TMI Blog2014 (10) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... any case, no material has been brought on record to justify the addition. Disallowance out of telephone expenses – Held that:- Assessee has debited ₹ 58,360/- on account of Telephone Expenses - the expenses in this respect were not open to full verification and log book was being maintained in respect of these expenses - a disallowance is being made to cover up for any personal use of Telephone. Ad hoc addition of low withdrawals for house hold expenses – Held that:- Without bringing on record any material or information in support of the estimate of household expenses made by the AO, no such addition can be made as it amounts to raising a "fiction" to the "fiction" which is not permissible – following the decision in Raj Kumar Jain vs. Asstt. CIT [1994 (5) TMI 234 - ITAT ALLAHABAD] - once the entire assessment is open before the AO after validly reopening the assessment, then the jurisdiction of the CIT u/s 263 of the Act would extend to entire assessment order and cannot be confined to the items which formed part of reasons recorded for reopening of assessment – Decided against assessee. Suppressed sales – Held that:- CIT(A) rightly was of the view that the sale is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order dated 30.3.2005 (supra) was no order in the eyes of law as the same was not based on valid assumption of jurisdiction under section 147. 3. BECAUSE in the appeal being appeal No.CIT(A)I/293/ACIT-III/2008-09/26 (as had been preferred by the ' appellant against the order dated 30.3.2005), following grounds:- 01. BECAUSE the proceedings under section 147 have neither been validly initiated nor concluded in accordance with the provisions of law and the assessment order dated 30 th March, 2005 as has been passed in pursuance of the same, is wholly without jurisdiction. 02.BECAUSE the information received from 'ADIT, Unit-II (as has been referred to in the 'reasons recorded'), without any application of mind by the learned Assessing Officer, could not have constituted the requisite material and the initiation of proceedings are bad in law. 03.BECAUSE the order sheet entry, as has been communicated to the appellant, the 'reasons recorded' is wholly deficient in meeting the requirement of law in this respect and consequently there is no valid initiation of proceedings under section 147. 04.BECAUSE in any case and without prejudice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was confirmed by the Hon'ble ITAT vide their order dated 25.5.2007 . 2. BECAUSE the assessment order dated 30.3.2005 (supra) itself was no order in the eyes of law as the same was not based on valid assumption of jurisdiction under section 147. 3. BECAUSE in the appeal being appeal No.CIT(A)I/293/ACIT-III/2008-09/26 (as had been preferred by the appellant against the order dated 30.3.2005), following grounds:- 01. BECAUSE the proceedings under section 147 have neither been validly initiated nor concluded in accordance with the provisions of law and the assessment order dated 30th March, 2005 as has been passed in pursuance of the same, is wholly without jurisdiction. 02.BECAUSE the information received from 'ADIT, Unit-II'(as has been referred to in the 'reasons recorded'), without any application of mind by the learned Assessing Officer, could not have constituted the requisite material and the initiation of proceedings are bad in law. 03.BECAUSE the order sheet entry, as has been communicated to the appellant, the 'reasons recorded' is wholly deficient in meeting the requirement of law in this respect and consequently there is no va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantial, which went to the very root of the assessment order dated 30.03.2005 passed thereunder. 4. It is a law well settled that provisions related to initiation of reassessment proceedings are self-contained and in case there is any infirmity in the initiation of proceedings under section 147, all the proceedings taken in pursuance thereof (which include the assessment order also) are liable to be quashed, as discussed infra. 5. Before the appeal filed on 29.04.2005 [against order dated 30.03.2005 passed under section 147 of the Act read with section 143(3), listed at serial No.(xi) Para hereinfore] could be taken up for hearing by the Id. CIT(A)-I, Kanpur, proceedings under section 263 got initiated. 6. The assessee/appellant had duly objected to the said notice under section 263(1). However, after over ruling of such objections, the CIT- I passed an order under section 263 dated 16.11.2006, operative part of which reads as under:- 10. In view of the discussion made in the foregoing paragraphs, I am of the opinion that the assessment order dated 30.3.2005 is erroneous in so far as it is prejudicial to the interests of revenue. Therefore, in view of the powers c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord that he has reasons to believe . In the instant case, on a perusal of the reasons recorded as have been reproduced in Para 2(v) hereinfore, it will be seen that the Assessing Officer had merely stated In view of the above facts I am satisfied that income of ₹ 4,00,000/- chargeable to tax in terms of bogus gift has escaped assessment as per the provisions of s.147 of the Act. Therefore, action u/s 147 of the I.T. act 1961 is being initiated and notice u/s 148 is being issued . Nowhere the Assessing Officer has recorded that he had reason to believe . In the absence of such a specific mention, the 'reasons recorded' are not valid. Reliance in this regard is placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Batra Bhatta Company reported in (2008) 13 DTR 115 wherein after referring to the principles laid down by the Hon'ble Apex Court in the case of Chhugamal Rajpal vs. S.P, Chaliah Ors reported in (1971) 79 ITR 603 (SC) their lordships of Hon'ble Delhi observed and held as under:- 7. We feel that the observations of the Supreme Court in the aforesaid decision dearly apply to the case at hand. Merely because the AO felt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, in other words, it must be based on reasons which are relevant and material as held by the apex court in Ganga Saran and Sons P. Ltd, v. ITO [1981] 130 ITR 1. The expression reason to believe in section 147 does not mean purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Assessing Officer in starting proceedings under section 147 is open to challenge in a court of law as held in S. Narayanappa v. CIT [1967] 63 ITR 219 (SC); Kantamani Venkata Narayana and Sons v. First Additional ITO [1967] 63 ITR 638 (SC); Madhya Pradesh Industries Ltd. v. ITO [1970] 77 ITR 268 (SC); Sowdagar Ahmed Khan v. ITO [1968] 70 ITR 79 (SC); ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); ITO v. Nawab Mir Barkat All Khan Bahadur [1974] 97 ITR 239 (SC); CST v. Bhag\van Industries (P) Ltd. [1973] 31 STC 293 (SC) and State of Punjab v. Balbir Singh [1994] 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nequivocal as may be seen from the following passage as appearing in the Full bench decision of Hon'ble Delhi High Court in the case of CIT vs. Kelvinator of India Ltd. reported in (2002) 256 ITR 1 wherein at page 10 their lordships have observed and held as under:- .........The Amending Act, 1987, has, therefore, rationalized the provisions of section 147 and other connected sections to simplify the procedure for bringing to tax the income which escapes assessment, especially in non-scrutiny cases. Thus, the Amending Act, 1987, has substituted a new Section 147 which contains simplified provisions as follows:- (i) Separate provisions contained in Clauses (a) and (b) of the old section have been merged into a single new section, which provides that if the Assessing Officer is of the opinion that income chargeable to tax for any assessment year has escaped assessment, he can assess or reassess the same after recording in writing the reasons for doing so. (ii)The requirements in the old provisions that the Income-tax Officer should have reason to believe or information in possession before taking action to assess or reassess the income escaping assessment, have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequently the assessment order dated 30.03.2005 itself has not survived. 14. It is also very relevant to mention here that the assessee had filed objection to the validity of initiation of proceedings under section 147 vide letter dated 29.11.2004 [referred to at serial no.(vii)] of the chronology of dates and events as given in Para 2 above. The said objections were liable to be decided through a speaking order, which had not been done. Therefore/ the proceedings were liable to be quashed as per the decision of Hon'ble Bombay High Court in the case of Allana Cold Storage Ltd Vs. ITO (2006) reported in 287 ITR 1 wherein their lordships observed and held as under:- We have noted the submissions of both counsel The law as laid down by the apex court is binding on this court as well as on the authorities functioning under the statute. This being the position, we fail to understand as to why the first respondent did not decide the objections separately which he is duty bound to decide. The whole idea in laying down the law in the above referred judgment of the apex court is to give an opportunity to the assessee to know as to what is the decision on his objections, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns made above the writ petition succeeds and is allowed. The impugned notice dated 08.03.1999 (Annexure-6 to the writ petition) and the proceedings consequent thereto are hereby quashed. However, in the facts and circumstances of the case there shall be no order as to costs. A copy of the said judgment is enclosed at pages 48 to 54 marked as ANNEXURE -VIII hereto. 16. To sum up, the appellant's contention is that he was legitimately entitled to have adjudication of the grounds taken by him against the validity of initiation of proceedings under section 147 (which had culminated into an assessment order dated 30.03.2005 captioned as order u/s 147 read with section 143(3) as non-adjudication thereof has adversely affected his rights to seek justice. 17. It is very candidly admitted that, as stated above, the appeal has been dismissed in liminie without considering the requisite material and information. Therefore, in case the Hon'ble Tribunal is of the view that the issue of initiation of proceedings under section 147 should first be decided by the Id. First Appellate Authority itself, the appellant prays that your honours be pleased to restore the appeal for bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 vide notice dated 19.3.2004 (in pursuance of which first order had been passed) and consequently the second order dated 20.12.2007 is wholly illegal. 4. BECAUSE the authorities below have erred in law and on facts in holding that credits of (a) ₹ 4,00,000/- and (b) ₹ 6,00,000/- as appearing in the Capital Account of the appellant , remained unexplained and, on that basis, in making the following additions:- (Rs.) a) Credit in Capital Account 4,00,000/- b) Expenses alleged to have been incurred in relation to the said credit 20,000/- c) Credit appearing in Capital Account 6,00,000/- d) Expenses alleged to have been incurred in relation to the said credit - 30,000/- 4. BECAUSE the credits in question were wholly genuine and originated from well defined sources and no addition for the same and further addition on account of expenses alleged to have been incurred by the appellant for managing such credits could not have been made. 5. BECAUSE source of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order dated 30.0.2005. The said assessment order has travelled upto the Hon'ble ITAT (being ITA No.419/LKW/ll) as the CIT(A) had refused to adjudicate the validity of the proceedings under section 147 and assessment order dated 30.03.2005 made in pursuance thereof. In the said appeal (ITA No.419/LKW/2011) comprehensive submissions have separately been made, emphasizing the necessity of adjudication of the validity of initiation of proceedings under section 147 and the assessment order dated 30.03.2005 made in pursuance thereof, either by the Hon'ble Tribunal itself, or by remitted the matter back to the CIT(A) for deciding the issue in accordance with the law. 6. It is submitted that in case your honours are pleased to accept the prayer made by the appellant in ITA No.419/LKW/ll 7 it will have a bearing on the decision of the above mentioned cross appeals also. 7. Notwithstanding the aforesaid, scope of reassessment proceedings, was strictly circumscribed by the reason to believe as recorded by the Assessing Officer reading as under:- During the course of inquiries made by the Addl. Director of Income-tax (Inv.), Unit-2, Kanpur, it was gathered that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid gifts and without consideration. The gifts were duly accepted by the done. As per the information available with me the donor is regular income tax/wealth tax assessee. A copy of relevant assessment order dated 6.12.1999 passed U/S 143(3) for the assessment year 1998-99 and acknowledgement of Wealth tax return relating to Assessment year 1998-99 in case of Smt. Indu Agarwal are being enclosed. Further the drafts issuing branches are Vijaya Bank, Chandani Chowk, Delhi and Vijaya Bank, Vigyan Vihar, Delhi. The necessary information about the gift transactions may be called for from the bank U7S 131 of the Income-tax Act at my cost to verify the correctness7genuineness. A copy of the said letter (which was duly supported with copies of the gift deeds and affidavit etc. of Smt. Indu Agarwal) is enclosed at pages 11 to 18, marked as ANNEXURE -1 hereto. 9. In view of the factual matrix as aforesaid, no such addition as has been made in the assessment could have been validly made. In support of this contention, the assessee begs to refer and rely upon the following case laws:- (i) Anand Prakash Agarwal vs. Asstt. CIT reported in (2008) 6 DTR (All)(Trib.) 191 (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of ₹ 56,000/- debited in the capital account the withdrawals of ₹ 64,000/- (1,20,000 - 56,000) remain unexplained and are added back to the total income of the assessee . 13. It is a settled law that without bringing on record any material or information in support of the estimate of household expenses made by the Assessing Officer, no such addition can be made as it amounts to raising a fiction to the fiction which is not permissible. The point at issue is squarely covered by the Third Member decision in the case of Raj Kumar Jain vs. Asstt. CIT reported in (1994) 208 ITR 22 (AT). A copy of the said judgment as a whole is enclosed at pages 68 to 91, marked as ANNEXURE - VI hereto. 8. Regarding ground No. 1 2 of the assessee, we find that this is the only objection of the assessee that the Assessing Officer cannot make any addition which is beyond the issues covered by the Assessing Officer in the reasons recorded by him for reopening. We do not find any force in this contention of Learned A.R. of the assessee. In this regard, we find that while deciding the appeal of the assessee against the order passed by CIT u/s 263 in I.T.A. No.1310/Lkw/06 dated 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding this addition of ₹ 4 lac made by Assessing Officer and confirmed by CIT(A). 10. The second addition was made of ₹ 6 lac as per discussion in Para 6 of the assessment order. In Para 6, it is observed by the Assessing Officer that the assessee could not give any cogent explanation except for making a reference to his earlier reply dated 29/11/2004. A clear finding is given by the Assessing Officer in the assessment order that the assessee has failed to discharge his onus as he could neither produce the alleged donors nor establish their identity by means of documentary evidence. Before CIT(A) also, the assessee could not establish the identity and creditworthiness of the donor and genuineness of the transaction. Before us also, these ingredients of section 68 could not be established and hence, we do not find any reason to interfere in the order of CIT(A) on this issue. 11. The Assessing Officer has also made addition of ₹ 20,000/- as per his observations in Para 5 of the assessment order. This addition is made on the basis that the assessee has claimed bogus gift of ₹ 4 lac and it is common practice that the assessee must have paid commission to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in deleting the addition of ₹ 58.93.881/- on account of suppressed sales without appreciating the facts and circumstances of the case and material brought on record by the Assessing Officer. 2. The Ld. Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts in deleting the addition of ₹ 49,180/- on account Interest paid on unsecured loan without appreciating the fact that the provisions under section 40A(2) of the Income Tax Act, 1961 are clearly attracted in the case of the assessee. 3. That the order of the Ld. CIT (A)-II. Kanpur dated 30.09.2010 needs to be quashed and the order passed by the Assessing Officer dated 20.12.2007 be restored. 17. Learned D.R. of the Revenue supported the assessment order whereas Learned AR of the assessee submitted that Para Nos. 14 to 18 of the written submissions are in respect of the Revenue's appeal and these paras are reproduced below: 14. As far as issue of disallowance of interest amounting to ₹ 49,180/- is concerned, the same had been made by holding that the assessee had advanced interest free loan to the tune of ₹ 59,83,185/- to M/s Shiva Tea Co., Kanpur (proprietary conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and commission earned thereon stood fully recorded in the books of the appellant which has not been questioned, the same has been continuing year after year . The reconciliation submitted by the assessee was found to be valid and accordingly the addition of ₹ 58,53,881/- had been deleted. It is submitted that, after having found from a perusal of the records that the sale referred to by the Assessing Officer were the sales made by the appellant on consigned basis (consignor being Shiva Tea Co.) and commission earned on such sales (made on commission basis) stood duly recorded in the books of account which remained unquestioned, the Ld. CIT(A) has held that, any further addition on account of profit on such sales was wholly uncalled for, illegal and unjustified. Thus, the relief has been granted by the Ld. CIT(A) after recording finding of fact, and there is no such infirmity in such finding of fact and nothing has been pointed out by the CIT DR. Therefore, relief granted by the CIT(A) deserves to be upheld. 18. We have considered the rival submissions. Regarding the first issue raised by the Revenue as per ground No. 1, we find that this issue was decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Shiva Tea Company. Hence, the disallowance is made on assumption/estimation basis and same is factually based on wrong premises. Therefore, the AO is directed to delete the addition of ₹ 49,160/- and Grounds No. 14,15 and 16 of appeal are allowed. 19.1 From the above Para from the order of CIT(A), we find that a clear finding is given by CIT(A) that the assessee has made total sales of ₹ 239.81 lac to M/s Shiva Tea Company and the entire outstanding debit balance in the account of the said firm is against sales made during the year under consideration. He has also given a finding that no such finding is specifically mentioned by the Assessing Officer that borrowed funds were diverted as interest free funds to M/s Shiva Tea Company. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue that entire debit balance in Shiva Tea Company is on account of sales to this party. Hence, on this issue also, we do not find any reason to interfere in the order of CIT(A). Ground No. 2 is also rejected. 20. In the result, the appeal of the Revenue stands dismissed. 21. In the combined result, both the appeals of the assessee as well as one appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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