SMT KIRAN ANIL SHAH,MUMBAI vs. PRIN. COMM OF INCOME TAX -27, MUMBAI

3. The fact in brief is that assessment u/s 143(3) r.w.s 147 of the Act was finalized on 16.12.2019. The case was reopened by issuing of notice u/s 148 of the Act dated 30.03.2019 on the basis of information received from the DDIT(Investigation), Mumbai that Smt. Kiran Anil Shah proprietor of M/s Om Shree Enterprises was maintaining an account no. 002605004234 (ICICI Bank) and A/c no. 001912110000039 with Bank of India. It was stated that there was large value non cash transactions 3 Smt. Kiran Anil Shah Vs. PCIT-27 in the accounts. The transaction pattern shows credit by clearing transfer and debits by transfer, clearing and huge cash withdrawal. The total credits in the bank account of the assessee during the F.Y. 2011-12 was Rs.1,70,25,993/-. It was also submitted that the credit in the accounts were only from some parties i.e M/s Ashoka Buildcon Ltd and others and immediately after credits from these entities huge cash withdrawal were reflected in these accounts. It was also stated that the transaction pattern prima facie reflects provisions of accommodation entries and the total credit appearing in the bank account remained unexplained in the hands of the assessee. Therefore the case was reopened with a reason to believe that an amount of Rs.1,70,25,993/- being total credit in the bank account during F.Y. 2011-12 had escaped assessment. In response to the notice the assessee filed detailed submission that she was proprietor of M/s Om Shree Enterprises and engaged in the business of building material supplier. The assessee also explained that the transaction with M/s Ashoka Buildcon and M/s Realcon Infrastructure were sales transactions and furnished copies of ledger account. Further, during the course of assessment proceedings the assessee submitted the copies of ledger account, loan confirmation, sample copies of bills, delivery challan for supply of material etc. Further it was explained that the purchases were made from unregistered dealers and the withdrawal of cash was for the purpose of purchase of building material as per normal business practice for last many years. The assessee has also explained that the transactions which were in the nature of loan confirmation was dully filed. The necessary ledger account, bank statement and audited books of account were duly furnished which were verified and placed on record. After due verification the A.O has accepted the income declared in the return of income at A.Y. 2012-13 4 Smt. Kiran Anil Shah Vs. PCIT-27 Rs.5,62,880/- without making any addition on the issue on the basis of which the case of the assessee was reopened.

4. Thereafter the ld. Pr. CIT(A) issued show cause notice u/s 263 of the Act. The relevant part of the same has reflected at para 2.1 of the order u/s 263 is as under:

2.1 Subsequently it was noticed assessee's case was reopened on the basis of information of huge non-cash transactions and immediate cash withdrawals. As per Information received, assessce had not offered any explanation towards total credit of Rs.1,70,25,993/- During the assessment proceedings, assessee submitted that the credits reflected in her bank accounts were due to sales and the purchases of building materials from unregistered dealers in cash. Further, vide submission dated 11.12.2019 assessee said that she could not understand how the amount of Rs.1,70,25,993/- as pointed out by the department was arrived Out of total credit of Rs 2,98,09,063/ in her bank accounts, assessee shown an amount of Rs.59,41,038/- (Rs.29,32,038 Rs 30,09,000) received towards loan and Rs 38.00,000/- towards capital account. However, in the annual accounts assessee has shown loan to the extent of Rs 23,50,000/- only, Thus, assessee has shown short credit of loan amounting to Rs 35,91,038/- in annual accounts. During assessment proceedings, this issue was not reconciled.

The ld. Pr. CIT(A) further stated that the assessee has not complied with the show cause notice dated 04.03.2021 issued through ITBA. The ld. Pr.CIT(A) also mentioned in his order that in the absence of any submission from the assessee it is clear that assessee has nothing to submit on the issue of showing a short credit in the form of loans in annual account and applicability of provision of Sec. 40A(3) of the Act. Therefore, it is held that the order dated 16.12.2019 passed u/s 143(3) r.w.s 147 of the Income Tax Act 1961 was erroneous insofar as it was prejudicial to the interest of the revenue within the meaning of Sec. 263 of the Income Tax Act, 1961 and as the A.O failed to conduct proper enquiry.

“Reason for reopening of the assessment for AY. 2011-12 u/s 147 of the I.T Act, 1961.

4. Enquires made by the AO as sequel to Information collected/received: Preliminary enquiries and investigation has been done by the DDIT(Inv.)- 4(2) Mumbai. The same were verified along with ROI filed by the assessee. From verification of ROI filed by the assessee it is seen that the assessee has shown turnover of Rs.73,57,433/- and unsecured loans of Rs.23,50,000/-. Since during the investigation proceedings, Kiran Anil Shah could not offer any explanation and the above credits are not commensurate with the return of income filed by him, the total credits mentioned above remain unexplained in the hands of the Kiran Anil Shah. During the course of assessment proceedings the assessee had made detailed submission vide letter dated 02.12.2019 and letter dated 11.12.2019 in response to notices u/s 142(1) of the Act issued by the A.O on 24.05.2019 and 16.10.2019 respectively, the assessee has also furnished copy of bank account and explained that cash withdrawal was made from the bank specifically for the purpose of making purchases of material and building material from unorganized sector. The ld. Counsel submitted that A.O did not made any addition on the basis of which the case was reopened. The assessee had fully explained all the transactions as per query raised by the A.O. The ld. Counsel further submitted that even the order u/s 147 r.w.s 263 of the Act dated 04.02.2022 in consequential to order passed u/s 263 of the Act the A.O has accepted the explanation of the assessee for the short credit of loan with its reconciliation and no adverse inference was drawn. However, the A.O has made disallowance of cash payment u/s 40A(3) of the Act. In this regard the ld. counsel submitted that once no addition has been made by the A.O on the basis of which the case of the assessee was reopened then no further addition can be made subsequently u/s 263 of the Act. In this A.Y. 2012-13 7 Smt. Kiran Anil Shah Vs. PCIT-27 regard the ld. Counsel has placed reliance on the following judicial pronouncements:

“i. Aishwarya Rai Bachchan Vs. PCIT (194 ITD 272) ii. Hinal Estate Pvt. Ltd. Vs. PCIT in dated 08.03.2021 iii. K.R. Construction Vs. PCIT in ITA No. 7615/Mum/2019 dated 28.02.2020 iv. Indo Enterprise Pvt. Ltd. Vs. PCIT in ITA No. 751/Pun/2019 dated 11.01.2021 v. Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. (331 ITR 236) vi. Bombay High Court in the case of CIT Vs. Software Consultants (341 ITR 240)

With the assistance of the ld. representatives we have gone through the judicial pronouncements referred by the ld. Counsel. The relevant part of these judicial pronouncements of jurisdictional High Court and coordinate benches of the ITAT are reproduced as under: In the case of Aishwarya Rai Bachchan Vs. Pr.CIT-8, as under: i. One more excruciating fact that needs to be addressed in the instant case is that the ld. PCIT herein is only seeking to revise the order passed by the ld AO u/s 143(3) r.w.s 147 of the Act dated 12/12/2018. In the said reassessment proceedings, the Id AO had not even made any addition despite the fact that he had reason to believe that income of Rs.11,55,330/- had escaped assessment in the hands of the assessee which was sought to be taxed u/s 56 of the Act as per the reasons recorded. Hence, when the very basis of reasons recorded by the ld. AO was ultimately not added by the ld AO in the reassessment proceedings, then the primary reason to believe that income of the assessee had escaped assessment fails and such reassessment cannot be treated as a valid order in the eyes of law. The same is to be declared as void ab initio. Reliance in this regard was rightly placed on the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Jet Airways (I) Ltd [2010] 195 Taxaman 117/[2011] 331 ITR 236 (Bom) When an assessment framed by the ld. AO is unsustainable in the eyes of law, the said invalid and illegal order cannot be subject matter of section 263 proceedings. On this count also, the revision order passed by the ld. PCIT u/s 263 of the Act deserves to be quashed. In the case of M/s Hinal Estate Pvt. Ltd. Vs. Pr. CIT-10, as under: ii. In our considered view, as stated by the ld. A.R and rightly so, no when case of the assessee was reopened on a specific ground with respect to which no addition was thereafter made by the A.O while passing the reassessment order u/s Sec. 143(3) r.w.s 147, dated 13.11.2014, the Pr. CIT thereafter could not have held the said reassessment order as erroneous within the meaning of Sec. 263 of the Act, for the reason, that the AO had failed to make an addition as regards a stray issue which had never formed a basis for reopening of the 9 Smt. Kiran Anil Shah Vs. PCIT-27 assessee's case. In fact, we find that the Hon'ble High Court of Bombay in the case of CIT Vs. Jet Airways Limited (2010) 195 taxman 117 (Bom) had observed, that if no addition is made by the A.O while framing the assessment under Sec. 147 w.r.t the issue on the basis of which the case of the assessee was taken up for reassessment then, it would not be open to him to independently assess some other income. Accordingly, now when the AO had not made any addition w.r.t the issue on the basis of which the case of the assessee was reopened under Sec. 147 of the Act, the Pr.CIT could not have held the reassessment order to be erroneous, on the ground, that he had failed to make an as regards the issue which had never formed the basis for reopening of its case, despite the fact that no addition insofar the issue forming the basis for taking up the case of the assessee for reassessment was made by the A.O. In the case of K.R. Construction VS. Pr.CIT, Central 3, as under: “13. In this factual background, if you examine revision order passed by the PCIT u/s 263 of the Act, one needs to understand, whether the exercise of powers by the Ld. PCIT is within the scope of provision of section 263 of the I.T. Act, 1961. It is a settled position of law that if, no addition is made on the issue, for which reasons were recorded for reopening, no other additions can be made with respect to issues for which no reasons were recorded. The Hon'ble Bombay High Court in the case of CIT vs Jet Airways India Ltd. (2011) 331 ITR 236 has categorically held that if, the Ld. AO accepts the contention of the assessee and holds that the income for which, he had initially formed a reason to believe that it had escaped assessment, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income and if, he intends do so, a fresh notice u/s 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. A similar view has been expressed by the Hon'ble Rajasthan High court in case of shri Ram Singh (306 ITR 343) and Punjab & Haryana High Court in case of Allas Cycle Industries (180 ITR 319). The Hon'be Delhi High Court in case of Software Consultants (21 Taxmann.com 155) held that where the AO did not make any additions on issues in respect of which reasons were recorded for issue of notice u/s 148, a general inference is that the AO could not have made addition on account new issue and, thus Commissioner could not have exercised revisional jurisdiction. The sum and substance of ratios laid down by Hon'ble High Courts is that if, reasons recorded for reopening of assessment on a particular issue and in reassessment proceedings, no addition is made on this count, then the Ld AO is debarred from making any other additions, which he come across during reassessment proceedings. If you apply above legal principles to revision proceedings, the obvious inference is that when AO could not have made any additions other than the issues for which reopening is made, then the CIT could also have interefered with hose issues which are not subject matter of reassessment proceedings.” Hon’ble High Court of Bombay in the case of CIT-5, Vs. Jet Airways (I) Ltd. as under: “16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was Issued under section 148 setting 10 Smt. Kiran Anil Shah Vs. PCIT-27 out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147 An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.” Hon’ble High Court of Delhi in the case of CIT-II Vs. Software Consultants as under: 14. For exercise of power under Section 263 of the Act, it is mandatory that the order passed by the Assessing Officer should be erroneous and prejudicial to the interest of the Revenue In the present case the Assessing Officer did not make any addition for the reasons recorded at the time of issue of notice under Section 148 of the Act. This position is not disputed and disturbed by the Commissioner of Income Tax in his order under Section 263 of the Act Sequitur is that the Assessing Officer could not have made an addition on account of share application money in the assessment proceedings under Section 147/148. Accordingly, the assessment order is not erroneous. Thus, the Commissioner of Income Tax could not have exercised jurisdiction under Section 263 of the Act After following the ratio of judicial pronouncements as elaborated supra in the case of the assessee during the course of reassessment made u/s 143(3) r.w.s. 147 of the Act, when no addition was made regarding the item in respect of which reason were recorded for reopening of the assessment the Pr. CIT could not exercised his jurisdiction u/s 263 of the Act in order to bring other items of addition, therefore, we consider that the order passed u/s 263 of the Act is not justified. Accordingly, we allowed the appeal of the assessee.

11 Smt. Kiran Anil Shah Vs. PCIT-27 8. In the result, the appeal of the assesse is allowed.