Assessment framed under Section 144 upheld for noncompliance; Rs 3 lakh family gift accepted, Section 69 addition deleted

ITAT JAIPUR-AT upheld framing of assessment under s.144 where the assessee had not complied with AO notices, dismissing grounds 1-3; however, the Tribunal accepted the assessee's claim of a Rs.3 lakh gift from a family member as the source of unexplained investment. On record were revised P&L, interest and capital accounts and evidence of the donor's substantial means and assessment; the AO failed to verify despite the donor being assessed and searched. Consequently the addition under s.69 relating to that investment was deleted and the assessee's contention allowed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the assessment framed under Section 144 r.w.s. 254 (as completed in remand proceedings) on 22.06.2021 was time-barred having regard to the time-limit extensions under the relevant Government notifications and Section 153(3) of the Act.

2. Whether the Assessing Officer committed jurisdictional or procedural error by completing assessment under Section 144 after alleged non-compliance with notice under Section 143(2), without issuing a fresh hearing notice within 60 days, thereby violating the requirement of opportunity of being heard under Section 144.

3. Whether the Assessing Officer exceeded his jurisdiction in remand proceedings by making an addition under Section 69 (unexplained investments) when the coordinate appellate authority had remitted the matter for verification of a claimed gift.

4. Whether the addition of specified amounts treated as unexplained investment under Section 69 (and taxed under Section 115BBE) was justified on facts where the investment appeared in the assessee's books and the assessee relied on a gift from a family member as the source.

5. Whether the Assessing Officer, in making a best-judgment assessment under Section 144, failed to take into account relevant material on record (including donor's assessment file, gift deed and balance-sheet entries), contrary to the statutory mandate of Section 144.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Time-bar under Section 153(3) and effect of Government notifications

Legal framework: Section 153(3) prescribes time-limits for completion of assessments; Central Government notifications under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 may extend statutory limitation periods for completion of assessment actions.

Precedent Treatment: The Tribunal relied on the sequence of Government notifications (including modification/extension notifications and S.O. 1703(E) dated 27-4-2021) which extended time-limits up to 30th June 2021; no contrary judicial precedent was invoked in the text.

Interpretation and reasoning: The Court examined the AO's receipt of the coordinate bench's remand order on 17.02.2020, subsequent issue of notices in remand, and the relevant extension notifications. The Tribunal found that notification S.O. 1703(E) further extended deadlines and hence the AO's passing of order on 22.06.2021 fell within the extended limitation period.

Ratio vs. Obiter: Ratio - application of the challenged Government notifications validly extended the limitation period so that the assessment dated 22.06.2021 was not time-barred. Obiter - detailed historic recitation of notification numbers.

Conclusion: The assessment was not time-barred; grounds alleging annulment on limitation grounds are dismissed.

Issue 2 - Adequacy of opportunity of being heard before order under Section 144

Legal framework: Section 144 requires the Assessing Officer to take into account all relevant material gathered and to give the assessee an opportunity of being heard; the proviso requires service of notice specifying date and time to show cause unless a prior notice under Section 142(1) has been issued.

Precedent Treatment: The Tribunal applied statutory text and factual chronology rather than external case law; it treated reasonable multiple notices and opportunity (including inspection facility) as sufficient.

Interpretation and reasoning: The AO issued notices under Section 142(1) on multiple dates (28.09.2020, 15.12.2020, 17.02.2021 and 20.04.2021) and allowed inspection on 08.01.2021; the assessee failed to attend/comply or seek adjournment by e-mail and did not explain non-compliance across the several opportunities. The Tribunal held that four opportunities and a two-month wait before passing an ex-parte order satisfied the requirement of reasonable opportunity; absence of reasonable explanation for non-compliance weighed against the assessee.

Ratio vs. Obiter: Ratio - multiple issued notices and an offer of inspection constituted reasonable opportunity; absence of compliance by the assessee justified best-judgment assessment. Obiter - comments on the propriety of issuing another notice being discretionary and not mandatory where prior notices exist.

Conclusion: Grounds asserting denial of opportunity under Section 144/143(2) are dismissed.

Issue 3 - Whether AO exceeded jurisdiction in remand proceedings when making addition under Section 69

Legal framework: Coordinate appellate authority remitted the matter to the AO to verify the claim that the investment was sourced from a gift; AO in remand proceedings is mandated to examine and verify the source; Section 69 applies where investments are not recorded in books or where the assessee fails to offer satisfactory explanation.

Precedent Treatment: The Tribunal relied on the coordinate bench's remand direction (to verify the gift) and construed the AO's remand proceedings as confined to that verification; no overruling of remand direction occurred in principle.

Interpretation and reasoning: The Tribunal observed that remand was limited to verification of the gift claim; however, because the assessee failed to produce verifiable independent evidence in the remand proceedings and did not cooperate with notices, the AO was entitled to treat the claimed source as unverified. The Tribunal also emphasized that an assessment under Section 144 is properly applied where an assessee repeatedly fails to comply with notices.

Ratio vs. Obiter: Ratio - AO did not exceed jurisdiction by making addition under Section 69 in remand proceedings where the assessee did not furnish verifiable evidence despite direction to verify the gift; the AO was empowered to conclude source remained unexplained. Obiter - technical note that remand limited the scope to verification but does not compel acceptance of unverifiable self-serving documents.

Conclusion: The ground contending jurisdictional excess in remand is not tenable and is dismissed on facts where assessee non-compliance persisted.

Issue 4 - Validity of addition under Section 69 where investment was recorded in books and alleged to be from a family-gift

Legal framework: Section 69 targets unexplained investments not recorded in books of account; the assessee bears onus to explain source of investment; gifts between family members are susceptible to challenge and require verifiable independent evidence to establish genuineness.

Precedent Treatment: The coordinate bench had set aside the appeal earlier for verification because the gift claim had not been independently verified; the Tribunal treated that finding as directive to the AO to verify, not as acceptance of the gift.

Interpretation and reasoning: The assessee's position: investment appeared in balance-sheet and a gift-deed and donor's records existed. Revenue/AO position: documents were self-serving, gift deed on plain paper, cash transaction alleged without corroborative independent evidence; donor's balance-sheet revisions, un-audited accounts and lack of verifiable original led to suspicion. In remand, the AO examined records (including donor's statement that gift was from undisclosed cash offered to tax) but found no fresh independent proof of actual cash transfer prior to investment date. The Tribunal accepted that where all relevant material was available in department files, AO's failure to earlier cross-verify was an error of omission by Revenue; on the present record the Tribunal found the donor to be a person of means and observed that all material relevant to verification was available but not acted upon earlier by AO. Balancing these findings, the Tribunal concluded that AO's later non-verification could not be used to sustain the addition where cross-verifiable material existed in department files and the donor was assessable to the same AO.

Ratio vs. Obiter: Ratio - on the facts, where documentary material relevant to verification already existed in departmental records (donor's return, capital account, gift deed) and the AO had opportunity to verify but failed to do so in earlier proceedings, the Tribunal directed deletion of the Section 69 addition; the legal principle that Section 69 applies where investment is unrecorded or source unexplained remains intact. Obiter - observations on reliability of self-serving documents, notarial status and need for independent corroboration for intra-family gifts.

Conclusion: On the specific facts, the Tribunal allowed grounds 4 and 5 and directed deletion of the addition of Rs. 3,00,000 (A.Y. 2014-15) because (i) relevant verifying material was available in departmental records (including donor's file), (ii) donor had sufficient means, and (iii) Revenue had opportunity to verify but failed to undertake necessary cross-checks earlier. The findings were applied mutatis mutandis to the other assessment year with the corresponding gift amount.

Issue 5 - Duty of AO under Section 144 to take into account all relevant material gathered

Legal framework: Section 144 requires the AO to take into account all relevant material which he has gathered before making a best-judgment assessment.

Precedent Treatment: The Tribunal interpreted Section 144 literally and evaluated whether the AO had, in fact, considered relevant material available in departmental files (donor's records, gift deed, balance-sheet entries).

Interpretation and reasoning: The Tribunal noted two strands: (a) AO in remand proceedings stated the gift could not be verified due to non-submission by assessee; (b) appellate fact-finding showed that donor's file and related documents (gift deed, donor's capital account, returns) existed and could have been used to verify. The Tribunal criticised Revenue for not utilizing available material earlier, and on that basis accepted the assessee's contention that the AO had the requisite material but did not act on it; where AO had relevant material in his possession and failed to verify, it was improper to sustain an addition solely because the assessee failed to attend remand hearings.

Ratio vs. Obiter: Ratio - where the AO has relevant material in his records, Section 144 requires consideration of that material; failure by the AO to utilize available departmental records to verify a claimed intra-family gift cannot justify sustaining an addition under Section 69. Obiter - the AO remains entitled to make best-judgment assessment if the assessee repeatedly refuses to cooperate, provided AO duly considers available material.

Conclusion: On the facts, taking into account the AO's omission to act on departmental material and the demonstrable availability of donor records, the Tribunal directed deletion of the unexplained investment addition; the statutory duty under Section 144 to consider relevant material supports that conclusion in these remand proceedings.

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