2012 (8) TMI 275 - HC - Income Tax

Reopening of assessment u/s 148 - addition u/s 68 for unexplained cash credit - Held that - Re-opening of the assessment proceedings of the firm was because of the submission offered by one of its partner Rishabchand Bhansali who claimed that an amount found in his books of accounts which was in turn advanced to some other person was drawn by this partner from the account of the firm is by none other than the partner of the very firm and it is in the wake of such a stand taken by the partner there was an occasion for investigating the transactions of the firm who had claimed the amount as its amount and which was the very version of the assessee and its partner. Issue of notice has been proceeded by a follow up action taken by the AO subsequent to the search of the premises of one of the partners and ultimately AO was of the opinion that a firm which had the capacity to lend an amount of Rs.71, 50, 000/- that too to one of its partners or others is reasonably presumed to have the taxable income and if the assessee had never disclosed its expenditure or otherwise earlier & if the officer records that he has reason to believe that assessee had taxable income and a non-filing of the return is not merely suspicion and therefore in bringing to tax such amount by re-opening - no exercise by appellate jurisdiction under Section 260-A is warranted to hold that the very reopening cannot be sustained - against assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 148 of the Income Tax Act.
2. Justification of the addition of Rs. 75,50,000 under Section 68 of the Act.
3. Validity of the addition when the Assessing Officer had recorded statements confirming the advance payments.
4. Justification of interest charges under Sections 234A and 234B of the Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 148:
The appellant contended that the assumption of jurisdiction for reopening the assessment for the year 1999-2000 by issuing a notice under Section 148 was erroneous and without basis. The notice was challenged on the grounds of non-application of mind by the Assessing Officer, citing the wrong name "M/s. Cauvery Associates" instead of "M/s. Kaveri Associates." The court found this to be a minor irregularity that did not prejudice the assessee. The reopening was based on information from a partner's books indicating a withdrawal of Rs. 71,75,000, leading to a reasonable belief of escaped income. The court upheld the reopening, referencing the Supreme Court's stance in ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd., which emphasized that "reason to believe" does not require conclusive proof at the notice stage.

2. Justification of the Addition of Rs. 75,50,000 under Section 68:
The Assessing Officer added Rs. 75,50,000 as undisclosed income under Section 68, citing unexplained cash credits. The appellant argued that the amount was received from 14 persons as advances for shop purchases. The court noted that the explanation provided by the assessee was not found satisfactory by the authorities. The court referenced multiple judgments, including CIT vs. Daulat Ram Rawatmull and CIT vs. Lovely Exports P. Ltd., to support the principle that unexplained cash credits can be taxed as income. The court upheld the addition, finding no error in the authorities' application of Section 68.

3. Validity of the Addition Despite Recorded Statements:
The appellant argued that the addition was unjustified as the Assessing Officer had recorded statements from all persons confirming the advance payments and explaining their sources. The court noted that the explanation was rejected by the authorities due to lack of convincing evidence. The court emphasized that the burden of proof lies on the assessee to explain the cash credits satisfactorily. The authorities' concurrent findings were that the explanations were not credible, and the court found no reason to interfere with these findings.

4. Justification of Interest Charges under Sections 234A and 234B:
The appellant challenged the interest charges under Sections 234A and 234B, arguing they were contrary to the provisions. The court did not find merit in this argument, noting that the interest charges were a consequence of the assessed tax liability. The court upheld the interest charges, aligning with the statutory provisions.

Conclusion:
The court dismissed the appeal, affirming the validity of the reopening of the assessment under Section 148 and the addition of Rs. 75,50,000 under Section 68. The court also upheld the interest charges under Sections 234A and 234B, finding no error in the authorities' actions and decisions. The judgment emphasized that the statutory duty of the assessee is to account for taxable income and comply with tax liabilities, and the authorities acted within their jurisdiction and legal framework.