VULLI RADHAKRISHNA,TUNI vs. INCOME TAX OFFICER, WARD-1, TUNI

Succinctly stated, the AO based on information that the assessee during the subject year had carried out substantial financial transactions, viz., (i) cash deposits in Savings Bank account No.58301501039 with ICICI Bank, Madhapur Branch, Hyderabad: Rs.26,32,633/-; (ii) payment against credit bills (in excess of Rs. 2 lakhs): Rs.11,79,160/-; (iii) cash deposits in bank: Rs.2,50,000/-; (iv) purchase of equity shares in a recognized stock exchange: Rs.3,76,565/-; and (v) sale of equity shares: Rs.1,68,662/-, initiated proceedings under section 147 of the Act. Notice under section 148 of the Act was issued by the AO. In compliance, the assessee filed his return of income declaring an income of Rs. 4,66,520/-

Thereafter, the AO vide his order passed under section 147 r.w.s 144 r.w.s 144B of the Act, determined the income of the assessee at Rs.56,35,451/- after making certain additions, viz. (i) addition of unexplained deposits under section 69A of the Act: Rs. 28,82,633/-; (ii) addition of unexplained payment of credit cards bills: Rs.11,79,160/-; (iii) unexplained investment towards purchase of equity shares: Rs.3,76,565/-; and (iv) short term capital gains (STCG) on sale of equity shares: Rs.1,68,552/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.

The assessee aggrieved with the order of the CIT(A) has carried the matter in appeal before us.

We have heard the Learned Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

Shri GVN Hari, Advocate, the Learned Authorised Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal, submitted that the reassessment order passed by the AO under section 147 r.w.s 144 r.w.s 144B of the Act, dated 26/03/2022, is invalid in the eyes of law. Elaborating on his contention, the Ld. AR submitted that prior to the insertion of section 151A of the Act, there was no provision for any scheme for “Faceless Assessment of Income Escaping Assessment”. Accordingly, it was Ld. AR’s claim that as the Faceless Assessment of Income Escaping Assessment scheme in pursuance of section 151A of the Act, viz., “e-Assessment of Income Escaping Assessment Scheme, 2022” was introduced only w.e.f 29/03/2022, therefore, prior to the said cut of date, all assessments in pursuance of section 147 were to be made only by the Jurisdictional Assessing Officer (JAO). Elaborating on his contention, the Ld. AR submitted that as the reassessment order in the present case under section 147 r.w.s 144 r.w.s 144B of the Act, dated 26/02/2022, has been passed by the National Faceless Assessment Centre (NFAC), Delhi, i.e., by the Faceless Assessing Officer (FAO), therefore, the same is invalid and is liable to be struck down for want of valid assumption of jurisdiction.

On merits, the Ld. AR submitted that the AO, while treating the entire amount of cash deposits of Rs. 28,82,633/- made by the assessee in his bank account No. 58301501039 with ICICI Bank Ltd, Madhapur Branch, Hyderabad, had most arbitrarily not considered the availability of the cash-in-hand with the assessee that was sourced out of the substantial amount of cash withdrawals that were made by him from the same bank account during the subject year. To sum up, Ld. AR submitted that the AO had grossly erred in not considering the claim of the assessee that the cash withdrawals made from the bank account were utilised for redepositing in the same bank account and, thus, the addition in his case was liable to be restricted only to the extent of the peak credit of Rs. 8,18,940/-.

Apart from that, the Ld. AR submitted that the AO, without providing the details of the alleged credit card payments of Rs. 11,79,160/-, had most arbitrarily added the same by treating it as a payment sourced out of the unexplained sources of the assessee. Also, the Ld. AR submitted that the AO had, without any basis, held the investment of Rs. 3,76,565/- made by the assessee towards the purchase of equity shares, which in turn were sourced from the payments made from the aforesaid bank account No. 58301501039 with ICICI Bank Limited, Madhapur Branch, Hyderabad, as having been made by the assessee from his unexplained sources. Further, the Ld. AR submitted that the AO had most arbitrarily held the entire amount of sale proceeds of equity shares of Rs. 1,68,552/- as Short-term capital gain (STCG) in the hands of the assessee. Lastly, the Ld. AR submitted that the AO, without providing the details of the payments which were alleged to have been received by the assessee during the subject year aggregating to Rs. 5,62,021/-, viz., (i) payments received from M/s. HDB Financial Services Ltd: Rs. 3,64,826/-; and (ii) payments received from Axis Securities Ltd: Rs. 1,97,195/- had, most arbitrarily held the same as having been sourced out of the assessee’s undisclosed income for the subject year.

Per contra, Dr. Aparna Villuri, the Learned Senior Departmental Representative (for short, “Ld. Sr. DR”), relied upon the orders of the lower authorities.

We have given thoughtful consideration to the contentions advanced by the Ld. AR on the aforesaid multi-facet issues as had been raised before us.

Apropos the contentions advanced by the Ld. AR regarding the validity of the assessment order passed by the FAO under section 147 r.w.s 144 r.w.s 144B of the Act, dated 26/03/2022, on the ground, that prior to the introduction of “e-assessment of income escaping assessment scheme-2022” w.e.f 29/03/2022, the assessment could have validly been framed only by the JAO, we are unable to persuade ourselves to concur with the same. We say so, for the reason that a perusal of section 144B of the Act, i.e., prior to its amendment by the “Faceless Assessment of Income Escaping Assessment-2022” w.e.f 01/04/2022, reveals that the same contemplated that the assessment under sub-section (3) of section 143 or under section 144 in the cases referred to in sub-section (2) of Section 144B, shall be made in a faceless manner as per the procedure therein contemplated. Accordingly, we are of the view that as the pre-amended section 144B of the Act contemplated the framing of the assessment in a faceless manner, therefore, no infirmity emerges from the order passed by the FAO under section 147 r.w.s 144 r.w.s 144B of the Act, dated 26/03/2022, which had been passed by him based on a valid assumption of jurisdiction. At this stage, it would be relevant to point out that Shri GVN Hari, the Ld.AR had, after arguing at some length, sought not to advance any further contentions on the aforesaid issue.

Coming back to the merits of the case, we are unable to fully persuade ourselves to subscribe to the AO’s view that no credit of any part of the cash withdrawals made by the assessee from the same bank account, i.e., account No.58301501039 held with ICICI Bank, Madhapur Branch, Hyderabad was to be allowed while considering his explanation regarding the source of the cash deposits of Rs. 28,82,633/- made in the same bank account during the subject year. We say so, for the reason, that a perusal of the bank account of the assessee, as had been culled out by the CIT(A) at Page No.6-10 of his order, reveals that on certain dates there were substantial amount of cash withdrawals made by the assessee, i.e., on dates bearing a proximity with the dates on which the subject cash deposits were made in the same bank account. Accordingly, the said cash withdrawals to some extent could safely explain the source of the cash deposits in the said bank account. Although, we are not oblivion of the fact that the cash withdrawals made by the assessee would be for a specific purpose of utilizing the same, but at the same time, taking a view that the entire amount would have been utilized by the assessee and no part out of the said cash withdrawals would be available with him to source the cash deposits on the subsequent dates in the same bank account is also incomprehensible. Our aforesaid view is fortified by the fact that it is neither the case of the revenue nor any material has been placed on record, which would establish that the entire amount of cash withdrawals made by the assessee during the year was utilized or invested by the assessee and, thus, was no more available with him for sourcing the subsequent cash deposits made in the same bank account. In our view, the matter in all fairness requires to be restored to the file of the AO for re-adjudicating the same in terms of our aforesaid observations.

Apropos the Ld. AR’s contention that now when the payments of the credit card bills were made by the assessee from his aforesaid Savings Bank account No.58301501039 with ICICI Bank Limited, Madhapur Branch, Hyderabad, therefore, the AO ought not to have made a separate addition, we find substance in the same. In our view, either where the cash deposits/credits in the assessee’s bank account are found to have been made from explained sources; or in absence of a plausible explanation regarding the source of the same, had been held to have been made from unexplained sources and added to the assessee’s income under section 69A of the Act, the subject payments of the credit card bills to the extent the same are sourced from the aforesaid amounts cannot be separately added in the hands of the assessee, as the same will otherwise result to a double addition. However, the said issue would require verification of the correct factual position. Accordingly, we herein restore the matter to the file of the AO, who is directed to look into the explanation of the assessee regarding the source of the subject payments of the credit card bills and re- adjudicate the issue in terms of our aforesaid observations.

Coming to the addition made by the AO towards the purchase of equity shares of Rs. 3,76,565/-, we find that it is the claim of the Ld. AR that no details regarding the said purchase transactions were provided to the assessee. Apart from that, it is the claim of Ld. AR, that as the purchase of the equity shares was made by the assessee from his aforementioned bank account No. 58301501039, therefore, the same could not be held to be an unexplained purchase transaction. In our view, both the aforesaid contentions of the assessee, based on which the assessee has assailed the addition of Rs. 3,76,565/-, require to be verified by the AO. In our view, either where the cash deposits or credits in the assessee’s bank account are found to be from explained sources; or in absence of a plausible explanation regarding the source of the same, had been held to have been made from unexplained sources and added to the assessee’s income under section 69A of the Act, then, the subject payments made by him towards purchase of the subject equity shares to the extent the same are sourced from the said amounts cannot be separately added in the hands of the assessee, as the same will otherwise result to a double addition in his hands. Accordingly, the AO is directed to both provide the details of the purchase of the equity shares and also verify the source of the subject purchase of equity shares and re-adjudicate the issue in terms of our aforesaid observations. Accordingly, we set aside the matter to the file of the AO for readjudication in terms of our aforesaid observations.

Coming to the Ld. AR’s claim that the AO had erred in treating the entire amount of sale proceeds of equity shares of Rs. 1,68,552/- as short-term capital gain (STCG) in the hands of the assessee, we find substance in the same. In our view, the entire amount of the sale proceeds of the equity shares could not have been brought to tax as STCG in the hands of the assessee. In our view, the AO ought to have allowed the cost of acquisition of the subject equity shares while computing the STCG, if any, arising on the said sale transaction.

We shall now deal with the Ld. AR’s claim that the AO was not justified in making an addition of Rs. 5,62,021/-, viz., (i) alleged receipt of money from M/s. HDB Financial Services Ltd: Rs. 3,64,826/-; and (ii) alleged receipt of money from Axis Securities Ltd: Rs. 1,97,195/-, as no details regarding the mode of receipt and nature of receipt were provided to the assessee. Ostensibly, the AO in the assessment order had not mentioned the requisite details of the aforementioned receipts aggregating to Rs. 5,62,021/-. In our view, the AO, before making the impugned addition, ought to have communicated the complete details of the aforementioned additions which were proposed by him, and only after seeking an explanation of the assessee ought to have made the impugned addition. Be that as it may, in our view, the matter requires to be set aside to the file of the AO, who is directed to provide the requisite details of the aforesaid impugned additions and call for an explanation of the assessee regarding the source of the same before drawing any inference.

We, thus, in terms of our aforesaid observations, set aside the matter to the file of the AO with a direction to re-adjudicate the subject issues afresh after affording a reasonable opportunity of being heard to the assessee.

Resultantly, the appeal filed by the assessee is allowed for statistical purposes in terms of our aforesaid observations.