2021 (2) TMI 279 - AT - Income Tax

Validity of assessment - limited scrutiny was not intimated along with the notice u/s 143(2) - HELD THAT - In the present case, though the reasons have not been incorporated/annexed to the notice u/s 143(2), we find that the assessee was made aware of the reasons for limited scrutiny on the very next date of hearing i.e. 10/10/2017 as is evident from the docket sheet entries and in compliance thereof, the assessee has also provided all the required details on the subsequent date. No prejudice has been caused to the assessee by such intimation of the reasons subsequent to the issuance of notice u/s 143(2) - though the return was selected for scrutiny on two issues, the AO has made addition only on account of one issue, i.e. cash deposits, the sources of which could not be explained by the assessee and, therefore, he has not exceeded his brief of the limited scrutiny. Only where the AO believes that there is income, which has to be brought to tax but is not the issue for the limited scrutiny, he needs to get the permission of the Commissioner to proceed with complete scrutiny assessment. AO has restricted himself to the limited issues of cash deposits under CASS and it was the assessee s contention that these are his business receipts, but, could not prove his business activity - issue was limited to the cash deposits and as there was no other income, there was no need for the AO to obtain permission from the higher authorities to proceed with complete scrutiny assessment. Therefore, we do not find any reason to hold that there is any non-compliance of CBDT Circular and that the assessment order is invalid. Income offered by the assessee u/s 44AD not been accepted - DR submitted that the assessee has failed to prove that he had carried on any business/construction activity - HELD THAT - offering of income by an assessee u/s 44AD of the Act, itself does not preclude the AO from examining the nature of activity carried on by the assessee. If the assessee was carrying on the construction activity, the assessee should have produced some evidence to show that he was involved in such activity. The assessee has not filed any details before the AO or before the CIT(A) or even before us. The assessee submitted that if given an opportunity, he will submit all the details before the AO. Therefore, in the interest of justice, we deem it fit and proper to direct the AO to verify this contention of the assessee de-novo. Business receipts deposited into the bank account and that the sum also has been offered as income from other sources in his revised computation of income - We find that when the assessee has not been able to explain the source of deposits in the bank account, he himself worked out the peak cash credit and agreed for the addition of peak cash credit. However, on thorough perusal of the assessment record, we found that the assessee along with the covering letter filed on 20/11/2017 had enclosed the revised computation of income i.e. in response to AO s direction to file information for the issues of limited scrutiny. Therefore, the revised computation of income filed should have been examined. But, there is no reference to the same by the AO, may be because it is not filed by way of revised return of income. However, in view of our direction to examine the income of the assessee u/s 44AD of the Act in the above paragraphs, we deem it fit and proper to remit this issue also to the file of the AO with a direction to consider the same . Penalty levied u/s 271(1)(c) - HELD THAT - We find that the addition has been made because the assessee could not substantiate his claim of construction activity. However, in the quantum appeal, we have set aside the issues to the AO for reconsideration. Therefore, the penalty order is set aside with liberty to the AO to reinitiate penalty proceedings, if need be, after conclusion of the assessment proceedings.

Summary

Issues Involved:
1. Validity of the Notice under Section 143(2) of the Income Tax Act.
2. Merits of the Addition of ?1,16,40,800/- towards Peak Cash Deposits.
3. Penalty under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Validity of the Notice under Section 143(2) of the Income Tax Act:
The appellant argued that the statutory notice issued under Section 143(2) was invalid as it did not specify the issues identified for limited scrutiny under CASS, violating CBDT guidelines. The Tribunal examined the assessment records and found that the reasons for limited scrutiny were communicated to the assessee immediately after the issuance of the notice, thus fulfilling the procedural requirement. The Tribunal held that no prejudice was caused to the assessee by the subsequent communication of reasons and that the assessment was confined to the issues of limited scrutiny without exceeding its brief. Therefore, the Tribunal rejected the grounds of appeal challenging the validity of the notice under Section 143(2).

2. Merits of the Addition of ?1,16,40,800/- towards Peak Cash Deposits:
The assessee contended that the addition of ?1,16,40,800/- was erroneous as the AO did not consider the contract receipts of ?93,65,000/- deposited in the bank account, and the additional income of ?30,25,000/- offered in the revised computation. The Tribunal noted that the assessee failed to produce evidence of carrying out construction activity and thus, the income offered under Section 44AD was not accepted by the AO. However, the Tribunal directed the AO to re-examine the assessee's claim of construction activity and consider the revised computation of income, citing relevant case laws that allow claims made during assessment proceedings even if not part of the original return.

3. Penalty under Section 271(1)(c) of the Income Tax Act:
The assessee argued that the penalty for concealment of income was unjustified as the addition was made due to the inability to substantiate the construction activity claim. The Tribunal found that since the quantum appeal issues were set aside for reconsideration, the penalty order should also be set aside, with liberty to the AO to reinitiate penalty proceedings if necessary after the conclusion of the reassessment.

Conclusion:
The Tribunal partly allowed the appeal concerning the quantum addition for statistical purposes, directing the AO to re-examine the construction activity claim and the revised computation of income. The penalty appeal was also treated as allowed for statistical purposes, with the AO granted the liberty to reinitiate penalty proceedings if required post-reassessment.