2010 (9) TMI 733 - HC - Income Tax

Scrutiny - undisclosed income - The fact situation of the present case makes it clear that even under Section 143 (2), repeated opportunities were extended by the AO by serving at least 9 notices of different dates - The appellant-assessee having failed to co-operate with the Department and having failed to come out with explanation, as per the second proviso to Section 144(1), the AO was not at all obliged to have issued him yet another notice - The feeble explanation as sought to be suggested before the Appellate Authorities has been found to be more of contradiction as indicated by the Tribunal in its judgment, particularly in the passage quoted here in before - The appeal fails and is, therefore, dismissed

Summary

Issues Involved:
1. Validity of service of notices under Sections 142(1) and 143(2) of the Income Tax Act, 1961.
2. Justification of assessment under Section 144 of the Income Tax Act, 1961.
3. Addition of undisclosed income based on cash deposits in the bank.
4. Consideration of peak credit theory instead of adding the entire amount of deposit.
5. Opportunity of being heard before making the final assessment.

Detailed Analysis:

1. Validity of Service of Notices:
The appellant-assessee challenged the validity of the service of notices under Sections 142(1) and 143(2) of the Income Tax Act, 1961. The Tribunal found that despite repeated notices sent by registered post and Speed Post, the appellant adopted a non-cooperative attitude and failed to attend the hearings. The Tribunal observed that "the last notice dated 21.11.2008 issued u/s. 142(1) and 143(2) of the Act listing the case for hearing on 28.11.2008 are shown to have been served by Speed Post on the address of the appellant." The oral denial of service by the assessee was not supported by any affidavit or evidence and was thus rejected.

2. Justification of Assessment under Section 144:
The Tribunal justified the assessment under Section 144 of the Act, which allows for a best judgment assessment when an assessee fails to comply with the terms of notices issued under Sections 142(1) and 143(2). The Tribunal referred to the relevant provisions, stating: "If any person fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment."

3. Addition of Undisclosed Income:
The core issue was the addition of Rs.14,13,350/- as undisclosed income based on cash deposits in the bank. The Tribunal found the appellant's explanations contradictory and lacking cogent material or reliable documentary evidence. The Tribunal noted: "The assessee's explanation, in fact, is contradictory inasmuch as on one hand he says that the amount withdrawn on a particular date stands deposited in the same account while on the other hand, he claims that the amounts deposited at outstations in various cities are the collection from sale proceeds." The Tribunal upheld the addition as unexplained deposits.

4. Consideration of Peak Credit Theory:
The appellant contended that the peak credit should have been considered instead of adding the entire amount of deposit. However, the Tribunal rejected this contention, stating: "The explanation given by the assessee being untrue cannot be accepted requiring to adopt a peak credit with respect to unexplained credit and debit entries in his bank account." The Tribunal found no merit in adopting the peak credit theory in this case.

5. Opportunity of Being Heard:
The appellant argued that the Assessing Officer (AO) failed to provide an opportunity of being heard before making the final assessment under Section 144. The Tribunal and the High Court found that sufficient opportunities were provided, and the appellant failed to cooperate. The High Court noted: "The appellant-assessee having failed to co-operate with the Department and having failed to come out with explanation, as per the second proviso to Section 144(1), the AO was not at all obliged to have issued him yet another notice."

Conclusion:
The High Court dismissed the appeal, finding no substantial question of law involved. The Court upheld the Tribunal's findings on the validity of service of notices, justification of assessment under Section 144, addition of undisclosed income, rejection of the peak credit theory, and the sufficiency of opportunity provided to the appellant. The appeal was dismissed summarily.