ABHISHEK SHARMA VS INCOME TAX OFFICER -(ITAT)

1. This is assessee’s appeal for assessment year 2003-04, taking the following grounds:

“1. That on the fact and circumstances of the case and in law and in view of the matter, The learned authority below have erred in making addition and upholding the addition of Rs 3,00,000.00/- gift of property received U/s 68 of IT Act 1961.

2. That on the fact and circumstances of the case and in law and in view of the matter, The learned authority below have erred by passing the order and upholding the order without disposing the, objection of assessee against the notice U/s 148 of IT Act.

3. That on the fact and circumstances of the case and in law and in view of the matter, The learned authority below have erred by upholding the order by when the reason recorded U/s 147 of IT Act by the one officer and the notice U/s 148 of IT Act was issued by another officer different dates.”

2. The following additional grounds have also been taken:

“5.1 That in any view, the proceedings initiated u/s 147 of IT Act by issue of notice u/s 148 of IT Act and the assessment framed u/s 143(3) of the IT Act is wrong, illegal and bad in law. That the reasons recorded are vague, merely a suspicion, and to make rowing enquiry and cannot be said as reasons to believe.

5.2 The reasons so recorded should be clear and unambiguous and must not be vague. There cannot be any reopening of assessment without application of mind and forming opinion thereof. The reasons based on suspicion and surmise cannot be said to be valid. The requirement of law is "reason to believe" and not reason to "suspect". Also when reasons are recorded just on the basis of roving enquiry, the notice will be held to be not valid.”

3. The additional grounds taken are legal grounds, not requiring anything fresh to the brought on record for their decision. Accordingly, these grounds are admitted.

4. The AO recorded the following reasons (PB 27 to 28) for formation of belief of escapement of income:

“While investigating the case of one Shri Yogendra Gupta of Gwalior it was noticed that the amount of gift which was given by the donor to Shri Yogendra Gupta was not from his bank accounts as the alleged bank account of the donor in one of the Branches of UCO Bank not exist. When the source of the funds as gift flowing into the account of Shri Yogendra Gupta was tracked down it was found that it was coming from one of the several account opened in the names of three persons jointly in Ranipura Branch of UCO Bank where later on the account was closed and also the branch was closed, when statement of those bank account was obtained, it was found that cash was deposited and cheques were issued to various persons and those persons have shown such money as gift in their accounts. The details of the cheques issued from these account holders on their given addresses to the bank were returned back unserved. The cases of those beneficiaries were identified. There is information that the kingpin of these money laundering is one Shri Subhash Khurshiramani who had opened 100 of such account in fictitious and non exiting names deposited cash and issued cheques for hundis and gifts. The beneficiaries had obtained gift or hundis by paying, accounted cash to Shri Subhash Khushiramani who deposited them into his numerous fictitious bank accounts and then issued cheques for hundis or for gift.

2. In the above background, returns of various assessee filed for the assessment 1998-99 and onwards and processed u/s 143(1) were scanned so as to find out where the assessee has taken accommodation entries from these accounts in the form of gift.

3. In the case of present assessee, return for the assessment year 2003-04 was examined. It was noticed that his return of income was filed on 08-07- 2003 and was processed/accepted u/s 143(1) on 14-07-2003 on a total income of Rs. 126850/- in the result a refund/demand of Rs. nil was worked out. Along with the return the assessee filed one/two sheets, one computation of income and other capital account. The capital account led by the assessee is as under: Capital A/c Sh. Abhishek Sharma S/o Sh. Bhagwan Saran Sharma, Kampoo Chaurana, Kampoo, Gwalior (M.P.) Particulars Amounts Particulars Amounts To LIP 11605.00 by Opening Balance 113856.00 To PPF 31000.00 by Rent 20000.00 To Bond 20000.00 by Net income 79180.00 To Drawings 18000.00 by FDRs interest 34522.00 To Balance C/T 528104.00 by Interest 975.00 by NSC interest 10176.00

by NSC received on death brother 30000.00 by UC Claim 20000.00 by Gift of Property 300000.00 608709.00 608709.00

4. There was no other document annexed with the return. A perusal of above capital account revealed that assessee has shown a credit of Rs. 300000.00/- received as gift. The other particulars as revealed from this transaction are as under:

5. Here no gift deed has been filed by the assessee. From the perusal of above capital account, it is noticed that the assessee has not disclosed the identity of the donor, his address, name of the bank, details of the cheque/draft or other mode of receipt of alleged gift or whether the donor had money in his account at the time when alleged gift was given. Thus, the basis requirement for a sum; to be accepted as a gift has not been disclosed in the return of income. It is a credit of money simplicitor in the capital account without paying taxes thereon. This is alternatively as availability of money in the hands of the assessee or in his bank account, which is not explained by the assessee with primary evidence. There is also, no evidence on record that the assessee is maintaining any books of account. If he is maintaining books of accounts, then sum is taxable u/s 69 of Income-tax Act. In this case has not disclosed primarily facts about alleged receipt of gift as to when the gift was received by whom it was given, what was the mode of the gift, whether donee had money to gift, what is the reason of given gift, whether it was accepted by the assessee, whether it is supported by any girt deed or whether it was witnessed by any one etc. Thus, on account of non- disclosure of full and true facts about alleged gift, a sum of Rs. 300000.00/- should have been taxed as income of the assessee and to this extent therefore, income has escaped assessment. Accordingly, notice u/s 148(1) being issued in this case for the assessment year 2003-04.”

5. The assessee contends that his objections (APB 29-31) dated 2.08.2006 against the reasons recorded by the AO were not disposed of by the AO before passing the assessment order, contrary to the Supreme Court decision in the case of ‘GKN Driveshafts (India) Ltd. vs. ITO’, 259 ITR 19 (SC).

6. The ld. CIT(A) has observed that in ‘GKN Driveshafts’ (supra), the Hon’ble Supreme Court has nowhere observed that if an interlocutory order was not passed, the assessment proceedings would be a nullity and that such failure of the AO was, at best, an irregularity and not an illegality or a nullity.

7. This conclusion of the ld. CIT(A) is, on the face of it, erroneous. In ‘GKN Driveshafts’ (supra), the Hon’ble Supreme Court, in this regard, has observed as follows:

“However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years.”

8. Thus, as per ‘GKN Driveshafts’ (supra) when objections against the AO’s reasons of belief of escapement of income are filed, it is incumbent on the AO to dispose of the same by a separate speaking order before proceedings with the assessment.

9. In ‘General Motors India P. Ltd. vs. DCIT’, 354 ITR 244 (Guj.), it has been held as follows:

“The Assessing Officer is mandated to decide the objection to the notice under section 148 and supply or communicate it to the assessee. The assessee gets an opportunity to challenge the order in writ petition. Thereafter, the Assessing Officer may pass the reassessment order. We hold that it was not open to the Assessing Officer to decide the objection to notice under section 148 by a composite assessment order. The Assessing Officer was required to, first decide the objection of the assessee filed under section 148 and serve a copy of the order on the assessee. And after giving some reasonable time to the assessee for challenging his order, it was open to him to pass an assessment order. This was not done by the Assessing Officer, therefore, the order on the objection to the notice under section 148 and the assessment order passed under the Act deserves to be quashed.”

10. In, ‘M/s Haryana Acrylic Manufacturing Company. Vs. Commissioner Of Income-tax’, 308 ITR 38 (Del), it has been held that deviation from the directions issued by the Hon’ble Supreme Court in ‘GKN Driveshafts’ (supra) would entail nullifying the proceedings. As such, the CIT(A) is incorrect on this score also.

11. In ‘KSS Petron Private Ltd. vs. ACIT’, order dated 03.10.2016 in ITA No. 224 of 2014, the Hon’ble Bombay High Court has held as under:

“We note that once the impugned order finds the Assessment Order is without jurisdiction as the law laid down by the Apex Court in GKN Driveshafts (supra) has not been followed, then there is no reason to restore the issue to the Assessing Officer to pass a further/fresh order. If this is permitted, it would give a licence to the Assessing Officer to pass orders on re-opening notice, without jurisdiction (without compliance of the law in accordance with the procedure), yet the only consequence, would be that in appeal, it would be restored to the Assessing Officer for fresh adjudication after following the due procedure. This would lead to unnecessary harassment of the Assessee by reviving stale/old matters.”

12. In the above view of the matter, this grievance of the assessee is found justified and it is accepted. The AO having not disposed of the assessee’s objections to the reasons recorded, by passing a separate speaking order before proceedings with the assessment the assessee has been illegally debarred from exercising a legally enforceable right which would have become available to him.

13. For this reason, the assessment order is null and void and it is quashed as such. Nothing further survives for adjudication.

14. In the result, the appeal is allowed.

Order pronounced in the open court on 21/03/2018.

Sd/-

(A.D. JAIN)

JUDICIAL MEMBER