2015 (10) TMI 1486 - AT - Income Tax

Addition made under section 144 - penalty under section 271(1)(c) - Held that - Even though A.O. has given many opportunities and also issued show cause notices proposing additions under section 144, just because assessee Managing Director could not appear on the given date, in our view, the additions could not be made without analyzing the business activity of assessee. A.O. can enquire expenditure claims made in the P & L account. However, the outstanding sundry creditors or liabilities are not from the P & L account but are Balance Sheet amounts. The outstanding amount cannot become income, unless it is established that the credits were received during the year and further they are unexplained. Nothing was brought on record by the A.O. and only the outstanding amount was brought to tax without examining the nature of the amounts. Moreover, when assessee sought to file additional evidence, in our view, Ld. CIT(A) rejected admission of the same without any valid reason. Assessee is justifying that Managing Director could not appear before the A.O. on the given date due to ill-health. If Ld. CIT(A) has any doubt about the claims made, then it is for the Ld. CIT(A) to ask assessee to furnish necessary evidences. Without doing so the contention cannot be rejected on the reason that necessary evidence was not furnished. Even otherwise, the additions per se cannot be justified without examining the contentions. In view of this, we have no hesitation in setting aside the order of the Ld. CIT(A) and A.O. and restore the assessment to the file of A.O. to do it afresh, as per the facts of the case and law on the subject. Needless to say that assessee should be given due opportunity in the proceedings. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Assessment under section 144 and penalty under section 271(1)(c) for A.Y. 2008-2009.
2. Compliance with notices during assessment proceedings.
3. Addition of sundry creditors and disallowance of expenditure.
4. Rejection of additional evidence by Ld. CIT(A).
5. Justification of claims in P & L account and balance sheet.
6. Non-appearance of assessee before the Assessing Officer.
7. Validity of penalty levied without waiting for Ld. CIT(A) order.

Analysis:
1. The appeals were against the Orders of the Ld. CIT(A)-IV, Hyderabad confirming additions made under section 144 and penalty under section 271(1)(c) for A.Y. 2008-2009. The assessee, engaged in real estate business, declared a loss in the return of income. Non-compliance with notices led to a show cause letter proposing additions under section 144. The Managing Director cited business inactivity due to real estate issues for non-appearance before the A.O. The Ld. CIT(A) upheld the additions, leading to the appeal.

2. The contention was that the A.O. and Ld. CIT(A) erred in completing the assessment without providing proper opportunity to the appellant. The Ld. CIT(A) upheld the addition of outstanding sundry creditors and disallowance of expenditure, rejecting additional evidence. The grounds raised included errors in law and facts regarding the assessment process.

3. The A.O. justified the actions due to the assessee's non-appearance. However, the ITAT found that the additions were made without analyzing the business activity and without sufficient examination of outstanding liabilities. The Ld. CIT(A) rejected additional evidence without valid reasons, leading to the setting aside of the orders and restoration of the assessment to the A.O. for a fresh examination.

4. The penalty levied by the A.O. without waiting for the Ld. CIT(A) order was deemed invalid since the assessment was set aside. The ITAT allowed the appeals of the assessee for statistical purposes, emphasizing the need for a fair assessment process and due opportunity for the assessee to substantiate claims.

5. In conclusion, the ITAT overturned the decisions of the lower authorities, emphasizing the importance of a thorough assessment process, proper examination of evidence, and granting the assessee a fair opportunity to present their case. The penalty order was set aside, and the assessment proceedings were restored to the A.O. for a fresh review.