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TMI Blog2017 (6) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that in spite of requesting the Assessing Officer to cross examine the concerned person, such opportunity was not provided to the assessee. The Ld. counsel further contended that whole order, there is no allegation that cash was in fact received from the assessee. It was also asserted that till date the assessee was never provided with the copy of statement, asked by the assessee or cross examination to the assessee by the Assessing Officer. It was also pleaded that the alleged information was also never provided to the assessee, so, the belief of the Assessing Officer that any on money was given by the assessee is without any evidence. Reliance was placed upon the decision COMMISSIONER OF INCOME TAX vs. SMT. PARAMJIT KAUR 311 ITR 38 (P & H) and UNITED ELECTRICAL COMPANY (P) LTD. vs. COMMISSIONER OF INCOME TAX & ORS. 258 ITR 317 (Del.). The ld. counsel further explained that the flats were in fact purchases for 2.14 crores, whereas, as per the stamp duly valuation authorities, the cost comes to 1.21 crores. Our attention was invited to copy of the agreement (pages 13 and 14 of the paper book) and further pages 15 & 16 of the paper book for agreement for flat no.1202. It was ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue, the assessee paid Rs. 3 crores during the period relevant to Assessment Year 2012-13 in cash, which was not disclosed in the return. The Ld. Assessing Officer had reason to belief that income had escaped assessment, therefore, the case of the assessee was reopened u/s 147/148 of the Act. In response to the same the assessee vide letter dated 22/03/2014 requested the ld. Assessing Officer that the original return filed on 31/07/2012 may be treated to be return filed in response to notice u/s 148 of the Act. In response to the notices issued u/s 143(2) and 142(1) of the Act, the assessee attended the proceedings and furnished the details called for during the case as has been admitted/acknowledged in para -4 of the assessment order. The assessee was issued show cause notice on 16/03/2015, which is reproduced hereunder:- "Information has been received from Investigation Wing after a search and seizure action conducted on Kamala Group of cases on 09.01.2013. During the course of this search proceedings evidence related to inter alia payment of On-Money (cash) for purchases of flat were found. These evidences were confronted to the Directors/Partners of the Kamala Group and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 51 of the paper book. In reply question no.7 with respect to providing details of commercial and residential project, Shri Nilesh K. Gawde specifically tendered that he was not looking after any project or sale related activities and therefore, he denied having any knowledge. In reply to question no.12, with respect to pen-drive, recovered during the course of search, it was replied that this pen-drive belongs to Mahendra, who was handling the cash department of Kamla Mill compound. A reply to question no.19, with respect to details of the directors and their nature of job, he specifically denied by saying that 'I don't know'. With respect to other firms, he specifically denied as is evident from pages 22 to 24 of the paper book (containing the statement). In reply to question no.21 with respect to entries in the Excel Sheets appearing in annexure 'O' as well as print out seized in annexure 'A1'. It was specifically replied that the particular data was prepared by one Shri Mahendra Rawal and further tendered that his job is merely to enter data as directed by Shri Mahendra Rawal, who does the cross checking after data entry. In reply to question no.23, with respect to the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on can be made in the hands of the present assessee. Presumption cannot take the shape of evidence, however, strong it may be. So far as, the contention of the Ld. DR that Kamla Group made disclosure before the Settlement Commission does not prove that any cash was received from the present assessee. It is for the Kamla Group to explain the nature and source of such cash, if any, surrendered before any authority. 2.9. It is also noted that before the Ld. Assessing Officer/CIT(A) and also before this Tribunal, the assessee duly produced the computation of total income along with the acknowledgment of return filed by the assessee (pages 5 to 7 of the paper book), copy of letters submitted during assessment proceedings, balance sheet (pages 8 to 9 of the paper book), details of date-wise payment made by the assessee for purchase of flats (page-10 of the paper book), copy of allotment letters dated 01/06/2011, copies of statements recorded from Shri Nilesh Gawde and Mahendra Rawal (pages 19 to 51 of the paper book) and written submissions dated 19/07/2016 (page-60 and 61 of the paper book) filed before the Ld. Commissioner of Income Tax (Appeals). 2.10. If this issue is analyzed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information from Survey Wing of the IT Department that Neta Metal Works prepared a demand draft for a sum of Rs. 83,040 payable at Chandigarh in favour of M/s Coal India Ltd., which was not accounted in the assessee's books of account, issued a notice under s. 148 of the Act. The AO after recording reasons framed assessment under s. 143(3) of the Act at an income of Rs. 83,040 on 2nd Sept., 1994. On appeal by the assessee, the first appellate authority upheld the validity of notice under s. 148 of the Act but set aside the assessment on the addition made by the AO and remitted the matter to him to frame a fresh assessment after allowing reasonable opportunity of being heard to her. The assessee took the matter in second appeal and the Tribunal vide its order dt. 19th April, 1996 held that since the AO had failed to incorporate material and his satisfaction for reopening the assessment, the same was invalid. 3. We have heard learned counsel for the parties. 4. Sec. 147 of the Act defines the power and jurisdiction of the AO for making an assessment or reassessment of escaped income. Sec. 148 of the Act, on the other hand, provides for initiation of the reassessment proceedings wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reason for the formation of the belief must be held in good faith and should not be a mere pretence." 6. The Tribunal while allowing the appeal of the assessee came to the conclusion that it was essential for the AO before issuing notice to record his own satisfaction on the basis of material and should not have acted merely upon the information received from the survey circle. It was further noticed that the Dy. CIT(A) had recorded that there was not sufficient evidence for making addition of Rs. 83,040 in the hands of the assessee and the matter was remanded to him to further investigate for connecting the amount of the draft with the escaped income of the assessee still it was held that the initiation of reassessment was valid. The Tribunal concluded that contradictory findings had been recorded by the Dy. CIT(A) and held the reopening to be invalid. 7. It is undisputed that the AO had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft for a sum of Rs. 83,040 which was not accounted in the books of account of the assessee. The AO had not examined and corroborated the information re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n belief that the income chargeable to tax had escaped assessment. The AO has to act on the basis of "reasons to believe" and not on "reasons to suspect". The Tribunal had, thus, rightly concluded that the AO had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, the issuance of notice under section 148 for reassessment proceedings was not valid and finally concluded that AO has to record reasons showing due application of mind before taking recourse to reassessment proceedings; AO having initiated reassessment proceedings simply on the basis of information received from the survey circle of the Department that the assessee had got prepared a demand draft which was not accounted in her books of account, without incorporating corroborative material and his own satisfaction that income has escaped assessment, issuance of notice under s. 148 was not valid. 2.15. In the present appeal also the Ld. Assessing Officer broadly relied upon the information received from the investigation wing and did not made any enquiry from the Kamal Group. As mentioned earlier and argued by the Ld. Counsel for the assessee to provide the information, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en that the return had been accepted. On 5th May, 2002, the petitioner received the impugned notice under s. 148 of the Act. Pursuant thereto, the petitioner filed its return declaring the same income which had been declared in the original return filed under s. 139(1) of the Act. Vide letter dt. 18th June, 2002, the petitioner requested the AO to supply a copy of the reasons recorded for reopening the assessment, which was done. Since the entire controversy revolves around the reasons for reopening the assessment, for the sake of ready reference, these are reproduced hereunder : "An intimation has been received from the AO having jurisdiction over M/s Visa Fincap Ltd. A-1, Laxmi Kunj, Sector 13, Rohini, Delhi. It has been stated that M/s Visa Fincap Ltd. has given loan of Rs. 7,40,000 to M/s United Electric Company (Delhi) (P) Ltd. Shri Vijay Kumar Jain, the director of M/s Visa Fincap Ltd. has admitted in his statement recorded on oath under s. 131 of the IT Act by the AO, Ward 17(4), New Delhi, that the loan transaction with the assessee-company i.e., M/s United Electric Co. (Delhi) is not genuine. Shri Vijay Kumar Jain also admitted that the assessee-company M/s United Electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO having solely relied on the said statement for his requisite belief, the entire proceedings for reopening the assessment have no legal foundation. Mr. Jolly, learned counsel for the Revenue, on the other hand, has submitted that power of reopening the assessment under the amended s. 147 being very wide, the AO is justified in reopening the assessment in order to investigate into the genuineness of the transaction between the petitioner and the said Visa Fincap. 10. Having considered the matter in the light of the material available on the record produced, we are of the view that the petition deserves to succeed. 11. Sec. 147 of the Act authorises the AO to assess or reassess income chargeable to tax, if he has reason to believe that the said income for any assessment year has escaped assessment. The power conferred under the said section, particularly after 1st April, 1989, is no doubt very wide but it cannot be said to be plenary. True, the amended provisions of s. 147 are contextually different from the pre1989 provision, inasmuch as the cumulative conditions spelt out in cl. (a) of old s. 147 namely, that income chargeable to tax had escaped assessment by reason of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable and must be based on reasons which are material. 14. Thus, existence of tangible material, for the formation of opinion is a prerequisite for initiation of action under s. 147 of the Act. Therefore, what s. 147 of the Act postulates is that the AO must have reason to believe that income has escaped assessment. There should be facts before him that reasonably give rise to the belief, but the facts on the basis of which he entertains the belief need not at this stage be rebuttably conclusive to support his tentative conclusion. In case of challenge, it is open to the Court to examine whether there was material before the AO, having rational connection or relevant bearing to the formation of the belief that is claimed to have been held at the time when he issued the notice. But the Court cannot for the purpose of ascertaining validity of the notice examine the sufficiency of the reasons for the belief [See S. Narayanappa & Ors. vs. CIT (1967) 63 ITR 219 (SC)]. 15. Explaining the scope of the expression "information", in the background of s. 132 of the Act, which logic is equally applicable to a case under s. 147 of the Act, in L.R. Gupta & Ors. vs. Union of India & Ors. (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he file of the AO. On a careful perusal of the statement, we find that, the facts mentioned in the "reasons" are de hors the facts available on record. The relevant portion of the statement of V.K. Jain, dt. 18th Feb., 2002, reads as under : "Q. 5 Can you give the names and addresses of the above persons from whom you were receiving cash and giving entries thereafter ? Ans. The names and addresses of the person concerned are the same as shown as loan creditors in the balance sheet filed during the asst. yr. 1995-96. At present the list along with addresses is not available with me. It will be provided on the next date of hearing. To reconcile the above amount sometimes my along with the name of my wife were also used." 18. Evidently, the statement is too general. It does not mention any name much less the name of the petitioner. It is not the stand of the respondents that a list of the creditors, which included the name of the petitioner, was furnished by V.K. Jain subsequently and the same was forwarded to the AO of the petitioner. Applying the aforenoted settled principles, governing an action under s. 147 of the Act, we have no hesitation in holding that there was no inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion but the crucial expression "reason to believe" still exists in the new provision. The amended s. 147 provides that where the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of ss. 148 to 153 and assess or reassess the income which has escaped assessment. Sub-s. (2) of s. 148 mandates that before issuing notice to the assessee under sub-s. (1), for filing the return, the AO shall record his reasons for doing so. Therefore, formation of reason to believe and recording of reasons are imperative before the AO can reopen the completed assessment. Proviso to sub-s. (1) of s. 151 provides that after the expiry of four years from the end of the relevant assessment year, notice under s. 148 shall not be issued unless the Chief CIT or the CIT, as the case may be, is satisfied, on the reasons recorded by the AO concerned, that it is a fit case for the issue of such notice. These are some inbuilt safeguards to prevent arbitrary exercise of power by an AO to fiddle with the completed assessment. Thus, existence of tangible material, for the formation of opinion is a prerequisite for initiation of action u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of agricultural land valued at Rs. 123.30 lakhs. The balance amount was to be paid on or before 30th April, 1999, failing which the amount of Rs. 25 lakhs each would be forfeited. 3. On the basis of the MoUs, the AO issued a questionnaire to Ravi Talwar and Madhu Talwar regarding receipt of the amount of Rs. 25 lakhs each but while they both admitted having signed the MoUs, they denied having received any amount. The AO concluded that the denials by the assessee of having made payments and of Ravi Talwar and Madhu Talwar of having received the amounts was only to escape payment of tax liabilities. Accordingly, an amount of Rs. 50 lakhs was added in the hands of the assessee under s. 69 of the Income-tax Act, 1961 (for short 'the Act') as unexplained expenditure. 4. The view taken by the AO was not accepted by the CIT(A) and also by the Tribunal. Both concurrently were of the view that there was not enough evidence to add the amount in the hands of the assessee. 5. The CIT was of the view that all the parties had denied the transaction and in fact the property in question was eventually sold by Ravi Talwar and Madhu Talwar to M/s Delhi Tent and Decorators (P) Ltd. whose d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (1988) 73 CTR (Raj) 184 : (1988) 173 ITR 393 (Raj). 11. Even in ITO vs. T. Abdul Majeed (1987) 64 CTR (Ker) 266 : (1988) 169 ITR 440 (Ker) it has been held as follows : "It is true that s. 132(4A) of the Act enables the Court to presume the truth of the contents of such books. However, it is a presumption which can be rebutted. Moreover, the presumption envisaged therein is only a factual presumption. It is in the discretion of the Court, depending upon other factors, to decide whether the presumption must be drawn. The expression used in the sub-section is 'may be presumed' as is used in s. 114 of the Evidence Act, 1872. It is not a mandate that whenever the books of account are seized, the Court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the Court from doing so." 12. Insofar as the present case is concerned, the assessee had stated that in fact there was no transfer of money between him and Ravi Talwar and Madhu Talwar. On the other hand, Ravi Talwar and Madhu Talwar had denied receipt of any money from the assessee. In the fact of these denials, there ought to have been corroborative evidence to show that there was in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r drawing a presumption in respect of the transfer of money, but the Tribunal rightly held that those were independent transactions and had nothing to do with the MoUs, which were the subject matter of discussion. Even if there was something wrong with some other transactions entered into, that would not give rise to an adverse inference insofar as the subject MoUs are concerned. No substantial question of law arises.. The Hon'ble Court relied upon the decision in CIT vs. S.M.S. Investment Corporation (P) Ltd. (1994) 207 ITR 364 (Raj) and ITO vs. T. Abdul Majeed (1987) 64 CTR (Ker) 266 : (1988) 169 ITR 440 (Ker) and finally held that since both assessee and alleged payees having denied to have advanced or received any amount as shown to have changed hands as per the MoU found during search, no addition could be made in block assessment in the absence of any further corroborative facts, the presumption under s. 132(4A) being a rebuttable one; no substantial question of law arose out of order of Tribunal deleting the addition. 2.20 In another case in CIT vs Prem Prakash Nagpal (2014) 220 taxman 168 (Del.), wherein, there was unexplained investment (investment in land/buildings, ..... 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