M/S. AJANTA MERCHANTS PVT. LTD.,KOLKATA vs. I.T.O., WARD - 8(1), KOLKATA, KOLKATA

ORDER / आदेश Per Rajesh Kumar, AM:

These are the appeals preferred by the assessee against the separate orders of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)”] dated 27.09.2022 for the AY 2009-10, 2010-11 & 2011-12.

“7.3. The contentions of the appellant have been duly considered. In my considered view, the information available with the AO of high volume of deposits and withdrawals in the bank accounts of the assessee and of making investments in various properties was credible and actionable, and was sufficient to invoke the provisions of Sec 147 of the Act. I would like to mention that at the time of issue of notice u/s 148, the AO is only required to form a broad opinion about income escaping tax in the hands of the assessee and he is not required to exactly quantify the amount of concealment. The sufficiency of reason cannot be challenged at the time of reopening of assessment as held by the Hon’ble Supreme Court in the cases of Raymond Woollen Mills (236 ITR 34) and Rajesh Jhaveri Stock Brokers (161 Taxman 316). In the instant case the AO has recorded the reasons after due application of mind on the basis of the information of deposits in the bank account of the assessee and of making undisclosed investment in property and copy of the reasons recorded have also been provided to the assessee.

7.4. It is relevant to note that the Hon’ble Delhi High Court in the case of Kelvinator of India (123 Taxman 433) has held that an assessment can be re-opened only on the basis of fresh tangible evidence. This decision of the Hon’ble Delhi High Court has also been affirmed by 3 & 608/Kol/2022 Assessment Years: 2009-10, 2010-11 & 2011-12 M/s Ajanta Merchants Pvt. Ltd. the Hon’ble Supreme Court (187 Taxman 312). In the instant case, it is observed that the AO was in possession of fresh tangible evidence in the form of information that the appellant had unexplained deposits/withdrawals in/from its bank accounts and had made investments in various properties. Therefore, the reopening of assessment by the AO in the case of the assessee on the basis of fresh tangible evidence of unexplained deposits/withdrawals in/from its bank account of and of making investments in various properties, cannot be faulted. Accordingly, no infirmity is found in the action of the AO of re-opening the assessment Accordingly, Grounds of Appeal

Nos. 2 to 4 of the appellant are dismissed.”

5. The Ld. A.R vehemently submitted before us that the order passed by the Ld. CIT(A) is factually incorrect and against the facts on record and not sustainable in the eyes of law. The Ld. A.R. referred to reasons recorded by the AO u/s 148(2) of the Act for reopening the assessment and submitted that the assessment was reopened u/s 147 for the reasons that the assessee has not disclosed the bank account with Vijaya Bank and therefore he has reasons to believe that income to the tune of Rs. 3,31,53,744/- has escaped assessment u/s 147 of the Act. The Ld. A.R thereafter referred to the audited annual accounts of the assessee, a copy whereof is filed at Page no. 5 to 14 of the P.B. The Ld. A.R referred to Schedule No. 4 which is qua cash and bank balances annexed with balance sheet and submitted that Vijaya Bank accounts have duly been shown under the Schedule “Cash and Bank Balances” with aggregate balance as on 31.03.2009 of Rs. 33,53,702/-. The Ld. A.R therefore submitted that reasons recorded by AO were factually incorrect and against the facts on record. The Ld. A.R further submitted that there is a complete non-application of mind at the time of recording the reasons and therefore reopening is bad in law. The Ld. A.R in defense of its argument relied on the two decisions namely the decision of Co-ordinate Bench of Kolkata in the case of Ganapati Developers vs. ACIT in ITA No. 139/Kol/2020 for AY 2013-14 dated 02.11.2020 and the decision of Hon’ble Gujarat High Court in the case of Mumtaz Haji Mohmad Memon vs. ITO in Civil Application No. 21030 of 2017 dated 21.03.2018.

4 & 608/Kol/2022 Assessment Years: 2009-10, 2010-11 & 2011-12 M/s Ajanta Merchants Pvt. Ltd. submitted that the AO has sufficient material before him in the form of letters received from DDIT(Inv)-Dehradun. The ld DR contended that after examining the transactions in the bank accounts of the assessee and only thereafter the reasons were recorded and accordingly the assessment was reopened which is valid as per the provisions of the Act and therefore the grounds raised by the assessee assiling the re- opening of assessments may kindly be dismissed.

From the perusal of above reasons particularly a table in the middle of the reasons has details of bank accounts maintained by the assessee with two banks i.e. IDBI Bank (1 account ) (sl. No. 1) and Vijaya Bank (3 accounts) (Sl. No. 2 to 4). The aggregate

5 & 608/Kol/2022 Assessment Years: 2009-10, 2010-11 & 2011-12 M/s Ajanta Merchants Pvt. Ltd. deposits as per the table were Rs. 3,31,51,744/- and aggregate withdrawals of Rs. 2,15,26,825/-. On the basis of said table the AO formed a belief that income of the assessee to the tune of Rs. 3,31,51,744/- has escaped assessment. We have also examined the balance sheet of the assesse especially Schedule no. 4 in respect of “Cash and Bank Balances” copy of which is available in the paper book at page no. 10 and observe that the assessee has duly disclosed the accounts with Vijaya Bank in the said schedule meaning thereby cash and bank balances shown in the balance sheet as on 31.03.2009 are inclusive of the accounts maintained by the assessee with Vijaya Bank. Considering this factual matrix and the arguments of the assesse, we hold that the reasons were factually incorrect and against the facts on record as there was complete non-application of mind on the part of the AO while recording the reasons. In our opinion, the reopening of assessment in a mechanical and casual manner is not permissible under the Act as it would put the assessee to lot of inconveniences because of already settled assessment would be thrown open to scrutiny merely on the basis of incorrect formation of belief. In the present case the AO has recorded wrong reasons that the assessee has not shown bank accountsmaintained with Vijaya Bank. As a matter of fact, the assessee has duly shown this bank accounts in the balance sheet. Considering these facts, we are of the considered view that the reopening of assessment done by the AO is bad in law and nullity. The case of the assesse finds support from the case of Ganapati Developers vs. ACIT (supra) wherein the Co-ordinate Bench has dealt with the similar issue wherein it has been held that reopening made on the basis of reason in which the mistakes were there, the reopening of assessment would be bad in law. In para 13 of the said decision , the Co-ordinate Bench has considered the decision of the Hon’ble High Court of Bombay in the case of Ankita A. Choksey vs. ITO in [2019] 411 ITR 207 (Bom) wherein the Hon’ble Court has held that the reason to believe that income chargeable has escaped assessment must be on correct facts. The relevant parts are reproduced as under:

"6. It is a settled position in law that the Assessing Officer acquires jurisdiction to issue a reopening notice only when he has reason to believe that income chargeable to tax has escaped Assessment. This basic condition precedent is applicable whether the return of income was processed under Section 143(1) of the Act by intimation or assessed by scrutiny under Section 143(3) of the Act. [See Asst Commissioner of Income Tax v/s. Rajesh Jhaveri Stock Brokers (P) Ltd., (SC) 291 ITR 500 and PCIT v/s. M/s. Shodimen Investments (Bombay) 2018 (93) Taxman.Com 153]. Further, the reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts. If the facts, as recorded in the reasons are not correct and the assessee points out the same in its objections, then the order on objection must deal with it and prima facie, establish that the facts stated by it in its reasons as recorded are correct. In the absence of the order of objections dealing with the assertion of the Assessee that the correct facts are not as recorded in the reason, it would be safe to draw an adverse inference against the Revenue.

7. Thus, we are of the view that even in cases where the return of income has been accepted by processing under Section 143(1) of the Act, reopening of an assessment can only be done when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The mere fact that the return has been processed under Section 143(1) of the Act, does not give the Assessing Officer a carte blanc to issue a reopening notice. The condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts, must be satisfied by the Assessing Officer so as to have jurisdiction to issue the reopening notice. In the present case, the Assessing Officer has proceeded on fundamentally wrong facts to come to the reasonable belief conclusion that income chargeable to tax has escaped assessment. Further, even when the same is pointed out by the Petitioner, the Assessing Officer in its order disposing off the objection does not deal with factual position asserted by the Petitioner. Thus, it would safe to conclude that the Revenue does not dispute the facts stated by the Petitioner. On the facts as found, there could be no reason for the Assessing Officer to believe that income chargeable to tax has escaped assessment."

Based on the above decision, the Co-ordinate Bench held that the reopening of assessment is bad in law and similarly the Hon’ble High Court of Gujarat in the case of Mumtaz Haji Mohmad Memon (supra) has has quashed the notice issued u/s 148 by observing and holding as under:

“12. The Assessing Officer may be correct in pointing out that when the sale consideration as per the sale deed is Rs.50 lakhs but the registering authority has valued the property on the date of sale at Rs. 1,18,95,000/-for stamp duty calculation, section 50C of the Act would apply, of course, subject to the riders contained therein. However, this is not the cited reason for reopening the assessment. The reasons cited are that the assessee filed no return and that 1 /3rd share of the assessee from the actual sale consideration of Rs. 1,18,95,000/-therefore, was not brought to tax. These reasons are interconnected and interwoven. In fact, even if these reasons are seen as separate and severable grounds, both being factually incorrect, Revenue simply cannot hope to salvage the impugned notice. Through the affidavit inreply a faint attempt has been made to entirely shift the center of the reasons to a completely new theory viz. the possible applicability of section 50C of the Act. The reasons recorded nowhere mentioned this possibility. Reasons recorded, in fact, ignored the fact that the sale

7 & 608/Kol/2022 Assessment Years: 2009-10, 2010-11 & 2011-12 M/s Ajanta Merchants Pvt. Ltd. consideration as per the sale deed was Rs.50 lakhs and that the assessee had by filing the return offered his share of such proceeds by way of capital gain.”

6. For that the Ld. CIT(A) erred in confirming the assessment when no notice was issued u/s 143(2) when it was specifically noted by the Ld. CIT(A) from the submissions of the assessee that a letter was duly filed to treat the original return as return in response to notice u/s 148 which has been ignored by the Ld. CIT(A) while passing the order.

“6.4. It is relevant to note that the Hon’ble Delhi High Court in the case of kelvinator of India (123 Taxman 433) has held that an assessment can be re-opened only on the basis of fresh tangible evidence. This decision of the Hon’ble Delhi High Court has also been affirmed by the Hon’ble Supreme court (187 Taxman 312). In the instant case, it is observed that the AO was in possession of fresh tangible evidence in the form of information that the appellant had unexplained deposits in its bank account of and had made undisclosed investment in property. Therefore, the reopening of assessment by the AO in the case of the assessee on the basis of fresh tangible evidence of unexplained deposits in its bank account of and of making undisclosed investment in property, cannot be faulted. As regards, the contention of the appellant that no notice u/s 143(2) was issued and therefore the reassessment is invalid, it is noted that the AO in para 3 of the assessment order has noted that the appellant filed some documents and also acknowledgement of return filed by it dated 24.08.2016. However, since the appellant did not inform that this return is to be treated as in response to notice u/s 148, the AO proceeded u/s 144 as if no return has been filed in response to notice u/s 148. Moreover, it is noted that the appellant has never challenged this aspect of non-issue of notice u/s 143(2) in the assessment proceedings, therefore the provisions of Section 292BB also come into play and now the appellant cannot challenge the validity of reassessment proceedings in the appellate stage. Accordingly, no infirmity is found in the action of the AO of reopening the assessment and proceedings u/s 144 against the appellant. Accordingly, Grounds of appeal

Nos. 1 to 4 of the appellant are dismissed.”

13. The Ld. A.R vehemently submitted before us that the order passed by the Ld. CIT(A) is patently wrong and against the provisions of the Act and also the ratio laid down in the various decisions by various judicial forums. The Ld. A.R while referring to the assessment order in Para 1 stated that return by the assessee was filed on 11.10.2010 declaring total income of Rs. 4,59,208/- which was processed u/s 143(1) of the Act. The Ld. A.R submitted that the case of the assessee was thereafter

9 & 608/Kol/2022 Assessment Years: 2009-10, 2010-11 & 2011-12 M/s Ajanta Merchants Pvt. Ltd. reopened u/s 147 by issuing notice u/s 148 of the Act on 30.03.2017. The Ld. A.R thereafter pointed out by referring page 34 of PB which contained a letter addressed to the AO wherein the assessee made compliance to the notice issued u/s 148 dated 30.03.2017 stating that the return already filed u/s 139(1) of the Act may kindly be treated as return filed in response to notice issued u/s 148 of the Act. The ld AR submitted that the assessee has made proper and full compliance to the impugned notice issued u/s 148 of the Act and the AO has simply ignored the said letter of the assessee by stating that the ITR acknowledgment produced by the counsel of the assessee along with various documents pertains to date prior to the date of issuance of notice i.e. 30.03.2017 and thus noted in the assessment order at page 2 in para 2 that there has been no compliance to the notice issued u/s 148 of the Act and proceeded to frame the assessment u/s 144 of the Act. The ld. Counsel for the assessee pointed out that since the assessee has made compliance to the notice issued u/s 148 of the Act dated 30.03.2017 vide letter dated 8.4.2017 wherein it was stated that return filed u/s 139(1) may kindly be treated as return filed in response to notice issued u/s 148 and thus the AO has grossly erred in framing the assessment u/s 144 read with Section 147 of the Act. The Ld. Counsel for the assessee stated that the AO has not issued notice u/s 143(2) of the Act which is undisputed position as per the records of the AO and was duly admitted by the Ld. CIT(A) in his order as extracted above. The Ld. A.R. submitted that once the assessee has complied with the notice issued u/s 148 of the Act by stating or mentioning that return file may kindly be treated as return file to the impugned notice issued u/s 148 of the Ac, the AO is duty bound to issue notice u/s 143(2) of the Act otherwise the reassessment proceedings could be rendered as nullity and void in the eyes of law. The ld. A.R submitted that the Ld. CIT(A) has simply passed the order without application of mind that AO has noted in the assessment order that acknowledgment filed by the assessee was relating to the date which falls prior to the date of issuance of notice u/s 148 of the Act. However no cognizance was taken to the request of the assessee as made on 8.4.2017. The Ld. A.R therefore prayed before the Bench that the assessment order passed by the AO and sustained by the Ld. CIT(A) may kindly be held as bad in law and may be quashed accordingly.

10 & 608/Kol/2022 Assessment Years: 2009-10, 2010-11 & 2011-12 M/s Ajanta Merchants Pvt. Ltd. The Ld. A.R. in defense of his argument relied on the decision of Co-ordinate Bench of Kolkata in the case of DCIT, Circle-4(2), Kolkata vs. M/s Sudarshan Paper & Board Pvt. Ltd. in ITA No. 130/Kol/2018 for AY 2011-12 dated 23.10.2019 wherein the Co-ordinate Bench has decided the issue under similar facts in favour of the assessee by holding that where the assessee has complied with the notice issued u/s 148 of the Act by filing a letter stating therein that return filed originally u/s 139(1) may be treated as return filed in response to notice u/s 148 then it is mandatory to issue u/s 143(2) of the Act because the assessee has complied with notice issued u/s 148 of the Act failing which the assessment framed u/s 147 read with 144 of the Act is rendered void ab-initio and was quashed and the appeal of the revenue was also dismissed by the Hon’ble Jurisdictional High Court against the said order in the case of PCIT vs. M/s Sudarshan Paper & Board Pvt. Ltd. in ITAT/182/2022, IA No. GA/1/2022, GA/2/2022 dated 5.12.2022 by upholding the order of Tribunal. The Ld. A.R therefore prayed that in view of the ratio laid down above the assessment framed may kindly be quashed.

6. The learned counsel for the assessee, on the other hand, has submitted that a letter was submitted by the assessee during the course of reassessment proceedings before the AO on 09.07.2014 stating that the return originally filed u/s 139 on 26.09.2011 may be treated as the return filed in response to notice u/s 148. He has contended that the notice issued u/s 148 thus was duly complied with by the assessee and it was mandatory for the AO to issue a notice u/s 143(2) before proceedings to make an assessment u/s 147. In this regard, the learned DR has contended that the letter filed by the assessee cannot replace the return and by filing such letter, the assessee cannot be said to have complied with the requirement of filling the return of income in response to notice issued u/s 148. It is however observed that this aspect has already been considered by Hon’ble Delhi High Court in the case of Jai Shiv Shankar Traders Pvt. Ltd. 383 ITR 448 cited on behalf of the assessee and relied upon by the Ld. CIT(A) in his impugned order wherein a letter was filed by the assessee on 16.12.2010 informing the AO that the return originally filed should be treated as the return filed pursuant to the notice u/s 148. The AO thereafter, proceeded to complete the reassessment without issuing a notice u/s 143(2) and it was held by the Hon’ble Delhi High Court that the failure by the AO to issue a notice to the assessee u/s 143(2) subsequent to 16.12.2010 when the assessee made the statement before the AO to the effect that the original return filed should be treated as a return filed pursuant to a notice u/s 148 of the Act, was fatal to the order of reassessment. It was held that there was thus no legal infirmity in the order of the Tribunal cancelling the reassessment made by the AO on the ground that the same was made without issue of notice u/s 143(2). In our opinion, the ratio of the decision of Hon’ble Delhi High Court in the case of Jai Shiv Shankar Traders Pvt. Ltd. is squarely applicable in the facts of the present case and the Ld. CIT(A) was fully justified in quashing the assessment made by the AO u/s 147/144 of the Act by treating the same as void ab initio by relying on the same. We, therefore, uphold the impugned order of the Ld. CIT(A) on this preliminary issue and dismiss Ground No. 1 of the Revenue’s appeal.” Further we observe that the said decision of the Co-ordinate Bench has been upheld by the Hon’ble High Court by dismissing the appeal of the revenue by observing and holding as under:

“The revenue has raised the following substantial question of law for consideration: i) Whether on the facts and circumstances of the case and in law the Learned Income Tax Appellate Tribunal is justified in upholding the order of the Learned Commissioner of Income Tax (appeal), quashing the order of the Assessing Officer under Section 147/144 of the Income Tax Act, 1961 for non- issuance of notice under section 143(2) of the Act, without appreciating the facts that assessee did not comply with the notice under section 148 of the Income Tax Act, 1961 and as such notice under section 143(2) of the Income Tax Act, 1961 is not required in assessee's case ?

On perusal of the order passed by the learned Tribunal we find the legal issue involved in the case has been rightly dealt with by the learned Tribunal affirming the order passed by the Commissioner of Income Tax (Appeals) and quashing the reassessment proceeding for want of notice under Section 143(2) of the Act. In this regard usual reference may be made to the decision of the High Court of Madras in M/s. Sapthagiri Finance & Investments -vs- The Income Tax Officer TC(A) No. 159 of 2006 dated 17.07.2012. In the said decision after taking note of the decision of the Hon’ble Supreme Court in Asstt. CIT v. Hotel Blue Moon; [2010] 321 ITR 362(SC) the reassessment proceeding was set aside. The initial view was that failure to issue notice is an irregularity, which is curable when subsequently the law is well settled that it being an inherent defect is not curable. To the same effect are the decisions in Principal Commissioner of Income Tax-vs-Jai Shiv Shankar Traders Pvt. Ltd. 383 ITR 448 (Delhi) and Tiwari Kanhaiya Lai -vs- Commissioner of Income-Tax 154 ITR 109 (Raj).

In the light of the above, the order passed by the learned Tribunal is legal and valid and does not call for any interference. Accordingly, the appeal filed by the revenue is dismissed and the substantial question of law is answered against the revenue.” In view of the present facts and ratio laid down in the above decisions, we quash the assessment framed on the preliminary issue.

13 & 608/Kol/2022 Assessment Years: 2009-10, 2010-11 & 2011-12 M/s Ajanta Merchants Pvt. Ltd. 16. As we have quashed the assessment framed u/s 147 read with Section 144 of the Act on the preliminary issue, the other grounds raised by the assessee are not being adjudicated and are left open to be adjudicated at any later stage if the need arises for the same. Accordingly the appeal of the assessee is allowed.

ITA No. 608/Kol/2022 for AY 2011-12.

5. For that the Ld. CIT(A) erred in confirming the action of the AO in adding back Rs. 2,87,43,923/- by application of Section 69C when the purchase was part of the books of accounts duly produced and was reflected in the audited accounts in the bank account the source of which was available from books of accounts and bank statement and the addition by application of Section 69C was not at all justified.

14 & 608/Kol/2022 Assessment Years: 2009-10, 2010-11 & 2011-12 M/s Ajanta Merchants Pvt. Ltd. on the basis of income tax return and tax audited report found that the assessee had purchased shares worth Rs. 3,82,30,426/- and sold shares of Rs. 94,86,503/- during the year with opening and closing stocks as stated above. According to the AO, the purchase of shares of Rs. 3,82,30,426/- could not be verified. The assessee has not filed any details during the assessment proceedings and therefore cannot be allowed the benefit of carrying forward of closing stock of shares amounting to Rs. 4,83,95,560/-. The AO further observed that the assessee did not furnish as to how the shares were acquired and source used in the stocks in the said shares. The AO noted from the balance sheet that the loan and advances as on 01.04.2010 amounting to Rs. 28,98,81,492/- had reduced to Rs. 24,81,20,332/- as on 31.03.2011 and details of loan and advance s were also not given during the course of assessment proceedings. The AO treated share purchase during the year of Rs. 3,82,30,426/- as unexplained purchase u/s 69 of the Act however deduction was allowed in respect of share sold during the year of Rs. 94,86,503/- and thereby making an addition of Rs. 2,87,43,923/-.

“Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the 57[Assessing] Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year :] 61[Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.]” Thus it is clear from the perusal of the above provisions that this section can be invoked if the assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof or the explanation, if any, offered by him is not, in the opinion of the AO, satisfactory then that amount could be covered and would be treated as unexplained expenditure u/s 69C of the Act but in the present case before us the facts are different. The assessee has made investments which were disclosed in the books of account and which were purchased out of the sources available in the books of account. We also note from the balance sheet that loan and advances have come down from Rs. 28,98,81,492/- to Rs. 24,81,20,332/- meaning thereby the assessee has sufficient funds and realization forms, loans and advances. We also note that the trading account of sale and purchase of shares, copy of which is filed at page 95 of PB was accepted by the AO and the loss of Rs. 14,28,851/- was also accepted. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the addition.

Order is pronounced in the open court on 28th March, 2023