Case Law Details

Case Name : Smt. Premwati Suman Vs ITO (ITAT Agra)
Appeal Number : ITA No.393/Agra/2018
Date of Judgement/Order : 22/03/2019
Related Assessment Year : 2008-09
Courts : All ITAT (6898) ITAT Agra (103)

Smt. Premwati Suman Vs ITO (ITAT Agra)

Conclusion: Notice under section 148 could not be issued for verification of information, but here the jurisdictional satisfaction of the essential requirement had to be shown that there had to be reason to believe that there was income chargeable to tax which was not there in the assessment order passed. Thus, the reasons recorded by AO were no reasons in the eye of law for assuming jurisdiction and the assessment orders u/s 144 read with 147 was quashed.

Held: Assessee had purchased a property along with her son. Subsequently, notice under section 148 was issued after recording of reasons. In response to the notice, no return of income was filed and evidences filed to explain the sources of availability of funds did not favour with the view held by AO who framed assessment passed under section 144/147 determining total income. Assessee contended regarding validity of re-opening and also submitted that the addition on merits had wrongly been made. It was held the text of the reasons recorded proved that virtually there had been no application of mind by AO so as to form requisite satisfaction that any income had escaped assessment and that the reasons recorded in the case in hands were no reasons in the eye of law as being completely barren and bald in nature. The content of reasons did not reveal that AO had done some exercise by way of any enquiry having been conducted by him before arriving at the satisfaction for escapement of income. Notice under section 148 could not be issued for verification of information, but here the jurisdictional satisfaction of the essential requirement had to be shown that there had to be reason to believe that there was income chargeable to tax. The reasons recorded by AO should speak his mind and the basis for coming to conclusion that investment had been sourced from income, which should have been disclosed and had not been shown therefore, there was escapement of income. There must be direct nexus between the material and belief of escapement.  The purported reasons did not show any such exercise by AO and hence AO had exceeded his authority in wrongly acquiring the jurisdiction in the matter. Thus, the reasons recorded by AO were no reasons in the eye of law for assuming jurisdiction and the assessment orders u/s 144 read with 147 was quashed.

FULL TEXT OF THE ITAT JUDGEMENT

Both these appeals, filed by the respective assessee, call into question correctness of order dated 27.03.2018 passed by the learned CIT(A)-I, Agra in the matter of assessments framed vide orders dated 31.03.2016 under section 147/144 of the Income Tax Act, 1961 for Assessment Year 2008-09 passed by the ITO 1(3), Agra.

2. Since, ITA No.393/Agra/2018 and ITA No. 394/Agra/2018 are for same A.Y: 2008-09 in the cases of mother (Smt. Premwati Suman) and son (Shri. Ranjeet Suman) and assessee’s therein had raised common grounds in appeal regarding the validity of reasons recorded, which too are recorded by the same Assessing officer in respect of same item of escapement of income in both the cases with the only variation in name and amount therefore, in order to have consistency in our decision both the appeals are heard together.

3. For brief facts we take ITA No. 393/Ag/2018 as a lead case in the case of Smt. Premwati Suman that an information was received that assessee had purchased a property for Rs.50,00,000/- along with her son Shri Ranjeet Suman on 27.12.2007 and also paid Rs.7,53,700/-. Subsequently, notice under section 148 was issued on 26.03.2015 after recording reasons. In response to the notice no return of income was filed and evidences filed to explain the sources of availability of funds did not favour with the view held by the learned Assessing officer who framed assessment vide order dated 31.03.2016 passed under section 144/147 of the Act determining total income at Rs. 22,13,439/-.

4. Before the learnedCIT(A) assessee has raised grounds regarding validity of re-opening and also submitted that the addition on merits has wrongly been made. However, the learnedCIT(A) rejected the appeal both on legal ground as well on merits and confirmed the assessment order as such.

5. The learned CIT(A) has sustained re-opening on the ground that before issuing notice under section 148 due enquiries were made from the assessee by the learned Additional CIT, Range-1 and by the ITO – 1(3) who issued notices to the assessee and replies furnished in response thereto were found unsatisfactory. Thus, after considering the replies by the assessee notice under section 148 was issued. He also rejected the contention of the assessee that investment in property cannot be compared with cash deposit and therefore, cases relied upon by the assessee were found to be not applicable. He thus, sustained re-opening confirmed the addition.

6. Being aggrieved, assessee has come in appeal raising the following grounds:

1. BECAUSE, upon due consideration of facts and in the overall circumstances of the case ‘appellant’ denies its liability to be assessed in terms of Notice dated 26.03.2015 said to be issued under section 148 of the ‘Act’.

2. BECAUSE, the purported ’Reasons’ are no ‘Reasons’ in the eyes of Law. The so called ‘Reasons’ do not show any ‘intelligible nexus’ to show that ‘Investment’ as made by the assessee represents her ‘Income’ which too is liable for Income Tax and had escaped Assessment warranting recourse to Notice under section 148 of the Act.

3. BEACUSE, alleged non-compliance, partial compliance or even unsatisfactory compliance to Letter dated 19.01.2015 as was issued by the Ld Addl. CIT, and 18.03.2015 as was issued by the ITO 1(3), Agra may be a ground only for ‘reasons to suspect’ for alleged escapement of income but does not give any valid foundation for reaching to ‘reasons to believe’ and thereafter arriving at the ‘satisfaction’ for escapement’ of Income warranting recourse to Notice under section 148 of the Act.

4. BECAUSE, while sustaining the validity of Notice Ld. CIT(A) legally erred in referring to the Letter dated 19.01.2015 and 18.03.2015, which Letters do not find mention in the ‘Reasons Recorded’ and therefore, cannot be referred or relied in order to improve the ‘Reasons Recorded’ which is lacking in material terms of showing application of mind on part of the AO recording the reasons.

5. BECAUSE, the sanction as was mandatorily required to be accorded by the Additional Commissioner of Income Tax under section 151 of the Act before issuing Notice under section 148 of the Act was though accorded by the Additional Commissioner of Income Tax but without application of mind in a mechanical manner, leading the Notice issued under section 148 of the Act to be held without jurisdiction and consequent assessment order passed in pursuance of such an invalid Notice to be held as void-ab-intio.

WITHOUT PREJUDICE TO THE ABOVE

6. BECAUSE, while confirming addition the authorities below failed to appreciate that the amount as was deposited in the Bank Account of the ‘appellant’ represented Cash available with the assessee raised from Loan and Sale Proceeds of Agriculture produce in preceding years therefore, even on merits no addition can be made.

7. BECAUSE, while making the addition of Rs. 23,09,381/- the ‘AO’ failed to consider that ‘appellant’ being an Agriculturist, having no source of Income liable for Tax and therefore, the authorities below was factually and legally wrong while making and sustaining addition towards alleged ‘Income from undisclosed sources’.

8. BECAUSE, in any case and in any view of the matter impugned additions/ disallowances and impugned assessment order is bad in law, illegal, unjustified, contrary to facts and law based upon incorrect assumption of facts and further without allowing adequate opportunity of hearing in violation of principals of natural justice and therefore, the additions made deserves to be quashed.

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

10. BECAUSE, assessee denies its liability against Interest charged under section 234A based on incorrect assumption of facts and Interest under section 234B and 234C is incorrectly charged.

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

7. The learned A.R of the assessee Shri Anurag Sinha, Advocate submitted that the purported reasons are no reasons in the eye of Law. No persons properly instructed on facts or in law, on the basis of reasons, as recorded in these cases could have arrived at ‘satisfaction’ for escapement of income. According to the learned Counsel the purported reasons are barren and bald and conclusion without any process of reasoning showing application of mind. The socalled reasons, thus, do not show any ‘intelligible nexus’ to show that ‘Investment’ as made by the assessee represents ‘Income’ which too is liable for Income Tax and had escaped Assessment warranting recourse to Notice under section 148 of the Act. He submitted that alleged non-compliance, partial compliance or even unsatisfactory compliance to notices dated 19.01.2015 as was issued by the learned Addl. CIT, and 18.03.2015 as was issued by the learned ITO 1(3), Agra may be a ground only for ‘reasons to suspect’ for alleged escapement of income but does not give any valid foundation for reaching to ‘reasons to believe’ and thereafter arriving at the ‘satisfaction’ for escapement’ of Income warranting recourse to notice under section 148 of the Act.

8. According to the submission of learned Counsel while sustaining the validity of notice learned CIT(A) legally erred in referring to the Letters dated 19.01.2015 and 18.03.2015, which Letters do not find mention in the reasons recorded and therefore, cannot be referred or relied in order to improve the reasons recorded which is lacking in material terms of showing application of mind on part of the learned Assessing officer recording the reasons. He invited attention to the reasons recorded as placed in paper book (APB-7) which is being reproduced as under:

“On the basis of information it is found that Smt. Premwati Suman and Shri Ranjeet Suman 1/1, HIG Flats, Sanjay Place, Agra had purchased an immovable property for Rs. 57,53,700/- [Purchase cost Rs. 50,00,000+ stamp duty of Rs. 7,53,700/-] n 27.12.20017 (during F.Y. 2007-08) relating to A.Y. 2008-09. As per records of this office they have not filed any return of income. The details are as under: –

Purchase cost Rs. 50,00,000/-
Stamps purchased Rs. 7,53,700/-
Total Rs. 57,53,700
Half share of Smt. Premwati Suman Rs. 28,76,850/-

In view of above, I have reason to believe that income to the tune of Rs. 28,76,850/- has escaped assessment.

Dated: 25.03.2015

Sd/-

Income tax Officer 1(3), Agra”

9. Per contra, the learned D.R Shri Waseem Arshad, at the outset objected to the submissions made by the learnedA.R and stated that since assessee had not challenged the validity of notice under section 148 of the Act before the authorities below therefore, it cannot be allowed to raise this objection at this belated stage and thereby taking the revenue by surprise. For this he placed reliance to Hon’ble Supreme Court Judgment in the case of GKN Driveshafts (India) Ltd. v. ITO (2002) 125 Taxman 963(S.C) and CIT vs. Safetag International India Pvt. Ltd. ITA No. 355, 412 of 2010 ( Delhi High Court) . He thereafter, submitted that the proceedings are validly initiated on the basis of credible report indicating suspicious transaction and therefore, the learned Assessing officer was well within his jurisdiction to issue notice under section 148 of the Act. He further submitted that no return of income was filed and therefore, this being a case of deemed escapement of income under clause (a) to section 147 of the Act, the learned Assessing officer was well within his right to issue notice under section 148 of the Act. Reliance was placed to Hon’ble Jurisdictional High Court Judgment in the case of M/s Ginni Filaments vs. CIT, Agra in Writ Tax No. 1402 of 2014.

10. We have considered rival submissions, material on records and the case laws relied up by both the parties. It was made clear to the parties that as the case is being heard in respect of ground No. 1 to 4, pertaining to validity of proceedings under section 147 of the Act based on reasons recorded and therefore, if such grounds do not find favour with the view held by the Bench in such an eventually the case will be re-fixed for hearing for hearing in respect of other grounds raised in the memo of appeal to such a proposal the parties have readily agreed. Firstly, we would deal with the objection raised by the learned Sr. D.R regarding the admissibly and maintainability of ground challenging the validity of notice under section 148 of the Act. The learned Sr. D.R has objected that assesse having raised no objection with regard to the proprietary of reasons recorded cannot at this stage of proceedings raise this issue. We hold that such an objection raised by the learned Sr. D.R cannot be approved under law.

11. As the objection raised by the assessee is a purely legal objection going to the root of the jurisdiction of the matter and in view of the Hon’ble Apex Court judgment in the case of NTPC Vs CIT(1998) 229 ITR 383 (SC) (APB-9-12) it can be raised at this stage even for the first time. The Hon’ble Supreme Court while dealing with ground raised before the ITAT for the first time relating to legal issue has held that Tribunal should not be prevented from considering questions of law arising in assessment proceedings although not raised earlier. It was also held that under section 254 of the Act the Tribunal has jurisdiction to examine a question of law which thought not arose before lower authorities but arose before it from facts as found by lower authorities and having a bearing on tax liability of assessee.

12. In the case of Shri Abdul Majid Vs CIT(2006) 153 Taxman 131 (All) the Hon’ble Allahabad High Court framed following question of Law for its consideration at the instance of appeal preferred by the assessee:

“1. Whether on the facts and in the circumstances of the case, the Hon’ble ITAT, was in law justified in rejecting the additional grounds challenging the validity of assessment order on the basis of illegal initiation of proceedings u/s 148 without complying the provision of Section 148 (2)”

The Hon’ble High Court held that

“Further, it has been held that the plea with regard to the jurisdiction of the Officer goes into the root of the matter, therefore, even if not raised at the first instance before the Assessing Authority, it can be raised before the Appellate Authority at a later stage. In this view of the matter, we are of the opinion that the Tribunal has erred in not allowing the additional ground challenging the validity of the assessment order on the basis of illegal initiations of the proceedings under Section 148 of the Act.”

13. In the case of Km. Teena Gupta Vs. CIT (2017) 4 TMI 114 (All.) the Hon’ble Allahabad High Court set-aside the order passed by the ITAT wherein the ITAT refused to entertain the ground regarding the validity of re-assessment proceedings on the ground that assessee having raised no objection against validity of re-assessment proceedings itself, it had conceded the same and the assessee did not have any grievance at that time. Upon appeal by the assessee before the Hon’ble Allahabad High Court, the Hon’ble High Court held that it is settled law that the reassessment notice is a jurisdictional notice and it is equally settled law that ground of lack of jurisdiction may be raised at a subsequent stage as well. In the case, before the Hon’ble High Court the reassessment order was admittedly an ex-parte order and, therefore, the Hon’ble found that there was no occasion for the assessee to have conceded to their assessment proceedings. Further, the assessee therein had demonstrated that he had raised specific ground both before the learned CIT (Appeals) and also before the Tribunal, challenging the jurisdiction of the Assessing Officer. The Hon’ble High Court thus found the approach of the Tribunal to be not in accordance with the law and thusheld that the issue of validity of reassessment proceedings is a jurisdictional issue. It goes to the root of the matter. The Tribunal ought to have examined the ground no.3 raised in the assessee’s appeal on its merit without being prejudiced by the facts that the reassessment order has been passed on the ex-parte basis in which the proceedings the assessee has not objected to the initiation of the reassessment. Accordingly, question no.1 is answered in favour of assessee and against the department.

14. The learned Sr. D.R placed heavy reliance to the Judgment of Hon’ble Delhi High Court and CIT vs. Safe tag International India Pvt. Ltd.(supra) perusal of the case reveals that it nowhere lays down any proposition of law for which the learned Sr. D.R has sought to rely upon it. In this case assessee did not ask for the reasons recorded, participated in the assessment proceedings and raised objection before the learned CIT(A) about the validity of notice under section 148 of the Act. However, the Hon’ble High Court directed the Revenue to supply copy of reasons to the assessee within four weeks and upon receipt of reasons assessee was required to make submission before learned CIT(A) based upon such reasons challenging the validity of re-assessment proceedings and learned CIT(A) shall decide this issue on merits after hearing the parties. From the reading of the Judgment it is not understood as to how reference to this case help the cause of the revenue in the case on hands. Therefore, the case is distinguishable on facts.

15. Further reliance on the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2002) 125 Taxman 963 for the proposition that the Hon’ble Supreme Court has required that immediately after receipt of notice under section 148 of the Act assessee has to furnish return of income and seek reasons recorded and thereafter file objection . Thus, as per his submission since assessee did not file return of income in compliance to notice under section 148 of the Act and also has not filed objection he is precluded from challenging the validity of reasons at this belated stage. We are afraid to approve this submission too. In the case of GKN Driveshafts (India) Ltd. (supra) the Hon’ble Supreme Court has only provided step wise procedure and nowhere it has been held that if objections are not filed before learned Assessing officer such objection cannot be taken up at any further stage or the legal right of assessee would stands waived. It would be reading or making us to read something which is not there in the Judgment of the Hon’ble Supreme Court. No inference against the assesse is possible as far as substantive right is concerned. Thus, the reliance is misplaced.

16. We are alive of the settled position in law that the question of Jurisdiction is not a matter of acquiescence. The proprietary of notice under section 148, based upon reasons recorded is not dependent upon the objection or no objection by the assessee at the stage of assessment. If the reasons recorded, independently can withstand the test of judicial scrutiny, only such reasons will confer jurisdiction to issue notice and frame assessment in pursuance thereto. However, if the reasons recorded, upon being challenged at any stage of proceedings fails to withstand the test of judicial scrutiny, in that eventuality, upon such recorded reason no valid notice can be issued and any assessment framed consequent thereto even taking shelter of ‘No objection’ from the assessee could save the assessment from being held to be declared void-ab-intio. In this background of the case the objection raised by the learnedSr. D.R is rejected being devoid of substance and based on incorrect reading of the law.

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

18. Now coming to the validity of reopening based on reasons recorded. From the perusal of the reasons recorded it is evident that the reason for issuing notice dated 26.03.2016 under section 148, as evident from reasons recorded on 25.03.2016 is investment in property based on information and that no return was filed by the assessee.

19. However, from the perusal of reasons as recorded by the learned Assessing officer the so called un-satisfaction of the learned Assessing officer qua the reply furnished by the assessee is not evident. It has rightly been argued by the learned A.R that application of mind can be seen from the recorded reasons only and for testing the validity of the reasons recorded no reference can be made to any other material even if any other material is available on assessment records except which is referred in the reasons recorded. This argument has judicial approval of law, in view of settled position requiring that for adjudicating the proprietary of re-assessment proceedings it is the recorded reasons of the ITO, which can only be considered and looked into. Reference in this regard can be usefully made to the decision of Hon’ble Allahabad High Court in the case of Jamuna Lal Kabra vs. ITO reported in (1968) 69 ITR 461 (All.) wherein the Hon’ble High Court has held that “subsequent reference to other material cannot justify reopening of assessment as assumption of jurisdiction to reopen the assessment can be examined only on the basis of material mentioned in the reasons so recorded. In the case of CIT vs. Agarwalla Brothers reported in (1991) 189 ITR 784 (Pat) the Hon’ble Patna High Court has held that “the relevancy of the reasons recorded can be tested only by reference to the reasons recorded under section 148(2) and the ITO is not authorized to refer to any other reasons even if it can be otherwise inferred or gathered from the records”. On the similar lines the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. Vs. R.B. Wadkar reported in (2004) 268 ITR 332 (Bom.) has held that “reasons recorded by the A.O. cannot be supplemented by filing affidavit or making oral submissions so as to supply the material particulars in which such notice was lacking. In the case of Prashant S. Joshi Vs ITO reported in (2010) 324 ITR 510 (Bom) Hon’ble Bombay High Court held that “the requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded and, on those reasons, alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of s. 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the ‘AO’. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under s. 148.Reiterating the above settled position the ITAT at Agra in the case of Saraf Gramodyog Sansthan vs. ITO (2007) 108 ITD 115 (Agra) after following the decision of Hon’ble Allahabad High Court in the case of JamunaLalKabra (supra) has held that reopening cannot be justified on any other material other than referred in the reasons recorded.

20. Keeping in view the position of law as discussed above we have no hesitation to conclude that learned CIT(A) was legally unjustified in sustaining re-opening by referring to Letters dated 19.01.2015 and 18.03.2015 respectively by the learned Additional CIT, Range-1, Agra and by the learned Assessing officer and presumed un-satisfaction of the Assessing officer by the learned CIT(A), which observation and opinion of the learned CIT(A) do not find mention in the reasons recorded by the Assessing officer and thus has to be excluded for the purpose of consideration of the proprietary of reasons recorded.

21. Now, as held above the validity of re-opening has to be tested only on the basis of reasons recorded. The first part of reasons recorded speaks only of a fact which is not under dispute that assessee along with her son had jointly purchased a property, deed of which was furnished by the assessee before the learned Additional CIT as admitted in Letter dated 19.01.2015 issued by him and from which the detail mentioned in first part of reasons recorded are imported.

22. The last part of reasons recorded mentions the fact that assesse had not filed return of income, which according to learned D.R was itself sufficient ground for issuing notice under section 148 of the Act as this is a case of deemed escapement in view of clause (a) of section 147 of the Act.

23. The learned AR contended that such an argument as raised by learned Sr. D.R is in the teeth of judgment of Hon’ble Bombay High Court in the case of Ingram Micro (India) Exports (P) Limited Vs DCIT (2017) 178 taxman. com 140 (Bom.) wherein the Hon’ble High Court while dealing with the argument of the revenue that the assessee therein had not filed return of income thus there is a deemed reasons to believe in view of Explanation 2(a) that income chargeable to tax has escaped assessment. The Hon’ble High Court rejecting such a contention held that Explanation 2(a) to apply, the income chargeable to tax which is deemed to have escaped assessment does not arise simpliciter on not filing return of income but must also be coupled with the prima-facie satisfaction of the assessing officer that the income of a person concerned is chargeable to income tax even if it exceeds the maximum amount not exigible to tax. Therefore, prima-facie for Explanation 2(a) of Section 147 of the Act to be invoked, the reasons must indicate that the Assessing officer has applied his mind to the fact that income is chargeable to tax under the Act and it has exceeded maximum amount not chargeable to income Tax. The Hon’ble Court found notice to be without jurisdiction as the satisfaction was not found in the reasons recorded. Thus, the argument of the learned Sr. D.R that mere non-filing of Return is sufficient ground for assuming escapement of income is based on incorrect understanding of law and therefore, rejected.

24. This leaves us, with only with a part of the reasons recorded which pertains to mentioning of purchase of property. As submitted before learned CIT(A) and also before us that no escapement can be presumed merely referring to investment coupled with the fact on no return of income filed by the assessee.

25. Reliance in this regard has been placed to Lucknow Bench decision In the case of Chunnilal Prajapati Vs ITO 2011 (2) TMI 1522 in which case the ITAT was required to adjudicate the legality of action under section 148, initiated on the basis of Report from the Investigation wing that assessee had invested in purchase of immovable property, sources of which remained unexplained before the Investigation wing and moreover assessee has not even filed his Return of Income. The reasons recorded as reproduced here as under:

“This fact came to knowledge through letter No. Addl. DIT/Inv./TEP/x – 120/04-05 dated 06.03.2006 sent by the Additional Director of Income-tax (Investigation), Lucknow, that Rs.5,38,860/- has been invested in purchase of land situated at 150, Rafi Ahmad Kidwai Nagar Scheme (Eldeco Green), Gomti Nagar, Lucknow, in the assessment year 1999-2000, by Shri ChunniLal, Assistant Regional Transport Officer, 18, Civil Lines, Faizabad.

During the course of investigation no clear detail of the said investment amounting to Rs.5,38,860/- could be told. Therefore, I have sufficient reason to believe that the sum of Rs.5,38,860/- invested in the purchase of land by ShriChunniLal, Assistant Regional Transport Officer, 18, Civil Lines, Faizabad in assessment year 1999-2000, has escaped income-tax assessment. Since return of income for the said year has not been filed by’ the assessee. Therefore, keeping in view Explanation 2(a) of section 147 of the Income-tax Act, notice under section 148 is being issued.”

25.1 Based on the above reproduced ‘Reasons’ challenge was made by the assessee regarding the validity of re-opening. The ITAT while quashing Notice under section 148 held as under:

“From the above provisions, it is clear that the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment. However, it cannot be said that if there is any investment it is sufficient to believe that the income to that extent escaped assessment because there may be so many sources for making investment and it is not necessary that only on the basis of investment it can be presumed that the income to that extent escaped assessment. There should be a concrete finding before coming to the conclusion that any income has escaped assessment and merely on the basis of the information provided by any another Wing of the Income-tax Department, the Assessing Officer cannot believe that there was income which has escaped assessment”

26. The ITAT, Delhi Bench in the case of Anil Singhal Vs ITO in ITA No. 2044/Del/2017 vide order dated 04.10.2017 was called upon to examine the legality of action initiated under section 147 where ‘reasons’ recorded were, as reproduced in the ITAT order in para-2 were as under:

“In this case as per information available with this office the assessee has purchased an immovable property for Rs.1,15,00,000/- during F.Y 2007-08 relevant to A.Y 2008-09.

To verify the source of investment in the property, letters dated 27.01.2015 & 06.02.2015 were issued to the assessee requesting therein to submit the copy of ITR of the relevant year filed by him. Further, Inspector of this ward has served the letter on the above assessee personally for fixing the date 10.03.2015 for compliance but on the date fixed assessee neither submitted the reply nor attended the office, which shows that the assessee is deliberately not furnishing the source of investment in respect of purchase of property.

In view of the above facts, I have reasons to believe that the income chargeable to tax has escaped assessment.

Issue notice under section 148 of the Income Tax Act, 1961.”

26.1 The ITAT quashed Notice under section 148 by observing that:

“From the reading of the reasons, it is quite evident that the ld. AO has not applied his mind while recording his reasons without assigning any valid reasons that no reasons have been given to make out a case that income of the assessee has escaped assessment for the impugned assessment year. Such vague reasons without the application of mind cannot give rise to acquisition or jurisdiction by the ld. AO for the reassessment and therefore same are directed to be quashed.

27. We are in agreement with the submission of the learned Counsel of the assessee that the fact of investment in property is akin to cash deposits in saving bank account as both being Investments and are assessable under section 69 of the Act, and such fact alone cannot be a reason for escapement of income and to clothe the learned Assessing officer with jurisdiction to issue notice under section 148 of the Act. The distinction noted by the learned CIT (A) is unconvincing and without any basis merely to circumvent and overcome the binding force of the referred decisions. ITAT, Delhi in the case of Bir Bahadur Singh Sijwali vs. ITO(2015) 68 SOT 197 (Delhi –Trib) wherein it was held that:

“8.Let us, in the light of this legal position, revert to the facts of the case before us. All that the reasons recorded for reopening indicate is that cash deposits aggregating to Rs 10,24,100 have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening the assessment do not make out a case that the assessee was engaged in some business and the income from such a business has not been returned by the assessee. As we do not have the liberty to examine these reasons on the basis of any other material or fact, other than the facts set out in the reasons so recorded, it is not open to us to deal with the question as to whether the assessee could be said to be engaged in any business; all that is to be examined is whether the fact of the deposits, per se, in the bank account of the assessee could be basis of holding the view that the income has escaped assessment. The answer, in our humble understanding, is in negative. The Assessing Officer has opined that an income of Rs 10,24,100 has escaped assessment of income because the assessee has Rs 10,24,100 in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, it may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escaped assessment.”

28. We have the advantage of going through the notice dated 19.01.2015 issued by the learned Additional CIT, Range-1, Agra, along with forwarding letter dated 18.03.2016 and notice dated 24.03.2015 issued by the learned ITO 1(3), Agra along with replies furnished as scanned by the learned CIT(A) in the impugned order on pages 16 to 20.Though in notice dated 19.01.15 the learned Addl. CIT, required the assessee to prove the sources of investment, in the forwarding letter addressed to the learned Assessing officer he even directed the learned Assessing officer to enquire about the sources of investment but to the advantage of the assessee while issuing notice dated 24.03.2015 no such query was made by the learned Assessing officer from the assessee. Therefore, the learned CIT(A) was factually not correct in holding that sources of investment were not satisfactorily explained before learned Assessing officer and which has led to satisfaction of the Assessing officer for escapement of income.

29. The text of the reasons recorded do proves that virtually there has been no application of mind by the learned Assessing officer so as to form requisite satisfaction that any income has escaped assessment and that the reasons recorded in the case in hands are no reasons in the eye of lawas being completely barren and bald in nature. The content of reasons does not reveal that the AO has done some exercise by way of any enquiry having been conducted by him before arriving at the satisfaction for escapement of income. Reasons are his conclusions, leaving the reader to guess for the material on basis of which the belief of escapement is founded. In fact, the aforesaid reasonsare instead of being reasons to believe are reasons to suspect. The investment need not necessarily come from the income. It might be out of income exempt from tax, past savings, loans, gifts, liquidation of investment or sale of another property etc. Notice under section 148 cannot be issued for verification of information, but here the jurisdictional satisfaction of the essential requirement has to be shown that there has to be reason to believe that there was income chargeable to tax. The reasons recorded by the learned Assessing officer should speak his mind and the basis for coming to conclusion that investment had been sourced from income, which should have been disclosed and had not been shown therefore, there was escapement of income. There must be direct nexus between the material and belief of escapement. This mental exercise must be self-evident from the reasons recorded. Reasons must be self-speaking and self-defending. The purported reasons do not show any such exercise by the learned Assessing officer and hence we have no hesitation in holding that the learned Assessing officer has exceed his authority in wrongly acquiring the jurisdiction in the matter.

30. Reliance by learned Sr. D.R to M/s Ginni Filaments vs. CIT in Writ Tax No. 1402 of 2014- Allahabad HC is misplaced as in this case assessee had not valued its Closing Stock as per provisions of Section 145A of the Act. notice under section 148 was issued which was challenged in Writ Jurisdiction. The Hon’ble High Court while sustaining notice under section 148 held that at this stage, it can be said that there is relevant material on the record to form a reasonable belief that the taxable income of the assessee has escaped assessment, in view of section 145A of the Act. From the reading of the Judgment it is not understood that what proposition of law laid down in the referred case matches with the controversy involved in the case on hands. Further in the referred case return of income was duly filed before being served with notice under section 148 of the Act as is evident from para-2.of the Judgment which reads “The petitioner is a public limited company registered under the Companies Act. It is engaged in the business of manufacturing of yarn and knitted fabrics from its industrial undertaking situate in District Mathura. The petitioner claims that it is a 100% Export Oriented Unit,(the EOU) and its income is exempt under section 10 B of the Act. For the relevant assessment years, the assessments were completed under section 143(1). Along with the Income Tax Return, audited statement of account for the relevant assessment years along with the report of the statutory auditors under the Companies Act, Tax Audit Report under section 44-AB of the Act and statement showing computation of income were filed by the petitioner. Subsequent thereto, notices for reassessment for these two years were issued by the learned Assessing Officer on the ground that the income has escaped assessment to tax.” Therefore, the case is distinguishable on facts.

31. In view of the reasons set out above, as also bearing in mind entirety of the case, we are of the considered view that the reasons recorded by the learned Assessing officer, as set out earlier, are no reasons in the eye of law for assuming jurisdiction in this case.

32. We therefore, quash the assessment orders u/s 144 read with 147 of the Act both dated 30.12.2016 passed in consequence to notices both dated 26.03.2015 for Assessment Years 2008-09 in ITA No. 393/Agra/2018 and 394/Agra/2018 in the cases of Smt. Premwati SumanVs ITO 1(3), Agra and Shri. Ranjeet SumanVs ITO 1(3), Agra. As the assessment orders itself are quashed being void-ab-intio all other issues on other legal issues and on merits of the addition, in the impugned assessment proceedings, are rendered to be academic and infructuous.

33. In the result both appeals are allowed.

Order pronounced in the open court on 22/03/2019

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