1. MR. KAILASH KANHAIYALAL GIDWANI, 2. MR. SUNIL KANHAIYALAL GIDWANI, 3. MR. AMIT KANHAIYALAL GIDWANI, L/H OF LATE DEVI KANHAYALAL GIDWANI,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME-TAX, SANGLI

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the order dated 31-01-2014 passed by the Commissioner of Income-tax (Appeals), Kolhapur in relation to the assessment year 2009-10.

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Officer (AO) initiated re-assessment by means of notice u/s.148 of

the Income-tax Act, 1961 (hereinafter also called `the Act’) which

was issued on 19-03-2012 alleging that the source of loan given by

the assessee to Kanhaiyalal Vishandas Gidwani to the tune of

Rs.7.00 lakh was not substantiated. The assessee filed return in

response to such notice and then sought reasons leading to the

issuance of notice u/s.148. Objections were raised after receiving

the reasons, which were dealt with by the AO by means of a

separate order. Thereafter, the AO espoused the assessment

determining total income at Rs.46,03,300/- as against the returned

income of Rs.9,96,340/-. The assessee, inter alia, challenged the

initiation of re-assessment before the ld. CIT(A) but without success

and thus is now aggrieved before the Tribunal.

material on record. The reasons which led to the issuance of notice

u/s.148, a copy supplied on page 9 of the paper book, read as under:

“According to information gathered from informed sources, local enquiries and media reports, it has come to be known that Shri Kanhaiyalal Gidwani, owns three flats, one in his name and two in the names of his two sons - Kailash and Amit in the Adarsha Housing Society. Again, one flat is learned to be booked in the name of Shri Gajanan S. Koli, where apparently it is believed that Shri Sunil K. Gidwani, son of Kanhiyalal Gidwani, has lent finance to purchase the same. All payments for the same were apparently made through

3 ITA No.769/PUN/2014 Mr. Kailash Kanhaiyalal Gidwani and others

Gidwani Family's various bank accounts in which apparently cash amounts were deposited and the same were transferred into the accounts of Gidwani's wife, son and daughter-in-law in HDFC Bank at Worli. Thereafter the said amounts were apparently transferred into the account of M/s Jay Maharashtra CPL, HFDC Bank, Worli, in which Gidwani's sons are directors for making payments towards cost of the flats. On verification, it is seen that Shri Kanhaiyalal Vishandas Gidwani has taken interest free loan of Rs.500,000 on 08-03-2007 and Rs.200,000 on 25-11-2008 from the assessee Smt. Devi Gidwani. Genuineness of all these loans is not proved. The sources of the loans advanced by Sou. Devi Gidwani are not substantiated. Therefore, in view of the above, I have reasons to believe that the income chargeable to tax has escaped assessment within the meaning of s ection 147 of the I. T. Act, 1961.”

para talks of Kanhaiyalal Gidwani acquiring three flats, one in his

name and two in the names of his sons in Adarsha Housing Society,

which has no relation with the assessee in question. Second para

relates to the assessee as per which Kanhaiyalal Vishandas Gidwani

took two interest free loans of Rs.5.00 lakh and Rs.2.00 lakh from

the assessee on 08-03-2007 and 25-11-2008. The first loan of

Rs.5.00 lakh is dated 08-03-2007, which transaction falls in the

previous year ending 31-03-2007 with the relevant assessment year

2007-08 and hence, is not relevant for the assessment year 2009-10

under consideration.

lakh which as per the AO was given by the assessee to Kanhaiyalal

4 ITA No.769/PUN/2014 Mr. Kailash Kanhaiyalal Gidwani and others

Vishandas Gidwani. Here, it is relevant to mention that the assessee

filed her original return of income on 31-03-2010, much before the

initiation of section 147 proceedings, declaring total income of

Rs.9,96,340/-. Copy of acknowledgement of income-tax return has

been placed at page 3 of the paper book. The computation of

income is at pages 1 & 2 of the paper book. The assessee’s Profit

and loss account and Balance sheet find place at pages 5 & 6 of the

paper book. It can be seen from the assessee’s Profit and loss

account that there is net profit of Rs.10,89,380/-. The same amount

has been carried to the assessee’s capital account, whose copy is

available at page 7 of the paper book. Net closing balance of

Rs.32,33,246.34 in the capital account has been taken to the balance

sheet. It is with reference to these Annual accounts that the assessee

filed the original return on 31-03-2010 declaring total income of

Rs.9,96,344/-. In the said balance sheet of the assessee, which

accompanied the original return of income, there is depicted a loan

liability in favour of Kanhaiyalal V Gidwani at Rs.17,68,500/-.

Copy of account of Kanhaiyalal Vishandas Gidwani has been

placed at page 25 of the paper book, which shows opening credit of

balance of Rs.20.00 lakh. Then there are two payments made by the

assessee to Kanhaiyalal Vishandas Gidwani through HDFC bank

5 ITA No.769/PUN/2014 Mr. Kailash Kanhaiyalal Gidwani and others

amounting to Rs.2.00 lakh and Rs.31,500/- with closing balance of

Rs.17,68,500/-, which finds place in the assessee’s balance sheet

filed with the original return of income.

the assessee did not advance any loan to Kanhaiyalal Vishandas

Gidwani amounting to Rs.2.00 lakh as has been alleged in the

reasons. On the contrary, it is a case of repayment of loan of

Rs.2.00 lakh as against the opening balance of loan of Rs.20.00

lakh. The reasons noted by the AO that it was a case of advancing

loan by the assessee to Kanhaiyalal Vishandas Gidwani, is

therefore, not correct to that extent. Be that as it may, the substance

of the reasons is that “the sources of the loans advanced by Sou.

Devi Gidwani are not substantiated”. This is the main reason

which led to the initiation of re-assessment proceedings in the hands

of the assessee. We are unable to find any justification for initiation

of re-assessment on such ground as it is a case where the assessee

had made repayment of loan out of regular books of account

maintained by her. As against the opening balance of Rs.20.00

lakh, the assessee paid Rs.2.00 lakh vide cheque dated 25-11-2008.

This transaction was properly recorded in the assessee’s books of

account. The assessee is payer and not the recipient of loan. Once

6 ITA No.769/PUN/2014 Mr. Kailash Kanhaiyalal Gidwani and others

the assessee paid Rs.2.00 lakh to Kanhaiyalal Vishandas Gidwani

out of her regular books of account, there cannot be any question of

the assessee not substantiating the source of loan, which is overtly

from the regular books of account maintained by her. This sort of

enquiry, if warranted, ought to have been conducted in the hands of

the recipient to justify the source of the loans received and not the

payer of the loan, who has given loan out of her regular books of

account. In view of the foregoing discussion, it is clear that the

reasons recorded by the AO for initiating re-assessment proceedings

are invalid and do not justify initiation of re-assessment.

143(1) of the Act and the period of four years from the end of the

assessment year had not expired before issuing notice u/s 148 of the

Act, still, the AO, having missed the opportunity of making

assessment u/s 143(3) after issuing notice u/s 143(2) of the Act

within the stipulated period, could have made assessment or

reassessment u/s 147 only on the basis of the some reasons to

believe about the escapement of income. Existence of reasons for

escapement of income are sine qua non to embark upon the

assessment or reassessment u/s 147 of the Act. Change or no change

of opinion, as argued by the ld. DR, are the factors to be considered

7 ITA No.769/PUN/2014 Mr. Kailash Kanhaiyalal Gidwani and others

after fulfilling the jurisdictional condition of there being an

escapement of income, in the absence of which no assessment or

reassessment can be made u/s 147. As it is apparent from the above

discussion that no valid reasons exist about the escapement of the

assessee’s income, we hold that the AO was not justified in taking

recourse to the provisions of section 147 of the Act. We, therefore,

strike down the initiation of assessment proceedings and the

consequential assessment order passed u/s 147 of the Act and also

the impugned order.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 11th September, 2019 सतीश आदेश क� क� क� �ितिल क� �ितिल �ितिलिप �ितिल िप अ�ेिषत अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश िप िप 1. अपीलाथ� / The Appellant; ��यथ� / The Respondent; 2. 3. The CIT(A), Kolhapur 4. The CIT-I, Kolhapur िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “बी / 5. DR ‘B’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.769/PUN/2014 Mr. Kailash Kanhaiyalal Gidwani and others

Date 1. Draft dictated on 09-09-2019 Sr.PS 2. Draft placed before author 11-09-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *