Shri Laljibhai D. Shyara, Dhoraji, Dist. Rajkot V. The ITO, Ward-2 (3) (5), Rajkot

ITA 294/RJT/2019

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 9043 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 11-12-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 05-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH KUMAR PANDEY
• Keywords: Reopening of assessment; Cost of acquisition; Reason to believe
• Section: 148; 271(1)(c); 2; 143(3); 234B; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “RAJKOT” BENCH, RAJKOT [Conducted through E-Court at Ahmedabad] BEFORE: SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No. 294/Rjt/2019 (Assessment Year: 2011-12) Shri Laljibhai D. Shyara Kalpesh S. Doshi & Co. Chartered Accountants, 411, Cosmo Complex, Near Mahila College Circle, Kalawad Road, Rajkot - 360001 V/S Income Tax Officer Ward-2(3)(5), Rajkot PAN NO. : ATKPS6859A (Appellant) (Respondent) Appellant by : Shri Kalpesh Doshi, AR Respondent by : Shri Ashish Kumar Pandey, Sr. D.R. (आदेश)/ORDER Date of hearing : 12 -12-2023 Date of Pronouncement : 24-01-2024 PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: This appeal is filed by the assessee as against the appellate order dated 01.10.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-2, Ahmedabad (in short ‘CIT(A)’) arising out of the reassessment order passed under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) relevant to Assessment Year 2014-15. ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 2 2. Brief facts of the case is that the assessee is an individual and salaried employee working as Constable in the State Police Department at Dhoraji. During A.Y. 2011-12, there were huge financial cash deposits of Rs.32,50,000/- in the bank account of the assessee. To verify the above financial transactions a letter dated 15.11.2017 was issued to the assessee asking for explanation. In response, the assessee vide his letter dated 27.11.2017 explained that his family members mainly depend on agricultural activities and family members living in Village Daiya – Tal. Gondal, Dist. Rajkot. The assessee explained the cash deposit in the bank account was on account of sale of his late father’s property which was purchased by his father on 17.01.1985. Originally, two plots, namely, Plot Nos. 55 & 56 were sold to Devjibhai Gowabhai Pardwa & Gitaben Devjibhai Pardwa for a consideration of Rs.14,50,000/-. The assessee received entire sale consideration by way of cash and deposited Rs.14,00,000/- on 09.07.2010 in his Citizens Co-operative Bank Ltd., Dhoraji. The above sale agreement was entered by the assessee, his mother and other six legal heirs. However, sale deed could not be executed because of dispute between the family members. It is thereafter the sale consideration of Rs.14,00,000/- was returned back to the purchasers on 02.08.2010 of Rs.3,00,000/- and Rs.11,00,000/- on 16.08.2010. Confirming the same a Notarized Affidavit dated 21.12.2018 from the purchasers, namely, Devjibhai Gowabhai Pardwa & Gitaben Devjibhai Pardwa were filed by the assessee during assessment proceeding. 2.1 In the meanwhile, the very same plots were sold to (1) Shri Chandubhai Raghavbhai Gowani by registered sale deed dated ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 3 21.08.2010 for a consideration of Rs.8,91,800/- and (2) Shri Pankajbhai Popatbhai Pansara & Shivlal Anandbhai Khare for a consideration of Rs.9,02,800/-. The above two sale deeds were executed by the assessee, his mother and other six legal heirs. Thus, the total consideration of Rs.17,94,600/- and assessee’s mother past savings of Rs.55,400/- were deposited into the bank account of the assessee on 31.08.2010. Thus, the assessee pleaded a cash deposited were being sale consideration received by the family members on sale of the two plots and also enclosed copy of the bank statement, sale agreement and two registered sale deeds. 3. After considering the above reply, the AO issued a notice under Section 148 of the Act dated 30.03.2018, recording the reasons as follows: “1. Assessce is working as a police constable and it is found from the ITD system that the assessee has not filed his return of income for AY-2011-12. 2. In this case as per ITS details, AIK information which was generated through ITD system and on verification of the information it has been found out that in the AY 2011-12, the assessee had made cash deposits to the tune of Rs. 32,50,000/-. 3. Further, on the basis of information and details of ITS, a verification letter dated: 15/11/2017 was issued to the assessee in this regard to explain the sources of cash deposits and other transaction. 4. Assessee replied vide her letter dated 27.11.2017 which has been considered, but same is not found tenable as the assessee has not provided any clear details/clarifications about the sources of funds for the cash deposits and bank cash transactions. 5. As assessee is a salaried employee and entered into such huge cash deposits of Rs. 32,50,000/- during the year. Assessee being salaried employee and source of such transactions could not be verified as he has failed to produce any relevant details about the sources of the funds for such high financial transactions, Therefore, I have reason to ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 4 believe that the source of funds for the cash deposits amounting of a total of Rs. 32,50,000/-have escaped the assessment. 6. In this case no return of income was filed for the year under consideration accordingly, in this case, no assessment was made and the only requirement to initiate proceedings u/s. 147 is reason to believe which has been recorded above. It is pertinent to mention here that in this case the assessee has chosen not file return of income for the year under consideration although the total income of the assessee had exceeded the maximum amount which is not chargeable to tax as discussed in paragraph 6 above and the assessee was assessable under the Act. In view of the above, the provisions of clause (a) of Explanation 2 of Section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In view of the above facts, I have reason to believe that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. In this case more than FOUR years have lapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s 148 of the Act has been obtained separately from the Pr. Commissioner of Income tax-2. Rajkot as per the provisions of Section 151 of the Act. Notice u/s. 148 of the 1.T.Act is accordingly issued.” 4. In response to the above notice, the assessee filed its return of income for the first time on 24.11.2018 declaring total income of Rs.2,27,580/- and paid tax of Rs.19,834/-. The return was taken up for scrutiny assessment the assessee claimed cost of development by lavelling the land and produced copies of the self-made vouchers for Rs.1,40,000/-, Rs.1,34,500/-, Rs.37,500/- and Rs.36,000/-. However, no original vouchers were produced for verification and the vouchers were without any revenue stamp. Therefore, the cost of improvement as claimed by the assessee was rejected by the AO and determined capital gain working as follows: ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 5 Sales consideration Rs.17,94,600/- Less indexed cost of acquisition Rs. 63,706/- (11,200*711/125) Long term capital gain Rs.17,30,894/- His 1/8th share Rs.2,16,362 5. Thus, the AO taken into account the long term capital gain offered by the assessee of Rs.45,514/- being his 1/8 th share and the remaining amount of Rs.1,70,848/- is added as long term capital gain. The AO also made an addition cash deposit of Rs.14,00,000/- as reflecting in the bank account, as unexplained income, since the agreement of sale entered into by the assessee is not in a stamp paper, but only in a white paper, without even any witnesses and there is no date of receipt of Rs.14,00,000/- by cash from the purchasers. The AO also made addition of interest income from the above Bank of Rs.33,717/- and determined the assessee’s taxable income at Rs.18,32,160/- and demand tax thereon. 6. Aggrieved against the same, the assessee filed the appeal before the Ld. Commissioner of Income Tax (Appeal). The Ld. CIT(A) after hearing the assessee in detail, upheld the reopening of assessment as good in law, since the assesse failed to file his original return of income under Section 139(1) of the Act, even though the asesssee’s total income is liable to tax. The Ld. CIT(A) also confirmed the addition on account of long term capital gain of Rs.1,17,848/- since the assessee failed to prove with proper evidentiary value on the cost of improvement of the property. The Ld. CIT(A) also confirmed the cash deposit of Rs.14,00,000/- as unexplained income as the ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 6 agreement entered into by the assessee was not on stamp paper and the notarized affidavit filed by the assessee is only an afterthought, thereby confirmed the addition made by the AO. Further, the Ld. CIT(A) also confirmed the interest income received from bank deposits. Thus, the Ld. CIT(A) confirmed the entire additions made by the AO and thereby dismissed the assessee’s appeal. 7. Aggrieved against the Appellate order, the assessee is in appeal before us raising the following grounds of appeal: “1. That, the Learned CIT(A) has wrongly confirmed reopened assessment u/s. 148 of the I.T. Act, 1961. 2. That, the Learned CIT(A) has wrongly confirmed addition of Rs. 1,70,848/- on account of long term capital gain. 3. That, the Ld. CIT (A) has wrongly confirmed addition of Rs. 14,00,000/- on account of unexplained cash deposits. 4. That, the Ld. CIT(A) has wrongly confirmed addition of Rs. 33,717/- on account of interest income. 5. That, the Ld. AO has wrongly confirmed the initiation penalty proceedings u/s 271(1)(c) and 271F of the I.T. Act, 1961. 6. That, the Ld. CIT(A) has wrongly confirmed the interest charged u/s 234A and 234B of the I. T. Act, 1961. 7. That, the findings of the Learned CIT(A) are not justified and are bad- in-law. 8. The appellant craves to add, amend, alter or delete one or more grounds of appeals.” 8. Ld. Counsel for the assessee Shri Kalpesh Doshi argued at length on both the points of reopening of assessment and additions sustained by the Ld. CIT(A) and relied upon various case laws and filed his Synopsis of Argument. ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 7 9. Per contra, Ld. Sr. DR Shri Ashish Kumar Pandey appearing for the Revenue submitted that the assessee had failed to file original Return of Income under Section 139(1) of the Act, though income liable to tax. It is only pursuance to Section 148 notice issued by the Department, the assessee filed his Return of Income and paid the taxes. The cash deposits made in the bank accounts are relating to the long term capital gain which is liable for taxation by the department. Therefore, the entire reopening of assessment and the additions made by the Ld. AO are sustainable in law. Thus, Ld. DR pleaded that the findings arrived at by the Ld. CIT(A) does not require any interference and assessee’s appeal is liable to be dismissed. 10. We have given our thoughtful consideration and perused the material available on record including the synopsis of argument and case laws compilation filed by the assessee. The assessee contended that there is no reference with respect to the bank name, bank account number, etc. in the “reasons recorded” and the AO wrongly proceeded that cash deposit itself as the income of the assessee. Thus, there is no reason to believe that income has escaped assessment and relied upon the following judgments:  Mariyam Ismail Rajwani (676/Ahd/2016) (ITAT Ahmedabad)  BirBahadur Singh Sijwali (53 taxmann.com 366) (ITAT Delhi)  Indo Arab Air Services (2016) 283 CTR 92 (Delhi)(HC) 10.1 Similarly, the reopening was approved by the higher authorities under Section 151 of the Act without independent application of ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 8 mind. Thus, the approval granted by the PCIT is not an objective satisfaction and relied upon the following judgments:  Adani Ports And Special Economic Zone Ltd. (35 taxmann.com 338) (Gujarat)  S. Goyanka Lime & Chemicals Ltd. (64 taxmann.com 313) (SC)  Chhugamal Rajpal vs. S.P. Chaliha & Ors. (SC) (79 ITR 603)  SPL's Sidhartha Ltd. 345 ITR 223/204 Taxman 115 (Mag.) 17 taxmann.com 138 (Delhi)  Shri Ghanshyam (ITA No. 238/Agra/2018) (Agra ITAT)  M/s. Virat Credit & Holdings Pvt. Ltd. (ITA No.89/Del./2012) (Delhi ITAT)  Tara Alloys Ltd. (2018) (Del Trib) (ITA No.2421/Del/2017)  Shri Mayurbhai Magaldas Patel v. ITO (Ahd. Trib.) (ITA No. 3451/Ahd/2014) 11. We have perused the material available on record including the “Reasons recorded” by the AO and sanction/approval granted by the PCIT-2, Rajkot. This assessment was reopened beyond 4 years period but within 6 years period, whereas the assessee failed to file his statutory return under Section 139(1) of the Act, even though, the assessee was liable to pay his share of long term capital gain on sale of the plots during the assessment year. Though, the AO has not recorded the bank name and bank account details in the reasons, but the assessee in its reply clearly stated the cash transaction in the bank account pertaining to the Citizens Co- operative Bank Ltd., Dhoraji Branch with Account No. 471081001000308. The Hon’ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437, held as follows: "the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 9 assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.” 11.1 Similarly, Hon’ble Bombay High Court in case of Hindustan Lever Ltd. vs. R. B. Wadkar (2004) 268 ITR 332, held as follows: “............It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons." Their Lordships added that "The reasons recorded should be self- explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence....". Therefore, the reasons are to be examined only on the basis of the reasons as recorded. The next important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons such reasons must point out to an income escaping assessment and not merely need of an inquiry which may result in detection of an income escaping assessment. Undoubtedly, at the stage of recording the reasons for reopening the assessment, all that is necessary is the formation of prima facie belief that an income has escaped the assessment and it is not necessary that the fact of income having escaped assessment is proved to the hit. What is, however necessary is that there must be something which indicates, even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that an income has escaped assessment. Merely because some further investigations have not been carried out, which, if made, could have led to detection to an income escaping assessment, cannot be reason enough to hold the view that income has escaped assessment. It is also important to bear in mind the subtle but important distinction between factors which indicate an income escaping the assessments and the factors which indicate a legitimate suspicion about income escaping the assessment. The former category consists of the facts which, if established to be correct, will have a cause and effect relationship with the income escaping the assessment. The latter category consists of the facts, which, if established to be correct, could legitimately lead to further inquiries which may lead to detection of an income which has escaped assessment. There has to be some kind of a cause and effect relationship between reasons recorded and the income escaping assessment.” ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 10 11.2 Thus, in our considered opinion the reasons recorded by the AO clearly established the assessee is a non-filer of return of income in spite of taxable income in his hand, which clearly falls under the provisions of Clause (a) of Explanation 2 of Section 147 of the Act. The AO has also brought on record the cash deposits as made by the assessee in his bank account. Therefore, we do not find any infirmity in the “reasons recorded” by the AO for reopening of assessment. Therefore, the reopening of assessment is hereby upheld. 12. Similarly, the sanction granted under Section 151 of the Act by the PCIT-2, Rajkot. In the proforma, it is clearly made out in Sl. No.8 “whether the assessment is proposed to be made for the first time, if reply is affirmative, please state” wherein the AO replied as “yes”. In Sl. No. 8A, the AO also recorded that the assessee has not filed the return of income. Then in Sl. No.13 after perusal of the above details and the reasons recorded by the AO, PCIT in his handwriting written recorded “yes, I am satisfied” and affixed his signature on 28.03.2018. One of the allegation of the assesse is that in Column 12, Jt./Addl. Commissioner of Income Tax has not recorded his satisfaction but simply signed in the format. It is to be noted here that the reopening of assessment is beyond the period of 4 years, wherein the Sanctioning Authority under Section 151 of the Act is the PCIT. Therefore, the PCIT has recorded his approval in Sl. No.13 of the above format and not the JCIT. So, this argument of the assessee is against the provisions of the Act. Further, the case laws relied by the assesse are clearly distinguishable and none of the case laws cited by the assessee, wherein assessee failed to file its return of ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 11 income under Section 139(1) of the Act. The case laws relied are either original assessment completed and again reopened for escapement of income. Therefore, this argument of the assessee is liable to be rejected. Thus, the reopening of assessment is held to be good in law and Ground No.1 raised by the assessee is hereby rejected. 13. Regarding Ground No.2, addition of Rs.1,70,848/- on account of long term capital gain, the assessee produced before us a copy of the self-relied receipts without any revenue stamps and claiming a sum of Rs.1,40,000/-, Rs.1,34,500/-, Rs.37,500/- and Rs.36,000/- as land development expenses. It is stated by the assessee that the above property was purchased by the assessee’s father on 17.01.1985 for a sale consideration of Rs.11,200/- only and the assessee claim of Rs.3,48,000/- as land development charges without even proper evidences which is not sustainable in law. The registered sale deeds also does not describe that the plots were being surrounded by compound walls as on the date of sale in 2010. In the absence of any such details, we do not find any infirmity in the computation made by the AO and the assessee also failed to produce proper evidence in support of the claim of expenses incurred by the assessee. Therefore, this ground no.2 raised by the assessee is hereby rejected. 14. Regarding Ground No.3, addition of Rs.14,00,000/- on account of unexplained cash deposit. Though, the CIT(A) confirmed this addition solely on the ground that the sale agreement was entered by the assessee not in a stamp paper, but only in a white paper without ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 12 even any witnesses and without mentioning the date of receipt of cash. However, perusal of the bank account of the assessee clearly shows that this amount of Rs.14,00,000/- was deposited in the bank account on 09.07.2010 by the assessee and withdrawn cash of Rs.3,00,000/- on 02.08.2010 and Rs.11,00,000/- on 16.08.2010, which was said to be repaid back to the first purchasers, as no sale deed could be executed by the assessee and his family members. Further, it is evidence from the registered sale deeds, the very same two plots were sold to two different parties for a consideration of Rs.8,91,800/- and Rs.9,02,800/ by the assessee and his family members on 23.08.2010. Thereafter, the sale consideration alongwith assessee’s mother past savings were deposited in assessee’s bank account on 31.08.2010 of Rs.18,50,000/-. Thus, it cannot be said that the explanation offered by the assessee is not genuine, since, the very same two plots were sold to two different persons on 23.08.2010. Therefore, in our considered view, the addition made of Rs.14,00,000/- being unexplained income of the assessee is hereby liable to be deleted. Therefore, we direct the AO to delete the addition of Rs.14,00,000/- as unexplained cash deposit in the hands of the assessee. 15. Ground No.4, addition of Rs.33,717/- on account of interest income, the same is not pressed by the assessee, the same is hereby dismissed. 16. The remaining grounds, namely, initiation of penalty proceedings under Section 271(1)(c) and 271F of the Act and charging of interest under Section 234A & 234B of the Act, these ITA No. 294/Rjt/2019 (Shri Laljibhai D. Shyara vs. ITO) A.Y. 2011-12 13 grounds are consequential in nature and doesn’t require any separate adjudication, the same are hereby dismissed. 17. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in Open Court on 24-01- 2024 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 24/01/2023 आदेश कì ÿितिलिप अúेिषत/Copy of the Order forwarded to : 1. अपीलाथê / The Appellant 2. ÿÂयथê / The Respondent. 3. स ं ब ं िधत आयकर आय ु ĉ / Concerned CIT 4. आयकर आय ु ĉ(अपील) / The CIT(A)- 5. िवभागीय ÿितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडª फाईल / Guard file. By order/आदेश से, D e p uty /A s st t. Re gi s tr ar IT A T, R aj k ot