SATISH KHANNA,CHENNAI vs. ITO, NCW-5(1), CHENNAI

“The Learned CIT(A) and Learned Assessing Officer have failed to understand the facts of the case at hand and have passed an arbitrary order which is prejudicial, illegal and against the principles of Natural Justice.

The Learned CIT(A) and Learned Assessing Officer have wrongly passed an order which is against the facts of the case and against evidence on record.

The Learned CIT(A) erred in law by upholding the reopening of the assessment u/s.147 of the Act, despite the fact that the proceedings were initiated based on incorrect and unverified information.

The Learned CIT(A) failed to appreciate that the validity of the notice issued u/s.148 of the Act is contingent on the Learned Assessing Officer forming a cogent “reason to believe” based on credible and tangible material, and initiating proceedings based on unverified information renders the notice invalid and the entire reassessment proceedings void.

Without Prejudice, the Learned CIT(A) erred in law by enhancing the scope of Assessment to the availability, form, and liquidation of the Appellant’s capital, which were never part of the Learned Assessing Officer’s original proceedings.

Without Prejudice, the Learned CIT(A) acted in contravention of Section 251 of the Act by attempting to enhance the assessment beyond the scope of the Assessment Order, despite multiple judicial precedents, including that of the Hon’ble Supreme Court, prohibiting such enhancement when the Learned Assessing Officer has not examined the matter during the original assessment proceedings.

Without Prejudice, the Learned CIT(A) failed to appreciate that enhancement u/s.251(1)(a) of the Act is confined to items expressly considered or examined by the Assessing Officer during the assessment and cannot extent to new sources of income, rendering the Appellate Order u/s.250 of the Act infructuous.

Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer erred in law by confirming the addition despite the Show Cause Notice being incorrect and failed to address the disparity between the breakup of deposits provided in the notice and the arbitrary addition made in the Assessment Order, violating the principles of Natural Justice.

Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer erred in law by arbitrarily adding

Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer unfairly overlooked the fact that the impugned cash components were duly recorded in the appellant’s books of account, thereby rendering the additions made u/s.69 A of the Act unwarranted.

Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer failed to realise that the Appellant had more than satisfactory cash in hand in support of the deposits made into his bank accounts.

Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer failed to realise that treating inter-bank transfers as unexplained credits resulted in arbitrary and double additions, which are unsustainable in law.

Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer unfairly overlooked the detailed evidence submitted by the appellant, including bank statements, financials, and partnership firm records, which substantiated the source of the cash deposits.

Without Prejudice, the Learned CIT(A) erred in law by confirming the best judgement assessment u/s.144 of the Act, despite the appellant having complied with all notices and provided substantial evidence.

Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer erred in law by arbitrarily rejecting the appellant’s submissions without providing valid reasons or contrary evidence.

Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer have erred by making arbitrary additions without undertaking right considerations or facts or submissions.

In brief, the assessee has raised as many as 16 grounds of appeal. However, the issues involved in all these grounds are challenging the order of the Assessing officer(AO) on the legal issue of validity of re-assessment proceedings as well as on merits of the additions.

The facts of the case are that the assessee is an individual and has filed his return of income for the AY 2015-16 declaring a total income of Rs.28,44,820/-. As per the information provided by the Insight Portal of the Income Tax Department, the assessee’s case was reopened for the assessment based on the information that the assessee deposited cash to the turn of Rs.2,57,38,972/- in his bank account. The case was reopened u/s.147 of the Income Tax Act, 1961, (hereinafter referred to as “the Act”) after recording reasons for reopening the assessment and obtaining necessary approval. The assessee was issued notice u/s148 of the Act on 31.03.2021 for AY 2015-16 where opportunity was provided to him to revise his return. Subsequently, various statutory notices were issued to the assessee calling for submitting requisite documents. In response, the assessee filed his return of income on 23.11.2021 admitting a total income of Rs.30,09,818/-. During the course of reassessment proceedings, the assessee was required to explain the source of cash deposit of Rs.3,76,45,045/- and in response assessee submitted a reply and reiterated that the source of the cash deposits is the amount withdrawn by the assessee from the partnership firm, M/s.K & B Hospitality which was stated by the assessee vide letter dated 07.03.2022. Upon perusal of the reply furnished by the assessee, the AO was not satisfied with the explanation offered. Consequently, the reassessment was completed under section 147 r.w.s 144 r.w.s 144B of the Act, vide order dated 28.03.2022, determining the total income of the assessee by making an addition of Rs.3,76,45,045/- as unexplained money u/s. 69A of the Act.

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A) on merits of the additions. However, the appeal of the assessee was set aside with a direction to AO to redo the assessment denovo by the ld. CIT(A). 6. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.

Before us, the ld.AR for the assessee submitted that the ld.CIT(A) has erred in setting aside the order of the AO u/s.147 r.w.s 144 r.w.s.144B of the Act for the AY 2015-16. The ld.AR submitted that the assessee is an individual and has filed his return of income for the AY 2015-16 declaring a total income of Rs.28,44,820/-. As per the information provided by the Insight Portal of the Income Tax Department, the assessee’s case was reopened for the assessment based on the information that the assessee deposited cash to the turn of Rs.2,57,38,972/- in his bank account. The case was reopened u/s.147 of the Act, and subsequently, the assessee was issued notice u/s.148 of the Act on 31.03.2021. In response, the assessee had filed his ITR, offering a total income of Rs.30,09,818/- for the relevant AY 2015-16. Upon receiving the reasons to reopen the assessment, the assessee raised objections regarding the finding of the alleged amount of deposits and requested a copy of the documents relied upon to arrive at such amount. The letter requesting copy of the documents relied upon to arrive at alleged amount of deposits filed before the AO dated 03.03.2022, is reproduced as under: -

In response to your reasons stated for reopening the assessment proceedings your goodself had stated that my client had cash deposit of Rs.2,57,39,972/- which is erroneous and is not related to our records, your goodself may kindly throw some light on your findings.

Hence, based on the above facts, it is hereby prayed that the data relied by your goodself is not related to us and the reopening based on the erroneous data may kindly be closed and thus render justice”.

The ld. AR submitted that assessee is challenging, inter alia, re- opening/re-assessment for AY 2015-16 on the legal issue and drew the attention of the bench to the fact that the AO has failed to dispose of the objections filed by the assessee to the recorded reasons, vide a separate speaking order, which was the mandate of law, as laid down by the Hon’ble Supreme Court in GKN Drive Shaft (India) Ltd vs ITO 259 ITR 19 (SC). He submitted that in the instant case, the AO has not considered and disposed of the objections of the assessee filed against the recorded reasons, as per mandate of law. He submitted that the procedure demands that the AO should dispose of the objections to the recorded reasons vide a speaking order, which should be distinct and separate from the assessment order, allowing the opportunity to the assessee to challenge the said order, if so :-7-: ITA. No.:415 /Chny/2025

We have heard the rival contentions, perused material available on record and gone through the orders of lower authorities along with the paper book and case laws relied by the assessee and ld. DR. In order to appreciate the contention of the ld. AR for the assessee on the preliminary issue challenging the validity of the reopening of assessment/reassessment proceedings, it is necessary to note that the AO failed to dispose of the objections filed by the assessee to the recorded reasons through a separate speaking order, as mandated by law. We observe that the case of the assessee

Hence, based on the above facts, it is hereby prayed that the data relied by your goodself is not related to us and the reopening based on the erroneous data may kindly be closed and thus render justice”

We find that despite assessee pleading for disposal of the objections by vide letter dated 03.03.2022 to pass a speaking order, nevertheless, the AO didn’t bother to pass the speaking order disposing off the objections before framing of the re-assessment dated 2 8 . 0 3 . 2 0 2 2 . However, it is noted that the AO has elaborately discussed and disposed off the objections raised by the assessee in the body of the reassessment which action of the AO is gross- defiance to the order of the Hon’ble Supreme Court in the case of M/s. GKN Driveshafts (India) Ltd. (supra) and against the Hon’ble Bombay High Court

Thus, we also note that Hon’ble Madras High Court (Division Bench) decision on 16.12.2020 in the case of CIT v. Janak Shanthilal Mehta (supra) has clearly held that omission on the part of the AO to follow the binding directions of the Hon’ble Supreme Court in the case of M/s.GKN Driveshafts (India) Ltd., would vitiate the re-opening of assessment and consequent re- assessment order passed u/s.147/143(3) of the Act has to be quashed. For completeness, we note the Hon’ble Madras High Court in the case of Home Finders Housing Ltd.(supra), wherein it has been held that non-compliance of the directions of the Hon’ble Supreme Court in the case of M/s.GKN Driveshafts (India) Ltd., would tantamount to irregularity and in such cases, the re-assessment be restored back to the file of the AO to pass speaking order on the objections raised by the assessee, nevertheless, we find that the order in the case of Home Finders Housing Ltd., (supra) was a decision rendered earlier to the decision held by the Hon’ble Division Bench in CIT v. Janak Shanthilal Mehta (supra) and in such an event i.e. when there are two conflicting views between the order of Hon’ble High Court of co-equal strength (of the same Court) then, later pronouncement of the Hon’ble Court is binding on us as :-10-: ITA. No.:415 /Chny/2025

Thus, in the light of the above discussion, we are of the considered view that the assessee succeeds on the legal issue that the AO failed to comply with the binding directions of the Hon’ble Supreme Court in the case of M/s. GKN Driveshafts (India) Ltd., before framing the reassessment order. The AO rejecting objections of the assessee against re-opening by merely doing so while passing the re-assessment order, wouldn’t come to the rescue of the Revenue because such an action of AO is noted to be in gross- defiance to the binding order of the Hon’ble Supreme Court; and the AO couldn’t have over reached the order of the Hon’ble Supreme Court by disposing off the objections while framing the re-assessment order, which defeats the purpose of such an exercise as discussed supra. Therefore, we hold that the omission on the part of the AO to comply with the directions of the Hon’ble Supreme Court in the case of M/s. GKN Driveshafts (India) Ltd., strikes at the root of the juri iction of the AO to re-open the assessment and consequent passing of reassessment order dated 28.03.2022 is held to be non-est in the in the eyes of law and all other grounds are academic and not adjudicated. Therefore, on the legal issue as discussed, we quash the re-assessment order dated 28.03.2022 passed u/s.147 r.w.s 144 r.w.s 144B of the Act for AY 2015-16. :-12-: ITA. No.:415 /Chny/2025

In the result, appeal filed by the assessee is allowed.

अपीलाथ%/Appellant 2. &यथ%/Respondent 3.आयकर आयु'त/CIT– Chennai/Coimbatore/Madurai/Salem 4. वभागीय त न*ध/DR 5. गाड- फाईल/GF