Notice U/S 143(2) Not Valid if Return Filed in Response to Notice U/S 148 Not Recognized by AO. Draft Written Submissions
Written submission before the Hon’ble CIT(Appeals), XXXX bad in the case of Sh. XXXXXXXXXXX, XXXXXXX for the A.Yr. 2011-12.
The assesse is an individual. He is doing business of trading of building material during the F.Yr. 2010-11 on a small scale basis . The name of his concern is Green &Co..w.e.f. 20.03.2011 He is partner Of M/s Green & Co.. Earlier to start of M/s Green &Co.. he was doing the retail trading in his own name. In the m/o Feb. 2011 he started this firm but till 31.3.2011 the current Account with the bank could not be opened. The PAN of the firm has been obtained on 2.04.2011. During the F.Yr. 2010-11 he received sale proceeds in cash and deposited with his SB A/C No. 0000001234 maintained with XXXX Bank, Sector YY, XXXXbad and made withdrawals from the same bank as and when required to meet out the expenses and purchases to be made. Rent of Rs. 10000.00 pm was given to M/s ZZZZ Associates on account of monthly rent. Copy of rent agreement is also there. Genuinely assesse has done the business of building material supply.
The case of the assesse was reopened u/s 147 and notice was issued u/s 148 of the Act. The reopening is quite illegal. The assesse has submitted his reply with the department Dt. 2.11.2018. In this reply he has already explained the sources of cash deposited with the bank. In this reply he has explained that all the cash deposited with the bank is nothing but the sale proceeds of building material. From the same bank assesse has made withdrawals for purchase of material from the market and other business expenses. It was his satisfaction to deposit the accumulated cash with the bank and not keeping with him. As and when the same is required he made withdrawals from the same bank. Detail of cash deposited and cash withdrawals is enclosed. Sometimes it is the same cash which has been deposited with the bank which was withdrawn earlier.
The assesse had already filed his income tax return for the A.Yr. 2011-12 Dt. 28.03.2012 vide Sr. No. XXXX which is so called his original return for the A.Yr. 2011-12 filed u/s 139 of the Act . The assesse has stated in his reply Dt. 2.11.2018 that all the cash deposited with the account has already been incorporated in the return filed by the assesse.
The following documents were submitted with the reply filed by the assesse Dt. 2.11.2018.
1. Copy of ITR for the A.Yr. 2011-12 along with computation chart filed originally and copy of return filed in response to the notice u/s 148. By this date i.e. 2.11.2018 assessee has filed his RIO in response to the notice u/s 148 issued to the assesse. The return in response to the notice u/s 148 was filed vide e filing acknowledgement No. XXXXYYYYXXXX Dt. 20.08.2018 for which e verification was also made on 20.08.2018 and e verification was accepted on 22.08.2018 and this return was transferred to jurisdictional Assessing Officer on 3.09.2018 and the jurisdictional AO is ITO ward No. 1(4), XXXXbad whose code is NWR W 51 4. The receipt and confirmation is part of the paper book. The ITO has never checked the status of this return filed and has not taken cognizance of the same return in his assessment order .The return filed in original bears some mistake. The Gross receipts were shown equal Gross profit by mistake. Gross Profit can never be equal to the Gross receipts. The return filed in response to the notice u/s 148 has no mistake of this nature. In this return correct Gross receipts were taken which is Rs. 1174220.00 and net profit is Rs. 189729.00 which is 16.15 % of the Gross Receipts and the return has been filed taking income on presumptive basis u/s 44AD of the Income Tax Act, 1961.
2. Copy of Bank statement for the F.Yr. 2010-11 was also enclosed with the reply .
Assessee also requested to take all these documents on record.
The ITO has taken on record the original return filed by the assesse Dt.28.03.2012
The ITO has not taken on record the return filed in response to the notice issued u/s 148 Dt. 28.03.2018
The ITO has not checked the status of the return filed in response to the notice u/s 148 and also not checked that the return has been transferred to the jurisdictional AO Dt. 3.09.2018
The ITO has not checked the name of the bank account. The bank account of the assesse is XXXX Bank, Sector YY, XXXXbad not PNB as time and again PNB has been mentioned in the reasons recorded and assessment order passed illegally u/s 144 of the Act without acknowledging the material facts of the assesse at the time of passing of the order. Here Principal of natural justice has been totally denied to the assessee. The assessment made is quite illegal and bad in law.
The assesse was having one account with XXXX Bank, Sector YY, XXXXbad. He was not having bank account with PNB as has been stated time and again by the assessing officer. In XXXX Bank assesse has deposited cash of Rs. 1087300.00 which is out of the sale proceeds of the building material in his name done individually.
At the time of filing of the return by mistake assesse has shown as Gross receipts equivalent to Gross Profit of Rs. 280000.00 which is never possible. In which he has shown a net profit of Rs. 189631.00. The assesse has filed his income tax return vide acknowledgement No. XXXXX Dt. 28.03.2012 manually with the department and copy of the same has been submitted with the department during the course of assessment proceedings.
The assesse has filed his ROI in response to the notice u/s 148 of the Act, 1961 vide e filing acknowledgement no. XXXXYYYYXXYYX Dt. 20.08.2018 in which he has shown Gross receipts of Rs. 1174220.00 and net profit same as in the original return which is Rs. 189729.00 and filed his return on the basis of presumptive income u/s 44AD of the Income Tax act 1961. And the net profit is more than 8% of the Gross receipts.
The assesse has filed his ROI in response to the notice issued u/s 148 of the Act Dt. 20.08.2018 but after that no reasoning for issue of notice u/s 148 and reopening of assessment us 147 was supplied to the assessee. Moreover the reason to believe for reopening of the assessment is being challenged here with the Hon’ble CIT as there was no tool with the AO for reopening of the assessment. Mere cash deposit is no base for reopening of the assessment as the assesse has already filed his RIO. Merely looking at the credit entry of the bank is no base unless all the debit entries are also looked . Moreover approval obtained u/s 151 from PCIT,XXXX bad for reopening of the assessment u/s 147 has never been supplied to the assesse. Copy of the same has never been given to the assessee.
As per assessment order the reasons recorded, the AO has made no application of mind at the time of recording of the reasons and sent to the PCIT for approval who in turn has also not applied his mind for grant of approval. Copy of approval u/s 151 was never supplied to the assessee.
The assessee has relied on the judgment in the case of Harmeet Singh, Delhi Vs. ITO, New Delhi ITA No. 1939/Del/2016 A.Yr. 2008-09.
Where in stated that the reopening the assessment purely on the ground that the cash deposited with the bank is income of the assesse is purely a doubt that it is income of the assessee not a confirmed finding, not any tangible evidence with the ITO to form the opinion that the income of the assessee has escaped assessment. The reopening is bad enough.
The reasons recorded are highly vague, farfetched and cannot by any stretch of imagination lead to conclusion of escapement of income and therefore merely presumption in nature.
Thus it was a mere suspicion of the AO, that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law.
In the case of ITAT, Delhi Bench decision in the case of Parveen Kumar Jain Vs ITO No. 133/D/2015 for the A.Yr. 2006-07 Dt. 22.01.2015 wherein it has been held as under .
Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceeded to reopen the assessment.The assessment is in the nature of a postmortem exercise after the event of reopening of the assessment.
At the time of formation of belief by the ITO that the income has escaped assessment , the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment.
The observations of the Hon’ble Supreme Court in the case of ‘ITO vs.Lakhmani Mewal Das’103 ITR 437(SC), were reproduced as under:
“the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to be bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.”
It may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escapement assessment.”
Thus, it was a mere suspicion of the AO, that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law.
The material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment, in our humble understanding, cannot be drawn.”
The reopening is also challenged as assesse is not having saving bank account with PNB as it has been stated in the order passed u/s 143(3) , para 2 of the reasons reproduced which is part of the assessment order at Page 1 .
The AO decided the case of the assesse u/s 144 of the Act without acknowledging the relevant document on the file, the return filed originally as well as filed in response to the notice us/ 148 of the Act. Moreover he has not tried to look to the bank account of the assessee whether it is XXXX Bank or PNB . He has not touched the bank account at the time of framing of the assessment
Even under presumptive taxation u/s 44AD profit is calculated @ 8% of the turnover. The profit shown by the assesse is greater than 8% of the gross receipts.
The Ld. AO indulged in speculation, surmises and conjectures in treating the cash deposit of Rs. 1086200/- as net income of the assesse. Before making best judgment assessment the AO is duty bound to gather all material including history and past records of the assesse including ROI filed for the relevant assessment year to come at a genuine conclusion.
Without prejudice while completing the assessment, the AO ought to have taken cognizance of the age, history of the assesse for the relevant A.Yr. 2011-12 for the estimation of his income under dispute. AO has not bothered to arrive at a reasonable figure looking at peak figure of the cash deposited with the bank and also ignored withdrawals from the same bank with is unjustified. The cash deposited is nothing but out of the gross receipts of the assesse.
The assesse visited to prove his genuineness of the cash transaction to Ito, Ward No. 1(4), XXXXbad but AO has denied to entertain the submission of the assessee. Even sometimes he has not marked his attendance. There seems that ITO has framed his mind to make the assessment u/s 144 of the Act. He was predetermined for one reason or the other. Assessee is partner Of M/s Green & Co. and he was doing the business under his own name during the F.Yr. 2010-11 as the business in Green & Co. could not be started during the F.Yr. 2010-11 .As the bank Account of Green & Co. was not opened during the F.Yr. 2010-11 soassessee was using his saving bank account for the purpose of business.
The Hon’ble CIT(Appeals) is prayed to give a chance to produce all the evidences and other material before him which could not be produced at AO level so that assesse gets full justice as taxing statutes demand tax on earned income and not on income which was never earned. Tax is paid on the net income and not on the gross receipts.
The appellant also craves to add or amend the grounds of appeal if required at the time of hearing of appeal and also prays to produce additional evidence under Rule 46A of the Income Tax Rules, 1962 at the time of hearing or before it.
Even in the presence of all the documents, the presence of the assesse before the Income Tax officer , the AO decided the case of the assesse u/s 144 instead of 143(3) of the Act. I cannot understand what was in the mind of the Income Tax officer that he decided the case exparte. The assesse kept on waiting for 3 to 4 hrs outside the office of the ITO but he never entertained the assesse in a decent manner .
Vide show cause notice hearing in the case of the assesse was fixed for 12.11.2018 but assesse in ahead of the date submitted his plausible explanation Dt. 2.11.2018 which is a hand written reply but ITO has mentioned no where his reply in his assessment order .
In the absence of acknowledging the relevant material in the shape of returns and plausible explanation of the assesse regarding cash deposited with the bank (XXXXX Bank not PNB ) the assessment framed is quite bad in law and spirits and is prayed to be quashed . Principal of natural justice has been denied to the assesse which is apparent. No man should be made unheard .
Though the assesse has filed his return u/s 44AD of the Income tax Act, 1961 but has maintained such books of accounts which can be produced on demand any time.
The additional ground at the time of hearing.
The present case also involves the legal issue of non-service of mandatory notice u/s 143(2) of the Act which is squarely covered by the decision of the Hon’ble supreme Court of India in the case of ACIT &Anr. Vs. Hotel Blue Moon[2010] 321 ITR 362 (SC) wherein the Hon’ble Supreme Court has held that the issue of notice u/s. 143(2) of the I.T. Act is mandatory and not procedural. In the entire assessment order ITO has not taken cognizance of the return filed in response to the notice u/s 148 . It clearly indicates that one notice u/s 143(2) Dt. 3.10.2018 was issued and served on the assessee on the basis of original return filed Dt. 22.03.2018 but this notice u/s 143(2) is invalid being time barred as per proviso to section 143(2) of the Act. Hence conclusion is made that no notice u/s 143(2) of the Act was issued and served on the notice against the return filed in response to the notice u/s 148 of the Act Dt. 20.08.2018
Moreover, not taking congnigence of the relevant material by the assessing officer and not recognizing the return filed, reply filed and another evidences, not recognizing the business of the assesse he has made addition to the income of the entire cash of Rs. 1086200 deposited with the saving bank account of the assesse and added it the entire sum to the income of the assesse. The ITO hasnot recognized the peak credit principal. He has recognized credit entries with the bank but not debit entries.There are multiple debit and credit entries in the form of cash deposit and cash withdrawals. The assesse has relied the judgment of the Hon’ble Supreme Court of India in the case of Baladin Ram vs. CIT(1969) 71 ITR 427 (SC) and the ITAT, Lucknow ‘B’ Bench in the case of ITO, Barabanki Vs. Kamal Kumar Mishra reported in (2013), 33 taxman. Com 610 (Lucknow- Trib). The assesse has relied these judgments where there are multiple entries in the one bank and ITO has to look to the complete bank . He has to look to the credit entries as well as debit entries and reach at some decent conclusion and has to look at the peak figure .
The peak credit principal is applicable in the case where several credit and debit entries are found in one account. The funds operated from such account should be taken to one and hence, to avoid multiple counting of the same sums, only highest or peak of the amounts in that account should be taken as unexplained investment.
During the financial year the assesse has deposit the sum of Rs. 1067800 with the saving bank account which the ITO has treated as income of the assesse. Simultaneously assessee has withdrawn a Rs. 953160 in cash from the same bank account. The difference comes to Rs. 114640.00 but the assesse has shown income of Rs. 189729.00 which is on the higher side. The assesse was prevented by sufficient cause not to produce the evidence before the assessing officer as ITO never entertained the assesse. Application under rule 46A is made before the Ld. CIT(A), to submit additional evidence so that assesse meets with the end of justice.
The additional ground u/s 250(5) is taken at the time of hearing and in this regard separate application is submitted.
The return has been filed dt.20.08.2018 in response to the notice u/s 148 Dt. 28.03.2018.
The return was e-verified on the same day i.e. 20/8/2018.
The e-verification was accepted on 22/8/2018.
This return was transferred to Jurisdictional Assessing Officer i.e. ITO ward No. 1(4) XXXXbad. Those code is XXX W 51 4.
“Now this return which has been filed in response to the notice u/s 148.” The provisions of the Income Tax Act, 1961, so far as may be, apply accordingly as if such return were a return required to be furnished u/s 139 of the Act.
Now section 143(2) clearly says
“where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income- tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assesse has not understated the income or has not or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assesse a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing officer any evidence on which the assesse may rely in support of the return”. In the absence of notice u/s 143(2) of the Act the entire assessment become null and void.
Best Judgment assessment u/s 144 of the Act .
If any person-
a) fails to make the return required under sub section 1 of section 139 and has not made a return or a revised return under sub-section (4) or subsection (5) of that section, or
b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142[ or fails to comply with a direction used under sub-section (2A) of that section], or
c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143,
the [Assessing] Officer, after taking into account all relevant material which the [Assessing ] Officer has gathered, [ shall, after giving the assesse an opportunity of being heard, make assessment] of the total income or loss to the best of his judgment and determine the sum payable by the assesse on the basis of such assessment:
The assessment u/s 144 of the Act has been made by the AO as if assesse has not filed the return in response to the notice us 148 of the Act .
But he will decide the case taking into consideration all the relevant material on record and will gather all the relevant material which he has not done . The assessment made u/s 144 is illegal , bad and void ab initio.
The notice issued u/s 143(2) by the AO is itself invalid because the return filed in response to the notice u/s 148 Dt. 20.08.2018 has not been recognized . The notice has not been issued in response to this e return filed u/s 148 but it has been issued Dt. 3.10.2018 in response to the return filed originally Dt. 28.03.2012 which is invalid and time barred.
The Gross Receipts in the return filed on 20/8/2018 is as per such Books of Accounts maintained by the assessee as per section 44AA of the Income Tax Act, 1961 which can be produced before the Hon’ble Court.
In view of the above ground it is prayed that the impugned order be quashed or suitable relief be allowed as your good self may deem fit.
The Hon’bleCIT(A) is prayed to give suitable relief to the assesse as he thinks fit.
Thanking you,
Yours Faithfully
For XXXXX XXXXX,
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