Income Tax Appellate Tribunal (ITAT) New Delhi has quashed the income tax reassessment proceedings u/s 147, 148 on the ground(s) of non supply of reasons recorded to the assessee and non-application of mind by the Assessing Officer in relation to information received by CBI.

Case Details:
ITA No. 4678/Del/2014 ; A.Y. 2007-08
Kamal Dhawan (Appellant) vs Income Tax Officer (Respondent)
Date of Order: 28-09-2015

Brief Facts of the Case:
CBI carried out a search at the Bank Locker of Sh. Kamal Dhawan, the assessee. The locker contained cash amounting to Rs.7,49,000/-, approx. 800 grams of gold jewellery and documents pertaining to three properties. The locker was opened on 8.6.2006 in the presence of the assessee, his wife, Inspector, CBI and Dy. Manager, Accounts in SBI Subhash Nagar, New Delhi. This information was passed on to the Assessing Office by DG (Vigilance), New Delhi through CIT, Delhi-IX. AO issued notice u/s. 148 for AY 2007-08 on 2.6.2009. The AO did not accept the explanations given by the assessee with regards to the cash found and added the amount of Rs.7,49,000/- to the income of the assessee as undisclosed cash receipts and assessed the income at Rs. 8,73,920/- vide order dated 24.12.2010 passed u/s. 147/143(3) of the Income Tax Act, 1961.

The Assessee preferred an appeal before CIT(A), who dismissed the appeal of the assessee. Aggrieved, the assessee contested the case in ITAT.

Contentions of the Assessee:
The assessee contended that reopening by AO and its confirmed by CIT(A) was made in contravention of jurisdictional conditions stipulated u/s. 147 to Section 151. He further submitted that in reply to his RTI application, AO has admitted that reasons were not communicated to assessee before conclusion of assessment proceedings which alone vitiates the entire proceedings and the reasons are not reasonable to believe and there is a total lack of application of mind and tangible material. He submitted that he was not provided opportunity to rebut and confute the reopening and reasons recorded as per dictum of Apex Court in GKN Drive Shaft 259 ITR Page 19 and thus nullifying entire proceedings. He further referred the various case laws of the Delhi High Court by which the present case of the assessee is covered including the case of Signature Hotel Pvt. Ltd.

Excerpts from the ITAT Order:

From the above, I find considerable cogency in the assesse’s counsel submission that was not given opportunity to rebut and confute the reopening and reasons recorded as per dictum of Apex Court in GKN Driveshafts (India) Ltd. vs. ITO [2003] 259 ITR 19 which nullifying entire proceedings. In this case, the Hon’ble Apex Court has held as under:-

“That after the receipt of the notice under section 148 of the I.T. Act, the assesse must file the return, but he is entitled to ask for the reasons for issuance of a notice. The Supreme Court has further held that when the reasons are asked for, the AO is bound to furnish the reasons within a reasonable time. Thus the sine qua non for issuance of a notice under section 148 of the I.T. Act is recording of the reasons by the AO. In our view recording of the reasons and furnishing copy thereof to the Assessee when asked is not an empty formality. If the reasons recorded and a copy thereof required to be furnished to the assessee on demand the assessee would be entitled to show that the reasons recorded were factually incorrect. Furthermore, the power of the AO to proceed with the Assessment proceedings would be limited by the reasons recorded by him. He would be assessing or reassessing the income of the assessee only on the reasons recorded by him and cannot travel beyond the reasons and continue the proceedings of assessment on different reasons.”

In the background of the aforesaid discussions and precedent relied upon, I am of the considered view that only effective ground in this appeal is reassessment proceedings u/s. 148 of the I.T. Act, the Assessee has reiterated that reassessment proceedings are illegal and without jurisdiction in the absence of any tangible evidence or material in respect of any undisclosed income and recording of requisite satisfaction in respect of any such undisclosed income. After hearing both the parties on the issue in dispute as well as after going through the orders passed by the Revenue Authorities alongwith order dated 21.7.2011 passed by the Hon’ble Jurisdictional High Court in the case of Signature Hotels P. Ltd. vs. Income Tax Officer [2011] 338 ITR 0051 wherein the Hon’ble High Court has held matter as under:-

“Held, allowing the petition, that the reassessment proceeding were initiated on the basis of information received from the Director of Income Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during the 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 assesee was the beneficiary. The reasons did not satisfy the requirements of Section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply 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 January 4, 1989, and was also allotted a permanent account number in September, 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed.”

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