SMT. PADMA VIPIN SAHGAL, MUMBAI, MUMBAI V. ITO 23(2)(5), MUMBAI, MUMBAI

MA 123/MUM/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2772 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 18-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 15-09-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 23-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Residential status; Principle of natural justice; Reason to believe; Reassessment proceedings
• Section: 254(2); 48

Judgement Text

MA No. 123/Mum/2022 In ITA No.: 6097/Mum/2019 Assessment year: 2010-11 Page 1 of 6 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘SMC’ BENCH, MUMBAI [Coram: Pramod Kumar (Vice President)] MA No. 123/Mum/2022 In ITA No.: 6097/Mum/2019 Assessment year: 2010-11 Padma Vipin Sahgal ...............................Appellant 215703, Encanto Drive Sherman Oaks, CA 91403 [PAN: AYFPS3949H] Vs. Income Tax Officer, Ward 23(2)(5), Mumbai ..............................Respondent Appearances by: Snehal Shah for the applicant Mahita Nair for the respondent Date of concluding the hearing : 16/09/2022 Date of pronouncing the order : 19/09/2022 OR D ER Per Pramod Kumar VP: 1. By way of this application, the assessee applicant invites our attention to a mistake said to be apparent on record in the single member bench order dated 17 th January 2022, passed by one of my colleagues who is since transferred out from the Mumbai benches, inasmuch as the additional grounds of the appeal, as filed by the applicant on 21 st June 2021 have remained to be disposed of. The applicant prays that the non-disposal of these additional grounds of appeal is a mistake apparent on the record, and urges us to rectify the same under section 254(2) of the Income Tax Act, 1961. It is in this backdrop that, and as nominated members, we have come to be in seisin of the matter. 2. There is no dispute about the fact of an application raising additional grounds of appeal, which is on our record as also accepted to be on the records of the learned Departmental Representative. In view of this fact, having heard the rival contentions on the same, and in the light of Hon’ble Supreme Court’s judgment in the case of Jyotsna Suri Vs Income Tax Appellate Tribunal [(2003) 179 CTR 265 (SC)], we take up the application seeking admission of the additional ground for disposal, and then, if required, take up the additional grounds of appeal for disposal. As noted by Hon’ble Supreme Court, in the case of CIT Vs Reliance Telecom Limited [(2022) 133 taxmann.com 41 (SC)], rather than recalling the order in its entirety when there is an error in the same, it is actual rectification of mistake that must be MA No. 123/Mum/2022 In ITA No.: 6097/Mum/2019 Assessment year: 2010-11 Page 2 of 6 carried out by the bench. With the benefit of this guidance from the Hon’ble Courts above, I must proceed to rectify the mistake apparent on the record. 3. Perused the petition seeking admission of additional grounds of appeal, and heard the rival contentions on the same. In the light of the Hon’ble Supreme Court’s judgment in the case of National Thermal Power Corporation Vs CIT [(1998) 229 ITR 383 (SC)], and having regard to the fact that the issues raised in the additional ground of appeal are primarily legal questions, we deem it fit and proper to admit the additional ground of appeal and dispose them of in accordance with the law. The additional grounds of appeal so admitted are as follows: I. 1. The Commissioner of Income Tax (Appeals) - 48 ["The CIT(A)-48] erred in upholding the order passed w/s 144 r.w.s 147 of the Income Tax Act, 1961 ("The Act?), notwithstanding the fact that the order passed by the Assessing officer was beyond his jurisdiction and thereby rendering the entire proceedings as ab initio void, illegal and bad in law. 2. The appellant therefore prays that the order w/s 144 r.ws 147 of the Act being without jurisdiction be quashed as ab initio void, illegal and bad in law. II. 1. The CIT (A) erred in confirming the order passed by the Assessing Officer's us 144 r.w.s 147 even though the order was passed on the basis of invalid proceeding initiated us 148 of the Act. Without prejudice, III. 1. The CIT(A) erred in reopening the assessment us 147 of the Act without providing any reasons to believe recorded us 148 of the Act being the condition prerequisite for initiating reassessment proceedings. 2. The appellant therefore prays that the reassessment proceedings be set aside, being ab initio void, illegal and bad in law. Without prejudice, IV. 1. The CIT(A) erred in upholding the order passed by the Assessing officer even though it was passed without complying with the provisions of section 282 of the Act thus rendering the entire proceedings ab initio void and bad in law. 2. The appellant therefore prays that it be held that the entire assessment proceedings is vitiated due to non service of notice as required under the law and therefore the order passed is ab initio void, illegal and bad in law. V. 1. The CIT(A) erred in rejecting the additional evidence filed by the appellants during the course of hearing without giving any cogent reasons. Without prejudice, VI. 1. The CIT(A) erred in confirming the addition of Rs. 18,00,000/- u/s 68 of the Act on account of alleged cash deposits. 2. The appellant therefore prays that the addition of Rs. 18,00,000/- be deleted being unjustified. MA No. 123/Mum/2022 In ITA No.: 6097/Mum/2019 Assessment year: 2010-11 Page 3 of 6 Without prejudice, VII 1: The CIT(A) erred in confirming charging of interest us 234A of the Act without considering the fact that interest is not chargeable. 2. The appellant therefore prays that interest charged be deleted. Without prejudice, VIII. 1. The CIT(A) erred in directing the Assessing officer to enhancing the income of the appellant without giving any opportunity of being heard to the appellant which being against the rules of natural justice the direction be quashed as illegal and bad in law. IX. 1. The CIT(A) erred in directing the Assessing officer for enhancing the income without appreciating the fact that such direction on the facts and circumstances of the case was not sustainable. 4. To adjudicate on the basic additional ground against reopening of assessment only a few material facts need to be taken note of. The assessee before us is a senior citizen in her late seventies, an American resident of Indian origin who started her career as a reporter in the Times of India way back in 1963, and after several decades of working in various position, she was an Adjunct Associate Professor of English in Los Angeles Community College, US. She, and her husband, have filed their joint returns, as required by law in the United States, and duly shown their incomes, including income earned in India from house property. As the related incomes were disclosed in the income tax returns filed in the United States, and the Indian tax withholdings were duly made from the receipts in question, the assessee did not file the income tax return in India. It was in this backdrop and observing that “as per the ITS/AIR information available with the income tax department for the year under consideration, the assessee has deposited Rs 18,00,000 and has not filed the return of income for the year under consideration”, that the Assessing Officer recorded the reasons having reasons to believe the assessment and reopened the case. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Rather than granting any relief to the assessee, the learned CIT(A) has apparently enhanced the assessee's income without putting the assessee to even notice in respect of such an enhancement. Aggrieved, among other things, by this reopening of the assessment, the assessee was in appeal before the Tribunal. The coordinate SMC bench, however, remitted the matter to the file of the CIT(A)- though without explicitly dealing with the grievance of the assessee against the reopening of the assessment. 5. In plain and simple words, the sole and proximate reason for reopening the assessment is a deposit of Rs 18,00,000 in the Indian bank account of the non-resident taxpayer who had duly filed her income tax returns, as required under the law, in the United States. A deposit of Rs 18,00,000, by itself, cannot be reasons enough to hold the belief that an income has escaped assessment, unless it is the case of the Assessing Officer that this deposit reasonably indicates some source of income which has remained undisclosed to the income tax department. The assessee is a person of means and has had half a century of an honourable career in intellectual pursuits. I have also noted that the assessee has submitted her medical records showing reasons for her not being able to give specific replies during the proceedings before the authorities below, and yet all this is simply disregarded. Here is a lady in her late seventies, struggling with her serious medical issues, and rather than considering her explanation with a sense of MA No. 123/Mum/2022 In ITA No.: 6097/Mum/2019 Assessment year: 2010-11 Page 4 of 6 compassion and understanding, the authorities start a full-fledged detailed investigation into her affairs, going much beyond her Indian affairs and the bank deposit of Rs 18 lakhs, and even questioning things which were neither subject matter of reopening or even considered by the Assessing Officer. All that the Assessing Officer comes to know, through process-driven inputs, is that there is a deposit of Rs 18 lakhs in her bank account, and this fact, according to the Assessing Officer, is reason enough to conclude that some income has escaped assessment. There is also no dispute that the assessee being a non-resident, entire due taxes at source were fully withheld from her Indian receipts. There is thus no question of any income escaping assessment so far as Indian rental income etc is concerned. A simple deposit in the bank account, even without considering the materiality factor, cannot be visited with such serious consequences as meant for the concealment of income. There is complete non-application of mind to the facts of the case, and the reassessment proceedings are initiated in a very mechanical manner. In any case, a division bench of this Tribunal, in the case of Bir Bahadur Singh Sijwali Vs Income Tax Officer [(2015) 53 taxmann.336 (Del)] and which constitutes a binding judicial precedent for this single-member bench, has rejected reopening of assessment simply based on deposits in the bank account, without anything further, and, in the process, observed as follows: ...............There has to be some kind of a cause-and-effect relationship between the 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 v. 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 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 MA No. 123/Mum/2022 In ITA No.: 6097/Mum/2019 Assessment year: 2010-11 Page 5 of 6 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 v. Nova Promoters & Finlease (P.) Ltd [2012]342 ITR 169/206 Taxmann 207/18 taxmann.com 217 (Delhi) but then none of the questions before the Honble 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 Courts judgment in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxmann 627, that was the 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 the 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 Ltd. v. ITO [IT Appeal No. 1078/Delhi of 2013; 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 the 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 the additions, in the impugned assessment proceedings, are rendered academic and infructuous. MA No. 123/Mum/2022 In ITA No.: 6097/Mum/2019 Assessment year: 2010-11 Page 6 of 6 6. In view of the above discussions, as also bearing in mind the entirety of the case, I am 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. I, therefore, quash the reassessment proceedings, and allow the first additional ground of appeal. As the reassessment itself is quashed, all other issues on the merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous. The appeal, therefore, must be allowed. 7. In view of my above decision on the application seeking admission of additional ground of appeal as also on additional grounds of appeal, the appeal is allowed. To this extent, the outcome of the appeal is modified, and, to that extent, this application is also allowed. Pronounced in the open court today on the 19 th day of September 2022 Sd/- Pramod Kumar (Vice President) Mumbai, dated the 19 th day of September, 2022 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File By order etc True Copy Assistant Registrar/ Sr PS Income Tax Appellate Tribunal Mumbai benches, Mumbai