2009 (7) TMI 1285 - AT - Income Tax

Tribunal upholds assessment validity, allows interest deduction, remands addition for fresh consideration

The Tribunal upheld the validity of the assessment despite non-service of notice under section 143(2), allowed the interest deduction for one-time bank ... - Issues Involved:1. Validity of assessment under section 143(3) due to non-service of notice under section 143(2).2. Disallowance of interest paid to the bank.3. Deletion of addition on account of GP rate.4. Deletion of addition under section 69A of the IT Act.5. Deletion of addition under section 68 of the IT Act.6. Violation of Rule 46-A of the IT Rules.Issue-wise Detailed Analysis:1. Validity of Assessment under Section 143(3) due to Non-Service of Notice under Section 143(2):The assessee argued that the assessment was invalid due to non-service of notice under section 143(2) within the prescribed period. The CIT(A) upheld the assessment, stating that the notice was served by affixture within the time limit. The Tribunal reviewed relevant case laws, including CIT vs. Shankarlal Ved Parkasa and CIT vs. Jaiparkash, which held that non-service of notice under section 143(2) renders the assessment irregular but not void. The Tribunal noted that the assessee had appeared before the AO multiple times without raising objections about the notice. Thus, the Tribunal concluded that the assessment was valid as the notice was served within the limitation period, and the procedural defect did not invalidate the assessment.2. Disallowance of Interest Paid to the Bank:The assessee claimed interest payments under a one-time settlement with the bank. The AO disallowed the interest, stating it did not pertain to the assessment year. The CIT(A) upheld this disallowance. The Tribunal, however, found that the interest liability crystallized and was paid in the relevant assessment years. Citing the Supreme Court's decision in Swadeshi Cotton Mills, the Tribunal directed the AO to allow the interest deduction in the relevant year when payment was made.3. Deletion of Addition on Account of GP Rate:The AO added Rs. 2,27,463/- to the assessee's income, questioning the GP rate and excluding job work receipts from trading receipts. The CIT(A) deleted the addition, noting that the assessee had higher GP rates than previous years and that job work receipts were part of trading receipts. The Tribunal upheld the CIT(A)'s decision, confirming that job work receipts should be included in the GP rate calculation, and the AO's addition was unwarranted.4. Deletion of Addition under Section 69A of the IT Act:The AO added Rs. 11,25,000/- under section 69A, questioning the source of cash deposited for FDRs. The CIT(A) deleted the addition, accepting the assessee's explanation. The Tribunal noted that the CIT(A) had accepted new evidence without seeking a remand report from the AO, violating Rule 46-A. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh consideration, directing the assessee to provide necessary evidence.5. Deletion of Addition under Section 68 of the IT Act:The AO added Rs. 2,72,917/- under section 68, questioning the genuineness of unsecured loans. The CIT(A) deleted the addition, accepting the assessee's evidence of identity, genuineness, and creditworthiness of the creditors. The Tribunal upheld the CIT(A)'s decision, finding that the assessee had provided sufficient evidence to establish the loan transactions' genuineness.6. Violation of Rule 46-A of the IT Rules:The Revenue argued that the CIT(A) violated Rule 46-A by accepting new evidence without a remand report from the AO. The Tribunal agreed, particularly regarding the addition under section 69A, and remanded the matter to the AO for fresh consideration with instructions to the assessee to provide necessary evidence.Conclusion:Both the assessee's and the Revenue's appeals were allowed in part. The Tribunal upheld the validity of the assessment, allowed the interest deduction, confirmed the deletion of the GP rate addition, and remanded the section 69A addition for fresh consideration. The section 68 addition deletion was upheld. The order was pronounced on 10th July 2009.