Case Law Details
Shri Sushil Kumar Golecha Vs ACIT (ITAT Indore)
The law is well settled where the issue of jurisdiction of assessing authority is concerned, if the jurisdiction assumed is not in accordance with law, then it cannot be cured or ignored under the provisions of section 292B of the Act. In our considered view, the assumption of jurisdiction would begin from the recording of satisfaction by the A.O. that certain income has escaped assessment pertaining to a particular assessment year. Admittedly, the assessee has not challenged the validity of notice u/s 148 of the Act. The assessee was duly supplied satisfaction recorded u/s 153C of the Act. The assessee considered it as a satisfaction recorded u/s 148 of the Act and filed return in response thereto. This fact is not controverted by the assessee. It is also a fact that the manner in which the satisfaction u/s 147 of the Act is required to be recorded is not prescribed under the law. Therefore, considering the totality of the facts and under the peculiarity of the facts of the present case, in our considered view section 292B of the Act comes to rescue of the Assessing Officer.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Ujjain, M.P. dated 2.5.20 16 pertaining to the assessment year 2010-11. The assessee has raised following revised grounds of appeal:
1. The Learned CIT(A) was not competent to take a view different from the binding decisions of Hon’ble SC/HC as written by CIT(A), himself in his order.
2. The learned CIT(A) erred in confirming addition of Rs. 4 lakhs made by the LAO; despite various submissions made by appellant and discussed by learned CIT(A) in his order.
3. Since the learned CIT(A) has not followed binding decision of Hon’ble Supreme Court, hence cost of this appeal be allowed u/s 254(2B) of IT Act.
4. Additional ground now being raised; Initiation of proceedings u/s 148 is void ab initio.
5. Prayer for interim relief0 Since the case of this appeal are squarely covered by Hon’ble SC decision in the case of Calcutta knitwear and since on identical ground, stay has been granted by Hon’ble ITAT in earlier two years, hence it is prayed that stay of demand for this year also be granted.
2. The facts giving rise to the present appeal are that as per the assessment order the case of the assessee was reopened by issuing notice u/s 148 of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) dated 17.12.2013. In response thereto, the assessee filed a return of income declaring total income at Rs. 1,80,870/-. Thereafter, the A.O. proceeded to frame assessment, thereby the A.O. made an addition of Rs.4 lakhs. The basis of addition by the A.O. was that Shri Nilesh Ajmera had borrowed money in cash from the assessee. The A.O. made addition u/s 69D of the Act. Aggrieved by this, the assessee preferred an appeal before Ld. CIT(A) taking various grounds. However, the Ld. CIT(A) sustained the finding of the A.O. Aggrieved by this, the assessee is in appeal before this Tribunal.
3. At the outset, Ld. Counsel for the assessee submitted that the assessment so framed is ex-facie bad in law. He contended that the A.O. proceeded to initiate proceedings u/s 153 of the Act. Thereafter, without recording satisfaction u/ s 148 of the Act proceeded to reopen the assessment and framed assessment u/s 143(3) r.w.s. 147 of the Act. He contended that the satisfaction recorded u/s 153 of the Act cannot be super imposed as the satisfaction recorded u/s 148 of the Act. He contended that the aforesaid provision operate in two different fields. He submitted that the issue goes to the root of the exercising jurisdiction by the assessing authority. In support of these averments, Ld. Counsel drew our attention at the paper book pages Nos. 1 & 2, wherein satisfaction recorded u/s 153A of the Act is enclosed. Ld. Counsel for the assessee submitted that even if it is assumed without prejudice to the submissions made herein before that it was an error on the part of the A.O., but such error remained un-ratified. Now the assessing officer cannot take shelter u/s 292B of the Act. He submitted that such error is un-rectified.
4. Ld. D.R. opposed the submissions of the Ld. Counsel for the assessee and supported the order of the authorities below. Ld. CIT(DR) submitted that the assessee is in response to notice issued u/s 148 of the Act which was issued on 17.12.2013 filed his return of income on 27.12.2013 declaring income at Rs. 1,80,870/-. Thereafter, the assessee participated into proceedings and did not raise any objection in this regard. Ld. CIT (DR) submitted that hence the assessee waived off his right to make an objection. Ld. CIT(DR) submitted that the objection related to jurisdiction should be raised at the earliest point of time. Ld. CIT(DR) submitted that the assessee mischievously did not object to the proceedings u/s 148 of the Act and now before this Tribunal by way of additional ground, the assessee has raised the ground related to legality of reopening. Ld. D.R. vehemently argued that any technical lapse by the assessing authority should not over ride the principle of substantial justice. Ld. D.R. prayed that the ground so raised may be dismissed with cost. In rejoinder, Ld. Counsel for the assessee submitted that anything which has been done wrongly and in illegal manner cannot be allowed to be continued. The ab-initio action of the A.O. is without authority of law. Therefore, same becomes void in the eyes of law.
5. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The issue which requires adjudication is whether the proceedings for reopening has been initiated in accordance with law or not. Admittedly, the assessment was framed u/s 143(3) r.w.s. 148 of the Act. The relevant provisions of the Act are reproduced for the sake of clarity.
Section 147:
75 [Income escaping assessment.
76 147. If the 77[Assessing] officer 78[has reason to believe79] that any income chargeable to tax has escaped assessment79 for any assessment years, he 79may, subject to the provision of section 148 to 153, assess or reassess79 such income 79 and also any other income chargeable to tax which has escaped assessment and which come to his notice subsequently in the course of the proceedings 79 under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in section 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section(3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years form the end of the relevant assessment year 80, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure 80 on the part of the assess to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts 80 necessary for his assessment, for that assessment year:
81[Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:]
82[Provided 83[also] that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.]
Explanation 1.—Production84 before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily84 amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
85[(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;]
(c) where an assessment has been made, but—
(i) income chargeable to tax has been underassessed ; or
(i) such income has been assessed at too low a rate86 ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;]
87{(d) where a person is found to have any asset (including financial interest in any entity) located outside India.]
88[Explanation 3.—For the purpose of assessment or reassessment86 under this section, the Assessing Officer may assess ot reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.]
89[Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.]
Section 148:
[(1)] Before making the assessment, reassessment or recomputation under section 147, the Assessing officer shall serve on the assessee a notice requiring him to furnish within such period, [***] as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed from and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:]
[Provided that in a case-
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and
(b) Subsequently a notice has been served under sub-section(2) of section 143 after the expiry of twelve month specified in the proviso to sub – section (2) of section 143, as it stood immediately before the amendment of said sub-section by the finance Act, 2002(20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in sub-section(2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice:
Provided further that in a case-
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and
(b) Subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the limit for making the assessment, reassessment or recomputation as specified in sub-section(2) of section 153, every such notice referred to in this clause shall be demand to be a valid notice.]
6. From the conjoint reading of the above provisions, it is clear that the satisfaction by the A.O. is a condition precedent for issuing notice u/s 148 of the Act. In the absence of satisfaction by the A.O., notice issued u/s 148 of the Act would not be valid. In the present case, the satisfaction is recorded by the A.O. reads as under:
“1. During the course of assessment proceeding in the case of Shri Nilesh Ajmera director/Shareholder of M/s. Phoenix Devcons Pvt. Ltd., Indore for the assessment year 2008-09, it is found that the assessee has borrowed money on hundi from one Shri Sunil Golecha, Further, statement of Shri Pankaj Joshi, employee of Shri Nilesh Ajmera (one of the main assessee covered in the satellite group) recorded on oath on 21.11.2011, it has been established that Shri Nilesh Ajmera had borrowed money in hundi in cash from Shri Sushil Golecha of Barngar and as per their record this amount is Rs.12,50,000/- in A.Y. 2008-09, Rs.48,00,000/- in A.Y. 2009-10 and Rs.4,00,000/- in A.Y. 2010-11.
2. Analysis of seized documents reflect that at page 165 of LPS A/23 contains the details of Hundi amount received, period, interest rate along with Dalali. Further, page 164 give details of post dated scrutiny cheques issued by the assessee, the hundi dealer Shri Sushil Golecha against the respective hundi borrowing as scrutiny cheques. To substantiate further, the reply of the Branch Manager of Bank of Rajasthan (presently ICICI Bank) received which confirmed that all the cheques were from the cheque book issued to Shri Nilesh Ajmera against his joint account No.1460101427487 maintained with his wife Smt. Sonali Ajmera. The manager further confirmed that these cheques were unused meaning thereby that these cheques were not presented before the bank. That assertion thus establishes that these were security cheques meant for security against the cash hundi loan given to the assessee. In view of the foregoing it is established beyond doubt that Shri Nilesh Ajmera has taken loan on hundis in cash from Shri Sushil Golecha.
3. The above borrowing gets further established by other findings viz. Noting at S.No.3 of page 164 of LPS A/23 that hundi of Rs.15000/- paid as on 15.5.2009 in cash “which is found factually correct due to the cash voucher related to this transaction also seized from the same premises and referred as page 27 of LPS 50 the important undisputed facts emerging from the aforesaid seized documents establishes that (a) date mentioned is 15.4.2009 (b) amount has been paid to Shri Sushil Golecha (c) paid in cash and (d) payment is against repayment of hundi loan. Same entry is also mentioned on page 141 of LPS A/23. Similarly other entry at page 142 of LPS A/23 are found to be actual transaction as is evident for the cash voucher on page 18 of LPS 50. Another entry at page 140 of LPS A/23 together with cash voucher in page 56 of LPS 50 proves that these are actual transactions.
4. Further nothing of seized diary referred to as BS-8 reflect that table drawn at page 165, post dated security cheques as detailed on P 165 matches with corresponding entries at page 128, page 82 & page 120 of annexure BS-8 which further proves hundi borrowings from Shri Sushil Golecha. Thus, in view of the foregoing it is well established fact beyond doubt that Shri Nilesh Ajmera has taken loan on hundis in cash from Shri Sushil Golecha.
5. At para C of Chapter 5 of the Appraisal report in the “satellite Group” action under section 153 is proposed in the case of Shri Sushil Golecha, Barngar 153 is proposed in the case Sushil Golecha Barnagar as the maounts advanced by him hundi may represents his unaccounted money, I have duly examined the seized documents viz. LPS A/23 (page 140, 141, 142, 162, 164 & 165) LPS 50 (Page 27) and BS-8 (page 56, 82, 120 & 128), copies of which were received through Hon’ble CIT, Ujjain on 1.4.2012. I have verified the facts from the ITRS furnished by the assessee. I am satisfied that for the aforesaid reasons as discussed above further action under section 153C is attracted for assessment of his total income in accordance with law.”
7. There is no doubt that the above satisfaction note by the A.O. relates to initiation of proceedings u/s 153C of the Act. It nowhere states that any income chargeable to tax has escaped assessment. Thus, the satisfaction is not in accordance with the provisions of section 147 of the Act. Now the question arises whether this lapse can be ignored in view of the section 292B of the Act? Section 292B of the Act reads as under:
“[Return of income, etc., not to be invalid on certain grounds.
Section 292B. No return of income, assessment, notice, summons or other proceedings, 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.]
8. The law is well settled where the issue of jurisdiction of assessing authority is concerned, if the jurisdiction assumed is not in accordance with law, then it cannot be cured or ignored under the provisions of section 292B of the Act. In our considered view, the assumption of jurisdiction would begin from the recording of satisfaction by the A.O. that certain income has escaped assessment pertaining to a particular assessment year. Admittedly, the assessee has not challenged the validity of notice u/s 148 of the Act. The assessee was duly supplied satisfaction recorded u/s 153C of the Act. The assessee considered it as a satisfaction recorded u/s 148 of the Act and filed return in response thereto. This fact is not controverted by the assessee. It is also a fact that the manner in which the satisfaction u/s 147 of the Act is required to be recorded is not prescribed under the law. Therefore, considering the totality of the facts and under the peculiarity of the facts of the present case, in our considered view section 292B of the Act comes to rescue of the Assessing Officer. Hence, the grounds of the assessee’s appeal is hereby dismissed.
9. Ground No.2 is against confirming addition of Rs.4 lakhs. Ld. Counsel for the assessee submitted that the authorities below were not justified in making the addition and confirming the same. Ld. Counsel submitted that the addition has been purely made and sustained on the basis of the third party statement. He submitted that the assessee had categorically stated that he had not given any loan or any transaction in the nature of hundi with Shri Nilesh Ajmera. He further submitted that the transaction recorded in the diary of third party cannot be only basis for making addition in the hands of the assessee. Ld. Counsel for the assessee has placed reliance on the judgement of the Hon’ble jurisdictional High Court rendered in the case of the Principal Commissioner of Income Tax-1 Vs. Shri Pukhraj Soni in Income Tax Appeal No.53 of 2017.
10. On the contrary, Ld. D.R. opposed these submissions and supported the orders of the authorities below.
11. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the addition has been made on the basis of the statement of employee of one Shri Nilesh Ajmera recorded in relation to the certain transaction recorded in the diary of Shri Nilesh Ajmera. The assessee was not confronted with the employee of Shri Nilesh Ajmera nor any cross examination of Nilesh Ajmera or his employee was given to the assessee. The addition is based on a diary of a third party. Hon’ble Jurisdictional High Court in the case of PCIT-1 Vs. Pukhraj Soni (supra) after considering the various judgements of the Hon’ble apex court has held as under:
“7. The Apex court has taken into account in similar circumstances the incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. and has held that they are inadmissible in evidence, as they are in the form of loose papers.
8. In the present case also entries found during search and seizure which are on loose papers are being made the basis to add income of this respondent.
9. Resultantly, in light of the Supreme Court judgements, referred above, no case for interference is made out with the order passed by the Tribunal. Moreover no substantial question of law arises in the present appeal, the appeal is dismissed.”
12. Further, from the above judgement of the Hon’ble Jurisdictional High court, it is clear that such evidence in the nature of diary or loose papers which are not maintained in the course of business by the third party would not be a good piece of evidence. Therefore, we are of the view that the assessing officer was not justified in making the addition without confronting the same with the assessee and giving opportunity of cross examination to the assessee. This ground of the assessee is allowed. The A.O. is directed to delete this addition.
13. Ground No.3 is in respect of awarding of cost. We do not see any merit in the submission of the Ld. Counsel for the assessee. Hence, this ground of the assessee’s appeal is rejected.
14. Ground No.4 is related to granting of stay. As we have already deleted the addition, this ground has become infructuous.
15. In the result, the appeal of the assessee is partly allowed.
