INCOME TAX OFFICER, WARD-3(1)(1), AHMEDABAD., VEJALPUR vs. THE WARDROBE THEOREM, MOTERA

The brief facts of the case are that no return of income was filed by the assessee for the A.Y. 2016-17. The Assessing Officer had received an information on Insight Portal of the Department that the assessee had C.O. No. 45/Ahd/2025 ITO vs. The Wardrobe Theorem & The Wardrobe Theorem vs. ITO Asst. Year –2016-17 - 2– entered into a high value financial transaction with Umiya Trading Company (Proprietor: Sanketkumar R Patel). On the basis of this information the case of the assessee was reopened and a notice under Section 148 of the Act was issued on 25.06.2021. There was no compliance to the said notice and no return of income was filed. In the course of assessment proceedings, the assessee had given explanation regarding transaction of Rs.5,80,97,250/- made with Umiya Trading Company. The Assessing Officer had also made inquiry by issuance of summon under Section 131 to the concerned party and by obtaining and verifying the bank details. As the Assessing Officer was not satisfied with the explanation of the assessee regarding the transaction, the entire transaction of Rs. 7,62,71,900/- was considered as unexplained and added to income under Section 69 of the Act. The assessment was completed under Section 147 r.w.s. 144 of the Act on 23.05.2023 at total income of Rs. 7,62,71,900/-.

Aggrieved in the order of the Assessing Officer the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the matter was set-aside to the file of the Assessing Officer with a direction to provide opportunity to the assessee to explain the transaction and, thereafter, recomplete the assessment.

Aggrieved with the order of the CIT(A), both the Revenue as well as the assessee are in appeal before us.

The assessee has taken the followings grounds in the Cross Objection:

Per contra, Shri Sunil Maloo, the Ld. AR of the assessee submitted that the Ld. CIT(A) did not decide the legal ground taken by the assessee challenging the reopening the assessment under Section 148 of the Act. He submitted that the notice under Section 148 of the Act was not issued within the time limit under the provision of Income Tax Act read with TOLA. The Ld. AR further submitted that the assessee has challenged the addition of Rs.7,62,71,900/- on the ground that no such transaction was made by the assessee firm. Therefore, Ld. CIT(A) should have decided the grounds taken by the assessee on merits rather than setting-aside the matter to the file of the Assessing Officer.

We have considered the rival submissions. The grievance of both, the Revenue as well as the assessee, is against setting-aside the matter by the Ld. CIT(A) to the file of the Assessing Officer. It is found that the Ld. C.O. No. 45/Ahd/2025 ITO vs. The Wardrobe Theorem & The Wardrobe Theorem vs. ITO Asst. Year –2016-17 - 5– CIT(A) had invoked the proviso to Section 251(1) of the Act, introduced w.e.f. 01.10.2024 whereby an option was given to the Ld. CIT(A) to set- aside the matter to the Assessing Officer in a case where an order of assessment was made under Section 144 of the Act. However, this amendment does not postulate that all the assessment orders passed under Section 144 of the Act are mandatorily required to be set-aside to the Assessing Officer. The use of word “may” in this proviso makes this provision discretionary in nature. Therefore, it was obligatory on the part of the Ld. CIT(A) to first decide whether the matter was required to be set- aside at all to the Assessing Officer. In the present case, it was not the case that the order under Section144 of the Act was passed without allowing any opportunity to the assessee and that there was no compliance on the part of the assessee in the course of assessment proceedings. Rather, in the present case the assessee had complied to the notices issued by the Assessing Officer in the course of assessment and had made its submissions in respect of the transactions in respect of which inquiry was initiated. Further, the submission made by the assessee was also duly incorporated in the assessment order. Under the circumstances, the Ld. CIT(A) should have decided the matter on merits rather than setting-aside the matter to the file of the Assessing Officer in a mechanical manner. Further, since the assessee had raised a legal ground in respect of reopening of the case, this matter was required to be first decided only by the Ld. CIT(A). This issue couldn’t have been set aside to the AO. Therefore, the action of the Ld. CIT(A) in setting-aside the matter to the file of the Assessing Officer without deciding the legal ground raised by the assessee cannot be held as correct.

In view of the above facts, we are of the considered opinion that the matter requires to be set-aside to the file of Ld. CIT(A) with a direction to first decide the legal ground raised by the assessee and, thereafter, adjudicate the addition made by the Assessing Officer on merits.

In the result, both the appeals of the Revenue and the assessee are allowed for statistical purposes.