PRADEEP RAJKARAT,BHUBANESWAR vs. ITO, WARD-1(4), BHUBANESWAR

That, the learned CIT(A) has committed serious error in not quashing the assessment order which is based on the notice under section 143(2) of the Income-tax Act, 1961 (Hereinafter referred as "the Act") under the direction of Chief Commissioner of Income-tax, Odisha region, Bhubaneswar which is illegal, without juri iction and contrary to the provisions of the Act and for which the assessment made under such illegal notice and is liable to be quashed and/or annulled.

That, the learned CIT (A) has committed serious error by not deleting the addition made by the learned Assessing Officer of Rs. 3,61,535/-.

That, the learned CIT (A) has committed serious error in not deleting the disallowances made by the learned Assessing Officer under HRA of Rs.33,311/- which is liable to be allowed.

That, the learned CIT (A) has committed serious error in not deleting the disallowances u/s 24(b) of the Act of Rs. 67,700/- which is contrary to the provisions of the Act and is liable to be allowed.

That, the learned CIT (A) has committed a serious error in confirming the disallowances claim u/s 80C of Rs. 20,000/- which is liable to be allowed.

That, the learned CIT (A) has committed a serious error in confirming the addition made by the learned Assessing officer of Rs. 2,999/- as interest income.

That, the appellant may add, alter, delete, modify or withdraw any of the grounds at the time of hearing of the matter with the leave of the Hon'ble ITAT. Apropos ground No.1 :

Ld. AR submitted that the AO issued notice u/s.143(3) of the Income Tax Act (for short ‘the Act’) under the direction of Chief Commissioner of Income-tax, Odisha Region, Bhubaneswar, therefore, scrutiny assessment proceedings is liable to be quashed or annulled.

Replying to the above, ld. DR submitted that all the Assessing Officers including the present Income-tax Officer, Ward-1(4), Bhubaneswar and merely because some directions have been issued by the controlling administrative authority, the scrutiny assessment proceedings cannot be quashed or annulled. Ld. DR strongly contended that picking up a case for scrutiny is an internal administrative proceedings, which cannot be challenged by the assessee on any ground, therefore, this ground of assessee may kindly be dismissed.

On careful consideration of the above submission and from the first appellate order and assessment order, I clearly observe that this case was selected for scrutiny under the direction of Chief Commissioner of 3 Income-tax, Odisha Region, Bhubaneswar and the AO issued notice u/s.143(2) of the Act to the assessee under the said directions. However, undisputedly, when all the AOs of Odisha Region including the ITO, Ward-1(4), Bhubaneswar came within the administrative and supervisory control of CCIT, Odisha Region, Bhubaneswar then merely because some direction has been issued by the administrative controlling authority to the AO the scrutiny assessment proceedings cannot be held as bad in law and, thus, the same cannot be quashed or annulled. Accordingly, ground No.1 of assessee being devoid of any merit and misconceived is dismissed.

Apropos ground No.2, ld. AR drew the attention of the Bench towards page 10 of the assessment order and submitted that the AO vide letter dated 11.02.2013 show caused the assessee on the various issues including the issue of cash deposit of Rs.3,61,535/- and also considered the amounts which were withdrawn from assessee’s bank account and deposited in the bank account of assessee’s wife, therefore, the same cannot be treated as unexplained income of the assessee. Ld. AR submitted that the AO mixed the amounts withdrawn from the bank account of the assessee and deposited to the bank account of wife of the assessee with the amounts withdrawn from the bank account of the assesse’s wife and deposited in the bank account of assessee, therefore, this confusion led to a baseless observation of the AO that the amount deposited to the bank account of the assessee is unexplained income of the assessee. Ld. AR submitted that from the assessment order it is 4 apparent that there is no discussion regarding the details submitted by the assessee pertaining to the withdrawals from the bank account of the assessee and deposited in the bank account of assessee’s wife, therefore, in absence of any clear cut finding the impugned amount cannot be treated as unexplained income of the assessee. Therefore, the addition made by the AO may kindly be dismissed. Ld. AR vehemently pointed out that from para 4.3 of the first appellate order, it is apparent that the ld. CIT(A) observed that if the money was to be given by the assessee to his wife it could have been given by using banking channels and why the amount claimed to have been given by the assessee to his wife in cash is not known and such kind of expectations that the amount should be given by the husband to his wife through banking channel is against the social tradition and lifestyle of an Indian family, therefore, ld. CIT(A) was not correct in confirming the baseless addition made by the AO. Ld. AR submitted that the addition made by the AO and confirmed by the CIT(A) may kindly be deleted. Alternatively ld. AR submitted that if any kind of confusion has been kept in the mind of authority below then the assessee should be allowed to explain his stand by way of certain document and detailed cash flow statement along with copies of the bank accounts and the issue may kindly be restored to the file of AO for fresh adjudication.

Replying to the above, ld. DR strongly supported the assessment and first appellate order and submitted that when the assessee is regularly changing his stand explaining the source of impugned deposits

On careful consideration of the above rival submissions of both the parties, I am of the view that from the assessment order at para 6, I observe that the AO issued letter daed 11.12.2013 disputing the amounts deposited by the assessee to his wife’s account but in the operative part at page 18, the AO has not adjudicated and has not given any finding on the explanations offered by the assessee. In the same line, ld. CIT(A) in para 4.2 confirmed the addition made by the AO but there is no finding regarding explanation of the assessee that the amounts withdrawn from the bank account of assessee and deposited in the bank account of assessee’s wife and the CIT(A) expected the assessee to give money to his wife through banking channels, which is not justified according to the tradition of Indian fabric system where husband takes care of earning and wife maintains house by spending money received from her husband. However, in the totality of facts and circumstances of the case, I am of the view that the AO is required to examine and verify the claim of the assessee that the impugned amount deposited to the bank account of the assessee’s wife has been withdrawn from the bank account of the 6 assessee. Therefore, I find it necessary, just and proper to restore back to the file of AO for fresh adjudication after providing due opportunity of hearing to the assessee and without being prejudice from the earlier assessment and first appellate order.

I may point out that the assessee shall submit a detailed cash flow and reconciliation chart showing the withdrawals and deposits and justifying the source of cash deposits made to his wife’s account. Accordingly, ground No.2 is restored to the file of AO for fresh adjudication in terms of the observations made above and this ground of assessee is allowed for statistical purposes.

Apropos ground No.3, ld. AR submitted that the assessee submitted rent agreement before the AO and he doubted the same on the ground that no judicial stamp was purchased on 23.03.2009, wherein agreement was made on 20.03.2009. Ld. AR submitted that the assessee is entitled for benefit of HRA received by him and this claim was disallowed by the authorities below on technical ground, therefore, this ground of assessee may kindly be allowed.

Ld. DR supported the assessment and first appellate order and submitted that the assessee is claiming benefit of HRA on the basis of rent agreement, subsequently created, therefore, claim of the assessee was rightly been disallowed.

On careful consideration of the above rival submissions of both the parties, I am of the view that that the assessee submitted a rent agreement and no doubt has been raised by the AO regarding payment of 7 rent by the assessee under the said agreement, therefore, the assessee is entitled for benefit of HRA and the same cannot be taxed in the hands of the assessee when the assessee is making payment of rent, therefore, the tax authorities below are satisfied and, accordingly, the AO is directed to allow the benefit of HRA to the assessee. Ground No.3 of the assessee is allowed.

Apropos ground No.4 & 5: Ld. AR submitted that disallowance claimed u/s.24(b) of the Act at Rs.67,700/- and Rs.20,000/- u/s.80C of the Act by the assessee is allowable as the house is chargeable under the head ‘income from house property’ for the previous year 2009-2010 and the house of the assessee has actually been completed during the previous year 2009-2010, therefore, additions made by the AO and confirmed by the CIT(A) may kindly be deleted.

Ld. DR supported the order of the AO and CIT(A).

On careful consideration of the above rival submissions of both the parties, I am of the view that that the assessee before both the authorities has submitted that the house was under construction during the financial year 2009-2010 relevant to A.Y.2010-2011. However, it is not clear when the house of the assessee was completed either in A.Y.2009-2010 or in 2010-2011. Ld. AR only submitted that the house has been completed in A.Y.2009-2010 but no documents to justify the same have been placed on record by the assessee. I am of the view that if the house has been constructed in A.Y.2009-2010, then there would be no disallowance u/s.24(b) of the Act in the present case as claimed by the assessee and 8 consequent thereof the claim u/s.80C of the Act is also not called for. Therefore, I restore this issue to the file of AO to verify and examine the documents to be produced by assessee to substantiate the claim u/s.24(b) along with 80C of the Act and the assessee should be provided adequate opportunity of hearing. Grounds No.4 & 5 of assessee are allowed for statistical purposes.

Ground No.6 relates to addition made by the AO on account of interest income. This issue is consequent to the addition made by the AO and confirmed by the CIT(A) treating the same as unexplained income of the assessee. I have decided the issue raised in ground No.2 and the same has been restored back to the file of AO for fresh adjudication. Therefore, the ground no.6 being consequential to the ground no.2, is also restored to the file of AO for fresh adjudication after providing adequate opportunity of being heard to the assessee. This ground of appeal of the assessee is allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on this 06/06/2019. (CHANDRA MOHAN GARG) न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 06/06/2019 प्र.कु.मम/PKM, Sr.P.S.