Fresh Reassessment Pending conclusion of first reassessment proceedings is invalid

Shri Jaideep Singh Vs ITO (ITAT Jaipur)

A question that arises for con sideration is whether the AO can issue second notice u/s 148 and initiate fresh reassessment proceedings before completion/conclusion of proceedings initiated by way of first notice u/s 148 either by way of dropping the first reassessment proceedings or completing the proceedings by passing the reassessment order u/s 147 of the Act. As we have noted above, the assessee has raised a specific objection against initiation of the first reassessment proceedings vide its letter dated 21.01.2015 and has requested to drop such proceedings as he has not made any investment in the property so specified by the AO, the particulars of which was mentioned in the reasons dated 10.03.2014. There is nothing on record that the AO has disposed off the objections so raised by the assessee and dropped the first reassessment proceedings either by way of passing a specific order or even by way of any noting in the ordersheet and in absence thereof, it cannot therefore be presumed that such proceedings have been concluded by the AO. The fact that the AO has issued a fresh notice u/s 148 basis fresh reasons cannot by implication be read and held as conclusion of first reassessment proceedings. We therefore find that it is a case where pending conclusion of the first reassessment proceedings, fresh reassessment proceedings have been initiated which cannot be sustained in the eyes of law and on this reason alone, the present reassessment proceedings initiated by way of notice u/s 148 dated 28.03.2014 are vitiated and same deserve to be set-aside.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

This is an appeal filed by the assessee against the order of ld. CIT(A)-1, Jodhpur dated 18.07.2018 for the assessment year 2007-08 wherein the assessee has raised the following grounds of appeal:-

“1. That the Authorities below have in confirming the proceedings initiated u/s 147 of the IT Act, 1961 by the ITO, Ward 7(2), Jaipur.

2. That the prejudice to the above, the authorities below further erred in confirming the addition of Rs. 50,00,000/- on account o f alleged unexplained cash payment.”

2. During the course of hearing, the ld AR submitted that the assessee is an agriculturalist and has no source of income other than agriculture income from the ancestral land received in Jagir. He has filed the return of income for the year under consideration as Karta of his HUF on 31.07.2007 declaring LTCG on sale of agricultural land at Nil, interest on FDR Rs.2,37,763/- and agriculture income of Rs.3 lacs. The income of the HUF was assessed by the AO u/s 143(3) vide order dt. 07.12.2009 by accepting the income declared. Subsequently, the AO issued notice u/s 148 dt. 28.03.2014 in the name of assessee. The assessee sought copy of reasons recorded for reopening vide letter dt. 17.10.2014. Thereafter vide letter dt. 16.01.2015, he again requested to provide the copy of reasons recorded and stated that the return already filed with ITO, Ward-2(3) may be treated as return filed in response to said notice. In response to same, assessee was provided two copies of reasons recorded by AO, one dt. 10.03.2014 and other dt. 24.03.2014. In the reasons dt. 10.03.2014, AO on the basis of sale deed available with him stated that assessee, along with 5 other co-owners, has purchased a land bearing Khasra No.388 from Sh. Ganga Ram on 24.05.2006 for Rs.1,87,20,000/- in which assessee’s share comes to Rs.31,20,000/-. This land was acquired by RIICO on 16.09.2017 against which compensation of Rs.2,05,72,485/- was received in which assessee’s share is Rs.34,28,748/- and thus, there is short term capital gain of Rs.3,08,748/- (34,28,747-31,20,000). Hence, income escaped assessment in respect of the assessee amounts to Rs.34,28,748/-(31,20,000 + 3,08,748). In the reasons dt. 24.03.2014, the AO on the basis of sale deed available with him stated that assessee has purchased a land bearing Khasra No.325 on 22.05.2006 for Rs.3,14,95,875/- out of which Rs.1 crore has been paid till 22.05.2006. Since assessee is not filing the return of income, source of investment of Rs.1 crores remains unexplained and thus, income to that extent has escaped assessment.

3. It was submitted by the ld AR that against first reasons recorded by AO, the assessee vide reply dt. 21.01.2015 submitted that he has not purchased any such land and thus, proceedings so initiated is bad in law and be cancelled. Against second reasons recorded by AO, assessee vide reply dt.21.01.2015 submitted that only Rs.50 lacs was paid on 22.05.2006 for purchase of land as against Rs.1 crore stated in the reasons which is considered in the return of M/s Jaideep Singh HUF. Further assessment in case of M/s Jaideep Singh HUF has already been completed u/s 143(3) and thus reopening of the case amounts to change of opinion which is not permissible in view of the decision of Hon’ble Supreme Court in case of CIT Vs. Kelvinator of India. The AO without disposing the objections issued show cause notice dt. 04.02.2015 in which he did not take cognizance of the reasons recorded u/s 148 dt. 10.03.2014. However, in respect of second reasons recorded u/s 148 dt. 24.03.2014, he required the assessee to explain the source of cash payment of Rs.50 lacs on purchase of land, calculation of capital gain on sale of land and source of cash deposit of Rs.20 lacs in the bank account. Accordingly, the AO assessed the income at Rs.1,57,91,730/-by making following additions:-

4. It was submitted that before Ld. CIT(A), the assessee challenged the reopening of assessment. The Ld. CIT(A), however, upheld the validity of reopening by giving following findings:-

(a) The AO has received specific information from the department regarding the income which was likely to have escaped assessment in case of the assessee. There are plethora of decisions in which it is held that the reassessment notice issued on the basis of information received from the Investigation Wing of the Department is valid.

(b) No return of income has been filed by the assessee for AY under consideration and thus, no regular assessment order was passed in this case earlier.

(c) The wrong mention of figures in the notice u/s 148 of the Act is covered by the provisions of section 292B of the Act which protect such notices/ summons which may have some mistake, defect or omission but are otherwise in conformity with the intent and purpose of the Act. Further, notice u/s 148 is only a procedural requirement by way of information to the assessee that his/her income chargeable to tax has escaped assessment within meaning of section 147 of the Act and asking for further information. The primary requirement is to examine whether any prejudice or confusion was caused to the assessee. In the show cause notice dt. 04.02.2015 issued by the AO, he specifically required the assessee to furnish details and evidences to explain the source of payment of Rs.50 lacs (correct figure) towards purchase of property.

(d) There is no force in the appellant’s contention that non-issuance of notice u/s 143(2) rendered entire proceedings invalid in light of the decision of Hon’ble Kerala High Court in case of K.J. Thomas Vs. CIT (2008) 301 ITR 301 wherein it was held that the procedure u/s 143(2) of the Act is to ensure that an adverse order is issued only after proper opportunity is given to the assessee and if such an opportunity is given then non-issuance of 143(2) notice is immaterial.

(e) The assessee’s contention that reassessment proceedings has been initiated on mere change of opinion is incorrect as mere production of books of accounts or other evidence from which the AO could have with due diligence discovered the material evidence does not necessarily amount to disclosure within meaning of proviso to section 147 of the Act.

(f) AO has issued notice u/s 148 of the Act on 28.03.2014 after recording proper reasons, the assessee duly participated in assessment proceedings by providing necessary details and the AO duly addressed these objections in the assessment order. Therefore, principal laid down by Apex Court in case of GKN Driveshafts (India) Ltd. Vs. ITO (2003) 259 ITR 19 were followed perfectly.

5. The ld. AR submitted that from the above facts, it can be noted that AO recorded the reasons u/s 148 twice, one dt. 10.03.2014 and another dt. 24.03.2014. This itself shows that the AO was not aware that which income has escaped assessment and whether any income in fact has escaped assessment. In reasons dt.10.03.2014, he has referred to the investment made in land, acquisition of such land by RIICO resulting into short term capital gain but subsequently he himself took no cognizance of the same. In the second reasons dt. 24.03.2014, he referred to the investment made in land of Rs.1 crore whereas subsequently he himself admitted that this amount is incorrect. Further in both the reasons he has stated that as per the information available in the sale deed assessee has purchased certain properties whereas there is no sale deed executed by the assessee for purchase of property. It may also be noted that in the second reasons dt. 24.03.2014, AO has referred to agreement dt. 22.05.2006. In this agreement, there is reference of payment of Rs.50 lacs whereas in the reasons recorded the amount paid is stated at Rs.1 crore. All these facts shows that AO has recorded the reasons on whims and fancy without having information available with him or without applying mind to the information, if any, available with him and without conducting any enquiry of his own. Therefore, on the basis of such vague reasons, which left the assessee guessing as to which income escaped assessment, notice issued u/s 148 and consequent assessment framed u/s 147 is illegal and bad in law. In this regard, reliance was placed on the following cases:-

• PCIT Vs. RMG Polyvinyl (I) Ltd. (2017) 156 DTR 79 (Del.)
• Kulwant Singh Vs. ITO (ITA No.841/JP/18 order dt.20.12.2018) (Jaipur) (Trib)

6. It was further submitted that AO provided the reasons after assessee explained vide his letter dt. 16.01.2015 that he has already filed the return with ITO, Ward-2(3) in the HUF capacity and the same be treated as a return filed in response to the notice issued u/s 148. Thereafter the assessee separately objected to the reasons recorded by AO dt. 10.03.2014 & 24.03.2014 vide letter dt. 21.01.2015. The AO, however, without disposing the objections has issued show cause notice dt. 04.02.2015 but the figures of Rs.50 lacs, Rs.4,02,87,606/- and Rs.20 lacs mentioned therein has no live link with the reasons recorded by him. Further the AO himself has dropped the reasons recorded on 10.03.2014 without any independent order disposing the objections. The Ld. CIT(A) has in fact accepted this position by stating that AO has duly addressed these objections in the assessment order. This is not as per law since AO is required to dispose off the objections before passing the order u/s 147. Further even in the assessment order there is no whisper disposing the objections of the assessee. Thus, the assessment framed by the AO without disposing the objections is illegal and bad in law for which reliance was placed on the following cases:-

• GKN Driveshafts India Ltd. Vs. ITO (2003) 259 ITR 19 (SC)
• M/s K.C. Mercantile Ltd. Vs. DCIT (DBIT Appeal No. 292/2016) (Raj.)

7. It was further submitted that no assessment u/s 147 can be made unless notice u/s 143(2) is issued within the prescribed time. In the present case, from the assessment order itself, it is evident that AO has not issued any notice u/s 143(2). This fact has been accepted by the Ld. CIT(A) but still he upheld the order passed by the AO by relying on the decision of Hon’ble Kerala High Court in case of K.J. Thomas Vs. CIT (2008) 301 ITR 301. It may, however, be noted that Hon’ble Kerala High Court itself in a later decision in case of Travancore Diagnostics Pvt. Ltd. Vs. ACIT (2017) 390 ITR 167 has held that in case of proceedings initiated u/s 143(3) read with section 147, requirement to issue a notice u/s 143(2) is mandatory and section 292BB does not in any manner grant any privilege to AO in dispensing with issuance of such a notice. Further reliance was placed on the following cases:-

• M/s Kaizen Organics Pvt. Ltd. Vs. ACIT ITA No.834/JP/2017 order dt.19.12.2018 (Jaipur) (Trib.)
• Radhe Sham Jain Diamond Jewellers Pvt. Ltd. Vs. DCIT (2020) 193 DTR 59 (Chd.) (Trib.)

8. It was submitted that the assessee in response to notice u/s 148 vide letter dt. 16.01.2015 has specifically pointed out that return has been filed for which assessment is also completed by ITO, Ward-2(3) u/s 143(3) of the Act and the return so filed in capacity of Karta of HUF be treated as return filed in response to notice u/s 148. The AO took no objection to the same. Therefore, the finding of Ld. CIT(A) that assessee has not filed the return and no regular assessment order was passed is incorrect. In fact the Ld. CIT(A) taking cognizance of the said return has deleted the addition on account of LTCG made by the AO. In course of assessment proceedings of HUF, the assessee has explained the manner of calculation of capital gain where amount of compensation received at Rs.4,02,87,606/- and payment made to the persons from whom the land was purchased at Rs.3,14,95,874/-(2,64,95,874 + 50,00,000) resulted into capital gain of Rs.87,91,732/-against which deduction u/s 54B was claimed. Considering the same, the AO assessed the income of HUF u/s 143(3) vide order dt.07.12.2009 by accepting the declared income. Thus, when assessment has already been completed/s 143(3), then reopening the case on same issue beyond four years amounts to change of opinion which is illegal and bad in law for which reliance was placed on the following cases:-

• ACIT Vs. Marico Ltd. (2020) 190 DTR 109 (SC)
• CIT Vs. India Cements Ltd. (2019) 181 DTR 105 (Mad.) (HC)

In view of above, notice issued u/s 148 and consequent assessment framed u/s 147 is illegal and bad in law and the same be quashed.

9. Per contra, the ld. DR has relied on the findings of the lower authorities and our reference was drawn to the findings of the ld. CIT(A) which are contained at para 4.3.2 to 4.4 of his order which read as under:-

“4.3.2 It is an admitted fact that the appellant had not filed his return of income showing the purchase/sale transaction of plot. Accordingly, the AO issued notice u/s 148 o f the Act, furnished the reasons for reopening to the appellant and duly disposed off the objections raised by the appellant while discussing the issue for which he had issued notice u/s. 148. The appellant has also duly co-operated with the AO and has furnished various details called for by him during the course o f re-assessment proceedings. Therefore, he cannot take a plea now that the proceedings were invalid. The appellant had not filed the income tax return for the A Y 2012-13. The Hon’ble Delhi High Court in the case of Honda Siel Power Products Ltd v. DCIT (2011) 197 Taxman 415 (Del) has stated that the law postulates a duty on every assessee to disclose fully and truly all material facts for its assessment. The disclosure must be true and full. Material facts are those facts which, if taken into account, would have an adverse affect on the assessee by higher assessment of income than the one actually made. Omission to disclose may be deliberate or inadvertent. It is not relevant provided there is omission or failure on the part o f the assessee. The latter confers jurisdiction to reopen the assessment. The Hon’ble Court further held that merely because material lies embedded in the material or evidence, which the AO could have uncovered but did not uncover, is not a good ground to deny or strike down the notice of re­assessment. Where the AO could have found out the truth but he did not, does not preclude the AO from exercising the power of re-assessment to bring the escaped income. The SLP filed against this decision of the Hon’ble Delhi High Court has been dismissed by the Hon’ble Supreme Court (211-TIOL-72-SC-IT). Thus, the appellant contention that the AO had not complied with the basic conditions as envisaged u/s. 147, 148 & 151 is rejected being devoid of any merit.

4.3.3 As regards the appellant’s objection regarding wrong mention of figures in the notice u/s 148 of the Act, It may refer to the provisions of Section 292B of the Act which is reproduced as below:-

“Return of income, etc., not to be invalid on certain grounds.

292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.] “

4.3.4 This section is to protect such notices/summons, returns etc. which may have some mistake, defect or omission but are otherwise in conformity with the intent and purpose of the Act. Furthermore, it may be noted that notice u/s 148 is only a procedural requirement by way of information to the assessee that his/her income chargeable to tax has escaped assessment within meaning of sec. 147 of the Act and asking for further information. In this connection, I also draw strength from the ratio laid down by the Hon ‘ble Delhi High Court in the case of CIT V/s Jagat Novel Exhibitors (P) Ltd. [2012] 18 taxmann.com 138 (Delhi) wherein the Hon ‘ble Court held that the defective notice/summon, if it serves intent and purpose of Act, i.e., to inform assessee, and there is no confusion in assessee’s mind about initiation of proceedings against him, is protected under section 292B of the Act. In the said decision, the Hon ‘ble Court in para-47 clearly held that the prime question to be considered was whether there was prejudice against the assessee, if the recipient of notice was not in doubt that it was meant for him, than the defect is not fatal. The primary requirement is to examine whether any prejudice or confusion was caused to the assessee. However, in the show-cause notice dated 04­-02-2015 issued by the AO, he specifically required the assessee to furnish details and evidences to explain the source of payment of Rs. 50,00,000/- (the correct figure) towards purchase of property.

4.3.5 Further, I find no force in the appellant’s contention that non-issuance of notice u/s 143(2) rendered entire proceedings invalid in the light of decision of Hon ’ble Kerala High Court in the case of K.J. Thomas v/s CIT [2008] 301 ITR 301 (KER.) wherein it was held the procedure u/s 143(2) of the Act is to ensure that an adverse order is issued only after proper opportunity is given to the assessee and if such an opportunity is given then non-issuance of 143(2) notice is immaterial. The Hon’ble Kerala High Court in this case held as below:-

“The procedure under section 143(2) is to ensure that an adverse order is issued only after proper opportunity is given to the assessee. Where it was conceded that the assessee got opportunity to file reply and the detailed reply was in fact filed and the reassessment notice and the final order were also issued within the time limit prescribed under the Act, there was no reason to interfere with the order of assessment on the ground that written notice was not issued to the assessee before the completion of assessment under section 143(2).”

In the appellant’s case, proper notice u/s. 148 of the Act was issued by the AO and subsequently notices u/s 142(1) of the Act were issued by the AO and assessment was completed after hearing the appellant and giving him enough opportunities to file details in respect of return of income filed by her, therefore, the ratios laid down by the Hon’ble Delhi and Kerala High Court (supra) are squarely applicable to the case of the appellant. Recently, the Hon’ble Delhi High Court in the case of SKY Light Hospitality LLP vs. ACIT (W.P. (0)10870/2017 and CMNo. 44503/2017) vide order dated 02-02-2018 held that where no prejudice is caused to the assessee, error committed due to human errors, proceedings cannot be as invalid, which are otherwise is valid. The appellant’s reliance on decision o f Travanore Diagnostic Pvt. Ltd. (2016) 290 CTR 241 is misplaced. In fact, in the said order, the Hon’ble Kerala High Court held that “even within the time available for issuing notice u/s. 143(2) , i f the AO is of the view that material available with him or discovered by him are such as to justify a belief of income escaping assessment u/s. 147, he is free to record the reasons for the belief and proceed to make the reassessment.

Thus, the appellant’s arguments being devoid of merits are rejected and keeping in view the provisions of section 292B o f the Act and various judicial pronouncements discussed (supra), the validity of notice issued u/s 148 of the Act is upheld.

4.3.6 Further there is plethora of decisions ratio of which held that the reassessment notice issued on the basis o f information received from the Investigation Wing of the Department is valid:-

1. Ambica Steels Ltd. Vs. Dy.CIT (2008) 24 (II)ITCL 357 (Del-Trib)

2. ACIT Vs. Citizen Urban Co-op. Bank Ltd. (2008) 23 (II) ITCL 520 (Asr-Trib)

3. Badri Vishal Aggarwal Vs. Dy.CIT (2006) 105 TTJ (Del) 418

4. Smt. Gurinder Kaur (2006) 105 TTJ (Del) 198: (2006) 102 ITD 189 (Del)

5. AGR Investment Ltd. Vs. Addl.CIT & Anr. 239 CTR 378

4.3.7 The Ld. AR also assailed the re-assessment proceedings on the ground that the same have been initiated on mere change of opinion. I tend to disagree with the Id.AR on this point. Reference in this regard may be had to the case of Consolidated Photo and Finvest Ltd v. ACIT (2006) 281 ITR 394 (Delhi HC) wherein it was held that mere production o f books of account or other evidence from which the AO could have, with due diligence, discovered the material evidence does not necessarily amount to a disclosure within the meaning of the proviso to sec 147 of the Act. It was held by the Court in that case

“The assessment order did not address itself to the question which the Assessing officer proposed to examine in the course o f reassessment proceedings. There may be a presumption that the assessment proceedings had been regularly conducted but there could be no presumption that even when the order of assessment was silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing officer. The principle that a mere change of opinion could not be a basis for reopening completed assessments would be applicable only to situations where the AO had applied his mind and taken a conscious decision on a particular matter in issue. It would have no application where the order of assessment did not address itself to the aspect which was the basis for reopening of the assessment. “

4.3.8 It is further observed that the provision of sec. 147 provides that if the Assessing Officer has reason to believe that any income chargeable to tax had escaped assessment, he may subject to the provision of sec. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has been escaped assessment and which comes to his notice subsequently in the course of the proceedings. Use o f word “any other income chargeable to tax” is quite relevant. Thus, the AO can assess also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings.

4.3.9 Lastly, it is observed that the AO issued a show-cause notice dated 04-02-2015 wherein he specifically required the assessee to furnish details and evidences to explain the source of payment of Rs. 50,00,000/- towards purchase of property mentioned above, justification for not offering the STCG of Rs. 87,91,731/- and source of deposits of Rs. 20,00,000/-reflecting in his saving bank account. However, on the appointed out that neither anybody attended before the AO nor any request for adjournment were filed. Under such circumstances, the AO was left with no option to decide the assessment within meaning of section 144 of the Act. Hence, no infirmity has been found in AO’s action in completing the assessment u/s. 147/144 of the Act. It is seen from the assessment order, the AO had accorded ample opportunities to the assessee before finalizing the assessment, hence, he duly met the principle of natural justice. All the case-laws relied upon by the appellant are not directly applicable to the facts of the case as they were rendered as per peculiar facts and circumstances. The appellant failed to explain how the ratio of these judgments are applicable in his case, particularly when no return of income was filed and no regular assessment u/s. 143(3) was completed in his case.

4.4 From the above discussion, it is clear that the AO issued the notice u/s 148 of the Act on 28-03-2014 after recording proper reasons, the assessee duly participated in assessment proceedings by providing necessary details and the AO duly addressed these objections in the assessment order, therefore, the principles laid down by the Apex Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO (2003) 259 ITR 19 (SC) were followed perfectly. Considering the factual and legal position as discussed above and various judicial precedents cited above, I find no infirmity, whatsoever, in the action of the AO in initiating proceedings U/s 147 of the Act. The grounds raised by the appellant regarding the validity of the assessment order passed u/s 144/147 dated 31.03.2016 are dismissed. ”

10. On merits, the ld AR submitted that the assessee’s father Sh. Shivdan Singh executed an agreement dt. 13.01.2003 for purchase of land bearing Khasra No.325 situated at village Samwatsar, Tehsil Kishangarh, Ajmer from Sh. Ramlal, Harinarayan, Hiralal and Smt. Kaushalya Devi for Rs.3,14,95,875/-. Thereafter due to serious illness and considering his inability to execute the transaction, he entered into a consent letter with sellers of land stating that the assessee in capacity of buyer’s son shall execute the transaction on his behalf. Accordingly, assessee entered into an agreement dt. 22.05.2006 with sellers of land and paid Rs.15 lacs on 09.05.2006 and Rs.35 lacs on 22.05.2006 from the money given to him by his father out of the past savings. Meanwhile the land was compulsory acquired by RIICO Ltd. and the assessee received compensation of Rs.4,02,87,606/- on 13.10.2006 in his bank account. Out of said amount, assessee paid balance amount of Rs.2,64,95,874/- to sellers of land resulting into capital gain of Rs.87,91,732/- against which deduction u/s 54B was claimed and LTCG was declared at Nil in the return filed by him as Karta of his HUF on 31.07.2007.

11. It was submitted that the AO observed that assessee has made cash payment of Rs.50 lacs to the sellers of land but failed to explain the source of such cash payment. Accordingly, he made addition of Rs.50 lacs by treating it as unexplained income of the assessee. He further made addition on account of LTCG of Rs.87,91,732/- and cash deposited in the bank account of Rs.20 lacs.

12. It was further submitted that the Ld. CIT(A) taking cognizance of the return filed by the assessee as Karta of HUF which is assessed by AO u/s 143(3) deleted the addition of Rs.87,91,732/- on the ground that since such income is assessed in case of HUF, it cannot be again taxed in the hands of assessee. He further deleted the addition of Rs.20 lacs by accepting that source of the same is out of the withdrawal from same bank account only a week before the deposit. However, he confirmed the addition of Rs.50 lacs on the ground that the contention of assessee that he and his father are holding substantial agricultural land without evidence or proof of agricultural income cannot be accepted.

13. It was submitted by the ld AR that both the assessee and his father are agriculturalist having no other source of income. There is no dispute as to the fact that the agreement for purchase of land was made on 13.01.2003 by Sh. Shivdan Singh, father of assessee. However, in view of the facts mentioned in above, a fresh agreement was made on 22.05.2006 which shows that Rs.50 lacs was paid to the sellers of land in May, 2006, i.e. during lifetime of assessee’s father who expired on 18.05.2007. Thus, the payment recorded in this agreement is made by the assessee on behalf of his father out of his agriculture income. Even in the Will dt.20.03.2003 executed by assessee’s father, it is specifically stated that for purchase of land at village Samwatsar, he is handing Rs.50 lacs to his son Jai Deep for payment to sellers of land. Thus, Rs.50 lacs was paid by the father of assessee. The source of such amount is agricultural income of assessee’s father as he was holding substantial agricultural land as evident from the order of Additional Collector, Jaipur for which Jamabandis are placed on record. Therefore, source of cash payment of Rs.50 lacs is savings out of the agricultural income of assessee’s father and thus, addition confirmed by Ld. CIT(A) in the hands of assessee be directed to be deleted.

14. It was further submitted that the AO has made the addition of Rs.50 lacs for unexplained investment in land. This addition falls u/s 69 of IT Act, 1961. This section uses the word ‘may’ which gives discretion to the AO, considering the facts & circumstances of the case, not to make the addition even if he is not fully satisfied with the explanation of assessee. It is a fact on record that assessee has no source of income other than the agricultural income. Even the lower authorities have not found any other source of income in the hands of the assessee. Hence, it cannot be presumed that assessee has any undisclosed income which is invested in purchase of land. Strict rule of evidence do not apply to the income tax proceedings. Human conduct and preponderance of the probabilities needs to be considered before making any addition u/s 69 in as much as the section uses the word ‘may’ and not ‘shall’. In these circumstances, even if the source of investment in land is not found to be satisfactory explained, no addition can be made in the peculiar facts of the case. In this regard, reliance was placed on the following decisions:-

• Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC)
• CIT vs. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC).

15. Per contra, the ld. DR has relied on the findings of the lower authorities and our reference was drawn to the findings of the ld. CIT(A) which are contained at para 6 & 6.1 of his order which read as under:-

“6 Ground No. 4 relates to the addition of Rs. 50,00,000/- on account of unexplained cash payment. As discussed above, the appellant had made payment of Rs. 50,00,000/- against purchase of the aforesaid land. Since the assessee failed to explain the source of above payment, the AO made the addition of Rs. 50,00,000/- treating it unexplained cash payment. The appellant claimed before me that he belongs to the family of landlords (Jagirdaar) and his father was the landlord of huge portions of agricultural lands. It was further claimed that the said payment of Rs. 50,00,000/-towards advance for purchase of the subject land was made out of the agricultural income of the assessee and merely because the assessee has not been filing returns of income and has not declared the agricultural income in the returns, the accrual of agricultural income cannot be denied particularly considering the quantum of agricultural land-holding in the name of assessee, on which agriculture operations are being carried out on a large scale.

6.1 Upon consideration of the facts of the case and appellant’s submissions, it is observed that though the appellant claimed that Rs. 50,00,000/- was paid out of savings from the agricultural income, he failed to furnish any evidence whatsoever to substantiate his claim. In this regard, the appellant stressed on the fact that he and his father hold substantial agricultural land. However, I find that mere possession of agricultural land does not give rise to agricultura l income. The onus lay exclusively on the appellant to prove, with cogent evidences, that he raised agricultural crops etc. and earned agricultural income. However, in the instant case, the appellant has failed to provide any evidences in the matter on the basis of which it could be said that he carried out agricultural operations on the land and earned agricultura l income. The appellant even failed to convey as to which crops were sown and what were the total yields of various crops and where they were sold. Normally, the agricultural produce is sold through Krishi Upan Mandi Samities, which issues receipts for the same. No such receipts have been produced wither before the AO or before the undersigned. The appellant could not produce even a single voucher of expenditure relating to purchase of seeds or pesticides on the basis of which it could be said that he was engaged in agricultural operations on his land. In a situation where the assessee fails to produce any satisfactory evidences about his being engaged in agricultural activities and also unable to state as to whom the agricultural produce was sold, it has to be proved, which the assessee contends to be his agricultural income. Even the appellant himself admitted the fact he does not have any evidence o f proof of agricultural income. Since the appellant failed to furnish any evidences, his claim of agricultural income is a bald claim, which cannot be accepted. The above view gets support from the decision in the case of A vdhesh Kumar Jain Vs. CIT reported in 178 ITR 433; Gopi Ram Lila Vs. CIT reported in 225 ITR 320; Ridhkaran Das Poonam Chand Bhura Vs. CIT reported in 231 ITR 604; and Smt. Kamala Bai Vs. CIT reported in 221 ITR 674.

In the light of the facts discussed above, it is held that the appellant’s claim that payment of Rs. 50,00,000/- out of the agricultural income remains to be proved. Hence, the AO’s action in treating Rs. 50,00,000/- as unexplained cash payment is sustained. The addition of Rs. 50,00,000/- is hereby confirmed. The ground of appeal is dismissed. ”

16. We have heard the rival contentions and perused the material available on record. We note that there are two notices u/s 148 available on assessment records. The first notice is dated 20.03.2014 for which prior approval of the competent authority was obtained on 20.03.2014 in respect of the reasons so recorded by the AO on 10.03.2014. The second notice u/s 148 is dated 28.03.2014 after seeking prior approval of the competent authority on 27.03.2014 in respect of the reasons so recorded by the AO on 24.03.2014. It is also noted that both the notices u/s 148 have been served on the assessee and the assessee has in turn responded to these two notices individually vide his letter of even date 21.01.2015 and has filed his objections to the reasons so recorded by the Assessing officer. It is therefore not in dispute that both these notices u/s 148 have been issued by the AO and duly served on the assessee and thus, two separate proceedings have been initiated by the AO u/s 147 by virtue of these two separate notices issued u/s 148 carrying separate reasons in respect of independent transactions of purchase of property by the assessee and stating as to why the AO has formed the belief that income has escaped assessment.

17. A question that arises for consideration is whether the AO can issue second notice u/s 148 and initiate fresh reassessment proceedings before completion/conclusion of proceedings initiated by way of first notice u/s 148 either by way of dropping the first reassessment proceedings or completing the proceedings by passing the reassessment order u/s 147 of the Act. As we have noted above, the assessee has raised a specific objection against initiation of the first reassessment proceedings vide its letter dated 21.01.2015 and has requested to drop such proceedings as he has not made any investment in the property so specified by the AO, the particulars of which was mentioned in the reasons dated 10.03.2014. There is nothing on record that the AO has disposed off the objections so raised by the assessee and dropped the first reassessment proceedings either by way of passing a specific order or even by way of any noting in the ordersheet and in absence thereof, it cannot therefore be presumed that such proceedings have been concluded by the AO. The fact that the AO has issued a fresh notice u/s 148 basis fresh reasons cannot by implication be read and held as conclusion of first reassessment proceedings. We therefore find that it is a case where pending conclusion of the first reassessment proceedings, fresh reassessment proceedings have been initiated which cannot be sustained in the eyes of law and on this reason alone, the present reassessment proceedings initiated by way of notice u/s 148 dated 28.03.2014 are vitiated and same deserve to be set-aside.

18. Now, coming to notice u/s 148 dated 28.03.2014 and the underlying reasons recorded by the AO dated 24.02.2014, the ld A/R has challenged the initiation of reassessment proceedings u/s 147 on account of non-disposing off objections raised by the assessee before the AO vide his letter dated 21.01.2015. The fact that the assessee has raised his objections against such reassessment proceedings is a matter of record and we find that the AO has not disposed off the said objections by way of passing any specific order and has proceeded ahead by way of issuing a show-cause calling for further information/clarification and passing the reassessment order. The said act of the AO is in clear violation of the law declared by the Hon’ble Supreme Court in case of GKN Driveshaft India (supra) and the decision of the Hon’ble Rajasthan High Court in case of K.C Mercantile Ltd (supra). Therefore, on account of non-disposing off the objections raised by the assessee, the present proceedings are again vitiated and deserves to be set-aside.

19. On merits of addition of Rs 50 lacs towards unexplained investment in land, we find that the ld CIT(A) has deleted the addition on account of capital gains in the hands of the assessee on compulsory acquisition of such land by RIICO holding that the capital gains has been declared and accepted by the Revenue by way of assessment order passed u/s 143(3) in the hand of appellant’s HUF and therefore, the same cannot be taxed in the hands of the assessee in his individual capacity. And on perusal of the computation of capital gains of Rs 87,91,732 so offered by assessee’s HUF, we find that the assessee HUF has claimed the aforesaid amount of Rs 50 lacs towards purchase of land besides other costs and which has been accepted and allowed by the AO while assessing the capital gains in the hands of assessee’s HUF. Therefore, where the investment has been claimed and allowed as the cost in the hands of the assessee’s HUF, any addition towards the source of such investment, where remain unexplained, can be made in the hands of assessee’s HUF and not in his individual capacity. Further, we also note that the assessee has explained the source of such investment by way of will dated 20.03.2003 executed by assessee’s father containing the fact that the amount of Rs 50 lacs has been handed over by his father to him for purchase of land, and the source of such funds is the agriculture income and past savings of his father and which is reasonably demonstrated by the Jamabandi of the land holdings of the his late father. Therefore, even on merits, the addition so made and sustained by the ld CIT(A) is directed to be deleted.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 02/06/2021.