Chunilal Bavanjibhai Viramgama, Ahmedabad V. The ITO, Wad-7(2)(1), Ahmedabad

ITA 1338/AHD/2019

AI Insights

The case revolves around the reopening of an income tax assessment for the assessment year 2011-12 concerning the late Chunilal Bhavanjibhai Viramgama. The AO had reopened the assessment based on information regarding a substantial investment in a LIC pension policy, which was allegedly disproportionate to the income declared by the assessee. The primary legal contention was whether the reopening of the assessment was valid under section 147 of the Income Tax Act, 1961. The Tribunal concluded that the AO's belief of escapement of income was not based on concrete evidence but rather on an implausible premise, leading to the setting aside of the reassessment order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133647 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 05-12-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 15-08-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Set aside
• Section: 147; 148

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘SMC’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.1338/Ahd/2019 Asstt.Year : 2011-12 Late Chunilal Bhavanjibhai Viramgama Through his legal heir Damyantiben Chunilal A-4, Karma-Shakti Park Nr.Swami Narayan Temple Bapa Sitaram Chow Nr.Naroda, Ahmedabad. PAN : ADAPP 5142 M Vs ITO, Ward-1(3)(2) Ahmedabad. (Applicant) (Responent) Assesseeby : Shri M.S. Chhajed, AR Revenue by : Shri Mukesh Jain, Sr.DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 0 6 / 1 2 / 2 0 2 2 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 0 3 / 0 3 / 2 0 2 3 आदेश/O R D E R The present appeal has been filed by the assessee against order passed by the Commissioner of Income Tax(Appeals)-7, Ahmedabad [in short referred to as ld.CIT(A)] under section 250(6) of the Income Tax Act, 1961 ("the Act" for short), dated 24.6.2019 pertaining to Asst.Year2011-12. 2. The assessee has raised following grounds: i) The order passed by the Ld. CIT (A) is against law, equity & justice. ii) The Ld. A.O. has erred in law and on facts in upholding validity of reopening of assessment. iii) The reopening of assessment is bad and illegal as the reasons does not reflect that the income having escaped assessment is more than rupees one lakh or likely to be more than rupees one lakh as laid ITA No.1338/Ahd/2019 2 down under the provisions of s. 149(1)(b) of Act as reopening is made beyond four years. iv) The Ld. CIT(A) has erred in law and on facts in upholding addition of Rs. 10,00,000/~ The appellant Craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal. 3. Ground Nos.2 & 3 are legal grounds raised by the assessee challenging validity of the assessment framed under section 147 of the Act. 4. Assessee’s primary challenge to the validity of the assessment framed under section 147 of the Act is that there was no nexus between the information in the possession of the AO and formation of belief of escapement of income, whichis a necessary prerequisite to assume jurisdiction to reopen the case of the assessee u/s 147 of the Act; that the information was vague and it at best lead to a suspicion, but not to belief of escapement of income. The reasons for reopening the case of the assessee reproduced at page no.4 of the CIT(A)’s order are as under: " The office has received information from DDIT (I&CI), Ahmedabad regarding premature Surrender of LIC Pension Policy, for which single premium of Rs.10,00,000/- was paid on 15.06.2010 by Assessee in F.Y 2010-11. During the relevant year the Assessee has shown his income at Rs. 3,20,365/- in his return of income and claimed deduction of Rs. 11,918/- under chapter VI-A. The information received shows that the Assessee has surrender the policy on 21.11.2014 and withdrawn the amount of Rs. 13,81,977/-. The Assessee has paid single premium of Rs.10,00,000/- which is substantially high with reference to his Return of Income. Since, the amount invested does not commensurate with the Return of Income of the Assessee, the source remains to be unexplained. ". 5. As is evident from the above, reopening was resorted to on the basis of information that the assessee had made investment by way of LIC premium amounting to Rs.10.00 lakhs which was far in excess of the income returned during the year by the assessee amounting to Rs.3,20,365/-. Since this amount invested was not ITA No.1338/Ahd/2019 3 commensurate with the income returned by the assessee, the AO was of the belief that investment was from undisclosed sources, tantamounting to income to the said extent escaping assessment. 6. We are in agreement with the ld.counsel for the assessee that the information with the AO was insufficient for forming a belief of escapement of income. In other words on the basis of information in the possession of the AO , there possibly could not have been formed any belief of income escaping assessment. 7. The income of the assessee during the year alone is not sufficient to draw any conclusion regarding source of investments made during the year. Investments can be made from past earnings /savings also. Therefore merely because income returned for the year was not sufficient to justify investment in LIC premium, it cannot be inferred that the investment was made from undisclosed sources. The AO it appears has proceeded to form his belief of escapement of income in the present case on an implausible premise. His premise that the investments during the year are sourced from the incomes earned during year suffers from a basic fallacy. In fact, this information couldnot have even lead to suspicion about the income having escaped assessment. The AO needed to conduct some more inquiry, determine the quantum of income which the assessee had been returning in the past years, and whether considering his life style and other factors he could have reasonably accumulated the amount to the extent of Rs.10 lakhs for making investment in LIC premium. He ought to have sought explanation from the assessee of the source of investment, and if his inquiries and investigation would have not satisfied him only in such ITA No.1338/Ahd/2019 4 circumstances, the AO could have formed belief of escapement of income on account of source investment in LIC premium remaining unexplained. I am therefore in complete agreement with the contention of the ld.counsel for the assessee that the information in the possession of the AO could not have lead to belief of escapement of income so as to assume valid jurisdiction to reopening the case of the assessee under section 147 of the Act. 8. The ld.CIT(A), I have noted, has not dealt with this contention of the assessee in the right perspective. His finding at para 6.2 of his order is as under: “6.2 The appellant has also objected reassessment notice and reasons recorded by AO on the ground that such reasons are very vague. It was stated by appellant that AO has issued such notice only for investment made by him and not for income. The Appellant stated that AO is duty bound to disclose income element out of such payment. This contention of appellant is not acceptable for the reasons that AO has verified returned income and amount of investment and came to conclusion thatappellant has no sufficient sources of make such investment. If appellant has no sources for making such investment or there is insufficiency of funds, it mean that appellant has made investment out of unaccounted income/funds. The amount of investment which is not explained by appellant for disclosed sources always represent undisclosed income and income element in such payment definitely exist. There is no vague reasons as claimed by the appellant because AO has verified details of investment, when such investment is sold, computation of total income and he found that appellant has no sufficient sources to make such investment, hence this is prima facie good case for issuing notice u/s 148 of the Act. 9. As is evident from the above, the ld.CIT(A) has proceeded on the exactly wrong premise as that on which the AO had proceeded that the source of investments is to be co-related or explained through income earned during the year, that is why, theld.CIT(A) has noted that the AO had verified the returned income and the amountof investment and had rightly come to the conclusion that the assessee had no sufficient source of making such investment. ITA No.1338/Ahd/2019 5 In view of the above, since I have held the jurisdiction assumed under section 147 to be invalid, the assessment order passed, as a consequence is not sustainable in the eyesof law and without jurisdiction. Therefore, the same is directed to be set aside. 10. Since I have set aside the order of the AO itself, as being invalid, the adjudication of the issue on merits is a mere academic exercise and is therefore not being dealt with by us. 11. In the result, the appeal of the assessee is allowed in the above terms. Order pronounced in the Court on 3 rd March, 2023 at Ahmedabad. Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 3/3/2023