2007 (6) TMI 254 - AT - Income Tax

Tribunal upholds assessment reopening, deems notice valid, requires re-evaluation of unexplained credits & expenses

Vishwanath Products. Versus Deputy Commissioner Of Income-tax, Faizabad.

The Tribunal upheld the reopening of the assessment under section 147, finding the reasons recorded by the Assessing Officer sufficient to believe income ... Cash Credits Issues Involved:1. Validity of proceedings initiated under section 147.2. Validity of notice issued under section 148.3. Non-issuance of notice under section 143(2).4. Addition of unexplained credits under section 68.5. Disallowance of various expenses.6. Claim for relief under section 80-IA.7. Levy of interest under various heads.8. General contention that the order is contrary to facts, law, and principles of natural justice.Detailed Analysis:1. Validity of Proceedings Initiated Under Section 147:The assessee contended that the 'reasons recorded' did not constitute requisite material for initiating proceedings under section 147. The Tribunal upheld the reopening of the assessment, noting that the Assessing Officer had recorded adequate reasons to believe that income had escaped assessment. The reasons were based on the absence of complete addresses and confirmations for loans shown in the balance sheet, which led to the belief that these credits were not genuine. The Tribunal found no infirmity in the reasons recorded and upheld the reopening of the assessment.2. Validity of Notice Issued Under Section 148:The assessee argued that the notice under section 148 was not validly issued and served. The Tribunal found that the notice was indeed issued and served in accordance with the law. The Assessing Officer had sufficient reason to believe that income had escaped assessment, justifying the issuance of the notice under section 148.3. Non-Issuance of Notice Under Section 143(2):The assessee claimed that the non-issuance of notice under section 143(2) after filing the return in compliance with the notice under section 148 was fatal to the assessment order. The Tribunal noted that the return filed by the assessee in response to the notice under section 148 was beyond the time prescribed, rendering it invalid. Consequently, the Assessing Officer was not legally obliged to issue a notice under section 143(2). The Tribunal also held that non-issuance of notice under section 143(2) would only be an irregularity and would not vitiate the entire assessment.4. Addition of Unexplained Credits Under Section 68:The Assessing Officer added Rs. 63,100 as unexplained credits under section 68, as the assessee failed to establish the identity, creditworthiness, and genuineness of the creditors. The Tribunal agreed with the assessee that adequate time was not given to produce the creditors. The matter was restored to the Assessing Officer to give the assessee adequate opportunity to produce the creditors and explain the credits.5. Disallowance of Various Expenses:The Assessing Officer disallowed various expenses on an ad hoc basis, which the assessee contested. The Tribunal found that adequate opportunity was not provided to justify the claim of expenses. The matter was restored to the Assessing Officer to give the assessee adequate opportunity to prove the expenses, considering that the books were audited and expenses had been verified by the auditors.6. Claim for Relief Under Section 80-IA:The assessee claimed relief under section 80-IA, which was denied by the CIT(A) on the grounds that the claim was not made at the original stage and was not maintainable in proceedings under section 148. The Tribunal held that once the reopening of the assessment is justified, the assessee is within its right to submit the audit report in Form No. 10CCB at any time before the completion of the assessment.7. Levy of Interest Under Various Heads:The Tribunal directed the Assessing Officer to work out the interest as per law based on the finally assessed income.8. General Contention:The assessee's general contention that the order was contrary to facts, law, and principles of natural justice was addressed through the detailed examination of the specific issues raised.Conclusion:The appeal was partly allowed for statistical purposes, with the matter being restored to the Assessing Officer to provide adequate opportunity to the assessee to produce creditors, explain credits, and justify the expenses. The claim under section 80-IA was also to be reconsidered. The levy of interest was to be recalculated based on the final assessed income.