2014 (5) TMI 654 - AT - Income Tax

Admission of additional evidence - Unexplained credits in the books of accounts Held that - CIT(A) rightly examined the facts on remand and has given detailed reasons deleting the amount in his order - the AO noticed that the assessee had transferred balances standing in the names of persons to the share capital account - there were no sufficient balances in the accounts to transfer to the share capital account - The AO made the addition only on account of the fact that the assessee did not furnish any information as to why it transferred amounts from the accounts of Sainath Trading to shareholders account - the information furnished during the assessee proceedings cannot be considered as additional evidence, as even during the proceedings only account copies of the shareholders in the books of M/s. Srinadh Trading Co. have been produced - Revenue has not brought anything on record to controvert the findings of the CIT(A) Decided against Revenue. Restriction of disallowance of depreciation Held that - Most of the payments were made through bank accounts and relevant invoice of the assets were also filed before the CIT(A) - AO and CIT(A) erred in restricting the depreciation as claimed - As the assessment was completed ex-parte u/s 144, AO should have examined the additional evidence furnished in the course of remand proceedings the assessee was put to unnecessary inconvenience in the regard by restricting genuine claim - there is no need for restricting the depreciation and the AO is directed to allow depreciation Decided in favour of Assessee. Validity of notice u/s 143(2) of the Act Defective notice - Held that - There is indeed mistake in mentioning the date of posting as 02.09.2008 - the mistake should not be considered as making the notice as invalid one, as the assessee got the notice u/s 143(2) before 31.10.2008 and the assessment was reopened by issuing a notice - The distinction between an invalid notice and a defective notice is difficult to draw the notice is only a defective and does not invalidate the proceedings the assessment cannot be considered as bad in law only by reason of mistake in the notice Decided against Assessee.

Summary

Issues Involved:
1. Assessment under section 144 of the Income Tax Act, 1961 regarding unexplained share capital and disallowed depreciation.
2. Validity of notice under section 143(2) for reopening assessment.

Analysis:

Issue 1: Assessment under section 144
The case involved cross-appeals by the Assessee and Revenue against the Order of the CIT(A)-IV, Hyderabad for A.Y. 2007-08 passed by the A.O. under section 144 of the I.T. Act, 1961. The Assessee, engaged in spinning mills business, declared income and claimed set-off of brought forward losses. The A.O. treated the share capital amount received as unexplained credits and disallowed excess depreciation along with certain miscellaneous expenses. The CIT(A) found the source of cash credits genuine, following principles laid down by the Supreme Court, and deleted the amount added towards unexplained share capital. The Revenue contested this deletion, but the A.O. accepted a portion of the amount as genuine after a remand report. The Tribunal held that the Revenue's contention lacked merit, as the CIT(A) had provided detailed reasons for the deletion, and the A.O. had accepted a portion of the amount as genuine. Therefore, the Revenue appeal was dismissed.

Issue 1 (continued):
Regarding the Assessee's appeal, the Tribunal addressed the validity of notice under section 143(2) and the restriction of disallowance of depreciation. The A.O. had restricted depreciation based on the WDV available in the earlier year, despite the Assessee providing necessary details and vouchers. The CIT(A) upheld the addition, stating that the Assessee did not furnish original invoices supporting the acquisition of assets during the year. The Tribunal found that the A.O. and CIT(A) erred in restricting the depreciation claim, as most payments were made through bank accounts, and relevant invoices were submitted. The A.O. did not examine the additional evidence on remand, causing inconvenience to the Assessee. The Tribunal directed the A.O. to allow depreciation as claimed, thereby allowing the Assessee's appeal on this issue.

Issue 2: Validity of notice under section 143(2) for reopening assessment
The Assessee contended that the notice for reopening the assessment was invalid as it was impossible to comply with the date mentioned. The notice was dated 29.09.2008, posting the case on 02.09.2008, which the Assessee argued rendered the scrutiny proceedings bad in law. The Tribunal acknowledged the mistake in the notice date but held that it did not invalidate the notice, as the Assessee received it before 31.10.2008. The Tribunal distinguished between an invalid notice and a defective notice, concluding that the notice was defective but did not invalidate the proceedings. Since the Assessee succeeded on merits, the issue of the notice's validity was considered academic. Therefore, the Tribunal rejected the Assessee's grounds on this issue.

In conclusion, the Revenue appeal was dismissed, and the Assessee's appeal was partly allowed based on the Tribunal's detailed analysis of the issues involved in the assessment under section 144 and the validity of the notice for reopening the assessment.