2019 (8) TMI 1315 - AT - Income Tax

Validity of notice u/s 148 - Addition u/s 68 - effect of not raising objection in respect of reopening before AO - non compliance of letter issued prior to issuance of notice u/s 148 - HELD THAT - 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. The objection raised by the learned Sr. D.R is rejected being devoid of substance and based on incorrect reading of the law. The objection of the A.R that Letters dated 26.04.2011 and 03.09.2015 were not authorized under any provision of the Act remained undisputed. It also remained undisputed that no query, of the nature alleged in the reasons recorded was given to the assessee after he furnished replies on two occasions before two different AO, dated 20.05.2011 and dated 02.02.2016 in compliance to above Letters explaining that source of cash deposits was sourced from sale of agriculture produce held and possessed by his Father and in evidence thereof proof of ownership of agriculture land was also filed. It is an undisputed position that escapement is assumed for the alleged failure to prove the source of cash deposit as called upon vide Letters dated 26.04.2011 03.09.2015. Now, the question that arises for our determination is that whether escapement of income can be presumed on the basis of non-compliance or lack of compliance or even no compliance of the above Letters. We are of the considered opinion that the reasons recorded by the Assessing officer, are no reasons in the eye of law for assuming jurisdiction in this case.

Issues Involved:
1. Validity of reasons recorded for reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Whether the cash deposits in the bank account were adequately explained as proceeds from the sale of agricultural produce.
3. The legal validity of the assessment order passed under Section 147/143(3) of the Act.
4. Admissibility and maintainability of grounds challenging the validity of notice under Section 148 of the Act at the appellate stage.

Issue-wise Detailed Analysis:

1. Validity of Reasons Recorded for Reopening the Assessment:

The primary issue was whether the reasons recorded for reopening the assessment under Section 148 were valid. The assessee argued that the reasons recorded did not show any "intelligible nexus" to indicate that the cash deposits represented taxable income. The Tribunal observed that the reasons recorded by the Assessing Officer (AO) were based on the non-filing of return and the alleged failure to provide evidence of agricultural income in response to non-statutory letters. The Tribunal held that the letters dated 26.04.2011 and 03.09.2015, which were not authorized under any provision of the Act, could not form a valid basis for reopening the assessment. The Tribunal agreed with the Amritsar Bench's decision in "Amrik Singh Vs ITO" that non-response to an unauthorized letter cannot constitute material for forming a belief of income escapement. Therefore, the reasons recorded were deemed insufficient and invalid for reopening the assessment.

2. Explanation of Cash Deposits as Proceeds from Agricultural Produce:

The assessee claimed that the cash deposits in the bank account were from the sale of agricultural produce grown on land owned by the father. The AO did not accept this explanation, leading to the addition of the deposited amount as unexplained income. The Tribunal noted that the assessee had provided affidavits and evidence of land ownership but found that the AO did not conduct further inquiries to verify the genuineness of these claims. The Tribunal found that the AO's rejection of the explanation was based on presumptions and not on concrete evidence.

3. Legal Validity of the Assessment Order:

The Tribunal examined whether the assessment order passed under Section 147/143(3) was legally valid. Given that the reasons for reopening the assessment were found to be invalid, the Tribunal concluded that the assessment order itself was void ab initio. The Tribunal quashed the assessment orders dated 19.12.2016 for both the cases of Shri Pushpendra Singh and Smt. Pushpa, as they were based on invalid reasons for reopening.

4. Admissibility and Maintainability of Grounds Challenging the Validity of Notice Under Section 148:

The Tribunal addressed the objection raised by the Department that the assessee had not challenged the validity of the notice under Section 148 before the AO and therefore could not raise this issue at the appellate stage. The Tribunal cited the Supreme Court's judgment in "NTPC Vs CIT" and the Allahabad High Court's decision in "Km. Teena Gupta Vs. CIT," which allow legal objections regarding jurisdiction to be raised at any stage. The Tribunal held that the objection to the validity of the notice under Section 148 was a legal issue going to the root of the matter and could be raised at the appellate stage. Therefore, the Tribunal rejected the Department's objection and admitted the grounds challenging the validity of the notice.

Conclusion:

The Tribunal quashed the assessment orders for both Shri Pushpendra Singh and Smt. Pushpa, finding the reasons recorded for reopening the assessments under Section 148 to be invalid. Consequently, all other issues on the merits of the addition were rendered academic and infructuous. The appeals were allowed, and the assessment orders were declared void ab initio.

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