INCOME TAX OFFICER & ANR. VS RISHI GODANI & ANR. -(ITAT)

1. This is Department’s appeal and assessee’s Cross-objection for assessment year 2012-13. The Department’s grounds are as follows:

“1. That the CIT(A) has erred in law and on facts in deleting the addition of Rs.64,80,000/- by ignoring the fact that the three cheques issued by the assessee on 19.10.2011 for Rs.21,60,000/- each to all the three co-owners could be materialized only during financial year 2013-14 i.e. 21 months later after the execution of Release Deed/purchase deed.

2. That the CIT(A) was not justified in overlooking the fact of three cheques dated 19.10.2011 as mentioned in the Release deed/purchase deed was nothing but the willful design of the assessee to save himself from the allegation that the immovable property so acquired was without consideration.

3. That the CIT(A) has erred in law in not appreciating the fact that the so called consideration of Rs.64,80,000/- through the three cheques of Rs.21,60,000/- each from a bank account with negligible balance of Rs.1,817/- as on 19-10-2011 was to defend himself from the mischief of provisions of section 56(2)(vii) of Income Tax Act, 1961 effective from 01.10.2009. Had the assessment proceedings not initiated and completed, the assessee could go scot free.

4. That the CIT(A) has erred in ignoring the failure of the assessee to substantiate the nexus between the promised consideration of the property during FY 2011-12 as per release deed/purchase deed and the so called subsequent payments thereof during FY 2013-14 through different cheques of different amounts.

5. That the CIT(A) has failed to appreciate that the ITRs of the year under consideration were filed by the assessee and the sellers of the property only after when the AO initiated verification proceedings on 31.01.2013.

6. That the CIT(A) was not justified in law in overlooking the connivance of the assessee with the three sellers who are none but the cousins that he would issue three cheques aggregating to Rs.64,80,000/- from his bank account wherein sufficient funds were not available. Had it not been the case, the assessee would have surely taken care of section 138 of Negotiable Instruments Act, 1881.

7. That filing of ITRs and payment of short term capital gain tax by the sellers cannot establish the sanctity and truthfulness of the transaction. In case of relinquishment of interest in the property, the transaction amounts to transfer and as such, the sellers were duty bound to pay capital gain tax even on stamp valuation of the property.”

2. The following Cross-objection has been taken by the assessee. The Cross- objection is delayed by sixty days of limitation. In the application for condonation of delay, which is accompanied by the assessee’s affidavit, it has been stated as follows:

“3. During the course of appellate proceedings the AR of the respondent agrees that if he gets due relief on merits of the case, he may not choose to press the ground no. I. This has been reproduced by the Ld. CIT(A) in the Appellate Order. The finding of Ld. CIT(A) on this issue is as “As the appellant has been granted substantive relief on merits of case, there is no need to decide this ground.

4. That on receipt of appeal memo and grounds of appeal, the AR of the respondent who argued the appeal before Ld. CIT(A) advised the respondent to engage Mr. Pankaj Gargh, Advocate to represent the appeal before Hon’ble Tribunal. Thereafter I met Mr. Pankaj Gargh, Advocate and discuss the appeal. He advised to file cross objection on the legal issue challenging the reopening of the case.”

3. The assessee was prevented by sufficient cause from filing the Cross- objection in time. Before the ld. CIT(A), the AR of the assessee had agreed not to press the legal ground, which is the grievance of the assessee by way of the Cross- objection, in case he was to get relief on merits. It was only on legal advice that the Cross-objection was filed belately. Accordingly, the delay is condoned.

4. In the Cross-objection, the assessee contends that the ld. CIT(A) has erred in not deciding Ground Nos. 1(i) and (ii) taken before him. These grounds are as under:

“(i) Because the proceedings initiated u/s 147 of the Act, issue of notice u/s 148 of the Act and consequent assessment framed u/s 143 (3) of the Act are wrong, bad in law, without jurisdiction as the reason recorded were not supplied to the assessee though specific written request was made.

(ii) Because the non supply of reason recorded makes the assessment framed u/s 143 (3)/ 147 of the Act ab- initio void. Moreover in the absence of reason recorded the appellant could not avail his legal right to file objection. Considering the legal position and facts of the case the assessment deserves to be cancelled.”

5. The assessee is aggrieved by non-supply to him, of the reasons recorded by the AO to believe escapement of income from tax, though the assessee had made a specific written request to the AO to supply such reasons.

6. In this regard, the ld. DR has placed on record and referred to the AO’s letter dated 08.08.2017, addressed to him (the DR). Therein, the AO states that:

“In compliance to notice u/s 148 of Income-tax Act, 1961 issued on 19/03/2014, which was duly served upon the assessee on 21/03/2014, the assessee vide his written submission dated 15/04/2014 had requested that “ In response to your honor’s notice under section 148, the assessee most humbly submits that the return filed vide Ack. No. 579878750190313 dated 19.03.2013 (wrongly mentioned as 19.03.2014) may kindly be treated as return having filed in response to your notice under section 148.” Relying upon the reply and considering the return already filed by the assessee for the year under consideration, the AO has issued notice u/s 143(2) and 142(1) with detailed questionnaire, on 02/05/2014, fixing the date for hearing on 14/05/2014, which were sent to the assessee through speed post on the given address. As there was no compliance on the date fixed, a further notice u/s 142(1) of Income-tax, 1961 was issued on 19/05/2014 fixing the date for hearing on 26/05/2014, which was duly delivered to the assessee on 19/05/2014. On the date fixed, the assessee filed an application for adjournment for 15 days to comply the quarries of notice u/s 142(1) dated 19/05/2014, seeking reasons for re-opening of the assessment u/s 148. On request the case was adjourned for 03/06/2014. On the date fixed the assessee sought further adjournment vide written application dated (13/06/2014 which was granted for 11/06/2014. However, on the date fixed again nobody attended no any application for adjournment was furnished. The AO vide further notice u/s 142(1) dated 16/06/2014 has communicated the quarry of the reasons, as under:

“Please explain and show cause as to why Rs. 64,80,000/- may not be added in your total income as you have accepted the property of Rs. 64,80,000/- on 19/10/2011 which is situated at EA- 110, Sector-A, Indore, through registered deed from Shri Nitin Maheshwari, Vineet Maheshwari & Puneet Maheshwari, without any consideration, within the meaning of the provisions of Section 56(2)(vii)(b) of the I.T.Act.” Later on, the assessee has complied the quarries raised by the AO from time to time without pointing out or asking reasons and the assessment was completed by the AO accordingly. Thus, the assessee was well acquainted, with the reasons of re-opening of assessment. Moreover, he applied for the reasons much after lapse of time stipulated in the notice u/s 148 of Income-tax Act, 1961 and during the course of entire assessment proceedings the assessee never asked for the reasons with the satisfaction of the quarry raised by the AO in the notice u/s 142(1) dated 16/06/2014, which was deeply examined by the AO and explained by the assessee from time to time without raising/any voice against not providing reasons and never shown his resentment and any hesitation on this issue but peacefully complying the proceedings.

Therefore, the assessee not deserves to get any relief on the mere technical ground for not providing the reasons by the AO which does not alter the fact of the case and charging of tax on the deemed income from other sources within the meaning of Section 56(2)(vii) of Income-tax Act, 1961.”

7. Thus, the AO has stated that the ‘query of the reasons’ was communicated to the assessee vide notice dated 16.06.2014, issued u/s 142(1) of the IT Act. He says that thus, the assessee was ‘well acquainted’ with the reasons. In the last para of this letter, the AO states that not providing the assessee is with the reasons does not alter the facts of the case. As such, the AO admits that the reasons per se were not communicated to the assessee.

8. The ld. Counsel for the assessee has drawn our attention to APB 130-133, i.e., the order sheet note of the AO, from which too, it is evident that the reasons were not communicated to the assessee.

9. In the absence of receipt of the reasons, the assessee is debarred from his legal right to file objections on the issue of notice u/s 148 of the IT Act. The Hon’ble Supreme Court, in ‘GKN Driveshafts’, 259 ITR 19 (SC), has held that the AO is bound to furnish the reasons within a reasonable time and on receipt thereof, the noticee is entitled to file objections to the issuance of the notice and the AO is bound to dispose of the same by passing a speaking order.

10. ‘GKN Driveshafts’ (supra) was cited by the assessee before the ld. CIT(A) (Impugned order page 12).

11. In the present case, non-supply of the reasons to the assessee is in direct violation of ‘GKN Driveshafts’ (supra), debarring him from exercising his legal right to file objections against the issuance of the reassessment notice. Conveying the gist of the reasons to the assessee nowhere serves the purpose, as objections, if required to be filed by the assessee, are to be against the reasons proper and not any ‘gist’ of such reasons.

12. The ld. DR also sought to take recourse to section 124(3)(b) of the IT Act, as per which, no person shall be entitled to call in question the jurisdiction of the AO, where no return has been filed after the expiry of the time allowed by the notice u/s 148 of the Act.

13. However, section 124(3)(b) is not at all applicable to the facts of the present case. Section 124 concerns the territorial jurisdiction of the AO, whereas the grievance of the assessee in the present case is regarding the issuance of the notice u/s 148. Too, undisputedly, in response to the notice u/s 148, the assessee requested his original return filed to be treated as one in response to the notice u/s 148. Thererfore, it cannot be said that no return was filed in response to the notice u/s 148. The AO, in fact, has proceeded to frame the assessment on such return only.

14. In view of the above, finding the grievance of the assessee by way of the Cross-objection to be justified, the same is accepted. Since the reasons recorded by the AO to form belief of escapement of income were not communicated to the assessee despite specific written request, the law laid down in ‘GKN Driveshafts’ (supra) stands contravened, rendering the proceedings initiated u/s 147 of the Act, culminating in the assessment order, to be illegal and they are cancelled. Nothing further survives for adjudication and, accordingly, the appeal filed by the Department is infructuous. Ordered accordingly.

15. In the result, the Cross-objection is allowed, whereas the appeal is dismissed.

Order pronounced in the open court on 16/04/2018.

Sd/- Sd/-

(DR. MITHA LAL MEENA) (A.D. JAIN)

ACCOUNTANT MEMBER JUDICIAL MEMBER