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Income Tax Appellate Tribunal, ALLAHABAD BENCH, ALLAHABAD.
Before: SH. UDAYAN DAS GUPTA & NIKHIL CHOUDHARY
ORDER Per: Udayan Das Gupta, JM This appeal is filed by the assessee against the order of the Ld. CIT (A), NFAC, dated 16/10/2023, passed u/s 250 of the Act 61, which has emanated from the order of the ITO, Ward 2(5), Kaushambi, passed u/s 143(3) of the Act 61, dated 27/12/2019.
Condonation of delay: It is pointed out by the registry that the filing of this appeal is belated by 32 days. An affidavit has been filed explaining the delay in filing of this appeal where the 2 Assessment Year: 2017-18 assessee submitted that the order of the first appellate authority has been received on 16.10.2023 and the date for filing the appeal before the Tribunal has expired on 15.12.2023. During the period, the partner who looks after the account of the assessee’s firm was seriously ill (medical certificate attached) and could not attend office, and as such, the appeal could not be prepared and filed in time. Subsequently recovering from illness in the month of January 2024, the assessee managed to contact his counsel and has paid the tribunal fees on 12.01.2024 and filed this appeal complete in all respects on 16.01.2024, as such, the assessee prays that the delay in filing this appeal may please be condoned because there has not been any willful default on the part of the assessee. Considering the grounds of the assessee and the explanation furnished by way of an affidavit supported by a medical certificate, we condone the delay of 32 days and admit the appeal to be heard on merits.
The grounds of appeal preferred by the assessee in Form 36 are as follows:
1. BECAUSE the National Faceless Appeal Centre (NFAC) has erred in law and on facts in dismissing the appeal without affording adequate and effective opportunity of being heard.
2. BECAUSE the order dated 27.12.2019 passed under section 143(3) of the Income Tax Act, 1961 is vitiated for want of jurisdiction in absence of notice under section 143(2) by the assessing officer having valid jurisdiction over appellant.
3 Assessment Year: 2017-18
3. BECAUSE the NFAC has erred in law and on facts in sustain addition of Rs. 75,87,375/- on account cash deposited into bank account during demonetization period by invoking the provision of section 69A of the Income Tax Act, 1961.
4. BECAUSE the NFAC has failed to appreciate the fact that whole of the amount deposited during demonetization period stand fully explained out of cash receipts » from hirers against the hire charged of agricultural produce stored and refund of advance given against pledge of their agricultural produce.
5. BECAUSE the NFAC has failed to note that cold storage is seasonal industry and cold storage season starts from February and ends by November every year, therefore most of the realization from hirers come at the end of the season. 6. BECAUSE the appellant denies for levy of interest under section 234B of the Income Tax Act, 1961. 7. BECAUSE the order appealed against is contrary to the facts, law and principle of natural justice.”
The brief facts of the case are that the assessee is a partnership firm consisting of two partners during the year under appeal. The partnership firm was constituted on 06/10/2006 with registered office at Samda, Manjhanpur, Kaushambi, U.P. The partnership firm originally consisted of four partners as per original deed dated 6th October 2006, engaged in the business of running cold storage and ice factory. Subsequently, there has been a change in the constitution 4 Assessment Year: 2017-18 of the firm and vide a re-constituted deed dated 31.12.2015, the same business was carried out by the present partners from the same premises and under the same address and also under the same trade name. During the year under appeal, regular return has been filed alongwith copies of audited accounts and necessary audit report online on 12.09.2017, and notice u/s 143(2) was issued by the ITO 2(1)(4), Ghaziabad on 14.08.2018 under CASS for the purpose of examining cash deposit in bank during demonetization period, and the same has been served vide registered post and also electronically on the e-mail ID, available on the portal. 4.1 In response to such notices the assessee has filed reply through online portal and has also subsequently produced books of account through their authorized representative on 22.07.2019, consisting of cash book, bank records and necessary explanations, regarding the cash deposit during demonetization period. Thereafter the assessment has been completed on a total income of Rs.77,56,100/- by making an addition of Rs.75,87,375/- u/s 69A of the Act for alleged unexplained cash deposit in bank during demonetization period.
The matter was carried in first appeal and the ld. CIT(A) has dismissed the said appeal on the ground of non-representation by the assessee in course of appellate hearing. It is also seen from the order of the first appellate authority that the case has been fixed for hearing on four different dates and there has not been any representation or any written submission in response to such notices by the 5 Assessment Year: 2017-18 assessee. However, the ld. first appellate authority has considered the statement of facts and ground of appeal
and has dismissed the appeal by confirming the addition on account of cash deposit in bank during demonetization.
6. Now, the assessee is before the Tribunal on various grounds contained in his memorandum of appeal.
7. The Ld. AR of the assessee , filed a short paper book consisting of audited accounts for the year ended March 2017 , copy of return receipt for the year ITR - V, copy of PAN card and a copy of the reconstituted partnership deed dated 31/12/2015 along with an affidavit to explain the fact that the firm has not carried out any business at any other place, other than at District Kaushambi, village: Samda, Manjhanpur, PIN 212201, (UP) , and submitted that the territorial jurisdiction of the assessee lies with ITO Ward 2(5), Allahabad. 7.1 First Ground of appeal:
The Ld. AR submitted that no reasonable opportunity of hearing has been allowed by the first appellate authority , because as apparent from the appeal order, notice of hearing has been issued through ITBA portal , and since it was not possible for the assessee to keep tract of the portal on regular basis, he was not aware of the dates fixed for hearing and he has not received any email or messages from the office of the first appellate authority, and as such no proper submission could be filed and no representation could be made
6. Assessment Year: 2017-18 explaining his case before the first appellate authority , along with documentary evidences. 7.2 Second Ground: The objection of the assessee on this ground, is against the issue of statutory notice u/s 143(2) of the Act 61 , dated 14/08/2018 , by the ITO Ward – 2(1)(4) Gaziabad , which according to the assessee, lacks jurisdiction , and he argues that , on the basis of the geographical location of the assessee firm and partners, at Samda, Manjhanpur, Dt. Kaushambi, PIN – 212201, ( UP ), the territorial jurisdiction is with the ITO – Kaushambi , who ultimately heard the case , completed the assessment and has passed the assessment order, on 27/12/2019, but without issue of any fresh notice u/s 143(2) of the Act. In other words, the crux of his argument was that, on filing of the return u/s 139(1) on 12/09/2017, the ITO , Gaziabad has issued the notice u/s 143(2) on 14/08/2018 ( who according to the assessee was not the jurisdictional AO ) . He further submitted that the jurisdictional AO of the assessee, being ITO - 2(5) / Kaushambi , to whom the file has been transferred on 20/09/2019, ( from ITO / ward 2(1)(4) Gaziabad ) , should have issued a fresh notice u/s 143(2) of the Act, and in absence of any such statutory notice on record , the AO lacks jurisdiction to proceed with the assessment, and the assessment should be quashed . In support of his argument he relied on the judgment of the ITAT, Raipur Bench , in the case of Durga Manikanta Traders vs ITO , 2019 , dated 12/12/2022 , to argue that when the 7. Assessment Year: 2017-18 statutory notice u/s 143(2) dated 14/08/2018, was actually issued by ITO - Ghaziabad, he was never vested with jurisdiction over the assessee and as such the notice dated 14/08/2018, was legally invalid. The 3rd, 4th and 5th grounds are interlinked and relates to a single issue on 8. merits of the case regarding the addition of Rs.75,87,375/- u/s 69A of the Act 61, being alleged unexplained cash deposited in bank account during the demonetization period. The Ld. AR of the assessee referred to the audited profit and loss account as at 31/03/2017, (placed in paper book) and submitted that the assessee firm is engaged in the business of cold storage, where mainly agricultural produce (mostly potatoes ) are stored by the farmers, growers, cultivators and other persons , against payment of hire charges. He submitted that the gross hire charges receipts for the year under appeal was Rs. 99.47 lakhs (as reflected in audited accounts) and the said receipts along with advance recovered, together, has formed the source of cash deposits in bank account. He further submitted that the assessee gave advances to the cultivators every year against pledge of storage slips and realizing the amount in cash before off loading of potatoes, which generally happens in the months of September, October, November, each year, being the peak period of realization and collection of funds, He further stressed that the entire collections and deposits are duly recorded in the books of accounts and there are various registers which contains the names and address of farmers and 8. Assessment Year: 2017-18 cultivators, from whom the amounts given on advance has been received and there are separate registers in respect of rent receipts against hire charges also, and the entire fund flow, both inward and outwards, are duly recorded in the books of accounts and the cash book produced before the AO in course of assessment proceedings contains full details of the same along with supporting documents. He further submitted that the cash book produced before AO has been examined, and the said books of accounts, has not been rejected and no recourse has been taken to provisions of section 145 of the Act, and in absence of any adverse findings, the book result has to be accepted as correct. He further submitted that the cash deposited in bank account during demo period has come out of the availability of cash balance, in the cash book itself on the date of demonetization. In other words, the cash deposited in the bank account during demonetization period, was fully covered by the closing cash balance as at the end of business hours on 8th November, 2016, and the said fact was duly reflected in the regular cash book of the assessee, which the AO has failed to appreciate. On the other hand the AO resorted to calculation of cash availability of the assessee, on basis of trend and average derived from figures of previous periods prior to demonetization , and has determined addition of Rs.75,87,375/- u/s 69A of the Act , which could not have been legally done without rejection of books. As such he prays for deleting the addition of Rs. 75,87,375/-.
9 Assessment Year: 2017-18
The Ld. DR, has also filed a short paper book containing 84 pages, consisting of the copies of notice issued u/s 143(2) dated 14/08/2018, PAN details and PAN jurisdiction history, all subsequent notices issued u/s 142(1), by ITO, Kaushambi, final SCN dated 24/12/2019, and copy of order sheet (note sheet) of the entire assessment proceedings, and copies of case laws relied upon in support of his arguments. 9.1 The Ld. DR in respect of the first ground has relied on the order of the Ld. CIT(A), and submitted that notice of hearing has been issued by the first appellate authority, fixing the case on four separate dates through the portal, as per procedure of faceless appeal , but the assessee never responded to any of them and the Ld. CIT ( A) has considered the statement of facts and the grounds of appeal
and materials available before him to pass the appellate order considering the merits of the case. 9.2 Regarding the second ground of appeal, regarding the issue of jurisdiction, he referred to the jurisdiction history and the PAN details of the assessee, ( placed in pb page 5 and 6), to point out that the notice u/s 143(2) of the Act dated 14/08/2018, has been issued by the ITO -2(1)(4) Ghaziabad , in response to return filed u/s 139(1), dated 12/09/2017, which has been selected under CAAS , within the stipulated time frame allowed till 30th September, 2018, and the said AO, at Ghaziabad, held valid jurisdiction till 20th September, 2019 as per PAN data,
10. Assessment Year: 2017-18 whose details are all on record. He further submitted that subsequent to 20/09/2019, the case was transferred to ITO - 2(5), Kaushambi, who proceeded with the assessment proceedings till its completion on 27/07/2019, where the assessee has filed written submission in online portal, produced books of accounts and was also represented by their authorized Advocate, for explaining the financial statements and bank accounts and has furnished all requisite details, for the purpose of assessment.
10. He further referred to section 124(3)(a) of the Act 61, to argue that in the instant case notice u/s 143(2) dated 14/08/2018, has been issued and served on the assessee, electronically through “ E-proceeding facility ” which is an admitted fact, and as per provisions of the section, the assessee had one month time, from the date of service of such notice, to call in question the jurisdiction of the AO, or lodge an objection, which in the instant case has not been done by the assessee, and now at the appellate stage, it is not open to the assessee to challenge the jurisdiction of the assessee. In support of his arguments he relied on the jurisdictional High Court judgment in the case of “Balchand Jain and Sons” vs DCIT [2014] 41 taxmann.com524( Allahabad HC ) dated 30/10/2012 , where it has been held by the court that provisions of sub section (3) of Section 124 of the Act 61, bar an assessee from raising question of jurisdiction before first appellate authority or Tribunal , if such objection has not been raised before assessing 11 Assessment Year: 2017-18 authority at very first stage. He further relied upon the judgment of the jurisdictional High court in the case of CIT , Gorakhpur vs All India Children and Educational Development Society , [2013] 357 ITR 134( Allahabad ), where a similar view has been taken by the court by holding that the question of jurisdiction of the AO , in view of section 124 of the Act , could not have been raised by the assessee before the Tribunal and the Tribunal is not the competent authority to adjudicate upon, when it was not raised in terms of section 124 before the Assessing authority. 10.1 He further relied on the judgment of the Karnataka High Court in the case of Adarsh Developers vs DCIT [2024] 158 taxmann.com 81 dated 13/12/2023, and submitted that section 124(1) of the Act 61 , refers to the assessing officers territorial jurisdiction in respect of a person , and in cases when the territorial jurisdiction is challenged , the restrictions of time stipulated u/s 124(3) comes into the picture and if the right to call in question the jurisdiction is left open to be raised at any stage , the proceedings will remain inconclusive and that could not have been the intention of the legislature . 10.2 For further support, the Ld. DR relied on the decision of the Hon’ble Calcutta High Court in the case of Elite Pharmaceuticals vs ITO -46(1)/ Kolkata [2016] 73 taxmann.com 69 (Calcutta) dated 03/08/2016, where the Hon’ble Court has given an almost similar view in the matter, relating to the provisions of section 12 Assessment Year: 2017-18 124(3) of the Act, and has also concurred with the judgment of the Delhi High court in the case of CIT vs Shri Shyam Sunder Infrastructure (P) Ltd [ of 2014]. 10.3 Lastly, he also refers to the case of Tarasafe International ( P) Ltd vs DCIT [2023]153 taxmann.com 282 ( Kolkata ITAT ), to put forth his submission that the AO is bound to follow the CBDT guidelines issued for the purpose of selection of cases for scrutiny . Once the computer identifies a particular case for selection of scrutiny , then on the basis of PAN data , notice is to be issued upon the assessee providing an opportunity to the assessee that its case has been selected for scrutiny assessment.
In the instant case before us, the Ld. DR points out that that the return has been identified by the computer for selection for scrutiny, and at the time of issue of the statutory notice, u/s 143(2), the same has been issued by the AO having jurisdiction on the basis of PAN data, and as on 14th August, 2018, the jurisdiction vested with the ITO - Ward 2(1)(4) Ghaziabad, ( as evident from the PAN jurisdiction details ) , and as such the assumption of jurisdiction has been rightly done by the ITO Ghaziabad , and all subsequent proceedings are legally valid.
Regarding grounds numbers 3, 4 and 5, relating to the addition of Rs.75,87,375/- , u/s 69A of the Act 61 , on merits of the case, he admitted that, the Ld. first appellate authority never had the opportunity to examine the full 13 Assessment Year: 2017-18 submission of the assessee , along with supporting documentary evidences , in absence of proper and effective hearing before him and he has no objection , if further opportunity is allowed to the assessee, to explain the source of cash deposit in bank account vis a vis his books of accounts , supported by his cash collection registers and other documents as stated by the AR in course of hearing.
We have heard the rival submissions and considered the materials on record, and the various case laws relied upon by both the parties. The pertinent issue to be decided by us is that whether the ITO Ward 2(1)(4) Ghaziabad, held valid jurisdiction over the assessee, on the date of issue of the statutory notice u/s 143(2) of the Act, dated 14th August, 2028, or not? 14. It is observed by us that the assessee ( a partnership firm ) has filed its return of income on 12th September, 2017 , in the online portal, electronically, for the Asst year 2017-18, i.e. within time u/s 139(1) of the Act , with full address in the return as existing in the PAN data base ( copy of ITR - V placed in paper book ). It is also seen that in the space where the designation of the AO (ward) circle is supposed to have been mentioned in the ITR -5, has been left “ blank ” , which indicates that the assessee himself was not sure about the correct jurisdiction of his AO and ward, at the time of uploading the return electronically. In course of hearing in response to a specific query from the bench, as to existence of any documentary evidences for earlier years, in possession of the assessee, (for 14 Assessment Year: 2017-18 example any notices, any intimation, any orders), which may prove the jurisdiction of the AO / Ward, in respect of the assessee, the Ld. AR replied in the negative. Under such circumstances, the only option available was to look into the jurisdiction details available in the PAN data. In this case the return filed by the assessee has been selected under CASS (computer aided scrutiny system) and for each year the CBDT provides the guideline regarding the process for selection of scrutiny cases. Once a particular return is identified by the computer for selection (on the basis of the guidelines in place), then on the basis of the details contained in the PAN data, the statutory notice u/s 143(2), is to be issued to the assessee, within the stipulated time frame as per proviso, providing opportunity to the assessee to furnish documents and explanations in support of his return. In the instant case notice has been generated and issued within time, electronically complete in all respects, with digital signature of the concerned officer, (ITO - ward -2(1)(4) Ghaziabad) holding valid jurisdiction, on the said date, as per PAN data. In fact the ITO - Ghaziabad held jurisdiction over the assessee till 20th September, 2019 , and thereafter, the case was transferred to ITO - Kaushambi . As such we hold that in the instant case , statutory notice u/s 143(2) dated 14/08/2018, has been issued by the ITO - Gaziabad , within time , who was vested with legal jurisdiction over the assessee at that particular period of time on the basis of PAN data , and the assumption of jurisdiction has been validly done. The case law relied 15 Assessment Year: 2017-18 upon by the assessee in the case of ‘Durga Manikanta Traders’ (supra), is distinguishable on facts, which related to issue of notice by the AO in violation of board instruction relating to monetary limits of Income returned. 14.1 Moreover, the assessee in the instant case never considered the statutory notice to be without jurisdiction , because if that be so , it was always open to the assessee to have objected to the same within the time limit , which has not been done in this case and the provisions of section 124(3) of the Act 61, does not entitle him to call in question the jurisdiction of the AO , after the stipulated time period, and respectfully following the law laid down by the Hon’ble jurisdictional High court in the case of “ Balchand Jain and Sons ” vs DCIT ( supra ) , where it has been held by the court that provisions of sub section (3) of Section 124 of the Act 61, bar an assessee from raising question of jurisdiction before first appellate authority or Tribunal , and also in the case of CIT , Gorakhpur vs All India Children and Educational Development Society , [2013] ( Supra ) , where similar view has been taken ,we hold that the second ground of appeal
taken by the assessee , on the grounds of jurisdiction is devoid of any merits and is rejected. Regarding the 3rd, 4th and 5th grounds, which are interlinked and on the merits of the case, we find that it is a case of limited scrutiny for verification of source of cash deposited in bank during the demonetization period. In course of assessment proceedings, financial statements along with audit reports were before the AO and 16. Assessment Year: 2017-18 the assessee has appeared and explained his case through his AR and all books of accounts, including cash book has been produced and examined. We also find that the books of accounts has not been rejected by the AO. The CASH BOOK is on record and the cash that has been deposited in bank account, date wise, will naturally flow out of the cash book itself on respective dates, and the inflow as recorded in the cash book will arise out of hire charges receipts, and collection of advances from various farmers and cultivators, as explained by the assessee, in course of hearing. But we also note that the AO has raised questions regarding the identity of the farmers and persons, from whom the advances has been received back and the details of the persons from whom hire charges has been collected. In course of hearing before us, it was stated by the assessee that collections of funds by way of hire charges and on account of advance collected from farmers, are all recorded in separate registers , specifically maintained, which has not been verified by the AO and the source of the funds that has been collected and recorded in the cash book on regular basis , are supported by documentary evidences , which needs further verification and enquiry vis a vis the entries in the collection registers.
As such we are of the opinion that in the instant case, the assessee needs to explain his cash deposits in bank out of available cash balance as on the date of demonetization i.e. 8th November, 2016 and the inflow of cash in the cash book needs to be explained out of collection of advances and hire charges, which 17 Assessment Year: 2017-18 according to the assessee are recorded in separate registers, fully documented and evidenced, which needs verification and enquiry by the AO. 15.1 As such in the interest of justice, the grounds of appeal
numbers 3 to 5, on merits, are set aside back to the concerned AO, for fresh adjudication, after causing necessary enquiry of supporting documents, registers vis-a-vis the cash book, and to pass a fresh order on merits after allowing reasonable opportunity of being heard to the assessee.
16. Grounds nos. 6 and 7, needs no adjudication.
17. In the result, the appeal of the assessee bearing is allowed for statistical purposes.