ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE1(1), RAIPUR, RAIPUR vs. AKSHAY LODHA, RAIPUR

The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 15.03.2022, which arises from the order passed by the A.O. under Sec. 147 r.w.s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 28.10.2016 for the assessment year 2012- 13. The revenue has assailed the impugned order on the following grounds of appeal:

In the case of Akshay Lodha, Pandri, Raipur PAN: ACIPL3634P for A.Y.2012-13 Order u/s 250 was passed by. NFAC on 15/03/2022 and the appeal order was received in the Office of the Pr.CIT-1, Raipur on 09/05/2022. Accordingly, limitation to file appeal before [TAT subsisted upto 07/06/2022. However, second appeal could not be filed before the Hon'ble ITAT due to voluminous orders received from NFAC through online portal. It would be worth mentioning here that the introduction of online receipt of appeal created instant delay on the part of this office which may kindly be Condoned Further, due to various time barring matters pending in this office and shortage of staff, tracking of order received from NFAC could not be possible in due date.

After having given thoughtful consideration to the reasons leading to the delay involved in the filing of the present appeal by the revenue, we find substance in its claim that as the receipt of orders on the online portal was in its nascent stage during the year under consideration, and the revenue at the relevant point of time was facing a shortage of staff, which, thus had delayed the tracking of the impugned order, therefore, the said facts had resulted to inadvertent delay in filing of the present appeal. As there are bonafide reasons leading to the delay in preferring the present appeal, and the same cannot be attributed to any deliberate conduct nor smack of a lackadaisical approach on the part of the revenue-appellant, therefore, in all fairness, we condone the delay of 53 days involved in the filing of the same.

Succinctly stated, the assessee, who is engaged in the wholesale trading business of cloth, saree & textiles, had e-filed his return of income for A.Y.2012-13 on 29.09.2012 declaring an income of Rs.53,47,080/-.

On the basis of information received by the A.O. that the assessee, viz. Shri Akshay Lodha, Prop. Prakash Saree Kendra had purchased sarees of Rs.2,32,24,493/-, against which unaccounted cash payments were made during the year under consideration; the A.O. reopened his case u/s.147 of the Act. For the sake of clarity, the “reasons to believe” forming the very basis for initiating proceedings u/s.147 of the Act in the case of the assessee are culled out as follows:

During the assessment proceedings, the A.O observed that as per the information shared by the DCIT, Central Circle, Raipur, a document viz. LPS- 3 that was seized from the premises of Kundanani Group in the course of the search proceedings conducted in the case of “Sharma Group & Others” including “Kundanani Group,” revealed that Shri Rakesh Kundanani, a commission agent for purchase of sarees, was primarily rendering his service as a commission agent of two concerns, viz. (i) Prakash Saree Kendra; & (ii) Prakash Trading Centre. Also, the A.O observed that purchase bills/payment vouchers of sarees that were found in the course of search proceedings from the business premise of Shri Ramesh Kundanani revealed that the aforementioned concerns, viz. (i) Prakash Saree Kendra; & (ii) Prakash Trading Centre had made total payments aggregating to Rs. 3,67,86,194/- for purchase of sarees through Shri Ramesh Kundanani (supra).

After culling out the complete details of the purchases of Rs.3,67,86,194/- (supra), which, as per the A.O were purchased by Shri Ramesh Kundanani as commission agent for the aforementioned concerns, viz. (i) Prakash Saree Kendra; & (ii) Prakash Trading Centre, the A.O observed that cash purchase of sarees of Rs.2,32,24,493/- pertained to the assessee. On being confronted by the aforesaid fact, the assessee rebutted and submitted that he had not paid any commission to anyone during the year

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). Before the CIT(Appeals), the assessee assailed the validity of the jurisdiction assumed by the A.O. dehors any tangible material for initiating proceedings u/s.147 of the Act. Apart from that, it was the claim of the assessee that the A.O had most arbitrarily, without placing on record any material/document that would evidence that the assessee had made any cash purchases from Shri Ramesh Kundanani (supra), made an exorbitant addition of Rs.2,32,24,493/- in his hands. After deliberating at length on the contentions of the assessee, the CIT(Appeals) observed that a perusal of the 8 ACIT, Circle-1(1), Raipur Vs. Akshay Lodha CO. 10/RPR/2022 “reasons to believe” did not indicate how the purchases of Rs.2,32,24,493/- (supra) as therein stated pertained to the assessee. Also, he observed that the scanned list of purchases, as was culled out on Pages 3 to 10 of the assessment order, neither revealed the name of the assessee nor that of his proprietary concern, viz. M/s. Prakash Saree Kendra. Apart from that, the CIT(Appeals) observed that the A.O. in the assessment order had not stated what documentary evidence or specific statement of Shri Ramesh Kundanani (supra) indicated that the purchases under consideration pertained to the assessee. Backed by aforesaid observations, the CIT(Appeals) called for a remand report from the A.O and directed him to place on record a copy of the letter of DCIT, Central Circle, Raipur, who was stated to have shared with the A.O information a/w. documentary evidence linked or corroborated that the alleged cash purchases pertained to the assessee. However, the A.O., despite two reminders, did not revert and filed a remand report as was directed by the CIT(Appeals).

Considering the aforesaid facts, the CIT(Appeals) held a firm conviction that the A.O. had no tangible material that would justify the formation of a bonafide belief for initiating proceedings u/s.147 of the Act in the case of the assessee. Also, the CIT(Appeals) was of the view that reopening of the assessee’s case was based on a non-application of mind by the A.O. It was 9 ACIT, Circle-1(1), Raipur Vs. Akshay Lodha CO. 10/RPR/2022 further observed by the CIT(Appeals) that the assessee had in the course of the assessment proceedings filed various letters with the A.O requesting for a copy of the document/evidence found and seized from the premise of Shri Ramesh Kundanani (supra), on the basis of which, the impugned cash purchase transactions were being linked with him but all his requests had gone in vain. Referring to the “reasons to believe” on the basis of which proceedings u/s.147 of the Act were initiated by the A.O, the CIT(Appeals) was of the view that as there was nothing available on record that would relate the impugned purchase transaction that had surfaced in the course of search proceedings conducted on the premise of Shri Ramesh Kundanani (supra), therefore, the impugned proceedings had been resorted to by the A.O merely for carrying out fishing and roving inquiries which were not permissible as per the mandate of law.

Also, the CIT(Appeals) observed that nowhere in the “reasons to believe” was there any reference to any statement of Shri Ramesh Kundanani (supra) that would relate the impugned cash purchases with the assessee’s business. Also, the CIT(Appeals) found favor with the claim of the assessee that as the A.O. had failed to make available any concrete evidence, on the basis of which his case was reopened, he, thus, was prevented from filing any objection against the impugned reopening of his case. Considering the fact

The facts on record, copy of the reasons recorded and even findings in the assessment order do not bring out any co-relation of tabulated purchases data found from the premises from Shri Ramesh Kundnani with the appellant's business transactions. Nowhere in the reasons recorded or even in the assessment orders, any reference to the statements of Shri Ramesh Kundnani is referred to show as to how these alleged purchases were of the appellant's business. Until the last response of the appellant dated 19.10.2016, the AO could not furnish to the appellant any concrete evidences so that the appellant could raise objection against the reopening. Thus, the appellant's reliance on the decision of Hon'ble Supreme Court in the case of GKN Driveshafts(India) Ltd vs ITO(2003) 259 ITR 19(SC) to claim that he was prevented by the valid reasons in not filing objection against reopening is also found to be in order. In view of the above, factual findings and legal decisions quoted by the appellant, the reopening u/s 147 of the Act is found to be invalid as the AO did not indicate any tangible material to form the 'reasons to believe' and hence, could not have jurisdiction to reopen the case in accordance with provisions of the Act. It is also apparent from the assessment order that even in the assessment order the AO could not bring out any findings/ substantial evidences to show that the appellant had made cash purchases from Shri Ramesh Kundnani whereas the appellant had contended before the AO that he had not made any payment to agents for any of his purchases for current AY leave aside any cash purchases. Hence, the reopening of assessment is hereby quashed and held as invalid and illegal. Ground no.2 is allowed in favor of appellant. As the reopening of assessment is quashed on legal validity, the other grounds of appeal vide ground no.1 & 3 becomes only academic in nature and do not require adjudication. In the result, the appeal is hereby allowed.”

The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

At the threshold of hearing of the appeal, Shri R.B Doshi, Ld. authorized Representative (for short ‘AR’) for the assessee took us through a letter dated 06.05.2016, Page 29-30 of APB AND dated 13.07.2016, Page 31-32 of APB. Referring to the contents of the aforesaid letter(s), it was submitted by the Ld. AR that during the assessment proceedings, the assessee had specifically requested the A.O. for a copy of the information/material, on the basis of which his case was reopened u/s.147 of the Act. Referring to the aforesaid letter(s), it was submitted by the Ld. AR that it was specifically brought to the notice of the A.O. that he required the aforesaid information for filing objections as regards the validity of the jurisdiction that was assumed for initiating proceedings u/s.147 of the Act. Also, our attention was drawn by the Ld. AR to a letter dated 19.10.2016, Page 33 of APB wherein the assessee had, after referring to his earlier letter (s) dated 06.05.2016 and 13.07.2016, once again requested the A.O to provide a copy of the information/ material on the basis

The Ld. AR further submitted that as the required material/ evidence on the basis of which proceedings u/s.147 of the Act were initiated in the case of the assessee were not available to him, the same had divested him of his statutory right to file an objection against the same which was in clear violation of the judgment of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO (2003) 259 ITR 19 (SC).

Adverting to the merits of the case, the Ld. AR relied on the order of the CIT(Appeals). The Ld. A.R submitted that as the A.O both in the course of the assessment proceedings as well as in the course of proceedings before the 14 ACIT, Circle-1(1), Raipur Vs. Akshay Lodha CO. 10/RPR/2022 CIT(Appeals), had failed to place on record any material/evidence which would relate the impugned cash purchases as had been culled by him in the “chart” in the assessment order with the assessee; therefore, there was no justification for him to have made the addition of Rs.2,32,24,493/- in the hands of the assessee. The Ld. AR submitted that the CIT(Appeals), in the totality of the facts, had, in the absence of any material/evidence supporting the addition made by the A.O., rightly vacated the same.

Apart from that, the Ld. AR referred to the cross-objection filed by the assessee and submitted that as the impugned assessment u/s. 147 r.w.s. 143(3) dated 28.10.2016 had been framed on the basis of notice u/s.143(2) of the Act, dated 13.10.2016, i.e., issued beyond the stipulated period, which lapsed on 30.09.2016; therefore, the assessment was even otherwise, on the said count itself liable to the quashed for want of valid assumption of jurisdiction by the A.O.

Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the assessment order. The Ld. D.R submitted that as the information that had surfaced in the course of the search proceedings revealed that the assessee had made unaccounted cash purchases of Rs.2,32,24,493/- from Shri Ramesh Kundanani (supra), therefore, the A.O had rightly reopened the case and made addition on the said amount in the hands of the assessee.

As is discernible from the records, the assessee in the course of the assessment proceedings, had on three occasions requested the A.O. to make available the information/ material on the basis of which proceedings u/s. 147 of the Act were initiated in his case, i.e., vide letter dated 06.05.2016, Page 29-30 of APB; letter dated 13.07.2016, Page 31-32 of APB; and letter dated 19.10.2016, Page 33 of APB. As stated by the Ld. AR, the A.O., despite specific requests for providing information/material on the basis of which the case of the assessee was reopened, had failed to make available the same. As observed by the CIT(Appeals) and, rightly so, the failure on the part of the A.O to make available the aforesaid details which formed the very basis for initiating proceedings u/s.147 of the Act, in our considered view, is found to be in flagrant violation of the judgment of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs ITO (2003) 259 ITR 19 (SC), as a 16 ACIT, Circle-1(1), Raipur Vs. Akshay Lodha CO. 10/RPR/2022 result whereof, the assessee had remained divested of his statutory right to raise an objection as regards the validity of the reopening of his case, and, thereafter, take recourse to the remedies which otherwise would have never been available to him. Although the A.O. had in the “reasons to believe,” Page 42 of APB observed that as per information available with the department, the assessee, viz. Shri Akshay Lodha, proprietor of M/s. Prakash Saree Kendra had made unaccounted cash purchases of Rs.2,32,24,493/- (supra), but there is neither anything discernible therefrom as to what type of information was available before him nor any reference of any other material/ evidence which would evidence that the assessee had made the impugned cash purchases.

Considering the aforesaid reason, on the basis of which the case of the assessee had been reopened u/s.147 of the Act, we concur with the view taken by the CIT(Appeals) that the same clearly reveals non-application of mind on the part of the A.O who had initiated proceedings for making fishing and roving inquiries which cannot be justified to be drawn in the garb of proceedings u/s.147 of the Act.

Apart from that, as the A.O had neither in the “reasons to believe” nor in the assessment order as well as in the course of proceedings before the CIT(Appeals) placed on record any material/evidence which would evidence that the assessee had made the impugned unaccounted cash purchases of 17 ACIT, Circle-1(1), Raipur Vs. Akshay Lodha CO. 10/RPR/2022 Rs.2,32,24,493/- from/through Shri Ramesh Kundanani (supra), therefore, as observed by the CIT(Appeals) and, rightly so, it can safely or in fact inescapably be inferred that there was no tangible material available with the A.O, on the basis of which, he could have arrived at a belief that the income of the assessee of Rs.2,32,24,493/- chargeable to tax had escaped assessment. We concur with the view taken by the CIT(Appeals) that as the A.O had neither in the “reasons to believe” or in the body of the assessment order or in the course of the proceedings before the CIT(Appeals) placed on record any material/ evidence which would reveal that he had any tangible material available before him to arrive at a bonafide believe that income of the assessee chargeable to tax had escaped assessment, therefore, in absence of any such tangible material justifying the formation of bonafide belief, the very jurisdiction assumed by him u/s.147 of the Act cannot be sustained. We, thus, in terms of our aforesaid observations, find no infirmity in the view taken by the CIT(Appeals), who had rightly observed that in the absence of any tangible material that would have justified the formation of a bonafide belief on the part of the A.O that the income of the assessee chargeable to tax had escaped assessment, the assumption of jurisdiction by the A.O u/s.147 of the Act was devoid and bereft of any force of law. Accordingly, we herein approve the view taken by the CIT(Appeals), who had rightly quashed the order passed

Although we have quashed the assessment for want of valid assumption of jurisdiction by the A.O. but for the sake of completeness, we shall now deal with the claim of the Ld. AR that the assessment order passed u/s. 147 r.w.s. 143(3) of the Act dated 28.10.2016 in absence of a valid notice issued u/s. 143(2) of the Act was even otherwise liable to be quashed.

As observed hereinabove, the A.O. had framed the assessment order u/s.147 r.w.s. 143(3) of the Act dated 28.10.2016 on the basis of notice u/s. 143(2) of the Act dated 13.10.2016. Admittedly, the notice u/s.143(2) of the Act could have been issued to the assessee by 30.09.2016. As observed by us hereinabove, the Ld. DR, on being confronted with the aforesaid claim of the assessee’s counsel, could not rebut the same. As the impugned assessment in the case of the assessee had been framed in the absence of any valid notice u/s.143(2) of the Act, which is the foundation for passing a valid assessment order, we find substance in the claim of the Ld. AR that the impugned order passed by the A.O u/s. 147 r.w.s. 143(3) of the Act dated 28.10.2016 could not be sustained on the said count itself and was liable to be struck down. Our aforesaid view that the issuance of a valid notice u/s. 143(2) is a sine-qua-non for framing of a valid assessment u/s. 143(3) of the 19 ACIT, Circle-1(1), Raipur Vs. Akshay Lodha CO. 10/RPR/2022 Act is fortified by the judgments of the Hon’ble Supreme Court in the case of ACIT & Anr. Vs. Hotel Blue Moon [2010] 321 ITR 362 (SC) and CIT v. Laxman Das Khandelwal (2019) 417 ITR 325(SC).

In the backdrop of our aforesaid deliberations, the appeal filed by the revenue in CO No.10/RPR/2022 for A.Y.2012-13 is allowed.