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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER
This is an appeal filed by the assessee against the order of the ld.Commissioner of Income-tax (Appeals)-13, Ahmedabad dated 29.3.2019 for the assessment year 2015-16 under section 250 of the Income Tax Act, 1961 (“the Act” for short).
At the outset we observe that there is a delay of 82 days in filing of the present appeal. The assessee has filed application for condonation of delay in which, the assessee submitted that during the period under consideration, the assessee’s wife was undergoing medical treatment on account of gynecological problems. Accordingly, the assessee could not file appeal within the time limits, owing to genuine and bona fide reasons. The assessee also submitted copy of 2 medical certificate for purpose of records. Accordingly, looking into the instant facts, we are hereby condoning delay in filing of the present appeal of 82, days in the interest of justice.
The brief facts of the case are that the AO has observed that the assessee has made cash deposit of Rs.1,00,20,500 in Navanagar Co- operative Bank Limited, Jamnagar. The AO has called for bank statement from the Bank by issuing notice under Section 133(6) of the Act. The Appellant did not submit any explanation in Assessment Proceedings hence AO has treated above cash deposit as unexplained money under Section 69A of the Act r.w.s. 115BBE of the Act.
During the course of appellate hearing before Ld. CIT(Appeals), the assessee filed copy of bank statement, copy of cash book, purchase deed and Sale deed of land as well as additional application under Rule 46A and claimed that cash of Rs.20,500/- was deposited out of his regular source of business income and balance cash of Rs.1 crore is deposited out of bank withdrawal from 5th December, 2014 to 6th December, 2014. The Appellant submitted that he has shifted his residence two years ago, hence was unable to receive the notices issued in Assessment Proceedings which has resulted into ex-parte assessment. The assessee requested that contention raised herein should be accepted and additional evidence may be admitted. On the basis of additional evidence submitted by the assessee a Remand Report was called for from AO and AO gave his report dated 24th July, 2018. At para 4.2 of the report, the AO stated that on 5th December, 2014 there was credit balance in bank account for Rs.1,71,20,500 out of which Appellant has withdrawn cash of Rs.1,71,00,000 on 5th December, 2014 and 6th December, 2014 and assessee cash deposited for a sum of Rs.50,00,000 on 10th December, 2014 and Rs.50,00,000 on 15th December, 2014 which are out of above referred
3 cash withdrawals. The Ld. Assessing Officer stated that the entire transaction was done in the same bank account and there is gap of only four days between cash withdrawal and cash deposit hence issue may be decided on merits considering such facts. Accordingly, the Ld. Assessing Officer did not draw any adverse inference against the assessee in the Remand Report.
The assessee is in appeal before us against the aforesaid order passed by CIT During the course of appellate proceedings, CIT(A) observed that in the written submission filed by Appellant on 7th June, 2018 he submitted that a property was purchased by him for Rs.1,71,43,000 along with stamp duty on 12th November, 2014 and such property was sold on 4th December, 2014 for Rs.1,71,00,000. The assessee also submitted copy of purchase deed and sale deed in support of such transactions. On perusal of purchase deed, Ld. CIT(Appeals) noted that such land is purchased by the assessee in cash for Rs.1,63,42,000 and payment made in cash is apparent from page No. 10 of the deed. The Appellant has also made stamp duty payment of Rs.8,01,000 for purchase of such land. During the course of appellate hearing, the assessee was specifically asked by Ld. CIT(Appeals) to submit the source of such investment as the assessee has filed return of income declaring a meagre income of Rs. 2,65,070/- and why such investment should not be treated as unexplained investment. These details as per Ld. CIT(Appeals) were relevant with regard to addition made by AO in Assessment Order because it is the claim of the Appellant that once the above referred property was sold, he had withdrawn the cash and partial amount was deposited in bank account. The property sold by Appellant in the month of December 2014 was purchased in cash in the month of November, 2024 and hence entire issue of cash withdrawal and cash deposit has emanated from the original transaction of purchase of the 4 property. The assessee submitted before Ld. CIT(Appeals) that above transaction was carried out by him at the instance of one Mr. Patel residing at Saurashtra region and this amount does not belong to him. However, in support of such claim the assessee has not submitted any documentary evidences nor proved the sources of such investments made in cash. In absence of any corroborative evidence, Ld. CIT(Appeals) was of the view that the assessee has failed to explain any source of such investment as envisaged in terms of provisions of Section 69 and 69A of the Act. Ld. CIT(Appeals) observed that it is evident from above cash book that the assessee has not passed any entry relating to purchase of above land at Rs.1,71,43,000, which also proves that the assessee has nor proved the source for making such investment. It is settled legal law that primary onus of explaining source of expenditure/investment is on Appellant and without discharging such onus, investment made by Assessee is required to be treated as unexplained investment. Considering the above facts, Ld. CIT(Appeals) directed the income of the assessee to be enhanced by Rs.1,71,43,000 u/s 69 of the Act.
The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) enhancing the income of the assessee. The contention of the counsel for the assessee before us was two-fold. The first contention raised before us was that the case of the assessee was open for limited scrutiny purposes and therefore, the present enhancement done by Ld.CIT(Appeals) was beyond the scope of limited scrutiny assessment on the assessee. It was submitted that Ld. CIT(Appeals) has enhanced the income of the assessee on a totally different ground which was not part of the scope of limited scrutiny assessment. The ld.counsel for the assessee submitted that Ld. CIT(Appeals) cannot enhance the scope of limited scrutiny assessment for scrutiny assessment during the course of appellate proceedings.
5 The counsel for the assessee placed reliance on judicial precedents in support of the contention that the Ld. CIT(Appeals) in the appellate proceedings cannot do what the assessing officer himself could not have done during the course of assessment proceedings. It was submitted that it would not be open to Ld. CIT(Appeals) to introduce into assessment new sources of income, as his power of enhancement is restricted only to income which was subject-matter of consideration for purposes of assessment by the Ld. Assessing Officer. Secondly, the counsel for the assessee submitted that in the remand proceedings, the assessing officer has not pointed out any specific defects with regards to the source of cash deposits and therefore, the appellate order is liable to be set aside. Additionally, the counsel for the assessee submitted that before enhancing the income by the assessing officer, the Ld. CIT(Appeals) is bound to issue notice to the assessee, so as to allow the assessee to rebut the presumption is made by the Ld. CIT(Appeals) regarding the basis of enhancement. In the instant case, the order passed by Ld.CIT(Appeals) is also bad in law for the reason that no effective notice of enhancement was ever issued to the assessee and hence the order passed by Ld. CIT(Appeals) is contrary to law and hence liable to be set aside.
In response, Ld.DR submitted that the Ld. CIT(Appeals) was within the scope to enhance the assessment, since the issue for consideration even in the scope of limited scrutiny assessment was to see whether the correct amount of capital gains had been computed on sale of property and the same was intimately connected with the issue of cash deposit made by the assessee during the impugned year under consideration. The DR submitted that as part of the limited scrutiny assessment, the assessing officer was required to inquire into the source of investment in the assets which were sold by the assessee during the impugned year under consideration thereby leading to 6 capital gains in the hands of the assessee. Accordingly, the DR submitted that the CIT, looking into the instant facts has correctly enhanced the income of the assessee since the assessee was unable to explain the source of investment in property which was sold by the assessee, thereby leading to capital gains taxation.
We have heard the contentions and perused the material on record. The first issue for consideration before us is whether the Ld. CIT(Appeals), has in the instant facts erred in enhancing the income of the assessee, in light of the fact that the case of the assessee was opened under limited scrutiny scheme. Before proceeding any further, it would be useful to reproduce the relevant extracts of the scope of limited scrutiny assessment, for ready reference:
“3. The case of the assessee was selected for ‘Limited Scrutiny’ assessment under the C.A.S.S. The reasons for selection are : i) Whether capital gains/loss on sale of property has been correctly shown in the return of income, ii) Whether the cash deposit has been made from undisclosed sources.”
From the reasons for selection of the case for limited scrutiny, we observe that the case was selected to assess whether capital gains/loss on sale of property has been correctly shown in the return of income and further, whether the cash deposits has been made from disclosed sources. In the present case, Ld. CIT(Appeals) observed that the assessee has not been able to explain the source of investments made by the assessee in the property which has been sold during the impugned year under consideration.
On going through the reasons for opening/selecting the case of the assessee under limited scrutiny scheme, we are of the considered view that this issue is directly and intimately connected with the issue of capital gains/source of deposits made by the assessee in his bank
7 account and whether, the cash deposits have been made from disclosed sources. In this case, Ld. CIT(Appeals) observed that the assessee has not been able to give any plausible explanation for the investments which have been made by the assessee in property which has been sold by the assessee during the impugned year under consideration. Sale consideration of this property was the source of deposit in bank account. The argument of the assessee is that the source of deposit in the bank account is from the withdrawals made by the assessee out of the sale consideration of impugned property under consideration. Further, the assessing officer in the remand report has not pointed out to any adverse inference which may be drawn against the assessee as to the source of deposits and deposits have been primarily made out of the sale proceeds of the property which had been sold by the assessee. However, in the instant case, Ld. CIT(Appeals) has observed that when the source of investment in the property is itself under serious doubt, the scheme of events are such that the property was purchased by the assessee on 12th of November 2014 for a consideration of ₹ 1.71 crores and sold within a period of one month on 4 December 2014 for a sum of ₹ 1.71 crores and therefore, the explanation of the assessee that the source of deposits made by the assessee in the bank account are on account of withdrawals from the sale consideration (sale made on 4th Dec., 2024) are clearly misconceived since in the scheme of things, when the assessee has provided no explanation with regards source of investment in the property purchase on 12th of November 2014, then it also cannot be accepted that the source of deposits made in the bank account are out of withdrawals made by the assessee from the sale consideration from same property which have been deposited by the assessee in the same bank account. Looking into the instant facts, the entire scheme of things in which the assessee has purchased and 8 sold property within a period of only one month and the fact that the assessee has not been able to give any plausible explanation whatsoever with regard to the source of investment, we are of the considered view that Ld. CIT(Appeals) has correctly invoked the provisions of section 69 of the Act and enhanced the income of the assessee. Looking at the instant facts, firstly, we are of the considered view that there is an intimate connection in the flow of events of purchase of property by the assessee in the month of November, 2014 (for which the assessee has not been able to explain the source of investment) and the immediate sale of such property on 4th of December, 2014 i.e. within a short span of one month and therefore, the issue for which the case of the assessee was opened under limited scrutiny scheme is, in our considered view, is directly on this issue. Therefore, in our view, had the assessing officer looked into the entire scheme of events, then the assessing officer was well within his rights to have held that the assessee has not been able to explain the source of investments in the property which has been sold during the year under consideration and therefore, the assessing officer was well within his power to add this amount as unexplained income in the hands of the assessee by invoking the provisions of section 68/69 of the Act. Therefore, in our considered view, the argument of the counsel for the assessee that the Ld. CIT(Appeals) has added the source of income, which was beyond the scope of limited scrutiny assessment or has made an addition in respect of income which the assessing officer was prohibited from adding, is incorrect and thereby rejected. Looking into the scheme of the instant facts, where the assessee has purchased and sold property within a short period of one month and then submitted that the source of redeposit in the bank account is from the sale consideration itself, is unacceptable for the simple reason that when the source of investment in the said
9 property in the month of November, 2014 itself remains unexplained, then consequentially explanation that the source of deposit in the bank account is coming out of the sale proceeds of the property, is also unacceptable. Accordingly, looking into the instant facts, we are of the considered view that the Ld. CIT(Appeals) has not added any fresh source of income, but the enhancement is only with respect to the scope of limited scrutiny assessment and further, looking into the instant facts, Ld. CIT(Appeals) has correctly observed that the assessee has entered into the present scheme of things only for the purpose of transaction of sale of land and therefore, since the assessee has not been able to substantiate/give evidence regarding the source of investments made by the assessee on purchase of such property on 12th of November 2014, we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference. Needless to state that while exercising power under section 251, Commissioner (Appeals) can confirm, reduce, enhance or annul assessment; and power exercisable by Commissioner (Appeals) under section 251 cannot be restricted only to issues raised in appeal before him.
This brings us to the second question that in this case, the Ld. CIT(Appeals) while enhancing the income, has not issued any notice of proposed enhancement to the assessee. During the course of hearing, the Ld. DR has also not given anything concrete to show that such notice of enhancement was furnished to the assessee, during the course of appellate proceedings. In the case of Lotte India Corporation Ltd 290 ITR 248 (Madras), the High Court held that before exercising his power of enhancement of assessment, Commissioner (Appeals) must provide an opportunity to be heard to assessee.
Accordingly, in interest of justice, looking into the instant facts, the issue is set aside to the file of Ld. CIT(Appeals) for duly complying
10 with the above regulation/requirement of granting effective notice of enhancement before such enhancement is made in the hands of the assessee. Accordingly, the matter is restored to the file of Ld. CIT(Appeals) for issuance of effective notice of enhancement, and thereafter pass order in accordance with law in light of the observations made by us in the preceding paragraphs.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 14th June, 2024 at Ahmedabad.