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TMI Blog2021 (9) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... heavy addition in the hands of the assessee that too when the verification of facts are almost impossible due to the fact that these entries belong to 1993. These cheques were never encashed from the bank a finding qua which has been given in the remand report by the AO after carrying out verification from then UCO bank - addition can not be made merely because it was not explained by the assessee by overlooking the facts on records which testified that the difference between the books of account of the assessee and bank statement of UCO bank are attributed to cheques/advices issued but not encashed and presented in the bank - we direct the AO to delete the disallowance - Decided in favour of assessee. Assessment of interest income - whether to be assessed as cash system of accounting instead of mercantile system of accounting - CIT(A) deleted the addition - HELD THAT:- CIT(A) allowed the appeal of the assessee by following the decision of the co-ordinate Bench of the Tribunal in the case of Sudheer Mehta A.Y. 2009-10 to 2011-12 [ 2017 (12) TMI 1668 - ITAT MUMBAI] . Accordingly, we do not find any infirmity in the order of Ld. CIT(A) and same is upheld by dismissing the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on 04.06.1992 and some documents/records were seized by them also. The assessment u/s 143(3) r.w.s. 145(2) of the Act was completed by the AO on 26.03.1993 at an assessed income of ₹ 1,90,67,99,460/- after rejecting the books of accounts of the assessee. The various additions/disallowances made by the AO inter alia included (i) addition of ₹ 5,60,33,309/- being the difference as on 31.03.1990 in the balance in its account with UCO Bank, Hamam Street Branch as per books of the assessee and the balance as per the bank statement of the Bank and (ii) interests accrued of ₹ 13,11,232/-and ₹ 34,92,079/-, aggregating to ₹ 48,03,311/- which were not offered by the assessee on the ground that he was following cash system of accounting. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A). On the addition of ₹ 5,60,33,309/- in respect of the issue related to the difference as on 31.03.1990 as per books of the assessee in UCO Bank and the balance as per the bank statement of the said account, the Ld.CIT(A) after duly considering the remand report of the AO qua the reconciliation statement submitted by the assessee, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made to SBI for an aggregate amount of ₹ 5,51,63,286/-. However, other than submitting the client's constituent ledger account from his own books, the assessee has not submitted any other evidence. It is pertinent to point out that this client constituent ledger account cannot be fully relied upon since, the books of the assessee have been rejected by the AO and this action has also been upheld by the Hon'ble ITAT. Therefore, it was imperative for the assessee to submit third party supporting evidences which he has failed to do. Moreover, other than making a bland assertion, the assessee has not submitted any evidences in respect of the alleged transaction of sale of securities for SBI and its subsequent cancellation. It is also pertinent to note that the various discrepancies noted by the AO after examination of the books of the assessee in respect of the reconciliation statement, were neither explained in course of the proceedings in the first round before my Id. predecessor or even in the current proceedings. Moreover, though the assessee was specifically asked to submit its bank statement for the months of March and April, 1990 vide office fetter dated 13.08.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich revealed that the said cheques have not been debited in the account of the assessee and this fact is now not being disputed by the assessee. 4.8 In view of the aforesaid discussion, the following observations are made in respect of the reconciliation submitted by the assessee to explain the difference between the balance as on 31.03.1990 in its bank account as per books and the balance as per the bank statement. (i) In the first round of proceedings before my Ld, Predecessor, it was submitted that the accounts of the assessee will be rectified for the subsequent year and no plea was taken that the said payments were made on 27.03.1990 on account of proposed sale of certain securities undertaken for SBI which got cancelled. This plea was also spot taken up in the proceedings before the Hon'ble ITAT. The assessee in the present proceedings, for the first time, took up the plea that the said payments were made on 27.03.1990 on account of proposed sale of certain securities undertaken for SBI which got cancelled and the entries were reversed. Since, this plea was not taken earlier, the onus was on the assessee to substantiate this new claim made in the present proceedings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 286/- is considered for addition to the total income of the assessee for the relevant year. Accordingly, the said addition made by the AO of ₹ 5,60,33,309/- is restricted to an amount of ₹ 5,51,63,286/-." 5. After hearing both the parties and perusing the material on record, we find that undisputedly the addition as confirmed by the Ld. CIT(A) in the second round of appeal is on account of difference between books of accounts of the assessee and statement of UCO Bank, Harnam Street Branch. We note that the assessee has filed a reconciliation statement before the ld CIT(A) which is extracted as under for the sake of ready reference: Amount (Rs.) Amount (Rs,) Balance as per our bank book as on 31.03.1990 565671.55 Add: Cheque issued but not presented till month end. Date Cheque No. In favour of 01.03.90 226196 Nashville Investment & Trading Co. 1000000,00 01 .03.90 226197 Jalaeg Inv. & Trading Co. Ltd. 1000000.00 07.03.90 Advice State Bank of India 55159650.00 07.03.90 Advice State Bank of India 3636.90 57163286.90 57729955.46 Less : Cheques deposited but not credited by Bank till month end , Date From 31.03.90 Vemity Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 2018. Moreover, the fact of the cheques not presented in the bank in the subsequent year has been confirmed by the AO after enquiring the same from the UCO bank. Considering the facts of the case and surrounding circumstances, we are of the view that ₹ 5,51,63,286/- represented the amount of cheques issued by the assessee which were reversed subsequently for the reason that same were not presented for payment. So far as the discrepancies in the dates are concerned, we do not find that any minor mistake as such would lead to such a heavy addition in the hands of the assessee that too when the verification of facts are almost impossible due to the fact that these entries belong to 1993. Keeping in view the fact that these cheques were never encashed from the bank a finding qua which has been given in the remand report by the AO after carrying out verification from then UCO bank. In our considered opinion an addition can not be made merely because it was not explained by the assessee by overlooking the facts on records which testified that the difference between the books of account of the assesse and bank statement of UCO bank are attributed to cheques/advices issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A.Y. 1989-90 since in this year, the books of accounts were being maintained by the assessee. In the said order, it was also held that even when the books of accounts are not maintained or rejected by the AO and income determined on best judgement basis, still the assessee's choice regarding the method of accounting cannot be ignored. Finally, the Hon'ble ITAT in its order for AY 1989-90 has held that the action of the lower authorities of taxing the interest income on accrual basis is not correct. 4.13 For the relevant year, it is observed that the assessee was maintaining books of accounts, however, the same were rejected by the AO and this action was upheld by both the appellate authorities. Since the facts for the relevant year are quite similar to A.Y. 1989-90, therefore, respectfully following the decision of the Hon'ble ITAT for A.Y. 1989-90, the interest income of the assessee is required to be taxed as per cash system of accounting and not as per mercantile system of accounting. It is also pertinent to mention that the Hon'ble ITAT in the case of Sudhir Mehta for AYs 2009-10 to 2011-12 in ITA No. 5799 to 5801/Mum/2015 dated 27/12/2017 has also noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. A.O. passed the order u/s. 271(l)(c) of the Act vide his order dated 28.04.2006 levying penalty of ₹ 77,38,43,158/- based on the total income determined after giving effect to the order of Ld. CIT(A) in the quantum appeal. 14. The appeal filed against the said penalty order before Ld. CIT(A) was disposed off vide his impugned order dated 01.11.2018 thereby partly confirming the penalty and partly deleting the same. 15. The Ld. Counsel, at the outset, submitted the chronology of events before us which is reproduced as under: Sr. No. Events Date 1. Assessment order passed u/s 143(3) rws 145(2) of the Act 26.03.1993 2. Notice issued u/s. 271(l)(c) of the Act 26.03.1993 3. Appellate order passed by Ld. CIT(A) in quantum proceedings 28.10.1994 4. Order passed by Assessing Officer u/s. 271(l)(c) of the Act 28.04.2006 5. Order passed by Hon'ble Mumbai Tribunal in the appeal in quantum proceedings 25.09.2008 16. The ld AR submitted that the penalty order u/s. 271(l)(c) of the Act passed by the A.O. on 28.04.2006 is beyond the period of limitation. The ld AR while taking us through the provisions of section 275 of the Act submitted that or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticked the entire phrase 'have concealed the particulars of your income or furnished inaccurate particulars of such income' without specifically mentioning the under which limb the penalty was proposed to be levied. The ld AR submitted that it is a settled legal position in favour of the assessee to hold that the notice issued by the A.O. without striking of the correct limb in the notice is invalid and hence the order passed consequent to such notice is also invalid and void ab initio. In defense of his arguments the ld AR relied on the following decisions: a. Mohd. Farhan A. Shaikh v. DCIT & Ors [434 ITR 1 (Bom.)(FB)] [Page No. 220-278 of PB NO. 2] b. Shri Jitesh Jayendra Badaliya v. ITO [ITA No. 7272/Mum/2018] dated 03.03.2021[Page No. 279-286 of PB NO. 2] c. Pavile Projects Private Limited v. DCIT [ITA No. 1181/Murn/2019] dated 20.05.2020 [Page No. 287-292 of PB NO. 2] d. Atria Partner v. ACIT [ITA No. 7196/Del/2017] dated 10.05.2019 [Page No. 293- 311 of PBNO. 2] e. Shri E. Krishnappa v. ITO [ITA No. 313-315/Bang/2014] dated 14.08.2015 [Page No. 312-327 of PBNO. 2] Finally, the ld AR prayed before the bench that in view of the above submissions and contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter disposal of the appeal by the Ld. CIT(A) or after the disposal of the appeal by the Hon'ble Tribunal, as the case may be. In the instant case the AO passed the impugned penalty order on 28.04.2006, i.e. much before the disposal of the quantum appeal by the Hon'ble Tribunal on 25.09.2008. So it is apparent that the A.O. chose option of passing the penalty order after the disposal of the appeal by the Ld. CIT(A) without waiting for the disposal of the appeal by Tribunal. However, in terms of provisions of section 275 of the Act ,the penalty order should have been passed either on or before 31.03.1993 under the 1st limb or by 31.05.1995 as per the second limb whichever is later. 22. Therefore, as per the provisions of section 275 of the Act, the A.O. ought to have passed the penalty order u/s. 271(l)(c) of the Act on or before 31.05.1995 as the ld CIT(A) passed the order on 28.10.1994. Since the penalty order has been passed on 28.04.2006, in our considered view ,the same was beyond the limitation period and hence void ab initio. The case of the assesse finds supports from the following decisions: a) In the case of ACIT v. Jasbir Singh (supra), the coordinate bench has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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