2025 (5) TMI 1797 - AT - Income Tax

Validity of re-assessment proceedings as barred by limitation - applicability of TOLA - HELD THAT - Assessee has neither filed any return in response to notice u/s 148 of the Act nor objected to the issue of such notice before the AO and the notice u/s 148 issued under the old provisions is within the extended period under TOLA. As respectfully following the decision of Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) we hold that the issue of notice u/s 148 of the Act on 31.03.2021 for the assessment year 2013-14 is in order. The ground raised by the assessee on this issue is accordingly dismissed. Unexplained deposits on bank - As before the Ld. CIT(A) the assessee has submitted that the amounts so deposited into the bank account are out of sale of scrap - HELD THAT - The entire deposits into the bank account in our opinion cannot be treated as income of the assessee and only the profit element embedded in the same should be brought to tax. It was the submission of the assessee before the Ld. CIT(A) that a profit range of 3% to 7% should be adopted. However no justification for adoption of such profit range has been brought on record by filing any comparables cases. We are of the considered opinion that the adoption of profit rate of 8% on the amount so deposited into the bank account will meet the ends of justice. We hold and direct accordingly. Assessee has also received interest on which TDS has been deducted which should be brought to tax separately as income from other sources. We therefore direct the AO to determine the business income and interest income and do the necessary computation of income. The grounds raised on this issue are accordingly partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the reassessment proceedings initiated by issuance of notice under section 148 of the Income Tax Act, 1961 (the Act) on 31.03.2021 for assessment year 2013-14 were valid and within the limitation period, especially in light of the applicability of the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) and subsequent judicial pronouncements.

(b) Whether the Assessing Officer was justified in making additions to the total income by treating cash deposits of Rs. 2,23,20,800/- as unexplained income under section 69A of the Act, in absence of any return or explanation from the assessee.

(c) Whether the addition of Rs. 60,01,813/- on the basis of Tax Collected at Source (TCS) statements was proper, given the assessee's claim that the amount represented deposits from a third party.

(d) The quantum of income to be taxed from the cash deposits and TCS transactions, considering the assessee's submission that the cash deposits arose from sale of scrap and only a percentage of profit should be taxed.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of Reassessment Proceedings and Limitation Period

Relevant legal framework and precedents: The reassessment proceedings were initiated under section 147 read with section 148 of the Act. The limitation period for issuance of notice under section 148 is governed by section 149(1)(b) of the Act, which prescribes a six-year period for certain cases. The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA), and its extension by the Finance Act, 2021, provided relaxation in limitation periods due to COVID-19 disruptions. The Supreme Court's decision in Union of India vs. Rajeev Bansal (2024) 167 taxmann.com 70 (SC) extensively interpreted the interplay between the old and new reassessment regimes and the applicability of TOLA.

Court's interpretation and reasoning: The Tribunal analyzed the timeline for assessment year 2013-14, noting that the normal six-year limitation expired on 31.03.2020. The notice under section 148 was issued on 31.03.2021. The assessee contended that TOLA's extension did not apply to notices issued after 31.03.2020 for AY 2013-14, relying on High Court and Tribunal decisions that quashed reassessment notices issued after 31.03.2021.

The Tribunal, however, distinguished those decisions, observing that the notice in the instant case was issued on 31.03.2021, within the extended period allowed under TOLA and the Finance Act, 2021, which extended the limitation to 30.06.2021. The Supreme Court's ruling in Rajeev Bansal clarified that TOLA applies notwithstanding the new reassessment regime introduced from 1 April 2021, and that notices issued between 1 April 2021 and 30 June 2021 are valid if within the extended limitation period.

Key evidence and findings: The notice under section 148 was dated 31.03.2021, which falls within the extended limitation period under TOLA. The assessee had not filed any return or objected to the validity of the notice before the Assessing Officer or the CIT(A).

Application of law to facts: Applying the Supreme Court's principles, the Tribunal held that the notice was valid and the reassessment proceedings were not barred by limitation.

Treatment of competing arguments: The Tribunal rejected the assessee's reliance on decisions where notices were issued after 31.03.2021 and where mandatory procedures under the new regime were not followed. It emphasized the factual distinction and the absence of objection before the lower authorities.

Conclusion: The reassessment notice dated 31.03.2021 was valid and within the limitation period under the extended provisions of TOLA. The reassessment proceedings were accordingly upheld.

(b) Addition of Cash Deposits as Unexplained Income under Section 69A

Relevant legal framework and precedents: Section 69A of the Act allows the Assessing Officer to treat unexplained cash credits as income if the assessee fails to explain the nature and source of such credits satisfactorily. The assessee bears the burden to prove the genuineness of such cash deposits.

Court's interpretation and reasoning: The Tribunal noted the admitted fact that the assessee had deposited Rs. 2,23,20,800/- in cash into its bank account during the year. The assessee did not file any return or respond to notices under section 142(1), nor did it produce any books of account or evidence to explain the source of these deposits.

Before the CIT(A), the assessee claimed that the deposits arose from sale of scrap and requested that only a percentage of profit be taxed. However, no documentary evidence or comparables were submitted to justify the claimed profit rate. The Tribunal acknowledged that the assessee had closed its business and that the balance sheet for the preceding year showed inventories and raw materials which could have been sold as scrap.

Key evidence and findings: Absence of return filing, no response to statutory notices, no books of account, and no substantiation of the scrap sale claim beyond a general assertion. The balance sheet indicated existence of stock which could have been sold as scrap.

Application of law to facts: The Tribunal held that the entire cash deposits could not be treated as income since they likely included the sale proceeds of scrap. However, in absence of evidence to determine the exact profit margin, it was reasonable to adopt a profit rate for taxation. The Tribunal chose an 8% profit rate on the total deposits of Rs. 2,83,22,613/- (including the TCS amount) to arrive at taxable business income of Rs. 22,65,810/-.

Treatment of competing arguments: The assessee's request for a profit rate between 3% and 7% was not supported by any evidence or comparable cases. The Tribunal increased the rate to 8% to meet the ends of justice and to bring finality to the matter.

Conclusion: The addition of the entire cash deposit as income was not warranted. Instead, only the profit element, assessed at 8%, was to be brought to tax as business income.

(c) Addition of Rs. 60,01,813/- Based on TCS Statement

Relevant legal framework and precedents: Under the Act, TCS statements reflect amounts collected by third parties on behalf of the assessee. Such amounts are prima facie income unless satisfactorily explained. The burden lies on the assessee to explain the nature of these credits.

Court's interpretation and reasoning: The assessee claimed that the amount of Rs. 60,01,813/- was deposits received from an individual. However, no documentary evidence or details were furnished to substantiate this claim. The assessee did not file any return or respond to notices to clarify the nature of this amount.

Key evidence and findings: The TCS statement showed this amount as a transaction during the year, but the assessee failed to provide any evidence or explanation.

Application of law to facts: In absence of any explanation, the Assessing Officer rightly treated this amount as income. However, as the Tribunal combined this amount with the cash deposits for applying the profit rate, it effectively treated only the profit element as taxable income.

Treatment of competing arguments: The assessee's unsubstantiated claim was rejected due to lack of evidence.

Conclusion: The addition of Rs. 60,01,813/- was justified in the absence of explanation, but only the profit portion was taxable as per the Tribunal's direction.

(d) Taxation of Interest Income

Relevant legal framework: Interest income is taxable under the head "Income from Other Sources" as per the Act. TDS under section 194A is deductible on such income.

Court's interpretation and reasoning: The assessee had received interest income of Rs. 3,86,810/- on which TDS of Rs. 38,681/- was deducted. The Assessing Officer added this amount to the total income.

Application of law to facts: The Tribunal directed that the interest income be brought to tax separately as income from other sources.

Conclusion: The interest income addition was confirmed.

3. SIGNIFICANT HOLDINGS

"The notice under section 148 of the Act dated 31.03.2021 for assessment year 2013-14 is within the extended period of limitation as provided under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) and the Finance Act, 2021, and is therefore valid and not barred by limitation."

"In the absence of any return filing, explanation or production of books of account, the entire cash deposits of Rs. 2,23,20,800/- and the TCS amount of Rs. 60,01,813/- cannot be treated as income of the assessee. However, only the profit element embedded in these amounts is taxable. Considering the facts and to bring finality, a profit rate of 8% is adopted on the total amount of Rs. 2,83,22,613/-, resulting in taxable business income of Rs. 22,65,810/-."

"Interest income of Rs. 3,86,810/- received by the assessee, on which TDS was deducted, is taxable as income from other sources."

"The reassessment proceedings initiated by issuance of notice under section 148 are valid and the additions made on merit are partly confirmed with modification in quantum of taxable income."