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Facts
The assessee, an individual, received income from house property and other sources but did not file a return. The AO initiated reassessment proceedings under section 147, treating certain loan amounts and interest payments as unexplained cash credit. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the reassessment order was passed without sufficient opportunity to the assessee and on surmises. The CIT(A) also failed to provide an opportunity to file additional evidence. The Tribunal set aside the orders of the AO and CIT(A).
Key Issues
Whether the reassessment proceedings were validly initiated after the substitution of Section 147 and whether the addition for unexplained cash credit was justified without providing adequate opportunity to the assessee.
Sections Cited
147, 144B, 148, 148A, 142(1), 24(b), 68, 234A, 234B, 46A
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Income Tax Appellate Tribunal, SMC-‘B’ BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 26/06/2024 in respect of the A.Y. 2015-16 and raised the following grounds: “
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in upholding the impugned order passed u/s.147 rws 144B of the Act dated 25/03/2022 by the A.O. which is bad in law and void-ab-initio in as much as, the said assessment u/s.147 of the Act, has been made after the substitution of section 147 of the Act, by the Finance Act, 2021 w.e.f. 01/04/2021 and consequently, the impugned order passed under the erstwhile provisions of section 147 of the Act, is a nullity since, the said provisions do not exist in the statute after substitution and consequently, the order passed deserves to be annulled. 2.1 The learned CIT[A] ought to have appreciated that the erstwhile provisions of section 147 of the Act, have been substituted by the Finance Act, 2021 without any saving clause to enable continuation of the proceedings pending on the date of substitution of the provisions of section 147 of the Act and consequently, no assessment could be framed u/s.147 of the Act, since the substituted provisions of section 147 of the Act, empower the A.O. to frame an assessment only subject to the provisions of section 148 and 148A of the Act and consequently, the impugned order passed without a statutory provision in the statute on the date of passing the assessment order is a nullity.
Without prejudice to the above. the order of re- assessment is bad in law and void-ab-initio for want of requisite jurisdiction especially. the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with and consequently, the re-assessment requires to be cancelled.
The Appellant denies himself liable to be assessed on a total incorne of Rs. 46,39,750/- as determined in the impugned order as against the income reported of Rs. 28,73,750/- by the appellant under the facts and in the circumstances of the appellant's case.
5. The learned CIT[A] is not justified in upholding the addition a sum of Rs.16 66,000/- as unexplained cash credit u/s.68 of the Act. under the facts and in the circumstances of the appellant's case.
6. Without prejudice to the right to seek waiver with the Honble CCIT/DG, the appellant denies himself liable to be charged to interest u/s 234-A and 234-B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice
rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The brief facts of the case are that the assessee is an individual and received income from house property and other sources but not filed their return of income. Based on the information received by the AO and also based on the amounts credited to the assessee, revision proceedings u/s. 147 was initiated. The AO issued a notice u/s. 148 of the Act for which the assessee filed his return of income on 25/11/2022 declaring a total income of Rs. 28,73,750/-. Thereafter, notice u/s. 142(1) was issued seeking the details about the cash receipts of Rs. 1,54,41,303/-. The assessee filed their reply and also filed the various documents to show that the loan was obtained from the banks and construction was completed for which the assessee had paid the interest. The assessee also submitted the construction agreement as well as the communications about the sanction of the loan to the assessee from the Canara Bank and Punjab National Bank. On going through the said computation, the AO noticed that assessee’s main source of income is income from house property and also noticed that the assessee had claimed deduction under Chapter VIA being the repayment of the principal amount even though the assessee had not constructed the building for his own use but only for letting out the same. Further, the AO sought for the details about the payment of interest Rs. 2 Lakhs to his relatives on the hand loan which was claimed by the assessee as deduction u/s. 24(b) of the Act. The AO not accepted the repayment of the principal and also sought for the details of the relatives from whom the hand loan was obtained in order to verify the genuineness of the transaction. The AO also sought for the details about the PAN of the relative along with the evidence of filing their return of income, otherwise the said loan amount would be treated as unexplained cash credit u/s. 68 of the Act. The assessee thereafter filed their objections in which the assessee explained the details sought for by the AO. The AO after going through the objections had accepted the repayment of principle amount since the same has been inadvertently shown as principle amount but actually it is the payment of LIC premium for the assessee and his children. With regard to the payment of interest paid to his relative, the AO estimated the principle amount by applying the reasonable rate of interest at 12% and a sum of Rs. 16,66,000/- was added back to the income of the assessee u/s. 68 of the Act. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and raised several legal grounds and also the grounds on merits. The Ld.CIT(A) had not accepted the case of the assessee and dismissed the appeal on merits. As against the said order, the present appeal has been filed before this Tribunal.
3. At the time of hearing, the Ld.AR filed a paper book in which the various documents were enclosed. The Ld.AR further submitted that the estimation of income based on the payment of interest u/s. 68 of the Act is not correct when the AO had accepted the payment of interest to his relatives and granted the necessary deduction. The Ld.AR further submitted that the assessee had furnished all the details sought for by the AO and therefore in the absence of any other evidence, the addition made u/s. 68 is unwarranted. The AO further submitted that the assessee had acquired the property in the earlier assessment years and therefore the assumption of borrowing the loan from the assessee’s wife during the year in dispute does not arise and therefore on that basis no addition could be made u/s. 68 of the Act. The Ld.AR also take us through the statement of facts filed before the Ld.CIT(A) and in paragraph 6.3, the assessee had sought for an opportunity to file the additional evidences under rule 46A of the Rules at the time of hearing of the appeal but unfortunately the Ld.CIT(A) without granting such an opportunity had passed the order, therefore the same is liable to be set aside.
4. The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.
We have heard the arguments of both sides and perused the materials available on record.
The assessee had raised the ground nos. 2 and 3 which are all the legal grounds but at the time of hearing, the Ld.AR submitted that they are not pressing the said legal grounds and therefore the said grounds are dismissed as not pressed.
7. Insofar as the other ground nos. 4 and 5 are concerned, let us first go through the assessment order in which the AO had estimated the principle amount based on the interest paid to his wife. From the assessment order, we are able to see that the said interest payment was claimed as deduction u/s. 24(b) of the Act in the computation of income filed by the assessee but the AO had allowed the said interest payment as deduction but unfortunately estimated the principle amount borrowed by the assessee from his wife. It is the case of the assessee that the construction was completed long back by obtaining loans from banks and also loan obtained from his wife and therefore the assessee contended that the loan amount could not be treated as unexplained cash credit during the AY in question. Further, we have also perused the statement of facts filed by the assessee along with the appeal filed before the Ld.CIT(A), in para 6.3, the assessee had averred as follows: “6.3 That apart, it is submitted that the appellant has the available supporting documentary evidences and confirmations, which he undertakes to submit as additional evidence in terms of Rule 46A of the IT Rules, 1962. The appellant also craves your Honour's leave to file detailed written submissions along with additional evidence under Rule 46A of the I.T. Rules, if any, for appreciating the grievances of the appellant on or at the time of hearing of the appeal. Hence, the addition made deserves to be deleted. It is prayed accordingly.”
On going through the said contention, the assessee wanted to file some additional documentary evidences and confirmations and undertook to file the same as additional evidence in terms of Rule 46A of the Rules and sought for the permission of the Ld.CIT(A) to file a detailed written submissions along with the additional evidences but unfortunately the Ld.CIT(A) had decided the appeal without granting an opportunity as sought for by the assessee in the statement of facts. Further, it is not clear based on the orders of the authorities whether the loan amount has been obtained during the current year or in the earlier years as stated by the assessee. There is also no finding by the AO in respect of the same. The assessing officer considered the payment of interest and on that basis, estimated the loan amount and treated the same as unexplained cash credit u/s. 68 of the Act. Therefore the said addition is merely based on surmise for which the AO has no materials to substantiate the same. The AO had also not made further enquiries in order to ascertain whether the loan amount was obtained in the year in dispute or in the earlier year when the construction was going on but simply estimated the loan amount and made the said amount as an addition u/s. 68 of the Act.
In our view, the above said finding of the authorities are not correct and it requires a detailed verification. If the assessee is able to show that the loan amount was obtained in the earlier years, the said loan amount would not be treated as an unexplained cash credit during the current AY. The Ld.CIT(A) also not granted sufficient opportunity to the assessee, as prayed for in paragraph 6.3 of the statement of facts, but confirmed the order of the AO. Therefore the order of the Ld.CIT(A) is also against the principles of natural justice and therefore we are setting aside the order of the Ld.CIT(A) as well as the AO and remit the issue to the A.O. with the direction to consider the issue afresh after receiving the additional documents if any to be filed by the assessee and also after granting a reasonable opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 25th February, 2025.