SMT PUSHPA RAJAWAT vs. C I T JAIPUR AND ANOTHER

By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed

This court while admitting the appeal on 3.10.2016 framed following substantial questions of law:- “(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that issuance of second notice u/s 148 for re-opening of the (2 of 15) [ITA-205/2015] assessment during the pendency of appeal against the first notice issued u/s 148, is valid and consequently order passed by the lower authorities is proper, such conclusion is proper? (2) Whether the Tribunal was justified is holding that the appellant could not discharged the burden to provide the credit worthiness as required u/s 68 of the Act while sustain the addition of Rs.11,97,472/- of cash credits merely on the basis confirmation filed by the appellant, evidence, namely affidavits PAN number payment through cheques and I.T. File numbers were available of the creditors such conclusion is proper?”

The facts of the case are that the assessee is a Transporter. The return has been filed on 30.8.1997 disclosing total income at Rs.1,21,925/- which was processed u/s 143(1) of IT Act showing loss from transport work & on account of capital loss. The notice u/s 148 is issued on 21.1.04 after obtaining prior approval of the Addl. CIT, range-III, Gwalior vide letter F.No. Addl. CTR/R- 3/approval/147/Gwl/2003-04/828 dt. 12.1.04, the notice u/s 148 is served on the assessee as per confirmation received through dak on 25.2.04.

1 In this case the return of income was filed on 30.8.97 & was processed on 24.3. 99. The assessment proceedings were reopened u/s 147 of the IT Act by issuance of notices u/s 148 on 25.10.99 for the following reasons:- ÞmijksDr dsl okMZ & 5 ls LFkkukarj.k gksdj vk;k Fkk o lfo{kk gsrq okMZ&5 }kjk pquk x;k FkkA mijksDr fooj.kh ij 143¼2½ issued ntZ gS ijUrq uk dksbZ uksfVl izkIr gqvk uk gh uksfVl izkIrh ckcr~ dksbZ iqzQ feyk vr% mDr o"kksZa dh izksflfMax Qkby dh tkrh gSA

2 The notices was served as per order dt. 30.10.99 by notice server Sh. H.K. Pathak on 29.10. 99. Subsequently notices were issued u/s 142(1) dt. 9.11.01, 23.1.02 & 13.1.02, no compliance of the notices were made by the assessee therefore the assessment was completed u/s 144 of the IT Act determining total income at Rs.14,26,040/- and the unsecured loan of Rs.14,12,040/- were added treating the same as unexplained besides accepting Rs.24,000/- u/s 44AE. The assessee has filed an appeal before the CIT(A) pleading that assessee has never received the notices u/s 148 issued by the AO . Sh. Gopi Madan AR of the assessee strongly argued that the act provides for service of a notice on proper person as a condition precedent for making order of assessment. In support, he has quoted decisions of different courts. The ld. CIT(A) after consideration of the arguments put forth by the AR and the records has given the findings that the service of notice u/s 148 is mandatory and is a condition precedent for valid initiation of re-assessment proceedings. It is held by the CIT(A) that there is neither service report nor any evidence to show the identity of the person on whom service was effected. He therefore, held that re-assessment made is illegal & void and quashed the assessment order. The (4 of 15) [ITA-205/2015] order of CIT(A) is made as “Annexure B” of assessment order. Though the subsequent notices u/s 142(1) bears signatures of the assessee however the jurisdictions was never challenged by the assessee through out the proceedings and has avoided to appear at the assessment stage.

In the proceedings u/s 148 which was pending, the Local Commissioner ITO, Sawai Madhopur has issued notice.

In that view of the matter, counsel for the appellant contended that when the matter u/s 148 was pending against jurisdiction of the CIT(A), Gwalior, second show cause notice issued on the same subject is without any authority of law.

Counsel for the appellant has relied upon the following decisions:-

1 In Aditya Medisales Ltd. vs. Deputy Commissioner of Income Tax, Circle 1(1) reported in (2016) 73 taxmann.com 197 (Gujarat), it has been held as under:-

As noted, for the assessment year 2005-2006, the Assessing Officer had issued first notice of reopening on 11.1.2011, which was based on the premise that the assessee having transferred its shares from stock-in- trade to investment, was liable to pay tax on the difference between cost price of such shares and the market value on the date of transfer. In the present case, the notice for reopening is founded on the allegations that the assessee had shown to have held only 20,10,198

With the petitioner's contention of the issues having been scrutinised during the original assessment and true and full disclosure, we are not impressed.

In the details of long term and short term capital gain during the year the assessee had shown sales of 40,20,396 shares of Sun Pharma and claimed long term capital gain thereof. The date of sale was shown as 2.7.2004 and date of investment was shown on 2.11.2002. In other words, the vital data of converting such shares

Thus while claiming long term capital gain on sale of 40,20,396 shares of Sun Pharma, the assessee related to the date of investment of 2.11.2002 and the date of sale of 2.7.2004 completely withholding the fact that shares were transferred from stock-in-trade to investment only on 1.4.2004. On the ground of true and (1997) 227 ITR 302 (Rajasthan), it has been held as under:- The Income Tax Appellate Tribunal, Jaipur Bench, Jaipur, before which the application under Section 256(1) of the (7 of 15) [ITA-205/2015] Act was made by the Revenue for referring the above two questions of law for the opinion of the High Court, dismissed the application on the ground that the answer to both these questions are self-evident and, therefore, it is not necessary to refer these questions for the opinion of the High Court. The judgment passed by the Tribunal is after discussion of all the facts and circumstances of the case. While deciding the case, the Tribunal has relied upon the judgment of the Supreme Court. The Tribunal also held that since the original assessment proceedings have got barred by time for both the assessment years, the fresh assessment proceedings initiated for the same assessment years, were invalid because they were completed on the basis of the fresh notice issued under Section 148 of the Act and the notices were issued on March 31, 1980, and March 17, 1981, i.e., at the time when the original proceedings initiated under Section 148 were still pending. After perusal of the order passed by the Tribunal, we are of the opinion that no referable questions of law arise out of the judgment dated June 30, 1993, passed by the Tribunal as the answers to both the questions are evident and the Tribunal was, therefore, justified in refusing to refer the above two questions of law for the opinion of the High Court.

3 In Trustees of H.E.H., the Nizam’s Supplemental Family Trust vs. Commissioner of Income Tax (2000) 109 Taxman 193 (SC), it has been held as under:-

An order under Section 237 of the Act is appealable as provided in Clause (k) of Sub-section (1) Section 246 of the Act. Section 249 prescribes limitation for filing appeal. Sub-section (1) of Section 249 is relevant and it is as under:

(1) Every appeal under this Chapter shall be in the prescribed form

There is difference in Clauses (b) and (c) of Sub-section (2) of Section 249 of the Act.

Return of income filed in the form prescribed along with an application for refund under Section 237 of the Act is a valid return. There is no stopping the Income-tax Officer to complete the assessment on the basis of return so filed. It may be that the Income-tax Officer may limit the scope of examination of the return to satisfy himself regarding the correctness of the amount claimed as refund. For that purpose, he will examine if the tax paid by the assessee exceeds the amount of tax for which he is chargeable. If it is found that the income was "nil", he will direct refund be granted to the assessee for any amount of tax paid. That will certainly be assessment. Filing of return In the form prescribed under Section 39 of the Act along with the application for refund is not an empty formality. It (9 of 15) [ITA-205/2015] assumes importance if such return had not been filed earlier. We have reproduced the note/order dated November 10, 1965 on the file pertaining to assessment year 1963-

In the file for assessment year 1963-64 there is another note which is as under: Please see my note in 1963-64 file. Refund to be considered in the hands of the beneficiaries.

The mere glance at this note would show that it could not be said that the Income-tax Officer gave finality to the refund fence no refund is granted either in the hands of the trust or in the hands of the beneficiaries. It is an inconclusive note where the Income- tax Officer left the matter at the stage of consideration even with regard to refund in the hands of the beneficiaries. This note was also not communicated to the trustees. When we examine the note dated November 10, 1965 on the file of 1963-64 nothing flows from that as well. In any Case if it is an order, it would be appealable under Section 249 of the Act. Since period of limitation starts from the date of intimation of such an order, it is imperative that such an order be communicated to the assessee. Had the Income-tax Officer passed any final order, it would have been communicated to the assessee within a reasonable period. In any case, what we find is that the note dated November 10, 1965 is merely an internal endorsement on the file without there being an indication if the refund application has been finally rejected. By merely recording that in his opinion, no credit for tax deducted at source is to be allowed the Income- tax Officer cannot be said to have closed

Further, we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under :

Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income Tax as the income of the assessee of that previous year."

The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to Income Tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words "shall be charged to Income Tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the unsatisfactoriness of the explanation does not and need not automatically

The real question before the authority in Mangikd's case (supra) was whether the primary gold and the gold ornaments found in possession of the assessee on 14th Oct., 1987, were owned by the assessee. The assessee has explained the transactions through which the primary gold and the gold ornaments came in his possession when the search of the customs took place at his residence and the same were seized. In support of said explanation, he has produced said three persons, who had brought the ornaments to him and have furnished their affidavits admitting such fact. After finding that the explanation furnished by three persons and their affidavits admitting the ownership of gold found in possession of assessee (they) were asked about the sources of acquisition of said gold and the respective persons asserted them to be owners of gold found in possession of the assessee but the explanation furnished by each of them was not accepted as satisfactory by the AO. On such premise value of the primary gold found in possession of the assessee during the search of the customs was added in the income of the assessee as income from undisclosed sources.

This Court held by the parity of reasonings which prevailed in Daulat Ram Rawatmull's case (supra) that it can well be said that merely because the explanation furnished by Shri Bhopal Singh, Om Prakash Gupta and Shri Gauri Shanker Singhal, about the purpose for which the gold ornaments were delivered for making new ornaments and that the ornaments were belonging to their family was found to be not acceptable, could not have provided any nexus for drawing inference therefrom that the primary

Counsel for the respondent has contended that the Tribunal while considering the matter has rightly decided in favour of the department and therefore no interference is called for in the reasoning adopted by the tribunal.

We have heard counsel for the parties.

Taking into consideration the provisions of Section 148 of the Income Tax Act which reads as under:-

Issue of notice where income has escaped assessment.- (1) Before making the assessment, reassessment or recomputation under (14 of 15) [ITA-205/2015] section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding

Since, the original proceedings were pending before the CIT(A), without entering into the question of jurisdiction of the Sawaimadhopur AO, the fact remains that the adjudicating authority could not have issued second show cause notice u/s 148. In that view of the matter, without entering into the matter whether the Gwalior or the Sawaimdhopur, AO has jurisdiction or not, the second show cause notice is held to be not legal.

In that view of the matter, first issue is required to be answered in favour of the assessee and against the department. The second issue being consequential to first issue, the same is also to be answered in favour of the assessee.

Hence, both the issues are answered in favour of assessee and against the Department.

The appeal stands allowed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. Brijesh 76.