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Facts
The Revenue appealed against an order from NFAC which provided relief to the assessee. The AO initiated proceedings u/s 148A based on information about fictitious transactions and issued a notice u/s 148. The assessee filed a revised return. During assessment, the AO treated the opening stock as unexplained investment and added it to the income.
Held
The Tribunal held that the jurisdictional High Court has settled the issue regarding JAO's authority to issue notices u/s 148, confirming its validity. However, on merits, the Tribunal found that the AO failed to provide sufficient justification for treating the opening stock as unexplained investment, especially since the sales were accepted as genuine.
Key Issues
1. Validity of notice issued by JAO u/s 148. 2. Whether opening stock can be treated as unexplained investment when sales are accepted and books of account are not rejected.
Sections Cited
148, 69C, 69, 147, 144B, 148A, 151A
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Income Tax Appellate Tribunal, DELHI ‘F’ BENCH,
Before: Ms. MADHUMITA ROY, & SHRI NAVEEN CHANDRAShri Paras Jain
This appeal by the Revenue is directed against the order of the NFAC, Delhi dated 14.06.2024 for A.Y 2018-19.
The Revenue has raised the following grounds of appeal: 2.
“1. Whether the CIT(A) was correct in law to hold that the notice issued u/s 148 by the JAO was without jurisdiction and invalid.
Whether on the facts in the circumstances of the case the CIT(A) was justified in deleting the addition of Rs. 2,59,80,930/- u/s 69C of the I.T. Act on account of unexplained investment.
Whether the CIT(A) was justified in accepting the claim of assessee regarding the genuineness opening stock of Rs. 2,59,80,930/- in the absence of valid return for AY 2017-18 and without supporting documents.
4 That the grounds of appeal are without prejudice to each other.
5 That the appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
3. Briefly, the facts of the case are that the assessee filed his return of income on 31.03.2019 by declaring total income of Rs.2,49,830/-. In this case, specific information as per Risk Management Strategy formulated by the CBDT through ITBA software under the head ‘High Risk CRI/VRU cases’ was received by AO that the appellant has carried out some fictitious
Page 2 of 9 transactions during the FY 2017-18 relevant to the AY 2018-19. This was the reason and proceedings were initiated u/s 148A of the IT Act. Notice u/s 148 of the IT Act was issued on 27.03.2022, requesting the appellant to file a return of income within 30 days from the date of receipt of the notice.
In response to the notice issued u/s 148 of the IT Act, the assessee filed his return of income for the AY 2018-19 on 18.11.2022 declaring a total income of Rs.2,54,920/-. During the course of assessment proceedings, the appellant was show-caused as to why the Opening Stock amounting to Rs.2,59,80,930/- should not be treated as unexplained as per Sec.69 of the IT Act and Purchases made during the year amounting to Rs.14,56,840/- should not be treated as unexplained expenditure as per Sec.69C of the IT Act. It is to be mentioned here that the total turnover/ sales during the year under consideration was shown at Rs.2,70,65,746/- After considering the details made available, the AO completed the assessment u/s 147 r.w.s.144B of the IT Act on 21.03.2023 by assessing the total income at Rs.2,62,35,850/- wherein he has added the Opening Stock of Rs.2,59,80,930/- as unexplained investment u/s 69 of the IT Act.
Aggrieved, the assessee approached the CIT(A) who on jurisdictional as well as on merits, gave relief to the assessee. The Revenue is now aggrieved and is before us.
We have heard the rival submissions and have perused the relevant material on record. We find that the CIT(A), following the Hon’ble Bombay High Court in the case of Hexaware Technologies Ltd. Vs. ACIT, Circle15(1)(2) [2024] in 162 taxmann.com 225 and Hon’ble High Court of Telangana in the case of Kankanala Ravindra Reddy Vs ITO [2023] 156 taxmann.com 178 held the assumption of jurisdiction by the AO as invalid on the ground that only the FAO and not JAO, has the authority to issue the notice u/s 148 of the IT Act in view of the provisions u/s 151A of the IT Act read with Scheme dated 29-03-2022. Since the notice u/s 148 was issued by JAO, the same was held as invalid.
We find that the issue of JAO Vs FAO has been settled by the hon’ble jurisdictional High Court in the case of T.K.S. Builders Pvt. Ltd. vs Income Tax Officer Ward 25(3) in W.P.(C) 1968/2023 dated 28.10.2024 as follows:
We are also, in this regard, guided by the principles of beneficial construction and thus avoiding an interpretation that would render portions of the Act or the Faceless Assessment Scheme superfluous Page 4 of 9
or ineffective should be avoided//. To assert that the JAO's powers become redundant under the faceless assessment framework would conflict with beneficial construction, as it would undermine provisions specifically established to support comprehensive data analysis and informed decision-making, such as the JAO's access to RMS and Insight Portal information.
We are fully cognizant of the contrarian view which was expressed in this respect in Hexaware Technologies and which stands reflected in para 36 of the report which has been extracted hereinabove. However, for reasons assigned in the preceding parts of this decision, we find ourselves unable to concur with the interpretation accorded by the Bombay High Court upon Clause 3 of the Faceless Reassessment Scheme 2022. As was noted by us earlier, Clause 3 clearly contemplates the initial enquiry and formation of opinion to reassess being part of one defined process followed by actual assessment in a faceless manner. It thus divides the process of reassessment into two stages and when viewed in that light it is manifest that it strikes a just balance between the obligation of the JAO to scrutinise information and the conduct of assessment itself through a faceless allocation. The distribution of functions between the JAO and NFAC is complimentary and concurrent as contemplated under the various schemes and the statutory provisions. This balanced distribution underscores the legislative intent to create a seamless integration of traditional and faceless assessment mechanisms within a unified statutory framework. This we so hold and observe since we have, principally, been unable to countenance a situation where the JAO stands completely deprived of the jurisdiction to evaluate data and material that may be placed in its hands.
J. DISPOSITION 104. We, accordingly and for all the aforesaid reasons find ourselves unable to sustain the challenge as addressed. The contention that the impugned notices are liable be quashed merely on the ground of the same having been issued by the JAO is thus negated.”
In view of the law laid down by the jurisdictional High Court as above, the JAO has the authority to issue notice u/s 148 and therefore the CIT(A) decision to dismiss the appeal on jurisdictional ground is thus reversed.
Accordingly, the ground no 1 is allowed.
On the other hand, we find that the CIT(A) on merit has held as under:
“6.4 The AO recorded in the assessment order at Para 4.5 (A) that no return was filed for AY 2017-18. Further, on perusal of ITR filed for AY 2016-17, the appellant has shown Closing Stock at ‘Nil’. In the same Para at Point No.(iv), the AO stated that the appellant filed return of income for AY 2017-18 on 26.07.2017 under presumptive taxation in Form ITR- 4S where the appellant disclosed total turnover of Rs.39,42,500/-. Hence, the Opening Stock of Rs.2,59,80,930/- was not verifiable.
6.5 On the other hand, the appellant contended that once the Opening Stock was not verifiable, the Sales of Rs.2,70,65,746/- is also not possible. The appellant claimed in the written submission that the AO, without rejecting the books of account, added the Opening Stock of Rs.2,59,80,930/- as unexplained investment u/s 69 of the IT Act.
6.6 The appellant has provided all the details to the AO. If the opening stock was not verifiable, the AO could have conducted necessary inquiries of the purchases and sales made in the previous assessment year as the appellant has provided all the details to the AO in response to the notice issued by him. The opening Stock cannot be unexplained investment in the AY 2018-19. This was the purchase made in the previous assessment year. The appellant raised specific grounds of appeal on this aspect. The appellant sold the opening stock along with current year purchase and audited his Books of Account also.
6.7 The assessment order was silent about this reply furnished by the appellant. It is noticed from the assessment order that the AO concluded that assessment solely on the basis of some information received under the head “High Risk CRI/VRU cases ” without conducting necessary enquiries. On the other hand, the appellant has provided sufficient compliance during the course of assessment proceedings. What was the information in his possession that led to reopening of assessment was also not mentioned either in the order passed u/s 148A(d) or from the final assessment order passed u/s 147 of the IT Act. If so, treating the opening stock as unexplained investment in the reassessment proceedings and adding the same by invoking section 69 of the IT Act is not maintainable.
6.9 In view of the above, the addition made by the AO is not sustainable.
We are of the considered view, in the light of the above discussion, the CIT(A) has passed a reasonable order. We find that the AO has accepted the entire sales as genuine and no dispute has been raised on the Credit
Page 7 of 9 side of the P&L a/c. The AO has neither rejected the books of account nor shown as to how the assessee had made sales if it had no stock available with him. We therefore are of the opinion there is no reason to interfere with decision of the CIT(A) on the merits of the case. The ground of appeal no 2 and 3 are dismissed. allowed.
Order pronounced in open court on 20.06.2025.