2012 (9) TMI 195 - AT - Income Tax

Enhancement of income by passing an order u/s 154 - income enhanced on ground that TDS certificates reveals more income than shown by assessee - Held that - A bare reading of the passed u/s 154 reveals that the AO considered the reply of the assessee dated 15.5.2007 to the notice u/s 154 and made the enhancement of assessed income after lapse of two and half years without affording an opportunity to be heard to the assessee after substantial lapse of time. Also, no substantial material is seen pertaining to the fact that the income as shown by the assessee was higher as per TDS certificates submitted by the assessee and we are unable to find any justified reason of enhancement of income. Since, AO failed to confront the assessee for rebuttal and passed the order without even bringing to the notice of the assessee as to which of the income was covered under tax deducted at source certificate and which part of the income remained undisclosed, hence order of CIT(A) deleting such addition is upheld Decided against Revenue

Summary

Issues:
Appeal against CIT(A) order deleting income enhancement made by AO under section 154 of the Income Tax Act, 1961 for A.Y. 2003-04.

Analysis:
1. The AO initially assessed the income of the assessee at Rs. 41,820 against the loss shown at Rs. 2,28,238 for A.Y. 2003-04. Subsequently, the AO issued a notice under section 154 of the Act, claiming that the assessee failed to reconcile the TDS claim with the income as per TDS certificates, resulting in an understatement of income by Rs. 29,12,448. The CIT(A) deleted this addition by stating that the AO's action was highly debatable and not based on a clear mistake apparent from the record.

2. The CIT(A) noted that the appellant successfully demonstrated that the income shown under various heads, especially commission and miscellaneous income, was higher than what was reflected in the TDS certificates. The appellant also clarified that tax was deducted only on a portion of the income, and the rest was already disclosed as income. The CIT(A) found that the AO failed to provide a proper opportunity for rebuttal and passed the enhancement order without specifying which income was covered by TDS certificates and which part remained undisclosed.

3. The Tribunal analyzed the AO's order under section 154 and found that there was no substantial material to support the claim that the actual income of the assessee was significantly higher than reported. The AR argued that any enhancement under section 154 should be based on concrete evidence, which was lacking in this case. The Tribunal agreed with the CIT(A) that the AO's actions lacked justification and reasonable grounds for income enhancement.

4. Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the income enhancement made by the AO under section 154. The Tribunal found no merit in the Revenue's arguments and concluded that the CIT(A)'s findings were reasonable and justified. The appeal was deemed devoid of merits and dismissed accordingly.

This detailed analysis highlights the procedural and substantive aspects of the case, focusing on the grounds for the appeal, the actions of the AO and CIT(A), and the Tribunal's final decision to dismiss the Revenue's appeal.