2017 (10) TMI 1661 - AT - Income Tax

Validity of assessment order passed u/s. 143(3) - as argued case was selected for scrutiny in CASS nor the scrutiny guidelines issued by the CBDT Circular - HELD THAT - AR could not prove that there is lack of jurisdiction of the AO or does not have approval of CIT for selection of scrutiny except making the submissions with supporting guidelines. On the query from the bench why the case of the assessee does not fall under clause (g) as discussed above. The explanations of ld. AR are not convincing to us and accordingly, we are not inclined to accept the reasons explained by the ld. AR on guidelines and we dismiss this ground of appeal of the assessee. Advance for construction of school building - AR could not satisfy with any evidence that the construction has taken place and it was submitted that due to various reasons the construction could not be taken up and filed confirmation to the extent that the company which has received advances from the assessee. We find the assessee could not substantiate before the lower authorities even before us that the construction of the building was with any statutory approval and there is ambiguity in the transaction and we are not in a position to understand why the advance amount was lying with the company even though the transaction has failed and the ld. AR s explanation that the amount has been refunded in the subsequent year is without evidence and fail to strength the case. We are not convinced with the explanation on commercial expediency and accordingly we uphold the action of CIT(A) on this ground and dismiss the grounds of appeal of assessee. Enhanced the assessment towards interest on advance without giving show cause notice or reasonable opportunity to the assessee - AR submitted that the CIT(A) has called for the various information and assessee has cooperated in submitting the same but the CIT(A) has estimated the enhanced income without issuing show cause notice we are of the substantial opinion that there is a gross violation of principle of natural justice as the information collected by the CIT(A) is used against the assessee, without providing reasonable opportunity to defend its case - we set aside the enhancement of income by the CIT(A) in his order and partly allow the grounds of appeal of assessee.

Summary

Issues:
1. Diversification of funds - Advance given for construction of school building.
2. Taxation of notional interest.
3. Enhancement of income without show cause notice.
4. Legality of assessment order under section 143(3) - Selection criteria and guidelines.

Analysis:
1. The assessee appealed against the CIT(A)'s order regarding the advance of Rs. 88,04,000 given to a company for school building construction. The AO observed diversion of funds due to the land deal not materializing. The assessee argued the advance was solely for land purchase and building construction, not diversification. The AO added the amount to total income. The Tribunal upheld the CIT(A)'s decision, stating lack of evidence for construction, statutory approval, or refund, dismissing the appeal on this ground.

2. The CIT(A) taxed notional interest, increasing the income by Rs. 8,80,000 without a show cause notice. The Tribunal found a violation of natural justice principles, setting aside the enhancement of income. The grounds of appeal on this issue were partly allowed.

3. The assessee challenged the legality of the assessment order under section 143(3), citing non-compliance with CBDT guidelines for scrutiny selection. The Tribunal rejected this argument, stating the case fell within manual scrutiny norms, dismissing the appeal on this ground.

4. The Tribunal addressed the issues comprehensively, considering the diversion of funds, taxation of notional interest, procedural fairness, and compliance with assessment guidelines. The decision highlighted the importance of evidence, statutory compliance, and adherence to natural justice principles in tax assessments. The appeal was partly allowed, emphasizing the need for transparency and procedural correctness in tax matters.