1988 (10) TMI 73 - AT - Income Tax

Issues Involved:
1. Legality of the ex parte assessment under Section 144.
2. Validity of the cash credits of Rs. 2,23,000.
3. Deletion of Rs. 1,89,510 from the total income.
4. Reduction in business and dairy farming income.
5. Denial of deduction under Section 80JJ.
6. Levy of interest.

Issue-wise Detailed Analysis:

1. Legality of the ex parte assessment under Section 144:
The Income Tax Officer (ITO) completed the assessment under Section 144 in an ex parte manner after reopening the assessment on the same day it was completed under Section 143(1). The reopening and subsequent completion within four days were done without providing reasonable opportunity to the assessee, violating principles of natural justice. The ITO failed to mention the date of reopening or obtaining approval from the Inspecting Assistant Commissioner (IAC), which raised questions about the procedural correctness.

2. Validity of the cash credits of Rs. 2,23,000:
The ITO added Rs. 2,23,000 as income from undisclosed sources due to lack of verification of the genuineness of creditors. The CIT(A) issued summons to the creditors and examined them, but ultimately rejected their statements as not genuine. The CIT(A) failed to verify the Permanent Account Numbers (PAN) and other details provided by the creditors, leading to a hasty conclusion that the loans were bogus.

3. Deletion of Rs. 1,89,510 from the total income:
The CIT(A) accepted the assessee's contention that adding Rs. 1,89,510, which was seized by the Enforcement Directorate, would result in double addition since it could be said to have come out of the cash credits of Rs. 2,23,000. Therefore, this amount was deleted from the total income.

4. Reduction in business and dairy farming income:
The CIT(A) reduced the business income by Rs. 15,000 and the income from dairy farming by Rs. 10,000. The Revenue was aggrieved by this reduction and challenged it in the appeal.

5. Denial of deduction under Section 80JJ:
The assessee claimed an exemption for income from dairy farming under Section 80JJ, which was not allowed by the CIT(A). The assessee contested this denial in the appeal.

6. Levy of interest:
The assessee also raised a grievance regarding the sustenance of the levy of interest, which was not addressed adequately by the CIT(A).

Conclusion:
The Tribunal found significant procedural lapses and lack of proper inquiry by both the ITO and CIT(A). The assessment under Section 144 was completed in a hasty and irregular manner, disregarding principles of natural justice. The CIT(A) also failed to conduct a thorough verification of the evidence provided by the creditors. Due to these deficiencies, the Tribunal set aside the orders of the authorities below and directed the ITO to make a de novo assessment in accordance with the law, ensuring reasonable opportunity for the assessee to be heard on all disputed points. The appeals were allowed for statistical purposes.

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