ANCHA SHANKER RAO,NEW DELHI vs. ITO, WARD- 65(1), NEW DELHI

1. The learned CIT(A) erred in law and on facts in confirming the action of the assessing officer in reopening the assessment u/s. 148 of the Act on the basis of incriminating material found during the course of search of a third party whereas the provisions of section 153C of the Act could only he applied to the exclusion of the sections 147 and 148 of the Act. Thus the assessment should be annulled.

The facts in brief are that assessee is an individual and is worked with NCB Delhi Unit, MHA as Zonal Director and only source of income is salary. An information was received from DIT (Inv.), New Delhi that the assessee has paid regular fee amounting to Rs.9,33,000/- by demand draft and Rs.7,27,000/- in cash towards regular fee made to Santosh Medical College, Ghaziabad for his daughter’s medical education. Based on such information, assessee’s case was picked up for scrutiny u/s.148 vide notice dated 18.03.2014. The reasons recorded for taking action u/s.148 were as under:

In response to the show cause notice to submit the source of payments made towards regular fee made to Santosh Medical College in respect of his daughter for MBBS course, the assessee submitted that he has incurred expenditure of Rs.16,60,000/- in a span of six year as regular fee and during the year only Rs.3,81,000/- has been paid towards regular fee and that too has been paid by his wife Mrs. Ancha Kavitha. The ld. Assessing Officer on the basis of information, observed that during the financial year 2007-08 the total fee in cash paid was Rs.3,96,000/-; and to verify the same the Assessing Officer asked for further documentary evidences regarding fee payment by assessee’s wife. In response, the assessee submitted her income tax return, bank statement, cash flow statement, etc.. It was further submitted that she has rental income and agricultural income out of which she had paid the fees. However, the ld. Assessing Officer did not accept the explanation by the assessee and added the entire amount of Rs.3,96,000/-.

Ld. CIT (A) has confirmed the said addition after observing and holding as under: “On merit, the appellant has claimed that the fee of the ward of the appellant was paid by his wife Mrs. Ancha Kavitha and in support of this, the copy of return, capital account, cash flow statement and her bank statement was filed. The submission of the appellant that this amount has been declared in the Return of Income of the wife of the appellant has also been considered and it is gathered that Return of Income of the wife of the appellant was filed in ITR-4 showing the rental income, interest income, loss from business and agriculture income. However, no copy of return was filed by the appellant except the acknowledgment. Besides this, the copy of return of the wife for A.Y. 2004-05, 2005-06 and 2006-07 was filed which was in Form Saral which does not require to file capital account and balance sheet. Beside this, for A.Y. 2007-08 and A.Y.2008-09 the appellant has only filed the acknowledgment of filing of Return of Income without the copy of return and this shows that balance sheet and capital account and capital account which is now filed has never been filed along with the Return of Income. In the cash flow statement submitted by the appellant in the paper book the accumulation of cash in the account of agriculture income which is shown of Rs. 2,40,000/- on 21.05.20017 on one single day. Further, the balance accumulation of cash was shown of rental income and surprisingly the house hold expenses was shown only of Rs. 2500/- per month on first day of every month till August, 2007. The Assessing officer in the assessment order has mentioned that during the course of assessment proceedings, the appellant could not produce any documentary evidence in support of the claim that there was any agricultural income out of which the wife has paid the fee. Further, the vital fact is the neither this amount has been shown as withdrawal in the bank account nor in the capital account. Further, this was also not filed in response to show cause notice dated 24.02.2016 Hence the total fee paid in cash of Rs. 3,96,000/- was treated by the AO as unexplained, Now, during the course of appellate proceedings also the appellant could not produce any documentary evidence in support of the claim that the fee was paid by the wife of the appellant.” 6.11 The appellant himself is an Additional Secretary Rank Officer in the Government of India and when this money is paid in cash the appellant has dialed to substantiate before the Assessing Officer that this money has been paid by the wife of the appellant. Further, the appellant has also accepted the fact that Rs. 15,000/- was paid for the fee of the daughter during the year and in subsequent year also. Apparently, when the appellant and his wife has good banking habit and had so many bank accounts why this money was kept in cash at house and why the payment of fee was made in cash to the college could not be substantiated by the appellant who is a senior Government servant and knows the implication of receiving cash and giving cash. The plea of the agricultural income which shown the agricultural income in assessment year 2007-08 of Rs. 3,60,000/- in the case of the wife of the appellant was not supported by any documentary evidence either during the course of assessment proceeding or during the course of appellant proceedings. The cash flow statement, balance sheet and capital account of the wife of the appellant are only self serving documents and after thought and deserves to be rejected.”

On validity of reopening u/s.147/148, the Ld. CIT (A) has rejected the same after detailed discussion.

Before us, ld. counsel for the assessee submitted that here in this case notice u/s.148 was issued on 18.03.2015, whereas the information and material was received on 29.04.2015, which is evident from the record. Apart from that, from the perusal of the annexures supplied with the information goes to show that there is no reference of the entire amount paid during the year as it is spread over the period of five years and even the information itself is vague. This goes to prove that Assessing Officer has not applied his mind and the entire reasons is based on borrowed satisfaction.

On merits, he submitted that before the Assessing Officer, the assessee has filed not only the copy of returns of income of his wife, but also cash flow statement, statement of computation of income filed along with return of income, balance sheet, statement of affairs, etc. to prove that, assessee’s wife was a regular income tax assessee and has huge agricultural income and rental income. From the perusal of the bank statement and cash flow, he pointed out that there were regular withdrawals from the bank account and the source of the deposits was mostly from rental income and some agricultural income. He drew our attention to page 23 of the paper book which is a statement of cash flow and copy of bank statement from pages 24 to 31. Once the deposit of fee and the receipt thereon is in the name of the wife and she has given fees out of her own income, then there is no reason as to why any addition could be made in the hands of the assessee.

Before going on the validity of the reopening, I find that on merits itself before the authorities below, the assessee has explained that the cash fees of petty sums during the relevant financial year was paid by assessee’s wife Mrs. Ancha Kavitha. Not only she is a regular income tax assessee but from the perusal of the computation of income for the relevant Assessment Year, it is seen that she has gross rental income of Rs.3,56,822/-, income from other sources of Rs.6,14,198/- on account of interest and agricultural income at Rs.2,40,000/-. She has a land holding of more than 18 acres which is evident from the statement of affairs filed before the authorities below along with her return of income. Further the capital account as on 31.03.2008 shows children education fees of Rs.4,09,220/- Thus, the payment of fees for daughter’s medical education has been duly disclosed by her in her income tax returns. Apart from that, the source of payment is duly evidenced by cash flow statement wherein the assessee has shown rental income as well as agriculture income and there are regular withdrawals not only for the house hold but also for the fees. Thus, the entire source for the payment of fees stands proved from the records of the assessee’s wife and even the payment of fees acknowledges the receipts on the name of the assessee’s wife, Mrs. Ancha Kavitha. Under these circumstances, it is very difficult to presume that assessee being a salaried employee must have paid cash out of his undisclosed source without any material on record to indicate that assessee has paid the fees on his own account or there is any mention of assessee has paid cash in any of the investigation report. Thus, the addition made by the Assessing Officer is deleted from the hands of the assessee.

Since, I have deleted the addition on merits; therefore, the validity of reopening and other issues challenged before us has become purely academic and hence are infructuous.

In the result, the appeal of the assessee is allowed.