SHRI ASHVINBHAI MUKESHBHAI VORA,RAJKOT V. THE ITO WARD-3 (1) (2), RAJKOT, RAJKOT

ITA 255/RJT/2023

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The case involves Ashvinbhai Mukeshbhai Vora, who did not file a return of income for the assessment year 2011-12 but was found to have deposited a substantial amount of cash (Rs.1,68,16,141) in his bank account. The Income Tax Officer (ITO) reopened the assessment under section 147 of the Income Tax Act, 1961, due to the unexplained source of these deposits. The ITO made an addition of Rs.10,85,537 as undisclosed income based on estimated profits from these deposits, applying section 44AD of the Act. The CIT(A) upheld the ITO's decision, leading to the current appeal before the ITAT. The Tribunal found procedural lapses in the assessment process and the need for a detailed examination of the additional evidence provided by the assessee.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 27266 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-07-2024
• Assessment Year: 2011-2012
• Appeal Filed On: 14-07-2023
• Other Referred Cases: Mohanlal Champalal Jain vs. ITO, Rajesh Jhaveri Stock Brokers (P.) Ltd. vs. ITO, Sanjay Kapur vs. ACIT, Farmacia Molio vs. ITO, Principal Commissioner of Income Tax, Rajkot-3 v. Gokul Ceramics
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH KUMAR PANDEY
• Assessee Lawyers: D.M. RINDANI
• Keywords: Set aside; Additional evidence; Reassessment proceedings; Corroborative evidences; Reopening of assessment; Reason to believe; Tangible material; Presumptive income
• Section: 148; 143(3); 142(1); 143(2); 139(1); 44AD; 207; 145(3)

Judgement Text

" Page | 1 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकर अपील सं./ITA No.255/RJT/2023 (Ǔनधा[रणवष[ / Assessment Year: (2011-12) (Physical Hearing) Ashvinbhai Mukeshbhai Vora, 2 – Radhakrushna Society, B/h Lal Bahadur Society, Dhebar Road, Octroi Naka, Rajkot - 360002 Vs. The ITO, Ward – 3(1)(2), Rajkot èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AFUPV6440G (Assessee) (Respondent) Assessee by : Shri D. M. Rindani, AR Respondent by : Shri Ashish Kumar Pandey, Sr. DR Date of Hearing : 11/07/2024 Date of Pronouncement : 07/10/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AYs) 2011-12, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘NFAC/Ld. CIT(A)’], dated 22.05.2023, which in turn arises out of an assessment order passed by the Assessing Officer (in short ‘AO’) u/s 143(3) r.w.s. 147 of the Act, dated 21.12.2018. 2. The grounds of appeal raised by the assessee are as follows: “1.The Learned Commissioner of Income-tax (Appeals)- NFAC, Delhi erred in upholding the action of re-opening of assessment u/s 148 r.w.s. 147 of the Act. Page | 2 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora 2. The Learned Commissioner of Income-tax (Appeals) – NFAC, Delhi erred in upholding the addition of Rs.10,85,537/- made by the Income-tax Officer. 3. The Learned Commissioner of Income-tax (Appeals) – NFAC, Delhi erred in not accepting the explanation of the Assessee that sources of cash deposits in bank accounts were available and explained. 4. The Learned Commissioner of Income-tax (Appeals) – NFAC, Delhi erred in upholding the addition of Rs.10,85,537/- by way of profit estimation although Sec. 145(3) was not invoked by the ITO. 5. The Assessee craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.” 3. Succinctly, the factual panorama of the case is that assessee before us is an Individual and had not filed return of income for assessment year (A.Y.) 2011-12. As per information with the department, the assessee had deposited cash of Rs.1,68,16,141/- during the relevant previous year. The assessing officer noticed that in absence of the return of income, the genuineness of source of cash transaction remained unexplained. So, after forming belief that income to the tune of Rs.1,68,16,141/- has escaped assessment the assessee`s case was reopened u/s. 147 of the Act, after recording the reasons and obtaining necessary approval from Pr.CIT-3, Rajkot on 23.03.2018. The notice u/s 148 of the Act was issued on 25.03.2018 and duly served upon the assessee. The notices u/s. 142(1) of the Act were issued on 27.06.2018 and 18.07.2018 and served upon the assessee, for furnishing the necessary details as called for. No response or no submission was given by the assessee. Further, reminder/notice u/s. 142(1) of the Act were issued on 11.10.2018 & 22.10.2018 and served upon the assessee along with reasons communicated to the assessee. In response to various notices, neither the assessee nor the AR of the assessee attended or filed any written submission before the assessing officer. Further, a final show cause notice was issued on 15.11.2018 and served upon the assessee, to explain the detail as called for. Page | 3 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora 4. In response, the assessee filed a request letter on 21.11.2018 for grant adjournment and the case was adjourned for further 10 days. On 20.12.2018, the assessee attended the Office of the assessing officer and filed written submission and produced copy of return of income filed on 19.12.2018, declaring total income at Rs.3,90,220/- along with computation of income, cash book, bank statement etc. Further, the notice u/s. 143(2) of the was issued on 19.12.2018 and served upon the assessee, to attend the assessing officer and to produce the documents, accounts and any other evidences in support of return of income. Vide note sheet entry dated 20.12.2018 of the assessing officer, the AR of the assessee was requested to clarify the balancing amount of cash deposits for Rs.1,35,69,212/-. In response to notices, the AR of the assessee failed to furnish clarification on the balancing amount of Rs.1,35,69,212/- i.e., (Total amount of cash deposit Rs.1,68,16,141/- less out of state cash deposits of Rs.31,46,929/- offered for taxation). The total cash deposit is of Rs.1,68,16,141/- which consists of unaccounted sales of assessee. The assessee has filed ITR-4 w.r.t Sec 44AD and offered 8% of the cash deposits out of state on Rs.31,46,929/-. Assessee has not maintained books of accounts as required u/s 44AA of the Act. Therefore, considering the above facts amount of Rs.1,35,69,212/-, was treated, as undisclosed sales of the assessee w.r.t. section 44AD of the Act, to which assessee has offered no clarification. Therefore, assessing officer made addition at the rate of 8% of Rs.1,35,69,212/- which comes to Rs.10,85,537/- as undisclosed income on sales. 5. Aggrieved by the order of assessing officer, the assessee carried the matter in appeal before Ld. CIT(A), who has dismissed the appeal of the assessee. The ld. CIT(A) observed that assessing officer was having information that the assessee had deposited in the bank account with Page | 4 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora ICICI a sum of Rs.1,68,16,141/-. Accordingly, proceedings u/s 147 were initiated by the assessing officer by following rules in the process of reopening, hence, ld. CIT(A) dismissed the ground of the assessee, pertaining to reassessment proceedings under section 147 of the Act. On merit, the ld. CIT observed that assessing officer had adopted a very balanced approach. The assessing officer had given credit to some of the cash deposits used by the assessee for his business and the assessing officer had also adopted the rate of 8% which is the same rate as adopted by the assessee u/s 44AD of the Act. This way, the ld. CIT(A) dismissed the appeal of the assessee. 6. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us. 7. Shri D. M. Rindani, Learned Counsel for the assessee, argued about ground No.1 raised by the assessee, which relates to challenging the action of reopening of assessment u/s 148 r.w.s. 147 of the Act. The Ld. Counsel for the assessee submitted that there was no reference to any document or statement, except information, which alone cannot be regarded as a sufficient material evidence that prima facie establishes link or nexus, which leads to from honest belief of escapement, for that reliance was placed on the judgement of Hon'ble High Court of Bombay in the case of Mohanlal Champalal Jain vs. ITO 2019 TaxPub(DT) 1339 (Bom-HC), where in it was held that either on his own or by calling upon the petitioner to provide such details, the assessing officer could and ought to have verified at least prima facie that the income in the hands of the petitioner chargeable to tax had escaped assessment.Thus, ld Counsel stated that the crucial link between the information made available to the assessing officer and the formation of belief is absent. The reasons must Page | 5 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora be self- evident, they must speak for themselves. Thus, mandatory requirement is missing, in the assessee`s case under consideration, therefore, reassessment proceedings, initiated by the assessing officer, may be quashed. 8. On merit, ld. Counsel stated that assessing officer considered the aggregate cash deposit in bank account, barring cash deposits outside State of Gujarat, as suppressed sales and created charge on estimated profit on such sales, while finalizing the assessment. It was submitted by ld Counsel, that the assessee at the relevant point of time carried out retail trading business in agriculture produce in State of Gujarat as also outside the State of Gujarat. The learned Counsel submitted that during the assessment proceedings, the authorized representative of the assessee attended the office of the assessing officer and furnished copy of Income- tax Return, Computation of income, bank statement & cash book as evident from para-4 of assessment order. Therefore, the assessee has explained the source of cash deposit in the bank account. The summary of cash flow statement, bank transactions are supporting evidences and demonstrating source of major portion of cash deposits, were re-deposit of withdrawals, made from the bank account. The ld Counsel stated that it is settled proposition of law that the document is to be considered as a whole and considering these facts there was no justification to take the balance cash deposits aggregating Rs. 1,35,69,212/-, as undisclosed sales and estimated the net profit at Rs. 10,85,537/-, which may kindly be deleted. 9. On the other hand, Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue took us through the paper book page no.9 of the assessee and argued that reasons were recorded based on the information received by the assessing officer from the Department’s Non-filler Page | 6 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora Management System (NMS) and recorded the reasons that income to the extent of Rs.1,68,16,141/- was escaped assessment. The Ld. Sr. DR also submitted that the reasons to believe would mean justification to reopen of the assessment. If the assessing officer has caused or justification that income has escaped assessment, it can be said to have reasons to believe that an income had escaped assessment. For that Ld. Sr. DR for the Revenue relied on the judgment of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd., 161 Taxman 316 (SC). 10. The Ld. Sr. DR also invited our attention towards judgment of Hon’ble Supreme Court in the case of Sanjay Kapur vs. ACIT, 138 taxmann.com 207 (SC) wherein it was held that – “High Court upheld reassessment in case where assessee had made a deposit of cash in bank during demonetization period, which was reflected in his return of income, but no supporting evidences were available to prove source of such deposit leading to 'reason to believe' that income otherwise chargeable to tax had escaped assessment; SLP filed against High Court's judgment dismissed as withdrawn.” 11. Further, the Ld. Sr. DR also relied on the decision of Hon’ble Supreme Court in the case of Farmacia Molio vs. ITO, 137 taxmann.com 256 wherein it was held that “Where assessing officer sought to reopen assessment in case of assessee on discovering huge cash deposits against assessee's PAN number and also discovered that for relevant assessment year, assessee chose not to file any return at all, reopening of assessment was justified as there was sufficient as well as relevant information to formation of reason to believe that income had escaped assessment”. Page | 7 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora 12. On merit, Ld. DR submitted that first of all, the assessee did not file any return of income, and it has not been demonstrated by the assessee that he is maintaining books of accounts. The assessee under consideration, was under the scheme of section 44AD of the Act, hence, question of maintenance of books of accounts does not arise. Therefore, it is not necessary to invoke the provisions of section 145(3) of the Act to make estimated addition considering the assessee’s facts. The assessee has not explained the source of cash deposit in bank account, therefore, addition was correctly made in the hands of the assessee. 13. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld CIT(A) and other materials brought on record. First, we shall adjudicate the ground No.1 raised by the assessee, relating to reopening of assessment, under section 147 of the Act. For that it is pertinent to go through the reasons recorded by the assessing officer, which is reproduced below: “As per the information available with the department in Non filer's management system (NMS), CYCLE category, it is observed that the above assessee entered into cash transaction (cash Deposit in 1CICI Bank) during financial year 2010- 11. The accumulated/total value of cash deposit in ICICI Bank as per ITS shown at Rs.1,68,16,141/-. However, the assessee did not submit return of income for A.Y.2011-12 as per provisions of section 139(1) of the Act. In absence of any information viz. return of income the genuineness of source of this cash deposit cannot be ascertained. Therefore, it is concluded that an aggregate amount to the tune of Rs.1,68,16,141/- has escaped the assessment within the meaning of section 147 of the I.T. Act, 1961. In view of the above discussion, the source of cash deposit in ICICI Bank to the tune of Rs.1,68,16,141/- remains unexplained. I, have, therefore, reason to believe that aggregate income of Rs.1,68,16,141/- has escaped assessment in this case, for which the case of the assessee for A.Y. 2011-12 needs to be re-opened, within the meaning of section 147 of the I.T. Act.” Page | 8 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora 14. We have gone through the above reasons, recorded by the assessing officer and noticed that the assessee did not submit return of income for A.Y.2011-12, as per provisions of section 139(1) of the Act. In absence of any information viz. return of income the genuineness of source of cash deposit cannot be ascertained. Therefore, it was concluded by assessing officer that an aggregate amount to the tune of Rs.1,68,16,141/- has escaped the assessment within the meaning of section 147 of the I.T. Act, 1961. The above reasons recorded by the assessing officer, clearly shows that assessing officer has applied his mind and there was an information with the assessing officer, in the form of tangible material that assessee did not submit return of income for A.Y.2011-12, as per provisions of section 139(1) of the Act.The assessee did not file the return of income for the assessment year 2011-12 and in the circumstances, the genuineness of cash deposit aggregating Rs.1,68,16,141/-, in account with ICICI Bank remains unexplained, which has escaped the assessment. The assessing officer has reopened the assessment based on the information available with the department in ‘NMS’ System and assessing officer had reason to believe that assessee had made cash transaction / cash deposit to ICICI Bank to the tune of Rs.1,68,16,141/-. Therefore, it is a tangible material before the assessing officer to reopen the assessment, hence reassessment proceedings are valid. 15. It is well settled law that validity of the reassessment proceedings is to be determined on the basis of the reasons recorded for reopening. At the stage of initiation of reassessment proceedings, the Assessing Officer is not required to hold conclusively that additions invariably be made. He truly had to form a bona -fide belief that income had escaped assessment. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a Page | 9 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora requisite belief. When the Assessing Officer had such material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the reopening cannot be declared invalid. For that reliance can be placed on the judgment of Hon'ble Jurisdictional Gujarat High Court in the case of Principal Commissioner of Income Tax, Rajkot-3 v. Gokul Ceramics [Taxman Vol. 241 (2016) 241] wherein the Division Bench had examined the contention of the Assessing Officer and proceeded on the basis of the information supplied by the department, and after referring to the several judgments, made following observations in para 9 which read thus: \"9. It can thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show cause notice placed at the disposal of the Assessing Officer. These materials prirna facie suggested suppression of sale consideration of the tiles manufactured by the assessee to evade excise duty. On the basis of such material, the Assessing Officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing Officer had such material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the reopening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment.” 16. Considering the entirety of facts and legal decisions, we are of the view that the reopening of the case u/s 147/148 is legally valid. The ground No.1 of appeal is dismissed. 17. Now, we shall adjudicate ground Nos.2 to 4 raised by the assessee, on merit. Facts have already been narrated by us in the above para of this order. Therefore, we do not repeat the same. The ld Counsel for the Page | 10 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora assessee argued that Learned Commissioner of Income-tax (Appeals) erred in upholding the addition of Rs.10,85,537/-, by way of profit estimation although Section 145(3) of the Act was not invoked by the assessing officer. We note that under Section 145(3) of the Income Tax Act, 1961, the assessing officer has the authority to reject the books of accounts, if they are found to be unreliable or if the taxpayer has not maintained them as per the prescribed standards. However, it is possible to make estimated additions without outright rejecting the books of accounts. If the assessing officer finds discrepancies or issues in the books but does not completely reject them, the assessing officer can still make adjustments based on his estimation, in the following circumstances, Viz: (1)Identifying Specific Issues (2)Applying Estimation Methods (3)Partial Disallowances, for example, disallowing specific expenses that are deemed unreasonable or unsupported by proper documentation. (4) Applying Presumptive Taxation Rules, if applicable, the assessing officer can apply presumptive taxation provisions where the income can be estimated based on gross receipts or turnover. In the assessee`s case under consideration, the assessing officer made addition as per the scheme of section 44AD of the Act, which is correct, considering the circumstances of the case. 18. We find that estimated addition made by the assessing officer is based on reasonable assumptions and comply with the principles of natural justice.At this juncture, we find merit in the submissions of learned DR for the revenue to the effect that “first of all, the assessee did not file any return of income, and it has not been demonstrated by the assessee that he is maintaining books of accounts. The assessee under consideration, was under the scheme of section 44AD of the Act, hence, question of maintenance of books of accounts does not arise. Therefore, it Page | 11 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora is not necessary to invoke the provisions of section 145(3) of the Act to make estimated addition.” 19. We find that in response to notice under section 148 of the Act, the assessee filed the return of income before the assessing officer on 19th December 2018, along with cashbook and bank statement and computation of income. According to us, these are not complete books of accounts. The assessee failed to file the Balance Sheet, Profit and Loss account and cash flow statement before the assessing officer/CIT(A). Hence, the assessee did not file the complete books of accounts before the assessing officer/CIT(A), even in response to notice under section 148 of the Act, hence plea of the assessee, about rejection of books of account, is hereby rejected. 20. However, we find that the assessee, before us submitted summary of cash flow statement, which shows closing balance to the tune of Rs.2,69,774/- which has not been examined by the assessing officer/CIT(A) and which is additional evidence. In addition to this, we find that assessment order was framed by the assessing officer, in haste, vide para Nos. 4 and 5 of assessment order on 20.12.2018, the assessee attended the Office of the assessing officer and filed written submission and produced copy of return of income filed on 19.12.2018, declaring total income at Rs.3,90,220/- along with computation of income, cash book, bank statement etc. However, the assessment order was framed on 21.12. 2018, hence assessee did not get proper opportunity of hearing, in fact, the assessee has also raised this grievance before ld. CIT(A).Therefore, we are of the view that entire matter should be remitted back to the file of the assessing officer for examination of cash flow statement and other documents and evidences. Therefore, we deem it fit Page | 12 ITA No.255/RJT/2023 Ashvinbhai Mukeshbhai Vora and proper to set aside the order of the ld. CIT(A) and remit the matter back to the file of the assessing officer to adjudicate the issue afresh on merits. For statistical purposes, the appeal of the assessee is treated as allowed. 21. In the result, the appeal of the assessee is allowed for statistical purposes. Order is pronounced in the open court on 07/10/2024. Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot Ǒदनांक/ Date: 07/10/2024 Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By Order Assistant Registrar/Sr. PS/PS ITAT, Rajkot "