2007 (5) TMI 349 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income-tax Act, 1961.
2. Disallowance of commission paid to M/s. Hallmark Health Care Ltd.
3. Charging of interest under Section 234D.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148:
The primary issue was whether the reassessment proceedings initiated beyond four years from the end of the relevant assessment year were valid. The assessee argued that there was no failure to disclose fully and truly all material facts necessary for the assessment. The original assessment was reopened based on a survey conducted on Shri Sanjay Rastogi, who admitted to providing bogus entries through various concerns, including M/s. Hallmark Health Care Ltd. However, the tribunal found that the original assessment proceedings had already examined the commission payments, and the necessary details and documents were submitted by the assessee. The tribunal concluded that there was no failure on the part of the assessee to disclose fully and truly all material facts, and thus, the reassessment proceedings were invalid.

2. Disallowance of Commission Paid to M/s. Hallmark Health Care Ltd.:
On the merits of the disallowance of the commission, the assessee contended that the commission was paid based on an agreement and supported by debit notes. The payments were made through account payee cheques and credited to the bank account of M/s. Hallmark Health Care Ltd. The Assessing Officer, however, added the commission back to the income, citing the statement of Shri Sanjay Rastogi and the lack of business activities at the address of M/s. Hallmark Health Care Ltd. The tribunal noted that the commission had been allowed in earlier years and that there was no evidence to show that the commission payments had traveled back to the assessee. The tribunal did not delve into the merits further, as it had already quashed the reassessment proceedings.

3. Charging of Interest under Section 234D:
The assessee challenged the charging of interest under Section 234D, arguing that no interest could be charged when the assessment made under Section 147/148 was not the first regular assessment. Since the reassessment proceedings were quashed, the tribunal did not address this issue in detail.

Conclusion:
The tribunal quashed the reassessment proceedings as invalid due to the lack of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Consequently, the tribunal did not consider it necessary to go into the merits of the claim of the assessee regarding the disallowance of commission and the charging of interest under Section 234D. The appeal filed by the assessee was allowed.