Loading judgment…
Facts
The assessee filed a return declaring income. Subsequently, the AO initiated reassessment proceedings based on information regarding cash deposits in a firm's bank account and purchase of an immovable property. Additions were made under Sections 68 and 69 of the Income Tax Act.
Held
The Tribunal found that both the assessment and first appellate proceedings were largely based on alleged non-compliance without proper examination of evidence. Substantial jurisdictional and factual issues were raised, requiring proper verification.
Key Issues
Whether the reassessment proceedings were validly initiated and whether the additions under Sections 68 and 69 were justified, considering the grounds of violation of natural justice and lack of proper evidence.
Sections Cited
147, 148, 143(3), 68, 69, 144, 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI BHAGIRATH MAL BIYANI
O R D E R
PER SIDDHARTHA NAUTIYAL - JM:
The present appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 21.12.2024 passed for A.Y. 2018-19.
The Assessee has raised the following grounds of appeal:
“1) Because the impugned assessment order and the confirmation of same by the learned CIT(A) is bad in law and without jurisdiction as both the lower authorities failed to appreciate that to invoke section 148, the AO must establish a live link with the information in possession and the appellant and in absence of such live link, no notice under that section can be issued merely on the basis of some allegation. Further, they failed to record any 'reason to believe' that both the income has escaped assessment both the orders deserves to be set aside / quashed. 2) Because, the impugned assessment order as also the order passed by CIT(A) are bad in law and without jurisdiction in as much as they failed to give reasons and / or evidences against the appellant for making addition of Rs 1600687 on the alleged ground of cash deposit / credit to the tune of Rs.1600687 particularly when there is no such cash deposit in the period in the books of accounts of the appellant. (3) Because the learned AO failed to record that there was an "Information" as defined in Explanation 1 to section 148 suggesting that income chargeable to tax has escaped assessment and the learned CIT(A) has also erred in law in confirming such order. Hence the impugned order deserves to be set aside / quashed. (4) Because both the lower authorities erred in law in making as also in confirming the addition u/s 68 of the IT Act. They failed to appreciate that for invoking the provisions of section 68 the AO must satisfy himself that the sum credit must be in the books of accounts of the assessee himself and not in the books of accounts of any third entity. In absence of satisfaction of the prerequisite conditions of section 68, the impugned orders deserve to be set aside / quashed, more particularly when the appellant produced evidences in the shape of bank accounts that no such cash deposit was made during the period under consideration in the books of accounts of the appellant. (5) Because the learned AO as also the CIT(A) failed to appreciate that once the appellant produces evidence to support his case, the burden to prove that there is a sum credited in the books of the appellant which is either unexplained or the explanation furnished is not satisfactory is upon revenue. (6) Because, both the authorities below erred in law in not giving any reason for not accepting explanation furnished by assessee. Mere saying that 'statement is not found satisfactory' is in fact amounts to arbitrary exercise of powers and the consequential order deserves to be set aside on that ground alone. (7) Because, both the authorities below while making addition under section 69 for Rs. 775000/- in respect of investment in purchase of property and confirming the same, have failed to appreciate that when all payments have been duly disclosed and through banking channels merely stating the assessee failed to establish the source is not sufficient. They failed to appreciate that for invoking section 69 it is sine qua non that there is an investment which is outside the books and the explanation regarding source is not acceptable to AO on a cogent reason. (8) Because, both the authorities below failed to see that when initial onus cast upon assessee has been discharged by the assessee by way of providing bank statements wherein entries of payment for purchase of property can be found and sufficient credit entries are also available, the burden shifts to revenue to prove that such credit entries are bogus resulting in unexplained investment entries, particularly when income returned has been accepted by AO. 9) Because, the impugned assessment order is without jurisdiction being non est in law on account of non-observance of the mandatory statutory procedure laid down under the provisions of section 144B of the Act. 10) Because, the impugned assessment order is bad in law and without jurisdiction as the same has been passed u/s 144 without mentioning the fact that how the said section is invocable. In absence of satisfaction of prerequisite conditions for invocation of section 144 the order is not sustainable in law.
Kunal Vyas vs. ITO A.Y. 2018-19 - 3 - 11) appellant prays that the said ex-parte order of learned CIT(A) being in violation of principles of natural justice be set aside and restored back for fresh hearing with adequate opportunity of hearing. 12) That appellant craves leave of this authority to add, amend or alter the grounds as and when necessary.”
The brief facts of the case are that the assessee, an individual, filed his return of income for A.Y. 2018–19 declaring a total income of ₹7,11,490/-. Subsequently, based on information available with the Assessing Officer, it was observed that during the relevant year the assessee had deposited cash of ₹16,00,687/- in bank accounts of a firm namely M/s Middle India Distribution Network (MIDN), which was suspected to be a benami entity, and had also purchased an immovable property for a consideration of ₹65,50,000/-. On the basis of this information, the Assessing Officer formed a belief that income chargeable to tax had escaped assessment and accordingly initiated reassessment proceedings by issuing notice under section 148 of the Act. During the reassessment proceedings, the Assessing Officer observed that the assessee had purchased the immovable property jointly with his wife and that although a bank loan of ₹50,00,000/- was explained, the source of the balance amount of ₹15,50,000/- was not satisfactorily established. Since the property was jointly purchased, the Assessing Officer treated 50% of such amount, i.e., ₹7,75,000/-, as unexplained investment in the hands of the assessee under section 69 of the Act. As regards the cash deposits of ₹16,00,687/-, the Assessing Officer held that the assessee failed to produce documentary evidence to establish that the amounts represented genuine subscription receipts of the firm. Relying upon information received from GST authorities alleging that MIDN was part of a network of benami entities, the Assessing Officer treated the said amount as unexplained cash credit under Kunal Vyas vs. ITO A.Y. 2018-19 - 4 - section 68 of the Act. Since the assessee was stated to be non-compliant to notices, the assessment was completed under section 147 read with section 144 and section 144B of the Act by making additions of ₹16,00,687/- under section 68 of the Act and ₹7,75,000/- under section 69 of the Act.
Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(Appeals). Before the CIT(Appeals), the assessee raised multiple grounds challenging the very assumption of jurisdiction under section 148 on the ground that there was no valid “information” as contemplated under Explanation 1 to section 148 and no live link between the alleged information and the assessee. The assessee also challenged the addition under section 68 of the Act by contending that no sum was found credited in the books of the assessee and that the Assessing Officer had failed to identify specific entries. With respect to the addition under section 69 of the Act, the assessee contended that all payments for purchase of property were through banking channels and duly recorded, and therefore section 69 of the Act had no application. The assessee further challenged the validity of assessment framed under section 144 and section 144B on the ground of violation of mandatory procedure and principles of natural justice. The learned CIT(Appeals), however, dismissed the appeal. The CIT(Appeals) held that the reopening of assessment was based on tangible information regarding cash deposits and property purchase and that due procedure under section issued notice u/s 148 of the Act had been followed. On merits, the CIT(Appeals) observed that the assessee failed to substantiate the nature and source of cash deposits of ₹16,00,687/- and also failed to establish the identity, genuineness and creditworthiness of the transactions, especially in view of the information regarding MIDN being Kunal Vyas vs. ITO A.Y. 2018-19 - 5 - part of a benami network. Accordingly, the addition under section 68 of the Act was confirmed. As regards the property purchase, the CIT(Appeals) held that the assessee could not reasonably explain the source of investment to the extent of ₹15,50,000/- and therefore the addition of ₹7,75,000/- under section 69 of the Act was upheld. The CIT(Appeals) also rejected the jurisdictional and procedural grounds and held that the assessment under section 144 read with section 144B was valid. Consequently, all the grounds of appeal were dismissed.
Before us, the Counsel for the assessee submitted that the reassessment proceedings are without jurisdiction as there was no valid information or live link to justify reopening under section issued notice u/s 148 of the Act. It has been contended that no cash was found credited in the books of the assessee so as to invoke section 68 of the Act and that the alleged cash deposits pertain to a third-party entity. It has further been submitted that for invoking section 69 of the Act, there must be an investment outside the books, which is not the case here as all payments were through banking channels and duly reflected. The assessee has also strongly contended that both the assessment and appellate orders suffer from serious violations of principles of natural justice as the assessment was completed ex parte and the appeal was also disposed of without effective opportunity of hearing.
We have heard the rival contentions and perused the material on record.
On consideration of the overall facts and circumstances of the case, we find that the assessment as well as the first appellate proceedings have Kunal Vyas vs. ITO A.Y. 2018-19 - 6 - been completed largely on the basis of alleged non-compliance and without proper examination of the explanations and evidences claimed to have been available on record. We further find that the assessee has raised substantial jurisdictional as well as factual issues relating to the applicability of sections 68 and 69 of the Act and the validity of proceedings under sections 147, 144 and 144B of the Act, which require proper verification and reasoned adjudication.
In the interest of justice, therefore we are of the considered view that the matter deserves to be restored to the file of the Assessing Officer for fresh adjudication after granting adequate opportunity of being heard to the assessee and after examining all supporting documents and explanations that may be furnished. Accordingly, the matter is restored to the file of the Assessing Officer for de-novo consideration in accordance with law. The Assessing Officer shall afford reasonable and effective opportunity of hearing to the assessee and shall pass a speaking order after duly considering the submissions and evidences placed on record.
The appeal of the assessee is allowed for statistical purposes. This Order pronounced on 23 /12/2025