KASHAN GHASWALA,MUMBAI vs. ITO 12(1)(3), MUMBAI

It was contended by ld. AR that the CIT(A), having made substantive addition in the hands of Shri Kashan Ghaswala, cannot make 5 & ITA Nos.8124-8126/11 addition in the hands of the assessee on 'protective basis. In any case, the CIT(A) is not justified in confirming the addition on 'protective basis' as the appellate authority cannot pass protective order. In this respect, reliance was placed on the decision of Allahabad High Court in the case of CIT v. Smt. Durgawati Singh (234,ITR 249). It was further argued that the entries found in the data seized during the course of the survey itself reveals the nature of entries and therefore, these entries found in the data should be accepted 'prima facie' as they are appearing. Ld. AR also invited our attention to the page 2 of the paper book filed wherein the entries amounting to 2,64,75,576/- are clearly stated to be 'Loan taken from K. G.'. Amongst these entries, entry of 1,60,30,864 is nothing but the sum total appearing on page 1 under the title 'K. G. Similarly, on page 3 of the paper book, the entries totaling 3,19,14,748 are reflected under the title 'Total Sources' which denotes summary of transactions undertaken by Empire Hindu Hotel from the month of March 01 to 15 February 03. As per ld. AR it can be seen that 'Loan from K.G.' of 2,64,75,576 and 'Loans from HCP' of 34,97,727 forms the part of 3,19,01,748. The figure of 'loan taken from K.G.' matches with the figures appearing on page 2 of the paper book. This further corroborates the nature of entries reflected in the data to be consistent and therefore, the same should be accepted in toto.

On the other hand, ld. DR relied on the order of lower authorities.

We have considered rival contentions and carefully perused the documents impounded during the course of survey, referred by AO in his order and which has been placed on record in the form of paper book. We 6 & ITA Nos.8124-8126/11 found that the figure of '1,53,30,864' is forming part of entry '1,60,30,864' - which is 'Loan from K.G.' as per page 2 of the paper book. KG refers to Kishan Ghaswala. Thus, it is evident that the figure of '1,53,30,864' is forming part of 'Loan from K.G. Having established that the figure of 15330864 is 'Loan taken from K.G.' i.e. the nature and source stands duly explained and that the Assessing Officer having himself accepted that these amounts were originated from Kashan Ghaswala, no addition can be made in the hands of the assessee under section 69A of the Act. We also found that at page 5 of the assessment order for assessment year 2002-03, in the case of the assessee wherein the Assessing Officer has clearly accepted the source of money as from Kashan Ghaswala. Similarly on page No. 2 and 5 of the assessment order in the case of Kashan Ghaswala in para 5.2, 6.3, it has been clearly held that the amounts have been originated from Kashan Ghaswala which is to be taxed accordingly year-wise in the hands of Kashan Ghaswala. This clearly establishes that these figures pertain Shri Kashan Ghaswala in whose hands substantive addition had been made, accordingly no addition is required to be made in the hands of the assessee.

In view of the above, we direct the AO to delete the addition of Rs.22 lakhs so confirmed by CIT(A) on protective basis.

Next grievance of the assessee relates to disallowance of Rs.17,15,294/- made on account of unexplained expenditure.

Facts relating to this addition is identical to the facts and basis of addition discussed above. We found that the assessing officer has made 7 & ITA Nos.8124-8126/11 an addition of Rs. 39,15,294/- u/s. 69C of the Act on the basis of sheet 3 and sheet 1 of computer data i.e. file 'emmbs1' found during the course of the survey. The calculation of addition made is tabulated at para 6.6 page 6 of the assessment order . The CIT(A) granted relief of Rs. 22 lakhs as the same was added in the hands of Shri Kashan Ghaswala. The entries on the papers relied upon by the Assessing Officer are at page 4 (total expenses for period March 01 to February 03) and page 1 (Empire Hotel Exp) of the paper book for March 01 to August 02. It is clear from page 1 of the paper book that it is the summary of transactions indicating the 'sources' of expenditure such as 'Han Man Shoes' (a partnership firm), 'Hotel City Palace', 'Cash', 'R.K.', 'K.G.' and 'F.B.'. This is further corroborated by page 2 of the paper book which clearly establishes that the source of entries appearing under title 'K.G.' on page 1 of the paper book is nothing but 'Loan from Kashan Ghaswala'. This is further corroborated by entries appearing on page 3 of the paper book wherein title itself shows 'Total Sources' and the figure of loan of 2,64,75,576 appearing therein matches with entries appearing on page 2 of the paper book.

Ld. AR also invited our attention to the entries recorded under the title 'Han Man Shoes' on page 1 of the paper book. Under this title it can be seen that two entries have been recorded namely 'Cheque 100000 (for the month of Nov 01) and 'Trf. from CA-143 12000 (for the month of July 02)'. These amounts have been received by the assessee and the same are duly reflected on 9.11.2001 and 06.07.2002 in the Janakalyan 8 & ITA Nos.8124-8126/11 Sahakari Bank Ltd's bank statement of the assessee. This bank account is the regular bank account and the same is disclosed in the return of income filed by the assessee for A.Y. 2001-02. Therefore, it cannot be said that the entries reflected therein are unaccounted. This also establishes that the amounts have been 'received' by the assessee through normal banking channel in the regular course of business. Similarly, under the title 'R.K.' entries of '500000' and '150000' are shown as 'Traf. From loan a/c'. On perusal of Jankalyan Bank's statement of the assessee it can be seen that the entry of Rs. 5 lakh is credited on 15/04/2002 and Rs.1,50,000 is credited on 30/04/2000. It also reveals that these entries are from SB-435. On the page 1 paper book, entry of '16000' is also reflected as 'Traf. From SB-435' '(July-02), and under title TB.' entry of '84000' is shown as 'Traf. From SA-434'. We found that the assessee has deposited these two cheques collectively in the bank account on 19/07/2002 and the same is reflected in the said bank statement as deposit of Rs. 1,00,000 with narration 'By TR SB434/435'. This also establishes that these entries denote 'receipts' of the assessee. Therefore, the addition made by the assessing officer in respect of entries pertaining to 'cash' appearing on page 1 of the paper book is based on the assumption that it represents expenditure which is incorrect in the facts and circumstances of the case as discussed above.

It is also evident from the assessment order that expenditure as well as source of expenditure have been added. However, the AO cannot add both source of funds as well as application of fund. Since the 9 & ITA Nos.8124-8126/11 corresponding source is already explained in the seized material itself i.e. loan taken from various parties like Hotel City Palace, K.G., etc. Further, the corresponding additions have already been made in the hands of respective entities such as Kashan Ghaswala, Hotel City Palace. Therefore, after having taxed the source, its application in the hands of the assessee cannot be taxed u/s.69C.

In view of the above, we direct the AO to delete the addition of Rs.17,15,294/- made u/s.69C of the I.T.Act. We direct accordingly.

In the result, appeal for assessment year 2001-02 is allowed in part in terms indicated above. ITA Nos.4074/Mum/2011(AY : 2002-2003) 16. In this appeal, the assessee has taken three legal grounds :- “1. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the action of the Assessing Officer in reopening the assessment u/s.147 by issuing notice u/s.148 of the Income tax Act, 1961. The appellant submits that the assessment was wrongly reopened.

On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the action of the Assessing Officer in not giving a copy of reasons recorded for reopening the assessment u/s.147 and for issue of notice u/s.148 of the Income tax Act, 1961. The appellant submits that the assessment order passed without giving a copy of reasons recorded is not a valid assessment and therefore the same ought to be cancelled.

On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the assessment order passed u/s.143(3) read with section 147 of the Income tax Act, 1961 by the Assessing Officer though there is no addition made by him on the reasons recorded for reopening of the assessment and all additions are made on altogether different ground and/or issue. The appellant therefore submits that the assessment made is totally bad in law and ought to be cancelled.”

We have considered rival contentions and found from the record that a survey action u/s. 133A was conducted on 11th & 12th May, 2007 at the premises of M/s. Alliance Hotels by ADIT Unit-V (4), Mumbai. During the course of the survey action, certain computer files were found at the premises of M/s. Alliance Hotels. In the survey report, it was mentioned that expenses amounting to Rs. 3.19 crore were incurred by Empire Hindu Hotel during the period March 2001 to 15th February, 2003. The source of the said amount included loan from Kashan Ghaswala as also from other persons. It reflected that Loan amounting to 2,64,75,576 has been sourced from Shri Kashan Ghaswala between March 2001 to 15 February 2003 and the balance amount of Rs.54,66,172 had been sourced from other persons. It was argued by ld. AR that in spite of asking by assessee the AO has not supplied reasons recorded for reopening before the completion of assessment. Ld. AR drew our attention to the 11 & ITA Nos.8124-8126/11 letter dated 4-4-2009 placed on record which was field before the AO asking for reasons recorded before issue of notice u/s.148. However, without supplying the reasons the AO has completed assessment. Our attention was also invited to the grounds of appeal

In the case of M/s. Telco Dadaji Dhackjee Ltd vs. DCIT- ITA No.4613/Mum/2005(TM), Tribunal addressed to the question ie "The order of the AO is liable to be quashed or to be set aside where copy of the reasons recorded for taking action u/s 147 were not provided to the assessee in spite of specific requests?" and the Third Member gave his finding on the above question and the answer is as under: "-For the above point of difference, the Tribunal held that "in the light of the binding judgment of the Panaji Bench of the Hon'ble 13 & ITA Nos.8124-8126/11 Bombay High Court (supra) and the order of the Tribunal in the case of Videsh Sanchar Nigam Ltd. (supra) and respectfully following the same, I hold that since the Assessing Officer did not furnish the reasons recorded for reopening the assessment to the assessee despite specific request, the reassessment order is liable to be quashed as null and void. The point of difference no.(ii) is answered accordingly."

In the case of Siesta Steel Construction P. Ltd. vs. Shikera (K.K.), Honble Bombay High Court [1985] 154 ITR 547 held that the reassessment proceedings are required to be quashed when the AO did not care to furnish the reasons to the assessee and relevant paragraphs read as under: ".............Shri Khari, Ld Counsel appearing on behalf of the petitioner, submitted that in spite of several reminders from the petitioner, respondent no.1 has not cared to furnish the reasons, which prompted respondent no.1 to issue notice under section 148 of the Act. .................The initiation of proceedings by respondent no.1, therefore, was clearly without jurisdiction and are required to be quashed."

Similar view was taken by the Tribunal in the case of Tata International Ltd. vs. DCIT vide ITA Nos. 3359 to 3361/Mum/2009. Relevant parts of the said decision read as follows,- "............In the case of CIT vs. Videsh Sanchar Nigam Ltd, the Hon'ble jurisdictional High Court has confirmed the order of this Tribunal whereby the reassessment was held as invalid because the reasons recorded for reopening of the assessment were not furnished despite repeated requests and furnished only after completion of assessment. The Hon'ble High Court has observed in para two as under: 2. The finding of the fact recorded by the Income Tax Appellate Tribunal is that in the present case the reasons recorded for reopening of the assessment through repeatedly asked by the assessee were furnished only after completion of the assessment. The Tribunal following the judgment of this Court in the case of CIT vs. Fomento Resorts & Hotels Ltd., Income Tax Appeal No.71 of 2006 decided on 27th November, 2006 has held that though the reopening of the assessment is within three years from the end of relevant assessment year, since the reasons recorded for 14 & ITA Nos.8124-8126/11 reopening of the assessment were not furnished to the assessee till the completion of assessment, the reassessment order cannot be upheld. Moreover, Special Leave Petition filed by the Revenue against the decision of this Court in the case of Fomento Resorts & Hotels Ltd has been dismissed by the Apex Court vide order dated 16th July, 2007. Thus, the reasons are required to furnish within a reasonable period of time so that the assessee can raise the objections at the preliminary stage of proceedings. If the reasons are supplied during the assessment proceedings, than furnishing the reasons subsequent to the assessment proceedings would achieve no purpose and tantamount to deprive and deny the assessee of its right to raise the objections against the validity of notice issued under section 148."

Honble Tribunal of Hyderabad Bench has also held in the case of S. Prasad Raju vs. DCIT [2005] 96 TTJ (Hyd) 832 that,- "Conclusion: Reasons for reopening of assessment having been not disclosed by the Department despite specific request by assessee, reopening was invalid." The ITAT Bangalore Bench in the case of ACIT v. Shri M. R. Seetharam (Ind.) [ITA no. 926/Bang./2014] and others dated 9.10.2015, after taking into account the provisions of section 292BB of the Act held that it is mandatory that the assessing officer should furnish the copy of reasons recorded for initiation of reassessment proceedings under section 147 of the Act exactly as it is recorded by the assessing officer and there is no question of inferring whether the assessee is aware of the reasons or not 15 & ITA Nos.8124-8126/11 in the absence of such communication. After taking into account the ratio of various judgements on the issue the Hon'ble tribunal upheld the order of the CIT(A) cancelling the order of reassessment for failure of the AO to furnish the reasons recorded to the assessee.

Therefore, the above summary of Judgment of Jurisdictional High Court of Bombay and the other decisions of the Tribunal answers the question in favour of the assessee and against the revenue. Consequently, the consequences of failure to supply the reasons recorded u/s 148 of the Act to the assessee when asked for, the reassessment is required to the quashed. Considering assessee’s request for supply of reasons and the AO's failure to supply the reasons recorded u/s 148 of the Act, the impugned reassessment is bad in law and the same is therefore quashed.

In view of the above judicial pronouncements, we quash the assessment framed by the AO u/s.147 r.w.s.143(3) of the I.T.Act. Even on merits, we found that addition of Rs.1,59,70,874/- was confirmed by the CIT(A) on protective basis, which was made by the AO on substantive basis u/s.69C of the Act. In view of the reasoning given in the assessment year 2001-02 hereinabove, there is no justification in the order of CIT(A) for upholding addition on protective basis.

In the result, ITA No.4074/Mum/2011 is allowed.

On the facts and in the circumstances of the case and without prejudice to ground No.3 above, the appellant submits that the Assessing Officer has accepted the source of total expenditure of Rs.1,46,39,968/- as from K.G. (Kashan Ghaswala) and HCP (Hotel City Palace). The appellant submits that since the source is available in the computer back up and accepted by the Assessing Officer, no addition can be made as unexplained expenditure u/s.69C.

Rival contentions have been heard and record perused. We found that as a result of survey the AO has made above addition. In the survey report, it was mentioned that expenses amounting to Rs. 3.19 crore were incurred by Empire Hindu Hotel during the period March 2001 to 15th February, 2003. The source of the said amount included loan from Kashan Ghaswala as also from other persons. It reflected that Loan amounting to 2,64,75,576 has been sourced from Shri Kashan Ghaswala between March 2001 to 15 February 2003 and the balance amount of Rs.54,66,172 had been sourced from other persons. The AO issued notice u/s.148 and completed assessment on 31-12-2010, wherein the AO added Rs.1,49,39,968/- u/s.69C on protective basis as substantive addition was made in the case of Hotel City Palace and Kashan Ghaswala for A.Y.2003-04. However, the AO has made substantive addition of Rs.8,21,000/- u/s.69C. By the impugned order the CIT(A) upheld the validity of assessment framed u/s.143(3)/147. The CIT(A) also confirmed the addition made u/s.69C and 69 of the IT Act.

We have considered rival contentions and carefully gone through the orders of authorities below. From the record we found that addition of Rs.8,21,000/- was made as unexplained investment by observing that as per the documents seized during the course of survey there is entry pertaining to the period 01.03.03 to 31.03.03 for 8,21,800 which forms 18 & ITA Nos.8124-8126/11 part of total figure 54,92,807. The title of the page clearly indicates that these figures represent 'Details of loan taken-given from Hotel City Palace. On perusal of the reasons given by the assessing officer and CIT(A) it is evident that the addition is made to the income of the assessee on presumption that these amounts represent unaccounted cash transactions. On perusal of the document relied by AO for making this addition, we found that it is a bank statement of assessee’s Jankalyan Bank for the month of March 2003. This bank account is the regular bank account and the same is disclosed in the return of income filed by the assessee for A.Y. 2001-02. Therefore, it cannot be said that the entries reflected therein are unaccounted. It is also evident that the following entries have been debited to the assessee’s account:- Narration Ch. No. Amount Hotel City Palace 61213 5,00,000.00 To CA/01 61140 6,800.00 To SELF 61224 15,000.00 To CA/01 61223 3,00,000 Total 8,21,000.00 In view of the above bank statement and entries made therein, it is not a case of assessee having given any loan to Hotel City Palace without recording the same in the accounts, insofar as the same have been duly entered in the assessee’s bank pass book. As the entries are reflected in the assessee’s regular bank account disclosed to the department, the addition so made by the AO is not justified. We direct the AO to delete the addition of Rs.8,21,000/- made u/s.69 of IT Act.

In the result, appeal of assessee is allowed. 2003-04) 30. Grounds taken in this appeal are as under :-

It was contended by ld. AR that these entries represent probable/expected fund from Kishan Ghaswala which culminated into receiving Rs.47,27,174/-. As per ld. AR the entries reflected in the seized data is duly accounted and the same can be explained with the aid of corroborative evidences. By drawing our attention to the detailed paper 22 & ITA Nos.8124-8126/11 book, it was submitted that these transactions have been duly accounted in the books of account of the recipient. It is further submitted that it is highly inconceivable that one of the entities of belonging to the group pays the amount through banking channel and the same is deposited by another entity of the group in undisclosed bank account. Ld. AR further contended that assessee is in position to explain these entries with the aid of supporting evidences and therefore, the issue may be restored to the file of the Assessing Officer for verification of the appellant's claim. It was also submitted that no prejudice will cause to the Revenue in restoring the issue to the file of the Assessing Officer and on such restoration the object of assessing taxable income in accordance with the provisions of the Act will also be achieved.

In view of the above discussion, considering the entry in the bank statement and the entirety of facts and circumstances of the case, we restore the matter back to the file of AO for examining each and every entry again and to decide the issue afresh after giving due opportunity to the assessee.

In the result, appeal of the assessee is allowed for statistical purposes. ITA No.8125/Mum/2011(AY :2003-04) 35. Grounds taken in this appeal are as under :- 1. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the action of the Assessing Officer in reopening the assessment u/s.147 by issuing notice u/s.148 of the Income tax Act, 1961. The