SADHIKA GANNI,RAJAHMUNDRY vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2,, RAJAHMUNDRY

We may herein observe that this is the second round of litigation before us. On a perusal of the record, we find that the earlier order under Section 263 of the Act, dated 29.03.2022 passed by the Principal Commissioner of Income Tax - 1, Visakhapatnam, was set aside by the Tribunal to his file vide its order passed in dated 21.12.2023. The Tribunal, while setting aside the order, had directed the Pr. CIT to afford an opportunity of being heard to the assessee, and redecide the matter within 60 days from the date of its order.

Thereafter, the Pr. CIT had issued a fresh “Show Cause Notice” (SCN), dated 12.01.2024 to the assessee. In compliance, the assessee had participated in the proceedings and put forth her case before him.

Shri C. Subrahmanyam, C.A. the Learned Authorized Representative (for short, the “Ld. AR”) for the assessee, at the threshold of the hearing of the appeal, submitted that there is a delay of 10 days involved in filing of the present appeal. Elaborating on the reasons leading to the delay, the Ld. AR submitted that the same had crept in for the bona fide reason that the assessee was during the relevant period suffering with viral fever, and thus, could not visit his counsel’s office within the scheduled time. It was further submitted that the assessee immediately after recovering from his illness had carried out necessary 4 Sadhika Ganni compliance and filed the present appeal on 06.05.2024. The Ld. AR, to buttress his aforesaid claim, had drawn our attention to the application filed by the assessee seeking condonation of the delay that was supported with her “affidavit” dated 23.05.2024. Elaborating further on his contention, the Ld. AR submitted that as the delay in filing the present appeal had occasioned for bona fide reasons and not on account of any lackadaisical approach or malafide conduct of the assessee, therefore, the same, in all fairness, be condoned.

Per contra, Dr. Satyasai Rath, Ld. CIT-Departmental Representative (for short, “Ld. CIT-DR”) candidly submitted that he has no objection to the seeking of the condonation of the delay by the assessee appellant.

We have thoughtfully considered the contentions advanced by the learned authorized representatives of both parties regarding the reasons leading to the delay involved in filing of the present appeal before us. As the delay involved in filing the present appeal is only of 10 days that had occasioned for bona fide reasons beyond the control of the assessee, therefore, we are of the considered view that the same deserves to be condoned. Our aforesaid view is fortified by the recent decision of the Hon’ble Supreme Court in the case of Vidya Shankar Jaiswal vs. The 5 Sadhika Ganni Income Tax Officer, Ward-2, Ambikapur in Special Leave Petition (Civil) Nos. 26310-26311/2024, dated 31st January, 2025, wherein it was observed that a justice-oriented and liberal approach should be adopted while considering an application seeking condonation of delay. We thus, in terms of our aforesaid observations condone the delay involved in the filing of the present appeal.

Succinctly stated, the assessee had during the year under consideration made cash deposits of Rs.1 crore in her bank account with HDFC Bank Account No.50100077065070, Branch: Rajamahendravaram on 12.11.2016, which thereafter was transferred to another account held by one Sri Bhaskara Rao on 14.11.2016.

On a perusal of the record, we find that the case of the assessee was selected for “limited scrutiny” through CASS for verifying the substantial amount of cash deposits made in her bank account, as reported in SFT-003, SFT-004, as the same were found to be significantly large as compared to her returned income. Original assessment was framed by the A.O. vide his order passed under Section 143(3) of the Act, dated 26.12.2019, wherein the returned income of the assessee was accepted as such.

The Ld. Pr. CIT observed that a perusal of the record, revealed, that the assessee in the course of the assessment proceedings on being queried about the source of the cash deposits of Rs.1crore made in her Bank A/c No.50100077065070 (supra), had claimed that the same was sourced from, viz. (i). cash gifts received at the time of her marriage that was solemnized on 06.06.2015; and (ii). cash gifts received on her first marriage anniversary. The assessee, to support her aforesaid claim, had filed a copy of her marriage certificate and two lists showing the names of the persons from whom gifts were claimed to have been received on the occasion of her marriage. One handwritten list with the heading “marriage gifts received on 06.06.2015” mentioned the names of 227 persons and the dates on which the gifts aggregating to Rs.50 lacs were claimed to have been received from them. However, the Ld. Pr. CIT observed that the aforesaid list did not contain the requisite details viz., the addresses of the persons from whom the gifts were claimed to have been received and only made a mention about their names. Further, the Ld. Pr. CIT observed that the other list contained the names of the alleged 410 donors from whom cash gifts aggregating to Rs. I crore was claimed to have been received at the time of marriage. The Ld. Pr. CIT further observed that none of the lists contained the complete addresses of the persons from whom gifts were claimed to have been received, 7 Sadhika Ganni failing which the creditworthiness of the said respective persons and the genuineness of the transactions could not have been verified. Also, the Ld. Pr. CIT observed that the assessee had not filed any list of the persons from whom gifts were claimed to have been received by her at the time of her first marriage anniversary. Further, it was observed by him that the assessee had filed her returns of income for A.Y. 2016-17 and A.Y. 2017-18 on 18.11.2017 and 23.11.2017, respectively, i.e. after making the cash deposits of Rs.1 crore in her bank account on 12.11.2016. The Ld. Pr. CIT held a firm conviction that the assessee had filed the aforementioned returns of income only with the purpose to show the unaccounted cash deposits made in her bank account as having been sourced out of disclosed sources, and thus, get the same subjected to tax at normal rates. The Ld. Pr. CIT was of the view that the A.O., while framing the assessment, had accepted the assessee's explanation regarding the source of cash deposits without making any inquiry regarding the genuineness of her claim of having received cash gifts on the date of her marriage and on her first marriage anniversary. Also, the Ld. Pr. CIT observed that the A.O. had not looked into the reasons as to why the assessee had retained the aforesaid substantial amount of cash that was claimed to have been received by her on 06.06.2015 (date of marriage) till 12.11.2016 (the date on which cash 8 Sadhika Ganni was deposited in her bank account). Further, the Ld. Pr. CIT observed that the A.O. had also not verified the immediate transfer of the said cash deposited in the bank account of the assessee to another account held in the name of Sri Bhaskara Rao on the very next day, i.e., 14.11.2016, which gave rise to suspicion about the genuineness of the explanation of the assessee regarding the source of the cash deposits. The Ld. Pr. CIT, thus, observed that as the A.O. had failed to make necessary inquiry about the genuineness of the cash gifts as allegedly claimed by the assessee, and ought to have rejected the same and held the entire amount of cash deposits of Rs. 1 crore (supra) as her unexplained cash deposits for A.Y. 2017-18 and subjected the same to tax under the provisions of Section 115BBE of the Act, therefore, held the order passed by him under Section 143(3) of the Act, dated 26.12.2019 without making any inquiry or verification, which should have been made, as erroneous insofar as it was prejudicial to the interest of the Revenue under Section 263 of the Act.

Ostensibly, on a perusal of the order passed by the Ld. Pr. CIT under Section 263 of the Act, we find that the assessee has assailed the proceedings that were initiated by him under Section 263 of the Act for the reasons, viz. (i). that the A.O. had after making proper enquiries 9 Sadhika Ganni regarding the cash deposits accepted the explanation of the assessee about the source of the same; and (ii). that as the A.O. had failed to issue any notice under Section 143(2) of the Act, therefore, the assessment order passed by him under Section 143(3) of the Act, dated 26.12.2019, was invalid and void ab initio, which, thus, could not have been revised under Section 263 of the Act.

We find that the Ld. Pr. CIT, after deliberating on the facts involved in the case in the backdrop of the contentions raised by the assessee before him did not find favour with the same and vide his order passed under Section 263 of the Act, dated 28.02.2024, set aside the order passed by the A.O. under Section 143(3) of the Act, dated 26.12.2019, for the limited purpose of verifying the cash deposits made in the bank account of the assessee during the demonetisation period, after affording a reasonable opportunity of being heard to the assessee.

The assessee, being aggrieved with the order of the Pr. CIT passed under Section 263 of the Act, has carried the matter in appeal before us.

We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements 10 Sadhika Ganni that have been pressed into service by them to drive home their respective contentions.

The Ld. AR for the assessee at the threshold of hearing of the appeal, submitted that as the A.O. without issuing any valid notice under Section 143(2) had framed the assessment under Section 143(3) of the Act, dated 26.12.2019, therefore, the Ld. Pr. CIT in the absence of a valid assessment order could not have exercised his revisional jurisdiction under Section 263 of the Act. Elaborating on his contention, the Ld. AR submitted that the notice under Section 143(2) of the Act, dated 11.02.2019, was initially issued by the ACIT, Circle-1, Rajamahendravaram. Thereafter, the assessee was in receipt of notice under Section 143(2) of the Act, dated 24.09.2018, from the ACIT, Circle-2(1), Rajamahendravaram. The Ld. AR submitted that as the A.O., i.e., ACIT, Circle-2(1), Rajamahendravaram, had, in the absence of any order of jurisdiction under Section 127 of the Act, assumed jurisdiction and framed the assessment vide his order passed under Section 143(3) of the Act, dated 26.12.2019, therefore, the same cannot be sustained and is liable to be struck down.

We find on a perusal of the impugned order that the Ld. Pr. CIT had drawn support from the contentions that were raised by the Ld. 11 Sadhika Ganni CIT-DR in the course of first round of proceedings before the Tribunal, wherein, the latter had submitted that as the assessee had not objected to the validity of the jurisdiction that was assumed by the ACIT, Circle- 2(1), Rajamahendravaram, within the statutory period of one month from the date of service of receipt of the notice as provided under Section 124(3)(a) of the Act, therefore, he was thereafter debarred from subsequently calling in question the validity of the jurisdiction assumed by the A.O for framing the assessment. We find that the Ld. Pr. CIT had drawn support from the judgment of the Hon’ble Apex Court in the case of DCIT Vs. Kalinga Institute of Industrial Technology, [SLP Appeal (C) No(S).23904 of 2019, (2023) 151 Taxman 434 (SC) dated 01.05.2023]

We have thoughtfully considered the aforesaid contention of the Ld. AR, wherein he has assailed the validity of the jurisdiction that was assumed by the ACIT, Circle-2(1), Rajamahendravaram, for framing the assessment vide his order passed under Section 143(3), dated 26.12.2019, in absence of valid assumption of jurisdiction on his part. We find substance in the observation of the Ld. Pr. CIT that, as the assessee had not assailed the validity of the jurisdiction that was assumed by the A.O, i.e ACIT, Circle 2(1), Rajamahendravaram who had 12 Sadhika Ganni framed the assessment, within the statutory time period of 30 days of receipt of notice from him, therefore, he was precluded from calling in question the same after the lapse of the said period. Our aforesaid view is supported by the judgment of the Hon’ble Supreme Court in the case of DCIT Vs. Kalinga Institute of Industrial Technology (supra), wherein it was, inter alia, held as under:

As the assessee before us had not questioned the jurisdiction of the A.O., i.e the ACIT, Circle-2(1), Rajamahendravaram within the prescribed period of 30 days from the receipt of notice from him under Section 142(1) of the Act, therefore, she cannot thereafter on the said count assail the validity of the jurisdiction assumed by him after lapse of the said prescribed period and challenge the validity of the assessment framed by the said A.O. under Section 143(3) of the Act.

We shall now advert to the merits of the case. On a careful perusal of the order passed by the A.O. under Section 143(3) of the Act, dated 13 Sadhika Ganni 26.12.2019, we find that the case of the assessee was selected for “limited scrutiny” through CASS for verifying the substantial amount of cash that was deposited by her in her bank account during the subject year, as reported in SFT-003 and SFT-004, as the same was significantly large as compared to her returned income. We find that though the very genesis for selection of the case of the assessee for scrutiny assessment was the substantial amount of cash deposited in her bank account during the subject year, which was not commensurate with her returned income, but, as observed by the Ld. Pr. CIT, and rightly so, the A.O. had, without carrying out any verification summarily accepted the explanation of the assessee that the same was sourced out of the cash gifts that were claimed to have been received by her from her family members and relatives on the occasion of her marriage and the first marriage anniversary.

We, say so, specifically for the reason that, as observed by the Ld. Pr. CIT, the assessee, on being queried about the source of the cash deposits of Rs.1 crore in her Bank Account No.50100077065070 with HDFC on 12.11.2016, had claimed the same was sourced out of two streams, viz. (i) cash gifts received at the time of her marriage that was solemnized on 06.06.2015; and (ii). cash gifts received on the occasion 14 Sadhika Ganni of her first marriage anniversary. However, we find that though the assessee had furnished a handwritten list of 220 persons from whom marriage gifts aggregating to Rs.50 lacs were claimed to have been received by her on 06.06.2015 (supra), but the addresses of the persons from whom the gifts were so claimed to have been received were not available in the said list. Also, in the other list containing names of 410 persons from whom cash gifts aggregating to Rs. 1 core were claimed to have been received at the time of marriage, there was no whisper about their complete addresses; therefore, in absence of the complete details in both the lists, the creditworthiness of the parties and the genuineness of the claim of the assessee of having received cash gifts from them could not be verified. Apart from that, though the assessee, on being queried about the source of cash deposits of Rs.1 crore, had, inter alia, claimed that part of the same was sourced out of the cash gifts received by her at the time of her first marriage anniversary, but no such list was ever filed by her to support the said claim. We concur with the Ld. Pr. CIT that as no details such as PAN, ITR, or verifiable addresses of the aforementioned persons from whom the cash gifts were claimed to have been received were called for by the A.O., therefore, he had grossly erred in summarily accepting the claim of the assessee without verifying the veracity of her explanation regarding the source of 15 Sadhika Ganni the subject cash deposits. Apart from that, we find substance in the Ld. Pr. CIT’s observation that the A.O. had not even looked into the fact that as to why the assessee had retained the substantial amount of the cash gifts for the period, i.e. from 06.06.2015 (the date of marriage) till 12.11.2016 (the date on which cash was deposited in her bank account). Further, the fact that the cash deposit of Rs.1 crore made by the assessee in her bank account on 12.11.2016, had found its way into the account held by one Sri Bhaskara Rao on 14.11.2016 was also lost sight of by the A.O. while framing the assessment. Also, we are in agreement with the Ld. Pr. CIT that the filing of the “returns of income” by the assessee for A.Y. 2016-17 on 18.11.2017 and for A.Y. 2017-18 on 23.11.2017, i.e after depositing the cash of Rs.1 crore in her bank account on 12.11.2016, prima facie, was for the purpose of showing her unaccounted cash deposits in the bank account as having been soured out of her disclosed sources in order to evade the applicability of the rigors of the higher tax rate contemplated under Section 115BBE of the Act.

We are of the firm conviction that, pursuant to the insertion of “Explanation 2(a)” to Section 263 of the Act, vide the Finance Act, 2015 w.e.f 01-06-2016, the order passed by the A.O. shall be deemed to be 16 Sadhika Ganni erroneous insofar as it is prejudicial to the interest of the revenue, if, in the opinion of the Ld. Pr. CIT, the order is passed without making any enquiry or verification which should have been made. As the A.O. had failed to carry out the requisite verification regarding the explanation of the assessee about the source of the cash deposits of Rs. 1 crore made in her bank account on 12-11-2016, therefore, the Ld. Pr. CIT, in exercise of the powers vested with him under “Explanation 2” to Section 263 of the Act, had rightly assumed jurisdiction and set aside the order passed by the A.O under Section 143(3) of the Act, dated 26-12-2019, for the limited purpose of verification of the cash deposits made by the assessee during the demonetisation period. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of Daniel Merchant P. Ltd. Vs. ITO, SLP No. 23976 of 2017. The Hon'ble Apex Court in its order had observed that, in a case where the AO had failed to make proper inquiry while making the assessment and had summarily accepted the explanation of the assessee, then the Pr. CIT remains well within his jurisdiction to revise the order under Section 263 of the Act. For the sake of clarity, the observations of the Hon’ble Apex Court are culled out as under:

We thus, in terms of our aforesaid deliberations, find no infirmity in the view taken by the Ld. Pr. CIT, who had, based on a well-reasoned order passed under Section 263 of the Act dated 28.02.2024, set aside the assessment order passed by the AO for the limited purpose of re- adjudicating the subject issue, i.e., verifying the source of the cash deposits made by the assessee in her bank account during the year under consideration, and uphold the same.

Resultantly, the appeal filed by the assessee, being devoid and bereft of any substance, is dismissed.