2007 (7) TMI 333 - AT - Income Tax

Tribunal confirms reassessment, disallows gifts, includes making charges for undervalued stock

Naresh K. Pahuja. Versus Deputy Commissioner Of Income-tax, Central Circle - 39, Mumbai.

Naresh K. Pahuja. Versus Deputy Commissioner Of Income-tax, Central Circle - 39, Mumbai. - ITD 115, 137, TTJ 118, 319, [2007] 17 SOT 636 (MUM.) Issues Involved:1. Validity of Reassessment under Section 147/148.2. Disallowance of Gift Amounts.3. Addition on Account of Undervaluation of Stock.Detailed Analysis:1. Validity of Reassessment under Section 147/148:The first issue concerns the reopening of the assessment under Section 147/148. The assessee argued that the reassessment was invalid as the recorded reasons were not communicated. The Tribunal found that the original return was processed under Section 143(1) without scrutiny, and the notice for reassessment was issued within four years from the end of the assessment year. The Tribunal upheld the reassessment, stating that the Assessing Officer had recorded specific, definite, and relevant reasons in conformity with the law. The Tribunal cited the Supreme Court's judgment in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500, emphasizing that the formation of belief by the Assessing Officer is within the realm of subjective satisfaction and does not require final ascertainment of facts by legal evidence at the initiation stage. Consequently, the Tribunal confirmed the reassessment order.2. Disallowance of Gift Amounts:The second issue involved the disallowance of gifts totaling Rs. 13,25,000 received from three individuals. The Assessing Officer found the gifts to be non-genuine based on several factors, including identical wording in the gift declarations, the donors' lack of close relationship with the assessee, and the inability to produce the donors for examination. The CIT(A) upheld the disallowance, noting that the assessee failed to prove the donors' financial capacity and the genuineness of the transactions. The Tribunal agreed with the CIT(A), emphasizing that the identity and creditworthiness of the donors alone were insufficient to establish the genuineness of the gifts. The Tribunal highlighted inconsistencies in the assessee's statements and the improbability of receiving such large sums from unrelated persons. The Tribunal concluded that the gifts were not genuine and upheld the addition under Section 68.3. Addition on Account of Undervaluation of Stock:The third issue pertained to the addition of Rs. 1,08,893 due to alleged undervaluation of closing stock. The Assessing Officer found that the assessee had not included making charges in the valuation of the stock. The CIT(A) upheld the addition, noting that the assessee's method of valuing stock at net realizable value should include making charges. The Tribunal endorsed the CIT(A)'s decision, stating that the net realizable value should encompass both the base price of gold and the making charges. The Tribunal dismissed the assessee's grounds, confirming the addition.In the appeals for the assessment year 1998-99, the Tribunal directed the Assessing Officer to re-compute the value of closing stock by including making charges, as established in the earlier assessment year. The Tribunal set aside the orders of the departmental authorities and restored the matter for re-computation based on the principles adopted by the CIT(A) in the previous year.Conclusion:The Tribunal upheld the reassessment under Section 147/148, confirmed the disallowance of gifts as non-genuine, and endorsed the addition for undervaluation of stock by including making charges. The Tribunal's decisions were based on a thorough examination of the facts, consistency with legal precedents, and adherence to the principles of evidence and human conduct.