Cash Deposits from Prior Withdrawals for Failed Property Deal Not Unexplained Money.
Issue
Whether cash deposits made by an assessee (a Scheduled Tribe member claiming Section 10(26) exemption) can be treated as “unexplained money” under Section 69A when the assessee demonstrates through bank statements that the source was cash withdrawals made earlier for a property purchase that did not materialize.
Facts
Assessee: A member of a Scheduled Tribe residing and working in Arunachal Pradesh (engaged in contract carriage/transportation).
Status: Claimed exemption on income under Section 10(26).
The Addition: The Assessing Officer (AO) noticed cash deposits and interest credits on Fixed Deposit Receipts (FDRs) in the assessee’s bank accounts. The AO treated these as unexplained money and made additions.
Assessee’s Defense:
The source of the deposits was withdrawals made from the same bank accounts on earlier dates.
Reason: Cash was withdrawn to purchase properties.
Re-deposit: Since the property deal did not materialize, the cash was re-deposited into the bank.
Evidence: Copies of bank statements showing the trail of withdrawals and subsequent re-deposits were furnished.
Decision
The Tribunal/Court ruled in favour of the assessee.
Source Explained: The bank statements and books of account conclusively proved that the cash deposited was merely a re-entry of cash withdrawn earlier. The “peak credit” theory or simple cash flow analysis showed the availability of funds.
No New Income: The AO failed to bring any “extraneous and substantive material” to prove that the assessee earned fresh undisclosed income from outside sources.
Outcome: Since the source (prior withdrawals) was fully explained, the addition under Section 69A was deleted.
Key Takeaways
- Re-deposit is Not Income: If an assessee can map a cash deposit to a preceding cash withdrawal (with a reasonable time gap and explanation like a failed deal), it cannot be taxed as new income.
Burden of Proof: Once the assessee shows the withdrawal trail, the burden shifts to the AO to prove that the withdrawn cash was spent elsewhere and the deposit is fresh money.
Principal Commissioner Cannot Revise Assessment Order on Issues Pending Before CIT(A).
Issue
Whether the Principal Commissioner of Income Tax (PCIT) has jurisdiction under Section 263 to revise an assessment order on specific issues when those same issues are already the subject matter of an appeal pending before the Commissioner (Appeals) [CIT(A)].
Facts
Assessment Years: 2010-11 and 2011-12.
Status: The assessee had filed an appeal against the assessment order before the Commissioner (Appeals).
Revision: While this appeal was sub judice (pending), the Principal Commissioner invoked Section 263 to revise the assessment order on the same grounds/issues.
Decision
The Tribunal/Court ruled in favour of the assessee.
Doctrine of Merger: Under Clause (c) of Explanation 1 to Section 263(1), the Commissioner’s power to revise extends to matters not being considered and decided in an appeal. However, if the issue is actively sub judice (pending) before the Appellate Authority, the revisionary jurisdiction is barred to avoid conflicting rulings.
Jurisdiction Bar: The Principal Commissioner had no jurisdiction to touch the assessment order regarding issues that were already seized by the First Appellate Authority.
Key Takeaways
Section 263 Limitation: The revisionary power is not absolute. Once an appeal is filed, the PCIT cannot intervene on the same issues that are before the CIT(A). The PCIT can only revise issues that are not the subject matter of the appeal.
IN THE ITAT GUWAHATI BENCH ‘D’
Likha Saaya
v.
Income Tax Officer*
MANMOHAN DAS, Judicial Member
and Rajesh Kumar, Accountant Member
and Rajesh Kumar, Accountant Member
IT Appeal Nos. 49 & 50 (GTY.) OF 2021
[Assessment years 2010-11 and 2011-12]
[Assessment years 2010-11 and 2011-12]
NOVEMBER 6, 2025
Sarala Agarwal, AR for the Appellant. Kausik Ray, JCIT for the Respondent.
ORDER
Rajesh Kumar, Accountant Member. – Both the appeals filed by the assessee are against the separate orders of Id. Commissioner of Income Tax (Appeals), Guwahati-1 dated 30.12.2019 in Appeal No.NLP-1/2013-14/346 & Appeal No.NLP-9/2014-15/347 passed for Assessment Years 2010-2011 &2011-12, respectively.
ITA No.49/GTY/2021: Asst.Year-2010-2011
2. Ground No.1 of the assessee’s appeal is general in nature and hence, does not require separate adjudication.
3. The issue raised in Ground No.2 & 3 of appeal is against the action of the ld. CIT(A) in confirming the addition of Rs.1,75,00,000/- as made by the Assessing Officer on account of cash deposits in Vijaya Bank treating the same as income from undisclosed sources.
4. The facts in brief are that the assessee is a Member of Scheduled Tribe of Arunachal Pradesh and is engaged in the business of contract carriage (Transportation) in the state of Arunachal Pradesh providing transport services the Director of Supply and Transport, Nagharlagun, Govt of Arunachal Pradesh during the year. The assessee is a resident of Arunachal Pradesh and filed the return of income on 6.4.2011 showing total income at Nil by claiming income to be exempt u/s.10(26) of the Act. The return was processed u/s.143(1) of the Act on 7.2.2012. Thereafter, the case of the assessee was selected for scrutiny through CASS followed by issuance of notices u/s.143(2) and 142(1) of the Act along with questionnaire, which were duly served upon the assessee. Ld. AR of the assessee complied with the said notices by appearing personally before the Assessing Officer and submitting various documents such as Trade Licenses, ST certificate, photocopies of TDS certificates, Bank statements of Vijaya Bank, Itanagar Branch in respect of A/C No.880100300001451 and Axis Bank A/c No.015010100564274. Ld. AO further directed the assessee to furnish the details/evidences in support of cash transactions explaining the source. Thereafter, there was no compliance on couple of occasions on the ground there had been change of address of the assessee since the date of filing of the return of income. Accordingly, the Assessing Officer was informed the correct address of the assessee. Thereafter, notices were issued again but there was no compliance and the AO at page 2 para 4 noted that the assessee being a carriage contractor had received contract receipts from the Transport Department of Government of Arunachal Pradesh of Rs.13,44,00,000/- as is apparent from the TDS certificate. The Assessing Officer also noted that the income of the assessee is exempt from tax on the ground of being a Member of Scheduled Tribe of Arunachal Pradesh. The Assessing Officer also estimated the transport income out of total transport contract receipts, at Rs.1,34,40,000/- after deducting all expenses by applying flat rate of 10%, which had been allowed to be exempt u/s.10(26) of the Act. The AO also observed from the bank statement that there was cash deposits on different dates in Vijaya Bank A/c No.1000021 aggregating to Rs.1,75,00,000/-. The AO also found from the perusal of bank account with Axis Bank A/c No.015010100564274 that the assessee has deposited Rs.18.00 lakhs during the year. Similarly, the AO observed from the Vijaya Bank account that there were credits of interest aggregating to Rs. 7,12,168/- on 3 FDRs. The AO noted that there was credit of Rs.749/- in ICICI Bank Account No.032201500276 in respect of interest. Consequently, the AO made addition in respect of all these deposits to the income of the assessee vide order dated 20.3.2013 passed u/s.144 of the Act.
5. Ld. CIT(A) in the appellate proceedings also dismissed the appeal of the assessee by passing a very detailed and comprehensive order after taking into consideration the reply and contentions of the assessee.
6. Ld. AR vehemently submitted before us that the assessee is a Member of Scheduled Tribe Community of Arunachal Pradesh and the income of the assessee is exempt u/s.10(26) of the Act. Ld. AR submitted that the assessee had deposited a sum of Rs.1,75,00,000/- on various dates into Vijaya Bank, New Delhi. Similarly, the assessee had deposited cash on various dates with Axis Bank, New Delhi. Ld. AR submitted that the appellant had deposited his cash in Vijaya Bank and Axis Bank out of cash withdrawals from the assessee’s own bank account. Ld. AR filed before the Bench the copies of the bank statement, evidences of withdrawals of cash on various dates and proofs of redeposits thereof. It was submitted before us that the cash was withdrawn for purchase of some properties, which did not materialise and, therefore, the cash was deposited back into the bank accounts of the assessee. Therefore, once the sources of cash deposits are explained to be out of withdrawals of cash from the bank account of the assessee, then same cannot be added to the income of the assessee as unexplained money. Ld. AR submitted that this is simple withdrawals and deposits of cash either in the same bank account or to another account, which did not generate any income or profit of any kind whatsoever and, therefore, same cannot be treated as income of the assessee. Ld. AR while referring to the books of account of the assessee submitted that all these entries were duly recorded in the assessee’s books of account. The assessee also submitted before us the details of summary of cash withdrawals and deposits to corroborate the fact that the deposits of cash were out of assessee’s own withdrawals and not from any outside sources. Ld. AR in support of his arguments relied on a series of decisions as under:
| (i) | Joginder Kaur v. ITO (Amritsar – Trib.) |
| (ii) | Jaspal Singh Sehgal v. ITO (Mumbai) |
| (iii) | Ajay Data v. ACIT (Jaipur – Trib.) |
7. The assessee has also placed on record statement of cash withdrawals and deposits for the period 1.4.2009 to 31.3.2020 which are extracted below:
| Date | Bank details | Debit | Credit | Balance |
| 01-April, 09 | Opening balance | 4000000.00 | – | – |
| 28-Apri-09 | Vijaya Bank 0021 | 700000.00 | – | 4700000.00 Dr |
| 6-May-09 | Axis Bank 4274 | – | 500000.00 | 4200000.00 Dr |
| -6-May-09 | Axis Bank 4274 | 500000.00 | 4700000.00 Dr | |
| 07-May-09 | Axis Bank 4274 | 500000.00 | 4200000.00 Dr | |
| 08-May-09 | Axis Bank 4274 | 500000.00 | 4700000.00 Dr | |
| 09-May-09 | Axis Bank 4274 | 1500000.00 | 6200000.00 Dr | |
| 29-May-09 | Vijay Bank 0021 | – | 500000.00 | 5700000.00 Dr |
| 29-May-09 | Axis Bank 4274 | 700000.00 | 6400000.00 Dr | |
| 11 Sept-09 | Axis Bank 4274 | 2200000.00 | 8600000.00 Dr | |
| 18-Sept-09 | Vijaya Bank 0021 | 3200000.00 | 11800000.00 Dr | |
| 18-Sept-09 | Vijaya Bank 1146 | 200000.00 | 11600000.00 Dr | |
| 10 Nov-09 | Vijaya Bank 0021 | 500000.00 | 12100000.00 Dr | |
| 19-Dec -09 | Vijaya Bank 0021 | 2400000.00 | 14500000.00 Dr | |
| 19-Dec-09 | Axis Bank 4274 | 800000.00 | 13700000.00 Dr | |
| 19-Dec-09 | Axis Bank 4274 | 900000.00 | 14600000.00 Dr | |
| 20 Jan-10 | Vijaya Bank 0021 | 7500000.00 | 7 100000.00 Dr | |
| 21 Jan-10 | Vijaya Bank 0021 | 400000.00 | 7500000.00 Dr | |
| 27-Jan-10 | Vijaya Bank 0021 | 3000000.00 | 10500000.00 Dr | |
| 01-Feb -10 | Axis Bank 4274 | 400000.00 | 10900000.00 Dr | |
| 05-Feb-10 | Vijaya bank 0021 | 500000.00 | 11400000.00 Dr | |
| 05-Feb-10 | Vijaya bank 0021 | 100000.00 | 11500000.00 Dr | |
| 06-Feb -10 | Vijaya bank 0021 | 9500000.00 | 2000000.00 Dr | |
| 06-Feb-10 | Vijaya Bank 0021 | 108500.00 | 2108500.00 Dr | |
| 08-Feb-10 | Vijaya Bank 0021 | 150000.00 | 2258500.00 Dr | |
| 08-Feb-10 | Vijaya Bank 0021 | 200000.00 | 2458500.00 Dr | |
| 09-Feb-10 | Vijaya Bank 0021 | 3200000.00 | 5658500.00 Dr | |
| 09-Feb-10 | Vijaya Bank 0021 | 200000.00 | 5858500.00 Dr | |
| 09-Feb-10 | Vijaya Bank 0021 | 130000.00 | 5988500.00 Dr | |
| 05 May-10 | Axis Bank 4274 | 300000.00 | 6288500.00 Dr | |
| 11-Mar-10 | Vijaya Bank 0021 | 3210000.00 | 9498500.00 Dr | |
| 23 Mar-10 | Vijaya Bank 0021 | 10000000.00 | 19498500.00 Dr | |
| 27 Mar-10 | Axis Bank 4274 | 1000000.00 | 20498500.00 Dr |
8. The Id. AR while summing up his arguments and relying on the above decisions, vehemently submitted that the authorities below had hopelessly failed to bring any substantive evidences on records to prove to the contrary and therefore prayed that the appeal of the assessee may be allowed by directing the AO to delete the addition.
9. Ld. DR relied heavily on the orders of authorities below and submitted that the it was not in dispute that assessee was a transport contractor of Government of Arunachal Pradesh and derived gross freight /income from transportation activities amounting to Rs.13,44,00,000/- from which the assessee was assessed @ 10% which worked out to Rs.,1,34,40,000/- and exemption u/s.10(26) of the Act was allowed to the assessee. The ld DR submitted that the Assessing Officer made an addition in respect of cash deposits by the assessee during the year on various dates which according to the Assessing Officer was not explained and remained unexplained. Ld. DR submitted that there was no reasonableness/justification in withdrawing and depositing the same money into the bank accounts of the assessee, which created suspicion and doubt about these transactions. Ld. DR submitted that though ld. AR has filed details of various withdrawals which were stated to be redeposited into the bank accounts but that raises serious doubt about the genuineness of these transactions. Ld. DR therefore, pleaded that the order of the Id. CIT(A) is very comprehensive and speaking one which may be confirmed.
10. After considering the rival submissions and perusing the materials available on record, we find that the assessee is a Member of Scheduled Tribe of Arunachal Pradesh and his income in the State is exempt u/s.10(26) of the Act. Exemption was allowed to the assessee in respect of transportation income of Rs.1,34,40,000/- u/s.10(26) of the Act. We note that the Assessing Officer during the course of assessment proceedings, on the basis of bank statements of the assessee noted that there were huge deposits of cash on various dates aggregating to 1,75,00,000/- in Vijaya Bank and Rs.18,00,000/- in Axis Bank. We have also gone through the bank statements of Vijaya Bank and Axis Bank and also books of account of the assessee and observe that these deposits made into the bank accounts were made out of the withdrawals from the bank. The Assessing Officer while making addition has not brought on record any substantive evidences to the effect that withdrawals by the assessee of cash on various dates were utilised or consumed somewhere else and the deposits into the bank account were not out of withdrawals by the assessee as such. Therefore, the reasoning given by the ld. CIT(A) for sustaining the addition by relying on the theory of preponderance of probability and various others unfounded reasons which have lacking any genuinity or correlation of the facts. Ld. CIT(A) has not referred to any facts on record produced by the assessee and reached a conclusion which is nothing but based on the on presumptions, surmises and conjunctures. We have enough reasons to believe that the assessee had made deposits into the banks out of withdrawals of cash, the evidences to that effect in the form of bank statements and books of account were on records. Therefore the order of ld CIT(A) appears to be wrong and thus cannot be sustained. In our opinion, the assessee has fully explained the sources of cash deposits into the bank account on various dates. Therefore, we find merits in the contention of ld. AR that the Assessing officer has wrongly treated the cash deposits into the bank account as undisclosed income of the assessee. Moreover, the Assessing Officer has not brought on record any extraneous and substantive material which proved that the assessee could have earned such income. Our view finds support from the decision of the Co-ordinate Bench of Amritsar in the case of Joginder Kaur (supra), wherein, the Co-ordinate Bench has held that where the assessee has submitted the details of cash summary showing inflow and outflow cash in the relevant year to show that cash has been withdrawn and redeposited, then the assessee was to be allowed the benefit of redeposit and the impugned addition deserved to be deleted. For the sake of brevity, the relevant findings of the Tribunal are reproduced as under:
“12. We have heard both the counsels at length and considered all the materials on record including the paper book and synopsis filed by the assessee and the various judicial citations referred to by the assessee.
1 2.1 We proceed to decide the issue on the merits of the case as contained in ground no 6 of the memorandum.
1 2.2 We find that the dispute regarding sale of land vide an agreement of sale dated 10/04/2008, executed by the assessee and her family members and consequent receipt of sale proceeds by cash and cheque, on various dates during the FY 2008-09 as narrated by the AO in the assessment order (page -2 and 3 / para – 2), and also narrated by the Ld. CIT (A) in his appeal order, are factual events that has occurred in the FY 2008-09 (relevant to the A.Y. 2009-10), andare issues to which we are not concerned at the moment, because it does not relate to the year under appeal. 12.3 We only focus on the financial transactions in the bank account of the assessee in PNB Gramin Bank, for the financial year 2009-10 (Asst year 2010-11) the relevant year under appeal. We find on reading of the bank statement, that the opening balance brought forward on 1st April 2009 is 20. 30 lakhs, and there has been subsequent credit in the said account vide bank transfers (other than cash), to which neither the AO nor the Ld CIT(A) has raised any queries at any stage. Subsequently, the assessee has withdrawn cash from the said bank account on various dates within the financial year, as date wise reflected in the cash flow statement furnished by the assessee, and it is seen that sufficient cash balance are available with the assessee on the date of deposit of cash in the bank account in the month of March 2010 and as per contention of the assessee it is the same cash that has been redeposited. We also agree with the argument of the Ld AR, that it is not the case of the department that cash withdrawn by the assessee from PNB Gramin bank, during the period April 2009 till January 2010, (as reflected in bank account) has been invested or spent somewhere else or has been utilized elsewhere. In absence of any such adverse finding, the benefit of cash availability cannot be denied to the assessee.
13. As such considering all factual circumstances, and considering the transactions of cash withdrawn from the same bank account by the assessee during the same financial year we allow the assessee the benefit of redeposit, in absence of any findings regarding the utilization of the said cash drawn elsewhere, and we direct the addition of Rs.62,18,200/- to be deleted.
13.1 Since we have already decided the issue on merits of the case, in favour of the assessee, the other legal grounds taken by the assessee becomes academic and as such we are not adjudicating on the same.
14. In the result, the appeal of the assesse.
11. Similarly, in the case of Ajaya Data (supra), the Co-ordinate Bench has held as under:
6. We have considered the rival submissions as well as the relevant material on record. We note that the only issue in this ground is whether the Ld. CIT(A) is justified in not allowing set off of cash considered unexplained by him against the cash withdrawal of Rs.4,72,000/- made from M/s Vijay Industries between 05.04.2014 to 20.04.2015. We note that no document is found in search to come to a conclusion that the amount withdrawn by the assessee from M/s Vijay Industries has been utilized elsewhere. There is no law which prohibits an assessee to keep cash in hand and therefore only because assessee has not given explanation as to why the cash was withdrawn, when he has withdrawn the cash earlier also cannot be a ground to reject the explanation of assessee. In various cases referred above, it has been held that where no evidence is brought on record that cash withdrawal has been utilized elsewhere, such cash should be considered as available with the assessee. Considering all these facts, we direct the AO to delete the addition of Rs.4,28,830/- made by him.”
12. Considering the facts of the present case in the light of aforesaid decisions, we are inclined to set aside the order of the ld. CIT(A) and direct the Assessing officer to delete the addition on the ground that the assessee has explained the source of cash deposits out of withdrawals from the bank accounts of the assessee. Hence, Ground nos.2 & 3 are allowed.
13. The assessee has not pressed other grounds of appeal and hence, they are not adjudicated upon at this stage.
ITA No.50/GTY/2021: Asst.Year-2011-2012
The facts in brief are that the assessee filed the return of income on 10.01.2012, showing total income at ?nil by claiming exemption u/s 10(26) of the Act. The Return was processed u/s 143(1) on 22.08.2012. The case of the assessee was thereafter selected for scrutiny and statutory notices u/s 143(2) of the Act duly served upon the assessee. Finally, the assessment was completed u/s 143(3) of the Act vide order dated 29.03.2014, by making additions of ^2,37,79,798/- on various counts. The said order was challenged by the assessee before the ld. CIT (A) on 14.06.2014. Thereafter on 29.02.2016, the ld. PCIT, Guwahati by exercising the revisionary jurisdiction u/s 263 of the Act revised the assessment passed u/s 143(3) of the Act on 29.03.2014, by directing the ld. AO to make the assessment afresh. Pertinent to state that the ld. PCIT, Guwahati revised the assessment on the same issues which were subject matter of the additions in assessment framed originally u/s 143(3) of the Act. The ld. AO consequently passed the assessment order in the set aside proceedings u/s 263 / 143(3) of the Act vide order dated 07.12.2016, making the same additions which were made in the order passed u/s 143(3) of the Act. The said fact was to informed to the ld. CIT (A) qua the revisionary order passed u/s 263 of the Act. The ld. CIT (A) passed the order u/s 250 of the Act on 31.12.2019, confirming the additions made in the assessment order passed u/s 143(3) of the Act which were already stood quashed by virtue of order passed u/s 263 of the Act dated 29.02.2016.
14. The assessee challenged the order passed u/s 250 of the Act dated 30.12.2019, upholding the assessment order passed u/s 143(3) of the Act dated 29.03.2014 before the tribunal. Now the assessee has raised an additional ground before us challenging the validity of the revisionary proceeding’s u/s 263 of the Act and the consequent order passed u/s 263 of the Act dated 29.02.2016, on the ground that in terms of clause (c) of explanation 1 to Section 263 of the Act, the exercise u/s 263 of the Act is barred. In other words, it was argued before us that the ld. PCIT has no jurisdiction to revise the assessment which was sub judice before the ld. CIT (A) on the same issues at the relevant point of time. Pertinent to state that in the set aside proceedings the assessment was framed by the ld. AO u/s 143/ 263 of the Act making the same additions as were made in the assessment framed u/s 143(3) of the Act dated 29.03.2014, which stood revised by the ld. Pr. Commissioner of Income Tax.
15. After hearing the rival contentions and perusing the material on record, we find that the assessee has raised an additional ground of appeal challenging the validity of the revisionary proceeding’s u/s 263 of the Act and the consequent order passed u/s 263 of the Act dated 29.02.2016, on the ground that in terms of clause (c) of explanation 1 to Section 263 of the Act, the exercise of jurisdiction u/s 263 of the Act is bad in law and also barred. In our opinion the issued raised in the additional ground is a purely a legal issue qua which all the facts are available in the appeal folder and no further verification of facts are required to be done from any quarter whatsoever. In our considered view the assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities. The case of the assessee is squarely covered by the decisions of the Apex court in the case of (i) Jute Corpn. of India Ltd. v. CIT (SC), (ii) National Thermal Power Co. Ltd. v. CIT (SC) and also by the decision of Hon’ble Calcutta High Court in CIT v. Britannia Industries Ltd. (Calcutta). Therefore we are inclined to admit the same for adjudication.
16. On the arguments of the ld DR that the assessee has not challenged the revisionary order passed u/s 263 of the Act by ld PCIT which has attained finality and therefore the additional ground raised by the assessee challenging the said order is not maintainable. However we are not in agreement with the said arguments of the ld. DR that the assessee cannot be allowed to challenge the validity of the revisionary order u/s 263 of the Act as the same attained finality because no appeal was ever preferred by the assessee in the tribunal challenging the same. In our opinion the assessee can challenge the validity of any order in the collateral proceedings though the same has not been challenged before the appellate authoirty. In our opinion the assessee can challenge the validity of any order in the co-lateral/consequential proceedings. The case of the assessee find support from the decision of Hon’ble Calcutta High Court in case of Keshap Narayan Banerjee v. CIT [1999] 238 ITR 694/[1999] 156 CTR 109 (Calcutta) and Classic Flour & Food Processing (P.) Ltd. v. CIT [IT Appeal Nos. 764 – 766 (Kol.) of 2014, dated 5-4-2017], Concord Infra Projects (P.) Ld. v. Pr. CIT [IT Appeal No. 174 (Kol.) of 2021, dated 13-10-2024]. Thus assessee is within its legitimate and lawful right to challenge the revisionary order u/s 263 of the Act even in the collateral proceeding/consequential proceedings as has been held in the aforesaid decisions.
17. The case of the assessee find support from the decision of in the case of Keshab Narayan Banerjee (supra) herein the Hon’ble Kolkata High Court has held as under: –
“We, therefore, are of the view that there is neither any material which could justify the inference or finding that service by registered post was either effected or should be deemed to have been accomplished nor was this the case of the respondents before the learned single judge and thus the learned single judge erred in law in returning such a finding.
We have, therefore, no hesitation in holding that the service by registered post of the notices allegedly sent to the appellant writ applicant, resulting in the passing of the order under section 147 of the Act was not properly effected or accomplished. Since, admittedly, the service of such notices was a necessary prerequisite, a condition precedent for passing of the orders under section 147 of the Act, we also have no hesitation in holding that such orders were bad in law, and, therefore, the proceedings under section 263 of the Act, admittedly, originating from such orders could not be initiated against the appellants.
The service of such notices, therefore, not having taken place, the Commissioner of Income-tax was not in law justified to invoke his jurisdiction under section 263 of the Act.
On an overall consideration, therefore, we do not find ourselves in agreement with the view taken by the learned single judge that the notice under section 147/148 of the Income-tax Act was properly served by registered post. We set aside such finding of the learned single judge and because the entire basis of the operative part of the judgment of the learned single judge proceeded on the premises of due service of the registered cover, contents being subject to proof, such basis having been knocked out, nothing survives in so far as the operative part of the judgment under appeal is concerned. The judgment under appeal, therefore, is set aside in so far as the operative part is concerned. The appeal accordingly is allowed, but without any order as to costs.
18. Similarly, the co-ordinate Bench in Classic Flour & Food Processing Pvt. Ltd. (supra), & in the case of Concord infra project Pvt. Ltd. (supra), the co-ordinate Bench as held as under: –
“After having considered the judicial precedent on the issue we are of the view that the validity of the order passed by the AO which is being interdicted by the Ld. PCIT in the impugned order assailed before us, can be examined as to whether the AO had the requisite jurisdiction to re-open/re-assess the escaped income of the assessee. Therefore, in this case we need to examine the action of AO dated 29.12.2017 passed u/s 147 of the Act which action of AO depends upon the AO assuming validly the jurisdiction to pass an order of assessment u/s 147 of the Act. It is settled law that the AO can reopen the assessment only after fulfilling the conditions laid down in the said section (section 147 of the Act) namely reason to believe that income chargeable to tax for that assessment year has escaped assessment. If this essential condition is not satisfied by the AO before initiating assuming jurisdiction u/s 147 of the Act then in such an event it cannot be said the AO has validly assumed jurisdiction u/s 147 of the Act. As discussed even if for any reason, the assessee had not challenged the validity of proceedings u/s 147 of the Act by filing appeal against the order framed u/s.147 of the Act, it can be challenged in the appeal against an order passed by the Ld. PCIT u/s 263 of the Act revising the invalid order u/s 147 of the Act. As noted this issue has been analysed by the Mumbai Bench of the Tribunal in the case of M/s. Westlife Development Ltd. (supra) wherein the Tribunal has equated the reopening assessment u/s 147 to primary proceedings and the subsequent proceedings by Ld. PCIT u/s 263 passed to be collateral proceedings. In this order the Tribunal has taken note of several ratio’s of the Hon’ble Supreme Court wherein the Hon’ble Supreme Court held that if the primary proceedings are non-est in law or void on the ground of lack of jurisdiction, then the validity of such proceedings can be challenged even in an appeal arising out of collateral proceedings.
Since we have already set out the ratio/operating portions of these decisions we do not wish to repeat the same for the sake of brevity. In the light of the aforesaid discussion we are of the view that the invalidity of the primary proceedings for lack of jurisdiction can be challenged even in appellate proceedings arising out of a collateral proceeding. In view of the aforesaid legal position we will now examine the legal issue. For doing that first of all we have to examine whether the AO in the present case, could have reopened the assessment of the assessee by issuance of notice u/s 148 of the Act (which ultimate resulted in AO order dated 29.12.2017).
10. Now for examining this legal issue we need to examine whether the jurisdictional fact and pre-conditions for re-opening an assessment as stipulated u/s 147 of the Act was present/satisfied before the AO issued notice for re-opening dated 17.03.2017. Before we do the factual analysis in respect of this legal issue, let us have a look at the scheme of the Income Tax Act which gives power to the Income Tax Authorities as per Section 116 of the Act who are appointed by the Central Government u/s 117 of the Act. The Act/Statute vest power on certain Income Tax Authorities assigned as Assessing Officer (hereinafter the AO) to assess/ascertain the income of the a subject/assessee and to determine the tax payable by that subject/assessee by framing an assessment order for an Assessment year. The concept of assessment is governed by the time barring rule and an assessee acquires a right as to the finality of proceedings. Queitus of the completed assessment can be disturbed only when there is information or evidence regarding undisclosed income or AO had information in his possession showing escapement of income. So when an AO receives an information regarding undisclosed income of an assessee in respect of an assessment year which has escaped assessment, then the AO has to examine the information by verifying the source of it and then also has to keep in mind that information adverse against an assessee may trigger “reason to suspect”; then the AO to make reasonable enquiry and collect material which would make him believe, that there is in fact an escapement of income. And thereafter if he believes the existence of escapement of income then record his reason to believe escapement of income and then issue notice u/s. 148 of the Act and not before that. Let us look at the settled position of law on this issue.
11. As noted (supra) the Parliament has given power to AO to reopen the assessment, if the condition precedent as discussed above are satisfied, and not otherwise. It should be kept in mind that the concept of assessment is governed by the time-barring rule and the assessee acquires a right as to the finality of proceedings. Queitus of the completed assessment is the Fundamental Rule and exception to this rule is Re-opening of assessment by AO under section 147 or exercise of Revisional jurisdiction by CIT under section 263 of the Act. Therefore, the Parliament in its wisdom has provided safeguards for exercise of the reopening of assessment jurisdiction to AO; and revisional jurisdiction of CIT by providing condition precedent which is sine qua non for assumption/usurpation of jurisdiction. In the case of reopening of assessment, the reason to believe escapement of income is the jurisdictional fact and law (mixed question of fact and law) and for revisional jurisdiction the order of the AO should be erroneous as well as prejudicial to the revenue. Unless the condition precedent is not satisfied, the AO or the CIT can exercise their reopening jurisdiction or revisional jurisdiction respectively. The legislative history is that in respect to the reopening u/s. 147 of the Act, the Parliament by Direct Tax Laws (Amendment) Act 1987 w.e.f. 01.04.1989 had substituted “for reason to believe escapement of income” to ‘for reasons to be recorded by him in writing, is of the opinion” which gave unbridled subjective satisfaction to the AO was later substituted back to ‘reason to believe escapement of income”, by the Direct Tax Laws (Amendment) Act, 1989. The Hon’ble Apex Court as well as the Hon’ble jurisdictional High Court as well as other Hon’ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact and law (mixed question of fact and law) the reason to believe escapement of income (supra).
12. So the condition precedent as discussed above is the jurisdictional fact & law, which is sine qua non for the AO to successfully usurp the jurisdiction u/s. 147 of the Act and it has to be also kept in mind that the jurisdictional fact (mixed question of fact and law) referred to in section 147 of the Act i.e Reason to believe escapement of income should be that of AO and not that of any other authority, because then it will be against one of the basic feature of the Constitution of India ie, the Rule of Law, wherein the Parliament has empowered this reopening jurisdiction only to that of Assessing Officer and that is why if the reason to believe escapement of income is not that of AO, the assumption of jurisdiction to re-open, has been held to be vitiated and resultantly bad in law, since it will be on the basis of borrowed satisfaction.
13. Now coming back to the present appeal, when we examine the legal issue on the touchstone of the settled judicial precedents on re-opening let us examine the reason recorded by the AO to reopen the assessment of AY 2010-11 pursuant to which the AO issued the notice u/s 148 of the Act dated 17.03.2017. According to the Ld. AR, the premises/jurisdictional fact for reopening the assessment is discernible from the assessment order dated 29.12.2017 itself wherein the AO in his own words have stated as under:
“Assessee submitted return on 29.07.2010, showing total income of Rs. 443/- and the case was processed accordingly, subsequently the case was selected for scrutiny u/s 147 on the basis of an information received from the authentic source that M/s Miracle Commodities Pvt Ltd there is frequent high value deposit in their bank accounts and immediate transfer to some third party account. During the course of further investigation it is found that large value of amount has been routed to M/s Concord Infra Projects Pvt. Ltd.
From further detailed investigation and analysis of data/information it is revealed that during the FY:2009-10 corresponding to A Y :2010-11, M/s Concord Infra Projects Pvt Ltd has allotted shares @ Rs. 10 per share at high premium to as many as 16 Kolkata based companies amounting to Rs. 8,34,00,000/-.
The fund so raised was invested in the shares of Kolkata based companies at very high premium which does not commensurate with the financial position of the company in which such investment was made. Subsequently there was change in the Directors of M/s Concord Infra Projects Pvt Ltd. It clearly shows that the company has been sold claimed as to real beneficiaries who channelized their unaccounted income and converted bogus investment to real usable assets. Funds so liquidated by way of selling bogus investment in the name of Kolkata based companies are finally converted into real assets as Short Term Loan & advances/Cash & Bank balance as claimed. The case was supposed to be examined whether it was bogus or unaccounted.
It is further mentioned that M/s Concord Infra Projects Pvt Ltd is a designated jamakharchi company incorporated to launder unaccounted income as per Departmental Database.”
16. From a perusal of the aforesaid reasons it is evident that the jurisdictional fact/information on which the AO has based his reason to believe escapement of income was that the department received an authentic information that huge value of deposits were made in the bank account of one company called M/s. Miracle and thereafter the money was transferred to some third party account and that further investigation had revealed that large amount of money was routed to the assessee company i.e. M/s. Concord Infra Projects Pvt. Ltd. According to the Ld. AR, this foundational fact on the basis of which the AO had based his “reason to believe escapement of income” is factually wrong/erroneous since the foundation fact has been found to be absent, which fact is evident from the factual findings of the Ld. PCIT in the impugned order wherein he has made a specific finding of fact in his conclusion recorded at page 40 of the impugned order wherein he concludes in his own words “in conclusion the relevant fact which constitute the present case are that the alleged large transaction of M/s. Miracle have not been reached directly/indirectly to the assessee company as evident from bank account of the assessee company nor through share subscriber companies (shareholders) to whom the assessee company has allotted shares.” Therefore, according to the Ld. AR, this finding of fact by the Ld. Pr. CIT clearly reveals that the deposits in the bank account of M/s. Miracle has not been routed to the assessee company which assertion of the Ld. A.R. could not be rebutted/contradicted by the Ld. CITDR. So Ergo, we note that the foundation on which the reason to believe escapement of income by the AO to issue notice u/s. 148 of the Act on 17.03.2017 itself was on wrong assumption of fact as is evident from the finding of fact by the Ld. PCIT that no money from M/s Miracle has been routed to the assessee company directly or indirectly whereas the foundation fact on the basis of which reopened the assessment as is evident from the reasons recorded (supra) was that high value of money was deposited in the bank account of M/s Miracle which inturn has been routed to the assessee through third party in the form of share subscription to the tune of Rs. 8.34 crores which fact was found by Ld. PCIT to be absent. So, the AO’s belief of escapement of income was on wrong assumption of facts and so invocation of reopening jurisdiction by issue of notice u/s 148 of the Act is bad in law and, therefore, the consequent re-assessment order dated 29.12.2017 of the AO is a nullity and, therefore, the order of the Ld. Pr. CIT to interfere in the order of the AO dated 29.12.2017 u/s. 144/147 of the Act is also a nullity and, therefore, the action of the Ld. Pr. CIT to invoke his jurisdiction u/s. 263 of the Act itself was without jurisdiction. Ergo, we hold the impugned order as null in the eyes of law, so we quash it.
17. In the result, the appeal of assessee is allowed.”
19. We have heard the rival contentions and perused the materials available on record, we find that in this case the Id. PCIT exercised the revised jurisdiction u/s 263 of the Act and passed the consequent order on 29.02.2016, revising the assessment framed u/s 143(3) of the Act vide order dated 29.03.2014, wherein the income was assessed by the ld. AO at ^2,48,05,820/-. We observe from the records before us that on the date of exercise of revisionary jurisdiction the assessee has already challenged the assessment order before the ld. CIT (A) on the same issue. In our opinion, the action of the ld. PCIT in revising the said order is unsustainable and cannot be sustained in terms of clause (c) of explanation 1 to Section 263 of the Act. The case of the assessee is supported by the decision of Hon’ble Allahabad High Court in case of CIT v. Vam Resorts & Hotels (P.) Ltd. (Allahabad) dated 20-08-2019, wherein it has been held as under: –
25. As, Clause (c) of Explanation 1 to Section 263 of the Act provides that when an appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act by CIT is barred. Thus, in the present case, the CIT wrongly exercised jurisdiction under Section 263 of the Act by remanding back the matter to assessing authority on 25.3.2013, while the appeal was decided by CIT (A) on 5.6.2013. Thus, the order passed by the ITAT does not suffer from any irregularity and needs no interference.
Consequently, we hold the order passed by the ld. PCIT u/s 263 of the Act as nullity, invalid as the same is passed without any valid jurisdiction in violation to clause (c) of explanation 1 to Section 263 of the Act, by following the ratio laid down in the above decision. Now we draw the strength from the ratio laid down in the above decisions to hold that when the appeal against the appellate order is pending before us, then the assessee can legitimately challenge the revisionary order passed by the PCIT setting the assessment order which was subjudice before the Ld. CIT(A) and the ld CIT(A) affirmed the said order and the appeal is before us. Therefore, considering the facts of the assessee in the light of the above decisions,we are inclined to conclude that the order passed u/s 263 of the Act revising the assessment order passed u/s 143(3) of the Act is invalid and therefore consequential assessment proceedings and order framed u/s 143(3)/263 is also invalid.
20. Now, after holding the revisionary proceedings to be invalid we hold that the order passed by the AO u/s 143(3) of the Act is a valid order with all consequential proceedings to be valid. Now we shall adjudicate the appeal filed before us by the assessee challenging the order of the ld. CIT (A) confirming the additions by upholding the assessment order dated 29.03.2014 passed u/s 143(3) of the Act.
21. The issue raised in the various grounds of appeal are materially same as decided by us in ITA No. 49/GTY/2021 for A.Y. 2010-11 (supra). Therefore, our decision in ITA no. 49/GTY/2021 would, mutatis mutandis, apply to this said appeal as well. Consequently, the grounds raised by the assessee are allowed by setting aside the order of ld. CIT (A) and AO is directed to delete the addition in respect of cash deposits. We further hold that income from interest etc are exempt u/s 10(26) of the Act and AO is accordingly directed to delete the addition. The appeal of the assessee is allowed.
22. In the result, both the appeals of the assessee are allowed.