2008 (11) TMI 428 - AT - Income Tax

Summary

Issues Involved:

1. Legitimacy of the selection of the case for scrutiny.
2. Addition of Rs. 5,25,426 in respect of advances received on booking of flats.
3. Deletion of addition of Rs. 31.98 lakhs made by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Legitimacy of the selection of the case for scrutiny:

The assessee argued that the selection of the case for scrutiny was against the intent and spirit of the Board's instructions. The Chief Commissioner of Income-tax had issued directions that no unwarranted queries should be made. The assessee relied on the Tribunal's decision in the case of Agarwal Farm Equipments, where the assessment was held to be bad in law due to non-compliance with Board instructions. However, the Tribunal noted that the discretion to issue a notice under section 143(2) lies with the Assessing Officer and that Board instructions are not binding but recommendatory. The Tribunal concluded that the Assessing Officer was right in proceeding with the assessment under section 143(3) of the Act.

2. Addition of Rs. 5,25,426 in respect of advances received on booking of flats:

The assessee contended that the advances were genuine, supported by affidavits and statements of depositors. However, the Assessing Officer found discrepancies in the affidavits and noted that the depositors lacked the capacity to advance the money. The CIT (Appeals) upheld the addition for Kishore Kumar and Lalit Kumar, noting their insufficient income and lack of agricultural land. The Tribunal agreed with the CIT (Appeals), stating that the assessee failed to prove the capacity of the depositors and the genuineness of the transactions, thus confirming the addition of Rs. 5,25,426.

3. Deletion of addition of Rs. 31.98 lakhs made by the Assessing Officer:

The revenue appealed against the deletion of Rs. 31.98 lakhs, arguing that the CIT (Appeals) did not examine whether the amounts were returned to the depositors or if the flats were allotted. The CIT (Appeals) had accepted the deposits from 10 persons based on their agricultural land holdings. The Tribunal found merit in the revenue's argument, noting that the CIT (Appeals) did not analyze the incomes and household expenditures of the depositors to ascertain their capacity to advance money. The Tribunal set aside the CIT (Appeals)'s finding and restored the matter to the Assessing Officer for a de novo assessment, directing to examine the incomes of the depositors and their household expenditures to determine their capacity to advance money.

Conclusion:

The Tribunal dismissed the assessee's appeal regarding the selection of the case for scrutiny and the addition of Rs. 5,25,426. However, it allowed the revenue's appeal for statistical purposes, setting aside the CIT (Appeals)'s deletion of Rs. 31.98 lakhs and remanding the issue to the Assessing Officer for a fresh assessment.