2007 (1) TMI 105 - HC - Income Tax

Carried forward amount of the previous year doesn t become an investment/cash credit generated during the relevant year 1993-94 tribunal is justified in holding that there is no failure on the part of assessee in disclosing fully and truly all material facts necessary for the assessment in question - unexplained investment/cash appearing in accounts on the first day of previous year relevant to the assessment year 1993-94 was not taxable as income of the assessee for the said previous year

Summary

Issues:
1. Validity of notice issued under Section 148 of the Income Tax Act for Assessment Year 1993-94.
2. Taxability of unexplained investment/cash credit amounting to Rs.1,55,316 in the books of accounts for the assessment year 1993-94.

Issue 1: Validity of Notice under Section 148:
The High Court addressed the question of law regarding the validity of the notice issued under Section 148 of the Income Tax Act for the Assessment Year 1993-94. The Court noted that the notice was issued on 17.6.1997, within the prescribed time limit of 4 years from the end of the assessment year. The controversy revolved around the validity of taking action under Section 147, not the limitation for issuing the notice. The first notice was issued on 11th July, 1996, but was not pursued due to lack of prior approval. The subsequent notice on 17th June, 1997, was challenged by the assessee on the grounds that the first notice was already pending and there was no provision to vacate it. However, the Court found that the second notice was validly issued within the limitation period, and the controversy was not adequately framed in the first question.

Issue 2: Taxability of Unexplained Investment/Cash Credit:
Regarding the taxability of the unexplained investment/cash credit of Rs.1,55,316 in the books of accounts for the assessment year 1993-94, the Court analyzed the findings of the Tribunal. The amount in question was carried forward from the previous year ending on 31st March, 1992, and was shown as opening balance on 1st April, 1992. The Tribunal concluded that this amount was not a cash credit generated during the relevant year 1993-94, but rather a carried forward capital investment. Therefore, it could not be considered as unexplained investment or cash credit for the assessment year 1993-94. The Court agreed with the Tribunal's findings, stating that a carried forward amount from a previous year does not qualify as a cash credit for the current year. Consequently, the Court upheld the Tribunal's decision to delete the amount of Rs.1,55,316 from the assessment for the assessment year 1993-94.

In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee on the merit of the additions made in the income for the assessment year 1993-94. As the appeal succeeded on the merits, the Court did not delve into the validity of the notice dated 17.6.1997. The decision was made without any order as to costs.