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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1046/JP/2019
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1046/JP/2019 fu/kZkj.k o"kZ@Assessment Year :2013-14 cuke Smt. Malti Khandelwal Income Tax Officer Vs. 8/175, Vidhyadhar Nagar, Jaipur Ward—4(2), Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AOBPK3921P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Dileep Shivpuri (Advocate) jktLo dh vksj ls@ Revenue by : Ms. Chanchal Meena (Add. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 25/08/2020 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 21/09/2020 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A)- 02, Jaipur dated 28.06.2019 wherein the assessee has taken the following grounds of appeal:- “1. On the facts and in the circumstances of the case, ld. AO has grossly erred in not providing the reasons recorded for reopening the case of the assessee thus the consequent reassessment completed is bad in law and deserves to be deleted.
2. The ld. CIT(A) erred in partly upholding the order of the AO, by adding back Rs. 7,14,556 in the Income considering the same as unexplained investment.
3. That the CIT(A) has grossly erred in confirming the levy of interest u/s 234B.”
2 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur 2. Further, during the course of hearing, the assessee has moved an application seeking permission to raise the following additional grounds of appeal: “
4. That the sanction for issue of notice u/s 148 of the I.T. Act given by the Joint Commissioner of Income-Tax, Range-4, Jaipur was without application of mind, and given in a mechanical manner. Hence, the reassessment proceedings initiated without proper and valid sanction are invalid and bad in the eyes of law.
5. That the reopening of the assessment by issue of notice u/s 147/148 was bad in law as there was no reason to believe that income chargeable to tax had escaped assessment.”
It was submitted that these two additional grounds of appeal goes to the root of the matter, and question the very assumption of jurisdiction u/s 148 of the Act and accordingly the same may kindly be accepted and adjudicated on merits. The ld DR is heard who has objected to admission of these additional grounds of appeal and submitted that the assessee has not taken these grounds of appeal before the ld CIT(A) and therefore, at this stage of the appellate proceedings, the assessee should not be permitted to raise these grounds of appeal.
Heard both the parties. We find that these two grounds of appeal though not taken before the ld CIT(A) are legal grounds of appeal and the same can be taken for the first time before the Tribunal. Hence, these grounds of appeal are admitted for adjudication on merits.
5. In Ground No. 1, the assessee has challenged the action of the Assessing Officer in non-supply of reasons recorded for issuance of notice u/s 148 of the Act. 3 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur 6. During the course of hearing, the ld AR submitted that this issue was brought to the notice of ld. CIT(A) which finds mention at para 2.2 of his order. However, the ld. CIT(A) has not adjudicated the said issue. It was submitted that it is a trite law that non-supply of reasons recorded for issuance of notice u/s 148 vitiates the said notice and renders the consequential proceedings null and void and in support, reliance was placed on the decision of the Hon’ble Karnataka High Court in the case of Pr. CIT vs. V. Ramaiah [2019] 103 taxmann.com 201 (Karnataka). It was submitted that the SLP filed by the Department has since been dismissed by the Hon’ble Supreme High Court as reported in 262 Taxman 16 (SC). It was accordingly submitted that in view of the settled position of law that reasons for reopening of the assessment have to be communicated to the assessee, the non-communication thereof renders the issue of notice u/s 148 without jurisdiction, hence, liable to be quashed.
7. Per contra, the ld. DR submitted that the contention of the assessee has no merits as during the entire course of assessment proceedings, the assessee never sought and asked for copy of reasons so recorded. It was submitted that the assessee has also not sought copy of reasons even during the course of appellate proceedings before the ld. CIT(A) and has not raised these issues before the ld. CIT(A). It was submitted that the assessee for the first time applied for the copy of the reasons on 14.11.2019 i.e. after passing of appellate order by ld. CIT(A), Jaipur and the same was duly provided by the AO to her on 18.12.2019. It was submitted that this fact is evident from the assessment records and is also accepted by the assessee in her submissions filed before the Tribunal. It was accordingly submitted that the ground so taken has no substance and the same should be rejected. In support, a copy of report received from ITO, Ward-4(2), Jaipur dated 30.06.2020, already shared with the ld AR of the assessee, was placed on record. 4 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur 8. We have heard the rival contentions and perused the material available on record. In this case, we find that the notice u/s 148 was issued to the assessee on 22.03.2017 and in response to the said notice, the assessee filed her return of income on 17.04.2017. Thereafter, notices under section 143(2) and section 142(1) were issued and the ld A/R on behalf of the assessee attended to the proceedings and filed written submissions. There is nothing on record and which has been brought to our notice that in the entire assessment proceedings, the assessee objected to the issuance of notice u/s 148 and has sought copy of the reasons so recorded for the reopening the assessment proceedings. Therefore, we find that there is no prejudice which is caused to the assessee in terms of denial of any opportunity to the assessee to object to the reassessment proceedings by non-supply of the reasons so recorded by the AO where the same were never asked for by the assessee at first place. There is thus no violation of the directives of Hon’ble Supreme Court as laid down in the case of GKN Driveshaft reported in 259 ITR 19 wherein it was held that recorded reasons must be furnished to the assessee when the assessee sought for the said reasons. The decision of the Hon’ble Karnataka High Court in case of CIT vs V. Ramaiah (supra) is distinguishable on facts as in that case, the assessee had twice made a request to the AO, but despite the specific requests, the AO did not comply with the said request and supplied the reasons to the assessee, and the reasons were supplied for the first time before the Tribunal. In context of said facts, the Hon’ble Karnataka High Court held that the AO lacked the jurisdiction in initiating the reassessment proceedings and therefore, the impugned reassessment order was quashed. In the instant case, it is an admitted position that the assessee for the first time applied for the copy of the reasons on 14.11.2019 i.e. after passing of appellate order by ld. CIT(A), Jaipur and the same was provided by the AO to her on 18.12.2019 and therefore, it is crystal clear on facts that the assessee never asked for the copy of the reasons during the entire assessment and appellate proceedings, and therefore, there was no obligation as well as occasion for 5 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur the AO to supply copy of the reasons to the assessee. In the result, the ground so taken by the assessee is hereby dismissed.
Now, we will take up grounds of appeal no. 4 and 5 of assessee’s appeal.
10. In Ground No. 4, the assessee has challenged the action of the JCIT, Range-04, Jaipur in giving the approval and sanction before issuance of notice u/s 148 of the Act. It was submitted by the ld AR that from the perusal of the reasons recorded, it shows that the approval given by the competent authority, being the JCIT, Range-04, Jaipur is mechanical without application of mind. It was submitted that JCIT, Range-04, Jaipur did not carry out any verification or checking at her end, hence, she did not form an independent opinion as required by law. It was submitted that in the present case, the sanctioning authority has only said “YES” which is indicative of the total lack of application of mind and approval so given mechanically deserves to be quashed. In support, reliance was placed on the Hon’ble Supreme Court decision in case of Chhugamal Rajpal vs. S.P. Chaliha [1971] 79 ITR 603 (SC) wherein the Hon’ble Supreme Court held that sanctioning authority cannot grant approval mechanically, it has to apply its mind to the relevant facts and to the documents before it accords sanction. Further, reliance was placed on the Hon’ble Madhya Pradesh High Court decision in case of CIT vs. S. Goyanka Lime & Chemicals Ltd. [2015] 231 Taxman 73 (MP).
11. Per contra, the ld. DR submitted that the Assessing Officer has submitted a proposal for initiating action u/s 147 to the JCIT, Range-04, Jaipur on 14.03.2017 and after examining the proposal along with report of the ITO (I & CI)-II, Jaipur along with details/documents furnished by the assessee before the ITO (I & CI)-II, Jaipur, she had recorded her satisfaction and accorded her approval on 15.03.2017 which is evident from the assessment records. It was accordingly submitted that the ground so taken 6 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur by the assessee that the sanction has been granted by the JCIT without application of mind and in a mechanical manner is not factually correct and therefore, the same should be dismissed.
12. In Ground No. 5, the assessee has challenged the action of the Assessing Officer that the reopening of the assessment by issuance of notice u/s 147/148 was bad in law as there was no reason to believe that income chargeable to tax had escaped assessment. It was submitted that the reasons so recorded by the Assessing Officer are based totally on the information passed on to the Assessing Officer by the ITO ( I & CI)-II, Jaipur as apparent from the reasons so recorded. It was submitted that the Assessing Officer has not specified in his reasons as to how he has concluded that the assessee has failed to show valid source of investment. The reply filed by the assessee’s CA before the ITO (I &CI)-II, Jaipur has stated clearly that she is a regular income tax assessee for more than 10 years and this investment was made by the assessee through her savings and pin money of more than thirty years. It was submitted that no further query was made, no further verification was made, and no attempt was made to come to the conclusion that the source explained was not satisfactory. It was accordingly submitted that the conclusion that income chargeable to tax has escaped assessment has no basis, no foundation, no reasonable link to the information so received by the Assessing Officer. It was submitted that it is a classic case of “borrowed satisfaction” where the AO has not conducted any inquiry to find out whether the report received by him from ITO ( I & CI)-II, Jaipur was correct or not, and to verify how he had come to the conclusion that it was a fit case for issuance of notice u/s 148 of the Act. It was submitted that a case cannot be reopened for the purpose of verification of the facts as stated in the reply filed by the assessee. The assessee, through her CA, had given a particular source and it may be true that the ITO ( I & CI)-II, Jaipur and/or the AO would have a doubt about the correctness of the source of investment, but an assessment cannot be reopened on the basis of 7 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur a doubt. There is nothing on record to show why the explanation given by the assessee was found to be incorrect. In support, reliance was placed on various Court and Tribunal decisions and it was accordingly submitted that the action of the Assessing Officer in relying totally on the report ITO (I & CI)-II, Jaipur without independent verification of facts, vitiates the issue of notice u/s 147/148 and the subsequent assessment order passed by the AO and assessment order may kindly be quashed and set aside.
Per contra, the ld. DR submitted that the Assessing Officer had examined documents/evidences which were furnished by the assessee before the ITO (I & CI)-II, Jaipur and also the report of the ITO ( I & CI)-II, Jaipur and after examining the same, the Assessing Officer had recorded reasons to believe that income has escaped assessment. It was further submitted that the assessee knew that the Assessing Officer had sufficient reasons for initiating proceedings u/s 147 which is why she had changed her stand during the assessment proceedings from the stand taken before the ITO (I & CI)-II, Jaipur. Before the ITO (I & CI)-II, Jaipur, she had stated that investments were made from her savings and pin money of more than thirty years and later on, during the assessment proceedings, she stated that the investments were made out of savings, pin money and borrowings. Therefore, the assessee’s ground of appeal that there is no reason to believe that income has escaped assessment is without merits and same may kindly be dismissed. She accordingly supported the findings of the lower authorities.
We have heard the rival contentions and perused the material available on record. In the present case, the reasons recorded by the Assessing officer before issuance of notice u/s 148 read as under:- 8 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur “The assessee filed her return of Income declaring income of Rs. 1,92,870/- on 22.02.2014. The case was processed/assessed u/s 143(1). In this case, the ITO (I & CI)-II, Jaipur has carried out certain investigation regarding investment made by the assessee in purchase of immovable property. During the investigation, it has been found that the assessee has made investment of Rs. 15,40,892/- in purchase of agricultural land. During the investigation the assessee could not shown valid source of investment of Rs. 15,40,892/- made by her. Thus, the investment of Rs. 15,40,892/- remained unexplained. The ITO (I & CI)-II, Jaipur has send the report along with details submitted by the assessee vide letter no. 801 dated 20.12.2016. On going through the report, it is clear that the assessee has failed to show valid source of investment of Rs. 15,40,892/- in immovable property. Thus, I have reason to believe that the assessee has made investment of Rs. 15,40,892/- in purchase of property out of her unaccounted income and she has failed to disclose fully and truly all material facts necessary for assessment. Looking to the facts discussed above, I have reasons to believe that income to the extent of Rs. 15,40,892/- has escaped assessment within the meaning of Section 147 of the Income-tax act 1961.
On perusal of the reasons so recorded by the AO, we find that the AO is in receipt of report from the ITO(I&CI) along with submission filed by the assessee as well as ceased of the fact that the assessee had filed her return of income and on examination of the report of ITO(I&CI), submission as well as return filed by the assessee where she has reported income to the tune of Rs 1,92,870/-, he has stated that he has reason to believe that the assessee has made investment of Rs. 15,40,892/- in purchase of property out of her unaccounted income and she has failed to disclose fully and truly all material 9 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur facts necessary for assessment. We therefore find that it is not merely basis the receipt of the report of ITO(I&CI) that he has recorded the reasons rather after receipt of the said report which is clearly a tangible piece of information brought to his notice, he has examined the return of income of the assessee as well as other documents and submission filed by the assessee and thereafter, has arrived at his own independent view that the income has escaped assessment and therefore, it cannot be held to be a case of borrowed satisfaction. Where the information in the possession of the AO shows that the assessee has made investment in an immoveable property to the tune of Rs 15,40,892/-, a fact which is not denied by the assessee and where the response of the assessee is generic in the sense that she is an income tax assessee for more than ten years (without specifying the quantum of income so disclosed) and has reported a meager income to the tune of Rs 1,92,870/- in her return of income for the impugned assessment year, and investment was made out of her past savings and pin money instead of specifically identifying the source of such investment and more so, the availability of funds at the relevant point in time of making the investment, we find that the source of such investment is clearly not satisfactorily explained to the satisfaction of the AO and he is well within his right to prima facie hold that source of such investment to the tune of Rs 15,40,892/- remain unexplained and consequently, the income to that extent has escaped investment. We therefore donot see any infirmity in the action of the AO in acquiring jurisdiction u/s 147 by issuance of notice u/s 148 of the Act as the initial satisfaction about the escapement of income, has been rightly recorded by the AO. Further, under section 151, it requires the satisfaction of the Joint Commissioner or the Commissioner, as the case may be, before issuance of such notice, such satisfaction must also be only on the basis of the reasons recorded by the Assessing Officer and not de hors it. In other words, the satisfaction recorded by the Assessing Officer must be endorsed by the higher approving authority before the Assessing Officer assumes the jurisdiction. In the instant case, we find that the AO had moved 10 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur a proposal seeking sanction and approval of the JCIT and such proposal has been sent along with the assessment and other records as stated by the AO in his proposal letter dated 10.03.2017. Thereafter, on review of the reasons so recorded by the AO and perusal of the assessment and other records so submitted by the AO, the JCIT has recorded his satisfaction and endorsed the satisfaction so recorded by the AO and held that it is a fit case for issuance of notice u/s 148 of the Act. We therefore find that the ld JCIT has gone through the reasoning and the satisfaction so recorded by the AO and finding the same to be in conformity with the provisions of law and the facts and circumstances of the case, has accorded his sanction. We therefore find that it is not a case where the approval has been granted mechanically or without application of mind, rather he has gone through the AO’s proposal, his reasoning so recorded in the proposal, the assessment and other records and finding the reasons so recorded to be in conformity with the assessment and other records has accorded his approval. Before parting, we also state that we have gone through the various authorities quoted by the ld AR at the Bar and find that each of these authorities have been rendered in the peculiar facts and circumstances of a particular case and therefore, stand distinguishable and doesn’t support the case of the assessee. In the result, we are unable to accede to the contentions advanced by the ld AR and the grounds of appeal no 4 and 5 are hereby dismissed.
16. Now, coming to Ground No. 2 of the assessee’s appeal, where the assessee has challenged the sustenance of addition of Rs. 9,14,556/- by the ld. CIT(A).
17. In this regard, the ld. AR submitted that the assessee had sought to explain cash in hand of Rs. 9,41,556/- as being the opening balance of cash in hand of Rs. 8,38,311/- available to her as on 01.04.2012. Added to that are Bank withdrawals of Rs. 1,84,000/- and cash accrual from business of Rs. 92,170/-, less drawings of Rs. 95,000/-, and the assessee had cash at 11 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur hand of Rs. 10,19,481/-, enough to explain the cash paid towards the purchase of land. The generation of cash in hand has been explained in detail at page 6, 7 & 8 of the impugned appellate Order. The ld CIT(A) has indeed accepted in her order that the assessee had cash in hand with her, but has restricted it to Rs. 2,00,000/- or Rs. 20,000/- per annum, for a period of 10 years. There is nothing in the order to back the estimate made by the CIT(A) and the period chosen by her. She has also not rebutted the claim of the assessee that she is keeping with her, cash given to her by her husband Shri Ram Swaroop Khandelwal, a retd. Govt. Servant, and her two sons, Avinash who is a CA, and Ravi who is a businessman. The order of the ld CIT(A) is based on surmises and estimates and therefore, needs to be rejected. At the point of repetition, it may be stated that the assessee has given detailed account of the generation of cash in hand with her, and, unless the department is able to disprove it with evidence, it has to be accepted. In any case, the CIT(A) cannot replace the exact figures supplied by the assessee with an estimate of her own which has no basis. In view of the above, it is submitted that the decision of the ld CIT(A) may be reversed and the cash in hand available to the assessee as per the details submitted before the CIT(A) may kindly be accepted.
18. Per contra, the ld. DR referred to the findings of the Assessing Officer as well as ld. CIT(A) and submitted that the claim of opening cash balance is not supported by proper evidences and inspite of that, considering the facts and circumstances of the case, the ld. CIT(A) has already given credit of opening cash balance to the extent of Rs. 2,00,000/- and has only sustained the addition of Rs. 7,14,556/- as against Rs. 9,14,556/- made by the Assessing Officer. It was accordingly submitted that sufficient relief has already been provided to the assessee and no further relief may be provided to the assessee in the given the facts and circumstances of the present case. 12 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur 19. We have heard the rival contentions and perused the material available on record. The ld CIT(A) has recorded a finding that the assessee had declared income to the tune of Rs 10,72,546/- over a period of last 9 years and the income declared therein may have been spent in household expenditure and has thus restricted the availability of opening cash in hand to the extent of Rs 2,00,000/- as against Rs 8,38,311/- claimed by the assessee. We find that the assessee has submitted a cash flow statement for last 4 years starting financial year 2009-10 onwards and through that, has tried to demonstrate the availability of cash in hand. In the said cash flow statement, there are entries of bank withdrawals, bank deposits, drawings and other payments and cash accrual from business. We therefore find that the assessee has already considered the drawings in her cash flow statement and considering the drawings vis-à-vis income declared by the assessee, we find that availability of cash in hand (net of drawings) varies from 52% in A.Y 2012-13 to 68.38% in A.Y 2010-11 to 70.09% in A.Y 2011- 12. Therefore, as far as the uniform basis of Rs 20,000/- per annum applied by the ld CIT(A), the same is not borne out of the records and cannot be accepted. Further, on perusal of cash flow statement, we find that the entries relating to bank withdrawals and bank deposits are concerned, the same are clearly verifiable from the bank statements. However, where the assessee is working out the availability of cash at the start and close of the financial year, such availability is of physical cash in hand and not the cash accrual from business which is not yet realized. Therefore, as far as entries pertaining to cash accruals in respective financial years are concerned, the same needs to be excluded as the effect of the same would be automatically taken in subsequent bank/cash deposits. Subject to such exclusion, we find that the cash summary for the last four years provides a reasonable basis for arriving at the opening cash in hand at the start of the financial year and the explanation of the assessee to that extent therefore found is satisfactory. The matter is accordingly set-aside to the file of the AO for the limited purpose of determination of opening cash in hand after exclusion of entries 13 Smt. Malti Khandelwal, Jaipur Vs. ITO, Jaipur in respect of cash accruals in the respective financial years and the AO is hereby directed to grant relief to the assessee to the extent of opening cash in hand so worked out by him at the start of the impugned financial year. In the result, the ground is disposed off in light of aforesaid directions.
20. In Ground no. 3, the assessee has challenged the levy of interest u/s 234B. No contentions were advanced during the course of hearing and in any case, the levy of interest being consequential in nature, doesn’t require any separate adjudication. In the result, the same is dismissed.
In the result, appeal of the assessee is disposed off in light of aforesaid directions.
Order pronounced in the open Court on 21/09/2020.