2022 (10) TMI 454 - AT - Income Tax

Tribunal Decision: Appeal partly allowed for verification, upheld additions; appeal dismissed on disallowance

Shri Ashok Kumar V. Sanghi Versus Income Tax Officer, Ward-2 (3) (2) Mumbai

The Tribunal partly allowed the assessee's appeal for statistical purposes, directing verification and fresh adjudication on specific issues. The Tribunal ... Reopening of assessment u/s 147 - Non-filing of Return amounted to escapement of income - on the basis of information received from ITD systems regarding the non-filers of return of income - HELD THAT:- As well settled that sufficiency or correctness of the material is not a thing to be considered at the stage of recording of reasons. In the present case, it is undisputed that the assessee has not filed its return of income for the year under consideration. Since, no return was filed and no books, i.e. balance sheet, profit and loss account, computation of income, were available, the AO on the basis of information generated by ITD systems and verification of facts initiated proceedings under section 147 of the Act in the case of the assessee. As per the learned DR, the codes links to the information available with the Department and the assessee never requested during the continuation of the proceedings under section 147 of the Act to share that information. DR further submitted that extent of the information available with the Department will be clear when the issues on merits will be dealt. From the record, it is evident that even after receipt of the reasons recorded for issuing notice under section 148 of the Act, the assessee did not file any objections against same nor sought any other details. As noted above, the reasons recorded indicate the basis on which proceedings under section 147 of the Act were initiated in the case of the assessee. Therefore, we are of the considered view that AO had 'reason to believe' on the basis of tangible material for initiating proceedings under section 147 of the Act. As a result, grounds No. 1 and 2, raised in assessee's appeal, are dismissed. Addition on account of cheque and cash deposited in the bank accounts of the assessee - It is not in dispute that assessee's bank account with HDFC Bank was an overdraft account and the closing overdraft balance on this account tallied with the 'Bank OD A/c' on the liability side of the assessee's balance sheet. In the return of income filed in response to notice issued under section 148 of the Act, the assessee returned the above figures of overdraft. Therefore, insofar as the cheque transactions amounting to Rs. 8,15,000 in the aforesaid two undisclosed bank accounts, which are duly corroborated with the assessee's overdraft bank account maintained with HDFC bank, we find the same to be duly explained. Therefore, to this extent we direct the AO to delete the addition made under section 69A of the Act. As regards wife's bank account maintained with HDFC Bank, from where amount of Rs. 14,00,000 was transferred through cheque in the aforesaid two undisclosed bank accounts is not clear established, therefore, we deem it appropriate to remand this issue to the file of AO for necessary verification whether the deposits made in wife's account are genuine. We further direct the assessee to file necessary details before the AO for examination. We also direct that if source of deposits in wife's HDFC Bank account is found to be genuine then the addition to the extent of Rs. 14,00,000 be deleted. As regards the transaction in NKGSB Bank the assessee has already admitted before the lower authorities that source of same is not explainable. Thus, the findings of lower authorities, in this regard, are sustained. Addition in respect of peak cash deposit in HDFC bank account - We are of the considered view that the entries in the cash book have not been linked with the deposits in the bank account(s) maintained with HDFC. Therefore, we remand this issue to the file of AO for de novo adjudication. We further direct the assessee to furnish the necessary details before the AO for examination. We also direct that relief be granted to the assessee to the extent entries in the cash book are linked with the deposits in the HDFC bank account(s). As a result, ground raised in assessee's appeal is allowed for statistical purpose. Disallowance made under section 14A read with rule 8D(2) - As per assessee addition cannot exceed the amount of exempt income - HELD THAT:- Accepting the aforesaid contention of the assessee, which was in lines with the prevailing jurisprudence, the learned CIT(A) directed the AO to restrict the disallowance under section 14A to the quantum of exempt income earned by the assessee - We find that Hon'ble jurisdictional High Court in Nirved Traders (P.) Ltd. v/s Dy. CIT, I.T. [2019 (4) TMI 1738 - BOMBAY HIGH COURT] has held that disallowance under section 14A of the Act cannot be more than exempt income. Thus, we find no infirmity in the impugned order passed by the learned CIT(A). As a result, ground raised in assessee's appeal is dismissed. Issues Involved:1. Issuance of Notice under Section 148 without tangible material.2. Non-filing of Return and its implications on escapement of income.3. Addition of Rs. 23,05,222/- towards cheques deposited in the bank account.4. Addition of Rs. 13,51,500/- on account of cash deposited in the savings account.5. Addition of Rs. 6,31,000/- in respect of peak cash deposit in HDFC Bank account.6. Addition of Rs. 1,68,764/- under Rule 8D sub-section 2.Detailed Analysis:1. Issuance of Notice under Section 148 without tangible material:The assessee contended that the notice under Section 148 was issued without any tangible material, merely based on non-filing of the return. However, the Tribunal found that the proceedings under Section 147 were initiated based on information from ITD systems, indicating transactions such as cash deposits, share transactions, and TDS returns. The Tribunal upheld the AO's 'reason to believe' that income had escaped assessment, citing the Supreme Court's interpretation in ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd., which allows for reassessment if there is reasonable information suggesting income escapement. Consequently, grounds No. 1 and 2 were dismissed.2. Non-filing of Return and its implications on escapement of income:The Tribunal noted that the assessee did not file a return of income for the year under consideration, and no objections were filed against the initiation of proceedings under Section 147. The Tribunal emphasized that the AO had sufficient cause to believe that income had escaped assessment due to the absence of a return, supported by transactions identified through ITD systems. Thus, the initiation of proceedings under Section 147 was deemed valid.3. Addition of Rs. 23,05,222/- towards cheques deposited in the bank account:The AO found undisclosed bank accounts with significant cheque and cash deposits. The assessee claimed that the cheque deposits were transfers from other accounts, including his wife's account, but failed to substantiate the source of Rs. 14,00,000 transferred from his wife's account. The Tribunal directed the AO to verify the genuineness of these deposits. If found genuine, the addition should be deleted. However, the addition of Rs. 90,000, for which the assessee admitted no source, was upheld. Thus, ground No. 3 was partly allowed for statistical purposes.4. Addition of Rs. 13,51,500/- on account of cash deposited in the savings account:The assessee claimed that the cash deposits were from personal savings and a family corpus for medical emergencies. The Tribunal found no documentary evidence to support this claim and noted the suspicious nature of the transactions. Consequently, the Tribunal upheld the lower authorities' decision, dismissing ground No. 4.5. Addition of Rs. 6,31,000/- in respect of peak cash deposit in HDFC Bank account:The AO observed unexplained cash deposits in the disclosed bank accounts and made an addition based on the peak credit balance in the cash book. The Tribunal noted that the entries in the cash book were not linked with the bank deposits and remanded the issue to the AO for fresh adjudication. The AO was directed to grant relief to the extent the entries in the cash book are linked with the deposits. Thus, ground No. 5 was allowed for statistical purposes.6. Addition of Rs. 1,68,764/- under Rule 8D sub-section 2:The assessee argued that the disallowance under Section 14A read with Rule 8D(2) should not exceed the exempt income. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to the quantum of exempt income, aligning with the jurisdictional High Court's ruling in Nirved Traders (P.) Ltd. v/s Dy. CIT. Consequently, ground No. 6 was dismissed.Conclusion:The appeal by the assessee was partly allowed for statistical purposes, with specific directions for verification and fresh adjudication on certain issues. The Tribunal upheld the AO's initiation of proceedings under Section 147 and the additions made concerning unexplained cash deposits and cheque transactions, subject to verification of the genuineness of certain deposits.