Case Law Details
Meena Shirish Kotwal Vs ITO (ITAT Pune)
In this case the very basis of initiation of scrutiny assessment is the large investment made by the firm wherefore the appellant is one of the signatory partners. However it shall be worthy to note that, for the impugned year the appellant has made no investment in her individual capacity so has to trigger any basis for scrutiny assessment on the prescribed criteria of investment, thus the very basis of initiation of scrutiny in the appellant’s case fails, consequently the impugned assessment stand with no legs in the eyes of law, and we hold as such in the light of ratio laid down by Hon’ble High Court of Delhi in the case of “CIT Vs Best Plastics (P) Ltd” reported in 295 ITR 256, whereby their lordship laid a proposition that;
“Where the guidelines are laid down for selection of cases for scrutiny and if the case of the assessee was taken up for scrutiny in violation of CBDT Instructions, then the assessment order has to be set aside”
Further, it shall not be out of the box to quote the decision of Hon’ble Jurisdictional Bombay High Court in “Bombay Cloth Syndicate Vs CIT” reported at 214 ITR 210 whereby their lordship have held that, the instruction issued by the mother body i.e. CBDT undisputedly are binding on the department and any action in violation thereof renders it as untenable in law, consequently in the extant case, assessment been carried out in violation of instruction issued by CBDT deserves to be quashed, ergo we set-aside the first appellate order passed u/s 250 and quash the order of assessment passed u/s 143(3) of the Act as bad in law.
FULL TEXT OF THE ORDER OF ITAT PUNE
By the present appeal the assessee challenged the order of Commissioner of Income Tax (Appeals)-1, Nashik [for short “CIT(A)”] dt. 10/07/2018 passed u/s 250 of the Income-tax Act, 1961 [for short “the Act”] which leapt out of assessment order dt. 22/03/2016 passed u/s 143(3) of the Act was passed by Income Tax Officer, Ward – 2, Malegaon [for short “AO”] for the assessment year [for short “AY”] 2013-14.
2. The original grounds assailed by the appellant through appeal memorandum are;
“1.On the facts and in the circumstances of the case, the learned CIT(A) has erred in not allowing the appeal of the appellant and in not holding that the addition made u/s 68 by the learned AO was illegal and has erred in holding, without giving any opportunity to the appellant, that the learned AO should have made addition u/s 69A of the Act.
2. On the facts and in the circumstances of the case, the learned CIT(A) has erred in not allowing the appellant the benefit of peak credit in respect of earlier withdrawals in cash from her bank account against the subsequent cash deposits in the same bank account.
3. On the facts and in the circumstances of the case, the learned CIT(A) has erred in not giving any finding about the admission of additional evidence and in respect of the agricultural income of the appellant on the basis of such additional evidence.
3. On the facts and in the circumstances of the case, learned CIT(A) has erred in not giving any finding about admission of additional evidence and about agricultural income of the appellant at least in respect of the additional evidence not objected by AO in the remand report.
5. On the facts and in the circumstances of the case, the learned CIT(A) has erred in not admitting the additional grounds raised about the nature of Limited Scrutiny of the appellant’s case and about challenging the jurisdiction of the learned AO.
6. On the facts and in the circumstances of the case, the learned CIT(A) has erred in not admitting the additional grounds.
7. On the facts and in the circumstances of the case, the learned CIT(A) has erred, on one hand, in stating that the additional grounds are not admitted and, in the same breath, in deciding the merits of those additional grounds.
8. On the facts and in the circumstances of the case, the learned CIT(A) has erred in not appreciating the nature of re-constructed cash book filed before him and in wrongly interpreting the same as the receipt and payment account.”
4. The assessee also filed following additional grounds which are;
“1. In this case, the appellant wishes to raise additional grounds challenging the validity of addition u/s 68 of Rs.91,63,030/- made towards alleged unexplained cash deposits in bank account by travelling beyond the scope of limited scrutiny proceedings under CASS selected for the reason of verification of source of investment in immovable property which was not at all, purchased by the assessee individual but by the partnership firm wherein the assessee was a partner. The copy of additional ground is enclosed herewith.
2. The appellant submits that the additional Grounds are purely legal in nature and no new facts are required to be brought on record for adjudicating the said grounds. In this regard, it is submitted that the above contention was also specifically raised before the A.O. as well as the CIT(A) and the same also finds a mention in the respective orders passed by lower authorities. None of the lower authorities have disputed the fact that the case was selected for limited scrutiny under CASS for verification of source of investment in immovable property and thus, the relevant facts are already on record and not disputed by lower authorities. It is submitted that while drafting appeal in Form No. 36, specific ground on the above issue had remained to be taken although this contention was specifically raised before both the lower authorities. Hence, it is prayed before Hon’ble Bench that the Additional Ground may please be admitted for adjudication.
3. In this regard, the assessee places reliance on the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [229 ITR383(SC)]. In the said decision, Hon’ble Apex Court has held that where all the relevant facts are on record, then the Tribunal must exercise its powers u/s 254 of the Act to admit and adjudicate a new legal ground raised for the first time by the assessee even where such ground was not raised by the assessee before the lower authorities. Reliance is also placed on the decision of Hon’ble Delhi High Court in the case of Orissa Cement Ltd. v. CIT [250 ITR 856 (Del)] wherein the ratio laid down by Hon’ble Supreme Court in the case of NTPC [cited supra] was applied and it was held that where all the relevant facts are on record, a new legal ground raised by the assessee before the Tribunal must be admitted for adjudication. In view of the above facts and judicial decisions, the appellant humbly prays that the additional grounds raised by the appellant, being purely legal in nature, may please be admitted for adjudication in the interest of justice.”
5. Considering the original and the additional grounds, we have to voice that, neither of them are in consonance with rule 8 of the Income Tax Appellate Tribunal Rules, 1963 [for short “ITAT-Rules”], for the reason it shall suffice to articulate that, the sole and substantive ground in the extant appeal revolves alleging around that, both the tax authorities below [for short “TAB”] without appreciating the scope of limited scrutiny and additional evidences have erred in making & subsisting addition u/s 68 of the Act.
6. During the course of physical hearing, adverting to limited scrutiny notice issued u/s 143(2), the learned representative of the assessee [for short “AR”] pinpointing the scope thereof alleged that, the action of Ld. AO in bringing to tax cash deposit u/s 68 of the Act are contra-legem. The learned representative of the department [for short “DR”], per contra agitated that, the appellant injecting cash into her bank account has transferred the balance to a her Partnership Firm [for short “Firm”] as her capital contribution in making investment into immovable property in the name of the firm and by virtue of definition of section 2(23) of the Act, partner, firm and partnership since be treated as one and indistinct person, hence investment of the firm is nothing but made by the partners thereof, therefore when the source of such investment remained unexplained, same being rightly brought to tax in the hands of contributing partner.
7. We have heard the rival contentions of both parties; and subject to the provisions of rule 18 of “ITAT, Rules” perused the material placed on records till the date of conclusive hearing and duly considered the facts of the case in the light of settled legal position, and are forewarned to either parties.
8. Seemingly, it is palpable that, the appellant’s case was selected for scrutiny under CASS mechanism limiting the scope thereof to verification of large investment made by the assessee. It is an undisputed fact that, during the impugned assessment year under adjudication, the appellant indeed made no investment into any immovable property, but the firm in which the appellant is a partner wherefore the appellant has contributed her share in making such investment out of the bank balance held by her wherein certain cash was deposited. However, on the basis of investment made by the firm, the financial transactions of the appellant were scrutinised and eventually the cash deposits made into her bank accounts were brought to tax in the hands of appellant u/s 68 of the Act as unexplained cash credit.
9. We are heedful to note that, in the absence of any large investment made by the appellant during the impugned assessment year under adjudication, the scope of limited scrutiny meets dead-end, however the Ld. FAA without following the CBDT instruction No. 7/2014, 20/2015 and 5/2016 and also the CBDT letter dated 13 No. 2017, plagiarized the firm’s investment into the hands of assessee and opined that the said addition should have been carried out u/s 69A as unexplained money instead of bringing to tax as cash credit u/s 68 of the Act.
10. All the more we find that, the very basis of initiation of scrutiny assessment is the large investment made by the firm wherefore the appellant is one of the signatory partners. However it shall be worthy to note that, for the impugned year the appellant has made no investment in her individual capacity so has to trigger any basis for scrutiny assessment on the prescribed criteria of investment, thus the very basis of initiation of scrutiny in the appellant’s case fails, consequently the impugned assessment stand with no legs in the eyes of law, and we hold as such in the light of ratio laid down by Hon’ble High Court of Delhi in the case of “CIT Vs Best Plastics (P) Ltd” reported in 295 ITR 256, whereby their lordship laid a proposition that;
“Where the guidelines are laid down for selection of cases for scrutiny and if the case of the assessee was taken up for scrutiny in violation of CBDT Instructions, then the assessment order has to be set aside”
11. Further, it shall not be out of the box to quote the decision of Hon’ble Jurisdictional Bombay High Court in “Bombay Cloth Syndicate Vs CIT” reported at 214 ITR 210 whereby their lordship have held that, the instruction issued by the mother body i.e. CBDT undisputedly are binding on the department and any action in violation thereof renders it as untenable in law, consequently in the extant case, assessment been carried out in violation of instruction issued by CBDT deserves to be quashed, ergo we set-aside the first appellate order passed u/s 250 and quash the order of assessment passed u/s 143(3) of the Act as bad in law.
12. Resultantly, the appeal of the appellant assessee is ALLOWED in aforestated terms.
In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Thursday 01st day of December, 2022.
