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2008 (4) TMI 347 - AT - Income TaxValidity of assessment u/s 147 - service of notice u/s. 148 - Reason To Believe - material found during the course of search conducted in the case of a third person - Proceeded u/s 158BD and not u/s 148/147 - conditions required to be satisfied before the AO having jurisdiction - Unexplained cash credits u/s 68 - Addition on excise duty not included in the closing stock - Addition on sale of investment - Validity of assessment completed by the AO u/s 147 - service of notice u/s. 148 - Reason To Believe - material found during the course of s earch conducted in the case of a third person - Proceeded u/s 158BD and not u/s 148/147? - conditions required to be satisfied before the AO having jurisdiction - HELD THAT - There are two prerequisite conditions which are required to be satisfied before the AO having jurisdiction over the case of other person to proceed under s. 158BD. Firstly, the AO having jurisdiction over the case of a searched person is required to be satisfied that the material found during the course of search shows some undisclosed income belonging to such other person and after recording such satisfaction, he has to forward the relevant material to the AO having jurisdiction over such other person. In the present case, the information/material was received by the AO directly from the Investigation Wing of the Department who had conducted the search and it was not a case where the AO of the person searched had handed over the relevant information/material to the AO of the assessee. Moreover, as the said information was received by the AO directly from the Investigation Wing of the Department, there was no question of any satisfaction having been recorded by the AO having jurisdiction over the case of the person searched. The requisite conditions for proceeding against the assessee under s. 158BD thus were not satisfied in the present case and this being so it was not permissible for the AO to proceed against the assessee under s. 158BD on the basis of information received by him directly from the Investigation Wing of the IT Department. Following the case of Dang Co. (P) Ltd. 2005 (1) TMI 328 - ITAT DELHI-A , We are of the opinion that, conditions were duly satisfied by the AO and reassessment proceedings were initiated against the assessee under s. 148/147 after recording the reasons on the basis of information coming to his possession from the Investigation Wing, we are of the view that there was no infirmity, much less a legal infirmity, in the action of the AO in initiating the said proceedings. Service of Notice - It is no doubt true that it was only the photocopy of the notice that was handed over by the AO to the assessee on 4th Feb., 2005, however, the same being a photocopy of the notice originally issued by the AO on 31st March, 2004, bearing all the necessary contents, we are of the view that the intent and purpose of service of the said notice on the assessee was duly served. Moreover, as clearly mentioned by the AO in the assessment order and remained undisputed by the assessee, a further period of 30 days from the date of handing over the said notice on 4th Feb., 2005, was also allowed by the AO to the assessee to file a return of income in response to the said notice. Having regard to all these aspects of the matter, we are of the view that not only the requirement of service of the notice under s. 148 upon the assessee was duly complied with by the AO, but even the intent and purpose of service of such notice were also duly served leaving the assessee with no grievance on this issue. There was thus no legal infirmity either in the issue of notice under s. 148 by the AO or even service thereof upon the assessee vitiating the reassessment proceedings initiated by the AO and, in our opinion, the learned CIT(A) was fully justified in upholding the validity of assessment completed by the AO in pursuance of the said initiation. His impugned order on this issue is, therefore, upheld dismissing ground Nos. 2 and 3 of the assessee's appeal. Unexplained cash credits u/s 68 - HELD THAT - A perusal of the assessment order shows that this aspect of the matter was not specifically brought to the notice of the AO by the assessee. Before the learned CIT(A), specific plea to this effect, no doubt, was raised on behalf of the assessee. However, the impugned order of the learned CIT(A) shows that he has neither considered nor dealt with the said plea raised on behalf of the assessee. Therefore, we are of the view that this matter should be restored to the file of the AO for the purpose of examining the stand specifically taken by the assessee. The impugned order of the learned CIT(A) on this issue is, therefore, set aside and the matter is restored to the file of the AO for the limited purpose of verifying as to whether the relevant cash credits represent the realisation of proceeds against sales which have already been included in the income of the assessee as claimed. If the claim of the assessee on this issue is found to be correct on verification, the AO shall delete the addition made on this issue and vice versa. Ground No. 4 of the assessee's appeal is accordingly treated as allowed for statistical purposes. Addition on excise duty not included in the closing stock - CIT(A) deleted the addition made by the AO on this issue instead of remanding the matter back to the AO with certain directions - HELD THAT - In the decision in the case of CIT vs. Indo Nippon Chemicals Co. Ltd. 2003 (1) TMI 8 - SUPREME COURT , held that whatever method is adopted for valuation of closing stock, the same has to be consistent with the accepted principles of accountancy and it has to be followed consistently. Following the above precedent, we are of the view that there was no infirmity in the impugned order of the learned CIT(A) remanding the issue under consideration to the AO for the limited purpose of verifying that the accounting policy as prescribed in s. 145 was being followed by the assessee consistently during the relevant period. His impugned order on this issue is, therefore, upheld dismissing ground No. 5 of the assessee's appeal. Addition on sale of investment - HELD THAT - Learned counsel for the assessee has invited our attention to the copy of ledger account of investment placed at his paper book and pointed out that the shares purchased by the assessee company of M/s Orissa Sponge India Limited sold at the same price without realizing any profit on such sale. The ld DR contended that since the relevant details as required by the authorities below were not furnished by the assessee before them, this issue may be restored to the file of the AO for verifying the stand of the assessee from actual records. We find merit in this contention of the ld DR and accepting the same, we restore this issue to the file of the AO for deciding the same afresh after verifying the stand of the assessee from the relevant record. In the result, the appeal of the assessee is treated as partly allowed for statistical purposes.
Issues Involved:
1. Validity of assessment under Section 147. 2. Addition on account of unexplained cash credits under Section 68. 3. Addition on account of excise duty not included in closing stock. 4. Addition on account of sale of shares of M/s Orissa Sponge India Limited. Issue-wise Detailed Analysis: 1. Validity of Assessment under Section 147: The assessee challenged the validity of the assessment completed by the AO under Section 147. The primary contention was that the proceedings under Sections 148/147 were initiated based on material found during a search on another entity, and such material should have been used under Section 158BD only. The assessee also argued that the notice under Section 148 was not validly served. The Tribunal held that the AO received information directly from the Investigation Wing and not from the AO of the searched person, thus the conditions for proceeding under Section 158BD were not satisfied. The AO was justified in proceeding under Sections 148/147. Regarding the service of notice, the Tribunal found that the notice was issued and sent by speed post within the time limit, and a photocopy of the notice handed over to the assessee was considered valid service. Therefore, the reassessment proceedings were upheld as valid. 2. Addition on Account of Unexplained Cash Credits under Section 68: The AO added Rs. 18,76,087 to the assessee's income, treating it as unexplained cash credits under Section 68, based on information from the Investigation Wing that the assessee received accommodation entries from M/s Jain Bros. & Co. The assessee contended that these amounts were against sales already included in the income declared. The Tribunal noted that the assessee failed to satisfactorily explain the cash credits. However, it acknowledged the assessee's claim that these credits represented sales proceeds already included in the income. The Tribunal remanded the matter to the AO to verify this claim. If the claim was correct, the AO was directed to delete the addition; otherwise, the addition would stand. 3. Addition on Account of Excise Duty not Included in Closing Stock: The AO added Rs. 11,73,000 to the assessee's income for not including excise duty in the closing stock value. The assessee argued that the excise duty was neither paid nor claimed as a deduction, hence it should not be included in the closing stock. The CIT(A) accepted the assessee's contention but remanded the issue to the AO to verify if the accounting policy as per Section 145 was consistently followed. The Tribunal upheld the CIT(A)'s decision, emphasizing the need for consistency in accounting policies as per the Supreme Court's decision in CIT vs. Indo Nippon Chemicals Co. Ltd. 4. Addition on Account of Sale of Shares of M/s Orissa Sponge India Limited: The AO added Rs. 50,000 as short-term capital gain from the sale of shares of M/s Orissa Sponge India Limited, as the assessee did not disclose the profit or provide details. The Tribunal noted the assessee's claim that the shares were sold at the purchase price without any profit. The Tribunal remanded the issue to the AO for verification from the relevant records. If the assessee's claim was verified, the addition should be deleted. Conclusion: The appeal was partly allowed for statistical purposes, with specific issues remanded to the AO for verification and re-assessment. The Tribunal upheld the validity of the reassessment proceedings and provided detailed directions for the AO to verify the assessee's claims regarding cash credits and sale of shares. The Tribunal emphasized the importance of consistent accounting policies in line with legal precedents.
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