• Friday, 11 Apr 2025, 10:58:04 am

Income Tax Act, 1961 – Sections 147, 148 and 41(1) - The Assessing Officer (AO) reopened the assessment under Section 147, issuing a notice under Section 148 based on alleged unexplained credit entries of Rs. 1,12,94,314/- in the bank account of the assessee. During reassessment, no addition was made under Section 68 for unexplained credits, but the AO invoked Section 41(1) and made an addition of Rs. 56,84,733/- on account of remission/cessation of liability concerning sundry creditors. The assessee challenged the jurisdiction of the AO to make an addition under Section 41(1), arguing that the issue of remission/cessation of liability was never part of the recorded reasons for reopening and that no fresh notice under Section 148 was issued for this new addition. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision, holding that the addition was justified - Whether the AO had the jurisdiction to make an addition under Section 41(1) in a reassessment proceeding initiated under Section 147 based on different grounds not mentioned in the original reopening reasons – HELD - The Tribunal ruled in favor of the assessee, holding that once the AO finds that the income forming the basis for reopening has been explained, he cannot proceed to tax other incomes unless a fresh notice under Section 148 is issued. The Tribunal relied on the Delhi High Court’s decision in Ranbaxy Laboratories Ltd. v. CIT (336 ITR 136), which held that for any new issue that comes to the AO’s notice during reassessment, a fresh notice under Section 148 is mandatory. Since no such notice was issued in the present case, the addition under Section 41(1) was held to be unsustainable. The Tribunal further noted that the AO’s reliance on cessation of liability without proper verification of creditor payments was unjustified. Consequently, the addition was deleted - Appeal allowed. The addition of Rs. 56,84,733/- under Section 41(1) was held to be beyond the jurisdiction of the AO, rendering it unsustainable in law

 

2025-VIL-205-ITAT-DEL

 

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: ‘H’ NEW DELHI

 

ITA No. 1256/Del/2024

Assessment Year: 2012-13

 

Date of Hearing: 08.11.2024

Date of Pronouncement: 29.01.2025

 

M/s TANMAY INTERNATIONAL

 

Vs

 

INCOME TAX OFFICER

 

Assessee by: Shri Tarandeep Singh, Adv. and Shri Tanpreet Singh, Adv.

Revenue by: Shri Ajay Kumar Arora, SR. DR

 

BEFORE

SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER

SHRI SUDHIR PAREEK, JUDICIAL MEMBER

 

ORDER

 

PER SUDHIR PAREEK, JM

 

The aforetitled appeal preferred by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals)-, New Delhi, [hereinafter referred to as the Ld. CIT(A)], NFAC vide order dated 22.02.2024 pertaining to Assessment Year 2012-13. The Assessee has raised the following ground of appeal, for adjudication.

 

“1. That on facts and in law the impugned order dated 22nd February 2024 passed by the Commissioner of Income Tax (Appeals) (hereinafter referred to as the "CIT(A)") is bad in law and void ab initio.

 

1.1 That on facts and in law the AO and CIT(A) have erred in violating principals of natural justice ie. inter alia.

 

(a) not allowing sufficient time to reply to notices issued.

 

(b) not granting opportunity of being heard in person.

 

2. That on facts and in law the CIT(A) has erred in not appreciating that the assessment order dated December 30, 2019 and all notices issued during proceedings therein have been framed/issued in name of a non-existent entity Te a partnership firm which stood dissolved on September 30, 2011. 2011

 

3. That on facts and in law the CIT(A) has erred in not adjudicating upon Ground Nos. 2. 2(b), 2(c), 2(d) and 2(e) of the appeal filed in Form No. 35.

 

4. That on facts and in law, the CIT(A) has erred in upholding assumption of jurisdiction to re-assess invoking provisions of section 147.

 

5. That on facts and in law, the CIT(A) has erred in upholding that there is a remission / cessation of liability to the tune of Rs 56,84,733/- and therefore provisions of section 41(1) stand attracted.

 

6. That on facts and in law the CIT(A) has erred in upholding / observing that the appellant has not furnished:

 

(a) Details of Sundry Creditors, and

 

(b) Confirmations from Sundry Creditors

 

7. the appellant craves leave to add, amend, modify, or alter the grounds of appeal.”

 

2. Brief facts of the case are that an information in this case was received from ITO (Inv)(OSD), Unit-3, New Delhi informing that bank statement of account number 208010200021401 belonging to M/s Tanmay International was produced. It was found that the total of credits in this account during F.Y. 2011-12 was Rs. 1,12,94,314/- and major portion of the credit entries was through cheques. The total of debit entries in the account during the same period was Rs. 1,12,80,902/-, in which major portion was by cash withdrawal through self-cheques. Summons issued at the address of the assessee firm were received back un-served with postal comments "no such firm on the address". The information was analyzed and examined, and after recording reasons and obtaining prior approval of Pr. CIT-10, New Delhi u/s 151 of IT Act, the case was reopened u/s 147 of the IT Act by issuing notice u/s 148 of the IT Act dated 30.03.2019.

 

2.1 In response to the notice u/s 148 of the I.T. Act, 1961, the assessee filed his return of income on 07/11/2019 declaring nil income. Accordingly, notice u/s 143(2) of the I.T. Act was issued dated 12/11/2019. During the course of assessment proceedings, the assessee was asked to furnish source of credit entries vide notice issued under section 142(1) of IT Act dated 13/11/2019, 11/12/2019 and 24/12/2019. In response to the statutory notices, the AR/Assessee uploaded the details and documents on e proceeding module.

 

2.2 On perusal of the submission given by the assessee, it is observed by the Ld. AO that the assessee has shown sundry creditors to the tune of Rs. 1,00,18,733/- for the period ending 31.03.2011 and sundry creditor to the tune of Rs. 43,34,000/- for the period ending 31.03.2012. These facts indicates that sundry creditor to the tune of Rs. 56,84,733/- ceases to exist. Since, the assessee has withdrawn all the amount in cash from the bank, it is not ascertainable whether the sundry creditors have been paid out of that money or not as no conformation and details to this effect has been furnished by the assessee. Accordingly, the assessee was issued notice u/s 142(1) of the I.T. Act confronting the reduction in sundry creditors to the tune of Rs. 56,84,733/- (Rs. 1,00,18,733/- minus Rs. 43,34,000/-) thereby asking the details of payments of these sundry creditors. The assessee was also asked to furnish the confirmation from the parties regarding the payments done by the assessee. The assessee has not given any explanation regarding the confronted issue. Neither any details of sundry creditor nor confirmation of creditors was furnished and the Ld. AO further observed that even if it is presumed that the assessee has paid the sundry creditors out of cash withdrawn, it is also in violation of provision of section 40A(3) of the Income Tax Act.

 

2.3 The facts as aforesaid, the Ld. AO hold that there is a cessation of liability in the hands of firm to the tune of Rs. 56,84,733/- in terms of section 41(1) of the I.T. Act 1961 and accordingly, same is hereby added to the business income of the assessee.

 

3. Heard rival submissions and carefully scanned the material available on record for just disposal of the appeal.

 

4. Reiterating the grounds of appeal, the Ld. AR submitted that the Ld. CIT(A) wrongfully upheld assumption of jurisdiction to reassessee invoking provisions u/s 147 of the Act and also that there is a remission / cessation of liability to the tune of Rs. 56,84,733/- and erroneously found that the provisions of section 41(1) of the Act stand attracted. When the matter was called for hearing, the Ld. AR submitted that the matter containing such a jurisdictional issue in grounds nos. 4 & 5 of the appeal, which goes root of the case and it is required by law, taking up jurisdictional issue prior to other grounds.

 

5. The main contention of the assessee regarding grounds 4 and 5 is that once the AO comes to a conclusion that income with respect to which he had entertained "reason to believe" to have escaped assessment, was found to have been explained, his jurisdiction comes to a stop at that, and then he cannot put to tax any other income which subsequently came to his notice i.e. addition of Rs 56,84,733/- made by AO u/s 41(1) of the Act in this case and this issue was also raised before CIT(A).

 

6. The Ld. AR vehemently argued that during assessment, the source of deposits in bank was duely explained and the order of assessment passed u/s 147 of the Act in which no addition u/s 68 has been made by the Ld. AO. But in the assessment order dated 30-12-2019 an addition of Rs 56,84,733/- has been made by the AO u/s 41(1) of the Act alleging as under:

 

"3.1 On perusal of the submissions given by the assessee, it is noticed that the assessee has shown sundry creditors to the tune of Rs 1,00, 18,733/- for the period ending 31.03.2011 and sundry creditor to the tune of Rs 43,34,000/- for the period ending 31.03.2012. These facts indicates that sundry creditor to the tune of Rs. 56,84,733/- ceases to exist. Since, the assessee has withdrawn all the amount in cash from the bank, it is not ascertainable whether the sundry creditors have been paid out of that money or not as no conformation and details to this effect has been furnish by the assessee. Accordingly, the assessee was issued notice u's 142(1) of the I.T. Act confronting the reduction in sundry creditors to the tune of Rs.56,84,733- (Rs.1,00,18,733/ minus Rs.43,34,000/-) thereby asking the details of payments of these sundry creditors. The assessee was also asked to fumish the confirmation from the parties regarding the payments done by the assessee. The assessee has not given any explanation regarding the confronted issue. Neither any details of sundry creditor nor confirmation of creditors was furnished. Even if it is presumed that the assessee has paid the sundry creditors out of cash withdrawn, it is also in violation of provision of section 40A(3) of the Income Tax Act.”

 

In view of above facts, I hold that there is a cessation of liability in the hands of firm to the tune of Rs.56,84,733/- in terms of section 41(1) of the I.T. Act 1961 and accordingly. same is hereby added to the business income of the assessee. The undersigned is satisfied that the assessee has concealed the particulars of his income, therefore, penalty proceedings u/s 271(1)(c) of the I.T. Act are initiated separately."

 

7. In this context, the Ld. AR submitted that alleged cessation of liability in form of creditors resulting addition u/s 41(1) was never been an issue forming part of reasons recorded u/s 148(2) of the Act, and addition of Rs 56,84,733/- has been made on an issue which is different from the issue on which case was reopened u/s 148 of the Act. Provisions of section 147 (as applicable to the year under consideration) are very clear as under.

 

"147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year”.

 

And submitted that the words "and also" used in section 147 are very relevant. The Ld. AO can add "other income" in order u/s 147 only when he makes an addition on account of "such income" which formed basis of reopening in his recorded reasons. The Ld. AR submitted that the Hon'ble Delhi High Court in Ranbaxy Laboratories Ltd. V. CIT reported in 336 ITR 136(Del) –held that for every new issue coming before the Ld. AO during the course of proceedings of assessment / re-assessment of escaped income, and he intends to take into account, he would be required to issue a fresh notice u/s 148 of the Act. Relevant para 18 and 19 hereby reproduced as under:

 

18. We are in complete agreement with the reasoning of the Division Bench of Bombay High Court in the case of V. Jaganmohan Rao (supra). We may also note that the heading of section 147 is "Income escaping assessment" and that of section 148 "Issue of notice where income escaped assessment".

 

Section 148 is supplementary and complimentary to section 147. Subsection (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation (3) If during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148.

 

19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the Items viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under sections 80HH and 80-1 as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under sections 80HH and 80-1 and accordingly reduced the claim on these accounts.

 

20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-1 which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make disallowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per Explanation 3 to reduce the claim of deduction under sections 80HH and 80-1 as well.

 

21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of revenue and the second part of the question against the revenue."

 

8. It is submitted on behalf of the assessee that for the relevant year under consideration, notice u/s 148 of the Act, dated 30.03.2019 was issued by the AO, extract of that notice reproduced as under:

 

Notice Under Section 148 Of The Income Tax Act, 1961

 

Sir/Madam/ M/s

 

Whereas I have reasons to believe that your Income chargeable to Tax for the Assessment Year 2012-13 has escaped Assessment within the meaning of section 147 of the Income Tax Act, 1961.

 

I, therefore, propose to assess/ re-assess the income/ loss for the said Assessment Year and I hereby require you to deliver to me within 30 days from the service of this notice, a return in the prescribed form for the said Assessment Year.

 

This notice is being issued after obtaining the necessary satisfaction of the PCIT 10, DELHI.”

 

9. It was further submitted that reasons recorded u/s 148 (2) of the Act prior to issuance of this notice manifested that the genesis of said notice is formation of a belief that credits in book of account of Rs. 1,12,94,314/- are unexplained as its source is unascertainable which is alleged to have escaped income. Reasons recorded o the said notice reproduced as under:

 

“Reasons for Reopening of Assessment in case of M/s. Tanmay International for A.Y. 2012-13 u/s 147 of the Income Tax Act, 1961

 

This office is in receipt of information from ITO (Inv.) (OSD), Unit-3, New Delhi vide his office letter F. No ITO (Inv.) (OSD)/U-3/2018-19/56 dated 22.03.2019 in the case of M/s Tanmay International PAN AAFFT4532M address: 624, Tower A, DLF Tower, Jasola, Delhi 110 044

 

As per the above letter, there was information showing that M/s. Tanmay International and related accounts, maintained by parties belonging to a group of persons, have frequently deposited cash amounts in the account where the source of funds could not be ascertained. There were inter transfers of funds from within various accounts.

 

During the investigation, bank statement of a/c no 208010200021401 belonging to M/s Tanmay International was procured. It was found that the total of credits in this account during the FY 2011-12 was Rs. 1,12,94,314 and major portion of the credits was through cheques. The total of debit entries in the account during the same period was Rs. 1,12,80,902 Major portion of the debit entries was by cash withdrawal through self-cheques. Summons issued at the address of the assessee firm were received back un-served with postal comments 'no such firm on the address."

 

It was informed by one of the partners Shri Harminder Singh Chadha (r/o House No. 190, 3rd Floor, Jor Bagh, New Delhi 110.003) that assessee firm M/s. Tanmay International has filed ITR for AY 2012-13, however, ITD analysis showed that no ITR was filed in the name of M/s. Tanmay International. Thus the credit entries in the above referred bank account have remained unexplained.

 

On receipt of this information, the PAN of assessee M/s. Tanmay International was checked at the e-filing website. It was revealed that other than the ITR of AY 2011-12, no other ITR was filed by the assessee. A letter was issued to the assessee to attend the office and file explanation with supporting documents with regard to the credit entries in the bank account No reply was filed by the assessee in this regard.

 

On perusal of the above information, documents enclosed therein and enquiries made by this office, it is seen that there is failure on the part of the assessee to disclose fully and truly on material facts and hence there is an escapement of income to the tune of Rs. 1,00,000 or more chargeable to tax for AY 2012-13. Hence it is a fit case for initiation of proceedings in terms of section 147 of the Act. Therefore, necessary approval may be given to assess the said income and any other income which may come into the notice during the course of assessment proceedings.

 

As the case pertains to a period where four years from the end of relevant assessment year have already passed, therefore, as per the amended provisions of section 151 of the Act w.e.l. 01.06.2015 at the time of issue of notice, prior necessary approval of the Pr. Commissioner is mandatory.

 

The case is accordingly put up for necessary approval of the Pr. CIT-10, Delhi for issuance of notice u/s 148 of the Act for the AY 2012-13.”

 

10. Per contra, the Ld. DR has relied upon the orders passed by both authorities below.

 

11. There is material substance advanced on behalf of the assessee that notice u/s 148 of the Act was related with credits in bank account of Rs. 1,12,94,314/- are unexplained as its source is unascertainable whereas addition made u/s 41(1) of the Act on account of remission / cessation of liability in form of creditors was never been an issue forming part of reasons recorded u/s 148 (2) of the Act and addition of Rs. 56,84,733/- in question made on an issue which is quite different from the issue on which case was re-opened u/s 148 of the Act, and Hon’ble jurisdictional High Court clearly held that for every new issue coming before the Ld. AO during the proceedings of assessment or re-assessment of escaped income and which he intends to take into account, it is required to issue fresh notice u/s 148 but in this case fresh notice u/s 148 of the Act as aforesaid containing fact regarding remission/ cessation of liability does not appears to be issued and if it is crystal clear that the Ld. AO without issuance of fresh notice required by law, on issue made alleged addition u/s 41(1) of the Act, which was not included in the reasons to believe as recorded for initiation of proceedings and the notice, is quite unwarranted by law and against the mandatory provisions and consequently addition in question is not sustainable in the eye of law. In conclusion ground no. 4 and 5 deserve to be allowed.

 

12. In light of the above observation, there is no need to adjudicate the other grounds as they have become academic. Consequently, the appeal of the assessee is allowed as stated above.

 

Order pronounced in the Open Court on 29th January, 2025.

 

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