2015 (10) TMI 2656 - AT - Income Tax

Validity of reopening of assessment - whether CIT(A) grossly erred in initially in not deciding the ground challenging the validity and legality of initiation of the proceedings u/s 147 and subsequently during the proceedings u/s 154 before him, rejected this ground by holding summarily that assessment u/s 147 was properly reopened? - Held that - In the case of Ranbaxy Laboratory (2011 (6) TMI 4 - DELHI HIGH COURT ), the Hon ble High Court held that addition is not made by the AO on the ground of re-opening of assessment. As per explanation 3, no addition can be made. However, assessee s case is that the AO made addition u/s 80IB which has been allowed by the ld. CIT(A). However, he confirmed the addition by considering the explanation 3 of Section 147 of the Act. No such case laws were brought to the notice of the Bench where reopening was made by the AO on certain issue which has been considered for addition and also explanation 3 was applied. Thereafter, the ld. CIT(A) deleted the addition on reopening of the assessment u/s 147 of the Act. However, he confirmed the addition as per Explanation 3 of Section 147 of the Act. We therefore, dismiss assessee s Ground Case reopened by applying explanation 3 of Section 147 - non affording any opportunity to the appellant regarding the applicability of this Explanation - Held that - Hon ble Rajasthan High Court in the case of CIT vs. Shri Ram Singh (2008 (5) TMI 200 - RAJASTHAN HIGH COUR ) held that if case is reopened on reason to believe of the AO but on that reason to believe no addition is made by the AO. The explanation 3 of Section 147 cannot be applied. Hon ble Karnataka High Court in the case of N. Govindaraju vs. ITO and Another (2015 (8) TMI 271 - KARNATAKA HIGH COURT) has considered the issue of explanation 3 of Section 147 of the Act dissented view and held that even there is no addition on account of reason to believe, even addition can be made as per explanation 3 of Section 147 on other items. When there are two views on same issue, the issue favouable to the assessee should be considered in view of the decision in the case of CIT vs. Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court). Thus Ground of the assessee is allowed. Addition on account of sundry creditors treating as cash creditors - Held that - We find from the records that the additional evidences were produced by the assessee before the ld. CIT(A) at the time of appeal hearing which can be verified from page 7 of the ld. CIT(A) s order. Further the AO gave only one date i.e. 3-12-2007 and order was passed on 13-12-2007. Therefore, in the interest of justice, we admit additional evidence furnished by the party for disposal of this appeal. It is undisputed fact that these are old trade creditors except in once case the purchases during the year were made by the assessee. These are not the loans at all. The AO gave only one date to furnish the confirmation as to genuineness, creditworthiness and identity of the creditors which is not possible within a week s time. The ld. CIT(A) was not right to hold that number of opportunities were provided to the assessee. In such a situation and facts of the case, we delete the addition confirmed by the ld. CIT(A).

Summary

Issues Involved:
1. Validity and legality of initiation of proceedings under Section 147 and issuance of notice under Section 148.
2. Confirmation of various additions by the CIT(A) under different heads.
3. Charging of interest under Section 234B.

Detailed Analysis:

1. Validity and Legality of Initiation of Proceedings under Section 147 and Issuance of Notice under Section 148:
The assessee challenged the initiation of proceedings under Section 147 and issuance of notice under Section 148. The assessee filed a return for the assessment year 2002-03, claiming a deduction under Section 80IB for manufacturing slates. The AO observed that the manufacturing process did not qualify under Section 80IB and disallowed the deduction. The AO relied on several case laws, including M/s. Lucky Minmat vs. CIT, 245 ITR 830 (SC). The assessee did not challenge the reopening before the CIT(A) but raised it before the ITAT. The AR argued that the reopening was based on the deduction claimed under Section 80IB, which was allowed by the CIT(A). The ITAT held that the technical ground could be raised at the ITAT level and referred to various case laws, including Ranbaxy Laboratories Ltd. vs. CIT, 336 ITR 136 (Del.). The ITAT dismissed the assessee's grounds, stating that the reopening was justified.

2. Confirmation of Various Additions by the CIT(A):
- Trading Addition of Rs. 29,646/-: The AO observed discrepancies in the sale of mustard and rejected the book results under Section 145(3). The CIT(A) confirmed the addition, noting the lack of details provided by the assessee. The ITAT upheld the CIT(A)'s decision, agreeing that the addition was reasonable.

- Disallowance of Sundry Expenses Rs. 6,219/- and Salary Expenses Rs. 36,000/-: The AO disallowed 20% of sundry expenses and 25% of salary expenses due to a lack of evidence. The CIT(A) confirmed the disallowances, and the ITAT upheld the decision, noting that the assessee failed to provide necessary details.

- Addition of Rs. 3,75,748/- on Account of Sundry Creditors: The AO treated sundry creditors as cash credits and made an addition due to a lack of confirmation. The CIT(A) confirmed the addition, stating that the assessee did not provide details during assessment or remand proceedings. The ITAT admitted additional evidence and found that these were old trade creditors, not loans. The ITAT deleted the addition, noting that the AO provided insufficient time for the assessee to furnish confirmations.

3. Charging of Interest under Section 234B:
The assessee challenged the charging of interest under Section 234B. The ITAT held that the interest is mandatory, and the assessee would get consequential relief if any.

Conclusion:
The appeal was partly allowed. The ITAT upheld the reopening of assessment and some additions but deleted the addition of Rs. 3,75,748/- on account of sundry creditors. The interest under Section 234B was deemed mandatory, with consequential relief as applicable.