2005 (7) TMI 310 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition representing bogus trade deposit and interest accrued thereon under Section 68 of the IT Act.
2. Validity of notice under Section 148 for reopening assessment beyond the four-year limitation period.

Issue-wise Detailed Analysis:

1. Deletion of Addition Representing Bogus Trade Deposit and Interest Accrued Thereon under Section 68 of the IT Act:

The Revenue challenged the deletion of an addition of Rs. 2,79,890, representing a bogus trade deposit and interest accrued thereon, by the learned CIT(A). The facts revealed that the assessee claimed a loan of Rs. 6 lakhs from M/s Magadh Medicos. The AO, after detailed investigation, found that the assessee failed to provide credible evidence to substantiate the identity, capacity, and genuineness of the transactions. Specifically, the AO noted discrepancies such as the incorrect identification of the proprietor of M/s Magadh Medicos and the use of a PAN belonging to another individual. Despite the assessee's claims, the AO concluded that the trade deposit was not genuine and added the amount to the assessee's income under Section 68 of the IT Act.

The learned CIT(A) deleted this addition, stating that the assessee had discharged the burden of proof under Section 68. However, upon review, it was found that the assessee provided misleading information and failed to prove the genuineness of the deposit, the identity, and the capacity of the depositor. Consequently, the appellate tribunal reversed the CIT(A)'s decision and upheld the AO's addition of Rs. 2,79,890 as income of the assessee.

2. Validity of Notice under Section 148 for Reopening Assessment Beyond the Four-Year Limitation Period:

The second issue involved the validity of a notice issued under Section 148 for the assessment year 1994-95, which the CIT(A) had annulled as being time-barred. The Revenue argued that the AO had valid reasons to believe that income amounting to Rs. 4,28,110 had escaped assessment, based on findings during the assessment for the year 1995-96. The AO issued the notice under Section 148 within six years from the end of the relevant assessment year, as allowed under Section 149(1)(b) when the income escaping assessment is Rs. one lakh or more.

The CIT(A) had annulled the assessment on the grounds that the assessee had fully disclosed all material facts during the original assessment, thus making the notice under Section 148 issued on 28th March 2001, beyond the four-year limitation period, invalid. However, the appellate tribunal found that the AO had discovered new material evidence during the assessment of the subsequent year (1995-96), indicating that the assessee had not disclosed all material facts fully and truly for the assessment year 1994-95. Therefore, the limitation period under Section 149(1)(b) applied, allowing the AO to issue the notice within six years.

The appellate tribunal reversed the CIT(A)'s decision, holding that the notice under Section 148 was valid and issued within the permissible time frame. The tribunal directed the CIT(A) to decide the case on its merits.

Conclusion:

Both appeals by the Revenue were allowed. The appellate tribunal upheld the addition of Rs. 2,79,890 as income of the assessee under Section 68 and validated the notice under Section 148 for reopening the assessment for the year 1994-95 within the six-year limitation period under Section 149(1)(b).