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2022 (7) TMI 1253 - AT - Income TaxReopening of assessment u/s 147 - As argued reopening initiated without obtaining of Approval or the Approval is not in accordance with law - Cheque issue business - Genuineness of activity - onus to prove in case of No-account case - unexplained deposit in Bank account - income estimated @8% on the transactions reported in the Bank account - HELD THAT - 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. Further still, even though this aspect is stated to form part of the assessee s objection (to the issue of notice u/s. 148(1)) to the AO dated 29/11/2016, submitted on 30/11/2016, the same stands disposed of by the AO vide his communication dated 01/12/2016. Neither the said objection nor the disposal thereof is made part of the Tribunal s record, for us to be informed of the actual state of affairs or the legal consequences flowing therefrom. Besides, a non-satisfactory disposal of the objections by the AO ought to have prompted the assesse to challenge the same, which is the sole purpose of the prescription in GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT to the AO to meet the tax payer s objection/s (to the issue of notice u/s. 148(1)) per a speaking order, and only whereupon he could proceed to make the assessment. Why, the assessee s Ground, even before us, continues to be vague and non-specific. We are, in view of the aforesaid reasons, not persuaded to call for the assessment record, or otherwise direct the AO to produce the approval u/s. 151. Cheque issue business - Unexplained bank deposits - HELD THAT - In fact, the AO correctly observes that even in a no accounts case, the assessee is supposed to furnish evidences in support of his claim/s. A finding of fact by the assessing or an appellate authority could, after all, only be on the basis of material on record (refer, inter alia, CIT v. Radha Kishan Nandlal 1975 (3) TMI 2 - SUPREME COURT . 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. 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. We have, on the contrary, in the conspectus of the case, accepted the financial accommodation entries as a business, stating our reasons for the same. And, further, allowed the assessee the benefit of doubt in not directing addition for the peak balance, i.e., in addition to the normative profit earned since, in computing his income, even as, as it appears, the gross income of Rs. 2,51,662 (against which no evidence of expenditure stands produced) stands collected in addition to that deposited in bank for the purpose of issuing cheques. The assessee has, accordingly, without showing, been allowed the telescoping benefit. Appeal partly allowed in favour of assesse.
Issues Involved:
1. Legality of reassessment proceedings under section 147 read with section 144 of the Income Tax Act, 1961. 2. Deletion of additions by CIT(A) regarding unexplained cash deposits. 3. Deletion of estimated business income by CIT(A). 4. Validity of the assessee’s cross-objection regarding the initiation of reassessment proceedings. Issue-wise Detailed Analysis: 1. Legality of Reassessment Proceedings: The assessee contended that the initiation of reassessment proceedings did not meet the legal requirements, arguing that the Assessing Officer (AO) did not obtain the necessary approval from the Pr. CIT-1, Jabalpur. The Tribunal found no evidence on record to support the assessee’s claim, noting that the AO stated that notice under section 148 was issued after obtaining the required approval. The Tribunal emphasized the presumption in law that official acts are regularly performed and found the assessee’s claim to be unsubstantiated and vague. 2. Deletion of Additions by CIT(A) Regarding Unexplained Cash Deposits: The CIT(A) had deleted the additions of Rs. 1,52,19,400 and Rs. 6,00,000 made by the AO for unexplained cash deposits in two bank accounts. The Tribunal found that the assessee failed to substantiate his claim of being engaged in the cheque issuing business. The CIT(A)’s decision was based on the Tribunal’s decision in Raaga Finvest Ltd., which was found to be inapplicable as the facts differed significantly. The Tribunal noted that the assessee did not provide any material evidence or produce customers to substantiate his claim. Consequently, the Tribunal concluded that the additions could not be upheld as the assessee was part of a racket providing financial accommodation entries. 3. Deletion of Estimated Business Income by CIT(A): The AO had estimated business income at 8% of the credit entries in the bank account, amounting to Rs. 1,02,38,184. The CIT(A) deleted this addition, considering the assessee’s returned income of Rs. 1.51 lakhs as accepted. The Tribunal found that the assessee did not maintain books of account or provide evidence to support his claims. It was noted that the assessee’s business involved illegal activities, and the income should be assessed based on the material on record. The Tribunal determined the assessee’s income to be Rs. 6,45,200, comprising the excess of aggregate credits over debits in one bank account and the unexplained cash deposit in the other. 4. Validity of the Assessee’s Cross-Objection: The assessee’s cross-objection argued that the initiation of reassessment proceedings was not in accordance with law. The Tribunal found the cross-objection to be vague and unsupported by evidence. It was noted that the assessee did not furnish a return in response to the notice under section 148 and failed to substantiate his claims. The Tribunal dismissed the cross-objection, emphasizing the need for the assessee to provide material evidence to support his case. Conclusion: The Tribunal partly allowed both the Revenue’s appeal and the assessee’s cross-objection. The assessee’s total income was assessed at Rs. 6,45,200, and the deletions made by the CIT(A) were not upheld due to the lack of substantiation and material evidence provided by the assessee. The reassessment proceedings were found to be legally valid.
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