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Vinoda B. Jain Vighnaharta CHS, 'B' Wing, Flat No. 808, 8th Floor, Mahadeo Palav Marg,New Islam Mill Compound, Currey Road, Mumbai-400012 V/s. JCIT Spl. Range 33, Mumbai.
September, 25th 2014
  
                INCOME TAX APPELLATE TRIBUNAL,MUMBAI - `F' BENCH.
      
         Before S/Sh.D.Manmohan, Vice-President & Rajendra,Accountant Member
          /.ITA No.676/Mum/2014,[ [/Assessment Year-1991-92
       Vinoda B. Jain                             JCIT Spl. Range 33,
       (Legal Heir of late Shri Bharat Jethmal    Mumbai.
       Jain) Vighnaharta CHS, 'B' Wing, Flat
       No. 808, 8th Floor, Mahadeo Palav v/s.
       Marg,New Islam Mill Compound,
       Currey Road, Mumbai-400012
       PAN:AZBPS4783F
                         (/ Appellant)                 (× / Respondent)
               [   / Assessee by                   : Shri N.M. Porwal
                  / Revenue by : Shri R.R. Prasad and Valli Natrajan
                             / Date of Hearing                             : 19-09-2014
                              / Date of Pronouncement : 24-09-2014
                           , 1961   254 (1)   Û[   
                             Order u/s.254(1)of the Income-tax Act,1961(Act)
Per Rajendra,AM     Û]                          :
Challenging the order dt. 13.11.2013of the CIT(A)-29,Mumbai, Assessing officer (AO) /Assessee
has raised following Grounds of Appeal :
       ADDITION - CASH SEIZED AT RS.2,60,000/-:-
       1.On the facts and in the circumstances of the case, the CIT(A) erred in confirming addition of
       seized cash of Rs.2,60,000/- appearing in its books of accounts on 11th December, 1990 without
       rejecting the books of accounts u/s. 145(3) of the Income-tax Act, 1961.
       1.1.The CIT(A) erred in not appreciating Appellant's letter dated 5th July 2006 wherein the
       Appellant produced zerox copies of books of accounts but the Assessing Officer insisted on
       original books and also declined to verify the same for want of time.
       1.2.The CIT(A) erred in not appreciating that the Appellant had filed his return of income for the
       Assessment Year 1989-90 showing textile / cloth business on -- October, 1989 even prior to the
       date of search and the seized cash of Rs.2,60,000/- was out of the available cash balance of
       Rs.2,73,396/-as on 11th December, 1990 in the books of accounts.
       1.3.The CIT(A) erred in not appreciating that the Assessing Officer in his order dated 24th
       December, 1999 at Page No. 4para 4 has given a finding that the Appellant was doing business in
       textile in a small way.
       1.4.The CIT(A) erred in not appreciating that once the books of accounts are accepted as correct
       and complete by him, the cash balance shown in the books of accounts as on 11th December, 1990
       and seized by the Customs Authorities on 11th December, 1990 ought to be accepted as correct.
       ADDITION TOWARDS GOLD BALLS AND JEWELLERY SEIZED:
       2.The CIT(A) erred in not appreciating that both at the time of original assessment as well as
       during the remand proceedings, the Department failed to verify from the Income-tax Department,
       Guntur about the veracity / correctness of the various documents / evidence produced by the
       Appellant.
       2.1.The CIT(A) erred in not allowing entire value of gold balls melted from old family jewellery
       particularly when the Appellant submitted various Affidavits of family members and Wealth Tax
       Returns at the time of original assessment as well as remand proceedings.
       3.The CIT(A) erred in not appreciating that the Assessing Officer failed to provide the copy of the
       reasons recorded before issuance of notice u/s. 148(2) despite several reminders by the Appellant
                                         2                             ITA No. 676/M/2014 Smt. Vinoda B. Jain



       without providing an opportunity to the Appellant to submit his objections to reopening of the
       assessment.
       4.The CIT(A) erred in not appreciating that the Assessing Officer failed to issue mandatory Notice
       u/s. 143(2) within the time prescribed.
       5.The CIT(A) erred in not appreciating that the Assessing Officer erred in making an assessment
       on the dead person.
       The Appellant craves leave to add, to amend, alter or vary the Grounds of Appeal either before or
       at the time of hearing of the Appeal.
Following additional grounds were also filed by the assessee.
       1.On the facts and in the circumstances of the case, the CIT(A) erred in not appreciating that
       provisions of Section 147/-148 of the Income-tax Act,1961 cannot be applied in the case block
       assessment under Chapter XIV-B.
       2.The CIT(A) erred in not appreciating provisions of Section 158BA wherein it has been clearly
       laid down that the Assessing Officer shall proceed to assess undisclosed income in accordance
       with the provisions of Chapter- XIB-B.
       The Appellant craves leave to add, to amend, alter or vary the Grounds of Appeal either before or
       at the time of hearing of the Appeal.
As the additional grounds raised by the assessee are legal in nature and do not require
investigations of facts further,so,we admit the same under rule 11 of ITAT Rules,1963.
We find that the assessee had challenged the order on merits as well as on the jurisdiction.In our
opinion before going in to the merits of case the jurisdictional issue has to be resolved.We would
like to give brief history of the matter.




2.On11.12.1999,Central Excise Authorities had seized five gold balls and gold ornaments,
weighing 1545 gms.and cash of Rs. 2.6 Lakhs, from the residential premises of the assessee. On
12.03.2006 and 17.04.1996 the above seized assets were taken over by the investigation wing of
the Department u/s.132A of the Act. Order u/s. 132(5) of the Act was passed on 09. 07.1996.A
notice u/s.148 of the Act,was issued to the assessee on 31.03.1996 calling for return of income for
AY. under consideration.The assessee filed his return showing income of Rs.15,009/-.The AO
finalised the assessment on 04.03.1999 u/s.143(3) r.w. section 147(a) of the Act,determining the
income of the assessee at Rs. 10.27 Lakhs.Aggrieved by the order of the AO,he preferred an
appeal before the First Appellate Authority (FAA),who vide his order dated 24.12.1999 dismissed
the appeal filed by theassessee. He challenged the order of the FAA before the Tribunal.Vide its
order dated 09.08.2004,(ITA/ 1294/ Mum/2000)'G' Bench of the Mumbai Tribunal remitted the
matter back to the file of the FAA to decide the matter afresh.
While deciding the matter in pursuance of the ITAT's order,the FAA deleted certain additions
made by the AO. However,he upheld the addition of Rs. 2.60 Lakhs and addition made by the
AO.With regard to the 5 gold balls weighing 1545 gms.,he directed the AO to file a remand
report.He found that the AO had not carried out any verification as directed by him, about the
evidences furnished by the Authorised Representative(AR) of the assessee with regard to the
ownership of the gold ornaments claimed to belonging to the members of the family of the
assessee. He held that he was left with no alternative but to accept the submissions made by the
assessee about the ownership of the gold ornaments,that jewellry to the extent of 975 gms. stood
explained in view of the wealth tax returns filed by various persons. About the balance jewellry,to
the extent of 588.9gms (1563-975 gms),he held that it remained unexplained due to lack of proper
evidences. Finally,he upheld the addition, made by the AO to that extent.
About the seized amount of Rs. 2.60 lakhs,he held that legal heirs of the assessee had not been
able to explain the seized cash, that they had not produced necessary documents before the AO
during the original assessment proceedings, that the assessee had been filing the returns at losses
from the textile business,that in the return of income filed by him for the year under consideration,
he had shown a meager income of Rs. 15,036/-, that these facts did not justify the availability of
cash amounting to Rs. 2.60 lakhs with him at home found at the time of search. He finally held
                                           3                               ITA No. 676/M/2014 Smt. Vinoda B. Jain



that there was no infirmity for the order of the AO treating the above cash found from the assessee
as unexplained asset u/s 69 of the Act.He confirmed the order of the AO.

3.During the course of hearing before us,AR stated that assessee had requested the AO in
November 1996 to furnish him the copy of reasons recorded, that in February 1997 the then AO
was again requested to furnish the copy,that the AO did not supply the copy of the reasons, that
even after filing the return of income on 26.11.1996 the assessee wrote several letters regarding
furnishing the copy of the reasons recorded, that till date assessee had not received any reply from
the AO or the reasons recorded by him.He relied upon the judgments of GKN GKN Driveshafts
(India) Ltd. (259 ITR 19), Rai Singh Deb Singh Bist and Another (88 ITR 200), L. Sohanaraj &
Others (322 ITR 213) and Bidesh Sanchar Nigam Ltd. (340 ITR 66).He further argued that assets
relatable to the documents were requisitioned by the department u/s.132A of the Act,that
assessment had to be made under chapter XIV-B of the Act, that reassessment proceedings u/s.
148 were against the provision of law. He relied upon the judgments of Chandra Prakash Agrawal
(287 ITR 172), Smt. Mira Ananta Naik & Ors. (221CTR 149),Cargo Clearing Agency (218 CTR
541) and Prakash Jewellers (261 CTR 195).Departmental Representative (DR) supported the
order of the FAA.

4.Recording and supply of reasons u/s.147-148 has been subject matter of a lot of litigation from
the very beginning.As early as 1933 the issue was deliberated upon by the Hon'ble Calcutta High
Court in the case of Anglo-Persion Oil Co. (India) Ltd.(1ITR129).With the passage of time the
law relating to re-opening of completed assessment developed and in the case of GKN
Driveshafts (India) Ltd.,the Hon'ble Apex Court finally resolved the issue as under:
       When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of
       action for the notice is to file the return and, if he so desires, to seek reasons for issuing the
       notices.The Assessing Officer is bound to furnish reasons within a reasonable time.On receipt of
       reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is
       bound to dispose of the same by passing a speaking order. (259ITR19).
The above judgment of the Hon'ble Supreme Court has been followed by various Hon'ble Courts
while dealing with the issue of recording of reasons or supply of recorded reasons to the
assessee.In the matter of Gehna a writ was filed by the assessee before the Hon'ble Rajasthan
High Court,as the reasons recorded were not supplied.Deciding the matter the Hon'ble Court held
as under:(267 ITR 782)
       "Where a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of
       action for the notice is to file the return and, if he so desires, to seek reasons for issuing the
       notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of
       reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is
       bound to dispose of the same by passing a speaking order.
In the matter of Fisher-Xomox Sanmar Ltd.,the Hon'ble Madras High Court(271 ITR 39),
following the judgment of GKN Driveshafts (India) Ltd. of the Hon'ble Supreme Court held that
the AO has to supply the reasons recorded to the assessee,once he files return and asks for the
copy of the reasons recorded.
In the matter of (272ITR643)the Hon'ble Rajasthan High Court held that the assessing authority
is bound(emphasis by us) to communicate to an assessee reasons for issuance of the notice, issued
under section 148 of the Act,within a reasonable time.
Later on the Hon'ble Karnataka High Court has dealt the issue as under,in that case of Karnataka
Golf Association(275ITR297)
       "Whenever the Income-tax Department proposes to reopen a concluded assessment, it is but
       necessary that the Department should disclose the reasons for such reopening if the assessee
       requests for the same. On receipt of a notice of this nature, it is the duty of the assessee to file its
       return and respond to the notice.Disclosure of reasons by the Department is for the purpose of
       enabling the assessee to file its reply and objections effectively in the context of the proposal for
       reopening and in furnishing its stand or information...."
                                             4                                 ITA No. 676/M/2014 Smt. Vinoda B. Jain



In the case of Mithlesh Kumar Tripathi the Hon'ble Allahabad High Court has dealt the issue in
detail(280ITR216).We will like to reproduce the relevant portion of the judgment and same reads
as under:
       "The statute confers jurisdiction and empowers the Assessing Officer under section 148(2) of the Act to
       reopen assessment proceedings. Section 148(2) expressly requires "recording of reasons" which has a
       definite purpose (and is not a mere formality on paper), i.e., to avoid arbitrariness or biased or mala fide
       action by the taxing authorities.Section 148(2) is silent regarding communication of reasons.The provision
       has to be interpreted in a manner which makes it meaningful and purposive.Keeping the object of the
       Legislature in mind, the courts, including the Supreme Court, have interpreted the section by laying down
       that reasons have to be communicated, as otherwise the same will remain a mere formality with no ultimate
       purpose or object to be served(emphasis by us).There is also nothing in section 148(2) of the Act indicating
       expressly or otherwise, that an assessee can ask for reasons to be communicated only after he has filed a
       "revised return" in response to the notice under that section. The recording of reasons and "obtaining
       approval" to give notice may be "administrative action" but the very act of giving notice backed by good
       and valid reasons under section 148(2) of the Act is a quasi-judicial function. If reasons are supplied along
       with the notice under section 148(2), it will obviate unnecessary harassment to the assessee as well as to the
       Revenue by avoiding unnecessary litigation which will save courts also from being involved in unproductive
       litigations. Above all it will be in consonance with the principles of natural justice.(emphasis supplied)
In the matter of Klm Royal Dutch Airlines(292ITR49),the Hon'ble Delhi High Court has held that
`reason to believe'for issuing a reassessment-notice constitutes the `springboard' for the section
147/148 action and `simultaneously' or `immediately after the assessee' files a return, in
compliance of the notice,it would be `entitled' to be apprised of the reasons.The Hon'ble Punjab
and Haryana High Court in the matter of Vidya Sagar(305ITR124)has held as under:
       "When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the
       notice is to file a return and if he so desires, to seek reasons for issuing notice. The Assessing Officer is
       bound to furnish reasons within a reasonable time."
In the matter of A. G. Holdings Pvt. Ltd.(352ITR364)has analysed the scheme of reopening of
assessment,as envisaged by sections 147-149 of the Act,in following manner:
       "There is no requirement in section 147 of the Income-tax Act, 1961, or section 148 or section 149
       that the reasons recorded for reopening an assessment should also accompany the notice of
       reassessment issued under section 148. The requirement in section 149(1) is only that the notice
       under section 148 shall be issued. There is no requirement that it should also be served on the
       assessee before the period of limitation. There is also no requirement in section 148(2) that the
       reasons recorded shall be served along with the notice of reopening the assessment. The
       requirement, which is mandatory, is only that before issuing the notice to reopen the assessment
       the Assessing Officer shall record his reasons for doing so.The Assessing Officer is duty bound to
       supply the reasons recorded for reopening the assessment to the assessee, after the assessee files
       the return in response to the notice issued under section 148 and on his making a request to the
       Assessing Officer to that effect."(emphasis by us.)
In the matter of Acorus Unitech Wireless P. Ltd. (362ITR417)the Hon'ble Delhi Court has held
that the law requires that the information or material on which the AO records his or her
satisfaction is communicated to the assessee.Recently,the Hon'ble Court reiterated the same
principle while deciding the matter of Samsung India Electronics P. Ltd.(362 ITR 460) and held
that the AO was duty bound to supply the reasons recorded by it.

4.1.We are of the opinion that the effect of reopening is to partly vacate or set aside the original
order of assessment and to substitute it and the concept of escapement of income includes both
non-assessment or underassessment.Whatever may be the reason but it is mandated by the
Hon'ble Courts that reasons to believe must necessarily show, indicate and communicate why and
for what grounds/cause any income has escaped assessment.Recording of reasons has been
emphasised and adverted to as the foundation of the jurisdiction of an AO,who initiates
reassessment proceedings.The validity of the reassessment proceedings is tested,by the Hon'ble
Courts,on the basis of the underlying reasoning stated and recorded for opening of the
reassessment.If the person affected by the action of the AO is not aware as to why the AO had
found it fit to reopen his assessment,he will be in dark and will not be in position to defend
himself.Principles of natural justice demand that nobody should be penalise unheard. Without
                                          5                               ITA No. 676/M/2014 Smt. Vinoda B. Jain



furnishing the assessee a copy of the reasons recorded would tantamount to punish the assessee
without hearing him.The power of the to issue notice u/s.147 of the Act is coupled with the duty
to follow a prescribed method.A duty has been cast upon him to supply the copy of reasons
recorded to the assessee.Rights are always accompanied by duties and bigger rights brings higher
the duties in picture.Power given to the AO by section 147 is not a simple power it is to unsettle
the completed proceedings and it generally results in higher tax liability.Therefore, safeguards
have been provided in the Act. Duty of the AO to communicate the reasons to the assessee is the
other side of the coin and is the right of the assessee.The assessee cannot be burdened only with
duties.His duty is to file the return once he gets the notice.Similarly,his right to know the reasons
starts once he files a return and asks the AO to supply him the copy of recorded reasons.His right
has the same sanctity that of the right of the AO.




5.As the question of supply of reasons recorded by the AO was raised by the assessee,so,we
directed the Departmental Representative(DR),on 05.09.2014,to produce the records to verify as
whether the reasons were recorded by the AO and whether same were supplied to the
assessee.This issue was not before the FAA and the assessee has raised it as one of the
grounds(GOA-3).We are of the opinion that the issue goes to the very root of the matter and has
to be decided first,as it involves the jurisdictional issue.On 19.09.2014,the AO appeared before
the bench along with the records.Before us,the DR stated that department was in position to
produce the reasons recorded or the proof of supply the copy to the assessee of the reasons,that
records were not available or traceable.We find that the assessee had asked the AO as early as
08.11.1996 to furnish him a copy of reasons recorded(Page 728-729 of the Paper Book),that on
10.09.1997the assessee made similar request (page 730-731).On 22.09. 2009,01.10.2009,
21.01.2013, 29.01.2013 (page 724- 740 of the PB) various letters were addressed to the AO by the
assessee to furnish the copy of the reasons.It is found that even after completion of the
assessment/appellate proceedings the assessee was requesting the AO to supply him the copy of
the reasons.But,till the date of hearing i.e. on 19.09.2014-even after 18 years of the issuance of
148 of the Act,the AO is not been able to prove that the assessee was supplied copy of the
reasons recorded. We find that in the case of Videsh Sanchar Nigam Ltd. (Supra) the Hon'ble
High Court has held as under:
       The finding of fact recorded by the Income-tax Appellate Tribunal is that in the present case the
       reasons recorded for reopening of the assessment though repeatedly asked by the assessee were
       furnished only after completion of the assessment. The Tribunal following the judgment of this
       court in the case of CIT v. Fomento Resorts and Hotels Ltd., Income-tax Appeal No. 71 of 2006
       decided on November 27, 2006, has held that though the reopening of the assessment is within
       three years from the end of the relevant assessment year, since the reasons recorded for reopening
       of the assessment were not furnished to the assessee till the completion of assessment, the
       reassessment order cannot be upheld. Moreover, special leave petition filed by the Revenue
       against the decision of this court in the of CIT v. Fomento Resorts and Hotels Ltd. has been
       dismissed by the apex court, vide order dated July 16, 2007.
       In this view of the matter, the present appeal is also dismissed with no order as to costs."
In the case of Tata International Ltd. (52 SOT 465) similar issue had been dealt with by the
Tribunal as under:
       "As per the rule of natural Justice, the assessee is entitled to know the reasons on the basis of
       which the AO has believed and formed an opinion that the income assessable to tax has escaped
       assessment. It is not understandable as to why the AO was so reluctant and hesitant to furnish the
       reasons actually recorded for reopening of assessment. There was no reason and rather justifiable
       reasons for depriving the assessee of the reasons actually recorded by the AO for reopening of the
       assessment. Further the reasons are required to be furnished within a reasonable period of time so
       that the assessee can raise the objections at the preliminary stage of proceedings. If the reasons
       are not supplied during the assessment proceedings, than furnishing the reasons subsequent to the
       assessment proceedings would achieve no purpose and tantamount to deprive and deny the
       assessee of its right to raise the objections against the validity of notice issued u/s 148. Thus, the
       AC has failed to furnish the reasons recorded for reopening of the assessment within the
                                       6                            ITA No. 676/M/2014 Smt. Vinoda B. Jain



       reasonable time and rather prior to the completion of assessment,than the reassessment order
       passed without supply of reasons as recorded for reopening of the assessment, is invalid and
       cannot sustain. Hence, the reassessment order set aside.
Considering the peculiar facts and circumstances of the case-issuance of notice u/s.148 of the
Act,the requests made by the assessee during assessment and after the assessment/appellate
proceedings,the inability of the AO to produce the reasons recorded or to produce the evidence of
supply of the copy of reasons to the assessee-we are of the opinion that validity of the assessment
order and the subsequent order of the FAA cannot be upheld. Therefore, respectfully following
the judgments of the jurisdictional High Court delivered in the cases of Videsh Sanchar Nigam
Ltd. and Fomento Resorts and Hotels,we are of the opinion that the order passed by the AO was
not valid.The action of the AO has resulted in violation of basic principles of natural justice as
well as invaluable right of the assessee.His order is beyond validity,so it is unsustainable.

As we have decided the jurisdictional issue in favour of the assessee, so we are not deciding the
other grounds of appeal taken by the assessee as well as the additional grounds raised by him.
                      As a result, appeal filed by the assessee stands allowed.
                          [           .
                    Order pronounced in the open court on 24th September,2014.
                         Û   24 à,2014    
                 Sd/-                                             Sd/-
              ( . /D.Manmohan)                                 (Û]/Rajendra)
            Ú¢ /VICE PRESIDENT                         /ACCOUNTANT MEMBER
       /Mumbai,/Date: 24.09.2014.
       SK
           /Copy of the Order forwarded to :
       1. Assessee /                                    2. Respondent /×
       3. The concerned CIT(A)/   ,4.The concerned CIT /  
       5. DR "F" Bench, ITAT, Mumbai /  , ,..Û.
       6. Guard File/[ 
                                      ×  //True Copy//
                                                                / BY ORDER,
                                                        /  Dy./Asst. Registrar
                                                     ,   /ITAT, Mumbai

 
 
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