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2016 (7) TMI 665 - ITAT AMRITSAR

2016 (7) TMI 665 - ITAT AMRITSAR - TMI - Reopening of assessment - invoking the provisions of section 131(1) - Held that:- In the present case, no proceeding was pending before the ITO when he issued the letter of inquiry on 13.03.2008, requiring the assessee to, inter-alia, produce evidence, such letter of inquiry is not valid in the eye of law. It does not require any cognizance to be taken of. And that being so, the assessee was not obliged to respond to this invalid and non est so-called let .....

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llacious 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 with ‘Bir Bahadur Singh Sijwali’ (2015 (2) TMI 60 - ITAT DELHI) the reasons recorded to initiate assessment proceedings under section 147 of the Act and all proceedings pursuant thereto, culminating in the impugned order, are cancelled. - Decided in favour of assessee - ITA No.631(Asr)/2015 - .....

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f 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 amounts received from mother at ₹ 215,000/- and ₹ 1,80,000/- which was available for making deposits in the bank. (b) That the ld. CIT(A), has erred in not fully allow .....

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r in view of the submission made. The credit of ₹ 1,00,000/- stood fully explained. (d) The ld. CIT(A), has erred in not allowing 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 not erred in not allowing benefit of funds available with the real brother - Sh. Amrik Singh. 4. The ld. CIT(A), has erred in enhancing the income by ₹ 60,000/- which according to him was the estimated income from taxi dr .....

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bank account with State Bank of India, Branch Office, VPO Khajurla, Tehsil Phagwara, District Kapurthala, in which, a cash deposit of ₹ 1,98,000/- was made by the assessee during the F.Y. 2005- 06 relevant to A.Y. 2006-07, i.e., the year under consideration. 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 the assessee .....

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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, t .....

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any other family member. The assessee attended but no information/documentary evidence was 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 18.11.2009 passed under section 143(3) read with section 147 of the Act, at an assessed income of ₹ 4,15,738/-. While completing the assessment, the Assessing Officer made the following additions: (i) Addition o .....

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. 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 deposits constitute undisclosed income and overlooks the fact that the source of the deposit need not necessarily be the income of the assessee, reassessment proceedings (assessment proceedings in the present case) are req .....

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h 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 13.03.2008 was issued by the AO to the assessee, the ld. DR responded by stating that this was a general enquiry letter. However, the provision under which such a letter is sanctioned by the law could not be pointed .....

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ard 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 26.03.2008 at 11.00AM. 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 th .....

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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 (Appeals), the Joint Commissioner or the Commissioner (Appeals), will be useful for, or relevant to, any enquiry or proceeding under this Act. 11. Thus, as per section 133(6), the concerned Income Tax Authority may req .....

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8, 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 case may be, the Commissioner. 13. The scope and effect of this amendment brought about in 1995 was explained by the CBDT in its Circular No.717, dated 14.08.1995, (1995) 215 ITR (St.) 70, as under: Power to call .....

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seful 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, therefore, thought necessary to have the power to gather information which after proper enquiry, will result in initiation of proceedings under the Act. 41.3. With a view to having a clear legal sanction, the existi .....

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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-T .....

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k 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 at 251 ITR (St.) 51]. 16. In Karnataka Bank Ltd. vs. Secretary, Government of India (supra), the Hon ble Supreme Court observed as under: It is clear from the mere reading of the said provision that it is not neces .....

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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 the information was sought for . (emphasis supplied) 17. Thus, to reiterate, with effect from 01.07.1995, the condition that some proceeding must be pending is no longer applicable. Under the earlier provisions of s .....

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rior 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 s .....

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tly 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 with the power regarding, inter-alia, production of evidence. 22. Section 131(1) reads as follows: Power regarding discovery, production of evidence, etc. 131. (1) The Assessing Officer, Deputy Commissioner (Appeal .....

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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 those vested in a court under the CPC, when trying a suit. 24. The operative words in the section, for our present purposes, are when trying a suit . Courts have various powers under the CPC, i.e., powers of a Court .....

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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 position stands judicially acknowledged in various judicial pronouncements, as follows. 27. In Jamnadas Madhavji & Co. and Others vs. J.B. Panchal, ITO and Another , 162 ITR 331 (Bom.), for two years, the assessmen .....

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, 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 iss .....

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e 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 under the Code of Civil Procedure, 1908, when trying a suit; that the Code of Civil Procedure confers upon a Court powers, for the exercise whereof, existence of a suit or a proceeding is a sine qua non, that in pa .....

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, 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 evidence. This, in keeping with Jamnadas Madhavji & Co. and Another (supra), cannot be done sans pendency of some proceeding before the Income Tax Authority. At this juncture, it would be appropriate to reiterate .....

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rity 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 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 follo .....

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es 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 are to be exercised by the concerned Authority for making an assessment; that the Code of Civil Procedure confers upon the Court the power to issue commissions while trying a suit and the pendency of a suit or p .....

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sses 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 consider the same. On the other hand, he directed the assesses to comply with the same under the threat of penalty for non-compliance. The assessees approached the Hon ble High Court by way of a writ petition. The Hon bl .....

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ers 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 u/s 131 can be exercised only if proceedings are pending before the Authority concerned under the I.T. Act; and that the same is the position under the Wealth Tax Act and the Gift Tax Act. 32. In Rina Sen vs. CIT .....

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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 .....

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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 referred to in sub- section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any pers .....

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me 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 agreement with a foreign country or specified territory and adoption by Central Government, of agreements between specified associations for double taxation relief, is exactly similar to that of matters concerning s .....

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he 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. 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 enable .....

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e 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 the express language contained in section .....

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nding 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 notwithstanding that no such proceedings are pending before him, or before any other officer. 38. For the above reasons, since in the present case, no proceeding was pending before the ITO when he issued the letter of inqu .....

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7 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 information available with this office, the assessee is found to maintain saving bank account with State Bank of India, Khajurla, Tehsil Phagwara, in which the assessee, has inter-alia, made following cash deposits .....

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herefore, 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 ₹ 1,98,000/- 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 .....

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hus, 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 takes us back to the applicability/nonapplicability of the decision in Bir Bahadur Singh Sijwali (supra). The ratio thereof has not at all been disputed by the Department. In fact, the only dispute which has been r .....

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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 sustained. In the present case, similarly, the basis of initiation of the assessment proceedings u/s 147 was the information with the Department, of the deposits made by the assessee in his bank account. 46. Bir Bahad .....

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ich 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 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 rel .....

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lief 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 material, howsoever vague and ind .....

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n 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 returned by the assessee. As we do not have the liberty to examine these reasons on the basis of any other material or fact, other than the facts set out in the reasons so recorded, it is not open to us to deal with t .....

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n 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, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than susp .....

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