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TMI Blog2013 (8) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasons recorded by the AO for reopening of the assessment are factually incorrect and non-existent. Section 40A(3) applies in the case of expenditure claimed by the assessee while computing business income, but in this case, the assessee did not claim any expenditure in the profit and loss account of all the concerns held by him - The AO had to act on the basis of reason to believe and not on reason to suspect - The AO had failed to incorporate any material for his satisfaction for re- opening of assessment. There was no foundation to his reasons to believe that there was escapement of income in the assessment year under appeal. Therefore, the issuance of notice u/s. 148 of the IT Act for re-assessment proceedings was not valid – Appeal allowed – Decided in favor of Assessee. - ITA No. 118/Agra/2012 - - - Dated:- 8-8-2013 - Shri Bhavnesh Saini And Shri A. L. Gehlot,JJ. For the Appellant : Shri Navin Gargh, Advocate For the Respondent : Shri S. D. Sharma, Jr. DR ORDER Per Bhavnesh Saini, J.M. This appeal by the assessee is directed against the order of ld. CIT(A)-II, Agra dated 25.11.2011 for the assessment year 2002-03, challenging the initiation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stamp duty, registration charges etc. The appeal of the assessee was thus, partly allowed. 3. The ld. counsel for the assessee reiterated the submissions made before the authorities below and filed copy of the reasons recorded for reopening of the assessment at page 16 of the paper book. He has referred to return of income and computation of income filed with the same (PB-18) and submitted that the assessee has business / professional income from M/s. Jai Mahakali Medical Store, M/s. Kailash Stone Industries, interest on capital from Ratna Medical Store and salary from Jai Mahakali X-ray and Pathology Centre. In M/s. Jai Mahakali Medical Store, the business is of retail trade of medicines. In M/s. Kailash Stone Industries, the nature of business is stone crushing and profit thereon have been shown in the profit and loss account. He has therefore, submitted that the assessee was not colonizer or dealer in real estate in the assessment year under appeal. The details of lands purchased are filed at page 44 of the paper book supported by all the sale deeds. He has submitted that in these business concerns of the assessee, the land purchased have been shown as capital assets/investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g financial year 2001-02 corresponding to AY 2002-03. A 20% of it i.e., Rs.6,27,275/- was disallowable u/s. 40A(3). It is apparent that income of Rs.6,27,275/- escaped assessment. Considering it, I have reason to believe that an income of Rs.6,27,275/- escaped assessment for which, notice u/s. 148 is to be issued for AY 2002-03. The Hon'ble Addl. CIT, Range-6, Jhansi has granted approval to issue notice u/s. 148 which has been received in this office on 26.3.2009." 4.1 Hon'ble Supreme Court in the case of Sheo Nath Singh vs. Appellate Asst. Commissioner of Income-tax, 82, ITR 147 held as under : "The words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truth of the vague information in a mechanical manner. The Assessing Officer had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice under section 148. What had been recorded by the Assessing Officer as his "reasons to believe" was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The Assessing Officer had clearly substituted form for substance and therefore the action of the Assessing Officer was not sustainable." 4.4 Hon'ble Punjab Haryana High Court in the case of CIT vs. Smt. Paramjit Kaur, 311 ITR 38 held - "The assessee filed her original return declaring nil income. The Assessing Officer initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of Rs.83,040 which was not accounted in the books of account of the assessee. On appeal by the assessee the first appellate authority upheld the validity of the notice under section 148 of the Income-tax Act, 1961, but set aside the assessment on the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerns held by the assessee would also support the submissions of the assessee that in the year under consideration, the assessee was not colonizer and dealer in real estate. The assessee filed details of land purchased at page 44 of the paper book which are entered in the books of account of the assessee and were held as capital assets/investment. The assessee did not claim any expenditure on account of purchase of land in the profit and loss account. The above facts would clearly prove that during the survey the impounded papers were only sale deeds which prove that the assessee purchased the land. The AO had not examined this information before recording his satisfaction of escaped income and initiated the re-assessment proceedings. The AO had acted only on the basis of suspicion that the assessee was a colonizer and dealer in real estate. The AO was having no material or evidence with him to support his belief that the assessee acted as colonizer or dealer in real estate in the assessment year under appeal. The reasons recorded by the AO for reopening of the assessment are factually incorrect and non-existent. Section 40A(3) applies in the case of expenditure claimed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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