Case Law Details
Raj Kumar Maheshwari Vs ITO (ITAT Jaipur)
The issue under consideration is whether the re-opening of assessment u/s 147 by AO is justified in law?
ITAT states that, it is manifest from the reasons recorded by the AO in the assessment order that the AO received the information about the credit card bills payment and further the AO recorded the fact that since the assessee has not filed any return of income, therefore, it is not possible to verify the said transaction and tax liability in this transaction. These reasons recorded by the AO are factually not correct and the formation of belief by the AO is actually based on assumption of incorrect facts. ITAT find that the assessee has filed his return of income on 09.07.2010. Though the return was belated, however, the same was acknowledged by the department vide Acknowledgement No. 3471, the copy of the computation sheet has been placed in the Paper Book. All the details are matching with the return of income filed by the assessee. ITAT further note that for the assessment year 2010-11 the assessment was again reopened by the AO by issuing a notice under section 148 on 30.03.2017. However, the AO has not made any addition but accepted the return of income declared by the assessee in the original return of income while passing the order on 08.08.2017. Thus it is clear that the AO has reopened the assessment only on suspicion of escapement of income on account of credit card payment without considering the fact that the assessee already filed his return of income declaring total income as income under the head ‘Salary’. The AO during the course of assessment proceedings verified the income of the assessee from M/s. Genpact India as well as the details of the credit card payment from Citibank and the AO has received the requisite details from the said company. The assessee has duly brought to the notice of the ld. CIT (A) that the return of income was filed on 9th July, 2010. However, without considering the same, the ld. CIT (A) upheld the reopening of the assessment by recording the reasons on incorrect facts. Hence in the facts and circumstances of the case, ITAT find that the reopening of the assessment by the AO is without application of mind and simply going by the information received as per AIR Data. Hence the reopening of the assessment is quashed being invalid.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against the order dated 21st February, 2019 of ld. CIT (A) for the assessment year 2009-10. The assessee has raised the following grounds of appeal :-
“1. On the facts and in the circumstances of the case, ld. AO erred in reopening of assessment u/s 148 and ld. CIT (A) erred in sustaining the same which is illegal, unjustified and liable to be quashed.
2. On the facts and in the circumstances of the case, ld. AO erred in assessing income u/s 144 by ignoring all the evidences of TDS and deduction under chapter VIA claimed in return of income filed u/s 139(4) and simultaneously, ld. CIT (A) erred in sustaining the same, which is illegal, unjustified and liable to be quashed.
3. On the facts and in the circumstances of the case ld. AO erred in adding Rs. 385336.00 on account of credit card payment without considering the bank account of assessee and simultaneously ld. CIT (A) sustain this addition, which is liable to be deleted.
4. Necessary cost to be allowed to the assessee.
5. Assessee deserves the right to add, amend or delete the ground of appeal on or before the hearing of appeal.”
Ground No. 1 is regarding validity of reopening of the assessment.
2. The assessee is an Individual and earning income from salary. The AO issued notice under section 148 on 22nd March, 2015 by recording the reasons that as per AIR data information received from the Office of the DIT CIB Rajasthan, Jaipur showing that the assessee has paid Rs. 3,85,336/- against credit card bills in the financial year 2008-09 relevant to the assessment year under consideration, hence it was not possible to verify the tax liability in this transaction. Further, the assessee has not filed return of income for the year under consideration, therefore, believing that the income to the tune of Rs. 3,85,336/- has escaped assessment, the AO reopened the assessment. Since assessee has not responded to the notice under section 148 as well as the other notices issued by the AO, accordingly the reassessment under section 147 was completed under section 144 of the IT Act. The assessee challenged the action of the AO before the ld. CIT (A) and objected against the reopening of the assessment but could not succeed.
3. Before us, the ld. A/R of the assessee has submitted that the AO has reopened the assessment based on incorrect information and merely on the suspicion without having a reason to believe that the income on account of payment of credit card bill has escaped assessment. The ld. A/R has pointed out that the assessee duly filed his return of income under section 139(1) on 9th July, 2010 which was also acknowledged by the department as per the computation sheet under section 143(1), copy of which is placed t page 9 of the Paper Book. The ld. A/R has pointed out that in the said computation the department took the return of income as for the assessment year 2010-11 instead of assessment year 2009-10. The return of income was duly acknowledged vide Acknowledgement Number given in the said computation sheet. Therefore, ignoring the return of income filed by the assessee for the year under consideration declaring the salary income and further when all the transactions of payment of credit card bills are through the bank account then the reopening is not valid merely for the purpose of verifying whether the income on account of the said payment of bills has escaped or not. The ld. A/R has thus contended that the reopening based on incorrect facts and ignoring the return of income filed by the assessee is not valid and liable to be quashed. In support of her contention, she has relied upon the decision of the coordinate Bench of this Tribunal dated 10.10.2019 in case of Shri Ram Mohan Rawat vs. ITO in ITA No. 1014/JP/2018 and submitted that the Tribunal on identical facts where the AO without considering the return of income under section 139(1) has reopened the assessment by recording reasons that the assessee has not filed any return of income has held to be invalid. The ld. A/R has also relied upon the decisions of this Tribunal in case of Rajendra Prasad Choudhary vs. ACIT in ITA No. 1495-1496/JP/2018 dated 12.06.2019 as well as in case of Smt. Nirmala Agarwal vs. ACIT dated 11.04.2018 in ITA Nos. 995 & 996/JP/2016. Thus the ld. A/R has pleaded that the reopening of assessment is not valid and the same is liable to be quashed.
4. On the other hand, the ld. D/R has submitted that the AO has reopened the assessment based on the AIR information regarding the credit card payment of Rs. 3,85,336/-. Thus at the time reopening of assessment what is required to be seen is the prima facie reason to believe that income assessable to tax has escaped assessment. She has relied upon the orders of the authorities below.
5. We have considered the rival submissions as well as the relevant material on record. It is manifest from the reasons recorded by the AO in the assessment order that the AO received the information about the credit card bills payment of Rs. 3,85,336/- and further the AO recorded the fact that since the assessee has not filed any return of income, therefore, it is not possible to verify the said transaction and tax liability in this transaction. These reasons recorded by the AO are factually not correct and the formation of belief by the AO is actually based on assumption of incorrect facts. We find that the assessee has filed his return of income on 09.07.2010. Though the return was belated, however, the same was acknowledged by the department vide Acknowledgement No. 3471, the copy of the computation sheet has been placed at page 9 of the Paper Book which shows the details regarding the return of income declared by the assessee in the said return and the amount of tax payable on the said income. All the details are matching with the return of income filed by the assessee except the assessment year which is mistaken by the department as 2010-11 instead of 2009-10. Therefore, the assessee has duly filed the return of income declaring the total income at Rs. 2,34,560/- which was acknowledged by the department. We further note that for the assessment year 2010-11 the assessment was again reopened by the AO by issuing a notice under section 148 on 30.03.2017. However, the AO has not made any addition but accepted the return of income declared by the assessee in the original return of income while passing the order on 08.08.2017. Thus it is clear that the AO has reopened the assessment only on suspicion of escapement of income on account of credit card payment of Rs. 3,85,336/- without considering the fact that the assessee already filed his return of income declaring total income of Rs. 2,34,560/- as income under the head ‘Salary’. The AO during the course of assessment proceedings verified the income of the assessee from M/s. Genpact India as well as the details of the credit card payment from Citibank and the AO has received the requisite details from the said company. The assessee explained these facts before the ld. CIT (A) which were duly recorded by the ld. CIT (A) in para 2.2 as under :-
“ 2.2. The relevant extract of the submission of the appellant is as under :-
“ This appeal was preferred against the order u/s 144 read with section 148 of the I.T. Act, 1961 for A.Y. 2009-10. At the outset, I request to admit the new grounds of appeal, which may be treated as replaced with originally raised grounds and are as under :-
1. On the facts and in circumstances of the case, ld. AO erred in reopening of assessment u/s 148 of the I.T. Act, 1961, which is unjustified and liable to be quashed.
2. On the facts and in circumstances of the case, ld. AO erred in assessing income u/s 144 ignoring all the available evidences and without allowing deductions claimed in return filed u/s 139(4), which is unjustified and liable to be quashed.
Your honour, the AO has reopened the assessment stating two grounds.
1. Assessee availed credit card for Rs. 3,85 lacs and hence tax liability is not possible to be ascertained.
2. Further, no return of income was filed for the year.
Your honour, in both the observations, no belief of positive escapement of income emerged. Section 148 does not give mandate to ascertain the tax liability. Pre-condition o f jurisdiction u/s 148 was reason to believe that any income has escape assessment. The word used here is belief. No re-opening is possible on suspicion and on surmises.
Further, the allegation that return of income was not furnished is wrong, Assessee had furnished the return of income for the year. In fact, due to oversight, omission or clerical mistake the departmental staff punched the data of return of assessee for A.Y. 2009-10 in A.Y. 2010-11. And that’s why the system at the time of re-assessment showed the status of non-filing of return. Return of income for A.Y. 2009-10 was filed on dated 09.07.2010 in paper form. The income and deductions and TDS were as under :-
A. Income Rs. 285414.00 Verifiable from Form No. 16
B. Deduction u/s 80C Verifiable from Form No. 16, LIP Receipts and Bank Statement.
C. TDS of Rs. 27810.00 Form No. 16 & Form No. 26AS
But, assessee was unfortunate and the blunder was made departmental staff by making entries of the return in the AY 2010-11. And by this mistake, assessee suffered the demand o f tax and interest by disallowing TDS credit, since the claimed credit was not shown in AY 2010-11 rightfully. Further, the mistake of departmental staff become belief of escapement and assessee was slapped notice u/s 148.
I, therefore request your honour to drop the re-assessment notice as bad in law for the sake of justice and the resultant assessment u/s 144 may kindly be quashed.
However, the ld. CIT (A) has summarily dismissed the ground of challenging the validity of reopening in para 2.3 as under :-
“ 2.3. I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer had reason to believe on record for this year. There was information that assessee made payment of Rs. 3,85,336/- through credit card and Assessing Officer had thus reason to believe that income to this extent had escaped assessment. This ground o f appeal is dismissed. ”
Once the assessee has pointed out the filing of return of income as well as all other details of source of payment of credit card bills which are all through banking channel and moreover transactions are on-line payment from the bank account of the assessee, then without considering all these facts, the order passed by the ld. CIT (A) rejecting the ground is highly arbitrary. The Coordinate Bench of this Tribunal in case of Shri Ram Mohan Rawat vs. ITO (supra) has considered this issue in para 5 as under :-
“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 I.T. Act, 1961.
It is a fit case for issuance of notice u/s 148 of I.T. Act, 1961.
Sd/-
(Umesh Jakhar)
Income Tax Officer,
Ward 2(1), Jaipur.”
Dated : 27.03.2014.
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 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 Haji 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 ITR 481 (Guj.). 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 for a sum of Rs. 1,18,95,000/- and two; that the assessee had not filed the return and that therefore his 1/3rd 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. 1,18,95,000/- as a sale price o f the property. The assessee had produced before the Assessing Officer, the sale deed in which, the sale consideration disclosed as Rs. 50 lakhs. ”
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 the assessee prior to recording of the reasons, therefore, re-opening of the assessments for assessment year 2001-02, 2002-03 and 2003-04 is invalid 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.”
In the case in hand, the assessee has duly brought to the notice of the ld. CIT (A) that the return of income was filed on 9th July, 2010. However, without considering the same, the ld. CIT (A) upheld the reopening of the assessment by recording the reasons on incorrect facts. Hence in the facts and circumstances of the case, we find that the reopening of the assessment by the AO is without application of mind and simply going by the information received as per AIR Data. Hence the reopening of the assessment is quashed being invalid.
6. Since we have quashed the reopening of the assessment, therefore, we do not propose to go into the issue of merits of the addition made by the AO.
7. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 18/03/2020.
