2003 (2) TMI 173 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notice under Section 148.
2. Estimation of income from pathology.
3. Addition under Section 69 for investment in the purchase of a plot.
4. Addition under Section 69 for investment in construction of house property.
5. Addition of cash credit.
6. Levy of interest under Sections 234A and 234B.

Detailed Analysis of Judgment:

1. Validity of Notice under Section 148:
The assessee challenged the notice issued under Section 148, arguing it was without jurisdiction and non est in law. The Tribunal found that the Assessing Officer (AO) had not recorded specific reasons to believe that income had escaped assessment before issuing the notice, which is a mandatory requirement under Section 147. The Tribunal cited several judgments, including ITO vs. Lakhmani Mewal Das and United Electrical Co. (P) Ltd. vs. CIT, which emphasize the necessity of recording reasons for such a belief. The Tribunal concluded that the notice issued was based on a reason to suspect rather than a reason to believe, thus deeming it invalid and allowing the additional ground in favor of the assessee.

2. Estimation of Income from Pathology:
The assessee contested the estimation of income from pathology at Rs. 40,000 against the declared Rs. 27,040. The Tribunal noted that the lower authorities based their estimation on the location of the laboratory and the non-maintenance of books of accounts. However, the Tribunal found that the assessee was not obligated to maintain books of accounts under Section 44AA(1) read with Rule 6F of the IT Rules, as the receipts of the previous three years did not exceed the prescribed limit. The Tribunal also observed that the daily test register maintained by the assessee showed no discrepancies. Therefore, the Tribunal allowed this ground in favor of the assessee, directing the AO to delete the addition.

3. Addition under Section 69 for Investment in Purchase of Plot:
The assessee disputed the addition of Rs. 10,000 under Section 69 for investment in the purchase of a plot. The Tribunal found that the assessee had provided a declaration and acceptance of the gift from her father-in-law, explaining the source of the gifted amount. The Tribunal saw no reason to doubt the donor's version and noted that the lower authorities had not pointed out any discrepancies in the declaration. Consequently, the Tribunal allowed this ground in favor of the assessee and directed the AO to delete the addition.

4. Addition under Section 69 for Investment in Construction of House Property:
The assessee challenged the addition of Rs. 1,01,150 under Section 69 for investment in house construction. The Tribunal found that the AO had referred the property to the valuation cell without recording reasons for doubting the declared cost of construction. The Tribunal cited the decision in M. Selvaraj vs. ITO, which held that the AO must record reasons for such a referral. The Tribunal also noted procedural lapses, such as the denial of the assessee's request to cross-examine the Assistant Valuation Officer (AVO) and the use of CPWD rates instead of local rates. The Tribunal concluded that the valuation report was not reliable and deleted the addition, allowing this ground in favor of the assessee.

5. Addition of Cash Credit:
The assessee contested the addition of Rs. 15,050 as cash credit in the name of Shri Kailashchandra. The Tribunal found that the assessee had indeed submitted a confirmation letter from the creditor, which was evident from the certified copy obtained from the Department. The Tribunal saw no reason for the lower authorities to make and sustain the addition based on the alleged non-filing of the confirmation. Therefore, the Tribunal deleted the addition and allowed this ground in favor of the assessee.

6. Levy of Interest under Sections 234A and 234B:
The assessee argued against the levy of interest under Sections 234A and 234B. However, the Tribunal, citing the Supreme Court decision in Kalyankumar Ray vs. CIT, found no substance in this ground and rejected it.

Revenue's Appeal:

1. Reduction of Unexplained Investment in Purchase of Plot:
The Revenue challenged the reduction of unexplained investment in the purchase of a plot to Rs. 10,000 from Rs. 1,13,595. The Tribunal found no infirmity in the CIT(A)'s detailed order, which considered the encashment of FDRs and other evidence. The Tribunal upheld the CIT(A)'s decision and rejected this ground.

2. Reduction of Unexplained Investment in Construction of House:
The Revenue also contested the reduction of unexplained investment in house construction to Rs. 1,01,150 from Rs. 1,96,200. The Tribunal had already addressed this issue in the assessee's appeal and found the valuation report unreliable. Following the same reasoning, the Tribunal rejected this ground in the Revenue's appeal.

Conclusion:
The Tribunal partly allowed the assessee's appeal, deleting the additions related to pathology income, investment in the plot, construction of house property, and cash credit, while rejecting the ground related to interest under Sections 234A and 234B. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s reductions in unexplained investments.