TaxTMI 
TaxTMI 
2006 (10) TMI 172
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....elate to confirmation of initiating penalty proceedings under section 271(1)(c) and charging of interest under sections 234A and 234B. The grounds raised by the assessee read as under : "1.1 That the proceedings under section 147 are bad in law and facts having been initiated on suspicion and without application of mind. 1.2 That the proceedings under section 147/148 are without jurisdiction and bad in law and facts. 1.3 That the learned Commissioner of Income-tax (Appeals) erred in holding the action under section 147 taken by the Assessing Officer was correct. 2.1 The learned Commissioner of Income-tax (Appeals) erred in not holding that the Assessing Officer's order was bad having been passed in haste and without proper opportunity. 2.2 That the assessment order is initiated having passed on basis of invalid return and invalid reopen of case. 3.1 The learned Commissioner of Income-tax (Appeals) erred in confirming the addition of Rs. 6,00,000 towards bogus purchase from M/s. Saraf Medicinal Botanical Garden. 4.1 The learned Commissioner of Income-tax (Appeals) erred in confirming action of the Assessing Officer i....
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....icer also noted from the impounded document Nos. 56, 57 and 58 that the assessee made payment of Rs. 85,000 to Shri S. K. Jain, C.A. and of Rs.2,00,000 to various other persons, which were not explained. The assessee denied that the transactions belonged to him. The Assessing Officer was of the view that the assessee was doing business in the name of 29 concerns and was maintaining more than 70 bank accounts. Since, according to the Assessing Officer, these entries were not explained, they were treated as unexplained expenditure and an addition of Rs. 2,85,000 was made by him. He also made another addition of Rs. 56,700 under section 40A(3) and, thus, worked out total income of the assessee at Rs. 9,41,700. 4. In appeal, the assessee, inter alia, challenged the reopening of the assessment under section 148 on the ground that in the reasons recorded for reopening of the assessment, reference has been made to bank account No. OD A/c 686 and a deposit of Rs. 1,02,047 therein, but that bank account does not relate to the assessee. On the other hand, bank account No. CC-5 in Central Bank of India from where the assessee has taken a loan of Rs. 2.5 lakhs against the credit limit of Rs....
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....facts, since action under section 148 was taken for obtaining the return for the first time particularly on account of the deposits shown in bank account, in my opinion, there was no infirmity in the Assessing Officer's action. It is, therefore, held that the Assessing Officer was justified in taking action under section 148 of the Act. This ground of appeal, therefore, fails." 7. Before us, the learned Authorised representative for the assessee submitted that action under section 148 has been taken only on the suspicion and in a mechanical manner and not under a bona fide belief. As per reasons recorded under section 148, the deposit of Rs. 1,02,047 was made in the bank account No. OD A/c 686, which is neither allotted nor related to the assessee. In any case, the learned Assessing Officer had no evidence or material on record, while recording the reasons that the deposits represented undisclosed income of the assessee. The learned Authorised representative relied upon the decision of the hon'ble Allahabad High Court in Jamna Lal Kabra v. ITO [1968] 69 ITR 461 for the proposition that it is not open to the Assessing Officer to refer to reasons other than those recorded ....
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....nt in respect of income which has escaped assessment. Under the amended provisions, the power to reopen the assessment is much wider and can be exercised even if the Assessing Officer has disclosed fully and truly all material facts. The learned Departmental representative submitted that the mistake can be taken care of by section 292B. 10. We have considered the rival submissions and perused the material on record. Let us examine the reasons recorded by the Assessing Officer before reopening the assessment for the assessment year 1998-99. The reasons are as under : "A survey operation under section 133A of the Income-tax Act 1961 was carried out at the business premises of Shri Jugal Kishore Soni, Forest Range Barrier, Jhansi Road, Talbehat district Lalitpur. During the course of survey operations, huge quantity of books of account and bank pass books/cheque book were found and later on impounded. It has been gathered on perusal of these papers/books of account that the above named assessee was maintaining account number OD A/c 686 with Central Bank of India, Jhansi. The copy of account of this account obtained from the bank shows that deposits amounting to Rs. 1,02,04....
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....been admitted by the Assessing Officer and also by the learned Departmental representative. Then the supplementary question which arises is whether mentioning of wrong bank account number is fatal for assumption of jurisdiction by the Assessing Officer. In any case, this depends upon the fact as to whether mentioning of wrong fact is so vital that if that fact is removed from the reasons recorded, then the Assessing Officer could not come to the conclusion that income had escaped assessment. Thus, in absence of those facts in the reasons so recorded, the Assessing Officer could not have come to the conclusion about escapement of income and, therefore, then assumption of jurisdiction to reopen the assessment would be invalid. Subsequent issuance of notice under section 148(1) and assessment made thereafter would also be invalid. But where mentioning of wrong fact is not so fatal and other facts mentioned therein are adequate enough still to hold the reasons together, then it can be said that reopening of assessment was valid. In other words, if the removal of the fact, which is incorrect, is taken out from the reasons so recorded, would make the reasons fall flat then assumption of ....
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....chargeable to tax has escaped assessment for any assessment year" . Thus, the Assessing Officer has to record in the reasons that a particular item was chargeable to tax has escaped assessment. In the present case, the Assessing Officer has written that a sum of Rs. 1,02,047 deposited in the bank account has escaped assessment. This belief he has arrived on the basis of the fact that return of income has not been filed, but where the income is not above the minimum amount assessable, i.e. where income is below exemption limit, the return is not required to be filed and, therefore, any deposit in a bank account will not automatically lead to the inference that it was chargeable to tax. The Assessing Officer ought to have verified from the books of account whether this deposit was recorded in regular books or not. If it was recorded in the regular books, then it could not be said that this deposit was automatically liable to be taxed. Deposit in the bank account can be covered by various receipts recorded in the cash book. Without verifying the deposits in the bank statement with the regular books maintained by the assessee, one cannot come to the inference that such bank deposits we....
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....then it cannot be said to be concealed. Thus, where an amount is recorded in the regular books, it will not be automatically inferred that it was chargeable to tax and it has escaped assessment. Thus, we hold that formation of belief by the Assessing Officer for reopening the assessment was not legally proper as on the basis of facts recorded in the reasons he could not have come to the inference that sum of Rs. 1,02,047 has escaped assessment. We, thus, hold that the Assessing Officer has not formed a proper belief on the basis of material brought in the reasons so recorded and therefore, reopening of the assessment was without jurisdiction and invalid. The assessment on that basis is required to be annulled. 19. The next question which requires to be answered is whether the Assessing Officer could refer to the material other than what is mentioned in the reasons so recorded for justifying reopening assessment. Our considered view is that he cannot. Subsequent reference to the material cannot justify reopening of assessment as assumption of jurisdiction to reopen the assessment can be examined only on the basis of material mentioned in the reasons so recorded. For this proposit....
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.... inference from this is that any mistake in the process of assumption of jurisdiction could not be deemed to be corrected by section 292B. In the decision of the hon' ble Calcutta High Court in Sunrolling Mills P. Ltd. v. ITO [1986] 160 ITR 412, the assessment was reopened under section 147(b). The reasons recorded therefore were not considered as reasons for proceedings under section 147(a). Thus, we reject the contention of the Revenue that mentioning of wrong bank account number in the reasons could be deemed to be corrected by section 292B. 22. There is one more aspect of the issue, which is required to be considered. The deposit in the bank account of Rs. 1,02,047 was considered by the Assessing Officer in the reassessment proceedings and was found explained, as the same was found recorded in the regular books. Admittedly, no addition to the total income was made by the Assessing Officer on this issue. Thus, the argument of learned counsel for the assessee that had the Assessing Officer verified those deposits from the regular books before reopening the assessment, then he could not have reopened the assessment, assumes importance. In a situation where the assessee does....
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....stant, remote and far-fetched, which would warrant the formation of the belief regarding escapement of income. In that case, there was a deposit from customers to the extent of Rs. 46,77,190.35. The Assessing Officer had reopened the assessment in order to tax that sum and the hon'ble Allahabad High Court had made the above observations in this regard. (ii) In ABP Ltd. v. Joint CIT [2005] 278 ITR 627 (Cal), the Assessing Officer had reopened the assessment to tax certain benefit allowed earlier by the Assessing Officer. In the reasons recorded, the Assessing Officer had mentioned that that particular amount had escaped assessment. On this, the hon'ble Calcutta High Court held that by simply saying that he had reason to believe that the amount of income (mentioned in the reasons) had escaped assessment, the authority would not be empowered to assume jurisdiction to initiate proceedings. The requirement of recording reasons would not stand satisfied if without mentioning any reason the authority simply writes that he has reason to believe that income had escaped assessment. (iii) In Transworld International Inc. v. Joint CIT [2005] 273 ITR 242 (Delhi), the A....
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....lcutta High Court held that validity of initiation of a proceeding or assumption of jurisdiction in the initiation of a proceeding has to be judged on the basis of reasons as recorded on the date of assumption of jurisdiction. If the reasons so recorded on the date when jurisdiction was assumed are valid then initiation of such proceeding could not become invalid on account of subsequent facts. Thus, subsequent facts could not invalidate or validate the assumption of jurisdiction on the date when jurisdiction was assumed on the basis of facts available on that date. 24. As a result, we conclude as under : (i) Enough material was found by the Assessing Officer during the course of survey on the basis of which he could have reopened the assessment, but the material used for reopening the assessment was not proper so as to justify the reopening. It had no connection with the belief that the income has escaped assessment. (ii) Even though sufficiency of material for reopening the assessment cannot be adjudicated by the court, but court is duty bound to examine the link of the material used in the reasons with escapement of income. (iii) Every item or trans....
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....e had made purchases from various persons, but purchase of Rs. 6,00,000 has been shown from Saraf Medicinal and Botanical Garden. In other words, it was not a case of bogus purchases, but was a case of unverifiable purchases. For unverifiable purchases the books can be rejected and profit can be estimated. Since the profit declared by the assessee is about 50 per cent. and there is no material to show that the assessee would have earned more profit, then addition made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) cannot be sustained. As a result, on merits also the addition of Rs. 6,00,000 cannot survive. 28. Regarding ground relating to penalty proceeding under section 271(1)(c) and charging of interest under sections 234A and 234B, we decline to interfere because it would depend upon the facts of each case. But once the assessment does not survive, the penalty proceedings will also not survive. 29. As a result, we allow the appeal filed by the assessee. I. T. A. No. 26/Agr./2003 (the assessment year 1998-99) Appeal by Revenue 30. In this appeal, the Revenue has challenged the deletion of addition of Rs. 2,85,000. In this year, the ....
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....rvey operations, various incriminating documents, bank pass-books/cheque books and books of account were found at the premises, which were inventorised and later on impounded. On the perusal of these papers/books of account it has been gathered that the above named person was maintaining OD A/c No. 686 with Central Bank of India, Jhansi. The copy of this bank account obtained from the said bank shows that deposits amounting to Rs. 2,81,730 have been made in the said account in the financial year 1998-99 relevant to the assessment year 1999-2000. It has been gathered from this office records that M/s. Sarraf Gra modyog Sansthan has filed its return of income on April 26, 2000, in compliance with a notice under section 142(1) of the Income-tax Act, 1961, after the survey operations at the premises of Shri Jugal Kishore Soni on October 7, 1999. In its return of income, the income has been shown as ' nil' . The assessee has shown its nature of business as ' processing of herbs' . No accounts have been enclosed with the return so as to determine the gross receipt etc. from the business. Therefore, it is apparent that the deposits amounting to Rs. 2,81,730 are nowhere acc....
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.... of this decision in the reasons recorded by the Assessing Officer. On these facts, the High Court held that in the absence of mention of that decision in the order, it was not open to the Department to justify the same by making reference to the said decision. Similarly, the hon'ble Supreme Court in the case of Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851, has held that when a statutory functionary makes an order based on certain grounds, its validity or propriety must be judged by the reasons so mentioned and cannot, on challenge, be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge got validated by additional grounds later brought out. It was further stated that it is this fact a quasi-judicial order has to stand on its own legs ; it has to sustain itself on its own reasons recorded therein. Its validity has to be judged by the reasons so mentioned and fresh reasons in the shape of subsequent affidavits cannot be allowed to supplement and buttress the same. 5.5 The above judicial pronouncements clearly show that any judicia....
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....led on April 26, 2000. Thus, the assessment was pending and in the meantime, notice under section 148 was issued on December 4, 2000. Thus, during the course of pendency of return, notice under section 148 could not be issued and for this proposition, he relied on the decision of the hon'ble Calcutta High Court in CESC Ltd. v. Deputy CIT (No. 2) [2003] 263 ITR 402 and of the hon'ble Bombay High Court in CIT v. Rajendra G. Shah [2001] 247 ITR 772. 38. We have considered the submissions of the learned Authorised representative and the Departmental representative. The facts regarding issuance of notice under section 148(1) during the pendency of assessment proceedings on the basis of return filed on April 26, 2000, are not disputed by the learned Departmental representative, but he insisted that the Assessing Officer could still reopen the assessment and for this proposition, he relied on the decision of the hon'ble Delhi High Court in Rakesh Aggarwal' s case [1997] 225 ITR 496. We do not agree with the contention of the learned Departmental representative. Once the assessment proceedings are pending, the question of making reassessment does not arise and all the as....