2015 (12) TMI 188 - AT - Income Tax

Validity of assessment completed u/s 144 without - valid service of notice u/s 142(1) questioned - addition on account of cash deposited in bank - Held that - The notice u/s. 142(1) dated 05.11.2007 was issued by ITO ward 41(4), New Delhi to the assessee through speed post to direct the assessee to furnish his return of income for A.Y. 2005-06. The said notice was not received back undelivered. The second show cause notice under Section 142(1) dated 07.12.2007 was issued and the same was also not received back undelivered. Since the notices were not received back unserved within thirty days of its issuance, there would be presumption under the law that notice had been duly served upon the assessee. The assessee received the Show Cause Notice u/s. 271(1)(b) of the Income Tax Act, 1961 dated 18.06.2008. Thus, the Assessment order under Section 144 of the Income Tax Act, 1961 is proper. As relates to addition made on account of cash deposited in bank, additional evidence should have been allowed by the Ld. CIT(A) after giving opportunity to the Assessing Officer under Rule 46A(3) of the Income Tax Rules, 1962. Though the AR submitted that there was more than 8 months given to the Assessing Officer to send his remand report, in the interest of justice it will be proper to give time to look into the specific books of accounts including inter alia cash book of the assessee and fresh opportunity should have been given to the Assessing Officer while coming to the conclusion. In this respect the matter is remitted back to the Assessing Officer to look upon the additions made on account of cash deposits in bank. - Decided in favour of revenue for statistical purpose.

Summary

Issues:
1. Validity of notice u/s 142(1) for assessment
2. Treatment of cash deposits in bank as undisclosed income
3. Admission of additional evidence under Rule 46A

Issue 1: Validity of notice u/s 142(1) for assessment
The Revenue filed an appeal against the order passed by CIT(A) for the Assessment Year 2005-06. The Revenue contended that the Ld. CIT(A) erred in deleting the addition made on account of cash deposited in the bank, as well as in ignoring the facts mentioned in the Remand Report submitted by the A.O. The Revenue also argued that the notice u/s 142(1) was unserved, rendering the assessment bad in law. However, the Ld. CIT(A) found that the Assessing Officer failed to provide any cogent evidence of serving the notice u/s 142(1) to the assessee before framing the assessment. Consequently, the Ld. CIT(A) quashed the assessment order u/s 144, ruling in favor of the assessee on this issue.

Issue 2: Treatment of cash deposits in bank as undisclosed income
The assessee, engaged in the sale/purchase of mobile phones, had deposited a significant amount of cash in a bank account, leading the Assessing Officer to treat it as undisclosed income. The Ld. CIT(A) allowed the appeal of the assessee, emphasizing that the Assessing Officer did not provide any adverse comments on the additional evidence challenging the cash deposit addition. The Ld. CIT(A) directed a proper enquiry and examination of the books of accounts, including the cash book, before taking a view on the matter. The Ld. CIT(A) held that since the assessment order u/s 144 was quashed, the additional evidence filed by the assessee was admitted.

Issue 3: Admission of additional evidence under Rule 46A
The assessee applied for admission of additional evidence under Rule 46A, which was allowed by the Ld. CIT(A) after considering the relevant documents filed by the assessee and the report of the Assessing Officer. The Ld. CIT(A) observed that the documents filed by the assessee were crucial to the grounds of appeal. The Ld. CIT(A) admitted the additional evidence under Rule 46A(1)(c) of the Income Tax Rules, 1962, as it was deemed relevant to the case. The Revenue argued that the additional evidence should have been allowed after giving an opportunity to the Assessing Officer under Rule 46A(3) for a proper examination. The matter was remitted back to the Assessing Officer for further review.

In conclusion, the appeal was partly allowed for statistical purposes, and the judgment was pronounced on November 6, 2015, by the Appellate Tribunal ITAT DELHI.