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Case Law Details

Case Name : Brijesh Sharma Vs DCIT (ITAT Jaipur)
Appeal Number : IT(IT)A. No. 06/JP/2022
Date of Judgement/Order : 31/08/2022
Related Assessment Year : 2012-13

Brijesh Sharma Vs DCIT (ITAT Jaipur)

During the Assessment assessee submitted to the AO vide letter dated 12.11.2014 that the assessee had purchased a plot of land situated in Jaipur for disclosed consideration of Rs. 5,21,000/- which was paid by cheque. The AO issued summon u/s 131(2) the seller, Smt. Choti Devi. In her statement recorded on oath u/s 131 before AO on 07.01.2015, she stated that the said plot was sold by her to the assessee for a consideration of Rs. 12,21,000/- out of which, Rs. 5,21,000/- was received through cheque and Rs. 7,00,000/- through cash.

The cash amount of Rs. 7,00,000/- was found credited in the bank account of Smt. Choti Devi on 01.10.2011. The copy of statement of the seller was provided to the assessee. In response, the assessee admitted to have made total payment of Rs. 12,21,000/- including cash of Rs. 7,00,000/-.

The assessee explained that a dispute arose with the seller after the agreement and cash of Rs. 7,00,000/- was paid in settlement as the seller was not ready to handover the physical possession of the plot. The assessee submitted copy of relevant agreement dated 11.01.2012 to the AO.

The AO observed that the agreement was executed between the appellant and Smt. Choti Devi on 11.01.2012 which showed consideration of Rs. 5,21,000/- being paid by cheque dated 13.01.2012. However, the cash deposit in the bank account of Smt. Choti Devi was made on 01.10.2021. In her statement recorded 131, Smt. Choti Devi had confirmed that the said cash was given by Shri Brijesh Sharma on 01.10.2011.

The AO noted that cash was given by the assessee on 01.10.2011 much before the date of agreement executed on 11.01.2012. It was, therefore not possible that cash was paid before the date of agreement to resolve the dispute as the assessee had earlier submitted that the dispute had arisen after the agreement. The AO therefore, concluded that the payment of Rs. 7,00,000/- was made out of the undisclosed income and added the same.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

This appeal by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals) [hereinafter referred to as ld. CIT(A)]-42, Delhi dated 18.01.2022 for the AY 2012-13.

2. The assessee has raised the following grounds:-

“1. Ld. Assessing Officer (i.e. Dy. Commissioner of Income Tax, International Taxation, Jaipur) lacked the valid jurisdiction to issue notice, conduct proceedings and pass assessment order as no order u/s 127 was passed by competent authority (Principal Commissioner/Director General) to transfer jurisdiction from Dy. Direction of Income Tax, Circle-1(1), New Delhi. Even if both of the Assessing Officer may be falling under the jurisdiction of same PCIT/DG or the transfer is on request of assessee, the legal necessity of passing the transfer order u/s 127 cannot be foregone. No such procedure has been followed by department as confirmed by the Ld. AO and also upheld by Ld. CIT(A) Ground on merit.

2. That the Ld. Assessing Officer has erred in making the addition of Rs. 700000/- u/s 69C because: a) Expense was never a ‘unexplained expenditure’, due to the fact that assessee had already explained the nature of expenditure and source thereof on.”

3. Brief facts of the case are that assessee is an NRI, who was a resident of Hongkong, decided to shift to India along with his family. The assessee filed his return of income for assessment year 2012-13 on 27.07.2012 declaring total income of Rs. 1,55,660/-. The return of income was processed u/s 143(1) and was picked up for scrutiny by issuing notice u/s 143(2) of the I.T. Act, 1961 on 12.08.2013. Account of change of jurisdiction a fresh notice u/s 143(2) of the Act was issued on 20.10.2014 which was duly served upon the assessee. During the Assessment assessee submitted to the AO vide letter dated 12.11.2014 that the assessee had purchased a plot of land situated in Jaipur for disclosed consideration of Rs. 5,21,000/- which was paid by cheque. The AO issued summon u/s 131(2) the seller, Smt. Choti Devi. In her statement recorded on oath u/s 131 before AO on 07.01.2015, she stated that the said plot was sold by her to the assessee for a consideration of Rs. 12,21,000/- out of which, Rs. 5,21,000/- was received through cheque and Rs. 7,00,000/- through cash. The cash amount of Rs. 7,00,000/- was found credited in the bank account of Smt. Choti Devi on 01.10.2011. The copy of statement of the seller was provided to the assessee. In response, the assessee admitted to have made total payment of Rs. 12,21,000/- including cash of Rs. 7,00,000/-. The assessee explained that a dispute arose with the seller after the agreement and cash of Rs. 7,00,000/- was paid in settlement as the seller was not ready to handover the physical possession of the plot. The assessee submitted copy of relevant agreement dated 11.01.2012 to the AO. The AO observed that the agreement was executed between the appellant and Smt. Choti Devi on 11.01.2012 which showed consideration of Rs. 5,21,000/- being paid by cheque dated 13.01.2012. However, the cash deposit in the bank account of Smt. Choti Devi was made on 01.10.2021. In her statement recorded 131, Smt. Choti Devi had confirmed that the said cash was given by Shri Brijesh Sharma on 01.10.2011. The AO noted that cash was given by the assessee on 01.10.2011 much before the date of agreement executed on 11.01.2012. It was, therefore not possible that cash was paid before the date of agreement to resolve the dispute as the assessee had earlier submitted that the dispute had arisen after the agreement. The AO therefore, concluded that the payment of Rs. 7,00,000/- was made out of the undisclosed income and added the same. Aggrieved with the assessment, the assessee has filed this appeal.

4. The AO arrived the finding that it is clear that the assessee must be residing outside India and must be NRI which is not case of the assessee. Hence, I do not find any merit in the submission of the assessee.

With these remarks the total taxable income of the assessee is recomputed as

under:
Returned income Rs. 1,55,660/-
Add: as discussed in para 3 above Rs. 7,00,000/-
Total income Rs. 8,55,660/-
Rounded off to Rs. 8,55,6660/-

Assessed at Rs. 8,55,660/- Issue demand notice and Challan. Charge interest u/s 234B, 234C, 234D & withdrawal of excess refund u/s 244A, ITNS-150 is part of this order. Penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961, are being initiated separately.

5. Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee has reiterated its arguments. The ld. CIT(A) for the reason stated in his appellant order has rejected arguments and submissions made by the assessee.

6. Aggrieved by the CIT(A) order, the assessee is in appeal before us. Before the CIT (A), the assesee has reiterated at his submissions, which was not taken on record by the CIT (A). Before us the ld. AR for assessee submitted a detailed Written submissions which are as under:-

Notice u/s 143(2) dated 12/08/2013 was received thru e-mail on 03/09/2013 from DDIT, International Taxation, New Delhi. DDIT, New Delhi did not enjoy either the territorial jurisdiction u/s 124 or by virtue of section 120 of the Act. Therefore, the assessee requested vide e-mail, on 03/09/2013 for change of jurisdiction to jaipur. Thereafter, assessee was not served any notice of hearing u/s 127(3) or order of transfer u/s 127(1)/(2). Change of jurisdiction was made on 03/07/2014 as per the notings of AO in the `Assessment proceedings note sheet’ (Please See PB No. 45 to 46).

1.2 In response to an RTI query regarding the order u/s 127, DCIT, Int. Taxation, Jaipur inform on 08.04.2015 (please see PB No. 47)

“No such order was passed as the ADIT, Circle-1(1), New Delhi was holding charge of ADIT, International Taxation, Jaipur.”

ADIT is the rank equivalent to Additional Commissioner in the hierarchy of the Income Tax Department. The above reply implied that both AOs (of Jaipur and Delhi) were subordinate to the same Addl./Joint Commissioner based at Circle-1(1), New Delhi. Undisputedly, both of the assessing officers i.e. DCIT, Jaipur, and DDIT, Delhi were also subordinate to the same authority i.e. Director General of Income Tax (International Taxation), Delhi-1.

1.3 Justifying the non-issue of order u/s 127, Ld. CIT(A) also upheld the stand of AO in para 11.5 on page No. 16 of the appeal order, as under:

“Clearly, this was not a case where order u/s 127 was required to be passed. In fact, as the appellant having address of Jaipur, the correct jurisdiction lied with the AO in Jaipur. Such cases do not require transfer u/s 127 of the Income Tax Act, 1961”

1.4 Section 127 of the Income Tax Act, 1961 lays down:

[Power to transfer cases.

127. (1) The [Principal Director General or] Director General or [Principal Chi Commissioner or] Chief Commissioner or [Principal Commissioner o Commissioner may, after giving the assessee a reasonable opportunity of being hea in the matter, wherever it is possible to do so, and after recording his reasons f doing so, transfer any case from one or more Assessing Officers subordinate to hi (whether with or without concurrent jurisdiction) to any other Assessing Officer Assessing Officers (whether with or without concurrent jurisdiction) also subordina to him.

(2) Where the Assessing Officer or Assessing Officers from whom the case is to transferred and the Assessing Officer or Assessing Officers to whom the case is to transferred are not subordinate to the same [Principal Director General or] Direct General or [Principal Chief Commissioner or] Chief Commissioner or [Princip Commissioner or] Commissioner,—

(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any su opportunity to be given where the transfer is from any Assessing Officer or Assessi Officers (whether with or without concurrent jurisdiction) to any other Assessi Officer or Assessing Officers (whether with or without concurrent jurisdiction) a the offices of all such officers are situated in the same city, locality or place.

Explanation.—In section 120 and this section, the word “case”, relation to any person whose name is specified in any order or directi issued thereunder, means all proceedings under this Act in respect any year which may be pending on the date of such order or direction which may have been completed on or before such date, and includ also all proceedings under this Act which may be commenced after t date of such order or direction in respect of any year.]

A perusal of the above statutory provision u/s 127(1) reveals that powers to transfer `case’ (either pending or completed) from one Assessing Officer to another Assessing officer, when both are subordinate to the same senior officers, lie with the Senior Officers of the rank of PCIT/DG/CIT. Only exception when opportunity of hearing to assessee is foregone is when the transferring and transferee Assessing Officer are situated in same locality, city or place. However, requirement of passing the order by Senior officers i.e. PCIT/DG/CIT cannot be dispensed with, in any case. In Ajanta Industries vs. CBDT [1976] 102 ITR 281, the Hon’ble Supreme Court has held that the requirement of recording and communicating reasons for the transfer of case is a mandatory requirement. Any non-communication of the reasons will be fatal to the validity of the very transfer itself.

1.5 Manual of office procedure (volume-1) (Administrave) February 2003, directorate of income tax (organation & management services issued by CBDT lays down at para No. 3.4..6:

“AIS has the functionality for effecting transfer of jurisdiction under Section 120and 127 of the Act on the system. It allows the details of cases to be transferred -identified by PAN, source A.O. and destination A.O., to be entered and maintained in the system. AIS provides standard texts of transfer orders which can be adopted from the system and further customized. A draft transfer order can be prepared in AIS by the ITO / ACIT (Headquarters) and printed or viewed. This can  be subsequently confirmed on the system by the concerned CIT / CCIT or DGIT. Once the order is confirmed, intimation letters and transfer memos can be printed.”

Thus, there is a well laid down system in the department to effect the transfer of case from one assessing officer to another assessing officer, subordinate to the same CIT/DG or to a different CIT/DG. Computer functionality i.e. AIS has been designed in a manner so that section 127 compliance is ensured.

1.6 Issue of mandatorily passing order u/s 127 came up for consideration before the Hon’ble High Court in the case of [2010] 329 ITR 283 (Calcutta) High Court of Calcutta Kusum Goyal v Income Tax Officer (AY2006-07)

The question before the Hon’ble Court:

Whether under section 127, an Assessing Officer on his own coul dtransfer an income-tax file to another officer and whether an order was required to be passed ?

Held at para 10(concluding para):

“It was evident that respondent No. 2 had sought to justify his action by stating that the jurisdiction automatically got vested with the jurisdictional officer and no order under section 127 was required to be passed. It was opined that the letter/notice issued by respondent No. 1 was patently illegal since in case of transfer within the same city, locality or place although the opportunity of hearing as postulated in section 127(1) and (2) has been dispensed with, other statutory formalities which include issuing an order is required to be complied with. Similarly, the transfer of files for the assessment years 2007-08, 2008-09 and the earlier years as intimated in the letter/notice issued by respondent No. 1 was also bad in law. The argument of the respondents that in the case of intra city transfer no order was required to be passed, cannot be accepted in view of the settled position of law in Kashiram Aggarwalla v. Union of India [1965] 56 ITR 14 (SC) and in S.L. Singhania v. Asstt. CIT/CWT [1992] 193 ITR 275/65 Taxman479 (Delhi) wherein the validity of the orders were under challenge, meaning there by an order recording transfer has to be on the records. Since it was opined that it was imperative on part of the respondents to issue an order under section 127(3), the letters/notices under challenge were to be set aside and quashed. The writ petition was to be allowed.”(Copy of the judgement attached at PB No. 48 to 52)

1.7 Similar issue came up inthe case of an NRI assessee, for consideration before the Hon’ble ITAT in the case of [2019] 107 taxmann.com 452 (Hyderabad-Trib.) Vijay Vikram Dande Kurnoolv. Assistant Director of Income-tax (International Taxation)

The question before the Hon’ble ITAT:

Whether where assessee’s case was transferred from one Assessing Officer to another Assessing Officer having offices in different localities/places, notice under section127(1) had to be given to the assessee and it was only the Principal Director General or Principal Commissioner who could transfer case under section127?

Held at para 10 (concluding para:

“It was evident that respondent No. 2 had sought to justify his action by stating that the jurisdiction automatically got vested with the jurisdictional officer and no order under section 127 was required to be passed. It was opined that the letter/ notice issued by respondent No. 1 was patently illegal since in case of transfer within the same city, locality or place although the opportunity of hearing as postulated in section 127(1) and (2) has been dispensed with, other statutory formalities which include issuing an order is required to be complied with. Similarly, the transfer of files for the assessment years 2007-08, 2008-09 and the earlier years as intimated in the letter/ notice issued by respondent No. 1 was also bad in law. The argument of the respondents that in the case of intra city transfer no order was required to be passed, cannot be accepted in view of the settled position of law in Kashiram Aggarwalla v. Union of India [1965] 56 ITR 14 (SC) and in S.L. Singhania v. Asstt. CIT/ CWT [1992] 193 ITR 275/ 65 Taxman 479 (Delhi) wherein the validity of the orders were under challenge, meaning thereby an order recording transfer has to be on the records. Since it was opined that it was imperative on part of the respondent to issue an order under section 127(3), the letters/ notices under challenge were to be set aside and quashed. The writ petition was to be allowed.” (Copy of the judgement attached at PB No. 48 to 52)

1.7 Similar issue came up in the case of an NRI assessee, for consideration before the Hon’ble ITAT in the case of [2019] 107 taxmann.com 452 (Hyderabad-Trib.) Vijay Vikram Dande Kurmooly vs. Assistant Director of Income-tax (International Taxation)

The question before the Hon’ble ITAT:

Whether where assessee’s case was transferred from one Assessing Officer to another Assessing Officer having offices in different localities/ places, notice under section 127(1) had to be given to the assessee and it was only the Principal Director General or Principal Commissioner who could transfer case under section 127 ?

Held at para 10(concluding para):

“10. We find that under sub-section 3 of section 127, it is provided that provisions of sub-section 1 & 2 are not applicable and no such opportunity is to be given to the assessee, where the transfer is from any AO, to any other AO where the Offices of such officers are situated in the same city, locality or place. We find that the AO at Kurnool had transferred the file to the AO at Hyderabad and therefore, even if they are both under the jurisdiction of the same Pr. CIT at Hyderabad, the notice u/ s. 127(1) has to be given to the assessee and it is only the Pr. Director-General or the Pr. CIT or Pr. CIT who can transfer the case u/ s. 127 of the Act. No such procedure has been followed by the Deptt. Therefore, we are of the opinion that the issuance u/s 143(2) by the Dy. CIT(IT)-1, Hyderabad is without any authority and also beyond the period of six months from the date of filing of returns and therefore, is barred by limitation and hence, not sustainable and the consequent assessment order passed by the Asstt. CIT (IT) Hyderabad is void ab initio.” (Copy of the judgement attached at PB No. 53 to 64)

1.8 Legal issue of jurisdiction under section 127 is no more res integra. Most of the judgements are on communication of the reasons, agreement between two PCITs, opportunity to assessee etc. However, all judgements postulate the existence of an order u/s 127 by competent authority. Legal position emerging from the various judgements can be summarized as under:

a) Order u/ s 127 is to be passed, even if the case is being transferred for the administrative convenience of the department.

b) Order u/s 127 is to be passed even if the case is being transferred irrespective of the intra-city or inter-city.

c) Opportunity of hearing is to be granted to the assessee before the transfer of the case in all situations, except where both assessing officers are in the same city/ locality

1.9 Ld. CIT(A) has held (please see para 11.3, page 15 of appeal order) that assessee participated in proceedings and now can not take such ground. Jurisdiction can not be called in question u/s 124 after the expiry of one month from the date of service of notice u/s 142(1). Ld. Officer further holds that no prejudice is caused by assessing at Jaipur and the transfer was done at the specific request of the appellant.

Looking from any angle, these findings of ld. CIT(A) about deemed jurisdiction and belated objections are unjustified. Scheme of Income-tax Law provides that when an officer has jurisdiction over the assessee, the same cannot be transferred and assumed by another officer, unless there is an appropriate order passed by the Competent Authority transferring the jurisdiction. In the absence of a valid transfer order by the competent authority, the transferee officer(DCIT, Jaipur) could not have acquired valid jurisdiction to assess u/s 143(2). Hon’ble Supreme Court in the case of CIT v Hotel Blue Moon (2010) 321 ITR 362 (S.C) held that issue of a legally valid notice u/s. 143(2) is mandatory for usurping jurisdiction to frame scrutiny assessment u/s. 143(3). Consequently, the notice u/s 143(2) dated 20/10/2014 issued by DCIT, Jaipur is without jurisdiction. Participation by the assessee could had validated the service of notice u/s 292BB, but the jurisdictional defect, that crept into the notice and rendered whole proceedings void, can not be cured by mere participation.

GROUNDS ON MERIT

GROUND NO. 2(a)

That the Ld. Assessing Officer has erred in making the

addition of Rs. 700000/- u/s 69C because:

a) Expense was never a ‘unexplained expenditure’, due to the fact that assessee had already explained the nature of expenditure and source thereof on 09/02/2015. Ld. AO neither show caused nor sought any explanation before making addition u/s 69C.

Following is the chronological sequence of assessment proceedings:

DATE ACTION TAKEN
 

12/11/2014

Assessee discloses in reply about the investment of Rs. 521000/- thru cheque on 17/01/2012 in ‘Land Plot’ along with a copy of Agreement with seller (i.e. Choti Devi)’
 

19/11/2014

 

Assessee furnishes the details of cash withdrawals from the bank accounts in reply to queries by AO along with copies of all Indian and Foreign Bank Accounts.
21/01/2015

&

29/01/2015

AO issues notices u/s 142(1) asking the assessee to furnish a chart showing the details of cash withdrawal and utilization of the same including personal expenses
09/02/2015 Assessee furnishes the details of cash expenses and also mentions that 700000/- was paid to Choti Devi on 01/10/2011, in addition to the payment of Rs. 521000/- thru cheque. (Please see PB No. 37 to 39)
13/02/2015 AO provides a copy of the statement of Choti Devi recorded by him u/s 131 on 07/01/2015. The statement also confirms the payment of Rs. 700000/ cash, as claimed by the assessee in his reply on 09/02/2015. (Please see PB No. 40 to 42)
14/02/2015 Assessee furnishes a ‘Cash Flow Account’ showing bank withdrawals of Rs. 22.20 Lacs and cash payments of Rs. 9.85 Lacs (including Rs. 7 Lacs paid to Choti Devi) from 01/4/2011 to 01/10/2011 (Please see PB No. 43 to 44)
05/03/2015 AO passes the assessment order making the addition of Rs. 700000/- u/s 69C without issuing any show-cause notice or seeking an explanation about alleged ‘Undisclosed Investment’ u/s 69C

2.1    Section 69C states:

“Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof as the case may be, may be deemed to be the income of the assessee for such financial year…… ”

Thus, the section has three limbs, which need to be satisfied before deeming any expenditure as income of the assessee:

a) An assessee has incurred an expenditure, and

b) he offers no explanation about the source of such expenditure

c) or the explanation, if any, offered by him is not, in the opinion of the AO, satisfactory,

Now the appellant compares each of the limbs vis-à-vis the facts of the assessee:

2.2 Section 69C is a deeming provision in the close company of other deeming provisions from Section 68 to Section 69D. The principle that governs a deeming provision is that the initial onus lies upon the revenue to raise a prima facie doubt on the basis of credible material. The onus, thereafter, shifts to the assessee to prove that the expense is genuine and, if the assessee is unable to offer a credible explanation, the Assessing Officer may legitimately raise an inference against the assessee. If, however, the assessee furnishes all relevant facts within his knowledge and offers a credible explanation, the onus reverts to the revenue to prove that these facts are not correct. The revenue cannot draw an inference based upon suspicion or doubt or perceptions of culpability or on the quantum of the amount, involved. Any ambiguity or any ifs and buts in the material collected by the Assessing Officer must necessarily be read in favour of the assessee, particularly when the question is one of taxation, under a deeming provision. Thus, neither suspicion/ doubt nor the quantum shall determine the exercise of jurisdiction by the Assessing Officer. In the case of the assessee, revenue collected the evidence of expenses of Rs. 700000/- and incidentally, the assessee explained the expense even before the confrontation of material. Thereafter, revenue has failed to bring any other material or evidence questioning the source of expense.

Grdound No. 2(b)

The statement u/s 131 was recorded at the back of the assessee, without presence, information and his knowledge, and he was supplied the copy of statement for the first time on 12/02/2015 by the Ld. AO, after voluntary and suo-moto disclosure on 09/02/2015 by the assessee.

Assessee omitted to mention the expense in his reply on 12/11/2014 which he corrected in his subsequent reply on 09/02/2015, however the Ld. AO has treated the expense as concealed and undisclosed. Thus, the whole addition is based on surmises, assumptions, and presumptions of the Ld. AO.

2.3 AO conducted the assessment proceedings by basing on assumptions and presumptions, which is apparent from the following facts:

(a) Statement u/s 131 of Ms. Choti Devi was recorded on 07/01/2015 in a confidential manner and without the presence and knowledge of the assessee or his A/R. AO had proceeded with the impression that this payment of Rs. 700000/- is undisclosed money spent by the assessee in cash, without tallying the cash withdrawals details already available with him, by way of replies of asseesee.

(b) On continuous inquiries by AO by way of notices u/s 142(1) on 21/01/2015 and 29/01/2015, assessee, who is an NRI and not aware about the intricacies of assessment, checked all cash payments and informed about the Rs. 700000/- cash payment made on 01/10/2011 to Choti Devi, vide his reply dated 09/02/2015.

(c) When AO realized that his efforts of recording statement and catching the assessee red-handed, have gone in-vain, he

i) Informed about having recorded the statement u/s 131 and delivered the copy of the statement on

12/02/2105

ii) Did not seek any explanation or issued any show cause notice on the expense of Rs. 700000/-

iii) Made addition in the assessment order u/s 69C

(d) Assessee’s view of unfairness on the part of AO, gets further strengthened from the following facts.

i) Assessment Proceeding Note Sheet’ or Order Sheet’ is a very vital part of the assessment records and vital evidence for the proceedings to have taken place. Entries in ‘Note Sheet’ ((Please see PB No. 45 to 46) reveal that no entries for proceedings after 19/11/2014 have been made, and the new entries are from 12/02/2015 only

ii) After 19/11/2014 and before 12/02/2015, the following proceedings were not taken on record (Order sheet) by the AO:

07/01/2015: Recorded the Statement u/s 131 of Choti Devi

21/01/2015: Issued notice u/s 142(1)

23/01/2015: Assessee submitted replies to notice

29/01/2015: Issued notice u/s 142(1)

09/02/2015: Assessee submitted reply and Rs. 7 Lac payment

(iii) AO has mentioned in the note sheet on 12.02.2015:

“Shri Praveen Saraswat, A/R attended. Statement of Smt. Choti Devi taken u/s 131 was provided to him. Case discussed partly with him”

A/R of the appellant who participated in the assessment proceedings was present with whom said part discussions’ took place. During the discussions, AO had admitted that assessee had already disclosed the amount, which he unearthed by taking the statement u/s 131.

2.4 Above conduct of the AO was not in accordance with CBDT Circular No: 14 (XL-35) dated April 11, 1955. It states:

“Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way,This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department”

Ground No. 2(c)Ld. AO had completely ignored the fact that assessee had cash balance of Rs. 1934976/-, before making payment of Rs. 700000/- on 01.10.2011 to Choti Devi. Recipient of the cash i.e. Choti Devi also acknowledged the receipt of Rs. 700000/- on 01.10.2011 in her statement u/s 131. Section 69C requires the source of such expense to be satisfactorily explained by the assessee. Ld. AO has, however, harped upon the disclosure of expense and never examined or asked for the source or satisfactory source of the expense.

2.5 It is amply clear that the additions under section 69C of the Act can be made, provided the transaction takes place during the financial year and the source of the expenditure remains unproved.

In the present case, the assessee had duly explained the sources of the expenditure and even the recipient has confirmed the receipt of money in her statement under oath u/s131.

Assessee had submitted a cash flow chart on 14/02/2015 (Please see PB No. 43 to 44) before the Ld. AO for further explaining the source and expenditure

All cash withdrawals were verifiable from the copies of the bank statements furnished in the replies. The above cash flow fully establishes the source of the payment of Rs. 700000/-to Choti Devi. When the conditions precedent for invoking provisions of section 69C are absent and the expenditure has been explained, it was not open to the Assessing Officer to treat the same as deemed income under section 69C of the IT Act. Hence, the appeal of the assessee deserves to be allowed.”

7. In first appeal the CIT(A) has confirmed the action of the AO by observing as under:-

“13.2 It is observed that the appellant was asked by the AO to file the details of investment made. On 30.10.2014, the appellant submitted letter dated 12.11.2014 informed that a plot of land in Jaipur was purchased from Smt. Choti Devi at total consideration of Rs. 5,21,000/-. It was only as a result of independent investigation made by the AO when he issued summon u/s 131(2) the seller, Smt. Choti Devi that the fact of additional undisclosed payment of Rs. 7,00,000/- made in cash by the appellant was discovered. In her statement recorded on oath u/s 131 before AO in 07.01.2015, she stated that the said plot was sold by her to the appellant for a consideration of Rs. 12,21,000/- out of which, Rs. 5,21,000/- was received through cheque and Rs. 7,00,000/- through cash. The cash amount of 7,00,000/- was found credited in the bank account of Smt. Choti Devi on 01.10.2011.”

13.3 “The copy of statement of the seller was provided to the appellant on 13.02.2015. In response, the appellant admitted to have made total payment of Rs. 12,21,000/- including cash of Rs. 7,00,000/- was paid in settlement as the seller was not ready to handover the physical possession of the plot. The appellant submitted copy of relevant agreement dated 11.01.2012 to the AO. The AO observed that the agreement was executed between the appellant and Smt. Choti Devi was made on 11.01.2012 which showed consideration of Rs. 5,21,000/- being paid by cheque 13.01.2012. However, the cash deposit in the bank account of Smt. Choti Devi was made on 01.10.2011. In her statement recorded u/s 131, Smt. Choti Devihad confirmed that the said cash was given Shri Brijesh Sharma on 01.10.2011. As the cash was given by the appellant on 01.10.2011 much before the date of agreement executed on 11.01.2012. It was not possible that cash was paid before the agreement to resolve the dispute as the appellant had earlier submitted before AO that the dispute had arisen after the agreement. Further, the agreement disclosing total consideration of Rs. 5,21,000/-when the actual consideration was Rs. 12,21,000/- clearly shows that the consideration payment of 7,00,000/- was undisclosed and was in the nature of “on-money” paid over and above the stated consideration. Clearly, there was an intention on the part of the appellant to hide the actual consideration and under state the same. Had it been the official consideration, there was no reason to keep it outside the disclosed agreement to sell. There was no reason to make this payment in cash as the seller was to deposit the entire consideration in the bank account and therefore would have accepted the entire consideration by cheques. As the payment of Rs. 7,00,000/- had already been made before the date of execution of the agreement, the same would not have shown the consideration at much lower amount.

13.4 It is pertinent to observed that in his letter dated 12.11.2014 filed before the AO, the appellant had shown investment the purchase of said land at a total consideration of Rs. 5,21,000/- only. If the actual consideration from disclosed source was Rs. 12,21,000/-, the appellant would not have shown the same at Rs. 5,21,000/-.

13.5 The over all conduct of the appellant shows that he made payment of on-money in purchase of the plot from his undisclosed sources. The claim of making it out of withdrawals from bank account is not credible as the appellant would not have hidden this fact from the AO until the statement of smt. Choti Devi was recorded. It is therefore, concluded that the payment of Rs. 7,00,000/- was made out of the undisclosed income and the addition of the same u/s 69C of the Act is confirmed. This ground of appeal is dismissed.”

ITAT upheld addition for cash paid for land not forming part of Agreement value

8. On the other hand, the ld. DR supported the order of the lower authorities.

9. We have heard both the parties, perused materials available on record. The Bench noted that Income tax return having the residential address of Jaipur, was e-filed by the assessee on 27/07/2012. Notice u/s 143(2) dated 12/08/2013 was served by Asst. Director of Income Tax, International Taxation, New Delhi. The assessee raised the objection for the wrong jurisdiction on 03/09/2013, and a fresh notice u/s 143(2) dated 20/10/2014 was served by DDIT. International Taxation, Jaipur (PB24). No communication was made by either ADIT, International Taxation, Delhi or DDIT, International Taxation, Jaipur with the assessee for having transferred his jurisdiction from Delhi to Jaipur. Assessment Order u/s 143(3) was passed by DDIT, International Taxation, Jaipur on 05/03/2015. The Assessing Officer informed the assessee vide order dated 08/04/2015, in reply to his application under Right to Information Act, 2005, that no order u/s 127 for transfer of case from ADIT, Circle 1(1), New Delhi-110 002 was passed because the Additional Director International Taxation, Circle 1(1). New Delhi was holding charge of Additional Director International Taxation, International Taxation, Jaipur also. When the assessee raised this ground before ld. CIT(A), it was held that in this case, no order u/s 127 is required to be passed. He also mentioned that assessee had participated in the proceedings and now cannot take such ground. The question which falls for consideration is whether under section 127 of the Act, an Assessing Officer on his own can transfer an income-tax file to another officer and whether an order is required to be passed. In order to appreciate the issue it is necessary to refer to the relevant provisions in section 127 of the Act which is as under:

‘’Power to transfer cases.

127. (1) The Principal Director General or] Director General or (Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him.

(2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same [Principal Director General or] Director General or [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner,-

(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction), to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place.

Explanation. In section 120 and this section, the word “case”, in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.)”

From a reading of the language of section 127(3) it is evident that when a file is transferred from one Assessing Officer to another whose offices are located in the same city, locality or place, though other statutory formalities are required to be complied with, the opportunity of hearing as postulated in section 127(1) and (2) in case of intercity transfer, is not required. Scheme of the Income-Tax provides that when an officer has jurisdiction over the assessee, the same cannot be transferred and assumed by the another officer, unless there is an appropriate order passed by the competent authority transferring the jurisdiction. In this case, assessee himself has requested for transfer of his case from Delhi to Jaipur, which can be deemed to be no-objection from the side of assessee. However, the necessity of passing order u/s 127 cannot be dispensed with. It is undisputed fact that the AO at New Delhi had transferred the file to the AO at Jaipur and, therefore, even if they are both under the jurisdiction of the same Director-General or the Pr. CIT, the notice u/s 127(1) was to be given to the assessee and order u/s 127(3) was to be passed by Director-General or Pr. CIT who can transfer the case u/s 127 of the Act. No such procedure has been followed by the revenue. Therefore, we are of the opinion that the notice u/s 143(2) by DDIT, Jaipur is without jurisdiction and authority, and consequently the order passed u/s 143(3) is held to be void ab-initio.

9.1 In Ground No. 2, we have considered the appeal on technical ground, therefore, the ground raised by the assessee on merits become infructuous and does not required any adjudication.

In the result, the appeal of the assessee is allowed

Order pronounced in the open Court on 31/08/2022.

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