2016 (4) TMI 860 - AT - Income Tax

Reopening of assessment - Held that - The proceedings u/s 147 were initiated after recording necessary reasons and after obtaining approval from the Additional CIT. The reasons were recorded on the basis of statement of Shri Kripa Shankar who accepted having indulged in the accommodation entry in respect of M/s. B.C. Purohit & Company by way of affidavit in which the names of Shri Sunil Verma and Smt. Anar Devi find mentioned. Thus the information received by the AO was based on department channel duly supported by affidavit of intermediary. In view thereof, the ground for reopening of assessment has been rightly rejected. Addition on account of gifts and commission paid - Held that - The assessee was not provided an opportunity to cross examine the statement of Shri Kripa Shankar which is not in conformity with principles of natural justice. In view thereof, grounds relating to addition of ₹ 2,00,000/- and ₹ 1,000/- are set aside. Addition u/s 68 - Held that - There was no reason for reopening of assessment in this behalf. The assessee has submitted confirmations along with names, address and PAN numbers of the creditors. In my considered view the assessee has discharged its initial onus to explain the cash credits relying on cases of CIT vs. Heeralal Chagan Lal (2002 (1) TMI 19 - RAJASTHAN High Court ). Addition under section 41(1) - Held that - The liability in question remains outstanding in the books of the assessee merely because the postal notice came back unserved. It cannot reach an inference that assessee s liability has shifted in terms of section 41(1). In view thereof, the addition made is deleted. Disallowance of interest - Held that - It has not been disputed that assessee has income from shares and also trading of clothes. The interest has been paid on earlier liabilities during the course of business. Merely because there was a lull in the business which cannot be assumed that the payment of interest is not in the course of business. Therefore, the same is allowable under section 36.

Summary

Issues:
1. Validity of assessment u/s 147/144 of the Income Tax Act, 1961
2. Addition/disallowance of amounts under various sections of the Income Tax Act, 1961

Analysis:

Issue 1: Validity of assessment u/s 147/144 of the Income Tax Act, 1961
The appeal challenged the assessment completed by the ld. AO under sections 147/144 of the Income Tax Act, 1961. The appellant contended that the ld. CIT (A) erred in confirming the assessment without appreciating the facts and evidence presented. The appellant argued that the notice u/s 148 was issued based on incorrect grounds, without proper satisfaction recorded, and lacked thorough examination of the information leading to the reopening of the case. The appellant emphasized that the gifts received were duly supported by evidence, including Gift Deeds and donor confirmations. The appellant further highlighted the lack of opportunity for cross-examination and challenged the addition made on the basis of alleged commission paid for arranging gifts.

Issue 2: Addition/disallowance of amounts under various sections
Regarding the addition/disallowance of amounts, the appellant contested the decisions made by the lower authorities. For instance, the appellant challenged the addition of &8377; 2,00,000/- and &8377; 4,73,000/- under section 68 of the Income Tax Act, 1961, emphasizing the submission of confirmations and details of creditors. The appellant relied on judicial precedents to support the argument that the burden of proving the source of the source should not fall on the assessee. Similarly, the appellant disputed the addition of &8377; 1,03,000/- under section 41(1), providing evidence of transactions and liabilities. The appellant also contested the disallowance of interest, asserting that the interest payments were legitimate business expenses despite a temporary lull in business activities.

The judgment acknowledged the initiation of proceedings u/s 147 with proper reasons and approval, based on information received from a reliable source. While dismissing the grounds for reopening the assessment, the judgment set aside the additions related to gifts and commission due to the lack of opportunity for cross-examination. The judgment also deleted the addition of &8377; 4,73,000/- as the appellant had adequately explained the cash credits. Additionally, the judgment ruled in favor of the appellant concerning the addition under section 41(1) and the disallowance of interest, emphasizing the ongoing liabilities and legitimate business expenses. Consequently, the appeal was partly allowed for statistical purposes.