SHRI DEEP NAVINBHAI KATHROTIA,RAJKOT vs. INCOME TAX OFFICER, WARD 2(1)(1), RAJKOT, RAJKOT

The Grounds of appeal raised by the assessee are as under:

Brief facts qua the issue are that in the assessee’s case, as per the information available with the assessing officer, it was observed that during the year under consideration, the assessee has carried out bogus transactions of 13513 shares at Rs.8,84,576/- which is unaccounted and unexplained as no investment or income from share transaction activity has been reported in return of income filed by the assessee. Accordingly, the assessment proceedings were initiated by way of issuance of notice u/s 148 of the Act after taking prior approval of the competent authority and a notice u/s. 148 of the Act was issued to the assessee on 28/04/2020 requiring the assessee to furnish/file his return of income for the year under consideration within 30 days. The said notice was issued and duly delivered on the registered email id of the assessee as well as served on the account of the assessee on the E-filing Portal of the Income Tax Department. However, the assessee did not comply with the said notice. Thereafter, notice u/s 142(1) of the Act along with specific questionnaires dated 19/09/2020was issued and served upon the assessee on 19.09.2020requesting to make compliance on or before 25.09.2020.

Thereafter, the assessing officer noted that in spite of giving ample opportunity, the assessee failed to account for undisclosed income by filing return of income in response to the notice u/s 148 of IT Act issued in assessee’s case. Therefore, considering the time barring nature of the proceedings, the assessing officer has no option but to conclude the proceedings with whatever details available on record. Thus, assessing officer note that assessee has made investment of an amount of Rs. 8,84,576/- for purchase of shares and source of such investment is remained to be explained from the side of the assessee. Hence, in absence of explanation and submission regarding investment made in share by the assessee, an amount of Rs.8,84,576/- was considered as unexplained investment in view of section 69 of I.T.Act in the hand of the assessee and added back to his total income for the year under consideration.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the action of the assessing officer, therefore, the assessee is in appeal before this Tribunal.

Learned Counsel for the assessee submitted that source of investment of Rs.8,84,576/- was not explained by assessee, it is not a case of penny stock, the case of the assessing officer is that assessee has not explained the source of investment of Rs.8,84,576/-. The assessee had all the evidences in his possession such as invoices, bills, pertaining to the shares. Besides, the reasons recorded by the assessing officer u/s. 147/148 of the Act, is bad in law, however, the assessee does not wish to challenge the reopening. The fact that this is a small addition made by the assessing officer to the tune of Rs.8,84,576/-, therefore, Ld. Counsel alternatively argued that an ad hoc estimated addition may be made in the hands of the assessee and the assessee’s appeal may be partly allowed.

On the other hand, Ld. DR for the Revenue submitted that considering the smallness of the amount, the estimated addition @ 10% may be made in the hands of assessee in order to plug the leakage of the Revenue.

I have heard both the parties and perused the materials available on record. I find that the assessee has submitted all the possible evidences before the lower authorities to explain the source of purchase shares, and the fact that the transaction was done through banking channel and all the bills and invoices are on record and there is no evidences that these transactions involve cash payment. Besides, there is no evidence that any party has received the cash in lieu of the cheques. I note that it is not a case of penny stock, the only contention of the assessing officer was that assessee has failed to file sufficient evidences to explain the source of purchase of shares of Rs.8,84,576/-, hence, assessing officer made addition. I note that since Ld. DR for the Revenue as well as Ld. Counsel for the assessee, considering the smallness of the amount, both have agreed that in these circumstances an ad-hoc estimated addition may be made in the hands of the assessee to plug the leakage of the Revenue. However, Ld. Counsel for the assessee submitted that the assessee has submitted all documents and evidences and has also raised the legal issue of reopening u/s.147/148 of the Act and this issue is squarely covered in favour of the assessee by way of the legal issue pertaining to Section 147/148 of the Act, as the reopening itself is bad in law. However, Ld. Counsel for the assessee does not wish to press this legal issues due to smallness of the amount and, therefore, argued that an ad-hoc disallowance in the hands of the assessee should be made. Therefore, considering these facts and to meet the end of the justice and to plug the leakage of the Revenue, I am of the view that an ad hoc estimated addition @5% should be made in the hands of the assessee, which comes to Rs.44,228/- (5% of Rs.8,84,576/-). Therefore, I direct the AO to make the addition in the hands of the assessee to the tune of Rs.44,228/- by following the normal rate of Income Tax.

I further make it clear that this adjudication has been done by considering the peculiar facts and circumstances of the assessee’s case and the fact that both the parties i.e. Ld. Counsel for the assessee and the Ld. DR for the Revenue have agreed that an ad hoc estimated addition may be made in the hands of the assessee considering the smallness of the amount. Therefore, this adjudication should not be treated as a precedent in the preceding year or any subsequent year in assessee’s own case and in other cases.

In the result, the appeal of the assessee is partly allowed in above terms.