TaxTMI 
TaxTMI 
2008 (4) TMI 736
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of the assessee in Jammu & Kashmir Bank Ltd., Hing Ki Mandi, Agra in the savings bank account No. 4241/43. On the basis of this information, the learned AO recorded reasons for initiating action under s. 148 of the Income-tax Act, 1961 ('the Act' for short), on 28th March, 2002 and a consequential notice was issued and served on the assessee calling for return of income in pursuance to the said notice. In compliance to notice issued under s. 148. the assessee did not file return of income and, as a result the AO duly completed the assessment under s. 144 of the Act. The AO obtained copy of bank account No. 4241 from Jammu & Kashmir Bank Ltd., Agra under s. 133(6) of the Act on 30th Jan., 2003. From the examination of the said account it was revealed that the assessee had received an amount of Rs. 2,07,384 by clearance on 7th Feb., 1995. This amount was transferred to the bank account of the assessee through cheque/draft issued from the bank account No. 8627 of M/s Maheshwari Sons, New Delhi in PNB, Karolbagh, New Delhi. The learned AO has noted in his order at p. 2 in para 2 that the Dy. Director of IT (Inv.), Gurgaon while investigating the case of Shri Shanker Hari Mah....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n not pressed. 4. I have heard both the parties on the legality of notice under s. 148. Actually the assessee had challenged legality of notice from three angles. The first being that the AO has misrepresented the reasons recorded for initiating proceedings under s. 147 while obtaining sanction from learned Dy. CIT as the reasons recorded, a copy of which is placed at page No. 1 of paper book, and the letter addressed to Dy. CIT for obtaining sanction, a copy of which is reproduced again at page No. 1 in paras 1.1 and 1.2 of the paper book, are entirely different. The second prong of the contention of the assessee on this legal issue is that the AO has initiated action under s. 147 only on the basis of information received from Dy. Director of IT (Inv.), Gurgaon. The objection of the assessee is that the AO has not applied his mind to form his belief or satisfaction which is essential requirement under s. 148(2) before issuance of notice under s. 148(1) of the Act. So, according to the assessee the notice so issued is bad in law. The third prong of legal assailment of the notice under s. 148 is that the notice was not served on the assessee as per law and was served only on the wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eturn under s. 139 of the Act. What he meant is only that the assessee failed to return bogus long-term capital gain amounting to Rs. 2,07,384 in his return so filed under s. 139 of the Act, therefore, the assessee cannot succeed on this aspect of the legal ground. 9. The second limb of assessee's legal ground is that the AO has not formed his own opinion which he required by dint of the provisions of s. 148(2) before issuance of notice under s. 148(1) of the Act. The provisions of s. 148(2) are being extracted hereinbelow for ready reference : "148 (1) ............ (2) The AO shall, before issuing any notice under this section, record his reasons for doing so." 10. From the above, it is manifestly clear that the AO is bound to record his reasons for issuing notice under s. 148(1) of the Act after forming his own opinion. It is an undeniable fact that the AO initiated reassessment proceedings on the basis of the information received from Dy. Director of IT (Inv.), Gurgaon. This fact is also corroborated from the reasons recorded by the AO itself. According to learned Authorised Representative the reopening is on the basis of information received from the Investigation Win....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the notice was served on assessee's wife. The AO recorded reason on 28th March, 2002 and sent notice to the assessee under s. 148 on 28th March, 2002 which was served on the same day. The explanation of the Department is that the service on assessee's wife was made because the time for making assessment was getting barred. 12. After hearing rival submissions the clear-cut facts which emerge are that due to short time left for making assessment the AO was in a hurry to serve the notice. The learned CIT(A) has mentioned in his order that the notice was served on the last day of the limitation. But actually it was served on 28th March, 2002 and couple of days were left behind. Sec. 149 of the Act envisages time period within which assessment has to be completed. The words used in the section refer to the limitation for 'issuance' of notice and not for 'service' of notice. It was so held by the Hon'ble Supreme Court in the case of R.K. Upadhyaya vs. Shanabhai P. Patel (1987) 62 CTR (SC) 17: (1987) 166 ITR 163(SC). It has been argued that the information from the Dy. Director of IT (Inv.), Gurgoan was received by the AO on 28th March, 2002 and on the same da....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... coexist. The service of notice is to be made on the assessee and not on any adult member of the family of the assessee as per the directions of CPC. It is true that the assessee appeared before the AO on 8th Oct., 2002 after service of notice under s. 148 on his wife. Now it has to be seen as to whether the mere appearance of the assessee after improper service of notice would absolve the requirement of law or not. The Hon'ble Allahabad High Court in Full Bench mentioned in the case of Laxmi Narain Anand Prakash vs. CST 46 STC 71(All)(FB) has held that "notice under s. 21 of the UP Sales-tax Act, 1948, was served on A, who had no concern with the assessee's firm. The assessee, however, appeared on the date of hearing in the proceedings. The question was whether the service of notice on A became immaterial because of the assessee's appearance and the proceeding under s. 21 could not, therefore, be said to be invalid. Held, that the notice under s. 21 having been improperly served, the initiation of proceedings was without jurisdiction and it could not be validated by participation of the assessee in the proceedings". It has been contended that s. 21 of the UP Sales-tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount of Rs. 2,07,384 in the absence of proper explanation of the source(s) of the said amount deposited in his bank account during the previous year relevant to assessment year under consideration. The assessee was also required to explain the source of investment appearing in his bank account No. 4241 in Jammu & Kashmir Bank Ltd., Agra in the shape of deposits of Rs. 50,000 each on 27th Aug., 1994, 14th Sept., 1994 and Rs. 30,000 on 16th Sept., 1994 by clearings. When no reply was filed by the assessee, the learned AO added the total amount of Rs. 1,30,000 to the income of the assessee as income from undisclosed sources and thus computed his total income at Rs. 4,05,904 as against returned income of Rs. 68,520. The CIT(A) has confirmed the impugned addition by expressing his opinion that the assessee has not been able to prove the genuineness of the transactions resulting into capital gains. The assessee has raised ground No. 3 in relation to this confirmed addition. 15. The other addition was deleted by the learned CIT(A). Both the parties have taken their arguments almost in the same direction as were taken before the first appellate authority. It has been submitted by the lear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s submissions dt. 9th July, 2003" 17. The learned AO replied that since the assessee has failed to produce the persons from whom he had purchased the shares and the person through whom he sold the shares, so he was convinced that the documents were not genuine. The learned AO also replied that a letter was sent to UP Stock Exchange Association Ltd. on 23rd Jan., 2004, who vide their letter dt. 28th Jan., 2004 informed that M/s Maheshwari Sons did not trade in shares of Prasidh Export Ltd. on 26th Sept., 1994 (the date of transaction shown in the bill issued to Shri Pal Singh Gulati). He did not believe in the version of the assessee that he had purchased and sold the shares on the advise of his cousin brother Late Shri Sardar Raghbeer Singh and hence he did not personally know the person from whom shares were purchased or sold. With regard to opening of account No. 8267 in Punjab National Bank, Karolbagh, New Delhi through which demand draft was received by the assessee, the statement of introducer of the account Shri Sanjay Hasija was taken in which he had mentioned that he had introduced the assessee on the request of Shri Praveen Mittal. It is true that in his statement Shri Sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....;s paper book page No. 20) along with copy of the shares have been enclosed. These documents were made available to the learned AO. Without mentioning anything about these pieces of evidences the learned AO has simply twisted the reasoning and has stuck to mere non-production of the persons for examination through whom shares were purchased and sold. In my considered opinion, the overwhelming evidences produced by the assessee go to prove that the assessee had purchased and sold 5,000 shares and had earned long-term capital gains as has been claimed and the same cannot be added as undisclosed income of the assessee. From the photocopy of these papers, enclosed in the paper book, it is conclusively proved that the assessee had actually purchased these shares through registered share broker and got them transferred in his name. After holding these shares for more than 12 months sold the same through M/s Maheshwari Sons who is a registered share broker of UP Stock Exchange Association Ltd. The purchase and sale rate on date of purchase are also proved from the quotations published in the newspaper as is evident from the copies enclosed. Therefore, it is proved that the amount of Rs. 2....