VIJAYKUMAR MANGILALJI CHORDIYA,NASHIK vs. NATIONAL FACELESS ASSESSMENT CENTRE, DELHI

Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 19.07.2013 declaring total income of Rs.3,80,300/- after claiming deduction of Rs.51,831/- under Chapter VI-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The Assessing Officer in this case obtained information that the assessee had made cash deposit of Rs.6,09,74,438/- as a member of the society in the account maintained with M/s. Shri Renuka Mata Multistate Credit Society Ltd. during the impugned assessment year. After

Accordingly, notice u/s 148 of the Act was issued and served on the assessee, in response to which the assessee filed his return of income on 14.03.2022 admitting income of Rs.10,00,300/-. Thereafter, statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee. In absence of any reply to his satisfaction, the Assessing Officer determined the profit @ 8% on the turnover of Rs.6,09,74,438/- and the net profit was arrived at Rs.48,77,987/-. Since the assessee had already offered the income from business at Rs.8,19,119/-, the Assessing Officer made addition of Rs.40,58,868/- being the difference in the income determined and the income offered by recording as under: ―6. The assessee submitted that "My main source of Income is Advisory and Brokers charges. I also lends temporary advances, loan to businessmen or friends by taking money from some other parties. I earned commission or charges on such transactions. Further the assessee added that as per information with the department I have made cash deposit of Rs.6,09,74,438/- as a member of the society in the account maintained with M/S SHRI RENUKA MATA MULTISTATE CREDIT SOCIETY LTD. However, these transactions include cash deposits and other deposits/ transfers too. The assessee has submitted statement of bank account details, income & expenditure account and balance sheet. 6.1 As stated by the assessee that during the year under consideration he was into the business of brokerage commission, money lending & financial adviser. Further verification of the bank account statements it is seen that there is regular deposits and withdrawals are there for the entire year. Hence, it is clear that the assessee is into the business of different nature. Accordingly, the whole deposits of Rs.6,09,74,438/- should be taken as the turnover for the year under consideration. Since, the assessee is into the business of money lending where the net profit is always higher side compare to bank loan interest However, considering the facts of the case and nature of business, the net profit is calculated @ 8% of turnover of Rs.6,09,74,438/-. Accordingly, the net profit arrives at Rs.48,77,987/-. Further, as per computation of income, the assessee has already offered income from business of Rs.8,19,119/-. Hence, difference of amount of Rs.40,58,868/- (Rs.48,77,987/- Rs.8,19,119/-) is added back to the total income of the assessee. Addition: Rs.40,58,868/-‖

In appeal, the CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under: ―6.2 I have perused the assessment order, grounds of appeal and submissions filed by the Appellant. I find from the assessment order that the appellant had deposited cash of Rs. 6,09,74,438/- in the account maintained with Ms. Shri Renuka Mata Multistate Credit Society Ltd. However in the return of income the appellant disclosed income of Rs 4,32,130/- only. Therefore the case was re- opened u/s 147 on the basis of information provided to the AO through onsight portal of the department under the head high risk CRIU/CRU since the source of cash deposits of Rs.6,09,74,438/- was not explained. During re-assessment proceedings, the appellant was asked to explain the source of the above cash deposits. In response the appellant had submitted that his source of income is advisory and brokers charges and also lending temporary advances and loan to businessmen or friends by taking money from some other parties and earned commission on such transactions. From the submission of the appellant, the AD noted that the appellant was into the business of brokerage commission, money lending and financial adviser. Further after analysing the bank accounts, the AO noted that there were frequent deposits and withdrawals during entire financial year, hence the AD concluded that the nature of the business of the appellant was different than claimed by the appellant. Therefore the AO treated the entire cash deposits as turnover of the appellant and estimated the net profit at the rate of 8% since the appellant was doing the money lending business. Accordingly the AO made addition of Rs.40,58,868/- after giving credit for the business income of Rs.8.19,119/- already disclosed by the appellant. During the appellate proceedings, the appellant has contended that he has not maintained the proper books of accounts and he was engaged in the business of financing on commission basis which is around 2% and hence the appellant had filed revised return of income declaring total income of Rs. 10,00,300/- showing additional commission income of Rs.6.20,000/-, hence it is contended that the estimation of net at the rate of 8% is not justified. I have considered the facts of the case and submission filed by the appellant. I find that the appellant himself admitted before the AO that he is also doing money lending business. The appellant has also admitted that he has not maintained proper books of accounts. During the course of assessment proceedings, the appellant while explaining the source of cash deposits, had claimed that it includes other deposits/transfers too but the appellant did not explain the sources of entire cash deposits. Since the appellant failed to explain the nature of all the cash deposits the AO has rightly considered the deposits as turnover of appellant from money lending and financing business. The appellant had admittedly not maintained proper books of accounts to explain the income earned from money lending business and brokerage/commission activity separately. The claim of the appellant that the entire activity was done by him on brokerage/commission basis and earned only 2% commission is not supported by any evidence. Therefore contentions raised by the appellant are not found acceptable. Further the AO

Aggrieved with such order of the CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. On the facts and in the prevailing circumstances of the case and in law, the learned CIT- Appeal, NFAC, Delhi, has erred in confirming and upholding the action of the AO regarding re-opening of the Assessment by issue of Notice u/s 148 which is without valid assumption of Jurisdiction and therefore bad in law. 2. On the facts and in the prevailing circumstances of the case and in law, the learned CIT- Appeal, NFAC, Delhi, has erred in confirming and upholding the assessment order, which is passed by the AO, arbitrarily in gross violation of principle of natural justice. 3. On the facts and in the prevailing circumstances of the case and in law, the learned CIT- Appeal, NFAC, Delhi, has erred in confirming and upholding the assessment order, which is passed by the AO in gross violation of mandatory CBDT guidelines. 4. On the facts and in the prevailing circumstances of the case and in law, the learned CIT- Appeal, NFAC, Delhi, has erred in confirming the addition of Rs.40,58,868/- made by the AO on account of estimating the turnover of the appellant at Rs.6,09,74,438/- and also estimating the Net Income @ 8% of estimated Gross Receipts of Rs.6,09,74,438/-. 5. The Appellate craves the right to add, amend, modify, alter, revise, substitute, delete any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal.

The Ld. Counsel for the assessee at the time of hearing filed the following additional ground which reads as under: 1] The assessee submits that the notice issued u/s. 148 is bad in law since the learned A.O. had no jurisdiction to reopen the case of the assessee u/s. 148 on the basis of the information received in the course of search on a third party and hence, the consequential reasst. u/s. 147 be declared null and void.

Referring to the decisions of Hon'ble Supreme Court in the cases of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC) and Jute Corporation Of India Ltd. vs. CIT (1991) 187 ITR 688 (SC), he submitted that the additional ground is purely a legal ground and no new facts are required to be investigated and therefore, the same should be admitted.

The Ld. DR on the other hand strongly opposed the additional ground filed by the assessee and submitted that the assessee has not taken any such ground before the CIT(A) / NFAC and had participated in the assessment proceedings without raising any objection before the Assessing Officer. Therefore, the assessee should not be allowed to raise the additional ground.

We have heard both the sides on the issue of admission of additional ground. It is an admitted fact that the additional ground raised by the assessee is purely a legal one and all necessary facts are already on record and no new facts are required to be investigated, therefore, the additional ground raised by the assessee is admitted in the light of the decision of the Hon'ble Supreme Court in the cases of National Thermal Power Co. Ltd. Vs. CIT (supra) and Jute Corporation Of India Ltd. vs. CIT (supra).

The Ld. Counsel for the assessee at the outset drew the attention of the Bench to the reasons recorded and the provisions of section 153C of the Act. He submitted that as per the provisions of section 153C of the Act, if any information

Referring to the decision of the Pune Bench of the Tribunal in the case of ITO vs. Narendra Sampatlal Bafna vide ITA No.688/PUN/2024, order dated 19.08.2024 he submitted that under identical circumstances the Tribunal has held that in such a situation the proper course is initiation of proceedings u/s 153C and not u/s 147 of the Act. Since in the instant case, the Assessing Officer instead of invoking provisions of section 153C of the Act, has invoked the provisions of section 147 of the Act, therefore, such assessment being not in accordance with law is void ab-initio.

So far as the merit of the case is concerned, he submitted that the Assessing Officer in the preceding assessment year has estimated the profit @ 2% on such cash deposits whereas for the impugned assessment year he has estimated the same

The Ld. DR on the other hand submitted that the Assessing Officer has adopted the proper procedure for reopening of the assessment which is in accordance with law. Further, the assessee has not raised any such ground before the CIT(A) / NFAC. Since the re-assessment proceedings are in accordance with law, the same should be upheld and the additional ground raised by the assessee should be dismissed. So far as the merit of the case is concerned, he submitted that the principle of res judicata does not apply to income tax proceedings and therefore, merely because the Assessing Officer has estimated such profit in the preceding assessment year, the same cannot bind the Assessing Officer to adopt the rate of 2% for the impugned assessment year. He submitted that the CIT(A) / NFAC has passed a speaking order on this issue which should be upheld.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer on the basis of information available that the assessee has deposited cash of Rs.3,16,38,294/- in M/s. Shri Renuka Mata Multistate Credit Society Ltd. in which search and seizure operation was carried out on 26.05.2017, reopened the assessment u/s 147 of the Act, reasons

We find some force in the above arguments of the Ld. Counsel for the assessee. We find an identical issue had come up before the Tribunal in the case of ITO vs. Narendra Sampatlal Bafna vide ITA No.688/PUN/2024, order dated 19.08.2024 for assessment year 2017-18. We find the Tribunal after considering the various decisions has held that in such a situation the proper course of action should be the provisions of section 153C of the Act and not section 147 of the Act. The relevant observations of the Tribunal from para 16 to 22 of the order read as under: ―16. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed by both the sides. We have also considered the various decisions cited before us. We find the Assessing Officer, on the basis of information available that the assessee has taken cash loan of Rs.6,20,00,000/- from various persons through Shri Sachin Nahar, who made a statement u/s 132(4) of the Act to this effect during the course of search proceedings at his premises and on the basis of entries found in the loose sheets and other books of account maintained by him, reopened the assessment u/s 147 of the Act after recording reasons which have already been reproduced earlier. Since the assessee could not give any satisfactory explanation regarding the loan of Rs.6,20,00,000/- provided by Shri Sachin Nahar, the Assessing Officer, invoking the provisions of section 69A of the Act read with section 115BBE made addition to the total income of the assessee. We find the CIT(A) / NFAC quashed the re-assessment proceedings holding that the proper course of action before the Assessing Officer should have been u/s 153C of the Act. He also deleted the addition on merit by holding that the said addition was

Since admittedly the Assessing Officer in the instant case has reopened the assessment on the basis of information that emerged at the time of search at the premises of M/s. Shri Renuka Mata Multistate Credit Society Ltd., therefore, the proper course of action by the Assessing Officer should have been under the provisions of section 153C and not under the provisions of section 147 of the Act. Therefore, we hold that the initiation of provisions of section 147 are not in accordance with law and liable to be quashed. In this view of the matter, we allow the additional ground raised by the assessee challenging the validity of re- assessment proceedings and quash the assessment made u/s 147 r.w.s. 143(3) of the Act instead of 153C of the Act. The additional ground raised by the assessee is accordingly allowed.

Since the assessee succeeds on the legal ground, the grounds challenging on the merit of the issue becomes academic in nature and are not being adjudicated.

In the result, the appeal filed by the assessee is allowed.