TaxTMI 
TaxTMI 
2025 (4) TMI 1028
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....firming the action of ld. A.O. of initiating proceedings u/s 147 r.w.s. 148 and passing order u/s 147/144 of the Income Tax Act, 1961 without application of mind. Thus, the resultant order is against the law and deserves to be quashed. 3. Under the facts and circumstances of the case and in law, the ld. CIT (A) has erred in confirming the invocation of section 147 r.w.s. 148 of Income Tax Act for making addition of Rs. 10,17,980/- on account of time deposit without considering the facts in right perspective. Thus, the action is bad in law, thus order deserves to be quashed. 4. Under the facts and circumstances of the case and in law, the ld. CIT (A) has erred in confirming addition of Rs. 10,17,980/- without appreciating the facts of the case. Thus, the addition is contrary to the provisions of law, unjustified or excessive. 5. The appellant craves your Honor's indulgence to add, amend or alter all or any grounds of appeal before o at the time of hearing. 2. The brief facts of the case are that the assessee is an Individual. The assessee has not filed his return of income for the year under consideration as he was not having taxable income. The AO rece....
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....red u/s 139(1) of the Act, 1961whereas he is having income chargeable to tax. Hence, source of time deposit is not verifiable. In view of the above facts, I have reason to believe that income to the tune of Rs.10,17,980/- has escaped assessment for the A.Y.2011-12 within the meaning of section 147 of the I.T Act, 1961. Therefore it is a fit case for issuance of notice u/s 148 of I.T. Act, 1961". 2. The appellant, during the appellate proceedings, had raised his objection to the reason recordedby the Ld. AO and contended that the reasonsrecorded are vagueand suffer from following infirmities: a. Reasons recorded does not contain date; b. neither the bank name nor the bank account number in which such amount was deposited is mentioned; c. nature of time deposit and its bifurcation into principal amount and interest amount is missing; d. source of time deposit is missing; e. the Ld. AO has not recorded anything with regard to the material on the basis of which the reasons and conclusion was formed; 3. However, the Ld. CIT(A) dismissed the contention of the appellant by observing that the Ld. AO had sufficient info....
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.... IT Act, 1961 alongwith showcause notice were issued on 27.7.2018 requiring to furnish return of income, but no any compliance was made by the assessce, again a apportunity granted byissuing notice u/s 142(1) dated 1.11.2018 hearing fixed on dated 8.11.2018 but no reply was filed against this notice, Final Show cause notice u/s 144 along with notice u/s 142(1) regarding to pass exparty assessment as material available a on record was issued on 22.11.2018 to explain the time deposit in saving account total Rs. 10,17,980/-,but no any compliance was made. Hence this was clear seems that the assessee was not interested to fumish any evidence/explaination in his defence against addition of Rs. 10,17,980/- in his total income of the assessee. It was clear attitutude of the assessee, that he was non cooperative with the department. The case was barred by limitation period and sufficient apportunities were provded to the assessee as per I.T.Act, but no option but to complete the assessmentas exparty u/s 144 of the IT Act. 1961 and order passed by the then AO and demand created of R.s. 4,59,7,20/- on 30.11.2018 and issued penalty u/s 271(1)C and 271(1)(b) and 271F for not filing of IT Retur....
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....hat the Ld. AO has not applied his mind before invoking section 147 of the Act in the current case. Further it also proves that the Ld. CIT(A) has also not applied his mind while addressing the ground of appeal of the appellant otherwise he would have examined the contents of the remand report to verify the claim of the appellant. 7. It is noteworthy that it is a settled position that reasons cannot be substituted and the reasons are required to be read as they were recorded by the AO. In the current case, firstly only information was available with the Ld. AO. Further, only information available with the Ld.AO at the time of recording reasons was that the appellant had deposited Rs. 10,17,980/-, however, no basis/ material viz bank name, bank account number, bifurcation of principal and interest amount etc., was referred in the said reasons recorded to determine as to how the Ld. AO reached to this conclusion that the said deposits represent income, alleged income is chargeable to tax and has escaped assessment. Further, the reasons recorded does not disclose the Ld. AOs mind as to what was the nature of alleged deposits and what was included in the alleged amount of Rs. ....
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....idence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced". 8. Your honor would appreciate that reasons are the foundation of making assessment u/s 147and such reasons must be self-evident and must speak for themselves and should not be vague or incomplete. The reasons should also contain all the necessary details/ informationfor arriving at the conclusion that the income has escaped assessment. Under the current case, the Ld. AO just completed his duty by simply stating that he has 'information in his possession' without specifying the kind and nature of information. In the current case, the reasons recorded are unclear and lacks the essential ingredients to be classified as 'reason to believe' which indicates that the Ld. AO and the Ld. CIT(A) has just acted on borrowed information without any independent enquiry and applica....
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....sh deposit in bank account but there was no material much less tangible, cogent, credible and relevant material to form a reason to believe that cash deposits represented income of the assessee. The reasons recorded in the present case at best can be treated to be reasons to suspect which is not sufficient for reopening the assessment u/s 148 of the Act. The requirement of application of mind is missing in the present ease on the face of it in the reasons recorded. • ITAT Delhi in the case of Bir Bahadur Singh Sijwali Vs ITO, ITA No. 3814/Del/2011, held that "in the case before us the only reason for reassessment proceedings was the fact of deposit of bank account which by itself does not lead to income being taxed in the hands of the assessee. Learned Departmental Representative has referred to several other judicial precedents in support of the proposition that at the stage of initiation of reassessment proceedings, all that is to be seen as existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. To us, there cannot be any, and there is no, doubt on the correctness of this proposition but then, as we hav....
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.... of fact also lead to the consequential reopening by the AO without verifying the record available with the AO as filed by the assessee being return of income and the other details and record along with return of income. Thus, it is clear that the AO reopen the assessment under wrong presumption of fact and without verifying the material information already available with the AO in the shape of return of income filed by the assessee. This fact of filing of return was also recorded by the learned Commissioner of Income-tax (Appeals) at Page 3 of the impugned order. Further, the recourse of reopening u/s 148/147 is not to first issue the notice and then to proceed to investigate and find out if there was income assessable to tax which has escaped assessment rather it is pre requisite for issuing the notice u/s 148 that the AO on the basis of tangible material and information has legitimate reason to believe that income assessable to tax has escaped assessment. The belief must be based on a material which has direct nexus to the income assessable has escaped assessment and should not be guess work and to ascertain the same through the process of investigation. The provision of section....
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....erial and information to form the believe that the income assessable to tax has escaped assessment. In view of the facts and circumstances as well as the decisions relied upon by the AR, the reopening is in the case of the assessee is not valid and the same is quashed. Since the reopening of the assessment held to be invalid therefore other grounds of the appeal become infractuous." • ITAT Delhi, in the case of Harmeet Singh vs. ITO, ITA No. 1939/ Del/2016 held that: "8. After going through the reasons recorded by the ITO, Ward-36(1), New Delhi Rewari, I am of the view that there is no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee; that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction; that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of i....
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..... Impugned notice dated 27.03.2015 is quashed. Petition is disposed of." Under the facts and circumstances, conclusion of escapement of income has been drawn based on suspicion and without application of mind both by the Ld.AO and Ld. CIT(A)hence, initiation of re-opening proceeding deserved to be quashed. B. Mechanical Approval Granted by PCIT: 1. The Ld. CIT(A) dismissed the legal plea of the appellant that the approval was granted mechanically by Ld. PCIT by stating that "the date of approval is also categorically mentioned in the remand report".Here also the Ld. CIT(A) has referred remand report instead of copy of approval which indicates that the whole case has been addressed by the Ld. CIT(A) without application of mind. 2. Further, section 151 of the Act contains certain safeguards to prevent arbitrary exercise of power by an assessing officer in assessing income of the assessee u/s 147 of the Ac and recording of satisfaction, by specified authority, with regard to the reasons recorded by the assessing officer for issuance of notice u/s 148, is one of such safeguards. Accordingly, no notice u/s 148 shall be issued by the assessing officer ....
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.... "The observations of the Hon'ble High Court are very much relevant in the instant case as in the present case also the Commissioner has simply mentioned "approved" to the report submitted by the concerned AO. In the light of the ratios/observations of the Hon'ble High Court mentioned hereinabove, we have no hesitation to hold that the reopening proceedings vis-à-vis provisions of Sec. 151 are bad in law and the assessment has to be declared as void ab-initio. Ground No. 1 of assessee's appeal is allowed" 8. In support of our contention, we further rely upon the following case laws: • CIT Vs S Goyanka Lime & Chemical Ltd. (2015) 64 taxmann.com 313 (SC) "Section 151, read with section 148 of the Income-tax Act, 1961 - Income escaping assessment - Sanction for issue of notice (Recording of satisfaction) - High Court by impugned order held that where Joint Commissioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice under. section 148, reopening of assessment was invalid - Whether Special Leave Petition filed against impugned order was to be dismissed - Held, yes [In favour of ass....
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....and duly considered facts of the case in the light of the applicable legal position. There is no dispute that the assessee has not filed any return of income under section 139(1) and the AO has initiated the proceedings under section 148 on the basis of information in his possession that assessee has made time deposit of Rs. 10,17,980/- in his bank account during the assessment year 2011-12. The AO, therefore, on the basis above reason believed that there is an escapement of income to the extent of Rs. 10,17,980/- on the part of the assessee for the AY 2011- 12.From the reasons recorded by the AO, it is gathered that reasons recorded does not contain date, neither the bank name nor the bank account number in which such amount was deposited is mentioned, nature of time deposit and the source of time deposit. The AO has also not recorded anything with regard to the material on the basis of which the reasons and conclusion was formed and on the basis of vaguereasons initiated proceedings under section 147 by issuing notice under section 148 of the Act. The objection of the assessee that the reasons recorded are vague and suffer from infirmities mentioned above and the ld. CIT (A) dism....
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....e the AO's mind as to what was the nature of alleged deposits and what was included in the alleged amount of Rs. 10,17,980/-. Furthermore, even the content of the remand report dated 07.11.2019 indicate that the AO did not verify the correctness of the information received by him and did not record his satisfaction that a case can be made out for issuing notice under section 148. Therefore, what has been recorded by the AO as 'reasons to believe' is nothing more than a vague information, further, the said reasons cannot be substituted subsequently by way of remand report. It is well settled in law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor anything can be deleted from the reasons so recorded. Hon'ble Bombay High Court, in the case of Hindustan Lever Ltd. vs. R.B. Wadkar (2004) 268 ITR 332 (Bom.) has, inter alia, observed in para 21 of its order as under :- " 21. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment ....
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..... Therefore, there was no tangible material in possession of the AO leading to the belief that income has escaped assessment. The AO has failed to establish any live nexus between the information and formation of belief that the time deposit represents income of the appellant and such income has escaped assessment. Merely time deposit in the bank itself would not lead to the conclusion or belief that the said amount is assessable as income and has escaped assessment. The AO has simply concluded that since the appellant made time deposit of Rs. 10,17,980/-, he has escaped income to the extent of Rs. 10,17,980/- within the meaning of section 148 of the Act. In the present case, the amount of Rs. 10,17,980/- alleged to be the income of the appellant, is the transfer of amount from bank account of the appellant to his Fixed Deposit accounts (PBP 3-4). Furthermore, the said amount also includes interest accrued on such FD amount. However, the AO have merely acted upon the AIR information without even verifying by way of an independent enquiry, the source, nature and component of such time deposit. The ld. CIT (A) has also not verified the said fact before arriving at the conclusion. ....
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....n notice for reopening for scrutinized assessment is issued beyond the period of four years, twin conditions to be satisfied are that the Assessing Officer has some tangible material to form a belief that income chargeable to tax has escaped assessment and further that such escapement was due to failure on part of the assessee to disclose truly and fully all material facts. When first of these conditions is not satisfied, merely because the assessee failed to disclose the sale transaction would not by itself give authority to Assessing Officer to reopen the assessment. 13. In the result, petition is allowed. Impugned notice dated 27.03.2015 is quashed. Petition is disposed of." Nadeem Hasan vs. ITO, Ward-46(4), New Delhi in ITA No.445/Del/2020 dated 18.05.2022 ITAT, Delhi: 14. On going through the reasons recorded by the AO, I find that there is no nexus between the prima facie inferences arrived in the reasons recorded and the information. The information was restricted to cash deposit in bank account but there was no material much less tangible, cogent, credible and relevant material to form a reason to believe that cash deposits represented income of t....
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....ed any return income for the year under consideration. This wrong assumption of fact also lead to the consequential reopening by the AO without verifying the record available with the AO as filed by the assessee being return of income and the other details and record along with return of income. Thus, it is clear that the AO reopen the assessment under wrong presumption of fact and without verifying the material information already available with the AO in the shape of return of income filed by the assessee. This fact of filing of return was also recorded by the learned Commissioner of Income-tax (Appeals) at Page 3 of the impugned order. Further, the recourse of reopening u/s 148/147 is not to first issue the notice and then to proceed to investigate and find out if there was income assessable to tax which has escaped assessment rather it is pre requisite for issuing the notice u/s 148 that the AO on the basis of tangible material and information has legitimate reason to believe that income assessable to tax has escaped assessment. The belief must be based on a material which has direct nexus to the income assessable has escaped assessment and should not be guess work and to ascer....
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....etected and therefore it was found that the AO was having the sufficient material and information to form the believe that the income assessable to tax has escaped assessment. In view of the facts and circumstances as well as the decisions relied upon by the AR, the reopening is in the case of the assessee is not valid and the same is quashed. Since the reopening of the assessment held to be invalid therefore other grounds of the appeal become infractuous." ITAT Delhi, in the case of Harmeet Singh vs. ITO, ITA No. 1939/ Del/2016 held that: "8. After going through the reasons recorded by the ITO, Ward-36(1), New Delhi Rewari, I am of the view that there is no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee; that the proceedings initiated are based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction; that the reasons recorded are highly vague, far-fetched and cann....
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.... [Explanation, - For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner of the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.]" A simple reading of the provisions of section 151(1) with the proviso clearly show that no such notice shall be issued unless the Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issue of notice which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the AO. In the present case, the "Performa for Recording Reasons" prepared by the AO, which is placed on record show that the Commissioner has simply affixed "Approved" at column no. 13.Nowhere the ld. PCIT has recorded his satisfaction. The reasons recorded in the "Performa for Recording Reasons" also bear no date. Therefore, merely stating "Approved" at the proposal prepared by AO cannot be termed as a ....
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....be dismissed - Held, Yes (In favour of assessee) 2) Hon'ble MP High Court in the case of CIT, Jabalpur vs. M/s. Goyanka Lime and Chemicals Ltd. (ITA No. 82 of2012) held as under : "7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so"Yes, I am satisfied". In the case of Arjun Singh (supra), the same questionhas been considered by a Coordinate Bench of this Court and the following principles are laid down :- " The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format "Yes, I am satisfied" which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material." 8. If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint C....
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....the total income of the assessee. On appeal before the ld. CIT (A), he dismissed the appeal of the assessee by observing as under :- " The appellant has not been able to give any documentary evidence regarding sources of agricultural income or other documentary evidence pertaining to relevant financial year which can establish the source of impugned time deposits. Therefore, the nature and source of the impugned time deposits have not been satisfactorily explained with any kind of documentary evidence for the relevant financial year before NFAC inspite of repeated opportunities. " ... The addition has been rightly made by the AO as the appellant had made time deposits in his bank account and has failed to explain the nature and source of the same satisfactorily." 8. Before us, the ld. A/R of the assessee has submitted his written submissions as under : 1. "At the outset, the appellant wants to attract your honor attention to the assessment order and the appellate order where no reference of section under which addition has been made, under the current case, has been made. Hence, the addition deserves to be deleted on the mere ground of non-mentioning o....
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....es of sales invoices issued for sale of farm land produce(PBP: 8 - 10). In the said response, the appellant stated that the source of time deposit of Rs. 10,00,000/- is the agriculture income generated from such farm land. Here, it is pertinent to note thatneither the Ld. AO nor the Ld. CIT(A) has denied ownership of agriculture land and has also not brought anything on record to show that appellant was having any other source of income. 4. With regard to the claim of the Ld. CITA() that "whatever submission and evidence has been submitted by the appellant are for the current FY", your honor would appreciate that it is a settled practice in the society of not maintaining invoices of sales since these agriculture incomes are exempt from income tax. Accordingly, it has been held by various court that in the absence of any evidence contrary, the agriculture income estimated and offered by assessee has to be accepted. In this regard, we rely on the following case laws: Hon'ble Gujarat High Court in the case of ITO Vs Ashwin D Metha (HUF) (2014) 12 TMI 1391 held as follows: "The Commissioner of income Tax (Appeals) has held that since the agricultural income h....
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....nt had accumulated fund over the period of time since it is a general practice of a person to save money in bank. Further, the appellant had, in its very first reply dated 23.07.2023, submitted the he had savings from Indian Navy Service and the time deposit were made from the agriculture income gathered over the time. Therefore, the source of time deposit was very well explained by the appellant and neither the Ld. AO nor the Ld. CIT(A) had brought any record to suggest that the appellant was not serving in the Indian Navy or have any other source of income.Therefore, the addition deserves to be deleted since the time deposit was made from the available fund out of past savings and the said factum cannot be ruled out in the current case. In this regard, we rely on the following case law: The Hon'ble ITAT, Jodhpur Bench, Jodhpur in the case of Ayodhya Jajra Vs CIT(A) [ITA No. 43/JODH/2022] dated 08.04.2024 held as under: "We note from the copy of cash book filed by the assessee that the assessee has out of the earlier year saving has shown opening cash of Rs. 9,50,597/- which is also supported by the various year accumulated income shown by the assessee since 1998....
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....vision of law makes the impugned addition bad in law. We note that the Coordinate Bench of the Tribunal, Jaipur in the case of Shri Ram Lal vs. ITO in ITA No. 265/JP/2024 dated 08.08.2024 held that non-mentioning the precise provision of law makes the entire impugned addition bad in law. Relevant extracts are reproduced as under :- " .......However, the ld. A/R of the assessee submitted before the Bench that the order of Authorities assessment as well as order of the ld. CIT (A) lacks clear reference to the specific sections under which the addition is made. After perusal of the record, the Bench also found that no specific section has anywhere been mentioned by the Revenue Authorities for making addition....... ...... Therefore, considering the above judgements and also considering the fact that no specific section has any where been mentioned for making impugned addition, the Bench is of the view that non-mentioning the precise provision of law makes the entire impugned addition bad in law. In this view of the matter, the appeal of the assessee is allowed." The Coordinate Bench of the Tribunal, Delhi in the case of Smt. Sudha Loyalka vs. ITO in ITA No. 399/De....