TMI Blog2023 (7) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... could the AO have formed belief of escapement of income to the extent of cash found deposited in the bank account of the assessee. In the circumstances, the return of income disclosed sufficient income returned to tax so as to justify cash deposited in the bank account of the assessee, there could not have been any possibility of formation of belief of escapement of income. Even as per the reasons recorded, the reopening was resorted to by the AO to verify source of cash deposited. It is settled law that reopening cannot be resorted to make fishing and roving inquiries and for verification purpose. For the above reasons, therefore, we hold that the reasons recorded for reopening of the case of the assessee were not sufficient to form belief of escapement of income and jurisdiction assumed by the AO, therefore, to frame assessment under section 147 of the Act was bad in law. The order passed, as a consequence, in all three appeals by the AO, is held to be invalidly passed and accordingly set aside. Jurisdiction assumed by the AO to reopen the case of the assessee in all the years impugned before us, was invalid. Assessment orders passed for all the years are accordingly set a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment u/s 147 of the I. T. Act to verify cash deposits amounting to Rs. 15,80,000/- with HDFC Bank which the assessee had not offered as an income for taxation in the ITR is absolutely bad-in-law and also because every receipt is not necessarily an income as per the judicial decisions, the re-opening of the assessment and the consequential assessment order passed be cancelled. 5. The ld. counsel for the assessee contended that his arguments against validity of assessment framed was that reasons recorded by the AO for reopening of the case of the assessee could not have been lead to belief of escapement of income at all. In this regard, he drew our attention to reasons recorded by the AO in each of the assessment years. Taking us first to PB page no.48 filed before us, dated 1.4.2021 which was reasons recorded by the AO for reopening of the case of the assessee pertaining to Asst. Year 2010-11. He then took us to PB Page No.50 containing reasons for reopening of the assessment for Asst. Year 2011-12 and PB Page No.52 containing the reasons recorded for reopening of the assessment for Asst. Year 2012-13. They read as under: 6. Referring to the above, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifically mentioning the failure on the part of the assessee in making true disclosure of the particulars of his income, justified his action. He drew our attention to this letter which was separately filed before us on 1.9.2022. He pointed out from the same that there was nothing specifically pointed out in the said letter relating to failure on the part of the assessee to make true disclosure of particulars of income. In fact, he pointed out that in the said letter, the AO had accepted the fact that the assessee did file his return of income for two years i.e. Asst. Year 2010-11 and 2011-12, but has not disclosed the source of fund for depositing such amounts in the bank accounts. He thereafter stated that rest of the letter only referred to non- compliance by the assessee to file return in response to the notice under section 148 of the Act. He stated, therefore, that the distinction pointed out by the ld.CIT(A) with the decision of the ITAT, Ahmedabad Bench in the case of Mariyam Ismai lRajwani Vs. ITO in ITA No.676/Ahd/2016 dated 9.8.2016 was not applicable. 8. He thereafter drew our attention to para 5.6 of the order. He pointed out that theld.CIT(A) had relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance - Even when reassessment proceedings were commenced by issuance of notice, assessee did not file a fresh return of income, but informed Assessing Officer to treat return of income filed as return in response to notice under section 147 - Whether, on facts, it could not be said that there was full and true disclosure made by assessee pertaining to transactions with SN and; therefore, impugned reassessment proceeding was justified - Held, yes [Paras 17, 20 and 21] [In favour of revenue] The Hon'ble High court in above case held that where the reassessment proceedings were initiated against assessee on the ground that the assessee had advanced several crores of rupees to a party but source of such amount was not explained, since the assessee had not filed balance sheet or statement of affairs related to such advance, impugned reassessment proceedings were justified. Considering above facts, above plea raised by the appellant is rejected. The AO has issued notice u/s 148 of the Act as per provisions of the Act and consequential reassessment order cannot be held to be invalid as claimed by appellant. 9. He stated that facts and circumstances of this case were comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of particulars relating to the income of the assessee. With no mandate to disclose source of deposit, the sole information of cash deposited in the bank account of the assessee, we hold, could by no stretch have lead to the formation of belief of escapement of income. At best it could have lead to a suspicion, but not a belief of escapement of income. The fact that the AO sets out in his reason that the case is being reopened to verify the source of cash deposits cements our findings that the information only lead to a suspicion of escapement of income and not belief. This fine distinction between a belief and suspicion of escapement of income has been aptly brought out in the case of Mariyam Ismail (supra) where, relying upon the decision of the ITAT in the case of Bir Bahadur Singh Sijwal Vs ITO (2015) 68 SOT 197 URO (Del), pointing out that facts, which if established to be correct, will have a cause and effect relationship with income escaping assessment, the said facts would lead to belief of escapement of income. While facts, if established to be correct, would only lead to further inquiries which may lead to detection of escapement of income, such facts would only lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 6. A plain look at the reasons for reopening the assessment, as produced before us, show that these reasons were recorded after the notice was served on 14th September 2009 as a mention about the fact of service of notice is set out in the recorded reasons itself. It is only elementary that the reasons are to be recorded before issuance of notice, and in the absence of any reasons for reopening having been recorded prior to reopening of assessment, the reassessment proceedings fail for this short reason alone. Hon ble Bombay High Court, in the case of Prashant S. Joshi vs. ITO [(2010) 230 CTR (Bom) 232.] has observed: The AO must have reasons to believe that such is the case (i.e. any income chargeable to tax has escaped assessment for a particular year) before he proceeds to issue notice under s. 147 . In other words, when no reasons are recorded for reopening the assessment prior to issuance of notice, the reassessment proceedings must fail for that reason alone. However, for the reasons we will set out now, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which indicate an income escaping the assessments and the factors which indicate a legitimate suspicion about income escaping the assessment. The former category consists of the facts which, if established to be correct, will have a cause and effect relationship with the income escaping the assessment. The latter category consists of the facts, which, if established to be correct, could legitimately lead to further inquiries which may lead to detection of an income which has escaped assessment. There has to be some kind of a cause and effect relationship between reasons recorded and the income escaping assessment. While dealing with this aspect of the matter, it is useful to bear in mind the following observations made by Hon ble Supreme Court in the case of ITO Vs Lakhmani Mewal Das [(1976) 103 ITR 437], the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9. Learned Departmental Representative has referred to a number of judicial precedents in support of her stand that even deposits in the bank account, as having come to the notice of the Assessing Officer through AIR, can be reason enough for holding the belief that income has escaped assessment. She has relied upon the decisions in the cases of CIT Vs Nova Promoters Finlease Pvt Ltd [(2012)342 ITR 169] but then none of the questions before Hon ble High Court had anything to do with reopening of assessment and this decision can not, therefore, be taken as an authority on the legal issue which did not even come up for specific adjudication before Their Lordships. As for her reliance on Hon ble Supreme Court s judgment in the case of Phool Chand Bajrang Lal Vs ITO [(1993) 203 ITR 456], that was case in which Their Lordships concluded that the AO rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and, therefore, income chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , could not by itself have lead to formation of belief of escapement of income. The decision in the case of Mariyam Ismail (supra) and Bir Bahadur Sijwal (supra) being rendered in identical backdrop of facts holding cash deposits being insufficient information to lead to belief of escapement of income, the said decisions squarely apply to the present case. 15. Further, as per the reasons recorded, the assessee had filed his return of income for Asst. Year 2010-11 and 2011-12. The AO formed belief of escapement of income amounting to Rs. 12,16,500/- and Rs. 18,46,500/- for the said two years. In his reason recorded, the AO has not even mentioned the income which the assessee had returned to tax in these years. We fail to understand that without taking note of the quantum of income returned to tax, how could the AO have formed belief of escapement of income to the extent of cash found deposited in the bank account of the assessee. In the circumstances, the return of income disclosed sufficient income returned to tax so as to justify cash deposited in the bank account of the assessee, there could not have been any possibility of formation of belief of escapement of income. 16. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough by us. A perusal of the same reveals that the AO has merely reiterated contents of his reasons recorded, and thereafter dealt with non- compliant attitude of the assessee in the re-assessment proceedings initiated, pointing out that various notices issued to the assessee under section 148, 142(1) etc. remained un-complied with, as also, the assessee had not cooperated in special audit directed in its case u/s 142(2A) of the Act. Moreover, the ld.CIT(A) also makes some mentions of the subsequent events justifying the reopening. In this regard, basis of assumption of jurisdiction is the belief of the AO based on information in his possession that income has escaped assessment. It is this reason to believe so, that gives him jurisdiction to reopen the case of the assessee. Therefore, this information at the time of formation of belief of the AO, which is relevant and is to be tested for its sufficient or insufficiency for the formation of belief of escapement of income. Nothing can be added to it nor deleted from it, and no subsequent events can be taken into consideration for strengthening reasons for formation of belief of escapement of income. Hon ble Bombay High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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