Important judgements regarding service of notice u/s 148 when not in a proper manner, reasons recorded are vague, AIR information is not sufficient and deposit of cash and bank not always income of the assessee

Written Submissions before the Hon’ble Commissioner of Income Tax (Appeals), Faceless in the case of Shri XXXXX XXXXXX, XXXXXX (XXXXXXXXXX) for the  A.Yr. 2011-12

Please find enclosed my written submission in defense of the Assessee on merits as well as technical grounds

Respected Sir,

Brief Introduction of the Assessee

The assessee was a property dealer during the F.Yr. 2010-11. He has just started the business of Property dealer so called commission agent. The First Property which was sold through the assessee Dt. 6/5/2011 vide Registered Sale Deed No. 3132 at XXXXXX was XXXX, XXXX, XXXX, XXXX XXXXXX. In the month of Feb 2011, the buyer of the Property Smt. XXXXXX W/o Sh. XXXXXX, R/o XXXX, XXXX, XXXX, XXXX, XXXX had given a cash of Rs. 920500/- to the assessee to be given to the seller of the Property Smt. XXXXXX W/o Shri XXXXXXX R/O XXXX, XXXX, XXXX, XXXX, XXXX. (Page no. 20-24 of the PB)

As Smt. XXXXXX has sold the Property which was XXXX, XXXX, XXXX , XXXXXX, both husband & wife asked the assessee to look for purchase of some other property in good location at XXXXXX and they gave a sum of Rs. 10 Lakhs (Rs. 920500 + Rs. 79500) to the assessee for advance of the property. It was Feb 2011, when assessee took the cash from Smt. XXXXXX for booking a residential unit at XXXXXX. This cash was to be given to the seller of the property (New Property to be purchased for Mrs. XXXXXX) located at XXXXXX through the assessee as a property dealer. It was not safe to the keep the cash at home particularly at XXXXXX and in vicinity when ladies are alone at home. Assessee decided to deposit the entire cash kept at home to be deposited with his XXXXXXX with XXXXXXX Bank, XXXXX Branch, XXXXXX. The assessee tried to locate the property continuously for many days in the months of Feb & March 2011 but could not find a property of their choice (Choice of Mrs. XXXXXX).

Ultimately assessee returned the money which was deposited by him in cash with the Bank through two cheques of Rs. 500000/- each to Mrs. XXXXXX. The A/c of XXXXXX was made Nil. The cash of Rs. 1000000.00 received by the assessee from Mrs. XXXXXX was returned to her by cheques. Now the cash deposited by the assessee is cash of Mrs. XXXXXX who is seller of the property which was Residential House No. XXXXX, XXX, XXXX, XXXXXX. Cash of Rs. 920500.00 was given to XXXXXX by Smt. XXXXXX who is buyer of the Property. This cash of Rs. 920500.00 and cash of Rs. 79500.00 from her own pocket in total cash of Rs. 1000000.00 was given to the assessee by Mrs. XXXXXX who intended to buy a decent residential unit after sale of property No. XXXXX, XXX, XXXX, XXXXXX.

The cash received from Mrs. XXXXXX was not deposit and also not loan of any kind. It was just a money given by Mrs. XXXXXX to the assessee in cash which in local language called Bayana (Advance for purchase of Property). The property could not be finalized and ultimately the assessee returned the money to Mrs. XXXXXX not cash but through cheques of Rs. 10 Lakhs as he has already deposited the entire cash with the bank. The cash deposited by the assessee with the bank was nothing but advance money received from Mrs. XXXXXX which was returned later on i.e. Dt. 16.03.2011.

Mrs. XXXXXX at XXXXXX interested to buy some property at XXXXXX made contact with the assessee Mr. XXXXX XXXXXX who has just started the business of Property Dealing at XXXXXX and also helped in selling one property of Mrs. XXXXXX. Mrs. XXXXXX has given advance of Rs. 1000000.00 in cash to the assessee in the month of Feb 2011 for purchase of some residential property at XXXXXX. The assessee tried to locate the property but could not met with any property which could be finalized as per choice of the XXXXX Family. The assessee was not safe keeping the money in cash with him. He deposited this money with him with his saving bank account No. XXXXX with the XXXXX Bank, XXXXX, XXXXXX. When making his sincere efforts for locating the property but couldn’t he returned the money through cheques to the concerned person who is Mrs. XXXXXX.

Facts of the Case

The brief facts of the case are that in this case assessment was made u/s 144/147 of the IT Act, 1961 Dt.14.11.2018. Information in this case was available with the AO that the assessee has deposited cash in his SB A/C maintained with XXXXX Bank Ltd., XXXXXX. During the relevant assessment year the assessee had not filed any ITR for the A.Yr. 2011-12, therefore, the case was reopened u/s 147 of the IT Act, 1961. The assessee was doing Job that year and was earning meagre salary of Rs. 200000.00 p.a. and was doing no business at all. He started business of sale purchase of properties as a property dealer and this deal between Mrs. XXXXXX and Mrs. XXXXXX was the first deal. During the course of assessment proceedings the notices sent by the AO were never received by him and in the absence of reply and attendance the AO completed the assessment u/s 144 of the Act.

About return of the assessee for the AY 2011-12

The only source of Income of the assessee is salary and some bank interest. He was not required to file the return of Income for the A.Yr. 2011-12 as the Tax Liability was NIL as tax was deducted at source on Salary.

Now the assessee has filed his ROI for the relevant A.Yr. 2011-12 and which is produced at CIT(A), Faceless vide acknowledgement no. XXXXXXXX dated 09.05.2019 at the time of hearing. No commission income was earned by the assessee during the F.Yr. 2010-11. (Page 1 – 4 of PB)

No liability to file ROI

The assessee was not liable to file the ROI as he was having only one source of Income is salary and salary was only for Rs. 200000/- and clear cut no other Income except some bank interest income. After taking effect of TDS, the tax payable was NIL.

The assessee has deposited cash of Rs. 900000/- on a single day not on various dates as narrated in the Reasons Recorded. This shows that the reasons have been recorded without application of mind.

No notice was issued to the assessee dt. 19/01/2018. No letter was received by the assessee as the same has been narrated in the reasons recorded. There is no prima facie reasons and material with the AO which concluded that the Income has escaped assessment.

The mere cash deposit is not Prima facie reasons and material with the AO which makes him satisfied that Income of the assessee has escaped assessment.

Assessment with blind eyes

The case of the assessee was decided ex-party u/s 144 of the Income tax Act 1961 not following the principal of natural justice. There was sufficient time with the AO to finalize the assessment before 31.12.2018 but he decided the case ex parte Dt. 14.11.2018 which is too earlier. (Page no. 5 -7 of the PB). The AO without application of mind treated the entire cash deposited with the bank as income of the assessee and not applied even presumptive taxation @ 8%. The entire cash deposited with the bank cannot be the income of the assessee. The AO has not taken cognizance of the age, history of the assessee and return records of the assessee for estimation of the income of the assessee. He has framed the assessment without application of mind, reasons framed are without application of mind, and approval obtained from Principal CIT is without application of mind. Principal of natural justice has to be provided to the assessee and it has to be looked into the assessment order. However, acting on the probabilities he made the assessment without looking at the entire bank account of the assessee, without looking at the debit entries of the assessee. The Assessing Officer who was expected in the performance of its judicial functions to decide the case after carefully considering the bank statement made an order purely based on probabilities and conjecture.

Notices not received by the assessee

Notice u/s 133(6): The notices sent by the AO were never received by the assessee in person which is mandatory requirement. No enquiry notice was ever received by the assessee u/s 133(6) of the Act, 1961. No summons was ever issued to the assessee before framing best judgment assessment. The entire assessment has been done at the back of the assessee which is contrary to the legal position.

Notice u/s 148: The notice u/s 148 was never received by the assessee in person and this is the prime requirement for reassessment proceedings u/s 147 of the Act, 1961. The approval obtained from Pr. CIT, XXXXXX was never supplied to the assessee neither on mail, nor on Income Tax portal and not in person which is mandatory requirement and hence the entire assessment is null and void. The notice u/s 133(6) and its approval obtained from the higher authorities. Notice u/s 148 and its approval from higher authorities i.e. PCIT u/s 151 was not supplied and in turn received by the assessee.

AIR information in respect of the assessee:

In the instant case, pursuant to receipt of AIR information from an external agency that cash has been found deposited in assessee’s saving bank account, there has been no further examination by the AO. It is submitted that the reasons to believe has no nexus and live link with the escapement of Income of the assessee. (Page no. 8 of the PB)

Notice u/s 148 issued on wrong address

Notice u/s 148 of the Income tax Act, 1961 issued to the assessee Dt. 22.03.2018 sent by speed post Dt. 22.3.2018 was never received by the assessee as it was not sent at the proper address of the assessee. The proper and correct address of the assessee is XXXX, XXXXX, XXXXX, XXXX XXXXXX.

Notice issued at wrong address

The notice u/s Dt. 22/3/2018 was sent by speed Post at Sr. No. XXXX at the address of the assessee as XXXX, XXXXX, XXXXX, XXXX, XXXXXX but assessee was not living at this address and notice may be returned back to the department. (Page no. 17 -18 of the PB) This notice was never received by the assessee. Assessee obtained Photocopy of the same from the department Dt. 30/4/2019. Refer to page no. 45 of the PB which is order sheet maintained by the assessing officer where we find that there is no entry of the notice u/s 148 issued on 22.03.2018. Notice seems to be invalid when there is no entry in the order sheet. (Page no. 45 of the PB). Assessee decides to raise an objection against this notice u/s 148 dated 22.03.2018 before the Hon’ble CIT (A), Faceless. (Page no. 47 of the PB).

The address on the bank statement is XXXX, XXXX, XXXXX, XXXXX XXXXXX.

Section Under which Notice Is issued Date Address On Which Notice is issued Sent by Mail/ ITBA/ Speed Post/ BY person
148 31.03.2018 XXXX, XXXX, XXXXX, XXXXX XXXXXX ITBA
142(1) 26.6.2018 XXXX, XXXX, XXXXX, XXXXX XXXXXX ITBA
142(1) 11.9.2018 XXXX, XXXX, XXXXX, XXXXX XXXXXX ITBA
show cause notice 30.10.2018 XXXX, XXXX, XXXXX, XXXXX XXXXXX ITBA
142(1) 30.10.2018 XXXX, XXXX, XXXXX, XXXXX XXXXXX ITBA
142(1) 10.10.2018 XXXX, XXXX, XXXXX, XXXXX XXXXXX ITBA
 

 

148

 

 

22.03.2018

XXXX, XXXXX, XXXXX, XXXX XXXXXX By speed Post.

 

Kindly refer to page no. 50 of the PB.

Looking at the above chart we find that the notice u/s 148 has been issued at the different address other than the address at the bank statement. The notice u/s 148 is issued when definite information is there not for an enquiry. The notice has been issued on the presumption that the cash deposited with the bank is income of the assessee. This is only a presumption. The assessee could not replied to the notice as the same could not be delivered at the right address of the assessee. Even opening of the assessment is bad in law as ITO has opened the case of the assessee on the basis of AIR information which is a borrowed information. The notice has been issued at the instance which is vague and illegal because approval has been obtained is also in a mechanical manner u/s 151 of the Act.

Even the reassessment proceedings initiated by AO are void since notice u/s 148 was never served upon the appellant. Service of such notice is condition precedent for making valid assessment u/s 147 as held by the Hon’ble jurisdictional High Court in CIT Vs. Lakshmi Narain 168 Tax man 128 (Punjab and Haryana). The AO at XXXXXX was well aware of the address of the appellant which is apparent from the subsequent notices as well as on the Bank statement. Hence the notice u/s 148 must have been issued at the current address of the assessee but the notice was sent at the wrong address of the assessee and ultimately not received by the assessee.

Notice not served in proper way

As per section 282 of the Act, notice should be served in the following ways:

(a) Sent by person to the assessee by the ITO

No person was ever sent to the assessee.

(b) Service of notice by speed post:

Notice u/s 148 Dt. 22.03.2019 was sent by speed post which was never received by the assessee and subsequent notices were sent on ITBA. Even address on these notices is wrong.

(c) Service of notice by mail:

The mail ID of the assessee is [email protected] and on this mail ID was never served any notice.

(d) Notice on the portal: Notice was issued on the portal but assessee has never made access on the computer regarding service of the notice.

(e) The notice issued on ITBA u/s 148 of the Act Dt. 31.3.2018 is invalid because this was not issued by the jurisdictional officer, No reasons were recorded and even no approval from PCIT, XXXXXX was obtained for issue of this notice. Hence the entire proceedings are invalid on this ground.

Revenue must act fairly in the matter of Assessment

AT CIT (Appeal) Level:-

It is a continuous proceeding before CIT (A) and what AO left CIT (A) can do the same. As held in Sri Shankar Khandasari Sugar Vs. CIT 193 ITR 669.

The revenue must act fairly in the matter of assessment as much as it is interested in collecting the tax. In the absence of any prejudice to the revenue and the basis of the tax under the act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the income tax officer could have done the appellate authority could also do.

Assessment made on conjectures and Surmises

Therefore, information received by the AO throws only doubt or suspicion. Suspicion however strong cannot take the place of evidence as laid down by the Hon’ble Apex court in the case of Dhakeshwari Cotton Mills Ltd. Vs CIT (1955) AIR 65 (1955 SCR 011941).

The reopening u/s 147 of the Act is challenged

The re opening of the assessment is being challenged before the Ld. CIT (A) as an unsubstantiated and vague AIR information is the sole basis of the reopening of the assessment. As held in Harmeet Singh Vs. ITO, ITA No. 1939/Del/2016 A.Yr. 2008-09. Only information with the ITO is that the assessee has deposited cash which is Rs. 900000.00 in his SB Account at the time of formation of belief and recording of the reasons for reopening u/s 147 and issue of notice u/s 148. The ITO is not having complete bank statement at the time of issue of notice u/s 148. This is quite invalid reopening. Prima-facie reasons and material should be with the assessing officer that there is escapement of Income as held in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) . With the AO when he formed an opinion and opened the case of the assessee u/s 147 there was no prima-facie reasons and material. Hence the reopening is bad enough.

Reopening is bad:

That the information was restricted to cash deposit in Bank Account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that the cash deposited represent income of the assessee. The proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction.

The reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and therefore merely presumption in nature.

It is a case of mechanical action on the part of the AO as there is no application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income.

In Hindustan Lever Ltd. Vs. R.B. Wadkar 26R ITR 332 (Bom). It was observed that the reasons recorded must point out to an income escaping assessment and not merely need of an enquiry which may result in detection of an income escaping assessment. That there has to be some kind of cause and effect of relationship between the reasons recorded and the income escaping assessment.

The observations of the Hon’ble Supreme court in the case of ITO Vs. Lakshmi Mewal Das 103 ITR 437 (SC).

“The reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt that the court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, however vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. 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 may be, unless there is a reason to believe rather than suspect, that an income has escaped assessment.

Thus it was a mere suspicion of the AO that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law.

Reopening u/s 147 of the assessment is bad

ITAT, Delhi Bench decision in the case of Parveen Kumar Jain VS ITO in ITA No. 133/D/2015 for the A.Yr. 2006-07 Dt. 22.01.2015 wherein it has been held as under:

Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceeded to reopen the assessment. After reopening; the entire assessment is in the nature of a post mortem exercise after the event of reopening of the assessment.

At the time of formation of belief by the ITO that the income has escaped assessment, 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 assessment.

Reopening of Assessment is bad

The assessee has relied on judgment of M/s Deepraj Hospital P Ltd. Vs. ITO in the ITAT Agra I.T.A no. 41/Agra 2017:

i) Proceedings initiated u/s 147 and the notice issued u/s 148 is wrong, bad-in-law, in the facts and circumstances of the case.

ii) No valid material and ground justifying the reasons recorded. The reasons are wholly irrelevant, general, vague and wrong.

iii)  Reasons recorded based on borrowed satisfactions.

iv) The assessee has not filed his return of Income. No Bank Statement was called for by ITO. In the absence of complete Bank statement, looking at the entries the formation of belief that the cash deposited with the Bank is nothing but income of the assessee is wrong. That the reasons have been recorded on mere surmises, incorrect presumption and wrong assumption of facts.

v) That the condition precedent for taking action u/s 147 of the Act in the case of assessee are wholly non-existent and cannot be said to be valid in the eyes of law because section 147 of the Act mandates that it is exclusively the satisfaction of assessing authority based on some direct, correct and relevant material which is material and which could lay the foundation for issuing notice u/s 148 of the Act.

Reopening on borrowed satisfaction is bad

That without prejudice to the above mentioned submission and at the most if there is any information though neither the same has been mentioned in the reason recorded nor otherwise confronted with the assessee, the said information is clearly termed as borrowed satisfaction and until unless the belief is directly not of the officer recording reasons the initiation u/s 147 is invalid and without jurisdiction.

The only information with the assessing officer is that the assessee has deposited cash of Rs. 900000.00 with his saving bank account and no other information is there with the assessing officer this is just information based on AIR but no definite information. On the basis of this information, the assessing officer believed that entire deposit of cash in the saving bank account by the assessee is income of the assessee. The assessing officer reopened assessee’s assessment merely on the basis of AIR information and no separate reasons disclosing satisfaction of Assessing Officer for formation of belief that income of assessee had escaped assessment had been recorded, notice issued u/s 148 of the Act was to be quashed and assessment made in pursuance thereof was to be annulled.”

Re-opening based on borrowed satisfaction of the Assessing Officer is not valid – (CIT v. Greenworld Corporation 314 ITR 81)

Relying on ‘PCIT vs. Meenakshi Overseas (P) Ltd.’, 154 DTR 100(Del.), the Ld. Counsel has contended that mere reliance on the information received, without having acted thereon before recording the reasons, showing non- application of mind on the part of the AO, is unsustainable in law.

The reopening u/s 147 of the Act  is challenged

The assessee has further relied on the judgment.

In ‘Bir bahadur Singh Sijwali’ Vs ITO, (ITAT Delhi) it has been held that where the AO issued a notice u/s 148 on the ground that there was, escapement of income and belief regarding such escapement of income was formed on the fallacious assumption of the AO that bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee, the reassessment proceedings cannot be sustained. In the present case, similarly, the basis of initiation of the assessment proceedings u/s 147 was the information with the Department, of the deposits made by the assessee in his bank account.

‘Bir Bahadur Singh Sijwali’ (supra), makes reference to Hindusan Lever Ltd. vs. R.B. Wadkar.’ 26R TTR 332 (Born.), to hold that reasons recorded for reopening the assessment are to be examined on a standalone basis and nothing can be added to the reasons. It was also observed that the reasons must point out to an income escaping assessment and not merely need of an enquiry which may result in detection of an income escaping assessment. It was observed that it is necessary that there must be something which indicates, even if it does not establish, the escapement of income from assessment; that it is only on that basis that the AO can form a prima-facie belief that an income has escaped assessment; that merely because some further investigations have not been carried out, which, if made, could have led to detection of an income escaping assessment, this cannot be reason enough to hold the view that the income has escaped assessment, and that there has to be some kind of cause and effect of relationship between the reasons recorded and the income escaping assessment.

Explanation 2 of section 147 The reopening u/s 147 of the Act is challenged

Explanation 2 of s. 147 authorizes the AO to reopen an assessment wherever there is an “understatement of income”, the AO is not entitled to assume that there is “understatement of income” merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction u/s 147 on the basis of suspicions and presumptions cannot be sustained. (WP. No. 36483/2016, Dt. 13.02.2017) (AY. 2012-13)

In the case of the assessee, the AO has looked to the Bank Statement only at the time of assessment not earlier than that, not at the time of recording of the reasons.

Copy of reasons recorded not supplied to the assessee

Copy of reasons recorded was never supplied to the assessee. The approval obtained from the higher authorities is in a mechanical manner without application of mind by the PCIT. The AO has made no application of mind at the time of recording of the reasons and sent to the PCIT for approval who in turn has also not applied his mind. The assessee has relied on the judgment in the case of Harmeet Singh, Delhi Vs. ITO, New Delhi ITA No. 1939/Del/2016 A.Yr. 2008-09 where in stated that the reopening the assessment purely on the ground that the cash deposited with the bank is income of the assessee is purely a doubt that it is income of the assessee not a confirmed finding, not any tangible evidence with the ITO to form the opinion that the income of the assessee has escaped assessment. The reopening is bad enough. In the absence of any tangible material, in the case of the assessee in hand the reopening and issue of the notice u/s 148 is bad and hence requested to make the entire assessment null and void.

The reasons recorded are totally silent on three issues

Mere cash deposit is treated to be equivalent to income escaping assessment.

No details of whatsoever of any bank are mentioned.

Information is there regarding cash deposit by assessee but not contents of information available to the Ld. AO.

The Ld. AO erred in reopening the case u/s 147 of the Act, without legal and valid mandatory service of notice u/s 148 of the Act.

That the Ld. AO passed the order only on non existing basis.

The impugned order passed is ex-parte to assessee without material on record.

Prayer is made to quash the impugned order u/s 147/144 of the Act for non fulfillment of prior jurisdictional conditions.

Reasons recorded without application of mind

That the initiation of reassessment proceedings is illegal being void-ab-initio in as much as the reasons recorded are not in accordance with the provisions contemplated u/s 147 of the Act as well as judicial pronouncements. Rather reasons have been recorded in a mechanical manner and without application of mind.

The ground purely legal may please be admitted in view of the decision of the Apex Court in the case of National Thermal Power Co. 229 ITR 383 SC.

That the initiation of reassessment proceedings is illegal being void-ab-initio in as much as the approval u/s 151 of the Act is purely mechanical one and contrary to the judicial opinion.

The ground being purely legal may please be admitted in view of the decision of the Apex court in the case of National Thermal Power Co. 229 ITR 383 SC.

Notice u/s 133(6)

Not notice u/s 133(6) was sent to the assessee. Whether approval obtained from Pr. CIT obtained for issue of notice u/s 133(6) of the Act. No approval was obtained from Pr.CIT for issue of notice u/s 133(6) of the Act 1961.

Reasons recorded

Reasons recorded were never supplied to the assessee. Reasons were recorded in a mechanical manner. Approval obtained in a mechanical manner u/s 151. Reasons recorded and approval obtained from Pr. CIT u/s 151 not given to the assessee. The reasons recorded were obtained by the assessee dated 30.04.2014 after assessment u/s 144.

Reasons to believe has to be supplied within a period of six years

The above decision of Delhi High Court is further followed by ITAT Delhi bench in the case of Shri Balwant Rai Wadhwa v. ITO, in I.T.A. No. 4806/Del/10. The ITAT bench held that if reasons are not supplied to the Assessee within the period of 6 years then it would be constructed that assessment has not been validly reopened.

In the case of the assessee in hand, the reasons to believe were not supplied by the AO to the assessee with in a period of six years rather could not be supplied on being asked by the Assessee for the copy of the reasons after the assessment u/s 144 of the Act.

Reasons to believe

The text of reason recorded styled as “reason to believe” in the present case is nothing but reason to suspect. On mere surmises and presumption that too on incorrect facts as recorded in the reasons, the proceedings u/s 147 of the Act cannot be validly initiated more so in the absence of any adverse material or information directly gathered by your goodself. If there is any adverse material or information in possession of your good self the same may kindly be communicated to the assessee in the interest of natural justice.

Merely stating the reasons in a letter addressed by the AO, is not enough. Then, the reasons to believe escapement of income need to spell out all the reasons and grounds available with the AO for reopening the assessment. The reasons must also paraphrase any investigation report, which may form the basis of the reasons any enquiry conducted by the AO thereon, as also the conclusions thereof.

Reason to believe

Relying on ‘Signature Hotels (P) Ltd. Vs. ITO’, 338 ITR 51 (Del), it has been held that the reasons must be self-evident and they must speak for themselves; that the tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons; and that where the link between the information made available to the AO and the formation of belief is absent, the reasons are not sustainable. It has further been held that where there is no independent application of mind by the AO to the tangible material which forms the basis of the reasons and the reasons fail to demonstrate the link between the tangible material and the formation of the reasons to believe escapement of income, the reasons are unsustainable.

In the present case, like in ‘Meenakshi Overseas’ (supra), the link between the information available with the AO and the formation of belief by the AO is missing. No independent application of mind by the AO to the material forming the basis of the reasons recorded is evincible from the reasons. The AO, in the reasons, has just stated the information received and his conclusion about the alleged escapement of income. As to what the AO did with the information made available to him, is not discernible from the reasons. As such, ‘Meenakshi Overseas’ (supra), is squarely applicable.

In the case of the assessee, unsubstantiated and vague AIR information is the sole basis of the entire order. The reopening is bad on the following grounds:

(a) Contents of information not available to the AO

(b) No details of whatsoever bank account are mentioned

(c) Mere cash deposit is treated to equivalent to income escaping assessment.

The Ld. AO erred in reopening the case u/s 148 of the Act, without legal and mandatory service of notice u/s 148 of the Act. The information with the AO was restricted to cash deposit in Bank A/c but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that the cash deposits represented income of the assessee.

The reasons recorded are highly vague, far-fetched not by any stretch of imagination lead to conclusion of escapement of income and therefore merely presumption in nature. This is a case of mechanical action on the part of the AO and there is no application of mind so as to show that he formed an opinion based on any material that such deposits represented income. (Page no. 15 – 16 of the PB)

A reason to be formed only by Jurisdictional Assessing Officer and not any other Assessing Officer, and issuance of notice is mandatory:

The basic requirement of section 147 is that the assessing officer must have a reason to believe that any income chargeable to tax has escaped assessment and such belief must be belief of jurisdictional assessing officer and not any other assessing officer or authority or department. Therefore the jurisdiction of AO to reopen an assessment under section 147 depends upon issuance of a valid notice and in absence of the same entire proceedings taken by him would become void for want of jurisdiction. The reasons have been recorded by the jurisdictional AO Sh. XXXXX, The ITO, Ward No. X(X), XXXXXX and he had also issued notice u/s 148 of the Act, Dt. 22.03.2018 which was sent by speed post but never received by the assessee. For this notice, the ITO has got approval though in a mechanical manner u/s 151 of the Act Dt. 12.03.2018. One notice u/s 148 Dt. 31.03.2018 was sent by one ACIT Sh. XXX XXXXX, Circle X(X), XXXXXX who is not jurisdictional AO and who has not obtained approval u/s 151 of the Act. And even this notice was sent on ITBA. This notice without obtaining approval and without recording reasons is invalid notice. (Page no. 19 & 40 of the PB)

Approval u/s 151 of the Income tax Act

The Worthy Pr. CIT, XXXXXX has given permission for re-opening of the case Dt. 12/3/2018/15-3-2018 in a mechanical manner without application of mind and not given to the assessee but obtained by assessee Dt. 30/4/2019. Photocopy only. (Page 9 – 14 of the PB)

The reasons Recorded Dt. 5/3/2018 has not been given to the assessee but obtained by the assessee Dt. 30/4/2019 Photocopy Only.

The entire cash deposited can not be income of the assessee

Apex Court judgment in the case of Parimisetti Sethramamma Vs CIT reported in 57 ITR 532 has held as under: –

By section 3 and 4 of the Income Tax Act, 1961 imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax.

The Ld. AO has erred on facts and in law in making addition of Rs. 900000.00 as the requirement of application of mind is missing in the present case as it is cardinal principal of taxation that all receipts are not income and all incomes are not taxable incomes. This applies squarely to the present facts as held in the case of Mahavir Prasad Vs. ITO ITAT Delhi 9.10.2017.

Mere cash deposited information is not sufficient, not a prima facie belief that income is from undisclosed sources 

Similarly in the case of CIT v. Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC) it was held that mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facie opinion based on tangible material which provides the nexus or the link having reason to believe that income has escaped assessment. The AO was also required to examine whether the cash deposits were disclosed in the return of income to form an opinion that income has escaped assessment.

ITO did not gathered any material before framing the assessment

The observations of the Hon’ble Supreme Court in the case of ‘ITO vs. Lakhmani Mewal Das’ 103 ITR 437(SC), were reproduced as under: “the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to be bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.”

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 escapement assessment.”

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, in our humble understanding, cannot be drawn.”

Judgments relied on by the assessee

ACIT V. RESHAN Petrotech Ltd. (2012) 136ITD 185 (Ahd.)(Trib.)

The basic requirement of section 147 is that the assessing officer must have a reason to believe that any income chargeable to tax has escaped assessment and such belief must be belief of jurisdictional assessing officer and not any other assessing officer or authority or department. Therefore, the jurisdiction of Assessing Officer to reopen an assessment under section 147 depends upon issuance of a valid notice and in absence of the same entire proceedings taken by him would become void for want of jurisdiction. In the case of CIT vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66(Bom.) has held that though the reopening of assessment was within time, since the reasons recorded for reopening of the assessment were not furnished to the assesses till date the completion of assessment, the reassessment order cannot be upheld.

Tangible Material is required at the time of formation of belief that income has escaped assessment

The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power.

Aventis Pharma Ltd. vs. ACIT (2010) 323 ITR 570 (Bom)

Irrelevant and non existing reasons : Vague and General reasons not permissible:

Balakrishna H. Wani vs. ITO 321 ITR 519 (Bom)

Notice based on suspicion and surmise – Notice is not valid. The requirement of law is “reason to believe” and not reason to “suspect”.

CIT v. ManibenVelji Shah (2006) 283 ITR 453 (Bom.)(High Court)

The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. 

Banke Bihari Properties Pvt. Ltd. v. ITO ITA NO. 5128/M/2015 dt. 22/04/2016 (A.Y. 2006-07) (Delhi)(Trib)

Merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction on the basis of suspicions and presumptions cannot be sustained.

Legal requirement of the notice to be issued u/s 133(6) before issue of notice u/s 148

No enquiry letter u/s 133 (6) of the Act was sent to the assessee before proceedings initiated u/s 147. Notice u/s 148 was not issued on mail, by Post, by Personal service. It was sent only on portal and that too at the wrong address. Assessee has not attended the proceedings as no notice was received by the assessee. A detail chart showing address of the assessee is produced as under:

S. No. Section Date Address of the Assessee Where Notice is issued Remarks
1. XXXX BANK 1-08-2013 XXX, XXXX, XXXX, XXX Bank Statement has been obtained by AO  during the Course of Assessment Proceeding, not earlier than that which is revealed by paragraph 5 of the assessment order. This is the correct address of the assesse .
2. Reasons Recorded U/s 148(2). 5-03-2018 XXX, XXXX, XXXX, XXX XXXXXX, Obtained by Assessee on 30-4-2019 not earlier. This address is wrong.
3. Approval U/s 151. 12-03-2018 XXX, XXXX, XXXX, XXX XXXXXX, Obtained by Assessee on 30-4-2019 not earlier.This address is wrong.
4. Notice U/s 148, Sent by Speed Post. 22-.03-2018 XXX, XXXX, XXXX, XXX XXXXXX, Sent by speed post Dt. 22-3-2018 but not received by the assessee.This address is wrong
5. Notice U/s 148

(Notice is invalid)

31-03-2018 XXX, XXXX, XXXX, XXX, XXXXXX, Only sent on ITBA, by the Department. Present address of the assessee. This is on Rent.
6. Notice U/s 142(1) 26-6-2018 XXX, XXXX, XXXX, XXX, XXXXXX, Only sent on ITBA, by the Department. Present address of the assessee. This is on Rent.
7. Notice u/s 142(1) 11-09-2018 XXX, XXXX, XXXX, XXX, XXXXXX, Only sent on ITBA, by the Department. Correct address
8. Notice u/s 142(1) 10-10-18 XXX, XXXX, XXXX, XXX, XXXXXX Only sent on ITBA, by the Department. Correct address
9. Notice U/s 142(1) 30-10-18 XXX, XXXX, XXXX, XXX, XXXXXX, Only sent on ITBA, by the Department. Correct address
10. Show Cause Notice 30-10-18 XXX, XXXX, XXXX, XXX, XXXXXX, Only sent on ITBA, by the Department. Correct address
11. Notice of Demand U/s 156. 14-11-2018 XXX, XXXX, XXXX, XXX, XXXXXX, Received by the assessee on 15-11-2018 by hand. Correct address
12. Order U/s 144/147. 14-11-2018 XXX, XXXX, XXXX, XXX, XXXXXX, Received by the assessee on 15-11-2018 by hand. Correct address

(Page no. 31-42, 50 of the PB)

The assessee has never appeared in any proceedings or co-operated in any enquiry relating to re-assessment. Assessee shall not be precluded from taking the objection before CIT (A) because notice u/s 148 Dt. 22/3/2011 was never served upon him. The section 292 BB of the Act is squarely not applicable in the case of the assessee.

In the case of the assessee and on the basis of above cited judgments, it is clear that the AO was not having any cogent reason, material for Reopening of the assessment. On the basis of extraneous material (AIR) in his possession he opened the assessment and tried to find out if any income is there which has escaped for assessment. The cash deposit with the Bank of Rs. 900000/- by the assessee is not reason to believe that income has escaped assessment. That prima-facie reason and material should be with the AO that there is escapement of some income. The deposit of cash with saving Bank A/c is not a Prima-facie reason and material with the AO who resorted to reopen assessment even in the absence of Bank statement. The Hon’ble supreme court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500(SC) where in issuance of notice u/s 148 has been validated when prima-facie reason and material should be with the Assessing officer that there is escapement of income.

In the case of the assessee in hand there is no prima-facie reason and material available with the AO, Ward No. X(X), XXXXXX. Hence, prayed to quash the entire assessment as per law.

Moreover without prejudice to the above, even on merit, the cash deposit by the assessee in his SB A/c is cash of seller of property Mrs. XXXXXX. The assessee for safe side deposited it with this Bank A/c and later on Dt. 16/3/2011 returned Rs. 1000000/- to Mrs. XXXXXX.

Hence the Hon’ble CIT (A) is requested to provide suitable Relief to the assessee.

Application under rule 46A

Prayer is made to the CIT Appeals under Rule 46A of the Income Tax Rules 1962 at the time of hearing to accept the evidences which could not be produced at AO level and in defense of his case the assessee wants to produce the same here. (Page no. 46 of the PB)

The evidences are as under.

Complete Bank statement for FY 2010-11 (Page no. 25-30, 43 of the PB)

Sale deed Dt. 6.5.2011 between Smt. XXXXXX and Smt. XXXXXX where Sh. XXXXX XXXXXX was property dealer. (Page 20-24 of the PB)

Copy of account of Mrs. XXXXXX for the F.Yr. 2010-2011 in the books of the assessee. (Page no. 44 of the PB)

Assessee has raised an additional ground u/s 250(5) of the Act. (Page no. 48-49 of the PB)

Prayer

Prayer to the Hon’ble CIT (A) Faceless for production of all the documents

The Hon’ble CIT (Appeals), Faceless is prayed to give a chance to produce all the evidences and books of accounts before him which could not be produced at AO level so that assessee gets full justice as taxing statutes demand tax on earned income and not on income which was never earned. Tax is paid on the net income and not on the gross receipts.

The appellant also prays to produce additional evidence under Rule 46A of the Income Tax Rules, 1962 at the time of hearing or before it.

Thanking You,

XXXXXX,

Counsel of the Assessee

The following is the list of judgments relied on by the assessee:

Sr. No. Name of the Judgment Decision taken by the Court
1 Harmeet Singh, Delhi Vs. ITO, New Delhi ITA No. 1939/Del/2016 the reopening the assessment purely on the ground that the cash deposited with the bank is income of the assessee is purely a doubt that it is income of the assessee not a confirmed finding, not any tangible evidence with the ITO to form the opinion that the income of the assessee has escaped assessment. The reopening is bad enough. In the absence of any tangible material, in the case of the assessee in hand the reopening and issue of the notice u/s 148 is bad and hence requested to make the entire assessment null and void.
2 Hon’ble jurisdictional High Court in CIT Vs. Lakshmi Narain 168 Tax man 128 (Punjab and Haryana) Even the reassessment proceedings initiated by AO are void since notice u/s 148 was never served upon the appellant. Service of such notice is condition precedent for making valid assessment u/s 147.
3 Sri Shankar Khandasari Sugar Vs. CIT 193 ITR 669 The revenue must act fairly in the matter of assessment as much as it is interested in collecting the tax. In the absence of any prejudice to the revenue and the basis of the tax under the act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the income tax officer could have done the appellate authority could also do.
4 Dhakeshwari Cotton Mills Ltd. Vs CIT (1955) AIR 65 (1955 SCR 011941) Information received by the AO throws only doubt or suspicion. Suspicion however strong cannot take the place of evidence.
5 Hindustan Lever Ltd. Vs. R.B .Wadkar 26R ITR 332( Bom) While deciding Writ Petition No. 1505 of 2003 ([2004] 268 ITR 332 (Bom)), the impugned notice issued under Section 148 of the Act dated November 5, 2002, for reopening the assessment of the assessment year 1996-97 was quashed and set aside by us holding that the said notice was without jurisdiction as the Assessing Officer did not record in the reasons that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year. While disposing of that petition, we emphasised the necessity of recording reasons and quality thereof and held that unless the reasons disclose that the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year, it is not open for the Assessing Officer to reopen the concluded assessment after the expiry of four years.
6 ITO Vs. Lakshmi Mewal Das 103 ITR 437 (SC) “The reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt that the court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, however vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. 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 may be, unless there is a reason to believe rather than suspect, that an income has escaped assessment.

Thus it was a mere suspicion of the AO that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law.

7 Parveen Kumar Jain VS ITO in ITA No. 133/D/2015 for the A.Yr. 2006-07 Dt. 22.01.2015 Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceeded to reopen the assessment. At the time of formation of belief by the ITO that the income has escaped assessment , 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.
8 Parimisetti Sethramamma Vs CIT reported in 57 ITR 532 The Court held that the Act does not make a blanket provision whereby any and every receipt is to be treated as income and thereby made exigible to tax. In all cases, the burden lies on the Revenue to prove that the receipt is income within a taxing provision.
9 Mahavir Prasad Vs. ITO ITAT Delhi 9.10.2017 The reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment – especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons;
10 Apex Court in the case of National Thermal Power Co. 229 ITR 393 SC Opportunity to be given to the assessee for additional ground of appeal at the time of hearing, if applied u/s 250(5) of the Act.
11 Shri Balwant Rai Wadhwa v. ITO, in I.T.A. No. 4806/Del/10 (Delhi High Court) The notice could be served at any point of time before the expiry of 6 years, if AO has reasons to believe that income has escaped assessment but, such reasons are also to be communicated to the assessee before the expiry of the limitation otherwise validity of such notice could not be sustainable. Being a subordinate authority to the Hon’ble High Court, we are bound to follow the authoritative exposition of law at the end of Hon’ble High Court. In view of the above discussion, we allow ground No. 2 of the assessee wherein he has pleaded that notice u/s 148 has not been served within the period of limitation upon the assessee. The assessment is not sustainable. It is quashed.
12 M/s Deepraj Hospital P Ltd.Vs. ITO in the ITAT Agra I.T.A no. 41/Agra 2017 i) Proceedings initiated u/s 147 and the notice issued u/s 148 is wrong, bad-in-law, in the facts and circumstances of the case.

ii) No valid material and ground justifying the reasons recorded. The reasons are wholly irrelevant, general, vague and wrong.

iii)  Reasons recorded based on borrowed satisfactions.

iv) The assessee has not filed his return of Income recorded no Bank Statement was called for by ITO in the absence of complete Bank statement looking at the entries the formation of belief that the cash deposited with the Bank is nothing but income of the assessee is wrong. That the reasons have been recorded on mere surmises incorrect presumption and wrong assumption of facts.

v) That the condition precedent for taking action u/s 147 of the Act in the case of assessee are wholly non- existent and cannot be said to be valid in the eyes of law because section 147 of the Act mandates that it is exclusively the satisfaction of assessing authority based on some direct, correct and relevant material which is material and which could lay the foundation for issuing notice u/s 148 of the Act.

13 CIT v. Greenworld Corporation 314 ITR 81 Re-opening based on borrowed satisfaction of the Assessing Officer is not valid. Moreover, AIR information is not sufficient. Even, there is no satisfaction note what to speak of borrowed satisfaction. Hence, the reopening is bad.
14 PCIT vs. Meenakshi Overseas (P) Ltd.’, 154 DTR 100(Del.)  In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a ‘borrowed satisfaction’.

The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.

15 Signature Hotels (P) Ltd. Vs. ITO’, 338 ITR 51 (Del), “The reasons and the information referred to were extremely scanty and vague. There was no reference to any document or statement except AIR information. The AIR could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The AIR information was not a pointer and did not indicate escapement of income. Further it was apparent that the assessing officer did not apply his own mind to the information and examine the basis and material of the information. The assessing officer accepted the plea on the basis of vague information in a mechanical manner. The commissioner also acted on the same basis by mechanically giving her approval; therefore proceedings under section 148 were to be quashed.
16 Birbahadur Singh Sijwali’ Vs ITO, (ITAT Delhi) 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.
17 ITO vs. Lakhmani Mewal Das’ 103 ITR 437(SC) “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 escapement assessment.”
18 ACIT V. RESHAN Petrotech Ltd. (2012) 136ITD 185 (Ahd.)(Trib.) The basic requirement of section 147 is that the assessing officer must have a reason to believe that any income chargeable to tax has escaped assessment and such belief must be belief of jurisdictional assessing officer and not any other assessing officer or authority or department. Therefore, the jurisdiction of Assessing Officer to reopen an assessment under section 147 depends upon issuance of a valid notice and in absence of the same entire proceedings taken by him would become void for want of jurisdiction. On plain reading of section 292BB it is clear that the said section is in respect of certain procedural lapses in respect of service of notice, but in the case under consideration the question is of acquisition of jurisdiction which is a mandatory requirement of Act. (A.Y. 2006-07)
19 CIT vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66(Bom.) Though the reopening of assessment was within three years from the end of relevant A.Y., since the reasons recorded for reopening of the assessment were not furnished to the assessee till date the completion of assessment, the reassessment order cannot be up held, moreover, special leave petition filed by revenue against the decision of this court in the case of CIT v. Fomento Resorts and Hotels Ltd., has been dismissed by Apex Court, vide order dated July 16, 2007. The Court dismissed the appeal of the revenue.
21 CIT v. Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC) It was held that mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facie opinion based on tangible material which provides the nexus or the link having reason to believe that income has escaped assessment.
22 Aventis Pharma Ltd. vs. ACIT (2010) 323 ITR 570 (Bom) The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power. The assessing officer has been given power to reassess u/s147 upon certain conditions being satisfied and the AO does not have power to re-view. Reopening of assessment on the very same issue due to change of opinion in the absence of any fresh material is held to be invalid and bad at law.
23 Balakrishna H. Wani vs. ITO 321 ITR 519 (Bom) There was no tangible material before the Assessing Officer to form the belief that the income had escaped assessment and therefore, reopening of assessment under section 147 was not valid.
24 Krown Agro Foods P. Ltd.v. ACIT (2015) 375 ITR 460 (Delhi) (HC) The words “reason to believe” indicates that the belief must be that of a reasonable person based on reasonable grounds emerging from direct or circumstantial evidence and not on mere suspicion, gossip or rumour. The “reason to believe” recorded in the case do not refer to any material that came to the knowledge of the Assessing Officer whereby it can be inferred that the Assessing Officer could have formed a reasonable belief that the said amount had escaped assessment. The purported belief that income has escaped assessment is not based on any direct or circumstantial evidence and is in the realm of mere suspicion. The requirement of law is “reason to believe” and not “reason to suspect”. In the present case, since the purported reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rational basis, the action of reopening of the Assessment is thus clearly contrary to law and is unsustainable.
25 DCIT v. Dr. M.J. Naidu (2017) 59 ITR 13 (SN) (Vishakha) (Trib) Hon’ble Madras High Court in the case of PVP Ventures V Corporate Circle 5(2) Chennai [65 taxmann.com 221] has held that justification for reopening the assessment has to be tested only on the strength of recording reasons for reopening the assessment u/s 148. From the above discussion and judicial pronouncements, recording of proper reasons and the application of mind is necessary which must be bonafide and not in mechanical manner. Where the notice issued without application of mind on the part of the assessing officer, the same is liable to be quashed. The reasons recorded by the assessing officer must disclose the process of reasoning by which he hold the reason to believe that the income chargeable to tax has escaped assessment for the relevant assessment year. The material relied upon by the assessing officer should appear on the record. In the instant case, it is clear that the assessing officer has recorded vague and ITA Nos.299 & 300/Vizag/2013 Dr. M.J. Naidu, Vijayawada general reasons without application of mind. The assessing officer did not establish or whisper from the reasons recorded regarding the escapement of any income. It appears from the reasons recorded that assessing officer has reopened the assessment merely because survey was conducted in this case which is not permissible in law. Therefore, we do not find any reason to interfere with the order of the Ld. CIT(A) and the same is upheld. Appeal of the revenue is dismissed. Since we upheld the quashing of notice by the Ld. CIT(A) and dismissed the appeal of the revenue, we consider it is not necessary to adjudicate the assessment on merits.
27 CIT v. Maniben Velji Shah (2006) 283 ITR 453 (Bom.)(High Court) The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year
28 Banke Bihari Properties Pvt. Ltd. v. ITO ITA NO. 5128/M/2015 dt. 22/04/2016 (A.Y.2006-07) (Delhi)(Trib) After going through the reasons recorded by the Assessing Officer for reopening and the approval thereof by the Addl. CIT we are of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. Even otherwise, a perusal of the above demonstrates that the Addl. CIT has written “Approved” which establishes that he has not recorded proper satisfaction / approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, the AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed
29 ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500(SC)  To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) .Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. (Refer ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)].

In the case of the assessee there is no reason to believe to form an opinion that income of the assessee has escaped assessment. Hence the Hon’ble CIT (A) , Faceless now is requested to delete the entire demand on the basis of written submissions and various judgements .

ACIT v/s Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR500(SC)(BCAI).

Prima Face reasons and material should be with the assessing officer that there is escapement of some income. At the time time of issue of notice the AO is not required to conclusively establish that there is escapement of income .

The judgment contains two limbs:

It is sufficient that prima face reasons and material should be with the assessing officer that there is escapement of some income . In this case of the assessee in hand AO is not having primaima face reasons and material .Only information of cash deposited with the bank, not having any document, having just an AIR information; will  not amounts to prima face reasons and material.

But first limb of the judgment of the Hon’ble Supreme Court is not fulfilled by the Ltd. AO hence the reopening of the case of the assessee is not in accordance with the Hon’ble  SC judgment in this case of ACIT v/s Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500(SC)(BCAI).

On the basis of above written submissions and cited judgements , you are requested to delete the entire addition made by the Ld. Assessing officer , XXXXXX.

Thanking you,

S.K. Jain, Advocate

Counsel of the assessee.

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