TaxTMI 
TaxTMI 
2014 (10) TMI 315
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.... assessee arising out of the assessment order passed by Assessing Officer on 30/03/2005 u/s 147/143(3) of the Act i.e. I.T.A. No.419/Lkw/2011. In this appeal, the assessee has raised the following grounds: "1. BECAUSE the "CIT(A)" has erred in law and on facts in dismissing the appeal filed by the "appellant" against order dated 30.3.2005 passed by the Assistant CIT-III, Kanpur under section 147 read with section 143(3), on the ground that the said assessment order was itself set aside by the ld.CIT-1, Kanpur vide his order dated 16.11.2006 and that order was confirmed by the Hon'ble ITAT vide their order dated 25.5.2007. 2. BECAUSE the assessment order dated 30.3.2005 (supra) was "no order" in the eyes of law as the same was not based on valid assumption of jurisdiction under section 147. 3. BECAUSE in the appeal being appeal No.CIT(A)I/293/ACIT-III/2008-09/26 (as had been preferred by the '"appellant" against the order dated 30.3.2005), following grounds:- "01. BECAUSE the proceedings under section 147 have neither been validly initiated nor concluded in accordance with the provisions of law and the assessment order dated 30 th March, 2005 as has been passed i....
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....ision by CIT u/s 263 of the Act. The written submissions of the assessee are reproduced below: "In the above referred appeal the assessee/appellant has challenged the order dated 10.05.2011 as has been passed by the Ld. CIT(A)-I, Kanpur hereinafter referred to as "CIT(A)" on the following grounds:- 1. BECAUSE the "CIT(A)" has erred in law and on facts in dismissing the appeal filed by the "appellant" against order dated 30.3.2005 passed by the Assistant CIT-III, Kanpur under section 147 read with section 143(3) on the ground that the said assessment order "was itself set aside by the ld.CIT-I, Kanpur vide his order dated 16.11.2006 and that order was confirmed by the Hon'ble ITAT vide their order dated 25.5.2007". 2. BECAUSE the assessment order dated 30.3.2005 (supra) itself was "no order" in the eyes of law as the same was not based on valid assumption of jurisdiction under section 147. 3. BECAUSE in the appeal being appeal No.CIT(A)I/293/ACIT-III/2008-09/26 (as had been preferred by the appellant against the order dated 30.3.2005), following grounds:- "01. BECAUSE the proceedings under section 147 have neither been validly initiated nor concluded in accordance....
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....with the facts of the case and law applicable there to. 6. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice." 2. The facts giving rise to the said appeal (before the Hon'ble ITAT) are narrated in brief, in the form of chronology of relevant dates and events, as given hereunder:- 3. It is amply borne out from the chronology of dates and events as aforesaid and the grounds of appeal as referred to at serial No.(xi) above, that the grounds on which validity of initiation of proceedings under section 147 had been challenged in the appeal filed under section 246A, were very substantial, which went to the very root of the assessment order dated 30.03.2005 passed thereunder. 4. It is a law well settled that provisions related to initiation of reassessment proceedings are "self-contained" and in case there is any infirmity in the initiation of proceedings under section 147, all the proceedings taken in pursuance thereof (which include the assessment order also) are liable to be quashed, as discussed infra. 5. Before the appeal filed on 29.04.2005 [against order dated 30.03.2005 passed under section 147 of the Act read wit....
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....section 139(5) of the Act. During the pendency of such a "return" the Assessing Officer could not have entertained the requisite "reason to believe" in "good faith". Reliance in this regard is placed on the decision of Hon'ble Allahabad High Court in the case of Satya Narain Frasad vs. ITO, C-Ward, Varanasi reported in (1968) 67 ITR 269. A copy of the said judgment is enclosed at pages 29 to 31 marked as ANNEXURE -V hereto. 10. Otherwise also, as stated hereinfore, the "reasons recorded" are wholly deficient. It is the minimum requirement of law that, with reference to the relevant material, the Assessing Officer should record that he has "reasons to believe". In the instant case, on a perusal of the "reasons recorded" as have been reproduced in Para 2(v) hereinfore, it will be seen that the Assessing Officer had merely stated "In view of the above facts I am satisfied that income of Rs. 4,00,000/- chargeable to tax in terms of bogus gift has escaped assessment as per the provisions of s.147 of the Act. Therefore, action u/s 147 of the I.T. act 1961 is being initiated and notice u/s 148 is being issued". Nowhere the Assessing Officer has recorded that he had "reason to be....
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....tion whether the Assessing Officer had reasons to believe is not a question of limitation only but is a question of jurisdiction, a vital thing, which can always be investigated by the court in an application under article 226 of the Constitution as held in Daulatram Rawatmal v. ITO [1960] 38 ITR 301 (Cal); JamnaLal Kabra v. ITO [1968] 69 ITR 461 (All); Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC); CM Rajgharia v. ITO [1975] 98 ITR 486 (Patna) and Madhya Pradesh Industries Ltd. v. ITO [1965]57 ITR 637 (SC). The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material as held by the apex court in Ganga Saran and Sons P. Ltd, v. ITO [1981] 130 ITR 1. The expression "reason to believe" in section 147 does not mean purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the p....
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.... be held in good faith and should have a rational connection and relevant bearing on the formation of the belief and should not be extraneous or irrelevant. Further, this court in proceedings under article 226 of the Constitution of India can scrutinize the reasons recorded by the Assessing Officer for initiating the proceedings under section 147/148 of the Act. The sufficiency of the material cannot be gone into but relevancy certainly be gone into." (pages 118/119) A copy of the said judgment as a whole is enclosed at pages 38 to 47 marked as ANNEXURE - VII hereto. 12. In this respect, even the legislative intention is unequivocal as may be seen from the following passage as appearing in the Full bench decision of Hon'ble Delhi High Court in the case of CIT vs. Kelvinator of India Ltd. reported in (2002) 256 ITR 1 wherein at page 10 their lordships have observed and held as under:- ".........The Amending Act, 1987, has, therefore, rationalized the provisions of section 147 and other connected sections to simplify the procedure for bringing to tax the income which escapes assessment, especially in non-scrutiny cases. Thus, the Amending Act, 1987, has substituted a new....
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....substitution of the phraseology "reason to believe" by "opinion" of the Assessing Officer to be recorded in writing, was recalled and the old phraseology i.e. "reason to believe" was substituted. Thus, even the slightest of tinkering with the phraseology "reason to believe"/ was held to be impermissible and fatal to the very survival of the proceedings. As the "reasons recorded" in the instant case are wholly deficient to meet the requirement of law as came to be interpreted in the judicial pronouncements in umpteen number of case laws, such deficiency goes to the very root of the initiation of proceedings under section 147 and consequently the assessment order dated 30.03.2005 itself has not survived. 14. It is also very relevant to mention here that the assessee had filed objection to the validity of initiation of proceedings under section 147 vide letter dated 29.11.2004 [referred to at serial no.(vii)] of the chronology of dates and events as given in Para 2 above. The said objections were liable to be decided through a speaking order, which had not been done. Therefore/ the proceedings were liable to be quashed as per the decision of Hon'ble Bombay High Court in the cas....
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....bsequent proceedings in pursuance thereof shall also fail. Reliance in this regard is placed on an unreported judgment and order dated 06.07.2007 as has been delivered by Hon'ble Allahabad High Court in Civil Misc. Writ Petition No.555 of 2000 (Tax) in the case of Vijay Kumar Agarwal vs. ITO wherein their lordships have observed and held as under:- "In view of the aforesaid discussion we are of the considered opinion that the notice issued under section 148 of the Act was without jurisdiction and cannot be sustained and further the proceedings pursuance to such notice was also not maintainable. In view of the discussions made above the writ petition succeeds and is allowed. The impugned notice dated 08.03.1999 (Annexure-6 to the writ petition) and the proceedings consequent thereto are hereby quashed. However, in the facts and circumstances of the case there shall be no order as to costs." A copy of the said judgment is enclosed at pages 48 to 54 marked as ANNEXURE -VIII hereto. 16. To sum up, the appellant's contention is that he was legitimately entitled to have adjudication of the grounds taken by him against the validity of initiation of proceedings under se....
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.... BECAUSE initiation of proceedings under section 147 by issue of notice dated 19th March, 2004 itself was invalid and consequently all-the subsequent proceedings, which included the assessment order dated 20 th December, 2007 that has been impugned in this appeal, are wholly invalid in the eyes of law. 2. BECAUSE in relation to the first order, the learned CIT could not have exercised his revisionary jurisdiction under section 263 so as to expand the scope of the same (first order) beyond the 'satisfaction' of the Assessing Officer concerned as had been recorded at the stage of initiation of proceedings under section 147 vide notice dated 19.3.2004 (in pursuance of which first order had been passed) and consequently the second order dated 20.12.2007 is wholly illegal. 4. BECAUSE the authorities below have erred in law and on facts in holding that credits of (a) Rs. 4,00,000/- and (b) Rs. 6,00,000/- as appearing in the Capital Account of the "appellant", remained unexplained and, on that basis, in making the following additions:- (Rs.) a) Credit in Capital Account 4,00,000/- b) Expenses alleged to have been incurred in relation to the said credit ....
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....r dated 16.11.2006. In pursuance of the said order dated 16.11.2006 the Assessing Officer passed an order captioned as order "u/s 143(3)/263 dated 20.12.2007" and made various additions, particulars whereof have been given in the comparative chart appearing in Para 2 herefore. Thus, the existence of the assessment order dated 20.12.2007 (2 nd round) and various additions as has been incorporated therein, are, dependent on the validity of fist assessment order dated 30.0.2005. The said assessment order has travelled upto the Hon'ble ITAT (being ITA No.419/LKW/ll) as the CIT(A) had refused to adjudicate the validity of the proceedings under section 147 and assessment order dated 30.03.2005 made in pursuance thereof. In the said appeal (ITA No.419/LKW/2011) comprehensive submissions have separately been made, emphasizing the necessity of adjudication of the validity of initiation of proceedings under section 147 and the assessment order dated 30.03.2005 made in pursuance thereof, either by the Hon'ble Tribunal itself, or by remitted the matter back to the CIT(A) for deciding the issue in accordance with the law. 6. It is submitted that in case your honours are pleased to ac....
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....otice dated 28.2.2005 nature of credit entries appears in my saving bank account is as under:- Further during the year under consideration I received Gifts of Rs. 6,00,000/-. The complete names & addresses of the donor duly been submitted in reply dated 29.11.2004. The transactions of gift through banking channel and out of the bank .account standing in the name of the donor himself. The gifts were made voluntarily, valid gifts and without consideration. The gifts were duly accepted by the done. As per the information available with me the donor is regular income tax/wealth tax assessee. A copy of relevant assessment order dated 6.12.1999 passed U/S 143(3) for the assessment year 1998-99 and acknowledgement of Wealth tax return relating to Assessment year 1998-99 in case of Smt. Indu Agarwal are being enclosed. Further the drafts issuing branches are Vijaya Bank, Chandani Chowk, Delhi and Vijaya Bank, Vigyan Vihar, Delhi. The necessary information about the gift transactions may be called for from the bank U7S 131 of the Income-tax Act at my cost to verify the correctness7genuineness." A copy of the said letter (which was duly supported with copies of the gift deeds and....
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....er:- "9. From this it is seen that withdrawal for the household expenses are highly inadequate. Looking to the social status of the family, club membership and the fact that assessee has received huge unexplained credits which are being surrendered subsequently in the returns, the withdrawals are extremely low. The withdrawals are estimated at Rs. 1,20,000/-. Deducting therefrom the withdrawal of Rs. 56,000/- debited in the capital account the withdrawals of Rs. 64,000/- (1,20,000 - 56,000) remain unexplained and are added back to the total income of the assessee". 13. It is a settled law that without bringing on record any material or information in support of the estimate of household expenses made by the Assessing Officer, no such addition can be made as it amounts to raising a "fiction" to the "fiction" which is not permissible. The point at issue is squarely covered by the Third Member decision in the case of Raj Kumar Jain vs. Asstt. CIT reported in (1994) 208 ITR 22 (AT). A copy of the said judgment as a whole is enclosed at pages 68 to 91, marked as ANNEXURE - VI hereto. 8. Regarding ground No. 1 & 2 of the assessee, we find that this is the only objection of th....
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....that amount of Rs. 4 lac was received by the assessee which was surrendered as it was not a provable gift. He has also given a finding that during the course of assessment also, the assessee could not establish the genuineness of the gift. Before us also, the assessee could not establish the genuineness of this gift and hence, we do not find any reason to interfere regarding this addition of Rs. 4 lac made by Assessing Officer and confirmed by CIT(A). 10. The second addition was made of Rs. 6 lac as per discussion in Para 6 of the assessment order. In Para 6, it is observed by the Assessing Officer that the assessee could not give any cogent explanation except for making a reference to his earlier reply dated 29/11/2004. A clear finding is given by the Assessing Officer in the assessment order that the assessee has failed to discharge his onus as he could neither produce the alleged donors nor establish their identity by means of documentary evidence. Before CIT(A) also, the assessee could not establish the identity and creditworthiness of the donor and genuineness of the transaction. Before us also, these ingredients of section 68 could not be established and hence, we do not f....
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.... 15. In the result, the appeal of the assessee stands dismissed. 16. Now we take up the appeal of the Revenue i.e. I.T.A. No.728/Lkw/2010. In this appeal, the Revenue has raised the following grounds: "1. The Ld. Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts in deleting the addition of Rs. 58.93.881/- on account of suppressed sales without appreciating the facts and circumstances of the case and material brought on record by the Assessing Officer. 2. The Ld. Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts in deleting the addition of Rs. 49,180/- on account Interest paid on unsecured loan without appreciating the fact that the provisions under section 40A(2) of the Income Tax Act, 1961 are clearly attracted in the case of the assessee. 3. That the order of the Ld. CIT (A)-II. Kanpur dated 30.09.2010 needs to be quashed and the order passed by the Assessing Officer dated 20.12.2007 be restored." 17. Learned D.R. of the Revenue supported the assessment order whereas Learned AR of the assessee submitted that Para Nos. 14 to 18 of the written submissions are in respect of the Revenue's appeal and these para....
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....page 13 of the appellate order) 18. The Id. CIT(A) after referring to large number of material and information as were available on record, as listed at page 16 (last line) and 17 of the appellate order, held that the transactions referred to the consignment business of the assessee and commission earned thereon stood fully "recorded in the books of the appellant which has not been questioned, the same has been continuing year after year". The reconciliation submitted by the assessee was found to be valid and accordingly the addition of Rs. 58,53,881/- had been deleted. It is submitted that, after having found from a perusal of the records that the sale referred to by the Assessing Officer were the sales made by the appellant on consigned basis (consignor being Shiva Tea Co.) and commission earned on such sales (made on commission basis) stood duly recorded in the books of account which remained unquestioned, the Ld. CIT(A) has held that, any further addition on account of profit on such sales was wholly uncalled for, illegal and unjustified. Thus, the relief has been granted by the Ld. CIT(A) after recording finding of fact, and there is no such infirmity in such finding of fac....
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....e outstanding debit balances in the account of said firm is against sales made during the year under consideration. Further, no such finding is specifically mentioned by the Assessing Officer that amount out of borrowed funds were diverted as interest free funds to M/s Shiva Tea Company. Hence, the disallowance is made on assumption/estimation basis and same is factually based on wrong premises. Therefore, the AO is directed to delete the addition of Rs. 49,160/- and Grounds No. 14,15 and 16 of appeal are allowed." 19.1 From the above Para from the order of CIT(A), we find that a clear finding is given by CIT(A) that the assessee has made total sales of Rs. 239.81 lac to M/s Shiva Tea Company and the entire outstanding debit balance in the account of the said firm is against sales made during the year under consideration. He has also given a finding that no such finding is specifically mentioned by the Assessing Officer that borrowed funds were diverted as interest free funds to M/s Shiva Tea Company. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue that entire debit balance in Shiva Tea Company is on account of sales to this party. Hence, on this ....
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....ce to two years from the end of the relevant assessment year. and time limit for completion of assessment on the basis of the said revised return was available till 31.03.2004. (V) 19.3.2004 Notice of date issued under section 148 of the Act and "reasons recorded" were as under:- "During the course of inquiries made by the Add Director of Income-tax (Inv.), Unit-2, Kanpur, it was gathered that the present assessee received amounts o Rs.4,00,000/- (during F.Y. 2000-2001), which was claimed as 'gift. However, on investigation by the Addl DIT (Inv.), Unit-2, Kanpur, it was found to be part of a bogus gift racket. The alleged donor never came out for confirmation. To verify the alleged gift, summons u/s 131 were issued and served upon and the so called gift was surrendered. Information, in this regard had already been sent by the Addl. DIT(Inv.), Unit-2, Kanpur. In view of above facts, I am satisfied that income of Rs.4,00,000/-chargeable to tax, in terms of bogus gift has escaped assessment- as per provisions of. 147 of the I. T. Act, 61. Therefore action u/s 147 of the Act, 61 is being initiated and notice u/s 148 i....