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Facts
The Revenue initiated reassessment proceedings against the assessee, an NRI, based on a promissory note found during a search, alleging an unexplained loan of Rs. 2.50 crore. The assessee contended the note was fabricated, lacked her signature and corroboration, and that she was abroad when it was purportedly issued.
Held
The Tribunal held that the addition of Rs. 2.50 crore was unjustified. It found no corroborative evidence for the promissory note, which lacked the assessee's signature or witness details and was found with a third party. The AO also failed to obtain necessary approvals and the addition was made without proper justification.
Key Issues
Whether the addition of Rs. 2.50 crore based on an uncorroborated promissory note, found with a third party, is justified? Were the reopening and assessment proceedings conducted in accordance with law, including proper approvals and time limits?
Sections Cited
143(3), 147, 144C(13), 253, 151, 148, 153(2), 69A, 132(4), 292C, 132(4A)
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PER PAWAN SINGH, JUDICIAL MEMBER;
This second appeal under section 253 of Income Tax Act (Act) is filed by assessee against the final assessment order passed by assessing officer under section 143(3)/147 read with section 144C(13), passed in pursuance of direction of Dispute Resolution Panel (DRP) Mumbai-1, dated 24th June 2025, for assessment year (AY)2017-18. The assessee has raised following grounds of appeal; A. Reopening is bad in law:
(1) The notice dated 31 March 2024 issued by Income Tax Officer, International tax word-2(1)(2) Mumbai, hereinafter “referred as to AO” is without jurisdiction and bad in law as the same has been issued without seeking valid approval under section 151 of the Act, hence, the notice under section 148 and the subsequent draft assessment order dated 31 March 2025 passed under section 144C(1) of the Act is without jurisdiction and the same may quashed. (2) The notice under section 148 has been issued beyond the period of three years from the end of relevant assessment year. Thus, the AO was required to seek approval of the specified authority under section 151(ii) of the Act. The so-called approval of CCIT, Mumbai-(6) under section 151 of the Act issued by the AO was prepared on 31 March 2024 only, which has not been signed by the specified authority. Thus, there was no application of mind by the specified authority and based on the satisfaction note attached to the draft approval. Hence, notice issued under section 148 of the Act and the draft assessment order passed under section 144C(1) of the Act is bad in law and without jurisdiction. The same may be quashed and set aside. B. The assessment order dated 24 July 2025 passed under section 147 read with section 144C(13) of the Act is barred by limitation. (3) The assessment order dated 24 July 2025 passed under section 147 read with section 144C(13) of the Act is barred by limitation in the light of the first proviso to sub-section (2) of section 153 of the Act. As per the said proviso, no order of the assessment or reassessment shall be made under section 147 after expiry of 12 months from the end of financial year in which notice under section 148 was served. (4) Notice under section 148 of the Act is served on the appellant on 31 March 2024. Thus, the time limit for passing the assessment order as per section 153(2) of the act was available till 31 March 2025. However, the assessment order under section 147 read with section 144C(13) is passed on 31 July 2025 which is barred by limitation and same may be quashed and set aside. On merit C. Addition of ₹ 2.50 crore made under section 69A of the Act is unjustified and bad in law (5) The DRP and the AO erred in confirming the addition of Rs. 2.50 crore under section 69A of the Act on account of unexplained money merely relying on some seized material (promissory note) found during the course of search action in case of Jesus Lal and Universal Education group and the statement of Chaitale Patel, employee, recorded under section 132(4) of the Act without having any corroborative and conclusive evidence for the same. Thus, the addition of Rs. 2.50 crore made under section 69A of the Act is illegal and arbitrary and same may be deleted. (6) The DRP and the AO failed to appreciate that the appellant has not given any cash loan of Rs. 2.50 crore to Jesus Lall and not even received any interest in cash as alleged by AO. Thus, the addition of Rs. 2.50 crore made under section 69A of the Act is not justified and same may be deleted. (7) The DRP and the AO failed to appreciate that the promissory note found in the course of search action in case of JessesLal does not have signature of the appellant. Moreover, appellant is a non-resident of India and was not present in India on the day when such promissory note was prepared and thus, it cannot be said that the appellant has given the cash loan on such date to Mr Jesus Lall. The addition of Rs. 2.50 crore made under section 69 A of the Act by relying of the said seized promissory note is not justified and the same may be deleted. The DRP and the AO are not justified in making to addition of Rs. 2.50 crore under section 69A of the Act merely relying upon the seized promissory note is not justified and the same may be deleted. (8) The DRP and the AO are not justified in making addition of Rs. 2.50 crore under section 69A of the Act merely relying on the statement of third party without providing the appellant the full copy of the statement and the opportunity of cross-examination. Thus, the addition made under section 69A of the Act is in breach of principle of natural justice and same may be deleted. The appellant seeks leave to add, alter and amend the above grounds whenever required.
Brief facts of the case as extracted from the orders of lower authorities are that assessee is a non-resident Indian (NRI), and has not filed her original return of income for assessment year2017 -18. The assessing officer received information about cash loan given by the assessee of Rs. 2.50 crore. The information was received by assessing officer on the basis of research and seizure action under section 132 of the Act, carried out in case of Jesus Lal and Universal Education group, Mumbai. In the said search Chaitali Patel, employee of Jesus Lal and Universal Education group was also covered at her residence at Flat No. 210, Second Floor Kashkari, 3B wing Borivali-West. During the course of search action certain loose paper was found and seized vide Annexure-A-14. On verification of various document and data seized and recovered from the premises of Chaitale Patel, who was working in administration of Universal Education group, a promissory note written by Jesus S. Lal was recovered. As per the contents of promissory notes dated 7th April 2016 Jesus S Lal promised to pay the assessee asum of Rs. 2.50 crore. On the basis of such information the assessing officer was of the view that income of assessee to that extent has escaped assessment. It appears that the assessing officer after obtaining approval of competent authority, issued notice under section 148 dated 31stMarch 2024. The assessing officer recorded that no return of income was filed in response to notice under section 148 by assessee.(Though, the assessee in response to notice under section 148 filed her return of income declaring income of Rs. 7,52,647/-.
Later on, the case was transferred to ITO-International Taxation. The assessing officer on the basis of information with him, issued show cause notice to the assessee for furnishing bank account, bank statement from financial year 2014-15 and 2015-16 along with narration,details of cash withdrawal and transfer. The assessing officer also issued show cause notice as to why Rs.2.50 crore should not be treated as unexplained money under section 69A of the Act and added to the income of assessee. The assessing officer, in para-4 of his order recorded that assessee filed her reply dated 26th March 2025. In the reply the assessee stated that she had given a loan of ₹ 50.00 lacsto Jesus Lal and the same was outstanding as on 31st March 2017. The said loan was given through regular banking channel. The assessee stated that she is an NRI and that on the date mentioned on promissory note i.e. on 7 April 2016, she was not in India. The reply of assessee was not accepted by assessing officer. The assessing officer by referring the provision of section 69A and on the basis of material available before him in the form of copy of promissory note, added Rs. 2.50 crore in the income of assessee while passing the draft assessment order on 31st March 2025. Copy of draft assessment order was served on the assessee.
The assessee exercised her option to file objection before DRP. Before DRP the assessee filed a detailed written submission in challenging the validity of reopening, issuing notice under section 148, approval under section 151 and addition of Rs. 2.50 Crore. The DRP on considering the submission of assessee, contents of assessment order, upheld the action of assessing officer on all the legal as well as additions on merit.
On receipt of order of DRP, the AO passed the final assessment order in pursuance of directions of DRP, which is challenged before this Tribunal by raising various grounds of appeal as recorded in para-1 of this order.
We have heard the submission of learned authorised representative (ld AR) of the assessee and the learned Commissioner of Income Tax- Department Representative (CIT-DR) for the revenue and with their active assistance have gone through the orders of lower authorities. In support of ground No. 5 to 8 of the appeal, the ld. AR of the assessee submits that during the search action, a promissory note allegedly found in the premises of third party namely Chaitali Patel, who was working with Jessus Lal. On the basis of such promissory note found from third party, the Assessing Officer alleged that an amount of Rs. 2.50 written in the said documents is unexplained money of the assessee. The assessee in response to show cause notice specifically submitted that she has never landed such amount, rather the assessee paid Rs. 50.00 lacks that too by way of cheque. The assessee was not in India on the date which is mentioned on the said Promissory note. It does not bear the signature of assessee or any witness. It has no evidentiary value. There is no other corroborative evidence with the AO. Such document was found from third party and no presumption either under section 132(4A) or section 292C of the Act can be drawn against the assessee. No statement of search person is against the assessee. The assessee has not undertaken any such transaction. Such image does not contain signature of assessee. Similarly, no date of details whether interest was payable by assessee or received by assessee is mentioned. Similarly no detail of nature of particular amount on which interest has been worked out. To support his submissions, the ld AR for the assessee relied on the decision of Surat Tribunal in ACIT Vs Shanker Nebhumal Uttam Chandani (2024) 16 taxmann.com 536 (Surat-Trib).
In support of ground No. 1& 2 of the appeal the ld AR of the assessee submits that notice under section 148 dated 31 March 2024 issued by AO is without jurisdiction and bad in law as the same has been issued without seeking valid approval under section 151 of the Act, consequently, the notice under section 148 and the subsequent draft assessment order dated 31 March 2025 passed under section 144C(1) of the Act is without jurisdiction and the same is liable to be quashed. It was argued that the notice under section 148 has been issued beyond the period of three years from the end of relevant assessment year. Thus, the AO was required to seek approval of the specified authority under section 151(ii) of the Act. The so-called approval of CCIT, Mumbai-(6) under section 151 of the Act issued by the AO was prepared on 31 March 2024 only, which has not been signed by the specified authority. Thus, there was no application of mind by the specified authority and based on the satisfaction note attached to the draft approval. In support of Ground No 3 & 4 the ld. AR of the assessee submits that assessment was passed after 12 months from the end of financial year in which notice under section 148 was issued. The time period for passing assessment order was only 12 months, thus, the assessment order was passed beyond the time limit for passing assessment order. To support his submissions, the ld AR of the assessee relied on the decision of Allahabad High Court in Vikas Gupta Vs Union of India (2022) 142 taxmann.com 253 (Allahabad) and in Jai Kumar Infraprojects Ltd Vs DCIT (2025) 176 taxmann.com 193 (Mumbai-Trib).
On the other hand, the ld. CIT-DR for the revenue submits that during the search action, a promissory note was found from the premises of Chaitale Patel. In the promissory note Jessus Lal promise to pay a sum of Rs. 2.50 Crore to the assessee. The Assessing Officer on the basis contents of promissory note made addition in the hand of assessee.
The evidence found during the course of search action is admissible in evidence. Such digital image is admissible as per section 292C of the Act being admissible evidence against the assessee. On other legal grounds of appeal, the ld. Sr DR for the revenue supported the order of AO and DRP. The ld SR for the revenue submits that before issuing notice under section 148 proper approval of competent authority was obtained by AO and the order was passed with the time limit prescribed in the Act.
7. We have considered the submissions of both the parties and have gone through the orders of lower authorities carefully. The AO made addition on the basis of promissory note found in the promises of third parson.
There is no corroborative evidence that such promissory note was executed on receipt of any such amount. On perusal of promissory note, we found that it neither bear the signature of assessee nor there is any witness mentioned on such document. We find that the AO has nowhere mentioned that seized document was confronted with the executant or the executant in his statement ever accepted its execution. Even otherwise, such one-sided document, which otherwise not found in the possession of beneficiary or executant, so it has no evidentiary value. There is no corroborative evidence to support addition. We find that there is no direct or corroborative evidence brought on record by AO whether the money was lent to search person. Admittedly, the AO neither relied on the statement of Jessus Lal nor called him during the assessment to prove the fact about receiving the alleged loan from assessee. During the search action, no evidence of taking loan from assessee was found from the residence of searched person. The figure mentioned on the paper cannot be treated as sacrosanct evidence for treating the same as unexplained money.
The Assessing Officer has not collected any evidence or supporting material that the assessee advanced Rs. 2.50 and such addition cannot be sustained. Thus, we do not find any justification for making such addition by AO. Similar view was taken by Surat Bench of Tribunal in ACIT Vs Shanker Nebhumal Uttam Chandani (supra). In the result, the addition of Rs. 2.50 Crore is deleted. In the result, the ground No. 5 to 8 of the appeal are allowed.
Considering the facts that we have allowed relief to the assessee on merit, thus, adjudication on legal issue raised by the assessee have become academic.
In the result, the appeal of the assessee is allowed.