2010 (12) TMI 1210 - HC - Income Tax

Summary

Issues Involved:
1. Validity of assessment/appellate order.
2. Issuance of notice u/s 148 without verifying factual position.
3. Addition of Rs. 4,39,800 to the returned income based on bank deposits.

Summary:

1. Validity of Assessment/Appellate Order:
The assessee argued that the assessment/appellate order was not based on facts and circumstances and violated the provisions of the Income-tax Act and natural justice. The High Court upheld the validity of the proceedings, noting that the assessee made a capital contribution of Rs. 13.00 lakhs but did not file a return of income. The return filed in response to notice u/s 148 declared an income of only Rs. 9,630/-, which was not credible given the substantial capital contribution.

2. Issuance of Notice u/s 148:
The assessee contended that the notice u/s 148 was issued without verifying the factual position. The High Court found that the Assessing Officer (AO) had reason to believe that income chargeable to tax had escaped assessment due to the unexplained capital contribution of Rs. 13.00 lakhs. The AO's belief was based on the fact that no evidence was provided to explain the source of funds invested in the firm. The Court held that the AO rightly proceeded to take action u/s 147, dismissing the assessee's grounds.

3. Addition of Rs. 4,39,800 to Returned Income:
The assessee failed to satisfactorily explain the source of Rs. 4,39,800 deposited in the bank account. The CIT(A) upheld the addition, rejecting additional evidence regarding a Rs. 1.00 lakh loan from Shri Satish Kumar as it did not meet the conditions of rule 46A. The High Court admitted the additional evidence and remanded the matter to the AO for verification. Regarding the remaining Rs. 3,39,800, the Court found that the nexus between withdrawals and deposits was not established. However, it allowed an addition of Rs. 70,000 due to unexplained opening cash-on-hand, while the rest of the deposits were explained by earlier withdrawals.

Conclusion:
The appeal was partly allowed for statistical purposes, with the High Court directing the AO to verify the additional evidence regarding the Rs. 1.00 lakh loan and confirming the addition of Rs. 70,000 due to unexplained cash-on-hand.