1996 (4) TMI 162 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of the assessment order made under section 144 of the IT Act, 1961.
2. Additions made by the Assessing Officer (AO) under section 68 of the IT Act, 1961.

Issue-Wise Detailed Analysis:

1. Confirmation of the Assessment Order Made Under Section 144 of the IT Act, 1961

Background:
The assessee, a private limited company engaged in the business of cutting marble blocks and selling marbles and tiles, filed a return showing a loss of Rs. 13,88,540. Notices under section 143(2) were issued but were allegedly not responded to by the assessee, leading the AO to frame the assessment under section 144, computing the income at Rs. 51,81,460.

Assessee's Contention:
The assessee argued before the CIT(A) that no proper and adequate opportunity was extended, and the assessment under section 144 was bad in law. The assessee claimed that notices were served to lower staff or peons, who did not convey them to the concerned director or accounts department. The assessee cited circumstantial evidence and a decision of the Orissa High Court in Fatechand Agarwal vs. CWT to support the claim that notices were not properly served.

Revenue's Argument:
The AO contended that the assessee did not provide names of authorized persons to receive the notices. The notices were served by an independent governmental agency, and at least one notice was served on the manager of the company. The CIT(A) upheld the AO's actions, referencing several judgments, including CIT vs. Mithila Motors (P) Ltd. and M.L. Narang vs. CIT, which support the presumption of service if notices are sent by registered post.

Tribunal's Finding:
The Tribunal found that the assessee had no case regarding the improper service of notices. The assessee failed to notify the AO about changes in the management or authorized persons. The Tribunal noted that the Postal Department usually ensures proper delivery of registered letters, and there was no evidence that notices were received by unauthorized persons. Consequently, the Tribunal upheld the AO's decision to complete the assessment under section 144.

2. Additions Made by the Assessing Officer (AO) Under Section 68 of the IT Act, 1961

Background:
The AO noticed significant increases in unsecured loans, cash and bank balances, sundry debtors, inventories, sales, and expenses. The AO treated Rs. 50 lakhs of unsecured loans as unsubstantiated and added it as income from undisclosed sources under section 68. Additionally, Rs. 13.7 lakhs were added as trading addition, and Rs. 2 lakhs were disallowed from administrative and manufacturing expenses.

Assessee's Contention:
The assessee contested the additions, arguing that the AO did not issue a specific notice regarding the Rs. 50 lakhs addition under section 68. The assessee also claimed that the CIT(A) did not admit fresh evidence at the first appellate stage, violating principles of natural justice.

Revenue's Argument:
The Revenue supported the AO's actions, arguing that the assessee's laxity necessitated the assessment under section 144. The Revenue cited several judgments to support their stance that the notices were validly served and the additions were justified.

Tribunal's Finding:
The Tribunal noted that the AO did not issue a specific notice regarding the Rs. 50 lakhs addition under section 68, which was a procedural lapse. The Tribunal emphasized that the AO did not consider the assessee's loss-making status, carry forward of losses, and unabsorbed depreciation. The Tribunal criticized the CIT(A) for rejecting fresh evidence on technical grounds and not allowing the assessee an opportunity to comment on the AO's objections.

Conclusion:
The Tribunal set aside the assessment order and remanded the matter back to the AO for a de novo assessment, ensuring the assessee is afforded an opportunity to present its case in accordance with the law. The appeal by the assessee was allowed for statistical purposes.