2023 (4) TMI 271 - AT - Income Tax

Tribunal dismisses AO's appeal, partly allows assessee's appeal, orders fresh verification

Shri Pramod Ratan Patil Versus ACIT Circle–3, Kalyan And (Vice-Versa)

Shri Pramod Ratan Patil Versus ACIT Circle–3, Kalyan And (Vice-Versa) - TMI Issues Involved:1. Validity of service of notice.2. Validity of assessment proceedings.3. Interpretation and application of sections 40A(3) and 68.4. Reliance on third-party statements without cross-examination.5. Enhancement of income by CIT (A).6. Assumptions and surmises in the order of AO and CIT (A).7. Specific additions and disallowances made by AO and CIT (A).Detailed Analysis:1. Validity of Service of Notice:The first ground of appeal by the assessee challenges the validity of the service of notice, claiming it renders the entire assessment void ab initio. However, no arguments were advanced on this issue, leading to its dismissal.2. Validity of Assessment Proceedings:The second ground of appeal questions the validity of the assessment proceedings conducted by the AO and CIT (A). Similar to the first ground, no arguments were advanced, resulting in its dismissal.3. Interpretation and Application of Sections 40A(3) and 68:The assessee contested several disallowances and additions under sections 40A(3) and 68. The Tribunal examined each issue in detail:a. Transportation Charges:The AO disallowed Rs. 4,435,916 as unproved transportation charges. The CIT (A) deleted this disallowance but noted cash payments exceeding Rs. 20,000, leading to an enhancement of Rs. 291,330 under section 40A(3). Additionally, 25% of Rs. 14,70,327 was disallowed due to inadequate details. The Tribunal upheld the disallowance of Rs. 291,330 but deleted the 25% disallowance of Rs. 367,581, finding it contradictory to the CIT (A)'s earlier acceptance of the expenses as genuine.b. Purchases:The AO disallowed Rs. 2,87,26,562 as unproved purchases. The CIT (A) allowed the deduction but invoked section 40A(3) for cash payments, enhancing the disallowance by Rs. 5,433,800. The Tribunal remitted the issue back to the AO for fresh verification, directing the assessee to substantiate the payments.c. Hiring Charges:The AO disallowed Rs. 6,302,742 under section 37. The CIT (A) deleted this but added Rs. 85,000 under section 40A(3) for cash payments. The Tribunal remitted this issue back to the AO for fresh verification.d. Cash Deposits:The AO added Rs. 1,050,000 under section 68 for unexplained cash deposits. The CIT (A) retained Rs. 525,000. The Tribunal found the assessee had sufficient cash withdrawals to cover the deposit and directed the deletion of Rs. 525,000.e. Undisclosed Income from Lodha Dwellers Pvt. Ltd.:The AO added Rs. 1,44,76,220 as undisclosed income. The CIT (A) reduced this to Rs. 13,387,820, rejecting affidavits submitted by the assessee. The Tribunal found the assessee had already offered Rs. 2,416,230 as income and directed the AO to retain this amount, deleting the balance.f. Undisclosed Income from Luster Engineering Company:The AO added Rs. 92,400 as undisclosed income. The CIT (A) confirmed this, and the Tribunal upheld the addition.4. Reliance on Third-Party Statements Without Cross-Examination:The assessee argued that the AO and CIT (A) erred in relying on third-party statements without offering cross-examination. The Tribunal did not find specific arguments or evidence to support this claim, leading to its dismissal.5. Enhancement of Income by CIT (A):The CIT (A) made several enhancements to the assessee's income. The Tribunal examined the powers of the CIT (A) under section 251 and found that while the CIT (A) could enhance income based on matters arising out of the assessment proceedings, he could not introduce a new source of income not considered by the AO. Consequently, the Tribunal quashed enhancements unrelated to the original assessment proceedings.6. Assumptions and Surmises in the Order of AO and CIT (A):The assessee claimed that the AO and CIT (A) based their orders on assumptions and surmises. The Tribunal evaluated the evidence and found that while some additions were justified, others lacked sufficient basis, leading to partial relief for the assessee.7. Specific Additions and Disallowances:The Tribunal provided detailed rulings on each specific addition and disallowance, resulting in partial relief for the assessee and the remand of certain issues back to the AO for fresh verification.Conclusion:The Tribunal dismissed the appeal of the AO and partly allowed the appeal of the assessee, providing detailed directions for fresh verification and deletion of certain additions. The order was pronounced in the open court on 08.02.2023.