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TMI Blog2011 (2) TMI 1522X X X X Extracts X X X X X X X X Extracts X X X X ..... any sources for making investment and it is not necessary that only on the basis of investment it can be presumed that the income to that extent escaped assessment. There should be a concrete finding before coming to the conclusion that any income has escaped assessment and merely on the basis of the information provided by any another Wing of the Income-tax Department, the AO cannot believe that there was income which has escaped assessment. In present case, AO simply acted upon the information of ADIT (Investigation) and did not apply his own mind to the information to arrive at a belief independently that on the basis of material which he had before him the income had escaped assessment. We are, therefore, of the view that the ld. CIT(A) was not justified in confirming the action of the Assessing Officer. Therefore, initiation of proceedings u/s. 147 cannot said to be a valid proceeding. We are fortified by the decision of ITO, WARD 6 (2) , KANPUR VERSUS RICH CAPITAL FINANCIAL SERVICES LTD. [ 2010 (9) TMI 1214 - ITAT LUCKNOW] , where it was held that proceedings u/s 147 cannot be initiated either on the basis of mere suspicion or for making fishing or roving enquiries the initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lucknow and construction therein at ₹ 5,38,860/-; ₹ 2,30,712/-; ₹ 7,54,328 and ₹ 5,86,769/- for the period relevant to the assessment years 1999-2000, 2001-02, 2002-03 and 2003- 04 respectively. Besides those additions, certain other additions were also made on account of household expenses, unexplained cash, etc. 4. The assessee carried the matter to the ld. CIT(A) and challenged the validity of initiation of proceedings u/s. 148 of the Act by stating as under for assessment year 1999-2000:- "It has been submitted that the notice u/s. 148 of the I.T. Act, 1961 has been issued on presumptions basis, keeping in mind that the total investment towards the purchase of plot from Eldeco Housing and Industries Ltd. has been made in the financial year 1998-99 relevant to the A.Y. 1999-2000 and total payments have been made in this year only. In this context, it is submitted that the learned A.O. has erred in law and on facts in initiating the proceedings u/s. 147 of the I.T. Act, 1961 for the reasons based on mere suspicion and the notice issued u/s. 148 is illegal as such. Reliance in this regard is placed on the ratio decidendi of the decision of the Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AO that the appellant could not give any specific clarification during the course of inquiry as regards the investment made. Thus, there existed relevant material and information which could prima-facie lead to formation of requisite "reason to believe" that income has escaped assessment to the extent of purchase price paid by the appellant. 4.1.2 At the initiation stage, what is required to be looked into is whether there was any relevant material on which a reasonable person can form the requisite belief. Whether the materials would conclusively prove the escapement of income is not a concern at the stage of issuance of notice u/s.148. The Assessing Officer is not required to have finally ascertained the fact or reached a final conclusion of escapement of income. This view is fully supported now by the decision of the Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Broker (P) Ltd. Reported in (2007) 291 ITR 500 (SC) wherein after dealing with the law related to reopening of assessment, as stands amended with effect from 1.4.1989, their Lordships have observed and held as under:- "Sec. 147 authorises and permits the Assessing Officer to assess or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice u/s. 148 read with section 147(a)……." (page 511/512) 4.1.3. In the present case, the information referred to in the "reasons recorded" constitutes the "relevant material" and the submissions to the contrary as made by the ld. counsel for the appellant are not acceptable. Accordingly, this ground of appeal is dismissed." 6. Now the assessee is in appeal before this Tribunal. 7. The ld. counsel for the assessee reiterated the submissions made before the ld. CIT(A) and further submitted that notice u/s. 148 of the Act has been issued on presumption basis keeping in mind that the total investment towards purchase of plot through Eldeco Housing and Industries Ltd. has been made in the financial year 1998-99 and total payments had been made in that year only. It was further submitted that the ld. CIT(A) confirmed the action of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustenance of addition of the sum of ₹ 5,38,860/- as unexplained investment to the total income of the assessment year 1999-2000 was not justified. The assessee furnished details of the payments as under:- SI.No. Date Amount (Rs.) Name of payee Mode of payment 1 23.08.93 55,000 Eldico Housing & Industries Ltd. Cheque/draft No.295712 & 295713 dated 23.8.93 2 07.02.94 45,000 Eldico's City Retail Centre Cash 3 17.03.94 50,000 -do- Cash 4 07.06.94 50,000 -do- Cash 5 24.08.94 50,000 -do- Cash 6 24.11.94 1,00,000 -do- Cash 7 28.02.95 50,000 -do- Cash 8 10.10.96 1,16,645 Eldico Housing & Industries Ltd. Cash 9 18.11.96 2,710 -do- Cash 10 21.08.98 7,590 -do- Cash 11 23.10.98 23,745 -do- Cash 9. It was further submitted that in the reasons recorded for taking action u/s. 147 of the Act, the Assessing Officer simply relied the letter of the ADIT (Investigation) dated 6.3.2006 and did not apply his mind to come to the conclusion that any income of the assessee has escaped assessment. It was further submitted that Explanation 2(b) of section 147 of the Act talks about presumption for escaped income and not for investment. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessee's case the issue relating to long term capital gain was not involved, neither any search took place nor any evidence was collected or received by the Assessing Officer and even there was no application of mind before issuing notice u/s. 148 of the Act as such the facts of the assessee's case are distinguishable from the facts involved in the case of Brij Mohan Agarwal vs. ACIT and Another (supra) relied by the ld. D.R. Reliance was placed on the decision of ITAT 'A' Bench, Lucknow in the case of the ITO, Ward 6(2), Kanpur vs. M/s Rich Capital & Financial Services Ltd., Kanpur in ITA No. 508/LUC/2010 for assessment year 2001-02, order dated 29.9.2001. The copy of the said order was furnished by the ld. counsel for the assessee 12. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that the Assessing Officer issued notice u/s. 148 of the Act on the basis of information received from ADIT(Investigation), Lucknow. The reasons recorded by the A.O. reads as under:- "This fact came to knowledge through letter No. Addl. DIT/Inv./TEP/x - 120/04-05 dated 06.03.2006 sent by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the 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 subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:" 14. From the above provisions, it is clear that the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment. However, it cannot be said that if there is any investment it is sufficient to believe that the income to that extent escaped assessment because there may be so many sources for making investment and it is not necessary that only on the basis of investment it can be presumed that the income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirming the action of the Assessing Officer. Since from the reasons recorded by the Assessing Officer it is clear that he had not referred to any material which could justify his conclusion that the assessee had earned income for making investment in the house property in question. Therefore, initiation of proceedings u/s. 147 of the Act cannot said to be a valid proceeding. For the aforesaid view, we are also fortified by the decision of ITAT Lucknow 'A' Bench, Lucknow in the case of ITO, Ward 6(2), Kanpur vs. M/s Rich Capital & Financial Services Ltd., Kanpur (supra). We deem it proper to reproduce the findings given in the said order vide paras 6 to 6.4(iii) which read as under:- "6. We have heard the rival submissions. Shri Praveen Kumar, ld. CIT(DR) submitted that the ld.CIT(A) was not justified in following the order of the I.T.A.T., Lucknow-B, Lucknow dated 18.11.2009 passed in assessee's case for the assessment year 2000-01. Shri Praveen Kumar, ld.D.R. pointed out that while deciding the appeal for assessment year 2000-01, the Tribunal has ignored the decisions of the Hon'ble jurisdictional High Court in Brij Mohan Agarwal vs.ACIT (2004) 268 ITR 400(All.), the Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained with Standard Chartered Bank, Kanpur during the F.Y. 2000-01 relevant to A.Y. 2001-02 to the tune of Rs.42,38,300/- as follows: Date of Deposit Amount Mode of deposit xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The Dy. Director of Income Tax (Inv.)-2 Kanpur in his report had stated that the assessee had failed to prove the source of cash deposits in the above mentioned Bank Accounts. Thus, the source of these cash deposits amounting to Rs. 42,38,300/- stands unexplained. In view of the above facts and information in possession of the undersigned, I am of the opinion that the assessee has concealed the income to the extent of Rs. 42,38,300. I, therefore have reasons to believe that income of Rs. 43,38,300 chargeable to tax for A.Y. 2002-03 has escaped assessment." 6.2 From the above, it is clear that except the amounts, reasons are almost similar for both the years. While quashing the re-assessment for assessment year 2000-01, the Tribunal held as under: "18. This noting, though it was not complete version of report received from Addl. DIT, yet raises an important issue when he says "source of these cash deposits lead to the conclusion that these credits we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount outstanding at the end of previous year. Here again, we are of the opinion that the proceedings have been initiated on suspicion and for making roving enquiries and since it is trite law that proceedings u/s 147 of the Act can not be initiated either on the basis of mere suspicion or for making fishing or roving enquiries the initiation of the proceedings u/s 147 of the Act on this ground was also illegal and bad in law. Aforesaid view is supported by the decision in following cases. (i) "CCST v. Modi Industries Ltd., (1987) 67 STC 341 (All), (ii) General Electric Company of India Ltd. V, STO (1974) 33 STC 108 (All) (iii) M.L. Shukla v. STO, (1981) UPTC 396 (All)} (iv) Kanhaiyalal Dmodar DAs v. CST,(1989) 73 STC 404, 406 (All). (v) {Smt. Kantamani Venkata Satyavathi v. ITO, (1967)64 ITR 516, 521 (AP); (vi) Madhya Pradesh Industries Ltd. V. ITO (1965) 57 ITR 637(SC) (vii) Bhimraj Panna Lal v. CIT, (1957) 32 ITR 289 (Pat), affirmed, (1961) 41 ITR 221(SC) (viii) M. Varadarajulu v. ITO, (1974) 97 ITR 476 (Mad) (ix) Siesta Steel Construction Pvt. Ltd. V. K.K. Shukare, (1985) 154 ITR 547 (Bom); (x) Chunnilal Surajmal v. CIT, (1986) 160 ITR 141 (Pat)}." 22. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion on the merits of the case. The questions of facts and law are open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority." In this case the Hon'ble Supreme Court has held that the commencement of re-assessment proceedings was valid. However, no decision was given on the issue of validity of re-opening. The questions of fact and law were left open to be investigated by the assessing authority. However, in the instant case, the assessee has challenged the validity of reopening under Section 147 of the Act. While deciding the appeal for assessment year 2000-01, the Tribunal found that the AO had not referred to any material which could justify his conclusion that the assessee should have earned more interest than interest in the previous year. The Tribunal categorically held that the initiation could not be said to be valid. In our opinion, the decision of the Hon'ble Supreme Court rendered in the case of Raymond Woollen Mills (Supra) is of no help to the Revenue. 6.4(iii) Shri Praveen Kumar, ld.D.R. also relied on the decision of the Hon'ble Kerala High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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