RAJESHWAR PRASAD DUBEY,MUMBAI vs. ACIT-12(1), MUMBAI

Brief facts as culled out from the records are that assessee is engaged in the business of transportation and custom house agent (CHA). Assessee filed its original return of income on 29.10.2002 reporting total income at Rs.34,06,867/-. Assessment was completed under section 143(3) vide order dated 27.12.2004 at an assessed total income of Rs.52,03,530/-. Subsequently, based on assessment proceedings for AY 2006-07, case of the assessee was reopened under section 147 by issuing a notice under section 148, dated 26.03.2009.

“The scrutiny for the AY2006-07 in assessee's case was done by the Addl.CIT, Range 12(1), Mumbai. During the course of assessment proceedings, it was found out that the liability shown against various parties was not genuine

The liability as shown against the following parties relates to AY2002-03.

S.No. Name of the party Amount in Rs. 1 Nishu Transport 7, 45,534 2 Suman Automobiles 1,03,707 3 S.R.Roadlines 1,65,386 4 Travancore Tyre 8,10,080 5 Royal Transport 15,89,583 6 Jayem Retreads Pvt. Ltd. 52,330 7 Pingle Transport 14,659 8 Bhagwati Naresh Sethia 24,010 9 International Express Co. 27,80,862 Total: 62,86,151

With reference to all the above parties, as part of verification during the course of assessment proceedings for AY2006-07 regarding the genuineness of the liability, the assessee failed to prove the same. The assessee could not produce the vouchers / Bills raised in AY2002-03 regarding the arising of the liability. The assessee also could not provide the evidence for payment for the so called clearing liability which he claimed happened in AY2008-09. Based on all these factors, the Addl.CIT, 12(1) came to the conclusion that the liability which arose in AY2002-03 itself was bogus. This information was passed on to the undersigned for necessary remedial action.

I have perused the concerned assessment records and found that the information passed on by the AddI.CIT, Range 12(1) is correct.

Hence I have reason to believe that the income to the extent of Rs.6286151/- has escaped assessment for AY2002-03.”

4.1 From the above reasons to believe, it was submitted that nowhere in the reasons recorded, it is mentioned that there was any failure on the part of assessee to disclose fully and truly material facts necessary for the assessment. The primary requirement for lawful reopening of assessment beyond four years from the end of the relevant assessment year is absent in the reasons recorded. Therefore,

4 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 the reopening of a completed assessment made u/s. 143(3) cannot be sustained for the lapse on the part of the AO towards this vital statutory requirement. 4.2 To address his contentions, ld. Counsel placed reliance on certain judicial precedents including decisions by Hon’ble jurisdiction High Court of Bombay. The same are listed as under: (1) Hindustan Lever Ltd. -vs- R.B. Wadkar, 268 ITR 332 (Bom) [2004] (ii) Titanor Components Ltd. -vs- ACIT, 343 ITR 183 (Bom) [2012] (iii) Milton Plastics Ltd. -vs- Mudit Nagpal, 151 taxmann.com 24 (Bombay) [2023] (iv) Vibrant Securities (P.) Ltd. -vs- ITO, 455 ITR 58 (Bombay) [2023]

5 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 6.1. On these set of facts, first proviso to Section 147 squarely applies in the case of the assessee. The said first proviso to Section 147 is extracted as under:

“Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure76 on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts76 necessary for his assessment, for that assessment year” [Emphasis supplied by us by underline] 6.2. Having recorded our finding that the impugned notice u/s. 148 is beyond the period of four years from the end of AY 2002-03 and it does not comply with the requirements of first proviso to section 147 of the Act, we hold that AO had no jurisdiction to re-open the assessment which was concluded on the basis of assessment u/s. 143(3) of the Act. Accordingly, the impugned notice is liable to be quashed and the re-assessment completed thereafter is set aside.

6.3. For holding so, we find our force from, the decision of Hon’ble Jurisdiction High Court of Bombay in the case of Hindustan Lever Ltd. Vs. R.B. Wadkar [2004] 268 ITR 232 (Bom). The relevant finding arrived at by the Hon’ble Court on the issue under consideration is extracted from para 20 as under:

“The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The 6 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.”

6.4. Accordingly, ground no.1 taken by the assessee is allowed. Since on legal issue, the impugned re-assessment order has been set aside in terms of our observations and findings above, ground no.2 and 3 raised by the assessee on the merits of the case are rendered academic in nature and therefore are not adjudicated upon. In the result, appeal for AY 2002-03 by the assessee is allowed.

“1.The Hon. CIT(A) erred in upholding the re-opening the assessment u / s 147 of the I. Tax Act 1961, by issue of the notice u / s 148 dt. 26.03.2009, not appreciating that such re-opening was not as per law and therefore the notice u/s 148 dt. 26.03.2009 as well as the assessment order flowing therefrom was required to be struck down as bad-in-law.

2. The Hon. CIT(A) erred in upholding the addition of Rs.63,44,508/- made u / s 68 of the I.T. Act, 1961, on account of outstanding trade creditors, holding the same to be not genuine and hence income liable to tax u / s * 68 of the I.T. Act as unexplained cash credit, which addition being not factually and legally justified may kindly be deleted.

3. The Hon. CIT(A) erred in also upholding the alternative addition of Rs.12,68,902/- (20% of Rs.63,44,508/-) made by the ld AO on protective basis, by relying upon the provisions of section 40A * (3) of the IT Act 1961, which addition is uncalled for and not as per law and hence may kindly be deleted.”

8.1. The only difference in this appeal vis-à-vis, the appeal for AY 2002-03 is that in this year the re-opening has been done u/s. 147 by issuing a notice u/s.148 which is within the period of four years from 7 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 the end of the relevant AY and therefore application of first proviso to Section 147 is ruled out. In this Assessment Year, assessee has challenged the re-opening on the premise of change of opinion by the ld. AO by submitting that re-opening is principally for re-verification of the same facts which were before the ld. AO at the time of original assessment proceedings.

9.1. The reasons to believe recorded by AO u/s.148 is extracted as under:

“Assessment u/s.143(3) for A.Y.2005-06 was completed on 15/3 / 2007 determining total income at Rs.96,17,133/- as against returned income of Rs.88,17,748/-. 2. The scrutiny for the AY2006-07 in assessee's case was done by the Addl.CIT, Range 12(1), Mumbai. During the course of assessment proceedings, it was found out that the liability shown against various parties was not genuine. The liability as shown against the following parties relates to AY2005-06.

S.No. Name of the party Amount in Rs. 1 S.S. Transport 1418502 2 Nandi Transport 1518160 3 K.K. Transport 1354403 4 Joshi Transport 1322620 5 M.S. Transport 663656 [12,56,656 – 5,93,000 (AY 04-05)] 6 Sanjay Metals Corporation 26815 7 Shakti Enterprises 19898 8 Swil Ltd. 13354 9 Vimal Transport Co. 7100 Total: 6344508

With reference to all the above parties, as part of verification during the course of assessment proceedings for AY2006-07 regarding the genuineness of the. liability, the assessee failed to prove the same. The assessee could not produce the vouchers / Bills raised in AY2005-06 regarding the arising of the liability. The assessee also could not provide the evidence for payment for the so called clearing liability which he claimed happened in AY2008-09. Based on all these factors, the Addl. CIT, Range12(1) came to the conclusion that the liability which arose in AY2005-06 itself was bogus. This information was passed on to the undersigned for necessary remedial action. I have perused the concerned assessment records and found that the information passed on by the AddI.CIT, Range 12(1) is correct. Hence I have reason to believe that the income to the extent of Rs.63,44,508/- has escaped assessment for AY2005-06. Notice u / s 148 is issued for reopening the assessment for A.Y.2005-06.

9.2. From the perusal of the above reasons, ld. AO has alleged that liability in respect of the 9 parties are not genuine since assessee could not produce vouchers/bills nor it could provide any evidence for payment to these creditors which was claimed to have been finally done in AY 2008-09. Accordingly, liability towards these creditors was alleged to be bogus and therefore case of the assessee was re-opened. In this respect it is submitted that during the original assessment proceedings, records were examined and certain disallowances were made for identified defects. From the perusal of original assessment order u/s. 143(3) in para 3, ld. AO has noted that certain cash expenses were not supported by the third party evidence which included fork-lift and crane charges, labour charges, miscellaneous expenses for license and repacking strapping expenses. According to the ld. AO, these expenses were not verifiable and payments for which were made in cash. In absence of third party evidences, the genuineness of these expenditures could not be established and therefore ld. AO disallowed 10% of these expenses while completing the assessment. Ld. Counsel submitted that in the present case, addition of Rs.63,44,508/- was been made on account of alleged 9 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 balance of sundry creditors parties u/s.68 of the Act. The said sundry creditors represent amounts due to parties on account of transport charges, tyre purchases, etc.

Sr.No. Name of the Addition Credit Ledger sundry creditor made u/s transaction for account & TDS party 68 A.Y. 2005-06 certificates Out of addition enclosed in made paperbook at pg nos. 1 S.S. Transport 14,18,502 9,85,200/- 12 to 15 2 Nandi Transport 15,18,160 8,75,500/- 16 to 19 3 K.K. Transport 13,54,403 8,18,000/- 20 to 23 4 Joshi Transport 13,22,620 8,53,400/- 24 to 27 5 M.S. Transport 6,63,656 6,63,656/- 28 to 31 [12,56,656 – 5,93,000 (AY 04- 05)] 6 Sanjay Metals 26,815 26,815/- 32 Corporation 7 Shakti Enterprises 19,898 19,898/- 33 8 Swil Ltd. 13,354 NIL 34 9 Vimal Transport 7,100 7,100/- 35 Co. Total: 63,44,508 42,49,569/- 11.1. It was thus contended that, credits for earlier AYs cannot be brought to tax in the year under consideration u/s.68 of the Act. To substantiate this, copies of ledger accounts of respective parties setting up these facts are placed on record. Ld. CIT(A) while dealing with this issue, dealt it under a misconception that the issue is of borrowing of loans and instead of outstanding credits for goods and services purchased.

12 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 can be enquired from the bank where the cheque payments had been credited in the accounts of the respective creditor parties.

13.2. It is also worthwhile to note that, on perusing the paper book containing 85 pages placed on record by the assessee, we find that, the AO was directed by the ld. CIT(A) to conduct certain enquiries and submit a report for the alleged addition in respect of the creditor parties. Pursuant to this direction, the AO had issued a letter, dated 08.02.2018 on the assessee asking to furnish the details of payments made to these parties and their ledger accounts along with corresponding bank statements. The said letter is placed at page 38- 39 of the paper book. Assessee replied vide his letter dated 18.09.2019. However, after the above two stated correspondence for remand proceedings as directed by the ld. CIT(A), there is nothing on record to conclusively establish that a remand report was furnished by the AO and considered by the ld. CIT(A) while dealing with the issue. The approach adopted by the ld. CIT(A) seems to be a half hearted approach, summarily dismissing the grounds raised by the assessee.

13.3. We also find that no effective cognizance of the submissions made by the assessee in the course of the assessment proceedings have been taken by the Ld. CIT(A) while disposing of the appeal. The Act provides for the powers of Commissioner (Appeal) u/s. 251 which adequately deals with the powers in disposing of the appeal by the Ld. CIT(A). The section is reproduced as under:

“Powers of the Commissioner (Appeals)

(a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; or (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement Commission, in the course of the proceeding before it and such other

13 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 material as may be brought on his record, confirm, reduce, enhance or annul the assessment; (b) in an appeal against an order imposing a penalty — he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case — he may pass such orders in the appeal as he thinks fit.

The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction.

Explanation – In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, not- withstanding that such matter was not raised before the Commissioner (Appeals) by the appel- lant.”

13.4. Section 250 of the Act provides for procedure to be adopted while disposing of the appeal by the Ld. CIT(A). Sub-section (4) of section 250 of the Act provides that the Ld. CIT(A) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing officer to make further inquiry and report the result of the same to the Commissioner (Appeals). Further, sub-section (6) provides that the CIT(A) shall pass an order in writing and shall set the points for determination, the decision thereon and the reasons for the decision. The section is reproduced as under:

“250. Procedure in appeal (1) The 7 Deputy Commissioner (Appeals)] 8 or, as the case may be, the Commissioner (Appeals)] shall fix a day and place for the hearing of the appeal, and shall give notice of the same to the appellant and to the 9 Assessing] Officer against whose order the appeal is preferred. (2) The following shall have the right to be heard at the hearing of the appeal- (a) the appellant, either in person or by an authorised representative; (b) the 10 Assessing] Officer, either- in person or by a representative. (3) The 1 Deputy Commissioner (Appeals)] 2 or, as the case may be, the Commissioner (Appeals)] shall have the power to adjourn the hearing of the appeal from time to time. (4) The 3 Deputy Commissioner (Appeals)] 4 or, as the case may be, the Commissioner (Appeals)] may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the 5 Assessing] Officer to make further inquiry and report the result of the same to the 6 Deputy Commissioner (Appeals)] 7 or, as the case may be, the Commissioner (Appeals)]. (5) The 8 Deputy Commissioner (Appeals)] 9 or, as the case may be, the Commissioner (Appeals)] may, at the hearing of an appeal, allow the appellant to go into any ground of 14 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 appeal not specified in the grounds of appeal

, if the 10. Deputy Commissioner (Appeals)] 11 or, as the case may be, the Commissioner (Appeals)] is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable. (6) The order of the 12. Deputy Commissioner (Appeals)] 13 or, as the case may be, the Commissioner (Appeals)] disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. (7) On the disposal of the appeal, the 14. Deputy Commissioner (Appeals)] 15 or, as the case may be, the Commissioner (Appeals)] shall communicate the order passed by him to the assessee and to the 16. Chief Commissioner or Commissioner]. 13.5. Principles governing the exercise of powers by the First Appellate Authority are contemplated under sections 250 and 251 of the Act, breach of which has far reaching consequences on the administration of justice culminating in the litigant approaching the higher appellate authority. It is required that the first appellate authority viz. CIT(A) will appreciate the evidence, consider the arguments and apply the law on the given set of facts and circumstances and arrive at findings.

13.6. In the light of the above stated submissions made by the assessee before the ld. CIT(A), while going through the findings and decisions arrived by him in para 5.3, we note that ld. CIT(A) has dealt with the same on the premise of these cash credit being un-secured loans. He has reiterated the stance taken by the AO that assessee did not provide supporting documents for proving the genuineness of loans and credit worthiness of lenders. He also noted that, AO had sent notices under section 133(6) to the lenders and none of the lender responded. According to him assessee did not furnish loan confirmations of the lenders and any documentary evidences to sustain his claim. He thus upheld the finding of the AO. The above stated observations and findings of ld. CIT(A) demonstrates non- application of mind on his part while disposing the ground raised by the assessee. There is utter failure on the part of the ld. CIT(A) of not considering the submissions made by the assessee alongwith documentary evidences despite he reproducing the written submission made by the assessee in his order. He has dealt with the grounds by 15 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 taking the addition as addition made for credit entries of loans. Though, they infact relate to creditors for transportation charges and tyre purchases expenses incurred by the assessee.

14.1. While disposing ground no.2 of the appeal, we have remitted the matter back to the file of ld. CIT(A), in terms of our aforesaid observations. Accordingly, we find that ground no.3 contended by the assessee in respect of alternative addition made by the ld. Assessing Officer on protective basis by relying on the provisions of Section 40A(3) is rendered academic, hence, not adjudicated upon.

14.2. Further, since the matter is restored to the file of Ld. CIT(A) for meritorious adjudication by passing a speaking order in terms of our observations made hereinabove, we are not expressing any views on the merits of the case so as to limit the appellate procedure before the Ld. CIT(A). The observations herein made by us in remanding the matter back to the file of Ld. CIT(A) will not impair or injure the case of the Revenue nor will it cause any prejudice to the defence/explanation of the assessee. Accordingly, we set aside the impugned order of the Ld. CIT(A) and restore the matter back to the file of the Ld. CIT(A) to 16 & 1987/MUM/2023 Rajeshwar Prasad Dubey., AY 2002-03 & 2005-06 decide afresh after affording reasonable opportunity of being heard to the assessee and the assessee is directed to be diligent in the appellate proceedings.

Order is pronounced in the open court on 21 May, 2024.