SHRI AMIN IBRAHIM JAKA,,BHAVNAGAR vs. THE ACIT, CIRCLE-2,, BHAVNAGAR

These are appeals filed by the assessee against the order passed by Principal CIT u/s 263 of the Act and the consequent levy of penalty u/s 2863/Ahd/2014 Shri Amin Ibrahim Jaka vs. ACIT/CIT(A) Asst. Year –2006-07 - 3– 271(1)(c) of the Act. Since, in both appeals common facts and issues are involved, both appeals filed by the assessee are being taken up together. We observe that despite large number of opportunities of hearing, the assessee has remained absent and therefore, we shall proceed with the merits of case on the basis of material on records and arguments of the Department. Even today, when the matter was called out for hearing, none appeared on behalf of the assessee and no application for adjournment was filed by the assessee. We note that on last date of hearing, the Counsel for the assessee also had withdrawn his power of attorney.

The brief facts of the case are that Principal CIT, in exercise of the powers under section 263 of the Income Tax Act, 1961 (Act), examined the reassessment order dated 18.03.2013 passed in the case of the assessee, Shri Amin I. Jaka, for the assessment year 2006–07. After a detailed examination of the records and cross-verification of submissions and documents, Principal CIT was of the view that the assessment order was both erroneous and prejudicial to the interest of the Revenue, primarily on account of the failure of the Assessing Officer (AO) to properly examine the nature and taxability of an amount of Rs. 3.95 crores received by the assessee from M/s. Payal Properties Pvt. Ltd. (PPPL). The issue arose due to conflicting claims made by the assessee and PPPL. According to PPPL, the sum of Rs. 3.95 crores was paid to the assessee as consideration for securing title and acquiring land from Rohit Pulp & Paper Mills Ltd. (RPPL), and thus, was a capital expenditure in their books. On the other hand, the assessee treated the amount as a mere advance, not forming part of trading receipts and continuing to remain outstanding in the books. Evidently, a protective addition had already 2863/Ahd/2014 Shri Amin Ibrahim Jaka vs. ACIT/CIT(A) Asst. Year –2006-07 - 4– been made in the hands of PPPL, given that the assessee had not shown the receipt as consideration for land. During the cross-examination and proceedings under section 263, the assessee primarily relied on a Memorandum of Understanding (MOU) dated 19.08.2004, whereas PPPL placed reliance on several other MOUs and documents, including those dated 19.11.2004, 16.02.2005, and others. Principal CIT examined the chain of MOUs which clearly indicated that the assessee was not merely a scrap dealer, as claimed, but was engaged in a structured business activity involving acquisition and disposal of land and associated assets. These MOUs revealed that the assessee worked with other entities, such as PPPL and I.B. Enterprises, to acquire properties where the consideration was funded partly by these entities in return for a share in the profits. The agreements also clarified that it was the responsibility of I.B. Enterprises to obtain clear title, settle governmental dues, and resolve labour litigation issues, for which payments had already been made and accepted. Several MOUs confirmed payments made by Highway Services Pvt. Ltd. (HSPL), a company which later acquired 100% of PPPL’s shares, thereby effectively taking control of the land and its registration. The MOUs and corresponding bank records confirmed the payment of Rs. 3.95 crores in tranches to I.B. Enterprises (assessee’s proprietary concern) between 2005 and 2006, including a payment of Rs. 1 crore in November 2004 that was claimed by the assessee to be merely an advance. Principal CIT noted that the AO had accepted the assessee’s version without examining these MOUs or calling for confirmation from PPPL or HSPL. This was held to be a serious lapse, especially considering that the reopening was specifically based on this disputed credit of Rs. 3.95 crores. Further, Principal CIT also took 2863/Ahd/2014 Shri Amin Ibrahim Jaka vs. ACIT/CIT(A) Asst. Year –2006-07 - 5– cognizance of subsequent developments, including letters written by PPPL to the AO stating that the amount was paid as consideration for land and not as a loan or advance. Additionally, arbitration proceedings initiated by PPPL for recovery of Rs. 8.30 crores did not even include this disputed amount, which further weakened the assessee’s stand that the Rs. 3.95 crores was still payable. The Commissioner noted that the AO not only failed to consider the evidence presented by PPPL but also refused to provide it an opportunity of being heard during reassessment proceedings. Moreover, the AO never examined the creditors, despite PPPL proactively seeking to place its position on record. Principal CIT also took note of numerous other MOUs between the assessee and PPPL in relation to unrelated properties, demonstrating a consistent business relationship involving advances and profit-sharing. These included the acquisition of Vishaldeep Sawing Mills, Rohtas Industries, and Solapur assets, all supported by formal agreements. Yet, the payment of Rs. 3.95 crores remained unexplained in terms of contractual backing, and no MOU was placed on record by the assessee linking it to any specific deal. The Commissioner, therefore, observed that the amount in question could not be said to be a mere advance but, instead, formed part of the business receipts of the assessee. Principal CIT took note of several decisions of the Hon’ble Supreme Court in T.V. Sundaram Iyengar & Sons Ltd. and Karamchand Thapar and held that the amount of Rs. 3.95 crores, having arisen from business activity and not refunded for years, had assumed the character of income and ought to have been taxed accordingly. Finally, Principal CIT held that the AO had failed to conduct a proper inquiry or make any attempt to verify the nature of the transaction from the creditors, and 2863/Ahd/2014 Shri Amin Ibrahim Jaka vs. ACIT/CIT(A) Asst. Year –2006-07 - 6– merely accepted the assessee’s submission despite contradictory evidence. The assessment, therefore, suffered from serious legal and factual infirmities. Principal CIT accordingly set aside the reassessment order dated 18.03.2013 under section 263 and directed the AO to treat the amount of Rs. 3.95 crores as the undisclosed income of the assessee for A.Y. 2006–07, after affording due opportunity and conducting further inquiry, as required.

On going the facts of the assessee’s case and the arguments put forth by the Ld. DR, who drew our attention to the relevant paragraphs of the observations in the order passed by Principal Ld. CIT(Appeals) in the 263 order, we are of the considered view that in the instant case there was an evident omission on part of the Assessing Officer in passing assessment order, without considering / analysing material aspects concerning the assessee’s case, while passing the assessment order. Accordingly, we find no infirmity in the order of Principal CIT so as to call for any interference.

Another aspect of the matter is whether Principal CIT is empowered to suo moto pass 263 order thereby enhancing the assessment, as in the instant case. It would be useful to reproduce the relevant extracts of section 263 of the Act, for ready reference:

Further, the related appeal filed by the assessee relates to penalty imposed u/s 271(1)(c) of the Act, in relation to the aforesaid transaction. In our considered view, looking into the facts of the assessee’s case, we find no infirmity in the order of Principal CIT so as to call for any interference.

In the combined result, both the appeals filed by the assessee are dismissed. This Order is pronounced in the Open Court on 25/03/2025