2016 (5) TMI 768 - AT - Income Tax

Reopening of assessment - reasons to believe - Held that - It was a mere suspicion of the AO that prompted him to initiate assessment proceedings under section 147 which is neither countenanced nor sustainable in law. Too the AO proceeded on the fallacious assumption that the bank deposits constituted undisclosed income over-looking the fact that the source of the deposits need not necessarily be the income of the assessee. That being so in keeping with Bir Bahadur Singh Sijwali (2015 (2) TMI 60 - ITAT DELHI ) the reasons recorded to initiate assessment proceedings under section 147 of the Act and all proceedings pursuant thereto culminating in the impugned order are cancelled. - Decided in favour of assessee

Issues Involved:
1. Improper service of notice under Section 148.
2. Validity of jurisdiction for re-assessment proceedings.
3. Non-allowance of cash received from the sale of property and other cash in hand.
4. Enhancement of income without show cause notice.

Detailed Analysis:

1. Improper Service of Notice under Section 148:
The appellant initially raised the issue of improper service of notice under Section 148 dated 30.04.2008, arguing it amounted to non-service of notice. However, this ground was not pressed during the proceedings and was rejected as not pressed.

2. Validity of Jurisdiction for Re-assessment Proceedings:
The appellant contended that the re-assessment proceedings were based on presumption/suspicion and were thus not validly initiated. The appellant relied on the case 'Bir Bahadur Singh Sijwali vs. I.T.O.' to argue that the assumption that bank deposits constitute undisclosed income is fallacious. The Department countered that the re-assessment proceedings were based on a letter of enquiry dated 13.03.2008 issued to verify the source of cash deposits when the appellant did not respond.

Upon examination, it was found that the letter of enquiry dated 13.03.2008 did not specify under which provision it was issued, and the Department could not point out the provision. The Tribunal analyzed the relevant provisions, specifically Section 133(6) and Section 131(1), and concluded that the letter of enquiry was not valid as there was no prior approval from the competent authority, and no proceedings were pending at the time of issuance of the letter. Consequently, the non-response to this invalid letter could not be used to form a belief of escapement of income. The only remaining material was the information about the cash deposits, which, as per 'Bir Bahadur Singh Sijwali', could not form a valid basis for initiating re-assessment proceedings. Therefore, the reasons recorded to initiate assessment proceedings under Section 147 and all subsequent proceedings were canceled.

3. Non-allowance of Cash Received from Sale of Property and Other Cash in Hand:
The appellant argued that the CIT(A) erred in not allowing the benefit of the amount received from the sale of property and other cash in hand. The Tribunal's analysis of this issue was not detailed due to the acceptance of Ground No. 2, which invalidated the re-assessment proceedings, rendering the adjudication of this ground unnecessary.

4. Enhancement of Income without Show Cause Notice:
The appellant contended that the CIT(A) erred in enhancing the income by ?60,000 as estimated income from taxi driving without issuing a show cause notice, thus violating the principles of natural justice. However, since Ground No. 2 was accepted, the Tribunal did not need to adjudicate this issue separately.

Conclusion:
The Tribunal found that the re-assessment proceedings were invalid due to the improper issuance of the enquiry letter and the lack of valid material to form a belief of escapement of income. Consequently, the reasons recorded for initiating re-assessment proceedings and all subsequent proceedings were canceled. The appeal was partly allowed, and the remaining grounds were not adjudicated due to the acceptance of Ground No. 2. The order was pronounced in the open court on 11/05/2016.

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