2005 (12) TMI 240 - AT - Income Tax

Income Escaping Assessment - assessment order passed u/s 147/143(3) - initiation of proceedings by issue of notice u/s 148 - Validity Of order passed u/s 263 - denial of authorship of the documents pertaining to VDIS - addition on account of unexplained money - HELD THAT - We may point out that addition under section 69A can be made only when it is found that the assessee is owner of any money, bullion, jewellery, etc. or other valuable article, etc.; in the financial year relevant to the assessment year in which addition on account of unexplained money etc. is made. In our considered opinion, the material on the basis of which reopening has been made for assessment year 1998-99 cannot at all justify the reopening of assessment as there was no basis for doing so. On the basis of documents on which reopening has been made, it cannot be said that any income for assessment year 1998-99 escaped assessment because on the basis of such material, prima facie, it cannot be believed nor could there be any reason to believe that income for this assessment year has escaped assessment. The department has no other material in its possession for having reason to believe that income pertaining to assessment year 1998-99 had escaped assessment. Thus, we are of the considered opinion that action taken u/s 148/147 was wholly illegal because there was no basis for reopening of assessment as has been done in this case. The order was, therefore, without any jurisdiction and thus void. Since the assessment order passed u/s 147/143(3) was itself illegal and void, ld. CIT(A) was having no justification to invoke jurisdiction u/s 263 against such void or now est order. We hold that as the order of the Assessing Officer passed u/s 147/143(3) was itself void, the order of CIT passed u/s 263 for quashing this order was without jurisdiction. Hence, the same is liable to be quashed. We, therefore, quash the order of the ld. CIT passed u/s 263. Thus, we quash the impugned order of ld. CIT passed u/s 263. In our opinion, there is no material before the ld. CIT to record a prima facie finding that the assessee was owner of money, bullion, etc. in the previous year relevant to assessment year 1998-99. No such finding can be recorded on the basis of the material which came to the possession of the revenue and besides this material there was no other material collected by it to hold that the assessee was owner of any money, bullion, etc. in the previous year relevant to assessment year 1998-99 in the terms and conditions contained under section 69A of Income-tax Act. In this regard, reference can be made to the decision of Patel Cotton Co. Ltd. v. Asstt. CIT 1997 (5) TMI 430 - ITAT MUMBAI which fully support our findings. Thus, we are of the considered opinion that the ld. CIT was not justified in holding that the order of the Assessing Officer was erroneous or prejudicial to the interest of revenue. On this ground also, the order of ld. CIT(A) is liable to be quashed. In the result, the appeal of the assessee is allowed and is disposed of as above.

Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act.
2. Jurisdiction of the CIT to pass the order under Section 263.
3. Validity of the reassessment proceedings initiated under Section 148/147.
4. Assessment of undisclosed income based on VDIS declaration.
5. Applicability of Section 69A for assessing undisclosed income.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed Under Section 263 of the Income Tax Act:
The assessee challenged the order passed under Section 263 on various grounds, including that it was contrary to law and without jurisdiction. The Tribunal noted that the CIT had set aside the assessment order and directed the AO to reassess the value of gold ornaments and diamond jewelry at the market price prevailing during the financial year 1997-98. The Tribunal concluded that the CIT's order was without jurisdiction because the original assessment order under Section 148/143(3) was itself invalid and void.

2. Jurisdiction of the CIT to Pass the Order Under Section 263:
The Tribunal observed that the CIT did not have the power to exercise jurisdiction under Section 263 against a void and non-est order. The Tribunal referred to the Cochin Bench decision in the case of Paul John, Delicious Cashew Co. vs. ITO, which held that if the AO has no jurisdiction to pass an order, it is null and void, and the CIT also has no power to revise such an order. Consequently, the Tribunal quashed the CIT's order passed under Section 263.

3. Validity of the Reassessment Proceedings Initiated Under Section 148/147:
The Tribunal found that the reopening of the assessment for the assessment year 1998-99 was wholly illegal because there was no basis for reopening the assessment. The Tribunal noted that the AO had reopened the assessment merely on the ground that the assessee had allegedly filed a declaration under VDIS in 1997. However, the Tribunal held that the filing of VDIS in a particular year cannot be a ground to hold that the assessee was the owner of money or bullion in that year. The Tribunal concluded that the reassessment proceedings were without jurisdiction and void.

4. Assessment of Undisclosed Income Based on VDIS Declaration:
The Tribunal noted that the only material available with the Department was the documents relating to VDIS, which pertained to other assessment years and not to the assessment year 1998-99. The Tribunal held that there was no material on record to show that the assessee had acquired any jewelry or other property in the previous year relevant to the assessment year 1998-99. Consequently, the Tribunal concluded that the addition of undisclosed income based on the VDIS declaration was not justified.

5. Applicability of Section 69A for Assessing Undisclosed Income:
The Tribunal observed that addition under Section 69A can be made only when it is found that the assessee is the owner of any money, bullion, jewelry, etc., in the financial year relevant to the assessment year in which the addition is made. The Tribunal noted that there was no material to show that the assessee was the owner of money, bullion, etc., in the assessment year 1998-99. Consequently, the Tribunal held that the provisions of Section 69A were not applicable in this case.

Conclusion:
The Tribunal quashed the order passed by the CIT under Section 263 and held that the reassessment proceedings initiated under Section 148/147 were without jurisdiction and void. The Tribunal also concluded that the addition of undisclosed income based on the VDIS declaration was not justified and that the provisions of Section 69A were not applicable. Both appeals filed by the assessee were allowed.

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