Manish Kumar Didwania Vs ACIT (ITAT Varansi)
Varanasi ITAT Quashes Reassessment Based on Incomplete Facts; Holds Reopening Invalid Where Earlier Assessment Had Examined the Same Bank Account
The Varanasi ITAT quashed the reassessment proceedings by holding that the notice issued under section 148 was based on incomplete facts and amounted to a mere change of opinion, as the very bank account forming the basis of the reopening had already been examined during the earlier assessment proceedings of the assessee’s HUF.
The Assessing Officer reopened the assessment after receiving information regarding cash deposits of ₹22.03 lakh in an IndusInd Bank account, treating the account as belonging to the assessee in his individual capacity and making an addition under section 68. The assessee contended that the account belonged to his HUF, and that during the earlier assessment under sections 153A/153C read with section 143(3), complete details of the account, the business conducted through it and the transactions therein had already been furnished and examined by the Department, which accepted the explanation without making any addition.
The Tribunal found that while recording reasons for reopening, the Assessing Officer failed to consider the earlier assessment records of the HUF, where the very issue had been investigated and accepted. Instead, the reopening was based only on the assessee’s individual records, resulting in approval being obtained on incomplete appreciation of material facts. It held that once the issue had already been examined in the earlier proceedings, the Revenue could not ignore those findings and reopen the assessment on the same material, as this amounted to a mere change of opinion. Accordingly, the Tribunal held that the reassessment proceedings were void ab initio and quashed the assessment, rendering all other grounds, including those relating to service of notice under section 143(2) and the merits of the addition, infructuous. The appeal was partly allowed.
Cases Discussed
- M/s Harsingar Gutkha (P.) Ltd. vs. CIT (Allahabad High Court), (2011) 336 ITR 90 (All)
- Dr. Y.D. Singh (B.R.D. Medical College) vs. Deputy Commissioner of Income Tax (DCIT), (2012) 20 taxman.com 174
- CIT vs. Laxman Das Agarwal, CA No.6261-6262 of 2019 dated 13.08.2019
FULL TEXT OF THE ORDER OF ITAT VARANASI
This is an appeal filed by the assessee against the orders of the ld. CIT(A)-3, Lucknow dated 19.08.2019, wherein the ld. CIT(A) has dismissed the appeals of the assessee against the orders passed by the Assessing Officer under section 148/153A/143(3) of the Income Tax Act, 1961 on 29.12.2026. The grounds of appeal are as under: –
“BECAUSE in relation to the assessment order dated 29.12.2016 captioned as order under section 148/153A r.w.s. 143(3) of the I.T. Act 1961 for the assessment year 2009-10, it is pleaded that
(1) the ‘CIT(A)’ has erred in law and on facts in upholding the validity of the assessment order dated 29.12.2016 as had been passed in pursuance of notice under dated 148 dated 10.08.2015 issued by the Assessing Officer (the then);
(2) the CIT(A), while upholding the validity of reassessment order as referred to above, has failed to consider and omitted to note that
(a) in the wake of search and search and seizure action under section 132(1) that had commenced on 19.11.2009, the Assessing Officer (the then) had issued notice under section 153A(a) r.w.s. 153C(1) of the Act, as addressed to “Manish Kumar Didwania, 36-A, Ravindrapuri, Varanasi”;
(b) in pursuance of the said notice under section 147 specific query had been raised during the course of assessment proceedings about the ownership of bank account no.0037A26606-060 in the name of “Ram Dayal Hari Kishan” with Indusind Bank, Sigra Branch, Varanasi;
(c) in response to the said query the present Appellant had submitted that the same belonged to another ‘person’ namely ‘Manish Kumar-Didwania (HUF) as had been defined in clause (iii) of section 2(31) of the Act
(d) the Assessing Officer (the then) felt fully satisfied with explanation given by ‘Manish Kumar Didwania (HUF) and had accepted the explanation
(e) proceedings under section 153A read with section 153C had been duly initiated in the case of ‘Manish Didwania (HUF), which had duly owned the said Bank Account and stated in its letter that the same had been opened to carry on the business of dealing in sarees at Varanasi.
(f) such an explanation as tendered by ‘Manish Didwania (HUF) had been accepted by the Assessing Officer (the then) and consequently no addition had been made in the assessment completed under section 153A in the case of the appellant addition had been made in the hands of the appellant now in the Assessment made in the case of ‘Manish Kumar Didwania (HUF)’, on account of transactions appearing in the said bank account, and
(g) accordingly, the notice dated 10.08.2015 was based on mere change of opinion’ which is not permissible in law
(3) in any case, the CIT(A) should have quashed the assessment order dated 29.12.2016, as mandatory notice under section 143(2) had not been served in accordance with the provisions of law as contained in Civil Procedure Code 1908, for the simple reason that CA. S. Ahuja had no authority to accept any notice on behalf of the assessee/appellant, although he had the authority to represent the appellant in all other proceedings under the Income Tax Act;
(4) the CIT(A) has erred in law and on facts in upholding the validity of service of notice under section 143(2) on a mis-application of the provisions contained in section 292BB of the Act, which were not applicable;
(5) on merits of the case, it is pleaded that the bank account (wherein the cash deposits aggregating Rs.22,02,600/- appeared on various dates, could not have been treated and equated with books of account even as per the definition contained in section 2(12A) of the Act and no addition thereunder (in the hands of the appellant) could have been made under section 68 of the Act and sustained also by the Id. CIT(A);
(6) in any case, no adverse inference could have been drawn against the appellant, an ‘individual by status, on the ground that bank account in question did not refer to Manish Kumar Didwania (HUF) but to the appellant in his individual capacity and/or there was discrepancy (alleged to be) in the nature of business as referred to in the letter of request made to the bank (at the time of opening of Bank Account) and the business actually carried on by Manish Kumar Didwania (HUF).
(7) the order dated 19.08.2019 as passed by the “CIT(A)” is contrary to the facts, law and principles of natural justice in view of the correct statement of fact as given in Annexure-1 hereto.”
2. At the very outset, it is noticed that the appeal of the assessee is time barred by 51 days. The assessee has filed a condonation petition in which it has been submitted that following the receipt of the appeal order dated 19.08.2019, the matter had been referred to the senior counsel Sh. S.K. Garg, Advocate based at Allahabad and on his advice, a sum of Rs. 10,000/- has been deposited as filing fee on 1.11.2019. However, it appears that the matter escaped the attention of the learned counsel and the fact of non-filing of second appeal only came to his knowledge on 4.12.2019 when he came to Varanasi to appear before the Circuit Bench of the ITAT. Thereafter, the appeal papers were received by the assessee only on 28.12.2019 and the same were immediately filed with the Registry at Varanasi upon their receipt. Accordingly, it was prayed that the assessee was prevented by reasonable and sufficient cause from filing the appeal on time and the delay in this regard may therefore, kindly be condoned. An affidavit was also filed in support of this petition. We have duly considered the matter. In view of the fact that the delay is caused due to the oversight of the counsel and the intention to file the appeal on time is demonstrated by the filing of the appeal fees well within the time allowed, we condone the delay and admit the appeal for adjudication.
3. The facts of the case are that an original assessment was completed under section 153A read with section 143(3) of the Income Tax Act, at the returned income of Rs. 2,36,100/- on 30.12.2011. Subsequently, information was received from the DIT (I&CI), Lucknow, that the assessee had deposited the cash amounting to Rs. 22,02,600/- with Indusind Bank, Varanasi, for which the assessee had not been able to offer explanation in response to letters issued by I&CI. The account was opened in the capacity of the assessee being the proprietor of M/s Ram Dayal Hari Krishan, Bhelupur Varanasi. Perusal of the assessment records of the assessee revealed that no declaration about the business conducted through the said proprietary concern M/s Ram Dayal Hari Krishan, Bhelpur was made by the assessee. Therefore, the ld. AO had reason to believe that income chargeable to tax had escaped assessment for the assessment year 2009-10, by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of A.Y. 2008-09 and that the said amount was more than Rs. 1,00,000/-. Accordingly, proceedings under Section 147 of the Income-tax Act were initiated after obtaining the necessary approvals. After filing of a letter asking that the return filed earlier be treated as the return filed in response to the notice issued under section 148, the assessee submitted a response in which it was submitted that a business of Banarasi sarees was started in the name of M/s Ram Dayal Hari Kishan by Manish Kumar Didwania (HUF). This did not yield any gain. Rather there was a minor loss and therefore, the bank account was closed on 24.03.2009. It was further submitted that during the assessment proceedings for the Assessment Year 2009-10 in the case of Manish Kumar Didwania (HUF) under section 153C, complete details of the aforesaid bank account had already been furnished before the Assessing Officer on 16.12.2011, wherein it had been submitted that the said concern was dealing in Banarasi sarees but was wound up due to low market response that resulted in a minor loss. The ld. Assessing Officer examined the details / papers on record of Manish Kumar Didwania (HUF) as well as Manish Kumar Didwania (Individual) for Assessment Year 2009–10 and did not find himself convinced with the reply. He pointed out that the assessee had mentioned a different address in the bank account from the addresses shown in the return of both the Individual and the HUF only with a view to evade notice of the Department. He also pointed out that whereas in UCO Bank A/c No. SB/GEM/17136 filed with the HUF return, “HUF Account” had been mentioned on the first page of the passbook, no such entry had been made in the IndusInd Bank account. Therefore, it was clear that the assessee had not informed the bank that this was a HUF account. Furthermore, whereas the before the Assessing Officer, it had been claimed that the assessee has started a business of brokerage for Banarasi Sarees and Fabrics, the nature of the business had been mentioned as trading of surgical goods in the application in the account opening form filed with the bank. Furthermore, perusal of the said bank account showed withdrawals of Rs. 22,00,000/- as against the sale/receipt of Rs. 22,02,600/-ruling out the fact of loss. Furthermore, the details of this so-called business was not mentioned in the return of HUF and the status of the HUF was not mentioned in the account opening form. The ld. AO further observed that in the HUF return filed on 28.03.2011, the only profits that had been disclosed were on account of business transactions carried out in the name of M/s Vatika, Varanasi. Therefore, he held that the deposit of Rs. 22,02,600/- made in made in IndusInd Bank was the undisclosed income of the assessee. The Assessing Officer pointed out that, in the account opening form, the assessee had deliberately ticked “No” when asked as to whether he had been assessed to income tax and submitted Form No. 60, whereas he had regularly been filing return in the status of Individual as well as HUF. Therefore, it was apparent that the Assessee was attempting to conceal income from the Department by operation of this bank account. He further noted that the date of birth mentioned in the said bank account did not tally with his date of birth or the coming into effect of HUF. He further noted that while the assessee had been signing in Hindi in all HUF returns, in the account opening form he had signed in English, which is what he was doing in his individual returns also. From this, he concluded that it was an account in individual capacity and not in the capacity of an HUF. He further pointed out that the assessee had not shown any supporting documents such as bills and vouchers in support of claimed purchases of Rs. 24,14,045/- and sales of Rs. 23,84,360/-. He, therefore, came to the conclusion that all the details that had been submitted on 7.11.2016 without any supporting evidences as above, were only an afterthought to avoid tax and accordingly, he held the amount of Rs. 22,02,600/- deposited in the account as unexplained cash deposits under section 68 of the Income Tax Act in the hands of the assessee. He further noticed that the assessee was not entitled to any deduction against this amount, because no payment to any traders or karigar of Banarasi Saree was observed from the said account and if payments had been made in cash, then it constituted violation of section 40A(3). Accordingly, with the aforesaid comments, the ld. AO added back a sum of Rs. 22,02,600/- to the income of the assessee under section 68 of the Income Tax Act.
4. Aggrieved with the said assessment order, the assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), it was contended that a notice under section 143(2) had not been served upon the assessee and therefore, the assessment proceedings was bad in law. However, the ld. CIT(A) rejected these contentions on the grounds that firstly the notice had been served and secondly the issue was covered according to the provisions of section 292BB of the Income Tax Act. Another ground that was raised on account of addition being made under section 68 of the Act on account of cash deposits that were made in the bank account of the assessee, when the assessee had himself accepted the fact that these deposits pertain to business activity and had submitted copy of ledger account in support of the contention. The ld. CIT called for a remand report from the Assessing Officer but did not find merit in the arguments advanced by the assessee. With regard to the third issue i.e. the accounts belong to the HUF and did not belong to the individual and that the said business had not yielded any income, the ld. CIT(A) held that the result of the aforesaid business were never disclosed with the ITR filed by the HUF and the AO had very meticulously proved that the bank account did not pertain to the HUF but was in fact a bank account of the assessee himself, which was not disclosed by him in the return of income filed by him. Accordingly, she rejected the contentions of the assessee and dismissed the appeal.
5. The assessee is aggrieved by this order of the ld. CIT(A) and has accordingly come in appeal before us. Shri Pankaj Shukla, Advocate (hereinafter referred to as “the learned AR”), appearing on behalf of the assessee, submitted that the learned CIT(A) had erred in law in upholding the validity of the reassessment order dated 29.12.2016 without appreciating the fact that the impugned reassessment proceedings had been initiated on a mere change of opinion. It was submitted that the HUF of the assessee was regularly assessed to tax. The HUF of the assessee was regularly filing returns of income and that in response to assessment proceedings carried out earlier, the assessee had disclosed all details pertaining to the said bank account in the assessment proceedings of the HUF, which had been brought to the knowledge of the Assessing Officer. Despite this, the Assessing Officer had proceeded to reopen the matter in the hands of the assessee as an individual in contradistinction to his earlier opinion that the said account belonged to the HUF. It was submitted that since the entire satisfaction of the Assessing Officer was recorded on account of the belief that there was no disclosure of the affairs of the concern M/s Ram Dayal Hari Kishan, Behlupur in the accounts of the assessee, whereas there was disclosure during the assessment proceedings of the HUF, the reasons to believe were faulty and this vitiated the notice issued under section 148 and the subsequent assessment proceedings. The ld. AR further submitted that a perusal of the approval showed that it had been taken by stating that there was failure on the part of the assessee to disclose the said bank account, when the Department’s own record demonstrated that on 16.12.2011, during the assessment proceedings of the HUF, the assessee had furnished complete details with regard to the said bank account and the business relating to it. Accordingly, it was prayed that the proceedings deserved to be quashed on this account. The ld. AR also submitted that the ld. CIT(A) was mistaken in not quashing the assessment for want of valid service of mandatory notice under section 143(2) and in wrongly invoking the provisions of section 292BB to uphold the validity of service of notice under section 143(2). Our attention was invited to a copy of the notice under section 143(2). It was pointed out that the said notice had been served upon the Chartered Accountant, without bothering to verify whether the Chartered Accountant was entitled to receive the notice or not. The ld. AR invited our attention to the decision of the Hon’ble Allahabad High Court in the case of M/s Harsingar Gutkha (P.) Ltd. vs. CIT (2011) 336 ITR 90 (All). In that case, the Hon’ble High Court had held that as per section 282 of the Income Tax Act, any notice had to be served on the person named therein either by post or if it were a summons issued by the Court under Code of Civil Procedure. The Court had observed that order 5 Rule 12 of the Code of Civil Procedure, 1908 provided that wherever it was practicable, service should be made on the defendant in person or on his agent, (where he had an agent empowered to accept service). The Hon’ble High Court further pointed out that to be a recognized agent of the party (as defined in order 3 Rule 2 of the CPC), the person must hold power of attorney authorizing them to make and do such appearances, applications and acts on behalf of such persons or a person carrying on trade or business on behalf of the party. The Hon’ble High Court had held in that case that the Tribunal had not recorded the finding that the said Chartered Accountant possessed the requisite authority in terms of the above and therefore, the matter required reconsideration by the Tribunal. The Hon’ble High Court also noted that the assessee had not challenged the issue of notice before the Assessing Officer and not formulated any ground of appeal to challenge the validity of the assessment on account of proper service in the grounds of appeal. Accordingly, relying upon the aforesaid case, the ITAT Allahabad Bench (2012) 20 taxman.com 174 had in the case of Dr. Y.D. Singh (B.R.D. Medical College) vs. Deputy Commissioner of Income Tax (DCIT) concluded that where the Revenue had failed to produce any evidence to show that the Chartered Accountant had the authority to receive such notice as per the provisions of section 282, the mandatory notice under section 143(2) was held to be not served upon the assessee and such an omission was fatal to the survival of the block assessment order. The ld. AR accordingly pointed out that since the Department had not been able to show that the said Chartered Accountant had the authority to receive the notice under section 143(2), service upon him did not constitute service upon the assessee and therefore, the entire assessment proceedings were void ab initio. The ld. CIT(A) had erred in applying the provisions of section 292BB in the instant case. On the merits of the issue, the ld. AR pointed out that it was not in dispute that the assessee had filed details relating to this bank account during the assessment proceedings of the HUF and the Department, after scrutinizing the reply of the assessee, had come to the conclusion that no addition was warranted on this account in the assessment of the HUF. It was submitted that without appreciating this fact, the AO had now re-appreciated the matter and concluded that the account in question did not belong to the HUF and represented concealed income in the hands of the assessee, purely on the basis of certain inferences drawn, which were not warranted in the given facts of the case. Accordingly, it was prayed that since the bank account in question did not belong to the assessee but to his HUF and since the Assessing Officer has already after examination of the same held that it did not merit any addition in the hands of the HUF, no addition could be made in the hands of the assessee.
6. Responding to the arguments of the learned AR, the learned CIT-DR,S hri Koushlendra Tewari (hereinafter referred to as “the learned DR”), pointed out that the assessee had not been able to demonstrate that the assessee’s-HUF had any business. The AO had discussed the fact that the examination of the HUF returns demonstrated that it was only disclosing business activity from M/s Vatika, Varanasi. Furthermore, the bank statement also did not reveal that the said bank account was being operated for the purposes of doing any business in the trading of Banarasi sarees. The learned DR pointed out that, in fact, the AO had conducted a detailed analysis of the manner in which the bank account was opened and how the assessee had selectively concealed or misrepresented facts before the bank so as to keep the said account outside of the ambit of taxation by confusing the bank and the Department. In the circumstances, the only conclusion was that it was a concealed account of the assessee which was never disclosed either in the returns of HUF or in the returns of the Individual. It was submitted that, in view of these findings, the submissions of the assessee did not deserve to be considered. With regard to the allegation that the notice under section 143(2) had not been properly served properly upon the assessee, the learned CIT-DR pointed out that scanned copy of the power of attorney was there in the appellate order, which demonstrated that the authorized representative was duly authorized to appear before the ACIT in connection with the proceedings under the Income Tax Act and that the said authorization was dated 05.12.2016, i.e., the date of receipt of notice. Furthermore, the learned AR argued that it could not be stated in such a situation, that a person could be authorized to present documents but not to receive documents. The authorization had to be read to understand the fact that person concerned was authorized to do all such acts as were necessary for the conduct of the assessment proceedings before the Assistant Commissioner of Income Tax, Varanasi. Furthermore, it was pointed out that it was well settled law that any objection regarding the validity of notice should be raised within the stipulated time before the Assessing Officer. In the instant case, the entire proceedings had gone on, no objection was raised and the issue was being raised for the first time before the appellate authorities and that too as an additional ground. The learned DR then drew our attention to section 292BB of the Income Tax Act and held that it specifically took care of such situations. He pointed out that when there was a specific provision in the law that stated that the issue of jurisdiction had to be challenged before the completion of the assessment or reassessment, then issue could not be raised at a later stage unless these essential conditions had been complied with. He further referred to the analysis of ld. CIT(A) on the basis of the judgment of the Hon’ble Supreme Court in the case of CIT vs. Laxman Das Agarwal (CA No.6261-6262 of 2019) dated 13.08.2019 where the Hon’ble Supreme Court had held that section 292BB needs to applied to those cases where notice has emanated from the Department and it is only the infirmities in the manner or service of notice that section 292BB seeks to cure. Since this was a case that clearly fell within the parameters of such conditions, it was pointed out that the fiction in section 292BB of the Act overcame the procedural defect if any in regard to the non-service of a notice on the assessee and obviated the challenge that the notice was either not served or that it was not served in time or that it was served in an improper manner, since the assessee had appeared in proceeding and cooperated in an enquiry without raising an objection. Accordingly, he prayed the assessee’s pleas deserved to be dismissed on this account.
7. We have duly considered the facts and circumstances of the case. We find that the issue of maintenance on bank account in the name of M/s Ram Dayal Hari Kishan proprietor Manish Kumar Didwania (HUF) was specifically enquired into by the Assessing Officer in the previous assessment under section 143(3) r.w.s. 153C and in response to the query raised, the assessee had furnished the details on 16.12.2011. It appears from the letter that the assessee had also enclosed the details of the transaction conducted through this bank account and pointed out that the said proprietorship concern had resulted in a minor loss. After consideration of these aspects, it appears that the Assessing Officer did not make any addition in the hands of the Manish Kumar Didwania (HUF) in the course of the said proceedings. These facts do not seem to be considered by the learned Assessing Officer at the time of recording his reasons to believe before reopening the case of the assessee under section 148. The point of reference that was adopted were the individual returns of the assessee and not the disclosures made by the assessee in the file of his HUF. In the circumstances, it becomes quite clear that the reopening of the case was based on a proposal that did not contain the complete information and therefore the said proposal was approved on the basis of such incomplete information. To our mind, once the matter had been inquired into in the file of the HUF and accepted by the department in a proceeding under section 153C read with section 143(3), the findings in that case could not be ignored altogether while recording reasons for escapement of income in the hands of the assessee. Since they were not considered, in our opinion, the notice issued on the basis of a proposal made and approval received on incomplete appreciation of the facts, cannot be held to be valid in law. Accordingly, we are in agreement with the ld. AR that the impugned reassessment proceedings were initiated on a change of opinion and on incomplete information making them invalid in the eyes of law. Accordingly, ground nos. 1 and 2 of the assessee’s appeal are allowed and the assessment order is held to be void ab initio. In view of the fact that the assessment had been held to be as void ab initio, grounds nos. 3 to 7 are rendered infructuous and dismissed as such.
8. In the result, the appeal of the assessee is held to be partly allowed.
Order pronounced on 27.07.2026 in the open Court.
