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2008 (4) TMI 736 - AT - Income TaxLegality of notice issued u/s 148 - Reopening of assessment - misrepresented the reasons recorded for initiating proceedings under s. 147 - Improper service of notice - legal contention of serving notice on his wife instead on himself - Jurisdiction of AO - Income from undisclosed sources or long-term capital gains - sale/purchase of shares - Bogus claim - Additions made in the absence of complete satisfactory documentary evidence - Charging of interest u/s 234A 234B and 234C. Reopening of assessment by issuance of notice u/s 148 - Improper service of notice - Jurisdiction of AO - HELD THAT - In my opinion the ratio laid down by Full Bench in the case of Laxmi Narain Anand Prakash vs. CST 1980 (1) TMI 174 - ALLAHABAD HIGH COURT is also applicable to the case in hand and thus the proceedings initiated u/s 148 are without service of proper notice and as such are illegal. The entire proceedings thus become void ab initio and are liable to be quashed. As a result quash the proceedings being without jurisdiction and as a result of invalid service of notice. Therefore the assessee succeeds on this limb of argument. Notice was served directly on assessee s wife without there being any effort which may be evident from any noting on the notice that any reasonable effort/attempt was made as required by law before service of the notice to the assessee s wife. There is no evidence on record nor the wife of the assessee is legally authorised by the assessee to receive the notice. The learned CIT(A) has tried to justify the action of the AO by ignoring that the date on which it was served was the last day of limitation. So it is manifestly clear that the notice was improperly served on assessee s wife due to lack of time. Addition made by the AO in the absence of complete satisfactory documentary evidence - Income from undisclosed sources or long-term capital gains - HELD THAT - In my considered opinion the overwhelming evidences produced by the assessee go to prove that the assessee had purchased and sold 5, 000 shares and had earned long-term capital gains as has been claimed and the same cannot be added as undisclosed income of the assessee. From the photocopy of these papers enclosed in the paper book it is conclusively proved that the assessee had actually purchased these shares through registered share broker and got them transferred in his name. After holding these shares for more than 12 months sold the same through M/s Maheshwari Sons who is a registered share broker of UP Stock Exchange Association Ltd. The purchase and sale rate on date of purchase are also proved from the quotations published in the newspaper as is evident from the copies enclosed. Therefore it is proved that the sum is the sale consideration of the shares held. After deducting cost of 20, 200 balance of 1, 87, 184 is the long-term capital gain which has arisen to the assessee. The entire evidences collected behind the back of the assessee cannot be considered as so sacrosanct as can counter the positive proof to disbelieve the assessee. Whatever has been stated in the evidences collected behind the back of the assessee is that 95 per cent of such business was done by M/s Maheshwari and Sons to give bogus entry . Still 5 per cent business done by them was genuine and why the assessee s case would not fall in that portion. The entire evidences produced by the assessee coupled with the fact that the said broker was not 100 per cent in bogus business the claim of the assessee becomes plausible. Similar view was taken in the case of ITO vs. Rajiv Aggarwal 2004 (6) TMI 266 - ITAT DELHI . Thus in the totality of the observations coupled with the precedents relied allow this ground and order to delete the entire addition. Charging of interest under ss. 234A 234B and 234C - The charging of interest is mandatory but consequential relief is allowable. This ground is disposed of accordingly. Appeal of the assessee is partly allowed.
Issues Involved:
1. Legality of the notice issued under Section 148 of the Income-tax Act, 1961. 2. Validity of the reassessment proceedings under Section 147. 3. Service of notice under Section 148. 4. Addition of Rs. 2,07,384 as income from undisclosed sources. 5. Charging of interest under Sections 234A, 234B, and 234C. Issue-wise Detailed Analysis: 1. Legality of the Notice Issued Under Section 148: The assessee challenged the legality of the notice from three angles: improper sanction obtained, the AO not forming his own opinion, and improper service of notice. The assessee argued that the reasons recorded for initiating proceedings under Section 147 were misrepresented. However, the Tribunal found no material difference between the versions presented and concluded that the AO had not misrepresented the reasons. The Tribunal also held that the AO had formed his own opinion based on information received from the Dy. Director of IT (Inv.), Gurgaon, and the return of income filed by the assessee, thus fulfilling the requirements of Section 148(2). 2. Validity of the Reassessment Proceedings Under Section 147: The Tribunal examined whether the AO had applied his mind to form a belief that income had escaped assessment. It was found that the AO had initiated reassessment proceedings based on information from the Dy. Director of IT (Inv.) and the return of income filed by the assessee. The Tribunal referred to the Supreme Court's decision in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., which stated that the AO must have a cause or justification to believe that income had escaped assessment. The Tribunal concluded that the AO had the requisite belief and justification to initiate reassessment proceedings. 3. Service of Notice Under Section 148: The notice under Section 148 was served on the assessee's wife, which the assessee argued was improper. The Tribunal noted that the AO was in a hurry to serve the notice due to the limitation period and did not make reasonable efforts to serve the notice on the assessee himself. The Tribunal referred to the Allahabad High Court's decision in Laxmi Narain Anand Prakash vs. CST, which held that improper service of notice invalidates the initiation of proceedings. The Tribunal concluded that the service of notice was improper, rendering the proceedings void ab initio. 4. Addition of Rs. 2,07,384 as Income from Undisclosed Sources: The AO added Rs. 2,07,384 to the assessee's income, treating it as income from undisclosed sources rather than long-term capital gains. The assessee provided evidence of purchase and sale of shares, which was initially not accepted by the AO. However, the CIT(A) admitted the evidence and directed the AO to verify it. The Tribunal found that the evidence provided by the assessee, including documents proving the purchase and sale of shares, was sufficient to substantiate the claim of long-term capital gains. The Tribunal concluded that the amount of Rs. 2,07,384 was the sale consideration of shares and should be treated as long-term capital gains, not undisclosed income. 5. Charging of Interest Under Sections 234A, 234B, and 234C: The Tribunal held that the charging of interest under these sections is mandatory but allowed for consequential relief based on the revised assessment. Conclusion: The Tribunal quashed the reassessment proceedings due to improper service of notice and directed the deletion of the addition of Rs. 2,07,384, treating it as long-term capital gains. The appeal of the assessee was partly allowed, with directions for consequential relief for interest charges.
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