M/s Shri Nath Builders, Agra V. A.C.I.T., Circle-2, Agra

ITA 206/AGR/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2158 (ITAT-AGRA)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-07-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 10-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L MAURYA
• Keywords: Reopening of assessment; Unexplained investment; Gift; Question of law; Tangible material; Reason to believe; Reassessment proceedings
• Section: 147; 148; 6; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 206/AGRA/2013 ASSTT. YEAR : 2004-05 M/S. SHRI NATH JI BUILDERS, VS. A.C.I.T., CIRCLE 1, 40, KHANDARI ROAD, AGRA. AGRA. (PAN : AASFS 4244 A) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ GARGH, ADVOCATE RESPONDENT BY : SHRI S.L. MAURYA, SR. D.R. DATE OF HEARING : 15.07.2013 DATE OF PRONOUNCEMENT OF ORDER : 19.07.2013 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A)-I, AGRA DATED 31.03.2013 FOR THE ASSESSMENT YEAR 2004- 05. 2. IN THE PRESENT APPEAL, THE ASSESSEE HAS CHALLENG ED REOPENING OF ASSESSMENT U/S. 147/148 OF THE IT ACT. THE ASSESSEE ALSO CHALL ENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF RS.15,10,000/- OUT OF ADDITION OF RS.19,10,000/- MADE BY THE AO ON ACCOUNT OF UNSECURED LOAN AND CON FIRMING THE ADDITION OF RS.7,45,424/- OUT OF ADDITION OF RS.15,45,424/- OUT OF CURRENT LIABILITIES, THEREBY DELETING ADDITION OF RS.8,00,000/- SUBJECT TO VERIF ICATION BY THE AO. THE ASSESSEE ITA NO. 206/AGRA/2013 2 ALSO CHALLENGED THE ORDER OF THE LD. CIT(A) IN ENHA NCING THE ASSESSMENT BY RS.25,72,264/- U/S. 69B OF THE IT ACT ON ACCOUNT OF UNEXPLAINED INVESTMENT IN CONSTRUCTION OF BUILDING. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FIRM FILED RETURN OF INCOME ON 10.05.2004 SHOWING NIL INCOME. SUBSEQUENTLY, REA SONS WERE RECORDED FOR REOPENING OF ASSESSMENT U/S. 148 OF THE IT ACT. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE RETURN FILED U/S. 139 MAY BE TREATED AS RETURN FILED IN RESPONSE TO THE NOTICE U/S. 148. THE AO FINALIZED THE REASSESSMENT ORDER U/S. 148/144 OF THE IT ACT ON DATED 28.12.2011 MAKING ADDITION OF RS.19,10,000 /- ON ACCOUNT OF UNSECURED LOAN AND OF RS.15,45,424/- ON ACCOUNT OF UNEXPLAINE D CURRENT LIABILITIES. INCOME WAS ACCORDINGLY COMPUTED AT RS.35,55,424/-. THE ASS ESSEE CHALLENGED THE REOPENING OF ASSESSMENT AND BOTH THE ABOVE ADDITION S BEFORE THE LD. CIT(A). THE LD. CIT(A) IN THE IMPUGNED ORDER OBSERVED THAT INFO RMATION PROVIDED BY SHRI ANIL KUMAR AGARWAL DURING HIS APPELLATE PROCEEDINGS, WHE REIN THE ORDER WAS PASSED ON 15.02.11, IT WAS OBSERVED THAT THE AO SHOULD FIND O UT WHETHER THE ASSESSEE FIRM IS FILING RETURN OF INCOME REGULARLY OR NOT AND EXAMIN E THE RETURN OF INCOME OF ASSESSEE FIRM TO FIND OUT WHETHER PROFIT EARNED ON SALE OF FLATS HAS BEEN DECLARED AND TAX HAS BEEN PAID OR NOT. THE AO SHOULD ALSO EX AMINE HOW THE LOSS WAS WORKED OUT AND WHETHER IT WAS CORRECTLY WORKED OUT OR NOT BY THE ASSESSEE FIRM. THE LD. CIT(A) INCORPORATED THE WRITTEN SUBMISSIONS OF THE ASSESSEE IN THE ITA NO. 206/AGRA/2013 3 APPELLATE ORDER AND THE CASE LAWS RELIED UPON BY TH E ASSESSEE. REMAND REPORT FROM THE AO WAS CALLED FOR ON DATED 23.01.2013, WHICH IS REPRODUCED IN THE APPELLATE ORDER. THE LD. CIT(A) CONFIRMED THE REOPENING OF AS SESSMENT BECAUSE THE ADDITION MADE IN THE ASSESSMENT ORDER HAS BEEN FOUND TO BE R ELATING TO THE CONSTRUCTION BUSINESS OF THE ASSESSEE AND THE SAID ADDITION HAS BEEN FOUND TO HAVE A NEXUS WITH THE REASONS RECORDED BY THE AO FOR REOPENING OF ASS ESSMENT. THE REOPENING OF ASSESSMENT WAS, THEREFORE, FOUND VALID AND THIS GRO UND WAS REJECTED. THE LD. CIT(A) ON ACCOUNT OF ADDITION OF UNSECURED LOAN OF RS.19,10,000/- REDUCED THE ADDITION TO RS.15,10,000/- AND ON ACCOUNT OF CURREN T LIABILITIES, THE ADDITION OF RS.15,45,424/- WAS REDUCED TO RS.7,45,424/- AND DIR ECTED THE AO TO DELETE THE ADDITION OF RS.8,00,000/- SUBJECT TO NECESSARY VERI FICATION. THE LD. CIT(A), HOWEVER, ENHANCED THE ASSESSMENT BY RS.25,72,269/- U/S. 69B OF THE IT ACT ON ACCOUNT OF UNEXPLAINED INVESTMENT IN CONSTRUCTION O F BUILDING. THE ASSESSEE IS IN APPEAL CHALLENGING ALL THE ABOVE ISSUES IN THE PRES ENT APPEAL. 4. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE REASONS OF REOPENING OF ASSESSMENT, COPY OF WHICH IS FILED AT PAGE 9 OF THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE DID NOT SELL ANY FLAT IN THE EARLIER A SSESSMENT YEAR 2003-04 OR IN THE ASSESSMENT YEAR UNDER APPEAL, I.E., 2004-05. COPY O F BALANCE SHEET IS FILED AT PAGES 207 AND 208 OF THE PAPER BOOK. THE EXPENSES WERE CA PITALIZED. SINCE NO SALE OF FLATS WAS MADE IN THE ASSESSMENT YEAR UNDER APPEAL, THEREFORE, REASONS RECORDED BY ITA NO. 206/AGRA/2013 4 THE AO FOR REOPENING OF ASSESSMENT ARE INCORRECT AN D NOT EXISTING. HE HAS SUBMITTED THAT THE DETAILS OF FLATS SOLD WERE FILED BEFORE THE AUTHORITIES BELOW, COPIES OF WHICH ARE FILED AT PAGE 3 OF THE PAPER BO OK, WHICH IS SUPPORTED BY ALL THE SALE DEEDS TO SHOW THAT NO FLATS WERE SOLD IN THE A SSESSMENT YEAR UNDER APPEAL. THE AO MERELY FOLLOWED THE ORDER OF THE LD. CIT(A) IN T HE CASE OF ANIL KUMAR AGARWAL AND DID NOT MAKE ANY VERIFICATION OF THE SA ME. THE AO IN THE REMAND REPORT DATED 23.01.2013 DID NOT DISPUTE THE CONTENT ION OF THE ASSESSEE THAT NO FLATS WERE SOLD IN THE ASSESSMENT YEAR UNDER APPEAL. COPY OF THE SAME IS FILED AT PAGE 248 OF THE PAPER BOOK. SINCE THE AO DID NOT MAKE AN Y ADDITION IN THE REASSESSMENT ORDER IN RESPECT OF FLATS SOLD. THEREFORE, THE REAS ONS RECORDED BY THE AO FOR RE- OPENING OF ASSESSMENT ARE INCORRECT AND NON-EXISTIN G AND THE REOPENING OF ASSESSMENT IS BAD IN LAW AND NO FURTHER ADDITION CO LD BE MADE IN THE ASSESSMENT ORDER. THEREFORE, ALL ADDITIONS ARE LIABLE TO BE DE LETED. HE HAS RELIED UPON CERTAIN DECISIONS IN RESPECT OF CONTENTION, WHICH WE WOULD TAKE UP LATER ON. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDERS OF THE AUTH ORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD. THE AO RECORDED REASONS FOR REOPENING OF ASSESSMENT IN ASSESSMENT YEAR UNDER APPEAL, COPY OF WHICH IS AT PAGE PAGE 9 OF THE PAPER BOOK. THE SAME IS REPRODUCED AS UNDER : ITA NO. 206/AGRA/2013 5 THE INFORMATION RECEIVED FROM THE CIT(APPEALS) -1, AGRA THROUGH HIS APPELLATE ORDER IN THE CASE OF SRI ANIL KUMAR AGRAWAL FOR A.Y. 1999-2000. THE APPELLATE ORDER PASSED BY THE L D. COMMISSIONER OF INCOME TAX (APPEALS)-1, AGRA VIDE HIS ORDER A.NO . 485/CIT(A)- 1/AGRA/ITO-1(1)/AGRA/2006-07 DATED 15/02/2011 IN TH E CASE OF SRI ANIL KUMAR AGRAWAL, 40 KHANDARI ROAD, AGRA IT WAS HELD BY THE LD. CIT(A)-1, AGRA THAT AFTER DECIDING THE CASE ON MER IT, I WOULD LIKE TO DISCUS THE PECULIAR FACTS AND CIRCUMSTANCES OF THIS CASE, WHICH REQUIRE FURTHER ENQUIRY TO BE CONDUCTED IN CASE OF THE FIRM M/S SHRI NATH JI BUILDERS. HOWEVER, IT IS FOUND THAT THIS MONEY WAS USED IN BUILDING CONSTRUCTION BUSINESS BY THE APPELLANT IN PARTNERSH IP WITH HIS CHARTERED ACCOUNTANT, SRI ANURAG JAIN IN THE NAME A ND STYLE OF A PARTNERSHIP FIRM SHRI NATH JI BUILDERS AT 40- KHAND ARI ROAD, AGRA. TOTAL 14 FLATS WERE CONSTRUCTED, OUT OF WHICH 7 FLA TS WERE SOLD UPTO 2005 AND LATER ON TWO FLATS WERE GIVEN TO THE APPEL LATE WHICH HE SOLD INDIVIDUALLY AND FOR REMAINING FIVE FLATS, POWER OF ATTORNEY WAS GIVEN TO ONE SRI GAJENDRA SINGH ON 14/12/2005. ON PERUSAL OF THIS OFFICE RECORD, I WAS FOUND THAT THE ASSESSEE HAD FILED THE RETURNS OF THE FIRM FOR A.Y. 2003-04, 2004-05 AND 2005- 06. THESE RETURNS SHOW THE ZERO INCOME (FIGURES) IN EACH AND EVERY COLOUM OF THE RETURN. THUS THE ASSESSEE FIRM HAS NO T SHOWN THE INCOME IN THESE FINANCIAL YEAR WHILE 07 FLATS WERE SOLD DU RING F.Y. 2002-03 TO 2004-05. MAXIMUM FLATS WERE SOLD DURING 2003-04 AND 2004-05 RELEVANT TO A.Y. 2004-05 AND 2005-06. ASSESSEE FIRM HAD NOT FILED ANY DETAILS ALONG WITH THE RETURN REGARDING SALES CONSI DERATION AS WELL AS PROFIT EARNED ON SALE OF THESE FLATS. DURING F.Y. 2 003-04 (A.Y. 2004- 05) THE ASSESSEE FIRM HAD SOLD FOUR FLATS. ON ENQUI RY, IT WAS FOUND THAT THE SALE CONSIDERATION OF EACH FLAT WAS BETWEEN RS. 15 LAC TO RS.16 LAC. THUS THE SALE CONSIDERATION OF FOUR FLATS COME S TO RS.4*16 = 64 LAC. THE PROFIT ON THESE SALES DURING F.Y. 2003-04 IS CALCULATED @25% OF THE TOTAL SALE CONSIDERATION OF RS.64,00,00 0/- WHICH IS QUANTIFIED AT RS.16,00,000/- (64,00,000*25%) WHICH WAS NOT SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME OF THE FIRM FOR A.Y. 2004-05. HENCE THIS INCOME OF RS.16,00,000/- IS THE ESCAPED ASSESSMENT. HENCE, I HAVE REASON TO BELIEVE THAT THE ABOVE AMOU NT OF RS.16,00,000/- IS ESCAPED ASSESSMENT WITH IN THE ME ANING OF SECTION 147 OF THE I.T. ACT, 1961 FOR THE A.Y. 2004-05 BY R EASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY & TRU LY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR A.Y. 2004-05. THER EFORE PROCEEDINGS ITA NO. 206/AGRA/2013 6 U/S 147/148 OF THE I.T. ACT IN THE CASE OF THE ASSE SSEE FIRM FOR A.Y. 2004-05(RELEVANT TO F.Y. 2003-04) IS REQUIRED TO BE INITIATED AS PER PROVISIONS OF I.T. ACT, 1961. NOTICE U/S 148 OF I.T . ACT FOR A.Y. 2004- 05 IS BEING ISSUED TO THE ASSESSEE FIRM M/S SHRI NA TH JI BUILDERS, 40 KHANDARI ROAD, AGRA AND THROUGH ITS PARTNERS AT THE IR GIVEN ADDRESSES TO ASSESS THE ESCAPED INCOME AS CALCULATE D ABOVE AND / OR ANY OTHER INCOME WHICH COMES TO THE NOTICE OF THE A .O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 5.1 ON GOING THROUGH THE ABOVE REASONS FOR REOPENIN G OF ASSESSMENT, IT IS CLEAR THAT THE AO RECEIVED SOME INFORMATION FORM LD. CIT( A)-I, AGRA THROUGH HIS APPELLATE ORDER IN THE CASE OF SHRI ANIL KUMAR AGAR WAL WHO IS STATED TO BE PARTNER IN THE ASSESSEES FIRM. THE AO WAS, THEREFORE, REQU IRED TO MAKE ENQUIRY IN THE CASE OF ASSESSEE FIRM. INFORMATION WAS PERTAINING TO SAL E OF FLATS IN ASSESSMENT YEAR UNDER APPEAL. THE AO ON PERUSAL OF THE RECORD FOUND THAT THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL, I.E ., 2004-05 AND PRECEDING ASSESSMENT YEAR 2003-04 AND SUBSEQUENT ASSESSMENT Y EAR 2005-06, WHICH DISCLOSED ZERO INCOME. THE AO NOTED THAT THE ASSESS EE FIRM HAS NOT SHOWN INCOME IN THESE FINANCIAL YEARS WHILE SEVEN FLATS WERE SOL D IN F.Y. 2002-03 TO 2004-05. IT WAS ALSO NOTED THAT IN THE ASSESSMENT YEAR UNDER AP PEAL, I.E., 2004-05, THE ASSESSEE FIRM HAD SOLD FOUR FLATS AND MUST HAVE EARNED INCOM E OF RS.16,00,000/-. THE AO, THEREFORE, ON THE BASIS OF ASSUMPTION OF THESE FACT S FOUND THAT THERE IS ESCAPEMENT OF INCOME OF RS.16,00,000/- IN THE ASSESSMENT YEAR UNDER APPEAL. THE AO, HOWEVER, WHILE FINALIZING THE RE-ASSESSMENT ORDER D ATED 28.12.2011 DID NOT MAKE ANY ADDITION ON ACCOUNT OF SALE OF ANY FLATS BY THE ASSESSEE IN A SUM OF ITA NO. 206/AGRA/2013 7 RS.16,00,000/- OR OF OTHER AMOUNT. IT WOULD, THEREF ORE, MAKE IT CLEAR THAT THE ASSESSEE DID NOT SELL ANY FLATS IN THE ASSESSMENT Y EAR UNDER APPEAL AND THUS, HAS NOT EARNED ANY INCOME ON ACCOUNT OF SALE OF FLATS. THER EFORE, THERE IS NO QUESTION OF SHOWING ANY INCOME ON ACCOUNT OF SALE OF FLATS IN T HE RETURN OF INCOME FILED U/S. 139 OF THE IT ACT. THE ASSESSEE HAS, THEREFORE, COR RECTLY SHOWN NIL INCOME IN THE ORIGINAL RETURN OF INCOME. THE AO, THEREFORE, ACCEP TED THE CONTENTION OF THE ASSESSEE THAT THERE WAS NO SALE OF FLATS IN THE ASS ESSMENT YEAR UNDER APPEAL. THE LD. CIT(A) WHILE DECIDING THE APPEAL OF SHRI ANIL KUMAR AGARWAL VIDE HIS ORDER DATED 15.02.2011 DIRECTED THE AO TO EXAMINE THE PROFIT EA RNED BY THE FIRM ON ACCOUNT OF SALE OF FLATS. THUS, THE AO WITHOUT EXAMINING THE O BSERVATIONS OF THE LD. CIT(A) IN THE CASE OF ANIL KUMAR AGARWAL, ASSUMED CERTAIN SAL E OF FLATS WHICH WERE TOTALLY INCORRECT AND NON-EXISTING. THE AO, THEREFORE, DID NOT HAVE ANY DOCUMENT OR MATERIAL IN HIS POSSESSION TO INDICATE THAT THE ASS ESSEE HAS SOLD ANY FLAT IN THE ASSESSMENT YEAR UNDER APPEAL AND HAVE EARNED ANY IN COME OR PROFIT THEREON. THE AO, THEREFORE, DID NOT APPLY HIS MIND TO THE INFORM ATION RECEIVED BY WAY OF ORDER RECEIVED FROM LD. CIT(A)-I, AGRA. THE ASSESSEE HAS FILED COMPLETE DETAILS BEFORE THE LD. CIT(A) REGARDING SALE OF FLATS, COPY OF WHI CH IS FILED AT PAGE 3 OF THE PAPER BOOK, WHICH IS SUPPORTED BY THE COPIES OF SALE DEED S TO PROVE THAT NO SINGLE FLAT HAS BEEN SOLD IN THE ASSESSMENT YEAR UNDER APPEAL. THE AO IN HIS REMAND REPORT DATED 23.01.2013 DID NOT DISPUTE SUCH CONTENTION OF THE A SSESSEE. COPIES OF THE BALANCE SHEET FOR THE ASSESSMENT YEAR ENDING 31.03.2003 AND 31.03.2004 ARE FILED IN THE ITA NO. 206/AGRA/2013 8 PAPER BOOK AT PAGE 207 AND 208 TO SHOW THAT ONLY CO NSTRUCTION WAS GOING ON IN PRECEDING ASSESSMENT YEAR 2003-04 AND THE YEAR UNDE R APPEAL 2004-05. THEREFORE, THERE WAS NO SALE OF FLATS IN THE ASSESSMENT YEAR U NDER APPEAL. IT WOULD, THEREFORE, PROVE THAT THE AO ACTED ONLY ON THE OBSERVATION OF THE LD. CIT(A)-I, AGRA WITHOUT EXAMINING THE DETAILS AT THE STAGE OF RECORDING THE REASONS FOR REOPENING OF ASSESSMENT. THE EXISTENCE OF TANGIBLE MATERIAL FOR THE FORMATION OF OPINION IS PRE- REQUISITE FOR INITIATION OF ACTION U/S. 147 OF THE IT ACT. THE AO MUST HAVE REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THER E SHOULD BE FACTS BEFORE HIM THAT REASONABLY GIVE RISE TO THE BELIEF. WHEN A CHA LLENGE IS MADE TO THE ACTION U/S. 147, WHAT THE COURT IS REQUIRED TO EXAMINE IS WHETH ER SOME MATERIAL EXISTS ON RECORD FOR THE AO TO FORM THE REQUISITE BELIEF AND THE REASONS FOR BELIEF HAVE A RATIONAL NEXUS OR RELEVANT BEARING TO THE FORMATION OF SUCH BELIEF AND ARE NOT EXTRANEOUS OR IRRELEVANT FOR THE PURPOSE OF THAT SE CTION. WE RELY UPON THE FOLLOWING DECISIONS, SOME OF WHICH HAVE ALSO BEEN CITED BY TH E LD. COUNSEL FOR THE ASSESSEE DURING THE COURSE OF ARGUMENTS :- 5.2 DECISION OF HONBLE SUPREME COURT IN THE CASE O F SHEO NATH SINGH VS. APPELLATE ASST. COMMISSIONER OF INCOME-TAX, 82 ITR 147, IN WHICH IT WAS HELD AS UNDER : THE WORDS REASON TO BELIEVE SUGGEST THAT THE BEL IEF MUST BE THAT OF AN HONEST AND REASONABLE PERSON BASED UPON REASONABLE GROUNDS AND THAT THE INCOME-TAX OFFICER MAY ACT ON DIRECT OR ITA NO. 206/AGRA/2013 9 CIRCUMSTANTIAL EVIDENCE BUT NOT ON MERE SUSPICION, GOSSIP OR RUMOUR. THE INCOME-TAX OFFICER WOULD BE ACTING WITHOUT JURI SDICTION IF THE REASON FOR HIS BELIEF THAT THE CONDITIONS ARE SATIS FIED DOES NOT EXIST OR IS NOT MATERIAL OR RELEVANT TO THE BELIEF REQUIRED BY THE SECTION. THE COURT CAN ALWAYS EXAMINE THIS ASPECT THOUGH THE DEC LARATION OR SUFFICIENCY OF THE REASONS FOR THE BELIEF CANNOT BE INVESTIGATED BY THE COURT. 5.3 HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ATLAS CYCLE INDUSTRIES, 180 ITR 319 (P&H) HAS HELD AS UNDER : HELD, (I) THAT THE TRIBUNAL WAS RIGHT IN CANCELING THE REASSESSMENT AS BOTH THE GROUNDS ON WHICH THE REASS ESSMENT NOTICE WAS ISSUED WERE NOT FOUND TO EXIST, AND, THEREFORE, THE INCOME-TAX OFFICER DID NOT GET JURISDICTION TO MAKE A REASSESS MENT. 5.4 HONBLE DELHI HIGH COURT IN THE CASE OF UNITED ELECTRICAL CO. P. LTD. VS. CIT, 258 ITR 317 HELD AS UNDER : HELD, QUASHING THE NOTICE, THAT THERE WAS NO INFORMATION ON RECORD WHICH COULD PROVIDE FOUNDATION FOR THE ASSES SING OFFICERS BELIEF THAT THE PETITIONERS TRANSACTION WITH VFL W AS NOT GENUINE AND THE PETITIONERS INCOME HAD ESCAPED ASSESSMENT. THE ACTION OF THE ASSESSING OFFICER WAS NOT SUSTAINABLE. 5.5 HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. MAHESH GUM AND OIL INDUSTRIES, 292 ITR 397 HAS HELD AS UNDER : HELD, THAT THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HA D HELD THAT THE PROCEEDINGS UNDER SECTION 147 OF THE INCOME-TAX ACT, 1961, WERE NOT VALID. A PERUSAL OF THE REASONS FOR ISSUE OF NOTICE UNDER SECTION 148 CLEARLY SHOWED THAT ESCAPEMENT OF INCOME FROM ASSESSMENT HAD BEEN ATTRIBUTED NOT TO ANY EXISTING MATERIAL BUT BY ASSUMING A CERTAIN STATE OF THINGS TO EXIST FOR THE REASONS BEST KNOWN ITA NO. 206/AGRA/2013 10 TO THE ASSESSING OFFICER. THE REASSESSMENT PROCEEDI NGS WERE NOT VALID AND WERE LIABLE TO BE QUASHED. 5.6 HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SFI L STOCK BROKING LTD., 325 ITR 285 HAS HELD AS UNDER : HELD, DISMISSING THE APPEAL, THAT THE FIRST SENTENCE OF T HE REASONS RECORDED BY THE A.O. WAS MERE INFORMATION R ECEIVED FROM THE DEPUTY DIRECTOR OF INCOME-TAX (INVESTIGATION). THE SECOND SENTENCE IS A DIRECTION GIVEN BY THE VERY SAME DEPUTY DIRECTOR OF INCOME-TAX (INVESTIGATION) TO ISSUE A NOTICE UNDER SECTION 148 AND THE THIRD SENTENCE AGAIN COMPRISED A DIRECTION GIVEN BY THE A DDITIONAL COMMISSIONER OF INCOME-TAX TO INITIATE PROCEEDINGS UNDER SECTION 148 IN RESPECT OF CASES PERTAINING TO THE RELEVANT WARD . THE ASSESSING OFFICER REFERRED TO THE INFORMATION AND THE TWO DIR ECTIONS AS REASONS ON THE BASIS OF WHICH HE WAS PROCEEDING TO ISSUE NO TICE UNDER SECTION 148. THESE COULD NOT BE THE REASON FOR PROCEEDING U NDER SECTION 147/148 OF THE ACT. THE FIRST PART WAS ONLY AN INF ORMATION AND THE SECOND AND THE THIRD PARTS OF THE REASONS WERE MERE DIRECTIONS, IT WAS NOT AT ALL DISCERNIBLE AS TO WHETHER THE ASSESSING OFFICER HAD APPLIED HIS MIND TO THE INFORMATION AND INDEPENDENTLY ARRIV ED AT A BELIEF THAT, ON THE BASIS OF THE MATERIAL WHICH HE HAD BEFORE HI M, INCOME HAD ESCAPED ASSESSMENT. CONSEQUENTLY, THE TRIBUNAL HAS ARRIVED AT THE CORRECT CONCLUSION ON FACTS. THERE WAS NO SUBSTANT IAL QUESTION OF LAW WHICH ARISES FOR CONSIDERATION. 5.7 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JE T AIRWAYS (I) LTD., 331 ITR 236 HAS HELD AS UNDER : HOWEVER, IF AFTER ISSUING A NOTICE UNDER SECTION 14 8, HE ACCEPTS THE CONTENTION OF THE ASSESSEE AND HOLDS TH AT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE H AD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASS ESSMENT, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCO ME. ITA NO. 206/AGRA/2013 11 5.8 HONBLE DELHI HIGH COURT IN THE CASE OF RANBAXY LAB ORATORIES LTD. VS. CIT, 336 ITR 136 HAS HELD AS UNDER : HELD, THAT SECTION 148 WAS SUPPLEMENTARY AND COMPLEMENTAR Y TO SECTION 147. SUB-SECTION (2) OF SECTION 148 MAND ATES REASONS FOR ISSUANCE OF NOTICE BY THE ASSESSING OFFICER AND SUB -SECTION (1) MANDATES SERVICE OF NOTICE TO THE ASSESSEE BEFORE T HE ASSESSING OFFICER PROCEEDS TO ASSESS, REASSESS OR RECOMPUTED ESCAPED INCOME. SECTION 147 MANDATES RECORDING OF REASONS TO BELIEVE BY THE ASSESSING OFFICER THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSES SMENT. ALL THESE CONDITIONS WERE REQUIRED TO BE FULFILLED TO ASSESS OR REASSESS THE ESCAPED INCOME CHARGEABLE TO TAX. UNDER EXPLANATION 3 IF DURING THE COURSE OF THE PROCEEDINGS THE ASSESSING OFFICER COM ES TO THE CONCLUSION THAT SOME ITEMS HAVE ESCAPED ASSESSMENT, THEN NOTWITHSTANDING THAT THOSE ITEMS WERE NOT INCLUDED IN THE REASONS TO BELIEVE AS RECORDED FOR INITIATION OF THE PROCEEDIN GS AND THE NOTICE, HE WOULD BE COMPETENT TO MAKE ASSESSMENT OF THOSE ITEM S FOR EVERY NEW ISSUE COMING BEFORE THE ASSESSING OFFICER DURING TH E COURSE OF PROCEEDINGS OF ASSESSMENT OR REASSESSMENT OF ESCAPE D INCOME, AND WHICH HE INTENDS TO TAKE INTO ACCOUNT, HE WOULD BE REQUIRED TO ISSUE A FRESH NOTICE UNDER SECTION 148. THE ASSESSING OFFIC ER WAS SATISFIED WITH THE JUSTIFICATIONS GIVEN BY THE ASSESSEE REGAR DING THE ITEMS OF CLUB FEES, GIFT AND PRESENTS AND PROVISION FOR LEAV E ENCASHMENT, BUT DURING THE ASSESSMENT PROCEEDINGS, HE FOUND THE DED UCTION UNDER SECTION 80HH AND 80-I AS CLAIMED BY THE ASSESSEE TO BE NOT ADMISSIBLE. HE CONSEQUENTLY PROCEEDED TO MAKE DEDUC TIONS UNDER SECTIONS 80HH AND 80-I AND ACCORDINGLY REDUCED THE CLAIM ON THESE ACCOUNTS. THE VERY BASIS OF INITIATION OF PROCEEDIN GS FOR WHICH REASONS TO BELIEVE WERE RECORDED WAS INCOME ESCAPIN G ASSESSMENT IN RESPECT OF ITEMS OF CLUB FEES, GIFTS AND PRESENTS, ETC., BUT WHILE THESE ITEMS WERE NOT DISTURBED, THE ASSESSING OFFICER PRO CEEDED TO REDUCE THE CLAIM OF DEDUCTION UNDER SECTION 80HH AND 80-I WHICH WAS NOT PERMISSIBLE. THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSING OFFICER HAD THE JURISDICTION TO REASSESS ISSUES OTH ER THAN THE ISSUES IN RESPECT OF WHICH PROCEEDINGS WERE INITIATED BUT HE WAS NOT JUSTIFIED WHEN THE REASONS FOR THE INITIATION OF THOSE PROCEE DINGS CEASED TO SURVIVE. ITA NO. 206/AGRA/2013 12 5.9 HONBLE DELHI HIGH COURT IN THE CASE OF SIGNATU RE HOTELS P. LTD. VS. ITO, 338 ITR 51 HELD HELD, ALLOWING THE PETITION, THAT THE REASSESSMENT PROCEE DINGS WERE INITIATED ON THE BASIS OF INFORMATION RECEIVED FROM THE DIRECTOR OF INCOME-TAX (INVESTIGATION) THAT THE PETITIONER H AD INTRODUCED MONEY AMOUNTING TO RS.5 LAKHS DURING FINANCIAL YEAR 2002- 03 AS STATED IN THE ANNEXURE. ACCORDING TO THE INFORMATION, THE AMOUNT RECEIVED FROM A COMPANY, S, WAS NOTHING BUT AN ACCOMMODATION ENTRY AND THE ASSESSEE WAS THE BENEFICIARY. THE REASONS DID NOT S ATISFY THE REQUIREMENTS OF SECTION 147 OF THE IT ACT. THERE WA S NO REFERENCE TO ANY DOCUMENT OR STATEMENT, EXCEPT THE ANNEXURE. THE ANN EXURE COULD NOT BE REGARDED AS A MATERIAL OR EVIDENCE THAT PRIM A FACIE SHOWED OR ESTABLISHES NEXUS OR LINK WHICH DISCLOSED ESCAPEMEN T OF INCOME. THE ANNEXURE WAS NOT A POINTER AND DID NOT INDICATE ESC APEMENT OF INCOME. FURTHER, THE ASSESSING OFFICER DID NOT APPL Y HIS OWN MIND TO THE INFORMATION AND EXAMINE THE BASIS AND MATERIAL OF THE INFORMATION. THERE WAS NO DISPUTE THAT THE COMPANY, S, HAD A PAID UP CAPITAL OF RS.90 LAKHS AND WAS INCORPORATED ON JANU ARY 4, 1989, AND WAS ALSO ALLOTTED A PERMANENT ACCOUNT NUMBER IN SEP TEMBER, 2001. THUS, IT COULD NOT BE HELD TO BE A FICTITIOUS PERSO N. THE REASSESSMENT PROCEEDINGS WEE NOT VALID AND WERE LIABLE TO BE QUA SHED. 5.10 DECISION OF GUJRAT HIGH COURT IN THE CASE OF CIT VS. MOHMED JUNED DADANI, 258 CTR 168, IN WHICH IT WAS HELD AS UNDER : TRIBUNAL WAS RIGHT IN LAW IN COMING TO THE CONCLUSI ON THAT WHEN ON THE GROUND ON WHICH THE REOPENING OF ASSESS MENT IS BASED, NO ADDITIONS ARE MADE BY THE AO IN THE ORDER OF ASS ESSMENT, HE CANNOT MAKE ADDITIONS ON SOME OTHER GROUNDS WHICH D ID NOT FORM PART OF THE REASONS RECORDED BY HIM. 6. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F ABOVE DECISIONS, IT IS CLEAR THAT ASSUMPTION OF JURISDICTION BY THE AO IN THE AF ORESAID CASE TO INITIATE RE- ASSESSMENT PROCEEDINGS ARE BAD IN LAW AND LIABLE TO BE QUASHED. THE PERUSAL OF THE REASONS SHOWED THAT THE ESCAPEMENT OF INCOME FROM A SSESSMENT HAD BEEN ITA NO. 206/AGRA/2013 13 ATTRIBUTED NOT TO ANY EXISTING MATERIAL, BUT ON ASS UMPTION OF STATE OF THINGS TO EXIST FOR THE REASONS BEST KNOWN TO THE AO. THERE WAS NO FOUNDATION TO THE REASONS RECORDED BY THE AO FOR ESCAPEMENT OF INCOME. THE IN FORMATION RECEIVED FROM THE OFFICE OF THE LD. CIT(A)-I, AGRA WAS WHOLLY VAGUE A ND INCORRECT REGARDING SALE OF FLATS BY THE ASSESSEE FIRM. THE AO BEFORE ASSUMING JURISDICTION U/S. 148 OF THE IT ACT DID NOT VERIFY OR EXAMINE THE SAME. ON EXAMINAT ION OF THE BALANCE SHEET WOULD MAKE IT CLEAR THAT THE ASSESSEE DID NOT SELL ANY FLAT IN THE ASSESSMENT YEAR UNDER APPEAL, THEREFORE, THE REASONS RECORDED BY TH E AO FOR REOPENING OF ASSESSMENT WAS BASED ON INCORRECT AND NON-EXISTING FACTS. THERE WAS NO EVIDENCE, DOCUMENT OR MATERIAL IN POSSESSION OF THE AO TO PRO VE THAT THE ASSESSEE HAD IN FACT SOLD ANY FLAT IN THE ASSESSMENT YEAR UNDER APPEAL. RATHER THE CLAIM OF ASSESSEE THAT IT DID NOT SELL ANY FLAT IN THE ASSESSMENT YEAR UND ER APPEAL HAS BEEN SUPPORTED BY RELEVANT SALE DEEDS AND THE DETAILS SUBMITTED BEFOR E THE AUTHORITIES BELOW. WHEN ON THE GROUND, ON WHICH THE REOPENING OF ASSESSMENT IS BASED, NO ADDITIONS ARE MADE BY THE AO IN THE ASSESSMENT ORDER, HE CANNOT MAKE A DDITIONS ON SOME OTHER GROUNDS WHICH DID NOT FORM PART OF THE REASONS RECO RDED BY THE AO. LIKEWISE THE LD. CIT(A) CANNOT ENHANCE THE ASSESSMENT OF THE ASS ESSEE ON THE REASONS WHICH WERE NOT RECORDED IN THE REASONS FOR REOPENING OF A SSESSMENT BECAUSE NO SUCH ADDITIONS HAVE BEEN MADE BY THE AO OR LD. CIT(A) ON ACCOUNT OF SALE OF FLATS ALLEGEDLY MADE BY THE ASSESSEE. THE LD. CIT(A) IS A LSO NOT JUSTIFIED IN CONFIRMING THE REOPENING OF ASSESSMENT ON THE GROUND THAT THE ADDITIONS MADE BY THE AO ARE ITA NO. 206/AGRA/2013 14 CONNECTED WITH THE REASONS AS RECORDED TO THE CONST RUCTION BUSINESS. THE REASONS GIVEN BY THE LD. CIT(A) ARE WHOLLY VAGUE AND INCORR ECT BECAUSE REOPENING OF ASSESSMENT WAS MADE ON THE REASONS OF SALE OF FLATS , WHICH ARE NOT CONNECTED WITH THE ADDITIONS MADE BY THE AO. CONSIDERING THE ABOV E DISCUSSION, WE ARE OF THE VIEW THAT THE REASONS FOR REOPENING OF ASSESSMENT A RE BASED ON INCORRECT AND NON- EXISTING FACTS AND NO ADDITION HAS BEEN MADE BY THE AO ON ACCOUNT OF SALE OF FLATS IN THE REASSESSMENT ORDER, THEREFORE, ASSUMPTION OF JURISDICTION BY THE AO U/S. 147/148 IS BAD IN LAW AND WITHOUT JURISDICTION. WE, ACCORDINGLY, SET ASIDE AND QUASH THE REASSESSMENT PROCEEDINGS U/S. 148 OF THE IT ACT. THE RESULTANT ADDITIONS MADE BY THE AO AND LD. CIT(A) IN THE IMPUGNED ORDER S STAND DELETED. THE SAME ARE NOT DISCUSSED SEPARATELY, AS THEY ARE LEFT WITH ACADEMIC DISCUSSION ONLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY