2021 (4) TMI 1025 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained investment in the assets held outside India from an undisclosed and undeclared source of income from India - reopening on the basis of information received from the Investigation Wing about the foreign bank account in the name of Late Sh. Ladli Pershad Jaiswal - HELD THAT - For the purpose of assuming jurisdiction u/s 147 of the Act, the Assessing Officer should form reason to believe based on tangible material that income has escaped assessment - such belief should not be on mere suspicion but on the basis of some objective material that leads to prima face case of escapement of income. Although in the present case Assessing Officer was in possession of report of the Investigation Wing about the existence of foreign bank account which has not been denied by the legal heir, however, there is no details or evidence that money lying in the bank account represent undisclosed income in terms of section 5(1) of the Income Tax Act. Assessing Officer in the instant case has failed even to take note of the income tax return filed by the assessee while recording reasons which in our opinion shows non application of mind. The reasons recorded do not inspire confidence to make out a prima facie case for escapement of income and the Assessing Officer in the instant case was carried away by the mere fact of existence of foreign bank account. Assessing Officer himself has mentioned that the assessee late Sh. Ladli Pershad Jaiswal was non-resident of India during AY 1993-94 to 2004-05 and not ordinarily resident for AY 2006-07 and 2007-08. The Assessing Officer in the assessment order at clause 5 has also mentioned that assessee is not ordinarily resident. Under these circumstances and in absence of any factual finding, it is not open to dispute the claim of residential status as declared in the return of income. Since, the proceedings u/s 147 are extraordinary proceedings, the onus is on the Revenue to establish the existence of undisclosed income. Mere discovery of a foreign bank account in the name of the assessee is not sufficient to thrust the tax liability without bringing on record the chargeability of the same under the provisions of the Income Tax Act,1961. It is the settled proposition of law that assessment cannot be carried out on the basis of guess work and there must be more than mere suspicion. In the present case, it is seen that there is no whisper of any enquiry or investigation carried out by the Assessing Officer to demonstrate the existence of source of income in India in respect of deposit found in foreign bank account. Moreover, the Assessing Officer has not brought anything on record to prove that there is money trail which actually flew from India to the foreign bank account maintained abroad. Further, the learned counsel for the assessee also clarified that Sh. Ladli Pershad Jaiswal was not having any major stake or financial interest or business connection in India during the AY 2006-07 and 2007-08. Therefore, we find it difficult to subscribe to the reasoning given by the Assessing Officer while assuming that deposit in the foreign bank account in the year under consideration was sourced from India. In any case, when the addition made by the Assessing Officer is on the basis of peak credit in the month of January 2006 and when Sh. Ladli Pershad Jaiswal expired on 11.08.2005, it is not understood as to how any credit in January 2006 could be attributed to the deceased. In the light of our discussion we are of the considered opinion that the assessment order is not in accordance with law and is liable to be set-aside. In the interest of justice and as requested by the learned CIT-DR at the time of hearing before us, the matter is being restored back to the file of the Assessing Officer with a direction to arrive at specific finding based on certified copy of the bank statement and the nature of credit entry in the said bank account. In case, there is no ground or basis to establish any nexus between the alleged deposits in the bank account and any undisclosed income under the provisions of Income Tax Act or how such credit entries are attributable to the assessee who expired on 11.08.2005 there will be no case for assuming jurisdiction u/s 148 or consequential addition on merit. Needless to say the AO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law after providing relevant documents or evidences that may be taken into consideration while deciding the issue. It is further clarified that the Assessing Officer shall restrict his verification only on the basis of documents which are already available on record and shall not resort any roving and fishing enquiry is permitted. The grounds raised by the assessee are accordingly allowed for statistical purposes.

Summary

Issues Involved:

1. Validity of reassessment proceedings under section 147/148 of the Income Tax Act.
2. Assumption of jurisdiction based on information from the Investigation Wing.
3. Substantive vs. protective addition of undisclosed income.
4. Determination of residential status and its impact on tax liability.
5. Adequacy of evidence and documentation to support the addition.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

The Tribunal examined whether the reassessment proceedings initiated under section 147/148 were valid. The assessee argued that the reassessment was based on unsubstantiated information from the Investigation Wing and lacked independent application of mind by the Assessing Officer (AO). The Tribunal found merit in this argument, noting that the AO failed to consider the income tax return filed by the assessee and did not provide concrete evidence that the foreign bank account represented undisclosed income. The Tribunal emphasized that for assuming jurisdiction under section 147, the AO must have tangible material indicating escapement of income, which was not sufficiently demonstrated in this case.

2. Assumption of Jurisdiction Based on Investigation Wing Information:

The AO reopened the assessment based on information from the Investigation Wing about a foreign bank account in the name of the deceased assessee. The Tribunal noted that while the AO had information about the foreign bank account, there was no evidence linking the deposits to undisclosed income as per section 5(1) of the Income Tax Act. The Tribunal criticized the AO for not verifying the details or obtaining a certified copy of the bank statement, which indicated a lack of due diligence and application of mind.

3. Substantive vs. Protective Addition:

The Tribunal addressed the issue of making substantive and protective additions. The AO made a substantive addition in the hands of one legal heir and a protective addition in the hands of another. The Tribunal held that while the AO can make protective additions, the First Appellate Authority (CIT(A)) cannot. The Tribunal cited precedents to support its view that the appellate authority must conclusively determine the owner of the income and cannot resort to protective additions. Consequently, the Tribunal found the protective addition in the hands of one legal heir to be unjustified once the substantive addition was made in the hands of another.

4. Determination of Residential Status:

The Tribunal examined the residential status of the deceased assessee, who was a non-resident until AY 2004-05 and not ordinarily resident for AY 2006-07 and 2007-08. The AO accepted this status but failed to provide evidence that the deposits in the foreign bank account were sourced from India. The Tribunal emphasized that the onus was on the Revenue to establish the existence of undisclosed income in India. The Tribunal found that the AO did not conduct sufficient inquiry to demonstrate that the deposits were linked to income earned in India.

5. Adequacy of Evidence and Documentation:

The Tribunal criticized the Revenue for not providing a certified copy of the foreign bank account statement, which was crucial for verifying the nature and source of the deposits. The Tribunal noted that neither the AO nor the CIT(A) could provide concrete evidence to support the addition. The Tribunal highlighted that the assessment should be based on more than mere suspicion and that the AO failed to establish a money trail from India to the foreign bank account.

Conclusion:

The Tribunal set aside the assessment order, finding it not in accordance with law, and remanded the matter back to the AO for fresh adjudication. The AO was directed to obtain a certified copy of the bank statement and provide a clear finding on the nature of the deposits and their link to undisclosed income. The Tribunal also clarified that the AO should restrict verification to existing documents and avoid a roving inquiry. The appeals were allowed for statistical purposes, emphasizing the need for due process and adequate evidence in reassessment proceedings.