2024 (2) TMI 428 - AT - Income Tax

Validity of the assessment framed u/s 147 - borrowed belief to empower reassess the assessee - addition on account of investment in the disproportionate assets found by the CBI in search as being from unexplained sources - HELD THAT - Assessment under the taxation laws is year specific. Therefore belief of escapement of income for a valid assumption of jurisdiction to assess income u/s 147 of the Act must be year specific. Law does not permit reopening basis a consolidated belief of escapement of income for several years together , particularly which does not specify AO s belief of income escaping assessment for the different years concerned. AO u/s 147 of the Act can reassess income only when he forms a belief of income of that year having escaped assessment. Reasons recorded therefore for reopening cases have to provide basis of belief of escapement of income year specific. AO s belief must be based on some tangible material, having a live link or nexus with the income allegedly escaping assessment. Reassessment cannot be resorted to on the basis of vague, indefinite or remote information. Where reassessment proceedings are initiated on the basis of information received from other departments/sources without examining them, it cannot be said that the same was based on belief of the AO that income had escaped assessment. Applying the law on reopening of assessments u/s 147 of the Act as noted above by us to the facts of the case we find merit in the contention of assessee that the jurisdiction assumed by the AO to reopen the case of the assessee was invalid. The reasons for arriving at this finding are very obvious. No specific recording of escapement of income for the assessment year reopened by the AO. Consolidated reasons recorded for all impugned years. Reasons are vague - The reasons record the consolidated figure of disproportionate assets found by the CBI pertaining to all the impugned years before us. There is no recording of income escaping assessment for each particular assessment year being sought to be reassessed. The reasons are clearly vague mentioning income escaping assessment exceeding Rs. 1 lacs that too when all details of assets found with the assessee by way of CBI report were available with the AO mentioning even the date of investment. As stated above the law empowers him to reopen the assessment for a particular A.Y only on his satisfaction of income having escaped assessment for the said year. In the absence of the same the said reasons cannot therefore , we hold, empower the AO to reopen the case of the assessee for the assessment years involved. Belief of escapement of income borrowed from the preliminary report of the CBI with no application of mind by the AO to the same - In the present case the report of the CBI lists all assets clearly mentioning the fact of the names of different persons in which it was found invested, including his wife and father. The report notes the fact of both the relatives having sources of income and thereafter goes on to state that the assets are disproportionate to the disclosed source of income of the assessee and his wife. Clearly it is just a preliminary report of the CBI, who have in a general manner attributed all assets found to belong to the assessee. This report of the CBI certainly cannot be said to qualify as information leading to belief of escapement of income of the assessee. As decided in Andaleep Sehgal 2019 (8) TMI 515 - DELHI HIGH COURT affirmed by the Hon ble Apex court 2021 (3) TMI 194 - SC ORDER strengthens our finding as above wherein reopening resorted to by the AO based solely on investigation of Enforcement Directorate was set aside finding no independent inquiry conducted by the AO for arriving at his belief of escapement of income as in the said case to be borrowed belief not sufficient to empower him to reassess the assessee u/s 147 of the Act. Thus, CBI report, we hold, could not have constituted information for the AO to form belief of escapement of income. Thus no hesitation in holding that reopening resorted to by the AO in all the impugned years before us being not in accordance with law. Decided in favour of assessee. Penalty levied u/s 271(1)(c) - Since we have held all the assessment orders to be invalid, Penalty orders has no legs to stand upon, and therefore, penalty appeals of the assessee are also allowed.

Summary

Issues Involved:
1. Validity of assessment framed under section 147 of the Income Tax Act, 1961.
2. Legitimacy of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961.

Summary:

Issue 1: Validity of assessment framed under section 147 of the Income Tax Act, 1961

These appeals relate to the same assessee and are filed against separate orders passed by the ld. Commissioner of Income-Tax (Appeals), Ahmedabad (in short "CIT(A)) u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as "Act'). The orders passed pertain to Assessment Years (A.Y) 1996-97 to 2000-01. While the assessee and the Department have filed cross appeal for Asst. Year 1996-97, for the remaining years only the assessee has come up in appeal.

The three appeals of the assessee in ITA No.1751-1753/Ahd/2008 are in relation to the orders passed by the ld.CIT(A) confirming levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short]. Remaining appeals are in relation to orders passed by the ld.CIT(A) in quantum proceedings for the impugned years.

At the outset it was clarified that earlier appeals of the Revenue for all the years before us was dismissed by the ITAT treated as withdrawn on account of tax effect involved in the same being within the limit specified by CBDT vide its circular dated 08-08-19 for withdrawing appeals filed to the ITAT. That subsequently in pursuance to miscellaneous application filed by the Department the appeal for A.Y 1996-97 was revived vide order in MA. No.48/Ahd/2020 dated 05/10/2020, while the Miscellaneous application seeking revival of appeals for the other years was dismissed by the ITAT vide order in MA. No. 52 to 57/Ahd/2022 order dated 2.6.2023. That therefore the departments appeal for only one assessment year A.Y 1996-97.

Further it was common ground that the issue involved was identical in all the years. Therefore all the appeals were taken up together for hearing with the appeal in ITA No.332/Ahd/2005 for Asst. Year 1996-97 treated as the lead case, deriving all facts therefrom.

Taking up first the assesses appeals ld.counsel for the assessee contended that in all the cases the assessee had raised an additional legal ground challenging validity of the assessment framed under section 147 of the Act. He pointed out that a common ground was raised in all the years before us, which he pointed out from the appeal of the assessee pertaining to Asst. Year 1996-97 which reads as under:

"The Ld. CIT (A) erred on facts and in law in upholding action of Assessing Officer in issuing notice u/s 148 and making consequential assessment u/s 147 without appreciating that neither notice issued u/s 148 was valid nor conditions specified to assume jurisdiction to make assessment u/s 147 were satisfied in as much as there was no independent recording of reasons by Assessing Officer within the meaning of section 148(2)."�

The ld.counsel for the assessee contended that he would begin his arguments on the legal ground first.

The ld.counsel for the assessee pointed out that the assessment in all the impugned years was framed under section 147 of the Act, and he wished to challenge the validity of the assessment so framed on the following grounds:

i) The reasons recorded of escapement of income for reopening the case of the assessee was one consolidated reason for all the years involved. There was no specific finding of escapement of income for any of the specific years, and it was a just a general reason for all the years involved;

ii) That there was no belief of the AO of income of the assessee having escaped assessment but it was a borrowed belief ;

iii) That in Asst. Year 1999-2000, reopening had been sanctioned/ approved by the CIT which was against the provisions of law in this regard, as prescribed under section 151 of the Act.

The Ld.DR countered by stating that -

Before the ld.CIT(A) in Asst. Year 1996-97, the assessee had withdrawn his objection to the approval to the reopening of the case not being in accordance with provision of section 151 of the Act; that the satisfaction of the AO was not a borrowed satisfaction, and it was based on the report of the CBI of the disproportionate assets found with the assessee, which was shared with the Income Tax authorities, and the assessee was a non-filer of the return of income.

This was countered by the ld. counsel for the assessee stating that the report of the CBI in any case was only a preliminary report and the disproportionate assets case made out on the assessee was subsequently dropped on the death of the assessee. It was also pointed out that the list of assets made out by the CBI ,on which the Department relied heavily for reopening the case of the assessee included many assets found in the name of the wife of the assessee, and his father also, both of whom were acknowledged by the CBI to be salaried employees in their preliminary report. The ld.counsel for the assessee also pointed out that except for Asst. Year 1996-97, for the rest of years, returns were filed by the assessee.

Copy of the reasons recorded for reopening cases of the assessee for all the years was filed before us in PB pertaining to Asst. Year 1996-97 at page no.43. Copy of the charge-sheet of the CBI framed in the case of the assessee along with statements- of assets annexed thereto was also filed before us. Order of the CBI court dated 29/07/2020 abating all proceedings against the assessee in the disproportionate assets case on his demise was also placed before us. Reliance was placed on numerous case laws, copies of which were also filed before us.

Having heard the contentions of the assessee and the Revenue on the legal ground raised, we shall now proceed to adjudicate the issue.

Before proceeding to do so a brief background of the case needs mention.

The CBI,SPE, Gandhinagar conducted a search at the assesses residence on 29-05-2000 and found immoveable properties owned by him on the said date to the tune of Rs. 64,22,791/- all accumulated within the period 01-01-1995 to 29-05-2000.CBI investigation revealed that the main source of income of the assessee was his salary and his wife's salary. Based on information available relating to his legal source of income and his likely savings therefrom, the CBI observed that the assessee had acquired assets disproportionate to his income to the tune of Rs. 47,20,831/-. Basis this report of the CBI the AO reopened the case of the assessee by issuing notice u/s 148 of the Act and framed assessment for all the impugned years before us, making addition on account of investment in the disproportionate assets found by the CBI as being from unexplained sources. The facts as aforestated are derived from para 2-5 of the assessment order for A.Y 1996-97which are reproduced hereunder:

Since the assessee has challenged the validity of the assessment framed u/s 147 of the Act in all the impugned years before us, pointing out insufficiency in the reasons recorded for reopening the case of the assessee, it is pertinent first to reproduce the reasons filed before as under:

A perusal of the reasons as above reveals:

that one common reason was recorded for all the years reopened by the AO i.e. 1996-97 to 2000-01 which are impugned before us. that the AO has picked up consolidated figure of the disproportionate assets attributed by the CBI report to the assessee for all the impugned years i.e A.Y 1996-97 amounting to Rs. 47.20 lakhs, to reopen the case for all the years. the AO has also recorded the fact that the income relating to the disproportionate assets has not been disclosed by the assessee and which exceeds Rs. 1 lac in all the years.

On the basis of this information, he has assumed jurisdiction to reopen the case of the assessee for all the impugned years i.e. 1996-97 and 2000-01.

The charge sheet filed by the CBI basis which the reopening was resorted to was also perused by us. The same reveals the CBI to have found the family background of the assessee revealing his wife also to be working with SBI, Ahmedabad and father to have retired from service with the Central Railways and earning pension. The list of assets found with the assessee by the CBI annexed to its report reveals assets comprising primarily of bank accounts, FD's , PPF , NSC and investment in two flats and a cellar. The list mentions some investments being made in the name of the assesses wife and father and it also mentions the date of investment. The CBI report finds the assessee to have acquired assets disproportionate to his income amounting to Rs. 47,20, 831/-

To adjudicate the validity of the reopening resorted to by the AO u/s 147 of the Act in the present appeals before us, it is pertinent to bring out the law regarding reopening of cases. Section 147 of the Act is reproduced for clarity:

147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

It is but evident from a bare perusal of the provision that power u/s 147 of the Act to assess/ reassess an assessee can be exercised by the AO for an assessment year only if he has reason to believe that income for the said assessment year( emphasis)has escaped assessment. Assessment under the taxation laws is year specific. Therefore belief of escapement of income for a valid assumption of jurisdiction to assess income u/s 147 of the Act must be year specific. Law does not permit reopening basis a consolidated belief of escapement of income for several years together, particularly which does not specify AO's belief of income escaping assessment for the different years concerned. AO u/s 147 of the Act can reassess income only when he forms a belief of income of that year having escaped assessment. Reasons recorded therefore for reopening cases have to provide basis of belief of escapement of income year specific.

Further the AO's belief must be based on some tangible material, having a live link or nexus with the income allegedly escaping assessment. Reassessment cannot be resorted to