M/S LORGAN LIFESTYLE LTD.,PUNE V. ITO, WARD14(4), PUNE, PUNE

ITA 215/PUN/2025

AI Insights

M/s. Lorgan Lifestyle Limited appealed against the order of the Commissioner of Income Tax (Appeals), Pune, which had sustained the reassessment order passed by the Income Tax Officer under sections 143(3) r.w.s 147 of the Income-tax Act, 1961. The reassessment was initially triggered by the non-filing of the return and substantial cash deposits noted in the bank account of the assessee, among other reasons. However, during the reassessment, the Income Tax Officer made additions that were not part of the original reasons for reopening the assessment, leading to the legal challenge. The Tribunal found that the procedure followed was not in accordance with the law, as it did not adhere to the requirements of issuing a fresh notice for the new additions made.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 774759 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 27-01-2025
• Other Referred Cases: Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors., Inder Singh Vs. State of Madhya Pradesh, CIT Vs Jet Airways (I) Ltd, Ahmedabad Electricity Company Ltd. Vs. CIT, Jute Corporation of India Ltd. Vs. CIT, National Thermal Power Company Ltd. Vs. CIT, CIT Vs. Double Dot Finance Ltd., Ranbaxy Laboratories Ltd. Vs. CIT, CIT Vs. Mohmed Juned Dadani, Rajya Rakhiv Police Karmachari Sahakari Patsanstha Maryaditand Vs. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMOL KHAIRNAR
• Assessee Lawyers: B S RAJPUROHIT; FILING ANY
• Keywords: Set aside; Reasonable cause; Reassessment proceedings; Question of law; Bad and doubtful debts; Reopening of assessment; Principle of natural justice; Competent authority; Reason to believe
• Section: 147; 148; 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “A”, PUNE BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER AND MS.ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.215/PUN/2025 Assessment Year : 2015-16 M/s. Lorgan Lifestyle Limited, Flat No. 6, Raghukul Apartments, Senapati Bapat Road, Govt. Polytechnic S.O, Pune-411016, Maharashtra PAN: AACCL3218Q Vs. ITO, Ward-14(4), Pune Appellant Respondent आदेश / ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The captioned appeal at the instance of assessee pertaining to A.Y. 2015-16 is directed against the order dated 24.05.2023 of National Faceless Appeal Centre (NFAC), Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 30.12.2019 passed u/s.143(3) r.w.s147 of the Act. 2. Registry has informed that there is delay of 546 days in preferring the instant appeal before this Tribunal. Assessee has filed an affidavit explaining the reasons which led to delay in filing of the appeal. The contents of the said affidavit reads as follows : Appellant by : Shri B S Rajpurohit Respondent by : Shri Amol Khairnar Date of hearing : 21.07.2025 Date of pronouncement : 03.09.2025 Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 2 “M/s Lorgan Lifestyle Limited is a company registered under the Companies Act, and its registered office is located at the address mentioned above. The company received an order dated 24th May 2023 passed by the Hon'ble Commissioner of Income Tax (Appeals), Pune, in respect of Assessment Year 2015-16. The company, due to unforeseen circumstances, was unable to file the appeal within the prescribed time of 60 days from the date of receipt of the order, resulting in a delay of approximately 555 days in filing the appeal. I have been using services of email accounts [e-mail] & rajesh.baheti@lorgan group.com. The services of these email accounts were stopped by the service provider. Hence, the appellant company has not received any notices Regarding the proceedings before the Commissioner of Income Tax, Appeals. The appellant company has been facing prolonged financial difficulties as their bank accounts are freezed for operations. Further, the company has borrowed money for business from Axis Bank Ltd. and the account has become non-performing asset (NPA) 1 due to sudden stoppage of the business. Owing to these financial difficulties, the company does not have any administrative team who can keep a track of the status of the appeal filed by it. The Appellant company came to know about the order passed by the CIT, Appeals only on receipt messages from Income Tax Department to avail Vivad Se Vishwas Scheme (VSVS) in December 2024. On checking the status of the appeal, the company realized that CIT, Appeals has passed an order on 24th May 2023. The appellant on becoming aware of the order passed by CIT Appeals sought professional guidance. Based on the advice, the appellant has decided to file an appeal before ITAT against the order of CIT Appeals. However, due to the circumstances as outlined above, delay of 555 days has occurred in filing the appeal from the date of the order. I respectfully request that the Hon'ble Tribunal condone the delay of 555 days in filing the appeal, as the merits of the case justify a fair hearing, and I believe justice will be served by allowing the appeal to proceed.” 3. After hearing both the sides and perusing the averments made in the affidavit, we are satisfied that due to ‘reasonable cause’ assessee failed to file the appeal within the stipulated time. We therefore in light of judgments of Hon’ble Apex Court Court in the case of Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. reported in (1987) 2 SCC 107 and in Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 3 the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382) condone the delay of 84 days in filing the appeal before this Tribunal. 4. Assessee has raised following grounds of appeal : “Aggrieved by the order passed by the learned Commissioner of Income-tax (Appeals) [CIT(A)] under Section 250 of the Income-tax Act, 1961 ('the Act') dated 24th May 2023, received by the Appellant and based on the facts and circumstances of the case, the Appellant respectfully submits that the CIT(A) has erred on the following ground: 1. The Ld. CIT(A) has erred in not comprehending the facts and merits of the case, thereby not deleting the disallowance of Rs. 25,98,42,967/- on account of bad debt written off by the Appellant in the books of accounts made to the total income of the Appellant. The Appellant may be allowed to add, amend or alter the above grounds in the interest of natural justice.” 4.1 Assessee has also raised following additional ground of appeal on 17.07.2025 : \"On the facts and in the circumstances of the case and in law, the Ld. CIT-Appeals has erred in law in sustaining the illegal reassessment order passed by Ld. AO u/s 143(3) r.w.s.147 of the Act, since no addition on account of reasons to believe for re-opening of assessment was made but disallowance of bad debts was made which was not a part of reasons to believe, thereby, violated the ratio laid down by the jurisdictional Bombay High Court in the case of CIT Vs Jet Airways (I) Ltd [2011) 331 ITR 236 (Bom.) and, therefore the impugned reassessment order is bad-in-law and hence, may please be quashed.\" 4.2 For admission of above Additional Ground, assessee placed reliance on the following decisions: i. Ahmedabad Electricity Company Ltd. Vs. CIT (1993) 199 ITR 351 (RB) ii. Jute Corporation of India Ltd. Vs. CIT (1990) 53 taxman 85 iii. National Thermal Power Company Ltd. Vs. CIT (1998) 299 ITR 383 (SC) Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 4 5. Brief facts of the case are that the assessee is a Limited Company engaged in the business of Marketing of goods. Ld. Assessing Officer based on his observation that the assessee has not filed the return and that substantial cash has been deposited in the bank account and purchased more than one vehicle and interest received as per Form No.26AS, invoked section 147 of the Act and issued notice u/s.148 of the Act after taking prior approval of the competent authority. Subsequently, notice u/s.142(1) of the Act was issued and the assessee filed the return in compliance to notice u/s.148 of the Act on 07.12.2019 declaring loss of (-) Rs.12,41,39,343/-. Ld. AO during the course of scrutiny proceedings observed that assessee has claimed bad debts and when the assessee was asked to justify the claim of bad debts assessee made submission and stated that major amount of bad debts is on account of amount not received against the export sales made to Rohit General Trading LLC and HGM General Trading LLC based at Dubai. Ld. AO concluded the re-assessment proceedings by only disallowing the claim of bad debts of the above referred two companies based at Dubai and assessed the income accordingly. Ld. AO made no additions for the issues referred in the reasons recorded for issuing notice u/s.148 of the Act. Aggrieved assessee preferred appeal before ld.CIT(A) but failed to succeed. 6. Now the assessee is in appeal before this Tribunal assailing the impugned order passed by ld.CIT(A). 7. Before us, ld. Counsel for the assessee has raised the legal issue placing reliance on the judgment of Hon’ble Jurisdictional High Court in the case of Jet Airways (I) Ltd. Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 5 (supra) (2011) 331 ITR 236 and has submitted that since no addition on account of reasons to believe for reopening of assessment was made and the alleged disallowance of bad debts is not part of the reasons to believe, therefore, in light of the judgment of Hon’ble Jurisdictional High Court in the case of CIT Vs. Jet Airways (I) Ltd. (supra) the impugned assessment order is bad in law and deserves to be quashed. On this legal issue, Ld. Counsel for the assessee also placed reliance on the judgment of Hon’ble Jurisdictional High Court in the case of CIT Vs. Double Dot Finance Ltd. (2013) 331 Taxman.com 352, judgment of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. Vs. CIT (2011) 336 ITR 136, judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Mohmed Juned Dadani (2013) 30 Taxman.com 1. 7.1 Ld. Counsel for the assessee also submitted that as per the reasons recorded by ld. AO for the alleged escapement of income, there were three issues, firstly substantial cash deposit in the bank account, secondly purchase of more than one vehicle and thirdly interest receipts as per Form No.26AS. However, no addition out of the reasons to believe of escapement of income has been made but addition has been made on the other issue without issuing any fresh notice u/s.148 of the Act. 8. Ld. Departmental Representative vehemently argued supporting the order of ld.CIT(A) but failed to controvert the contentions made by ld. Counsel for the assessee by filing any binding precedents in its favour. 9. We have heard the rival contentions and perused the record placed before us. The main contention of ld. Counsel Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 6 for the assessee is that ld. AO has not made addition for the reasons mentioned in the reasons recorded for reopening the assessment proceedings. By way of legal issue raised in the additional ground, validity of re-assessment proceedings have been challenged. In light of the judgment of Hon’ble Apex Court in the case of National Thermal Power Company Ltd. Vs. CIT (supra), we admit this legal issue. From the record, we observe that the assessee is a Limited Company. Ld. AO based on the information about substantial cash deposit in the bank account of the assessee company, purchase of more than one vehicle and interest income as per Form No.26AS and there being no return of income filed by the assessee, notice u/s.148 of the Act dated 20.08.2018 duly served upon the assessee. Thereafter, re-assessment proceedings were carried out and various details as called for were furnished and also the submissions were made for the various reasons based on which the re-assessment proceedings were initiated. Ld. AO after carrying out the re-assessment proceedings firstly made no addition for the reasons referred in the show cause notice and the reasons recorded annexed thereto issued for the purpose of carrying out the re-assessment proceedings. However, ld. AO has made addition on some other issue which was never forming part of the reasons recorded for issuing notice u/s.148 of the Act. Ld. AO while concluding the assessment has only made one addition and that too disallowing bad debts written off in the profit and loss account. Before us, ld. DR failed to controvert the facts stated hereinabove. Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 7 10. Under the given facts and circumstances, we would first like to refer to the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. (supra) where ld. AO has not made any addition for the issues referred in the reasons recorded for carrying out the re-assessment proceedings but had made addition on some other ground for which fresh notice u/s.148 of the Act was not issued to the assessee. For better understanding, the relevant part of the above judgment is reproduced below : “13. The effect of the amended provisions came to be considered in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice u/s 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject mater of me notice u/s 148. This view was adopted in the judgment of the Punjab & Haryana High Court in Vipan Khanna (Supra) and in the judgment of the Kerala High Court in Travancore Cements Limited (Supra) This line of authority, would now cease to reflect the correct position in law, by virtue of the amendment which has been brought in by the insertion of Explanation 3 to Section 147 by Finance (No. 2) Act of 2009 The effect of the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice u/s 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded u/s 148(2). 14. The second line of precedent is reflected in a judgment of the Rajasthan High Court in Commissioner of Income Tax v. Shri Ram Singh (2008) 306 ITR 343 (Raj). The Rajasthan High Court construed the words used by Parliament in Section 147 particularly the words that the Assessing Officer ''may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings'' u/s 147. The Rajasthan High Court held as follows. .... it is only when, in proceedings u/s 147 the Assessing Officer, assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had \"reason to believe\" to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 8 has come to his notice subsequently, in the course of proceedings u/s 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings u/s 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his \"reason to believe\", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings u/s 147. 15. Parliament, when it enacted the Explanation (3) to Section 147 by the Finance (No. 2). Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to Section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice u/s 148(2). The decisions of the Kerala High Court in Travancore Cements Limited (Supra) and of the Punjab & Haryana High Court in Vipan Khanna (supra) would, therefore, no longer hold the field. However, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh (supra), Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab & Haryana High Court in Commissioner of Income Tax Vs. Atlas Cycle Industries, . The decision in Atlas Cycle Industries held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice u/s 148 were incorrect or non existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries (supra) and of the Rajasthan High Court in Shri Ram Singh (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to Section 147.- 16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of Which a notice was issued u/s 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 9 income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No 2) of 2009 However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of Section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assessee or reassess the income (\"such income\") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings However, if after issuing a notice u/s 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice u/s 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. 17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in Section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that Section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income \"and also\" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words \"and also\" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to Section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words \"and also\" by the Rajasthan High Court in Shri Ram Singh (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of Section 147(1) as they stood after the amendment of 1 April 1989 continue to hold the field. 18. In that view of the matter and for the reasons that we have indicated, we do not regard the decision of the Tribunal in the present case as being in error. The question of law shall accordingly stand answered against the Revenue and in favour of the assessee. The appeal is accordingly dismissed. There shall be no order as to costs.” Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 10 11. Similar issue has also been dealt recently by this Tribunal in the case of Rajya Rakhiv Police Karmachari Sahakari Patsanstha Maryaditand Vs. ITO in ITA No.171/Un/2025 order dated, 16.06.2025. Relevant finding of this Tribunal reads as under : “8. We have heard the rival contentions and perused the record placed before us. So far as the legal issue raised vide Ground No.1 in the grounds of appeal is concerned, we find that the reason for carrying out the re-assessment proceedings was regarding explanation about the source of cash deposit of Rs.35,00,821/-. It is noticed that assessee neither had PAN nor has filed any return of income for the year under consideration. It was only during the course of re-assessment proceedings that ld. AO was able to examine the details in the form of Annual Report and Books of account. In the assessment order, ld. AO has nowhere doubted the source of alleged cash deposit which was from the Members of the society and therefore no addition was made on this account. Ld. AO has disallowed the deduction u/s.80P of the Act by applying section 80A(5) of the Act. Under these given facts, judgment of Hon’ble Jurisdictional High court in the case of Jet Airways (I) Ltd. (supra) comes to the rescue of the assessee wherein it was held that “if after issuing a notice under section 148, he (AO) accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee”. Considering the judgment of Hon’ble Jurisdictional High Court, we find that in the instant case ld. AO has issued only one show cause notice u/s.148 along with the reasons to believe of the escapement of income with regard to unexplained cash deposit. During the course of assessment proceedings, ld. AO was satisfied with the source of cash deposit and therefore if he intended to make addition on some other ground he was required to issue a fresh show cause notice u/s.148. Since this exercise has not been carried out by the ld. AO the assessment order framed on 30.12.2019 is held to be bad in law and deserves to be quashed. Legal issue raised in Ground No.1 stands allowed.” 12. In light of above settled judicial precedents and examining the facts of the instant case, we find that since ld. AO has not made the addition for the reasons recorded for carrying out the re-assessment proceedings and has made addition in the re-assessment proceedings on some other Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 11 ground without issuing fresh notice u/s.148 of the Act. The facts and issue are squarely covered by the judgment referred supra. Therefore, such re-assessment proceedings are held to be invalid and hereby quashed. Finding of ld.CIT(A) is set aside and the legal issue raised in Additional Ground of appeal is hereby allowed. 13. So far as merits of the case are concerned, we find that bad debts claimed by the assessee has been disallowed. Though it has been claimed before us that the assessee made export sales to the above mentioned parties but the sale proceeds remained outstanding and assessee has been trying through all possible ways but still the amounts have not been recovered. Therefore, bad debts has been claimed in the books. It is also claimed before us that in case the assessee receives the amount in the subsequent period the same shall be offered to tax. However, since we have quashed the re- assessment proceedings, dealing with the grounds on merits would be merely academic. Therefore, the grounds raised on merits are dismissed as academic. 14. In the result, appeal of the assessee is allowed as per terms indicated above. Order pronounced on this 03rd day of September, 2025. Sd/- Sd/- (ASTHA CHANDRA) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; \u0001दनांक / Dated : 03rd September, 2025. Satish Printed from counselvise.com ITA No.215/PUN/2025 M/s Lorgan Lifestyle Limited 12 आदेश क\u0002 \u0003ितिलिप अ ेिषत / Copy of the Order forwarded to : 1. अपीलाथ / The Appellant. 2. \u000eयथ / The Respondent. 3. The Pr. CIT concerned. 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, “A” ब\u0011च, पुणे / DR, ITAT, “A” Bench, Pune. 5. गाड\u0004 फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune. Printed from counselvise.com "