Tristar Securities Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-8(1), Ahmedabad

ITA 976/AHD/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7004 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 20-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G C DAXINI
• Assessee Lawyers: S N DIVATIA
• Keywords: Reopening of assessment; Unexplained cash credit; Reason to believe; Reassessment proceedings
• Section: 143(3); 143(1); 148

Judgement Text

ITA NO. 976/AHD/2015 TRISTAR SECURITIES PVT. LTD. VS. ITO ASSESSMENT YEAR: 2006-07 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR, VP AND MS. MADHUMITA ROY, JM] ITA NO. 976/AHD/2015 ASSESSMENT YEAR: 2006-07 TRISTAR SECURITIES PVT. LTD. ............... ...APPELLANT C-102, SAMASTHA APPT., OPP. ATIRA, AMBAWADI, AHMEDABAD - 380015 [PAN : AAACT 5664 L] VS. INCOME TAX OFFICER ...........................RESPONDENT WARD-8(1), AHMEDABAD APPEARANCES BY: SN DIVATIA, FOR THE APPELLANT GC DAXINI, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 31.12.2018 DATE OF PRONOUNCING THE ORDER : 15.01.2019 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT: 1. BY WAY OF THIS APPEAL, THE ASSESSEE-APPELLANT HA S CHALLENGED CORRECTNESS OF THE ORDER DATED 27 TH FEBRUARY 2015 PASSED BY THE CIT(A)-8, AHMEDABAD, I N THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 14 7 OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2006-07. 2. ONE OF THE GRIEVANCES THAT THE ASSESSEE HAS RAIS ED IS WITH RESPECT TO THE VALIDITY OF THE REASSESSMENT PROCEEDINGS. THIS GRI EVANCE IS ARTICULATED BY GROUND NOS. 2.1 AND 2.2, WHICH ARE AS FOLLOWS:- 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AN D ON FACTS IN UPHOLDING THE VALIDITY OF REOPENING OF ASSESSMENT U /S 147. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE REASONS RE CORDED BY AO STATED THAT THERE WAS NO CREDITWORTHINESS OF THE DEPOSITOR SHRI S M SHAH SO THAT THERE CANNOT BE ANY REASON TO BELIEVE THAT THE INCOME OF THE APPELLANT COMPANY HAD ESCAPED ASSESSMENT. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THE VALIDITY OF REOPENING U/S 147. ITA NO. 976/AHD/2015 TRISTAR SECURITIES PVT. LTD. VS. ITO ASSESSMENT YEAR: 2006-07 PAGE 2 OF 5 3. TO ADJUDICATE ON THIS GRIEVANCE, ONLY A FEW MATE RIAL FACTS ARE REQUIRED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS A COMPANY ENGAGED IN THE BUSINESS OF TRADING IN GOVT. SECURITIES AND BONDS. THE RETURN OF INCOME WAS ORIGINALLY FILED ON 28.12.2006 AND IT WAS PROCESSED UNDER SECTION 143(1 ) ON 07.06.2007. THEREAFTER THE CASE WAS REOPENED BY ISSUANCE OF NOTICE UNDER S ECTION 148 ON 14.05.2010. THE BACKGROUND IN WHICH THE CASE WAS REOPENED IS EVIDEN T FROM THE FOLLOWING OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER:- THE RETURN OF INCOME WAS ORIGINALLY E-FILED ON 28. 12.2006 DECLARING TOTAL INCOME LOSS OF RS.12,100/-. THE RETURN OF INCOME WA S PROCESSED U/S. 143(1) OF THE IT ACT61 ON 7.6.2007. THEREAFTER, IT WAS C OME TO THE NOTICE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD ACCEPTED FUNDS MORE THAN RS.1,00,000/- FROM SHRI SWITOO M. SHAH. T HE SAID FUND HAS BEEN TRANSFERRED FROM THE BANK ACCOUNT NO.00481050011374 OF HDFC BANK MAINTAINED IN THE NAME OF SHRI SWITOO M. SHAH IN TH E FY 2005-06. THE SAID BANK ACCOUNT HAD NOT BEEN DISCLOSED BY SHRI SWITOO M. SHAH IN HIS RETURN OF INCOME. FROM PERUSAL OF THE BANK STATEMENT OF THE S AID BANK ACCOUNT OF SHRI SWITOO M. SHAH, IT IS NOTICED THAT SUBSTANTIAL CASH HAD BEEN DEPOSITED IN THE BANK BEFORE OR ON THE DAY OF TRANSFER OF FUNDS TO T HE ASSESSEE COMPANY. SHRI SWITOO M. SHAH'S DECLARED INCOME WAS NOT AT PAR WIT H THE SUBSTANTIAL AMOUNTS DEPOSITED IN THE BANK ACCOUNT MEANING THERE BY THAT THERE IS NO CREDIT WORTHINESS OF THE DEPOSITOR. THEREFORE, THER E WAS REASON TO BELIEVE THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM SHRI SWITO O M. SHAH THROUGH HDFC BANK ACCOUNT NO. 00481050011374 IS UNEXPLAINED CASH CREDITS OF THE ASSESSEE COMPANY AND THE INCOME CHARGEABLE TO TAX H AD ESCAPED ASSESSMENT. 4. THE ASSESSEES OBJECTIONS AGAINST REOPENING OF T HE ASSESSMENT WERE REJECTED WHEN THE MATTER WAS CARRIED IN APPEAL BEFO RE THE CIT(A). THE CIT(A) HAS ALSO CONFIRMED THE REOPENING OF THE ASSESSMENT BY O BSERVING AS FOLLOWS:- 2. WITH REFERENCE TO GROUND A, IT IS SEEN THAT AS SESSING OFFICER HAD REOPENED THE CASE BY RECORDING REASONS AS PER DUE PROCESS OF LAW. IT WAS NOTED BY THE ASSESSING OFFICER THAT BANK ACCOUNT FROM WHICH MONE Y WAS TRANSFERRED BY SHRI SWITOO M SHAH WAS NOT DISCLOSED TO THE INCOME TAX D EPARTMENT AND FURTHER THE DECLARED INCOME OF MR SHAH WAS NOT AT PAR WITH THE SUBSTANTIAL AMOUNT DEPOSITED IN THE BANK ACCOUNT MEANING THEREBY THAT THERE WAS NO CREDITWORTHINESS OF THE DEPOSITOR. BASED ON THIS IS SPECIFIC INFORMATION AND THE CONCLUSION DRAWN THE CASE WAS REOPENED BY ISSUING N OTICE UNDER SECTION 147. THE APPELLANT HAS CHALLENGED THE REOPENING AND REAS ONS ARE STATED IN THE GROUNDS OF APPEAL. IT IS SEEN THAT RETURN OF INCOME WAS FILED ON 28/12/2006 DECLARING TOTAL LOSS OF RS.12,100. THE RETURN OF IN COME WAS PROCESSED UNDER SECTION 143 (1). THEREAFTER THE CASE WAS REOPENED B Y ISSUING NOTICE UNDER SECTION 148 ON 14/05/2010. IT IS SEEN THAT CASE HAS BEEN REOPENED AFTER RECORDING REASONS. THE CASE WAS EARLIER PROCESSED U NDER SECTION 143(1) WHICH SHOWS THAT NO OPINION WAS FOUND IN RESPECT OF THE TRANSACTIONS OF LOAN RECEIVED FROM MR. SWITOO M SHAH. RELIANCE IS PLACED ON ACIT VS RAJESH JHAVERI STOCK BROKERS P LTD 291 ITR 500 (SC). IT IS SEEN THAT IN THE PRESENT CASE THE ASSESSING OFFICER HAD SUFFICIENT REASONS T O ISSUE NOTICE UNDER SECTION 148 AND SO THE GROUND NUMBER (A) TAKEN BY THE APPEL LANT IS DISMISSED. ITA NO. 976/AHD/2015 TRISTAR SECURITIES PVT. LTD. VS. ITO ASSESSMENT YEAR: 2006-07 PAGE 3 OF 5 5. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 7. WE FIND THAT, BEYOND ANY DISPUTE OR CONTROVERSY, THE TRIGGER FOR REOPENING THE ASSESSMENT WAS THE FACT THAT THERE WERE CERTAIN CAS H DEPOSITS IN THE ACCOUNT OF SHRI SWITOO M. SHAH AND IT WAS FROM THIS BANK ACCOUNT TH AT THE ASSESSEE-COMPANY ALSO RECEIVED THE MONEY. IT IS DIFFICULT TO UNDERSTAND THAT WHEN THERE ARE CASH DEPOSITS IN THE BANK ACCOUNT OF AN INDIVIDUAL AND THESE CASH DE POSITS ARE PRIMA FACIE BEYOND HIS SOURCE OF INCOME OR ARE NOT REASONABLY EXPLAINE D AND EVEN THAT BANK ACCOUNT IS NOT DISCLOSED BY THE SAID INDIVIDUAL IN HIS RETURN OF INCOME, WHAT MAKES THE ASSESSING OFFICER TO BELIEVE THAT THESE DEPOSITS AR E INCOME OF THE COMPANY TO WHICH THE INDIVIDUAL IS MADE PAYMENTS. WHEN THERE ARE UN EXPLAINED CASH DEPOSITS IN AN INDIVIDUALS ACCOUNT AND THE SAID ACCOUNT IS NOT EV EN DISCLOSED TO THE INCOME-TAX AUTHORITIES, THE INCOME COULD AT BEST HAVE ESCAPED ASSESSMENT IN HIS HANDS AND NOT IN THE HANDS OF THE INDIVIDUAL TO WHOM HE HAS MADE THE PAYMENTS. THE REASONS FOR FORMING BELIEF THAT INCOME HAS ESCAPED ASSESSMENT A S NOTED BY HONBLE SUPREME COURT IN ITO VS. LAKHMANI MEWAL DAS (103 ITR 437) M UST HAVE RATIONAL CONNECTION OR RELEVANT BEARING IN FORMATION OF BELIEF. IN OUR CONSIDERED VIEW, THEREFORE, THE MERE FACTS OF CASH DEPOSITS IN THE HANDS OF THE DIRECTOR CANNOT LEAD TO REASONABLE INFERENCE THAT THE INCOME HAS ESCAPED ASSESSMENT IN THE HANDS OF THE COMPANY TO WHICH THE DIRECTOR HAS MADE THE PAYMENTS. TO ASSUM E THAT THE CASH DEPOSITS OF RS.1,00,000 IN SOMEONES BANK ACCOUNT BELONG TO THE PERSON TO WHOM THE PAYMENT IS A BIT TOO DIVORCED FROM THE GROUND REALITY. THA T PROCEEDS ON THE FALLACIOUS ASSUMPTION THAT MERE FACT OF CASH DEPOSITS IN LENDE RS BANK ACCOUNT CAN BE REASON ENOUGH TO ASSUME THAT LENDER LACKS CREDITWORTHINESS . AS FOR THE OBSERVATION THAT THE INCOME IS NOT AT PAR WITH SUBSTANTIAL AMOUNT DEPOS ITED IN THE BANK, THERE IS NO MENTION ABOUT THE INCOME FIGURE OF THE TENDER IN TH E REASONS RECORDED. WHAT IT NOTES IS THE INCOME OF THE ASSESSEE BUT THAT IS NOT REALLY RELEVANT. IT IS ONLY ELEMENTARY THAT NOTHING CAN BE ADDED TO, OR REDUCED FROM, THE REASONS ACTUALLY RECORDED BY THE ASSESSING OFFICER AND THAT THESE RE ASONS, ON STANDALONE BASIS, MUST PRIMA FACIE DEMONSTRATE THE ESCAPEMENT OF INCOME. IF NEEDED, AUTHORITY FOR THIS PROPOSITION CAN BE FOUND IN HINDUSTAN LEVER LT D VS. R.B. WADKAR, ASST. CIT [(2004) 268 ITR 332 (BOM)]. WHILE ON THIS ISSUE, W E MAY USEFULLY REFER TO A CO- ORDINATE BENCH DECISION IN THE CASE OF BIR BAHADUR SINGH SIJWALI VS. ITO [(2015) 68 SOT 197 (DELHI -TRIB)] AS FOLLOWS:- 7. IT IS WELL SETTLED IN LAW THAT REASONS, AS RECO RDED FOR REOPENING THE REASSESSMENT, ARE TO BE EXAMINED ON A STANDALONE BA SIS. NOTHING CAN BE ADDED TO THE REASONS SO RECORDED, NOR ANYTHING CAN BE DEL ETED FROM THE REASONS SO RECORDED. HON'BLE BOMBAY HIGH COURT, IN THE CASE OF HINDUSTAN LEVER LTD. V. R.B. WADKAR [2004] 268 ITR 332/137 TAXMANN 479 , HAS, INTER ALIA, OBSERVED THAT '.IT IS NEEDLESS TO MENTION THAT THE REASON S ARE REQUIRED TO BE READ AS THEY WERE RECORDED BY THE AO. NO SUBSTITUTION OR DE LETION IS PERMISSIBLE. NO ADDITIONS CAN BE MADE TO THOSE REASONS. NO INFERENC E CAN BE ALLOWED TO BE DRAWN ON THE BASIS OF REASONS NOT RECORDED. IT IS F OR THE AO TO DISCLOSE AND OPEN HIS MIND THROUGH THE REASONS RECORDED BY HIM. HE HA S TO SPEAK THROUGH THE REASONS.' THEIR LORDSHIPS ADDED THAT 'THE REASONS R ECORDED SHOULD BE SELF- ITA NO. 976/AHD/2015 TRISTAR SECURITIES PVT. LTD. VS. ITO ASSESSMENT YEAR: 2006-07 PAGE 4 OF 5 EXPLANATORY AND SHOULD NOT KEEP THE ASSESSEE GUESSI NG 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 REC ORDED, MAY NOT NECESSARILY PROVE ESCAPEMENT OF INCOME AT THE STAGE OF RECORDIN G THE REASONS, SUCH REASONS MUST POINT OUT TO AN INCOME ESCAPING ASSESS MENT AND NOT MERELY NEED OF AN INQUIRY WHICH MAY RESULT IN DETECTION OF AN I NCOME 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 NEC ESSARY THAT THE FACT OF INCOME HAVING ESCAPED ASSESSMENT IS PROVED TO THE H ILT. WHAT IS, HOWEVER, NECESSARY IS THAT THERE MUST BE SOMETHING WHICH IND ICATES, EVEN IF NOT ESTABLISHES, THE ESCAPEMENT OF INCOME FROM ASSESSME NT. IT IS ONLY ON THIS BASIS THAT THE ASSESSING OFFICER CAN FORM THE BELIEF THAT AN INCOME HAS ESCAPED ASSESSMENT. MERELY BECAUSE SOME FURTHER INVESTIGATI ONS 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 VIE W THAT INCOME HAS ESCAPED ASSESSMENT. IT IS ALSO IMPORTANT TO BEAR IN MIND THE SUBTLE BUT IMPORTANT DISTINCTION BETWEEN FACTORS WHICH INDICATE AN INCOM E ESCAPING THE ASSESSMENTS AND THE FACTORS WHICH INDICATE A LEGITIMATE SUSPICI ON ABOUT INCOME ESCAPING THE ASSESSMENT. THE FORMER CATEGORY CONSISTS OF THE FAC TS 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 FAC TS, WHICH, IF ESTABLISHED TO BE CORRECT, COULD LEGITIMATELY LEAD TO FURTHER INQUIRI ES WHICH MAY LEAD TO DETECTION OF AN INCOME WHICH HAS ESCAPED ASSESSMENT. THERE HAS T O BE SOME KIND OF A CAUSE AND EFFECT RELATIONSHIP BETWEEN REASONS RECOR DED 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 V. LAKHMANI MEWAL DAS [1976] 103 ITR 43 7 , 'THE REASONS FOR THE FORMATION OF THE BELIEF MUST H AVE RATIONAL CONNECTION WITH OR RELEVANT BEARING ON THE FORMATION OF THE BE LIEF. RATIONAL CONNECTION POSTULATES THAT THERE MUST BE A DIRECT NEXUS OR LIV E LINK BETWEEN THE MATERIAL COMING TO THE NOTICE OF THE ITO AND THE FORMATION O F 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 OPI NION FOR THAT OF THE ITO ON THE POINT AS TO WHETHER ACTION SHOULD BE INITIAT ED FOR REOPENING ASSESSMENT. AT THE SAME TIME WE HAVE TO BEAR IN MIN D THAT IT IS NOT ANY AND EVERY MATERIAL, HOWSOEVER VAGUE AND INDEFINITE OR D ISTANT, REMOTE AND FARFETCHED, WHICH WOULD WARRANT THE FORMATION OF TH E BELIEF RELATING TO ESCAPEMENT OF THE INCOME OF THE ASSESSEE FROM ASSES SMENT.' 8. WE MAY ALSO ADD THAT, AS NOTED IN THE REASONS, AS REGARDS DEPOSIT EXCEEDING RS.1,00,000 IN THE BANK ACCOUNT OF TENDER, THERE IS NO MENTION ABOUT THE QUANTIFICATION OF INCOME AND NATURE OF BUSINESS ACT IVITY OF SWITOO SHAH. THERE IS NOTHING TO DEMONSTRATE THAT DEPOSIT EXCEEDING RS.1, 00,000 ARE NOT ONLY INCOME ESCAPING ASSESSMENT BUT INCOME ESCAPING ASSESSMENT IN THE HANDS OF THIS ASSESSEE RATHER THAN OF THE PERSON IN WHOSE ACCOUNT MONEY IS DEPOSITED. THE ITA NO. 976/AHD/2015 TRISTAR SECURITIES PVT. LTD. VS. ITO ASSESSMENT YEAR: 2006-07 PAGE 5 OF 5 LINKAGE SOUGHT TO BE ESTABLISHED BY THE REVENUE AUT HORITIES IS TOO FAR FETCHED AND DEVOID OF ANY LEGALLY SUSTAINABLE BASIS. IN THESE CIRCUMSTANCES, AND IN THE LIGHT OF THE DISCUSSIONS ABOVE, IN OUR CONSIDERED VIEW THE A SSESSING OFFICER WAS NOT JUSTIFIED IN REOPENING THE ASSESSMENT ON THE BASIS OF THE REA SONS SO RECORDED BY HIM. WE, THEREFORE, SET ASIDE THE REASSESSMENT PROCEEDINGS. 9. AS THE REASSESSMENT ITSELF IS QUASHED, WE SEE NO REASONS TO DEAL WITH THE MERITS OF THE CASE. THAT ASPECT OF THE MATTER, IN T HE GIVEN CIRCUMSTANCES, IS WHOLLY ACADEMIC. 10. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TER MS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 15 TH JANUARY, 2019 SD/- SD/- SD/- SD/- MS. MADHUMITA ROY PRA MOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) AHMEDABAD, THE 15 TH DAY OF JANUARY, 2019 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD