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Income Tax Appellate Tribunal, “A “ BENCH : KOLKATA
Before: Hon’ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ]
Per N.V.Vasudevan, JM
This is an appeal by the revenue against the order dated 06.10.2013 passed by the CIT(A)-XIX, Kolkata relating to A.Y.2006-07. 2. Grounds of appeal raised by the revenue reads as follows :- “1. That on the fact and in the circumstances of the case the Ld.CIT(A) erred both in law and facts in quashing assessment ignoring the facts that assessee raised no objection regarding the issuance of notice u/s. 143(2) of the Income Tax Act, 1961 and he co-operated in the assessment proceedings and consequently the provisions of Section 29288 of the Income Tax Act, 1961 are clearly applicable in this case. 2. That on the facts and circumstances of the case the Ld. CIT(A) erred in quashing the assessment without affording the opportunity to the A.O. to give his view in this regard. 3. That on the facts and circumstances of the case Ld. CIT(A) is not right in deleting the addition of Rs. 78,60,000/- made on account of unexplained investment in mutual fund by admitting fresh evidence in violation of provisions of Rule 46A of the Income Tax Rules, 1962. 4. That on the facts and circumstances of the case Ld. CIT(A) erred in restricting the addition to Rs. 13,46,517/- made on account of unexplained cash deposit to the bank. 5. That on the facts and circumstances of the case Ld. CIT(A) erred in restricting the addition on account of unexplained cash deposits made to the bank by adopting peak credit method when the assessee failed to explain the cash deposits made to the bank.
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The Assessee is an individual. He filed return of income for A.Y.2006-07 on 15.11.2006 declaring total income of Rs.1,04,130/-. The assessment for A.Y.2006-07 was reopened by issue of notice u/s 147 of the Act by issuing of notice u/s 148 of the Act dated 16.07.2008.The assessee had not filed any return of income in response to the notice u/s 148 of the Act. Later on notice u/s 142(1) of the Act was issued on 18.08.2008 by the AO. The assessee had not filed any return of income in response to this notice also. 4. The AO thereafter proceeded to frame the assessment u/s 144 r.w.s. 147 of the Act. The AO noticed from the photo copies of the Annual Information Report that the assessee had made investments in mutual funds amounting to Rs.78,60,000/- and cash deposits of Rs.27,31,600/- in his bank accounts. The AO called upon the assessee to explain the source of funds by making the aforesaid investments as well as cash deposits. The assessee did not respond to this notice. The AO issued a summon u/s 131 of the Act dated 19.11.2009 for personal attendance of the assessee with required documents. Even to this the assessee did not respond. The AO issued notice u/s 133(6) of the Act to the Mutual Fund authorities and obtained the confirmation from them. The assessee filed return of income on 17.12.2009 at the fag end of the period of limitation for completion of assessment. According to the AO since the return of income was filed at the fag end of the period of limitation for completion of assessment the same cannot be taken cognizance. 5. Thereafter the AO proceeded to frame the assessment and determined the total income as follows :- “A show cause letter dt.18.12.2009 was issued and served on the assessee asking to show cause why the investment of Rs.78,60,000/- towards Mutual Fund and cash deposits of Rs.27,31,600/- to the bank a/c. maintained with Standard Chartered Bank.Bidhan Sarani, Shyambazar.Kolkata, should not be added to the total income as unexplained investment u/s.69 of the I.T.Act, 1961, and compliance in this regard should reach the undersigned by 24.12.2009. The A.R.. of the
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assessee filed a letter dt. 18.12.2009 on 24.12.2009 along with some enclosures, hut the same is not acceptable, as the A.R. in his letter above has stated that the above investments and deposits are reflected in the Balance-sheet filed with the return of income u/s. 148, but no copy of Balance-sheet for the relevant assessment year has been filed with the return. In view of the above facts, it is clear that neither the assessee nor his A.R. has sufficient ground to explain the show cause letter. Since it is a time barring case to be completed by 31.12.2009, I have no other alternative, but to complete the assessment to the best of my judgment. The total income of the assessee is computed as under:- I. Income from House Property:- It appears from the Balance sheet tiled with the original return that the assessee has possessed two Flats at Baguihati and Ultadanga Main Road.Kolkata, but no details was filed, the interest on borrowed capital as claimed by the assessee is not allowed - Nil 2. Income from Business:- As per statement - Rs. 2,69,947/- 3 Income from Other Source:- As per original computation - Rs. 13,671/- 4. Unexplained investment towards Mutual Funds and Cash deposits with Bank – As discussed above- Rs.1,05,91,600/- Rs.1,08,75,218/- Less: Deduction under Chapter VIA :- Under Sec.80C on LIP & NSC Rs. 53,267/- Total Income Rs.1,08,21,951/- Rounded Off Rs.1,08,21,950/-
Aggrieved by the order of CIT(A) the assessee preferred appeal before CIT(A). In the course of appellate proceedings the assessee also filed details of mutual fund, calculation of capital gain, details of cash withdrawals and deposits and cash in bank book as well as explanation regarding source of deposit of cash and investments in mutual fund. These documents were forwarded to the AO for his comments and remand report was duly obtained from the AO. Thereafter the CIT(A) deleted the addition made by the AO by observing as follows :- “7.4. I have considered the submission of the AR and perused the assessment order, the paper book, the remand report and the submissions made. I find that the AO has not taken the efforts to examine the documents in the remand proceedings. On perusal of the bank statement
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and the cash flow I find that the appellant was withdrawing and depositing cash from the said bank account. As a result of the cash deposits, I find that the peak negative cash balance was on 07/11/2005 for Rs.13,46,517/- for which the appellant could not give any reasons. On perusal of the bank statement and the mutual fund purchase and redemption details I find that during the year appellant made the following investment in mutual fund during the year under consideration:
02/05/2005 HSBC Midcap Equity Fund - Dividend 400000.00 24/06/2005 Kotak Mahindra MNC Scheme 500000.00 24/06/2005 Reliance Equity Opportunities Fund- 500000.00 Dividend Plan 13/07/2005 Standard Chartered Classic Fund- 1000000.00 Dividend 26/07/2005 HDFC Multiple Yield Fund-Plan 2005- 200000.00 Dividend 01/08/2005 Prudential ICICI Infrastructure Fund 1100000.00 25/08/2005 Sundaram Capex Opportunities - 400000.00 Dividend 08/09/2005 HSBC Midcap Equity Fund - Dividend 300000.00 08/09/2005 Standard Chartered Classic Fund- 500000.00 Dividend 13/09/2005 Fidelity Equity Fund - Dividend Option 500000.00 21/09/2005 Sundaram Smile - Dividend 200000.00 24/09/2005 Birla India Top 100 Fund - Dividend 400000.00 21/10/2005 DSP Merrill Lynch Equity Fund-Regular 330000.00 21/10/2005 Principle Large Cap Fund Dividend Reinvestment 330000.00 08/11/2005 Prudential ICICI Services Industries 260000.00 Fund-Dividend 16/11/2005 PrudentiallCICI Services Industries Fund-Dividend 1000000.00 13/12/2005 DSP Merrill Lynch Equity Fund-Regular 700000.00 14/12/2005 Franklin India Smaller Companies Fund Dividend 300000.00 Total Investment 8920000.00
I further find that the investment in mutual funds have been purchased out of the redemption of investment of mutual funds. The mutual fund redemptions during the relevant assessment year are as follows: 16/06/2005 HSBC Midcap Equity Fund - Dividend 416741.52 20/06/2005 Tata Dividend Yield Fund - Dlv 1090738.05 07/07/2005 Reliance Vision Fund - Dividend Plan 1069477.40 29/07/2005 Prudential ICICI Discovery Fund -Div 1153261.18 01/09/2005 Reliance Equity Opportunities Fund- 569936.70 Dividend Plan 02/09/2005 Kotak Mahindra MNC Scheme 574168.97
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23/09/2005 HDFC Multiple Yield Fund-Plan 2005- 200460.00 Dividend 08/11/2005 Standard Chartered Classic Fund- 1033625.82 Dividend 06/12/2005 HSBC Midcap Equity Fund - Dividend 306843.85 06/12/2005 DSP Merrill Lynch Equity Fund-Regular 355851.39 06/12/2005 Prudential ICICI Infrastructure Fund 1172417.73 19/01/2006 Sundaram Smile - Dividend 196771.09 19/01/2006 Sundaram Capex Opportunities - 447823.00 Dividend 19/01/2006 Birla India Top 100 Fund - Dividend 449817.82 19/01/2006 Standard Chartered Classic Fund- 536776.12 Dividend 19/01/2006 Fidelity Equity Fund - Dividend Option 540105.38 Total Redemption 10114816.02
7.5. I therefore find that the source of investment in the mutual funds were from the redemption of the old investment in mutual funds. Thus the appellant has satisfactorily explained the source of investment in mutual funds. In the return filed in response to notice u/s 148 of the Act the appellant has also offered capital gains earned from the redemption of mutual funds for Rs.8,51,641/-. The appellant having explained the source of investment in mutual funds, I therefore hold that the addition of Rs.78,60,000/- on account of investment in mutual fund was not justified and therefore the addition of Rs.78,60,000/- on account of investment in mutual fund is deleted. 7.6. With respect to the addition of Rs.27,31,600/- on account of deposit of cash in bank account, I find from the cash flow that the appellant was depositing and withdrawing cash from the said bank account. On perusal of the cash flow statement I find that the peak negative cash deposit was achieved on 07/11/2005 for Rs.13,46,517/- for which the appellant could not give any explanation. I therefore hold and direct the AO that the addition of account of deposit of cash in bank account should be restricted to Rs.13,46,5171- in place of Rs.27,31,600/- being the negative peak credit on account of cash deposit.”
Apart from the above findings on merits the assessee also challenged the validity of order of assessment passed by the AO on the ground that no notice u/s 143(2) was issued after assessee filed the return of income in the proceedings u/s 147 of the Act. On the above submission the CIT(A) held as follows :-
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“6.2 I have considered the submission of the AR and perused the assessment order and the submissions. I find that the AO has not issued any notice u/s 143(2) of the Act. I find that the IT AT Kolkata in the case of Mls Humboldet Wedag India (P) Ltd. AY: 2005-06 in ITA No. 9101K/2012 has dealt with the issue regarding provisions of Section 29288 of the Act as well as the applicability of notice u/s 143(2) of the Act in proceedings u/s 148 of the Act. The ITAT has held as follows: 5. We have heard rival submissions and gone through facts and circumstances of the case. We have also perused the assessment records. It is a fact that the assessee company filed Ereturn of income on 31.10.2005 and subsequently notice u/s. 148 of the Act was issued on 02.06.2010. From the assessment records, it is noticed that there is no notice u/s. 143(2) of the Act was issued as stated in the assessment order by the AO. As regards to the contention of the assessee that he never represented before the AO during the course of assessment proceedings or he did not participate in the assessment proceedings, this fact was verified from the assessment records and order sheet entries that there is no mention of representation by the assessee during the course of assessment proceedings. Only one entry relating to seeking of reasons recorded by the Ld. counsel for the assessee is ,there. First of all, we are in agreement with the Ld. counsel for the assessee that the provision of section 292BB of the Act is to be seen. The relevant provision reads as under: "292BB. Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was- (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment. " But, Ld. Counsel for the assessee stated that this provision of section 292BB of the Act has been held to be prospective and not retrospective i.e. applicable only with effect from 01.04.2008. For this proposition he relied on the decision of Special Bench of Delhi Tribunal in the case of Kuber Tobacco Products (P) Ltd. Vs. DCIT (2009) 117 ITD 273 (Del.) (SB) , wherein the following propositions are laid down: "(1) S. 292BB, inserted by the F.A. 2008 w.e.f. 01.04.2008, creates a legal fiction and takes away the right of an assessee to claim that in case of invalid notice the whole proceedings taken pursuant to that notice would be void ab initio and will have no legal consequences;
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(2) However, the rule of interpretation of statutes is that a provision creating a new disability or obligation and imposing a new duty in respect of completed transactions cannot be construed to be retrospective; (3) Though the issue and service of notice relates to procedural law S. 292-BB takes away the valuable right of an assessee to challenge the validity of assessment during the course of appellate proceedings and creates a new disability on the assessee by debarring him from challenging the validity of the same; (4) Consequently, s. 292-BB cannot be construed to be retrospective and has to be applied prospectively in respect of AY 2008-09 and subsequent years." -
We find that this provision will apply prospectively for and from AY 2008-09 and the relevant assessment year involved in the present case is AY 2005-06, hence, provision of section 292BB of the will not apply. 6. Now coming to the issue of non-issue of notice u/s. 143(2) of the Act which goes to the very root of the validity of the assessment order, we find that by virtue of section 143(2) of the Act the assessee has been given opportunity to substantiate the return filed. Therefore, for initiating scrutiny assessment or reassessment proceedings service of notice u/s. 143(2) of the Act is a condition precedent. Hon'ble Supreme Court in the case of ACIT Vs. Hotel Blue Moon (2010) 321 ITR 362 (SC) and also the decision of Hon'ble Allahabad High Court in the case of CIT Vs. Rajeev Sharma (2010) 232 CTR (All.) 303 has held that non issue of notice u/s. 143(2) of the Act after filing of return by assessee in response to notice u/s. 148 of the Act vitiates the assessment order or reassessment proceedings. Considering the facts of the case and respectfully following the judicial pronouncements in the case of Hotel Blue Moon, supra and also Rajeev Sharma, supra, we are of the view that the AO is bound to serve on the assessee a notice u/s. 143(2 of the Act, which he never did in this case. Similarly, Ld. Counsel for the assessee also relied on the decision of Hon'ble Punjab & Haryana High Court in the case CIT Vs. Cebon India Ltd. (2012) 347 ITR 583 (P&H), wherein Hon'ble High Court has noted the facts that CIT(A) found that there is no evidence to show that notice u/s. 143(2) of the Act has been served on the assessee before November 30, 1997, i.e. within one year from the date of filing of return of income and therefore, Hon'ble High Court held as under:
"We find that concurrent finding has been recorded by the Commissioner of Income-tax (Appeals) as well as the Tribunal on the question of date of service of notice. Notice was not served within the stipulated time. Mere giving of dispatch number will not render the said finding to be perverse. In the absence of notice being served, the Assessing Officer had no jurisdiction to make assessment. Absence of notice cannot be held to be curable under section 292BB of the Act."
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Once notice u/s. 143(2) of the Act is not issued, assessment framed has rightly been quashed by the CIT(A) , we confirm the same. No ground qua merits is raised by revenue. Appeal of revenue is dismissed. 6.3. I find that in the case of the appellant, no notice u/s 143(2) of the Act was issued. In absence of the notice the AO did not have jurisdiction to pass an assessment order. The AY concerned is AY 2006-07 and therefore the provision of Section 292BB of the Act also does not save the assessment. I find that the appellant’s case is squarely covered by the decision of the ITAT Kolkata in the case of M/s Humboldet Wedag India (P) Ltd AY 2005-06 in ITA NO.910/K/2012 which has relied on the decisions of the Apex Court, the Special Bench and the Punjab High Court. In view of the above facts and the case law citied I am of the opinion that in absence of notice being served, the AO had no jurisdiction to make assessment. Once notice u/s 143(2) of the IT Act is not issued, the assessment is to be quashed. I therefore quash the assessment for non service of notice u/s 143(2) of the Act.”
The assessee also submitted before CIT(A) that the return of income filed in the proceedings u/s 147 of the Act was valid and could not have been ignored. On the above submission the CIT(A) held as under :- “5.2. I have considered the submission of the AR and perused the assessment order and the submissions. I find that the appellant has filed a belated return in response to the notice u/s 148 of the Act. I find that the AO has rejected the said return in the assessment order on the grounds that the return was filed at the fag end of the year hence no cognizance of such return can be taken. I am of the opinion that the AO was wrong in rejecting the return filed in response to the notice u/s 148 of the Under the Act, the AO has powers to reject the return on the grounds of the e being defective as provided u/s 139(9) of the Act. In this case the AO has not issued any such notice holding the return to be defective. I find that there is no bar in filing of late return u/s 148 of the IT Act 1961. In fact the provisions of Section 234A of the Act, provides for the charge of interest for belated returns filed u/s 148 of the Act. I therefore hold that the return of income filed in to the notice u/s 148 of the Act was valid and the AO was not justified in refusing to take cognizance of the same. I therefore direct the AO to treat the income returned as per the return filed in response to the notice u/s 148 of the Act, offering net taxable income of Rs.9,59,460/- and tax the same.”
Aggrieved by the order of CIT(A) the revenue has preferred the present appeal by raising the grounds which have already been set out in the earlier part of this order.
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We have heard the rival submissions. Before going into the issue raised by the revenue ground nos. 1 and 2, regarding the validity of order of assessment passed by the AO, we deem it appropriate to decide the grounds in which the additions made by the AO that were deleted by CIT(A) are challenged. In ground no.3 the revenue has only challenged the action of CIT(A) in admitting fresh evidence in violation of the provision of Rule 46A of IT Rules, 1962. On the above ground of appeal we find that all the evidences that were considered by CIT(A) were already filed by the assessee before the AO. The assessee has filed a paper book in which he has certified the fact that there was no additional evidence filed before CIT(A). Besides the above we also find that the AO in the order of assessment has made a reference to the balance sheet filed along with the return of income filed in response to the notice u/s 148 of the Act. The AR had also filed a letter dated 18.12.2009 and 24.12.2009 before the AO along with the annexures and this fact has been recorded by the AO in the order of assessment. Apart from the above we also find that the CIT(A) has called for a remand report from the AO before deleting the addition of Rs.78,60,000/- being investments made in various mutual funds. The source of all the investments have been duly explained by the assessee. The ld. DR could not controvert the findings or factual errors in the findings of CIT(A). In these circumstances we are of the view that there is no merit in ground no.3 raised by the revenue and accordingly dismiss the appeal on this issue. 11. As far as ground nos. 4 and 5 raised by the revenue are concerned these relate to unexplained cash deposit in the bank account. At page 28 of the assessee’s paper book the deposit and withdrawals of cash have been given. On a perusal of the same it is clear that the cash deposits as well as cash withdrawals were continuous and each withdrawal would explain the deposits in the bank account. In the given circumstances adopting the peak credit in the bank account was proper and accepted
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method in making the addition on unexplained cash credit. The CIT(A) has adopted the peak credit and accordingly restrict the addition made by the AO from Rs.27,31,600/- to Rs.13,46,577/-. We do not find any error in the findings of CIT(A) and consequently hold that there is no merit in ground nos. 4 and 5 raised by the revenue. 12. We are of the view that since the additions that were challenged in this appeal which were deleted by CIT(A) have been upheld there is no requirement to decide ground nos.1 and 2 raised by the revenue. Consequently these grounds are also dismissed as requiring no adjudication. 13. In the result the appeal of the revenue is dismissed.
Order Pronounced in the Open Court on 02 .12.2016
Order pronounced in the Court on 02.12.2016. Sd/- Sd/- [P.M.Jagtap] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : [RG PS] Copy of the order forwarded to: 1.Shri Subrata Saha, Flat D-601, Suncity, 105/1, Bidhan Nagar Road, Kolkta-700067. 2. I.T.O., Ward-41(2), Kolkata. 3. C.I.T.(A)-XIX, Kolkata. 4. CIT-XIV, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.