2014 (10) TMI 173 - AT - Income Tax

Reassessment - Reasons recorded shows income escaped or not Held that - CIT(A) recorded that the reasons do not show any income chargeable to tax that has escaped assessment and while completing the assessment, no addition for any income escaping assessment has been made - The addition made is in respect of estimation of income by rejecting the books of accounts - once the AO accepts the objection of the assessee and does not assess the income which was the basis of the notice, it is not open to him to assess income under some other issue independently - the addition was made in respect of estimation of income by rejecting the books of account following the decision in CIT Versus Jet Airways (I) Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY - once the AO accepts the objection of the assessee and does not assess the income which was the basis of the notice u/ 148, it is not open to him to assess income under some other issue independently - if no addition is made in respect of those issues as per which the reopening was made, no different addition can be made in such a situation - the only addition made by the AO by estimating the sales of the assessee and by applying net profit rate of 2.5% whereas in the reasons recorded by the AO for reopening the assessment, the basis of reopening was that in course of search conducted by CBI, cash of around ₹ 79.95 lac and FDR of ₹ 74 lac were found there was no reason to interfere in the order of CIT(A) Decided against revenue. Undisclosed investment in FDRs Held that - The assessment was completed by the AO u/s 143(3)/144 of the Act because required evidences were not produced by the assessee before the AO in spite of providing sufficient opportunities - CIT(A) has estimated the net profit rate at 0.8% on the basis of profit rate of earlier years i.e. AY 2007-08, 2008-09 and 2009-10 but CIT(A) has not obtained any remand report and the matter should go to CIT(A) for a fresh decision after obtaining remand report from the AO - the order of CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication Decided in favour of revenue. Estimation of net profit from business Applicability of section 44AF Addition u/s 68 - Held that - The CIT(A) has decided the issue without obtaining any remand report from the AO - an addition was made by the AO u/s 68 of the Act - CIT(A) has held that the AO is not justified in invoking the provisions of section 68 of the Act because the amount was found credited in the bank account of the assessee and not in the books of account of the assessee - the nature and source of deposit in the bank account of the assessee is to be examined with reference to section 69 of the Act - CIT(A) has noted various dates of deposit of amount in the bank account - the assessee received maturity proceeds from ICICI Prudential Life Insurance in respect of investment of each in three financial years i.e. AYs 2004-05, 2005-06 and 2006-07 - these facts were never brought by the assessee before the AO - CIT(A) has also noted that the assessee has filed extract of cash book maintained for its business activities and he has given a finding that the deposits in the bank account are out of cash available as per cash book - This cash book was not produced before the AO the matter is to be remitted back to the AO for fresh adjudication Decided in favour of revenue.

Summary

Issues Involved:

1. Jurisdiction of the AO in reassessment proceedings.
2. Deletion of additions made by the AO on account of undisclosed investments and estimation of income.
3. Acceptance of fresh evidence by CIT(A) without obtaining a remand report from the AO.

Issue-wise Detailed Analysis:

1. Jurisdiction of the AO in Reassessment Proceedings:

The first appeal concerns the assessment year 2010-11 for Anokhe Lal, Prop. Suraj Traders. The Revenue contended that the CIT(A)-II, Lucknow erred by observing that the reasons recorded did not show any income chargeable to tax that had escaped assessment, and no addition for income escaping assessment was made by the AO. The CIT(A) concluded that the AO ceased to have jurisdiction to proceed with the reassessment and allowed relief to the assessee. The CIT(A) relied on judgments from the Hon'ble Bombay High Court in CIT vs. Jet Airways (331 ITR 236) and the Hon'ble Delhi High Court in Ranbaxy Laboratories vs. CIT (200 Taxman 242), holding that if no addition is made on the issues for which the reopening was initiated, no different addition can be made. The Tribunal upheld the CIT(A)'s decision, noting that the AO had only made an addition by estimating sales and applying a net profit rate, which was not the basis for reopening the assessment. Therefore, the appeal of the Revenue was dismissed.

2. Deletion of Additions Made by the AO on Account of Undisclosed Investments and Estimation of Income:

For the assessment year 2011-12, the Revenue appealed against the deletion of additions made by the AO on account of undisclosed investments and estimation of income. The CIT(A) had deleted the addition of Rs. 20,00,000 in FDRs and reduced the income estimation from 2.5% to 0.85%. The Tribunal noted that the CIT(A) had based the estimation on profit rates of earlier years but had not obtained a remand report from the AO. The Tribunal decided that the matter should be remanded back to the CIT(A) for fresh decision after obtaining a remand report from the AO, thus allowing the appeal for statistical purposes.

3. Acceptance of Fresh Evidence by CIT(A) Without Obtaining a Remand Report from the AO:

In the case of Anokhe Lal HUF for the assessment year 2011-12, the Revenue challenged the deletion of various additions made by the AO, including an addition of Rs. 12,50,801 under section 68 of the Income Tax Act. The CIT(A) had held that the AO was not justified in invoking section 68 as the amount was credited in the bank account and not in the books of account of the assessee. The CIT(A) also noted that the deposits were out of cash available as per the cash book, which was not produced before the AO. The Tribunal found that the CIT(A) had accepted fresh evidence without obtaining a remand report from the AO. Therefore, the Tribunal set aside the CIT(A)'s order and remanded the matter back to the CIT(A) for fresh decision after obtaining a remand report from the AO, allowing the appeal for statistical purposes.

Conclusion:

The Tribunal dismissed the Revenue's appeal for the assessment year 2010-11 and allowed the appeals for the assessment year 2011-12 for statistical purposes, remanding the matters back to the CIT(A) for fresh decisions after obtaining remand reports from the AO.