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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Mayur P Jain Income Tax Officer 1101 Chaitya Tower 81, Shivdas Ward No. 22(2)(2) Chapsi Marg, Mazgaon Vs. Mumbai Mumbai-400 010 PAN No. AEGPJ1871E Appellant .. Respondent .. Dr. P Daniel, AR Assessee by Revenue by .. Shri Purushottam Kumar, DR .. Date of hearing 24-05-2017 Date of pronouncement .. 02-06-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-32, Mumbai, in appeal No. CIT(A)-32/IT-202/ITO-20(2)(2)/2015-16 dated 30-12- 2016. The Assessment was framed by ITO Ward -20(2)(2), Mumbai for the A.Y. 2009-10 vide order dated 17-03-2015 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the re-assessment order passed under section 147 read with section 143(3) of the Act. For this assessee has raised following ground No.1: -
“1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming the assessment order passed under section 143(3) read with section 147 of the Income Tax Act, 1961 is itself bad-in-law.”
Briefly stated facts are that the assessee is an individual and is engaged in the business of sales and purchases of scrap. The assessee for the AY 2009-10 filed his return of income on 26-09-2009 and original AY completed under Mayur P Jain; A.Y: 09-10 section 143(3) on 23-12-2011. Subsequently, the assessment was reopened by recording the following reasons: -
“In this case scrutiny assessment u/s 143(3) for above assessment year was done on 23/1-2/2011 determining total income at Rs. 3,323684/-
Subsequently, it was noticed that the assessee has not carried out any genuine business in trading and the cash deposited of Rs. 18,97,450/- in the bank represents the assessee's income from undisclosed sources.
During the scrutiny proceedings for AY 2010- 11, it was found that the assessee had deposited cash to the extent of Rs. 6,06,03,500/ in savings a/c and Rs. 4,87,01,000/- in his current a/c and also the assessee was operating his brother's account (Shri Nikhil P. Jain) in which he deposited cash of Rs. 37,56,777/-. Assessee failed to prove the source of cash deposited in his bank account. During the assessment proceedings for A.Y. 2010-11, the, assessee stated the cash was received by him from various parties in return for the cheques given to them. The asses see was asked to produce evidence in support of his contention. The assessee failed to identify the parties with whom the transactions were made. As such, the cash deposits were treated as undisclosed income and added to the income.
Form the above, it is evident that the cash deposited of Rs. 18,97,450/- in the bank for AY. 2009-10 is also income from undisclosed sources.
Mayur P Jain; A.Y: 09-10 In view of the above, have reason to believe that income has escaped assessment for the A.Y 2009-10 within the meaning of section 147 of the I.T. Act. Accordingly, the proceedings u/s147 of the Act are duly attracted in order to frame proper reassessment to bring to tax appropriate income of the assessee. The case therefore, needs to be re- opened by issue of notice u/s.148 of the. IT. Act,1961.”
And notice under section 148 of the Act dated 28-03-2014 was issued and accordingly, re-assessment was framed under section 143(3) read with section 147 of the Act vide order dated 17-03-2015 by making addition of cash deposits under section 69C of the Act amounting to Rs. 18,97,450/-. The learned Counsel for the assessee raised objection for recording of reasons before the AO and he argued that the AO has not adjudicated the objections except the following: -
“The representative then attended on 2nd December 2011 with partial details. He was requested to furnish fur/her details by 9th December 2011 but he submitted the same on 21.12.2011 i.e. fag end of time barring month of December and has thus killed the time and gave the Assessing Officer a very short period during which and due to time barring pressure could not properly applied the mind and verified the facts and details produced/ submitted.
Therefore, your claim that AO has scrutinized and verified thoroughly in detail all the explanation, documents and by applying mind completed the assessment is not acceptable as if was not possible for the AO to devote his time under the Mayur P Jain; A.Y: 09-10 pressure of heavy work load of other time barring assessment and for the reasons' given above.”
Aggrieved, against the reopening assessee preferred the appeal before CIT(A), who confirmed the action of the AO vide Para 5.1 of his appellate order as under: -
“5.1 Ground No. 1: This ground of appeal is regarding to order passed under section 143(3) read with section 147. This ground is against reopening of the assessment. The appellant is arguing on the sufficiency of reasons for the AO to form reason to believe that income has escaped assessment. It is not the case of the appellant that there is a change of opinion. From his submissions it is clear that the appellant seems to challenge the sufficiency of reasons. The assessment was reopened after recording sufficient reasons. The facts clearly indicate that the AO had reasons to believe that income has escaped assessment. Accordingly the action of the AO in reopening these assessment is upheld and ground 1 dismissed.”
Aggrieved now, assessee is in second appeal before Tribunal.
Before us, the learned Counsel for the assessee first of all argued that the re-opening is done on the basis of the reason that there is an audit objection. The learned Counsel for the assessee drew our attention to the relevant audit objection which reads as under: -
“During the Audit scrutiny, it is noticed that the case was selected through CASS in order to verify the sources of cash deposited Rs. 1897450/- in the saving account with ICICI Bank
Mayur P Jain; A.Y: 09-10 In this regard the assessee has submitted as under: -
“………the assessee had done personal business on metal scrap during this year ended 31.03.2009. He had purchased metal scrap in lot by cheque and he had sold the metal scrap in lot by cash which was deposited in ICICI Bank as per Bank statement enclosed. He had earned net income of Rs. 158500/- from the said business of metal scrap which was already shown in return of income originally filled for AY 2009- 10. The AO accepted the contention of the assessee and has not made any addition on the issue. However, the action of the AO is incorrect in view of the following facts:
It is thus seen that only after the AO required the assessee to explain the source of cash deposit, the assessee has but forward his theory of so called trading in scrap.”
The learned Counsel for the assessee stated that in view of this audit objection, the assessment was reopened after recording the above reasons. The learned Counsel took us through the reason recorded and stated that the reasons for re-opening of assessment was that assessee deposited cash in AY 2010-11 and during the scrutiny of assessment year i.e. 2010-11 it was revealed. The learned Counsel for the assessee stated that during original assessment proceedings as it is evident from the audit objection that a issue of cash deposit of Rs. 18,97,450/- in the saving bank account of the assessee maintained with ICICI bank is examined as is available in the note on audit objection. According to the learned Counsel this reopening is on the basis of audit objection and in the case of reopening on the basis of audit objection he relied on the decision of the Page 5 of 10
Mayur P Jain; A.Y: 09-10 Hon’ble Bombay High Court in the case of Purity Techtextile Private Limited vs. ACIT (2010) 325 ITR 459 (Bom), Delhi High Court in the case of Xerox Modicorp Ltd. vs DCIT (2013) 350 ITR 308 (Delhi) and Gujarat High Court in the case of Reckitt Benckiser Healthcare India (P.) Ltd. vs. DCIT (2017) 392 ITR 336 (Guj) and also Supreme Court in the case of CIT vs. Lucas T.V.S. Ltd. (2001) 249 ITR 306 (SC).
On the other hand, the learned Sr. DR relied on the decision of 247 ITR (13) SC and 102 ITR 287 SC.
I have heard the rival contentions and gone through the facts and circumstances of the case. I find that the original assessment was completed u/ s 143(3) of the Act vide order dated 23-12-2011. Subsequently, due to audit objection the assessment was reopened for the reason that the assessee’s cash deposits of Rs.18,97,450/- has not been added by the AO during the original assessment proceedings. From the very reason recorded by the AO for reopening of assessment, it is clear that the same is on the basis of audit objection and no independent opinion has been formed by the AO while recording reasons. The audit party has spelt out the reason that, “………the assessee had done personal business on metal scrap during this year ended 31.03.2009. He had purchased metal scrap in lot by cheque and he had sold the metal scrap in lot by cash which was deposited in ICICI Bank as per Bank statement enclosed. He had earned net income of Rs. 158500/- from the said business of metal scrap which was already shown in return of income originally filled for AY 2009-10. The AO accepted the contention of the assessee and has not made any addition on the issue. However, the action of the AO is incorrect in view of the following facts: It is thus seen that only after the AO required the assessee to explain the source of cash deposit, the assessee has but forward his theory of so called trading in scrap.” From the audit objection, it is clear that the AO during the course of assessment proceedings has particularly enquired about cash deposit and assessee explained that this cash deposit in bank account is out of the business of sale of scrap on which account the income has been included in the return of income for AY 2009-10. Even the AO in his comments to assessee’s objection to reasons has Mayur P Jain; A.Y: 09-10 clearly admitted that the entire information was before him but he could not go into details in view of time barring assessment and workload. He recorded in his objections the following facts: -
“……….. The representative then attended on 2nd December 2011 with partial details. He was requested to furnish further details by 9th December 2011but he submitted the some on 21.12.2011 i.e. fag end of time barring month of December and has thus killed the time and gave the Assessing officer a very short period during which and due to time barring pressure could not properly applied the mind and verified the facts and details produced / submitted.
Therefore, your claim that AO has scrutinized and verified thoroughly in detail all the explanation, documents and by applying mind completed the assessment is not acceptable as it was not possible for the AO to devote his time under the pressure of heavy work load of other time barring assessments and for the reasons given above.”
In view of the above factual position, I will go through the case law of the Hon’ble Delhi High Court in the case of Xerox Modicorp Ltd. vs. DCIT (2013) 350 ITR 308 (Del) wherein it is held as under: -
“18. The alleged non-deduction of tax from the royalty which would authorise the disallowance under section 40(a)(i) is a fact that is mentioned for the first time in the counter-affidavit and it does not find place in the reasons recorded. As noted earlier, it is impermissible to look into any record other than the reasons recorded to judge the validity of the reopening of the assessment. Further, the statement in the counter-affidavit that the facts relating to the past years disclosed that the petitioner was wholly dependent on the parent company for the technical inputs
Mayur P Jain; A.Y: 09-10 goes against the revenue, in the sense that it was always known to the revenue that the petitioner did not develop any technology of its own but was dependent on the technology from the parent company. Moreover, it is not for the petitioner to advise the assessing officer as to what inference he should draw as to nature of the expenditure - whether it is revenue or capital in nature.
Since the reasons recorded have been prompted by the revenue audit's opinion as admitted in the counter- affidavit, it is not necessary to examine the contention of the revenue based on the observations of the majority in paragraph 23 of the judgment in Usha International Ltd. (supra).”
Similarly, Hon’ble Bombay High Court in the case of Purity Techtextile Private Limited Vs. ACIT (2010) 325 ITR 459 (Bom) has considered the almost similar issue which reads as under: -
“16. Insofar as the companion writ petition is concerned (Writ Petition No. 268 of 2010), the reopening of the assessment has taken place within a period of four years from the expiry of the relevant assessment year. However, so far as this case is concerned, it is apparent that the Assessing Officer did not have before him any additional material at all to form a belief that income had escaped assessment. The assessee had admittedly placed on record before the Assessing Officer for assessment year 2003-04 the circumstance that the plans have been approved for the building on 12-9-1988. There was no material before the Assessing Officer, that would lead to a formation of belief that the income had escaped assessment. We may also note that in the present case as well the Assessing Officer appears to have relied exclusively on an audit objection, which has already been dealt with while considering the facts of Writ Petition No. Page 8 of 10
Mayur P Jain; A.Y: 09-10 269 of 2010. There was hence a total absence of "tangible material", as explained in the judgment of the Supreme Court in Kelvinator of India Ltd.'s case (supra) to justify the conclusion that income had escaped assessment. Finally, it would be necessary to note, as we have observed earlier, that mere existence of the land and building since 1988 is not a circumstance which would disentitle the assessee to the benefit of a deduction under section 80-IB of the Act, once other requirements of the provisions are fulfilled.”
Respectfully, following Hon’ble Bombay High Court in the case of Purity Techtextile Private Limited (supra) and in the given facts of the present case, I quashed the reassessment framed by AO.
Since I have quashed the reassessment, I need not to go into the merits of the case.
In the result, the appeal of assessee is allowed. Order pronounced in the open court on 02-06-2017.