MAHENDRA KUMAR ,BANGALORE V. PRINCIPAL COMMISSIONER OF INCOME TAX-2, BENGALURU

ITA 812/BANG/2024

AI Insights

The case involves Mahendra Kumar, the proprietor of Hilife Style, who was subjected to reassessment and revisionary proceedings by the Income Tax Department. The reassessment was based on information suggesting unaccounted cash sales amounting to Rs.16.85 crores, derived from a tax evasion petition. The PCIT later issued a revisionary order under section 263, deeming the reassessment erroneous and prejudicial to the interests of the revenue. Mahendra Kumar appealed against this order, challenging both the reassessment and the revisionary proceedings. The tribunal found that the reassessment was based on incorrect assumptions and lacked proper evidence, leading to the quashing of the revisionary order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312227 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Laws Referred To: The Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAVISHANKAR
• Keywords: Set aside; Business income; Reassessment proceedings; Income from undisclosed sources; Reopening of assessment; Reason to believe; Revision of order; Tangible material; Bogus
• Section: 147; 148; 143(3); 142(1); 263; 68; 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No. 812/Bang/2024 Assessment year: 2017-18 Mahendra Kumar, Prop. High Lifestyle, No.8, Mohini Plaza, 6th Cross, Kilari Road, Near Maharaja Parking, Bangalore - 560 053. PAN: AQOPK 5465D Vs. The Principal Commissioner of Income Tax, Bengaluru – 2, Bengaluru. APPELLANT RESPONDENT Appellant by : Shri Ravi Shankar, Advocate Respondent by : Smt. Srinandini Das, CIT(DR)(ITAT), Bengaluru. Date of hearing : 08.04.2025 Date of Pronouncement : 30.04.2025 O R D E R Per Prashant Maharishi, Vice President 1. This appeal is filed by Mr. Mahendra Kumar (the assessee/appellant) for the assessment year 2017-18 against the revisionary order passed by the Principal Commissioner of Income-tax [ld. PCIT] dated 21.03.2024 u/s 263 of The Income tax Act , 1961 [ the Act] wherein it was held that the reassessment order passed u/s. 147 r.w.s. 144B of the Act dated ITA No. 812/Bang/2024 Page 2 of 13 23.03.2022 is erroneous and prejudicial to the interests of the revenue and therefore it was set aside directing the Ld. AO to make a fresh assessment. 2. Assessee is aggrieved with the same and has preferred this appeal challenging the validity as well as merits of the case and contending that the jurisdiction assumed by the ld. PCIT is invalid and also the order passed by the ld. AO is neither erroneous nor prejudicial to the interests of the revenue. 3. The brief facts of the case show that assessee is a proprietor of Pratik Hardware and Hilife Style dealing in hardware fittings and wholesale trading of textiles fabrics respectively. He filed return of income on 22.10.2017 at a total income of Rs.13,76,300. These facts are stated in para 2 of the revisionary order passed by the ld. PCIT. 4. Subsequently the case of the assessee was reopened by issue of a notice u/s. 148 of the Act on 31.3.2021 reopening the case for AY 2017-18. The AO mentioned that as the information received in the category of high risk transaction on Insight Portal, assessee has significant financial transactions of unaccounted cash of Rs.16,85,18,922. In para 2, the ld. AO has stated that he has a reason to believe that the unaccounted income of the assessee during the year 2016-17 has escaped assessment. In para 3 of the reasons, the AO states that as the return of income has been filed by the assessee and no assessment is made, therefore provisions of ITA No. 812/Bang/2024 Page 3 of 13 clause (b) of Explanation 2 to section 147 are applicable and income has deemed to escape assessment. 5. Consequently notice u/s. 142(1) was also issued on 13.1.2022 along with the Questionnaire. The same was replied by the assessee on 28.1.2022 wherein it was submitted that assessee is a Proprietor of Pratik Hardware and has also commenced business in Hilife Style in the month of July, 2016. He submits that he deals in retail trade of hardware and fittings in Pratik Hardware and wholesale trade of textiles and fabrics in Hilife Style. He submits the sales register showing the month-wise sales of Hilife Style wherein total sales is accounted for of Rs.10,14,56,884. Assessee has also given the complete summary of the above sale invoice-wise stating that local sales is of Rs.9,68,59,301 and interstate sale of Rs.45,87,583 of Hilife Style. The manner of sale whether in cash or on credit is also mentioned in the sales register. Similarly in the case of Pratik Hardware also in the month-wise sales summary, assessee has submitted that total sales is Rs.53,49,386 bifurcated into various sales tax slab submitted in the sales register. On the basis of above information, a further notice u/s. 142(1) was issued asking the assessee to submit name of the party, address, PAN and nature of goods sold along with amount with respect to sales of Hilife Style of top 50 parties. On 22.2.2022 the assessee submitted details of party-wise sales supported with bank book and cash book. Assessee also submitted that all the sales made during the year are correctly ITA No. 812/Bang/2024 Page 4 of 13 accounted for and there is no suppression of turnover amounting to Rs.16,85,19,922 as mentioned in the notice u/s. 143(2) dated 13.1.2022. 6. In the original assessment proceedings also notice u/s. 142(1) was issued on 31.1.2019 asking the assessee the complete details about cash deposits which was replied to by letter dated 14.11.2019 and further on 23.11.2019, reconciliation as per sales register, audit report and VAT return was also produced. In the original assessment proceedings, as the information shows the return of income of assessee was accepted as it is. 7. Based on the above information and examination, reassessment order u/s. 147 r.w.s. 144B of the Act was also passed on 23.3.2022 wherein total income of the assessee was accepted at Rs.13,76,300 as per return of income as well as the original assessed income. Therefore, in the reassessment proceedings, there was no addition made. 8. Subsequently on examination of the record, the ld. PCIT noted that as per financials, assessee’s turnover has increased substantially from Rs.29,72,801 to Rs.10,68,06,270 because of the textile business sales reported by assessee at RS.10,14,56,884. As per information available the assessee was engaged in fabrics trading in the name of Hilife Style and almost 50% of the sale was in cash which were not accounted for in the books of account. During the AYs 2017-18 to 2020-21, for all these 4 years ITA No. 812/Bang/2024 Page 5 of 13 Rs.16.85 crores, Rs.36.07 crores, Rs.50.42 crores and Rs.16.10 crores respectively are unaccounted sales. All unaccounted sales of Rs.16.85 crores is made to 53 parties. During the course of scrutiny, notice u/s. 133(6) was issued to 10 major parties to furnish the information, but response to such notice was only received in case of 4 parties and copies of invoices were furnished by only 2 parties and further transportation of goods was not substantiated with relevant invoices, the ld. PCIT reached at a conclusion that the AO has completed the assessment without making necessary enquiries and passed the assessment order u/s. 147 on 23.3.2022 which is erroneous and prejudicial to the interests of the revenue. Accordingly a notice was issued on 11.3.2024 which was replied by assessee on 14.3.2024. The assessee submitted that details of sales are furnished by assessee and as no evidence about sales of Rs.16.85 crores not accounted for in the books of account, therefore assessment order was passed after complete enquiry. The ld. PCIT referred to tax audit report and observed that assessee does not maintain proper stock records and valuation of closing stock was also not done properly. The records for verification of payment to account payee cheques were also not sufficient and with respect to freight charges, the assessee was not in possession of required declarations. Therefore, he held that considering the total turnover of Rs.10.14 crores from textile business as per tax audit report and enquiry conducted by the ld. AO on the fewer parties, it could be inferred that there was no ITA No. 812/Bang/2024 Page 6 of 13 proper enquiry done by the AO to establish the genuineness of the turnover from textile business of the assessee. Therefore assessment completed u/s. 147 on 23.3.2022 was treated as erroneous and prejudicial to the interests of the revenue and therefore it was set aside and AO was directed to make fresh assessment after conducting necessary enquiry. It was also directed that the AO will also enquire why proposed addition/disallowance should not be made to income. Based on these facts, order u/s. 263 of the Act was passed on 21.3.2024. 9. Assessee is aggrieved and is in appeal before us on this issue. 10. The assessee has filed two paperbooks, submitted notice u/s. 263 of the Act. He further raised an additional ground of appeal along with application for its admission on 14.11.2024 challenging the reasons recorded u/s. 147 of the Act as bad in law. Further, the sanction accorded for reopening of assessment u/s. 151 of the Act is also mechanical. Therefore, the assessee has challenged the basic reopening of assessment u/s. 147 of the Act on which the provisions of section 263 are applied. 11. The ld. AR submitted that the reasons for reopening placed at page 6014 of the PB wherein the reasons clearly state that no assessment is made on the original return of income. He referred to para 3 of the reasons recorded. He further submitted that in para 2 the AO has recorded his reason to believe that the unaccounted income of assessee during AY 2016-17 has escaped ITA No. 812/Bang/2024 Page 7 of 13 assessment. But in fact, the reassessment notice is for AY 2017- 18. He referred to the revisionary order passed u/s. 263 of the Act and also the notice issued u/s. 263 of the Act on 11.3.2024 wherein it is clearly mentioned that assessment was completed on 26.11.2019 by accepting the returned income of Rs.13,76,300. He therefore submitted that reasons recorded by the AO for reopening of the assessment was based on an incorrect information. 12. He further referred to the reasons and submitted that there is no reference to any tangible material for reopening of the assessment. He submits that the reopening has been made as on Insight Portal information is received in the category of high risk transaction where assessee has made unaccounted cash sales of Rs.16,85,19,922. It was submitted that there is no evidence or material available with the assessee with respect to the above statement. Therefore the reopening is bad in law. 13. With respect to the original assessment proceedings, he referred to correspondence placed at page 170-171 wherein letters dated 14.11.2019 & 23.11.2019 show that original assessment order was passed u/s. 143(3) which has not been mentioned by the ld. AO in the reasons recorded, but wrongly stated that there is no assessment made. 14. On merits, he referred to para 6 of the revisionary order to show that merely because notice is issued u/s. 133(6) to the parties have not been replied does not make the original assessment order ITA No. 812/Bang/2024 Page 8 of 13 passed as well as the reassessment order as erroneous and prejudicial to the interests of the revenue. 15. The ld. CIT(DR) filed a paperbook and report received from the ld. AO. It was also submitted that source of information is Tax Evasion Petition [TEP]. There is a note of investigation also wherein the allegation is that Mr. Mahendra Kumar, assessee, in his business of Hilife Style, is making almost 50% of the sales in cash without giving bills which are not accounted in the books. The 4 years unaccounted cash sales is tabulated. No doubt, the tax evasion petition was received on 24.6.2019 wherein the sales summary without bill was attached stating that from 1.4.2016 to 31.3.2017 the assessee has sold goods to several partis amounting to Rs16,85,19,922. Similar information was also available along with TEP for other 3 assessment years. Based on this, the ld. AO conducted enquires in few of the parties, response was received and therefore no proper enquiry was made by the AO, hence revisionary order is correctly passed. It was also submitted that in 263 proceedings, now assessee cannot challenge the validity of reassessment proceedings. She referred to para 6 of the order of the ld. PCIT, who states that there is no details of transportation and therefore the order u/s. 263 is correct. 16. The ld. AR reiterated the above submission and stated that for AY 2018-19 identical information was available, no addition is made on account of bogus sales, but addition was made on account of ITA No. 812/Bang/2024 Page 9 of 13 bogus unsecured loan u/s. 68 of the Act with respect to the other issues. He submitted that for AY 2018-19 on the basis of information no addition is made. With respect to AY 2019-20 even no reopening is made on this issue. With respect to AY 2020-21 on identical issue, the reopening is pending. Therefore, he submitted that reopening of assessment is not justified. On the issue of bogus sales, he submitted that only information is tax evasion petition which has mentioned name of the person and the amount, but there is no evidence of such cash sales made by the assessee out of books. He also referred to reply received from the parties and stated that those parties have also not confirmed any cash sales made by the assessee to them. In view of this, the revisionary proceedings and reassessment proceedings, both are independently connected. 17. We have We have carefully considered the rival contentions and perused the orders of ld. lower authorities. The fact of the case is that on return of income filed by the assessee, there is an assessment order passed by the AO as mentioned by the ld. PCIT. Subsequently the case of assessee was reopened by issue of notice u/s. 148 of the Act. In the reasons recorded for reopening of assessment, the ld. AO has noted that there is information available on Insight Portal that assessee has sold goods of Rs.16.85 crores without issue of bills and cash recorded in his books of account. By recording the reasons the ld. AO has categorically mentioned that he has reason to believe that ITA No. 812/Bang/2024 Page 10 of 13 escapement of income is for AY 2016-17, whereas the reassessment proceedings were disturbed for AY 2017-18. The ld. AO further mentioned that there is no assessment made in the case of assessee on the returned income filed. Therefore he did not look into the record that original assessment u/s. 143(3) has already been made in the case of assessee. The relevant submissions during the assessment proceedings are available in the PB at page 170-171 where the reply to the notice u/s. 142(1) were provided by the assessee. The ld. PCIT categorically noted in his revisionary order that original assessment order has already been passed accepting the returned income. Thus in the reasons recorded for reassessment, wrong information / incorrect information is mentioned. Further, with respect to the information available with the AO is merely tax evasion petition wherein one person has informed that assessee has sold goods in cash out of books of account. Merely the names of parties are mentioned along with the amount against their names. There was no evidence with respect to any sale bill or any chit or any note showing the sale material and amount. The AO also did not make any enquiry before reopening of the assessment. Thus, naturally the reasons recorded on reopening of assessment are not sustainable. Therefore reopening is bad. 18. We find that the foundation of revisionary proceedings u/s. 263 culminating into revisionary order is the reassessment proceedings. If the reassessment proceedings itself are based on ITA No. 812/Bang/2024 Page 11 of 13 invalid assumption of jurisdiction u/s. 147 of the Act, naturally the subsequent proceedings u/s. 263 of the Act cannot stand. Even otherwise, on merits of the case, the ld. PCIT has not mentioned what further enquires the AO should have made which he has failed to make. The ld. AO out of 53 parties selected 10 major parties to whom notices u/s. 133(6) were issued. In 4 cases information was received showing their purchase ledger, bank statement, copy of return, etc. Copies of invoices were furnished only by 2 parties. The assessee submitted that there is no evidence available with the Revenue with respect to the alleged sales out of books of account of Rs.16.85 crores. Further in para 11, the ld. PCIT has mentioned that he has inferred that thee is no proper verification done by the AO and merely because the income of assessee is assessed at returned income, the order passed by the ld. AO is erroneous and prejudicial to the interests of the revenue. The ld. PCIT also did not refer to any material which even remotely suggested that assessee has made sales in cash which is not recorded in the books of account. On the examination of cash sales summary, it is apparent out of total sales of Rs.10.14 crores, sale of Rs.96.86 crores is recorded in cash in the cash book of assessee. Beyond that, no information is available with the Revenue that any sum received by assessee on sale of goods of fabric is not recorded in the books of account. It was further shown that the amount that has been stated as sales summary without bill is already in the books of account of the ITA No. 812/Bang/2024 Page 12 of 13 assessee. E.g., in case of Progress Zone, Bangalore a sum of Rs.1,03,061 was not stated to be accounted for in the books as per the TEP. However, on receipt of information from the same party it was found that Bill No.708 dated 9.3.2017 is recorded in the books of account of the buyer and the seller. The same facts are available in case of other 3 parties shown before us which is also being noted that in case of Fashion Era all payments are made by the buyer by cheque. Therefore, even in the reassessment proceedings in the absence of evidence no addition was made. The ld. PCIT also did not mention reference to any evidence. Therefore it is an accepted fact that no addition could have been made in the hands of the assessee in the absence of any information. The information is to be reliable and with evidence. The AO has made enquiries by obtaining information u/s. 133(6) from some of the parties and found that there is no substance in the tax evasion petition. Even that enquiry could have been made by the AO prior to issue of notice u/s. 142(1) of the Act. On the basis of these information, the revisionary order passes is not sustainable for the reason that reassessment proceedings u/s. 147 of the Act are invalid and further, even otherwise, the order is neither erroneous nor prejudicial to the interests of the revenue, because it was framed on the basis of information available on record and no tangible information is available with respect to unaccounted cash sales by the assessee as alleged in the tax evasion petition. ITA No. 812/Bang/2024 Page 13 of 13 19. In the result, the revisionary order passed u/s. 263 of the Act by the ld. PCIT is quashed. The appeal of the assessee is allowed. Pronounced in the open court on this 30th day of April, 2025. Sd/- Sd/- (SOUNDARARAJAN K.) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 30th April, 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "