TMI Blog2016 (5) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 presumption/suspicion and were thus not validly initiated. 3(a). That the ld. CIT(A), has erred in not allowing the benefit of amount received on sale of property at ₹ 215,000/- by giving insufficient reasons. This cash was available with the assessee for making subsequent deposit in bank. (b) That the ld. CIT(A), has erred in not fully allowing the benefit of cash in hand being available with the assessee out of the withdrawals made from bank or making subsequent deposit in bank. (c) That the ld. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estionnaire was issued for compliance on 27.10.2009. The notice along with the questionnaire was served on Sh. Gurpal Singh, brother of the assessee. Vide the questionnaire, the assessee was specifically asked to furnish the following evidence and documents: 1. Documentary evidence regarding source of the cash deposits in the bank account maintained by the 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 dated 29.10.2009 passed under section 144 read with section 147 of the Act, at an assessed income of ₹ 2,68,110/-. While completing the assessment, the Assessing Officer made the following additions: (i) Addition on account of undisclosed cash deposit in the bank account of the assessee Rs.2,60,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 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 if not referred by cash in hand of business. Sd/- (Jagir Singh) Income Tax Officer, Ward-1, Phagwara. 10. The letter itself makes no mention of the provision under which it has been issued. So we have to examine the provisions of the Act to ascertain as to under which provision it was issued. Now section 133(6) , which is relevant for our present purposes, reads as under: Section 133: The Assessing Officer, the Deputy Commissioner (Appeals), the joint Commissioner or the Commissioner (Appeals) may, 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 sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in initiation of proceedings under the Act. 41.3. With a view to having a clear legal sanction, the existing provisions to call for information have been empowered to requisition information which will be useful for or relevant to any enquiry or proceedings under the Income-tax Act in the case of any persons. The Assessing Officer, would, however, continue to have power to requisition information 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 proceedings were pending, and not otherwise, as taken note of in D.B.S. Financial Services Pvt. Ltd. vs. Smt. M. George, Second Income Tax Officer and Others , 207 ITR 1077 (Bom.) and Grindlays Bank Ltd. vs. Income-Tax Officer and Others , 231 ITR 612 (Cal.). 15. The 1995 amendment br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the said second proviso to section 133(6), prior approval was required to be obtained from the competent Authority before exercising power under section 133(6). 19. There is nothing on record to suggest that any such prior approval was obtained herein. The letter, per se, also does not make mention of any such approval. Hence, the power exercised by the ITO, without compliance with the second proviso to section 133(6), would tantamount to an illegal exercise of power. 20. However, be that as it 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment orders were passed. For a third year, assessment proceedings became time barred. Subsequently, the assessee received from the ITO, summons under section 131(1) of the I.T. Act, calling upon the assessee to furnish information, documents and books of account on various points specified 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 whether the above assessment should be reopened u/s 147 or not. The assessee filed a writ petition before the Hon ble High Court. The Hon ble High Court held, (i) that no proceedings were pending when the ITO issued the summons and, therefore, the summons were liable to be quashed; (ii) that the reason for issuing the summons, as stated by the ITO in his letter, was to investigate whether the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 absence of pendency of any proceeding, the very invocation of the provisions of section 131(1) of the Act has been held to be without due authority of law. 29. Jamnadas Madhavji Co. and Another (supra), was followed by the Hon ble Calcutta High Court in ITO and Another vs. James Joseph Others , 204 ITR 254 (Cal.). 30. In Dr. Arjun D. Bharad vs. ITO , 259 ITR (AT) 1 (Nangpur, ITAT), it was, inter-alia, held that the phrase for the purposes of this Act , as contained in section 131(1) of the 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 same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the ITO. In 1992, a notice was issued by the Assistant Valuation Officer, in terms of section 131(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 position is also evident from the fact that whereas section 131(1) does not expressly lay down (though it has been judicially interpreted to have such an effect only, as considered hereinabove) that some proceedings must be pending before the Income Tax Authorities mentioned therein, section 131(1A), which concerns search or search contemplated, specifically provides that where the Authority has reason to suspect concealment or likely concealment of income by any person or class of persons within their jurisdiction, it shall be competent for the Authority to exercise powers conferred u/s 131(1), no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax authority. 36. It is thus seen that whereas both sections 131(1A) and 131(2) deal with the situation where the powers u/s 131(1) can be exercised inspite of absence of pendency of proceedings and specific mention of such enablement is made by the legislature in both of these provisions, there is no such enablement contained in section 131(1). In other words, the legislative intent is clear from the words employed in sections 131(1), 131(1A) and 131(2), respectively. Whereas, in sections 131(1A) and 131(2), the 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 pending, is not envisaged by the provisions of section 131(1), no such enablement can be read into the section, particularly in view of the existence of such enablement by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. The assessee has failed to turn up 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 u/s 148 of the Act, 1961. Sd/- I.T.O. 30.04.2008 41. Thus, as evident from the reasons, the material available for the AO to form a belief of escapement of income consists of two items: (i) Information with the department, of cash deposit of ₹ 2,60,000/- by the assessee in his savings bank account; and (ii) The non-response of the assessee to the letter of enquiry dated 13.03.2008. 42. As found in the preceding paragraphs, the letter of enquiry being illegal, it was not obligatory on the assessee to respond to the same. Hence, non-response by the assessee to the enquiry letter cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which, if made, could have led to detection of an income escaping assessment, this can not be reason enough to hold the view that the income has escaped assessment; and that there has to be some kind of cause and effect of relationship between the reasons recorded and the income escaping assessment. The observations of the Hon ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das , 103 ITR 437 (SC), were reproduced, as under: 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 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 own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial precedents in support of the proposition that at the stage of initiation of reassessment proceedings, all that is to be seen is existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. There cannot be any, and there is no, doubt on the correctness of this proposition but then, as we have elaborately explained earlier in this order, the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment, in our humble understanding, cannot be drawn. 49. Now, in keeping with Bir Bahadur Singh Sijwali (supra), this information cannot form a valid basis for initiating assessment proceedings under section 147 of the I.T. Act. As observed in Bir Bahadur Singh Sijwali (supra), the mere fact that the deposits had been made in the bank account does not indicate that these deposits constitute income which has escaped assessment. 50. Thus, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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