2012 (10) TMI 58 - HC - Income Tax

Unverifiable transactions - Disallowance under Section 40(a)(ia) - ITAT deleted the addition - Held that - The Tribunal come to the conclusion that when the assessee paying more tax under Section 115 JB and even observed that it is no body s case that the regular assessment under the provisions of Section 143(3) would have fetched more tax to the Revenue. No reason for any such observation when Tribunal was of the view that neither the A.O. nor the C.I.T. (Appeal) had appreciated the facts. The Tribunal also ignored this fact that the A.O. and C.I.T.(Appeal), both considered each and every fact, which is required to be considered under Section 143(3) and then in that situation, merely because of the one line in the operative part of the order contrary to the specific facts mentioned in the first para that the case is duly processed under Section 143(1)(a), the Tribunal should not have directed the A.O. to rectify the demand notice under Section 115JB and the Tribunal held in this way. Thus ITAT has erred by holding that the AO has not made the impugned additions under the regular provisions of the Act, obviously, under Section 143(3) & also committed error of law in upholding the deletion of addition of Rs.7,49,672/- and Rs.34,44,754/-. A.O. should have considered the plea of the assessee also before holding that he is proceeding under Section 143(1)(ia), and in pursuance of notice under Section 143(2) and 142(1), but he should have considered the asseess s claim under Section 115JB, which has not been and as such, rejected the plea of the assessee in spite of taking note of the fact that assessee has shown the book profit of Rs.2,05,86,930/- under Section 115JB - The matter is remanded to the A.O. for fresh consideration to decide whether the assessment is required to be made under Section 115JB or under Section 143(3) - in favour of assessee by way of remand.

Summary

Issues:
1. Whether the ITAT erred in holding that the AO did not make additions under the regular provisions of the Act?
2. Whether the ITAT erred in upholding the deletion of unverifiable transactions?
3. Whether the ITAT erred in upholding the deletion of disallowance under Section 40(a)(ia)?

Analysis:

Issue 1:
The appellant argued that the assessment was under Section 143(3) of the Income Tax Act, 1961, and not under Section 115JB. The AO added unexplained income and disallowed certain expenses, ordering under Section 143(3). The CIT(A) partly allowed the appeal, deleting some additions made under Section 115JB. The Tribunal noted that the CIT(A) deleted additions irrelevant to Section 115JB calculations. The High Court found that the AO and CIT(A) proceeded under Section 143(3), not Section 115JB, and remanded the matter to the AO for reconsideration.

Issue 2:
The CIT(A) and Tribunal reversed the AO's additions without considering Section 115JB. The High Court held that the AO should have considered the assessee's claim under Section 115JB, as the books profit was shown under this section. The High Court set aside the orders and remanded the matter to the AO for fresh consideration.

Issue 3:
The Tribunal's decision to uphold the deletion of additions under Section 40(a)(ia) was found erroneous by the High Court. The High Court emphasized that the assessment should have been considered under Section 115JB, not Section 143(3). The orders were set aside, and the matter was remanded for proper assessment under the correct section.

In conclusion, the High Court found errors in the ITAT's decision regarding the assessment under the regular provisions of the Act and the deletion of certain additions. The Court emphasized the importance of correctly determining the applicable section for assessment and remanded the matter for fresh consideration by the AO.