2014 (10) TMI 315 - AT - Income Tax

Revision u/s 263 Reopening of assessment u/s 147 New issues can be introduced or not Held that - Income chargeable to tax, in terms of bogus gift has escaped assessment as per provisions of s.147 of the I.T. Act, 61 - Therefore action u/s 147 is being initiated and notice u/s 148 is being issued and any addition made beyond the issue covered by the said reasons recorded or any other issue incidental to the same is wholly illegal - the assessee s contention that scope of revision under section 263 in relation to an assessment made under section 147 is circumscribed by issues directly arising out of reasons recorded and assessment made in pursuance thereof - New issues cannot be roped-in in the proceedings u/s 263. Addition of gifts and expenses Held that - In relation to the said gifts aggregating ₹ 6,00,000/- and also earlier gifts of ₹ 4,00,000/- , which had already been included in the revised return filed on 28.03.2003, the AO had added further sums aggregating ₹ 50,000 - It is stated that first of all the gifts were genuine and not managed and in any case, no material has been brought on record to justify the addition. Disallowance out of telephone expenses Held that - Assessee has debited ₹ 58,360/- on account of Telephone Expenses - the expenses in this respect were not open to full verification and log book was being maintained in respect of these expenses - a disallowance is being made to cover up for any personal use of Telephone. Ad hoc addition of low withdrawals for house hold expenses Held that - Without bringing on record any material or information in support of the estimate of household expenses made by the AO, no such addition can be made as it amounts to raising a fiction to the fiction which is not permissible following the decision in Raj Kumar Jain vs. Asstt. CIT 1994 (5) TMI 234 - ITAT ALLAHABAD - once the entire assessment is open before the AO after validly reopening the assessment, then the jurisdiction of the CIT u/s 263 of the Act would extend to entire assessment order and cannot be confined to the items which formed part of reasons recorded for reopening of assessment Decided against assessee. Suppressed sales Held that - CIT(A) rightly was of the view that the sale is consignment sale and the commission income of such consignment business is recorded in the books of the assessee which has not been questioned and this is continuing from year to year - the reconciliation furnished by the assessee seems to be valid and there is no adverse finding in respect of the explanation of the assessee on this issue given by the AO. Interest paid on unsecured loan Applicability of section 40A(2) Held that - The assessee has made total sales of ₹ 239.81 lac to M/s Shiva Tea Company and the entire outstanding debit balance in the account of the firm is against sales made during the year under consideration the order of the CIT(A) is upheld Decided against revenue.

Issues Involved:
1. Validity of reassessment proceedings under Section 147.
2. Legality of additions/disallowances made in the reassessment order.
3. Jurisdiction of CIT under Section 263.
4. Admissibility of evidence and burden of proof in establishing the genuineness of gifts.
5. Disallowance of expenses and household withdrawals.
6. Suppressed sales and interest on unsecured loans.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The assessee challenged the reassessment order dated 30/03/2005 on the grounds that the proceedings under Section 147 were not validly initiated or concluded, and the assessment order was without jurisdiction. The Tribunal upheld the CIT(A)'s decision to dismiss the appeal, noting that the reassessment order had been set aside by CIT under Section 263, confirmed by ITAT, making the reassessment order non-existent.

2. Legality of Additions/Disallowances in Reassessment Order:
The assessee contested various additions/disallowances, including enhancement of business income, unexplained credits, and inadequate household withdrawals. The Tribunal found the CIT(A) justified in dismissing the appeal as the reassessment order had already been set aside under Section 263. The Tribunal also confirmed the additions made by the Assessing Officer for unexplained gifts and related expenses, as the assessee failed to prove the genuineness of the gifts.

3. Jurisdiction of CIT under Section 263:
The Tribunal discussed the scope of CIT's jurisdiction under Section 263, emphasizing that once an assessment is reopened, the entire assessment is open for review, not just the items forming part of the reasons recorded. This was previously established in the Tribunal's decision confirming the CIT's order under Section 263.

4. Admissibility of Evidence and Burden of Proof:
The assessee failed to establish the genuineness of the gifts received, leading to the confirmation of additions by the Assessing Officer. The Tribunal noted that the assessee could not produce sufficient documentary evidence or establish the identity and creditworthiness of the donors.

5. Disallowance of Expenses and Household Withdrawals:
The Tribunal upheld the disallowance of telephone expenses for personal use and the addition for low household withdrawals, finding the Assessing Officer's estimates reasonable and justified. The assessee's failure to maintain separate records for personal and business expenses justified the disallowance.

6. Suppressed Sales and Interest on Unsecured Loans:
The Revenue's appeal against the deletion of additions for suppressed sales and interest on unsecured loans was dismissed. The Tribunal found that the CIT(A) correctly identified the sales as consignment sales, with commission income duly recorded in the books. The Tribunal also upheld the CIT(A)'s finding that no borrowed funds were diverted as interest-free loans, as the debit balance was against sales made during the year.

Conclusion:
Both the appeals of the assessee and the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decisions on all issues, confirming the validity of the reassessment proceedings, the legality of additions/disallowances, and the jurisdiction of CIT under Section 263. The Tribunal also emphasized the importance of proper documentation and evidence in establishing the genuineness of transactions.

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