2016 (7) TMI 665 - AT - Income Tax

Invalid initiation of re-assessment proceedings under section 147 results in cancellation of subsequent proceedings.

The Tribunal found that the re-assessment proceedings were initiated based on an invalid enquiry letter and mere suspicion, which is not sustainable in ... 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 letter of enquiry, requiring the assessee, inter-alia, to produce evidence. Quod erat demonstrandum. Therefore, finding no merit in the contention of the Department that the assessment of the assessee under section 147 was preceded by the issuance of a letter of inquiry by the ITO, the same is rejected. 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 the fallacious 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 Issues Involved:1. Improper service of notice under section 148.2. Assumption of jurisdiction for re-assessment based on presumption/suspicion.3. Non-allowance of benefits for amounts received from family members and cash in hand.4. Enhancement of income without show cause notice.Issue-wise Detailed Analysis:1. Improper Service of Notice under Section 148:The appellant did not press this ground of appeal. Consequently, it was rejected as not pressed.2. Assumption of Jurisdiction for Re-assessment Based on Presumption/Suspicion:The appellant contended that the re-assessment proceedings were initiated on mere presumption and suspicion, which is not valid. The appellant relied on the case of 'Bir Bahadur Singh Sijwali vs. I.T.O.' to argue that the assumption that bank deposits constitute undisclosed income without verifying the source is fallacious. The Department argued that the issuance of an enquiry letter dated 13.03.2008 by the Assessing Officer (AO) to verify the source of cash deposits provided a reason to believe that income had escaped assessment. However, the Tribunal found that the enquiry letter did not mention the provision under which it was issued and lacked prior approval from the competent authority, making it invalid. The Tribunal concluded that the AO's belief of income escapement based solely on the information of cash deposits and the non-response to the invalid enquiry letter was not justified. Consequently, the reasons recorded for initiating the assessment proceedings under section 147 were deemed insufficient, and the proceedings were cancelled.3. Non-allowance of Benefits for Amounts Received from Family Members and Cash in Hand:The appellant argued that the CIT(A) erred in not allowing the benefit of amounts received from the mother and father, and cash in hand for making bank deposits. The Tribunal did not specifically address this issue due to the cancellation of the re-assessment proceedings under section 147, rendering this ground non-surviving for adjudication.4. Enhancement of Income Without Show Cause Notice:The appellant contended that the CIT(A) enhanced the income by Rs. 60,000 as estimated income from taxi driving without issuing a show cause notice, violating the principles of natural justice. Since the re-assessment proceedings were cancelled, the Tribunal did not need to adjudicate this ground.Conclusion:The Tribunal found that the re-assessment proceedings were initiated based on an invalid enquiry letter and mere suspicion, which is not sustainable in law. The reasons for initiating the assessment proceedings under section 147 and all subsequent proceedings were cancelled. As a result, the appeal was partly allowed, and the remaining grounds did not survive for adjudication.