TMI Blog2010 (10) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... ayee cheques - So far as it relates to the genuineness of the transaction, it is already observed that money in the bank of the donor ladies was lying since 1997 and it did not change shape till it was given to the assessee - There is no material on record to controvert such evidence - Decided in favour of the assessee - ITA Nos. 3157 and 3158/Del/2010; - - - Dated:- 22-10-2010 - I.P. Bansal, B.C. Meena, JJ. Sangeeta Gupta for the Revenue Rakesh Gupta, Ashwani Taneja and Tarun Kumar for the Assessee ORDER By the Bench:- 1. Both these appeals are filed by the Revenue. They are directed against two separate orders of CIT(A) dt. 7th April, 2010 and 19th April, 2010 in respect of asst. yrs. 2001-02 and 2002-03 respectively. Grounds of appeal in both the appeals are as under:- ITA No. 3157/Del/2010; Asst yr. : 2001-02:- "1. The order of the learned CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in quashing the assessment on the grounds that the AO did not issue and serve notice under s. 143(2) of IT Act, 1961 without appreciating that the assessment was comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the learned CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 69,96,000 towards unexplained investment under s. 69 of IT Act, 1961 whereas donors namely Mrs. Gurcharan Kaur, Mrs. Kulwant Kaur and Mrs. Swarn Kaur had no capacity and creditworthiness to advance gifts to the assessee and genuineness of transaction was not proved. 3. On the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in allowing benefit of immunity of VDIS declaration by donors to the assessee in violation of the judgment of the Hon'ble Supreme Court in the cases of ITO vs. Raton Lai and Ors. (1984) 38 CTR (SC) 382 : (1984) 145 ITR 183 (SC) and CIT vs. United Trading and Construction Co. (2001) 166 CTR (SC) 397 : (2001) 247 ITR 819 (SC). 4. On the facts and circumstances of the case, the learned CIT(A) has erred and failed to appreciate the various points highlighted in the assessment order which showed that the declaration by donors was not in accordance with the requirement of VDIS, 1997 and therefore did not entitle the assessee to claim immunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in law and in facts in holding that the inquiries conducted by the IT Department were irregular and in violation of s. 72 of VDIS, 1997, ignoring the fact that such inquiries were taken up in accordance with the orders of the Hon'ble Supreme Court, to investigate the income and assets of the assessee as pointed out by the AO in his order. 12. On the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in relying on the statement of village Sarpanch, Shri Jaswinder Singh to certify creditworthiness and financial standing of Late Shri Hari Singh, ignoring the fact that such person was giving contradictory statements and that his statements were based on hearsay and not backed up by any material or tangible evidence. 13. On the facts and circumstances of the case, the learned CIT(A) has erred in facts in giving certificate of creditworthiness and respectability to the donors without inquiring as to the date of acquisition of various properties by them and ignoring the irrelevance of such certificate as the gifts made to the assessee had never been claimed to have been made out of such income or assets. 14. On the facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant to decide the present appeal are as under. 4. The return of income originally was filed on 11th June, 2001 at an income of Rs. 15,45,810. The said return was processed under s. 143(1) of IT Act, 1961 (the Act) on 27th Feb., 2002. On the basis of report of Investigation Wing, the assessment records of the assessee were examined and it was found that during the year under consideration the assessee had received gifts of Rs. 24 lacs details of which are as follows:- Sl. No. Name of the donor Amount 1. Shri Ajay Aggarwal 5,00,000 2. Shri Ashok Kumar Jain 3,00,000 3. Smt. Lata Jain 2,00,000 4. Shri Shailender Jain 8,00,000 5. Smt. Sangeeta Jain 1,00,000 6. Shri Surender Singh 5,00,000 Total 24,00,000 5. According to assessment order the aforementioned gifts were not found declared in the return of income or in the balance sheet annexed with the return of income. Therefore, those gifts were not subject to verification. According to inquiries conducted by Investigation Wing, gifts received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view was taken by the Revenue that notice under s. 148 was issued on 25th March, 2008, but it should be deemed to be served on the assessee on 2nd April, 2008 i.e., the date on which the refusal to receive the notice at Lucknow was recorded by the postman. However, according to the AO, the Hon'ble High Court has held that notice was deemed to be served on 29th March, 2008 i.e., the date on which the Inspector of the Department took the notice to the officially allotted residence of the assessee at Delhi and was told to send the notice to Lucknow. All these facts are stated by the AO in the assessment order. Thereafter, the AO referred to provisions of Explanation to s. 153(1)(ii) and to compute the limitation to frame the reassessment. Learned AO had arrived at a conclusion that the assessment was going to be time-barred on the date of framing the assessment order which was 26th Feb., 2009. According to the AO, the normal time-limit to frame the assessment was to expire on 31st Dec., 2008 and as the proceedings were stayed by the Hon'ble High Court vide order dt. 18th Dec., 2008 and on the date of grant of stay, 14 days were left for completing the assessment. Later on, final orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll expire "after today" i.e., 26th Feb., 2009 and the assessee's move to declare filing of the return at the last moment is nothing but a gambit to obfuscate issues. According to the AO, it is not possible to issue notice under s. 143(2) on the last day of limitation and await the reply from the assessee and yet to complete the assessment within the statutory limitation. The assessee has already been provided with so many opportunities to reply on merits of the case. The observations of the AO in this regard being important to decide the issue are reproduced below for the sake of convenience:- "13. The assessee's reply has been considered for title detailed reasons given in the foregoing para and cannot be accepted. The limitation is due to expire after today and the assessee's move to declare filing of return at the last moment is nothing but a gambit to obfuscate issues. It is not possible to issue notice under s. 143(2) today and await a reply from the assessee and yet complete the assessment within the statutory limitation. The assessee has already been provided so many opportunities to reply on the merits of the case vide our numerous show-cause notices cited above contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the irregularity of non-issue of notice cannot be regularized or cured by the service of such notice during the remand proceedings. It is further held that s. 292BB is applicable w.e.f. asst. yr. 2008-09 and for holding so he has relied upon the decision of Special Bench in the case of Kuber Tobacco Products (P) Ltd. vs. Dy. CIT (2009) 120 TTJ (Del)(SB) 577 : (2009) 18 DTR (Del)(SB)(Trib) 1 : (2009) 117 ITD 273 (Del)(SB). 15. So far as it relates to the AO's remarks regarding non-availability of sufficient time to issue notice under s. 143(2), learned CIT(A) has observed that in any case the assessment was not going to be time-barred on 26th Feb., 2009 and, according to the proviso to Explanation to s. 153 if the time available to complete the assessment, after excluding the period of stay, remains less than 60 days, then, the said short period will be extended to 60 days and, in this manner, the assessment was going to be time-barred on 14th April, 2009 and not on 26th Feb., 2009 as held by the AO. Thus, it has been held by learned CIT(A) that the AO was wrong in observing that due to non-availability of sufficient time, the notice under s. 143(2) could not be issued to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 3rd Nov., 2008. She submitted that even if the case of CIT(A) is accepted that additional time was available to AO to frame the assessment, then also, that will not cure the default of the assessee for non-compliance of notices under s. 142(1) and it is nowhere written in the Act or in any case law that notice under s. 143(2) must precede notice under s. 142(1) and if repeated non-compliances are made to a notice under s. 142(1) issued prior to filing of the return, the AO is entitled to pass an order under s. 144. 21. She submitted that non-service of notice under s. 143(2) at best can be seen in the context of non-grant of proper opportunity to the assessee to present her case and, according to the facts of the present case such opportunity is not lacking. She pleaded that according to following decisions, the failure to serve notice under s. 143(2) is only a defect which is rectifiable in the remand proceedings by the AO:- (i) Areva T and D India Ltd. vs. Asstt. CIT (2007) 207 CTR (Mad) 497 : (2007) 294 ITR 233 (Mad); (ii) CIT vs. Gyan Prakash Gupta (1986) 54 CTR (Raj) 69 : (1987) 165 ITR 501 (Raj); (iii) Sant Baba Mohan Singh vs. CIT (1973) 90 ITR 197 (All). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in asst. yr. 2003-04, is almost entirely on the basis of market value of ancestral property which is not indicative of his capacity to give gifts. In para 5(b) page Nos. 7 and 8 of the remand report referred to supra this issue has been discussed in detail. However, as far other gifts are concerned details are given in paras 5(c) to (f) at page Nos. 9 to 12. 6. Learned CIT(A) has erred in law and on facts ignoring the findings of Addl. Director of IT (Inv.), Ghaziabad, which were reproduced by the AO in the remand report, regarding the genuineness of transactions and creditworthiness of donors after he had himself remanded the issue of gifts back to the AO for re-examination. The CIT(A) has totally ignored the observations of Addl. Director of IT (Inv.) Ghaziabad which have been reproduced by the AO in the remand report regarding the genuineness of the transactions and the creditworthiness of the donors on the ground that these have been gathered behind the back of the assessee. Since he had stepped into the shoes of the AO and was causing enquiries in the assessee's case he could certainly have confronted the assessee with these facts and obtained her reply. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice under s. 143(2) is mandatory. 26. He submitted that the fact that no notice under s. 143(2) was issued is undisputed fact. The issue of notice under s. 143(2) was mandatory and not procedural, therefore, such defect is not curable. He submitted that the issue of notice under s. 143(2) during the remand proceedings also does not cure the defect as the said notice has not been issued within the prescribed period. 27. Coming to the computation of limitation period, he submitted that according to the affidavit filed by the Department before the Hon'ble High Court in writ proceedings, the notice was served on 2nd April, 2008 and if it is the position taken as per the version of the Revenue as stated in the affidavit, then, the normal time-limit to frame the assessment will be 31st December, 2009. He submitted that even if the date of issue of notice under s. 148 is taken into consideration, then also the period of 14 days as stated by the AO was to be extended to 60 days as per proviso to Expln. 1 to s. 153. Therefore, learned CIT(A) was right in holding that the limitation to frame the assessment was expiring on 14th April, 2009. He in this regard referred to the table rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the assessment and to complete that irregularity the notice under s. 143(2) is being issued on 27th Jan., 2010 in the remand proceedings. He invited our attention towards the findings recorded by learned CIT(A) in para 5.3 at pp. 26 to 28 of the appellate order that notice under s. 143(2) was not issued though return was filed in response to notice under s. 148. He submitted that the assessee in her letter has clearly stated that the return originally filed may be treated as return in response to notice under s. 148 and such fact is recorded in the assessment order itself in para 12 at pp. 6 and 7 of the assessment order. He submitted that though the date of assessee's letter is not mentioned, but it is dt. 26th Feb., 2009 and such letter is return of income as held in the following cases:- (i) Dr. K.C. Verma vs. Asstt. CIT (2004) 89 TTJ (Del) 129 : (2003) 84 ITD 33 (Del); (ii) Tiwari Kanhaiya Lal and Ors. vs. CIT (1985) 47 CTR (Raj) 187 : (1985) 154 ITR 109 (Raj). 31. He further submitted that even in the proceedings initiated under s. 148, the issue of notice under s. 143(2) is a must and he relied upon the following decisions:- (i) H. Gouthamchand vs. Addl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed this issue in paras 7.1, 7.2 at pp. 32 to 36 of the appeal order. Though, ground of the Revenue is specific yet assessee would show about all the ingredients of s. 68 in this regard. But before that few important submissions are being made:- Case of the assessee was reopened after almost 6-7 years. Best and positive evidences available to prove the case were filed by the assessee. There is no adverse evidence against the assessee. These evidences have not been rejected by AO as may be seen from the remand report (paper book 501-517). No further evidence was asked by AO. These proceedings are under s. 147 where burden to prove is on Revenue as held in the following judicial decisions:- (i) CIT vs. Pradeep Kumar Gupta (2007) 207 CTR (Del) 115 : (2008) 303 ITR 95 (Del); (ii) CIT vs. Anupam Kapoor (2007) 212 CTR (P and H) 491 : (2008) 299 ITR 179 (P and H); (iii) Hakumat Rai (ITA No. 48/Asr/2007) Paper book E-G are the submissions before learned AO in the remand proceeding according to which gift of Rs. 5 lakhs was received by the assessee from Mr. Ajay Kumar Aggarwal through banking channel and that Mr. Ajay Aggarwal was a man of means and he received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court was reproduced in which CIT had mentioned that gift from Ajay Aggarwal was accepted in assessment of asst. yr. 2003-04 as creditworthiness of the donor was proved. Therefore there is no substance in the grounds of the appeal of the Revenue. Ground No. 5:- Its relates to the gift of Rs. 3 lakhs received from Mr. Ashok Kumar Jain on the ground that CIT(A) failed to note the income returned by Shri Ashok Jain which was below his capacity to make the gift and his creditworthiness was based on the market value of the ancestral properties. Learned AO has discussed this issue in para 24 at pp. 12-13 of the assessment order whereas learned CIT(A) has discussed this issue in para 7.3 at pp. 36 to 40 of the appeal order. Though the ground of appeal of the Revenue is quite specific yet assessee proves all the ingredients of s. 68 as under:- Paper book G-H are the submissions before learned AO submitting that donor Mr. Ashok Jain was practising tax consultant for last twenty years and the assessee was his Rakhi sister and the gift was given by account payee cheques and submitting substantial evidences. Paper book 104-107 are the affidavits of Mr. Ashok Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and Rs. 1,00,000 from M/s P. Jain and Co. Paper book 487 is the certificate from Andhra Bank certifying that credit of Rs. 1,90,000 in the bank account of Mr. Ashok Jain was from the account of Mr. Shalender Kumar Jain. Paper book 488 is bank certificate from Andhra Bank certifying that credit of Rs. 1 lakh in the account of Shri Ashok Kumar Jain was out of the bank account of M/s P. Jain and Co. Paper book 489 is the certificate from M/s P. Jain and Co. Ground No. 6:- relates to the grievance of the Revenue that CIT(A) ignored the findings of Asstt. Director of IT regarding the genuineness of the gifts and creditworthiness of the donors without specifying any of the donors. Learned AO has discussed this issue in paras 24 to 30 at pp. 12-15 of the assessment order whereas learned CIT(A) had dealt with this issue in paras 7.4 to 7.6 at pp. 40-44 of the appeal order. Paper book I-M are the submissions before learned AO establishing the identity, capacity of donors and genuineness of the gifts. Paper book 179-205 are the evidences as mentioned at Paper book I-J in respect of Sangeeta Jain. Paper book K-L are submissions regarding Mr. Shailender Kumar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the AO and explained that the gift was made from the amount received on repayment of a deposit made by him with a firm, the impugned gift received by assessee through demand draft by a declaration deed has to be treated as genuine gift, and the addition under s. 68 made by the AO cannot be sustained. Avnish Kumar Singh vs. ITO (2009) 27 DTR (Agra)(TM)(Trib) 241. Income from undisclosed sources Additions under s. 69 Genuineness of gift Assessee having produced a copy of the gift deed, a copy of the computation of income, comparison chart, a copy of PandL a/c, a copy of explanation of the assessee submitted vide letter dt. 14th Dec., 2005, a copy of bank account of V, the donor, the statement of V, amongst others, to prove the factum of gift, the fact of gift is apparent and the same has to be treated as real and no addition can be made only on the basis of doubts, without disproving the assessee's evidence. Badri Prasad Gupta vs. Asstt. CIT (2008) 14 DTR (Agra) 348. Income Cash credit Genuineness of gifts Identity of the donors not being in dispute and the gift transactions having been channelized through banks and all gifts except one having been made by the assessee's r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llery etc. as is clear from para 15 of the assessment order and para 8.1 of the appeal order. Assessee received 601.1 grams jewellery from the grandfather late Mr. Mangla through his will dt. 7th Jan., 1960 and 860.370 grams from the brother (sic) the grandfather late Mr. Hitwa vide will dt. 16th May, 1950. The total of this comes to 1,461.47 grams. Assessee claimed to have received 846.3-30 grams of gold Mukuts and Talwars from her supporters but she has sold total jewellery only 1,956.350 grams. Therefore, the difference of 1,956.350 grams 1,461.47 viz. 494.880 grams is relevant for the present issue and not 846.330 grams of gold Mukuts/Talwars claimed by the assessee. Above thing would be made clear by the chart made at paper book B. Paper book 2-3 are the will of grandfather of the assessee whereas paper book 6-7 are the will of grandfather's brother. Regarding Mukuts/Talwars, paper book 8-9 are the paper cuttings. Paper book 10-12 are the registered valuers report showing existence of jewellery and Mukuts etc. Paper book 13-14 are bill of the jewellery converting the old jewellery into new jewellery which was also dt. 26th March, 2000 and 31st M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on into new jewellery in financial year 1999-2000 (paper book 13-14) and therefore addition cannot be made in the impugned year. Dy. CIT vs. Amod Petrochem (P) Ltd. (2008) 217 CTR (Guj). 401 : (2008) 9 DTR (Guj) 169 : (2008) 307 ITR 265 (Guj), Shri Vardhman Overseas Ltd. vs. Asstt. CIT (2008) 24 SOT 393 (Del), CIT vs. Sat Parkash Agarwal (1983) 140 ITR 880 (Del) and CJT us. Jauharimal Goel (2006) 201 CTR (All) 54 (paper book 885-892)." 35. In rejoinder, vehemently relying upon s. 144(l)(b), it was pleaded by learned CIT-Departmental Representative that assessment has validly been framed and it could not have been struck down by the CIT(A) on the basis of non-issue of notice under s. 143(2) as there is no pre-requisite condition for serving the notice under s. 143(2) when the assessment is framed under the provisions of s. 144(1)(b). She submitted that the AO is not precluded from framing the assessment prior to the date of limitation. Therefore, the AO was right in holding that it was impossible for him to serve the notice and, therefore, he was well within his right to frame the assessment under s. 144(1)(b) of the Act. 36. We have carefully considered the rival submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order and the reasons for reopening also. The assessee has submitted nothing in support of her claim and somehow the assessee is prolonging the proceedings pn technical and other grounds and in this view of the situation he has no alternative but to complete the assessment on the basis of material available on record ex parte under s. 144 of the Act. Firstly, it is to be examined that whether the AO has rightly observed that the letter dt. 26th Feb., 2009 submitted by the assessee was a "move to declare filing of return at the last moment is nothing but a gambit to obfuscate issues." It is a matter of fact on record that according to claim of the assessee notice under s. 148 requiring the assessee to file return of income within 30 days was received on 15th Dec., 2008. Within a few days the assessee challenged the validity of issue of notice under s. 148 on the ground of expiry of time limitation of issue of such notices and assessee was granted stay on 18th Dec., 2008 by the Hon'ble High Court and the said stay continued upto 13th Feb., 2009. Vide letter dt. 26th Feb., 2009 the assessee submitted that the return originally filed be treated as return filed in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Tiwari Kanhaiya Lal (supra) and reference can be made to the following observations:- "In our opinion, the notice issued under s. 148 requiring the assessee to file a fresh return carries with it an obligation to file the fresh return in pursuance of the said notice. In case the assessee feels that it is not necessary to file a fresh return and that the earlier return filed by him under s. 139 of the Act should be treated as the return for the purpose of reassessment under ss. 147 and 148 of the Act, he may inform the ITO of his decision to treat his previous return as the return filed in response to the notice under s. 148 of the Act and, in that event, the earlier return will be treated as the fresh return submitted in response to the notice under s. 148 of the Act." 40. Therefore, the return is considered to be filed by the assessee in response to notice under s. 148 on 26th Feb., 2009. Thus, it will be a case where the assessee has submitted a return of income in response to notice under s. 148 and it is not a case where the assessee did not submit any return. 41. Sec. 144 reads as under:- "144 (1) If any person:- (a) fails to make the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or framing the assessment under s. 144 is that it is impossible for him to issue notice under s. 143(2) as the assessment is going to be time-barred "after today". Therefore, we find no substance in the argument of learned CIT-Departmental Representative that the AO was well within his authority to frame assessment under s. 144 without issue of notice under s. 143(2) because it is an assessment framed under s. 144(l)(b). 43. There is one more aspect of the matter. Out of cls. (a) to (c), cl. (c) states the contingency where the assessee has made a return and failed to comply with all the terms of a notice issued under sub-s. (2) of s. 143. As observed earlier, it is a case where the assessee has filed the return. If it is a case where the assessee has filed the return, then for framing the assessment under s. 144, it is necessary under cl. (c), that there must be a notice issued under s. 143(2) and in case of failure of the assessee to comply with all terms of such notice issued under s. 143(2), then only the AO will be within his authority to frame assessment under s. 144. 44. According to well established law, if the case of the assessee falls within a particular clause o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the petition to the effect that on 29th March, 2008 the petitioner was not in Delhi or that she would have gained knowledge of the contents of the notice unless it had been served upon her in Lucknow. In today's day and age reaching even the remotest parts of the globe is possible within 3 day. Even if the petitioner was not in Delhi on 29th March, 2008 she could have been informed almost instantaneously of the service of the notice even if she was in Lucknow. It is, therefore, a moot question that the petitioner must be deemed to have been served in New Delhi on 29th March, 2008 since those were the premises allotted to her by the Government of India in her status as a Member of Parliament. We do not have to give a definitive answer on this issue since it is the position of the Revenue that the petitioner must be deemed to have been served in Lucknow on 2nd April, 2008. According to the Revenue, the notice dt. 25th March, 2008 was dispatched to C-1/11. Humayun Road, New Delhi-03 by speed post on 29th March, 2008. We have perused the envelope and the postal receipt bears this statement to be correct. The Court cannot but presume that the postman had visited property No. 3, Sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was less than 60 days, the said period was to be extended to 60 days as per first proviso to Expln. 1 of s. 153, which read as under:- "Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-ss. (1), (1A), (1B), (2A) and (4) available to the AO for making an order of assessment; reassessment or recomputation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly." 49. Thus, even if the date of issue or service of notice under s. 148 is considered, then the assessment was going to be time-barred on 14th April, 2009 and not on 27th Feb., 2009, as alleged by the AO, in the assessment order. It cannot be presumed that the AO is not aware of the provisions of the Act. He is an Act administration authority and is deemed to be well versed with the provisions of law and proviso to Expln. 1 is part of the Expln. 1. This Explanation has been referred to by the AO in para 12 of his order and the AO is computing the limitation with reference to that Explanation only. Probably, legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gyan Prakash Gupta (supra), it was held that assessment framed without serving notice under s. 143(2) on all the legal representatives of the deceased assessee is not a defect of fundamental nature so as to warrant annulling of the assessment, but merely makes assessment order invalid. None of these decisions pertains to jurisdictional High Court. Jurisdictional High Court in the case of CIT vs. Pawan Gupta and Ors. (2009) 223 CTR (Del) 487 : (2009) 22 DTR (Del) 291 : (2009) 318 ITR 322 (Del) has held that in a case where the AO is not inclined to accept the return for undisclosed income filed by the assessee, issuance of notice under s. 143(2) is a pre-requisite for framing the block assessment. If an assessment order is passed in such a situation without complying with s. 143(2), it would be invalid and not be mere irregular. Though the said decision was rendered with respect to provisions of s. 158BC, the decision is applicable to the main provision itself and it is clear from the following observations of their Lordships:- "We are of the view that s. 143(2) is a mandatory provision whether we look at it from the standpoint of a regular assessment or from the standpoint of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We do not agree with the submissions of the learned counsel for the Revenue, since we do not see any reason to restrict the scope and meaning of the expression 'so far as may be apply'. In our view, where the AO in repudiation of the return filed under s. 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of s. 142, sub-ss. (2) and (3) of s. 143." 54. Their Lordships have observed that omission on the part of the assessing authority to issue notice under s. 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under s. 143(2) cannot be dispensed with. The relevant observations are as under:- "An analysis of this sub-section indicates that after the return is filed, this clause enables the AO to complete the assessment by following the procedure like issue of notice under s. 143(2)/142 and complete the assessment under s. 143(3). This section does not provide for accepting the return as provided under s. 143(1)(a). The AO has to complete the assessment under s. 143(3) only. In case of default in not filing the return or not complying with the notice under s. 143(2)/142, the AO is author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration was filed on 10th June, 2002 at an income of Rs. 11,01,573 plus agricultural income of Rs. 3,27,469. The return was processed under s. 143(1)(a) on 25th Feb., 2003. Subsequently, the proceedings under s. 147 were initiated after getting the necessary approval from competent authority. Notice under s. 148 dt. 6th March, 2009 was issued requiring the assessee to submit the return within 30 days of the service of the said notice. Vide reply dt. 17th March, 2009, the assessee submitted that the return originally filed may be treated as return filed in response to notice under s. 148 and such statement was accepted by the AO. Thereafter, notice under s. 143(2) dt. 22nd April, 2009 was issued. The reason for reopening of the assessment was stated to be an information received by the AO from Investigation Wing at Ludhiana regarding gifts of Rs. 70,21,000 received by the assessee during the year under consideration. The gifts have been tabulated as under:- Sl. No. Name and address of the donor Date Amount 1. Shri Nand Kishore s/o Late Shri Muneshawar Ram, Village Shiori, P.O. Sihori, District Ghaziabad (UP) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention, the copies of affidavit, gift deeds, copies of VDIS certificates, copies of bank statement/passbooks of donor ladies were furnished. Reference was made to the VDIS, 1997 Scheme according to which the immunity is granted to the declarant and, thus, it was contended that the inquiries made by the Investigation Wing, Ludhiana were illegal. Reference was made to ss. 71 and 72 of the Finance (Amendment) Act and also to the CBDT Circular Nos. 753 [(1997) 140 CTR (St) 13] and 754 [(1997) 140 CTR (St) 15]. Emphasizing on the question No. 14 and answer thereto given in the circular, it was pleaded that the case of United Trading and Construction Co. (supra) shall have no bearing on the case of the assessee as the said case relates to earlier scheme of voluntary disclosure issued in 1965. 62. The AO disposed of such objections of the assessee by holding that the provisions of Scheme of 1965 and 1997 are pari materia and the decision of Hon'ble Supreme Court in the case of United Trading and Construction Co. (supra) will be applicable. The AO also discussed the financial status of all the three ladies individually and the provisions of Voluntary Disclosure of Income Scheme, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court or High Court, the authorities are bound to follow that decision in place of circular or instructions of the Board which explains the statutory provisions otherwise. The Hon'ble Supreme Court in the case of Ratan Lal (supra), in a case of a VDS, have held that the scheme can confer immunity on the declarant but not to any other assessee and the AO would be fully competent to inquire into the genuineness of the sources of the amount credited in the books of the other assessee in spite of the fact that declarations were made by the creditors under the VDS. He held that as the gifts were received by the assessee in the financial year relevant to asst. yr. 2002-03 and in that year only the money came to the bank account of the assessee. The language of ss. 68 and 69 is clear to the extent that the unexplained deposit can be assessed in the year in which it is credited in the books of the assessee. 64. With respect to the objection of the assessee that Investigation Wing called the donor ladies to investigate about the declaration made by them under the scheme as no proceedings were pending against the assessee and Circular No. 754, dt. 10th June, 1997 prohibits such inquiry, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not availed opportunity to produce them, in view of these facts the request of the assessee for cross-examine, when the case is shortly to be time-barred by limitation, is nothing more than dilatory tactics. In regard to the statement of Shri Rakesh Sharma, the AO observed that no such statement of Shri Rakesh Sharma is available on record or is in his knowledge and no such statement is being used against the assessee. It is also observed by the AO that the Department has never alleged that anyone else, apart from the lady donors, opened the bank accounts relating to them. Thus, the AO observed that no purpose would be served by cross-examining Shri Rakesh Sharma in view of the fact that the case is going to be time-barred shortly, the request for cross-examining is denied. So far as it relates to the cross-examination of the officers who examined the donor ladies, etc., the AO observed that all the facts collected by those officials have been presented to the assessee for rebuttal and the assessee has exercised her option to rebut these facts, therefore, there is no need for further cross-examination of the officials. The AO observed that principles of natural justice have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 64, 71 and 72 of the Finance (Amendment) Act, 1997 and it was pleaded that s. 72 clearly mentions that no Court or any other authority shall be entitled to require any public servant or the declarant to produce before it any such declaration or any part thereof or to give any evidence thereto in respect thereof. Reference was also made to the clarification given by the Finance Minister at the India Merchant Chambers on 31st Oct., 1997 in which it was stated that a solemn promise is made by the Parliament that there will be a confidentiality of the declarations made, it was submitted that the inquiries made by the Investigation Wing, on which the AO has placed reliance, have become null and void due to s. 72 of the scheme. Further reference was made to questions and answers given in Circular Nos. 754 and 755, dt. 10th June, 1997 and 25th July, 1997 [(1997) 141 CTR (St) 1], Nos. 9, 11, 14, 15, 44 and 51 and it was submitted that the AO was wrong in stating that the declarations made by the three ladies were not covered by Circular No. 754, dt. 10th June, 1997. It was submitted that the gifts were made by the donors out of the bank accounts owned and operated by them. The amount dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2007) 211 CTR (Del) 180 : (2007) 293 ITR 43 (Del) he has held that where such opportunity to cross-examine is not provided, the assessment is required to be quashed. So far as it relates to financial capacity of the donors, learned CIT(A) after having considered the evidence referred to by the assessee has observed in para 5.2 that after having considered the submissions of the assessee and statement of Sarpanch of village as well as secret inquiries made by the Departmental officers, all the statements and inquiry indicate that the donors were from respectable family having their own house, business, agricultural income, etc. The donor ladies have also declared their income under VDIS, 1997 and held a valid certificate of declaration of income. The money declared was deposited in the bank account which remained in the bank account for four years and, therefore, the declaration of income and the credit of money in the bank account is a proof of creditworthiness which needs acceptance. Therefore, he allowed this ground of the assessee that the donors were having creditworthiness and capacity to advance the gift. 71. So far as it relates to the contention of the assessee that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples of law laid down by the decisions of Hon'ble Supreme Court with respect to earlier scheme will automatically apply to the new scheme. She submitted that the CIT(A) has wrongly stated that the facts of Ratan Lal's case (supra) are different from the facts of the case of the assessee as in that case also certain declarations were made by other declarants under the scheme of 1965 which were sought to be made the basis to claim the immunity by the assessee and it was held by Hon'ble Court that immunity under the scheme is confined to the declarants and it does not extend to any other party receiving gifts/amounts from the declarants. She submitted that the principles of law laid down in the said case are clearly applicable to the case of the assessee as, in to the present case, the assessee has received gifts from the declarants of VDIS, 1997 and the assessee has claimed immunity from investigation and, therefore, the case law in the case of Ratan Lal (supra) is applicable to the case of the assessee. 74. She further submitted that according to the decisions of Hon'ble Supreme Court in the cases of Hemlata Gargya vs. CIT (2003) 182 CTR (SC) 107 : (2003) 259 ITR 1 (SC) and Tan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessee. Thus, she pleaded that learned CIT(A) is incorrect in holding that the AO has questioned the validity of these certificates. What the AO has done is that he has denied the benefit of Circular No. 754 to the assessee on account of the fact that the declarations made by the declarants were not in accordance with ss. 64 and 68 of VDIS 1997. 76. It was submitted that while upholding the creditworthiness and financial capacities of the donor ladies, learned CIT(A) has greatly relied upon the statement of Sarpanch who had given the contrary statements at different points of time. She submitted that the CIT(A) failed to note that the Sarpanch had given his statement based on mere hearsay and there is no single piece of material evidence placed on record to substantiate his statement that the father of the three ladies was a man of good means and could afford to make gifts of that magnitude to his daughters. She submitted that the CIT(A) has ignored the plethora of evidence collected by the AO in this regard. He could not rely simply upon the statement of Sarpanch and, thus, the order of CIT(A) vide which it has been held that Shri Hari Singh was creditworthy is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC), it was pleaded that what has been presented by the assessee is not real and learned CIT(A) has chosen to ignore all the surrounding circumstances and, therefore, the order passed by the CIT(A) is perverse and should be set aside and that of AO be restored. 80. It was submitted by learned Authorised Representative that the three donor ladies were very close to the assessee and they have given gifts out of their own income which was declared by them in VDIS, 1997 on which the taxes were paid and declarations were accepted as such by CIT and necessary certificates were issued and subsisting. He submitted that vide copies of reply submitted before the AO at pp. 4, 10 and 16 of the paper book, the assessee had submitted all the facts and had enclosed various evidences in which the donors had confirmed the fact of having made gifts by way of affidavit and by way of statements recorded on oath and these gifts were out of sum declared in VDIS as back as 1997 and the amount was lying in their respective bank accounts since then. 81. Coming to evidence submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank pass book of Mrs. Gurcharan Kaur showing the impugned gift made on 3rd Dec., 2001 out of Rs. 28,60,000 deposited by her in the bank account on 2nd Dee., 2001 being income declared under VDIS, 1997. (iii) Page 152 is VDIS certificate issued to Smt. Gurcharan Kaur where the declared cash of Rs. 28,60,000 has been accepted by the CIT. (iv) Pages 46 to 54 are the copy of statement recorded by the Department on 30th Jan., 2004 wherein she has stated that she knows the assessee and the assessee is a social worker and the gift was given as per wish of her father and the money was received by her from her father 10-12 years back. (v) Pages 121 to 125 contains the details of assets owned by Mrs. Kulwant Kaur. 82. Then, learned Authorised Representative carried us through submissions made before the AO and CIT(A). He referred to pp. 22 to 32 which are the submissions made before the AO vide letter dt. 24th Dec., 2009 the copy of which is filed at pp. 19 to 42 of the paper book regarding the creditworthiness of the donors and their father. Then, he referred to the submissions made before the CIT(A) vide letter dt. 18th March, 2010 copy of which is filed at pp. 175 to 229 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has clarified that if the amount credited in the books is less or equal to the amount declared, the credit should be accepted. 86. To contend that CBDT circulars are binding on tax authorities he relied upon the following decisions:- (i) UCO Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC); (ii) Union of India vs. Azadi Bachao Andolan and Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC). 87. It was further contended by learned Authorised Representative that the AO has no authority to look into the validity of declarations issued by CIT under the VDIS, 1997 and in this behalf he has relied upon the following decisions:- 1. Nitin P. Shah Alias Modi vs. Dy. CIT (2005) 194 CTR (Guj) 306 : (2005) 276 ITR 411 (Guj); 2. Dy. CIT vs. Smt. Ranjit Kaur and Ors. (2003) 81 TTJ (Chd) 269; 3. Bhagwat Prasad vs. CIT (2003) 183 CTR (All) 626 : (2003) 263 ITR 119 (All); 4. Uma Corporation vs. Krishna Prabhakar, Asstt. CIT (2006) 204 CTR (Bom) 282 : (2006) 284 ITR 67 (Bom); 5. CIT vs. Uttamchand Jain (2009) 224 CTR (Bom) 473 : (2009) 26 DTR (Bom) 23 : (2010) 320 ITR 554 (Bom). 88. It was further submitted that the assessment order in itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olent circular is binding on the Department and in this regard, he referred to the decisions of Hon'ble Supreme Court in the cases of Navnit Lal C. Javeri vs. K.K. Sen, AAC (1965) 56 ITR 198 (SC). 93. Without prejudice to the above arguments, it was submitted by learned Authorised Representative that even if the case of the AO is accepted that the gifts were the money of the assessee, then, the addition could not be made in the year of the deposits in the bank accounts of the donors and to support such contention he relied upon the decisions oi Hon'ble Delhi High Court in the cases of Sat Parkash Agarwal (supra) and CIT vs. Jauharimal Goel (supra). 94. He, however, submitted that the AO has misplaced reliance on the decision of Hon'ble Supreme Court in the case of Sumati Dayal (supra) as the AO despite the request of the assessee failed to provide opportunity to cross-examine the persons upon whose statements the AO has placed reliance and he submitted that case law relied upon by the AO and CIT(A) in this regard are also relied upon here. 95. Thus, it was submitted by learned Authorised Representative that the CIT(A) has rightly deleted the addition and his order shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larations as those declarations were not made in accordance with the scheme. To examine such aspect, one has to consider the judicial precedents available on this issue. 98. Reference in this regard can be made to the decision in the case of Nitin P. Shah (supra). In that case, it was the case of the AO that declaration made by the assessee was not in accordance with the s. 68(1) of VDIS, 1997, therefore, declarant was not entitled to immunity provided under the scheme. It was also observed by the AO that the declarant did not comply with the provisions of s. 64(l)(a) of the scheme. On this contention, it was observed by the Hon'ble Gujarat High Court that the CIT having issued certificate under s. 68(2) of the scheme, judicial discipline requires that the authorities entrusted with the administering the law proceed on the basis that the certificate granted by the CIT would indicate satisfaction of all the requisite conditions as required by the provisions of the scheme and it is not open to subordinate authority to sit in judgment over the certificate granted by the CIT. Their Lordships have referred to the decision of Hon'ble Supreme Court in the case of Gestetner Duplicators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular assessment year implies that the provident fund satisfies all the conditions under r. 4 of Part A of the Fourth Schedule to the Act and not sit in judgment over it. There is ample power conferred upon the CIT under r. 3 of Part A of the Fourth Schedule to withdraw at any time the recognition already granted if, in his opinion, the provident fund contravenes any of the conditions required to be satisfied for its recognition and if during the assessment proceedings for any particular assessment year the taxing authority finds that the provident fund maintained by an assessee has contravened any of the conditions of recognition, he may refer the question of withdrawal of recognition to the CIT, but until the CIT acting under the powers reserved to him, withdraws such recognition the taxing authority must proceed on the basis that the provident fund has satisfied all the requisite conditions for its recognition for that year; any other course is bound to result in chaos and uncertainty which has to be avoided'." (p. 15) Therefore, it is not open to the AO to go behind the certificate issued by the CIT and by ignoring same, assess an income which has already borne tax under VDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the AO are contrary to the judicial discipline as the CIT, after having satisfied himself about the fulfilment of all the conditions, has granted the certificates to the declarants which are subsisting as on the date. Therefore, it is not permissible to the AO to go behind the certificates issued by the CIT and to hold that the declarations filed by the donor ladies were not valid. We find no infirmity in the findings recorded by CIT(A) that in view of the existence of valid certificates issued by CIT, the AO could not say that the declarations submitted by the declarant ladies were not in accordance with the scheme. 102. Now, coming to the second objection of the AO, there cannot be any dispute to the proposition that if the decision of apex Court/High Court is contrary to the view expressed in the circular/clarification, then, the decision rendered by the Court will have overriding effect and administering authorities and Courts working under their jurisdiction will be bound to follow the said decision in preference to the circular/clarification. Such proposition of law is now supported by the decision of Hon'ble apex Court in the case of Ratan Melting and Wire Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment, particularly whether the AO can investigate into the source of the amounts so credited? [Refer to Supreme Court decision in ITO vs. Ratan Lal and Ors. (1984) 38 CTR (SC) 382 : (1984) 145 ITR 183 (SC)]? Answer:- The declarant lady or minor should first credit the amount declared in their own books of account or any other record. Thereafter, the advance can be made to other persons. Where the amounts credited in the books of the other persons are equal to or less than the amount declared by the lady or the minor then the AO should accept the credit entries in the books of the firm. If the amount credited is more than the amount declared the AO will be free to enquire into such excess." 103. There was an apprehension in the mind of the public regarding the applicability of decision of Hon'ble Supreme Court in the case of ITO vs. Ratan Lal (supra) and therefore, doubts were raised as represented in question No. 14 and a question was raised that in the case of ladies and minors who are making declarations and amounts are later on credited in the books of account of the firms, etc., a clarification is needed as to what will be the view of the Department, particularly w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable income of Rs. 29,000 and Rs. 90,000 for asst. yrs. 1960-61 and 1961-62 respectively. The AO reopened the assessment for those years under s. 147(a) of IT Act, 1961. It was claimed by the assessee that losses of those years should be determined in the reassessment proceedings. Tribunal held that the original proceedings relating to losses had become final and since the items of loss were unconnected with the income escaping assessment to be assessed under s. 147, it was not permissible for the assessee to seek a review of the original order. The assessee placed reliance on the decision of Hon'ble Supreme Court in the case of V. Jaganmohan Rao and Ors. vs. CIT (1970) 75 ITR 373 (SC) and it was claimed that as per that decision the previous underassessment is set aside and the whole assessment proceedings to start afresh. Their Lordships of Hon'ble Supreme Court held that the decision in the case of V. Jaganmohan Rao vs. CIT (supra) cannot be read without the context. The principle laid down in that decision was only to the extent that once an assessment is validly reopened by issuance of notice under s. 22(2) of 1922 Act, the previous underassessment is set aside and the ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cautioned:- 'It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment.' 38. Although, s. 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under s. 147 are for the benefit of the Revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee, the same cannot be allowed to be converted as 'revisional' or 'review' proceedings at the instance of the assessee, thereby making the machinery unworkable." (Emphasis, italicized in print, ours) 105. In view of the above proposition of law explained by Hon'ble Supreme Court, it cannot be said that the decision of apex Court in the case of ITO us. Ratan Lal (supra) is applicable to VDIS, 1997 irrespective of the fact that the said decision, according to the opinion of the Board was not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the AO at p. 28 has mentioned that the assessee has played a significant role in the opening of the bank accounts and submission of declarations under VDIS, 1997, but there appears to be no material on record to support such observations. The amounts given by the donor ladies to the assessee are supported by declarations made by them on which the tax was duly paid^ by them and a certificate was issued by the CIT. To that extent, the financial capacity and creditworthiness of donor ladies could not be denied and the other factors on which the AO is placing reliance for disproving financial capacity of those ladies and their families will become irrelevant. It is already pointed out that such financial capacity and creditworthiness are to be examined only in the context of amount advanced by them to the assessee. Therefore, we find no infirmity in the order of the CIT(A) vide which he has held that the donor ladies were having the financial capacity and creditworthiness to make gifts to the assessee. 107. So far as it relates to the genuineness of the transaction, it is already observed that money in the bank of the donor ladies was lying since 1997 and it did not change shap ..... 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