1987 (5) TMI 83 - AT - Income Tax

Issues Involved:

1. Validity of reassessment proceedings under Section 147(a) and 147(b).
2. Addition of Rs. 2,18,000 related to disallowance of certain payments.
3. Addition of Rs. 2,19,306 representing unexplained cash credits.
4. Quantum of expenses allowed by the CIT (Appeals).

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147(a) and 147(b):

The assessee objected to the reopening of the assessment, arguing that the original assessment was never completed, and thus, there was no question of reopening it. The Income-tax Officer (ITO) had closed the original assessment as "NA" (No Assessment) and later reopened it under Section 147(a) based on new information from the Assistant Director of Inspection and the CBI. The assessee contended that the reassessment notice was deficient as it did not specify whether the action was under Section 147(a) or 147(b). The Tribunal upheld the ITO's action, stating that the closing of the assessment as "NA" amounted to the end of the assessment proceedings, allowing for reassessment if omissions were found later. The Tribunal also noted that the reassessment was initiated within the time limit as per Sections 149 and 151.

2. Addition of Rs. 2,18,000 Related to Disallowance of Certain Payments:

The ITO added Rs. 3,15,000 to the assessee's income, which was later reduced to Rs. 2,18,000 by the CIT (Appeals). The assessee argued that the amount received from KEMI was a loan and not a payment for services. The Tribunal upheld the addition, stating that the assessee was involved in an adventure in the nature of trade, arranging for import licenses from Pondichery parties to KEMI. The Tribunal noted that the assessee's transactions were clandestine and opposed to public policy, and the difference between the amount received from KEMI and the amount paid to the Pondichery parties represented the assessee's profit.

3. Addition of Rs. 2,19,306 Representing Unexplained Cash Credits:

The ITO added Rs. 2,19,306 as unexplained cash credits in the name of M/s Ratan Trading Co., which was upheld by the CIT (Appeals). The assessee argued that the transactions took place in 1974, and it was not possible to produce the creditor in 1984. The Tribunal modified the addition, reducing the peak credit amount from Rs. 2,00,000 to Rs. 1,39,850, considering a sum of Rs. 60,000 that was deemed to be available with the assessee. The addition of Rs. 19,306 on account of interest on the peak credit was deleted.

4. Quantum of Expenses Allowed by the CIT (Appeals):

The assessee contended that the expenses allowed by the CIT (Appeals) were insufficient. The Tribunal noted that the assessee had questioned the addition of Rs. 2,18,000, which included the expenses allowed. Considering the extensive travels and contacts established by the assessee, the Tribunal revised the expenses allowed from Rs. 25,000 to Rs. 40,000.

Conclusion:

The appeal was partly allowed, with modifications to the additions and expenses as detailed above. The Tribunal upheld the validity of the reassessment proceedings and the addition related to the disallowance of certain payments while modifying the addition related to unexplained cash credits and increasing the quantum of expenses allowed.

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