Sachin vs ITO

For that on facts and in law, both the impugned ex-parte assessment order dated 18.05.2023 passed u/s. 147 of the Income-tax Act, 1961 ("the Act") for subject Assessment year 2014-15 ("Subject AY"), making impugned addition u/s. 69 of the Act amounting to Rs. 1,05,94,500/- and consequent impugned order dated 02.01.2026 passed by the Ld. Commissioner of Income-tax (Appeals) ("CIT(A)") u/s. 250(6) of the Act affirming the impugned assessment order are contrary to settled law, are illegal, untenable, and bad in law.

That the Ld. AO grossly erred in law in defying the 1st proviso to Section 148 of the Act, which restricts the issuance of notice vide therein, in the absence of information which suggests income chargeable to tax to have escaped assessment in case of the Assessee for the relevant assessment year.

That on the facts and circumstances of the case and in law, the Ld. AO has erred in making the addition of Rs. 1,05,94,500/- u/s 69 of the Act failing to appreciate that the Appellant had not made any investment in gold ornaments during the subject AY and had merely availed gold loan from Dhanlakshmi Bank by pledging the subject gold ornaments, thereby nullifying the very basis necessary to sustain addition u/s. 69 of the Act vide Commissioner of Income-tax us. Devesh Agarwal [2017] 81 taxmann.com 257 (Bombay) [06-03-2017].

That on the facts and circumstances of the case and in law, the Ld. AO's failure to establish the requisite connection between the unaccounted investment and the subject AY renders their invocation of the deeming provisions u/s. 69 of the Act unsubstantiated vide Bansal Strips (P.) Ltd. v. ACIT., [2006] 99 ITD 177 [DELHI ITAT].

That on the facts and circumstances of the case, as well as law, the Ld. AO has not established, with any evidence, that investment related to the gold ornaments was made during the subject AY, thereby failing to discharge the mandatory burden of proof vide ITO v. Gammon Construction Pvt. Ltd., ΠΑ No.1264/Del./2020 and DCIT v. Jethmal Mehta, ITA No.8985/Del/2019.

That on the facts and circumstances of the case and in law, the AO being a quasi-judicial authority has neglected to conduct an impartial and diligent verification to determine whether the gold ornaments in question were indeed acquired during the subject AY hence basing its claim on mere borrowed satisfaction vide Pr. CIT v. Meenakshi Overseas Pvt. Ltd., (2017) 395 ITR 677.

That all the aforesaid grounds of appeal are independent and without prejudice to one another.

That from the above it is established that the spare bit of ‘information’ cited by the Ld. AO would merely refer to the fact that gold loans were availed by the Appellant during the relevant AY, which ex-facie does not disclose any income escapement. That apart from this, not an iota of material is placed on record while issuing notice u/s. 148 of the Act, thereby miserably failing to adhere to the jurisdictional requirements as mandated u/s 148/148A of the Act (i.e. lack of jurisdictional fact). The copy of the notice u/s 148 and order u/s 148A(d) dated 27.07.2022, are enclosed in the Paper-book at pg no. 22-27.

On the basis of above purported information, the Ld. AO made an addition of Rs. 1,05,94,700/- on account of unaccounted investment in gold ornaments in the subject AY. It is pertinent to note that the Ld. AO fails to provide any reasonable belief in respect of the unaccounted investment, as the information/ material on which he relied upon was not sufficient to form any reason to belief that the subject gold was purchased or acquired in the subject AY in the form of investment.

With that, it is trite to consider the fact that the gold was pledged to the bank, which formed a liability on the Appellant instead of any assets in which he invested vide para 1 of Material Facts. Considering the fact that the pledging of gold lead to a liability during the relevant AY instead of any purported unaccounted investment, the same would establish complete non-application of mind by the Ld. AO while passing order u/s. 148A(d) of the Act.

Therefore, the legal burden to establish such pre-possession (i.e. before issue of impugned notices u/s. 148A(d) of the Act) of "information" (that gold ornaments were purchased or acquired by the Appellant in the subject year) remains undischarged by the Ld. AO, as also the Appellant is not required to prove the negative vide K.P. Varghese v. ITO [1981] 7 Taxman 13 (SC): "It is a well settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the Revenue and the second condition being as much a condition of taxability as the first, the burden lies on the Revenue to show that there is understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no understatement of the consideration. On the Assessee would be to cast an almost impossible burden upon him to establish the negative, namely, that he did not receive any consideration beyond that declared by him."

That the Delhi High Court has unequivocally held that "reason to suspect" does not satisfy the jurisdictional threshold of "reason to believe" (to lawfully initiate proceedings under the erstwhile Section 147 of the Act) in the case of in the case of SynfoniaTradelinks Pvt. Ltd. v. Income Tax Officer, Ward-22 (4) vide W.P.(C) No. 12544/2018 decided on 26.03.2021.