1997 (1) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Initiation of assessment proceedings under Section 147 read with Section 150 of the IT Act.
2. Validity of service of notice under Section 148.
3. Addition of Rs. 24,15,000 as income from undisclosed sources.
4. Levy of interest under Sections 139(8) and 215/217 of the IT Act.
5. Pertinence of the addition to the assessment year under appeal.

Detailed Analysis:

1. Initiation of Assessment Proceedings under Section 147 read with Section 150 of the IT Act:
The assessee challenged the initiation of assessment proceedings under Section 147 read with Section 150 of the IT Act. The Tribunal noted that the initiation of proceedings under Section 147 was based on the order dated 26th October 1987, by the CIT(A), which contained a conclusive finding that the income assessed in the case of the partnership belonged to an AOP constituted of the firm, Lalji & Co., and M.K. Pratap Singh. The Tribunal observed that the provisions of Section 150(1) did not apply as no opportunity was given to the appellant-AOP in the appeal of the partnership. The Tribunal cited the case of A.B. Parikh, where it was held that the exclusion of time limits under Section 150 requires that the other person (AOP) must have been given an opportunity of being heard. Since the appellant-AOP was not given such an opportunity, the assessment was deemed barred by time and without lawful jurisdiction.

2. Validity of Service of Notice under Section 148:
The assessee contended that the notice under Section 148 was not validly served. The Tribunal upheld this contention, noting that the notice was addressed to an entity that had undergone several changes in its constitution and was ultimately dissolved. The Tribunal found that the notice was not served on any member of the dissolved AOP, and the current partnership at the address provided had no connection to the AOP's activities from 20 years prior. Hence, the service of notice was invalid.

3. Addition of Rs. 24,15,000 as Income from Undisclosed Sources:
The Tribunal examined the addition of Rs. 24,15,000, which included Rs. 8,15,000 as unexplained cash credit and Rs. 16,00,000 as unexplained investment. The Tribunal found that these amounts did not fall within the appellant's previous year, which was the financial year, as the amounts were recorded in the partnership's books, which followed a different accounting period. The Tribunal also noted that the appellant did not maintain any books of accounts, making it inappropriate to treat entries in the partnership's books as those of the appellant. Therefore, the addition was deemed incorrect.

4. Levy of Interest under Sections 139(8) and 215/217 of the IT Act:
The assessee challenged the levy of interest under Sections 139(8) and 215/217. The Tribunal, having quashed the assessment on other grounds, did not find it necessary to delve into this issue in detail.

5. Pertinence of the Addition to the Assessment Year under Appeal:
The Tribunal found that the amounts added as income did not pertain to the assessment year under appeal. The amounts were recorded in the partnership's books for a period that did not align with the appellant's financial year. Consequently, the addition was not relevant to the assessment year in question.

Conclusion:
The Tribunal quashed the assessment on multiple grounds, including the invalid initiation of proceedings under Section 147 read with Section 150, improper service of notice under Section 148, and the incorrect addition of amounts not pertaining to the relevant assessment year. The appeal was allowed in favor of the assessee.