2014 (9) TMI 1185 - AT - Income Tax

Scrutiny under the CASS - CIT-A confirming that the assessment framed u/s 143(3) by the Additional Commissioner of Income Tax, Range III, Chandigarh is with proper jurisdiction - HELD THAT - CIT(A) has correctly adjudicated the issue because in this case the case was selected on the basis of CASS which is also known as Computer Assisted Scrutiny System. Moreover, the case was selected for security on 2.9.2009 when a notice u/s 143(2) was issued whereas the instructions have been issued on 8.9.2010 and, therefore, they cannot apply to the earlier period. Once the case is selected for scrutiny under the CASS and notice is issued u/s 143(2) then whole of assessment is open for scrutiny. In any case the Ld. CIT(A) has correctly observed that this is an administrative matter and could have been objected to before the Commissioner in administrative capacity and cannot be challenged in the appeal, therefore, in our opinion no interference is required in the order of Ld. CIT(A). Disallowance u/s 40A(2)(b) - salary paid to wife of the assessee - Addition in view of the clubbing provisions of section 64(1)- AO observed that assessee was engaged in the advertising business and there was no evidence or any material on record to show that wife of the assessee was engaged in the English Copy writing and preparing the advertisement brochures - HELD THAT - Assessing Officer has referred to the provision of section 40A(2)((b) initially but finally disallowance has been made u/s 64(1)(ii). This has been done because the assessee is running a business in his individual capacity and any remuneration paid to the wife is required to be clubbed with his income. Whether the income is clubbed or the expenditure is disallowed would amount to the same thing because net effect would be to the increase in the income of assessee. Further the Ld. CIT(A) has finally confirmed the disallowance by way of clubbing u/s 64(1)(ii) and we are concerned with the impugned order where reference has been made to section 64(i)(ii) of the Act and no cognizance can be taken for the reference made by Assessing Officer to section 40A(2)(b). Contention as raised by the assessee that the similar expenditure has been allowed in the earlier years even under the scrutiny assessment completed for assessment year 2007-08 is not acceptable because in the case of CIT v British Paints India Ltd 1990 (12) TMI 2 - SUPREME COURT it is incorrect to say, as contended on behalf of the assessee, that the officer is bound to accept the system of accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters and the officer is not bound by the method followed in the earlier years - there cannot be any estoppel if earlier a wrong proposition was accepted by the Assessing Officer against the clear provision of law. This is so because an error cannot be allowed to be perpetuate forever. Difference in the sales - no entry for rebate has been made - HELD THAT - Assessee has credited the account of Glass Palace with individual entries for rebates allowed e.g. against the bill of ₹ 22,244/- as rebate of ₹ 1,747/- is credited but no entry for rebate has been made by M/s Glass Palace. Thus, it becomes clear that M/s Glass Palace has made only one entry at the end of year towards rebates allowed to them through the year which also include adjustments on account of furniture. Similarly, in the of M/s Healthway, perusal of account would show that they have taken credit of total rebate amounting to ₹ 18,37,300/- whereas the assessee has allowed rebates only up to ₹ 16,45,654/-. If other party debits account with more debit without the consent of the assessee then assessee could not be blamed. Therefore, reading of the various entries clearly show that account was duly reconciled and whatever difference is there stand duly explained, therefore, there is no justification in this addition Addition u/s 40A - Cash payment - as submitted that payments were made in various installments for purchase of festival gifts - as per CIT-A even if the payment was made in installments, the same was covered by the provisions of section 40A(3) - disallowance of interest u/s 40A(3) could be made for any payment in cash in excess of ₹ 20,000/-. However, the provision did not contain the expression aggregate of payment and Hon ble Orissa High Court has held that in the case of CIT v Aloo Supply Co. 1979 (12) TMI 60 - ORISSA HIGH COURT that if payments were made at various points of time in a particular day but less than ₹ 2,500/- (as applicable in the relevant year which was later changed to ₹ 20,000/-) then provisions of section 40A(3) was not attracted. Addition u/s 68 or 69A - assessee deposited cash in excess of ₹ 10 lakhs in the year under consideration - as per CIT-A addition could not made u/s 68 and made the addition u/s 69A - HELD THAT - Assessing Officer had information that assessee had deposited certain sums in a bank account and assessee was duly confronted with this information but assessee had no explanation and that is why the addition was made. Merely because the bank pass book cannot be treated as books of account on the basis of certain decisions does not mean that addition is not protected u/s 292B and has been rightly confirmed by the Ld. CIT(A) u/s 69A of the Act. CIT(A) has plenary powers and the scope of the powers to be co-terminus with that of Income Tax officer. Therefore, he can do whatever can be done by the Assessing Officer. The Ld. CIT(A) under these powers has correctly upheld the addition under the correct provisions. Assessing Officer clearly found that assessee had deposited cash for which assessee had no explanation and that is why addition was made. CIT(A) has not discovered anything new except that he agreed with the contention that addition could not made u/s 68 and made the addition u/s 69A of the Act. Thus we find nothing wrong with the order of Ld. CIT(A) and confirm the same.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under section 143(3).
2. Addition of Rs. 1,80,000/- invoking section 64(1)(iii) and section 40A(2)(b)/section 37(1).
3. Addition of Rs. 2,77,632/- due to discrepancies in accounts.
4. Addition of Rs. 23,500/- under section 40A(3).
5. Treatment of addition under section 68 as unexplained investment under section 69A.
6. Addition of Rs. 18,56,644/- due to unexplained deposits.

Detailed Analysis:

Jurisdiction of the Assessing Officer under section 143(3):
The assessee challenged the jurisdiction of the Additional Commissioner of Income Tax, Range III, Chandigarh, in framing the assessment under section 143(3). The assessee argued that as per CBDT instructions, scrutiny should be limited to AIR information unless expanded with the Commissioner's approval. However, the Tribunal found that the case was selected under CASS (Computer Assisted Scrutiny System) before the instructions were issued, and thus, the entire assessment was open for scrutiny. The Tribunal upheld the CIT(A)'s order, stating that the issue was administrative and could not be challenged in appeal.

Addition of Rs. 1,80,000/- invoking section 64(1)(iii) and section 40A(2)(b)/section 37(1):
The assessee paid a salary of Rs. 1,80,000/- to his wife, which the Assessing Officer disallowed under section 64(1) due to a lack of evidence of services rendered. The CIT(A) confirmed the disallowance, noting that the wife's M.Sc. in Botany did not qualify her for the advertising business. The Tribunal upheld the CIT(A)'s decision, stating that the wife's qualification was irrelevant to the job, and the clubbing provisions of section 64(1)(ii) applied. The Tribunal dismissed the argument that similar expenses were allowed in previous years, citing the Supreme Court's stance that there is no estoppel in tax matters.

Addition of Rs. 2,77,632/- due to discrepancies in accounts:
The Assessing Officer noted discrepancies in the accounts of M/s Glass Palace and M/s Healthyway. The assessee argued that the differences were due to rebates and adjustments not recorded similarly by both parties. The CIT(A) upheld the additions, but the Tribunal found that the accounts were reconciled, and the differences were explained. The Tribunal set aside the CIT(A)'s order and deleted the addition.

Addition of Rs. 23,500/- under section 40A(3):
The Assessing Officer added Rs. 23,500/- for cash payments exceeding Rs. 20,000/-. The assessee contended that the payments were made in installments. The CIT(A) upheld the addition, but the Tribunal found that the law before 31.3.2008 did not aggregate payments for section 40A(3) disallowance. Citing relevant case law, the Tribunal deleted the addition.

Treatment of addition under section 68 as unexplained investment under section 69A:
The Assessing Officer added Rs. 19,50,644/- under section 68 for unexplained cash deposits. The CIT(A) agreed that section 68 did not apply to bank passbooks but confirmed the addition under section 69A, reducing it to Rs. 18,56,644/- for the relevant year. The Tribunal upheld the CIT(A)'s decision, stating that the addition was protected under section 292B and within the CIT(A)'s plenary powers.

Addition of Rs. 18,56,644/- due to unexplained deposits:
The CIT(A) confirmed the addition of Rs. 18,56,644/- under section 69A for unexplained cash deposits. The Tribunal upheld this decision, noting that the CIT(A) correctly applied the law and exercised his powers to confirm the addition under the appropriate section.

Conclusion:
The Tribunal partially allowed the appeal, deleting the additions for discrepancies in accounts and cash payments but upheld the other additions, including the significant unexplained cash deposits.