2005 (2) TMI 434 - AT - Income Tax

Summary

Issues:
1. Addition of unexplained investment made by partners in the firm for the assessment year 1988-89.
2. Legality of reopening the assessment under section 148 for the assessment year 1988-89.

Issue 1: Addition of Unexplained Investment:
The appeal was filed against the order of the CIT(A) confirming the addition of Rs. 90,000 made on account of unexplained investment by the partners in the firm for the assessment year 1988-89. The AO observed that the assessee failed to explain the source of investment aggregating to Rs. 2.45 lakhs made by the partners in the firm. The CIT(A) held that the addition could not be made in the assessment year under consideration as the investment was made on 29th March, 1988, falling outside the relevant accounting period. The Tribunal upheld the CIT(A)'s finding, stating that the genuineness of the investment could only be considered in the assessment year 1988-89, not 1989-90. The Tribunal dismissed the Revenue's appeal, sustaining the CIT(A)'s decision to delete the addition.

Issue 2: Legality of Reopening Assessment:
The AO issued a notice under section 148 to reopen the assessment for the assessment year 1988-89. The assessee contended that the assessment was time-barred under section 149(1) of the IT Act. The CIT(A) held that the assessment was reopened based on the Tribunal's directions and thus within time. However, the Tribunal had not directed the AO to reopen the assessment. The ITAT observed that the notice under section 148 was beyond the limitation period, being issued in 2001 for an assessment year ending in 1989. Citing legal provisions, the ITAT quashed the assessment order as void ab initio. The judgment emphasized that the law applicable is as of the notice issue date, not the assessment year, and referred to a relevant High Court judgment. Consequently, the ITAT allowed all grounds of appeal, quashing the assessment order and the CIT(A)'s decision.

In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal concerning the addition of unexplained investment and the legality of reopening the assessment for the assessment year 1988-89. The judgment highlighted the importance of adhering to legal procedures and timelines in conducting assessments, ultimately leading to the quashing of the assessment order and the CIT(A)'s decision.