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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & SHRI S.S. GODARA
Vijaykumar Mangilalji Chordiya NFAC, Delhi Row House No.4, Sai Darshan, Vs. Prashant Nagar, Pathardi, Phata, Nashik – 422010 PAN : AIFPC8037L (Appellant) (Respondent) Assessee by : Shri Nikhil Pathak Department by : Shri Arvind Desai, Addl CIT, DR Date of hearing : 12-09-2024 Date of pronouncement : 19-09-2024 O R D E R PER R. K. PANDA, VP :
This appeal filed by the assessee is directed against the order dated 27.03.2024 of the CIT(A) / NFAC relating to assessment year 2013-14.
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 analyzing the information available with him and comparing with the income tax return filed by the assessee, the Assessing Officer came to the conclusion that the source of the cash deposit of Rs.6,09,74,438/- in the bank account remained unverified. He, therefore, reopened the assessment by recording the following reasons: ―REASON FOR REOPENING The assessee is an individual and as per return of income the assessee is engaged in Financial Services Provider (Code 804) The assessee had filed return of income on 20/11//2012, declaring income at Rs 3,10,000/-.
2. In this case information has been received from the DCIT, Central Circle 4(4), Mumbai that during F.Y.2011-12 the assessee had deposited cash at Rs.3,16,38,294/-in M/s Renuka Mata Multi State Urban Co-op Credit Society Ltd., in which case Search & Seizure Action was carried on 26/05/2017. During the action the above information had been revealed. 3 On verification of ITD system and ITBA system, it is seen that the assessee had declared gross business income at Rs.3,33,134/- & salary income at Rs 2,41,276/- in the return of income filed for A.Y 2012-13. So from above facts it is clear that the total receipts by the assessee, amounting to Rs.3,16,38,294/-, is not commensurate with the gross receipts shown in the return of income. Hence I am satisfied that the receipts at Rs.3,13,05,160/- (3,16,38,294 - 3,33,134) have escaped from taxation.
In view of above discussion and facts narrated above, I am satisfied that total income at Rs.3,13,05,160/- have escaped from assessment. The case of assessee was also not selected for scrutiny as stipulated u/s 2(40) of the Act, for the said assessment year. Hence, the case needs to be opened under explanation 2(b) to the section 147 of the Act.
As the case is to be opened for A.Y 2012-13, which is within six years, but out of four year from the assessment year in which the case was first assessable, the proposal u/s 151 of the Act is submitted to the Pr Commissioner of Income-tax 1. Nashik, for approval for issuance of notice u/s 148 of the IT Act, 1961, for A.Y.2012-13. Dated: 18/03/2019 Sd/- (N.C. Chandratre) Income Tax Officer Ward 1(2), Nashik‖
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/-‖
4. 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
while estimating the net profit at the rate of 8%, held that in the banking business, the net profit is much higher than 8%, however considering the mixed nature of activities of the appellant, the AO had estimated the net profit at the rate of 8%. Hence the addition made by the AO by estimating net profit at the rate of 8% is confirmed and grounds of appeal raised by the appellant are dismissed.‖
5. 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 contained therein relates to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and issue notice and assess or re-assess the income of the other person in accordance with the provisions of section 153A of the Act. Referring to the reasons recorded he submitted that the issue of cash deposit of Rs.3,16,38,294/- came to light during the course of search at the premises of M/s. Shri Renuka Mata Multistate Credit Society Ltd. where search and seizure operation was carried out. Thus, the information came to light at the time of search in the case of M/s. Shri Renuka Mata Multistate Credit Society Ltd.
Referring to the decision of the Pune Bench of the Tribunal in the case of ITO vs. Narendra Sampatlal Bafna vide 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 at 8%. He accordingly submitted that if the re-assessment proceedings are held to be valid, then the income should be estimated @ 2% as against @ 8% estimated by the Assessing Officer and sustained by the CIT(A) / NFAC.
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 of which are already reproduced in the preceding paragraphs. It is the submission of the assessee through the additional ground that since the information came to light during the course of search in the case of M/s. Shri Renuka Mata Multistate Credit Society Ltd., the proper course of action should have been invoking the provisions of section 153C of the Act and not the provisions of section 147 of the Act.
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 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 made merely on the basis of the statement recorded u/s 132(4) of the Act of Shri Sachin Nahar and no other corroborative material or evidence was available with the Assessing Officer. Further, despite two reminders, the Assessing Officer could not supply any evidence to the CIT(A) / NFAC regarding the existence of such material before him based on which the addition was made. 17. So far as the first issue raised by the Revenue in the grounds of appeal
challenging the order of the CIT(A) / NFAC in quashing the re-assessment proceedings are concerned, we find that the case of the assessee was reopened on the basis of information received from the DCIT, Central Circle – 1, Pune according to which details emerged during the statement recorded u/s 132(4) of the Act of Shri Sachin Nahar and during search and post search enquiries by the Investigation wing and also during the course of enquiries conducted during search proceedings by the Central Circle – 1(1), Pune that the assessee has received cash loan of Rs.6,20,00,000/- through Shri Sachin Nahar. Further, the various documents, note books, note pads and loose sheets found during the course of search contained the business details of Shri Sachin Nahar. The provisions of section 153C of the Act read as under: “153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A : ……………..‖
18. A perusal of the above provisions shows that the same is applicable if any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to or any books of account or documents seized or requisitioned pertains or pertain to or any information contained therein relates to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and issue notice and assess or re-assess the income of the other person in accordance with the provisions of section 153A of the Act (emphasis supplied by us).
In the instant case, the reopening of the assessment was based on the basis of information that emerged from the statement of Shri Sachin Nahar u/s 132(4) and on the basis of details of notings in his money lending business which contained the name of the assessee as stated by the Assessing Officer. We find the letter No.Pn/DCIT/Cen.Cir.1(1)/Sharing of lnfo./2020-21/dated 05.03.2021 of ACIT Central Circle 1(1), Pune addressed to the Income Tax Officer, Ward 1, Ahmednagar which reads as under: "To The Income Tax Officer, Ward 1, Ahmednagar Sub: Sharing of Information in the case of Shri Sachin Nahar -reg. Ref: This office letter No. Pn/DCIT/CC 1(1)/Info./2019-20 dated 10.06.2019 Reference may kindly be made to this office letter No. Pn/DCIT/CC 1(1)/Info./2019-20 dated 10.06.2019 vide which information about the cash loan was provided to you. In the case of Shri Sachin Nahar, Search was carried out on 04/08/2017, wherein Shri Sachin Nahar has admitted that various parties have taken cash loans from other parties through him, since he was a broker between these two parties, Shri Sachin Nahar has received commission for this transaction. The details of the parties who have taken cash loans have been obtained from Shri Sachin Nahar. There is also a mention of these persons in the seized documents (copy enclosed).
2. The case of NARENDRA BAFNA (PAN: AAVPB7561N), who has taken cash loan from various parties through Shri Sachin Nahar, pertains to your charge. The copy of statement recorded u/s. 132(4) of the IT Act, 1961 on 04.08.2017 of Shri Sachin Nahar as well as related documents regarding cash loan taken by the party along with the related pages of Shri Sachin Nahar's submission containing name of the above mentioned person and the Assessment Years in which the transactions were made are enclosed herewith for reference and necessary action at your end."
We find the Assessing Officer at para 2 of the reasons recorded has mentioned as under: ―During search at his residence, various notebooks, notepad and loose papers were found and seized as Bundle No 1 to 28. In his statement recorded u/s. 132(4) of the Act at his residence on 02.08.2017, Shri Sachin Nahar stated that this seized material contain details of his money lending business in Cash and the Notings therein are related to Principal amount lent by lenders & borrowed by borrowers, names of lenders & borrowers, interest component etc. In the said seized registers, there are two types of notings, one which contains the accounts of borrowers and other registers contain notings of names of investors (depositors) in coded words. Here it is important to mention that Sachin Nahar used to write the name of investors and borrowers in certain coded words. Further the amounts mentioned in the seized documents are short by three zeros. For example for amount 100000, the noting is made 100 in seized registers.‖ 21. From the above it is clear that certain documents were seized from the premises of Shri Sachin Nahar which contained information relating to the present assessee. Therefore, the provisions of section 153C are applicable as according to the said section, it is applicable if any information contained in the seized document relates to the assessee.
Under these circumstances and in view of the detailed reasoning given by the CIT(A) / NFAC based on various decisions, we uphold the order of the Ld. CIT(A) / NFAC that the reopening of the assessment u/s 147 was not valid and the proper course of action that should have been taken by the Assessing Officer was u/s 153C as the provisions of section 153C of the Act are clearly applicable to the facts of the case. We, therefore, uphold the order of the CIT(A) / NFAC on the issue of validity of re-assessment proceedings. The first issue raised by the Revenue is accordingly dismissed.‖
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.
Order pronounced in the open Court on 19th September, 2024.