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Facts
The assessee appealed against an addition of Rs. 30,07,610/- under section 40A(3), upheld by the CIT(A) for AY 2012-13. The assessment was reopened under section 147/148 based on reasons relating to cash deposits of Rs. 41,83,900/- and non-filing of ITR. However, the Assessing Officer subsequently made the addition on a different footing, i.e., cash payments exceeding Rs. 20,000/- for recharge coupons in violation of Section 40A(3).
Held
The Tribunal admitted the additional legal ground challenging the validity of reassessment proceedings. It ruled that the Assessing Officer made an addition on an issue not originally part of the reasons recorded for reopening the assessment. Citing judicial precedents, the Tribunal held that such an addition, based on a different footing than the initial reasons, renders the reassessment proceedings invalid, and therefore quashed the reassessment.
Key Issues
Whether reassessment proceedings are valid if the final addition is made on a ground different from the reasons recorded for initiating reopening under Section 147.
Sections Cited
143(3), 147, 148, 40A(3), 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAJKOT BENCH,
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
Captioned appeal filed by the assessee, pertaining to Assessment Year (AYs) 2012-13, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘NFAC/Ld. CIT(A)’], dated 17.01.2024, which in turn arises out of an assessment order passed by the Assessing Officer (in short ‘AO’) u/s 143(3) r.w.s 147 of the Income tax Act, 1961, dated 28.11.2019.
2. The grounds of appeal raised by the assessee are as follows:
“1. Ld. CIT (A) has erred in law as well as on fact in upholding addition of Rs.30,07,610/- being disallowance u/s 40A(3). 2. Ld. CIT (A) has erred in law as well as on fact in upholding addition made by ld.AO. when reasons for which reopening was made ceased to survive.”
3. The assessee has raised, before us, an additional ground of appeal, which reads as under:
“1. Ld. AO erred in law as well on facts by making an addition of Rs.30,07,610/- being disallowance u/s. 40A(3) of the Act, when reasons for reopening were ceased to survive. 4. Learned Counsel for the assessee, submitted before the Bench that since the additional ground of appeal raised by the assessee, is legal ground and all facts relating to the said additional ground, is on record, therefore, the same may be admitted by the Tribunal for adjudication.
5. On the other hand, Learned DR for the Revenue pleaded that assessee did not raise this issue during the appellate proceedings, before the ld CIT(A), therefore, at this stage the assessee can not raise additional ground on legal issue.
We have heard both the parties on this preliminary issue. We note that assessee has raised the additional ground on the legal issue challenging the validity of reassessment proceedings under section 147/148 of the Act. The facts relating to reopening the assessment under section 147/148 were there before the assessing officer.We note that it is purely a legal issue and all facts are already on record which goes to the root of the matter and no further inquiry is required for deciding the same, as all facts are already on record. Therefore, in the light of ratio laid down by the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd., vs. CIT (1998) 229 ITR 382 (SC), we admit the additional ground raised by the assessee.
The Learned Counsel for the assessee, in respect of the above additional legal ground, argued that in assessee’s case, the reasons were recorded, by the assessing officer, under section147/148 of the Act, based on the fact that the assessee has deposited cash in the bank account. However, the addition was made by the assessing officer, on different footing, under section 40A(3) of the Act, stating that there was a violation on the part of the assessee, as the assessee, made cash payment for purchase of recharge coupons more than Rs.20,000 in a day, hence the aggregate case payment for purchase of recharge coupons is in violation of section 40A(3) of the Act. Therefore, the addition was made by the assessing officer, on the issue, which was never agitated by the assessing officer, in the reasons recorded u/s.147/ 148 of the Act. Therefore, Ld Counsel for the assessee submitted that re-assessment proceedings may be quashed and for that learned Counsel relied on the following judgements:
(i)CIT vs. Mohmed Juned Dadani 214 Taxmann 38 (Gujarat H. C.). (ii)Majinder Singh Kang v. CIT [2012] 344 ITR 358 (Punj. & Har.) (iii) CIT v. Jet Airways Ltd. [2011] 331 ITR 236. (iv)Ranbaxy Laboratories Ltd. v. CIT [2011] 336 ITR 136/200.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. For the sake of clarity and also being pertinent, we reproduce the reasons recorded by the assessing officer under section 147 of the Act, as follows: “1. During the year, the assessee had not filed return of income for the year under consideration.
As per AIR/ITS information available, the assessee had deposited cash of Rs. 41,83,900/-in his saving bank accounts during F.Y. 2011-12. It is prima facie analyzed that the assessee has not disclosed the transactions made appearing in the bank accounts by non -filing of return of income for the A.Y. 2012-13. Further to arrive at the conclusion of the issue, necessary permission was obtained from Pr. CIT-1, Rajkot to issue a letter u/s 133(6) of the I.T. Act to the respective agencies and to provide an opportunity to the assessee to explain the said cash deposit transactions in relation to non-filing of return of income. Accordingly, a letter u/s 133(6) was issued to the assessee on 06.03.2019 with a request to furnish the reply/information.
In response to the same, the assessee neither furnished copy of return of income nor submitted satisfactory reply. In view of the above facts, it is found that the assessee had made financial transactions and deposited cash of Rs. 41,83,900/- in his saving bank account(s) remained unexplained, as the assessee has not filed return of income for the year under consideration, although the total income of income of the assessee had exceeded the maximum amount which is not chargeable to tax.
In view of the above facts/material available on records and after analyzing the same, the above mentioned transactions remained undisclosed for FY 2011-12. Therefore, I have reason to believe and am satisfied that income of assessee to the extent of Rs. 41,83,900/-has escaped assessment for AY 2012-13 within the meaning of section 147 of the I.T. Act.
In this case, no return of income was filed for the year under consideration and no assessment U/s 143(3)/147 was made and the only requirement to initiate proceedings u/s 147 is reason to believe which has been recorded above.”
From the above reasons recorded by the assessing officer, under section 147 of the Act, it is vivid that reasons were recorded by the assessing officer, to examine and to reassess ‘the cash deposit transactions in relation to non-filing of return of income’ however, the assessing officer made the addition in the hands of the assessee, on different footing, under section 40A(3) of the Act, stating that there was a violation on the part of the assessee, as the assessee, made cash payment for purchase of recharge coupons for more than Rs.20,000 in a day. The findings of the assessing officer, is reproduced below: “3. Further, on perusal of ledger account, it is seen that assessee had made cash payment for purchase of recharge coupons, more than 20,000/- in a day/one time. The total aggregate cash payment for purchase of recharge coupons in violation of sec. 40A(3) of LT Act comes to Rs. 30,07,610/- …… 3.1 Therefore, vide letter dtd. 22.11.2019, the assessee was show-caused why an amount of Rs. 30,07,610/-, as cash payment in violation of sec. 40A(3) of IT Act should not be disallowed and added back to total income. In response, no reply has been received by this office. Therefore, it is clear that the assessee has no objection in proposed disallowance of Rs. 30,07,610/-. Hence, a disallowance of Rs. 30,07,610/- is disallowed herewith and added back to his total income.”
Therefore, it is abundantly clear that reasons were recorded by the assessing officer, under section 147 of the Act, to reassess ‘the cash deposit transactions in relation to non-filing of return of income’ however, the assessing officer made the addition in the hands of the assessee, on different footing, under section 40A(3) of the Act, which is not acceptable in the eye of law, as the assessing officer, did not record the reasons and did not issue the notice under section 148 of the Act, to reassess the different item, which is not part of the reasons recorded, for that reliance is placed on the judgement of Hon`ble Delhi High Court in the case of Ranbaxy Laboratories Ltd,336 ITR 136 (Del), wherein it was held as follows:
18. We are in complete agreement with the reasoning of the Division Bench of Bombay High Court in the case of Jaganmohan Rao (supra) [sic—Jet Airways (I) Ltd. (supra)]. We may also note that the heading of s. 147 is Income escaping assessment" and that of s. 148 "Issue of notice where income escaped assessment". Sec. 148 is supplementary and complimentary to s.
Sub-s. (2) of s. 148 mandates reasons for issuance of notice by the AO and sub-s. (1) thereof mandates service of notice to the assessee before the AO proceeds to assess, reassess or recompute escaped income. Sec.147 mandates recording of reasons to believe by the AO that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Expln. 3 if during the course of these proceedings the AO comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the AO that on assuming jurisdiction under s. 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before AO during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under s. 148.”
Based on these facts and circumstances, we quash the reassessment proceedings under section 147 of the Act, initiated by the assessing officer, therefore we allow the additional legal ground raised by the assessee.
In the result, additional legal ground raised by the assessee is allowed.
As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.
In the result, the appeal is allowed in the terms indicated above.