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2021 (11) TMI 406 - AT - Income TaxReopening of assessment u/s 147 - Transfer of case u/s 127 - assumption of jurisdiction of AO for passing the impugned assessment order by the ACIT, Circle 1(2)(1) in AY 2006-07 - AR submitted that as per the territorial jurisdiction u/s. 124 of the Act, the assessee was assessable to income tax by Income tax Officer, Ward-10(1), Bangalore - HELD THAT - Originally the assessee was assessed under ITO, Ward 10(1), Bangalore prior to 2.5.2013. Consequent to order u/s. 127 dated 2.5.2013, the jurisdiction of the assessee was changed to DCIT, Circle 2(1) / ACIT 4(2)(1), Bangalore. Subsequently, based on CBDT Notification dated 22.10.2014, the jurisdiction of the assessee was changed to be assessed u/s. PCIT-4, Bangalore. Afterwards, there was an order u/s. 127 of the Act dated 15.11.2014 wherein the CIT-4, Bangalore changed the jurisdiction from ACIT, Circle 4(2)(1) to Circle 1(2)(1). There are two notices u/s. 148 of the Act brought on record by the ld. AR. Once an order under u/s. 127 is passed on 15.11.2014 by CIT-4, Bangalore, the jurisdiction of the assessee was with DCIT, Circle (2)(1), Bangalore or ACIT, Circle 4(2)(1) ceased to have jurisdiction over the assessee. The jurisdiction enjoyed by Circle 2(1) in terms of section 127 stood abrogated. Accordingly, after 15.11.2014, ACIT, Circle 1(2)(1) could exercise power conferred on him for the purpose of proceedings against the assessee. Being so, when ACIT, Circle 1(2)(1) received the case records in terms of order u/s. 127 dated 15.11.2014, he is having right to issue notice u/s. 148 so as to frame assessment u/s. 143(3) of the Act. In the present case, jurisdiction over the assessee was conferred by law in terms of section 127 of the Act and the case has been rightly transferred from Circle 4(2)(1) to Circle 1(2)(1), Bangalore. There is no error in assuming jurisdiction over the assessee by the present AO i.e. ACIT, Circle 1(2)(1), Bangalore. This ground of the assessee is dismissed for AY 2006-07. Eligibility of reason to believe - Whether Reasons recorded were not actually Reason to Believe and that no speaking order was passed by the Assessing Officer on the objections filed on the reasons recorded? - The expression reason to believe cannot be a mere conjecture or surmise. The reason for formation of belief for initiating assessment u/s 147 must have a rational connection or relevant bearing on the formation of belief. The existence or otherwise of such a belief on the part of the AO, is the very foundation for him to assume jurisdiction u/s 147. In the present case, it is established that the AO did not have any reason to believe as judicially interpreted by various courts. So the initiation of proceedings u/s 147 is bad in law. There is no nexus between the material coming to the notice of the AO and the formation of his belief that there has been escapement of income. The amount in the bank account with HSBC Geneva is not relating to the assessment years under consideration. Hence, the very basis for assuming jurisdiction is not factually correct, no reasonable belief can be formed based on such incorrect facts. As observed that the AO should have reason to believe that income chargeable to tax has escaped assessment. Assessing Officer has to determine income chargeable to tax . This presupposes that the material based on which he forms reason to believe that income chargeable to tax which has escaped assessment should enable computation of income that has escaped assessment. The AO has not stated as to how the entries in the Bank account represent income in these assessment years. Under such circumstances, it cannot be alleged that income chargeable to tax has escaped assessment. In the present case the reasons disclose that the AO reached the belief that there was escapement of income after he accepted the return for the assessment years and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the AO, both strongly deprecated by the Supreme Court in Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT . The reasons recorded by the AO in the present case confirms the apprehension about the harm that a less strict interpretation of the words reason to believe vis-a-vis an assessment made can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the AO subsequent to the conclusion of assessment. It reflects an arbitrary exercise of the power conferred under section 147. AO reopened the assessment merely on suspicion and surmise, without there being any positive material in his possession to prove that the assessee is the owner of the bank account or having beneficial interest in this bank account in these two assessment years. Therefore, we are of the opinion that the reopening of assessments are bad in law, which cannot be sustained. Accordingly, we quash the reassessments. Addition u/s. 69 - addition made by AO is that there was an account in HSBC Bank, Geneva in the name of TIC and the assessee was one of the beneficiary / nominee of the account - HELD THAT - It is clear that to hold that assessee is beneficial owner of bank account of TIC, the revenue must prove that assessee is owner of asset or value articles. Unless, the Revenue proves with necessary material that the bank account belongs to the assessee or assessee is beneficial owner of such account, the provisions of section cannot be applied against the assessee. This clear proposition is further supported by the judgment Ellis Bridge Gymkhana, 1997 (10) TMI 2 - SUPREME COURT - the onus to prove fully lies on the department. The department cannot be asking the assessee to prove the negative. As per KP VARGHESE case 1981 (9) TMI 1 - SUPREME COURT to throw the burden of showing that there is no understatement of the consideration on the respondent would be attached and almost impossible burden upon him to establish the negative, namely, that he did not receive any consideration beyond that declared by him. Therefore, the addition made by the AO u/s. 69 of the Act is only on suspicion and surmise manner, without there being any material to prove that assessee is the beneficial owner of TIC or having financial interest in that bank account. AO has not discharged the burden cast on him to prove that the appellant is the beneficial owner of TIC. The AO has merely acted on a suspicion and has not brought on record any legal evidence to prove that the appellant is the beneficial owner/shareholder of TIC. TIC is duly incorporated in respective legal jurisdiction and assessee has given proper explanation on this count. The AO has failed to carry out the necessary enquiries and investigation to prove the allegation made by him in the assessment order. - Decided against revenue.
Issues Involved:
1. Jurisdiction of the Assessing Officer. 2. Validity of reopening assessments. 3. Addition of unexplained investment under Section 69 of the Income Tax Act. 4. Levy of interest under Section 234B of the Income Tax Act. Detailed Analysis: 1. Jurisdiction of the Assessing Officer: The assessee contended that the Assessing Officer (AO) who passed the assessment orders lacked jurisdiction. Initially, the case was under the jurisdiction of the Income Tax Officer, Ward-10(1), Bengaluru, and was later transferred to the Deputy Commissioner of Income Tax, Circle-2(1), Bengaluru, under Section 127 of the Income Tax Act. However, the impugned orders were passed by the Assistant Commissioner of Income Tax, Circle-1(2)(1), Bengaluru, after a notification dated 15.11.2014. The Tribunal held that the jurisdiction was properly transferred to ACIT, Circle-1(2)(1), Bengaluru, through a valid order under Section 127, and thus, the AO had the proper jurisdiction to pass the assessment orders. 2. Validity of Reopening Assessments: The assessee challenged the reopening of assessments on the grounds that the reasons recorded did not constitute "reason to believe" that income had escaped assessment. The Tribunal observed that the reasons recorded were identical for all years and did not specify the amount of income that had escaped assessment for each year. The reasons were based on the information received about an HSBC Bank account opened in 2001, which was not linked to the specific assessment years in question. The Tribunal held that the reasons recorded were vague and did not meet the legal standards required for reopening assessments under Section 147. Consequently, the reopening of assessments was deemed invalid. 3. Addition of Unexplained Investment under Section 69: The AO made additions under Section 69, treating the deposits in the HSBC Bank, Geneva, as unexplained investments. The Tribunal noted that the addition was based on an unsigned and unverified piece of paper without proper evidence. The assessee had stated that the bank account belonged to Troyes Investing Corporation (TIC), a corporate entity, and not to the assessee personally. The Tribunal found that the AO did not provide sufficient evidence to prove that the assessee was the beneficial owner of the bank account. The Tribunal emphasized that the corporate veil could not be lifted without proper investigation and evidence. Therefore, the addition under Section 69 was deleted. 4. Levy of Interest under Section 234B: The Tribunal dismissed the ground relating to the levy of interest under Section 234B as infructuous. Conclusion: The Tribunal allowed the appeals partly, quashing the reassessments due to invalid reopening and deleting the additions made under Section 69 for lack of proper evidence. The issue of jurisdiction was resolved in favor of the Revenue, affirming that the AO had the proper jurisdiction to pass the assessment orders. The levy of interest under Section 234B was dismissed as infructuous.
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