GOVABHAI LAKHABHAI RABARI,ANJAR vs. INCOME TAX OFFICER(ITO), GANDHIDHAM

Succinctly, the factual panorama of the case is that assessee before us is an Individual.In assessee`s case, the proceeding u/s 142(1) of the Act was initiated and accordingly notice u/s 142(1) of the Act was issued electronically on 13.03.2018, requiring the assessee to file return of income for A.Υ. 2017-18. On verification of the records, it was noted by the assessing officer that assessee, Page 2 of 15 & 878//RJT/2024 Gopalbhai L. Rabari during the period of demonetization, that is, from 09/11/2016 to 31/12/2016, deposited cash amounting to Rs.12,41,000/-, with Bank of Baroda - A/c No.3642020000005, HDFC Bank Ltd. -A/c No.30981530000287 and State Bank of India - A/c No.33934375033, respectively during demonetization period. Aggregating cash deposit during demonetization period comes to Rs.12,41,000/-. Therefore, the assessee was requested to file return of income for assessment year (A.Y.) 2017-18, by issuing notice u/s 142(1) of the Act. The assessing officer noticed that during the year, the assessee had deposited cash Rs.12,41,000/-, during the demonetization period. Therefore, after considering the facts of the case and material available on record, a show -cause notice was issued on 15.12.2019, upon the assessee.

In response to the show- cause notice, the assessee has filed reply before assessing officer along with documentary evidences, on 17/12/2019. The reply of the assessee, is reproduced below: “Previously, I had not filed by I.T. return for the AY 2017-18 as my total income for the said assessment year is below exemption limit and as per section 139(1) if the total income is less than the exemption limit then it is not necessary to file the Income-tax return. During the year under consideration i.e. AY 2017-18, I had income from sale manufacturing/ trading business, cattle income and I had also earned commission income. The cash deposit of Rs. 12,41,000/- has been made out of my business income of salt trading which is majorly through cash and the cash available on hand due to my previous savings. All the cash deposits have been made out of my own capital funds and I have also filed by Income Tax return for AY 2017-18 showing my total income of Rs.2,59,630/-, as well as the cash deposit have been also been reflected in my income tax return. I have already submitted details of cash related summary in the Annexure-10 of my submission dated 27.09.2019 and I am again submitting herewith the Annexure in much more detailed manner so that the all the cash related transactions can be easily summarized up and understand in a better way.

However, the assessing officer, rejected the above contention of the assessee and held that the assessee has not submitted any satisfactory explanation in respect of source of such fund deposited in his bank account during the year under consideration. As such the total fund deposited during the year under consideration of Rs.12,41,000/- remains unexplained money, therefore, assessing officer made addition under the provisions of section 69A and 115BBE of the I.T. Act.

The assessing officer also noticed that during the year, the assessee having huge turnover, but failed to audit his books of accounts. On verification of bank statement of assessee for financial year (FY) 2016-17, it was noticed that the total credit (including the demonetization period) made by the assessee in the above mentioned bank accounts for the FY 2016-17 were comes to Rs.3,65,22,977/-. The assessee's turn over exceeding more than Rs.2.00 crores, but no return of income was filed or books of accounts are not audited u/s 44AB of the Act. Therefore, a show cause notice was issued to the assessee on 15/12/2019, as to why assessee`s books profits should not be estimated 8% on the basis of turnover determined.

In response to the above show- cause notice, the assessee has filed reply on 17/12/2019, before the assessing officer, along with necessary documentary evidences, which is reproduced below: “Firstly I want to explain regarding the activities carried out by me during the assessment year under consideration. I had earned the commission income during the Page 4 of 15 & 878//RJT/2024 Gopalbhai L. Rabari

However, the assessing officer rejected the above reply of the assessee and observed that in the prevailing situation, similar trade are being executed by the assessee, during the year, it was found by the assessing officer that in such kind of trade, in earlier years, wherein return filed without audits and disclosed profits u/s 44AD of the Act. Thus, during the year profits has to be invoked u/s 44AD of the Act @8%. Therefore, the remaining amount other than demonetization period, the cash/credit made by the assessee during the F.Y. 2016-17 comes to Rs.3,52,81,977/- may be treated as assessee business transaction/turnover. In absence of any supporting documentary evidences the tax to be proposed on amount of Rs.3,52,81,977/- in the hand of the assessee, as business receipts. Therefore, assessing officer noticed that above deposits pertain to his sale proceeds/business transaction and the sale proceeds deposits in bank accounts and the assessee`s turn over exceeding Rs.2.00 crores and above. Considering the overall facts and circumstances of the cases, the assessee has not audited his books of accounts, therefore, the assessee has compulsorily required to offer presumptive income u/s 44AD of the Act. Therefore, assessing officer determined income @ 8% which comes to Rs.28,22,558/- (8% of Rs.3,52,81,977) in the hands of the assessee.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the learned CIT(A) who has dismissed the appeal of the assessee, therefore, the assessee is in appeal before this Tribunal. I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Shri Kalepesh Doshi, learned Counsel for the assessee, on technical issue, (ground No.1 raised by the assessee), vehemently argued that in assessee`s case, statutory notice under section 143(2) of the Act, had not been issued by the assessing officer, therefore, assessment order framed by the assessing officer is bad in law, therefore, assessment order should be quashed. On the other hand, learned DR for the revenue submitted that since the assessee has participated in the assessment proceedings, therefore, this technical issue cannot be raised by the assessee.

I have considered submissions of both the parties and observed that assessing officer framed the assessment order, in the assessee`s case, without serving the statutory notice u/s 143(2) of the I.T. Act, 1961. I note that the assessee is an individual and earning income from sale of salt, cattle income and commission income from Truck Owner for Fleet Card Scheme introduced by Indian Oil Corporation Limited (IOCL).The notice u/s 142(1) of the Act was issued on 13/03/2018, by the assessing officer, requiring assessee to file return of income. The return of income for the year under consideration in response to the said notice has been duly filed declaring a total income at Rs. 2,59,630/-. The return of income filed by the assessee is through e- procedure and therefore it is duly available on the Income Tax Portal. Further, during the assessment proceedings, the assessee Page 10 of 15 & 878//RJT/2024 Gopalbhai L. Rabari has duly filed his reply in response to the said show -cause notice, issued within time specified on 17/12/2019, along with the copy of return of income filed as an annexure to the show-cause reply. The assessing officer has duly acknowledged the return of income filed by the assessee. The copy of acknowledgement of Show- cause reply, reflecting return of income is filed by the assessee, before the Bench. During the assessment proceedings, the assessee submitted its reply before the assessing officer on two occasions with necessary documentary evidences, however, despite of this fact, the assessing officer framed the assessment order u/s 144 of the Act, vide order dated 26/12/2019. The said assessment order has been passed, by the assessing officer, without issuing statutory notice u/s 143(2) of the Act.

I note that the assessee has duly filed return of income in response to the notice u/s 142(1) of the Act. The fact that assessee has filed return of income in response to notice u/s 142(1) of the Act, is duly mentioned, by the assessee, in the reply to the show cause notice. The said copy of return of income has been furnished by the assessee before the Bench.Whereas, even after due filing of return of income, the assessing officer has finalized assessment order, without fulfilling the statutory provisions of section 143(2) of the Act.I also find that assessing officer has nowhere discarded the return of income, as invalid return in the entire assessment proceedings. Therefore, the return filed by the assessee is valid.I note that the notice u/s 143(2) of the Act is the starting point of assessment proceedings, whereby assessing officer seeks documents/ evidences from the assessee to support the claims made in the return of income. On perusal of provisions contained in sub- section (2) of section 143 of the Act, it is stated that the provisions are mandatory in nature and Legislature has cast duty upon the assessing officer to apply mind to Page 11 of 15 & 878//RJT/2024 Gopalbhai L. Rabari the material on record and after being satisfied with regard to escaped income is required to serve notice specifying particulars of such claim.Therefore, after receipt of return of income in response to notice u/s 142(1) of the Act, it is mandatory for the Assessing Officer to serve a notice, under sub-section (2) of section 143 of the Act.

I find that the return of income filed by the assessee is duly forming part of the reply filed in response to the show -cause notice and the same is duly accepted by the assessing officer. Therefore, once the return of income is accepted by the assessing officer, the assessing officer is bound to issue notice u/s 143(2) of the Act, for the furtherance of the proceedings. Considering these facts, I note that issue under consideration is squirely covered in favour of the assessee by the judgement of the Jurisdictional Income Tax Appellate Tribunal, Rajkot, in the case of Shri Haresh Jayantibhai Rathod, vide ITA NO: 115/RJT/2025 for AY 2017-18. The findings of the Income Tax Appellate Tribunal, is reproduced below:

In the result, the appeal filed by the assessee is allowed.

Now, I shall take assessee`s appeal in for same assessment year 2017-18, which relates to penalty imposed by the assessing officer under section 271B of the Act, as the assessee failed to get his accounts audited under section 44AB of the Act. Since, I have quashed the assessment framed by the assessing officer for assessment year 2017-18, as noted above, therefore, penalty imposed by the assessing officer does not have leg to stand. Once the foundation fails, the superstructure also fails, that is, the penalty under section 271B of the Act, also is to be deleted. In this regard, I rely on the legal maxim “Sublato fundamento cadit opus” (meaning thereby that foundation being removed, structure /work falls). Hence the initial action of the assessing officer ( in making the assessment without issuing notice u/s 143(2) of the Act) itself is not in consonance with law, then all the subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. Hence, I delete the penalty under section 271B of the Act and allow the appeal of the assessee.

In the result, appeal filed by the assessee, in is allowed.

In the combined result, both appeals filed by the assessee are allowed.