused second paragraph of the assessment order, which refers to the inquiry made by the Assessing Officer before issue of notice u/s 148 of Income Tax Act on 07.12.2007. The Assessing Officer, in the absence of any proceedings pending before him, has no authority to conduct any inquiry, except when prior permission has been taken by the Assessing Officer for conducting the inquiry u/s 133 of I.T. Act from the competent authority specified in second proviso to Section 133 of I.T.Act. There is nothing on record to show that the Assessing Officer had obtained prior approval of the competent authority specified in second proviso to Section 133 of I.T.Act. to undertake such inquiry. As noted in foregoing paragraph no. 8 of this order, the ld. DR had admitted that no proceedings were pending before the AO prior to issue of notice u/s 148 of I.T.Act. Thus, we find that the Assessing Officer has conducted inquiries without authority of law before issue of notice u/s 148 of I.T.Act. Thus, the assumption of jurisdiction by the AO u/s 147 of I.T.Act read with section 148 of I.T.Act is based on inquiries conducted without the authority of law. We are of the firm view that assumption of jurisdiction u/s 147 r.w.s. 148 of I.T.Act on the basis of inquiries conducted without the authority of law lacks legitimacy. Assumption of jurisdiction must be held to be unauthorized, when the inquiries made for assuming the jurisdiction were unauthorized in law; and the assessment order passed in pursuance of unauthorized assumption of jurisdiction u/s 147 r.w.s. 148 of I.T. Act, also lacks legitimacy. On this ground also, the assessment order dated 22.12.2008 deserves to be annulled. With the annulment of assessment order, grounds 2 and 3 of appeal are merely academic, hence not decided.

10. In view of the discussion in foregoing paragraphs (9) and (9.1) of this order; we set aside the impugned order dated 23.08.2013 of Ld. CIT(A); and annul the aforesaid assessment order dated 22.12.2008. For statistical purposes, the appeal is allowed.

Order pronounced in the open court on 20/12/2019

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Mr.Kapil Goel B.Com(H) FCA LLB, Advocate Delhi High Court [email protected], 9910272804 Mr Goel is a bachelor of commerce from Delhi University (2003) and is a Law Graduate from Merrut University (2006) and Fellow member of ICAI (Nov 2004). At present, he is practicing as an Advocate View Full Profile

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