2019 (5) TMI 844 - AT - Income Tax

Addition of excess capital balance - difference between balance of capital shown closing in earlier year and opening in current year - entry made current year - HELD THAT - AO referred to the excess capital shown by the assessee as on 01-04-2008 by ₹ 4.00 lakh which formed the basis for the addition. Instantly, we are considering the A.Y. 2008-09 covering the period 01-04-2007 to 31-03-2008. It is revealed that on 31-03-2008, the assessee had correctly shown closing balance of capital at ₹ 19.20 lakh. The excess amount of ₹ 4.00 lakh was shown on 01-04-2008, which is the first day of the financial year 2008- 09 with the corresponding assessment year of 2009-10. Since such excess capital was recorded in the books for the financial year relevant to the A.Y. 2009-10, no addition on this score could have been made for A.Y.2008-09 under consideration. We, therefore, order to delete this addition. Reopening of assessment - no addition based on reasons deleted by tribunal - validity of other addition and reassessment proceedings - addition on account of excess capital balance and also Tax Evasion Petition (TEP) detailing undisclosed investment made by the assessee in certain properties - HELD THAT - If the grounds set out in the re-assessment notice are nonexistent, i.e., either no addition is made on such grounds or the addition so made does not finally pass the scrutiny by the appellate forums, then, obviously, no further addition can be made for income which comes to his notice during the course of proceedings u/s 147 - If the AO fails to acquire a valid jurisdiction to make re-assessment on the basis of his reasons, then, he is also debarred for making additions for other incomes chargeable to tax which escaped assessment and come to his notice subsequently in the course of proceedings u/s 147. Only addition made by the AO out of the recorded reasons stands deleted. As in Jet Airways 2010 (4) TMI 431 - HIGH COURT OF BOMBAY we order to delete the addition since the sole addition made by the AO on the foundation of the recorded reasons has not passed the judicial scrutiny by the Tribunal in an earlier para. Thus, there can be no question of making any other addition to the income. We, therefore, hold that the initiation of reassessment was bad in law. Non-service of notice u/s.143(2) - HELD THAT - CIT(A) called for a remand report from the AO. The AO confirmed that not only notice u/s.143(2) was issued but the same was also served on the assessee. A copy of acknowledgment issued by the postal authorities in this regard was sent back to the ld. first appellate authority, which has been reproduced on page 7 of the impugned order - notice u/s.143(2) of the Act was issued and served as affirmed by the postal authorities, we hold that no exception can be taken to the view adopted by the ld. CIT(A) on this score. Validity of initiation of re-assessment proceedings - AO failed to obtain sanction before the issue of notice u/s.148 - HELD THAT - Notice u/s.148 was issued on 15-03-2016 which is within a period of four years from the end of the relevant assessment year and further no scrutiny assessment was done earlier. He further observed that the requirement of approval is only when there is previous scrutiny assessment and the period of more than four years from the relevant assessment year has elapsed. The ld. AR could not point out any infirmity in the raison d etre given by the ld. CIT(A). We, therefore, refuse to interfere in the impugned order to this extent. Not passing a separate order to the objections taken by the assessee against the initiation of re-assessment - HELD THAT - Notice u/s.148 was issued on 15-03-2016 which was served on 16-03-2016. No reply was filed in response to notice u/s.148. It is not coming either from the assessment order or from any other material that assessee raised any objection to the initiation of re-assessment proceedings, which could have warranted the passing of a separate order by the AO before espousing the assessment on merits. It is further pertinent to note on a perusal of the grounds taken before the CIT(A) that no such issue was taken up. AR has not invited our attention towards any material divulging the raising of objections before the AO against the initiation of reassessment proceedings.There could have been no occasion for the AO to pass a separate order disposing the objections to the re-assessment. We, therefore, dismiss this ground of appeal. Surrender of additional income - income filed after the conclusion of survey - HELD THAT - The assessee admitted excess salary of ₹ 4,21,500/- for the assessment year under consideration and offered the same as additional income. Thus, it is evident that this component of additional income towards excess salary claimed by the assessee amounting to ₹ 4,21,500/- is not in the air. The assessee himself admitted to have made false claim in his Profit and loss account filed along with the original return of income for the year. In our considered opinion, such amount is rightly chargeable to tax. Advertisement expenses - TDS u/s 194C - HELD THAT - When there was failure on the part of the assessee to deduct tax at source attracting the provisions of section 40(a)(ia), there could have been no reason to be aggrieved by such a surrender made during the course of survey without further showing as to why the disallowance be not made. As such, the surrender to this extent cannot be said to be devoid of any substance. Surrender of suppressed receipts - receipts from tuition fee - HELD THAT - This component of additional income is properly backed by the evidence in as much as the assessee, in fact, received higher tuition fee to this extent but did not include the same in his receipts chargeable to tax. Investment in purchase of flat - HELD THAT - There is no doubt that the assessee agreed to surrender a sum of ₹ 5.00 as additional income. However, the fact of the matter is that the amount of ₹ 5.00 lakh represents application of undisclosed income. While dealing with the suppressed receipts shown by the assessee to the tune of ₹ 27,48,310, we have held that the assessee, in fact, earned income to this extent which was not included in the tuition fee receipts shown in the Profit and loss account. Once there is an earning of some undisclosed income and simultaneously there is an application of this undisclosed income through undisclosed expenditure, it is only the higher amount of unexplained income which can be added and not lower amount of utilization of such undisclosed income in the form of unexplained expenditure. As the amount of ₹ 5.00 lakh offered by the assessee as an unexplained investment is less than the amount of undisclosed tuition fee receipts of ₹ 27.48 lakh, we hold that the surrender to this extent could not have been obtained. We sustain the addition towards undisclosed professional receipts bogus salary expenditure claimed towards the amount not allowable u/s.40(a)(ia). The remaining addition to be deleted. Appeal partly allowed.

Summary

Issues Involved:
1. Confirmation of addition as undisclosed income.
2. Disallowance of expenses due to lack of original bills or vouchers.
3. Validity of initiation of reassessment proceedings.
4. Non-service of notice under section 143(2).
5. Failure to obtain sanction before issuing notice under section 148.
6. Not passing a separate order to objections against reassessment initiation.
7. Confirmation of addition based on survey findings and subsequent retraction.

Detailed Analysis:

Issue 1: Confirmation of Addition as Undisclosed Income (A.Y. 2008-09)
The first issue pertains to the confirmation of an addition of ?4.00 lakh as undisclosed income. The Assessing Officer (AO) initiated reassessment proceedings, citing an excess capital balance of ?4.00 lakh. However, the Tribunal found that the excess capital was recorded on 01-04-2008, which pertains to A.Y. 2009-10, not A.Y. 2008-09. Therefore, the addition of ?4.00 lakh was deleted.

Issue 2: Disallowance of Expenses Due to Lack of Original Bills or Vouchers (A.Y. 2008-09)
The AO disallowed 15% of the total expenses amounting to ?81,405/- due to the absence of original bills or vouchers. The Tribunal noted that since the primary addition of ?4.00 lakh was deleted, the reassessment proceedings were invalid. Consequently, the disallowance of ?81,405/- was also deleted.

Issue 3: Validity of Initiation of Reassessment Proceedings (A.Y. 2008-09)
The Tribunal examined the legality of the reassessment proceedings initiated under Section 147. It concluded that if the grounds for issuing notice under Section 148 are non-existent or invalid, no further additions can be made. Since the primary addition of ?4.00 lakh was deleted, the reassessment initiation was deemed invalid, and all subsequent proceedings were set aside.

Issue 4: Non-Service of Notice Under Section 143(2) (A.Y. 2013-14)
The assessee argued that no notice under Section 143(2) was served. However, the AO provided evidence of the notice being issued and served, confirmed by postal authorities. The Tribunal upheld the CIT(A)'s view, dismissing the assessee's claim.

Issue 5: Failure to Obtain Sanction Before Issuing Notice Under Section 148 (A.Y. 2013-14)
The assessee contended that the AO failed to obtain the necessary sanction before issuing the notice under Section 148. The Tribunal found that the notice was issued within four years from the end of the relevant assessment year, and no previous scrutiny assessment was done. Therefore, the requirement for approval was not applicable, and the Tribunal upheld the CIT(A)'s decision.

Issue 6: Not Passing a Separate Order to Objections Against Reassessment Initiation (A.Y. 2013-14)
The assessee claimed that the AO did not pass a separate order addressing objections to the reassessment initiation. The Tribunal noted that no objections were raised by the assessee, and thus, there was no requirement for the AO to pass a separate order. This ground was dismissed.

Issue 7: Confirmation of Addition Based on Survey Findings and Subsequent Retraction (A.Y. 2013-14 and A.Y. 2014-15)
- A.Y. 2013-14: The AO added ?25.00 lakh based on the assessee's surrender during a survey, which was later retracted. The Tribunal found that ?24,82,615/- of the surrendered amount was substantiated by evidence, including excess salary claims, advertisement expenses without TDS, and suppressed receipts. The addition was reduced to ?24,82,615/-.
- A.Y. 2014-15: The AO added ?50.00 lakh based on survey findings. The Tribunal upheld ?44,23,710/- of the addition, supported by evidence of suppressed receipts, excess salary claims, and advertisement expenses without TDS. The remaining ?5,76,290/- was deleted.

Conclusion:
The Tribunal allowed the appeal for A.Y. 2008-09, partly allowed the appeals for A.Y. 2013-14 and A.Y. 2014-15, and provided detailed reasons for each decision, ensuring adherence to legal principles and evidence.