ACIT CORPORATE CIRCLE 2, COIMBATORE vs. SRI SASTHA SPINNING MILLS PVT. LTD., COIMBATORE

Both the cross appeals filed by the assessee as well as Revenue are directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Coimbatore, dated 26.03.2018 relevant to the assessment year 2009-10. Besides challenging reopening of assessment under section 147 of the Income Tax Act, 1961 [“Act”] that the reasons for reopening the assessments were not provided to the assessee, the assessee has also challenged restriction of unexplained income under the head “income from other sources”. On the other hand, in the appeal filed by the Revenue, the Department has challenged the relief granted to the assessee.

Based on the impounded materials available on record during the course of enquiry under section 131 of the Income Tax Act, 1961 [“Act” in short] conducted in the case of Shri R. Jagadish Kumar, who was the Managing Director of the assessee company by the Investigation Wing, he has deposed that the amount has been duly reflected in the account of the company in the financial year 2008-09. However, the source of the funds for making the payment to M/s. Hallko was not declared before the Department either in the hands of Shri R. Jagadish Kumar or in the hands of the assessee company, the Assessing Officer has believed that the income of the assessee had escaped assessment under section 147 of the Act and issued notice under section 148 of the Act dated 03.03.2016. However, the assessee has not complied with the notice under section 148 of the Act by filing return of income for the assessment year 2009-10, but, vide letter dated 20.07.2016, the assessee has asked the reasons for the notice under section 148 of the Act. Despite various opportunities afforded, the assessee has not filed the return of income for the assessment year 2009-10 and hence, the Assessing Officer completed the best judgement assessment under section 144 r.w.s. 147 of the Act dated 31.12.2016 by treating the payment of ₹.7,61,50,000/- as the unexplained income of the assessee company and tax was computed accordingly. On appeal, the ld. CIT(A) has held that the payment to the extent of ₹.3,50,00,000/- has been explained and the balance of ₹.4,11,50,000/- (₹.7,61,50,000 – ₹.3,50,00,000) remains unexplained and this amount has to be assessed as unexplained income under the head “income from other sources”.

On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the assessee was not provided the reasons for reopening of the assessment till the date of finalizing the assessment order. It was further submission that the entire loan amount of ₹.7,61,50,000/- was paid by M/s. Chitra Industries (Frim) by way of sale of property owned by them and the transactions were in no way connected to the assessee and prayed for deleting the addition confirmed by the ld. CIT(A).

On the other hand, by referring to the grounds of appeal of the cross appeal, the ld. DR has submitted that without affording an opportunity of being heard to the Assessing Officer by obtaining remand report on the submissions of the assessee, the ld. CIT(A) has considered that the transactions for sale of property to M/s. Martin Realty Private Ltd. by M/s. Chitra Industries amounting to ₹.3 crores is in violation of Rule 46A of the Income Tax Rules, 1962.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this case, since the Assessing Officer has reasons to believe that the income of the assessee had escaped assessment under section 147 of the Act and issued notice under section 148 of the Act dated 03.03.2016 followed by various reminders, the assessee has failed to file the return of income for the assessment year 2009-10 despite various reminders issued on the assessee. Once, notice under section 148 of the Act has been issued on the assessee, the assessee was required to file the return of income in response to the above notice, even though the assessee has filed its return of income under section 139 of the Act for the relevant assessment year. After filing return of income in response to notice under section 148 of the Act, the assessee shall ask for the reasons recorded for issuing notice as well as file objections. In this case, admittedly, the assessee has not filed return of income in response to the notice under section 148 of the Act despite various reminders issued or forwarding the draft assessment order under section 144 of the Act dated 23.12.2016 or till the completion of the assessment order under section 144 r.w. section 147 of the Act dated 31.12.2016. Thus, the Assessing Officer has rightly assumed jurisdiction to conclude the assessment order under section 144 r.w.s. 147 of the Act.

So far as merits of the case in the grounds raised by both the assessee as well as Revenue is concerned, without obtaining remand report on the submissions of the assessee, the ld. CIT(A) has considered that the transactions for sale of property to M/s. Martin Realty Private Ltd. by M/s. Chitra Industries amounting to ₹.3 crores has been explained and granted relief to the extent of ₹.3,50,00,000/- is in violation of Rule 46A of the Income Tax Rules, 1962. Accordingly, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the Assessing Officer to consider the issue afresh in accordance with law by affording an opportunity of being heard to the assessee. The assessee is also directed to cooperate with the Department by furnishing complete details before the Assessing Officer for verification.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes and the appeal filed by the Revenue is allowed for statistical purposes.