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Income Tax Appellate Tribunal, ‘B’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
These are appeals filed by the assessee directed against an orders dated 26.04.2017 of ld. Commissioner of Income Tax (Appeals)- 3, Coimbatore.
Appeal of the assessee for the assessment year 2010-2011 is 2. taken up for disposal. to 1679/2017. :- 2 -:
Ld. Counsel for the assessee submitted that he was assailing 3. the reopening done on the assessee for the impugned assessment year. As per the ld. Authorised Representative notice u/s.148 of the Income Tax Act,1961 (in short ‘’the Act’’) was issued to the assessee on 12.08.2013 for a reason that Revenue was in possession of AIR information reflecting online share trading transactions to the tune of Rs.2,04,56,948/- done by the assessee. As per the ld. Authorised Representative in the assessment completed u/s.143(3) r.w.s.147 of the Act, pursuant to such notice, the only addition made was a sum of Rs.8,44,000/-, for deposits made by the assessee in his bank account with M/s.Karur Vysya Bank Limited. As per the ld. Authorised Representative these were cash deposits of Rs.7,00,000/- on 22.05.2009 and Rs.1,44,000/- on 22.02.2010. Contention of the ld. Authorised Representative was that the above addition which was done for the reason that assessee was not able to provide source for these deposits, had nothing to do with the reasons cited by the Revenue for reopening the assessment. Contention of the ld. Authorised Representative was that when there was no addition viz-a- viz reasons cited for reopening the assessment, the reassessment failed. In any case, as per the ld. Authorised Representative reopening could not be made solely based on AIR information, and for a mere reason that there were deposits made by the assessee in the bank to 1679/2017. :- 3 -: account. As per the ld. Authorised Representative, though assessee had challenged the re-assessment before the ld. Commissioner of Income Tax (Appeals), ld. Commissioner of Income Tax (Appeals) held the reassessment to be valid. Ld. Authorised Representative placed reliance on the judgment of Hon’ble Jurisdictional High Court in the case of M/s. Martech Peripherals Pvt. Ltd. vs. DCIT, (W.P.No.10710 of 2014, dated 04.04.2017) and that of Mumbai High Court in the case of CIT vs. Jet Airways, 331 ITR 236.
Per contra, ld. Departmental Representative strongly 4.
supporting the orders of the lower authorities submitted that assessee had not filed any return at all. According to him, the first return filed by the assessee was pursuant to the notice issued u/s.148 of the Act.
Thus, according to him, the impugned assessment could not be technically considered as reassessment. Contention of the ld. Departmental Representative was that in the judgments cited by the ld. Authorised Representative, original assessments were completed under section 143(3) of the Act. Thus, according to him, these judgments had not applicability on facts here.
I have considered the rival contentions and perused the 5. orders of the authorities below. Reasons for reopening the assessment to 1679/2017. :- 4 -: as given by the ld. Commissioner of Income Tax (Appeals) at para 8 of his order is reproduced hereunder:-
‘’This is a case selected under the non-filer monitoring system. As per the AIR generated from ITO, during the F. Y. 2009-10, it is seen that assessee has made share transactions to the tune of Rs.2,04,56,948/--. Also it is seen from the AIR details that assessee has received a total salary of Rs.4,89,706/- for which TDS of Rs.60,318/- has been deducted. On verification in ITO, it is seen that assessee has failed to file his return of income for the A. Y.2010-11. The source for the investment in share transactions wherein the transactions have been made to the tune of Rs.2,04,56,948/- as well as the salary income have to be brought to tax. In view of the above, there is failure on the part of the assessee in disclosing truly all material facts, Hence, I have reason to believe that income chargeable to tax in the hands of Shri Nagamaiyan Baladandayudam for the assessment year 2010-11 has escaped assessment within the meaning of Section 147 of the Income Tax Act 1961’’.
It is true that assessee had failed to file his return for the impugned assessment year prior to issue of notice u/s.148 of the Act. However, reasons for reopening, cited the need to bring to tax, source for the investment in share transactions to the tune of Rs.2,04,56,948/- as well as salary income. Now, a look at the assessment order passed by the ld.AO pursuant to such reassessment proceedings, show that the only addition made is of Rs.8,44,000/-. Relevant part of the assessment order reproduced hereunder:- to 1679/2017. :- 5 -:
‘’During the course of scrutiny proceedings, it was found that there were cash deposit of Rs.7,OO,OOO/- on 22/05/2009 & 1,44,000/- on 22/02/2010 in the savings bank account of the assessee maintained with "The Karur Vysya Bank Limited, Coimbatore" totaling to Rs.8,44,OOO/-. Assessee vide his letter dated 09/03/2015 has stated that he is a retired bank employee and has no other sources of income. However, for the cash deposits of Rs.8,44,OOO/- in the savings bank account of the assessee, in spite of repeated opportunities and appearance before the undersigned, assessee's authorized representative was unable to produce any substantive evidence in support of the source of cash deposits of Rs.8,44,OOO/-. In the absence and non- availability of any supportive evidence for the source of cash deposits of Rs.8,44,OOO/-, the entire cash deposits are treated as unexplained cash credits and added to the Total Income of the assessee under the head "Other Sources'. The assessment is thus completed as under Total Income returned 3,31,014/- Add: Income under the head "other sources" 8,44,000/- ---------------- Total Income assessed 11,75,014/- --------------- It is clear from the above that there was no addition whatsoever on the assessee in the assessment with regard to source of investment in share transactions or salary income. It might be true that assessee had not filed prior to the issue of notice u/s.148 of the Act. Explanation (3) to Sec.147 which is apposite is reproduced hereunder:- to 1679/2017. :- 6 -:
‘’For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148’’.
The terminology used in the above explanation is for the purpose of ‘’assessment or reassessment’’. Hence this explanation, in my opinion will apply even when the assessment done on an assessee pursuant to a notice u/s.148 of the Act is the first assessment. Effect of Explanation (3) was an issue dealt by the Mumbai High Court in the case of Jet Airways (supra). Paras 16 to 22 of the judgment is reproduced hereunder:-
‘’16. In CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 the Supreme Court dealt with the following question of law in the course of its judgment (page 300) : "Where an item unconnected with the escapement of income has been concluded finally against the assessee, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item for the purpose of computation of the escaped income ?"
The issue which arose before the Supreme Court was whether, in the course of a reassessment on an escaped item of income an assessee could seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of section 147, as they stood prior to the amendment on April 1, 1989. The Supreme Court held that the expression "escaped assessment" includes both "non- to 1679/2017. :- 7 -:
assessment" as well as "underassessment". Income is said to have escaped assessment within the meaning of the section when it has not been charged in the hands of an assessee during the relevant assessment year. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time made by resorting to the provisions of section 147. The expression "reassess" refers to a situation where, an assessment has already been made but the Assessing Officer has reason to believe that there is underassessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to the judgment in V. Jaganmohan Rao v. CIT/EPT [1970] 75 ITR 373, which held that once an assessment is validly reopened, the previous underassessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The court held that the object of section 147 enures to the benefit of the Revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings.
The judgment in V. Jaganmohan Rao's case [1970] 75 ITR 373 dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engineering Works [1992] 198 ITR 297 (SC) interprets the provisions of section 147 as they stood prior to the amendment on April 1, 1989.
The effect of the amended provisions came to be considered, in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject matter of the notice under section 148. This view was adopted in the judgment of the Punjab and Haryana High Court in Vipan Khanna [2002] 255 ITR 220 and in the judgment of the Kerala High Court in Travancore Cements Ltd. [2008] to 1679/2017. :- 8 -:
305 ITR 170 . This line of authority would now cease to reflect the correct position in law by virtue of the amendment which has been brought in by the insertion of Explanation 3 to section 147 by the Finance (No. 2) Act of 2009. The effect of the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under section 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded under section 148(2).
The second line of precedent is reflected in a judgment of the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343 (Raj). The Rajasthan High Court construed the words used by Parliament in section 147 particularly the words that the Assessing Officer may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 147. The Rajasthan High Court held as follows (page 353) : "It is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had 'reason to believe' to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his 'reason to believe', had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax which the Assessing Officer may find to have escaped assess ment, and which to 1679/2017. :- 9 -:
may come to his notice subsequently, in the course of proceedings under section 147."
Parliament, when, it enacted Explanation 3 to section 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under section 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd. [2008] 305 ITR 170 and of the Punjab and Haryana High Court in Vipan Khanna [2002] 255 ITR 220 would, therefore, no longer hold the field. However, in so far as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh [2008] 306 ITR 343, Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab and Haryana High Court in CIT v. Atlas Cycle Industries [1989] 180 ITR 319 . The decision in Atlas Cycle Industries [1989] 180 ITR 319 held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under section 148 were incorrect or nonexistent. The decisions of the Punjab and Haryana High Court in Atlas Cycle Industries [1989] 180 ITR 319 and of the Rajasthan High Court in Shri Ram Singh [2008] 306 ITR 343 would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.
Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of which a notice was issued under section 148. Setting out the reasons, for the belief that income had escaped assessment. Those judicial decisions had held that when to 1679/2017. :- 10 -:
the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No. 2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee’’.
Thus, when an assessment or re-assessment is done pursuant to proceedings under Sec.147 of the Act, unless and until there is an addition for escapement of income which formed the basis for formation of the reason to believe that income chargeable to tax had escaped assessment, there cannot be a valid assessment. I find that law laid down by the Hon’ble Mumbai High Court was followed by Jurisdictional High Court in the case of M/s. Martech Peripherals Pvt. Ltd (supra). In these circumstances, I am of the opinion that the to 1679/2017. :- 11 -: assessment done u./s.147 of the Act for the impugned assessment year, was invalid. Such assessment is set aside.
Now, I take appeals for the assessment years 2011-12 and 6.
2012-2013.
Ld. Counsel for the assessee submitted that for these two years, though he was questioning the validity of the notice issued u/s.148 of the Act, he would prefer the matter to be considered on merits.
As per the ld. Authorised Representative for these years, 8. additions were made for cash deposits made by the assessee in his account with M/s. Karur Vysya Bank Limited, Coimbatore. Contention of the ld. Authorised Representative was that for assessment year 2011-2012, the deposits which were considered for such additions were made during the period 15.02.2011 to 29.03.2011 aggregating to �27,40,850/-. For assessment year 2012-2013, as per the ld. Authorised Representative, the deposits which were considered for addition, was for whole of the relevant previous year and aggregated to �15,26,100/-. As per the ld. Authorised Representative for previous year relevant to assessment year 2011-2012, there were substantial cash withdrawals made by the assessee during the period from 05.04.2010 to 01.02.2011 and once such cash withdrawals were to 1679/2017. :- 12 -: considered, the deposits stood explained. Similarly, as per the ld. Authorised Representative for the previous year relevant to assessment year 2012-2013, assessee had cash withdrawals of �28,47,500/- against cash deposits of �15,26,775/-. Thus, according to him, additions were made despite assessee having cash withdrawals from his bank account. Despite these being pointed out to the ld. Commissioner of Income Tax (Appeals), as per ld. Authorised Representative, the additions were confirmed.
Per contra, ld. Departmental Representative submitted that 9.
the matter requires a fresh examination by the ld. Assessing Officer.
I have considered the rival contentions and perused the 10. orders of the authorities below. Statement of M/s. Karur Vysya Bank Limited for the period from 19.03.2010 to 14.03.2012 has been placed on record. I find that cash deposits and withdrawals of the assessee from this account during the relevant previous years stood as under:-
Assessment year 2011-2012:-
Date Deposits Withdrawals 05.04.2010 2,000 29.04.2010 41,000 06.05.2010 2,000 20.05.2010 5,000 25.05.2010 25,000 25.05.2010 25,000 26.05.2010 10,000 27.05.2010 04.06.2010 2,000 to 1679/2017. :- 13 -:
10.06.2010 2000 11.06.2010 10,000 13.06.2010 4,000 14.06.2010 10,000 21.06.2010 3,000 22.06.2010 10,000 26.06.2010 3,000 28.06.2010 3,000 29.06.2010 4,000 05.07.2010 2,000 30.07.2010 3,000 03.08.2010 2,000 16.08.2010 10,000 04.09.2010 10,600 10.09.2010 10,000 10.09.2010 400 11.09.2010 400 20.09.2010 10,000 22.09.2010 9,000 23.09.2010 20,000 25.09.2010 10,000 28.09.2010 10,000 05.10.2010 20,000 08.10.2010 1,25,000 13.10.2010 500 08.12.2010 1,30,000 10.12.2010 5,00,000 22.12.2010 70,000 23.12.2010 50,000 23.12.2010 2,20,000 07.01.2011 4,00,000 11.01.2011 1,00,000 18.01.2011 8,00,000 19.01.2011 8,900 24.01.2011 6,00,000 28.01.2011 9,00,000 01.02.2011 30,000 15.02.2011 675 17.02.2011 19,00,000 05.03.2011 4,90,000 14.03.2011 675 29.03.2011 2,00,000
Total 27,40,850 40,63,300 to 1679/2017. :- 14 -:
Assessment year 2012-2013:-
Date Deposits Withdrawals 11.04.2011 300000 20.04.2011 675 20.04.2011 800000 02.05.2011 600000 16.05.2011 500000 02.06.2011 18100 04.06.2011 500000 01.07.2011 35000 09.07.2011 100000 16.07.2011 30000 26.07.2011 40000 19.08.2011 650000 25.08.2011 114000 28.09.2011 500000 28.09.2011 1000 15.10.2011 53000 04.11.2011 150000 14.11.2011 150000 18.11.2011 20000 16.12.2011 51000 17.12.2011 100000 31.12.2011 20000 02.01.2012 2500 03.01.2012 25000 21.01.2012 30000 22.02.2012 25000 Total 1526775 2847500 It is clear from the above, that assessee had more than enough cash withdrawals from his account, to cover the deposits. In my opinion, once the assessee was having cash withdrawals sufficient to cover the deposits, there could be no addition for unexplained deposits or investments. If it was the case of the Revenue that withdrawals represented unexplained deposits of the assessee in any earlier years, Revenue could have resorted to avenues available under law for assessing such income in such earlier years, but not for the impugned to 1679/2017. :- 15 -: assessment years. In my opinion, no purpose will be served by remitting these matters back to the ld. Assessing Officer when the records available clearly show that deposits stood explained. I delete the additions made for both these years.
In the result, appeals of the assessee for the assessment year 2010-2011 is allowed whereas as those for assessment years 2011-12 and 2012-2013 are partly allowed.
Order pronounced on Tuesday, the 19th day of December, 2017, at Chennai.