Mannu Bhatia, UAE V. ACIT, Circle 1(1)(2), International Taxation, New Delhi

ITA 819/DEL/2023

AI Insights

The case involves an appeal by Sh. Mannu Bhatia against the assessment order for the assessment year 2016-17, which was passed under sections 147 and 144C(13) of the Income Tax Act, 1961. The AO had treated certain financial transactions of the assessee as unexplained investments due to non-compliance with notices and lack of sufficient documentation. The assessee contested that the investments were made from disclosed sources, including a home loan and redemptions from mutual funds. The DRP directed the AO to verify the assessee's submissions, but the AO reaffirmed his earlier findings without conducting a detailed examination. The Tribunal found procedural lapses in both the AO's and DRP's handling of the case, leading to the setting aside of the assessment order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115635 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 07-08-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 23-03-2023
• Other Referred Cases: GKN Driveshaft vs. Unknown
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Transfer pricing; Source of fund; Additional evidence; TDS; Set aside; Capital Gains
• Section: 69; 148; 144; 142(1); 234B; 144C; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘D’ : NEW DELHI) BEFORE SH. G.S.PANNU, HON’BLE PRESIDENT AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 819/Del/2023 (Assessment Year : 2016-17) Sh. Mannu Bhatia 1704, Mesk Tower, AL Marsa Road, Dubai Marina, Dubai, UAE PAN : AFNPB4279A Vs. ACIT, International Tax Circle 1(1)(2) (APPELLANT) (RESPONDENT) Appellant by S/Sh. Ruchesh Sinha, Adv. & Tarun Rohatgi, CA Revenue by Sh. Vizay B. Vasanta, CIT-DR Date of hearing: 08.08.2023 Date of Pronouncement: 23 rd .08.2023 ORDER PER ANUBHAV SHARMA, JM: The appeal has been filed by assessee against the assessment order dated 25.01.2023 for assessment year 2016-17 passed by Circle Int. Tax, 1(1)(2), u/s 147 r.w.s. 144C(13) of the Income Tax Act, 1961 in pursuant to the directions of Dispute Resolution Panel-2, New Delhi. 2. The brief facts of the case are that information regarding financial transactions / activities relating to assessee during the relevant assessment year ITA No. 819/Del/2023 Mannu Bhatia 2 was examined under non-Filers of Income Tax category. The assessee has entered into following transaction during F.Y. 2015-16 as under – (i) Payment made in respect of transfer of immovable property at Rs. 4,91,58,190/- (ii) Purchase of mutual funds amounting to Rs. 1,23,49,151/-. (iii) Payment to non-resident Rs. 1,60,315/-. (iv) Income in respect of units of non-residents Rs. 463/- 2.1 Ld. AO observed that despite of involved in said financial transactions for year in consideration, assessee have not filed return of income although having taxable income contrary to existing provisions. Accordingly, assessee was issued and served upon with letter dated 17.03.2021 seeking clarifications on transactions and reason for non filing ITR wherein compliance was sought by 22.03.2021. The Ld. AO observed that assessee remained un-responsive to the letter dated 17.03.2021 and since, the assessee has not filed its return of income for the relevant period therefore an amount of Rs. 6,16,68,119/- remained unexplained and genuineness, creditworthiness of the transactions made could not be verified. 3. Thereafter vide notice u/s 142(1) of the Act dated 24.02.2022, assessee was asked to submit the following details- "(a) Payment made in respect of transfer of immovable property valued at Rs. 4,91,58,19/-. (b) Payment made in respect of purchase of Units of Mutual Fund of Rs. 1,23,49,151/- (c) Payment to Non-Resident (section 196A) of Rs 160315 (ii) In regard of purchase of property, you are requested to provide following details- (a) Details of property. ITA No. 819/Del/2023 Mannu Bhatia 3 (b) Copy of purchase deed/builder buyer agreement in response to said property. (c) Bank account statement reflecting the payment made for said property (d) Explain the source of payment made to acquire these properties along with detailed explanation and documentary evidences. (iii) In regard of purchase of mutual funds, you are requested to provide the following details- (a) Details of mutual funds. (b) Copy of contract/agreement/offer documents/Bond etc provided while making these investment. (c) Bank account statement reflecting the payment made for said property (d) Explain the source of investment along with documentary evidences (iv) Provide the details of payment made to Non-Resident and details of TDS deducted thereon along with relevant documents to substantiate your claim." 4. Ld. AO observed that assessee has not complied to the notice u/s 142(1) and not submitted any details called for vide said notice. Subsequently, the assessee was issued with show cause notice dated 02.03.2022, the relevant extract of the same are as under- “As per the information available with the department you have been involved in following transactions during the FY 2015-16 relevant to AY 2016-17- (a) Payment made in respect of transfer of immovable property valued at Rs. 4,91,58, 190/-. ITA No. 819/Del/2023 Mannu Bhatia 4 (b) Payment in respect of purchase of mutual funds of Rs 1,23.49,151/- (c) Payment to Non-resident of Rs 1,60,315/-. 1. Statutory notice u/s 142/1) of the IT Act, 1961 dated 24.02.2022 was issued through ITBA portal to file requisite documents/evidences in respect of source of income/investment made during the year. However, you choose not to furnish the details and documents as per requirement of the statutory notice issued in your case. Therefore, source of Rs. 61668119 remained unexplained 2. Subject to above discussion you are hereby show caused why the amount of Rs 61668119/-may not be added to as income for the year in consideration and accordingly, penal provisions as laid down in IT Act, 1961, be initiated against you. 3. Further, in view of the above narrated facts and keeping in view principles of natural justice a final opportunity is being accorded to you through issue of this statutory notice. You are also required to furnish the relevant documents as called for vide notice u/s 142(1) of the Act, mentioned above in support of your financial transactions. You are hereby required to render your submissions along with proof with regard to above objections by 07.03.2022. Please note that in the event of non-compliance or non-furnishing of complete details, the proceedings may be completed on merits apart from initiation of penalty proceedings as per IT Act. In case no response is received it will be presumed that you have nothing to state in this matter and the assessment will be finalized on the basis of materials/information available on records without allowing ITA No. 819/Del/2023 Mannu Bhatia 5 any further opportunity under the provision of section 144 of the Income Tax Act, 1961.” 5. In pursuance of the same, Ld. AR of assessee vide its reply dated 05.03.2022, has submitted that; “the explanations for payment made for immovable property amounting to Rs. 4,91,58,190/- have been provided. ICICI Home loan documents have been attached. Further, in respect of payments of Mutual funds of Rs. 12349151/- are also explained. The assessee is a high net worth individual and has remitted funds from overseas or his existing funds have switched to other funds.” 6. The Ld AO did not find the reply tenable and held that Assessee has not submitted any details of property purchased such as copy of purchase deed/agreement/payment schedule etc as asked vide this office notice u/s 142(1) of IT Act. Further, as mentioned by assessee that Home loan was obtained from ICICI Banks to purchase said property, assessee has not submitted Loan Sanction Letter from Bank and any other payment made thereon in respect of immovable property in respect of mutual funds assessee has not submitted any details such as Bank account statement from which investment made, source of investment such as bank account statement from which funds were transferred to NRE account and further used for investment. AR of assessee has submitted that assessee is a high net worth assessee, further assessee has not submitted copy of Income Tax Return filed aboard to corroborate the investment made. In view of the same the genuineness and source of funds were held to have remained unexplained and that provisions of Section 69 of the Act are attracted. 7. The assessee raised objections with the Ld. DRP with respect to same. Ld. DRP has directed the Ld. AO to verify the assessee's contention in light of ITA No. 819/Del/2023 Mannu Bhatia 6 submission including the assessee's rejoinder by passing a speaking and reasoned order vide its order dated 22.12.2022. 8. Thereafter Ld. AO held in the final assessment order as follows; “Thereby kindly note during the assessment proceedings, the assessee has not given any details of property purchased such as copy of purchase deed/agreement/payment schedule etc. Further, in course of assessment proceedings assessee mentioned that Home loan was obtained from ICICI Banks to purchase said property, but assessee has not submitted the Loan Sanction Letter from Bank and any other payment made thereon in respect of immovable property. Similar in respect of mutual funds assessee has not submitted any details such as Bank account statement from which investment made, source of income (such as employee letter, salary pay slip, any loan sanctioned, maturity of earlier investments etc), bank account statement etc precisely indicating the source of funds from which funds were derived and transferred to NRE account and further used for investment in property.” 9. Assessee has come in appeal raising following grounds : “1. That whether on the facts and circumstances of the case, the Ld. AO has erred in law in not providing the reasons for reopening U/s 147/148 and copy of the requisite approval of the Authority U/s 151 to the appellant, even when the return of income has been filed by the appellant in pursuance to notice issued U/S 148 of the Act. 2. That whether not following the procedure as per the jurisprudence pertaining to the reassessment proceedings U/s 147/148 as per the decision of the Hon'ble Supreme Court in the case of GKN Driveshaft do not vitiate the entire reassessment proceedings. 3. That whether on the facts and circumstances of the case, the order of the DRP is unsustainable in law as the same is a non- speaking order and is passed in a mechanical way and hence the assessment order passed in consequence of such directions is also bad in law. ITA No. 819/Del/2023 Mannu Bhatia 7 4. That whether on the facts and circumstances, the assessment order passed in consequence of the directions given by the DRP is not perverse, as the same is passed without considering the documents on record and without considering the submissions made by the appellant on three occasions. 5. That on the facts and in the circumstances of the case the learned ACIT is not justified in making the additions of Rs.615,23,087 to the returned income pertaining to the investment made in Immovable Property of Rs 4,91,58,190. investment in Mutual Funds of Rs. 1,23,49,151, Payment to Non-Resident of Rs. 15,283/- and pertaining to the Income in respect of units of non- residents of Rs. 463. 6. That the learned ACIT has grossly erred in holding that the assessee has not submitted details of property purchased, home loan etc, inspite of all the details being submitted on the E- portal of the Income Tax Department in Assessment Proceedings which has been duly acknowledged on the Portal and is clearly depicting therein. 7. That both the DRP and the Learned ACIT have grossly erred in holding and proceeding on the assumption that the evidence filed by the Assessee before the DRP is additional evidence, whereas the fact is that all these document were duly filed/uploaded by the Appellant, but were ignored while giving the directions as well as while passing the order. 8. That in any case, the Learned ACIT was not justified in holding that the investment made during the year in Immovable Property of Rs.4,91,58,190/- was unexplained especially when E- sanction letter, details of property purchased and amount disbursed by the Bank were duly placed on record and even otherwise could have been called by invoking the inherent power bestowed with the AO 9. That the learned ACIT has wrongly and erroneously noted that the Assessee has not filed any details regarding investment in Mutual Funds of Rs.1,23,49,151/- 9.1 That the Learned ACIT failed to appreciate that the investment in Mutual Funds was not unexplained and that these ITA No. 819/Del/2023 Mannu Bhatia 8 were purchased out of the bank account of the Assessee and the major source being redemption of Mutual Funds and capital gains, the details of which were on record. 10. That on the facts and in the circumstances of the case the Learned ACIT was not justified in making the addition of Rs. 15,283/- and Rs 463 without appreciating that the said amounts which have already been offered for tax under the head income from other sources and capital gains resulting in double addition. 11. That the Assessment has been made on surmises and conjectures without any basis. 12. That both the DRP and the learned ACIT have gravely erred in law in failing to consider the replies and submissions made by the Assessee 13. That the DRP failed to give reasonable opportunity of hearing to the assessee. 14. That the Levy of interest u/s 234A and 234B is erroneous, excessive, & without authority of law. 15. That considering the mode and manner in which the present reassessment proceeding are being conducted does it not tantamount to sheer harassment of the appellant and therefore whether the appellant is not entitled to receive cost from the department. 10. On hearing the Ld. Representatives of the parties it comes up that in the present case, the assessee had made certain financial transactions of investments and payments which are treated as unexplained investment. Admittedly assessee has not maintained any books of accounts as it is not compulsory that the assessee must have maintained the books of accounts. He could have proved the genuineness of the transactions by some other evidence which establish that the investment are out of disclosed source. ITA No. 819/Del/2023 Mannu Bhatia 9 11. Before the Ld. DRP assessee has contested that Ld. AO has erroneously treated the investment in immovable property as unexplained without considering the source of investment being Home Loan. The mutual funds were purchased out of the bank account of the assessee and source being the redemption of mutual funds, capital gains and foreign remittances. Further, the assessee has also contested that Rs. 1,60,315/- has already been offered under the head income from other sources and the capital gain resulting in double taxation. 12. Appreciating the material on record it comes up that Ld. AO was primarily not set satisfied with the evidence before him and the e-sanction letter of the ICICI bank in regard to housing loan was not considered as sufficient evidence, as necessary facts of the loan were not mentioned. At page no. 2-29 of the PB is the copy of From 35 filed before Ld. DRP. In this at page no 5 to 8 of the paper book assessee has placed on record the details of responses he had submitted to Ld. AO. Perusal of the same shows assessee had given a detailed account of the investment in purchase of the property through ICICI bank home loan. The disbursement letter of ICICI bank is mentioned as attached. At page no. 81 of the paper book is a disbursement schedule from ICICI bank. And at Page no. 72 to 78 is the assessee’s ledger account with Experion Developers Pvt. Ltd. Same were all part of the submissions of assessee dated 2/3/22 and 4/3/22 available at page no 51 to 85 of the PB. 13. It appears that the Ld. AO has fallen in error in not examining and appreciating the material before him in correct perspective at time of passing the final order, as his powers were restricted by the Ld. DRP with order that “the AO shall not conduct any fresh inquiry in this regard; the verification shall be made on the basis of documents/submissions available on the record.” ITA No. 819/Del/2023 Mannu Bhatia 10 14. On the contrary, the Bench is of firm view that Ld. DRP was somehow under wrong impression about absence of powers with DRP for considering additional evidence. Thus if Ld. DRP was satisfied that assessee had provided all the relevant material before the Ld. AO or before it and remand report of AO was also before it in regard to that material, then conclusive findings should have been given by Ld. DRP instead of a direction of re-verification by Ld. AO. 15. The provisions of sections 144C provides the entire mechanism for making a reference to the DRP; powers of the DRP and also the procedures which have to be followed to issue directions to the Assessing Officer. The relevant provisions of section 144C, which are relevant for our purpose, are reproduced herein below:— "144C Reference to dispute resolution panel.— (1) to (4)** ** ** (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub- section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:— (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),— (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. ITA No. 819/Del/2023 Mannu Bhatia 11 (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. Explanation.— For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. 16. The aforesaid Sub Section (5) when Read with Sub Section (7) and (8) makes it very clear that DRP could not have issued direction for verification in the manner it has done in the present case. Ld. DRP is supposed to examine the material before it and directions issued by way of guidance to Ld. AO under sub section (5) should be categorical, specific and comprehensive. 17. In the case in hand, the direction for verification as issued were colourable and the Latin maxim “Quando aliquid prohibetur ex directo, prohibetur et per obliquum”, which means “you cannot do indirectly what you cannot do directly” when applied to aforesaid provisions applicable to DRP prohibits such directions of verification of the whole of the case of an assessee without any element of guidance for the Ld. AO. 18. In fact as there was no liberty for further enquiry the Ld. AO has merely reasserted his opinion without any verification of the material and submissions which Ld. DRP had considered were relevant to settle the query raised in assessment. The verification is process of examination of truth by proof and a general direction to verify without liberty of further enquiry on the issue is of no help to Ld. AO. 19. Thus the Bench is inclined to allow ground no 3 and 7 in favor of the assessee and allow the appeal for statistical purposes. The impugned ITA No. 819/Del/2023 Mannu Bhatia 12 assessment order and order of DRP are set aside. The issue is restored to the files of DRP to pass afresh order in the light of aforesaid observations of the Bench. Consequently, the appeal of assessee is allowed. Order pronounced in the open court on 23 rd August, 2023. Sd/- Sd/- (G.S.PANNU) (ANUBHAV SHARMA) PRESIDENT JUDICIAL MEMBER Date:-23 rd .08.2023 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT AR, ITAT New Delhi