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TMI Blog2021 (5) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by a third party related to the loan taken by the assessee much less a loan which was shown to have advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provide a legally sound foundation for initiation of assessment proceedings under section 147. If the primary burden u/s 147, lying on AO, remains un-discharged, then the entire proceedings would crumble. No addition being loan given forming the main `reason for escapement of income u/s 147 of the Act has been made by the AO and instead, the additions have been made on new different grounds, it can be very fairly said that reasons recorded did not exist and hence the assessment framed u/s 147 read with section 143(3) of the Act deserves to be quashed. A.O. had no jurisdiction to travel beyond the reasons for reopening the assessment. We are of the view that reopening proceedings initiated by the A.O were uncalled for and without jurisdiction, therefore, we quash the same.- Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax (Appeals) is not justified in upholding the addition of the sum of ₹ 5128143/-, being 92% of turnover, as an unexplained expenditure under the Income Tax Act, 1961." 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. Since the additional grounds raised by the assessee are legal in nature, therefore, these additional grounds No. 1, 1B and 1C are interrelated and interconnected and relates to challenging the order of the ld. CIT(A) in upholding the validity of reopening of reassessment proceedings as well as issuance of notice U/s 148 of the Act, therefore, we have decided to adjudicate these grounds by the present consolidated order. 4. At the outset, the ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the same is reproduced below: "1.1 REOPENING WAS BASED ON BORROWED SATISFACTION: 1.1.1 The information received (on 14/07/2014) from the another AO of same ranking, was neither verified nor subjected to any independent examination by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned above, I have reason to believe that the income to the extent of ₹ 53,95,000/- has escaped assessment for the A.Y. within the meaning of section of 147" Only on the basis of above two facts i.e. a) Giving Loans and b) not filing ITR, Ld. Assessing Officer had jumped to the automatic conclusion that Loans given, per se, to Pooja Agarwal are in the nature of escaped income of assessee. 1.2.3 a) `Giving Loan' need not necessarily come from the income or escaped income. Sources of the funds may be out of exempt income e.g. past savings, loans taken, gifts, liquidation of investment or sale of property, inheritance of asset etc. b) Similarly, `Giving Loan' cannot compel one to file his ITR mandatorily. Section 139 lays down various cases where ITR filing is mandatory but `Giving Loan' is not one of them. Reasons recorded by Ld. AO proceeds on the fallacious assumption that the `Loan to Pooja Agarwal' constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. 1.2.4 The 'reason to believe' as recorded by Ld. AO are not in fact reasons, but only conclusions, leaving the reader to guess for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IONS BY LD. AO REVEAL THE MIND OF THE LD. AO: 1.3.1 Objections of the assessee against the notice u/s 148 were as under: "That assessee has submitted confirmation of Pooja Agarwal to whom loan was given ₹ 5405000/- during the year as well as proof of immediate source of deposit, which was received from Vandana Leasing Pvt Ltd. thru bank account. Thus the source of deposit was explained. Hence amount given to Mrs. Pooja Agarwal was justified, which has no co-relation with the income earned during the year………." 1.3.2 Ld. AO disposed the objections vide notice u/s 142)1) dated 28/11/2016 (See PB No. 34) as under: "In this regard it is to communicate you that you have not filed return of income for AY 2011-12 within time allowed u/s 139 of the I. T. Act, 1961 whereas you have taxable income. Therefore, as per explanation 2(a) to Section 147, your case is deemed to be the case where income chargeable to tax has escaped assessment. Further, the loans advanced by you were also not subject to verification" 1.3.3 Analysis of above disposal confirms the view that the reasons were defective as per following discussions: a) "In this regard it is to commun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some other grounds not forming part of the reasons recorded u/s 148(2), if no addition is made on the primary / basic issue, for which the reopening was initiated. The reasons recorded at the time of reopening and the additions finally made in the assessment order are as under: Reopening Reason recorded before initiation of assessment proceedings (See PB No. 33) Actual addition in the Page No. 8 of the assessment order An information was received from ITO, Ward 3(2), Jaipur's letter No. 311 dated 14/07/2014 that during the course of asstt. Proceedings in the case of Smt. Pooja Agarwal for AY 2011-12 it was found that Shri Vijay Kumar Agarwal had given total unsecured loan of ₹ 71,45,000/- ( ₹ 17,50,000/- in AY 2010-11 & ₹ 53,95,000/- in AY 2011-12). As per. Looking to the facts mentioned above, I have reasons to believe that the income to the extent of ₹ 53,95,000/- has escaped assessment for the A.Y. 2011-12 within the meaning of Section 147 of the IT Act, 1961. a) Unexplained expenditure in executing contract works met from undisclosed sources of income ₹ 51,28,143/-, being 92% of deemed expenditure of turnover of ₹ 5574068/- b) Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 35 to 41) held: "If in the course of proceedings under section 147, the Assessing Officer were to come to conclusion that any income chargeable to tax which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then the mere fact, that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction to subject to tax any other income chargeable to tax which the Assessing Officer may find to have escaped assessment and which may come to his notice subsequently in the course of proceedings under section 147. It is a different story that for such other income, the Assessing Officer may have recourse to such other remedies as may be available to him under law but then once it is found that the income regarding which he had "reason to believe" to have escaped assessment, is not found to have escaped assessment, the Assessing Officer is required to withhold his hands at that only." c) Hon'ble Court of Rajasthan held in the case Commissioner of Income Tax v. Dr. Devender Gupta 174 Taxman 438 (Raj.): "The precise contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court had observed as under: " Adverting to the question referred regarding the reassessment proceedings, we are of the view that the Tribunal was right in cancelling the reassessment as both the grounds on which reassessment notice was issued were not found to exist, and the moment such is the position, the Income-tax Officer does not get the jurisdiction to make a reassessment." f) In the case of Oriental Bank of Commerce v. Additional Commissioner of Income-tax [2014] 49 taxmann.com 485 (Delhi), the Hon'ble High Court of Delhi held: "25. We are afraid that we cannot accept this argument either. This general statement at the end of the reassessment order cannot be regarded as a finding or an addition with regard to reason (b). If we recall, reason (b) was a specific allegation that the assessee was liable to pay interest under Section 234D on excess refund of ₹ 125,55,01,247/- and that because of the "mistake‟ that the assessee had not been required to pay the interest amount, there was a short levy of interest of ₹ 62,77,506/-. We do not find any conclusion with regard to this in the reassessment order. The Assessing Officer having indicated the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under section 148. To question No. 8 in the report which reads "Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148", he just noted the word "Yes" and affixed his signature there-under. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under section 148. The important safeguards provided in sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substituted the form for the substance". b) CIT having mechanically granted approval for reopening of assessment without application of mind, the same is invalid and not sustainable. German Remedies Ltd. v. DCIT (2006) 287 ITR 494 (Bom.) c) Hon'ble Delhi High Court held that the power vested in the Commissioner under Section 151 to grant or not to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m another A.O., however, the said information was neither verified nor subjected to any independent examination by the A.O. of the assessee and while recording reasons, there was no transaction specific valid material available with the A.O. to form his belief with regard to escapement of income by the assessee. According to us, the reopening notice can be issued by the A.O. on his own satisfaction and not on borrowed satisfaction of another A.O./Investigating Agency. After considering the facts which led to recording of reasons by the A.O., we found that the A.O. even at the time of forming of belief was not sure about nature of escapement if any as the A.O. has mentioned specifically in the reasons as under: "…… In the course of assessment Proceedings in the case of Smt. Pooja Agarwal for AY 2011-12, it was found that Shri Vijay Kumar Agarwal had given total unsecured loan of ₹ 71,45,000/- (₹ 17,50,000/- in AY 2010-11 & ₹ 53,95,000/- in AY 2011-12),", 7. Whereas the addition in the assessment order has been made by the A.O. on account of unexplained expenditure in executing the contract works met from undisclosed source of income. The above sequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be based on some tangible material and that should be evident from reading the reasons. This is the bare minimum mandatory requirement of the first part of Section 147(1) of the Act. Merely saying that `loan has been advanced' or `ITR has not been filed', without disclosing the reasons, which led the A.O. to hold such a belief, does not confer valid jurisdiction on the A.O. to take action u/s 147 and 148 as has already been held by the Hon'ble Gujarat High Court in the case of Birla VXL Ltd. v. ACIT (1996) 217 ITR 1 (Guj.) In the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), the Hon'ble Supreme Court affirmed the decision of the High Court and held that there was nothing to show in the confession made by a third party related to the loan taken by the assessee much less a loan which was shown to have advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provide a legally sound foundation for initiation of assessment proceedings under section 147. If the primary burden u/s 147, lying on AO, remains un-discharged, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh's case (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1) as they stood after the amendment of 1-4-1989 continue to hold the field" b) Hon'ble Rajasthan High Court in the case of Commissioner of Income-tax v. Shri Ram Singh [2008] 306 ITR 343 has held as under: "If i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make dis-allowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per explanation 3 to reduce the claim of deduction under Section 80 HH and 8-I as well. 21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of Revenue and the second part of the question against the Revenue." e) In case of Commissioner of Income Tax Vs. Atlas Cycle Industries reported in 180 ITR 319, the Hon'ble Punjab and Haryana High Court had hel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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