ASSISTANT COMMISSIONER OF INCOME-TAX, MADURAI vs. RAMASUBBU MINNALKODI, TIRUNELVELI

Accordingly, notice u/s.143(2) of the Act was issued on 29.06.2021, followed by notice u/s.142(1) of the Act.

:-3-: ITA. No: 1632/Chny/2025 bill for Rs.800/- as against the actual sale price of Rs.1,450/-. He further stated that it was the regular practice of the assessee to issue bills for a lower value.

In her sworn statement recorded during the survey, the assessee admitted the total turnover for the relevant assessment year, as on the date of survey, at Rs.6,64,76,379/-, and further agreed to offer 8% thereof, amounting to Rs.53,18,110/-, as her business income.

Consequently, in her sworn statement, the assessee accepted the said sum as income on account of unexplained unsecured loans for the A.Y.2020-21.

However, this declaration was not in consonance with the statement made by the assessee during the course of the survey, wherein she had undertaken to offer a total sum of Rs. 1,10,78,010/- which included estimated business income of Rs.53,18,110/- and unsecured loans of Rs.57,59,900/-. Accordingly, the AO noted a shortfall of Rs.87,78,510/- between the income admitted in the return of income and the amounts indicated by the assessee during the survey proceedings. In view of the foregoing, the assessee was issued a show cause notice calling upon to explain as to why the said difference should not be brought to tax under the provisions of the Act.

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According to the AO, statements were recorded from one of the purchasers, Shri Isakkiraja, who confirmed that the assessee was resorting to under- invoicing of sales. Furthermore, the turnover of Rs.6,64,76,379/- had been computed in the presence of the assessee, based on the noting made by her, and not on any estimate prepared by the Department independently. The AO

:-5-: ITA. No: 1632/Chny/2025 observed that the assessee failed to substantiate her claim that the said noting represented advances/debtor realizations, as no reconciliation supported by credible evidence was produced.

Consequently, the AO issued a show cause notice requiring the assessee to substantiate the genuineness of the unsecured loans disclosed in the return.

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Rs.72,20,000/- treating unsecured loans as unexplained cash credits u/s.68 r.w.s 115BBE of the Act. Aggrieved of the said order, assessee preferred appeal before the ld.CIT(A).

“6.2.6 In the case of the appellant, a survey was conducted under section 133A of the Income Tax Act on 26.02.2020 at the appellant's business premises. During the course of survey, the survey team was able to ascertain from one of the customer that the appellant is supressing sales. Further the survey team recorded a statement from the appellant u/s 131 of the Act wherein, the appellant

:-8-: ITA. No: 1632/Chny/2025 has accepted to admit 8% of the turnover in the return of income for the AY 2020-21. 6.2.7 As evident in the assessment order, the AO while contemplating the addition has relied upon the statement recorded from the appellant and the total turnover estimated during the course of survey. It is appropriate to bring on record that the AO while completing the assessment has not relied upon any evidence that was impounded during the course of survey. In the absence of any such incriminating evidence to arrive at any conclusion that the appellant has suppressed sales is not appropriate. Further, the presumption laid down u/s 132(4A) and 292C of the Act will not apply to the fact and circumstances of the case of the appellant. 6.2.8 A submission by one of the customer of the appellant alleging sale suppression cannot be taken as a sacrosanct without conducting any further enquiries. This isolated incident cannot be extrapolated to all the transaction of the appellant carried out throughout the year without there being any proven facts. Further, the appellant’s books of accounts were subjected to audit as per the provisions of section 44AB of the Act. When the AO has accepted the books of accounts in total, there can be no case to make an estimation of the turnover. The turnover determined by the AO is an estimation. 6.2.9 The action of the AO in adding the discrepancy between the reported turnover and the estimated turnover as additional business income was not based on any concrete evidence or material that indicated suppressed sales or income. The appellant’s reported turnover, supported by GST filings and audited financials, merits consideration unless there exist any adverse findings upon with supporting evidences. 6.2.10 The undersigned is of the considered view that the reported turnover declared by the appellant in the return of income amounting Rs. 6,04,44,763/- is legitimate, as it was consistent with the appellant’s GST filings and financial statements. More significantly, the AO failed to bring on record any substantial evidence to suggest that the turnover was understated or that the appellant was involved undisclosed sales. Therefore, any estimation of total income based on an estimated turnover, which is not supported by cogent and corroborative evidence, is merely speculative and lacks substantiation. Therefore, all the grounds raised by the appellant upon this issue are hereby treated as allowed and the AO is directed to delete the addition of Rs.32,53,990/- made for the AY 2020-21.”

:-9-: ITA. No: 1632/Chny/2025 “6.2.13 The undersigned has carefully examined the issue under consideration. As evident from the details furnished by the appellant during the course of appellate proceedings which were also made available before the AO during the course of assessment proceedings, it can be seen that the amount of Rs.72,20,000/- constitutes two components viz..

6.2.15 The appellant contends that the transaction represents an advance to the appellant in her personal capacity from her son-in-law, who acted through the partnership firm, which was recorded as drawings in the partner’s capital account. The funds were transferred

:-10-: ITA. No: 1632/Chny/2025 through a prescribed digital mode and have been routed through banking channels from a disclosed source. The appellant submits that since the amount pertains to the financial year 2012-2013, it should not be considered in the current assessment year, as the credit is not related to the year in which it was first recorded.

6.2.16 The undersigned has carefully examined the issue under consideration. As evident in the bank statement, the aforesaid transactions under consideration was effected during the FY 2012-13. The appellant had no occasion to disclose these transactions in the return of income filed for the earlier years as the appellant regularly admits income on presumptive basis. Therefore, the findings of the AO that the appellant has claimed these transactions as unsecured loan during the FY 2019 20 relevant to AY 2020-21 is devoid of merits. The appellant has substantiated this claim and proved that the appellant has received during the FY 2012-13. Further, in the case of M/s. AV Tiles, who has advanced these amounts, the transaction was accepted in total in the absence of any adverse findings. In this background the under signed is of the view that the action of the AO to treat the amounts of Rs. 9,00,000/- and Rs13,50,000/- amounting to Rs. 22,50,000/- as bogus unsecured loan u/s 68 of the Act lacks merits.

Receipt of Rs. 49,70,000/- from the appellant’s spouse

6.2.17 As evident from the bank statements furnished by the appellant, that was made available before the course of assessment proceedings, that the appellant’s spouse, Shri. Ramasubbu, has made remittances to the appellant’s proprietary concern, M/s. Maries Blue Metals, amounting to Rs. 40,27,000/- during the FY 2017 18 and Rs. 29,43,000/- during the FY 2018-19. The appellant has substantiated the above receipts from the bank statements of Shri. Ramasubbu. The AO during the course of assessment proceedings has examined the bank statements and has arrived at a conclusion that a sum of Rs. 20,00,000/- was alone transferred to the appellant’s proprietary concern on 07.03.2018 and treated the balance amount as bogus.

6.2.18 On examination of the bank statement, it can be seen that the AO has disallowed a sum of Rs. 14,00,000/- transferred on 11.02.2019 which pertains to EB deposit. On examination of the other transactions it can be seen that these transactions were made with Deepa Machinery and other payments relating to the appellant’s proprietary concern. These remittances were made through a re- finance availed from Sri Ram Transport Finance, a finance company where the appellant’s spouse Shri. Ramasubbu had financial dealings. The remittances were directly used for capital goods and utilities in connection with the business and were made through banking channels.

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6.2.19 It is the case of the appellant, the remittances were accounted for in the books of Shri. Ramasubbu, and the details of the debit balances are reflected in the books of Shri. Ramasubbu. The extract of ledger account which was made available by the appellant’s spouse before the AO in response to the summons issued u/s 131 of the Act is appended here as under.

6.2.20 Further Shri. Ramasubbu is assessed to tax separately under the PAN- ACQPR3070B. The AO in the case of Shri. Ramasubbu has not made any adverse findings upon the above transactions. The appellant had no occasion to disclose these transactions in the return of income filed for the earlier years as the appellant regularly admits income on presumptive basis. Therefore, the findings of the AO that the appellant has claimed these transactions as unsecured loan during the FY 2019 20 relevant to AY 2020-21 is devoid of merits. The appellant has substantiated this claim and proved that the appellant has received during the FY 2017-18 & 2018-19. Further, in the case of Shri. Ramasubbu, who has advanced these amounts, the transaction was accepted in total in the absence of any adverse findings these amounts should be treated as a loan from him to the business, rather than as an unexplained credit. These remittances were debited in the financials of Mr. Ramasubbu with no irregularities in their treatment. In this background the undersigned is of the view that the action of the AO to treat the amounts of Rs. 49,70,000/- as bogus unsecured loan u/s 68 of the Act lacks merits.

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6.2.21 In view of the detailed analysis and the evidence(s) provided by the appellant, it is clear that the amounts received from the appellant's son-in-law and husband have been routed through proper banking channels are backed by verifiable sources, and were correctly recorded in the respective financial years. Therefore, the addition of Rs. 72,20,000/- as bogus unsecured loans u/s 68 r.w.s. 115BBE of the Act is unwarranted. Accordingly, all the grounds raised by the appellant upon this issue are hereby treated as allowed and the AO is directed to delete the addition of Rs. 72,20,000/- as bogus unsecured loans u/s 68 r.w.s.115BBE for the AY 2020-21.”

However, in contravention thereof, the assessee subsequently filed her return of income declaring a lower figure of business income, which is not valid in law.

Thus, the ld.DR argued that the addition of Rs.32,53,990/- made by the AO on account of undisclosed business income is justified and sustainable in law. The ld.DR therefore, prayed that the impugned order of the ld.CIT(A), deleting the said addition, be set aside and the order of the AO be restored.

:-13-: ITA. No: 1632/Chny/2025 has failed to establish the creditworthiness of the creditors in the assessment year in which such balances are first reflected or claimed. The ld.DR further submitted that the reasoning adopted by the ld.CIT(A) that opening balances cannot be subjected to addition in the year under consideration is legally untenable. It was therefore prayed that the order of the ld.CIT(A) deleting the addition be set aside, and the order passed by the AO be restored.

:-14-: ITA. No: 1632/Chny/2025 passed by the AO on the basis of notice u/s.143(2) issued by the non jurisdictional Assessing Officer is void ab initio.

“38. In the present case, it is not as if the issue of non-fulfillment of jurisdictional parameters of Section 153C was raised but rejected by the CIT (Appeals). Such an issue was not raised before the CIT (Appeals). Having regard to the provisions of Rule 27 of the Appellate Tribunal Rules, 1963 as also the provisions of section 260A(7) read with Order XLI Rule 22 of CPC as interpreted by the Hon'ble Supreme Court in S. Nazeer Ahmed (supra) we think that the ITAT should not have precluded the assessees from raising the issue in the appeals instituted by the Revenue, even without the necessity of filing any cross-objections. Accordingly, the additional substantial question of law is required to be answered in favor of the Appellants/assessees and against the Revenue.”

Consequently, the objection raised by the ld.DR opposing its admission is rejected. The legal ground raised by the assessee is, therefore, admitted for adjudication on merits.

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:-17-: ITA. No: 1632/Chny/2025 all assessment records along with connected files and documents to the Assessing Officer of the Central Circle-2, Madurai.

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“6. The short issue which falls for consideration is whether the assessing officer, who had jurisdiction over the assessee at the relevant time had issued notice under section 143(2) of the Act before taking up the scrutiny assessment under section 143(3). Before we go into the facts, we take note of the legal position as laid down by the Hon'ble Supreme Court in Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113/321 ITR 362, wherein the Hon'ble Supreme Court held that omission on the part of the assessing officer to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with. Further, we also take note of the decision in the case of CIT v. Gitsons Engineering Co. [2015] 53 taxmann.com 108/231 Taxman 506/370 ITR 87 (Mad.), wherein it was held that the word 'shall' employed in section 143(2) of the Act, contemplates that the assessing officer should issue notice to the assessee so as to ensure that the assessee has not understated income or has not computed excessive loss or has not under paid the tax in any manner. It was further held that when the assessing officer considers it necessary and expedient to ensure that tax is paid in accordance with law, he should call upon the assessee to produce evidence before him to ensure that the tax is paid in accordance with law. The section makes it clear that service of notice under section 143(2) of the Act within the time limit prescribed is mandatory and it is not a mere procedural requirement. At this juncture, it would be relevant to take note of the definition of assessing officer as defined in section 2(7A) of the Act. The said provision defines 'assessing officer' to mean the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer, who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of the Act, and the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, who is directed under clause (b) of sub-section (4) of section 120 to exercise or perform all or any of the powers and functions conferred on, or assigned to, an assessing officer under this Act. In the instant case, the order of assessment was challenged on several grounds and, particularly, on the ground that no notice under section 143(2) of the Act was issued within the time prescribed by the assessing officer, who had jurisdiction over the assessment file of the assessee at the relevant time. The Commissioner of Income-tax (Appeals)-XXXVII, Kolkata, (CIT(A)) did not agree with the contentions raised by the assessee that there is failure to comply with the mandatory statutory requirement. The CIT(A) opined that the assessing officer, who originally dealt with the e-return filed by the assessee had issued notice under section 143(2) of the Act. With regard to the merits of the matter, the CIT(A) held it in favour of the assessee. Therefore, the revenue was on appeal before the Tribunal and cross-objection was filed by the assessee questioning that portion of the order of the CIT(A) which held that there is no procedural irregularity committed

:-21-: ITA. No: 1632/Chny/2025 by the assessing officer. The Tribunal considered the correctness of the finding of the CIT(A) and, on facts, found that both the assessing officers, namely, the assessing officer, who had jurisdiction over the assessee till 6-4-2009 and the assessing officer, who had jurisdiction post the said date had not issued notice under section 143(2) of the Act within the prescribed period of six months from the end of the financial year in which the return was filed. This factual position could not be controverted by the revenue before us. As pointed out by the Hon'ble Supreme Court in the case of Hotel Blue Moon (supra), non- issuance of notice under section 143(2) is not a procedural irregularity and, therefore, it is not curable. Thus, on facts, it having been established that no notice was issued under section 143(2) of the Act, the order passed by the Tribunal was perfectly legal and valid. The revenue also sought to rely upon section 292BB of the Act to justify their stand that notice is deemed to be valid and sought to bring the assessee's case under the circumstances mentioned in section 292BB. This question was considered by the Tribunal and it was pointed out that section 292BB provides that where an assessee has appeared in any proceedings or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any of the provision of the Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of the Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under the Act that the notice was not served upon him or not served upon him in time or served upon him in an improper manner. This amendment to the Act was introduced with effect from 1-4-2008 and the assessment year under consideration is AY 2007-08. In any event, the Tribunal examined as to whether at all the revenue can rely upon section 292BB of the Act and noted that the assessee has filed an objection vide letter dated 16-11-2009 objecting to the issuance of notice under section 142(1) of the Act without valid service of notice under section 143(2) of the Act. Taking note of the said letter the Tribunal, in our view, rightly held that the proviso to section 292BB would not stand attracted and the said section cannot be made applicable to the assessee's case. The Tribunal, thereafter, analysed as to the correctness of the submission of the revenue seeking to sustain their stand by referring to a notice issued by the assessing officer, who at the relevant point had no jurisdiction over the assessee and, on facts, found that there is no valid compliance of section 143(2) of the Act as the notice issued under section 143(2) of the Act by the assessing officer/Income Tax Officer, Ward-3(1) had no jurisdiction over the assessee at the relevant time. The Tribunal to support its conclusion placed reliance in the case of CIT v. Mukesh Kumar Agrawal [2012] 25 taxmann.com 112/345 ITR 29 (Allahabad), wherein it was held that the assessing officer did not have jurisdiction to proceed further and make assessment since notice under section 143(2) of the Act was admittedly not issued. As in the case on hand, the revenue sought to take coverage under section 292BB of the Act which was rejected on the ground that the very foundation of the jurisdiction of the assessing

:-22-: ITA. No: 1632/Chny/2025 officer was on the issuance of notice under section 143(2) of the Act and the same having been complied with, the revenue cannot take shelter under the provisions of section 292BB of the Act.”

The AO ought to have relied on cogent and verifiable material demonstrating that the noting indeed represented the actual turnover of the assessee on the date of the survey. In the absence of such material, we are of the considered view that there is no infirmity in the findings of the ld.CIT(A) in deleting the addition made by the AO.

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Order pronounced in the court on 07th October, 2025 at Chennai.