2017 (11) TMI 130 - HC - Income Tax

Reopening of assessment - Whether when the matter u/s 148 was pending against jurisdiction of the CIT(A), Gwalior, second show cause notice issued on the same subject is without any authority of law? - Held that - . Since, the original proceedings were pending before the CIT(A), without entering into the question of jurisdiction of the Sawaimadhopur AO, the fact remains that the adjudicating authority could not have issued second show cause notice u/s 148. In that view of the matter, without entering into the matter whether the Gwalior or the Sawaimdhopur, AO has jurisdiction or not, the second show cause notice is held to be not legal. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of issuance of a second notice under Section 148 during the pendency of an appeal against the first notice issued under Section 148.
2. Justification of the Tribunal's decision that the appellant failed to prove the creditworthiness required under Section 68 of the Income Tax Act, leading to the sustenance of the addition of ?11,97,472/- as cash credits.

Issue-wise Detailed Analysis:

1. Validity of Issuance of Second Notice under Section 148:
The court examined whether the Tribunal was justified in holding that the issuance of a second notice under Section 148 for reopening the assessment during the pendency of an appeal against the first notice issued under Section 148 is valid. The appellant contended that the second notice issued on the same subject during the pendency of the first appeal was without any authority of law. The court considered relevant case laws including Aditya Medisales Ltd. vs. Deputy Commissioner of Income Tax, Commissioner of Income Tax vs. Jaideo Jain and Co., and Trustees of H.E.H., the Nizam’s Supplemental Family Trust vs. Commissioner of Income Tax. These precedents established that during the pendency of the original assessment proceedings, issuing a second notice under Section 148 is not valid. The court concluded that since the original proceedings were pending before the CIT(A), the second show cause notice under Section 148 was not legal.

2. Justification of Tribunal's Decision on Creditworthiness under Section 68:
The second issue addressed whether the Tribunal was justified in holding that the appellant could not discharge the burden to prove the creditworthiness as required under Section 68 of the Income Tax Act, thus sustaining the addition of ?11,97,472/- as cash credits. The appellant argued that evidence including affidavits, PAN numbers, payment through cheques, and IT file numbers of the creditors were available. However, the Tribunal maintained that mere submission of these documents did not suffice to prove the creditworthiness of the creditors. The court referred to relevant case laws such as Deputy Commissioner of Income Tax vs. Rohini Builders and Commissioner of Income Tax vs. Lovely Exports (P) Ltd., which highlighted the requirement for satisfactory explanation and evidence to substantiate the creditworthiness of creditors. The court found that the Tribunal's decision was based on the appellant's failure to provide a satisfactory explanation and evidence regarding the creditworthiness of the creditors.

Conclusion:
The court ruled in favor of the assessee on both issues. It held that the second show cause notice under Section 148 was not legal due to the pendency of the original proceedings before the CIT(A). Consequently, the second issue regarding the addition of ?11,97,472/- as cash credits was also decided in favor of the assessee. The appeal was allowed, and both issues were answered in favor of the assessee and against the Department.