K.SURESH,CHENNAI vs. DCIT, CHENNAI

आदेश /O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER These appeals by the assessee are directed against the common order of the Commissioner of Income-tax(Appeals)—2, Chennai, dated 2.3.2017.

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common issue in all these appeals is with regard to reopening of

the assessment on the basis on a Non-Est Return of income in

these assessment years.

on record. Regarding framing of assessment on Non-est return

of income, the ld. A.R made an endorsement that the assessee

is not interested in pursuing this ground. Accordingly, this

ground is dismissed as not pressed in all these assessment

years 2008-09 , 2009-10, 2010-11 & 2012-13. Hence, this

ground in all these appeals stands dismissed.

Reopening Of the Assessment for A.Ys 2008-09, 2009-10,

2010-11 & 2012-13.

4.1 We consider the facts for the A.Y 2008-09, since the facts

are common in all these assessment years.

4.2 The facts of the case are that there was a savings

account maintained in Axis Bank Account by the assessee’s

mother (who is the primary holder), jointly with the assessee.

During the course of the assessment proceedings for the asst.

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year 2011-12, the assessee was asked to explain the

transactions in the aforesaid account by the ITO, Business

Ward-II(4). As per the oral advice of the ITO, during the

assessment proceedings of asst. year 2011-12, the assessee

owned up the transactions in the said bank account and filed

revised statement of income including transactions from the said

bank account for asst. years 2008-09 to 2012-13.

4.3 The revised return for asst. year 2008-09 was filed on

17.2.2014, which was beyond all the time limits prescribed under

the Income-tax Act, 1961. The AO gave a notice u/s.148 of the

Act on 14.3.2014.

4.4 The reasons recorded by the AO for issuing of notice

u/s.148 of the Act was given by letter dated 5.2.2015, the

content of which is reproduced below:

“During the course of scrutiny proceedings in the case of the assessee for the A.Y 2011-12, the assessee was found to be holding a joint account with his mother Smt K.Managalam in Axis Bank, Adyar Branch, Chennai. Apparently assessee has used this bank account for his real estate business and transactions made in this account are not offered/accounted in books/Return of income filed by assessee for thise years including F.Y 2007-08. The Bank account has substantial cash deposits of about 1.80 crores during the financial year 2007-08

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relevant to A.Y 2008-09. Meanwhile the assessee has vide letter dated 17.02.2014 filed revised return of income/statement for the A.Y 2008-09 admitting a revised total income of `1,30,86,080/- covering the transactions made in this Bank account.

4.5 The ld. A.R submitted that a perusal of the above,

indicates that the AO wanted to examine the source for cash

deposits and that by itself do not constitute a valid ground for

reopening of the assessment.

4.6 He relied on the decision of the Supreme Court in

Chhugamal Rajpal Vs. CIT (79 ITR 603) is clearly applicable to

the facts of the present case. In that case before the Supreme

Court, the purported reasons record for reopening the

assessment were inter alia:-

“It appears that these persons are name-lenders and the transactions are bogus. Hence, proper investigation regarding these loans is necessary.”

He submitted that Supreme Court did not find that these were

sufficient reasons for reopening the assessment. With regard

to the sentence ‘hence, proper investigation regarding these

loans is necessary’, the Supreme Court observed that this

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conclusion that there is a case for investigation as to the truth of

the alleged transactions is not the same thing as saying that

there are reasons to issue a notice under section 148.

4.7 He relied on the judgement of Delhi High Court in

the case of CIT Vs. Batra Bhatta Company (321 ITR 526 (Del),

wherein it was held as below :

4.8 He relied on the judgement of Bombay High Court

in the case of Nivi Trading Limited Vs. Union of India (375 ITR

308)(Bom.), wherein it was held that:

“mere fact that more details were sought or some verification was sought with regard to value of these shares in terms of section 47(iii), would not enable revenue to resort to section 147”

4.9 He relied on the judgement of Delhi Tribunal in the

case of Bir Bahadur Singh Sijwali Vs. ITO [53 taxmann.com

366 (Delhi – Trib), the Tribunal observed that the AO should not

have proceeded on fallacious assumption that bank deposits

constituted undisclosed income and overlooked fact that source

might by other than assessee’s own income and therefore held

that the reasons recorded by the AO, were not sufficient

reasons for reopening the assessment proceedings. As a

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consequence notice u/s.148 of the Act was quashed. This view

was also adopted in the case of Gurpal Singh Vs. ITO (71

taxmann.com 108 (Amritsar-Trib.)

4.10 He relied on the judgement of Bombay High Court

in the case of Prashant S. Joshi Vs. ITO (324 ITR 154) [Bom.],

it was held that reasons which are recorded by the AO for

reopening an assessment, are only reasons which can be

considered when formation of belief is impugned; such reasons

cannot be allowed to grow with age and ingenuity by devising

new grounds in replies and affidavits not envisage when

reasons for reopening an assessment were recorded.

4.11 He relied on the judgement of Bombay High Court

in the case of Hindustan Lever Ltd. Vs. R.B.Wadkar ACIT (266

ITR 48)(Bom.), it was held that reasons recorded by the AO

cannot be supplemented by filing affidavit or making oral

submission, otherwise reasons which were lacking in material

particulars would get supplemented, by the time matter reaches

Court, on strength of affidavit or oral submission advanced.

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4.12 It was submitted that the reasons recorded cannot

be supplemented after issue of notice u/s.148 and where

reasons records for reopening does not indicate that the AO

had a belief that income had escaped assessment, then notice

us/.148 is without jurisdiction and consequently, the notice

u/s.148 and assessment made on that basis should be

quashed.

4.13 He submitted that in the instant case, perusal of the

reasons recorded does not indicate that the AO had reasons to

believe that income had escaped assessment. It is more in the

nature of a roving enquiry.

4.14 He submitted that the CIT(Appeals) wrongly

observed that the following sentence in the reasons recorded

for reopening – “The source for the cash deposits made by the

assessee needs to be examined.”. Is a mere comment and is

not the basis for re-opening of the assessment. However, a

perusal of the reasons recorded does not indicate so.

4.15 He submitted that the CIT(Appeals) has wrongly

inferred the reasons that from the information in the

possession of the AO, which the AO has not recorded in the

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reasons for re-opening. Therefore, in the light of the principles

laid down by the above referred judgments, it is prayed that

notice u/s.148 may be quashed and consequent assessment

framed under sec.143(3) r.w.s. 147 of the Act may be annulled.

On the face of the bank statement (Common Annexure ‘A’), it is

clearly mentioned that the primary holder of the account is Mrs.

K. Mangalam, who is assessee’s mother. The AO has ignored

the primary evidence that the account is a joint account, where

assessee’s mother is the primary account holder.

4.16 According to ld.A.R, the AO had disbelieved the

explanations offered by the assessee that source for cash

deposits in axis bank account if by way of repayment by parties

in cash to whom monies were lent by cheques, for want of

confirmation from parties. However, the Officer choose to

believe that the transactions in the said axis bank account were

made by the assessee by overlooking the fact that the primary

holder of the account is Mrs. K. Mangalam, the assessee’s

mother and further without making an independent enquiry with

Mrs. K. Mangalam.

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4.17 According to ld.A.R, in the present case, there are no

other materials other than the assessee’s own statement, to

take a view that the transactions in the said bank account are

made by the assessee. It is based on the presumption that the

bank transactions belonged to the assessee, the AO had

framed a suspicion that the assessee’s income had escaped

assessment. There are no other reasons for reopening of

assessment.

4.18 He relied on the judgement of Madras High Court in

the case of Anil Kumar Satish Kumar Nahta v. IAC, 242 ITR

238 (Mad.), it was held as under:

“Where a re-assessment notice has been issued on the gorund that the firm stood dissolved, meaning there, by that it was not a case of change in the constitution of the firm and this ground was non-existent, the initiation of re-assessment proceedings on the basis of such notice cannot be sustained because the very foundation o9n which such notice proceeded was non-existent.”

4.19 He relied on the judgment of Gujarat High Court in

the case of Sagar Enterprises Vs. ACIT )(2002) 257 ITR

335(Guj.) wherein held that:- “Where the initiation of re-assessment proceedings has been made on the ground that return had not been filed and that a

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certain income had not been disclosed and the material on record had showed that return had in fact been filed and the Revenue was not sure whether such income pertained to the year concerned or any other year, initiation has not been upheld.

4.20 He submitted that in the present case, on perusal of

reasons given for reopening of assessment, it is clear that the

AO had formed the belief on the basis of improper appreciation

of facts and therefore the belief fails and so the re-assessment

initiated based on such reasons is impermissible in law.

4.21 According to him, the Income-tax Department has

initiated re-assessment proceedings in the case of assessee’s

mother Mrs. K. Mangalam by issue of Notice u/s.148 dated

31.3.2017 for A.Ys 2010-11, 2011-12 and 2012-13. The notice

was served on assessee’s mother on 4.4.2017. This is a clear

indication that the revenue now feels that the bank accounts of

Mrs. K. Mangalam must be assessed in her hands.”

4.22 Therefore, he submitted that initiation of

reassessment is bad in law and consequently quash the

reassessment order.

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4.23 The DR submitted that during the course of

assessment of assessment year 2011-2, it came to the

knowledge of the Assessing Officer that transaction in Axis

Bank, Adyar Brnach were unaccounted and during the financial

year relaevant to A.Y 2008-09, the same bank acocunt consists

cash deposits of 1.80 cores. It was also recorded that a revised

return was filed for A.Y 2008-09 on 17.02.2014 admitting a revised total income of `1,30,86,080/-. The above facts

indicated that the Assessing Officer possessed a valid reason

to believe that the income of the assessee as escaped

assessment. The belief is further strengthened by the finding

in the subsequent assessment year. He placed reliance in the

judgment of Supreme Court in the case of EssEss Kay

Engineering Pvt. Ltd. Vs. CIT in 247 ITR 818 wherein it was

held that the Assessing Officer cannot be precluded from

reopening the assessment of an earlier year on the basis of the

findings of fact that evolve in the fresh materials in the course of

assessment of the next year.

4.24 According to ld.D.R, the reopening is not based on

a mere comment that the cash deposits require examination.

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According to ld.D.R,he AR has been selective in his approach

to the concluding part of the noting. The Assessing Officer had

reasons to believe that income had escaped assessment and

had clearly expressed in the first paragraph of the order sheet

noting that:

“the assessee has used this bank account for his real estate business and transactions made in this account are not offered/accounted in books/returns of income filed by the assessee for these years including F.Y 2007-08.”

4.25 He submitted that when the contents of the reasons

recorded are seen holistically and not selectively, as done by

the AR, it indicates that the Assessing Officer had clear and

complete reasons to believe that income had escaped

assessment. It is not in the nature of roving enquiry. Therefore,

it is held that the notice u/s.148 is valid and the consequent

assessment framed u/s.143(3) r.w.s. 147 is legitmate.

material on record. It is a settled law that on the basis of

material, prima facie, available before the Assessing Officer,

opined that income chargeable to tax has escaped assessment

can be formed. The word ‘reason’ in the phrase ‘reason to

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believe’ would mean cause or justification. In case the Assessing

Officer has a cause or justification to know or suppose that

income has escaped assessment, action u/s 148 can be taken.

But obviously, there should be relevant material on which a

reasonable man could have formed a requisite belief. Whether

this material(s) would conclusively prove the escapement of

income is not the concern at that particular stage. So what is

required is the subjective satisfaction of the Assessing Officer

based on objective material evidence. The reason was recorded

as discussed above. The argument of the ld.AR is that where

there was no fresh tangible material to reopen the assessment

u/s 147, no action could be taken after the expiry of four years

from the end of the relevant assessment year unless the

assessee has disclosed fully and truly all material facts

necessary for the assessment for that assessment year, inter

alia.

5.1 As seen from the assessment order, it gives a clear

picture that the Assessing Officer has got material evidence to

form his opinion for taking recourse to section 147 r.w.s 148 of

the Act. There cannot be two opinions. At the point of time when

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the reasons are recorded, forming opinion of ‘escapement of

income’ is only relevant. Hence, this plea of the ld.AR is not

tenable in the eyes of law. It is true that u/s 147, the Assessing

Officer can either assess or re-assess but for taking action there

under, he has to record reasons that income chargeable to tax

has escaped assessment . It is also mandated by section 148(2)

to record reasons in writing. The reassessment proceedings u/s

147 are further subject to sections 148,149,150,151,152 and

limited issue regarding the validity of proceedings undertaken

after four years of the assessment year in question. The

Assessing Officer is required to see if the conditions laid in

Explanation 2(c) are satisfied because in this case no

assessment was completed u/s 143(3) of the Act. In case, (i)

income chargeable to tax has been under assessed; or (ii) such

income has been assessed at too low rate; or (iii) such income

has been made the subjective of excess relief under this Act; or

(iv)excessive loss or depreciation allowance or any other

allowance under this Act has been computed, then the

Assessing Officer would have valid cognizance u/s 147 of the

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Act. The reasons recorded by the Assessing Officer clearly

speak for the under assessment of tax hence, the conditions laid

above stand fulfilled in so far as re-assessment proceedings are

concerned. In so far as the reasons recorded, extracted in the

earlier portion of this order, we are satisfied that the Assessing

Officer has ‘reason to believe’ that income has escaped

assessment. This fact confers jurisdiction on him to reopen the

assessment. The power to re-assess post 1st April, 1989 are

much wider than these used to be before. But still the schematic

interpretation of the words ‘reason to believe’ failing which

section 147 would give arbitrarily powers to the Assessing

Officer to reopen the assessment on the basis of mere change of

opinion, which cannot be, per se a reason to reopen the case.

The Act has not given power to the Assessing Officer to review

but has only given power to re-assess. There is a conceptual

difference between the two aspects as the Assessing Officer has

no power at all to review the assessment. The reassessment, as

stated above, has to be based on fulfillment of certain pre-

conditions but the concept ‘change of opinion’ has to be taken

into consideration otherwise it may give unbridled power to an

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Assessing Officer to reopen any and every assessment order

which would simply amount to a review. The concept ‘change of

opinion’ is an in-built test to check the abuse of power by the

Assessing Officer. So, now only when the Assessing Officer has

a tangible material to base his conclusion that there is an

escapement of income from assessment and the reasons

recorded have a link with the formation of his belief, he has the

power u/s 147 of the Act.

5.2 In the present case, the assessee has not shown

bank account with Axis Bank, Adyar Branch, Chennai. As per

Explanation 2 of Section147, it is very clear that due to non-

disclosure of this by the assessee, the income chargeable to tax

had escaped assessment. The assessee has not produced

anything before the Commissioner of Income Tax (Appeals) to

show as to how there is no incidence of tax in this assessment

year. Hence, the action of Commissioner of Income Tax

(Appeals) and that of Assessing Officer is fully covered by the

provisions of Explanation 1 to Section 147 of the Act is not

correct. The said provision reads as under:

‘’Production before the Assessing Officer of accounts books or other evidence from which material evidence could with due

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diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso’’.

5.3 It is possible that with due diligence of the Assessing

Officer would have ascertained this fact at the time of

assessment, if any also, but in view of the explanation (1) it does

not mean that there was no default on the part of the assessee.

Hence, reopening u/s.147 is held to be valid. The assessee has

tried to take shelter under the exception provided in that section.

But as stated above, when the assessee has not disclosed fully

and truly the facts necessary for the assessment and there is no

assessment u/s.143(3) of the Act, this proviso will not come to

its rescue. Consequently, we hold that the entire reassessment

proceeding in this case is valid and therefore, the action of the

Assessing Officer is upheld in all these assessment years.

Accordingly, the ground raised by the assessee in all these

assessment years relating to the re-opening of assessment is

rejected.

2010-11 & 2012-13 with regard to validity of the notice

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U/s.143(2) of the Act. We consider the facts narrated in the

Asst. Year 2008-09.

6.1 The facts of the issue are that the notice u/s.143(2)

dated 23.6.2014 was served on the assessee on 25.6.2014. It

was mentioned in the notice that it was issued in connection with

return of income filed on 22.7.2008 (printed in the notice) /

20.3.2014 (hand written insertion). There was no return of

income filed on 20.3.2014, only a letter was filed.

6.2 A valid notice u/s.143(2) only gives jurisdiction to

an AO to frame an assessment. Such a notice is the source of

powers that an AO can exercise in an assessment proceedings.

The notice u/s.143(2) should be in respect of a return of income

filed by the assessee.

6.3 The ld. A.R submitted that there is an original return

of income filed on 22.7.2008 within the time limit u/s.139(1), an

ITR filed on 17.2.2014 beyond all time limits under the Act and a

letter filed on 20.3.2014 requesting to treat the ITR filed on

17.2.2014 as return in pursuance of notice u/s.148.

6.4 According to ld. A.R, it is apparent from the notice

u/s.143(2) of the Act that the AO was not sure about the return

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of income in respect of which he has assumed the jurisdiction.

This cannot be viewed as a mere mistake as the AO has taken

the same approach in Asst. Years 2009-10, 2010-11 and 2012-

Act is carried forward by way of inappropriate appreciation of

facts in framing of the re-assessment.

6.5 According to him, the CIT(Appeals) wrongly observed that

the assessee could not question the validity of notice u/s.143(2)

of the Act relying on sec.292BB of the Act. It is submitted that

sec.292BB precludes the assessee from taking the following

three grounds:

i) That the notice was not served

ii) That the notice was not served in time

iii) That the notice was not served in a proper manner.

6.6 Sec.292BB will not cure the inherent deficiency in

the notice u/s.143(2) and does not preclude the assessee

challenging the notice in respect of grounds other than the 3

grounds mentioned above. Therefore, the notice u/s.143(2) of

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the Act should be held as vague and consequently the

assessment should be struck down as void ab-initio.

6.7 For asst. years 2009-10, 2010-11 & 2012-13, the data

and facts are as below:

Asst. Year Date of return mentioned in the notice u/s.143(2) 2009-10 16.04.2010 (printed in the notice) / 20.03.2014 (Hand written insertion) 2010-11 26.05.2010 (printed in the notice) / 20.03.2014 (Hand written insertion) 2012-13 30.5.2012 (printed in the notice) / 05.03.2014 (Hand written insertion)

For assessment years 2009-10, 2010-11 & 2012-13, the legal

challenges are same as that of asst. year 2008-09.

6.8 On the other hand, the ld.D.R relied on the order of

CIT(Appeals) wherein he has taken a support of provisions of

Sec.292BB of the Act.

on record. In our considered opinion, there should not be any

grievance to the assessee being due opportunity of hearing has

been given to the assessee. Even if there is any lapse on the

part of the AO, it is only procedural ir-regularity, the provision of

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Sec.292B of the Act takes care of it. More so, jurisdictional High

Court in the case of Areva T&D India Ltd. vs. ACIT reported in

(2007) 294 ITR 0233 wherein held that non-considering the

objections for reopening as well as non-issuance of notice under

s. 143(2) are mere procedural irregularities and will not make

the reassessment a nullity in law. Accordingly, this ground of the assessee is dismissed in all these assessment years.

u/s.142(1) for A.Ys. 2008-09, 2009-10, 2010-11 & 2012-13 .

8.1 The ld. A.R submitted that a common notice u/s.142(1)

dated 3.12.2014 was issued to the assessee for the above asst.

years. A notice u/s.142(1) can be issued on a person who has

i) Made a return under section 139 or

ii) In whose case the time allowed under sub-section (1) of

139 for furnishing the return has expired.

8.2 He submitted that in the case of the assessee, point (ii)

above will not apply as the notice u/s.142(1) is issued for inquiry

before making the re-assessment. Point (i) will also not apply as

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there is no return u/s.139 after initiation of the re-assessment

proceedings. Therefore, the common notice u/s.142(1) dated

03.02.2014 for asst. years 2008-09, 2009-10, 2010-11 and 2012-

13 is invalid in the eyes of law.

8.3 The ld.D.R has taken a support of Sec.292BB of the Act.

on record. As discussed in para -7 of this order and also by

placing reliance on the provisions of Sec.292BB of the Act, this

ground raised by the assessee in all these appeals is rejected.

2012 -13 is with regard to validity of exercise of re-drawing cash

book. Now we consider the facts relating to the asst. years

2008-09

10.1 The facts of the issue are that the assessee’s mother had

lent monies to various persons through axis bank account.

Some of them had made repayments in cheque and some of

them had made repayments in cash. During the assessment

proceedings u/s.143(3) for the asst. year 2011-12, the assessee

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was asked to explain transactions in the said axis bank account,

as the assessee was asked to explain transactions in the said

axis bank account, as the assessee was a joint account holder.

As per the advice of the ITO, the assessee admitted the

transactions in said bank account and filed revised return of

income including transactions from the said bank account for

asst. years 2008-09 to 2012-13.

10.2 The CIT(Appeals) dismissed this contention of the

assessee by holding that the assessee had admitted the said

transactions during the assessment proceedings. Neither the AO

nor the CIT(Appeals) made any attempts to know the truth from

the primary account holder, Mrs. K. Mangalam.

10.3 For the asst. year 2008-09, impugned notice u/s.142(1) of

the Act was issued calling for confirmation from parties to whom

monies were lent. Neither the assessee’s mother nor the

assessee is continuing business relationship with most of the

persons to whom monies were lent and therefore the assessee is

not able to get their co-operation in the assessment proceedings

by way of confirmation letters. Further, the reassessment for

asst. year 2008-09 was done after a considerable time gap.

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Moreover, those persons who had repaid in cash may be worried

about the provision of sec.269T of the Act, which those persons

may have violated by making repayment in cash to the assessee.

The AO was not satisfied with the explanation offered by the

assessee that repayments in some of the cases are received in

cash. The amounts were lent by way of cheque from axis bank

account, which clearly establishes the identity of the payee.

10.4 The AO had stated that amount lent to persons by way of

cheques were received in modes of cash is not acceptable by

citing the example of transactions where amount lent by way of

cheques were received back through mode of cheque. This

reasoning lacks logic.

10.5 The AO had alleged that receiving back in cash of loans

lent by cheques is against the principle of human probabilities,

which is wholly baseless. The AO had alleged that most of the

debtors are business men which is a presumption and not

supported by materials on record. The AO had alleged that

repayments were received through banking channel in

subsequent year, which is not supported by any material on

record.

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10.6 Based on the above alleged assumptions, the AO

had redrawn the cash book of the assessee by excluding cash repayments received from some of the parties. The peak deficit balance, that appeared on 19.2.2008 at ₹ 52,405/- was added to

the taxable income of the assessee. 11.1 The ld. A.R submitted that the assessee submitted before the CIT(Appeals) that the exercise of redrawing cash book on this basis is wholly illegal and without any statutory authority.

That the AO had assumed that the debtors had not made repayments. That the AO had redrawn the books of accounts without rejecting the books of accounts, which is based on

surmises and conjectures and without proper appreciation of the circumstances of the case. 11.2 It was also submitted before the CIT(A) that the AO had

not discussed or disputed the other parts of the transaction which are through account payee cheques and the same cannot be ignored by making presumptions. The outflow in the above

cases were totally ignored by the AO. If the inflows are treated as unaccounted income, the corresponding outflows should be

26 - - ITA 568 to 572/M/17

treated as unaccounted expenses and consequently the net

effect of the above exercise would be null.

11.3 According to the ld. A.R , the AO had made additions on

the basis of suspicion, surmises and conjectures. The ld. AR

relied on the judgment of the Supreme Court in the case of

Dhakeswari Cotton Mills Ltd. vs. CIT (26 ITR 126)(SC), wherein it

was held as below :

“Though ITO is not fettered by technical rules of evidence and pleadings and he is entitled to act on material which may not be accepted as evidence on account of law, but in making assessment under section 23(3) of 1922 Act he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all” 11.4 It was submitted before the CIT(A) that redrawing of cash

book should be held as illegal and consequently the peak

negative balance arrived and closing cash balance arrived by the

AO may be cancelled.

11.5 The CIT(A) held that the assessee had not discharged the

initial burden placed on him without appreciating why it is not

practicable for the assessee to produce confirmation letters in the

peculiar facts of the case. In para 7.6 of her order, the CIT(A)

has certified that assessment has not been framed on any guess

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work. Further, in para 5 the CIT(A) held that the addition is based on a scientific and suitable code, without detailing about such a code. 11.6 It was submitted by the ld. A.R that without prejudice to the assessee’s stand that the bank account is held by the assessee’s mother, assuming for a moment, parties to whom monies were lent had not repaid in cash, then all such loans should be treated as bad debts as the same were not realized till date. 11.7 The exercise of redrawing cash book was carried out to verify source of cash deposits in the Axis bank account held by the assessee’s mother. The peak balance in that bank account for each of the asst. years is as below :

₹ 1,20,07,202 2008-09 ₹ 1,47,45,486 2009-10 ₹ 92,00,767 2010-11 ₹ 1,10,11,782 2011-12 ₹ 1,64,28,318 2012-13

11.8 According to ld. A.R, If peak credit is worked out on the basis of that axis bank statement, the maximum addition for all the years taken together would be ₹ 1,64,28,318/- as this is

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the peak balance across all the years. Whereas, the assessee had offered additional income as below: ₹ 1,27,61,144 2008-09 ₹ 14,54,486 2009-10 ₹ 15,49,289 2010-11 ₹ 16,49,056 2011-12 ₹ 18,59,653 2012-13 ₹ 1,92,73,628 Total 11.9 Considering the above, he submitted that there cannot be any additions on the basis of peak cash deficit in the cash balance. Therefore, it is prayed that the peak cash deficit additions be deleted.

11.10 For A.Y. 2009-10 The peak deficit balance that appeared on 23.3.2009 at ₹2,34,41,535/- was added to the taxable income of the assessee. The legal challenges are the same as that of asst. year 2008-09.

11.11 For A.Y. 2010-11 The peak deficit balance that appeared on 29.1.2010 at ₹76,96,929/- was added to the taxable income of the assessee. The legal challenges are the same as that of asst. year 2008-09.

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11.12 For A.Y. 2011-12 The peak deficit balance that appeared on 6.7.2010 at ₹77,34,068/- was added to the taxable income of the assessee. Originally the AO recorded that there was no peak cash deficit in her assessment order dated 28.3.2014. However, after giving a enhancement proposal, the CIT(A), added the peak deficit to the income of the assessee. Enhancement is challenged separately below. The other legal challenges are the same as that of asst. year 2008-09.

11.13 For A.Y. 2012-13 The peak deficit balance that appeared on 31.3.2012 at ₹74,34,803/- was added to the taxable income of the assessee. The legal challenges are the same as that of asst. year 2008-09.

11.14 Further, the ld. A.R submitted that without prejudice to the above, the AO cannot make an addition of unexplained credit under sec.68 of the Act based on the entries in the bank statement, which do not constitute the books of account of the

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assessee. The AO cannot treat the bank account statement as

books of the assessee, as the same does not constitute books of

the assessee. The assessee relied on the judgment of the

Bombay High Court in the case of CIT vs. Bhaichand H. Gandhi

(141 ITR 67) for the proposition

11.15 The ld. A.R drew our attention to the definition of

books of accounts in sec.2(12A) of the Act also supports that

bank pass book cannot be treated as books of accounts.

11.16 He has also placed reliance on the order of the

Tribunal, Mumbai Bench in the case of Smt. Mansai Mahendra

Pitkar vs. ITO (73 taxmann.com 68) (Mumbai Trib). Therefore, it

is prayed that addition u/s.68 based on entries in bank pass book

cannot be made.

11.17 On the other hand, the ld.D.R relied on the order of

ld.CIT(A).

on record. Section 69 makes it clear that the onus is on the

assessee as regards furnishing of explanation relating to

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investment which is not recorded in the books of accounts, if

any, maintained by him. Where the assessee offers no

explanation or where the explanation offered by him is not

satisfactory in the Assessing Officer’s opinion, the value of the

unexplained investment would be treated as the income of the

financial year in question. In the case of Jatindra Nath Sarmah

vs. ITO (1978) 113 ITR 898 (Gau), the Gauhati High Court

observed that where the explanations furnished by the assessee

were not fully relied upon by the Department, it cannot be said

that the Department had any further burden to prove that this

was an income of the assesse.e

12.1 In the case of Raghbir Singh vs. ITAT & Ors. (2007) 209

CTR (P&H) 394 assessee failed to establish the capacity of NRI

donor to make gift of huge amount or the source from which gift

was made and hence addition of amount as deemed income of

assessee was held justified.

12.2 In the case of Rahmat Development & Engg. Corpn. vs.

CIT (1981) 130 ITR 602 (Cal), the Calcutta High Court opined

that "unless the assessee had given the source of investment of

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this additional amount, whatever be the amount, that must have

come from some source of income of the assessee."

12.3 However, without reference to any supporting evidence or

material,the ITO cannot make any addition as unexplained

investment notwithstanding seizure of certain documents from

the assessee [Ashok Kumar Rastogi vs. CIT (1991) 100 CTR

(All) 204.

12.4 In the case of CIT vs. Southern Shipping Co. (P) Ltd.

(2000) 241 ITR 464 (Mad), the assessee had advanced a sum of

Rs. 5 lakhs on a pronote which stipulated interest at 44 paise per

thousand rupees per day. The said pronote was recovered

during the search of the business premises by the Revenue

authorities. Sustaining addition, the High Court held that even

though the assessee’s accounts do not reveal any receipt of

interest with regard to this amount, the entries found in the books

of M & Co. had clealry disclosed the payment of interest to the

assessee-company. Those entries which have been made in the

normal course of business must be accepted as true. A partner

of that company has also indicated periodical payment of interest

on five different dates. Those entries were not made on a single

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date and they were made on five different dates. So, it is well

evident that the assessee-company has received interest

payment of Rs. 67,790. The mere fact that the correct calculation

of interest comes to Rs. 44,616 as stipulated in the pronote

would not render that payment of interest of Rs. 67,790 false.

CIT (1992) 193 ITR 186 (All) , the Allahabad High Court held that

where the assessee had failed to prove the source of investment

to the satisfaction of the taxing authorities, the authorities would

be justified in treating the same as unexplained investment under

section 69. Akberally Esufally vs. CIT (1966) 60 ITR 563 (Mad),

CIT vs. M.K. Bros. (1986) 52 CTR (Guj) 228 : (1987) 163 ITR

249 (Guj). The Calcutta High Court in Mihir Chatterjee vs. CIT

(1994) 118 CTR (Cal) 26 : (1994) 205 ITR 270 (Cal) held that

where the facts on record clearly established that the

explanations offered by the assessee as regards investment in

house property are not based on truth, inclusion of the same in

assessee’s income would be justified. The Bombay High Court in

Bastiram Narayandas Maheswari vs. CIT (1994) 117 CTR (Bom)

198 opined that where the addition on account of suppressed

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production has been directed by Tribunal after considering

material and evidence on record, the same would be justified.

12.6 In the present case, the assessee is not able to

explain the deposits made into Axis Bank A/c Adyar branch,

Chennai. The assessee was not able to discharge the burden to

prove that the sources were disclosed income of the assessee.

In the absence of satisfactory explanation, the Assessing Officer

was compelled to arrive at the un-explained cash by calculating

the peak value of deficit cash balance in the books of the

assessee in each assessment year. As a result, the Assessing

Officer computed the unexplained income by redrawing the cash

book and considered the peak value of the credit which is arrived

after due credit for the amount of cash withdrawn from the bank.

We do not find any infirmity in the method followed by the lower

authorities in computing the unexplained investments in these

A.Ys. The same is confirmed. This ground in all these appeals is

dismissed.

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13.1 The facts of the case are that during the pendency of the appeal for the AY 2011-12, an enhancement proposal was given by CIT(A) vide his letter dated 2.3.2016, wherein it was

proposed to substitute the peak deficit cash balance of `77,34,068/- for the addition of ₹ 27,25,000/- made in the

original assessment.

13.2 The assessee filed its objections on 21.3.2016.

Sec.251(1)(a) of the Act confers the CIT(Appeals) the power to enhance the assessment. The concept of enhancement of assessment had been subjected to judicial scrutiny in many

cases. The ld. A.R relied on the judgment by the Supreme Court in the case of Shapoorji Pallonji Mistry (44 ITR 891), it was held that the appellate assistant commissioner’s power to

enhance the assessment does not include power to include a new source of income. He submitted that the AO has specifically noted in his assessment order that there are no peak credit in the cash book. In double entry system of book keeping

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there will be as many credits in the books of accounts as these are transactions. The assessee cannot be expected to offer suo moto explanation for all such credits. It is only when the AO suspects any credit in the books of accounts, the scope of sec.68 begins. In the case of the assessee, the AO has not suspected the genuineness of other credits. Therefore, the proposal to enhance income by suspecting the repayments would amount to taxing a new source of income. This action is against the law laid down by the Supreme Court of India. 13.3 The ld. A.R submitted that the CIT(A) did not consider the objections raised by the assessee and enhanced the assessment. While making the enhancement, the CIT(A) directed a separate addition of peak deficit cash balance of ₹ 77,34,068/- contrary to the proposal made u/s.251(2) to substitute ₹ 77,34,078/- instead of ₹27,25,000/-. According to him, the CIT(A) has violated the principles of natural justice by enhancing the assessment by an amount exceeding the amount for which enhancement was proposed and he prayed that the addition to be deleted. 13.4 The ld.D.R relied on the order of ld.CIT(A).

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on record. The power of the CIT(Appeals) is co-terminus with

the Assessing Officer. The CIT(Appeals) can do what Assessing

Officer could do. The provisions of Sec.251(1)(a) empowers the

CIT(Appeals) to correct the errors committed by the Assessing

Officer. The legislature has conferred on the CIT(A) rather

extraordinary power. It is clear that the CIT(A) has been

constituted a revising authority against the decisions of the

Assessing Officer; a revising authority not in the narrow sense of

revising what is the subject-matter of the appeal, not in the sense

of revising those matters about which the assessee makes a

grievance, but a revising authority in the sense that once the

appeal is before him he can revise not only the ultimate

computation arrived at by the Assessing Officer but he can

revise every process which led to the ultimate computation or the

assessment. In other words, what he can revise is not merely an

ultimate amount which is liable to tax, but he is entitled to revise

the various decisions given by the Assessing Officer in the

course of the assessment and also the various incomes or

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deductions which came in for consideration of the Assessing

Officer. It follows from the foregoing discussion that the CIT(A)

is clothed with appellate as well as revisional powers so as to do

justice to the assessee and also to watch the interests of the

Revenue. His powers are wide enough to include the power to

examine all matters covered by the assessment order and even

to correct the assessment in respect of all such matters to the

prejudice of the assessee. The question whether a particular

expenditure could not be deductible in view of the provisions of

the Act is a matter which directly arises in the course of

assessment and if the Assessing Officer fails to examine that

aspect, the CIT(A) would have the jurisdiction to direct him to do

so. It is to be noted that the powers are restricted to the source

of income as mentioned in the return and in the assessment

order. Thus, provided an income was considered by an ITO, the

CIT(A) has the fullest jurisdiction in respect of it; he can include it

in the assessment, even though it was excluded by the ITO, and,

naturally, when he includes it, he must include it under one or the

other head. There cannot be any justification for saying that,

while he can do so, he cannot take out an income wrongly

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included under one head by the ITO and include it under the correct head. In our considered opinion, any addition on account of unexplained investment would not constitute a new source of income as it was subject-matter of assessment before the AO. It was not therefore open to CIT(Appeals) enhanced the assessment which is within the provision of Sec.251(1)(a) of the Act and the same is confirmed. Hence, this ground in assessee’s appeal in A.Y 2011-12 in ITA No.571/Mds./2017 is rejected.

The next ground is with regard to addition of interest of ₹ 15. `11,00,000/- for A.Y 2008-09 on the basis of assumptions

15.1 The ld. A.R submitted that the AO, having rejected the claim that repayments were received back in cash, proceeded to make addition of notional interest on the loans outstanding to the tune of ₹ 1.10 crores (approximately) at the rate of 24% p.a. for a period of 5 months worked out at ₹ 11,00,000/-. This addition is also a presumption without any supporting evidence.Furhter, he submitted that AO alleged that amounts lent through cheques

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were received through banking channels only without having any

basis or material in support thereof. It was submitted before the

CIT(A) that the assessments cannot be made based on mere

surmises and conjectures and it was prayed that addition on

account of notional interest be deleted.

15.2 The ld.D.R submitted that the money deposited into

the Axis Bank account has been utilized for money lending

activities and there is no evidence that no interest has been charged by the assessee and the addition of interest of `11

lakhs on the loan is justified.

15.3 We have heard both the parties and perused the material

on record. The assessee lent money to various persons as per

the Axis bank statement. The money was advanced through

banking channels, however repayment was by cheque in the

assessment year under consideration. The Assessing Officer

computed the interest at 24% per annum for a period of 5 months on an amount of `1.1 crores lent out by the assessee in

the assessment year under consideration. The assessee is not

able to show that the assessee has lent money without charging

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interest. Hence, estimating interest charged by the assessee at 24% p.a on the above amount of `1.1 crores for a period of 5

months is very reasonable as this was private lending in open market and the same is confirmed. The raised by the assessee in ITA No.568/Mds./2017 is rejected.

80C of the Act, submitted that the assessee had furnished to the AO a list of payments made towards LIC premium to the tune of ` 1,27,464/- which inadvertently included payment of ₹ 49,130/-

which was claimed in the return of income filed by the assessee’s spous Mrs. Ponmani Suresh. It was submitted that the AO had excluded the above sum of `49,130/- from ₹1,27,464/- and thereby restricted deduction u/s.80C to Rs.78,334/- instead of `1,00,000/-

17.1 It is submitted that the actual payments made by the assessee towards LIC premium for self and children during the relevant asst. year is Rs.1,43,562/-, which does not include ₹

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49,130 which was paid by the assessee’s spouse. Out of payment of `1,43,562/-, the amount eligible for deduction

u/s.80C is ` 1,24,554/-. The list of payments, the workings for

calculating eligible amount of deductions and corresponding LIC

receipts are enclosed herewith.

17.2 This ground was raised as an additional ground

before the CIT(A). However, the order of CIT(A) is completely

silent on the same. It is therefore prayed that deduction u/s.80C be restored to the original claim of `1,00,000/-.

17.3. The ld.D.R relied on the order of ld.CIT(A).

on record. This ground of appeal is not emanated from the order

of the lower authorities and there is no evidence to show that the

assessee is entitled for deduction/s.80C of the Act, lwhich was

not considered by the Assessing Officer. Accordingly, this

ground is rejected.

renovation in computing capital gains for A.Y 2012-13.

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19.1 For the purpose of computing LTCG, the assessee had

furnished the break up for cost of acquisition as below : Amount (in ₹ ) S.No. Particulars 1 Cost of Property as per Deed 40,00,000 2 Stamp Duty & Registration Charges 3,60,000 3 Brokerage 80,000 4 Cost of Renovation 6,18,500 5 Total 50,58,720 6 50% Share 25,29,360

The AO had called for explanation and evidence in support of

cost of renovation of ` 6,18,500/-. The assessee had explained

the nature of cost she had incurred towards renovation of the building in her letter dated 5th March 2015, which is reproduced

below:

“What the assessee has sold is an office space together with undivided interest in land. The property was acquired in Nov 2007 and has been immediately let out for commercial purposes. It was a building constructed and completed during the year 1999 as evidenced by the recitals in the sale deed and the assessee has acquired it after few years of use by the erstwhile owners. Without the renovation, this premises would not have been suitable for letting out. The assessee had engaged people to the renovation work after buying the materials that they wanted for the purpose of the work. The assessee’s husband helped to execute the renovation without any consideration, since he had a share in the property.”

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The AO never disputed the fact that renovation was carried out.

However, she disallowed entire cost of renovation for want of

evidence, without considering the merits of explanation offered

by the assessee. Copy of sale deed for purchase of property is

enclosed. A specific ground was raised in this regard before the

CIT(A). However, the order of CIT(A) is silent in this respect. It

is prayed that a reasonable allowance towards cost of renovation

should be allowed.

19.2 We have heard both the parties and perused the

material on record. The assessee has not produced the

evidence regarding the cost of renovation. In the absence of it,

Assessing Officer has not considered cost of renovation. The

burden is on the assessee to produce necessary evidence to

claim deduction. Being so, we do not find any infirmity in the

order of the lower authorities.

in holding that assessment was framed u/s.143(3) when in fact it

was framed u/s.143(3) r.w.s.147- as a consequence, challenges

to re-opening were not dealt with by CIT(Appeals).

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20.1 Since we have already dealt in ground No.1 that reopening is valid, we dismiss this ground as infructuous. Accordingly, this ground is rejected for the assessment year 2012-13. 21. In the result, all the appeals of the assessee are dismissed. Order pronounced on 19th June, 2017 at Chennai.

Sd/- Sd/- (जी. पवन कुमार) (चं� पूजार�) (G. Pavan Kumar) (Chandra Poojari) �या�यक सद�य/Judicial Member लेखा सद�य/Accountant Member

चे�नई/Chennai, �दनांक/Dated, the 19th June, 2017. K S Sundaram आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.

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