INCOME TAX OFFICER WARD 2(3) FARIDABAD, FARIDABAD V. ZILE SINGH, BALLABGARH

ITA 3035/DEL/2024

AI Insights

The case revolves around the reassessment of the assessee, Zile Singh, by the Income Tax Department, alleging unexplained investments and interest income from investments in Piyush Group. The Assessing Officer (AO) reopened the assessment for the year 2015-16 based on information from the ADIT (Investigation)-II, Faridabad, claiming that the assessee had made substantial investments in Piyush Group and earned interest, both of which were unexplained. The CIT(A) found the reassessment invalid due to lack of substantial evidence and non-provision of necessary documents to the assessee, a decision which the Tribunal upheld.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34201 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Other Referred Cases: Raymond Woolen Mills vs ITO & Others, Andaman Timber Industries v. CCE, GKN Driveshafts (India) Ltd. vs ITO, Tia Enterprises P.Ltd. vs ITO, PCIT Delhi-2 vs Best Infrastructure India Pvt. Ltd, UOI vs Rajiv Bansal, Marut Nandan & Company vs ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: AMIT GOEL; PRANAV YADAV
• Keywords: Reassessment proceedings; Unexplained investment; Principle of natural justice; Competent authority; Reason to believe
• Section: 147; 148; 143(3); 142(1); 143(2); 250; 143(1); 13; 69A

Judgement Text

"ITA No.3035/Del/2024 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “E” BENCH: NEW DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI SUDHIR PAREEK, JUDICIAL MEMBER ITA No.3035/Del/2024 [Assessment Year : 2015-16] ITO Ward-2(3) Faridabad vs Zile Singh Prop. Yadav Diary Mohna Road, Ballabgarh Faridabad-121004 PAN-AIFPS0476D APPELLANT RESPONDENT Appellant by Shri Amit Katoch, Sr. DR Respondent by Shri Amit Goel, CA & Shri Pranav Yadav, Adv. Date of Hearing 25.02.2025 Date of Pronouncement 07.03.2025 ORDER PER PRADIP KUMAR KEDIA, AM : The instant appeal has been filed at the instance of the Revenue seeking to assail the First Appellate order dated 17.01.2024 passed by Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“CIT(A)”] under s. 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 30.03.2022 passed under s. 147 r.w.s. 144B of the Act pertaining to assessment year 2015-16. 2. As per grounds of appeal, the Revenue has challenged the deletion of additions made by the AO under s. 69A of the Act towards alleged investment of INR 3,30,00,000/- made by the AO in Piyush Group for purchase of flats and interest on such investments amounting to INR 34,50,830/-. 3. Briefly stated, the assessee is an individual, filed return of income for AY 2016-17 in question declaring total income of INR 7,59,350/-. The return was processed under s. 143(1) of the Act. Thereafter based on certain information received by AO from ADIT (Investigation)-II, Faridabad, as per letter dated ITA No.3035/Del/2024 Page | 2 21.05.2020 the case of the assessee was re-opened by issuance of notice dated 31.03.2021 under s. 148 of the Act. In response to the notice issued under s. 148 of the Act, the assessee filed return of income on 14.04.2021. Notices under s. 143(2) & 142(1) of the Act were issued. As per letter dated 20.12.2021, the assessee asked for the reasons for re-opening the re- assessment. 4. The AO vide letter dated 27.12.2021 communicated the reasons extracted hereunder:- “As per information from the Assistant Director of Income Tax (Inv.)-II, Faridabad vide letter dated 21-05-2020. It has been found that there are many investors who has invested in Piyush Group for purchase of flats. The assessee is one of the investors who has made investment of Rs. 3,30,00,000/- and in which he has received interest income to the tune of Rs. 34,50,830/- during the financial year 2014-15. During investigation, the ledgers of various were found and these ledgers were confronted from Mr. Rajive Sharma who is employee responsible for collection of cash from various investors and he has identified the assessee. Further it is found that the assessee has made investment of Rs. 3,30,00,0000/- and in which he has received interest income of Rs. 34,50,830/-. The sources of the fund invested in Piyush Group is remains unaccounted and treated as income from unexplained sources and also the interest income on which received by the assessee is also remains unaccounted. It is evident that there is a \"live link between the material available on record and the escaped income, as mentioned above. Keeping in view of the statutory provisions, legal principles, and factual matrix that though the assessee has filed his ITR for the assessment year 2015-16 on 07-08-2015 declaring total income of Rs. 7,59,350/-. The source of investment made in Piyush Group and also interest income received from that investment remains unexplained. Therefore, the A.O. have reason to believe that the income to the extent of Rs. 3,64,50,830/- chargeable to tax has escaped assessment for the assessment year 2015- ITA No.3035/Del/2024 Page | 3 16 within the meaning of section 147 of the I.T. Act, 1961. Hence a notice u/s 148 of the I.T. Act was issued to the assessee on 30-03-2021.” 5. The assessee wrote another letter to the AO dated 06.01.2022 requesting the AO to provide (A) the exact copy of reasons recorded; (B) copy of sanction memo under s. 151 of the Act; and (C) entire material on the basis of which the proceedings under s. 147 of the Act were initiated and sanction was granted. 6. The AO however did not attempt to supply these documents as alleged. The assessee filed another letter dated 19.03.2022 to point out that proper objections apropos assumption of jurisdiction under s. 147 of the Act can be possibly raised by the assessee only on receipt of such crucial documents and thus repeated his request and to keep the proceedings in abeyance till the supply of such documents. The AO made formal disposal of the objections filed by the assessee in pursuance of letters dated 03.01.2022 and 19.03.2022 of the assessee against the reasons recorded under s.147 of the Act. As per the contents of the disposal of objection communicated vide letter dated 22.03.2022, the AO re-iterated the reasons recorded as provided earlier. However, the copy of approval memo under s. 151 and the so-called material gathered which prompted in formation of ‘belief’ towards escapement of income was not provided to the assessee. The AO placed reliance upon the judgement referred in the case of Raymond Woolen Mills vs ITO & Others (1999) 236 ITR 34 for the proposition that at the stage of initiation of the re-assessment proceedings, as long as the AO has prima-facie some material to justify the re- opening, the sufficiency or correctness of the material is not to be seen. The AO thereafter proceeded to make re-assessment under s. 147 r.w.s 148 of the Act. The AO inter-alia observed that Police Commissioner, Faridabad has observed that the criminal cases alleging cheating of investor have been registered against the Piyush Group of Companies and also added that during the investigation, it has been found that there are many investors who have invested in Piyush Group for purchase of flats. The name of the assessee was ITA No.3035/Del/2024 Page | 4 among the investors who statedly made investment of INR 3,30,00,000/- for which the assessee has also received interest to the tune of INR 34,50,830/- during the year under consideration. During investigation, various ledgers were found and these ledgers were confronted to Shri Rajeev Sharma who was the employee of Piyush Group working for collection of cash from various investors and he has statedly identified the name of the assessee. The AO alleged that source of investment made by the assessee in Piyush Group of Companies remains unexplained and unaccounted together with interest income arose thereon to the assessee. The AO accordingly invoked the provision of s.69A and made additions of INR 3,30,00,000/- towards unexplained investment and INR 34,50,830/- towards unexplained interest. 7. Aggrieved by the purportedly wrongful assumption of jurisdiction usurped under s. 147 of the Act as well as additions on merits, the assessee preferred appeal before the CIT(A). 8. Before the CIT(A), the assessee challenged the assumption of jurisdiction by the AO under s. 147 of the Act. Detailed counters were made to assail such assumption of jurisdiction. The CIT(A) found merit in the various facets of objections raised by the assessee. The CIT(A) examined the reasons recorded threadbare and found that the ‘reasons to belief’ contemplated under erstwhile provisions of s.147 of the Act cannot be equated with ‘reasons to suspect’. The CIT(A) essentially noted that ‘reason to belief’ are cardinal to assume jurisdiction and it is settled law that ‘reason to belief’ have to be substantive and cogent. The CIT(A) observed that recorded reasons analysed, gives reason to suspect rather than ‘reason to belief’. The CIT(A) accordingly adjudicated the challenge towards usurpation of jurisdiction under s. 147 of the Act in favour of the assessee and against the Revenue. The relevant operative para of CIT(A) in this regard are extracted hereunder:- Decision: “Here in the instant case the AO has initiated re-assessment proceeding on the basis of information received from the investigation wing, Faridabad. ITA No.3035/Del/2024 Page | 5 The AO has not mentioned any detail of material used for initiation of reassessment proceeding and his decision of arrival of specific amount of Income escaping assessment. The AO has not mentioned, what kind of material was used for making up, of his mind that the said amount of income has escaped assessment. The AO has neither mentioned the identification mark of the material used for reassessment, date and details of transactions are also not mentioned. Further, the copy of the impugned ledger account and statement of Mr. Rajeev Sharma, his identity etc. has not been given in the reasons to believe and assessment order. Only mentioning the identity that Mr. Rajeev Sharma, whose statement was recorded was as employee of the Piyush Group does not serve the purpose of law. The moot question remain unanswered are, whether Mr. Sharma was authorised by Piyush Group to give a statement on behalf of their company? Whether Mr. Sharma was working on capacity competent enough to give statement before Investigating Officer on behalf of the company? What was his official capacity? What was his personal details? What were the name of the Projects or Companies of the Piyush Group in which the appellant money were invested? Was Mr. Rajeev Sharma, an employee of those Companies? All these questions remain unanswered. Further, the AO has made no effort to seek answers to these questions by conducting independent enquiry. Further not providing the copy of so called materials used such as copy of alleged ledger account, and statement of Mr. Rajeev Sharma to appellant has made action of the AO more suspicious. Further more considering the law laid down by Hon'ble Delhi High Court in the case Pr.CIT vs RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5 (Delhi), I find merit in the ground raised by the appellant that the reasons recorded by AO are in the nature of reasons to suspect as there is no link between information and the escapement of income.” 9. The CIT(A) also found that the action of the AO in making addition under s. 69A is also devoid of merits. The CIT(A) thus reversed the additions on ITA No.3035/Del/2024 Page | 6 merits as well. The relevant operative para dealing with the additions on merits are set out hereunder for easy reference:- Decision “The AO in this case has made addition of Rs.3,30,00,000/- as unexplained investment and Rs. 34,50,830/- as undisclosed interest income on the basis of information received from the ADIT (Inv.)-II, Faridabad. As per AO, it was stated that during investigation various ledgers were found and those ledgers were confronted from Mr.Rajiv Sharma who was an employee of Piyush Group responsible for collection of cash from various investors and he had identified the assessee that an investment of Rs. 3,30,00,000/- was made by him in the projects of Piyush Group on which he earned an interest of Rs.34,50,830/-. However, it is apparent that the AO did not give the copy of statements of Mr. Rajiv Sharma and copy of the alleged ledgers for verification and cross- examination to the appellant despite of his repeated request. Even the AO failed to mention any details of those statements, alleged ledgers etc. in the assessment order. No details of such transactions such as date of transaction, mode of transaction, evidence showing the identity of investor etc. were either disclosed to the appellant for his rebuttal or such details have been mentioned in the assessment order. So clearly, whatever was the details of those transactions, it was only best to the knowledge of the AO and he has utilized it for making the addition without disclosing the details of transaction to the assessee. I do not find any merit in the decision of AO in not supplying the so called statement of Mr. Rajeev Sharma and copy of ledger account to the appellant assessee but using it against him. Especially in a situation when the assessee is repeatedly asking for it, so that he can cross examine and furnish his explanation to the AO. Further more, it was all the more important for the AO to supply the evidence of transaction to the appellant because he was categorically denying to have entered any such transactions with the Piyush Group. The appellant has every right to satisfy himself about veracity of the person ITA No.3035/Del/2024 Page | 7 who has given statement against him and the credibility and veracity of the material which is being used against him. The action of the AO is clearly contrary to the principle of natural justice and fair play. The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE[2015] 62 taxmann.com 3 has contented that not allowing the assessee to cross- examine the witness and placing reliance on the statement of the witness will vitiate the order. The action of the AO in not providing the documents has vitiated the initiation of reassessment proceedings as per the decision of Hon'ble Delhi High Court in the case of Sabh Infrastructure Ltd. V. ACIT [2017] 3981TR198 (Delhi). So the addition of the AO does not sustain on the principle of natural justice and fair play. Hence, in view of the judgment of the Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3, where it has been held that not allowing the assessee to cross examine the witness and placing reliance on the statement of the witness will vitiate the order and the principle laid down in the judgement of Hon'ble Delhi High Court in the case of PCIT Delhi-2 vs Best Infrastructure India Pvt. Ltd (2017) 397 ITR 82, Hon'ble Bombay High Court in the case of Tata Capital Financial Services Ltd. (Supra), I find the addition of Rs. 3,30,00,000/- and Rs. 33,50,830/- not sustainable in the eyes of law. Therefore, the addition of Rs. 3,30,00,000/- as unexplained investment u/s. 69 and Rs. 33,50,830/- as undisclosed income u/s. 69A of the Act are hereby deleted.” 10. Aggrieved by the cancellation of additions by the CIT(A) on both counters, the Revenue has knocked the door of the Tribunal. 11. The Ld. Sr. DR for the Revenue referred to and relied upon the assessment order and submitted in furtherance that reasons recorded would reveal that the ADIT, Faridabad had come into possession of specific information that the assessee is one of the investors in Piyush Group of Companies and has made investments towards purchase of flats, source of which remains unaccounted. The substantive reasons were provided as required by the assessee. Thus, the obligation cast upon the AO was broadly ITA No.3035/Del/2024 Page | 8 discharged and shifted upon the assessee to rebut the factum of alleged unaccounted investments. The assessee has failed in discharging such burden. The Ld. Sr. DR thus submitted that in the absence of any corroborative evidence to the contrary, the additions made by the AO could not be dis-lodged as done by the CIT(A). 12. The Ld. Counsel, on the other hand, largely re-iterated the submissions made before the CIT(A) both on the point of jurisdiction as well as on merits and strongly supported the resultant order of the CIT(A) on both counts. The Ld. Counsel submitted that the exact copy of reasons recorded was not provided despite repeated requests and only extracted portion was provided. It is not known as to on what date the reasons were recorded and the designation of the Assessing Authority recordings such reasons. The copy of approval under s. 151 was not provided and the material which is claimed to be the foundation for formation of belief under s. 147 of the Act was also not confronted. The objections were disposed off in a cosmetic manner merely to comply with legal formality. Besides, in the absence of reasons recorded, approval memo and material coming to the light of the AO if any, the assessee was not in a position to understand the nuances of allegation against the assessee of enormous nature and suitably defend its case. The Ld. Counsel referred to the judgement of the Co-ordinate Bench of the Tribunal in the case of Marut Nandan & Company vs ITO in ITA No.4751/Del/2024 order dated 19.02.2025 to buttress the view expressed by the CIT(A). The Ld. Counsel also submitted that, without prejudice to the serious objection that approval memo under s. 151 of the Act has not been provided to the assessee despite repeated requests, from the facts discernible from records, the approval was obtained from Pr.CIT whereas the Competent Authority to grant approval under s. 151 of the Act in the instant case was ‘JCIT’ in view of the judgement rendered in the case of UOI vs Rajiv Bansal 469 ITR 46 (SC). The Ld. Counsel thus submitted that the action of the CIT(A) both on point of jurisdiction as well as on merits of additions against the Revenue cannot be faulted. He thus submitted that no interference with the order of the CIT(A) is called for. ITA No.3035/Del/2024 Page | 9 13. On being inquired by the Bench, the Ld. Counsel specifically denied to have made any such investment towards pursuance of property in Piyush Group of Companies as alleged in the reasons recorded. The Ld. Counsel thus submitted that there is no question of having earned any interest on some non- existent investment. The Ld. Counsel yet again pointed out that so-called material which is allegedly the basis of additions has not been confronted to the assessee and also no cross-examination has been provided of the persons including Shri Rajiv Sharma who has purportedly identified the name of the assessee. The assessee under the circumstances cannot be expected to provide corroboration on non-existence facts alleged against the assessee. The initial onus in the instant case is on Revenue both at the stage of the assumption of jurisdiction as well as in the course of re-assessment proceedings when the assessee is claiming to have made no investments whatsoever. It is for the Revenue to bring the material on record to demonstrate any unaccounted investment. The Revenue has miserably failed to do so and the allegation thus made are bald one carrying no probative value. 14. We have carefully considered the rival submissions and perused the appellate order and the assessment order under challenge. The material referred to and relied upon by the respective sides has been perused. The case laws cited in the course of hearing has also been given due weight having regard to the context of the case. 15. The broad counters of the controversy hinges around following pertinent legal issues emanating in the present case: (i) Whether the re-assessment order framed under s. 147 r.w.s 143(3) of the Act is sustainable in law despite refusal to provide copy of reasons recorded under s. 148(2)of the Act and approval granted under s. 151 of the Act, resulting in denial of opportunity to the assessee to raise legal objections to assumption of jurisdiction to reopen the assessment and take remedial actions available in law against purportedly unjustified and expropriatory re-opening action? ITA No.3035/Del/2024 Page | 10 (ii) Whether it was incumbent upon the AO to provide relevant material coming to the possession of the AO subsequent to the conclusion of the assessment carried out which formed the basis for formation of belief towards alleged escapement of income. (iii) Whether the additions of INR 3,30,00,000/- made on account of alleged investment made by the assessee in Piyush Group of Companies and quantification of interest thereon is permissible to the Revenue without observing the principles of natural justice and confronting the relevant material to the assessee in this regard with a view to shift the burden on the assessee. 16. The legal propriety of re-assessment framed under s. 147 of the Act in gross non-compliance of mandatory legal formality was under challenge before the CIT(A). The assessee contended before the CIT(A) that despite specific and repeated requests seeking exact copy of reasons recorded under s. 148(2), copy of sanction accorded under s. 151, copy of material collected to demonstrate alleged investment in Piyush Group of Companies, the AO has proceeded on merits without providing such basic documents. The objection of the assessee has not been dealt with on such vital points which resulted in disposal of objection an empty formalty. As per the landmark judgement in the case of GKN Driveshafts (India) Ltd. vs ITO 259 ITR 19 (SC) the AO is mandatorily required to provide the copy of reasons recorded. The Hon’ble Delhi High Court in the case of Tia Enterprises P.Ltd. vs ITO (2024) 468 ITR 5 (Delhi) inter-alia observed that approval granted by statutory authority under the provision of the Act has to be furnished to the assessee alongwith ‘reason to belief’. The statutory scheme encapsulated in the Act provides that re-assessment proceedings cannot be triggered till the AO holds a ‘reason to belief’ that income which is otherwise chargeable to tax as escaped assessment and reasons recorded by him are placed before the specified authority for grant of approval to commence the process of re-assessment. The aforesaid observation of the Hon’ble High Court as noted in para 13 of the judgement got the stamp of approval from the Hon’ble Supreme Court in the case of ITO vs Tia Enterprises P.Ltd. 468 ITR 10 (SC). ITA No.3035/Del/2024 Page | 11 17. In the instant case, neither the exact copy of reasons were provided nor were provided the copy of approval provided nor the material in possession of AO while allegations of vast proportions were made against the assessee. Apparently, the vested right of the assessee to file meaningful objections to purported unlawful assumption of jurisdiction has been completely trampled causing serious prejudice to the assessee and embroiled him in protracted litigation. Needless to say, for assumption of lawful jurisdiction under s. 147 of the Act, all jurisdictional conditions and procedural requirements need to be satisfied. In the absence of copy of reasons and copy of approval made available to assessee in spite of specific requests, presumption would arise adverse to the Revenue on compliance of pre-requisites of s. 147 & 151 of the Act. The re-assessment order thus framed is liable to be quashed on this ground alone. 18. We however also advert to the jurisdictional points raised on the legality of extracted reasons which was provided to the assessee. On perusal of the reasons recorded, it is apparent that the information referred to in the reasons recorded are generic, non-descript and unintelligible. No meaningful particulars of so-called information received are not mentioned at all. There is no reference to any material which may justify the bonafides of belief held by the AO. The basic particulars of property supposedly invested by the assessee are also not available. The date on which the transaction supposedly occurred for investment in property are also not recorded. In the absence of any basic particulars of specific nature and reliable in character emanating from extract of reasons, the ‘reason to belief’ claimed by the AO to justify the assumption of jurisdiction is nothing but ‘reason to suspect’ as rightly held by the CIT(A). The reasons recorded apparently smacks of pedantic belief without disclosing any live link or close nexus between material, if any and formation of belief. The threshold for meeting pre-requisites for re-opening the assessment are sorely missing in the instant case. We thus see no difficulty in endorsing the conclusion drawn by the CIT(A) that the re-opening ITA No.3035/Del/2024 Page | 12 action was without jurisdiction and thus impugned re-assessment order framed is outside the legal sanction and is bad in law. 19. We also find merit in the plea raised on behalf of the assessee that in the absence of even basic material in possession of AO and confronted to the assessee, the onus continues to be on the Revenue to demonstrate the alleged presence of unexplained investment which was not discharged at all. The CIT(A) in our view has also addressed the issue on merits correctly in accordance with law. Without reiterating the process of reasoning, we are of the view that no interference with the order of CIT(A) is called for. 20. Having regard to the view expressed, we do not consider it necessary to look into other facets of plea raised in the course of hearing to assail the valid assumption of jurisdiction. 21. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on 07th March, 2025. Sd/- Sd/- (SUDHIR PAREEK) JUDICIAL MEMBER *Amit Kumar, Sr.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER ASSISTANT REGISTRAR ITAT, NEW DELHI "