Case Law Details
Sanjaybhai Ranchhodbhai Patel Vs ACIT (ITAT Ahmedabad)
The case of Sanjaybhai Ranchhodbhai Patel Vs ACIT (ITAT Ahmedabad) revolves around an appeal filed by the assessee against an order passed by the CIT(A)-12, Ahmedabad for the Assessment Year 2011-12.
Initially, the assessee filed a return of income on 28.03.2012, showing a total income of Rs.41,81,710/-. Subsequently, a revised return was filed on 11.01.2013, reflecting a total income of Rs.16,37,210/-, primarily due to a capital gain related to the sale of agricultural land, which was exempt. Following a search action in the group case of Shayona Group, including documents related to a land transaction involving all partners of M/s. Shayona Land Corporation, the Assessing Officer issued a notice under Section 148 of the Income Tax Act, 1961 to the assessee on 28.03.2016. The notice was responded to with a return filed on 02.06.2016, declaring an income of Rs.16,37,270/-.
During the assessment proceedings, the Assessing Officer made substantive additions in the case of the firm, M/s. Shayona Land Corporation, based on unsecured loans from Shreeji Finance. However, protective additions were made in the individual partners’ cases, including the assessee’s, totaling Rs.43,12,673/-. Additionally, a disallowance of Rs.4,91,871/- was made under Section 36(1)(iii) of the Act, along with a disallowance of Rs.1,71,576/- under Section 14A of the Act.
On appeal before the CIT(A), the assessee challenged the validity of the notice issued under Section 148 of the Act, arguing that it referred to the assessment year 2009-10 instead of 2011-12. Furthermore, the assessee contended that protective additions were not permissible when substantive additions had already been made in the case of the firm.
The CIT(A) partly allowed the appeal, leading to further appeal before the ITAT Ahmedabad.
In its decision, the ITAT noted the typographical error in the notice under Section 148 but upheld its validity, considering it an inadvertent mistake. However, the ITAT ruled in favor of the assessee regarding protective additions, stating that since substantive additions had already been made in the firm’s case, the Assessing Officer couldn’t impose protective additions on the individual partners, including the appellant. This, the ITAT reasoned, would amount to double taxation.
Given the decision on protective additions, the ITAT didn’t delve into the merits of other disallowances made by the Assessing Officer.
Ultimately, the ITAT allowed the appeal of the assessee, rendering the assessment invalid due to the impermissible protective additions.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the assessee against order dated 23.05.2019 passed by the CIT(A)-12, Ahmedabad for the Assessment Year 2011-12.
2. The assessee has raised the following grounds of appeal :-
“1. The learned Commissioner of Income Tax (Appeal)-12, Ahmedabad, has grievously erred in facts and law while passing the order under consideration.
2. That learned Commissioner of Income Tax (Appeal)-12, Ahmedabad erred in upholding the validity of Notice issued u/s.148 of the Act.
3. That learned Commissioner of Income Tax (‘Appeal)-12, Ahmedabad, erred in facts and in law in upholding the disallowance of Rs.4,91,871/- made by the Assessing Officer u/s. 36(i)(iii) of Income Tax Act, 1961.”
3. The original return of income was filed on 28.03.2012 showing total income of Rs.41,81,710/- which was processed under Section 143(1) of the Income Tax Act, 1961 on 25.04.2012. Thereafter, a revised return was field on 11.01.2013 showing total income of Rs.16,37,210/-. The revised income was on account of capital gain of Rs.25,44,449/- which pertained to sale of agriculture which was exempt from capital gain. Search action under Section 142 of the Act was carried out in the group case of Shayona Group on 15.10.2013 in which documents showing to a land transaction was found which pertained to all partners of the firm M/s. Shayona Land Corporation. The residence of premises of all the partners were covered under search action except that of Shri Sanjay R. Patel. The assessments in case of the other seven partners were made under section 153A of the Act making additions arising out of out of the incriminating documents. In assessee’s case, after recording the reasons and taken approval as per procedure, notice was issued under Section 148 of the Act on 28.03.2016. In response to the notice issued under Section 148 of the Act the assessee filed return on 02.06.2016 declaring income of Rs.16,37,270/-. Notices under Section 143(2) and 142(1) of the Act were issued on 21.06.2016 along with questionnaire and copy of reasons recorded. In response to these notices issued, the assessee raised objections against the reopening of the assessments which was dealt by the Assessing Officer by a speaking order on 14.07.2016. The Assessing Officer after taking cognisance of the assessee’s reply objected that during the search survey under Section 133A of the Act was conducted on Shop No.22/23 Shayona Complex and various documents pertaining to a land transaction were found and impounded. An agreement for sale dated 20.03.2010 between Shri Rameshbhai Desai and Shri Sureshkumar Ranchhodbhai Patel for a total sale consideration of Rs.4,57,41,388/- was made. This issue was confronted vide statement of Shri Sureshkumar Ranchhodbhai Patel recorded on 10.12.2013. After taking cognisance of all the aspects of the said transactions, the Assessing Officer held that since the funds for purchase of land has been sourced from the unsecured loans from Shreeji Finance taken by the firm, M/s. Sayona Land Corporation, the addition will be substantive in case of the firm. However, it is a fact that the partners are equally liable to the firm and hence protective addition has been made in case of the partners with substantive addition in case of the firm. Thus, the difference of Rs.3,45,01,388/- was divided between the eight partners and thus Rs.43,12,673/- was added as unaccounted investment under Section 69 of the Act on protective basis. The Assessing Officer further made disallowance of Rs.4,91,871/- towards the disallowance under Section 36(1)(iii) of the Act. The Assessing Officer also made disallowance under Section 14A of the Act amounting to Rs.1,71,576/-
4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. AR submitted that on the basis of material found, the reopening is not permissible in respect of protective addition as the reasons are only of assumption. The reasons categorially not mentioned by the assessee as purchaser or seller and there was no nexus between the information and formation of the assessee’s involvement in the transaction. Thus, the Ld. AR submitted that there was no application of mind while reopening the assessee’s case. The Ld. AR further submitted that notice issued under Section 148 of the Act is also not erroneous as the Assessment Order mentioned in the said notice is that of 2009-10 and not the year under consideration.
6. The Ld. DR submitted that the notice issued under Section 148 of the Act was that for the year 2011-12 only and the mistake in the paragraph no.2 of the notice is a typographical error as the subject itself mentions notice under Section 148 for the A.Y. 2011-12. As regards reopening not permissible under protective addition, it will not be appropriate as the assessee is the partner in the group that has been searched and, therefore, the reopening was validly done.
7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the subject of notice under Section 148 of the Act clearly mentions that the Assessment Year is 2011-12 and, therefore, mention of Assessment Year 2009-10 is just a typographical error, appears to be genuine contention of the Ld. AR. As regards reopening not permissible in respect of protective addition, since the substantive addition has already been made in case of the firm, the Assessing Officer cannot make protective addition in the present assessee’s case which tantamount to double taxation and, therefore, ground no.2 is allowed.
8. Since the assessment itself becomes bad in law as stated hereinabove, the merit is not decided upon.
9. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on this 24th April, 2024.
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