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TMI Blog2013 (7) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the case are that the assessee firm filed return of income on 10.05.2004 showing nil income. Subsequently, reasons were recorded for reopening of assessment u/s. 148 of the IT Act. The assessee submitted before the AO that the return filed u/s. 139 may be treated as return filed in response to the notice u/s. 148. The AO finalized the reassessment order u/s. 148/144 of the IT Act on dated 28.12.2011 making addition of ₹ 19,10,000/- on account of unsecured loan and of ₹ 15,45,424/- on account of unexplained current liabilities. Income was accordingly computed at ₹ 35,55,424/-. The assessee challenged the reopening of assessment and both the above additions before the ld. CIT(A). The ld. CIT(A) in the impugned order observed that information provided by Shri Anil Kumar Agarwal during his appellate proceedings, wherein the order was passed on 15.02.11, it was observed that the AO should find out whether the assessee firm is filing return of income regularly or not and examine the return of income of assessee firm to find out whether profit earned on sale of flats has been declared and tax has been paid or not. The AO should also examine how the loss was wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed at page 248 of the paper book. Since the AO did not make any addition in the reassessment order in respect of flats sold. Therefore, the reasons recorded by the AO for reopening of assessment are incorrect and non-existing and the reopening of assessment is bad in law and no further addition cold be made in the assessment order. Therefore, all additions are liable to be deleted. He has relied upon certain decisions in respect of contention, which we would take up later on. On the other hand, the ld. DR relied upon the orders of the authorities below. 5. We have considered the rival submissions and the material on record. The AO recorded reasons for reopening of assessment in assessment year under appeal, copy of which is at page page 9 of the paper book. The same is reproduced as under : The information received from the CIT(Appeals) -1, Agra through his appellate order in the case of Sri Anil Kumar Agrawal for A.Y. 1999-2000. The appellate order passed by the Ld. Commissioner of Income Tax (Appeals)-1, Agra vide his order A.No. 485/CIT(A)- 1/Agra/ITO-1(1)/Agra/2006-07 dated 15/02/2011 in the case of Sri Anil Kumar Agrawal, 40 Khandari Road, Agra it was held by the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of I.T. Act, 1961. Notice u/s 148 of I.T. Act for A.Y. 2004- 05 is being issued to the assessee firm M/s Shri Nath Ji Builders, 40 Khandari Road, Agra and through its partners at their given addresses to assess the escaped income as calculated above and / or any other income which comes to the notice of the A.O. during the course of assessment proceedings. 5.1 On going through the above reasons for reopening of assessment, it is clear that the AO received some information form ld. CIT(A)-I, Agra through his appellate order in the case of Shri Anil Kumar Agarwal who is stated to be partner in the assessee s firm. The AO was, therefore, required to make enquiry in the case of assessee firm. Information was pertaining to sale of flats in assessment year under appeal. The AO on perusal of the record found that the assessee filed return of income for the assessment year under appeal, i.e., 2004-05 and preceding assessment year 2003-04 and subsequent assessment year 2005-06, which disclosed zero income. The AO noted that the assessee firm has not shown income in these financial years while seven flats were sold in F.Y. 2002-03 to 2004-05. It was also noted that in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It would, therefore, prove that the AO acted only on the observation of the ld. CIT(A)-I, Agra without examining the details at the stage of recording the reasons for reopening of assessment. The existence of tangible material for the formation of opinion is prerequisite for initiation of action u/s. 147 of the IT Act. The AO must have reasons to believe that income has escaped assessment. There should be facts before him that reasonably give rise to the belief. When a challenge is made to the action u/s. 147, what the court is required to examine is whether some material exists on record for the AO to form the requisite belief and the reasons for belief have a rational nexus or relevant bearing to the formation of such belief and are not extraneous or irrelevant for the purpose of that section. We rely upon the following decisions, some of which have also been cited by the ld. counsel for the assessee during the course of arguments :- 5.2 Decision of Hon ble Supreme Court in the case of Sheo Nath Singh vs. Appellate Asst. Commissioner of Income-tax, 82 ITR 147, in which it was held as under : The words reason to believe suggest that the belief must be that of an honest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again comprised a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. The Assessing Officer referred to the information and the two directions as reasons on the basis of which he was proceeding to issue notice under section 148. These could not be the reason for proceeding under section 147/148 of the Act. The first part was only an information and the second and the third parts of the reasons were mere directions, it was not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, the Tribunal has arrived at the correct conclusion on facts. There was no substantial question of law which arises for consideration. 5.7 Hon ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd., 331 ITR 236 has held as under : However, if after issuing a notice under section 148, he accepts the contention of the assessee and holds that the income which he has initially formed a reason to believe had escap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the initiation of those proceedings ceased to survive. 5.9 Hon ble Delhi High Court in the case of Signature Hotels P. Ltd. vs. ITO, 338 ITR 51 held Held, allowing the petition, that the reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to ₹ 5 lakhs during financial year 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the IT Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or establishes nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid up capital of ₹ 90 lakhs and was incorp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such additions have been made by the AO or ld. CIT(A) on account of sale of flats allegedly made by the assessee. The ld. CIT(A) is also not justified in confirming the reopening of assessment on the ground that the additions made by the AO are connected with the reasons as recorded to the construction business. The reasons given by the ld. CIT(A) are wholly vague and incorrect because reopening of assessment was made on the reasons of sale of flats, which are not connected with the additions made by the AO. Considering the above discussion, we are of the view that the reasons for reopening of assessment are based on incorrect and nonexisting facts and no addition has been made by the AO on account of sale of flats in the reassessment order, therefore, assumption of jurisdiction by the AO u/s. 147/148 is bad in law and without jurisdiction. We, accordingly, set aside and quash the reassessment proceedings u/s. 148 of the IT Act. The resultant additions made by the AO and ld. CIT(A) in the impugned orders stand deleted. The same are not discussed separately, as they are left with academic discussion only. 7. In the result, the appeal of the assessee is allowed. Order pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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