KALYANASUNDARAM SURESH,CHENNAI vs. ACIT NON CORPORATE CIRCLE 2, CHENNAI

2. Therefore, the inference is that the case has been transferred from the Jurisdiction of Income Tax Office Business Range II(4) to the Jurisdiction of Deputy Commissioner Income Tax, Non Corporate Circle -2.

2. As per section 127 of the Income Tax Act, 1961 when a case is transferred from one jurisdiction to another, the transfer must be made by passing an order u/s. 127 of the Act and communicate the same to the assessee along with the reasons recorded in writing for the transfer of the case. Unless, there is an order of transfer passed u/s. 127 of the act along with the reasons recorded in writing for such transfer, the authority to whom the case is to be transferred cannot assume jurisdiction. However, in the instant case, no order of transfer u/s. 127 of the Act was passed nor the appellant was communicated about the reasons recorded for the transfer of the case. Therefore, in the absence of the order of transfer u/s. 127 of the Act and communication of the reasons for transferring the case of the appellant form the Jurisdiction of Income Tax Officer, Business Range II (4) to the Jurisdiction of Deputy Commissioner of Income Tax, Non Corporate Circle - 2, the Deputy Commissioner of Income Tax, Non Corporate Circle -2 has no jurisdiction over the appellant. Therefore, the entire proceedings conducted by the Deputy Commissioner of Income Tax, Non Corporate Circle -2 is illegal and without Jurisdiction and is in violation of principles of Natural Justice.

3. Further, non communication of the reasons recorded for the transfer of the case cannot be saved at a later stage by showing that the reasons for transfer of the case existed in the file, although not communicated. This ground is supported by the decision of the Hon'ble Supreme Court in the case of Ajantha Industries [1976] 102 ITR 281 (SC) (Page 16 of Additional Paper book) wherein the Hon'ble Court held that communication of the order u/s. 127 of the Act is an essential requirement. The relevant portion of the decision is extracted hereunder: "9. This judgment was rendered by this Court on 21-12-1956, and we find that in the 1961 Act Section 127 replaced Section 5(7-A) where the legislature has introduced, inter alia, the requirement of recording reasons in making the order of transfer. It is manifest that once an order is passed transferring the case file of an assessee to another area the order has to be communicated. Communication of the order is an absolutely essential requirement since the assessee is then immediately made aware of the reasons which impelled the authorities to pass the order of transfer. It is apparent that if a case file is transferred from the usual place of residence or office where ordinarily assessments are made to a distant area, a great deal of inconvenience and even monetary loss is involved. That is the reason why before making an order of transfer the legislature has ordinarily imposed the requirement of a show-cause notice and also recording of reasons. The question then arises whether the reasons are at all required to be communicated to the assessee. It is submitted, on behalf of the Revenue, that the very fact that reasons are recorded in the file, although these are not communicated to the assessee, fully meets the requirement of Section 127 (1). We are unable to accept this submission.

11. We are clearly of opinion that the requirement of recording reasons under Section 127(1) is a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee." Therefore, since no order u/s. 127 of the Act was passed and since the reasons recorded in writing for the transfer of the case was not communicated to the appellant, the entire proceedings are in violation of section 127 as well as against the principles of natural justice.

by the ld. AR on behalf of the assessee is that the notice under section 143(2) r.w.s. 129 of the Act dated 07.10.2015 is barred by limitation. Against this ground, the ld. AR filed following written submissions: II. The Notice u/s. 143(2) r.w.s 129 of the Act is barred by limitation and therefore invalid

4. The notice u/s. 143(2) r.w.s 129 of the Act dated 07/10/2015 issued by the Deputy Commissioner of Income Tax, Non Corporate Circle -2 is barred by limitation because the according to the proviso to section 143(2), no notice u/s. 143(2) shall be served on the assessee after the expiry of "six months" from the end of the financial year in which the return is furnished. The appellant filed his return of income on 23/07/2013. The time limit to serve a notice u/s. 143(2) is within "six months" from the end of the financial year 2013-14.i.e on or before 30/09/2014. However, the notice u/s. 143(2) r.w.s.129 of the Act was issued on 07/10/2015. Therefore, the notice u/s. 143(2) r.w.s 129 is time barred and Deputy Commissioner of Income Tax, Non Corporate Circle -2 does not have jurisdiction over the appellant.

7. The ld. DR vehemently opposed the submissions of the ld. AR and submits that the notice issued by the Assessing Officer is not barred by limitation, is within limitation.

8. We note that the assessee filed revised return of income on 05.03.2014 and the time limit available for the Assessing Officer to issue notice under section 143(2) of the Act is within 6 months from the end of the financial year 2013-14 i.e., 30.09.2014. On perusal of the assessment order, we note that the notice under section 143(2) of the Act dated 03.09.2014, at page No. 1 of paper book, was issued and served on the assessee which, clearly shows that the notice under section 143(2) of the Act was issued within the time limit as prescribed under the law. Therefore, the argument of the ld. AR that the notice under section 143(2) r.w.s. 129 dated 07.10.2015 is barred by limitation is not acceptable as it is only in continuation of original notice under section 143(2) of the Act dated 03.09.2014, which is under limitation. Thus, we do not find force in the arguments of the ld. AR that the notice issued under section 143(2) r.w.s. 129 of the Act is barred by limitation. Thus, the second additional ground raised by the ld. AR on behalf of the assessee is dismissed.

III. The Assessing officer failed to inform the change in incumbent of the office to the appellant 5. Assuming without admitting, the transfer from the Jurisdiction of Income Tax Officer, Business Range II (4) to the Jurisdiction of Deputy Commissioner of Income Tax, Non Corporate Circle -2 is only a change in incumbent of an office u/s. 129 of the Act and not a transfer u/s. 127 of the Act, even in such case the assessing officer has not informed the appellant about the change of incumbent of an office. The assessing officer has a legal obligation u/s. 129 to inform the appellant that the previous authority who was so long continuing the proceeding has been succeeded by another officer and that the officer so succeeding wants to continue the proceeding from the stage at which the proceeding was left by his predecessor. Mere mechanical issue of 143(2) r.w.s 129 of the Act will not satisfy the requirement u/s.

6. This ground is also supported by the decision of the Commissioner of Income Tax v. M. Sreedharan [1992] 62 taxman 344 (KER.) (Page 27 of Additional Paper book) wherein the hon'ble court held that non intimation of the information that the succeeding authority intends to continue the proceeding from the stage at which it was left by his predecessor is illegal and unreasonable. The relevant portion of the judgement is extracted hereunder: "9. In this batch of cases, it cannot be denied that the succeeding assessing authority did not intimate to the assessee his intention to continue the proceeding from the stage at which it was left by his predecessor. There is no plea or proof in this case that the assessee was aware that the assessing authority had been succeeded by another and that the successor proposed to pass the penalty order. In these circumstances, we are of the view that the AAC was justified in holding that the successor- assessing authority had acted illegally and unreasonably in imposing the penalties without intimating to the assessee his intention to continue the proceedings from the stage at which it was left by his predecessor. There has been a breach of the valuable rights of the assessee, specified in section 274(1) read with section 129. The AAC was justified in cancelling the penalties and the Tribunal was justified in confirming the said cancellation orders. We hold that the Tribunal was justified in affirming the decision of the AAC in all the four cases." Therefore, since the assessing officer did not discharge his legal obligation u/s. 129, the entire proceedings are bad in law.

12. Ground No.1 forming part of Form 36 is general in nature and requires no adjudication.

17. The assessee raised ground Nos. 3, 4 & 5 under the head “Validity of exercise of re-drawing cash book in challenging the action of the ld. CIT(A) in confirming the order of the Assessing Officer in making the addition on account of computing unexplained investments by way of peak deficit balance.

18. The Assessing Officer found that the assessee had made cash deposits in his Axis Bank account to an extent of ₹.59,50,000/-. It was explained that the assessee received ₹.1.20 crores as on money, which was invested in money lending business. The assessee furnished copy of bank account statement and contended that the repayment of loan by debtors was in cash and the same were deposited in the above said bank account. The Assessing Officer observed that the amount lent to persons by way of cheque and receiving the same in the mode of cash is not acceptable. The Assessing Officer extracted the redrawn the cash bvook at page 3 to 5 of the assessment order and applied the peak deficit balance as on 06.08.2012 at ₹.51,22,635/-. The ld. CIT(A), by placing reliance on the decision of this Tribunal in assessee’s own case for AYs 2008-09 to 2012-13 confirmed the order of the Assessing Officer in making the addition.

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 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. 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. 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 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 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 : 2008-09 ₹ 1,20,07,202 2009-10 ₹ 1,47,45,486 2010-11 ₹ 92,00,767 2011-12 ₹ 1,10,11,782 2012-13 ₹ 1,64,28,318 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 the peak balance across all the years. Whereas, the assessee had offered additional income as below: 2008-09 ₹ 1,27,61,144 2009-10 ₹ 14,54,486 2010-11 ₹ 15,49,289 2011-12 ₹ 16,49,056 2012-13 ₹ 18,59,653 Total ₹ 1,92,73,628 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. 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 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).

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 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. 12. 5 In the case of Janardan Prasad Ashok Kumar vs. 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 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.