TaxTMI 
TaxTMI 
2021 (5) TMI 960
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....ment is not justified. 2 The Learned C.I.T. (A) has erred in confirming addition of Rs. 51,28,143/- made on account of alleged un-explained expenditure in executing contract, while assessee has satisfactory explained nature of work and payments. Hence addition made is not justified. 3 The Learned C.I.T. (A) has erred in disallowing claim of 80C Rs. 10,000/- in spite of evidence available at (APB-20-21). The assessee has also taken additional ground, which reads as under: Additional Ground No. 1 B Ld. Assessing Officer erred in law by making addition on some other grounds, while not making any addition in the assessment order on the primary issue which led to the reopening of assessment. Ld. AO did not have valid jurisdiction to make addition on some other grounds not forming part of the reasons recorded u/s 148(2), if no addition is made on the primary / basic issue, for which the reopening was initiated. Additional Ground No. 1C Ld. Joint CIT, Range-4, Jaipur has merely mentioned -Yes' at Serial No. 12 in the printed form for seeking his satisfaction u/s 151 on reopening reasons, which signifies non-application of mind on the reasons recorded by Ld. AO, and appr....
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....( Rs. 17,50,000/- in AY 2010-11 & Rs. 53,95,000/- in AY 2011-12),", Whereas, the addition in the assessment order has been made for `Unexplained Expenditure' in executing contract works met from undisclosed sources of income. Above sequence of events leading to notice u/s 147, are a clear case of a `Borrowed Satisfaction', instead of forming own independent satisfaction by the Ld. AO while recording the reasons. Thus, the reopening u/s 147 was solely based on hearsay, surmises & assumptions of Ld. AO. 1.2 `CAUSE-EFFECT' LINK IN THE MATERIAL AVAILABLE AND REASONS RECORDED IS MISSING 1.2.1 Reasons to believe cannot be reasons to suspect. There must be a direct nexus between the material coming to the notice of the assessing officer and the formation of the belief therefrom for escapement of income. 1.2.2 Threadbare Analysis of the recorded reasons reveals that reasons have two parts to it: (a) First Part: Ld. AO has reproduced the precise information which he has received from the ITO, Ward 3(2), Jaipur. i) This information is in the form of details of the amount lent by assessee to Smt. Pooja Agarwal. ii) Reasons further mention "As per AST system, it has been found ....
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....li Khan Bahadur (1974) 97 ITR 239 (SC)]. 1.2.4 Heart of the Section 147 is the formation of belief by the Assessing Officer that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. This is the bare minimum mandatory requirement of the first part of Section 147(1) of the Act. Merely saying that `loan has been advanced' or `ITR has not been filed', without disclosing the reasons, which led the assessing officer to hold such a belief, does not confer valid jurisdiction on the Assessing Officer to take action u/s 147 and 148 as held in the case of Birla VXL Ltd. v. ACIT (1996) 217 ITR 1 (Guj.) 1.2.5 In ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), the Hon'ble Supreme Court affirmed the decision of the High Court and held that there was nothing to show in the confession made by a third party related to the loan taken by the assessee much less a loan which was shown to have advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provi....
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.... exceeded the maximum amount which is not chargeable to income tax. Therefore, reliance on `Explanation 2(a)' for deeming the escapement is a post-reopening improvement of reasons by the Ld. AO in the disposal order. Subsequent improvement in the reasons is not permissible. 1.3.4 Second part of the disposal communication mentions: "Further, the loans advanced by you were also not subject to verification" Notice under section 148 cannot be issued for verification of information. Of course, it may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escaped assessment. If primary burden u/s 148 lying on AO remains un-discharged then entire proceedings shall crumble (refer latin maxim sublato fundamento cadit opus meaning once foundation fails super structure falls). Therefore, Your honors may please hold the entire proceedings without jurisdiction and void. Additional Ground No. 1B Ld. Assessing Officer erred in law by making additi....
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....n section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 47(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh's case (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1) as they stood after the amendment of 1-4-1989 continue ....
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....f Delhi held in the case of Ranbaxy Lab. Ltd. Vs. Commissioner Income Tax [2011] 336 ITR 136: "The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make dis-allowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per explanation 3 to reduce the claim of deduction under Section 80 HH and 8-I as well. 21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of Revenue and the second part of the question against the Revenue." ....
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....rded by the Assessing Officer. As discussed above, that the reasons were defective, borrowed, without having any cause-effect relationship and live link was missing. Section 151 of the Act provides a safe-guard that the sword of section 147 of the Act may not be used unless the competent statutory officer is satisfied that the AO has good and adequate reasons to invoke the reopening provisions. As per the mandate of section 151 (2) of the Act, the Competent Authority has to examine the reasons, material or grounds on which the reopening is sought to be based and to judge as to whether they are sufficient and adequate to the formation of the necessary belief of escapement of income from taxation on the part of the AO In the case of assessee, Ld. Joint CIT has just mentioned `Yes' in the relevant place (See PB No. 35) for indicating his satisfaction without elaborating the justification of reasons for reopening. This indicates mechanical satisfaction of Ld. Joint CIT, without application of mind, which is not the sufficient compliance of Section 151. Law on this point is now well settled that mechanical satisfaction is not sufficient. a) In Chhugamal Rajpal Vs S.P. Chaliha, 79 ....
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....s. 6. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. As per facts of the present case, the reopening proceedings were initiated by the A.O. by recording the following reasons: "An information was received from ITO, Ward 3(2), Jaipur's letter No. 311 dated 14/07/2014 that during the course of asstt. Proceedings in the case of Smt. Pooja Agarwal for AY 2011-12 it was found that Shri Vijay Kumar Agarwal had given total unsecured loan of Rs. 71,45,000/- (Rs. 17,50,000/- in AY 2010-11 & Rs. 53,95,000/- in AY 2011-12). As per AST System it has been found that Shri Vijay Kumar Agarwal has not filed his return of income for AY 2010-11 and 2011-12. Looking to the facts mentioned above, I have reasons to believe that the income to the extent of Rs. 53,95,000/- has escaped assessment for the A. Y. 2011-12 within the meaning of Section 147 of the IT Act, 1961. Therefore it is a fit case to issue notice u/s 148 of the IT Act, 1961" From the r....
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....lief of escapement is founded by the A.O. In our view, there has to be some kind of cause and effect relationship between reasons recorded and the income escaping assessment, therefore, the A.O. was required to point out what he found when he went through the information/examination. In other words, what in such information led him to form the belief that income had escaped assessment. The A.O. should have arrived at a subjective satisfaction independently on an objective criteria, in our view, the belief may be subjective but reasons has to be objective as has already been held by the Hon'ble Allahabad High Court in the case of Ganga Prasad Maheshwari Vs CIT (1983) 139 ITR 1043 wherein it was held that the expression 'reason to believe' occurring in section 147 does not mean a purely subjective satisfaction on the part of the ITO, the reasons for the belief must have a rational connection or relevant bearing to the formation of the belief. The said proposition has already been upheld by the Hon'ble Supreme Court in the case of ITO v. Nawab Mir Barkat Ali Khan Bahadur (1974) 97 ITR 239 (SC). 8. Heart of the Section 147 is the formation of belief by the A.O. that income has escaped....
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....t income from bank Rs. 3620/- From the above we noticed that no addition for Rs. 53,95,000/- being loan given forming the main `reason for escapement of income' u/s 147 of the Act has been made by the AO and instead, the additions have been made on new different grounds, it can be very fairly said that reasons recorded did not exist and hence the assessment framed u/s 147 read with section 143(3) of the Act deserves to be quashed. The A.O. had no jurisdiction to travel beyond the reasons for reopening the assessment. This contention of assessee is based on well settled law and a few judgments in support, including binding judgments of Hon'ble Jurisdictional Rajasthan High Court, are as under: a) Hon'ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd reported in 331 ITR 236 has held in concluding para No. 17 of the order, that "17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 47(1) as it stands ....
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....income to have escaped assessment, however during reassessment proceedings, that income was not found to have escaped assessment, but then on the basis of certain other material, certain other incomes were found to have escaped from assessment to tax, and therefore, reassessment had been made. As such, the question precisely is, as to whether in case where despite existence of material on record, to arrive at a conclusion about escapement of certain income from assessment, in the reassessment proceedings where such income is not found to have escaped assessment, it is open to the Assessing Officer to complete the reassessment proceedings, by finding some other income, to be liable to be subjected to tax, which is found by the Assessing Officer, in the reassessment proceedings, to have been required to be taxed in the original assessment. Following the aforesaid judgment in Ram Singh's case (supra), the questions are answered against the revenue, and in favour of the assessee." d) Hon'ble High Court of Delhi held in the case of Ranbaxy Lab. Ltd. Vs. Commissioner Income Tax [2011] 336 ITR 136: "The very basis of initiation of proceedings for which reasons to believe were reco....