2013 (10) TMI 512 - AT - Income Tax

Jurisdiction to issue Notice u/s 148 of the Income Tax Act - Issuance of Notice u/s 148 for income escaping assessment on the basis of Borrowed satisfaction - Information was received from DDIT (Inv.), Gurgaon regarding bogus claim of long-term capital gains shown on account of purchase and sale of shares through M/s. R.K. Agarwal & Co., New Delhi by the assessee. The notice u/s. 148 was issued with the approval of additional CIT, Range-I, Agra by the ITO 1(4), Agra on 28.03.2003 - In response to notice u/s. 148, the assessee filed written reply that he is filing return of income with the Income-tax Officer 3(4), Mathura, hence, the notice u/s. 148 was wrong and incorrect - Then this case was transferred to ITO, Mathura and, therefore, notice u/s. 142(1) was issued on 22.09.2003, 06.10.2003 and the assessee submitted that he has already filed return on 26.03.1999 - Assessee challenged the proceedings u/s. 147 and subsequently notice u/s. 142(1) on the plea that notice u/s. 148 was without jurisdiction Held that - It is clear that the Assessing Officer at Agra was not having jurisdiction over the assessee. Therefore, he should not have recorded the reasons for reopening of assessment and further he did not examine any information supplied by DDIT(Inv.) and that he was having no reasons to believe that income chargeable to tax has escaped assessment and such facts are also not mentioned in the reasons recorded for reopening of assessment. The AO at Mathura did not do anything in the matter and merely followed the reasons recorded by ITO at Agra and that he has initiated the proceedings u/s. 148 against the assessee on borrowed satisfaction of ITO, Agra - ITO, Mathura has also not examined any record of the case or the information received from DDIT(Inv.). The reasons which are not in accordance with law have been recorded at Agra by the ITO, who was not authorized to do so and was not having jurisdiction over the assessee and the Assessing Officer having jurisdiction over the assessee at Mathura did not do so and merely acted on the above borrowed satisfaction - Re-assessment proceedings u/s. 147 of the IT Act is clearly bad in law and against the provisions of law Decided in favor of Assessee.

Summary

Issues Involved:
1. Initiation of reassessment proceedings under Section 147 of the Income Tax Act.
2. Addition of Rs. 5,92,809/- on account of unexplained deposit in the bank account as sale proceeds of shares.

Issue-wise Detailed Analysis:

1. Initiation of reassessment proceedings under Section 147 of the Income Tax Act:

The appellant challenged the initiation of reassessment proceedings under Section 147 of the IT Act. The facts of the case reveal that information was received from DDIT (Inv.), Gurgaon regarding a bogus claim of long-term capital gains from the purchase and sale of shares through M/s. R.K. Agarwal & Co., New Delhi. The initial notice under Section 148 was issued by the ITO 1(4), Agra on 28.03.2003, which was served on the same day. The appellant contended that the notice under Section 148 was incorrect as the appellant was filing returns with the Income-tax Officer 3(4), Mathura. The case was subsequently transferred to ITO, Mathura, who issued a fresh notice under Section 148 on 13.01.2004 without recording new reasons, merely adopting the reasons recorded by the ITO, Agra.

The Tribunal noted that the reasons recorded by the ITO, Agra did not satisfy the requirement of law, as the ITO, Agra did not have jurisdiction over the appellant. The ITO, Mathura, acted on the reasons recorded by the ITO, Agra without applying his own mind or examining the information received. The Tribunal cited the case of Signature Hotels P. Ltd. vs. ITO, 338 ITR 51, where it was held that reassessment proceedings initiated on borrowed satisfaction without the Assessing Officer applying his own mind are invalid. Similarly, in CIT vs. Shree Rajasthan Syntex Ltd., 313 ITR 231, it was held that reassessment proceedings initiated on borrowed satisfaction are not sufficient to confer power on the Assessing Officer.

The Tribunal concluded that the initiation of reassessment proceedings under Section 147 was bad in law and against the provisions of law, as the ITO at Mathura did not validly assume jurisdiction and merely acted on the borrowed satisfaction of the ITO at Agra. Therefore, the reassessment proceedings were quashed.

2. Addition of Rs. 5,92,809/- on account of unexplained deposit in the bank account as sale proceeds of shares:

The appellant also challenged the addition of Rs. 5,92,809/- on account of unexplained deposits in the bank account as sale proceeds of shares. The Assessing Officer added this amount, considering it as income from undisclosed sources, based on the information that the transactions of purchase and sale of shares were bogus. The CIT(A) confirmed the reopening of the assessment and the addition on merits.

However, since the Tribunal quashed the reassessment proceedings under Section 147, it held that there was no need to decide the additions on merits, as the issue had become academic in nature. Consequently, all the additions stood deleted.

Conclusion:

The appeal of the assessee was allowed, and the reassessment proceedings under Section 147 were quashed. All the additions made by the Assessing Officer were deleted as a result. The order was pronounced in the open court.