ITO Vs Fiero Fernandes (ITAT Mumbai)
Summary: ITAT Mumbai dismissed the Revenue’s appeal for Assessment Year 2015-16 and upheld the ultimate conclusion of the CIT(A) allowing the assessee’s appeal, though on the merits of the additions rather than on the jurisdictional ground adopted by the CIT(A). The assessee, Fiero Fernandes, had not filed an original return under Section 139. Reassessment proceedings were initiated after information indicated salary income and purchase of an immovable property having a stamp-duty value of ₹84,88,000. Following proceedings under Sections 148A and 148, the assessee filed a return declaring total income of ₹10,62,650.
The assessee was one of three joint purchasers of a residential flat acquired from JDN Developers for a stated consideration of ₹81,00,000. The other purchasers were his maternal grandmother and mother. The assessee explained that he had become a co-owner as the earning family member eligible for a housing loan and had obtained ₹25,00,000 from Bassein Catholic Co-operative Bank Ltd. His maternal grandmother had also paid ₹50,00,000 before registration. The Assessing Officer nevertheless treated ₹6,00,000 as unexplained investment under Section 69 read with Section 115BBE and separately added ₹3,88,000 under Section 56(2)(vii)(b)(ii), representing the difference between the agreement consideration of ₹81,00,000 and stamp-duty value of ₹84,88,000.
Before the CIT(A), the assessee produced banking records showing payments aggregating to ₹59,00,000 and a housing-loan statement supporting another ₹25,00,000, thereby explaining aggregate payments of ₹84,00,000 to the builder. The CIT(A), however, disposed of the appeal on the preliminary jurisdictional issue. Following Hexaware Technologies Ltd., he held that the Section 148 notice issued by the Jurisdictional Assessing Officer instead of through the prescribed faceless mechanism under Section 151A was invalid and consequently quashed the reassessment.
Before the Tribunal, the Revenue relied on the subsequently inserted Section 147A and contended that the jurisdictional basis adopted by the CIT(A) no longer survived. It also relied upon paragraph 3.1(b) of CBDT Circular No. 5/2024 dated 15.03.2024 to support maintainability of the departmental appeal despite the tax effect being below the prescribed monetary limit. The Tribunal, however, found it unnecessary to decide the larger jurisdictional controversy because the additions themselves were unsustainable on the documentary evidence. It therefore expressly left open the validity of the Section 148 notice and the effect of Section 147A.
On the ₹6,00,000 addition, the Tribunal noted that payments of ₹59,00,000 were traceable to the bank account and a further ₹25,00,000 was financed through an institutional housing loan. The Assessing Officer had identified no defect in these records and had produced no material showing that any part of the investment originated from an undisclosed source belonging to the assessee. The property was also jointly purchased with the assessee’s mother and maternal grandmother, and the assessment record itself acknowledged the latter’s ₹50,00,000 payment. The Tribunal held that the conditions contemplated by Section 69 were therefore not fulfilled and directed deletion of ₹6,00,000.
As regards Section 56(2)(vii)(b)(ii), the Tribunal found that although the agreement initially recorded consideration of ₹81,00,000, documented further payments resulted in aggregate consideration of ₹84,00,000. The difference from the stamp-duty value of ₹84,88,000 was therefore only ₹88,000. More importantly, the property had three joint purchasers and the Assessing Officer neither determined the assessee’s corresponding share nor explained why the entire difference should be assessed exclusively in his hands. If ₹88,000 was apportioned among the three co-purchasers, the amount attributable to the assessee would fall below the statutory threshold of ₹50,000 applicable for the relevant year. The Tribunal consequently deleted the ₹3,88,000 addition as well. Since both additions failed on merits, the Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the Revenue against the impugned order dated 10.03.2026 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, for the Assessment Year 2015–16. The Revenue has raised the following grounds:
“1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the assessee’s appeal without discussing the issues on merits.
2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in treating the notice issued under section 148 of the Act as invalid and quashing the subsequent assessment order solely on the ground that the said notice was issued by the JAO instead of the FAO, without taking into account the newly inserted provision of section 147A of the Income-tax Act with effect from 01.04.2021, which clarifies that the Assessing Officer for the purposes of sections 148 and 148A shall mean and shall always be deemed to have meant an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit.
3. On the facts and in the circumstances of the case, the Hon’ble ITAT is requested to entertain this appeal, though the tax effect is below the monetary limit prescribed in CBDT Circular No. 5/2024 dated 15.03.2024, as the case falls within the exception laid down in clause (b) of paragraph 3.1 of the said Circular.”
2. Brief facts are that the assessee is an individual who had not filed his original return of income under section 139 for the relevant assessment year. On the basis of information available with the Department, it was noticed that the assessee had earned salary income and had also been reported to have entered into a transaction for purchase of an immovable property having a stamp-duty value of ₹84,88,000. Proceedings under section 148A were accordingly initiated and, after passing an order under section 148A(d) on 20.04.2022, notice under section 148 was issued on the same date. In response thereto, the assessee filed his return of income on 27.11.2023 declaring a total income of ₹10,62,650.
3. During the reassessment proceedings, the assessee explained that he was one of the three joint purchasers of a residential flat in Linnet Apartment acquired from JDN Developers under an agreement dated 09.08.2014 for a consideration of ₹81,00,000. The other two co-purchasers were his maternal grandmother, late Smt. Sarah M.F. Sequeira, and his mother, Smt. Dominica Fernandes. It was submitted that the assessee had joined as a co-owner since he was the earning member of the family eligible to obtain a housing loan and had accordingly availed a loan of ₹25,00,000 from Bassein Catholic Co-operative Bank Ltd. It was further submitted that ₹50,00,000 had been paid by his maternal grandmother before registration of the agreement.
4. The Assessing Officer observed that the stated purchase consideration of the property was ₹81,00,000, whereas the assessee had explained only the housing loan of ₹25,00,000 and payment of ₹50,00,000 made by his maternal grandmother. He, therefore, held that the source of the balance amount of ₹6,00,000 remained unexplained and added the same under section 69 read with section 115BBE. The Assessing Officer further noticed that the stamp-duty value of the property was ₹84,88,000 as against the stated consideration of ₹81,00,000 and, accordingly, added the difference of ₹3,88,000 under section 56(2)(vii)(b)(ii). The total income was thus assessed at ₹20,50,650 by an order dated 28.02.2024 passed under section 147 read with sections 143(3) and 144B.
5. Before the learned CIT(A), the assessee challenged both the validity of the reassessment proceedings and the additions made on merits. On the jurisdictional issue, it was contended that the notice under section 148 had been issued by the Jurisdictional Assessing Officer and not in accordance with the faceless mechanism prescribed under section 151A. Reliance was placed upon the judgment of the Hon’ble Bombay High Court in the case of Hexaware Technologies Ltd., besides decisions of certain other High Courts, to contend that a notice issued by the JAO contrary to the notified faceless scheme was invalid.
6. On merits, the assessee furnished the bank passbook evidencing the payments made towards the property and the loan statement in support of the housing loan of ₹25,00,000. The details placed before the learned CIT(A) showed payments of ₹15,00,000 on 14.12.2013, ₹15,00,000 on 26.02.2014, ₹20,00,000 on 29.05.2014, ₹5,00,000 on 29.11.2014 and two further payments of ₹2,00,000 each on 17.09.2016 and 29.10.2018. Thus, payments aggregating to ₹59,00,000 were reflected through the bank account, apart from ₹4,60,000 paid towards stamp duty and registration charges. It was submitted that the banking payments of ₹59,00,000, together with the housing loan of ₹25,00,000, accounted for the aggregate amount of ₹84,00,000 paid to the builder. The delay in producing the old banking records was attributed to the death of the assessee’s maternal grandmother and the difficulty experienced by the family in retrieving the documents pertaining to an old transaction.
7. As regards the addition under section 56(2)(vii)(b)(ii), it was submitted that though the consideration initially recorded in the agreement was ₹81,00,000, certain further payments were demanded by the builder and the aggregate amount ultimately paid towards the property was ₹84,00,000. Therefore, the difference between the amount actually paid and the stamp-duty value of ₹84,88,000 was only ₹88,000 and not ₹3,88,000. It was further emphasised that the property had been acquired jointly by three purchasers and hence the entire difference could not, in any event, be assessed exclusively in the hands of the assessee.
8. The learned CIT(A) decided the appeal on the preliminary jurisdictional ground. Following the judgment of the Hon’ble jurisdictional High Court in Hexaware Technologies Ltd., he held that the notice issued under section 148 by the Jurisdictional Assessing Officer was invalid, as it had not been issued through the prescribed faceless mechanism. He accordingly quashed the notice as well as the consequential reassessment order. Having allowed the appeal on this preliminary issue, the learned CIT(A) did not adjudicate the additions on merits.
9. Before us, the learned Departmental Representative submitted that the learned CIT(A) had erred in quashing the reassessment merely because the notice under section 148 had been issued by the Jurisdictional Assessing Officer. It was submitted that the subsequently inserted provisions of section 147A, operating with effect from 01.04.2021, clarify the authority competent to act for the purposes of sections 148 and 148A and, therefore, the legal basis on which the learned CIT(A) had quashed the reassessment no longer survived. He further submitted that the learned CIT(A), having not examined the two additions on merits, could not have allowed the assessee’s appeal in its entirety. The learned DR also relied upon the exception contained in paragraph 3.1(b) of CBDT Circular No. 5/2024 dated 15.03.2024 to support the maintainability of the present appeal despite the tax effect being below the prescribed monetary limit.
10. After considering the relevant material placed on record, we find that though the learned CIT(A) has quashed the reassessment on the jurisdictional ground relating to the authority which issued the notice under section 148, the assessee had challenged the additions on merits as well and the relevant documentary material forms part of the record. Since, upon examination of such material, we find that the additions themselves are unsustainable, we proceed to decide the appeal on merits. Consequently, the larger legal issue concerning the validity of the notice under section 148 and the effect of section 147A thereon is left open and is rendered academic in the facts of the present case.
11. Insofar as the addition of ₹6,00,000 under section 69 is concerned, the Assessing Officer proceeded on the footing that, against the consideration of ₹81,00,000, the assessee had explained only the housing loan of ₹25,00,000 and the payment of ₹50,00,000 stated to have been made by his maternal grandmother and, therefore, the balance amount of ₹6,00,000 remained unexplained. However, the documentary evidence placed on record shows that payments aggregating to ₹59,00,000 were made through the bank account and a further sum of ₹25,00,000 was financed through a housing loan obtained from Bassein Catholic Co-operative Bank Ltd. The aggregate amount of ₹84,00,000 stated to have been paid to the builder thus stands supported by the banking records and the loan documents.
12. Section 69 can be invoked where an investment is found to have been made by the assessee, the same is not recorded in the books of account, if any, and the assessee either offers no explanation regarding its nature and source or the explanation so offered is found to be unsatisfactory. Here, the source of the investment is neither unexplained nor sought to be supported by a mere oral assertion. The payments are traceable to an identified bank account and an institutional housing loan. The Assessing Officer has not pointed out any infirmity in the bank entries or the loan documents, nor has any material been brought on record to demonstrate that any part of the investment had emanated from an undisclosed source belonging to the assessee.
13. It is also important to bear in mind that the property was not purchased by the assessee alone. It was jointly acquired with his mother and maternal grandmother, and the material available in the assessment record itself records the payment of ₹50,00,000 by the latter. Yet, while examining the alleged shortfall, the Assessing Officer proceeded as though the entire property and its consideration represented an investment made exclusively by the assessee. The mere fact that the entire tax was deducted under the assessee’s PAN for convenience or that he joined as a co-owner to facilitate the housing loan cannot, by itself, convert the contributions of the other co-purchasers into unexplained investment of the assessee.
14. The addition appears to have been made principally because the complete banking documents could not be furnished within the time allowed in the reassessment proceedings. However, once the relevant evidence explaining the source of the payments is available on record and its authenticity has not been controverted, the addition cannot be perpetuated merely on account of delay in producing the old records. The surrounding circumstances narrated by the assessee may explain such delay; nevertheless, the deletion of the addition rests upon the banking evidence and the loan documents which adequately establish the source of the investment. We accordingly hold that the conditions contemplated under section 69 are not fulfilled and direct the Assessing Officer to delete the addition of ₹6,00,000.
15. The other addition of ₹3,88,000 was made under section 56(2)(vii)(b)(ii) by comparing the consideration of ₹81,00,000 mentioned in the agreement with the stamp-duty value of ₹84,88,000. The Assessing Officer thus treated the entire difference as income from other sources in the hands of the assessee. The material furnished by the assessee, however, shows that, apart from the amount recorded in the agreement, further amounts were demanded and received by the builder and the aggregate payment made towards the property was ₹84,00,000. These payments are not founded upon an unsubstantiated plea but are reflected in the banking records. Therefore, while examining the applicability of section 56(2)(vii)(b)(ii), the actual and documented consideration paid for acquiring the property could not have been disregarded merely because the agreement initially mentioned the consideration at ₹81,00,000.
16. Once the aggregate consideration of ₹84,00,000 is taken into account, the difference vis-à-vis the stamp-duty value of ₹84,88,000 is only ₹88,000. More importantly, the property was admittedly acquired by three joint purchasers. The Assessing Officer neither determined the assessee’s corresponding share in the property nor explained how the entire difference pertaining to a jointly acquired asset could be assessed exclusively in his hands. If the difference of ₹88,000 is apportioned amongst the three co-purchasers, the amount attributable to the assessee would be below the statutory threshold of ₹50,000 applicable for the relevant assessment year. The essential condition for invoking section 56(2)(vii)(b)(ii) in the hands of the assessee is, therefore, not satisfied.
17. Thus, the addition under section 56(2)(vii)(b)(ii) is unsustainable from either perspective. The Assessing Officer has adopted ₹81,00,000 as the consideration without examining the subsequent payments made to the builder and has simultaneously attributed the entire difference of ₹3,88,000 to one purchaser, notwithstanding the admitted fact that the property was jointly acquired by three persons. Such an addition proceeds upon an incomplete appreciation of the transaction and is bereft of any determination of the value or consideration properly attributable to the assessee. We, therefore, direct the Assessing Officer to delete the addition of ₹3,88,000.
18. Since both the additions made in the reassessment have been deleted on merits, adjudication of the jurisdictional issue concerning the validity of the notice under section 148 and the effect of section 147A would have no bearing upon the ultimate tax liability of the assessee. We accordingly leave the said issue open without expressing any opinion thereon. The Revenue’s grievance that the learned CIT(A) did not adjudicate the additions on merits also no longer survives, as the additions have now been examined by us on the basis of the material available on record and have been found to be unsustainable. The ultimate conclusion reached by the learned CIT(A) in allowing the assessee’s appeal is, therefore, upheld, though on the merits of the additions.
19. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 8th September, 2026.
