ALOK KUMAR JAIN ,SAGAR vs. PRINCIPAL COMMISSIONER OF INCOME TAX (1) JABALPUR, JABALPUR

Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order under section 263 of the Income Tax Act, 1961 („the Act‟ hereinafter) by the Principal Commissioner of Income Tax („Pr. CIT‟ for short) in respect of his assessment u/s. 147 read with section 144B of the Act, dated 17/09/2021 for Assessment Year (AY) 2014-15. 2. The background of facts of the case in brief are that the assessee, who had initially filed his return of income for the relevant year at Rs. 2,28,630, was subject to reassessment on account of failure to disclose fully and truly all material facts necessary for his assessment, being in relation to the credit/s of Rs. 26.06 lacs from one, Shri Pooran Chand Jain (refer para 6 of the approval u/s. 151, dated

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ITA No. 38/JAB/2022 (A.Y. 2014-15) Alok Kumar Jain v. Pr. CIT 20/03/2020/PB pgs.135-139). The assessee, in the reassessment proceedings, was inquired, and more than once, qua the said credit/s, and who, after repeated opportunities, furnished the following:- a) Copy of account of the assessee‟s account in the books of the creditor and vice-versa (PB pgs.36-37), as well as copy of the assessee‟s bank account (PB pgs. 42-54); b) Confirmation from the creditor in the form of an affidavit dated 18/08/2021 (PB pg.133); c) Copy of the tax returns of the creditor for the relevant year and two immediately preceding years (PB pgs.128-130); and d) Copy of bank account of the creditor, Pooran Chand Jain (PJ) reflecting the impugned credits, being for Rs. 9.99 lacs (dated 17/06/2013) and Rs. 16.07 lacs (dated 22/08/2013), representing the transfer of funds through account payee cheques (i.e., through the banking channel). (PB pgs. 115-127) Apart therefrom, it was informed that the creditor is the assessee‟s father. The Assessing Officer (AO) accepted the same; his adjudication reading as: “6. Again notice u/s. 142(1) of the Income-tax Act, 1961 was issued to the assessee providing final opportunity to submit justification of Rs.26,06,000/- credited in his bank account by establishing the identity, creditworthiness of creditor and the genuineness of the transaction alongwith the documentary evidences. The assessee submitted details which are placed on record. 7. Considering the submission filed by the assessee, the return income filed by the assessee accepted.” 3. The assessment record was examined by the ld. Pr. CIT, as the revisionary authority, and who, after hearing the assessee, recorded his findings in the matter, as under, and set aside the assessment for a de novo consideration, to be made upon making proper enquiries regarding the unsecured loans taken by the assessee, and for the purpose relying on the decisions in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC); CIT vs. Deepak Kumar Garg [2008] 299 ITR 435 (MP); CIT v. HPFC [2010] 186 Taxman 105 (HP); CIT vs. Orchid Industries (ITA No. 2 | P a g e

ITA No. 38/JAB/2022 (A.Y. 2014-15) Alok Kumar Jain v. Pr. CIT 1433/2014) (Bom), to the effect that non-enquiry; non-application of mind; and non-application of law renders an assessment as erroneous and prejudicial to the interests of the Revenue:- “On perusal of the bank accounts of Shri Pooran Chand Jain and the assessee it is noticed that the assessee has received the amount from Shri Pooran Chand Jain or we can say that Shri Pooran Chand Jain has transferred the amount to the assessee as under: Date Cheque No. Amount Narration 17.06.2013 14411 9,99,000 TRFR TO: ALOK JAIN 19.07.2013 14425 8,00,000 TRFR TO: ALOK JAIN 22.08.2013 14448 16,07,000 TRFR TO: ALOK JAIN The assessee during the course of the, scrutiny proceedings and revision proceedings has discussed about the amount of Rs. 9,99,000/- and 16,07,000/-. The AO during the course of the scrutiny proceedings, have not enquired about the amount of Rs. 8,00,000/-, which clearly shows that proper enquiry has not been conducted by the AO. Further, on perusal of the information furnished by the assessee and material available on the records, it is noticed from the bank accounts of the assessee and lender Shri Pooran Chand Jain [father of the assessee] that the money is circulating between family members. On perusal of the bank statement of the lender Shri Pooran Chand Jain, it is noticed that on 02.04.2013 i.e. on the very next day of the starting of the financial year 2013-14, the lender Shri Pooran Chand Jain has received an amount of Rs.18,00,000/- from Smt.Abha Jain, who is the wife of assessee Shri Alok Kumar Jain. However, the AO has failed to co-relate the information placed before him and passed the assessment order in a very slipshod manner. The AO has simply relied upon the submission of the assessee failed to apply his mind regarding the layers of money circulating between the family members of the assessee, which the assessee is using for the purpose of investment in the mutual funds. Further, in this very case it is to state that in the case of CIT v. Orchid Industries Pvt. Ltd (ITA No.1433 of 2014) (Bom), Hon'ble jurisdictional High Court held as under:…………… However, in this case the AO has simply relied upon the documentary evidences and failed to take into account the surrounding circumstances.” (emphasis, ours) Aggrieved, the assessee is in appeal, challenging the findings by the ld. Pr. CIT.

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ITA No. 38/JAB/2022 (A.Y. 2014-15) Alok Kumar Jain v. Pr. CIT 4. We have heard the parties, and perused the material on record. 4.1 Our first observation in the matter is that the assessee, whose case was reopened on the charge of non-furnishing of material facts in relation to his income chargeable to tax under the Act for the relevant year, did not comply with the notice u/s. 148(1) issued on 20/03/2020.

4.2 Next, we may examine the AO‟s verification/enquiry in the matter; the assessee having furnished the relevant evidences. Copy of the creditor‟s account in the books of account of the assessee, which matches with the assessee‟s account in the books of the creditor, reflects a total credit of Rs. 40.08 lacs on different dates during the year, and which was submitted vide the assessee‟s reply dated 22/02/2021. The AO, yet, did not extend his enquiry to all these credits, and continued to question the assessee on the two credits of Rs. 26.06 lacs, i.e., with respect to which the reason to believe escapement of income was recorded u/s. 148(2). Surely, „capacity‟, which is a matter of fact, has to be with reference to a particular sum. Capacity for a particular sum would not imply a capacity for a higher sum, which would therefore require being proved. If this is not a lack of application of mind, what we wonder is? Sh. Ghai would during hearing refer to peak credit. True, the said accounts bear both credits and debits, i.e., money has been received and paid back during the year. However, there is nothing to suggest an examination by the AO from that standpoint. Rotation of funds cannot be a matter of presumption, and would need to be exhibited from the accounts of the creditor and, in the least, his bank accounts. Even assuming a rotation of funds, the AO ought to have questioned the assessee for proving the creditor‟s capacity with reference to the peak balance, i.e., Rs. 29.09 lacs, which he does not for any sum; his „examination‟ being de hors the capacity of the creditor. This sum of Rs. 29 lacs, we may add, may stand to increase where the monies repaid by the assessee, debiting the creditor‟s account, are not retained by the creditor in his bank account, but invested or applied somewhere or otherwise expended. It is this which the ld.

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ITA No. 38/JAB/2022 (A.Y. 2014-15) Alok Kumar Jain v. Pr. CIT Pr. CIT adverts to when he speaks of circulation of funds amongst family members and investment in mutual funds. The creditor‟s statement of the credits as representing his own money (PB pg.133) ought to have been regarded by the AO in light of the monies received by the creditor in his bank account, including Rs. 18 lacs from his daughter, Abha Jain, at the beginning of the year. Clearly, the creditor‟s bank account, which may have relevance toward the genuineness of the credits ascribed to him, as well as his capacity, remain unexamined. This perhaps has been due to furnishing the creditor‟s bank account, as indeed the documents stated at paras 2(b)/(c)/(d) above, by the assessee only on 18/08/2021, i.e., in response to the third notice u/s. 142(1) dated 11/08/2021, which also bore a show- cause notice, i.e., after nearly a year of the commencement of the assessment proceedings. This, despite fact that the creditor is the assessee‟s father; both regular assessees, and the credits, as apparent from the copy of accounts in each other‟s books, are through the banking channel.

4.2 There has been, in short, a total absence of application of mind by the AO in making the assessment, particularly considering the reason for reassessment, as well as the material on record; the observations by the ld. Pr. CIT also arising on perusing the same. The capacity of the creditor, a retired Government employee since 2006, with the income in the range of Rs. 4-5 lacs, is completely unproved. There is, in fact, no finding by the AO qua the creditor‟s capacity, and indeed no whisper qua the source of the credit. We therefore agree with the ld. Pr. CIT‟s observations in this respect at page 2 of his order. The assessment order is a sub silentio in the matter, and as cryptic an order as one could think of, and which therefore, and for that reason, does not qualify to be a judicial order (Pr. CIT vs. Bajaj Herbals Pvt. Ltd. [2022] 443 ITR 230 (SC)). 4.3 Under the circumstances, we find no reason to interfere with the order of the ld. Pr. CIT; the several grounds raised per the instant appeal being toward the same issue, with the ground of lack of opportunity before the ld. Pr. CIT being not 5 | P a g e

ITA No. 38/JAB/2022 (A.Y. 2014-15) Alok Kumar Jain v. Pr. CIT pressed before us and, in any case, contrary to the material on record; the impugned order bearing the assessee‟s detailed reply in the revision proceedings. We decide accordingly. 5. In the result, the appeal by the assessee is dismissed. Order pronounced in open Court on September 16, 2022 Sd/- Sd/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member Dated: 16/09/2022 vr/- Copy to: 1. The Appellant: Alok Kumar Jain, 1, Kadam Kuna, Laxmipura Ward, Sagar (MP) 2. The Respondent: Principal CIT-1, Jabalpur. 3. The CIT-D.R., ITAT, Jabalpur. 4. Guard File. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Jabalpur.

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ITA No. 38/JAB/2022 (A.Y. 2014-15) Alok Kumar Jain v. Pr. CIT

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