Ito, Ward-12(1), Hyderabaad, ... vs Assessee

Sri B. Venkata Rao, Hyderabad vs. Income tax Officer, Ward - 2(1), Hyderabad. PAN - AFPDB 4375 P (Cross Objector) (Respondent)

Revenue by : Shri Ramakrishna Bandi Assessee by : Shri V. Raghavendra Rao

Date of hearing 13-05-2015 Date of pronouncement 27-05-2015

O RDE R

PER SAKTIJIT DEY, J.M.:

Department's appeal and assessee's C.O are directed against order dated 31/03/14 of ld. CIT(A)-V, Hyderabad for the AY 2009-10.

2. The only effective ground raised by the department is as under:

"2. The ld. CIT(A) erred in admitting additional evidence on the issue of unexplained cash deposits without affording an opportunity to the AO under Rule 46A of the Act."

3. Grounds raised by assessee in C.O. are as under:

2 ITA No. 1428 /Hyd/2014 & C.O. No. 03/H/15 Sri B. Venkata Rao

"1. The learned Commissioner of Income Tax (Appeals)-V Hyderabad (CIT{A)] has erred in rejecting by not considering the grounds relating to jurisdiction raised by the assessee.

2. The learned Assessing Officer (AO) has not specified the particulars of dates of issue and attempted service in respect of notices u / s 143(2) and 142(I).

3. The notice u/s 143(2) would be barred by limitation if not served in time under proviso 143(2) while the AO failed to record the particulars in the assessment order. The assessment order is therefore invalid in law.

4. Alleged service by affixture of notice u/s 142(1) is not supported by the statement of the official serving it or his Affidavit or the Assessing Officer's satisfaction thereon which are required under the relevant provisions of civil procedure code applicable to service of notices under the IT Act.

5. The ld. CIT(A) is justified in considering the evidence produced by the assessee as the AO did not grant opportunity to file the evidence."

Assessee has also raised additional ground in its C.O., which is as under:

"Assessee did not make any cash deposits in SB account No. 000801534265 with ICICI Bank. Therefore the addition made is without basis and liable to be deleted."

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4. Briefly the facts are, assessee an individual filed his return of income for the AY under consideration on 30/07/09 declaring income of Rs. 22,48,560 under the head 'salary'. As stated by AO, though, notices u/s 143(2) and 142(1) were issued, assessee did not respond to the same. For that reason, notice u/s 142(1) was affixed at the last known address available with AO. As there was no response even to the notice made by affixture and since assessment is getting barred by limitation, AO proceeded to complete assessment u/s 144 on the basis of the information available on record. As observed by AO, on the basis of information available on record it was found that assessee had made cash deposits to the tune of Rs. 21,40,850 in SB 3 ITA No. 1428 /Hyd/2014 & C.O. No. 03/H/15 Sri B. Venkata Rao

A/c No. 000801534265 with ICICI Bank, Khairathabad Branch, Hyd. Since the source of such cash deposits were not explained by assessee, treating the entire deposits as unexplained, AO added it to the income of assessee. Accordingly, total income was determined at Rs. 42,89,410. Against the assessment order passed by AO, assessee preferred appeal before ld. CIT(A) both on the validity of the assessment order passed ex-parte u/s 144 without proper service of notice u/s 143(2) and 142(1) of the Act as well as on merits of the addition.

5. As far as the merits of the additions are concerned, assessee submitted he received salary amounting to Rs. 22,48,560 as an employee of the World Bank, which is exempt from income-tax as per the United Nations Convention. In support of such claim, a certificate issued by the acting Director of World Bank at New Delhi was also submitted before ld. CIT(A). On the basis of the evidences produced by assessee, ld. CIT(A) deleted the addition of Rs. 22,48,560. As far as the addition made on account of unexplained cash deposits to bank account, ld. CIT(A) after verifying the copies of the bank account found observed that assessee's explanation that deposits made into bank account were out of withdrawals from the very same account as well as other account is acceptable. He also observed that assessee being world bank employee, the conditions of service do not permit him to pursue any other occupation or employment. On the basis of aforesaid reasoning, he deleted the addition of Rs. 21,40,850. Being aggrieved of the decision of ld. CIT(A), department is before us.

6. We have considered the submissions of the parties and perused the materials on record as well as orders of revenue authorities. As can be seen from the grounds raised by the department, it is only aggrieved with the decision of the ld. CIT(A) in deleting the addition of unexplained cash deposits by taking cognizance of additional evidence produced by assessee without giving opportunity to AO in 4 ITA No. 1428 /Hyd/2014 & C.O. No. 03/H/15 Sri B. Venkata Rao

terms with Rule 46A of the Act. Ld. DR though tried to make out a case before us that the decision of ld. CIT(A) deleting both the additions suffers from violation of rule 46A, but, we are of the view that the ground raised by the department does not cover the amount of Rs. 22,48,560. Having held so, we will decide the issue relating to addition of Rs. 21,40,850 made on account of unexplained cash deposits. It is true that before AO, assessee neither appeared nor produced necessary information called for by the AO, hence, assessment was completed ex-parte by treating the so called cash deposits in SB A/c held with ICICI Bank as unexplained. However, before us, ld. AR submitted, SB A/c No. 000801534365 with ICICI Bank, Khairathabad Branch, Hyderabad does not contain any such cash deposits of Rs. 21,40,850. A copy of the statement of account pertaining to the said bank account was also filed before us. On perusal of the said bank account, the statement of ld. AR appears to be correct as it does not show the deposit of Rs. 21,40,850. Thus, prima facie it appears, the addition made by AO is on total mis- appreciation of facts. This aspect requires verification. It is the further contention of ld. AR before us, in any case of the matter issue of addition will become inconsequential if assessee's challenge on the legal issue is upheld. Ld. AR submitted, while issuing notice u/s 142(1) through affixture, AO has not followed the procedure laid down in the statute. He further submitted, no notice u/s 143(2) has been issued to assessee. Therefore, in absence of valid service of statutory notice assessment order passed is invalid. He submitted, though, assessee has raised specific ground on this legal issue before ld. CIT(A), but, he failed to decide the same.

7. Upon hearing the parties, we are of the view that legal issue raised by assessee challenging the validity of the assessment order passed u/s 144 of the Act is required to be decided at the outset. Though, ld. CIT(A) has discussed the facts relating to this issue and has held that assessment order passed exparte is not legally valid but 5 ITA No. 1428 /Hyd/2014 & C.O. No. 03/H/15 Sri B. Venkata Rao

at the same time he has observed that he is not able to set aside the assessment because of the statutory provision. When the assessee has raised specific grounds challenging the validity of assessment order in absence of proper service of notices, in our view, ld. CIT(A) should have decided it at the first instance before going into the merits of additions made. In the aforesaid factual backdrop, we are inclined to remit the issue back to the file of ld. CIT(A) for deciding the legal issue raised by assessee challenging the jurisdiction of AO in completing the assessment u/s 144 of the Act in absence of valid/proper service of notices u/s 143(2) and 142(1) and thereafter, if warranted, may decide the issue on merits after giving opportunity to AO to go through the additional evidences produced by assessee.

8. In the result, both the appeal of the department and C.O by assessee are allowed for statistical purposes.

Pronounced in the open court on 27 th May, 2015.

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 27 th May, 2015 kv

Copy to:-

1) ITO, Ward - 12(1), 2 nd Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.

2) Sri B. Venkata Rao, Flat No. 301, Simharshi Apts., H.No. 8-3-667/2 Engineer's Colony, Yellareddyguda, Hyderabad - 73.

3) CIT(A)-V, Hyderabad

4) CIT-I, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.

6 ITA No. 1428 /Hyd/2014 & C.O. No. 03/H/15 Sri B. Venkata Rao

Description Date Intls 1. Draft dictated on Sr.P.S. 2. Draft placed befor e auth or Sr.P.S Draft pr opose d & placed bef ore the secon d AM 3 Mem ber 4 Draft discussed/appr oved b y second Mem ber VP 5 Appro ved Draft com es to the Sr.P.S./PS Sr.P.S. 6. Kept for pro nou ncem ent on Sr.P S. 7. File sent to the Bench Clerk Sr.P.S. 8 Date on which file go es to the Head Cle rk 9 Date of Dispatch of or der