D.b. Income Tax Appeal v. The Commissioner Of Income Tax, Ncr Building Statue Circle, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 205 / 2015 Smt. Pushpa Rajawat W/o Late Sh. Bhawani Singh Rajawat B-272,Scheme 10-B, Gopalpura Bypass Road, Jaipur. (The then.) PlotNo.111, Sumer Nagar Extension, Opp. Dhanwantri Hospital, Jaipur(At present). ----Appellant Versus 1. The Commissioner of Income Tax, NCR Building Statue Circle, Jaipur. 2. The ITO, Ward 3(2), Gwalior. ----Respondent _____________________________________________________ For Appellant(s) : Mr. P.K. Kasliwal For Respondent(s) : Mr. Prateek Kedawat with Mr. K.D. Mathur forMr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 25/10/2017 1. By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal preferred by the assessee. 2.This court while admitting the appeal on 3.10.2016 framedfollowing substantial questions of law:- “(1) Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in holding that issuance of secondnotice u/s 148 for re-opening of the assessment during the pendency of appealagainst the first notice issued u/s 148, isvalid and consequently order passed by thelower authorities is proper, such conclusion isproper? (2) Whether the Tribunal was justified isholding that the appellant could notdischarged the burden to provide the creditworthiness as required u/s 68 of the Actwhile sustain the addition of Rs.11,97,472/-of cash credits merely on the basisconfirmation filed by the appellant, evidence,namely affidavits PAN number paymentthrough cheques and I.T. File numbers wereavailable of the creditors such conclusion isproper?” 3.The facts of the case are that the assessee is a Transporter.The return has been filed on 30.8.1997 disclosing total income atRs.1,21,925/- which was processed u/s 143(1) of IT Act showingloss from transport work & on account of capital loss. The noticeu/s 148 is issued on 21.1.04 after obtaining prior approval of theAddl. CIT, range-III, Gwalior vide letter F.No. Addl. CTR/R-3/approval/147/Gwl/2003-04/828 dt. 12.1.04, the notice u/s 148is served on the assessee as per confirmation received throughdak on 25.2.04. 3.1In this case the return of income was filed on 30.8.97 & wasprocessed on 24.3.99. The assessment proceedings werereopened u/s 147 of the IT Act by issuance of notices u/s 148 on25.10.99 for the following reasons:- ÞmijksDr dsl okMZ & 5 ls LFkkukarj.k gksdj vk;k Fkk o lfo{kk gsrq okMZ&5 }kjk pqukx;k FkkA mijksDr fooj.kh ij 143¼2½ issued ntZ gS ijUrq uk dksbZ uksfVl izkIr gqvk ukgh uksfVl izkIrh ckcr~ dksbZ iqzQ feyk vr% mDr o"kksZa dh izksflfMax Qkby dh tkrh gSA mDr dsl esa djnkrk us 1996&97 dh izFke fooj.kh esa vk; 41970@& fn[kykbZ o fdlhHkh izdkj dks vk;&O;; dk fpB~Bk dk C;kSjk ugha fn;k Fkk rFkk 1997&98 ds lkFk layXuvk; O;; o fpB~Bk esa dqy :0 2484980@& dh x.kuk n’kkZbZ gS bl gsrq bl dsl esa /kkjk148 dk uksfVl tkjh fd;k tk jgk gS ftlls ns;rk o vk; ckc~r lk{; dh tkdj lR;rkdk irk yxk;k tk ldsA ml gsrq /kkjk 148 dk uksfVl 1997&98 gsrq tkjh fd;k tk jgkgSAß ÞmijksDr dsl okMZ & 5 ls LFkkukarj.k gksdj vk;k Fkk o lfo{kk gsrq okMZ&5 }kjk pqukx;k FkkA mijksDr fooj.kh ij 143¼2½ issued ntZ gS ijUrq uk dksbZ uksfVl izkIr gqvk ukgh uksfVl izkIrh ckcr~ dksbZ iqzQ feyk vr% mDr o"kksZa dh izksflfMax Qkby dh tkrh gSA mDr dsl esa djnkrk us 1996&97 dh izFke fooj.kh esa vk; 41970@& fn[kykbZ o fdlhHkh izdkj dks vk;&O;; dk fpB~Bk dk C;kSjk ugha fn;k Fkk rFkk 1997&98 ds lkFk layXuvk; O;; o fpB~Bk esa dqy :0 2484980@& dh x.kuk n’kkZbZ gS bl gsrq bl dsl esa /kkjk148 dk uksfVl tkjh fd;k tk jgk gS ftlls ns;rk o vk; ckc~r lk{; dh tkdj lR;rkdk irk yxk;k tk ldsA ml gsrq /kkjk 148 dk uksfVl 1997&98 gsrq tkjh fd;k tk jgkgSAß 3.2The notices was served as per order dt. 30.10.99 by noticeserver Sh. H.K. Pathak on 29.10.99. Subsequently notices wereissued u/s 142(1) dt. 9.11.01, 23.1.02 & 13.1.02, no complianceof the notices were made by the assessee therefore theassessment was completed u/s 144 of the IT Act determining totalincome at Rs.14,26,040/- and the unsecured loan ofRs.14,12,040/- were added treating the same as unexplainedbesides accepting Rs.24,000/- u/s 44AE. The assessee has filed anappeal before the CIT(A) pleading that assessee has neverreceived the notices u/s 148 issued by the AO . Sh. Gopi MadanAR of the assessee strongly argued that the act provides forservice of a notice on proper person as a condition precedent formaking order of assessment. In support, he has quoted decisionsof different courts. The ld. CIT(A) after consideration of thearguments put forth by the AR and the records has given thefindings that the service of notice u/s 148 is mandatory and is acondition precedent for valid initiation of re-assessmentproceedings. It is held by the CIT(A) that there is neither servicereport nor any evidence to show the identity of the person onwhom service was effected. He therefore, held that re-assessmentmade is illegal & void and quashed the assessment order. The order of CIT(A) is made as “Annexure B” of assessment order.Though the subsequent notices u/s 142(1) bears signatures of theassessee however the jurisdictions was never challenged by theassessee through out the proceedings and has avoided to appearat the assessment stage. 4.In the proceedings u/s 148 which was pending, the LocalCommissioner ITO, Sawai Madhopur has issued notice. 5.In that view of the matter, counsel for the appellantcontended that when the matter u/s 148 was pending againstjurisdiction of the CIT(A), Gwalior, second show cause noticeissued on the same subject is without any authority of law. 6.Counsel for the appellant has relied upon the followingdecisions:- 6.1 In Aditya Medisales Ltd. vs. Deputy Commissioner of IncomeTax, Circle 1(1) reported in (2016) 73 taxmann.com 197(Gujarat), it has been held as under:- 9. As noted, for the assessment year2005-2006, the Assessing Officer hadissued first notice of reopening on11.1.2011, which was based on thepremise that the assessee havingtransferred its shares from stock-in-trade to investment, was liable to paytax on the difference between costprice of such shares and the marketvalue on the date of transfer. In thepresent case, the notice for reopeningis founded on the allegations that theassessee had shown to have held only20,10,198sharesofSunPharmaceuticalson31.3.2004.However, on 1.4.2004, the assesseehad shown to have converted40,20,396 shares of the said companyfrom stock-in-trade to investment. 9. As noted, for the assessment year2005-2006, the Assessing Officer hadissued first notice of reopening on11.1.2011, which was based on thepremise that the assessee havingtransferred its shares from stock-in-trade to investment, was liable to paytax on the difference between costprice of such shares and the marketvalue on the date of transfer. In thepresent case, the notice for reopeningis founded on the allegations that theassessee had shown to have held only20,10,198sharesofSunPharmaceuticalson31.3.2004.However, on 1.4.2004, the assesseehad shown to have converted40,20,396 shares of the said companyfrom stock-in-trade to investment. Further, the list of shares andsecurities that the assessee claimed tohave converted into investment on1.4.2004 submitted during the courseof assessment did not include these40,20,396 shares. These shares wereredeemed during the year underconsideration and instead of showingreceipt as business income or shortterm capital gain, it was shown aslong term capital gain. The assesseehad thus paid tax at a lower rate andavoided tax on business income. Thusaccording to the Assessing Officer, theassesseehadsuppliedwronginformation and paid tax on the saleof shares claiming as long term capitalgain which at best could have beenshort term capital gain.10. With the petitioner's contention ofthe issues having been scrutinisedduring the original assessment andtrue and full disclosure, we are notimpressed.Thoughvehementlyargued before us, we do not noticeany direct reference to this transactionin the original assessment proceedingseither in form of queries, replies or inthe order of assessment itself. Equallywith respect to full and truedisclosure, even the learned counselfor the petitioner agreed that therewas a clear error on part of thepetitioner to show only 20,10,198shares during the earlier proceedingthough the assessee had receivedredeemable preference shares on itsoriginal shareholdings. 11. In the details of long term andshort term capital gain during the yearthe assessee had shown sales of40,20,396 shares of Sun Pharma andclaimed long term capital gain thereof.The date of sale was shown as2.7.2004 and date of investment wasshown on 2.11.2002. In other words,the vital data of converting suchsharesfromstock-in-tradetoinvestment on 1.4.2004 did not form part of these details. Such data wasundoubtedly relevant since thequestion of nature of capital gain, longor short term, to the investmentportfolio of the assessee may dependon the date of conversion of sharesfrom stock-in-trade to investment. Byshowing the date of investment as2.11.2002 and date of sale as2.7.2004, the assessee cannot bestated to have disclosed true and fullfacts. Merely because such date ofconversion was available in someother remote or obscure materialwould not satisfy the requirement oftrue and full disclosure. One may referto explanation(1) to section 147 of theAct which provides that productionbefore the Assessing Officer ofaccount books or other evidence fromwhich material evidence could withdue diligence have been discovered bythe Assessing Officer, will notnecessarily amount to disclosurewithin the meaning of such provision. 12. Thus while claiming long termcapital gain on sale of 40,20,396shares of Sun Pharma, the assesseerelated to the date of investment of2.11.2002 and the date of sale of2.7.2004 completely withholding thefact that shares were transferred fromstock-in-trade to investment only on1.4.2004. On the ground of true andfull disclosures therefore, noticecannot be quashed, nor can it beconcluded that no income chargeableto tax had escaped assessment. Thislater issue of escapement of incomemust be left to be decided in theassessment proceedings if the noticeis otherwise valid. 12. Thus while claiming long termcapital gain on sale of 40,20,396shares of Sun Pharma, the assesseerelated to the date of investment of2.11.2002 and the date of sale of2.7.2004 completely withholding thefact that shares were transferred fromstock-in-trade to investment only on1.4.2004. On the ground of true andfull disclosures therefore, noticecannot be quashed, nor can it beconcluded that no income chargeableto tax had escaped assessment. Thislater issue of escapement of incomemust be left to be decided in theassessment proceedings if the noticeis otherwise valid. 6.2In Commissioner of Income Tax vs. Jaideo Jain and Co.(1997) 227 ITR 302 (Rajasthan), it has been held as under:- The Income Tax Appellate Tribunal, JaipurBench, Jaipur, before which theapplication under Section 256(1) of the Act was made by the Revenue forreferring the above two questions of lawfor the opinion of the High Court,dismissed the application on the groundthat the answer to both these questionsare self-evident and, therefore, it is notnecessary to refer these questions for theopinion of the High Court. The judgmentpassed by the Tribunal is after discussionof all the facts and circumstances of thecase. While deciding the case, theTribunal has relied upon the judgment ofthe Supreme Court. The Tribunal alsoheld that since the original assessmentproceedings have got barred by time forboth the assessment years, the freshassessment proceedings initiated for thesame assessment years, were invalidbecause they were completed on thebasis of the fresh notice issued underSection 148 of the Act and the noticeswere issued on March 31, 1980, andMarch 17, 1981, i.e., at the time whenthe original proceedings initiated underSection 148 were still pending. Afterperusal of the order passed by theTribunal, we are of the opinion that noreferable questions of law arise out of thejudgment dated June 30, 1993, passed bythe Tribunal as the answers to both thequestions are evident and the Tribunalwas, therefore, justified in refusing torefer the above two questions of law forthe opinion of the High Court. 6.3In Trustees of H.E.H., the Nizam’s Supplemental Family Trustvs. Commissioner of Income Tax (2000) 109 Taxman 193 (SC), ithas been held as under:- 15. An order under Section 237 of theAct is appealable as provided in Clause(k) of Sub-section (1) Section 246 ofthe Act. Section 249 prescribeslimitation for filing appeal. Sub-section(1) of Section 249 is relevant and it isas under: 249. (1) Every appeal under thisChapter shall be in the prescribed form and shall be verified in the prescribedmanner. (2) The appeal shall be presentedwithin thirty days of the following date,that Is to say- (a) where the appeal relates to any taxdeducted under Sub-section (1) ofSection 195 the date of payment of thetax, or (b) where the appeal relates to anyassessment or penalty, the date ofservice of the notice of demandrelating to the assessment or penalty: Provided that, where an applicationhas been made under Section 146 forreopening an assessment, the periodfrom the date on which the applicationis made to the date on which the orderpassed on the application is served onthe assessee shall be excluded, or (c) In any other case, the date onwhich Intimation of the order sought tobe appealed against is served. 16. There is difference in Clauses (b)and (c) of Sub-section (2) of Section249 of the Act. (a) where the appeal relates to any taxdeducted under Sub-section (1) ofSection 195 the date of payment of thetax, or (b) where the appeal relates to anyassessment or penalty, the date ofservice of the notice of demandrelating to the assessment or penalty: Provided that, where an applicationhas been made under Section 146 forreopening an assessment, the periodfrom the date on which the applicationis made to the date on which the orderpassed on the application is served onthe assessee shall be excluded, or (c) In any other case, the date onwhich Intimation of the order sought tobe appealed against is served. 16. There is difference in Clauses (b)and (c) of Sub-section (2) of Section249 of the Act. 17. Return of income filed in the formprescribed along with an application forrefund under Section 237 of the Act isa valid return. There is no stopping theIncome-tax Officer to complete theassessment on the basis of return sofiled. It may be that the Income-taxOfficer may limit the scope ofexamination of the return to satisfyhimself regarding the correctness ofthe amount claimed as refund. For thatpurpose, he will examine if the taxpaid by the assessee exceeds theamount of tax for which he ischargeable. If it is found that theincome was "nil", he will direct refundbe granted to the assessee for anyamount of tax paid. That will certainlybe assessment. Filing of return In theform prescribed under Section 39 ofthe Act along with the application forrefund is not an empty formality. It assumes importance if such return hadnot been filed earlier. We havereproduced the note/order datedNovember 10, 1965 on the filepertaining to assessment year 1963-64. In the file for assessment year1963-64 there is another note which isas under: Please see my note in 1963-64 file.Refund to be considered in the handsof the beneficiaries. 18. The mere glance at this note wouldshow that it could not be said that theIncome-tax Officer gave finality to therefund fence no refund is grantedeither in the hands of the trust or inthe hands of the beneficiaries. It is aninconclusive note where the Income-tax Officer left the matter at the stageof consideration even with regard torefund in the hands of thebeneficiaries. This note was also notcommunicated to the trustees. Whenwe examine the note dated November10, 1965 on the file of 1963-64nothing flows from that as well. In anyCase if it is an order, it would beappealable under Section 249 of theAct. Since period of limitation startsfrom the date of intimation of such anorder, it is imperative that such anorder be communicated to theassessee. Had the Income-tax Officerpassed any final order, it would havebeen communicated to the assesseewithin a reasonable period. In anycase, what we find is that the notedated November 10, 1965 is merely aninternal endorsement on the filewithout there being an indication if therefund application has been finallyrejected. By merely recording that inhis opinion, no credit for tax deductedat source is to be allowed the Income-tax Officer cannot be said to haveclosedtheproceedingsfinally.Decisions referred to by the revenueare of no help in the present case. Weare, thus, of the opinion that duringthe pendency of the return filed underSection 139 of the Act along with refund application under Section 237 ofthe Act action could not have beentaken under Section 147/148 of theAct. Our answer to the question,therefore, is in the negative, i.e.,against the Revenue. 6.4In Standard Chartered Finance Ltd. vs. Commissioner ofIncome Tax, Bangalore (2016) 381 ITR 453, it has been held asunder:- refund application under Section 237 ofthe Act action could not have beentaken under Section 147/148 of theAct. Our answer to the question,therefore, is in the negative, i.e.,against the Revenue. 6.4In Standard Chartered Finance Ltd. vs. Commissioner ofIncome Tax, Bangalore (2016) 381 ITR 453, it has been held asunder:- After hearing the Learned Counsel forthe parties, we are of the opinion thatthe High Court has wrongly not actedupon the ratio laid down in Trustees ofH.E.H. the Nizam's SupplementalFamily Trust's case which squarelyapplies in the instant case in favour ofthe Assessee. The ratio of the saidjudgment is that in those situationswhere there is no assessment orderpassed, there cannot be a notice forreassessment inasmuch as thequestion of reassessment arises onlywhen there is an assessment in thefirst instance. 6.5In Metro Auto Corporation vs. Income Tax Officer (2006) 286ITR 618 (Bombay), it has been held as under:- While completing the assessment, theAssessing Officer held that theassessee has reduced Rs.2,00,000/-on account of old stocks, but therewas no justification to it and,therefore,hemadeadditionaccordingly.Onappeal,theCommissioner (A) deleted the saidaddition. During the pendency ofrevenue’s appeal before the tribunal, anotice was issued to be assessee u/s148. The assessee filed instant petitionchallenging the said notice. It wascontended that when the proceedingsfiled by the Department were pending and when the order impugned in theappeal before the tribunal was infavour of the assessee, surely, thenotice u/s 148 could not be issued. 6.6In Deputy Commissioner of Income Tax vs. Rohini Buildersreported in (2002) 256 ITR 360 (Gujarat), it has been held as under:- 8. Further, we may point out thatsection 68 under which the additionhas been made by the AssessingOfficer reads as under : "68. Where any sum is found creditedin the books of an assesseemaintained for any previous year, andthe assessee offers no explanationabout the nature and source thereofor the explanation offered by him isnot, in the opinion of the AssessingOfficer, satisfactory, the sum socredited may be charged to IncomeTax as the income of the assessee ofthat previous year." 9. The phraseology of section 68 isclear. The Legislature has laid downthat in the absence of a satisfactoryexplanation, the unexplained cashcredit may be charged to Income Taxas the income of the assessee of thatprevious year. In this, case thelegislative mandate is not in terms ofthe words "shall be charged to IncomeTax as the income of the assessee ofthat previous year". The SupremeCourt while interpreting similarphraseology used in section 69 hasheld that in creating the legal fictionthe phraseology employs the word"may" and not "shall". Thus theunsatisfactoriness of the explanationdoes not and need not automaticallyresult in deeming the amount creditedin the books as the income of theassessee as held by the SupremeCourt in the case of CIT v. Smt. P. K.Noorjahan. 6.7In Aravali Trading Co. vs. Income Tax Officer (2008) 8 DTR 199 (Raj.), it has been held as under:- 6.7In Aravali Trading Co. vs. Income Tax Officer (2008) 8 DTR 199 (Raj.), it has been held as under:- 18. The real question before theauthority in Mangikd's case (supra)was whether the primary gold and thegold ornaments found in possession ofthe assessee on 14th Oct., 1987, wereowned by the assessee. The assesseehas explained the transactions throughwhich the primary gold and the goldornaments came in his possessionwhen the search of the customs tookplace at his residence and the samewere seized. In support of saidexplanation, he has produced saidthree persons, who had brought theornaments to him and have furnishedtheir affidavits admitting such fact.After finding that the explanationfurnished by three persons and theiraffidavits admitting the ownership ofgold found in possession of assessee(they) were asked about the sources ofacquisition of said gold and therespective persons asserted them to beowners of gold found in possession ofthe assessee but the explanationfurnished by each of them was notaccepted as satisfactory by the AO. Onsuch premise value of the primary goldfound in possession of the assesseeduring the search of the customs wasadded in the income of the assessee asincome from undisclosed sources. 19. This Court held by the parity ofreasonings which prevailed in DaulatRam Rawatmull's case (supra) that itcan well be said that merely becausethe explanation furnished by ShriBhopal Singh, Om Prakash Gupta andShri Gauri Shanker Singhal, about thepurpose for which the gold ornamentswere delivered for making newornaments and that the ornamentswere belonging to their family wasfound to be not acceptable, could nothave provided any nexus for drawinginference therefrom that the primary 6.8In Commissioner of Income Tax vs. Lovely Exports (P) Ltd.reported in (2010) 14 SCC 761, it has been held as under:- Income from undisclosed sources -Addition under Section 68 Shareapplication money--SLP was filedbefore Supreme Court and questionbefore court was; can the amount ofshare money be regarded asundisclosed income under Section 68of IT Act, 1961. Held: No merit isfound in SLP for the simple reason thatif the share application money isreceived by the assessee-companyfrom alleged bogus shareholders,whose names are given to the AO,then the department is free to proceedto reopen their individual assessmentsin accordance with law. Hence, noinfirmity is found with the impugnedjudgment. Special Leave Petition isdismissed. It cannot be regarded asundisclosed income of assessee-company. 7.Counsel for the respondent has contended that the Tribunalwhile considering the matter has rightly decided in favour of thedepartment and therefore no interference is called for in thereasoning adopted by the tribunal. 8.We have heard counsel for the parties. 9.Taking into consideration the provisions of Section 148 of the Income Tax Act which reads as under:- 148. Issue of notice where income hasescaped assessment.- (1) Before making the assessment,reassessment or recomputation under section 147, the Assessing Officer shallserve on the assessee a noticerequiring him to furnish within suchperiod, as may be specified in thenotice, a return of his income or theincome of any other person in respectof which he is assessable under thisAct during the previous yearcorrespondingtotherelevantassessment year, in the prescribedform and verified in the prescribedmanner and setting forth such otherparticulars as may be prescribed; andthe provisions of this Act shall, so faras may be, apply accordingly as if suchreturn were a return required to befurnished under section 139 : Provided that in a case— (a) where a return has been furnishedduring the period commencing on the1st day of October, 1991 and endingon the 30th day of September, 2005 inresponse to a notice served under thissection, and Provided that in a case— (a) where a return has been furnishedduring the period commencing on the1st day of October, 1991 and endingon the 30th day of September, 2005 inresponse to a notice served under thissection, and (b) subsequently a notice has beenserved under sub-section (2) of section143 after the expiry of twelve monthsspecified in the proviso to sub-section(2) of section 143, as it stoodimmediately before the amendment ofsaid sub-section by the Finance Act,2002 (20 of 2002) but before theexpiry of the time limit for making theassessment,re-assessmentorrecomputation as specified in sub-section (2) of section 153, every suchnotice referred to in this clause shall bedeemed to be a valid notice: Provided further that in a case— (a) where a return has been furnishedduring the period commencing on the1st day of October, 1991 and endingon the 30th day of September, 2005, inresponse to a notice served under thissection, and (b) subsequently a notice has beenserved under clause (ii) of sub-section(2) of section 143 after the expiry oftwelve months specified in the provisoto clause (ii) of sub-section (2) ofsection 143, but before the expiry of the time limit for making theassessment,reassessmentorrecomputation as specified in sub-section (2) of section 153, every suchnotice referred to in this clause shall bedeemed to be a valid notice. 10.Since, the original proceedings were pending before theCIT(A), without entering into the question of jurisdiction of theSawaimadhopur AO, the fact remains that the adjudicatingauthority could not have issued second show cause notice u/s 148.In that view of the matter, without entering into the matterwhether the Gwalior or the Sawaimdhopur, AO has jurisdiction ornot, the second show cause notice is held to be not legal. 11.In that view of the matter, first issue is required to beanswered in favour of the assessee and against the department.The second issue being consequential to first issue, the same isalso to be answered in favour of the assessee. 12.Hence, both the issues are answered in favour of assesseeand against the Department. 13.The appeal stands allowed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. Brijesh 76.