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Income Tax Appellate Tribunal, ALLAHABAD BENCH ‘SMC’ ALLAHABAD
Before: SHRI VIJAY PAL RAO
This appeal by the assessee is directed against the order dated 18.09.2019 of CIT(A) for the assessment year 2006-07. 2. The assessee has raised the following grounds:-
“The learned CIT (A) has erred in law and on facts in not adjudicating on substituted grounds of appeal
although the appellant has requested for substitution of grounds of appeal vide submission dated 11.09.2019.
2. The learned CIT (A) has erred in law and on facts in not adjudicating on the issue of service of notice u/s 148 which is an important point for initiating a valid proceeding. 3. “The learned C1T(A] has erred in law and on facts on adjudicating on the validity of return filed although the Assessing Officer has proceeded on the premise that return was not filed and no notice u/s 139(9] was issued by him.
4. The learned CIT(A) has erred in law and on facts in relying on the c judgment of Hon'ble Mumbai Tribunal facts of which case are 2 distinguishable from the facts of the appellant's case in as much as the appellant in quoted case neither appeared before the CIT(A) nor before the Tribunal whereas there was proper representation before the CIT(A) in appellant's case.
5. The learned CIT(A) has erred in law and on facts in not appreciating the fact that the total amount of Rs 13,63,985/- was not deposited in one go but on several dates and almost each deposit is followed by corresponding withdrawal and there is no dispute that the bank account belongs to the appellant and so only peak of the cash credits in the bank account may be held as unexplained money u/s 69 A.
6. The appellant craves leave to amend or substitute all or any of the ground at the time of hearing.”
3. Ground Nos. 1 to 3 are regarding the validity of initiation of proceedings u/s 147/148 for want of valid service, incorrect facts recorded by the Assessing Officer (A.O.) in the reasons for reopening and non- adjudication of these issues by the Ld. CIT (A). 4.1 The Ld. AR of the assessee submitted that the assessee has filed his return of income for A.Y.-2006-07 on 09-03-2007 manually vide acknowledgement No. 0102000345 in Form-2D disclosing income of Rs 97,936/-. Obviously, return was filed u/s 139(4). The appellant, during the relevant year, enjoyed income from petty contract works of individuals. Whatever receipts the appellant got that were received in cash and that too without deduction of tax at source. No accounts for the said work were kept either by the appellant or by the individuals whose works were carried out by the appellant. However, the appellant used to deposit such cash receipts in his saving bank account no. 8068 in Indian Overseas Bank at Phulpur, Allahabad and withdrew the sums on different dates for the labour payments and for his personal needs. In fact; nature of the work of the appellant was of labour contract type. Materials for the said work, if needed was purchased and supplied by the individual whose work was contracted to be done.
3 For the relevant year, the appellant has computed his income u/s 44AD i.e. applying rate of 8% on total turnover of Rs 13,73,250/-. Thus, deriving net profit of Rs. 1,09,860/-. After claiming deduction u/s 80C for Rs 11,924/-, the net income was arrived at Rs 97,936/-. 4.2 From the para-1 of the assessment order, it reveals that the learned AO has initiated proceedings u/s 147 of the Act by issue of notice u/s 148 on 28-03-2013 on the reason that the appellant has deposited cash amounting to Rs 13,63,985/- in his saving bank account during the F.Y.-2005-06 and he has not filed his return of income. Accordingly, he formed his belief that cash deposit was made from the income from undisclosed sources and such income has escaped assessment. Thereafter, he claimed to have issued several notices u/s 142(1) but has not found any response from the appellant and so he completed the assessment u/s 144 on 27-02-2015 at the total income of_Rs 13,63,985/-. Copy of bank statement where cash of Rs 13,63,985/- was deposited is Annexed as Annexure-B for your honour's kind perusal.
4.3 The learned CIT(A) while adjudicating over the appeal of the appellant neither orally refused the request of the appellant nor communicated with reasons to not entertain the substituted grounds of appeal
. Even order of the learned CIT(A) is mum on this point although he has incorporated whole submission of the appellant in his body of order. The appellant submits that as per ground No.4 of the original set of grounds of appeal, the appellant reserved its right to amend / modify the existing grounds of appeal and may also add any other grounds before the hearing of appeal. Under the circumstances, it was legally permissible to him to be adjudicated on substituted grounds of appeal. No doubt a discretion is vested on the Ld. CIT(A) vide subsection (5) of section 250 but he must give reason as to why the said discretion has not been used in the favour of the appellant. In view 4 of above submission, it can be said that learned CIT(A) has erred in law as well as on fact to not entertain the substituted grounds of appeal without any reason. Reliance is placed by the appellant on ratio of following judicial pronouncements:
1. Ajeet Kumar Seth v. Commissioner of Income-tax [2008] 170 Taxman 154 (Allahabad)
2. Commissioner of Income-tax v. Jindal Saw Pipes Ltd. [2010] 328 ITR 338 (Delhi)
4.4 It is further submitted that service of notice is a sine qua non for initiation and completion of a valid proceeding. The appellant has claimed before the Learned CIT(A), that there is no service of notice u/s 148 on the appellant. The appellant has raised this issue in ground no. 2 in substituted grounds of appeal
. For a moment if it is assumed that he has validly not entertained the substituted grounds, even the issue is covered in ground no.1 of the original ground when it is stated that the assessment made is contrary to law and fact. Regarding service of notice u/s 148, the appellant invites the attention of your kindself towards following judicial pronouncements:
1. Keshab Narayan Banerjee v. CIT [1999] 238 ITR 694 (Cal.)
2. Income Tax Officer v. Bedi Enterprises [2008] 114 TTJ 706 (Lucknow Trib.)
3. Rajeev Kumar Doneria v. Asstt. Commissioner of Income Tax [2005] 94 ITD 345 (Agra Trib.) 4.Auram Jewellery Exports (P.) Ltd v. Asstt Commissioner of Income Tax, Circle, Noida [2017],88 taxmann.com 633[Delhi Tribunal].
5. Smt. S. Nachiar v. ITO [2010] 326 ITR 77 (Mad.)
4.5 In this regard the appellant submitted that the learned AO has assumed jurisdiction u/s 147 on the premise that the appellant has huge cash deposit in his saving account and no return has been filed. When the appellant has 5 put forth the fact before the learned CIT(A) that return was duly filed u/s 139(4) and cash deposit in saving bank account cannot per se be the undisclosed income of the appellant and so the belief formed for initiating action u/s 147 is itself questionable. The learned CIT(A) has held that the return filed in Form 2D did not have the statutory sanction and lacks statutory status. While holding so, he observed that for the assessment year 2007- 08(financial year 2006-07), Form 2D was discontinued for taxpayers like the appellant. However, he missed the fact that the case of the appellant was not for A.Y. 2007-08 but that of A.Y. 2006-07 (financial year 2005-06) and Form 2D was very much valid for this year. A FAQ on ITR Forms by Income Tax Department dated 25 September 2007 is annexed herewith as Annexure-J for kind perusal of your honour. Question No. 24 is directly relevant for A.Y. 2006- 07. It is quoted as such- "24. What forms have to be used to file returns of A. Y. 2006-07? Answer: Returns for A.Y.2006-07 will continue to be filed in old forms as were applicable last year.”
4.5. From the above discussion, it gets clear that return in Form No.2D for A.Y.2006-07 did not lack statutory status as held by the learned CIT(A). Moreover, if for a moment it is assumed that it was so, the AO should have issued notice u/s 139(9) to get the same corrected which has not been done in this case. Secondly, the impugned return was filed in the counter of the department and if it was not a prescribed return, it should not have been accepted by the department. Thirdly, negating the information given in the said return (whether it is valid or invalid) is not justified because the department has accepted the same and information was with the department on 09-03-2007 i.e. before initiation of proceedings u/s 147.
6 4.6. In regard to this ground, the appellant contended that the learned CIT(A) has failed to appreciate that total cash deposit of Rs 13,63,985/- was not deposited in one go but the same was deposited round the year in several amounts. Similarly, there were cash withdrawals after some deposits through cheques. Under the circumstances if it is assumed that the appellant has some unexplained money with him, it is logical conclusion that the same money was recycled in the bank account in the form of cash deposits on different dates. Bank Statement of the account is annexed with this submission as Annexure- B. A cash flow statement prepared from the same is also annexed as Annexure- N. In this statement, from cash withdrawals made by the appellant, cash availability on particular date has been drawn. It is found that the appellant has no cash available with him to deposit sums shown against the dates. It can be shown in the following table: Date Amount 02-04-2005 72860/- 05-04-2005 14370/- 11-04-2005 24262/- 15-04-2005 28740/- 19-04-2005 16640/- 05-05-2005 21372/- 31-05-2005 12803/- Total 191047/- 4.7. Thus, addition for unexplained money u/s 69A can be made to the extent of Rs 191047/-. Alternatively, the department may work out peak credit itself and may tone down addition to the extent of peak credit. As deposits in 7 the account are owned by the appellant and bank account belongs to the appellant and withdrawals made are in cash, only peak of the credits may be held as unexplained money u/s 69A. Support in this regard is derived from the following judicial pronouncements: 1. Commissioner of Income-Tax (Central), Kanpur v. Fertilizer Traders [2014] 42 taxmann.com 476 (Allahabad) 2. Income Tax Officer v. Maheshkumar Jayantilal Vora [2004] 3 SOT 96 (Rajkot Tribunal) 3. S. Venkat Reddy v. Income Tax Officer, Ward – 8(2), Hyderabad ( 2016) 76 taxmann.com 128.”
On the other hand, the Ld. DR has submitted that the Assessing Officer has clearly stated in the assessment order that notice u/s 148 was issued on 28.02.2012 by Registered Post. Once, the notice was issued at the correct address of the assessee and well within the period of limitation then it is deemed to be a valid service as said notice is not received back un-served. He has contended that the assessee did not file any return of income in response to the notice u/s 148 and further the assessee has also not participated in the assessment proceedings despite the notice issued u/s 142 (1) of the Act through Speed Post as well as served upon the assessee by affixation. The Assessing Officer issued various notice u/s 142 (1) but the assessee failed to respond to any of the notices issued by the A.O. Finally, the A.O. passed the assessment u/s 144 r.w.s. 147 of the Act. Since, the alleged return of income was not filed electronically but the same was claimed to have been filed manually therefore, it was not in the knowledge of the A.O. at the time of issuing notice u/s 148 of the Act. The Ld. CIT (A) has clearly held that the alleged return of income filed in Form 2D manually is nothing but after thought act of the assessee to avoid the tax liability. The assessee has failed to produce any documentary evidence to explain the source of the deposit made in the 8 bank account. Thus, reopening is valid when there is a tangible material with the A.O. in the shape of deposits in the bank account of the assessee to form the belief that the income assessable from tax has escaped assessment. He has relied upon the orders of the authorities below.
I have considered the rival submissions as well as relevant material on record. As far as deposit of cash in the savings bank account of the assessee to the tune of Rs. 13,66,985/- is concerned the assessee has not disputed the said amount and the information received by the Assessing Officer on the basis of AIR information. The assessee has explained the source of cash deposit as the contract receipt which were offered to tax in the return of income filed by the assessee on 09.03.2007. The said return was filed manually u/s 139 (4) of the Act. The copy of the acknowledgement is placed at page no. 19 of the paper book, therefore, prima facie the assessee has brought on record the fact that the assessee has disclosed this amount of the deposit made in the bank account as the contract receipt which was offered to tax in the return of income. However, the A.O. while initiating the proceedings u/s 148 of the Act has recorded in the reasons that no return of income has been filed by the assessee. Hence, the formation of the belief on the part of the A.O. is based on the premises that the assessee has not filed any return of income and consequently the cash deposit made in the savings bank account of the assessee would prima facie the income assessable to tax which has escaped assessment. The assessment was framed ex-parte u/s 144 and the assessee has not brought to the knowledge of the A.O., the alleged return of income filed by him on 09.03.2007. The Ld. CIT (A) has rejected the claim of the assessee on the ground that the assessee was required to file the return of income in Form No. 2 instead of Form No. 2D. However, from the order of the Ld. CIT (A) itself, it is clear that the new ITR was introduced for individual / Hindu Undivided Family (HUF) for the A.Y. 2007-08 and not for the A.Y. 2006- 07 under consideration. Therefore, the rejection of the claim of return of 9 income on this ground is not justified. The Ld. CIT (A) has not conducted any enquiry or getting the claim of the assessee to file the return of income verified by calling upon the remand report from the A.O. Hence, to the extent of the correctness of the claim of filing return of income neither the Assessing Officer nor the Ld.CIT (A) has verified this fact. As regards the service of notice u/s 148 of the Act, it is noted that the notice u/s 148 of the Act was issued on 28.03.2013 through registered post but the assessee has not participated in the proceedings, therefore, the objection of non service of notice u/s 148 was not before the A.O. The assessee raised this ground before the Ld.CIT (A) as the substituted grounds which are duly reproduced by the Ld. CIT (A) at page no. 3 and 4 of the impugned order. However, these issues of the validity of proceedings u/s 147 for want of valid service of notice u/s 148 has not been decided by the Ld. CIT (A). The Ld. CIT (A) has rather stated that these grounds are general in nature. Thus, it is a matter of fact that all these issues regarding validity of reopening of the assessment and proceedings u/s 147 of the Income Tax Act without considering the fact of return of income filed by the assessee on 09.03.2007 as well as for want of valid service notice u/s 148 of the act remained un-adjudicated at the level of the A.O. as well the Ld. CIT (A). Though these issues an legal in nature however adjudication of same certain facts and record are required to be verified which are not before this Tribunal. Thus, in the facts and circumstances of the case these issues are remanded to the record of the A.O. for deciding the same after giving an appropriate opportunity of hearing to the assessee.
Ground No. 4 and 5 are regarding the merits of the additions made by the A.O. on account of cash deposit in the bank on account of the assessee. The Ld. A.R. of the assessee has submitted that the Ld.CIT (A) has relied upon the decision of the Mumbai Benches of the Tribunal in case of Shri Prabhat M. Chamriya vs. I.T.O. in of 2015 dated 05.05.2017 however, the said decision was subsequently recalled in the miscellaneous application order 10 dated 24.09.2019 and thereafter afresh order was passed on 07.12.2020 and the issue was decided in favour of the assessee. The Ld. AR has filed the order dated 07.12.2020 passed by the Tribunal after recalling of the earlier order, whereby the Tribunal has deleted the addition made by the Assessing Officer. He has further submitted that the learned CIT(A) has failed to appreciate that total cash deposit of Rs 13,63,985/- was not deposited in one go but the same was deposited round the year in several amounts. Similarly, there were cash withdrawals after some deposits through cheques. Under the circumstances if it is assumed that the appellant has some unexplained money with him, it is logical conclusion that the same money was recycled in the bank account in the form of cash deposits on different dates. Bank Statement of the account is annexed with this submission as Annexure-B. A cash flow statement prepared from the same is also annexed as Annexure-N. In this statement, from cash withdrawals made by the appellant, cash availability on particular date has been drawn. It is found that the appellant has no cash available with him to deposit sums shown against the dates. It can be shown in the following table: Date Amount 02-04-2005 72860/- 05-04-2005 14370/- 11-04-2005 24262/- 15-04-2005 28740/- 19-04-2005 16640/- 05-05-2005 21372/- 31-05-2005 12803/- Total 191047/- 11 7.2. Thus, addition for unexplained money u/s 69A can be made to the extent of Rs 191047/-. Alternatively, the department may work out peak credit itself and may tone down addition to the extent of peak credit. As deposits in the account are owned by the appellant and bank account belongs to the appellant and withdrawals made are in cash, only peak of the credits may be held as unexplained money u/s 69A. Support in this regard is derived from the following judicial pronouncements:
1. 1. Commissioner of Income-Tax (Central), Kanpur v. Fertilizer Traders [2014] 42 taxmann.com 476 (Allahabad) 2. Income Tax Officer v. Maheshkumar Jayantilal Vora [2004] 3 SOT 96 (Rajkot Tribunal) 3. S. Venkat Reddy v. Income Tax Officer, Ward – 8(2), Hyderabad ( 2016) 76 taxmann.com 128.”
8. On the other hand, the Ld. DR has submitted that the assessee has not produced any documentary evidence in support of the claim that the source of deposit made in the bank account is the contract receipt as the assessee is not maintained any books of account and the alleged return of income is filed based on the provisions of section 44AD of the Income Tax Act. He has relied upon the following decisions of (i) Bhaiyalal Shyam Behari vs. CIT 276 ITR 38 (Allahabad) (ii) Commissioner of Income Tax vs. Vijay Agricultural Industries 294 ITR 610 (Allahabad) (iii) I.T.A.T. Kolkata Bench decision dated 19.12.2013 in the case of Mrityunjay Kr. Sharma vs. DCIT, of 2012.
I have considered the rival submissions as well as the relevant material on record. The assessee has explained the source of deposit as the contract receipt. In support of claim the assessee has referred to the return of income filed by the assessee as well as the order/certificate of Commercial Tax Department which has been reproduced by Ld.CIT (A) in the impugned order at page no. 7. As I have already discussed about the non consideration the 12 claim of the assessee of filing the return of income by the Ld. CIT (A) or by the A.O. and therefore these facts are required to be verified at the level of the A.O. Accordingly without expressing any view on the merits of the issues the matter is set aside to the record of the A.O. to adjudicate the same afresh after considering the claim of the assessee of filing of the return of income as well as the source of the deposit as contract receipt. Needless to say that the assessee be given an appropriate opportunity of hearing before passing the afresh order.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 25th March, 2021.