Income Tax Appellate Tribunal - Amritsar
Rajesh Mehta vs Income Tax Officer on 8 August, 2005
Equivalent citations: (2006)100TTJ(ASR)453
ORDER
Joginder Pall, A.M.
1. This is bunch of eight appeals, all filed by the assessee against two consolidated orders dt. 22nd July, 2003 and 14th June, 2004 of CIT(A), Jalandhar, for the asst. yrs. 1991-92, 1992-93, 1994-95 and 1995-96. While four appeals in ITA Nos. 413, 414, 416 & 417/Asr/2003 relate to the quantum additions, the remaining four appeals, i.e., ITA Nos. 469 to 472/Asr/20,04 for the same assessment years relate to penalty imposed and, sustained under Section 271(1)(c) of the IT Act, 1961 (in short "the Act"). Since the issues involved in all these appeals are identical, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. First I take up quantum appeals in ITA Nos. 413 to 417/Asr/2003. The first effective issue relates to challenging the assumption of jurisdiction for the assessments and issuance of notices under Section 148 of the IT Act and consequent assessment framed there under. The common facts for all the assessment years are that the assessee was carrying on business of nickel polishing on a small scale. In fact, in the reasons recorded for issue of notices under Section 148, the AO has himself stated that his income from such source was Rs. 20,000 each. Since the income was below taxable limit, no returns for these assessment years had been filed. However, the AO initiated proceedings under Section 147 on the ground that during the financial year ended on 31st March, 1991, the assessee had made investment of Rs. 2.94 lakhs in the asst. yr. 1991-92 and Rs. 1.47 lakhs for the asst. yr. 1992-93 in the purchase of land for which the source had not been explained. According to the AO, the income represented by unexplained investments and Rs. 20,000 each from nickel polishing business had escaped assessments for these two assessment years. As regards the remaining two assessment years, the AO observed that the land so purchased had been subsequently developed and flats were constructed which were sold and the resultant profit from the same had not been disclosed due to non-filing of returns for the asst. yrs. 1994-95 and 1995-96. The AO issued notices under Section 148 for these assessment years on 28th May, 2001. In response to notices issued under Section 148, the assessee filed the returns declaring therein income from business and nickel polishing at Rs. 19,800, Rs. 20,400, Rs. 24,000 and Rs. 30,000 for the asst. yrs. 1991-92, 1992-93, 1994-95 and 1995-96 respectively. The income for all these assessment years was below the taxable limit. The assessee denied to have made any investment in the property at New railway Road, Jalandhar. It was explained by the assesses that he was only power of attorney holder on behalf of Sh. Rajeev Kamal and family members who had shifted to Ghaziabad. He was neighbour of these persons and power of attorney was given to him only for the purpose of selling the land. He had never purchased the land from these persons. Subsequently, he sold the land and signed the sale deed as special power of attorney holder and passed down the sale proceeds to the owners of the property. The assessee also contended that no material, evidence or information has been given to him on the basis of which action under Section 147 had been taken to show that he was the owner of the property and he had later sold the same. He also stated that the land was sold to one Sh. Rajan Dhawan and Sh. Pardeep Kumar with whom an agreement dt. 31st July, 1992 was made who took over the possession on payment of full amount on 31st July, 1992. The assessee also enclosed photocopies of those documents. He submitted that the construction on the said property was made by the purchaser and flats made thereon were sold by them and he had nothing to do with the subsequent development of the land, construction thereon and sale thereof. However, the AO observed that the enquiries made by the Investigation Wing with the persons who purchased the flats confirmed that the property was purchased from the assessee. Moreover, the persons to whom the land was sold, i.e., Sh. Raj an Dhawan and Sh. Pardeep Kumar stated that these agreements were never executed. The AO also observed that the investigation carried out by the Investigation Wing revealed that the total area of the land was 42 marlas out of which special power of attorney was given in favour of the assessee for 21 marlas and the remaining one half was given to Sh. Mahesh Puri. According to the AO Sh. Mahesh Puri was benamidar of the assessee as he was not doing any business or had any independent source of income. The AO therefore, made additions on account of unexplained investments made by the assessee in the purchase of entire 42 marlas of property and also brought to tax resultant profit on the sale of property constructed thereon.
3. Being aggrieved, the assessee impugned the additions in appeals before the CIT(A) where action of the AO for reopening the assessments by issue of notices under Section 148 was also challenged. It was submitted before the CIT(A) that the action of the AO for initiating reassessment proceedings on the basis of allegation that the assessee had purchased land and constructed flats and thereafter sold the same was illegal and bad in law as the AO had not applied his mind while taking such action. It was submitted that the assessee was only a special power of attorney holder executed in his favour by owners to sell the land because the owners had shifted to Ghaziabad. It was also argued that the land in fact had been sold to Sh. Rajan Dhawan and Sh. Pardeep Kumar and full consideration was received on 31st July, 1992. These two persons who purchased the property, requested the assessee who was semi-literate not to execute the sale deeds in their names with a view to save stamp duty and sale could be made directly to the purchasers. After the land was developed and plots were constructed by those persons, the assessee signed the deeds as a power of attorney holder. He had nothing to do with the construction of the flats and sale thereof. These submissions did not find favour with the learned CIT(A) who observed that the AO had initiated reassessment proceedings under Section 147 by relying on the report received from the Investigation Wing, which in turn was based on enquiries made by them. He further referred to the statement of Sh. Pardeep Mehta to whom the assessee claimed to have sold the land and observed that he denied to have purchased the said property. He also observed that the assessee could not produce any evidence in the form of receipt that the sale proceeds were handed over to the owners of the property. The learned CIT(A), however, observed that, there was no basis for making an addition in respect of 21 marlas of land for which power of attorney was given in favour of one Sh. Mahesh Puri. Therefore, the addition made on account of unexplained investment and resultant profit on sale thereof in respect of the same was deleted by the CIT(A). He further observed that the statements of the buyers again confirmed that they had purchased the property from the assessee. Thus, he upheld the findings of the AO that the assessee had purchased 21 marlas of land on power of attorney basis, constructed flats thereon and sold the same. However, as regards the cost of acquisition taken by the AO at Rs. 15,000 per marla for the purpose of working out the unexplained investment, the learned CIT(A) reduced the same to Rs. 10,000 per marla. The assessee is aggrieved by the order of the CIT(A). Hence, these appeals before me.
4. The learned Counsel for the assessee reiterated the submissions, which were made before the authorities below. He submitted that the assessee was a semi-literate person carrying on the business of nickel polishing on a very small scale. In fact, he drew our attention to copies of reasons recorded for the various assessment years, where the AO has himself mentioned that his only source of income from nickel polishing business was Rs. 20,000 each. He drew my attention to p. 1 of the assessment order where income declared in the returns was below the taxable limit, i.e., from Rs. 19,800 to Rs. 30,000 for all the assessment years, which was below the taxable limit for the respective years. He submitted that in the reasons recorded, the AO has referred to the fact that the assessee had made investments in the purchase of land amounting to Rs, 2,94,000 and Rs. 1,47,000 for the asst. yrs. 1991-92 and 1992-93 respectively. He submitted that once the income was below the taxable limit, it is not understood as to where the investment was required to be disclosed or how the returns were required to be filed. He submitted that if the return of the income is filed, there is no column in the return which requires the assessee to furnish the details of the investments made. He submitted that there is not even an iota of evidence on record that the assessee was ever owner of this property. He further drew my attention to p. 11 of the paper book Which is English translation of special power of attorney in favour of the assessee in respect of 2/5th share on behalf of Smt. Namrata Sethi and Smt. Mamta Sharma, i.e., two sisters of Sh. Rajeev Kamal. He further referred to p. 15 of the paper book which is special power of attorney in respect of 1/5th share of his own share and p. 19 of the paper book which is power of attorney made by Sh. Rajeev Kamal in favour of the assessee on behalf of Smt. Geeta Chauhan and Smt. Kavita Sharma. He submitted that this power of attorney was given in favour of the assesses because Sh. Rajeev Kamal had shifted to Ghaziabad and they wanted to sell the property at Jalandhar. He submitted that the assessee was a neighbour residing in the same place at Jalandhar. He submitted that the property was never transferred in the name of the assessee and there is no material on record to show that he was ever owner of the property. The mere fact that property was sold by the assessee does not make him to be the owner. He submitted that the copies of none of the statements referred to by the AO in the assessment order had been given to the assessee. He was not allowed an opportunity to cross-examine these persons. Therefore, such material used by the AO in violation of principles of natural justice did not have any evidentiary value until the same was confronted to the assessee and the assessee was allowed an opportunity to cross-examine these parties. He further submitted that this is a case of reassessment and the onus is entirely on the Revenue to establish that the assessee was owner of the property, he invested the amount in the purchase and sold the same. For this purpose, he relied on the judgment in the case of Hon'ble Gujarat High Court in the case of Saradbhai M. Lakhani v. ITO . He further relied on the judgment of Hon'ble Supreme Court in the case of CIT v. Daulat Ram Rawatmull , where it has been held that the onus of proving that the apparent was not the real is on the party who claimed it to be so. The learned Authorised Representative submitted that since it is Revenue who is making allegation that the assessee was the owner, the onus was on the Revenue to establish this fact. He submitted that in the assessment order, the AO has merely relied upon the investigation made by the Investigation Wing. However, the assessee has not been confronted with any material, the report of the Investigation Wing and the statements recorded. The AO has not made any independent enquiry with Sh. Rajeev Kamal, the owner as to whether they had received sale consideration in 1992 or subsequently and also with the parties to whom the flats were sold. He submitted that even as per directions of the Bench given on 11th July, 2005 to produce the statements recorded and report of the Investigation Wing, which were relied upon by the assessee for reopening the assessments, the same have not been produced. This shows that there was absolutely no material or information on the basis of which ADIT (Investigation) formed a 'reason to believe' that income chargeable to tax had escaped assessment. He further relied on the decision of the Tribunal, Amritsar Bench, in the case of Kirpa Ram Ramji Dass v. ITO (1983) 14 TLR 533 (copies placed at pp. 2 to 11 of the paper book) where it was held that it is elementary law of evidence that no admission or statement can be used against the persons unless that person is given a right to cross-examine the deponent whose admission or statement is intended to be used against him. Since, in the present case, the Revenue has even failed to produce report of the ADIT (Investigation) and the assessee has not been confronted with the statements and an opportunity to cross-examine the parties has not been allowed, it is clear that the assessment has been reopened without any valid material and such reopening cannot be sustained. He further relied on the decision of the Tribunal, Amritsar (Special Bench) in the case of Assam Tea Co. v. ITO, Ward-1, Moga in ITA No. 184/Asr/1995 for the asst. yr. 1984-85 reported at (2004) 82 TTJ (Asr)(SB) 729--Ed. (copy placed on pp. 12 to 25 of the paper book) where the action of the AO for initiation of the reassessment proceedings was challenged for the reason that there was no evidence to show that creditor at any stage confessed that the loan transaction with the assessee was not genuine and the search and seizure action was taken in the case of the creditor and not in the case of the assessee and the Tribunal quashed the action of initiating reassessment proceedings, He further submitted that the additions made and, sustained, in the hands of the assessee were merely on the basis of surmises and conjectures and, therefore, the action of the AO for initiating proceedings was bad in law and, there being no material or evidence to justify the additions, the same deserve to be deleted.
5. The learned Departmental Representative, on the other hand, heavily relied on the orders of the authorities below and referred to the enquiries made by the Investigation Wing as noted by the AO oh p. 6 of the assessment order.
6. I have heard both the parties at some length and given my thoughtful consideration to the rival submissions with reference to evidence and material on record. The undisputed facts of the case are that the assessee was carrying on small business of nickel polishing and as per returns filed in response to notices issued under Section 148, the income declared from such business was below taxable limit in all the assessment years. In fact, the AO has himself noted in the reasons recorded that his income from nickel business was Rs. 20,000 each. Now the only basis for initiating proceedings under Section 147 was the report of the Investigation Wing. In the reasons recorded, the AO has noted that the assessee had made investment of Rs. 2,94,000 and Rs. 1,47,000 for the purchase of 42 marlas of land and the source of investment has not been explained. In fact, the AO has not even referred to the report of the Investigation Wing in the reasons recorded. Therefore, in order to satisfy myself as to whether there was material or evidence on the basis of which the AO formed a 'reason to believe' that income chargeable to tax had escaped assessment on account of unexplained investment, the learned Departmental Representative was specifically directed to produce the report of the Investigation Wing along with statements recorded which indicated that assessee was the owner of the property and on the basis of which assessments were reopened. Accordingly, the learned Departmental Representative vide his letter dt. 12th July, 2005, directed the AO to send these records. However, the AO has only furnished copies of the reasons recorded and the statement of Sh. Rajesh Mehta, i.e., the assessee recorded on 26th Feb., 1998. Copies of none of other statements referred to in the assessment order have been furnished by the AO. Nowhere in his statement the assessee has stated that he had either purchased the property or he was the owner of the property. On the contrary, he had specifically stated that he was given power of attorney for the sale of 21 marlas of land by Mr. Rajeev Kamal and his family members and he did not know who had made the construction of the property. A bare reading of the statement does not lend support to the conclusion that the assessee was owner of the said property or he had made investment in the same on the basis of power of attorney. It is also not understood as to why the report of the Investigation Wing along with other statements referred to and relied upon by the AO have not been sent. It is trite law that the assessment cannot be reopened merely on the basis of suspicion because the expression used in Section 147 is 'reason to believe' and not 'reason to suspect'. In the case of ITO v. Lakhmani Mewal Dass , the Hon'ble Supreme Court has observed that the reasons for the formation of the belief contemplated by Section 147(a) of the Act, for the reopening of an assessment must have a rational connection 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 his 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. The Court further observed that it was no doubt true that the Court cannot go into sufficiency and adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether the action should be initiated for reopening the assessment. But at the same time, one has to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The reasons for the formation of the belief must be held in good faith and should not be mere pretence. In the case of United Electrical Co. (P) Ltd. v. CIT (2002) 178 CTR (Del) 192 : (2002) 258 ITR 317 (Del), Delhi High Court has held that 'reason to believe' should be on the facts on the basis of which such belief is entertained. There should be rational nexus or relevant bearing. Thus, it is clear that the assessment cannot be reopened merely on the basis of vague and unspecific information. In the present case, the Revenue has failed to adduce such material, which could show that the information available with the AO at the time of initiating reassessment proceedings had live link with the escapement of income. It must be noted that nowhere Rajeev Kamal who had given special power of attorney to the assessee on his behalf and on behalf of other family members, had even confessed or stated that he had sold the property to the assessee at the time of executing the power of attorney. He has also not even stated that the sale proceeds of the property had not been received from the assessee. No enquiry whatsoever has been made with the person who had given power of attorney and who was the owner of the property.
6.1 It is common knowledge that power of attorney in respect of a property is given to a person in whom the owner has complete faith and trust. The fact that Sh. Rajiv Kamal and his family shifted to Ghaziabad is not in dispute. Now since the assessee was residing in neighbourhood of the owner and Sh. Rajeev Kamal gave power of attorney in his favour does not in itself lead to the conclusion that he had purchased the property on power of attorney basis. Besides, the property was later developed and constructed. No enquiries have been made with the municipal corporation, Jalandhar as who had applied for and obtained the approval for construction plan. Merely because the assessee had signed the sale deeds as power of attorney holder does not itself establish that the assessee had himself constructed the property and sold the same to the persons. Though the Revenue was allowed specific opportunity for producing such evidence and material, it failed to do so. I am, therefore, of the considered opinion that the assessments have been reopened merely on the basis of suspicion, vague and irrelevant facts and there was no material available with the AO for formation of belief that the assessee had made the investments and, therefore, income chargeable to tax had escaped assessment. Such reopening of the assessments is without authority and jurisdiction and hence, illegal and void ab initio. Accordingly, the order of the CIT(A) is set aside and reassessments completed by the AO are quashed. This ground of appeal is allowed for all the assessment years.
6.2 Even otherwise, it is a fact that copies of the statements relied upon by the AO in the assessment orders recorded by the Investigation Wing were never confronted to the assessee. The assessee was also not allowed an opportunity to cross-examine. In the case of Kishinchand Chellaram v. CIT , the Hon'ble Supreme Court has held that in case the IT authorities rely upon any evidence or any statement they are bound to confront the same to the assessee so that the assessee could controvert the statement by asking an opportunity to, cross-examine the person with reference to statement made by him. The evidence used against the assessee, which was not confronted, is not admissible. Similar view was taken by the Tribunal, Amritsar Bench in the case of Kirpa Ram Ramji Dass v. ITO (supra), Similar view has been expressed by the Hon'ble Supreme Court in the case of R.B. Shreeram Durga Parsad & Fatehchand Nursing Das v. Settlement Commission . Now in this case neither the assessee was confronted with statements nor allowed an opportunity to cross-examine the persons. Therefore, impugned additions have been made in violation of principles of natural justice. In the case of Chtianji Lal Steel Rolling Mills v. CIT , the Hon'ble Punjab & Haryana High Court has held that AO has powers to collect evidence from any source, but it is his. duty to put it to the assessee before making it the basis of his assessment. This principle has not been observed in this case. Moreover, the Revenue though specifically asked for producing such statements recorded yet these were not produced for reasons best known to them. In any case such statements recorded at the back of assessee without furnishing copies to him and without allowing an opportunity of cross-examination are not admissible evidence and the additions made by relying on such statements cannot be sustained. Thus, I am of the considered opinion that the additions sustained for the various assessment years are merely on the basis of surmises and conjectures and the Revenue has failed to place any material on record to show that the assessee was the owner of the property, constructed flats and sold the same. It is trite law that suspicion howsoever strong it may be, cannot be the basis of additions. Therefore, no addition made on the basis of surmises, conjectures and suspicion can be upheld. Thus, in the light of the facts and circumstances of the case, I hold that even on merits, the additions made by the AO are not called for in the hands of the assessee. Accordingly, the order of the CIT(A) is set aside and the respective grounds of appeal are allowed for all the assessment years.
6.3 As regards common ground relating to estimation of income from nickel polishing business, the same was not pressed for all the assessment years. Therefore, the respective grounds of appeals are dismissed as not pressed for all the assessment years.
7. Now, I take up appeals in ITA Nos. 471 to 472/Asr/2004, which relate to the levy of penalty under Section 271(1)(c) for the asst. yrs. 1991-92, 1992-93, 1993-94 and 1994-95. Briefly stated, the facts of the case are that at the time of completing the assessments, the AO also initiated penalty proceedings under Section 271(1)(c) for concealment of income. Subsequently, the AO passed orders for imposing penalty under Section 271(1)(c) by treating the amount of additions as concealed income of the assessee.
7.1 Being aggrieved, the assessee impugned the levy of penalty in appeals before the CIT(A). It was argued before the CIT(A) that the AO has passed orders for imposing penalty without recording valid satisfaction in the assessment orders. Reliance was paced on two judgments of Hon'ble Delhi High Court in the case of CIT v. Ram Commercial Enterprises Ltd. and CIT v. Super Metal Re-Rollers (P) Ltd (2003) 185 CTR (Del) 349 : (2004) 265 ITR 82 (Del) and the judgment of jurisdictional High Court of P&H in the case of CIT v. Munish Iron Store . However, this submission did not find favour with the learned CIT(A) who held that the AO had applied his mind and had rightly initiated penalty proceedings in the assessment order for concealment of income. Even on merits, the learned CIT(A) upheld the penalty on the ground that the assessee had purchased the property on the basis of special power of attorney and sold the same and resultant profit and investment had not been disclosed due to non-recording of the returns. The assessee is aggrieved by the order of the CIT(A). Hence, these appeals before me. 7.2 The learned Counsel for the assessee submitted that these appeals are consequential only. If the additions made in quantum appeals are deleted, there would be no question of levy of penalty under Section 27l(1)(c). He also reiterated the arguments and submissions about non-filing of valid satisfaction in the assessment order.
7.3 The learned Departmental Representative, on the other hand, relied on the orders of the authorities below.
7.4 I have heard both the parties and carefully considered the rival contentions, perused the material and evidence placed on record as well as the orders of the authorities below. From the facts discussed above, it is obvious that the penalty has been levied in respect of additions made at the time of completing the assessments under Section 147. I have already quashed the reassessments completed by the AO and deleted the additions on merits, Since the additions made have already been deleted, there is no question of levy of penalty under Section 271(1)(c) in respect of such additions. In view of above, I do not consider it necessary to deal with the alternative submission of the assessee regarding non-recording of satisfaction. In the light of these facts and circumstances of the case, the order of CIT(A) is set aside and penalty imposed under Section 271(1)(c) for all the assessment years is cancelled. Accordingly, the grounds of appeals of the assessee are allowed.
8. In the result, all the appeals filed by the assessee are allowed.