JAI DEEP SINGH,JAIPUR vs. INCOME TAX OFFICER, WARD-7-2, JAIPUR

During the course of hearing, the ld AR submitted that the assessee is an agriculturalist and has no source of income other than agriculture income from the ancestral land received in Jagir. He has filed the return of income for the year under consideration as Karta of his HUF on 31.07.2007 declaring LTCG on sale of agricultural land at Nil, interest on FDR Rs.2,37,763/- and agriculture income of Rs.3 lacs. The income of the HUF was assessed by the AO u/s 143(3) vide order dt. 07.12.2009 by accepting the income declared. Subsequently, the AO issued notice u/s 148 dt. 28.03.2014 in the name of assessee. The assessee sought copy of reasons recorded for reopening vide letter dt. 17.10.2014. Thereafter vide letter dt. 16.01.2015, he again requested to provide the copy of reasons recorded and stated that the return already filed with ITO, Ward-2(3) may be treated as return filed in response to said notice. In response to same, assessee was provided two copies of reasons recorded by AO, one dt. 10.03.2014 and other dt. 24.03.2014. In the reasons dt. 10.03.2014, AO on the basis of sale deed available with him stated that assessee, along with 5 other co-owners, has purchased a land bearing Khasra No.388 from Sh. Ganga Ram on 24.05.2006 for Rs.1,87,20,000/- in which assessee’s share comes to Rs.31,20,000/-. This land was acquired by RIICO on 16.09.2017 against which compensation of Rs.2,05,72,485/- was received in which assessee’s share is Rs.34,28,748/- and thus, there is short term capital gain of Rs.3,08,748/- (34,28,747-31,20,000). Hence, income escaped assessment in respect of the assessee amounts to Rs.34,28,748/- (31,20,000 + 3,08,748). In the reasons dt. 24.03.2014, the AO on the basis of sale deed available with him stated that assessee has purchased a land bearing Khasra No.325 on 22.05.2006 for 3 Shri Jaideep Singh vs. ITO Rs.3,14,95,875/- out of which Rs.1 crore has been paid till 22.05.2006. Since assessee is not filing the return of income, source of investment of Rs.1 crores remains unexplained and thus, income to that extent has escaped assessment.

It was submitted by the ld AR that against first reasons recorded by AO, the assessee vide reply dt. 21.01.2015 submitted that he has not purchased any such land and thus, proceedings so initiated is bad in law and be cancelled. Against second reasons recorded by AO, assessee vide reply dt.21.01.2015 submitted that only Rs.50 lacs was paid on 22.05.2006 for purchase of land as against Rs.1 crore stated in the reasons which is considered in the return of M/s Jaideep Singh HUF. Further assessment in case of M/s Jaideep Singh HUF has already been completed u/s 143(3) and thus reopening of the case amounts to change of opinion which is not permissible in view of the decision of Hon’ble Supreme Court in case of CIT Vs. Kelvinator of India. The AO without disposing the objections issued show cause notice dt. 04.02.2015 in which he did not take cognizance of the reasons recorded u/s 148 dt. 10.03.2014. However, in respect of second reasons recorded u/s 148 dt. 24.03.2014, he required the assessee to explain the source of cash payment of Rs.50 lacs on purchase of land, calculation of capital gain on sale of land and source of cash deposit of Rs.20 lacs in the bank account. Accordingly, the AO assessed the income at Rs.1,57,91,730/- by making following additions:-

It was submitted that before Ld. CIT(A), the assessee challenged the reopening of assessment. The Ld. CIT(A), however, upheld the validity of reopening by giving following findings:-

The ld. AR submitted that from the above facts, it can be noted that AO recorded the reasons u/s 148 twice, one dt. 10.03.2014 and another dt. 24.03.2014. This itself shows that the AO was not aware that which income has escaped assessment and whether any income in fact has escaped assessment. In reasons dt.10.03.2014, he has referred to the investment made in land, acquisition of such land by RIICO resulting into short term capital gain but subsequently he himself took no cognizance of the same. In the second reasons dt. 24.03.2014, he referred to the investment made in land of Rs.1 crore whereas subsequently he himself admitted that this amount is incorrect. Further in both the reasons he has stated that as per the information available in the sale deed assessee has purchased certain properties whereas there is no sale deed executed by the assessee for purchase of property. It may also be noted that in the second reasons dt. 24.03.2014, AO has referred to agreement dt. 22.05.2006. In this agreement, there is reference of payment of Rs.50 lacs whereas in the reasons recorded the amount paid is stated at Rs.1 crore. All these facts shows that AO has recorded the reasons on whims and fancy without having information available with him or without applying mind to the information, if any, available with him and without conducting any enquiry of his own. Therefore, on the basis of such vague reasons, which left the assessee guessing as to which income escaped assessment, notice issued u/s 148 and consequent assessment framed 7 Shri Jaideep Singh vs. ITO u/s 147 is illegal and bad in law. In this regard, reliance was placed on the following cases:-

It was further submitted that AO provided the reasons after assessee explained vide his letter dt. 16.01.2015 that he has already filed the return with ITO, Ward-2(3) in the HUF capacity and the same be treated as a return filed in response to the notice issued u/s 148. Thereafter the assessee separately objected to the reasons recorded by AO dt. 10.03.2014 & 24.03.2014 vide letter dt. 21.01.2015. The AO, however, without disposing the objections has issued show cause notice dt. 04.02.2015 but the figures of Rs.50 lacs, Rs.4,02,87,606/- and Rs.20 lacs mentioned therein has no live link with the reasons recorded by him. Further the AO himself has dropped the reasons recorded on 10.03.2014 without any independent order disposing the objections. The Ld. CIT(A) has in fact accepted this position by stating that AO has duly addressed these objections in the assessment order. This is not as per law since AO is required to dispose off the objections before passing the order u/s 147. Further even in the assessment order there is no whisper disposing the objections of the assessee. Thus, the assessment framed by the AO without disposing the objections is illegal and bad in law for which reliance was placed on the following cases:-

It was further submitted that no assessment u/s 147 can be made unless notice u/s 143(2) is issued within the prescribed time. In the present case, from the assessment order itself, it is evident that AO has not issued any notice u/s 143(2). This fact has been accepted by the Ld. CIT(A) but still he upheld the order passed by the AO by relying on the decision of Hon’ble Kerala High Court in case of K.J. Thomas Vs. CIT (2008) 301 ITR 301. It may, however, be noted that Hon’ble Kerala High Court itself in a later decision in case of Travancore Diagnostics Pvt. Ltd. Vs. ACIT (2017) 390 ITR 167 has held that in case of proceedings initiated u/s 143(3) read with section 147, requirement to issue a notice u/s 143(2) is mandatory and section 292BB does not in any manner grant any privilege to AO in dispensing with issuance of such a notice. Further reliance was placed on the following cases:-

It was submitted that the assessee in response to notice u/s 148 vide letter dt. 16.01.2015 has specifically pointed out that return has been filed for which assessment is also completed by ITO, Ward-2(3) u/s 143(3) of the Act and the return so filed in capacity of Karta of HUF be treated as return filed in response to notice u/s 148. The AO took no 9 Shri Jaideep Singh vs. ITO objection to the same. Therefore, the finding of Ld. CIT(A) that assessee has not filed the return and no regular assessment order was passed is incorrect. In fact the Ld. CIT(A) taking cognizance of the said return has deleted the addition on account of LTCG made by the AO. In course of assessment proceedings of HUF, the assessee has explained the manner of calculation of capital gain where amount of compensation received at Rs.4,02,87,606/- and payment made to the persons from whom the land was purchased at Rs.3,14,95,874/- (2,64,95,874 + 50,00,000) resulted into capital gain of Rs.87,91,732/- against which deduction u/s 54B was claimed. Considering the same, the AO assessed the income of HUF u/s 143(3) vide order dt.07.12.2009 by accepting the declared income. Thus, when assessment has already been completed/s 143(3), then reopening the case on same issue beyond four years amounts to change of opinion which is illegal and bad in law for which reliance was placed on the following cases:-

Per contra, the ld. DR has relied on the findings of the lower authorities and our reference was drawn to the findings of the ld. CIT(A) which are contained at para 4.3.2 to 4.4 of his order which read as under:- 10 Shri Jaideep Singh vs. ITO “4.3.2 It is an admitted fact that the appellant had not filed his return of income showing the purchase/sale transaction of plot. Accordingly, the AO issued notice u/s 148 of the Act, furnished the reasons for reopening to the appellant and duly disposed off the objections raised by the appellant while discussing the issue for which he had issued notice u/s.

The appellant has also duly co-operated with the AO and has furnished various details called for by him during the course of re-assessment proceedings. Therefore, he cannot take a plea now that the proceedings were invalid. The appellant had not filed the income tax return for the AY 2012-13. The Hon'ble Delhi High Court in the case of Honda Siel Power Products Ltd v. DCIT (2011) 197 Taxman 415 (Del) has stated that the law postulates a duty on every assessee to disclose fully and truly all material facts for its assessment. The disclosure must be true and full. Material facts are those facts which, if taken into account, would have an adverse affect on the assessee by higher assessment of income than the one actually made. Omission to disclose may be deliberate or inadvertent. It is not relevant provided there is omission or failure on the part of the assessee. The latter confers jurisdiction to reopen the assessment. The Hon'ble Court further held that merely because material lies embedded in the material or evidence, which the AO could have uncovered but did not uncover, is not a good ground to deny or strike down the notice of re- assessment. Where the AO could have found out the truth but he did not, does not preclude the AO from exercising the power of re-assessment to bring the escaped income. The SLP filed against this decision of the Hon'ble Delhi High Court has been dismissed by the Hon'ble Supreme Court (211-TIOL-72- SC-IT). Thus, the appellant contention that the AO had not complied with the basic conditions as envisaged u/s. 147, 148 & 151 is rejected being devoid of any merit. 4.3.3 As regards the appellant’s objection regarding wrong mention of figures in the notice u/s 148 of the Act, It may 11 Shri Jaideep Singh vs. ITO

On merits, the ld AR submitted that the assessee’s father Sh. Shivdan Singh executed an agreement dt. 13.01.2003 for purchase of land bearing Khasra No.325 situated at village Samwatsar, Tehsil Kishangarh, Ajmer from Sh. Ramlal, Harinarayan, Hiralal and Smt. Kaushalya Devi for Rs.3,14,95,875/-. Thereafter due to serious illness and considering his inability to execute the transaction, he entered into a consent letter with sellers of land stating that the assessee in capacity of buyer’s son shall execute the transaction on his behalf. Accordingly, assessee entered into an agreement dt. 22.05.2006 with sellers of land and paid Rs.15 lacs on 09.05.2006 and Rs.35 lacs on 22.05.2006 from the money given to him by his father out of the past savings. Meanwhile the land was compulsory acquired by RIICO Ltd. and the assessee received compensation of Rs.4,02,87,606/- on 13.10.2006 in his bank account. Out of said amount, assessee paid balance amount of Rs.2,64,95,874/- to sellers of land resulting into capital gain of Rs.87,91,732/- against which deduction u/s 54B was claimed and LTCG was declared at Nil in the return filed by him as Karta of his HUF on 31.07.2007.

It was submitted that the AO observed that assessee has made cash payment of Rs.50 lacs to the sellers of land but failed to explain the source of such cash payment. Accordingly, he made addition of Rs.50 lacs by treating it as unexplained income of the assessee. He further made addition on account of LTCG of Rs.87,91,732/- and cash deposited in the bank account of Rs.20 lacs. 17 Shri Jaideep Singh vs. ITO

It was further submitted that the Ld. CIT(A) taking cognizance of the return filed by the assessee as Karta of HUF which is assessed by AO u/s 143(3) deleted the addition of Rs.87,91,732/- on the ground that since such income is assessed in case of HUF, it cannot be again taxed in the hands of assessee. He further deleted the addition of Rs.20 lacs by accepting that source of the same is out of the withdrawal from same bank account only a week before the deposit. However, he confirmed the addition of Rs.50 lacs on the ground that the contention of assessee that he and his father are holding substantial agricultural land without evidence or proof of agricultural income cannot be accepted.

It was submitted by the ld AR that both the assessee and his father are agriculturalist having no other source of income. There is no dispute as to the fact that the agreement for purchase of land was made on 13.01.2003 by Sh. Shivdan Singh, father of assessee. However, in view of the facts mentioned in above, a fresh agreement was made on 22.05.2006 which shows that Rs.50 lacs was paid to the sellers of land in May, 2006, i.e. during lifetime of assessee’s father who expired on 18.05.2007. Thus, the payment recorded in this agreement is made by the assessee on behalf of his father out of his agriculture income. Even in the Will dt.20.03.2003 executed by assessee’s father, it is specifically stated that for purchase of land at village Samwatsar, he is handing Rs.50 lacs to his son Jai Deep for payment to sellers of land. Thus, Rs.50 lacs was paid by the father of assessee. The source of such amount is agricultural income of assessee’s father as he was holding substantial agricultural land as evident from the order of Additional 18 Shri Jaideep Singh vs. ITO Collector, Jaipur for which Jamabandis are placed on record. Therefore, source of cash payment of Rs.50 lacs is savings out of the agricultural income of assessee’s father and thus, addition confirmed by Ld. CIT(A) in the hands of assessee be directed to be deleted.

It was further submitted that the AO has made the addition of Rs.50 lacs for unexplained investment in land. This addition falls u/s 69 of IT Act, 1961. This section uses the word ‘may’ which gives discretion to the AO, considering the facts & circumstances of the case, not to make the addition even if he is not fully satisfied with the explanation of assessee. It is a fact on record that assessee has no source of income other than the agricultural income. Even the lower authorities have not found any other source of income in the hands of the assessee. Hence, it cannot be presumed that assessee has any undisclosed income which is invested in purchase of land. Strict rule of evidence do not apply to the income tax proceedings. Human conduct and preponderance of the probabilities needs to be considered before making any addition u/s 69 in as much as the section uses the word ‘may’ and not ‘shall’. In these circumstances, even if the source of investment in land is not found to be satisfactory explained, no addition can be made in the peculiar facts of the case. In this regard, reliance was placed on the following decisions:- • Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC) • CIT vs. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC).

Per contra, the ld. DR has relied on the findings of the lower authorities and our reference was drawn to the findings of the ld. 19 Shri Jaideep Singh vs. ITO CIT(A) which are contained at para 6 & 6.1 of his order which read as under:-

We have heard the rival contentions and perused the material available on record. We note that there are two notices u/s 148 available on assessment records. The first notice is dated 20.03.2014 21 Shri Jaideep Singh vs. ITO for which prior approval of the competent authority was obtained on 20.03.2014 in respect of the reasons so recorded by the AO on 10.03.2014. The second notice u/s 148 is dated 28.03.2014 after seeking prior approval of the competent authority on 27.03.2014 in respect of the reasons so recorded by the AO on 24.03.2014. It is also noted that both the notices u/s 148 have been served on the assessee and the assessee has in turn responded to these two notices individually vide his letter of even date 21.01.2015 and has filed his objections to the reasons so recorded by the Assessing officer. It is therefore not in dispute that both these notices u/s 148 have been issued by the AO and duly served on the assessee and thus, two separate proceedings have been initiated by the AO u/s 147 by virtue of these two separate notices issued u/s 148 carrying separate reasons in respect of independent transactions of purchase of property by the assessee and stating as to why the AO has formed the belief that income has escaped assessment.

A question that arises for consideration is whether the AO can issue second notice u/s 148 and initiate fresh reassessment proceedings before completion/conclusion of proceedings initiated by way of first notice u/s 148 either by way of dropping the first reassessment proceedings or completing the proceedings by passing the reassessment order u/s 147 of the Act. As we have noted above, the assessee has raised a specific objection against initiation of the first reassessment proceedings vide its letter dated 21.01.2015 and has requested to drop such proceedings as he has not made any investment in the property so specified by the AO, the particulars of which was mentioned in the reasons dated 10.03.2014. There is nothing on record that the AO has 22 Shri Jaideep Singh vs. ITO disposed off the objections so raised by the assessee and dropped the first reassessment proceedings either by way of passing a specific order or even by way of any noting in the ordersheet and in absence thereof, it cannot therefore be presumed that such proceedings have been concluded by the AO. The fact that the AO has issued a fresh notice u/s 148 basis fresh reasons cannot by implication be read and held as conclusion of first reassessment proceedings. We therefore find that it is a case where pending conclusion of the first reassessment proceedings, fresh reassessment proceedings have been initiated which cannot be sustained in the eyes of law and on this reason alone, the present reassessment proceedings initiated by way of notice u/s 148 dated 28.03.2014 are vitiated and same deserve to be set-aside.

Now, coming to notice u/s 148 dated 28.03.2014 and the underlying reasons recorded by the AO dated 24.02.2014, the ld A/R has challenged the initiation of reassessment proceedings u/s 147 on account of non-disposing off objections raised by the assessee before the AO vide his letter dated 21.01.2015. The fact that the assessee has raised his objections against such reassessment proceedings is a matter of record and we find that the AO has not disposed off the said objections by way of passing any specific order and has proceeded ahead by way of issuing a show-cause calling for further information/clarification and passing the reassessment order. The said act of the AO is in clear violation of the law declared by the Hon’ble Supreme Court in case of GKN Driveshaft India (supra) and the decision of the Hon’ble Rajasthan High Court in case of K.C Mercantile Ltd (supra). Therefore, on account of non-disposing off the objections 23 Shri Jaideep Singh vs. ITO raised by the assessee, the present proceedings are again vitiated and deserves to be set-aside.

On merits of addition of Rs 50 lacs towards unexplained investment in land, we find that the ld CIT(A) has deleted the addition on account of capital gains in the hands of the assessee on compulsory acquisition of such land by RIICO holding that the capital gains has been declared and accepted by the Revenue by way of assessment order passed u/s 143(3) in the hand of appellant’s HUF and therefore, the same cannot be taxed in the hands of the assessee in his individual capacity. And on perusal of the computation of capital gains of Rs 87,91,732 so offered by assessee’s HUF, we find that the assessee HUF has claimed the aforesaid amount of Rs 50 lacs towards purchase of land besides other costs and which has been accepted and allowed by the AO while assessing the capital gains in the hands of assessee’s HUF. Therefore, where the investment has been claimed and allowed as the cost in the hands of the assessee’s HUF, any addition towards the source of such investment, where remain unexplained, can be made in the hands of assessee’s HUF and not in his individual capacity. Further, we also note that the assessee has explained the source of such investment by way of will dated 20.03.2003 executed by assessee’s father containing the fact that the amount of Rs 50 lacs has been handed over by his father to him for purchase of land, and the source of such funds is the agriculture income and past savings of his father and which is reasonably demonstrated by the Jamabandi of the land holdings of the his late father. Therefore, even on merits, the addition so made and sustained by the ld CIT(A) is directed to be deleted. 24 Shri Jaideep Singh vs. ITO In the result, the appeal of the assessee is allowed.