2020 (6) TMI 239 - AT - Income Tax

Validity of reopening of assessment - Information about huge cash deposit in the bank account - as alleged assessment framed is without jurisdiction as statutory notice u/s 143 (2) of the act was issued on the date of filing of the return of income - case was transferred to the present AO ITO Ward-2,Hissar from ITO Ward 5, Hissar - on receipt of return of income in response to show cause notice u/s144 notice u/s 143 (2)/142 (1) along with questionnaire were issued and served upon the counsel of the assessee on the spot - assessee has raised unsecured loan from five different persons - whether AO could have applied his mind on the return of income furnished by the assessee and considered it necessary to issue notice on the spot? HELD THAT - Available information in the return is already on record with the assessing officer. Such a situation, it is possible that AO may on looking at the notice itself find it necessary to issue the notice u/s 143(2) of the act. Thus imputing waiting time to the AO for issue of notice u/s143 (2) of the act is perhaps not justified. Because, in such cases the AO might have verified the original return of income at the time of issue of notice u/s148 of the act, if he does not find such information in the return, then only he issues notice u/s 148 of the act. Otherwise, why he would issue a notice if the information is available in the original return it. We do not agree with the proposition that even in such a situation as mentioned by us above, the notice issued u/s143 (2) of the act by the Ld. AO on the same date of the date of filing of the return can be found fault with. In the present case, the return of income filed by the assessee was accompanied with the competition of income, the trading and profit and loss account as well as the balance sheet of the assessee along with the fixed assets account and capital account. At the time of issue of notice, the AO was merely having information about cash deposit of ı 1297900 in his savings bank account maintained with Indusind Bank Limited. AO did not have any information about what kind of business assessee is doing, whether the bank account in which alleged is deposited, whether that appears in the balance sheet of the assessee. Whether the level of income shown by the assessee justifies the amount of cash deposited etc. In such a situation, it can be said that, the AO did not thought it necessary but issued the notice in a mechanical manner. If assessment order is read carefully, it shows that not only he issued the notice u/s143 (2)/142 (1) of the act but also issued questionnaire. In addition, that too along with the notices was served on the spot when he went to file the return to the counsel of the assessee. In such a situation the decision of SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL, TELECOMMUNICATIONS 2010 (4) TMI 43 - DELHI HIGH COURT , clearly says that before issue of notice, AO has to examine the return filed by the assessee. In the present case, not only that the AO issued the notice on the spot to the counsel of the assessee but also issued questionnaire along with that. In such a situation, we are unable to sustain the assessment order passed by the Ld. assessing officer. Thus, we quash the assessment order passed by the Ld. AO u/s143 (3) - Decided in favour of assessee.

Issues Involved:
1. Legality of action under Section 147 of the Income Tax Act.
2. Jurisdiction of the Assessing Officer (AO) due to notice issued by ITO Ward-5 and order passed by ITO Ward-2.
3. Addition of ?6,94,000 as unexplained loan.
4. Addition of ?2,00,000 as unexplained cash deposit under Section 68.
5. Addition of ?88,000 on account of alleged low net profit.
6. Charging of interest under Sections 234A and 234B.
7. Validity of notice under Section 143(2) issued on the date of filing the return.

Detailed Analysis:

1. Legality of Action under Section 147:
The appeal challenges the initiation of action under Section 147 based on the Annual Information Return (AIR) indicating that the assessee made a cash deposit of ?12,97,900 in his savings account during the financial year 2009-10. The AO issued a notice under Section 148 after recording reasons and obtaining necessary approval. The Tribunal found that the AO had sufficient grounds to initiate action under Section 147 based on the information available.

2. Jurisdiction of the Assessing Officer:
The assessee contended that the notice under Section 147 was issued by ITO Ward-5, Hissar, but the order was passed by ITO Ward-2, Hissar. The Tribunal did not find this to be a jurisdictional defect that would invalidate the proceedings, as the case was transferred to the present AO, who had the authority to pass the assessment order.

3. Addition of ?6,94,000 as Unexplained Loan:
The AO added ?6,94,000 to the assessee's income, considering it as unexplained loan from five different persons. The assessee provided passbooks of the lenders, but the AO was not satisfied with the genuineness and creditworthiness of the lenders due to low bank balances and cash deposits followed by cheque issuance. The Tribunal upheld the AO's addition, noting the delay in submission of information and the lack of satisfactory evidence.

4. Addition of ?2,00,000 as Unexplained Cash Deposit:
The AO added ?2,00,000 as unexplained cash deposit under Section 68, as the assessee failed to provide any explanation for the deposit made on 29/05/2009. The Tribunal upheld this addition due to the lack of evidence provided by the assessee.

5. Addition of ?88,000 on Account of Alleged Low Net Profit:
The AO noted that the assessee's net profit ratio was only 4% of the total receipts, which was considered low. The AO applied Section 44AD and estimated the profit at 8% of the total receipts, resulting in an addition of ?88,000. The Tribunal upheld this addition, finding the AO's estimation reasonable.

6. Charging of Interest under Sections 234A and 234B:
The assessee challenged the charging of interest under Sections 234A and 234B. However, the Tribunal did not find any merit in this ground and upheld the interest charges as per the statutory provisions.

7. Validity of Notice under Section 143(2):
The assessee argued that the notice under Section 143(2) issued on the date of filing the return was invalid, as the AO did not have sufficient time to apply his mind. The Tribunal referred to various judgments and concluded that while there is no statutory minimum time for the AO to issue the notice, the AO must apply his mind before issuing it. In this case, the Tribunal found that the AO issued the notice and questionnaire on the spot without examining the return, which was a mechanical action. Thus, the Tribunal quashed the assessment order passed under Section 143(3) read with Section 147, allowing the additional ground raised by the assessee.

Conclusion:
The Tribunal quashed the assessment order on the jurisdictional issue regarding the validity of the notice under Section 143(2). As a result, the Tribunal did not adjudicate the other grounds on merits. The appeal of the assessee was allowed, and the assessment order was set aside.

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