2022 (12) TMI 1274 - AT - Income Tax

Reopening of assessment u/s 147 - Reason to believe - as argued CIT had granted his approval u/s.151 of the Act in a mechanical manner i.e., without any application of mind - validity of the jurisdiction that was assumed by the A.O for initiating proceedings u/s 147 and framing the consequential assessment - validity of the addition made by the A.O u/s 68 of the Act of the simpliciter cash deposits in the assessee s bank accounts - sustainability of the addition made by the A.O in the backdrop of the merits of the case - HELD THAT - We are unable to find favor with the same. On a perusal of the approval/sanction granted by the Pr. CIT, Raipur, find that the latter after duly recording his satisfaction had granted the sanction to the A.O for issuing notice u/s.148 of the Act to the assessee - the challenge thrown by the Ld. AR to the validity of jurisdiction assumed by the A.O on the basis of his multi-facet contentions being grossly misconceived and misplaced cannot be accepted and are accordingly rejected. Addition of simplicitor cash deposits in his bank accounts as unexplained cash credit u/s.68 - We find substance in the contentions advanced by the Ld. AR. As stated by the Ld. AR, and, rightly so, as the bank account statement/bank passbook cannot be treated as books of accounts of the assessee, hence, no addition in respect of the cash deposits could be validly made u/s.68. As the bank accounts of the assessee could not have been held to be the books of account of the assessee maintained for any business or profession, therefore, no addition u/s.68 of the Act could have been made in respect of the simplictor cash deposits made in the said bank accounts. Disallowance made u/s.14A - Both the lower authorities had grossly erred in law and the facts of the case in disallowing/sustaining the disallowance of the interest expenditure u/s.14A of the Act. As held in the case of CIT Vs. Sociedade De Fomento Industrial (P). Ltd. 2020 (11) TMI 277 - BOMBAY HIGH COURT the A.O before rejecting the disallowance offered by the assessee remains under a statutory obligation to give a clear finding with reference to the accounts of the assessee that the other expenditure which were being claimed to have been incurred in respect of the non-exempt income, were in fact related to its exempt income. As in the case of the present assessee neither of the lower authorities had demonstrated that as to how any part of the interest expenditure as was claimed by the assessee as a deduction, was not relatable to any part of its taxable income - disallowance made by the A.O u/s.14A cannot be sustained and is accordingly vacated.

Summary

Issues Involved:
1. Validity of the jurisdiction assumed by the A.O for initiating proceedings u/s 147 of the Act.
2. Validity of the notice issued u/s 148 of the Act.
3. Validity of the assessment order passed u/s 147 r.w.s 143(3) of the Act.
4. Legality of the assessment proceedings.
5. Opportunity provided by CIT(A) during the appeal process.
6. Acceptance of the returned income of Rs.7,01,600/-.
7. Addition of Rs.15,58,000/- as unexplained cash credit u/s 68 of the Act.
8. Disallowance of expense u/s 14A of the Act.
9. Deletion of interest charged in the income tax computation.
10. Validity of the sanction granted by the PCIT u/s 151 of the Act for initiation of reassessment proceedings.

Detailed Analysis:

1. Validity of the Jurisdiction Assumed by the A.O for Initiating Proceedings u/s 147 of the Act:
The assessee challenged the jurisdiction of the A.O on multiple grounds, including misconceived facts, vague reasons to believe, change of opinion, absence of tangible material, and mechanical sanction by the PCIT. The tribunal found that the A.O had a bonafide belief based on specific facts, such as unexplained cash deposits and interest expenditure not offered for disallowance u/s 14A. Thus, the tribunal rejected the assessee's contentions and upheld the validity of the jurisdiction assumed by the A.O.

2. Validity of the Notice Issued u/s 148 of the Act:
The notice u/s 148 was issued based on the A.O's belief that the income chargeable to tax had escaped assessment. The tribunal found the reasons for reopening the assessment to be clear and specific. Therefore, the notice issued u/s 148 was deemed valid.

3. Validity of the Assessment Order Passed u/s 147 r.w.s 143(3) of the Act:
The tribunal upheld the assessment order, rejecting the assessee's claim that it was illegal and bad in law. The tribunal found that the A.O had validly assumed jurisdiction and followed due process in framing the assessment.

4. Legality of the Assessment Proceedings:
The assessee contended that the assessment proceedings were null and void. However, the tribunal found no merit in this claim and upheld the legality of the assessment proceedings.

5. Opportunity Provided by CIT(A) During the Appeal Process:
The assessee argued that the CIT(A) dismissed the appeal without providing a reasonable and proper opportunity. The tribunal did not find any procedural lapses on the part of the CIT(A) and upheld the dismissal of the appeal.

6. Acceptance of the Returned Income of Rs.7,01,600/-:
The assessee requested that the returned income of Rs.7,01,600/- be accepted in toto. However, the tribunal upheld the A.O's findings and did not accept the returned income as filed by the assessee.

7. Addition of Rs.15,58,000/- as Unexplained Cash Credit u/s 68 of the Act:
The tribunal found that the bank account statements could not be treated as books of accounts of the assessee. Therefore, no addition could be made u/s 68 for the cash deposits in the bank accounts. The tribunal relied on the judgment of the Hon'ble High Court of Bombay in CIT Vs. Bhaichand H. Gandhi and other similar cases. Consequently, the addition of Rs.15,58,000/- was vacated.

8. Disallowance of Expense u/s 14A of the Act:
The A.O disallowed the entire interest expenditure of Rs.45,861/- u/s 14A, assuming it was incurred for earning exempt income. The tribunal found that the A.O failed to provide specific reasons or satisfaction for the disallowance. Citing the judgment of the Hon'ble High Court of Bombay in CIT Vs. Sociedade De Fomento Industrial (P). Ltd., the tribunal vacated the disallowance made u/s 14A.

9. Deletion of Interest Charged in the Income Tax Computation:
The assessee's request for deletion of interest charged was not specifically addressed in the tribunal's order. However, given the partial allowance of the appeal, it can be inferred that the tribunal did not find merit in this claim.

10. Validity of the Sanction Granted by the PCIT u/s 151 of the Act for Initiation of Reassessment Proceedings:
The tribunal found that the PCIT had duly recorded his satisfaction and granted the sanction for issuing notice u/s 148. Therefore, the sanction was not granted mechanically, and the reassessment proceedings were valid.

Conclusion:
The tribunal partly allowed the appeal, vacating the addition of Rs.15,58,000/- made u/s 68 and the disallowance of Rs.45,861/- made u/s 14A. The other grounds raised by the assessee were rejected, and the validity of the jurisdiction assumed by the A.O and the assessment proceedings were upheld.