HARPAL,JALESAR, ETAH vs. THE INCOME TAX OFFICER 1(3)(1), RAILWAY ROAD,ETAH

The Ground Nos. 5.1. and 5.2. raised by the assessee are challenging the assumption the validity of assumption of jurisdiction u/s 147 of the Act. Since, this goes to the root of the matter, I deem it fit and appropriate to address the same first.

I have heard the rival submissions and perused the material available on record. The assessee did not file return of income for AY 2019-20. Based on the information received in the Insight Portal about cash withdrawals made by the assessee from Bank of Baroda of substantial amounts, a show cause notice u/s 148A(b) of the Act stood issued to the assessee on 27.02.2023 seeking details of cash withdrawal of Rs. 3,93,90,374/- and cash deposit of Rs. 23,30,000/- totaling to Rs. 4,17,20,374/-. Later an order u/s 148A(d) of the Act was passed on 25.03.2023 stating that the income to the extent of Rs. 4,17,20,374/- had escaped assessment for AY 2019-20. Notice u/s 148 of the Act was issued on 25.03.2023. In response to the said notice, the assessee filed return of income for AY 2019-20 on 14.10.2023 showing income of Rs. 2,86,010/-. The assessee is engaged in the wholesale trading of milk. The assessee explained before the ld AO that milk sales had been made in the cash and that the said sums were duly deposited in the bank account. The withdrawals made from the bank account were for the purpose of purchase of milk and meeting the business of the assessee and that the unutilized amounts were deposited back in the bank account. The assessee also submitted the details of purchases and sales of milk selling business before the ld AO and also stated that the said business is out of the purview of GST. The assessee that as per the audited profit and loss account, the sales were Rs. 2.01 crores, purchases were Rs. 1.90 crores, gross profit was Rs. 7,65,200/- and net profit was Rs. 2,84,839/-. The net profit ratio shown was 1.42%. The ld AO completed the reassessment u/s 147 r.w.s. 144B of the Act on 25.01.2024 estimating the net profit of the milk selling business @3% of turnover and made an addition of Rs. 3,17,818/- to the business income. It is pertinent to note that no addition was made either on account of cash withdrawals of Rs. 3,93,90,374/- are on account of cash deposits of Rs. 23,30,000/- which were subject matter of order u/s 148A(d) of the Act dated 25.03.2023 while assuming jurisdiction for reopening the assessment. When no addition has been made in respect of reasons recorded for reopening the assessment, then the very assumption of jurisdiction of formation of belief that income has escaped assessment vanishes in thin air and ultimately reopening proceedings ought to have been dropped by the ld AO. Since, the ld AO had proceeded with the reassessment in the instant case while shifting his focus from examination of cash withdrawals and cash deposits to the determination of net profit of the business on estimated basis, I have no hesitation to quash the reassessment proceedings as void ab initio. Reliance in this regard is placed on the decision of the Hon’ble Delhi High Court in the case of ATS Infrastructure Vs ACIT reported in 473 ITR 595 (Del) ; Ranbaxy Laboratories Ltd Vs. CIT reported in 336 ITR 136 (Del) and the decision of Hon’ble Bombay High Court in the case of CIT Vs. Jet Airways India Ltd reported in 331 ITR 236 (Bom), among others. Respectfully following the said decisions, the reassessment proceedings are quashed as void ab initio. Accordingly, Ground Nos. 5.1 and 5.2 raised by the assessee are allowed.

Since the reassessment is quashed, the adjudication of other grounds becomes academic in nature and they are left open.

In the result, the appeal of the appeal of the assessee is partly allowed.