Facts of the Case

The assessee filed his return of income on 09.01.2016 declaring total income of Rs.2,03,640/- and revised the return on 10.01.2016 declaring income of Rs.3,88,530/-.

The case was selected for limited scrutiny under CASS and notice under Section 143(2) was issued on 21.09.2016. The case was subsequently transferred to ITO-3(1), Mirzapur, who completed the assessment under Section 143(3) on 28.12.2017.

The Assessing Officer observed that the assessee had shown increase in capital account of Rs.1,15,69,573/- as compared to preceding year where no capital amount was shown. Since no satisfactory explanation was offered during assessment, the Assessing Officer added the same as unexplained money under Section 69A.

Before the CIT(A), the assessee submitted that:

  • He was engaged in Poultry Farming.
  • Regular books were maintained and audited.
  • The capital included:
    • Opening balance of Rs.55,51,043/-
    • Net profit
    • Capital introduced from definite sources
    • Gift of Brooding and Growing House from mother valued at Rs.48.75 lakhs
    • Gifts aggregating Rs.5.25 lakhs from family members
    • Capital introduced through purchase of land

Additional evidences including valuation reports, sale deeds, gift confirmations and affidavits were filed and admitted under Rule 46A.

The Assessing Officer submitted a remand report accepting the additional evidences.

However, the CIT(A):

  • Confirmed addition of Rs.55,51,043/- as unexplained opening capital under Section 68.
  • Confirmed Rs.5.25 lakhs as unexplained gifts under Section 68.
  • Granted relief on other capital additions.
  • Rejected objection regarding service of notice under Section 143(2).

 

Issues Involved

  1. Whether opening capital of Rs.55,51,043/- could be treated as unexplained under Section 68/69A.
  2. Whether gifts of Rs.5.25 lakhs from relatives were unexplained credits.
  3. Whether assessment was invalid for alleged non-service of notice under Section 143(2).
  4. Whether the CIT(A) erred despite favorable remand report.

 

Petitioner’s Arguments

The assessee contended that:

  • Notice under Section 143(2) was not validly served, relying on CIT vs Hotel Blue Moon (SC).
  • Opening capital represented infrastructure of Poultry Farm existing prior to 01.04.2014.
  • Valuation report dated 16.01.2014 valued property at Rs.64.92 lakhs.
  • Trade Tax Registration and sanction letters from Department of Animal Husbandry proved existence of Poultry Farm.
  • Bank had sanctioned credit facilities against collateral security.
  • Gifts from relatives were supported by:
    • Sale deed of property for Rs.15 lakhs by wife and sister-in-law.
    • Agricultural landholdings of father and brother.
    • Gift confirmations and affidavits.
  • Remand report did not record any adverse finding.

 

Respondent’s Arguments

The Revenue submitted that:

  • The assessee was non-compliant during assessment proceedings.
  • No proper explanation of opening capital was given.
  • CIT(A) had granted relief wherever justified.
  • No further interference was warranted.

 

Court Order / Findings

1. Opening Capital – Rs.55,51,043/-

  • Additional evidences were admitted under Rule 46A.
  • The Assessing Officer in remand proceedings did not record adverse findings.
  • Third-party evidences such as valuation report, bank sanction letters, trade tax registration and government records established existence of Poultry Farm infrastructure prior to 01.04.2014.

The Tribunal held that merely because earlier returns did not reflect capital (being no-account cases), it cannot be presumed that fixed assets did not exist.

Accordingly, addition of Rs.55,51,043/- was deleted.

 

2. Gifts from Relatives – Rs.5.25 Lakhs

  • Sale deed of Rs.15 lakhs executed by wife and sister-in-law established creditworthiness.
  • Agricultural landholdings of father and brother were supported by official Bhulekh records.
  • Gift confirmations and affidavits were filed.
  • There was sufficient material to establish creditworthiness.

Accordingly, addition of Rs.5.25 lakhs was deleted.

 

3. Validity of Notice under Section 143(2)

  • The assessee failed to produce evidence showing that the officer issuing notice lacked jurisdiction.
  • In absence of such evidence, assessment could not be held void.
  • Judgments cited including Hotel Blue Moon were not applicable on facts.

Grounds challenging jurisdiction were rejected.

 Important Clarification

  • Opening capital supported by credible third-party evidence cannot be treated as unexplained merely due to absence in earlier returns.
  • Once remand report does not contain adverse findings, CIT(A) must consider the same appropriately.
  • Creditworthiness of donors can be established through agricultural landholdings and documentary evidence even if donors do not file income tax returns.
  • Jurisdictional challenge requires cogent evidence.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770885329_DHIRENDRASINGHMIRZAPURVS.INCOMETAXOFFICERWARD32MIRZAPUR.pdf 

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