1988 (6) TMI 84 - AT - Income Tax

Summary

Issues:
1. Validity of reopening of assessment under section 147.
2. Justification for disturbing the profit rate in the assessment.

Issue 1: Validity of reopening of assessment under section 147
The appeal before the Appellate Tribunal ITAT Jaipur questioned the correctness of the order by the AAC regarding the reopening of assessment under section 147. The original assessment was conducted under section 143(1) on a certain date. The Income Tax Officer (ITO) initiated the reopening of the assessment under section 147 by issuing a notice under section 148. The reason provided for this action was the low withdrawals by the partners for household expenses. The assessee contended that all relevant facts were disclosed during the original assessment, and thus, there was no justification for reopening the assessment under section 147. However, the ITO did not accept this claim and proceeded to make an addition to the trading amount. The AAC upheld the reopening of the assessment and further justified the addition made by the ITO based on a difference in profit rate calculations.

Issue 2: Justification for disturbing the profit rate in the assessment
The AAC, in addition to upholding the validity of the reopening of the assessment, also analyzed the profit rate applied by the ITO. The ITO had utilized a profit rate of 12.5% instead of the declared 10.5% by the assessee. The AAC agreed with the ITO's assessment and confirmed the trading addition based on the profit rate discrepancy. During the appeal before the Appellate Tribunal, the assessee's counsel argued that since all relevant facts were disclosed during the original assessment, there was no valid reason for disturbing the profit rate during the reassessment. The departmental representative, on the other hand, relied on the AAC's order.

The Tribunal, after considering the arguments and the material on record, referred to a previous case law to support its decision. The Tribunal cited a case where it was established that if primary facts were disclosed during the original assessment, there was no justification for reopening the assessment based on subsequent findings. In the current case, the Tribunal found no valid reason for the reopening of the assessment, especially when no addition was made concerning the low withdrawals for household expenses. Therefore, the Tribunal allowed the appeal of the assessee, concluding that the reopening of the assessment was not justified. Additionally, the Tribunal noted that since the reopening itself was deemed invalid, there was no need to delve into the issue of the gross profit rate discrepancy, especially when the figures were not reconciled in the grounds of appeal.