TMI Blog2017 (6) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Member) The assessee is aggrieved by the impugned order dated 21/09/2016 of the Ld. First Appellate Authority, Mumbai. The only ground raised in the present appeal pertains to upholding the addition of ₹ 3 crores made on account of alleged on money given to Kamla Group for purchase of flats. 2. During hearing, the Ld. counsel for the assessee, Shri Ashwini Kumar, explained that there was an information with the Directorate of Investigation that Kamla Group received on money for sale of flats. As per the Revenue, ₹ 3 crores were paid by the assessee as on money to Kamla Group for purchasing two flats bearing no.1201 and 1202. It was contended that the assessee booked two flats with M/s Kamla Group. The addition was explained to be on the basis of a pen-drive. It was contended 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the addition was rightly sustained. 2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee declared total income of ₹ 9,33,230/- in her return on 31/07/2012. The assessee purchased two flats bearing no. 1201 1202. The allotment letter of both these flats was filed before the Ld. Assessing Officer vide letter dated 04/02/2015. The assessee made payment of ₹ 2,30,00,000/- and furnished the copy of bank statement along with source of such payment before the Assessing Officer. The schedule of payment have also been mentioned in para -5 (page-2 of the assessment order). As per the Revenue, there was information from investigation wing that buyers paid on money to the Kamla Group for different projects. As per the Revenue, the assessee paid ₹ 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 requeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order has observed that it is a common practice by the builders to get cash in advance while booking the property. The denial of making any cash payment by the assessee to the group was not accepted by the Ld. Assessing Officer, therefore, the amount of ₹ 3 crore, alleged to be made in cash was added to the income of the assessee. 2.6. On appeal, before the Ld. Commissioner of Income Tax (Appeals), the explanation of the assessee could not find favour and thus the addition made by the Assessing Officer was affirmed. The assessee is in appeal before this Tribunal. 2.7. We find that the whole basis of addition is based upon the statement tendered by two employees namely Shri Nilesh Gawde and Shri Mahendra Rawal of Kamla Group. In such a situation, we are expected to examine the contents of the statements, which is available at pages 19 to 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, reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounts of cash, he specifically denied that he is not aware about the same. In reply to question no.24, whether he was handling the cash presently, he specifically tendered that he has no knowledge about it. The contents of the statement either deny the receipt of cash and if received, it nowhere says that any cash was received from the present assessee on sale of two flats. The allegations are clearly vague. In such a situation, unless and until it is proved that any cash was received from the assessee, the addition cannot be said to be justified, which is purely on the basis of statement of some persons and no evidence has been collected that any cash was received from the assessee. Even if it is presumed that some cash was received by Kamla Group then it is the group which is expected to explain the source of the cash but certainly no addition 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases relied upon by both sides. The Hon'ble Punjab And Haryana High Court in the case of COMMISSIONER OF INCOME TAX vs. SMT. PARAMJIT KAUR 311 ITR 38 (P H) held as under:- This reference under s. 256(1) of the IT Act, 1961 (for short the Act ) has been made to this Court at the instance of the Revenue by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (for brevity the Tribunal ) arising out of its order dt. 19th April, 1996 in ITA No. 967/Asr/1995 relating to the asst. yr. 1989-90 raising the following question of law : Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in law in quashing the assessment order for the asst. yr. 1989-90 by holding that the notice under s. 148 is invalid ? 2. The facts are that the assessee filed her original return declaring nil income and the AO on receiving the information from Survey Wing of the IT Department that Neta Metal Works prepared a demand draft for a sum of ₹ 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the 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 indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words 'definite information which were there in s. 34 of the Act of 1922, at one time before its amendment in 1948, are not there in s. 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The 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 sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecourse to reassessment proceedings. Still further the AO can assume jurisdiction for reassessment proceedings provided he has reasons to believe but the same cannot be taken recourse to on the basis of reasons to suspect.-ITO Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) relied on. 2.14. It was further observed by the Hon'ble High Court 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 ₹ 83,040 which was not accounted in the books of account of the assessee. The AO had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The AO had thus acted only on the basis of suspicion and it cannot be said that the same was based on 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1996-97 on 30th Nov., 1996, declaring an income of ₹ 9,26,867. The return of income was accompanied by the statement of assessable income, various other documents and annexures, including the statutory tax audit report and the list of loans taken during the relevant previous year. One of the loans, for ₹ 7,40,000, raised by the petitioner was from a concern M/s Visa Fincap Ltd., New Delhi. According to the petitioner, the loan was taken on two different dates through account payee cheques; the sum of ₹ 33,860 was paid/credited as interest on the said amount during the relevant period; tax was deducted at source on the said amount which was paid to the credit of the Central Government; and the loan was repaid in April, 1997, by account payee cheque. 5. It seems that since notice under s. 143(2) of the Act was not received by the petitioner within 12 months from the date of filing of the return, it was taken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could be drawn against the petitioner towards the loan transaction and, therefore, no reasons to believe existed with the AO to initiate proceedings under s. 147/148 of the Act, the present petition was filed for quashing of notice dt. 30th April, 2002. 8. We have heard Mr. M.S. Syali, learned senior counsel for the petitioner, and Mr. R.D. Jolly, learned senior standing counsel for the Revenue, who has put in appearance on advance notice. The record of the AO has also been produced before us by Mr. Jolly and we have perused the same. 9. The main thrust of Mr. Syali s argument is that the foundation for the belief of the AO that petitioner s income has escaped assessment is based on the statement of V.K. Jain, wherein he is alleged to have stated that loan given by M/s Visa Fincap to the petitioner is bogus, whereas the copy of the statement of V.K. Jain, supplied to the petitioner by the AO does not show any such confession. Learned counsel would submit 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the completed assessment. 12. In Bawa Abhai Singh vs. Dy. CIT (2001) 168 CTR (Del) 521 : (2002) 253 ITR 83 (Del), a Division Bench of this Court, speaking through Chief Justice Arijit Pasayat (as his Lordship then was), has said that the crucial expression reason to believe predicates that the AO must hold a belief....... by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons, inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. 13. In Ganga Saran Sons (P) Ltd. vs. ITO Ors. (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC), their Lordships of the Supreme Court, inter alia, observed that the expression reason to believe is stronger than the expression is satisfied . The belief entertained by the AO should not be irrational or arbitrary. Alternatively put, it must be reasonable 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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief or there is no material or tangible information for the formation of the belief, then in such a case, action taken under s. 132 would be regarded as bad in law. (Emphasis, italicised in print, supplied) 16. It is, thus, trite, that when a challenge is made to the action under s. 147 of the Act what the Court is required to examine is whether some material exists on record for the AO to form the requisite belief and the reasons for the belief have a rational nexus or a relevant bearing to the formation of such belief and are not extraneous or irrelevant for the purpose of the said section. But the sufficiency of the grounds, which induced the AO to act under the said section is not a justiciable issue. 17. In the instant case, as noticed above, the respondents have produced before us the original file containing the satisfaction note of the AO as also a copy of the statement of V.K. Jain. Copy of the statement supplied to the petitioner is the same as is available on the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quash the impugned notice dt. 30th April, 2002. The rule is made absolute with no order as to costs. 2.17. In the aforesaid case, the Hon'ble Delhi High Court held/observed that section 147 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 pre-1989 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 : (i) omission or failure on the part of the assessee to make a return of his income under s. 139 for any assessment year, or (ii) failure to disclose fully and truly all material facts necessary for his assessment for that year, are not present in the new main section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its name to certain parties without naming any party did not constitute reason to believe that the petitioner's loan transaction with the said company was bogus and its income had escaped assessment on that account; impugned notice under s. 148 of the Act was quashed. 2.18. In another case, the Hon'ble Delhi High Court in 305 ITR 245 (Del.) held as under:- The Revenue is aggrieved by an order dt. 8th Sept., 2006 passed by the Tribunal, Delhi Bench 'G in IT(SS) No. 107/Del/2003 relevant for the block period from 1st April, 1989 to 20th Feb., 2000. 2. Briefly the facts of the case are that a search was conducted at the residence of the appellant on 10th Feb., 2000. During the course of search, two memorandums of understanding (MoU) dt. 1st March, 1999 were recovered. These MoUs were entered into between the assessee, Ravi Talwar and Madhu Talwar. In terms of the MoUs, the assessee had paid ₹ 25 lakhs each to Ravi Talwar and Madhu Talwar towards part consideration for the purchase of agricultural land valued at ₹ 123.30 lakhs. The balance amount was to be paid on or before 30th April, 1999, failing which the amount of ₹ 25 lakhs each would be for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd shall pay the residual of said purchase consideration to the vendor on or before 30th April, 1999 when the purchase will be completed. 9. Notwithstanding this, the assessee as well as Ravi Talwar and Madhu Talwar denied the money transaction. In addition thereto, the case set up was that the agricultural land had, in fact, been sold to M/s Delhi Tent and Decorators (P) Ltd. by Ravi Talwar and Madhu Talwar. This was confirmed by Shri N.K. Mittal, one of the directors of M/s Delhi Tent and Decorators (P) Ltd. Quite clearly, the MoUs did not fructify. 10. Sec. 132(4A) of the Act uses the expression it may be presumed . It is not obligatory on the assessing authority to make a presumption. Even if a presumption is required to be made, then, as held in CIT vs. S.M.S. Investment Corporation (P) Ltd. (1994) 207 ITR 364 (Raj), the presumption is a rebuttable one and relates to a question of fact. While coming to this conclusion, the Rajasthan High Court relied upon an earlier decision rendered by it in CIT vs. S.M.S. Investment Corporation (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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as well as R and M denied the money transaction. In addition thereto, the case set up was that the agricultural land had, in fact, been sold to DT (P) Ltd. by R and M. This was confirmed by N, one of the directors of DT (P) Ltd. Quite clearly, the MoUs did not fructify. Sec. 132(4A) uses the expression it may be presumed . It is not obligatory on the assessing authority to make a presumption. Even if a presumption is required to be made, then, the presumption is a rebuttable one and relates to a question of fact. Insofar as the present case is concerned, the assessee had stated that in fact there was no transfer of money between him and R and M. On the other hand, R and M 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 fact such a transfer of money. Both the CIT(A) as well as the Tribunal have come to the conclusion that there was no such material on record. The AO relied on certain other transactions entered into by the assessee with R and M for drawing a presumption in respect of the transfer of money, but the Tribunal rightly held that those were independent trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pened. To buy peace, the assessee declared additional income of ₹ 14 lakh. The Assessing Officer held that for the purposes of stamp duty and fees, the assessee paid additional stamp duty of ₹ 7.5 lakh. He also ascertained form the Revenue authorities that the market price of the land was ₹ 25 lakhs per acre. The actual consideration of the land was taken at ₹ 75 lakh. On further appeal, the Tribunal upheld the order of the Ld. Commissioner of Income Tax (Appeals). The Hon'ble High Court held that since, the finding of the Assessing Officer was not based upon the material found during search and was merely based upon vendor s son, the addition has to be deleted. In the light of the foregoing discussion and the cases discussed therein, it is clear that in the present case also, the Department merely relied upon the statement of two person who were employees of a different group and there was no evidence with the Assessing Officer that in fact any on money was paid in cash. Even in the statement tendered by these two employees, it has not been mentioned that in fact any cash was received by the group from the assessee over and above the payments made thr ..... 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