NAVAL KISHOR MUNDRA,MUMBAI vs. INCOME TAX OFFICER-4(2)(1), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL
“SMC” BENCH MUMBAI

BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER &
SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER
Naval Kishor Mundra
D-44, Mangal karnik CHS,
17B Road, Siddarth Nagar,
Goregaon (west), Mumbai-
400 062

Vs. ITO 4(2)(1),
Room no. 644, 6th floor, Aayakar
Bhavan, M. k. Road,
Mumbai-400 020

PAN/GIR No. AACPM3125C
(Applicant)

(Respondent)

Assessee by ShriHimansh Gandhi, Ld. AR
Revenue by Shri B. Laxmi Kanth, Sr. DR

Date of Hearing
11.08.2025
Date of Pronouncement
20.08.2025

आदेश / ORDER

PER RAJ KUMAR CHAUHAN, JM:

This appeal is directed against the order dated
06.06.2025 passed by the National Faceless Appeal Centre
(NFAC), Delhi (herein after referred as “Ld. CIT(A)” u/s 250
of the Income-tax Act, 1961 (herein after referred as “the Act”), wherein the assessment order was set aside and the matter was restored to the file of AO who has decide the evidences presented by the assessee before the Ld. CIT(A) under rule 46A. Ld. CIT(A) further observed that since the assessment order was passed ex-parte by the AO, therefore in the interest of justice, the assessee should be given an opportunity to present its case before the AO and then pass afresh order.
2. The brief facts as culled out from the proceedingsbefore the authorities below are that assessee is an individual had filed a return of income for the year under consideration on 19.09.2015 declaring total income at Rs. 4,66,540/-. The return was processed u/s 143(1) of the Act and the case was selected for scrutiny. The assessment was completed u/s 143(3) of the Act on 14.11.2017 by assessing the income at Rs. 4,67,310/-. A sum of Rs. 38,67,500/- was added to the income of the assessee u/s 69 of the Act because the assessee has failed to furnish relevant documentary evidence despite several opportunities given by the Ld. AO.
3. Aggrieved by the order of AO, assessee preferred the appeal before Ld. CIT(A) by raising various grounds on merit alongwith two legal Ground No. 1 and 2 wherein the assessee challenged the issuance of notice u/s 148 dated
30.03.2020 which is bad in law as the Ld AO has erred in passing non-speaking assessment order without providing reason recorded and information on which the AO placed his reliance for making additions. Vide impugned order, Ld.
CIT(A) has set aside the assessment order and restored the matter to the file of AO for considering voluminous additional evidence submitted by the assessee before him and observed that the assessment order was passed ex- parte because the assessee has failed to furnish any requisite details during the scrutiny assessment proceedings.
4. Thus aggrieved by the order of Ld. CIT(A) the present appeal has been filed and following ground has been raised by the appellant / assessee.
Ground 1.On the facts and circumstances of the case and law, the Ld.
CIT(A)erred in confiming validity of notice u/s 148 dated 30.03.2020
which is bad in law and require to be quashed
Ground2. On the facts and circumstances of the case and law, the Ld.
CIT(A)failed to considered that non-speaking assessment order was passed without providing reason recorded and information on which the Ld. AO placed his reliance for makingaddition. Thus, passing the non speaking order is against the principal of natural justice and required to be quashed.
Ground 3.On the facts and circumstances of the case and law, the Ld.
CIT(A)failed to considered that invocation ofsection 69 3 of the income tax act, 1961by Ld. AO for makingdisallowance of Rs. 3867500 is bad in law, as he failed to point out any single transaction which was not recorded in the books of account.
Ground 4. On the facts and circumstances of the case and law, 4 the CIT(A)failed to considered that all the details were available the Ld.
AO, but he failed to examine records produced before him and details filed during the course of assessment u/s 143(3).
Ground5. On the facts and circumstances of the case and law, the Ld.
CIT(A)failed to consider that:- a) Live link between information and reason recorded for reopening is missing and even there is no allegation that appellant failed to file details truly and fully during the original assessment proceeding. Hence, the reopening is invalid. b)
Addition was made purely on assumption and surmise basis without bringing any material against the appellant. c) Addition amount mentioned in Draft Assessment Order cannot be enhanced in final assessment order without issuing new draft assessment order with show cause notice. d) Nodefect in books of account was found, even no defect in document submitted by the appellant was pointed out, therefore, addition cannot be made. e) Appellant has not incurred losses from option trading, rather it has earned profit from option trading and same has been offered for taxation. Thus, reopening is invalid as it is leading to double taxation.
Ground6.On the facts and circumstances of the case and law, 6 the Ld.
CIT(A)erred in not quashing the penalty proceeding Rs.0 under section 271(1)(c) &271(1)(b) of Incometax Act, 1961
Therefore, the Coordinate Bench of ITAT held that restoring the matter to the file of AO without deciding the legal grounds with respect to validity of reopening u/s 148 and 147 of the Act was contrary to the proviso of section 251(1)(a) of the Act as made available on the statute by the Finance (No.2) Act 2023 w.e.f. 01.10.2024. 6. Ld. DR on the other hand relied on the order of Ld.
CIT(A) and submitted for dismissal of the appeal of the assessee.
7. We have considered the rival submissions and perused the material placed on record. It is evident from the impugned order that assessee has taken 2 legal grounds before the Ld. CIT(A) as find mentioned in para 2 of the impugned order, extracted below:-
“2. In the above appeal, as per the Form 35 of the appeal, the appellant has raised the following main grounds of appeal:-
1. On the facts and circumstances of the case and law, the Ld. AO erred in issuing notice u/s 148 dated 30.03.2020 which is bad in law and require to be quashed.
2. On the facts and circumstances of the case and law, the Ld. AO erred in passing non-speaking assessment order without providing reason recorded and information on which the Ld. AO placed his reliance for making addition. Thus, passing the non speaking order is against the principal of natural justice and required to be quashed.
3. On the facts and circumstances of the case and law, the Ld. AO erred in invoking the section 69 of the income tax act, for making disallowance of Rs. 3867500, as he failed to point out any single transaction which has not been recorded in the books of account.
4. On the facts and circumstances of the case and law, the order passed by the Ld. AO is bad in law as AO has failed to examine records produced before him and records already assessed during the course of assessment u/s 143(3).
5. On the facts and circumstances of the case and law, the Ld. AO failed to consider that:- a) Live link between information and reason recorded for reopening is missing and even there is no allegation that appellant failed to file details truly and fully during the original assessment proceeding.
Hence, the reopening is invalid.
b) Addition was made purely on assumption and surmise basis without bringing any material against the appellant.
c) Addition amount mentioned in Draft Assessment Order cannot be enhanced in final assessment order without issuing new draft assessment order with show cause notice.
d) No defect in books of account was found, even no defect in document submitted by the appellant was pointed out, therefore, addition cannot be made.
e) Assessee has not incurred losses from option trading, rather ithas earned profit from option trading and same has been offered for taxation. Thus, reopening is invalid as it is leading to double taxation.
6. On the facts and circumstances of the case and law, the Ld. AO erred in invoking penalty provision under section 271(1)(c) &
271(1)(b) of Income tax Act, 1961. 7. Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.”
8. From the perusal of decision part in para 5 and 6 of the impugned order, it is evident that Ld. CIT(A) has not decided the legal ground no. 1 and 2 which was raised by the assessee before him. The extraction of relevant portion is as under:-
“5. Decision: The impugned assessment order was passed by the AO ex-parte u/s 147 r.w.s 144 read with section 144B of the Income-tax
Act. The appellant did not make any compliance to the notices issued by the AO. However, during the appellate proceedings, it has furnished voluminous detail and documents against the additions made by the AO. The appellant has also requested to accept additional evidences under rule 46A. All the documents filed by the appellant were not furnished before the AO during the assessment proceedings, therefore these details and documents require to be examined by the AO. In such circumstances and in view of the facts that the impugned assessment order was passed ex-parte by the AO, in my considered opinion, the interests of justice will be well-served, if the appellant is given an opportunity to present its case before the Assessing Officer. Accordingly, without any discussion on the merit of the case, the impugned assessment order is set aside and the matter is restored back to the file of the Assessing Officer for decision afresh. The Assessing Officer shall give proper opportunity to the appellant to present his case.
6. In the result, the impugned assessment order is set aside and the appeal of the appellant is allowed for statistical purposes.”
9. From the above, the question arises whether the matter could have been restored to the file of AO without deciding the validity of the reopening of the assessment order u/s 147/148 of the Act, despite the fact that legal grounds has been raised before the Ld. CIT(A). On similar facts, the Ld. Coordinate Bench of ITAT, Hyderabad in case of Eyegear Optics India (P) Ltd. vs. DCIT (supra) has decided the identical issue as under:-
12. Be that as it may, it is however a matter of fact borne from record that the assessee company in its "Ground of appeal No.2" before the Ld.CIT(A), had specifically assailed the validity of juri iction that was assumed by the AO for initiating the reassessment proceedings, on the ground, that the same was beyond the time limit prescribed under the "1st proviso" to section 147 of the Act. For the sake of clarity, the "Ground of appeal No.2" raised by the assessee company before the CIT(A) is being culled out as under:
"2. Initiating the reassessment proceedings beyond the time-limit prescribed under the first proviso to section 147 of the Act.
13. Admittedly, the legislature in all its wi om had vide the Finance
(No.2) Act 2024 w.e.f. 01.10.2024 inserted the "Proviso" to section 251(1)(a) of the Act, as per which the CIT(A) has been vested with the power to set-aside the assessment and refer the case back to the AO for making afresh the assessment, in a case, where the appeal filed before him is against the order of assessment made u/s 144 of the Act. For the sake of clarity, section 251(1) is culled out as under:
"251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers -
(a) In an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment.
Provided that where such appeal is against an order of assessment made under section 144, he may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment."
14. We are of the firm conviction that though the CIT(A) pursuant to the aforesaid amendment in Section 251 of the Act, now stands vested with the juri iction to set-aside and refer back a best judgment assessment order passed u/s 144 of the Act to the file of the AO for framing a fresh assessment, but the same cannot justify the refraining on his part from adjudicating the legal issues based on which the validity of the juri iction assumed by the A.O for framing the assessment or reassessment has been assailed before him. Rather, we find that as per
Section 251(1) of the Act, the CIT(A) in disposing of an appeal is vested with the power to confirm, reduce, enhance or annul the assessment.
based on the facts available on record, has assailed before the CIT(A) the validity of the juri iction that was assumed by the A.O for framing the impugned assessment or reassessment, then, if the said claim is found to be in order, the CIT(A) in the exercise of the powers vested with him under sub-section (1) of Section 251 of the Act is obligated to annul the assessment or reassessment rather than adopting an evasive approach, and in the garb of the powers vested with him as per the "Proviso" to Section 251(1) of the Act set aside and refer back the impugned best judgment assessment order passed u/s 144 of the Act for framing of fresh assessment by the AO. To sum up, the CIT(A) is obligated to address and adjudicate the grievance of the assessee appellant, as regards the validity of the juri iction assumed by the A.O for initiating the assessment or reassessment proceedings to the extent the same can safely be done based on the facts discernible from the record before him. Our aforesaid conviction can safely be gathered from the "Memorandum Explaining the Provisions in the Finance Bill, 2024", which to the extent relevant to the "Proviso" to Section 251(1) of the Act, reads as under:
"4. Considering the huge pendency of appeals and disputed tax demands at the Commissioner (Appeals) stage, it is proposed that the cases where assessment order was passed as best judgement case under section 144 of the Act, Commissioner (Appeals) shall be empowered to set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment.".
Although the "Proviso" to Section 251(1) is an enabling proviso that further vests juri iction with the CIT(A) to set-aside a best judgment assessment order, but, the same cannot be construed in a manner that the same, inter alia, takes away his power to annul an assessment or reassessment which is framed de hors valid assumption of juri iction by the A.O. As a word of caution, if a best judgment assessment or reassessment framed u/s 144 of the Act, despite an invalid assumption of juri iction by the A.O is set aside and referred back to his file by the CIT(A) for framing of a fresh assessment, then, impliedly the lack of juri iction by the A.O will be given a go by and the challenge of the assessee-appellant to the validity of the assumption of juri iction would stand frustrated. We are of the firm conviction that the purpose of insertion of the "Proviso" to Section 251(1) by the legislature vide the Finance (No.2) Act, 2024 w.e.f. 01.10.2024 can by no means be stretched to the extent of using it for validating an assessment or reassessment framed de hors valid assumption of juri iction by the A.O.
15. Adverting to the facts pertaining to the challenge thrown by the assessee company, qua the validity of the juri iction assumed by the AO for initiation of the reassessment proceedings, on the ground that the same was beyond the prescribed time limit as contemplated under the "1st Proviso" to section 147 of the Act, we are of the view that the Ld.CIT(A) ought to have adjudicated the same instead of adopting an evasive approach in the guise of exercise of the extended juri iction vested with him vide the "Proviso" to section 251(1)(a) of the Act as made available on the statute by the Finance (No.2) Act 2024 w.e.f.
01.10.2024. We find substance in the Ld. AR's contention that in case the lack of juri iction on the part of the A.O for framing the assessment is not addressed by the CIT(A), but, in the garb of the powers vested with him as per the "Proviso" to Section 251(1) of the Act the matter is referred back to the file of the AO for fresh adjudication, then, it would afford a second inning to the A.O who would simply give effect to the directions of the CIT(A) and reframe the re-assessment order despite lack of valid assumption of juri iction which was the very foundation for initiating the impugned proceedings.
16. Be that as it may, we are of the firm conviction that in the totality of the facts involved in the present appeal before us, the CIT(A) instead of summarily setting aside the matter to the file of the AO for making a fresh assessment, ought to have taken a call as regards the specific ground based on which the validity of the juri iction that was assumed by the AO for framing the reassessment was assailed by the assessee-appellant before him. Our aforesaid conviction that it is not obligatory on the part of the CIT(A) to set aside all best judgment assessment orders passed u/s 144 of the Act to the file of the AO is further fortified on looking at the language used by the legislature in the "Proviso" to Section 251(1) of the Act, i.e, ".may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment." which, thus, does not compulsorily require the CIT(A) to set aside and refer the assessment in every case where it is made u/s 144 of the Act.
17. We thus, in terms of our aforesaid deliberations set aside the order of the CIT(A), and restore the matter to his file with a direction to adjudicate the specific "Ground of appeal No.2" based on which the juri iction assumed by the A.O for framing the impugned reassessment order u/s 147 r.w.s 144 of the Act dated 16.12.2019 was assailed by the assessee appellant before him.
18. Before parting, we may herein clarify, that as we have in terms of our aforesaid observations set aside the matter to the file of the CIT(A), therefore, we have refrained from expressing any view, regarding the issues based on which validity of juri iction assumed by the AO for initiating the reassessment proceedings, and also the merits of the addition have been assailed by the assessee appellant before us. The Ground of appeal No.3 is allowed for statistical purposes in terms of our aforesaid observations.
10. Respectfully following the decision of the Coordinate
Bench of ITAT, we are of the considered opinion that Ld.
CIT(A) ought to have adjudicated the legal grounds No. 1
and 2 raised by the assessee, before restoring the matter to the file of AO to decide on merit and after considering the additional evidence submitted by the assessee first time produced before him Ld. CIT(A) should have decided the legal grounds with respect to reopening of the assessment u/s 147 r.w.s. 148 of the Act. Therefore, the impugned order suffers from illegality and is accordingly set aside and the matter is restored to the file of Ld. CIT(A) for deciding the legal grounds No. 1 and 2 raised by the assessee before Ld. CIT(A)after giving effective opportunity of hearing to the assessee who shall present its case before him within 60 days.
11. In the result, the appeal is accordingly allowed for statistical purposes in above terms.
Order pronounced in the open court on 20.08.2025. (OM PRAKASH KANT)
(RAJ KUMAR CHAUHAN)
ACCOUNTATN MEMBER JUDICIAL MEMBER

Mumbai, Dated 20/08/2025
Dhananjay, SPS

आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to :