Divya vs ITO

@JUDGMENT-JUDGMENT

Suchitra Kamble, J

This appeal is filed against the order dated 26/07/2018, passed by the CIT(A)-2, Gurgaon, for Assessment Year 2009-10.

Grounds of appeal are as under:-

That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment under section 147/143(3) of the Act without appreciating that the same were without jurisdiction and hence deserved to be quashed as such.

1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no specific relevant, reliable and tangible material on record to form a "reason to believe" that income of the appellant had escaped assessment and in view thereof the proceedings initiated are illegal, untenable and therefore unsustainable.

1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that reasons recorded mechanically without application of mind do not constitute valid reasons to believe for assumption of jurisdiction u/s 147 of the Act.

1.3 That in absence of any valid approval obtained under section 151 of the Act, initiation of proceedings u/s 147 of the Act and assessment framed u/s 147/143(3) of the Act are invalid and deserve to be quashed as such."

2 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in sustaining an addition of Rs. 5,00,000/- on account of an alleged unexplained investment in mutual funds of Kotak Mutual Funds and Escort Investment Trust Ltd. during the instant assessment year u/s 69 of the Act.

2.1 That the finding of the learned Commissioner of Income Tax (Appeals) that "no supporting documents were produced or substantially explained to the satisfaction of Assessing Officer regarding the case available" is factually incorrect and legally misconceived.

2.2. That further concluding of the learned Commissioner of Income Tax (Appeals) that "the fact that appellant gone the cash to Shri Jagdish for making investment in mutual funds and through his account investment in name of the appellant was made, all point to doubtful transaction" is also unsubstantiated, misconceived and based on surmises, cogent and therefore unsustainable.

2.3. That the finding of the learned Commissioner of Income Tax (Appeals) that " the explanation of doing tuition, receiving gifts from relatives etc only point out to a case of capital building by the appellant" is based on no material much less valid material and is thus not in accordance with law."

The assessee filed her return of income declaring income of Rs.1,63,807/- from tuition and interest. As per AIR information, the Assessing Officer, observed that the assessee invested in purchasing of Units of Mutual Fund amounting to Rs.14,00,000/- which was not explained by the assessee. Thereafter, the notice dated 22/03/2016 u/s 148 of the Act was issued and subsequent notices 142(1) and 143(2) of the Act along with questionnaire were issued and served upon the assessee. In response, Chartered Accountant of the assessee attended the assessment proceedings and furnished the requisite information/documents/evidences. The assessee explained before the Assessing Officer that the investment of Rs.5 lakhs in the mutual funds was made from opening cash in hand of Rs.69,850/- and from petty gifts. The assessee furnished cash flow chart thereby explaining the source of investment in mutual funds and also furnished a reply on 25/07/2016 wherein the assessee mentioned that the assessee gave cash to Shri Jagdish S/o. Chotu Ram for making investment into Kotak Mutual Funds, through whose bank account the investment in Kotak Mutual Funds in the name of the assessee was made. The Assessing Officer was not satisfied with the explanation of the assessee and made addition of Rs.5 lakh to the return of income of the assessee.

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

The Ld. AR submitted that the proceedings were initiated u/s 148 of the Act and it is apparent from the said proceedings that the said proceedings were initiated on the basis of AIR information that there are investment for purchase of units of Rs.9 lakhs is Escort Investment Trust Ltd. and Rs.5 Lakhs of Kotak Mutual Funds. The Ld. AR submitted that merely AIR information cannot be the basis to assume jurisdiction u/s 147 of the Act. Investment alone cannot be a ground to assume that income of the assessee has escaped assessment and as such the reasons recorded mechanically do not confirm valid jurisdiction u/s 147 of the Act. The Ld. AR further submitted that there is no justification for the Assessing Officer to form an opinion that merely because the assessee had invested/investment, therefore, they represent the income of the assessee which has escaped. The Ld. AR relied upon the decision of the ITAT in the case of Amrik Singh vs. ITO (159 ITD 329). The Ld. AR further submitted that the ITO do not obtain any approval before sending the said communication to the assessee and therefore such communication is not valid communication u/s 133(6) of the Act. The Ld. AR submitted that the proceedings u/s 148 was initiated on the basis of no material much less any tangible on relevant material and as such reasons recorded do not constitute valid reasons. The Ld. AR relied upon the decisions of Hon'ble Supreme Court in the case of CIT vs Kelvinator of India Ltd. (320 ITR 561)(SC) and ACIT vs. Rajesh Jhaveri Stock Brokers (P). Ltd. 291 ITR 500 (SC). The Ld. AR also relied upon the decision of jurisdictional High Court in the case of CIT vs. BatraBhatta & Co. 321 ITR 526 (Del.) and Ashok Kumar Sen vs. ITO 132 ITR 707 (Del.).

The Ld. DR relied upon the assessment order as well as the order of the CIT(A). The Ld. DR also relied upon the decision of the Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO & Ors. 236 ITR 34 (SC).

We have heard both the parties and perused the relevant material on record. From the perusal of records, it can be seen that the proceedings were initiated u/s 147 of the Act on the basis of AIR information which explained that there are investment for purchase of units of Rs.9 lakhs of Escort Investment Trust Ltd. and Rs.5 Lakhs of Kotak Mutual Funds. Thus, there was reason to believe involved in the present case on which basis the Assessing Officer has recorded the reasons and reopened the assessment. As per the decision of the Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. (Supra) in determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case and in present case, the same factor is applicable. Therefore, initiation of proceedings under Section 147 of the Act is valid. Ground Nos. 1, 1.1, 1.2, 1.3 are dismissed. Now we come to the merits of the case, from the perusal of the order of the CIT(A), it can be seen that neither CIT(A) nor the Assessing Officer has taken cognizance of the evidences supplied by the assessee during the course of appellate and assessment proceedings. Therefore, it will be appropriate to remand back the entire issue to the file of the Assessing Officer to be decided on merit. Needless to say that the assessee be given opportunity of hearing by following the principle of natural justice. Therefore, the appeal of the assessee is partly allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on 15/10/2019.