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Bir Bahadur Singh Sijwali Sijwali Compund, Talli Bamori Vs. Income Tax Officer Ward 1, Haldwani
January, 21st 2015
                                                                  I.T.A. No.: 3814/Del/11
                                                                Assessment year: 2008-09

                                                                                 Page 1 of 6

                            DELHI A BENCH, NEW DELHI

                [Coram: Pramod Kumar AM and C. M. Garg JM]

                            I.T.A. No.: 3814/Del/11
                           Assessment year: 2008-09

Bir Bahadur Singh Sijwali                                    .................. .Appellant
Sijwali Compund, Talli Bamori
Haldwani [PAN: CSOPS0165G]


Income Tax Officer
Ward 1, Haldwani                                           ............... . ... Respondent

Appearances by:
Ashwni Taneja , for the appellant
Y Kakkar, for the respondent

Date of concluding the hearing: 19 th January, 2015
Date of pronouncing the order:    20 th January, 2015

                                    O R D E R
Per Pramod Kumar, AM:

1.    This appeal, filed by the assessee, call into question correctness of the
order dated 26 th May 2011 passed by the learned CIT(A) in the matter of
assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961, for the
assessment year 2008-09.

2.     It is a case of reopened assessment, and one of the grievances raised in
this appeal, as set out ground of appeal no. 1 as also ground of appeal no. 2, is
against the validity of reassessment proceedings. We will take up this issue first.

3.     This assessment was reopened, as noted in the reasons recorded for
reopening the assessment- furnished to the assessee vide Assessing Officer' s
letter dated 25 th April 2012, on the following ground:

      During the financial year 2007-08, the assessee has made transaction
      of Rs 10,24,100 (deposits in cash) in his saving bank account but no
      return of income was filed by the assessee. As such, it was reason to
                                                                  I.T.A. No.: 3814/Del/11
                                                                Assessment year: 2008-09

                                                                               Page 2 of 6

      believe that there is an escapement of income at Rs 10,24,100 on the
      part of the assessee. Therefore, in the light of the above fact that the
      income chargeable to tax for the assessment year 2008-09 has
      escaped assessment within meanings of section 147 of the Income
      Tax Act, notice was issued under section 148 on 14.9.2009 which was
      served upon the assessee through his counsel Sri Arun Kumar
      Agarwal, Advocate, on 14/09/2009.

4.     The short question that we are required to adjudicate is whether or not,
on the basis of the above reasons, reassessment proceedings can be lawfully
initiated. This aspect of the matter was not examined by the CIT(A), but, as is
the settled legal position in the light of Hon ' ble Supreme Court' s judgment in the
case of National Thermal Power Co. Ltd Vs CIT [(1198) 223 ITR 383], the
assessee is not precluded from raising this legal issue at this stage, on the
ground that the same has not been raised before the authorities below. Learned
Departmental Representative, in all fairness, did not raise this technicality
either. We, therefore, proceed to examine this issue on merits.

5.    We have heard the rival contentions, perused the material on record and
duly considered facts of the case in the light of the applicable legal position.

6.      A plain look at the reasons for reopening the assessment, as produced
before us, show that these reasons were recorded after the notice was served on
14 th September 2009 as a mention about the fact of service of notice is set out in
the recorded reasons itself. It is only elementary that the reasons are to be
recorded before issuance of notice, and in the absence of any reasons for
reopening having been recorded prior to reopening of assessment, the
reassessment proceedings fail for this short reason alone. Hon ' ble Bombay High
Court, in the case of Prashant S. Joshi vs. ITO [(2010) 230 CTR (Bom) 232.]
has observed: " The AO must have reasons to believe that such is the case
(i.e. any income chargeable to tax has escaped assessment for a particular year)
before he proceeds to issue notice under s. 147 ". In other words, when no
reasons are recorded for reopening the assessment prior to issuance of notice,
the reassessment proceedings must fail for that reason alone. However, for the
reasons we will set out now, the conclusions will be no different even if it is
presumed that this communication, extracts from which are reproduced before,
only conveys the reasons already recorded prior to issuance of notice.

7.    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.
                                                                I.T.A. No.: 3814/Del/11
                                                              Assessment year: 2008-09

                                                                             Page 3 of 6

R.B. Wadkar [(2004) 268 ITR 332] , has, inter alia, observed that "..........It is
needless to mention that the reasons are required to be read as they were
recorded by the AO. No substitution or deletion is permissible. No
additions can be made to those reasons. No inference can be allowed to be
drawn on the basis of reasons not recorded. It is for the AO to disclose and
open his mind through the reasons recorded by him. He has to speak
through the reasons." Their Lordships added that "The reasons recorded
should be self-explanatory and should not keep the assessee guessing for
reasons. Reasons provide link between conclusion and the evidence ....".
Therefore, the reasons are to be examined only on the basis of the reasons as
recorded. The next important point is that even though reasons, as recorded,
may not necessarily prove escapement of income at the stage of recording the
reasons, such reasons must point out to an income escaping assessment and not
merely need of an inquiry which may result in detection of an income escaping
assessment. Undoubtedly, at the stage of recording the reasons for reopening
the assessment, all that is necessary is the formation of prima facie belief that
an income has escaped the assessment and it is not necessary that the fact of
income having escaped assessment is proved to the hilt. What is, however,
necessary is that there must be something which indicates, even if not
establishes, the escapement of income from assessment. It is only on this basis
that the Assessing Officer can form the belief that an income has escaped
assessment. Merely because some further investigations have not been carried
out, which, if made, could have led to detection to an income escaping
assessment, cannot be reason enough to hold the view that income has escaped
assessment. It is also important to bear in mind the subtle but important
distinction between factors which indicate an income escaping the assessments
and the factors which indicate a legitimate suspicion about income escaping the
assessment. The former category consists of the facts which, if established to be
correct, will have a cause and effect relationship with the income escaping the
assessment. The latter category consists of the facts, which, if established to be
correct, could legitimately lead to further inquiries which may lead to detection
of an income which has escaped assessment. There has to be some kind of a
cause and effect relationship between reasons recorded and the income
escaping assessment. While dealing with this aspect of the matter, it is useful to
bear in mind the following observations made by Hon ' ble Supreme Court in the
case of ITO Vs Lakhmani Mewal Das [(1976) 103 ITR 437],

      "      the reasons for the formation of the belief must have rational
      connection with or relevant bearing on the formation of the belief.
      Rational connection postulates that there must be a direct nexus or
      live link between the material coming to the notice of the ITO and the
                                                                 I.T.A. No.: 3814/Del/11
                                                               Assessment year: 2008-09

                                                                              Page 4 of 6

      formation of this belief that there has been escapement of the
      income of the assessee from assessment in the particular year
      because of his failure to disclose fully and truly all material facts . It is
      no doubt true that the Court cannot go into sufficiency or adequacy of the
      material and substitute its own opinion for that of the ITO on the point as
      to whether action should be initiated for reopening assessment. At the
      same time we have to bear in mind that it is not any and every material,
      howsoever vague and indefinite or distant, remote and farfetched, which
      would warrant the formation of the belief relating to escapement of the
      income of the assessee from assessment.

8.     Let us, in the light of this legal position, revert to the facts of the case
before us. All that the reasons recorded for reopening indicate is that cash
deposits aggregating to Rs 10,24,100 have been made in the bank account of the
assessee, but the mere fact that these deposits have been made in a bank
account does not indicate that these deposits constitute an income which has
escaped assessment. The reasons recorded for reopening the assessment donot
make out a case that the assessee was engaged in some business and the income
from such a business has not been returned by the assessee. As we donot have
the liberty to examine these reasons on the basis of any other material or fact,
other than the facts set out in the reasons so recorded, it is not open to us to
deal with the question as to whether the assessee could be said to be engaged in
any business; all that is to be examined is whether the fact of the deposits, per
se, in the bank account of the assessee could be basis of holding the view that
the income has escaped assessment. The answer, in our humble understanding,
is in negative. The Assessing Officer has opined that an income of Rs 10,24,100
has escaped assessment of income because the assessee has Rs 10,24,100 in his
bank account but then such an opinion proceeds on the fallacious assumption
that the bank deposits constitute undisclosed income, and overlooks the fact
that the sources of deposit need not necessarily be income of the assessee. 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.

9.     Learned Departmental Representative has referred to a number of
judicial precedents in support of her stand that even deposits in the bank
account, as having come to the notice of the Assessing Officer through AIR, can
be reason enough for holding the belief that income has escaped assessment.
She has relied upon the decisions in the cases of CIT Vs Nova Promoters &
Finlease Pvt Ltd [(2012)342 ITR 169] but then none of the questions before
                                                                I.T.A. No.: 3814/Del/11
                                                              Assessment year: 2008-09

                                                                             Page 5 of 6

Hon ' ble High Court had anything to do with reopening of assessment and this
decision can not, therefore, be taken as an authority on the legal issue which did
not even come up for specific adjudication before Their Lordships. As for her
reliance on Hon ' ble Supreme Court ' s judgment in the case of Phool Chand
Bajrang Lal Vs ITO [(1993) 203 ITR 456] , that was case in which Their
Lordships concluded that the AO "rightly initiated the reassessment
proceedings on the basis of subsequent information, which was specific
relevant and reliable, and after recording the reasons for formation of his
own belief that in the original assessment proceedings, the assessee had
not disclosed the material facts truly and fully and, therefore, income
chargeable to tax had escaped assessment " and we are unable to see anything
on the facts of the present case which are materially similar to the facts of the
said case. As regards her reliance on the decision of a coordinate bench in the
case of Mithila Credit Services Limited Vs ITO (ITA No. 1078/Del/2013;
order dated 23.5.2014) , it is important to bear in mind the fact that it was a
case in which the Assessing Officer had reopened the assessment on the basis of
receipt of information from Directorate of Investigation, and, as noted by the
Assessing Officer in the reasons recorded for reopening the assessment, " the
name of the assessee figures as one of the beneficiaries of these alleged
bogus transactions " in the information given by the directorate. If the assessee
was a beneficiary of such a scam, the income was indeed to have been taxed in
its hands but then 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
have elaborately explained earlier in this order, the material must indicate
income escaping assessment rather than desirability of further probe in the
matter which may or may not lead to income escaping the assessment. On the
basis of reasons as recorded in this case, such an inference about income
escaping assessment, in our humble understanding, cannot be drawn.

10.   In view of the reasons set out above, as also bearing in mind entirety of
the case, we are of the considered view that the reasons recorded by the
Assessing Officer, as set out earlier, were not sufficient reasons for reopening
the assessment proceedings. We, therefore, quash the reassessment
proceedings. As the reassessment itself is quashed, all other issues on merits of
                                                                I.T.A. No.: 3814/Del/11
                                                              Assessment year: 2008-09

                                                                              Page 6 of 6

the additions, in the impugned assessment proceedings, are rendered academic
and infructuous.

11.  In the result, the appeal is allowed in the terms indicated above.
Pronounced in the open court today on 20 th day of January, 2015.

      Sd/-                                                       Sd/-
   C M Garg                                                   Pramod Kumar
(Judicial Member)                                          (Accountant Member)

New Delhi, the 20th day of January, 2015.

Copies to:   (1)    The appellant                 (2)     The respondent
             (3)    Commissioner                  (4)     CIT(A)
             (5)    Departmental Representative
             (6)    Guard File

                                                                           By order etc

                                                                   Assistant Registrar
                                                        Income Tax Appellate Tribunal
                                                             Delhi benches, New Delhi
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