VEENA MOHAN MULHERKAR,MUMBAI vs. ITO, 2(2), KOLHAPUR, KOLHAPUR

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1330/PUN/2025 िनधा�रण वष� / Assessment Year : 2010-11 Veena Mohan Mulherkar, Vs. ITO, Ward-2(2), Kolhapur. B/48, Gurudev Apartments, R.C. Marg, Opp. Telephone Exchange, Chembur Naka, Mumbai- 400071. PAN : ACOPM8516B Appellant Respondent Assessee by : Shri Venugopal C. Nair Revenue by Shri Amit Bobde : Date of hearing : 17.03.2026 Date of pronouncement : 18.05.2026 आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 26.03.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2010-11. 2. The appellant has raised the following grounds of appeal :- “Ground 1: Resorting to re-assessment based on totally incorrect facts. The Learned CIT(A) erred in facts circumstances of the case and in law in holding re-opening to be in order when both the reasons recorded were on incorrect facts. Without Prejudice

2 ITA No.1330/PUN/2025 Ground 2: Assessment of other income without assessing income, precisely for assessing which re-assessment had been resorted to. The Ld CIT(A) erred in facts, circumstances of the case and in law in holding that assessment of other income without assessing income, precisely for assessing which, re-assessment had been resorted to, to be in order. Without Prejudice Ground 3: Invoking powers of enhancement without complying with provisions of 251 (2). The Ld CIT(A) erred in facts, circumstances of the case and in law in directing addition u/s 2(22)(e) without issuing notice u/s 251(2) for this addition after deleting addition that AO had made for unexplained investments. Without Prejudice Ground 4: Invoking powers of enhancement without complying with provisions of 251(1) on an issue which do not form part of reasons recorded. The Ld CIT(A) erred in facts, circumstances of the case and in law in directing addition u/s 2(22)(e) when the reasons recorded was for bringing to tax income allegedly escaped assessment on sale of property. Without Prejudice Ground 5: Invoking provisions of sec 2(22)(e) when the advances made for the acquiring property is for benefit of the company. The Ld CIT(A) erred in facts, circumstances of the case and in law in directing addition u/s 2(22)(e) when the property acquisition for which the advances were made is to be used for benefit of the company. Reasons given by Ld CIT (A) for directing additions under a different section after deleting additions that AO made and without issue of notice for assessment under this section and for holding resorting of re-assessment is in order are wrong, insufficient and contrary to facts and evidence on record and in law. The Appellant craves leave to amend, alter, modify or omit any of the aforesaid grounds of Appeal as occasion may arise or demand.” 3. Facts of the case, in brief, are that the assessee is an individual & director of the company named Makjai Laboratories Private Limited and has furnished her return of income for the year

3 ITA No.1330/PUN/2025 under consideration on 25.11.2011 by declaring an income of Rs.4,99,600/-. On the basis of information regarding financial transactions carried out by the assessee, the case of the assessee was reopened u/s 147 of the IT Act and notice u/s 148 was issued to the assessee on 31.03.2017. The assessee requested to treat the original return as filed in response to notice u/s 148 of the IT Act. Subsequently, statutory notice u/s 143(2) and 142(1) of the IT Act respectively were issued to the assessee. The assessee in response submitted that the property i.e. flat is purchased for a total value of Rs.3,25,00,000/- jointly with his son in the capacity of directors of the company and on behalf of the company Makjai Laboratories Private Limited. It was explained that the company needed a flat for the business purposes in Bombay & the company was unable to get any assistance from banks etc therefore the loan was obtained from Axis Bank in the name of directors & the property was registered in the name of directors although the property was shown in the balance sheet of the company as CWIP (Closing Work in Progress). The payment details were also furnished according to which only Rs.1,32,54,579/- (Rs.82,54,579/- from Axis Bank housing loan By M. M. Mulherkar & Rs.50,00,000/- by the Company Makjai Limited.) were paid during the year under Laboratories Private

4 ITA No.1330/PUN/2025 consideration and rest of the amounts were paid in assessment year 2009-10 and in assessment year 2011-12. It was also submitted that the funds were arranged through bank finance & by the company, therefore no addition was called for. It was again made clear before the AO that the company was not in a position to obtain further financial assistance from banks for acquiring a flat for the purposes of use as a guest house at Bombay and therefore the directors and the company entered into a notorised agreement i.e. MOU dated 08-09-2008 to purchase a flat in the name of directors with the help of housing loan availed in the name of directors. It was also agreed that the company will make certain payment towards purchase of the flat and also make repayment of housing loan & when the loan is fully repaid the flat will be transferred in the name of the company by the directors. A board resolution was also passed on 25.04.2008 in this regard wherein it was also resolved that the company will repay the housing loan. Copy of the board resolution and notarised agreement was produced before the AO. Not being satisfied with the contentions of the assessee, the Assessing Officer vide order dated 29.12.2017 completed the assessment proceedings u/s 143(3) r.w.s. 147 of the IT Act by determining the income of the assessee at

5 ITA No.1330/PUN/2025 Rs.1,62,49,600/- as against the income of Rs.4,99,600/- returned by the assessee. The above assessed income includes addition of Rs.1,57,50,000 i.e. ½ value of the flat (3,25,00,000-10,00,000 paid by Mohan Mulhekar =3,15,00,000/2=1,57,50,000/-) as unexplained investment. 4. Being aggrieved with the above action of the Assessing Officer, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the reply and submissions of the assessee, Ld. CIT(A)/NFAC partly allowed the appeal filed by the assessee and restricted the addition of Rs.1,57,50,000/- to Rs.25,00,000/- only by observing as under :- “3.8.4 ........ As stated earlier, from the assessment order it is perused that during the year under consideration, out of the total amount of Rs 1,20,00,000/advanced by the company, a sum of Rs 50,00,000/- has been advanced for purchase of property in the year under consideration. Since the appellant is having only 50% share in in the said property, an amount of Rs. 25,00,000/- 50% Rs 50,00,000/-) advanced by the company to such shareholder during the year under consideration will be assessed as deemed dividend under section 2(22)(e) of the Act under. the Head 'Income from Other Sources'. ....... 3.8.7 In view of the above factual discussion and legal matrix of the case, and keeping in view of the acceptance of the appellant (reproduced supra). the addition of Rs.25,00,000/- is sustained u/s.(22)(e) of the IT Act as 'Income from Other Sources' out of total addition of Rs.1,57,50,000/-. Remaining addition stands deleted. 3.9.4 Therefore, in view of the above factual and legal matrix, the amount received during the year under consideration of Rs.25,00,000/-by the appellant can also be taxed as income u/s.56(2)(vii) of the IT Act under the head 'Income from Other Sources'. Since the balance amount of Rs.1,32,50,000/- (Rs.1,57,50,000- Rs.25,00,000/-) has not been received by the

6 ITA No.1330/PUN/2025 appellant in the year under consideration, the addition made by the AO to that extent is required to be deleted. 3.9.5. In the nutshell, addition of Rs. 25,00,000/- (50% share of the appellant out of Rs. 50,00,000/- received during this year) is confirmed out of total addition of Rs.1,57,50,000/-. Thus, related grounds are partly allowed.” 5. It is the above order against which the assessee is in appeal before this Tribunal. 6. We have heard Ld. counsels from both the sides and perused the material available on record including the paper book and copy of case laws furnished by the assessee. In this regard, we find that Ld. CIT(A)/NFAC has dismissed the ground with regard to challenge to reassessment order, however accepted the contention of the assessee in part and came to the conclusion that it is a case of deemed dividend u/s 2(22)(e) since the company has paid Rs.50 lakhs towards the purchase of flat which was registered in the name of directors and accordingly, provisions of section 2(22)(e) and if not, section 56(2)(vii) is attracted since the company has paid Rs.25 lakhs in favour of each director, therefore in the case of the assessee the addition was confirmed only to the extent of Rs.25 lakhs which is also challenged by the assessee before us along with challenge to the reassessment proceedings.

7 ITA No.1330/PUN/2025 7. Regarding challenge to reassessment order by the assessee, we find that the case of the assessee was reopened on the following reasons :- “Reasons for issue of notice u/s 148 of the I.T. Act, 1961 In this case as per the record available with this office assessee has not filed return of Income for AY 2010-11. Record available with this office show that assesses has sold immovable property at Rs.3,25,00,000/- during the FY 2009-10 relevant to AY 2010-11. 2. It is noticed that, Veena Mohan Mulherkar has sold immovable property at Rs.3,25,00,000/- during the FY 2009-10 relevant to AY 2010-11. Accordingly, office of the Asstt. Commissioner of Income Tax, Circle-2, Kolhapur, issued a letter to the assessee on 25.12.2014 which was served on the assessee. The office had requested to furnish the copy of return of income for the A.Y. 2010-11. However, no response was received from the assessee. 3. From the above details available on records, I have reason to believe that the income to the extent of Rs. 3,25,00,000/- chargeable to tax for A.Y. 2010-11 has escaped assessment within the meaning of explanation (2) (a) below the third proviso to section 147 of the I.T. Act, 1961. Income chargeable to tax has escaped assessment for AY 2010-11 by the reason of the failure on the part of the assessee to make a return of income u/s 139 and the same should be assessed by issue of notice u/s 148 of the Income Tax Act, 1961.” 8. From a perusal of above reasons, we find that the case of the assessee was reopened on following two grounds : 1st The assessee has not furnished her return of income u/s 139 of the IT Act for the year under consideration. 2nd The assessee Veena Mohan Mulhekar has sold immovable property for Rs.3,25,00,000/- during the year under consideration.

8 ITA No.1330/PUN/2025 9. With regard to above reasons, we find that a perusal of record shows that the assessee filed her return of income u/s 139 of the IT Act on 25.11.2011 by declaring an income of Rs.4,99,600/-. And the impugned flat was not sold by her but was purchased jointly with her son on behalf of the company and for the use of the company. And during the year under consideration no amount was paid by the assessee, since total amount of Rs.1,32,54,579/- only was paid during the year under consideration out of which Rs.50 lakhs was paid by the company Makjai Laboratories Private Limited and rest of the amount of Rs.82,54,579/- was paid through Axis Bank housing loan. Accordingly, we find that the reasons recorded for reopening were not correct & the officer who gave the approval has also not applied his mind since the reasons itself were wrong. 10. In view of our above discussion, we are of the considered opinion that the reasons recorded for reopening were not correct and therefore the proceedings initiated u/s 147 of the I T Act & the notice issued u/s 148 of the I T Act as well as the reassessment order passed u/s 147 r. w. s. 143(3) of the I T Act are illegal invalid & bad in law. In

9 ITA No.1330/PUN/2025 this regard we find support from a coordinate bench decision passed in the case of Vikas Jain vs. ACIT ITA No.434/LKW/2024 order dated 31-12-2025 [2026] 182 taxmann.com 619 (Lucknow - Trib.) where in under identical facts the Tribunal has quashed the reassessment proceedings by observing as under :- “10 xxxx Similarly, it has been held by the Delhi Bench of the ITAT in the case of Nikita Mahajan v. ITO that where jurisdiction was assumed by the AO under section 147 of the Act on the premise that the assessee had not filed any return of income and the assessee had in fact filed a return of income, the Tribunal held that the same was the foundation of the reason to believe that since it was flawed, the notice issued subsequently could not be sustained. In the case of Viswanathan Securities (P.) Ltd. v. ACIT [IT Appeal No. 135/DEL/2019, dated 21-2-2023], the Hon'ble Delhi Bench of the ITAT has held that section 292B of the Act takes care certain situations and enables the income tax authorities to cure defects in orders, notices etc., but the jurisdiction to reopen emerges from the reasons recorded in writing under section 148(2) on the strength of, 'reason to believe' towards escapement of income. It is those reasons that confer assumption of jurisdiction of a substantive nature. A fundamental defect in the basis for holding, 'reason to believe' cannot be seen as a mere irregularity and thus cannot be cured with the aid of section 292B of the Act. There is a marked distinction between want of basic or inherent jurisdiction and irregular exercise of jurisdiction. A defect or irregular exercise of jurisdiction alone can possibly be cured under section 292B of the Act but when there is a jurisdictional defect, that cannot be rectified by invoking the provisions of section 292B of the Act. The ld. AR has also our attention to the order of the Hon'ble Bombay High Court in W.P. No. 2545 of 2010 in the matter of Tata Sons Limited v. DCIT, Mumbai wherein the ld. AO had recorded that the sale of shares of TCS Division was nothing but, ' business income' and therefore, profits arising out of sale of these shares in the group companies should be treated as the assessee's income from business and not profits arising out of sale of investment. The Hon'ble High Court had held that if the ld. AO had held so then the amount that was treated as escaping assessment also indicated non application of mind. 11. XXXX

10 ITA No.1330/PUN/2025 Therefore, it is clear that the AO was neither clear about the facts of the case nor the amount of income that had escaped assessment and therefore his reason to believe was founded on incomplete appreciation of the facts and law. Furthermore, these incorrect facts would also have influenced the mind of the approving authority, rendering the said approval incorrect. Accordingly, since the foundational facts of the reason to believe were not correctly appreciated, the entire reason to believe is vitiated and cannot be the basis for a valid notice u/s 148 of the Income Tax Act. Such a mistake, which goes to very root of the assumption of jurisdiction cannot be cured by taking the shelter of section 292B of the Act. Accordingly, we hold that the very initiation of the proceedings being flawed, the subsequent order is void ab initio and liable to be quashed as such. Accordingly, grounds no. 1 to 3 of the assessee's appeal are allowed.” 11. Respectfully following the above coordinate bench decision, passed in the case of Vikas Jain vs. ACIT (supra), we find force in the arguments of the counsel of the assessee that in the instant case in hand, where jurisdiction was assumed by the Assessing Officer u/s 147 of the I T Act on the premise that the assessee had not filed any return of income whereas the assessee had in fact filed a return of income, the foundation of the reason to believe was flawed, therefore the notice issued u/s 147/148 of the IT Act could not be sustained. It is also apparent that the Assessing Officer was neither clear about the facts of the case nor the amount of income that had escaped assessment since no amount was invested by the assesse, and therefore his reason to believe was also founded on incomplete appreciation of the facts and law. Accordingly, we quash the notice issued u/s 148 of the I T Act as

11 ITA No.1330/PUN/2025 well as the consequential reassessment order dated 29-12-2017 passed u/s 147 r.w.s. 143(3) of the IT Act. Thus, the ground no1 raised by the assessee is allowed. Since we have quashed the reassessment notice as well as reassessment order & allowed the appeal of the assesee on ground no 1 itself, the rest of the grounds becomes academic hence not adjudicated. 12. In the result, the appeal filed by the assessee is allowed. Order pronounced on this 18th day of May, 2026. Sd/- Sd/- (R. K. PANDA) (VINAY BHAMORE) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 18th May, 2026. Sujeet/DOC Sujeet Kumar Digitally signed by Sujeet Kumar Sharma Sharma Date: 2026.05.19 16:08:46 आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : +05'30' अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B” ब�च, 4. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.