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B..K. (J) (109 Points)

26 May 2021

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CMA Poornima Madhava (CMA) (13112 Points)
Replied 26 May 2021

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Raghavendra Prasad M (Partner of Prasad Rao & Associates Chartered Accountants GUDIVADA-521301) (596 Points)
Replied 16 May 2022

Bankers Blunders resulting in flood of IT Notices U/s 148A, U/s 148 etc., leaving

Bruises to IT Assessees for no fault of them –Real Cases analysed.

By CA M.R. Prasad

B.Com, F.C.A. A.I.I.I., CCCAB, DISA.

Prasad Rao & Associates, Chartered Accountants

Gudivada – 521 301

For the last three months, assessee’s have been receiving show cause notice U/s 148A, after reply to the same Order U/s 148A alongwith Notice U/s 148. Some such cases of our assessee’s are presented and analysed hereunder. Name of the Assessee, Bank and identification of Assessing Officer are not revealed here, but the figures reported are real figures appearing in the notices.

Case : 1

Mr. ABC received a show cause notice U/s 148A(b), dt.20.03.2022, asking his explanation for not filing his ITR for the A.Y: 2018-19.

Contents of the Notice:

Above notice pointed out that in SFT-004 filed by XYZ bank, reporting cash deposits of Rs.66,11,100/- by the Assessee.

Facts:

We called for all bank accounts statements from the assessee and after careful examination found that the assessee has made cash deposits of Rs.11,01,850/- only in the Loan account during the F.Y 2017-18.

Reply filed with objections on facts and Law:

In our reply we mentioned the same fact and attached the bank loan account statement as evidence. Also in the reply we requested the Assessing Officer to enquire with the XYZ Bank why they have submitted inaccurate particulars and take appropriate action against the Bank for giving misleading, erroneous information to the Income Tax Department.

The Assessing Officer, in the order U/s 148A (d), dt.03.04.2022, stated that, it is not possible to cross verify the data available with the department and the bank account statements furnished by the assessee at this juncture.

The Assessing Officer, called for return of income vide Notice U/s 148, dt.03.04.2022, after getting approval from PCCIT of the state.

On 07.05.2022 at our instance, the assessee filed an application to the XYZ Bank Manager requesting to issue a clarificatory certificate that the cash deposits are Rs.11,01,850/- only, but not Rs.66,11,100/- (which is 6 x Rs.11,01,850/-). On 11.05.2022, the Branch Manager issued a clarificatory letter clearly stating that the assessee made cash deposits of Rs.11,01,850/- ONLY and also confirmed that the bank head office filed a revised SFT-004 to the Income Tax Department to this effect duly correcting their mistake.

We downloaded Form 26AS from assessee’s account in the Income Tax portal, which contains 13 entries of Rs.11,01,850/- each with plus (+) symbol and followed by 12 entries of Rs.11,01,850/- each with minus (-) symbol and after setting off 12 minus entries with the 13 plus entries gives a net result of aggregate of cash deposits of Rs.11,01,850/- ONLY during the FY 2017-18.

We filed a petition U/s 154 of the Income Tax Act, 1961 requesting the Assessing Officer, to peruse the Bank Manager’s certificate dated 11.05.2022 and Form 26AS which goes to prove beyond any doubt that the assessee made aggregate cash deposits of Rs.11,01,850/- ONLY. The Assessing Officer in the order passed U/s 148A dt.03.04.2022, has stated that “No proper reply has been furnished by the assessee to the show-cause notice with reference to transactions made with banking companies aggregating to Rs.50 lakhs and above being a non- filer of IT return for the year under consideration” and paved the way for issue of Notice U/s 148 calling for Return of Income. In Assesseee’s Petition U/s 154, we stated that as the Cash Deposits are only Rs.11,01,850/-, which is less than Rs.50.00 lakhs and further as follows:

“As the information which formed the basis for issue of Notice u/S.148 was incorrect as submitted herein above with documentary proof available with your goodself even before the issue of Notice u/S.148A, I submit that issue of Notice and also the decision made by your goodself in your Order dt.03.04.2022 u/s 148A(d) both were erroneous.

I submit that the fundamental requirement for invoking Sec.148 as per the Proviso to S.148 is that the information with the AO shall be suggestive of ‘income chargeable to tax escaping assessment’. In my case, my total cash deposits in SB Account can’t suggest such a situation. Thus, in my case there is not only a mistake of fact, the situation shows a mistake of law as well, requiring rectification.

I request your goodself to rectify the said mistake and also call back the Notice u/S.148 since the pre-requisite for the issue of Notice was ‘information in the possession of AO’, which was shown by me as non-existent. A small depositor with aggregate cash deposits of Rs.53,500/-, Rs.1,04,100/- and Rs.15,700/- wouldn’t have been subjected to proceedings u/S.148A and 148 in the afore-mentioned circumstances.”

The above petition U/s 154 has been already filed and we are awaiting for the response from the Assessing Officer.

Case 2:

Contents of Notice:

Mr. BCD received a show cause notice U/s 148A(b), dated 20.03.2022, pointing out that in WXY Bank reported Cash Deposits by the Assessee of Rs.25,00,000/- in CIB-410, and Rs.26,00,000/- in AIR-001 for the FY 2014-15.

Facts:

In Assessee’s reply dt.21.03.2022, we admitted having made cash deposits of Rs.26,00,000/- ONLY and no further Cash Deposits of Rs.25,00,000/- made in the account. We enclosed the Savings Bank Account Statement in support of our submission.

The Assessing Officer issued an order U/s 148A(d), dt.6.4.2022, rejecting our submission, and stating further as follows:

“In support his contention, the assessee has failed to furnish any documentary evidence from the respective bank authority that he has only one account maintained with their bank. However, as per AIR data, the assessee has WXY Bank account at XXX branch and deposited Rs.26,00,000. Whereas CIB data says that in the same bank he has deposited Rs.25,00,000 on 6 occasions as deposit In Cash aggregating Rs.2,00,000/- or more, with a banking company. Further, the assessee did not file return of income for the relevant Assessment Year. In view of this it is not possible correlate the information available with the department and information submitted by the assessee at this juncture”.

“Having regard to the information available including the submissions of the assessee which suggests that income chargeable to tax, represented in the form of asset which is likely to amount to Rs.50 lakhs or more, has escaped assessment and on the basis of material available on record as discussed in the preceding paragraphs, it is concluded that this case is a fit case for issuance of notice u/s 148 of the Act for the A.Y. 2015-16.” Mentioning the approval of PCCIT of the State.

Simultaneously the Assessing Officer issued Notice U/s 148 dt.06.4.2022 calling for Return of Income for the A.Y: 2015-16.

In response to the above, we filed a petition U/s 154, dt.05.05.2022 of the Income Tax Act, 1961 enclosing Bank Statement of Account again, clarificatory certificate dt.25.04.2022 from Branch Manager to the effect that the Assessee has only one account and even in that account the aggregate Cash deposits during the FY 2014-15 are Rs.26,00,000/- ONLY.

The above petition U/s 154 has been already filed and we are awaiting for the response from the Assessing Officer.

Case 3:

Contents of the Notice:

Mrs. CDE received a show cause notice U/s 148A, dated 19.03.2022, for the AY 2015-16, pointing out that in PQR Bank reported Cash Deposits by the Assessee of Rs.12,64,000/- in AIR-001, and SRO Rs.40,00,000/- in AIR-006 being purchase of Immovable Property, for the FY 2014-15.

Facts:

In Assessee’s reply dt.26.03.2022, we confirmed having deposited Cash of Rs.12,64,000/- in personal Savings Bank Account by withdrawing from Joint account with husband and on all occasions the date of withdrawal and the date of deposit are one and the same except on one occasion where the date of deposit is delayed by one day only. We submitted both the bank statements. About purchase of Immovable Property we submitted the copy of title deed and as per the same the purchase consideration is Rs.15,00,000/- only, where as stamp duty paid on SRO guideline value of Rs.40,00,000/-.

The Assessing Officer in his Order U/s 148A, dt.31.03.2022 concluded as follows:

“The assessee confirmed the purchase of immovable property i.e. agriculture land of 5 acres at AAA Village, BBB Dist, CCC State, for a total consideration of Rs.40,00,000 in the year 2014-15. However, submitted that she had paid a total amount of Rs.15,00,000/- to the vendor and paid stamp duty as per market value of SRO i.e. on Rs.40,00,000. Thus, the assessee was supposed to admit the difference amount of Rs.25,00,000 as deemed income under the head other sources as per the provisions of Section 56(2)(viii)(b)(ii) of IT Act 1961. Here, the assessee failed to do so and did not file Return of income for the year under consideration. The sources for purchase of impugned property is also not apparent from her submissions.”

“Having regard to the information available including the submissions given by the assessee which suggests that income chargeable to tax, represented in the form of asset which is likely to amount to Rs.50 lakhs or more, has escaped assessment and on the basis of material available on record as discussed in the preceding paragraphs, it is concluded that this case is a fit case for issuance of notice u/s 148 of the Act for the A.Y. 2015-16,” and stated a notice U/s 148 with the approval of PCCIT of the State.

Simultaneously the Assessing Officer issued Notice U/s 148 dt.31.3.2022 calling for Return of Income for the A.Y: 2015-16.

In reply to the above, the Assessee filed a petition U/s 154 of the Income Tax Act, dt.15.04.2022, wherein our argument is as follows:

About cash deposits in Bank: “There was not much time gap between the withdrawals and the deposits. Moreover, the amount withdrawn was Rs.21,63,700/- and the cash deposits in my Account were only Rs.12,64,000/-. As such, I submit that the conclusion that the cash deposits in my SB Account were unexplained – is a mistake of fact apparent on record and needs to be rectified.”

“I acquired a land in the financial year 2014-15, upon payment of a sale consideration of Rs.15,00,000/- whereas the SRO value of the property was Rs.40,00,000/-.I requested you to refer the valuation to the Departmental Valuation Officer and ascertain the fair market value as Rs.15 lakhs only before finalising the adjudication on the issue of Notice u/S.148.”

“Although the deeming fiction u/S.56(2)(viib) for taxation applies to the land purchase transaction in a very limited way to bring to tax the difference between the SRO value and transaction value subject to the DVO ‘s value on reference to him. As such, the SRO value is only a prima facie factor for invoking Sec.56(2), but the levy of tax is subject to the ascertainment of the FMV of the subject-asset. In addition, it is also submitted that as per Sec.49(4), the cost of acquisition in cases like that of my circumstances is to be adopted at Rs.15,00,000/- only in the hands of the buyer(myself here); the deemed income as per S.56(2)(viia) is not considered for inclusion in the cost of the asset.”

“Thus, the value of “asset” acquired by me needs to be reckoned at Rs.15,00,000/- only and not at Rs.40,00,000/- as per the Act. Your goodselves’ observation that I acquired an “asset” for more than Rs.50,00,000/- in the relevant previous year was a ‘mistake of law’ requiring rectification.”

“I submit that once the cash deposits were established having been made from definite sources with documentary evidence, the contentious item of investment in land only remains, and the same also was much less than Rs.50 lakhs taking my case out of the purview of reassessment per the time limits set out in sec.149(a)(ii).”

“In view of my foregoing submissions, I submit that there was NO INCOME CHARGEABLE TO TAX IN MY HANDS IN THE FORM OF AN “ASSET” WHICH HAS ESCAPED ASSESSMENT ATTRACTING SEC.149(1)(b) AS IT STOOD BETWEEN 1.4.2021 AND ON 31.3.2022 and request your goodself to rectify the observations in your Order leading to the adjudication of issue of Notice to me u/S.148, and call back the Notice u/S.148, as the impugned Order u/S.148A and the consequential Sec.148 Notice are not in accordance with the law.”

Again I made another petition U/s 154 of the Income Tax Act, dt.19.04.2022, where in the first petition U/s 154 also referred and requested the Assessing Officer to refer in addition to the following arguments:

“I have put in a Petition dt.15.4.2022 u/S.154(1)(a) requesting rectification of a mistake of fact and a mistake of law in the Order dt.31.3.2022 u/S.148A(d) for AY:2015-16. The said petition is maintainable in view of the following statutory provisions:

Section - 148A, Income-tax Act, 1961 - FA, 2021

Sec.154 Rectification of mistake.

154. ⁹⁰[(1) With a view to rectifying any mistake apparent from the record⁹¹ an income-tax authority referred to in section 116 may,—

(a)

amend any order⁹¹ passed by it under the provisions of this Act ;

As such, I sought the rectification or amendment of an Order passed as per Sec.148A(d) as per Sec.154(1)(a). there is no deficiency or lack of jurisdiction qua the said petition. I submit that as per Law, it has no connection with the pendency of Sec.147 proceedings in my case for AY:2015-16”

“In response to my Petition, your goodself has passed the following Order sent through your email:

“Madam,

Your application seeking rectification could not be processed as per the provisions of section 154 of IT Act as the proceedings u/s.147 of IT Act initiated in your case for the A.Y.2015-16 are pending for finalization.

Yours faithfully

Assessing Officer.”

“I submit that the refusal to ‘process’ my humble petition put in by me as per law, and refusal of the same by not adverting to the legitimacy of the petition, nor to the averments made therein, is an unjustified refusal of a valid petition by a non-speaking order. The reason mentioned for non-entertainment of the petition is also submitted as not in accordance with law. The rectification sought by me is submitted as having no connection with the pendency of the Sec.147 proceedings in my case for the said assessment year. In fact, I submit that the pendency of the S.147 proceedings arose only due to the mistakes which crept in to the impugned Order dt.31.3.2022 passed under sec.148A(d)”.

“As a Petition under Sec.154 lies against an order passed u/S.154, since the refusal of my petition is a deemed order by your goodself u/S.154, I submit the present petition requesting rectification of the order dt.18.4.22. If the communication sent by your goodself is about the refusal to ‘process’ my petition now, I request you to take up the petition for passing rectificatory orders as per law, as the same is incumbent on an AO to pass orders u/S.154, when a legitimate petition is made before him. I request your goodself to consider my Petition dt.15.4.2022 and the present petition as well and pass appropriate orders, as otherwise it would cause a great hardship to me.”

Again I made another petition U/s 154 of the Income Tax Act, dt.28.04.2022, where in the first two petitions U/s 154 also referred and requested the Assessing Officer to refer in addition to the following arguments:

“I have put in a Petition dt.15.4.2022 u/S.154(1)(a) requesting rectification of a mistake of fact and a mistake of law in the Order dt.31.3.2022 u/S.148A(d) for AY:2015-16. The said petition was refused to be processed by your goodself as communicated by your email dt.18.4.22.”

“I have again put in a fresh Petition dt.18.4.22 submitting that the refusal was not in accordance with law and again requested your goodself to rectify the said order.”

“In continuation of the said petition, I submit that the Notice dt.31.3.22 u/S.148A states that there was escapement of income in respect of the purchase by me of the agricultural land for Rs.15,00,000/- compared with the SRO value of Rs.40,00,000/- by quoting Sec.56(2)(vii)(b) to tax the difference as deemed income.”

“I submit that Sec.56(2)(viib) is invocable in respect of “capital asset” as defined in sec.2(14) and what I bought in that previous year was an agricultural land, which was not a capital asset.

“As such, the Notice u/S.148A dt.19.3.2022 is submitted as not in accordance with law and not maintainable as per Sec.149(1)(b) since the “asset” acquired in the previous year by me was less than Rs. 50 lakhs for the FY:2014-15 and the Notice in such a case was unsustainable.”

Section 149(1)(b) of the IT Act,1961 is reproduced as under:

‘No notice under section 148 shall be issued for the relevant assessment year

(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year:--------

Explanation:- For the purposes of clause (b) of this sub-section, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account

I request your goodself to consider the foregoing and call back your Notice u/S.148A and also the Notice u/s.148.

In the third petition we have drawn the attention of the Assessing Officer to the judgement of the Honourable Jaipur “A” Bench in case of Shri Yogesh Maheswari Vs DCIT, Central Circle -3, Jaipur, Case No. ITA. No. 301/JP/2019, A.Y: 2015-16, Date of Pronouncement 18.01.2021 and we enclosed a copy of the same to our petition.

The above third petition U/s 154 has been already filed and we are awaiting for the response from the Assessing Officer.

Note: The above Article is dedicated to my mentor / guide / Senior Professional CA Sri K. Siva Rama Kumar, M.Com., M.B.A., F.C.A., B.L., DISA and M.L., (Constitution Law), of Machilipatnam, Krishna Dist, Andhra Pradesh.