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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: MS.SUCHITRA R. KAMBLE & SHRI MAKARAND V.MAHADEOKAR
आदेश आदेश/O R D E R आदेश आदेश
PER MAKARAND V.MAHADEOKAR, AM:
This appeal is filed by the assessee against the order dated 21.11.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the CIT(A)”], arising from the assessment order dated 06.12.2019 passed by the Income Tax Officer, Ward 3(1)(5), Vadodara [hereinafter referred to as “Assessing Officer or AO”] under section 144 r.w.s. 147 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2013–14.
Condonation of Delay 2.1 At the outset, it is noted that there is a delay of 20 days in filing the present appeal. The assessee has filed an application for condonation of delay accompanied by a duly sworn affidavit dated 01.04.2025, wherein it has been explained that the delay occurred due to inadvertent omission on the part of the assessee in handing over the impugned order and relevant documents to the new Chartered Accountant engaged for filing the appeal before the Tribunal. It has been further submitted that upon follow-up, the necessary papers were eventually submitted, and the appeal was filed shortly thereafter.
2.2 While the explanation offered in the affidavit appears to be bona fide, we express our serious displeasure over the casual manner in which the statutory timeline has been handled. The assessee ought to have exercised due diligence in ensuring timely filing, particularly when professional assistance was sought.
2.3 Nevertheless, in the interest of substantial justice and considering that the delay is marginal and not deliberate, we are inclined to condone the delay of 20 days. The delay is accordingly condoned, albeit with a caution to the assessee to be more vigilant in future proceedings. The appeal is admitted for adjudication on merits.
3.3 Facts of the Case 3.1 The assessee filed his original return of income for A.Y. 2013–14 on 29.03.2014 declaring total income of Rs.2,44,950/-. Subsequently, during the course of processing disclosures made under the Income Declaration Scheme (IDS), 2016, it came to the notice of the Department that the assessee had disclosed investment of Rs.92,62,433/- in immovable property for the relevant previous year 2012–13. As per the Department’s records, the total tax liability under IDS was computed at Rs.41,68,096/-, and the assessee was required to pay 25% thereof, amounting to Rs.10,42,024/- by 30.11.2016. However, the assessee paid only Rs.4,18,096/-, failing to comply with the full payment requirement under the Scheme. Consequently, the declaration under IDS was treated as invalid.
3.2 Based on this, the Assessing Officer recorded reasons to believe that income had escaped assessment and accordingly issued notice under section 148 of the Act on 31.03.2019. Since no return was filed in response, the AO issued further notices under section 142(1) on 04.09.2019, 26.09.2019, and 12.10.2019, seeking explanation on the source of investment and requiring details of income and expenses claimed in the return. The assessee either did not respond or sought adjournments. In the course of the reassessment proceedings, the AO also issued a notice under section 133(6) of the Act to the Sub-Registrar, Vadodara, from whom it was gathered that the assessee had purchased immovable property located at Land, Block No. 5361, Survey No. 313, Moje: Sama, District: Vadodara, for a sale consideration of Rs. 66,00,000/-. However, the jantri value of the said property as on 01.06.2016 was stated to be Rs. 92,62,433/-. Based on this information, the AO issued a show cause notice on 30.10.2019 under section 274 r.w.s. 271(1)(b) for non-compliance, and further issued a final show cause notice dated 02.12.2019, fixing hearing on 05.12.2019, asking the assessee to explain:
- The source of investment of Rs.92,62,433/- in the immovable property; - The source and nature of credits aggregating to Rs.91,71,722/- in bank account no. 1698010000724 held with Bank of Baroda, Karelibaug Branch, Vadodara; - The basis and supporting evidence for claiming expenses of Rs.9,32,142/- against gross business receipts of Rs.11,09,280/- declared in the return. 3.3 It was also noted from the bank account statement obtained through section 133(6) notice issued to Bank of Baroda that total credits of Rs.91,71,722/- were reflected during the year under consideration. Despite specific opportunity, no explanation or break-up of these credits was submitted. The assessee failed to respond to the show cause notices, nor did he furnish the required documents or file a revised return. In the absence of any compliance or explanation, the AO proceeded to complete the assessment ex parte under section 144 r.w.s. 147 based on material available on record.
3.4 Aggrieved by the above ex parte assessment, the assessee preferred appeal before the learned CIT(A) challenging the validity of the reassessment proceedings on the ground that alleged escapement pertained to non- fulfilment of IDS declaration, which at best related to A.Y. 2017–18 and not to the year under appeal. The addition of Rs.92,62,433/- was disputed on the ground that the actual acquisition cost of the immovable property was Rs.66,00,000/-, and the higher figure adopted by AO was based on stamp valuation as on 01.06.2016, which is not relevant to A.Y. 2013–14. It was contended that Rs.91,71,722/- represented credits from identifiable sources, such as loan from relative, interest income, dividend income, returned cheques, etc., and supporting confirmations and bank statements were enclosed. Disallowance of Rs.9,32,142/- was contested by submitting that the assessee had declared profits under section 44AD at 15.97% of turnover, which was more than the prescribed presumptive rate of 8%, and thus the AO ought not to have disallowed the expenses.
3.5 The learned CIT(A), while expressing that the assessee failed to file adequate documentary evidence despite sufficient opportunity, dismissed the appeal and confirmed the assessment made under section 144 r.w.s.
On the issue of jurisdiction under section 147, it was held that the AO had reason to believe that income had escaped assessment and due opportunity was given. Hence, the reassessment was valid. Regarding the addition of Rs.92,62,433/-, the CIT(A) observed that the assessee failed to furnish documentary evidence of actual cost or source of acquisition during appellate proceedings. The value declared under IDS 2016 was treated as a valid benchmark. As to the Rs.91,71,722/- credited in bank account, the assessee’s submission regarding loan from relative and other sources was not substantiated with confirmation, identity, creditworthiness, or purpose. Hence, the addition under section 69A was sustained. On disallowance of Rs.9,32,142/-, the CIT(A) held that the applicability of section 44AD cannot be presumed unless the assessee demonstrates business activity through cogent evidence. No proof of business receipts or books of account was filed.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:
1.0 Order passed u/s 144 r.w.s. 147 of the Act is bad-in-law :
1.01 On the facts and in the circumstances of the case and in law, the order passed by Id. AO u/s 144 r.w.s. 147 of the Act is bad in law in as much as the Notice issued u/s 148 of the Act is beyond jurisdiction. 1.02 Your appellant further submits that the Id. AO erred in issuing Notice u/s 148 of the Act without appreciating the facts that income sought to have escaped assessment is not chargeable to tax for the year under review but for the year in which your appellant failed to fulfill the conditions laid down as per the Income Declaration Scheme, 2016 i.e. Previous Year 2016-17 relevant to Assessment Year 2017-18. 1.03 Your appellant further submits that the Id. CIT(A) failed to appreciate these facts and upheld the order passed by Id. AO. 1.04 Your appellant prays Your Honour to hold so now and quash the reassessment being bad in law, illegal and non-est.
WITHOUT PREJUDICE TO ABOVE:
2.00 Addition of Rs.91,71,722/- as unexplained income u/s 69A of the Act:
2.01 On the facts and circumstances of your appellant's case as well as in law,, the Id. AO erred in making addition of all credit entries in the bank account of your appellant with Bank of Baroda on the presumption that they all are unexplainable and hence income of your appellant. Ld. CIT(A) also erred in confirming the addition made by Id. AO without appreciating the facts that the amounts include loans from relatives, certain cheque return entries and income in the nature of interest and dividend, which were offered for tax by your appellant in the return of income filed. 2.02 Your appellant prays Your Honour to hold so now and direct the Id. AO to delete addition made.
3.00 Addition of Rs.9,32,142/- by disallowing the business expenses:
3.01 On the facts and circumstances of your appellant's case as well as in law, the Id. CIT(A) erred in confirming the disallowance made by Id. AO without appreciating the facts that your appellant has declared profit u/s 44AD of the Act at more than the prescribed rate of 8% of Gross Turnover of the l. business of your appellant.
3.02 Your appellant prays Your Honour to hold so now and direct the Id. AO to delete addition made. Your appellant craves leave to add, alter and / or amend the grounds herein above raised.
During the hearing, the ld. Authorised Representative (AR) reiterated the facts and submitted that the notice under section 148 dated 31.03.2019 was pre-mature and issued without jurisdiction since the income declared under IDS-2016, even if treated as non-est, was chargeable in A.Y. 2017– 18, being the year of declaration. The AR drew our attention to the provisions Section 197(b) of the Finance Act, 2016 provides that if tax under IDS is not paid, the income shall be chargeable to tax in the previous year in which declaration is made, i.e., F.Y. 2016–17 (A.Y. 2017–18), not A.Y. 2013–14. Therefore, the AR argued that the reopening for A.Y. 2013–14 lacked legal basis and the approval granted by PCIT-3, Vadodara was mechanical and vitiated. The AR further stated that the AO failed to appreciate the explanations for bank deposits and made gross additions of Rs.91.71 lakh without verification. Regarding the disallowance of expenses of Rs.9,32,142/- the AR stated that once income is assessed under section 44AD, no further disallowance of expenses is permissible. Reliance was placed on judicial precedents including Nand Lal Popli v. DCIT (ITA No. 1161/Chd/2013), Abhi Developers v. ITO [(2007) 12 SOT 444 (ITAT Ahmedabad)]. The AR also stated that the AO had not raised issue of such disallowance in the show cause notice dated 02.09.2019, therefore the additions are out of the scope of the same.
5.1 The AR placed on record the assessment order for A.Y. 2017–18 passed under section 147 dated 18.04.2023, wherein the Assessing Officer has already made an addition of Rs.92,62,433/- on protective basis in respect of the same amount declared under IDS-2016. It was submitted that the assessee has filed an appeal against the said order before the CIT(A), which is presently pending for adjudication. In view of this, the AR contended that the jurisdictional foundation for reassessment in A.Y. 2013– 14 no longer survives.
The learned Departmental Representative (DR), on the other hand, placed reliance on the orders of lower authorities and submitted that the assessee remained non-compliant during the reassessment proceedings despite issue of statutory notices including notice under section 133(6), and did not respond to the show cause notices issued by the Assessing Officer. The DR further stated that no supporting evidence or submissions were filed before the CIT(A) either, and the appeal was rightly disposed of on merits based on available material. Regarding the legal ground challenging jurisdiction under section 147, the DR argued that the assessee had not raised any objection during reassessment proceedings, and hence, the issue should not be agitated at the appellate stage without availing the opportunity provided under law.
We have carefully considered the rival submissions, perused the orders of the lower authorities, and examined the material available on record. The assessee has raised three grounds in substance: (i) challenge to the validity of reassessment proceedings under section 147/148; (ii) addition of Rs.91,71,722/- as unexplained income under section 69A; and (iii) disallowance of Rs.9,32,142/- claimed as business expenditure. We now proceed to examine each of the grounds in seriatim.
7.1 Ground No. 1: Challenge to validity of reassessment under section 147/148
7.1.1 The primary challenge of the assessee relates to the jurisdictional validity of the notice issued under section 148 of the Act on 31.03.2019 for A.Y. 2013–14, contending that the alleged escapement of income pertained to non-fulfilment of declaration under the Income Declaration Scheme (IDS), 2016, and hence such income, if any, was chargeable to tax in the year of declaration, i.e., A.Y. 2017–18, and not the year under appeal. In support of this proposition, the assessee has relied on clause (b) of section 197 of the Finance Act, 2016, which specifically provides that where the tax under IDS is not paid, the declared income shall be deemed to be income of the year in which the declaration is made. Admittedly, in the present case, the declaration was made in F.Y. 2016–17 (relevant to A.Y. 2017–18), and the assessee failed to pay the full amount of tax, resulting in invalidation of the declaration.
7.1.2 It is further brought on record that in the assessment order for A.Y. 2017–18 passed under section 147 on 18.04.2023, the Assessing Officer has already made a protective addition of Rs. 92,62,433/-, in respect of the same amount disclosed under IDS. The said addition has been challenged by the assessee before the learned CIT(A), where the appeal is stated to be pending. Thus, the addition is yet to be tested and adjudicated in the correct assessment year.
7.1.3 In the above backdrop, we find merit in the assessee’s plea that the income, if any, relatable to the invalidated IDS declaration pertains to A.Y. 2017–18. The rationale of the reopening for A.Y. 2013–14 is not borne out from the record or from the statutory scheme of section 197 of the Finance Act, 2016. Therefore, in our considered view, the very assumption of jurisdiction under section 147 for A.Y. 2013–14 is vitiated and without legal sanction.
7.1.4 As regards the DR’s contention that the assessee failed to raise objections before the AO, we note that non-participation by the assessee cannot cure a jurisdictional defect which goes to the root of the matter. It is settled law that jurisdictional challenge can be entertained even at the appellate stage.
7.1.5 We also note that the Assessing Officer has already made a protective addition of Rs.92,62,433/- in A.Y. 2017–18, and the assessee has challenged the same in appeal before the learned CIT(A), which is presently pending adjudication. In these circumstances, no prejudice is caused to the interest of the Revenue by setting aside the reassessment framed for the earlier year.
7.1.6 In view of the above discussion, we hold that the reassessment proceedings initiated for A.Y. 2013–14 are bad in law and liable to be quashed. The assessment order dated 06.12.2019 passed under section 144 r.w.s. 147 is accordingly set aside.
7.2 Ground No. 2: Addition of Rs. 91,71,722/- under section 69A
7.2.1 In light of our decision on Ground No. 1, the very foundation of the reassessment has been held to be void ab initio. Therefore, the addition made under section 69A in the reassessment order does not survive.
7.2.2 Nevertheless, for completeness, we also find that the assessee had submitted that the impugned bank credits reflected loan from relatives, cheque return entries, interest and dividend income. However, in absence of participation in assessment and appellate proceedings, no evidence was brought on record.
7.2.3 In such circumstances, if the reassessment had been upheld, a remand for verification might have been warranted. However, since the jurisdiction under section 147 is found to be invalid, the addition cannot be sustained.
7.3 Ground No. 3: Disallowance of Rs.9,32,142/- of business expenses
7.3.1 The assessee declared gross receipts of Rs.11,09,280/- and net profit of Rs.1,77,138/-, claiming expenses of Rs.9,32,142/-. The AO disallowed the entire claim of expenses, alleging that the assessee had failed to prove business activity and did not produce any books or vouchers.
7.3.2 The assessee has contended that income was offered under section 44AD at 15.97%, which is higher than the presumptive rate of 8%, and therefore, disallowance of expenses is not warranted. Reliance was placed on various decisions including Nand Lal Popli v. DCIT (supra) and Abhi Developers v. ITO (supra), wherein it has been held that once income is computed under section 44AD, no separate disallowance of expenses is permissible. The contention of the assessee is legally tenable. The statutory scheme of section 44AD provides for presumptive taxation of business income, and no further allowance of business expenses is envisaged. The net profit declared at 15.97% is much higher than the presumptive benchmark.
7.3.3 However, as noted earlier, in the absence of jurisdiction under section 147, the entire reassessment order stands annulled and all consequential additions or disallowances are rendered infructuous.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on 12th August, 2025 at Ahmedabad.