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2016 (5) TMI 768 - ITAT AMRITSAR

2016 (5) TMI 768 - ITAT AMRITSAR - TMI - Reopening of assessment - reasons to believe - Held that:- It was a mere suspicion of the AO, that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law. Too, the AO proceeded on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee. That being so, in keeping .....

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against the order dated 16.10.2015, passed by the ld. CIT(A), Jalandhar. The assessee has raised the following grounds of appeal: 1. That the ld. CIT(A), has erred in upholding an order which is bad in law. The issue of improper service of notice u/s 148 dated 30.04.2008 amounting to non service of notice has not been appreciated. 2. That the ld. CIT(A), has erred in upholding the assumption of jurisdiction for re-assessment. The re-assessment proceedings in this case were only based on presumpt .....

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CIT(A), has erred in not fully allowing the benefit of some cash in hand being available with the assessee at the starting point of the cash flow statement. The ld. CIT(A) has also erred in not allowing benefit of funds available with the real brother - Sh. Gurpal Singh who was living together. 4. That the ld. CIT(A), has erred in enhancing the income by ₹ 60,000/- which according to him was the estimated income from tax driving . Not only this source of income could not have been a part .....

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a, Tehsil Phagwara, District Kapurthala, in which, a cash deposit of ₹ 2,60,000/- was made by the assessee during the F.Y. 2005- 06 relevant to A.Y. 2006-07, i.e., the year under consideration, on 28.04.2005. To verify the source of the said cash deposit, an inquiry letter was written to the assessee by the Assessing Officer on 13.03.2008, fixing the date of hearing on 26.03.2008. The inquiry letter was stated to be received by Smt. Tejpal Kaur (wife of the assessee) on behalf of the asses .....

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nor any return in response to the notice was filed. As there was no compliance to the notice under section 148 of the Act, the Assessing Officer issued a notice under section 142(1) of the Act dated 12.09.2009 for 26.06.2009, enclosing therewith the reasons recorded for the proposed assessment, under section 147, thereby asking the assessee again to file the return. This notice was served through the notice server of the Department on the grandfather of the assessee on 20.06.2009. However, again .....

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e assessee. 2. Copy of all the bank accounts maintained by the assessee in his name or jointly with any other family member. Again, there was no compliance from the assessee s side, as neither anybody appeared before the Assessing Officer, nor any return of income or the requisite evidence and documents were filed. As there was repeated non compliance from the assessee, the Assessing Officer proceeded to complete the assessment in this case on the basis of the material on record, vide order date .....

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imated income of ₹ 60,000/- from taxi driving was also added, thereby enhancing the assessee s income by ₹ 60,000/-. 4. At the outset, the ld. counsel for the assessee has stated at the bar that Ground no. 1 is not pressed. Rejected as not pressed. 5. Apropos Ground no.2, the ld. counsel for the assessee relied on Bir Bahadur Singh Sijwali vs. I.T.O. , 53 Taxman.com 366 (Delhi - Trib.) to contend, as held therein, that where the AO proceeds on a fallacious assumption that bank deposi .....

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sis of a mere suspicion of escapement of income. He submits that as against in that case, in the present one, a letter of enquiry dated 13.03.2008 was issued by the AO to the assessee, to verify the source of the cash deposits and when the assessee did not respond to this letter, the AO got to form the belief of escapement of income. Thus, according to the ld. DR, Bir Bahadur Singh Sijwali (supra), is not applicable. 7. On a query from the Bench, as to under which provision the said letter dated .....

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dated 13.03.2008 To Sh.Amrik Singh S/o Sh. Surinder Singh, VPO Khajurla, Tehsil Phagwara. Sub: Verification of CIB Information - Reg. In connection with verification of CIB information received in your case with regard to cash deposit in Bank accounts, you are requested to produce your Bank Passbook. Cash Book and Ledger for the period ending 31.03.2006 on 31.03.2008 at 11.25AM. In this regard, you are requested to bring documentary evidence for the source of deposit of cash on different dates i .....

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y, for the purposes of this Act,- (6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appe .....

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nd the words enquiry or were inserted before the word proceedings and the second proviso was also inserted, by the Finance Act, 1995, w.e.f. 1.7.1995. This second proviso, as amended by the Finance (No.2) Act, 1998, w.e.f. 1.10.1998, reads as follows: Provided further that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of Director or Commissioner without the prior approval of the Director or, as the .....

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f such numbers in high value transactions may be made to a statutory requirement. 41.2. At present the provisions of sub-section (6) of section 133 empower income-tax authorities to call for information which is useful for, or relevant to, any proceeding under the Act which means that these provisions can be invoked only in cases where the proceedings are pending and not otherwise. This acts as a limitation or restraint on the capability of the Department to tackle evasion effectively. It is, th .....

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mation in specific cases in respect of which any proceeding is pending as at present. However, an income-tax authority below the rank of Director or Commissioner can exercise this power in respect of an inquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner. 41.4. The proposed amendment takes effect from Ist July, 1995. 14. It is, therefore, evident that the pre-1995 amendment section 133(6) could be invoked only in cases where some pro .....

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ity below the rank of Commissioner can exercise this power in respect of an enquiry, in a case where no proceeding is pending, only with the prior approval of the Director or Commissioner, as held in Karnataka Bank Limited vs. Secretary, Govt. of India , 255 ITR 508 (SC) and U.G. Upadhya, General Manager, Janatha Co-operative Bank Ltd; UDUPI vs. Director of Income Tax And Another , 255 ITR 502 (Kar.) [the S.L.P. where-against was dismissed by the Hon ble Supreme Court vide their order reported a .....

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h information in respect of such points or matters as may be useful or relevant. The second proviso makes it clear that such information can be sought for even when no proceeding under the Act is pending, the only safeguard being that before this power can be invoked the approval of the Director or the Commissioner, as the case may be, has to be obtained. In the instant case, the notice date July 7, 2000, indicates that it was at the instance of the Director of Income-tax (Investigation) that th .....

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inquiry under the Act even in cases where no proceeding is pending. However, an Income Tax Authority below the rank of Director or Commissioner can exercise the said power in respect of an inquiry only with the prior approval of the Director or the Commissioner. 18. In the present case, the enquiry letter dated 13.03.2008 was issued by the Income Tax Officer, i.e., an Officer below the rank of the Income Tax Authorities referred to in the second proviso to section 133(6). Thus, in keeping with .....

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may, this is not detrimental to the cause of the Department. In the present case, the ITO did not merely ask for information from the assessee. This takes the case out of the ken of section 133(6), as shall presently be seen. 21. The letter dated 13.03.2008 requires the assessee to produce, inter-alia, cash book and ledger and documentary evidence for the source of the deposit of cash. As such, the ITO may be said to have invoked the provisions of section 131(1) of the Act, which section deals w .....

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powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely :- (a) discovery and inspection; (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath; (c) compelling the production of books of account and other documents; and (d) issuing commissions. 23. Thus, section 131(1) confers on the Income Tax Authorities mentioned therein, the same powers as tho .....

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trying a suit. Now, in juxtaposition to the trial of a suit by a Court, what would the equivalent before the Income Tax Authorities be? But obviously, proceedings under the Income Tax Act. Else, there would be no scope at all for the exercise of such power. 25. As a natural corollary, therefore, it follows that it is only during the pendency of some proceeding before it, that an Income Tax Authority can exercise the power vested on them under section 131(1), and not otherwise. 26. And this posit .....

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therein, in respect of the previous years relevant to all the aforesaid three years. In reply, reiterating the aforesaid position of assessment proceedings, the assessee stated that as no proceedings were pending, there was no question of any summons being issued. The assessee then received a letter alongwith fresh summons from the ITO, stating that section 131(1) could be invoked even where no proceedings were pending and the purpose of the information called for was with a view to investigate .....

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ecide whether he had reason to believe that the income had escaped assessment; (iv) that only if he decided that question in the affirmative, could he initiate proceedings u/s 147 and only thereupon could he become entitled to invoke section 131(1); and (v) that, therefore, the impugned summons were liable to be quashed. For holding so, the Hon ble High Court observed that the Officers mentioned in section 131(1) of the I.T.Act, 1961, are conferred with the same powers as are vested in a Court u .....

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commissions, can be exercised only if a proceeding is pending before the concerned officer and not otherwise. Now, it may be argued that what was being dealt with in Jamnadas Madhavji & Co. and Another (supra), was a summons u/s 131(1), whereas what has been issued in the present case is a simple enquiry letter. This, however, does not change the position and the question remains substantially the same. The assessee, even through the enquiry letter, has been asked, inter-alia, to produce evi .....

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ble from the concluding portion of the judgment in Jamnadas Madhavji & Co. and Another (supra), their Lordships held that the ITO had, at that stage, i.e., when no proceedings were pending before him, no authority in law to invoke section 131(1) of the I.T. Act against the assessee. It was on holding so, that it was held that consequently, the ITO had no power to issue the impugned summons, having no sanction of law. Therefore, in Jamnadas Madhavji & Co. and Another (supra), in the absen .....

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e I.T. Act, has to be read in conjunction with the further words for the same powers, as are vested in Civil Court under the Code of Civil Procedure, 1980, when trying a suit , that thus, the phrase for the purposes of this Act , means for the purposes of making an assessment or trying a suit, when it comes to the exercise of the power conferred u/s 131(1); that the powers exercisable while making an enquiry or investigation have been specifically and separately classified u/s 131(1) and the sam .....

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al referred to, inter-alia, Jamnadas Madhavji & Co. and Another (supra), and James Joseph and Others (supra). 31. In G.M. Breweries Ltd. and Another vs. Union of India and others , 241 ITR 446 (Bom.), the assesses contended before the ITO that no proceedings whatsoever were pending before him, for the purpose of which, the books of account and documents called for could have been required. The jurisdiction of the ITO to issue the summons was also questioned. The ITO did not bother to conside .....

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ercised only for the purposes of the Act , which must mean for the purposes of the proceedings under the Act pending before the concerned Authority; that the powers of the Income Tax Authorities u/s 131(1) are powers of the Court of law; that while exercising these powers, the Income Tax Authorities have a quasijudicial capacity; that these powers must be exercised strictly for the purposes set out in sub-section (1) of section 131 of the Act, and not for any extraneous purposes; that the powers .....

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1)(d) of the Act, to produce documents regarding the house. It was held that since no Income tax proceedings were pending against the assessee in respect of the earlier years, the notice issued in terms of section 131(1)(d) of the Act, was not valid. It was observed that notice u/s 131(2) in respect of assessment year 1991- 92 could not be construed as an initiation of proceedings for the earlier years. Jamnadas Madhavji & Co. and Another (supra), was referred to. 33. Then, the above positio .....

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jurisdiction, it shall be competent for the Authority to exercise powers conferred u/s 131(1), notwithstanding that no proceedings with respect to such person or class of persons are pending before him, or before any other Income tax Authority. For ready reference section 131(1A) is reproduced hereunder: Section 131(1A): If the Principal Director General or Director General or Principal Director or Director or Joint Director or Assistant Director or Deputy Director, or the authorised officer re .....

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ding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority. 34. Thus, the legislative intent is that where a search is contemplated, the Income Tax Authority can exercise the powers vested u/s 131(1), i.e., the powers regarding discovery, production of evidence, etc., inspite of the fact that no proceedings are pending before such Authority. 35. The position u/s 131(2), which relates to inquiry or investigation concerning agr .....

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persons in relation to an agreement referred to in section 90 or section 90A, it shall be competent for any income-tax authority not below the rank of Assistant Commissioner of Income-tax, as may be notified by the Board in this behalf, to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before it or any other income-tax authority. 36. .....

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Authorities are enabled to exercise the powers u/s 131(1) even in the absence of pendency of proceedings before them, there is no such enablement contained in section 131(1). Now, it is trite that the legislature chooses its words with utmost care and where the language employed in a provision is clear and unambiguous, there is no scope of interpretation thereof. So, once enablement of exercise, by Income Tax Authorities, of power of a Civil Court while trying a suit, where no proceedings are p .....

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concealed, then, for an inquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred u/s 131(1), notwithstanding that no proceedings with respect to such person are pending before him or before any other Income Tax Authority; that it is thus, obvious, that whereas an officer mentioned in section 131(1) can exercise powers thereunder only if a proceeding is pending before him, the officer mentioned in section 131(1A) can exercise such powers notwithsta .....

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enquiry, requiring the assessee, inter-alia, to produce evidence. Quod erat demonstrandum. 39. Therefore, finding no merit in the contention of the Department that the assessment of the assessee under section 147 was preceded by the issuance of a letter of inquiry by the ITO, the same is rejected. 40. Now, the AO recorded the following reasons for initiating assessment proceedings u/s 147 of the Act in the present case: Brief reasons to issue Notice u/s 148 of the Income Tax Act, 1961 As per in .....

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on the date of hearing i.e. 26.03.2008. As per data base available with this office, neither the assessee is assessed to Income Tax nor the Return for the Asstt. Year under consideration has been filed by him. Therefore, under the circumstances, the above deposit remains unexplained and has to be treated as having been made out of undisclosed sources. In view of the above facts, I have reasons to believe that income of ₹ 2,60,000/- has escaped assessment for the A.Y. 2006-07. Issue notice .....

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assessee to respond to the same. Hence, non-response by the assessee to the enquiry letter cannot be said to constitute material before the AO which could lead him to form any belief of escapement of income. 43. Thus, the only material left with the AO to enable him to form a belief that income had escaped assessment was the information regarding the cash deposits. Now, whether this information can be said to constitute material which could lead to such a belief ? 44. It is this question which t .....

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with in detail in the foregoing paragraphs. 45. In Bir Bahadur Singh Sijwali (supra), it has been held that where the AO issued a notice u/s 148 on the ground that there was an escapement of income and the belief regarding such escapement of income was formed on the fallacious assumption of the AO that bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee, the reassessment proceedings cannot be sust .....

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ust point out to an income escaping assessment and not merely need of an enquiry which may result in detection of an income escaping assessment. It was observed that it is necessary that there must be something which indicates, even if it does not establish, the escapement of income from assessment; that it is only on that basis that the AO can form a prima-facie belief that an income has escaped assessment; that merely because some further investigations have not been carried out, which, if mad .....

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h 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 the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its ow .....

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us. All that the reasons recorded for reopening indicate is that cash deposits aggregating to ₹ 10,24,100/- have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening the assessment do not make out a case that the assessee was engaged in some business and the income from such a business has not been retu .....

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umble understanding, is in negative. The Assessing Officer has opined that an income of ₹ 10,24,100/- has escaped assessment of income because the assessee has ₹ 10,24,100/- in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, it may be desirable, from the point of view of revenue authorities, .....

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