SHRI RUSHABHDEV SWETAMBAR MURTIPUJAK JAIN SANGH,AHMEDABAD vs. THE ITO, WARD-2 (EXEMPTION), AHMEDABAD

The Assessing Officer, on the basis of information received through the departmental NMS and Insight system, observed that the assessee–trust had maintained multiple bank accounts with Bank of India, Vadaj Branch, Naranpura, Ahmedabad. It was found that substantial deposits, including cash, aggregating to Rs. 75,41,227/- were made across these accounts during the previous year relevant to the assessment year 2012–13. In the absence of any compliance or reconciliation, the AO concluded that the entire amount of Rs. 75,41,227/- represented unexplained money within the meaning of section 69A of the Act. The AO also initiated penalty proceedings under section 271(1)(c) for concealment of income and directed the charging of interest under sections 234A, 234B, 234C of the Act.

Aggrieved by the assessment order passed under section 144 read with section 147, the assessee preferred an appeal before the learned CIT(A). The assessee raised multiple legal and factual grounds, contending that the reopening of assessment under section 147 was invalid and that the addition of Rs. 75,41,227/- made by the Assessing Officer was wholly unjustified.

Before the learned CIT(A), the assessee explained that the trust had originally been allotted two Permanent Account Numbers, namely AAATR2081G (old PAN) and AAATR5288B (new PAN). The old PAN had been surrendered with the Department on 26.07.2012, and all subsequent returns of income had been filed only under the new PAN. The assessee argued that the Assessing Officer, having issued the notice under section 148 on the surrendered PAN, had assumed jurisdiction over a non-existent and invalid PAN, rendering the reassessment proceedings void ab initio. It was further contended that all income, expenditure, bank transactions, and TDS details of the trust were duly reflected in the audited financial statements and the return filed under the valid PAN i.e. AAATR5288B.

The learned CIT(A) called for a remand report from the Assessing Officer. In his report, the AO reiterated that no return had been filed in response to the notice under section 148 and that the deposits remained unexplained. However, he admitted that there existed two PANs in the name of the assessee and that the information triggering the reopening had emanated from the old PAN (AAATR2081G). The assessee, in rejoinder, submitted that once the old PAN had been formally surrendered and the department was aware of the valid operative PAN, any proceedings initiated on the basis of the surrendered PAN were jurisdictionally defective.

After considering the assessment order, the remand report, and the submissions of the assessee, the learned CIT(A) observed that the reopening under section 147 had been initiated after obtaining due approval from the competent authority and on the basis of credible information generated through the departmental system. He held that such information constituted tangible material for forming a belief of escapement of income.

On the merits of the addition, however, the learned CIT(A) took cognizance of the fact that the assessment was completed ex parte and that the assessee had now produced before him relevant records, including its audited accounts and detailed bank reconciliation. Observing that the Assessing Officer had not examined these details at all during assessment, the CIT(A) found that it would be appropriate, in the interest of natural justice, to afford the assessee an effective opportunity to substantiate its case. Accordingly, the learned CIT(A), in exercise of the powers vested under section 251(1)(a) of the Act, set aside the assessment order and restored the matter to the file of the Assessing Officer for a fresh adjudication on merits after giving due opportunity to the assessee to furnish necessary explanations and evidence in support of its claim.

Being aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before us raising following grounds of appeal:

The AR further contended that, contrary to the observation of the Assessing Officer, the assessee had in fact responded to the statutory notices issued under sections 142(1) and 143(2) during the reassessment proceedings. Specifically, the assessee had filed detailed replies to the notice dated 12.09.2019 and 22.10.2019, wherein it clearly brought to the notice of the Assessing Officer that the PAN on which the proceedings were initiated had already been surrendered. The AR further pointed out that the assessee had submitted copies of audit reports for the A.Y. 2012-13 along with form 26AS. The AR also submitted that the copy of assessment orders for A.Y. 2010-11 and A.Y. 2011-12 were also submitted to the AO. Despite the above submissions and supporting documents, the AR submitted that the Assessing Officer failed to appreciate the explanation tendered and proceeded to complete the assessment ex parte by treating the aggregate bank deposits of Rs. 75,41,227/- as unexplained money under section 69A. The copies of the assessee’s responses dated 12.09.2019 and 22.09.2019, as filed before the Assessing Officer, were placed in the paper book and are reproduced below for ready reference,

The learned Departmental Representative (“DR”), on the other hand, relied upon the findings and reasoning recorded by the learned CIT(A). It was submitted that the learned CIT(A), after examining the record and considering the assessee’s submissions, had taken a balanced view by setting aside the assessment order and restoring the matter to the file of the Assessing Officer for fresh adjudication. The DR further pointed out that the names appearing on the two PANs were not identical, which, according to the Department, created ambiguity regarding the identity of the assessee in whose case the bank deposits had been reported. It was therefore contended that the reopening of assessment on the basis of the PAN reflected in the departmental information system could not be treated as invalid or without jurisdiction.

We have carefully considered the rival submissions, examined the assessment order, the order of the learned CIT(A), and perused the documents placed in the paper book. The primary issue for adjudication before us is whether the reassessment proceedings initiated under section 147 of the Act on the basis of PAN AAATR2081G were invalid, and secondly, whether the addition of Rs. 75,41,227/- made under section 69A was justified.

At the outset, it is not in dispute that the assessee–trust was allotted two PANs — AAATR2081G and AAATR5288B. The assessee claims to have submitted an application to the Department for surrender or cancellation of the earlier PAN AAATR2081G, and in support thereof, has filed a copy of the surrender application dated 26.07.2012. However, on verification of the material on record, it is seen that no order of cancellation of the old PAN has been placed on record by the assessee. The record also does not reveal any communication made by the assessee to the concerned bank for updating or replacing the PAN in the bank’s KYC records. Consequently, the bank continued to operate and report all transactions under the old PAN, and the corresponding TDS was deducted under the same old PAN.

It is further noticed from the statement of facts and grounds of appeal filed before the CIT(A) that the assessee itself claimed credit of TDS which had been deducted under the old PAN AAATR2081G. When such TDS credit is claimed, it necessarily implies acknowledgment of the existence and continued use of that PAN for banking and tax deduction purposes. Therefore, the argument that the old PAN had ceased to exist in law or fact cannot be fully accepted on the present record.

The facts also demonstrate that two separate PANs with different names existed simultaneously in the Departmental database — one in the name of Rushabhdev Swetamber Murt Ipujak (for PAN – AAATR2081G) and the other in the name of Shri Rushabhdev Swetamber Murtipujak Jain Sangh (for PAN – AAATR5288B). In the absence of a return of income under the old PAN and in view of information available through the NMS and Insight systems, the Assessing Officer could not reasonably have been aware of the existence of the second PAN. The issuance of notice under section 148 on the basis of the PAN reflected in departmental records was, therefore, a reasonable and bona fide action. We find no infirmity in the assumption of jurisdiction under section 147 in such circumstances, particularly when credible information regarding cash deposits had come to the AO’s possession.

The assessee has contended that it had, during the course of assessment proceedings, filed replies dated 12.09.2019 and 22.09.2019, bringing to the notice of the Assessing Officer the existence of the new PAN and enclosing a copy of the ITR filed on 19.11.2012. The record supports that such replies were indeed filed. However, despite such intimation, the assessee did not file any return of income in response to the notice under section 148, as statutorily required. The non-filing of return deprived the Assessing Officer of the opportunity to examine the reconciliation of bank deposits and related explanations.

It is also seen that the assessee has not been able to reconcile all deposits made in all the bank accounts maintained with Bank of India, Vadaj Branch, Ahmedabad, aggregating to Rs. 75,41,227/-. While certain or all deposits may be reflected in the books maintained under the new PAN, a consolidated and verifiable reconciliation statement covering all accounts was not produced either before the Assessing Officer or before us. The assessee has placed on record copies of assessment orders for A.Ys. 2010–11 and 2011–12, but those assessments relate to the PAN AAATR5288B and do not conclusively establish that the transactions now under scrutiny were duly accounted for in the relevant year.

Considering these facts in totality, we are of the view that the learned CIT(A) was justified in exercising powers under section 251(1)(a) of the Act to set aside the ex parte assessment and restore the matter to the file of the Assessing Officer for fresh examination on merits. The CIT(A) has correctly observed that the issue involves verification of multiple bank accounts and reconciliation of deposits, which could not be properly adjudicated in absence of complete evidence. We see no error in such approach.

As regards the grounds challenging the validity of reassessment (Grounds Nos. 2 to 4), we hold that the reopening was based on tangible material in the form of departmental information showing large deposits under an active PAN. The existence of two PANs with slightly differing names and corresponding TDS credits creates genuine complexity, and in such factual circumstances, the action of the AO in issuing notice under section 148 cannot be faulted. These grounds are, therefore, dismissed.

As regards Ground Nos. 1, 5 and 6 relating to the addition of Rs. 75,41,227/-, we find that the learned CIT(A) has rightly directed a de novo assessment. However, since certain clarifications are warranted, we modify the direction of the CIT(A) as under:

With regard to Ground Nos. 7 and 8 relating to initiation of penalty and charging of interest under sections 234A, 234B and 234C, we hold that these are consequential and shall be determined in accordance with law while completing the reassessment proceedings.