TaxTMI 
TaxTMI 
2006 (10) TMI 191
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....ent. 3. acting beyond his jurisdiction in illegally quashing the assessment order while ignoring the ratio of decisions in the cases of Phool Chand Bajrang Lal & Anr. vs. ITO & Anr. (1993) 113 CTR (SC) 436 : (1993) 203 ITR 456 (SC) where it has been held that sufficient reasons and belief of the AO is not for the appellate authority to judge and also of the apex Court in the case of ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC) holding that the formation of the belief by the ITO is essentially, within his subjective satisfaction. 4. holding that the proceedings under s. 142(2A) of the IT Act, 1961 was also not as per law laid down and the assessment order was barred by limitation, ignoring the fact that the assessee was asked to get his books of account audited from M/s Kalani & Co., Jaipur, after obtaining necessary approval from the CIT, Jaipur-III, Jaipur and the directions for getting books of account audited was served upon the assessee on 28th Feb., 2003 (as evident from the service placed on record) and accordingly the AO completed assessment on 28th Aug.,2003, i.e., within 180 days from service of directions. 5. holding th....
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....hat assessee was not maintaining regular books of account, hence return did not show the real picture, then the assessee, vide letter dt. 27th Feb., 2003, was directed to get his books of account audited by M/s Kalani & Co., who had submitted their report on 30th June, 2003 pointing out some discrepancies in balances of creditors and debtors. The assessee, vide letter dt. 8th July, 2003, was asked to explain the reasons for such discrepancies/defects pointed out by the auditor. The assessee questioned the validity of the auditor's report and also the validity of initiation of proceedings under ss. 147 and 148 of the Act. The AO was not agreeable to the same and invoking the provisions of s. 145 of the Act, rejected the books of account and proceeded to estimate the income on the basis of material available on record. He doubted the creditworthiness of the creditors whose confirmations were filed by the assessee and some of them were also produced before him. The AO, accordingly, assessed the income of the assessee at Rs. 48,63,450. The assessee went in first appeal, wherein he succeeded on the issues of validity of notice issued under s. 148 of the Act and reference for special aud....
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....y be more than Rs. 50,00,000. For taking an action under s. 147/148, r/w s. 149, it is the amount of income, which is relevant and not the amount of deposits, inasmuch as, s. 147 uses the words 'escapement of income' and not 'escapement of deposits'. The learned CIT(A), therefore, rightly recorded a finding that no amount at all was mentioned or, in other words, the alleged escapement was not at all quantified. In this regard, he placed reliance on the decision of Jaipur Bench of the Tribunal in the case of ITO vs. Satya Narayan Parwal (2005) 98 TTJ (Jp) 432 : 33 Tax World 89 (Jp), wherein the decision in the case of Uttam Chand Nahar vs. ITO (2002) 77 TTJ (Jd) 69 : 28 Tax World 435 (Jd), which is squarely applicable on the facts of the present case. He also placed reliance on the following decisions: 1. Manik Chand Nahata vs. ITO (1970) 78 ITR 204 (Cal); 2. ITO vs. Smt. Chakka Bal Baid (1985) 23 TTJ (Jp) 334 : (1986) 15 ITD 328 (Jp). The learned Authorised Representative submitted that under s. 149(1)(b), the prescribed limitation is 4 years and in the case of income exceeding Rs. 1,00.000, the limitation is 6 years. A notice under s. 148 was served on 26th March, 2002. Accordi....
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....e deposits or some of them, in fact, represented income that too undisclosed income, then only the AO could have a reason to believe of escapement of alleged income. The AO has not referred any material in the reasons recorded, except the books of account, so as to remotely support his case that there was some income, which escaped assessment. Interestingly for the asst. yrs. 1997-98 to 2000-01, the books of account were impounded on 7th Nov., 2001, whereas notice under s. 148 was also issued on the same very date i.e. 7th Nov., 2001. One can, thus, imagine as to how an AO could have gone through the books of account so as to reach even a prima facie belief that there was some escapement of income so as to necessitate such a drastic action. A perusal of the survey report included in the paper book filed by the Revenue at page No. 25 makes it clear that there was no material at all before the AO on 7th Nov., 2001, when he recorded the reason for asst. yrs. 1995-96 and 1996-97. Perusal of survey report shall reveal that at the bottom of it, it has been alleged that the assessee claimed huge losses due to interest with reference to the return of income filed for asst. yr. 1995-96. Int....
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.... 3.8 The learned Authorised Representative on the reliance of the Revenue on the decision in the case of ITO vs. Selected Dalurband Coal Co. (P) Ltd., submitted that in that case, there was a letter from the Chief Mining Officer, who on a joint inspection alleged that there was a case of underreporting of the coal raised. It was on this basis the AO issued a notice making out a case under s. 147 of the Act. It was on that basis the Hon'ble Court held that such a letter could constitute the basis for the formation of requisite belief under s. 147 of the Act and the reassessment notices were held to be valid. The facts of the present case are, thus, distinguishable. 3.9 Considering the arguments advanced by the parties as mentioned above, we agree with the findings of the learned CIT(A) that provisions under s. 147, r/w s. 148 of the Act cannot be invoked to make further enquiry in a case but the foremost requirement for invoking these provisions is to record reasons to believe on the part of the AO that some income has escaped assessment. Thus, at least a prima facie belief must be reflected in the reasons that some taxable income of assessee has escaped assessment. It is not othe....
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....c. A mere allegation or suspicion is not at all sufficient and permissible even for a small addition/disallowance during the course of a regular assessment and more particularly in case of proceedings under s. 147, as rightly observed by the learned CIT(A). He also discussed about the possibility of generation of undisclosed income in the present case in para No. 2.6 of the first appellate order with this observation that the AO has not at all estimated the turnover to such an extent so as to result in income to the extent of Rs. 50 lakhs. In this regard, reference has been made to page No. 4, para No. 1 of the assessment order where the AO has not disturbed the declared turnover of Rs. 8,48,466, yet he suspected that there was an escapement of income to the extent of a huge amount of Rs. 50 lakhs. It has been further observed that the assessee being a person of 90 years, running, a small Kirana Shop in a remote village of Shekhawati of Rajasthan and whose turnover admittedly ranging between Rs. 8 to 15 lakhs are some of the vital facts, in the light of which no honest person of a reasonable prudence would have thought of escapement of income of Rs. 50 lakhs. 3.10 Regarding the ti....
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....o raise objection, if any, against the audit report. The learned CIT(A) was, thus, not justified in holding the reference for special audit report under s. 142(2A) as invalid. 4.2 On the other hand, the learned Authorised Representative justified the first appellate order while reiterating the contentions raised before the lower authorities. 4.3 After considering the arguments advanced by the parties in view of the orders of the lower authorities, material available on record as well as the decisions relied upon by them, we do not find reason to interfere with the first appellate order. The contentions of the assessee remained that under s. 142(2C) at the first instance the assessee is required to file audit report within the stipulated period, if there is any. Assuming there was a period i.e. upto 30th April, 2003, the further period could have been extended by the AO under the proviso below s. 142(2C) on the condition that the assessee approached the AO by way of an application seeking extension and that too for a good and sufficient reason. The assessee, in the present case since very beginning, treated the audit as nullity and hence there was no question of seeking any extens....
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.... this entire exercise. The AO, at a very later stage when he came to know of this serious lapse on his part, had proceeded to make efforts to regularize the accounts and to make good the lapses, went even to the extent of manipulating/fabricating the record at their end as the AO, at page No. 1 of the assessment order has stated having issued a letter No. 602, dt. 27th Feb., 2003, a copy whereof has been placed at page No. 11 of the paper book, to the assessee directing him to get the accounts audited, which is not correct and this mentioning of incorrect finding of fact raises a serious doubt. It was submitted that the perusal of record shows that the AO, vide letter dt. 27th Feb., 2003, No. 602, addressed to the assessee, has mentioned that M/s Kalani & Co. has been assigned the task of audit and the assessee has been requested to make the vouchers, etc. available for audit. A copy of this letter has been endorsed to M/s Kalani & Co., chartered accountant and to Shri Sunil More, also whereas this letter has been actually served upon the Authorised Representative on 8th April, 2003 only, however, this letter has been actually served upon the assessee on 9th April, 2003 only. There....
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....s Authorised Representative both got the letters directing audit only on 8/9th April, 2003, it appears, even prior to this the auditor had already completed his job. It was submitted further that the AO alleged that the assessee co-operated in the audit and also supplied the requisite information to bring home the point that there was a valid audit carried out under s. 142(2A). It was submitted that the assessee vide letter dt. 30th June, 2003, a copy whereof has been placed at page No. 36 of the paper book and 18th Aug., 2003, a copy whereof has been placed at page No. 50 of the paper book, had agitated that the audit has been got completed by the Department itself and they never supplied any information to M/s Kalani & Co. for this purpose. The learned Authorised Representative alleged that the matter was going between the Department and the auditor only and there was nothing made known to the assessee neither any communication nor any direction was given to it. As an alternative plea, it was submitted that even assuming that letter dt. 27th Feb., 2003 was served upon the assessee directing for an audit, there were other serious lapses bringing the case out of s. 142(2A). Firstly....