2024 (1) TMI 259 - AT - Income Tax

Validity of the jurisdiction assumed by the A.O for initiating proceedings u/s. 147 - addition of cash deposit in his bank account, on a protective basis - HELD THAT - Reopening is permissible only when the A.O gives a clear finding that ascertainable income has escaped in the hands of a definite assessee and find substance in the claim of the Ld. AR that recourse to proceedings u/s. 147 of the Act would not be permissible for framing of a protective assessment. As taking recourse to framing of a protective assessment in itself pre-supposes and has as its foundation, a probability, that on arising of a contingency in the future, say, order of an appellate authority/court would result into escapement of income in the hands of the assessee, the fundamental requirement for assuming of jurisdiction u/s 147 of the Act, i.e formation of a bonafide belief that the income of the assessee chargeable to tax had escaped assessment is found to be seriously amiss. Expectation that an income may arise in the hands of an assessee i.e, based on a contingency in the future, can by no means justify assumption of jurisdiction u/s 147 of the Act. When the AO holding a bonafide belief that the income of another person, viz. Shri. Inder Lal Ramrakhyani had escaped assessment, and on the said basis had initiated proceedings u/s 147 of the Act on a substantive basis in the case of the said person, then, it is beyond comprehension that the AO after holding a belief that the amount was the income of another person, could have thereafter simultaneously held the said amount as the income of the assessee chargeable to tax that had escaped assessment - notice issued by the A.O u/s. 148 quashed for want of valid assumption of jurisdiction. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Confirmation of addition of Rs. 1,50,000/- as unexplained income under Section 69 of the Act.

Summary:

Issue 1: Validity of initiation of reassessment proceedings under Section 147 of the Income-tax Act, 1961

The assessee challenged the initiation of reassessment proceedings under Section 147 on the grounds that there was no "reason to believe" that income had escaped assessment. The proceedings were initiated based on a cash deposit of Rs. 1,50,000/- in the assessee's bank account, which was transferred to a partner of M/s. Shakti Construction. The Assessing Officer (A.O) treated the amount as unexplained money and initiated proceedings on a protective basis, while substantive proceedings were initiated in the hands of the ultimate beneficiary, Shri Inder Lal Ramrakhyani.

The Tribunal found that the initiation of proceedings under Section 147 for a protective assessment is not permissible. Citing judgments from the Hon'ble High Court of Bombay in the cases of DHFL Venture Capital Fund Vs. Income Tax Officer and Pavan Morarka Vs. Assistant Commissioner of Income Tax, the Tribunal held that the A.O must have a "reason to believe" that income had escaped assessment, which cannot be based on a future contingency. The Tribunal quashed the notice issued under Section 148 for lack of valid jurisdiction.

Issue 2: Confirmation of addition of Rs. 1,50,000/- as unexplained income under Section 69 of the Act

The assessee explained that the cash deposit was sourced from accumulated savings from salary and interest income. However, the A.O was not satisfied and added the amount as unexplained income under Section 69. The Commissioner of Income-Tax (Appeals) upheld this addition.

As the Tribunal quashed the reassessment proceedings for lack of valid jurisdiction, it did not address the merits of the addition made under Section 69. The appeal filed by the assessee was allowed based on the invalid assumption of jurisdiction by the A.O.

Conclusion:

The appeal was allowed, and the reassessment proceedings initiated under Section 147 were quashed due to the lack of valid jurisdiction, as protective assessments cannot form the basis for such proceedings. The Tribunal refrained from addressing the merits of the addition under Section 69.