PRADEEP KUMAR KESHARWANI, PRAYAGRAJ V. INCOME TAX OFFICER - 2(2), PRAYAGRAJ

ITA 60/ALLD/2024

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 5354 (ITAT-ALLAHABAD)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: Allahabad
• Assessment Year: 2017-2018
• Appeal Filed On: 06-04-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Initiation of penalty proceedings; Set aside; FORM 26AS
• Section: 144; 2; 142(1); 143(2); 139(1); 139(4); 44AB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD ‘SMC’ BENCH, ALLAHABAD (HEARD BY DB) (THROUGH VIRTUAL / HYBRID MODE) BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.60/Alld/2024 A.Y. 2017-18 Pradeep Kumar Kesharwani, 95/116, Mundera Bazar, Prayagraj, U.P. vs. Income Tax Officer, Ward-2(2), Prayagraj PAN:AJCPK8385R (Appellant) (Respondent) Assessee by: None Revenue by: Sh. A.K. Singh, Sr. DR Date of hearing: 24.07.2024 Date of pronouncement: 02 .08.2024 O R D E R PER SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER: This appeal filed by the assessee, is directed against the order passed by the learned Addl/JCIT(A), Thane, dated 07.02.2024 for the assessment year 2017-18. The assessee has raised the following grounds of appeal:- “(1) the ld. CIT (A) has erred in law and on facts in upholding the assessment order passed by the Income Tax Officer-2(2) Allahabad, even though the requisite information had duly been submitted before both the authorities: (2) the ld. CIT(A) has erred in law and on facts in not considering the following: ITA No.60/Alld/2024 A.Y. 2017-18 Pradeep Kumar Kesharwani 2 (i) the Id. CIT (A) has failed to appreciate that the "return of income alongwith other related document, could not be uploaded on e-portal within due time, owing to technical glitches (ii) the appellant had duly brought to the notice of assessing officer about the technical glitches, for removal of which a grievance petition had been filed; (iii) such grievance petition had been redressed by the Assessing Officer vide communication dated 23.12.2019, owing to which return could not be filed within time; (iv) the return of income and other related document, even if uploaded owing to technical glitches in this system, could not have been treated to be non-est in the eyes of law, particularly when all the requisite document had been filed belatedly and before the assessing officer much before completion of the assessment; and (v) accordingly, the assessment order could not have been passed ex-parte by invoking provision for section 144 of the Act. (2) As per audited Profit and Loss account, the appellant had disclosed the Net Profit of Rs 3,38,105/- as disclosed in Audited Profit and Loss account and the same could not have been substituted by a figure of Rs.13,73,812/- and application of net profit loss of 8% (as against the disclosed Net Profit at 1.93 per cent). (3) The Assessment Order dated 12.12.2019 was null and void as the same had been passed on that day, even though the date fixed for compliance of notices under section 142(1), was 13.12.2019 i.e. subsequent date. (4) Otherwise also, the assessment order dated 12.12.2019, is null and void as the same had not been proceeded by issuance of notice under section 143(2) of the Act. (5) The computation of income at Rs.13,73,812/- (by applying a net profit rate of 8%, to the estimate turnover of Rs. 1,71,72,650/- was much too high and excessive looking to the fact that the appellant had been carrying on Retail trade of Motor Cycle, in which such a high rate of net profit could not have been obtained/achieved. (6) Cash deposit aggregating Rs. 1,71,72,650/- had been accepted by the Assessing Officer, and so also by the Id. First Appellate Authority and for the reasons that same formed part of the overall turnover as had been disclosed by the appellant through the profit loss of account, that had been subjected to tax audit under section 44AB of the Act, Assessing Officer had no occasion and/or justification to substitute the same by figure of Rs. 1,71,72,650/- and by applying a net profit rate of 8% on such estimated turnover. ITA No.60/Alld/2024 A.Y. 2017-18 Pradeep Kumar Kesharwani 3 (7) Income estimated at Rs. 13,73,812/- was much too high and excessive. (8) Order appealed against as passed by Id. CIT (A) is contrary to the facts, law applicable thereto and principles of natural justice.” 2. The facts of the case are that a notice under section 142(1) was issued to the assessee on 2.02.2018, asking him to furnish a return of income on or before 4.03.2018 but, the AO records, that the assessee had failed to furnish the return of income for assessment year 2017-18. During the course of data verification under, ‘operation clean money’, the Income Tax Department had prepared a list of assessees who had deposited substantial cash in the bank during the demonetization period, but had not filed income tax returns for the assessment year 2017-18. It was found that the assessee had deposited a cash of Rs. 16,74,500/-, in his bank account during the demonetization and during the assessment year, the assessee had deposited total cash of Rs. 1,71,72,650/-. The AO records that he served several notices upon the assessee under section 142(1) asking him to furnish reply on various issues, but the assessee did not comply with the same. Therefore, he issued a show cause notice on 26.9.2019 to furnish replies to all his previous notices. In response, the assessee filed a reply online on 3.10.2019 and 4.10.2019, annexing ledger account, balance sheet, P&L Account, Audit report and computation of income from the Audit report, Form 26AS and written submissions. He also furnished a copy of the ITR which had been filed by him belatedly declaring his income of Rs. 2,17,700/-. The AO observed that the audit report was not uploaded by the assessee before the specified date and therefore it as unacceptable. The AO thereafter proceeded to analyze the bank deposits and found that of the total cash deposit of Rs. 1,71,72,650/-, during the non-demonetization period the assessee had deposited Rs. 1,54,98,150/- and looking at the proportionate deposit that would arise on such turnover, he concluded that the assessee had not made any abnormal cash deposit during the demonetization period. However, since the assessee had not filed his return of income for the year and only filed an Audit report, which was not ITA No.60/Alld/2024 A.Y. 2017-18 Pradeep Kumar Kesharwani 4 uploaded by the assessee before the specified date, therefore, he held that the same was not acceptable. He added that to verify the Audit report, a notice under section 142(1) dated 7.12.2019 was issued requiring the assessee to furnish the complete books of accounts along with bills and vouchers and he records that the assessee failed to produce the complete books of accounts. Therefore, he declined to consider the Audit report and after treating the total cash deposit of Rs. 1,71,72,650/- as being the assessee’s turnover, he estimated the income of the assessee @ 8% of the same which comes to Rs. 13,73,812/- and accordingly made assessment at a total income of Rs. 15,91,512/-, after considering the addition. He also initiated penalty proceedings under section 271B, 271A and 270A. 3. Aggrieved with this addition, the assessee went in appeal to the ld. CIT(A), NFAC. Subsequently, the appeal was assigned to the Addl CIT(A), Thane where the assessee pointed out in his grounds of appeal that the AO had erred in passing the order under section 144, in spite of the fact that all the required documents had been uploaded during the course of proceedings. It was also argued that once the assessing authority had admitted that the cash deposits were not abnormal, then the profit declared @ 1.93% should have been accepted. Instead the assessing authority had applied profit @ 8%. It was further submitted that the assessee had declared his gross sales at Rs. 1,75,26,316.80/-, which was more than the assessed sales based on cash deposit. He also contested the initiation of penalty proceedings under section 271B, 271F and 270A. The ld. Addl CIT / JCIT(A), Thane records that the assessee was given one opportunity of being heard by the ld. CIT(A), NFAC and two more opportunities have being heard by him, but the assessee did not avail of any of the opportunities. She, therefore, concluded from the same that the assessee had no submissions to make in support of the grounds of appeal raised by him. She, therefore, proceeded to decide the case on the basis of the material on record. After recalling the facts of the case, she held that since the assessee had not furnished any reply or submissions, the finding of the AO of estimating net profit @ 8% of cash ITA No.60/Alld/2024 A.Y. 2017-18 Pradeep Kumar Kesharwani 5 deposited in the bank account by the appellant, was justified. Further, she upheld the decision of the AO for initiation of penalties, saying that the reasons for the additions and the penalty has been mentioned by the AO in the assessment order and were in accordance with the provisions of the Act and the judicial precedence on this issue. She, therefore, dismissed the challenge to the initiation of penalty, holding the same to be premature. 4. The assessee is aggrieved against this summary dismissal of his case by the ld. JCIT(A) and has come in appeal before us. On the appointed date of hearing, there was no representation from the side of the assessee. However, after consideration of the grounds of appeal filed by the assessee and the summary disposal of his appeal by the ld. JCIT(A), we deem it fit to take up the case as some legal issues are involved in the same, which require adjudication. The assessee has submitted that due to certain technical glitches, which had been raised by him in a grievance petition filed before Income Tax Officer, Ward-2(2), Allahabad on 28.09.2019, he could not file the return of income on time. However, he had filed the return of income on 5.10.2019 and the said return of income was liable to be subjected to issuance of mandatory notice under sub section 2 of section 143 of the Act. However, no such notice had been issued by the AO, as per the information available on the e-Portal of the Income Tax Department. In the event of such notice not having been issued by the AO, he could not have proceeded to make assessment the decision of Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon reported in (2010) 321 ITR 362 (SC) as also the Hon’ble jurisdictional High Court in the case of CIT vs. Rajiv Sharma reported in (2011) 336 ITR 678 (All). Accordingly, the assessment order dated 12.12.2019 was void ab initio. 5. We have duly considered these grounds of appeal. It is observed that in paragraph 3 of his order, the ld. AO has referred to the fact that an ITR was furnished by the assessee, belatedly declaring an income of Rs. 2,17,700/-. However, it is clear that the said return was not furnished either under section 139(1) or ITA No.60/Alld/2024 A.Y. 2017-18 Pradeep Kumar Kesharwani 6 under section 139(4) because the assessee could only have furnished such returns up till the end of the relevant assessment year i.e. up till 31.03.2018. Thereafter, a return could only be filed in response to a notice under section 142(1). The provisions of section 142(1) are clear in that they empower an AO issue a notice directing the assessee, who has not filed a return under section 139(1) or before the end of the assessment year, to furnish a return on date therein to be specified. In other words, the time period allowed to the assessee to file the return, is as per the time indicated in the notice under section 142(1). The assessee cannot take the plea of a notice under section 142(1), to file a return at any time of his choosing, once the time period allowed by the AO has lapsed and he does not have the time to file it under other provisions of the Act. Hence, in such circumstances, the AO would be justified in treating the return as non-est and proceeding to complete the assessment, as if no return had been filed. A similar view has been taken by the ITAT Delhi Bench in the case of Rakesh Agarwal in M.A. No. 249/Del/2020 vide their order dated 15/12/2020. There does not appear to be any infirmity in the order of the AO on this account. 5.1 However, it is observed that the assessee had also filed the Audit report, albeit, belatedly. There are number of judicial decisions that hold that an Audit report filed belatedly is due compliance to the provisions of law, as the provisions that they be filed prior to the date of filing of return are directory and not mandatory and if such Audit report is filed before the completion of assessment, the same ought to be considered while framing the assessment. While most of these decisions relate to the claim for exemption despite late filing of the audit report, the views of the courts in such matters are consistent viz that the requirement of filing the audit report along with the return is directory, not mandatory. As long as the audit report is submitted before the assessment is completed, it meets the conditions laid down under the Act. This position has recently been affirmed by the Delhi bench of the ITAT in the case of Sanjay Kukreja vs ACIT in ITA no 652/Del/2023 vide their order ITA No.60/Alld/2024 A.Y. 2017-18 Pradeep Kumar Kesharwani 7 dated 30.01.2024.It is, therefore, observed that the AO was not justified in completely ignoring the results of the Audit report once the same had been filed by the assessee. Of course, the AO had full right to verify the various claims made in the Audit report, and it appears from his order that he was unable to do so because the complete books of accounts were not produced before him. We, therefore, deem it fit in the interest of justice to both parties, to restore this matter to the file of the AO with a direction to the assessee to produce the complete books of accounts before the AO and for the AO to satisfy himself regarding the correctness or otherwise of the Audit report furnished and thereafter to determine the income afresh, after such exercise. 6. With regard to the ground, that the order is null because it was passed before giving assessee due opportunity to submit its compliance, we note that the matter having been restored to the file of the AO for this opportunity, this ground no longer holds good. 7. We, therefore, set aside this assessment to the file of the AO for fresh assessment, in accordance with law. As the matter is being restored to the Ld AO for fresh consideration, we do not deem it necessary to adjudicate each ground. 8. In the result, the appeal of the assessee is partly allowed, for statistical purposes. Order pronounced on 02.08.2024 at Allahabad, U.P. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 02/08/2024 Sh ITA No.60/Alld/2024 A.Y. 2017-18 Pradeep Kumar Kesharwani 8 Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.