TMI Blog2023 (3) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... inspite of enquiries made by Investigation Wing for more than 5 years. Similarly the AO failed to establish that the issuing of cheques to customers was fake or bogus and the assessee was receiving back the amount in cash. Thus the Assessing Officer failed to prove that the assessee is not in the business of Sahukar/Shroff as well as the cash deposited in the bank account neither remains with the assessee nor is it ploughed back in his business or in any kind of assets. Appeal filed by the Revenue is hereby dismissed. - ITA Nos. 405 to 407/Rjt/2016 - - - Dated:- 31-1-2023 - Shri Waseem Ahmed , Accountant Member And Shri T. R. Senthil Kumar , Judicial Member For the Assessee : Shri Mehul Ranpura , A. R. For the Revenue : Shri Shramdeep Sinha , CIT - DR ORDER PER : T. R. SENTHIL KUMAR , JUDICIAL MEMBER : - These three appeals are filed by the Revenue as against the three Appellate orders all dated 05.08.2016 passed by the Commissioner of Income Tax (Appeals)-3, Rajkot arising out of the Re-assessment orders passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to the Assessment Years (A.Ys) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was invalid in law. On merits, the cash deposit by the assessee for his Shroff business to be treated only as stock-in-trade of the assessee s business not as unexplained cash as determined by the A.O. Therefore the addition made by the Assessing Officer of Rs. 9,80,77,641/- is also deleted as follows: 5.4. To summarize, the A.O. received the information about the appellant, a Shroff of depositing cash in his bank accounts and thereafter issuing the cheque to its customers. The exact communication to A.O. is not there on record but it is apparent that after verification of 4-5 years, the ADIT had not indicated to the A.O. that these cash deposits or part thereof was income of the appellant who was well known as Shroff, both to A.O. as well as the ADIT. It is also apparent that prior to issue of notice u/s.148, A.O. had not carried out any verification on his own after receiving the communication from the ADIT and that only on the basis of this communication the A.O. assumed that the cash deposits represent appellant's own income. The A.O. jumped to this conclusion forgetting the fact that ADIT, after prolonged verification of 4-5 years could not form any such (explicit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not lay hand on a tangible material to show that the cash so deposited belonged to the appellant or flew back to the appellant. 5.6 As discussed, there was no doubt that the appellant is carrying the business of discounting the post dated cheques and issue of DD against the cash received from the customers. This business falls under the category of Money Lending as contemplated in Mumbai Money Lending Act 1946. This business can be run only by the persons who fulfil the conditions laid down in the said Act and hold licence issued under rule 9 of the relevant Act. The licence under the Act is issued for a calendar year and is to be renewed every year. The appellant was issued such licence under No. 135/2006 (Renew) for the period 01.01.2006 to 31.12.2006 which was subsequently renewed from time to time. Copies of such licences are forming part of the paper book. The ADIT, (Inv)-l, Rajkot vide summon u/s 131(1) dated 19.04.2010 has called for copy of Returns of Income for last three years, balance sheet, capital account and bank accounts. The appellant attended personally and furnished the various details as called for on 20.04.2010, 29.04.2010, and on 19.05.2010. All these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that desire to verify the cash deposits cannot be reason to reopen the assessment. 5.7 The provisions of Section 147 requires that the assessing officer should have reason to believe that income has escaped the assessment and then only, he can issue notice u/s. 148 of the Act. On careful consideration, I agree with the contention of the appellant that the intention to verify the genuineness of the transaction is not the belief of escapement as envisaged u/s. 147 of the Act. The A.O. has recorded reasons as to verify whether the transaction of cash deposits by appellant results into escapement of income or whether it represent income hitherto undisclosed. However the law requires that the A.O. should have a primary belief that such amount is the income escaped. This requirement is clearly absent in the reasons recorded. I am therefore inclined to accept the contention of the appellant that the mandate of Section 147 i.e. reason to believe that income has escaped is absent and therefore, the proceedings u/s. 147 are unsustainable in law. The situation in the appellant's case is covered by the Gujarat High Court judgment in case of Bakulbhai Ramanlal Patel (56 DTK 212) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of certain transactions. Notice u/s 148 can be issued only when the Assessing officer records his satisfaction with regard to escapement of income. In the reasons recorded, there is no mention of the escapement of income; therefore, in our opinion, reopening of assessment is not valid and the same is quashed and consequentially, the assessment order passed in pursuance to such notice is also quashed. (Unquote) 5.9 In following decisions, the reassessment was held to be invalid where reasons recorded stated that certain claim/transaction required verification. These decisions are also applicable to the case of the appellant in view of similarity of reasons recorded. Gujarat High Court in case of Shankarlal Nagji CO. - 322 ITR 90 Bombay High Court in case of Nivi Trading Ltd. - 375 ITR 308 Ahmedabad ITAT in case of Shakun Polymers Ltd. - decision dated 06.06.2016 in ITA No. 756/Ahd/2013 Mumbai ITAT decision in case of Jayesh P. Damani (HUF) Others - decision dated 27.04.2012 in ITA No. 47-50/Mum/2012 5.10 The intention of verification only describes a suspicion prevailing in the mind of the A.O. that a particular claim/transaction may r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to the facts of the instant case. The basic postulate, which underlines section 147, is the formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. The Assessing Officer must have reason to believe that such is the case before he proceeds to issue a notice under section 147. The reasons, which are recorded by the Assessing Officer for reopening an assessment, are the only /reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power, for it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well-settled that the question as to whether there was reason to believe, within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of providing cheques after receiving cash as a License-owned Sahukar is not disputed though the A.O. had pointed out that he had been granted license for the activity of Sahukar only since 2011. The appellant had successfully doused this doubt by stating that the license was renewed way back in 2006 and every year thereafter it is renewed and thus there is unanimity that the appellant is in the business of providing cheques/DDs to its customers for a commission. There is no dispute that the appellant is involved in the business of providing cheques/DD to its customers on commission basis on receiving the corresponding amount in cheque. The amount so received (for issuance of cheque) during the relevant assessment year is Rs.11,79,80,000/-, list of such customers had made available to ADIT (Inv) as well as the Assessing Officer. These ' submissions were made in lieu of the investigation carried out in 2010 wherein enquiries had seemingly been made from the customers after obtaining list of such persons from the appellant. The A.O. had also agreed with the appellant's submission and had accepted the explanation in respect of Rs.43,01,152/- after stating that appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om cheques were issued, the onus had shifted on the Assessing Officer to establish that such exercise of issuing cheques to customers was fake and bogus and appellant was receiving back the amount in cash. I had taken note of the case laws relied upon by the Ld. AR in respect of Sahukar/Shroff Business. In the result, the addition of Rs. 11,36,78,848/- is not sustainable on merit also. Accordingly, Ground No.3 4 are also allowed. 4. Aggrieved against the Appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal : (i) The ld. CIT(A) has erred in law and facts in holding that the notice issued u/s 148 of the Act as invalid and bad in law on the incorrect observation that verification was the prime reason for re-opening of assessment, whereas it was not so, as seen from the notice u/s 148. Thus the order of the CIT(A) is perverse. (ii) The ld. CIT(A) has erred in law and facts in holding that the notice issued u/s 148 of the Act as invalid and bad in law, even though the AO had sufficient information in his possession to form a well-reasoned belief. (iii) Without prejudice to the above, the ld.CIT(A) has erred in law and facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05.07.2010 06.07.2010 Cash book Bank book and clarification of some specific transaction 06.07.2010 - Clarification of some specific transaction 30.08.2010 - Details of (i) Dinesh Sorthiya (ii) Key West Developers 19.11.2010 25.11.2010 Total cash deposit in bank accounts 01.08.2014 08.08.2014 Commission ledger other details 25.02.2015 27.02.2015 Other details 19.05.2015 27.05.2015 Other details 6.1. The Ld. A.R. further taken us through the reasons recorded by the Assessing Officer for reopening of assessment which is reproduced at page no. 6 of the CIT(A) s order as follows: REASONS FOR RE-OPENING OF ASSESSMENT U/S 147 OF THE IT ACT In this case, information is received from the ADIT (Inv)-l, Rajkot that the above named assessee has made high value t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in confirming the detailed order passed by the ld. CIT(A) which is already reproduced at Para 3 of this order. Therefore we concur with CIT(A) that the notice issued u/s. 148 is invalid and bad in law. 7.1. Similarly on merits of the case also, the Revenue could not able to establish it is an unexplained cash deposited by the assessee, inspite of enquiries made by Investigation Wing for more than 5 years. Similarly the Assessing Officer failed to establish that the issuing of cheques to customers was fake or bogus and the assessee was receiving back the amount in cash. Thus the Assessing Officer failed to prove that the assessee is not in the business of Sahukar/Shroff as well as the cash deposited in the bank account neither remains with the assessee nor is it ploughed back in his business or in any kind of assets. 7.2. On identical issue of Shroff business, the Co-ordinate Bench of this Tribunal in the case of Anirudh J. Solanki in ITA No. 454/Rjt/2018 held as follows: 6.2. .. The Co-ordinate Bench of the Tribunal dated 04.02.2022 in ITA No. 193/Rjt/2016 on identical facts and dismissed the revenue s appeal as follows: 6. We have gone through the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the failure on the part of the petitioner to disclose fully and truly all material facts. Thus, while it is the case of the respondent that it is the business of the petitioner to accept cash and issue cheques in lieu thereof, it is also the case of the respondent on the basis of the instances cited in the affidavit, that the cash deposits received by the petitioner are in the nature of undisclosed income, despite it being the specific case of the respondent that the petitioner had issued cheques in lieu of cash received by it which had been encashed by the concerned party by depositing the same in its bank account. It may be noted that it is not the case of the respondent that the beneficiary after encashing such amount had returned the same to the petitioner nor has any material been unearthed in this regard. Insofar as the petitioner is considered, as stated in the affidavit-in-reply, it is its business to receive cash and issue cheques in lieu thereof for which it charges commission. Under the circumstances, in the absence of any material to show that the cash in respect of which the cheque had been issued travelled back to the petitioner, one fails to understand as to how s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. It is seen from the Co-ordinate Bench Judgment in the case of Samir Kamruddin Makhani, the Co-ordinate Bench held that even though the assessee is doing the activity of Shroff without obtaining any license from Competent Authority but what is mandated under the provisions of the Income Tax Act is to tax income of the assessee, whether it was from legal or illegal source. Therefore the principles for determining the income will remain the same even the source of income is illegal in nature as held by the Hon ble High Court of Madras in the case of CIT vs. K. Thangamani. Thus the Co-ordinate Bench held that after considering the facts in totality it was held that the assessee was acting as money transfer agent on behalf of the parties engaged in ceramic manufactures. Accordingly allowed the assessee s appeal and dismissed the Revenue s appeal. 8.1. It is further seen in assessee own case in ITA No. 193/Rjt/2016 relating to the Assessment Year 2006-07, the Co-ordinate Bench of this Tribunal dismissed the Revenue appeal by holding during the assessment proceedings, the assessee recorded his statement and categorically explained the nature of transaction that he is ge ..... X X X X Extracts X X X X X X X X Extracts X X X X
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