2010 (1) TMI 762 - AT - Income Tax

Extension of period of special audit u/s 142(2A) - Unverifiable freight expenses - assessee has disclosed additional income during the year while doing so ld. CIT(A) has ignored the fact that these expenses remained unverified during assessment proceedings - Assessing Officer in reassessing the already assessed income without there being any adverse material and evidence found during the course of the search relevant to the period under the assessment and without bringing any other adverse material or document on record - Held that - in the absence of suo motu powers of the Assessing Officer to extend the period of audit under section 142(2A) of the Income-tax Act, the assessment order was barred by limitation, Order canceled, appeal filed by assessee allowed.

Summary

Issues Involved:
1. Undisclosed investment and peak amount calculation.
2. Deletion of addition on account of low gross profit (g.p.) rate.
3. Deletion of addition on unverifiable freight expenses.
4. Deletion of addition on undisclosed rental income.
5. Validity of notice issued under section 153A.
6. Validity of assessment framed under section 153A/143(3).
7. Validity of assessment order beyond the limitation period.
8. Validity of order passed under section 142(2A).
9. Addition as undisclosed investment under section 69.
10. Disallowance out of freight expenses and bardana expenses.
11. Denial of deduction under section 80HHC.
12. Reassessment of already assessed income without adverse material.
13. Levy of interest under various sections of the Act.

Detailed Analysis:

1. Undisclosed Investment and Peak Amount Calculation:
The Department contended that the CIT(A) erred in restricting the addition on account of undisclosed investment to the peak amount calculated from entries found in the ledger account of an entry operator. The transactions were routed through multiple bank accounts, and each transaction was unique and independent, making it inappropriate to work out a peak amount. The Tribunal found that the CIT(A) had not provided a proper basis for applying a 10% g.p. rate and upheld the deletion of the addition.

2. Deletion of Addition on Account of Low Gross Profit Rate:
The Department argued that the CIT(A) erred in deleting the addition on account of a low g.p. rate, especially after upholding the rejection of the books of account. The CIT(A) adopted a 10% g.p. rate without giving cogent reasons. The Tribunal found that the CIT(A) had not justified the 10% g.p. rate and upheld the deletion of the addition.

3. Deletion of Addition on Unverifiable Freight Expenses:
The Department contended that the CIT(A) erred in deleting the addition made on account of unverifiable freight expenses, ignoring the fact that these expenses remained unverified during assessment proceedings. The Tribunal upheld the deletion of the addition, noting that the CIT(A) had considered additional income disclosed by the assessee during the year.

4. Deletion of Addition on Undisclosed Rental Income:
The Department argued that the CIT(A) erred in deleting the addition made on account of undisclosed rental income, as the assessee could not prove that the premises remained vacant during some period of tenancy. The Tribunal upheld the deletion of the addition.

5. Validity of Notice Issued Under Section 153A:
The assessee contended that the notice issued under section 153A was bad both on facts and in law, and the assessment framed in consequence thereof was liable to be quashed. The Tribunal found the assessment orders to be barred by limitation, following the precedent set in the case of Bishan Saroop Ram.

6. Validity of Assessment Framed Under Section 153A/143(3):
The assessee argued that the assessment framed under section 153A/143(3) was against the statutory provision of the Act and the procedure prescribed under the law. The Tribunal held the assessment orders to be barred by limitation.

7. Validity of Assessment Order Beyond the Limitation Period:
The assessee contended that the assessment order passed by the Assessing Officer was beyond the limitation period prescribed under the law. The Tribunal agreed, following the precedent set in the case of Bishan Saroop Ram.

8. Validity of Order Passed Under Section 142(2A):
The assessee argued that the order passed under section 142(2A) was bad in law, and consequently, the assessment framed was vitiated and barred by limitation. The Tribunal held the assessment orders to be barred by limitation.

9. Addition as Undisclosed Investment Under Section 69:
The assessee contended that the CIT(A) erred in sustaining an addition as undisclosed investment under section 69 in the purchase of property. The Tribunal found the assessment orders to be barred by limitation.

10. Disallowance Out of Freight Expenses and Bardana Expenses:
The Department contended that the CIT(A) erred in restricting the disallowance out of freight expenses and bardana expenses. The Tribunal upheld the deletion of the addition, noting that no adverse material or documents were found during the course of the search.

11. Denial of Deduction Under Section 80HHC:
The assessee argued that the CIT(A) erred in not allowing deduction under section 80HHC. The Tribunal found the assessment orders to be barred by limitation.

12. Reassessment of Already Assessed Income Without Adverse Material:
The assessee contended that the CIT(A) erred in reassessing the already assessed income without any adverse material found during the course of the search. The Tribunal found the assessment orders to be barred by limitation.

13. Levy of Interest Under Various Sections of the Act:
The assessee argued that the CIT(A) erred in confirming the action of the Assessing Officer in levying interest under various sections of the Act. The Tribunal found the assessment orders to be barred by limitation.

Conclusion:
The Tribunal dismissed the Department's appeals and allowed the assessee's appeal, holding the assessment orders to be barred by limitation. The Tribunal followed the precedent set in the case of Bishan Saroop Ram, where it was held that the Assessing Officer did not have the inherent powers to extend the time-limit for the completion of the special audit without an application from the assessee before 1-4-2008. Consequently, the extensions made by the Assessing Officer were without jurisdiction, and the assessments were barred by limitation.