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Income Tax Appellate Tribunal, “SMC” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-7, Pune dated 22-07-2016 for the assessment year 2011-12.
The assessee has assailed the findings of Commissioner of Income Tax (Appeals) by raising following grounds :
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“1) On the facts and in the circumstances of the case the Ld. CIT(A) has erred in sustaining the following additions made by AO by not accepting the factual and bonafide explanation of the source in respect of those deposits.
Date Amount Explanation 30/06/2010 10,00,000/- This represents the labour contract receipts received from B.P.C.L. originally deposited in HDFC Bank and withdrawn in cash on 11/6/2010. 02/02/2011 10,00,000/- This represents the labour contract receipts received from B.P.C.L. originally deposited in HDFC Bank withdrawn in cash on and from 2/11/2010 and onwards. 02/02/2011 10,00,000/- Withdrawn from saving bank account with Shankarrao M Patil Sahakari Bank, Akluj.
The above grounds of appeal may kindly be allowed to be altered, amended or modified in the interest of natural justice.”
The assessee has also filed additional grounds of appeal challenging the validity of assessment on following grounds : “1) On the facts and in the circumstances of the case the Assessing Officer has erred in traveling beyond the scope of assessment taken up on the basis of AIR information through CASS in violation of CBDT instruction No. F.No.225/26/2006-ITA.II (Pt.) dated 08-09-2010 as he was required to confine himself by examining the cash deposits in Central Bank of India only. 2) On the facts and in the circumstances of the case both the Assessing Officer and CIT(A) ought not to have enquired the entries of cash deposits in bank in a case where the income is offered under the presumptive income basis as provided u/s. 44AD of the Act 1961.”
Shri S. N. Doshi appearing on behalf of the assessee submitted at the outset that the scrutiny assessment was carried out in the case of assessee under CASS on the basis of AIR information to verify cash deposits of Rs.43,58,000/- in Central Bank of India. In the course of assessment proceedings, the Assessing Officer found that there is cash deposit of Rs.10,00,000/- in the account of assessee with Shankarrao Mohite Patil Co-operative Bank. The Assessing Officer after allowing Rs.18,53,000/- made the addition of Rs.35,05,000/- which includes the addition of Rs.10,00,000/- made on account of cash deposits in
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Shankarrao Mohite Patil Co-operative Bank. The ld. AR asserted that the Assessing Officer has travelled beyond his jurisdiction in making the addition of Rs.10,00,000/- as the case of the assessee was selected for scrutiny under CASS for the limited purpose to verify the source of deposits in Central Bank of India. The ld. AR contended that the Assessing Officer cannot travel beyond the scope of CASS unless he has sought permission from the competent authority to expand the scope of enquiry beyond CASS. In support of his contentions the ld. AR placed reliance on the CBDT instructions No. F.No.225/26/2006-ITA.II (Pt.) dated 08-09- 2010 and the following decisions : i. Smt. Gurpreet Kaur Vs. Income Tax Officer in ITA No. 87(Asr)/2016 for assessment year 2011-12 decided on 24-03-2016; ii. Shiddhesh Shripad Mitkar Vs. Income Tax Officer in ITA No. 743/PN/2015 for assessment year 2011-12 decided on 05-08-2016.
4.1 On merits of the addition the ld. AR submitted that the assessee was appointed contractor by Bharat Petroleum Corporation in village Tembhurni for providing labour, security and normal maintenance of Petrol Pump. In the assessment year under consideration the assessee received commission of Rs.55,66,289/-. The assessee filed return of income declaring income under the provisions of section 44AD at Rs.4,45,303/-. There were cash deposits to the tune of Rs.43,58,000/- in the bank account of assessee. On the basis of AIR information the case of assessee was selected for scrutiny under CASS to verify the deposit in Central Bank of India. During the assessment proceedings the assessee could show the source of deposits up to Rs.18,53,000/-. However, the Assessing Officer made addition of Rs.10,00,000/- deposited in the bank account of assessee with Shankarrao Mohite Patil Co-operative Bank and thus, made total addition of Rs.35,05,000/-. The ld. AR submitted that
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since the assessee has offered income on presumptive basis u/s. 44AD, the Assessing Officer is barred from examining and enquiring the entries in the bank statements. As long as the deposits have nexus with the gross receipts no addition is called for. It is an undisputed fact that the assessee is not maintaining books of account and there is no other source of income. Thus, the deposits in the bank have direct nexus with the gross receipts. The ld. AR pointed that the deposits in the bank are less than the gross receipts hence the cash deposits in the bank are part of the gross receipts declared by the assessee.
4.2 The Assessing Officer has erred in assuming that out of the total receipts 92% is the expenditure. This assumption by the Assessing Officer is wrong. The income of 8% declared by the assessee under the provisions of section 44AD is deemed income and not the actual income. Similarly, 92% expenditure is also deemed expenditure and not actual expenditure. Actual expenditure could be less or more. Since, the assessee has offered income on presumptive basis u/s. 44AD, the assessee is not required to maintain books of account. The ld. AR in support of his submissions placed reliance on the following decisions : i. Commissioner of Income Tax Vs. Surinder Pal Anand, 242 CTR 61 (P&H); ii. Kapil Dey Kolkata Vs. Income Tax Officer in ITA Nos. 854, 855 & 856/Kol/2010 for assessment years 2003-04, 2005-06 & 2006-07 decided on 25-11-2011 (Kol.-Trib.); iii. Nand Lal Popli Vs. Deputy Commissioner of Income Tax, 71 taxmann.com 246 (Chandigarh-Trib.).
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On the other hand Shri Achal Sharma representing the Department vehemently defending the order of Commissioner of Income Tax (Appeals) and prayed for dismissing the appeal of assessee.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We will first take up the legal issue raised by the assessee as additional ground. It is an undisputed fact that the scrutiny assessment has been carried out in the case of assessee on the basis of AIR information under CASS. The information received in AIR was with respect to deposits of Rs.43,58,000/- in the saving bank account of the assessee with Central Bank of India. However, during scrutiny assessment proceedings, the Assessing Officer found deposit of Rs.10,00,000/- in bank account of the assessee with Shankarrao Mohite Patil Co-operative Bank. The assessee failed to explain the source of such deposits, consequently, the Assessing Officer made addition of said amount. The contention of the assessee is that the Assessing Officer has gone beyond his jurisdiction in making the addition of Rs.10,00,000/- as the scrutiny assessment under CASS was initiated for the limited purpose of verifying deposits with Central Bank of India.
It is a well settled law that where the assessment has been picked up for scrutiny assessment on the basis of AIR information the Assessing Officer cannot go beyond the addition for which scrutiny assessment has been undertaken. If the Assessing Officer wants to enlarge the scope of scrutiny assessment he has to seek approval from the Administrative Commissioner. The Co-ordinate Bench of the Tribunal in the case of Suresh Jagraj Mutha Vs. Addl. Commissioner of Income Tax in ITA No. 05/PUN/2016 for assessment year 2011-12 decided on 04-05-2018 had occasion to deal with similar issue. The Tribunal after considering the
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CBDT instructions dated 08-09-2010 and the decision in the case of M/s. S.H. Chougule Vs. JCIT in ITA No. 458/PN/2012 decided on 21-12-2016 held as under : “10. We also perused the CBDT letter dated 08-09-2010 which deals with selection of cases for scrutiny on the basis of data in AIR returns and subsequent assessment proceedings. The instructions given in the said letter reads as under :
“2. The above mentioned guidelines have been reconsidered by the Board and it has been decided that the scrutiny of such cases would be limited only to the aspects of information received through AIR. However, a case may be taken up for wider scrutiny with the approval of the administrative Commissioner, where it is felt that apart from the AIR information there is a potential escapement of income more than Rs.10 Lacs. 3. It has also been decided that in all the cases which are picked for scrutiny only on the basis of AIR information, the notice u/s.143(2) of Income Tax Act, 1961 should clearly be stamped with “AIR” case. 11. Further, on perusing the orders of the Revenue, we find the facts are similar to the ones already decided by the Pune Bench of the Tribunal in the case of M/s. S.F. Chougule Vs. JCIT (supra) is relevant to the facts present case of the assessee. We therefore proceed to extract the relevant findings given by the Tribunal here as under : “10. The learned Authorized Representative for the assessee pointed out that the assessee was engaged in road construction and building of projects. He pointed out that during the course of Survey on 30.01.2008, the assessee had made a declaration of Rs.33,18,000/- + Rs.12 lakhs + Rs.13,467/- which was included in the return of income filed by the assessee. He further stated that the case of assessee was picked up for scrutiny. The learned Authorized Representative for the assessee brought to our attention, the application made under the Right to Information Act, as to the basis for selection of case of the assessee for the relevant year under scrutiny. It was specifically asked whether the case was selected for scrutiny under CASS. In reply, the Central Public Information Officer stated that the case of assessee was not selected for scrutiny under CASS. Further, the assessee has asked as to why its case was selected for scrutiny since it was covered by relaxed scrutiny norms. In answer, it was pointed out that the case was selected for scrutiny, in view of guidelines for selection of scrutiny issue during financial year 2010-11; copies of RTI application and the reply are placed at pages 20 to 22 of the Paper Book. The learned Authorized Representative for the assessee further referred to the criteria of guidelines for income-tax scrutiny, copy of which is placed at page 23 and 24 of the Paper Book and reiterated that in the case of assessee, Survey was carried out and criteria was fixed for not picking up the case under scrutiny and the assessee clearly fulfils the same. He further pointed out that in case the criteria is not met with, then as per
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clause (g), the Assessing Officer can select any return for scrutiny after recording reasons and after obtaining the approval of CCIT/DGIT. In this regard, he pointed out that no such approval was received from the CCIT. Our attention was drawn to the letter dated 13.05.2013 issued from the office of ACIT, Circle (1), Sangli, wherein the Assessing Officer informed the assessee that there was no record to show that previous approval of CCIT was obtained to select the cases manually for scrutiny for assessment year 2008-09. The learned Authorized Representative for the assessee stressed that where the selection was not through CASS but was manually made, then the previous approval of the CCIT was compulsory. Referring to the order of CIT(A), the assessee pointed out that the CIT(A) states that the case of assessee was selected through CASS and also mentions that the contention of assessee would have been acceptable had the case been manually selected for scrutiny. The learned Authorized Representative for the assessee further placed reliance on the ratio laid down by the Hyderabad Bench of Tribunal in Smt. Nayana P. Dedhia Vs. ACIT (2003) 86 ITD 398 (Hyd) for the proposition of binding nature of CBDT circulars upon the IT authorities. He further pointed out that the said decision has been approved by the Hon‟ble High Court of Andhra Pradesh in CIT Vs. Smt. Nayana P. Dedhia (2004) 270 ITR 572 (AP). Further, he referred to the ratio laid down by the Hon‟ble High Court of Delhi in CIT Vs. Best Plastics (P) Ltd. (2007) 295 ITR 256 (Del) for the proposition that where the guidelines are laid down for selection of cases for scrutiny and if the case of the assessee was taken up for scrutiny in violation of CBDT Instructions, then the assessment order has to be set aside. He further referred to the decision of Hon‟ble Bombay High Court in Bombay Cloth Syndicate Vs. CIT (1995) 214 ITR 210 (Bom) for the proposition that the CBDT Instructions were binding. 11. The learned Departmental Representative for the Revenue on the other hand, pointed out that as per the guidelines of CBDT, the cases could be selected, may be not through CASS. Our attention was drawn to the order of Assessing Officer, wherein he has elaborately dealt with the issue that income increased during the year only because of notional disallowance of expenses under section 40(a)(ia) of the Act and not because of declaration of additional income by the assessee. He stresses that the case was selected under normal scrutiny proceedings and excess expenditure of bad debts claimed by the assessee were disallowed by the Assessing Officer. He then went into merits of the case. It was also stressed by the learned Departmental Representative for the Revenue that the declared income in the hands of assessee means the book profit. 12. The learned Authorized Representative for the assessee in rejoinder pointed out that in the case of assessee, he declared additional income during the course of Survey. He further pointed out that the details of expenses were compared by the Assessing Officer. 13. We have heard the rival contentions and perused the record. The preliminary issue raised in the present appeal by way of ground of appeal No.5 is against the validity of assessment made in the hands of assessee. The assessee claims that the case of assessee was not selected for scrutiny under CASS but was selected manually. For selection of any return for scrutiny manually by the Assessing
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Officer, the requirement of guidelines issued for this purpose for relevant assessment year was that the same should be after obtaining approval of the CCIT / DGIT. Since no such approval was received from the CCIT / DGIT, the Assessing Officer had no jurisdiction to proceed with the scrutiny assessment in the case of assessee. The assessee had raised the issue before the Assessing Officer and CIT(A) but the facet of argument before the authorities below was that the case of assessee could not be selected for scrutiny under CASS since in the case of Survey, certain conditions were laid down and the assessee having fulfilled the said conditions, then no scrutiny could takes place in the hands of assessee. 14. In the facts of the case, Survey under section 133A of the Act was carried out at the premises of assessee on 30.01.2008. During the course of Survey, the assessee made declaration of additional income of Rs.45,93,467/- which was offered as additional income over and above the income to be returned for the year under consideration. The assessee claims that it had disclosed the said additional income in its return of income wherein the return was filed declaring income of Rs.81,64,598/-. However, the perusal of computation of income reflected that net profit shown in Profit & Loss Account was Rs.11,62,084/- and certain disallowances were made on account of personal expenses, capital expenses and disallowances under section 40(a)(ia) of the Act at Rs.68,31,574/- and other disallowances and the income was aggregately shown at Rs.85,69,672/- The Assessing Officer and CIT(A) thus, were of the view that the assessee had not included the additional income of Rs.45,93,467/-, where it had declared the business income at only Rs.11,62,084/-, though it had filed the return of income declaring income of Rs.81,64,590/-. The case of authorities below is that the assessee had not fulfilled the conditions laid down in the guidelines for taking up the case for scrutiny assessment year under consideration and hence, there was no merit in the claim of assessee that it had fulfilled the conditions laid down in guidelines. The whole gamut of arguments and discussion in the orders of Assessing Officer and CIT(A) is on this account that the assessee had not fulfilled the conditions relating to Survey cases for financial year and the case of the assessee could be picked up for scrutiny. The assessment order was passed on 09.09.2010 and the appellate order was passed on 04.01.2012. The assessee thereafter moved an application under the Right to Information Act, wherein a specific question asked was with regard to selection of scrutiny and other relevant information relating to assessment year 2008-09. The specific question asked by the assessee was whether its case was selected for scrutiny under CASS and in case it was not selected under CASS and why the same was picked up for scrutiny. The assessee also asked that under which norms the case was selected for scrutiny and whether relaxation in selection of cases in which survey action was carried out on fulfilling the criteria was available in the said norms or not. In reply, it was stated that the guidelines / instructions were followed and since the guidelines were confidential in nature, the copy of same could not be provided. In reply to the next question whether the case was selected under CASS, the categorical answer was „No‟. The said RTI reply further stated that the case was selected for scrutiny in view of the guidelines contained in F.No.225/93/2009/ITA.II.
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The said guidelines for selection of scrutiny were published and it was pointed out that the said guidelines were only for the use of Officers of Income Tax Department and the same could not be disclosed even under the RTI Act, 2005. The said application under the RTI Act and the order under the RTI Act are placed at pages 20 to 22 of the Paper Book. The assessee has also placed the copy of guidelines issued for scrutiny, copy of which is placed at page 23 of Paper Book. The said guidelines were for use of Income Tax Department, wherein selection criteria was provided which was applicable to all Income Tax returns at all stations. The guidelines vis-à-vis survey cases are provided therein and vide clause (g), it is provided that the Assessing Officer may select any return for scrutiny after recording reasons and after obtaining the approval of CCIT / DGIT. The cases under this category should be selected, if there are compelling reasons and cases not selected under CASS. These cases are watched by the CCIT / CIT for the quality of assessment. The said guidelines are as per F.No.225/93/2009/ITA.II. The reply under RTI also refers to the said guidelines and admittedly, these guidelines were used to select the case of assessee for scrutiny. Further, the assessee also filed on record letter dated 13.05.2013 issued by the ACIT, Circle (1), Sangli, wherein in reply to the letter of assessee, it has been informed that there is no record to show that previous approval of CCIT / DGIT was obtained to select the case manually for scrutiny for assessment year 2008-09. So, taking into consideration the said correspondence which has come into existence after the date of passing of assessment order and appellate order, the first thing to be taken note of is that the case of assessee was not selected for scrutiny in CASS which is the reply given in answer to RTI query as per letter dated 12.04.2012. The second aspect is that the case of assessee was selected for scrutiny in view of the guidelines contained in F.No.225/93/2009/ITA.II. The assessee has placed the copy of said guidelines on record at page 23 of the Paper Book, wherein it is provided that the case of any assessee may be selected for scrutiny after recording reasons and after obtaining the approval of CCIT / DGIT. In other words, the case of assessee could be picked up for scrutiny manually but the same had to be after recording reasons for such an action and after obtaining the approval of CCIT / DGIT. However, the Assessing Officer vide letter dated 13.05.2013 has categorically mentioned that no previous approval of CCIT was obtained to select the case manually for scrutiny for assessment year 2008-09. In the above circumstances, where the order has been passed against the norms laid down by the CBDT vide its guidelines which were binding upon the Assessing Officer, then the order passed by the Assessing Officer is bad in law. The instructions issued by the CBDT are to be strictly followed by the authorities i.e. Assessing Officer and in the absence of the same, the assessment order passed in the case is annulled. Such is the proposition laid down by the Hon‟ble High Court of Andhra Pradesh in CIT Vs. Smt. Nayana P. Dedhia (supra) and the Hon‟ble High Court of Delhi in CIT Vs. Best Plastics (P) Ltd. (supra). In view thereof, we hold that where the Assessing Officer has failed to follow the guidelines issued for selecting the cases for scrutiny and in the facts of the present case, where the case was selected manually for scrutiny, but no previous approval
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of CCIT was obtained, then the Assessing Officer lacks jurisdiction to carry out the scrutiny assessment in the present case and accordingly, assessment order passed by the Assessing Officer is bad in law. Hence, we hold so. Since the assessment order is held to be bad in law, the issue on merits becomes academic and the grounds of appeal raised by both the assessee and the Revenue in their respective appeals are infructuous. The appeal of assessee is thus, allowed and the appeal of Revenue is dismissed.” Therefore, the Board circular do not permit the AO from converting the limited scrutiny case like the present one to the unlimited one without the approval of Administrative Commissioner of Income Tax. AO did not mention the reasons for not taking such an administrative approval before making the said addition. As such, the Pune Bench of the Tribunal has already taken the favourable view in these matters in favour of the assessee. We do not understand why AO failed to take approval for such conversion. Considering the settled nature of the issue, we allow the legal ground raised by the assessee vide Ground No.1 and hold that the assessment order passed by the AO is bad in law and void-ab initio. Consequently, we find adjudication of other grounds by the assessee on merits becomes academic. Therefore, the said grounds are dismissed are academic.”
In the present case no material has been placed on record by the Department to show that the Assessing Officer had sought necessary permission from the Administrative Commissioner for enlarging the scope of scrutiny assessment. Thus, the addition of Rs.10,00,000/- made by the Assessing Officer in respect of cash deposits in Shankarrao Mohite Patil Co-operative Bank is unwarranted. Accordingly, the addition of Rs.10,00,000/- is directed to be deleted. Accordingly, additional ground No. 1 raised in the appeal is allowed.
In additional ground No. 2 the assessee has assailed the action of Assessing Officer in enquiring the individual deposits in the bank, whereas, the assessee has offered the income to tax under presumptive basis u/s. 44AD of the Act. The contention of the assessee is that once the income has been offered to tax on presumptive basis the Assessing Officer could not have asked the assessee to explain cash deposits in the bank as they have direct nexus with the gross business receipts.
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The assessee is a labour contractor and has offered his income to tax under the provisions of section 44AD of the Act. The assessee was required to maintain under the provisions of Rule 44AD(5) r.w. Rule 6F of the Income Tax Rules, 1962 to substantiate business transactions. The contention of the assessee is that the entire cash deposits in the bank are from the labour contract business of the assessee. The onus is on the assessee to prove that the cash deposits in the bank have direct nexus with the labour contract receipts. The assessee has relied on the decision rendered in the case of Commissioner of Income Tax Vs. Surinder Pal Anand (supra). In the said case the assessee had declared business income u/s. 44AD and the Assessing Officer had made addition in respect of cash deposits in the bank account during the year. The Hon’ble High Court deleted the addition as the Revenue failed to show from material on record that the cash deposits were unexplained and undisclosed income of the assessee. The relevant extract of the judgment of Hon’ble High Court reads as under :
“8. Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax @ 8 per cent of the gross receipts itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before CIT(A) and the Tribunal that the said amount of Rs. 14,95,300 was on account of business receipts had been accepted. Learned counsel for the appellant with reference to any material on record, could not show that the cash deposits amounting to Rs. 14,95,300 were unexplained or undisclosed income of the assessee.”
A perusal of the above judgment shows that the Hon’ble High Court has emphasized that there should be nexus of cash deposits in the bank with gross receipts of the assessee’s business. In the present case we find that the exercise of establishing nexus between the cash deposits in the bank with gross receipts of the assessee has not been undertaken. Therefore, we are of considered view that this issue needs a revisit to the
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file of Assessing Officer. The assessee shall explain the deposit of cash in the bank vis-à-vis business receipts. The Assessing Officer while deciding this issue afresh shall grant opportunity of hearing to the assessee, in accordance with law. Accordingly, additional ground No. 2 raised in the appeal is allowed for statistical purpose.
Since, we have allowed relief to the assessee on the additional grounds raised in the appeal, the ground No. 1 raised in the appeal has become academic, therefore, the same is not taken up for adjudication.
In the result, the appeal of assessee is allowed for statistical purpose.
Order pronounced on Monday, the 17th day of September, 2018.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 17th September, 2018 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-7, Pune 3. 4. The Pr. Commissioner of Income Tax-6, Pune ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “एक-सदस्य मामऱा” बेंच, 5. ऩुणे / DR, ITAT, “SMC” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune