2009 (12) TMI 625 - AT - Income Tax

Tribunal upholds assessment reopening, disallows expenses, grants relief on opening capital

The Tribunal upheld the validity of the assessment reopening under sections 147/148, confirming additions for unsecured loans and partially disallowed ... Reopening of assessment - electrical labour contract- dis-allowance of opening capital, expenses - addition of unsecured loans - Held that:- Return filed by an assessee could not be said to be pending before A.O. as he is not statutorily required to conclude those proceedings. Merely because the Assessing Officer is prohibited from issuing notice under section 143(2) after twelve months of filing of the return, it does not mean that proceedings commenced with filing of a return, are pending before him. Moreover, so long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. It is therefore, held that issuance of notice under section 148 was valid as it was within four years of the assessment year in question and is covered by Explanation 2 to section 147.Regarding the merits of the case, sinec the assessee has failed to furnish any evidence regarding cash credits, therefore the addition was justified. Regarding opening capital, to meet the ends of justice some relief is granted to assessee. Decided partly in favor of Assessee. Issues Involved:1. Validity of reopening under section 147/148.2. Provision of reasonable opportunity under section 143/147.3. Addition on account of opening capital.4. Addition on account of unsecured loans.5. Addition on account of expenses claimed in the profit and loss account.6. Charging of interest under sections 234B, 234C, and initiation of penalty proceedings under section 271C.Detailed Analysis:1. Validity of Reopening under Section 147/148:The assessee contended that the reopening of the assessment was invalid because the return filed on April 7, 2000, was pending, and the notice under section 148 was issued on May 31, 2001. The Tribunal examined the statutory provisions and case law, including the decision in *Rajesh Jhaveri Stock Brokers P. Ltd.*, and concluded that the reopening was justified. The Tribunal held that the time period for issuing notice under section 143(2) had expired, and the return was processed, thus allowing the issuance of notice under section 148.2. Provision of Reasonable Opportunity under Section 143/147:The assessee argued that reasonable opportunity was not provided. The Tribunal noted that the assessee was in jail and could not submit evidence. However, it was also noted that the Commissioner of Income-tax (Appeals) had provided an opportunity to furnish evidence, which was not utilized by the assessee. The Tribunal upheld the reopening as valid and found no merit in the claim of lack of opportunity.3. Addition on Account of Opening Capital:The Commissioner of Income-tax (Appeals) had partially deleted the addition of Rs. 2,10,520 made by the Assessing Officer, accepting Rs. 80,000 as opening capital and confirming the addition of Rs. 1,30,520. The Tribunal, considering the facts and the assessee's past business activities, further allowed an additional relief of Rs. 70,000, accepting a total of Rs. 1,50,000 as explained opening capital.4. Addition on Account of Unsecured Loans:The Commissioner of Income-tax (Appeals) confirmed the addition of Rs. 1,40,000 out of unsecured loans, citing a lack of evidence regarding the identity and financial capacity of the lenders. The Tribunal agreed with this finding, noting the assessee's failure to provide satisfactory evidence, thus upholding the addition.5. Addition on Account of Expenses Claimed in the Profit and Loss Account:The Assessing Officer had disallowed 50% of the expenses claimed, amounting to Rs. 59,455. The Commissioner of Income-tax (Appeals) reduced this disallowance to Rs. 20,000, considering the overall circumstances. The Tribunal found this partial disallowance reasonable and confirmed the addition of Rs. 20,000.6. Charging of Interest under Sections 234B, 234C, and Initiation of Penalty Proceedings under Section 271C:The Tribunal did not provide a detailed analysis on these issues, indicating that they were consequential to the main findings. The validity of these charges would depend on the final assessed income after giving effect to the Tribunal's order.Conclusion:The Tribunal upheld the reopening of the assessment under section 147/148 and confirmed the additions related to unsecured loans and partial disallowance of expenses. It provided further relief on the addition related to opening capital. The appeal by the Revenue was dismissed, and the appeal by the assessee was partly allowed.