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Facts
The assessee, a Managing Director, had deposited a significant amount of cash into his bank account. The Assessing Officer (AO) found that the cash withdrawal during the same period was much lower, making the source of the deposit unexplained. The AO also added an unsecured loan from a related company as unexplained cash credit. The CIT(A) upheld the AO's additions.
Held
The Tribunal held that the reopening of assessment was not legally sustainable due to non-compliance with the mandatory requirements of Section 151(2) of the Income Tax Act, 1961, as the sanction for reopening was not obtained from the competent authority (Joint Commissioner). Therefore, the additions made by the AO were deleted.
Key Issues
Whether the reopening of assessment beyond four years was valid when the sanction was obtained from an authority not competent under Section 151(2) of the Income Tax Act, 1961.
Sections Cited
250, 69A, 68, 271(1)(c), 148, 142(1), 2(22)(e), 147, 143(3), 151(2), 234B, 2(28C), 117(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: MS. PADMAVATHY S & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of Learned Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre, Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 13.02.2024 for the A.Y. 2012-13 wherein the additions made by AO of Rs. 34,60,000/- u/s 69A of the Act and Rs. 30,16,343 u/s 68 of the Act was confirmed by Ld. CIT(A).
The brief facts of the case are that, the assessee is Managing Director of M/s Domech Fabricators Pvt. Ltd. from where he is getting remuneration of Rs. 24 lakhs during the F.Y. 2016-17. The return of income for AY 2012- 13 was filed on 18.07.12 declaring total income of Rs. 22,01,115/-. As per the details available with the department, the assessee had deposited cash in his bank account for Rs. 34.60 lakhs during FY 2011-12. An information was received from DIT(I&CI), Pune, the total cash withdrawal during F.Y. 2011-12 was Rs. 14.67 lakhs only. Thus the sources of balance cash deposit are remained unproved. The revenue authorities after recording proper reasons, notice u/s 148 of the Act was issued on 12.12.18 which was duly served upo0n the assessee. In response, the assessee vide letter dated 10.01.19 stated that the return of income for AY 2012-13 filed on 18.07.2012 declaring total income of Rs. 22,01,115/- may be treated as return filed in response to notice u/s 148 of the Act. Further the assessee in response to notice u/s 142(1) of the Act, submitted the details of sources of cash deposit made into his bank account during the FY 2011-12. The assessee has Page | 2 submitted the cash withdrawal of last 3 years i.e. from FY 2009-10 ranging Rs. 500/- to 1000/- stating the said amount was re-deposited into bank in the relevant year. It was explained by the assessee that the cash was re- deposited which was withdrawn during previous years and submitted the details of bank statement of the said withdrawal. However, the AO was of the view that assessee has failed to explain the huge cash withdrawal and also why the said amount have not been used for purpose it was withdrawn and if sufficient cash was available to the assessee on prior dates, why there is again huge cash withdrawal on subsequent dates without incurring any expenditure. Therefore, the AO found that the source of the said amount of Rs. 34,60,000/- remained unexplained, accordingly made addition u/s 69A of the Act. Penalty proceedings u/s 271(1)(c) for concealment of income is separately initiated.
During the course of re-assessment proceeding for AY 2012-13, the assessee had submitted copy of balance sheet as on 31.03.2012. On perusal of the balance sheet, AO noticed that an amount of Rs. 30,16,343/- was shown as unsecured loan from M/s Domech Fabricators Pvt. Ltd. wherein the assessee is one of the directors holding more than 10% of shares during F.Y. 2011-12. When asked to explain about the legality of the said unsecured Page | 3 loans, the assessee vide letter dated 20.11.2019 submitted that the trade advance amount of Rs. 30,16,242/- was received from M/s Domech Fabricators Pvt. Ltd. towards business purposes as he was the director of the company. Assessee further explained that the purpose of the trade advance was purely for Business expansion and in order to purchase a plot at Khalapur for Godown so that raw materials and finished fabricated goods can be kept and the deal was executed in the next year and in this regard has enclosed copy of the agreement. Therefore, assessee submitted that the provision of deemed dividend u/s 2(22)(e) is not attracted in his case. The AO did not agree with the contentions of the assessee and made addition of Rs. 30,16,343/- u/s 68 of the Act stating unexplained cash credit. AO further observed that in AY 2012-13, the assessee had shown unsecured loan from the company and the authenticity and genuineness of loan transactions comes under the purview of suspicion as assessee has not furnished the return of income of the lender company. However, the assessee has submitted the copy of balance sheet on 31.03.2011 and as on 31.03.2012 wherein it has been clearly mentioned unsecured loans from Domech Fabricators Pvt. Ltd. at Rs. 23,40,699/- and Rs. 30,16,343/- respectively.
4. The said order of the AO was challenged by assessee before the Ld. CIT(A) who dismissed the appeal of the assessee and confirmed the order of AO by observing that no cogent explanation was furnished by the assessee in respect of cash deposit and nature of source of money. Ld. CIT(A) further observed that the explanation of the assessee before the AO shows that the assessee had not explained the transactions of cash withdrawals and deposits in a precise manner. Regarding the other addition of Rs. 30,16,343/-, Ld. CIT(A) observed that assessee had not substantiated the genuineness of the loan transactions by making proper documentary evidences viz. copies of the returns of income of the lender company, along with their audited financial statements, copies of the bank accounts of the lender companies and the affidavits of the directors of the lender companies wherein they had confirmed the loan transactions.
Aggrieved by the impugned order, the assessee preferred the appeal before us raising the following revised grounds:-
The Learned CIT(A) erred in law and on facts confirming the assessment order passed by the Learned A.O. u/s. 147 r.w.s 143(3) of the I.T. Act, 1961. a. The Learned A.O. erred in not obtaining the Sanction u/s. 151(2) of the Jt/Addi CIT. instead of obtaining the sanction of Principle CIT. which is bad in law. Page | 5 b. The Learned A.O. erred in issuing the notice u/s.148 by borrowing satisfaction and not on his own satisfaction.
2. The Learned CIT(A) erred in law and on facts confirming the Computation of Income at Rs.86,77,460/ as against Rs.22,01,115/- as declared by the appellant.
3. The Learned CIT(A) erred in law and on facts confirming the addition of Rs.34,60,000/- on account of Cash deposited during the year under consideration.
The Learned CIT(A) erred in law and on facts in confirming the order of the Learned A.O. in invoking Section 69A of the Income Tax Act, 1961 in respect of redeposit out of withdrawals and opening balances.
5. The Learned CIT(A) erred in law and on facts the action of the A.O. in making addition out of the Books of Accounts, without rejection of Books of Accounts.
6. The Learned CIT(A) erred in law and on facts in the action of the Learned A.O. in making an addition u/s. 68 of the I. T. Act, 1961 of Rs. 30,16,343/- when the assessee received the same from M/s. Domech Fabricators Pvt. Ltd. Towards trade advances for the Business Expansion.
7. The Learned CIT(A) erred in law and on facts confirming the Order of the Learned A.O. reopening the case of Cash Deposit of Rs.34,60,000/- and the same was recorded for the reasons for reopening the case while issuing notice u/s.148 and making other additions is bad in law.
8. The Learned CIT(A) erred in law and on facts in confirming the action of the Learned A.O. in concluding that Opening Cash Balance of Rs.25,64,900/- will not be accepted unless it is declared in the Wealth Tax Return, when the assessee is not liable to Wealth Tax at all.
9. The Learned CIT(A) erred in confirming the interest levied u/s. 234B of the Income tax Act, 1961 at Rs. 18,79,623/-.
It is prayed that the additions made may please be deleted or in the alternative the assessment be set aside.
The appellant craves leave to add, alter or delete all or any of the foregoing grounds of appeal before or at the time of hearing..
We have heard Ld. AR and Ld. DR and carefully examined the record. Ground no. 1 is the legal ground wherein the assessee has challenged the reopening of assessment u/s. 147 r.w.s. 143(3) of the Act. It has been submitted by Ld. AR on behalf of the assessee that notice issued u/s 148 is not legal as the approval has not been given by the competent authority as required in section 151(2) of the Act. Therefore, we proceed to decide the legal ground first and if found necessary, then we will proceed to decide the other grounds on merits.
7. At the outset, Ld. AR submitted that the notice issued on 10.09.2018 u/s 148 of the Act was beyond 4 years from the expiry of the concerned assessment year. It is further submitted by Ld. AR that section 151(2) of the Act provides that sanction for reopening of assessment after 4 years was required to be given by the Joint Commissioner, but the sanction in this case has been given by Pr. CIT, Thane. It is therefore argued by Ld. AR that the said sanction for reopening is bad in law because the Pr. CIT was not the competent authority. Ld. AR relied on the judgment of Hon’ble Bombay High Court in the case of Ghanshyam Khabrani vs. ACIT (2012) 346 ITR 443 (Bom).
On the other hand, Ld. DR supported the judgment of lower authorities stating that reopening was valid and the additions were made as per law, accordingly the appeal is liable to be dismissed.
We have considered the rival submissions of the parties and also gone the relevant provisions of Income Tax Act. Before proceeding, it is necessary to see the provisions of section 151(2) of the Act which was applicable for the A.Y. 2012-13 at the time of reopening of assessment after expiry of 4 years. The relevant provision is reproduced below:-
Section 151(2) reads as under:
(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of [Joint] Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the [Joint] Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.] [Explanation.- For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.]
It is evident from the record that at the time of accepting the return of income filed by the assessee, the case was not considered u/s 143(3) of the Act, therefore section 151(2) is applicable for reopening beyond the period of 4 years. From perusal of the above provision of section 151(2) of the Act, it is clearly mentioned that “No notice shall be issued u/s 148 of the Act by an AO who is below the rank of Joint Commissioner, after the expiry of 4 years from the end of relevant assessment year, unless the Joint Commissioner is satisfied on the reasons recorded by such AO, that is a fit case for the issue of such notice.” Whereas, the AO in this case has obtained sanction by Pr. CIT, Thane. We find support from the judgment of Hon’ble Bombay High Court in the case of Ghanshyam Khabrani vs. ACIT (supra) and the relevant observation of Hon’ble High Court are as under:-
The second ground upon which the reopening is sought to be challenged is that the mandatory requirement of Section 151(2) has not been fulfilled. Section 151 requires a sanction to be taken for the issuance of a notice under Section 148 in certain cases. In the present case, an assessment had not been made under Section 143(3) or Section 147 for A.Y. 2004-05. Hence, under sub section 2 of Section 151,no notice can be issued under Section 148 by an ASN 11 WP- 1246.sxw Assessing officer who is below the rank of Joint Commissioner after the expiry of 4 years from the end of the relevant Assessment Year unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.
The expression "Joint Commissioner" is defined in Section 2(28C) to mean a person appointed to be a Joint Commissioner of Income Tax or an Additional Commissioner of Income Tax under Section 117(1). In the present case, the record before the Court indicate that the Assessing Officer submitted a proposal on 28 March 2011 to the CIT(1) Thane through the Additional Commissioner of Income Tax Range (I) Thane. On 28 March 2011, the Additional CIT forwarded the proposal to the CIT and after recording a gist of the communication of the Assessing Officer stated that :
As requested by the A.O. Necessary approval for issue of notice u/s. 148 may kindly be granted in the case, if approved.
On this a communication was issued on 29 March 2011 from the office of the CIT (1) conveying approval to the proposal submitted by the Assessing officer. There is merit in the contention raised on behalf of the Assessee that the requirement of Section 151(2) could have only been fulfilled by the satisfaction of the Joint Commissioner that this is a fit case for the issuance of a notice under Section 148. Section 151(2) mandates that the satisfaction has to be of the Joint Commissioner. That expression has a distinct meaning by virtue of the definition in Section 2(28C). The Commissioner of Income Tax is not a Joint Commissioner within the meaning of Section 2(28C). In ASN 12 WP-1246.sxw the present case, the Additional Commissioner of Income Tax forwarded the proposal submitted by the Assessing Officer to the Commissioner of Income Tax. The approval which has been granted is not by the Additional Commissioner of Income Tax but by the Commissioner of Income Tax. There is no statutory provision here under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner. In a similar situation the Delhi High Court in Commissioner of Income Tax Vs. SPL'S Siddhartha Ltd. (ITA No.836 of 2011 decided on 14 September 2011) held that powers which are conferred upon a particular authority have to be exercised by that authority and the satisfaction which the statute mandates of a distinct authority cannot be substituted by the satisfaction of another. We are in respectful agreement with the judgment of the Delhi High Court.
In view of the findings which we have recorded on submissions (i), (ii) and (iv), it is not necessary for the Court to consider submission (iii) which has been urged on behalf of the Assessee. Once the Court has come to the conclusion that there was no compliance of the mandatory requirements of Section 147 and 151(2), the notice reopening the assessment cannot be sustained in law.
For these reasons, we are of the view that the petitioner would be entitled to succeed. Rule is made accordingly absolute by ASN 13 WP-1246.sxw quashing and setting aside the impugned notice dated 30 March 2011. There shall be no order as to costs.
It is evident from the above extracts that the facts and circumstances of the case relied by the assessee are almost similar to the facts of the case in hand. Therefore respectfully following the above judgment of Hon’ble Bombay High Court, the impugned order of Ld. CIT(A) is not legally Page | 11 sustainable because there was non-compliance of the mandatory requirements of section 151(2) of the Act, therefore the notice for reopening the assessment is not legally sustainable in the eyes of law. Accordingly the order of Ld. CIT(A) is set aside and the additions made by AO are hereby deleted. Resultantly, the ground no. 1 raised by the assessee is allowed.
Since we have allowed ground no. 1, the other grounds raised by the assessee becomes infructuous.
In the result, the appeal is accordingly allowed in the above terms.
Order pronounced in the open court on 04.04.2025.