PRAKASH CHANDRA JAIN,UDAIPUR vs ITO, WARD-1(1), UDAIPUR

Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR

Before: SHRI B. R. BASKARAN & SHRI SANDEEP GOSAIN

For Appellant: Shri Shyam Bokdia (CA)

For Respondent: Shri Venkatesh V. SR. DR

Hearing: 31/10/2022

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA No. 115/Jodh/2020 (ASSESSMENT YEAR- 2010-11) Sh. Prakash Chandra Jain, Vs Income Tax Officer 67-68, Hiran Magri, Sector Ward 1(1), Udaipur No. 08, Udaipur (Appellant) (Respondent) PAN NO. AAVPJ 3696 E

Assessee By Shri Shyam Bokdia (CA) Revenue By Shri Venkatesh V. SR. DR (JCIT) Date of hearing 31/10/2022 Date of 04/11/2022 Pronouncement O R D E R PER: B.R. BASKARAN, AM

The assessee has filed this appeal challenging the order dated 17-06- 2020 passed by Ld CIT(A)-1, Udaipur for assessment year 2010-11. The assessee is challenging the decision of Ld CIT(A) in upholding the validity of reassessment proceedings initiated by the AO u/s 147 of the Act and is also challenging the addition of Rs.3,30,000/- partially confirmed by Ld CIT(A).

2 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur 2. This is the second round of appeal proceeding before the Tribunal. In the first round, the Tribunal, vide its order dated 28-11-2019 passed in ITA No.75/Jodh/2019, had restored the matter to the file of Ld CIT(A) in order to adjudicate the legal ground relating to validity of reassessment proceedings, since the Ld CIT(A) had not adjudicated the same. Accordingly, the impugned order dated 17-06-2020 came to be passed by Ld CIT(A), wherein the Ld CIT(A) upheld the validity of reassessment proceedings. However, in the present appeal, the assessee is challenging both the order so passed by Ld CIT(A) on the validity of reassessment proceeding and also raised grounds challenging the addition of Rs.3,30,000/- confirmed by Ld CIT(A) in the first round.

Since the Tribunal, vide its order dated 28-11-2019 passed in the first round, has restored the issue of validity of reassessment proceedings only to the file of Ld CIT(A) and the said Ld CIT(A) has only adjudicated the said legal ground, the scope of the present appeal should be confined to the legal issue of validity of reassessment proceeding only. Accordingly, the grounds raised on the merits of addition of Rs.3,30,000/- are beyond the scope of present appeal and they are rejected.

3 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur 4. The facts relating to the legal issue are discussed in brief. The assessee is engaged in the business of trading in electric and industrial goods under the name and stule M/s Asia Electrics. It came to the notice of the revenue that the assessee along with other family members has held a Savings Bank account with Indian Bank, Udaipur branch bearing No.784107791, wherein deposits of cash aggregating to Rs.16.00 lakhs was made during the year relevant to AY 2010-11. The said bank account was held in the name of Garima/Pranita/Vimala/Prakash/Nikhil. The return of income filed by Ms Garima Jain was selected for scrutiny, wherein the above said amount of Rs.16.00 lakhs was assessed in her hands on ‘substantive basis’. The assessing officer of Ms Garima Jain sent information to the assessing officers of other joint holders about the details of deposits of Rs.16.00 lakhs made in the joint SB account.

Accordingly, in order to protect the interests of revenue, the AO reopened the assessment of assessee herein, vide notice dated 09-12-2013 issued u/s 148 of the Act, for the purpose of making addition of Rs.16.00 lakhs on PROTECTIVE BASIS. In the reopened assessment, the AO made the addition of above said amount on protective basis in the assessment order passed on 30-03-2015. It is pertinent to note that the assessments

4 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur of other three account holders were also reopened and in their hands also the above said amount was assessed on protective basis.

All the joint account holders challenged the addition made in their respective hands by filing appeals before Ld CIT(A). In the first round, the Ld CIT(A) disposed of the appeal filed by the assessee on 16-01-2019. The Ld CIT(A) noticed that the assessee herein, i.e., Shri Prakash Chandra Jain only was able to explain the entries made in the bank account and therefore, the Ld CIT(A) felt that a detailed order should be passed in his hands and the same could be followed in other cases also. Accordingly, the Ld CIT(A) examined the explanations given with regard to the sources of deposits and accepted the same to the extent of Rs.12,70,000/-. Accordingly, the Ld CIT(A) gave relief of Rs.12,70,000/- and confirmed the balance amount of addition of Rs.3,30,000/-. It is noticed that the Ld CIT(A) did not adjudicate the legal ground relating to validity of reopening of assessment. Hence the Tribunal, in the first round, restored the matter back to the file of Ld CIT(A) for adjudicating the legal ground. In the second round, as noticed earlier, the Ld CIT(A) confirmed the validity of reopening of assessment and hence the assessee has filed the present appeal.

5 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur 7. On a careful perusal of the appellate order passed by Ld CIT(A) in the first round, we notice that the Ld CIT(A) has nowhere given any finding that the addition on substantive basis should be made in the hands of assessee herein. The settled proposition of law is that the tax liability can be enforced against the person in whose hands the addition was made on substantive basis. The AO cannot enforce payment of tax liability in respect of addition made on protective basis. If the addition made on substantive basis is deleted, then the protective addition made in the hands of other assessee shall become addition on substantive basis and tax liability could be enforced.

In view of the above said legal proposition, the Ld CIT(A) should have decided the appeal of Ms Garima Jain first and should have given a definite finding as to the assessee in whose hands, the addition should be made. We notice that the Ld CIT(A) has not given any such definite finding and proceeded to examine the explanations for sources for making deposit of Rs.16.00 lakhs. Finally he held that the addition to the extent of Rs.3,30,000/- should be sustained. The decision was so rendered in the hands of the assessee herein, i.e., Prakash Chandra Jain. In the hands of Ms. Garima Jain, the Ld CIT(A) has passed following order:-

6 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur “7. Vide my order in Appeal No. 91/IT/UDR/15-16 dated 16.01.2019 passed in the case of Sh. Prakash Chandra Jain, I have decided that the addition of Rs.16,00,000/- made in his hands on protective basis is reduced to Rs.3,30,000/-. Therefore, the issue is already decided in the case of Sh. Prakash Chandra Jain. Hence the addition of Rs.16,00,000/- made in the case of appellant on substantive basis is deleted. The grounds raised by the appellant regarding this issue are allowed.” It can be noticed that the Ld CIT(A) has sustained addition of Rs.3,30,000/- in the hands of the assessee on Protective basis. However, he has deleted the addition of Rs.16.00 lakhs made in the hands of Ms Garima Jain on substantive basis. Thus, the Ld CIT(A) has not given any finding as to the assessee in whose hands the above said amount of Rs.3,30,000/- should be assessee on substantive basis. The overall effect is that the revenue cannot enforce payment of tax liability upon any assessee.

Be that as it may, the issue contested in this appeal is related to the validity of reassessment proceeding. The reasons for reopening of assessment recorded by the AO are extracted below:- “Assessment u/s 143(3) of the I.T. Act has been completed on 31/01/2013 in the case of Kumari Garima Jain and addition of

7 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur Rs.16,00,000/- has been made as unexplained cash deposit in bank account. The assessment of Kri Garima Jain was completed u/s 143(3) in which she stated that the cash of Rs. 16,00,000/- was deposited in her bank account by her father Sh. Prakash ji her mother Smt. Bimla Devi, her sister Kumari Pranita and her brother Sh. Nikhil. The sash deposit of Rs. 16.00 lacs were added substantially in the income of the assessee. However, since the assessee denied the ownership of these cash deposits, the deposited in bank are to be assessee protectively in the hands of her father, mother, sister and brother i.e. Sh. Prakash ji, Smt Bimla Devi, Kumari Pranita and Sh. Nikhil. Since the sources of these cash deposites of Rs. 16 lacs remained unexplained, the cash of Sh. Prakash ji, Smt Bimla Devi, Kumari Pranita and Sh. Nikhil are proposed to be assessed u/s 147 of the I.T. Act. As discussed above, in my opinion, source of amount deposited in the saving bank account at Rs. 16,00,000/- may be verified and same has escaped assessment within the meaning of Sec 147 of the IT. Act. 1961. Issue notice under section 148 of IT. Act. 1961.”

8 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur 10. A careful perusal of the reasons would show that the AO has reopened the assessment of the assessee for the purpose of making addition on protective basis. Further, it is stated that the deposit of Rs.16.00 lakhs may be verified and same has escaped assessment within the meaning of Sec. 147 of the I T Act, 1961. It is well settled proposition of law that the main condition to be satisfied for the purposes of reopening is that the AO “should have reason to believe that income has escaped assessment”. However, in the instant case, the AO has not shown that he had such a belief. On the contrary, (a) the AO held that the addition should be made on protective basis. (b) The deposit of Rs.16.00 lakhs should be verified. Accordingly, he has come to the belief that there was escapement of income. When the AO did not have any clue as to whether the above said amount of Rs.16.00 lakhs is assessable in the hands of the assessee or not and further, when he wants to verify the transactions during the course of reopened assessment, in our view, it cannot be said that the AO had entertained definite belief that there was escapement of income. It is a case of reopening of assessment on suspicions. Thus, we are of the view that the AO has not satisfied the mandatory condition prescribed for

9 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur initiation of reassessment proceedings. Accordingly, we hold that the impugned reassessment proceeding is bad in law.

11.

We noticed that the AO has reopened the assessment for the purpose of making protective addition. The question as to whether reopening of assessment for making protective addition is valid or not was examined by the Bangalore bench of Tribunal in the case of DCIT vs. Bullion Investments & Financial Services P Ltd (2010)(123 ITD 568)(Blore). In this case, undisclosed investment in the share capital of the above said company was assessed in the hands of one Shri G.P Goyal on the basis of material found during the course of search. Thereafter, the assessment was reopened in the hands of the above said company to make addition on protective basis. The Ld CIT(A) quashed the reassessment proceedings and the said decision was upheld by the ITAT with the following observations:- “2.5 We have heard both the parties. The fact of undisclosed investment in the share capital of the assessee-company was found during the course of search and material was collected during the course of search that such investment belonged to Shri G.P. Goyal. If such income was to be assessed in the hands of a person other than Shri G.P. Goyal, then revenue should have taken recourse under section 158BD. If the revenue was not sure as on which hands the

10 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur assessment is to be made, then the revenue could have initiated proceedings against both the assessees. In the instant case, assessment in the case of Shri G.P. Goyal was completed on 31-7- 1997. Notice under section 148 had been issued to the assessee- company on 27-7-1998. Once the revenue had taken its stand that such investment in the share capital belong to Shri G.P. Goyal and the assessment order was passed, then it cannot be said that the Assessing Officer was having reason to believe that income has escaped in the hands of the assessee-company. Reassessment cannot be made on mere suspicion. The Assessing Officer has to form a belief that income has escaped assessment in the hands of the assessee. Once it has been held that such investment belonged to Shri G.P. Goyal, then there was no further material to come to the conclusion that such escaped income belonged to the assessee. 2.6 The Apex Court in the case of Lalji Haridas v. ITO[1961] 43 ITR 387 observed at page 392 as under :— "In case where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie, it appears that the income may have been received either by 'A' or 'B' or by both together. It would

11 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against 'A' and 'B'." But in the instant case, the revenue held that such undisclosed income belonged to Shri G.P. Goyal and assessment was made in the hands of Shri G.P. Goyal on substantive basis. The case of the assessee-company was not reopened during the pendency of proceedings in the case of Shri Goyal. Had the revenue made protective assessment in the case of Shri G.P. Goyal, then it could have taken action against the assessee-company. Thus, the basic requirement for reopening the assessment is that the Assessing Officer should have reason to believe that income has escaped assessment, is not satisfied in this case. Hence, we are satisfied that the learned CIT(A) was justified in holding that assessment cannot be reopened for making protective addition. 2.7 The Hon'ble Delhi High Court in the case of CIT v. Divine Leasing & Finance Ltd.[2007] 158 Taxman 440 held that if Assessing Officer treats share application money as undisclosed income under section 68 and the revenue believe that shareholders are bogus, then the Assessing Officer is free to reopen the assessment of the

12 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur shareholders. The Delhi High Court held that share application money cannot be added in the hands of the company. 2.8 In view of the above discussion, it is held that the learned CIT(A) was justified in cancelling the assessment in the hands of the assessee. 2.9 In the result, the appeal filed by the revenue is dismissed.”

12.

In view of the foregoing discussions, we are of the view that the reopening of assessment made in the hands of the assessee for making addition protective basis is bad in law, since the same amounts to reopening of assessment merely on suspicion. Accordingly, we quash the assessment order passed in the hands of the assessee.

13.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 4th November, 2022.

Sd/- Sd/- (SANDEEP GOSAIN) (B. R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 04/11/2022 *Ganesh Kr Copy to:

13 ITA No. 115/Jodh/2020 Prakash Chandra Jain Udaipur vs. ITO, Udaipur 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR 6. Guard File

Assistant Registrar Jodhpur Bench

PRAKASH CHANDRA JAIN,UDAIPUR vs. ITO, WARD-1(1), UDAIPUR