2016 (3) TMI 822 - AT - Income Tax

Tribunal quashes proceedings under Income Tax Act SS147, assessees' appeals allowed

The Rama Co-op L/C Society Ltd. and Others Versus ACIT, Sonepat Circle, Sonepat.

The Tribunal quashed the initiation of proceedings under section 147 of the Income Tax Act, leading to the overturning of lower revenue authorities' ... Reopening of assessment - Held that:- During the course of original assessment proceedings the books of a/c along with the audit report were duly furnished and were accepted while passing order u/s 143(3). The assessee has not filed the assessment order passed u/s 143(3) in the present case. Thus the initiation of proceedings u/s 147 of the Act were not valid. Accordingly, orders of authorities below in all the appeals in question are quashed and the assessee’s appeals stand allowed Issues involved:1. Validity of initiation of proceedings under section 147 of the Income Tax Act.2. Assessment framed under section 144 of the Act.3. Determination of income under section 44AD of the Act.4. Addition to income returned before deduction under section 80P of the Act.5. Allowance of deduction under section 80P of the Act.Issue 1: Validity of initiation of proceedings under section 147 of the Income Tax Act:The appeals were filed by the assessees challenging the orders passed by the CIT(A) for the assessment year 2007-08. The primary contention was the initiation of proceedings under section 147 of the Act. The assessees argued that there was no tangible material to form a 'reason to believe' that income had escaped assessment. They further contended that the initiation was based on directions from the Commissioner of Income Tax, which was contrary to established judgments. The CIT(A) upheld the initiation, stating that there was a reason to believe that income had indeed escaped assessment due to non-disclosure of relevant facts.Issue 2: Assessment framed under section 144 of the Act:The Assessing Officer (AO) determined the profit under section 44AD by applying an 8% rate on the gross receipts, resulting in an income of Rs. 85,203 before deduction under section 80P(2). The assessees contested the assessment under section 144, arguing that the determination of income was incorrect. However, the CIT(A) upheld the assessment framed under section 144.Issue 3: Determination of income under section 44AD of the Act:The AO applied a profit rate of 8% on the gross receipts under section 44AD, leading to the determination of income at Rs. 85,203 before deduction under section 80P(2). The assessees disputed this determination, but the AO's decision was maintained by the CIT(A).Issue 4: Addition to income returned before deduction under section 80P of the Act:An addition of Rs. 35,203 was made to the income returned by the appellant before claiming deduction under section 80P of the Act. The CIT(A) sustained this addition, leading to further contention by the assessees regarding the correctness of the addition.Issue 5: Allowance of deduction under section 80P of the Act:The CIT(A) was criticized for not allowing the deduction under section 80P on the assessed income of the appellant society. Additionally, the claim of deduction was restricted to Rs. 50,000 under section 80P(2) of the Act, which was challenged by the assessees. The CIT(A) upheld these decisions, leading to further disputes on the allowance of deductions.In conclusion, the Tribunal, after considering the submissions of both parties and reviewing the case records, quashed the initiation of proceedings under section 147 of the Act. Consequently, the orders of the lower revenue authorities were overturned, and the appeals of the assessees were allowed.