TaxTMI 
TaxTMI 
2018 (6) TMI 1175
X X X X Extracts X X X X
X X X X Extracts X X X X
....g assumption of material facts with no evidence on records before recording reasons about the facts of assesses case and as such 'reasons' do not show any application of mind on part of the 'AO' to show that any Income liable for Tax has escaped Assessment warranting recourse to Notice under section 148 of the Act. WITHOUT PREJUDICE TO THE ABOVE 4. BECAUSE, the computation of Total Income by the 'AO' at Rs. 19,64,890/- as against Rs. 7,39,730/-fairly Returned by the 'appellant' is erroneous, illegal bad on facts and in law. 5. BECAUSE, the 'AO' was highly unjustified as well as unfair in allowing cost of acquisition alongwith improvement as claimed by the 'appellant' evidenced by Balance Sheet(s) filed on year to year basis with the Department without any evidence to negate such claim. 6. BECAUSE, interest under section 234A & 234B is either not chargeable or has excessively and incorrectly been charged." 2. Ground Nos. 1 to 3, challenge the CIT(A)'s action of upholding the initiation of proceedings u/s 148 of the IT Act. 3. The following are the reasons recorded by the AO to form belief of escapement of income: "The infor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was no allegation in the reasons recorded that the amount of escapement was of more than Rs. 1,00,000/-; that it was duly submitted before the AO that in the facts of the present case, the rationale of the said decision fully applies; that in the case at hand, while recording the reasons, the AO had only mentioned the sale consideration as mentioned in the sale deed alongwith deemed consideration under section 50-C of the Act; that however, in the reasons recorded, nowhere the amount of escapement is quantified and it is also not mentioned that the escapement is of more than Rs. 1,00,000/-; that therefore, the present case stands on a weeker footing, as in the case under consideration, besides non quantification of income, the assessee has wrongly been stated as having not filed income tax return, leading to presumption of escapement on wrong assumption of facts and total non-application of mind. 7. The ld. Counsel for the assessee states that the said objection was also raised before the AO in similar terms; and that however, the AO as is verifiable from the letter dated 05.03.2015 (APB 54-55), had chosen not to dispute the factual weakness crept in the reasons recorded that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en obtained by the AO before issuing the notice under section 148 of the Act to the assessee and Grounds of Appeal Nos. 4 & 5 challenge the action of the AO in not allowing the cost of acquisition alongwith improvement, as claimed by the appellant evidenced by the balance sheet(s) filed on an year to year basis with the Department, purely on consideration of suspicion and surmises, without any evidence to negate the claim of the assessee based on the income tax return and accompanying balance sheet. 11. The ld. DR has also objected that no computation of income was filed with the return of income and so, there was no disclosure by the assessee, of all facts relevant to the assessment and that since the AO has, in the reasons, stated the escapement to be of more than three lacs rupees, no precise quantification is required. To this, the ld. Counsel for the assessee has responded that these objections do not emanate from the reasons recorded, that the AO has nowhere stated the figure to be that of more than three lacs rupees, and that it is the entire sale consideration which has been wrongly treated by the AO as income having escaped assessment. 12. Heard. The assessee's contentio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd available in this office, the assessee has not submitted its return for the year under consideration, Since, the assessee is not assessed to tax and therefore the income as a result of capital gains resulted into escapement of assessment and to assess it, issuance of notice under section 148 is considered necessary as it is a case of income escaping assessment, under the provision of section 147 of the Act" (emphasis supplied) 3. From the perusal of the said reasons it is abundantly clear that the so called 'Reasons' are no 'reasons' in the eyes of law and the proceedings are initiated for verification based on pure suspicion and surmises. Reasons are based on incorrect assumption of facts and shows total lack of application of mind and do not meet the test of law in this regard. From the perusal of the so called "Reasons Recorded" it is revealed that no sanction has been sought from the Joint Commissioner of Income Tax, Range-4, Agra as is apparent from the reasons recorded. 4. Even if any sanction was obtained, on the said 'reasons' before issuing Notice under section 148 it is no sanction in the eyes of the law having been sought on the basis of wrong facts being presente....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see has not shown capital gains in term of provisions of section 50C of the Act, thus a case of income escaping assessment by not disclosing the full facts necessary for assessment by the assesses herself, secondly, the reasons were property recorded, as per information in possession in the spirit of provisions of section 148(2) of the Act and after having prior permission/ approval from the Range-Head , the notice was issued well in time, as envisaged under section 149 of the Act. Anyhow, the objections raised stating inter alia that the proceedings were initiated for verification based on pure suspicion and surmises are not correct in the given facts of the case, and more so, sufficiency of the reasons recorded could not be argued or questioned and more importantly, only one condition is required to be satisfied, i.e. existence of reasons to believe that income has escaped assessment, which in turn has been complied with by recording reasons in writing and communicated to the assessee on demand, therefore, the assessee's objections considering incapable of being weighed are hereby disposed of accordingly and assessee is directed to attend or comply the proceedings and the not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s a reading thereof would show, there is no mention that income amounting to Rs. 1 lac or more is believed to have escaped assessment. 19. As is well settled, the reasons recorded are to be considered ipso facto, as they are, without supplementing them, without bolstering them. "CIT Vs. Samraj Krishan Chaudhary", 368 ITR 638 (All) handed down by the Hon'ble Jurisdictional High Court, amongst a plethora or other decisions, is eloquent on the issue. 20. The Department before this Bench, on the other hand, would have as upheld the reasons, by offering a justification which is based on mere supposition, i.e., the AO was aware of the quantum of capital contribution, which would lead to earning of capital gain exceeding one lac rupees, sans the reasons meeting the mandate of the law. 21. In this regard, 'Mahesh Kumar Gupta 363 ITR 300 (All.), as relied on by the assessee before the Authorities below, and before this Bench also, is directly on the issue. In this case, the Hon'ble Jurisdictional High Court has held as follows: "11. The reason assigned for reopening is that the petitioner after converting the leasehold land into freehold sold the property within three years after conve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oner may record his satisfaction. The sanctioning authority must be aware that it has exercised power of extended period of limitation under 149 (1) (b) of the Act. Exception has been carved out by clause (b) to section 149(1) in respect the income chargeable to tax which has escaped assessment, amounts to Rs. 1 Lakh or more. To fall within exception clause the relevant facts should have been recorded by the Assessing Authority in its order while recording the reason so that a sanctioning authority may apply its mind to the proposition while granting the sanction. 13. The learned counsel for the department after close of the argument has filed the following judgements for consideration of this Court:- 1. GKN Driveshafts (India) Ltd. Vs. ITO [2002] 259 ITR 19/125 Taxman Taxman 963 (SC) 2. Dr. H.S. Bawa Vs. CIT, [2012] 25 Taxmann.com 15/210 Taxman 57 (P & H). 3. Vikram Kothari (HUF) Vs. State of U.P., [2011] Taxmann.com 280/200 Taxmann.com 152 (Alld). 4. Export Credit Guarantee Corporation of India Vs. Addl. CIT [2013] 30 Taxmann.com, 211 (Bom). 5. Asstt.CIT Vs. Rajesh Jhavri, [2007] 291 ITR 500/161 Taxman 316 (SC). 6. Chief Commissioner (Admn.) (U.P.) V. Kanhaiya Lal K....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the Competent Authority under Section 151 of the Act. 18. Consequently, before taking any action, the Assessing Officer is required to substantiate his satisfaction in the reasons recorded by him. If the conditions mentioned are not satisfied, then the issuance of notice would be invalid. 19. The reasons recorded by the Assessing Officer is, that the assessee had sold the property within three years after converting lease hold land to free hold resulting into short term capital gains in view of the judgment in Dr. V. V. Mody (supra). 20. The aforesaid reasons, makes it clear that the assessee was required to pay short term capital gains tax instead of long term capital gains tax and, therefore, the Assessing Officer had reasons to believe that the income had escaped assessment. In the instant case, admittedly, the notice was issued after four years but before six years. In our opinion, the reasons so recorded by the Assessing Officer was not sufficient to intiate proceedings under Section 148 of the Act. We find from the reasons recorded by the Assessing Officer that no such reasons has been recorded to the effect that the escaped income in likely to be Rs. 1 lac or more ....