2022 (5) TMI 1141 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - HELD THAT - We first reject arguments of AR that provision of section 68 could not have been applied in case where cash is deposited in the bank accounts. We find that assessee is maintaining books of accounts undoubtedly. Addition is made on account of cash deposited in three bank accounts which could not be explained to the satisfaction of the ld AO. We do not find any infirmity in application section 68 on such sums in view of the decision in case of Arunkumar J Muchalla V CIT 2017 (8) TMI 1137 - BOMBAY HIGH COURT where in the decision of CIT v. Bhaichand H. Gandhi 1982 (2) TMI 28 - BOMBAY HIGH COURT AO has disallowed the expenditure - In the order itself, the learned AO earlier agreed with the assessee that only 40% of such expenditure is disallowable. Order sheet has been reproduced by the AO of the assessment order. When the assessee agreed for 40% disallowance, the learned Assessing Officer made the volte face and disallowed almost 100% of such expenses. In support of that expenditure, assessee has produced the names of the person to whom the payments have been made and the copy of the bank account from which the payments are made. It is also substantiated by the ledger accounts where narration of such expenditure is provided. Only reason for disallowance is that the names of persons, which mentioned in the bank statements and their identity, could not be verified. Amount of gross income shown by assessee AO has disbelieved gross receipt - The gross receipts have been stated to be higher than the cash deposit of ₹30,63,900/- and ₹ 2 lacs. These two items are also separately added by the learned AO. Naturally, the gross receipts i.e. Income as well as the expenditure both have been added into the hands of the assessee. Even otherwise, the learned Assessing Officer should have verified independently whether the cash deposit is a sum received by the assessee as professional fees or not. Further, when the amount is deposited in bank account is emanating from books of accounts, further addition of cash deposit amounts to double addition. Ld AO did not carry out this examination. Advance received Assessing Officer could have asked the assessee to produce details by producing the nature of work carried out by the assessee and continuation of business of Wave Films. IT also needs to be examined when the assessee has offered this as income, if in this year it is advance. However, LD AO preferred to make Google search. Instead of making Google search, the learned Assessing Officer should have made independent inquiry of the above sum paid by Wave Films as advance to the assessee in cash to correct position of the above transactions. It is more pertinent when the assessee claimed that business of wave films continued. Merely, because some infirmity is noted in stamp paper, it could not have resulted into stating that whole transaction is bogus. The payment of advances even after the death of Gurdeep Singh Chadha by Wave Films clearly shows that business of Wave Films might have continued. For this, the assessee has also submitted the Permanent Account Number of the payee and confirmation. Ld AO could have enquired about the persons who gave confirmation and on what basis. If assessee fails to show that, in those circumstances, addition could have been possibly made. Therefore, on this facts and circumstances, we are not in a position to comment on the genuineness of the above transaction, unless the detailed inquiry is carried out by the learned Assessing Office. The LD AO may direct assessee to produce the relevant information/ persons who paid cash and treatment of this sum in the books of wave films to substantiate the veracity of the above agreement. We set aside the issue back to the file of the Assessing Officer with a direction to the assessee to substantiate the transaction of advance received and also to show that the amount of cash deposited in the bank account in cash are covered by gross receipts of the profession shown by the assessee. The assessee is also directed to show the nature of expenditure incurred with adequate evidences. Thereafter ld AO may decide issues afresh on merits after giving assessee proper opportunity of hearing.

Summary

Issues Involved:
1. Validity of the reassessment order under section 143(3) read with section 147 of the Income Tax Act, 1961.
2. Non-supply of reasons for issuance of notice under section 148.
3. Procedural errors in issuing notice under section 148.
4. Disallowance of expenditure of ?47,85,384.
5. Alleged double addition of ?30,63,900.
6. Addition of ?75,00,000 as unexplained cash credit under section 68.
7. Addition of ?30,63,900 as unexplained cash credit under section 68.
8. Addition of ?2,00,000 as unexplained cash credit under section 68.
9. Charging of interest under sections 234A, 234B, and 234C.
10. Initiation of penalty under section 271(1)(c).

Detailed Analysis:

1. Validity of the Reassessment Order:
The appellant argued that the reassessment order was invalid as it was framed without assuming jurisdiction as per law and without complying with mandatory conditions under sections 147 to 151. The tribunal did not specifically address this issue in detail, but the reassessment was set aside for further examination.

2. Non-supply of Reasons for Issuance of Notice under Section 148:
The appellant claimed that the reasons recorded for issuing the notice under section 148 were not supplied, which is against the settled proposition of law. The tribunal did not provide a detailed analysis on this issue, but the reassessment was set aside for further examination.

3. Procedural Errors in Issuing Notice under Section 148:
The appellant contended that the procedures laid down for issuing the notice under section 148 were not followed. The tribunal did not specifically address this issue in detail, but the reassessment was set aside for further examination.

4. Disallowance of Expenditure of ?47,85,384:
The Assessing Officer (AO) initially agreed to disallow 40% of the expenditure but later disallowed 100%. The tribunal noted that the AO did not provide a valid reason for this change. The appellant had provided names of persons to whom payments were made and bank account details. The tribunal found that the AO should have verified the details independently and noted that the disallowance was not justified without proper verification.

5. Alleged Double Addition of ?30,63,900:
The appellant argued that the cash deposit of ?30,63,900 was part of the gross receipts of ?52,45,940. The tribunal noted that the AO should have verified whether the cash deposit was part of the professional fees. The tribunal found that adding both the gross receipts and the cash deposit amounted to double addition.

6. Addition of ?75,00,000 as Unexplained Cash Credit under Section 68:
The AO rejected the appellant's explanation that the amount was received as an advance from Mr. Gurdeep Singh Chadha, citing inconsistencies such as the use of a stamp paper not in the name of either party and the death of Mr. Chadha before the date of the confirmation letter. The tribunal found that the AO should have conducted an independent inquiry into the transaction and allowed the appellant to substantiate the transaction.

7. Addition of ?30,63,900 as Unexplained Cash Credit under Section 68:
The appellant claimed this amount was part of the business receipts. The tribunal noted that the AO should have verified the nexus between the gross receipts and the cash deposit. The tribunal directed the AO to re-examine this issue.

8. Addition of ?2,00,000 as Unexplained Cash Credit under Section 68:
Similar to the ?30,63,900 addition, the appellant claimed this amount was part of the business receipts. The tribunal directed the AO to re-examine this issue as well.

9. Charging of Interest under Sections 234A, 234B, and 234C:
The appellant argued that the interest was charged on wholly illegal and erroneous grounds. The tribunal did not specifically address this issue in detail, but the reassessment was set aside for further examination.

10. Initiation of Penalty under Section 271(1)(c):
The appellant contended that the initiation of penalty was erroneous. The tribunal did not specifically address this issue in detail, but the reassessment was set aside for further examination.

Conclusion:
The tribunal set aside the reassessment order and directed the AO to re-examine the issues related to the disallowance of expenditure, alleged double addition, and unexplained cash credits. The tribunal emphasized the need for independent verification and proper inquiry by the AO. The appeal was allowed for statistical purposes with directions for further examination.