SOMESH N. KSHIRSAGAR,,SOLAPUR vs. PR. COMMISSIONER OF INCOME-TAX, -6,, PUNE

These three appeals filed by the assessee Mr. Somesh N. Kshirsagar against the orders of the ld. Pr. Commissioner of Income Tax-6, Pune passed u/s. 263 of the Act dated 20-03-2018 for the assessment years 2010-11, 2011-12 and 2012-13.

As the issue in all the three appeals are identical, all the three appeals are disposed of by this common order.

Shri Pratik Sandbhor represented on behalf of the assessee and Shri B. Kishor represented on behalf of the Revenue.

It was submitted by the ld. AR that the assessee is an individual and he was not filing return of income. It was the submission that on the basis of information under non-filer monitoring scheme received by the Department regarding cash deposit in bank account, the Assessing authority on the basis of information available issued notice u/s. 148 of the Act on 03-03-2015. It was the submission that the return of income in response to the notice issued u/s. 148 came be filed on 26-05-2015 for all the three assessment years. The reasons for the reopening of assessment was that the assessee had made cash deposits of substantial amounts being Rs.14,80,000/- for the assessment year 2010-11, Rs.21,28,600/- for the assessment year 2011-12 and Rs.75,64,000/- for the assessment year 2012-13 with Solapur Janata Sahakari Bank Ltd., Mohol Branch. The AO had in the course of reopened assessment questioned the assessee with regard to the cash deposits and the assessee had categorically stated and confirmed that the assessee was deriving income from salary from the assessee father’s wholesale and retail business of country liquor shop namely Sanjay Traders and N D Kalal Country Liquor Shop. The assessee had specifically mentioned that the assessee’s father was physically not sound to look after the entire business activities and the assessee is looking after financial and business related activities of his father and that the assessee’s bank account is used some times for such activities and the cash deposits were made out of business transactions of father’s business. It was the submission that in the course of assessment, the books of accounts, documents and bills in respect of assessee father’s business had been produced and it was observed by the AO that the accounts of assessee father’s business was liable for audit u/s. 44AB of the Act and audit report was obtained and placed on records. The books of accounts, documents and bank statements, produced had also been examined on test check basis. It was the submission that after examination it was found that no addition on account of cash deposits with Solapur Janata Sahakari Bank Ltd., Mohol Branch in the assessee bank accounts was required to be added and no addition on that count was made. It was the submission that however certain addition has been made representing the agricultural income as disclosed by the assessee. It was submission that the reopened the assessment came to be completed u/s. 143(3) r.w.s. 147 of the Act on 21-03-2016. It was submission that subsequently a show cause-notice came to be issued u/s. 263 of the Act on 13-03-2018 asking the assessee to explain as to why the order dated 21-03-2016 for each of the assessment year should not be revised by invoking the provisions of section 263 of the Act. The assessee was asked to respond by 20-03-2018. It was submitted by the ld. AR that the assessee had responded vide letter dated 20-03-2018 which has been extracted by the ld. Pr. CIT in para 3 of his order. It was further submitted by the ld. AR that it was very specifically brought to the attention of the Pr. CIT that the issues have already been examined in detailed in the course of original assessment passed u/s. 143(3) r.w.s. 147 of the Act. The said account was also verified at the time of assessment. It was the submission that as certain discrepancies have been noticed the assessee’s father had also made declaration of closing bank balances under Income Declaration Scheme in respect of said bank account and in the said IDS declaration 2016 it was specifically mentioned that the bank account in the name of assessee at Solapur Janata Sahakari Bank Ltd., Mohol Dist. Solapur belonged to the business of the assessee’s father and the entries in the said account were recorded in the accounts of the assessee’s father but closing balance of above account was not shown in the balance sheet of assessee’s father and consequently the disclosure was being made to correct the balance sheet position of assessee’s father for the assessment years 2010-11 to 2013-14. It was submission that in para 4 of the order of ld. Pr. CIT had specifically recorded that “the contention of the assessee was thereafter accepted by the AO”. It was the submission that the ld. Pr. CIT did not consider the explanations of assessee and on presumptions has held that the assessment orders dated 21-03-2016 passed for all the three assessment years were liable to be set aside for redoing the same afresh. It was the submission that the assessment orders for all the three assessment years passed on 21-03-2016 were not erroneous or prejudicial to the interest of revenue and the same were also passed after examining and considering the explanations of assessee in respect of cash deposits in the bank account and an opinion has been formed by the AO in respect of the said cash deposits with completing the original assessment. Consequently, revision u/s. 263 of the Act was not permissible.

We have considered the rival submissions. For the purpose of brevity the findings of ld. Pr. CIT in paras 4 and 5 of his order are extracted here-in-below : “4. I have carefully considered the submission made by the assessee on 20/03/2018. As per the information available on record, during the year under consideration total cash deposits of Rs.14,80,000/- was made by the assessee in his savings bank account No.GLC 51/3065 maintained in the Solapur Janata Sahakari Bank Ltd., Mohol Branch. The assessee was asked to explain the source of said cash deposits. It was explained by the assessee during the course of assessment that, the account was used by his father for his business namely Sanjay Traders, Mohol and N. D. Kshirsagar Country Liquor Shop, Tembhurni, due to his old age and cash deposits in the said account are made out of business transactions of his father's business. As mentioned in the assessment order, the books of account of the father's business was examined by the AO on test check basis. The AO also obtained ledger extract of the said account in the books of Sanjay Traders and audit report in Form 3CB/CD of the business of assessee's father and placed the same on record. The contention of the assessee was thereafter accepted by the Assessing Officer. On subsequent review of the assessment records, it was revealed that, neither the said bank account (GLC51/3065) nor the amount is appearing in the Balance Sheet of any business firm of his father. As claimed by the assessee, if the amount was paid out of the business activities of the firm belongs to his father, the same should have been reflected in the asset side of Balance Sheet of the said firm. As stated earlier, the account or the amount is not reflected in the Balance Sheet of his father, which clearly indicates the transactions in the said bank account was not considered by assessee's father while finalizing his books of account. The contention of the assessee was therefore found to be incorrect. The Assessing Officer while completing the assessment has totally ignored this aspect and accepted the assessee's contention without proper verification of documents / books of accounts and without application of mind. The provisions of Sec.263 of the Act was therefore invoked to revise the assessment order for the year under consideration by issue of a notice dated 22/02/2018. In response to which, the assessee vide his letter dated 20/03/2018 informed that, though the account is in the name of Shri Somesh Naganath Kshirsugar, the same belongs to the business of his father Shri Nagnath Dattatraya Kshirasugnr. He also contended that, the entries in this savings account <Ire recorded in the books of" account of Shri Naganath Dattatruvn Kshirasagar, but the closing balance of the said account is not shown in the Balance Sheet of Shri Naganath Duttatraya Kshirsagar for the year ended on 31.03.2010, 31.03.2011 and 31.03.2012 and same is disclosed during the financial year 01.04.2012 to 31.03.2013. So above Bank Account and cash are declared under IDS Scheme 2016, to correct the Balance sheet position of Shri Nagnnth Dattatraya Kshrisagar, Mohol for the above 4 financial years. A copy of the Form No.01 of IDS, 2016 has also been submitted by the assessee. On perusal of the Form No.1 it is seen that, Shri Naganath Dattatraya Kshirsagar has declared the closing balance of Rs.10,000/- as on 31/03/2010 in the S.B. Account NO.S1/306S as his undisclosed income for the A.Y. 2010-11 under IDS Scheme. Thus, there remains no dispute to the extent of amount declared by the assessee's father under IDS Scheme, 2016 on this account. However, as per information on record, the assessee has deposited cash of RS.14,80,000/ - in the said savings bank account in F.Y. 2009-10. Whereas, his father has declared only closing balance of Rs.10,000/- under the IDS Scheme. The assessee further claimed that, the entries in the savings bank account No.S1/306S have duly been recorded in the books of account of hip father. The said contention of the assessee cannot be accepted unequivocally. Because, if the father of the assessee would have recorded the entries ill the above savings bank account in his books of account in a proper manner, the question of remaining only closing balance out of books does not arise, especially when the accounts are maintained on computer system by using a TALLY or any other accounting software. This itself indicates that, if at all the entries are recorded in the books of assessee's father, the treatment given in the books may not be correct. Further, one more question remains is related to availability of cash at a certain point of time in the hands of assessee's father to deposit in the said savings account. If his father fails to substantiate the availability of cash from time to time, the burden of proving the source of cash deposits again shifts on the shoulder of present assessee. It is to be noted here that, the Assessing Officer has clearly mentioned that he has examined the documents/books of account of assessee's father on test check basis. Due to paucity of time, the same cannot be verified at this end. It is therefore felt necessary to set aside the matter back to the Assessing Officer to verify the claim of differential amount with reference to the relevant documents/books of account and decide the issue after clue verification of the relevant documents/books of account as per law, Similarly, it ma. also be verified whether the interest credited in the said savings account in the relevant year has been offered for taxation or not.

In the light of the discussion made hereinabove, the assessment order elated 21/03/2016 made in this case for the Assessment Year 2010-11 is hereby set aside with a direction to the Assessing Officer to do the same afresh in pursuance of the directions given in this order, after giving the assessee reasonable opportunity of being heard, and as per law.”

Surprisingly, the Pr. CIT did not even utter word in finding portion as to why he finds the order passed by the AO for all the three assessment years on 21-03-2016 as “erroneous in so far as it is prejudicial to the interest of revenue”. There is no conclusion drawn by the ld. PR. CIT that the assessment order is erroneous or that it is prejudicial to the interest of revenue. All that the ld. Pr. CIT talks is that, if at all the entries are recorded in the books of assessee’s father, the treatment given in the books may not be correct. This is a conclusion in respect of books maintained by the assessee’s father. The Pr. CIT states that the question remains in respect of availability of cash at the certain point of time in the hands of assessee’s father to deposit it in the savings account of the assessee. This is also in relation to the assessee father’s accounts. The ld. Pr. CIT further goes to hold that due to paucity of time, the documents and books of accounts of assessee father’s account cannot be verified at this end. This cannot be held against the assessee. Further, the ld. Pr. CIT has gone on to direct the AO to verify whether the interest credited in the saving bank accounts for the relevant year has been offered for tax or not. This is an issue which has been raised in the show-cause notice. In para 5 the ld. Pr. CIT set aside the assessment order with a direction to the AO to do the same afresh in pursuance of the directions given in the order, after giving the assessee reasonable opportunity of being heard, and as per law. Clearly the directions given if at all it can be considered as direction in the ending portion of para 4 at page 8 of his order are issues which are to be examined in the hands of the assessee’s father and not the hands of the assessee. Therefore, it cannot be said that any direction has been given in the case of assessee. The ld. DR has placed reliance on clause (a) to Explanation to section 263 of the Act. Clause (a) reads as under : “The order is passed without making enquiries or verifications which should have been made.”

A perusal of the assessment order dated 21-03-2016 for all the three assessment years passed u/s. 143(3) r.w.s. 147 of the Act shows that in paras 5 and 6, the AO has examined the cash deposits in the bank accounts and has examined the books of accounts/documents/bills and bank statement produced in respect of assessee father’s business also to verify it with the cash deposits. Thus, it cannot be said that the assessment order has been passed without making enquiries or verifications. A question could be raised that the assessment order has been passed without making enquiries or verifications “which should have been made”. What type of enquiries or verifications that required to be made are not prescribed in the Act, nor there is such prescription by the CBDT in any circular or notifications nor available in the rules. In the absence of the specification of type of enquiries or verifications which should have been made, an enquiry and verification that a normal officer would do under normal circumstances would not make the assessment order erroneous in so far as it is prejudicial to the interest of revenue just because the enquiry and verification has not resulted in any addition. The AO initiated the assessment process by issuance of notice u/s. 148 has issued the same very specifically for the purpose of examining the said cash deposits. Just because the reasons for which he has reopened the assessment did not culminate in addition would not mean that he has not passed the order without making the enquiries or verifications which should have been made. Thus, being so, it cannot be said that the assessment order passed by the AO for all the three assessment years on 21-03-2016 is erroneous in so far as it is prejudicial to the interest of revenue. Consequently, the order passed u/s. 263 by the ld. Pr. CIT for all the three assessment years setting aside the assessment orders passed u/s. 143(3) r.w.s. 147 of the Act completed on 21-03-2016 for all the three assessment years i.e. assessment years 2010-11, 2011-12 and 2012-13 in the case of assessee stand quashed.

In the result, all the three appeals by the assessee are allowed.