2014 (9) TMI 199 - AT - Income Tax

Reopening of assessment u/s 147 r.w section 148 Held that - In Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited 2007 (5) TMI 197 - SUPREME Court it has already been held that intimation u/s 143(1)(a) cannot be treated as assessment order - It is only when regular assessment is made, the AO gets an opportunity of applying his mind to various aspects concerning the assessment - such noticing as may be from the material already on record or some new material coming to his knowledge - ADIT noticed that Assessee was the real owner of various projects and the Managing Director of the Assessee had also admitted to undisclosed profit from Kalhar Bunglow Project, the main project being developed by Assessee and offered the same to tax - the material was sufficient to the AO to proceed with the proceedings of reopening of the assessment - the AO was fully justified in re-opening the assessment Decided against assessee. Addition u/s 68 - Failure to discharge onus upon assessee Held that - AO has noted that Assessee had received unsecured loans but Assesse had not discharged the onus by proving the identity, capacity and genuineness of the transaction - CIT(A) has not given any finding with respect to the deposits received by the Assessee and further the depositers are different in both the AYs i.e. A.Y. 2000-01 and A.Y. 97-98 - one more opportunity be granted to Assessee to furnish all the required details called for by the AO so as to discharge the onus as required u/s. 68 of the Act the matter is to be remitted back to the AO for fresh adjudication Decided in favour of revenue. Bogus and unexplained liability Held that - AO while disallowing the liability for expenses has noted that Assessee did not furnish the necessary evidence while CIT(A) deleted the addition has noted that AO has not disproved the claim of Assessee that each liability was supported by evidences and the reply was furnished before AO - CIT(A) has not called any remand report from AO - no details of the liability for expenses, except as shown in the Balance sheet was placed on record - the issue needs re-examination at the end of CIT(A) thus, the matter is to be remitted back to the CIT(A) for adjudication Decided in favour of revenue. Application of net profit rate Held that - CIT(A) while deleting the addition has noted that AO has not brought any material on record of any details/instances of unvouched expenses and not pointed any instance in which the expenses debited to Profit and Loss Account etc. was recovered from the project - on similar facts for A.Y. 97-98, the rejection of books of accounts was not upheld by ld. CIT(A) - Revenue was not brought any material to controvert the finding of CIT(A) the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:

1. Validity of notice issued under Section 148 and reassessment under Section 147.
2. Addition under Section 68 for unexplained cash credits.
3. Addition on account of bogus and unexplained liability.
4. Addition by applying net profit rate under Section 44AD.
5. Adequate opportunity of being heard and procedural fairness.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued Under Section 148 and Reassessment Under Section 147:

The Assessee challenged the reopening under Sections 147 and 148 of the Act, arguing that the notice was issued beyond four years without any new material, constituting a change of opinion, which is impermissible in law. The Revenue countered that the original return was processed under Section 143(1) without any assessment under Section 143(3), and new material was discovered during a search operation revealing undisclosed profits. The Tribunal held that since the original return was processed under Section 143(1) and no assessment was made under Section 143(3), the Assessing Officer (AO) was justified in reopening the assessment based on the new material found during the search. The Tribunal cited the Supreme Court's decision in Rajesh Javeri Stock Brokers Pvt. Ltd., which held that intimation under Section 143(1)(a) is not an assessment order, allowing the AO to reopen the case if new material suggests income escapement.

2. Addition Under Section 68 for Unexplained Cash Credits:

During reassessment, the AO noted that the Assessee received unsecured loans aggregating Rs. 14,95,000 from nine parties but failed to provide satisfactory explanations for these cash credits. The CIT(A) deleted the addition, noting that the Assessee had furnished names, addresses, PAN numbers, and confirmations for some creditors. The Revenue argued that the CIT(A) did not call for a remand report from the AO. The Tribunal remitted the matter back to the AO for fresh examination, directing the Assessee to furnish all required details to establish the identity, creditworthiness, and genuineness of the transactions.

3. Addition on Account of Bogus and Unexplained Liability:

The AO disallowed Rs. 34,79,726 as unexplained liability, noting an increase in liability for goods without corresponding purchases. The CIT(A) deleted the addition, stating that the liabilities were supported by documentary evidence, and the AO had not disproved the Assessee's claims. The Revenue contended that the CIT(A) did not call for a remand report. The Tribunal remitted the issue back to the CIT(A) for re-examination and to record findings on the liability, directing the CIT(A) to provide adequate hearing opportunities to both parties.

4. Addition by Applying Net Profit Rate Under Section 44AD:

The AO applied an 8% net profit rate under Section 44AD, estimating the profit at Rs. 3,11,094, noting that the Assessee's declared profit rate was low. The CIT(A) deleted the addition, observing that the AO did not point out any specific unvouched expenses or defects in the books of accounts. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not provide material to counter the CIT(A)'s findings.

5. Adequate Opportunity of Being Heard and Procedural Fairness:

The Tribunal emphasized the importance of providing adequate opportunities for hearing and procedural fairness. It directed both the AO and CIT(A) to ensure that the Assessee is given sufficient opportunity to present required details and evidence, and to base their decisions on a thorough examination of all submitted materials.

Conclusion:

The appeal of the Revenue was partly allowed for statistical purposes, and the cross-objection of the Assessee was dismissed. The Tribunal remitted certain issues back to the AO and CIT(A) for re-examination, ensuring procedural fairness and adequate opportunities for both parties to present their cases.