2012 (2) TMI 95 - AT - Income Tax

Best judgment assessment - CIT (A) while upholding various dis-allowances gave partial relief deleted dis-allowance made on account of unexplained credit Revenue contending that CIT(A) admitted the additional evidence in contravention of Rule 46A assessee contesting upholding of various dis-allowances A.Y. 05-06 - Held that - When the relevant books of accounts/vouchers have not been produced before the AO or the CIT(A) nor the relevant evidence has been examined by these authorities, we consider it fair and appropriate to vacate the findings of CIT(A) and restore the matter to the file of the AO to decide afresh. Further with regard to transfer of amount from share application money to general account not categorized by CIT(A) as cessation of liability in A.Y. 07-08 Held that - Since the Revenue have not placed before us any material controverting the aforesaid findings of facts recorded by the CIT(A) so as to enable us to take a different view in the matter therefore, appeal of revenue is dismissed Decided in favor of Revenue & assessee for statistical purposes.

Issues Involved:
1. Admission of additional evidence by CIT(A) without seeking comments from the Assessing Officer (AO).
2. Validity of the notice issued under Section 143(2) of the Income-tax Act, 1961.
3. Confirmation of trading addition without pointing out deficiencies in audited statements.
4. Disallowance of 15% of conveyance, traveling, rent, and telephone expenses.
5. Treatment of 30% of sundry creditors as non-genuine.
6. Treatment of advance received from customers as non-genuine.
7. Non-service of show cause notice under the 1st proviso to Section 144.
8. Transfer of share application money to general account categorized as "cessation of liability".

Detailed Analysis:

1. Admission of Additional Evidence by CIT(A) (Ground 1 - Revenue):
The Revenue contended that the CIT(A) admitted additional evidence without seeking comments from the AO, violating Rule 46A. The tribunal noted that the CIT(A) sought a remand report from the AO, but despite several reminders, the AO did not submit any report. The tribunal found that the CIT(A) did not analyze the facts or issues properly and directed the AO to complete the assessment de novo, allowing the assessee to produce relevant books and vouchers.

2. Validity of Notice under Section 143(2) (Ground 1 - Assessee):
The CIT(A) upheld the validity of the notice issued under Section 143(2) on 26.10.2006, which was within one year of filing the return. The tribunal did not find any error in this conclusion.

3. Confirmation of Trading Addition (Ground 2 - Assessee):
The AO added Rs. 3,83,761/- to the income by adopting a gross profit rate of 25% on estimated sales. The CIT(A) upheld this addition due to the non-production of books and vouchers. The tribunal directed the AO to reassess the matter, allowing the assessee to provide necessary evidence.

4. Disallowance of 15% of Expenses (Ground 3 - Assessee):
The AO disallowed 25% of expenses related to conveyance, traveling, rent, and telephone due to the absence of supporting vouchers. The CIT(A) reduced this disallowance to 15%. The tribunal directed the AO to re-examine the expenses after allowing the assessee to submit relevant evidence.

5. Treatment of 30% of Sundry Creditors as Non-Genuine (Ground 4 - Assessee):
The AO treated 30% of sundry creditors as non-genuine and added Rs. 5,89,84,343/- to the income. The CIT(A) upheld this addition due to the lack of evidence. The tribunal directed the AO to reassess the matter, allowing the assessee to provide necessary evidence.

6. Treatment of Advance from Customers as Non-Genuine (Ground 5 - Assessee):
The AO added Rs. 56,65,589/- received as advance from customers to the income, treating it as non-genuine. The CIT(A) upheld this addition due to the lack of evidence. The tribunal directed the AO to reassess the matter, allowing the assessee to provide necessary evidence.

7. Non-Service of Show Cause Notice (Ground 6 - Assessee):
The assessee contended that the assessment was passed without serving a show cause notice under the 1st proviso to Section 144. The tribunal did not specifically address this issue but directed a de novo assessment, ensuring procedural compliance.

8. Transfer of Share Application Money (Ground 1 - Revenue for AY 2007-08):
The AO added Rs. 1 crore to the income, treating the transfer of share application money to the general account as "cessation of liability" under Section 41(1). The CIT(A) deleted this addition, noting that the amount was received in 1999-2000 and the transaction could not be categorized as cessation of liability. The tribunal upheld the CIT(A)'s decision, finding no material to controvert the findings.

Conclusion:
The tribunal allowed the appeals of the Revenue and the assessee for AY 2005-06 for statistical purposes, directing a de novo assessment by the AO. The appeal of the Revenue for AY 2007-08 was dismissed, upholding the CIT(A)'s deletion of the addition under Section 41(1).

← Previous Next →