2022 (5) TMI 1328 - AT - Income Tax

Validity of reopening of assessment u/s 147 - approval u/s.151 - As argued non-obtaining of approval by the AO from the Pr. CIT-1, Jabalpur, or of it being not in accordance with law - HELD THAT - We are unable to appreciate the assessee s case. True, the ld. CIT(A) has failed to consider the assessee s plea and issue a finding thereon, so that the assessee s grievance in the matter is understandable. However, the fact of the matter is that there is nothing on record to exhibit that the assessee did indeed request the AO to provide a copy of the said approval. Then, again, what, one wonders, prevented the assessee to seek an inspection of his assessment record (either directly or even under the RTI Act) to ascertain if the same had indeed been obtained, or, as inferred, not. In its absence, this remains no more than a bald allegation, i.e., without any basis, even as the presumption in law (section 114(e) of the Indian Evidence Act) is that all judicial and official acts are regularly performed, so that the said presumption would have to be, for us to entertain the assessee s claim, rebutted. This is particularly so as the AO categorically states (at para 1 of his order) that notice u/s. 148 was issued on 30/03/2016 after taking approval from the appropriate authority . No wonder that the assessee s claim before the ld. CIT(A) is ambivalent, stating that the proceedings had been initiated without obtaining of Approval or the Approval is not in accordance with law, clearly indicating of the assessee being not aware of or, in the least, not sure of the actual facts of the case. Rather, the assessee s request dated 11/11/2016 to the AO cannot be regarded as a valid request in law as the assessee had till then admittedly not furnished any return in response to the notice u/s. 148(1), which was filed only on 18/11/2016. There is no claim and nothing on record to exhibit that a request was made after the filing of the return. We are unable to appreciate the assessee s case. True, the ld. CIT(A) has failed to consider the assessee s plea and issue a finding thereon, so that the assessee s grievance in the matter is understandable. However, the fact of the matter is that there is nothing on record to exhibit that the assessee did indeed request the AO to provide a copy of the said approval. Then, again, what, one wonders, prevented the assessee to seek an inspection of his assessment record (either directly or even under the RTI Act) to ascertain if the same had indeed been obtained, or, as inferred, not. In its absence, this remains no more than a bald allegation, i.e., without any basis, even as the presumption in law (section 114(e) of the Indian Evidence Act) is that all judicial and official acts are regularly performed, so that the said presumption would have to be, for us to entertain the assessee s claim, rebutted. This is particularly so as the AO categorically states (at para 1 of his order) that notice u/s. 148 was issued on 30/03/2016 after taking approval from the appropriate authority . No wonder that the assessee s claim before the ld. CIT(A) is ambivalent, stating that the proceedings had been initiated without obtaining of Approval or the Approval is not in accordance with law, clearly indicating of the assessee being not aware of or, in the least, not sure of the actual facts of the case. Rather, the assessee s request dated 11/11/2016 to the AO cannot be regarded as a valid request in law as the assessee had till then admittedly not furnished any return in response to the notice u/s. 148(1), which was filed only on 18/11/2016. There is no claim and nothing on record to exhibit that a request was made after the filing of the return. Addition u/s 68 - additions by the AO are on the premise that the assessee has abysmally failed to substantiate his claim of being engaged in the cheque issuing business, i.e., on receipt of cash or local cheque, issuing outstation cheque in the case of the lat ter - Even if the party depositing the cheque, and the outstation party to whom the corresponding cheque is issued, are, as would appear, different, as it is only that which would provide a basis or a rationale to the transaction, both the parties are known and, thus, available for confirmation. A one-to-one correlation between the debits and credits, with the two parties having trade relations, would at once establish that the assessee is not the beneficiary of the sums deposited in his bank accounts. The same would also exhibit if the commission stands paid in his bank accounts, or outside it. For example, a cash deposit of Rs. 1,00,200, as against a remittance of Rs. 1,00,000, would clearly exhibit both, the extent of commission as well as prove the transaction to be a financial accommodation transaction. No such attempt has been made by the assessee at any stage, whose case remains, thus, wholly unsubstantiated, accepted by the ld. CIT(A) without any evidence whatsoever; rather, claiming that the AO had accepted the assessee s claim as to cheque issue business , as well as income therefrom. As question that still survives is if the assessment as made can be upheld? In our clear view, the answer is No . The reason is simple. The starting point of the investigation process is the search on 21/03/2016 on three individuals who had admitted running a racket of providing financial accommodation entries at a commission @ 0.15% to 0.2%. The assessee is a part of this racket. If that be true, how can the sum deposited in the bank accounts be regarded as that of the account holders, i.e., the persons doing the said business? Yes, we are conscious that the investigation report clearly states of this being done through layering . But, then, there has been no further investigation by the Revenue in the matter. Sure, we say so only on the basis of the material on record, and it may well be that there has been an omission in bringing it on record, but there is even no whisper of any further investigation. This perhaps also explains as to why the assessee did not provide the names and addresses of his customers, who are stated to be the beneficiaries of the amounts received in the assessee s bank accounts, explaining thus the nature and source of the credits (receipts or deposits) in his bank accounts, as he is obliged to under law (s. 69A). Further, why should, in that case, the assessee have transactions with the persons searched, as the investigation of these accounts disclosed, and which in fact led to the issue of notice u/s. 148(1) in his case? Surely, there are gaps in the factual framework, as suggested by the explanation furnished and the material found and analysed by the Revenue (through the Investigation Wing), and which remain unaddressed. Neither the assessee has stated the truth nor has the Revenue made any further investigation in the matter. Following the money trail would have surely led to a better clarity on facts. However, the very fact of it being a part of such racket implies it to be an organized business. As such, it caters to some persons, even if unidentified, outside the assessee. A business implies an exchange. The two facts, i.e., the money laundering and financial accommodation business, on one hand, and the money in his bank account/s belonging entirely to the assessee, on the other, are inconsistent with each other, so that the latter, an inferential fact, which is under dispute, cannot hold. Even if therefore the assessee is unable to establish the source of the moneys deposited in his bank accounts, given the fact of such business being undertaken, only the peak balance in his bank accounts could be added as unexplained money u/s. 69/69A. The second aspect of the matter would be the income earned through such business, which the assessee admits at Rs. 1.51 lacs, albeit, sans any evidence. The only material on record in this respect, i.e., income arising from business, is the stated consideration of 0.15% - 0.2% on turnover, also admitted by the assessee. It is inconceivable though that such a meagre commission is charged for assuming such a high risk; the illegality factor alone (i.e., even ignoring the service component of the activity undertaken, which involves transmission of liquid cash, which itself involves high risk) scaling up the risk factor inordinately, while, as simple economic theory and plain common sense advocate, there is a positive correlation between the risk return. Further, it also doesn t explain cash deposit of Rs. 6 lacs in Bank Account # 2, against which there are, as afore-stated, no corresponding debits, i.e., on the basis of the material on record, including the explanation furnished. The peak balance of the two bank accounts for the relevant year is not on record. Also, we are conscious that it may be that there are business transactions subsequent to the date of the peak balance/s, so that the income attributable to those transactions, though not manifesting in the form of bank balance/s (or, more aptly, a higher bank balance/s), would warrant being assessed as income, i.e., in addition to the peak balance/s. We are also, in view of the unsatisfactory factual determination (for which it is the assessee, being in the know of his financial affairs and obliged by law to explain the same, who, having failed to, is principally responsible), and the long period that has since lapsed, disinclined to restore the matter back, and consider it proper to, under the given facts and circumstances, adjudicate the matter on the basis of the material on record. In our considered view, the assessee s income for the relevant year shall comprise following a) the excess of the aggregate credits over aggregate debits for the year in bank account # 1, i.e., Rs. 45,200; and b) the unexplained cash deposit of Rs. 6 lacs in bank account # 2. The assessee shall thus stand to be assessed for a total income of Rs. 6,45,200, as business income, as against the returned income of Rs.1,51,000. This is as there is nothing on record to suggest the assessee, who did not file any return u/s. 139, but only (on 18/11/2016) after being served the notice u/s. 148(1) on 02/04/2016, carrying on any other business or vocation during the year.

Summary

Issues Involved:
1. Legality of reassessment proceedings under section 147 read with section 144 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 1,58,19,400/- by CIT(A) for unexplained deposits in bank accounts.
3. Deletion of estimated income of Rs. 1,02,38,184/- by CIT(A) calculated at 8% on bank transactions amounting to Rs. 12,79,77,300/-.
4. Assessee's Cross Objection regarding the validity of reassessment proceedings.

Issue-wise Detailed Analysis:

1. Legality of Reassessment Proceedings:
The assessee argued that the reassessment proceedings were invalid due to the non-obtaining or improper obtaining of approval from the Pr. CIT-1, Jabalpur. The tribunal found no evidence on record to support the assessee's claim that the approval was not obtained or was not in accordance with the law. The tribunal noted that the assessee did not seek an inspection of the assessment record or use the RTI Act to verify the approval. The AO had categorically stated that the notice under section 148 was issued after obtaining the appropriate approval. Consequently, the tribunal did not find merit in the assessee’s challenge to the reassessment proceedings.

2. Deletion of Addition of Rs. 1,58,19,400/-:
The CIT(A) had deleted the addition made by the AO for unexplained cash deposits in the assessee’s bank accounts. The tribunal found that the assessee failed to substantiate his claim of being engaged in a cheque issuing business. There was no evidence provided to support the transactions claimed by the assessee. The tribunal noted that the CIT(A) had not examined any material evidence and had not provided the AO an opportunity to rebut any evidence. The tribunal observed that the assessee did not maintain books of account and failed to produce any customers to substantiate the transactions. As a result, the tribunal did not uphold the deletion of the addition by the CIT(A).

3. Deletion of Estimated Income of Rs. 1,02,38,184/-:
The CIT(A) had deleted the estimated income addition made by the AO. The tribunal found that the assessee had not provided any evidence to support his claim of earning a commission from cheque issuing business. The tribunal noted that the only material on record was the commission rate of 0.15% - 0.2%, which was admitted by the assessee. The tribunal found it inconceivable that such a low commission rate could be charged for high-risk transactions. The tribunal decided that the assessee’s income should be assessed based on the excess of aggregate credits over debits in one bank account and the unexplained cash deposit in the other bank account, resulting in a total income of Rs. 6,45,200/-.

4. Assessee's Cross Objection:
The assessee’s cross objection regarding the validity of the reassessment proceedings was found to lack merit. The tribunal noted that the assessee did not provide sufficient evidence to support the claim that the reassessment proceedings were invalid. The tribunal upheld the reassessment proceedings as valid and dismissed the cross objection.

Conclusion:
The tribunal partly allowed both the Revenue’s appeal and the assessee’s cross objection. The tribunal upheld the reassessment proceedings and modified the assessment of the assessee’s income to Rs. 6,45,200/- as business income. The tribunal also expressed displeasure at the manner in which the assessee attempted to place material on record after the hearing.