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Facts
The assessee, engaged in tractor trading, filed a return declaring Rs. 4,97,230. The case was reopened under Section 147, and the Assessing Officer (AO) added Rs. 15,47,455 as unexplained money, considering the difference between bank deposits and declared turnover. The Commissioner (Appeals) dismissed the assessee's appeal.
Held
The Tribunal held that the addition was bad in law because the AO rejected the assessee's explanation regarding the difference in deposits and turnover without sound reasoning. The appellate authority also failed to give due consideration to the assessee's submissions.
Key Issues
Whether the reopening of assessment was valid and whether the addition made by the AO on account of unexplained deposits, without properly considering the assessee's explanation, was justified.
Sections Cited
147, 148, 142(1), 44AD, 143(3), 144, 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2014-15 Rajeev Kumar Sehgal v. The Income Tax Officer 3(4) Punjab Colony Lakhimpur Kheri - 2 Lakhimpur Kheri TAN/PAN:ASBPS5131M (Appellant) (Respondent) Appellant by: Shri Saurabh Gupta, C.A. Respondent by: Shri Sanjeev Krishna Sharma, D.R. O R D E R
This appeal has been preferred by the Assessee against the order dated 14.12.2023, passed by the ld. Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi for Assessment Year 2014-15.
2.0 The brief facts of the case are that the assessee was engaged in the business of trading in Tractors under the proprietorship concern, M/s J.K. Tractors. Besides, the assessee was also the partner of a firm, M/s Hansraj Auto Sales. The assessee filed his return of income for the year under consideration on 27.03.2015, declaring a total income of Rs.4,97,230/-. Subsequently, the case of the assessee was reopened under section 147 of the Income Tax Act, 1961 (hereinafter called “the Act’) after issuing notice under section 148 of the Act to the assessee. In response to the notice under section 148 of the Act, the assessee filed his return of income on 27.04.2021, declaring the same income as declared in the original return of income, i.e. Rs.4,97,230/-. Thereafter, in response to the statutory notice under section 142(1) of the Act issued by the AO, the assessee filed a reply dated 12.03.2022, stating therein that the assessee deals in retail business of Tractors and was also partner in a firm and during the year under consideration he had filed his return showing total income of Rs.4,97,230/- which included income from the firm, bank interest and income from own business, and that the total turnover from Tractor sales was Rs.29,76,500/-only and that therefore, he had filed his return as per provisions of section 44AD of the Act after applying 8% Net Profit rate, showing income at Rs.2,38,130/-. The assessee also furnished the computation of total income before the AO for verification. It was further submitted before the AO that the assessee does not maintain books of account, as the total turnover during the year under consideration was only Rs.29,76,500/- which was below the prescribed limit for maintaining regular books of account as per the Income Tax Act, 1961. The assessee had also furnished copy of assessee’s bank account details with the State Bank of India and submitted that the assessee had only one bank account and that the cash deposited in the State Bank of India was out of sales during the year under consideration and also collections from debtor balances of earlier years received during the year. However, not being convinced with the reply furnished by the assessee, the AO held that the cash deposits to the tune of Rs.15,47,455/- (Rs.79,80,811 – Rs.64,33,355) remained unexplained. He, therefore, treated the same as unexplained/unaccounted money of the assessee and added the same to the income of the assessee. The AO completed the assessment under section 147 read with sections 144 and 144B of the Act, assessing the total income of the assessee at Rs.20,44,685/-.
2.1 Aggrieved, the Assessee preferred an appeal before the NFAC, which dismissed the appeal of the assessee on merits.
2.2 Now, the assessee has approached this Tribunal challenging the dismissal of his appeal by the NFAC by raising the following grounds of appeal:
1. That the learned Commissioner of Income Tax Appeals NFAC has erred in law and on facts and circumstances of the case in appreciating that Reopening the Assessment u/s 148 of the Act is barred by limitation as per proviso to Section 147 of the Act.
2. That the learned Commissioner of Income Tax Appeals NFAC has erred in law and on facts and circumstances of the case in not giving any finding with respect to Reopening an already concluded assessment u/s 143(3), especially when no fresh material has been brought on record to suggest any escapement of income.
3. That the Learned learned Commissioner of Income Tax Appeals NFAC failed to appreciate the argument that the appellant had already furnished all documents and material necessary for the purposes and to the satisfaction of the Ld Assessing Officer at the time of Original assessment and hence re-opening of assessment without there being any fresh material on record, is bad in law, moreover no finding in this respect has been given by the learned Commissioner of Income Tax Appeals NFAC.
4. That the learned Commissioner of Income Tax Appeals NFAC failed to appreciate that re- opening of a concluded assessment tantamount to review or change of opinion, which is not permissible under the Act.
5. That the learned learned Commissioner of Income Tax Appeals NFAC has erred in law and on facts and circumstances of the case in appreciating that Reopening the assessment only on a sole reason of the Audit party objection, without there being any independent application of mind to support the same, thus rendering the entire proceeding null and void.
6. That the learned Commissioner of Income Tax Appeals NFAC has failed to appreciate that the very foundation of the assessment i.e. reasons recorded for reopening the assessment are flawed and defective in as much as a work of surmises and estimates without there being any proper corroborative evidence to support that any income has escaped assessment.
7. That the learned Commissioner of Income Tax Appeals NFAC has erred in law and on facts and circumstances of the case in confirming the addition of Rs.15,47,455/- treating the difference in the bank deposits and turnover to be income of the appellant.
8. That the learned Commissioner of Income Tax Appeals NFAC has failed to appreciate that not all deposits in the bank account were turnover of the appellant. Instead the deposits were of different natures as well..
That the order passed by the learned Commissioner of Income Tax Appeals NFAC is without giving proper opportunity and bad in law.
That the order passed by the learned Assessing Officer is against the merits, circumstances and legal aspects of the case.
That the appellant craves leave to add, alter, amend of withdraw any or all the grounds of appeal on or before the hearing. 3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the assessee was engaged in the business of trading in Tractors during the year under consideration. It was submitted that in the captioned assessment year, the return of income was filed declaring income of Rs.4,97,230/- and subsequently assessee’s case was reopened under section 147 of the Act based on the observations of the Audit party. It was submitted that subsequently assessment was completed by making an addition of Rs.15,47,455/- on account of alleged unexplained money. The Ld. A.R. submitted that ground Nos. 1 to 7 primarily challenged the reopening of the assessee’s case based on the audit objection and also action of the ld. CIT(A) in upholding the same. My attention was drawn to the written submissions in this regard, which are placed at pages 1 to 11 of the paper book and my attention was also drawn to the judicial precedents, supporting assessee’s contention that the reopening was bad in law on the facts of this case. These written submissions and case laws cited in the written submissions have been taken on record and will be given due consideration.
3.1 The Ld. A.R. further submitted that ground Nos. 8 to 11 challenged the impugned addition on merits. It was submitted that the AO had added an amount of Rs.15,47,455/- being the difference in total deposits and turnover of the assessee. It was submitted that during the course of reassessment proceedings, the assessee had duly furnished copies of bank statements along with summary of the same and even proper explanations were offered, but the AO had failed to appreciate that the differential amount pertained to the amounts received as payments from debtors during the captioned assessment year. It was also submitted that since the assessee had furnished his return under section 44AD of the Act, the assessee was not required to maintain regular books of account, but all the same, the details of payments received from debtors were duly furnished before the AO and copy of the Ledger accounts were also furnished and were appearing at pages 31 to 51 of the paper book filed by the assessee. It was submitted that, therefore, on the facts of the case, the AO had made the addition without understanding the correct picture. It was prayed that the assessee’s appeal be allowed.
4.0 Per contra, the Ld. Sr. D.R. supported the orders of both the lower authorities and vehemently argued that reopening of assessment based on Audit Report is now held to be a valid reason for reopening. On merits, it was submitted that the discrepancy in sales had to be taxed, because the assessee was not maintaining regular books of account and there was difference in the credits in the bank account of the assessee and turnover declared by the assessee. It was prayed that the appeal of the assessee be dismissed.
5.0 I have heard the rival submissions and have also perused the material on record. The only dispute before me is the addition of Rs.15,47,455/-. It is seen that the turnover declared by the assessee was to the tune of Rs.64,33,355/- whereas the cash deposits were to the tune of Rs.79,80,811/- and the AO was of the opinion that the assessee had not declared correct figure of the turnover and that the correct turnover was Rs.79,80,811/-, being deposits in the bank account. It was the explanation of the assessee before the AO that the differential amount pertained to collection from debtors and the assessee had also surrendered an amount of Rs.30,000/- before the AO to account for any possible leakage, but the AO did not accept the contention of the assessee in this regard and proceeded to add the impugned amount of Rs.15,47,455/- as being unexplained. It is seen that the assessee had also filed copies of Ledger accounts of buyers to demonstrate that the payments had indeed been received from debtors and this was the reason that there was difference in cash deposits and turnover declared by the assessee. However, the AO rejected the submission of the assessee without assigning any reason and without pointing out as to how this contention of the assessee was to be disbelieved. Therefore, in the light of the facts and circumstances of the case, I am of the view that the impugned addition was bad in law for the reason that the explanation offered by the assessee was disregarded without any sound reasoning on the part of the AO and the Ld. First Appellate Authority had also not given due consideration of the submissions of the assessee. Thus, without pointing out any specific defect in the explanation offered by the assessee, the same could not have been rejected. Accordingly, I set aside the order of the Ld. First Appellate Authority on the issue and direct deletion of the impugned amount.
6.0 In the final result, the appeal of the assessee stands partly allowed.
Order pronounced in the open Court on 04/07/2025.