2016 (1) TMI 646 - AT - Income Tax

Reopening of assessment - Held that - The reassessment proceedings were validly initiated. The AO noticing that interest on loan was claimed as deduction against the insurance commission can definitely form a belief regarding escapement on income. The return filed by the assessee was not the subject matter on regular assessment u/s 143(3) and only an intimation u/s 141 has been issued. There is no merit in the ground raised by the assessee - Decided against assessee Brokerage paid on Commission disallowed - Held that - In the appellate proceedings the assessee had claimed that being a lady she cannot freely move around to procure insurance agency business and therefore she had engaged certain people on a commission basis. This claim of the assessee was not substantiated. The assessee did not give any details of the expenses and was not able to prove the expenses out of the LIC commission received. The CIT(A) therefore confirmed the addition made by the AO. Even before us the Assessee could not substantiate the claim made in this regard by filing the required evidence. In these circumstances the addition is sustained. - Decided against assessee Consultancy charges disallowed - Held that - Though the assessee has made submission regarding disallowance of consultancy charges in the written submission filed before CIT(A) the assessee did not make take any specific grounds of appeal before the CIT(A). Hence no decision was given by the CIT(A) on this issue. Even before me no specific evidence in this regard was brought to our notice. In these circumstances we sustain the addition made. - Decided against assessee Interest disallowed - Held that - The assessee claimed that she has taken loan from her family members which stands at 24, 40, 839/- as at 31.03.2005 and she had not paid any interest on the same. The assessee also claimed that she had given interest free loan to the family members which stands at 11, 62, 255/- as at 31.03.2005. The assessee contended that she had also borrowed from HSBC Bank a sum of 12, 13, 896/- and this amount was invested in the activity of purchases and sales of Shares 1l6/-. The assessee claimed dividend on shares of 3, 15, 593/- and it was taken as exempt income. The demat charges are directly related to this non taxable income and therefore this claim was also rejected by the CIT(A). No ground to interfere with the order of the CIT(A). - Decided against assessee LIC premium - rebate u/s.88 denied - Held that - in the light of the legal provisions of Sec.88 rebate when total income exceeds 5 lacs cannot be allowed. Therefore the decision of the A.O/CIT(A) is as per law and no interference is called for. - Decided against assessee

Summary

Issues Involved:
1. Validity of service of notice under Section 143(2) of the Income Tax Act.
2. Validity of initiation of proceedings under Section 148 of the Income Tax Act.
3. Disallowance of various expenses and claims by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Validity of Service of Notice under Section 143(2):
The primary issue raised by the assessee was the validity of the service of notice under Section 143(2) of the Income Tax Act. The assessee argued that the notice was not served within the stipulated time prescribed by law, rendering the reassessment order without jurisdiction and invalid. The return of income was filed on 1.8.2005, and the notice under Section 148 was issued subsequently. The return in response to this notice was deemed to have been filed on 15.5.2007. According to the provisions, the notice under Section 143(2) should have been served by 31.5.2008. However, the notice was served on 5.9.2008. The AO and the CIT(A) held that the amended provisions of Section 143(2) by the Finance Act, 2008, which allowed six months from the end of the financial year for serving the notice, were applicable. The tribunal upheld this view, stating that the service of notice was within the time contemplated by law, rejecting the assessee's ground of appeal.

2. Validity of Initiation of Proceedings under Section 148:
The assessee contended that the reopening of the assessment under Sections 147/148 was not tenable in law. The reassessment was initiated because the assessee had claimed interest against commission income. The AO also disallowed other expenses during reassessment. The tribunal referenced Explanation 3 to Section 147, which empowers the AO to assess any income that escapes assessment once reassessment proceedings are validly initiated. The tribunal found that the AO had valid reasons to believe there was escapement of income, thus validating the reassessment proceedings.

3. Disallowance of Various Expenses and Claims:
- Brokerage Paid on Commission: The assessee claimed a deduction for brokerage paid, which the AO disallowed due to lack of evidence. The CIT(A) and the tribunal upheld this disallowance as the assessee failed to substantiate the claim.
- Consultancy Charges: The assessee did not provide specific grounds or evidence for this claim before the CIT(A) or the tribunal, leading to the disallowance being sustained.
- Interest on Overdraft: The assessee claimed interest on an overdraft account against commission income. The CIT(A) and the tribunal found no evidence of a direct nexus between borrowed funds and investment in shares, sustaining the disallowance.
- Demat Charges: The demat charges were related to non-taxable dividend income, leading to the disallowance being upheld by the CIT(A) and the tribunal.
- Rebate under Section 88: The assessee's claim for rebate under Section 88 was disallowed as her total income exceeded Rs. 5,00,000, which is in accordance with the legal provisions. The tribunal upheld the AO and CIT(A)'s decision.

Conclusion:
The tribunal dismissed the appeal of the assessee, upholding the validity of the service of notice under Section 143(2), the initiation of proceedings under Section 148, and the disallowance of various expenses and claims by the AO. The judgment emphasized adherence to procedural laws and the necessity of substantiating claims with evidence.