TaxTMI 
TaxTMI 
2008 (1) TMI 448
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....CIT(A) erred in confirming the action of the Assessing Officer in making additions or disallowances on the issues which were not the subject-matter of the reasons recorded for reopening the assessment. In this connection, the learned counsel referred to the submissions made before the learned CIT(A) to the effect that the assessment was reopened for not charging interest on loans and advances made to M/s. Rattan Chand Harjas Rai, M/s. Rattan Trading Company, and M/s. Dalal Consultants (P.) Ltd. A copy of the reasons recorded for reopening the assessment was also filed, in which it is inter alia mentioned that the assessee has been paying interest to banks, whereas interest has not been charged on loans and advances given to M/s. Rattan Chand Harjas Rai and M/s. Rattan Trading Company, Delhi, of Rs. 2 lakh each. In the order for assessment year 1991-92, interest of Rs. 60,000 was disallowed by holding that the expenditure was not incurred for the purpose of business. This finding was confirmed by the CIT(A). Similar disallowance of Rs. 81,000 was made in the order for assessment year 1993-94. It is further mentioned that an amount of Rs. 1,35,000 was disallowed on account of interes....
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....d to proceed with the assessment under section 147 in accordance with law. For the sake of clarification, it was repeated that nothing observed by the court would debar the Assessing Officer to bring to tax any other item of income which may have escaped assessment and which comes to the notice during the course of the proceedings under section 147 of the Act. However, he cannot make fishing enquiries to probe if any other income had escaped assessment or not. Such enquiries can also be made if in the first instance some material comes to his notice to suggest that some other item of income may have escaped assessment or had been under-assessed. 3.2 Further, he relied on the decision of Hon'ble Punjab & Haryana High Court in the case of Amrinder Singh Dhiman v. ITO [2004] 269 ITR 378, in which the ratio of the decision in the case of Vipan Khanna was applied. It was pointed out that the assessment proceedings came to an end on account of non-issue of a notice under section 143(2) of the Act within the stipulated period. Thereafter, the assessment was reopened in respect of the claim of the assessee under section 80HHC of the Act. However, the Assessing Officer sought information....
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...., it was held that such additions could not have been made. We find that the ratio of this order is in contradiction with the ratio of the decision in the case of Vipan Khanna, in which the Hon'ble Jurisdictional High Court had held that nothing observed by the court would debar the Assessing Officer to bring to tax any other item of income which may have escaped assessment and which comes to the notice of the Assessing Officer in the course of re-assessment proceedings. The order of the SMC Bench is not binding on us, particularly in view of the fact that this order does not conform to the decision in the case of Vipan Khanna and Amrinder Singh Dhiman, being the decisions of the jurisdictional High Court. Reliance was also placed on the order of Gyarsi Lal Gupta & Sons v. ITO [2005] 94 ITD 329 (Jp.). It was held that the issue regarding trading addition has already been settled at the time of making assessment under section 143(1)(a) of the Act. The proceedings were reopened in respect of some other item, which could be completed only qua the items of escaped income. Thus, it was held that the learned CIT(A) was right in deleting those additions. It may be mentioned that the Hon'b....
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....el of the assessee was that reassessment proceedings are restricted to the items in respect of which the notice was initially issued. The Hon'ble Court referred to the decision in the case of V. Jaganmohan Rao and Sun Engg. Works (P.) Ltd. and pointed out that once an assessment is reopened, the previous under-assessment is set aside. What is set aside is only the previous under-assessment and not the original assessment proceedings. He also referred to the decision of Hon'ble Delhi High Court in the case of CIT v. Pradeep Kumar Gupta [2008] 303 ITR 95, in which it was mentioned that there may well be instances where the reopening may pass muster in the light of some facts, but those facts by themselves may turn out to be insufficient to preserve the assessment itself. Once the provisions of sections 147 and 148 are resorted to, the Assessing Officer must first discharge the burden of showing that the income had escaped assessment. It is only thereafter that the assessee had to give all the answers. The court held that there was no reason why the initial burden of proof should not rest on the Assessing Officer even where the assessment has gone through section 143(1) of the Act. On....
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....me has escaped assessment. It is only thereafter that the assessee has to provide all the answers. There is no reason why initial burden of proof should not rest with the Assessing Officer even when the assessment was made under section 143(1) of the Act. 4. We have considered the facts of the case and rival submissions. As mentioned earlier, the assessment in this case was reopened in respect of interest relating to M/s. Rattan Chand Harjas Rai, M/s. Rattan Trading Company and M/s. Dalal Consultants Pvt. Ltd. Thereafter, the proceedings were completed by making additions on the aforesaid grounds as well as on a number of other grounds. Section 147 of the Act, regarding "Income escaping assessment", uses the words "assess or re-assess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section". Prima facie these words empower the Assessing Officer to bring to tax income which had escaped assessment and also income which comes to his notice subsequently in the course of proceedings under this section. The two parts of the aforesaid words are separated by the words ....
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....s wiped off and the whole assessment proceedings start afresh, is applicable only to the extent that the previous under-assessment is set aside and the ITO has jurisdiction to levy tax on the entire income that had escaped assessment during the year. Therefore, what is set aside is only the under-assessment and not the original assessment proceedings. In the re-assessment proceedings, the assessee cannot re-agitate the matter which stood concluded by stating that other income which had been assessed originally was at too high a figure. From this judgment, it appears to us that while the Assessing Officer will be within his right to tax the income which escaped assessment and any other income which comes to his notice in the course of reassessment proceedings, but the assessee will not be entitled to reopen the concluded issues by stating that on some other item he was assessed at a higher figure than what was warranted under the law. This also becomes clear from the heading of section 147 "Income escaping assessment". Coming to the decision of Hon'ble Delhi High Court in the case of D.R. Vadera, the question in that case was whether, the WTO could also enhance the value of two immo....
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....ped income to tax and also income which comes to his notice in the course of re-assessment proceedings. The facts of the case of Amrinder Singh Dhiman are identical with the facts of the case of Vipan Khanna, in which the Hon'ble Court quashed the notice calling for information sought by the department vide communication dated 25-1-2002 insofar as it was unrelated to the matter of under-assessment. The Assessing Officer was directed to complete the re-assessment in accordance with law and it was clarified that the Assessing Officer would be competent to frame the assessment to bring to tax any other item of income which might have escaped assessment and which comes to his notice during the proceedings under section 147 of the Act. Thus, the ratio of this case also does not come to the aid of the assessee as the notice issued by the Assessing Officer was not set aside by any High Court. The question in the case of Pradeep Kumar Gupta decided by Hon'ble Delhi High Court was whether, the initiation of reassessment proceedings on the basis of the statement of Shri Anand Prakash, whose cross-examination was sought by the assessee but was not given, was valid or not? The Hon'ble Court po....
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....s pointed out that the whole of the assessment cannot be made de novo. The re-assessment can be made only in respect of the items mentioned above. The issue regarding trading results had already been settled at the time making assessment under section 143(1)(a) and, therefore, addition on this ground could not be made in the re-assessment proceedings. It appears to us that the Hon'ble Tribunal did not take into account the provision contained in Explanation 2 to section 147 as it was not pointed out to them, under clause (c) of which a case where income chargeable to tax has been underassessed is also a case of income escaping assessment. Therefore, each item of addition made in this case will have to be examined under the aforesaid provision to come to the conclusion whether there was any under-assessment. In the case of Malli Chand Baid, it was pointed out that re-assessment proceedings are open only qua items of under-assessment. The finality of assessment on other issues remains undisturbed irrespective of the fact whether the assessment was made under section 143(1), 143(3) or 144 of the Act. It was not the case of the revenue in that case that it had come across any material ....
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....nsel. In paragraphs 63 to 66 of the order, the Hon'ble Tribunal pointed out that the case of the revenue was that the assessee had made interest-free advances to M/s. Rattan Chand Harjas Rai and Rattan Trading Company for non-business purposes. Therefore, interest paid by the assessee to the extent it related to advances made to these parties was disallowed. On hearing both the sides and considering the material on record, it was found that the grounds stood covered by the orders of the ITAT for assessment years 1990-91 and 1991-92, referred to in the order. Accordingly, the appeal of the assessee was allowed. In regard to the disallowance of interest in respect of M/s. Dalal Consultants (P.) Ltd., it was again pointed out that the ground stood covered by the order of IT AT in the appeal for assessment year 1990-91. Both the parties agreed that the facts of that year were same as the facts for assessment year 1990-91. Therefore, relying on that order, the appeal of the assessee was allowed. As mentioned earlier, it is the case of both the parties that facts in respect of both the grounds are same as in ITA No. 6252(Delhi)/95 Respectfully following order in that appeal, these ground....
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....d the balance was shown as 38 dinner sets which should have been 28. Thus, there is a difference of 10 dinner sets. (ii) Page Nos. 5 to 13 of the said register reflects stock position of dinner sets (15 pieces). In the said account certain over-writings had been made after erasing the original entries. Few such instances noticed are as under:- On 13-4-1993 by making over-writing in the issue column the original figure has changed as 66 thereby reflecting the stock at nil. On 13-5-1993 the stock was shown at 146 sets. Out of this 68 sets were shown to have been issued on 14-5-1993. The figure of 68 has subsequently been changed to 28 sets. The closing balance originally was rightly shown as 78 (146-68). Since there had been a manipulation in the issue column, therefore, the stock of dinner sets had been changed from 78 to 118. Therefore, it is evident that the stock register may not be relied upon. Page Nos. 6 and 7 of the said stock register clearly reveal that on 3-8-1993 there were 124 dinner sets out of which 25 dinner sets were issued on 4-8-1993 thereby leaving a balance of 99 sets. After erasing the actual date again the same date was mentioned as 4-8-1993 and 200....
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.... nally 289) -------------------------------------------------------------- Photocopies of pages 1, 5, 6 and 7 of the said stock register were annexed to the assessment order." In these circumstances, the Assessing Officer rejected the book results and estimated the gross profit ratio at 22.8 per cent, leading to addition of Rs. 34,49,334. 6.1 It was represented before the learned CIT(A) that the Assessing Officer rejected the trading results after pointing out certain defects in the books of account. It was also stated that the assessee effected change in the method of valuation of stock under which the opening stock was valued at cost and closing stock was valued at market price, which was claimed to be lower than the cost price. Thus, On the basis of these facts the books were rejected and gross profit rate was estimated at 22.8 per cent. It was explained that the alleged difference of 10 dinner sets was nothing bu....
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....99 addressed to the Assessing Officer. The case of the learned counsel was that this issue stood concluded when notice under section 143(2) was not issued within the statutory time limit. In any case, the facts did not lead to a conclusion that there was any suppression of profit either on account of defects in maintenance of stock register or in respect of the valuation of the closing stock. On the other hand, the learned DR relied on the order of the learned CIT(A). 6.3 We have considered the facts of the case and rival submissions. We find that the assessee had represented before the Assessing Officer that it was following cost price or market price, whichever is lower, for the purpose of valuation of stock, as seen from page 2 of the paper book. This page also shows that item-wise quantitative details were furnished in respect of all the items. It is also true that the Assessing Officer noticed some defects and over-writings in the stock register. He found that in respect of certain items, the value was shown as per market price, which was lower than the cost price. However, he did not quantify the amount of under-assessed income where there were discrepancies in quantitativ....
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....he next question is whether, the Assessing Officer was justified in summarily estimating gross profit ratio at 22.8 per cent of the sales? We are of the view that such a course could not have been adopted in the re-assessment proceedings as this assessment has to be made on the basis of any other income which came to his notice. The Assessing Officer had the stock register and inventory before him. He should have examined the explanation of the assessee with respect to the discrepancies pointed out by him and thereafter quantified the additions to be made in respect of discrepancy in quantitative details and on ground of under-valuation of stock. In respect of the latter, it may be pointed out that if there were sufficient reasons for valuing closing stock at lower than the cost price or even the value mentioned in opening stock, these reasons have to be considered in the light of the fact that the assessee was following cost price or market price, which is lower, for the purpose of valuing the stock. In view thereof, we think it fit to restore the matter to the file of the Assessing Officer to find out-(i) the actual discrepancy in the stock register and value of stock to be added....
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....(A), by which it is inter alia mentioned that the agents had been rendering services in the past and they were paid commission by way of account payee cheques. Copies of bills raised by the agents were stated to be enclosed, however, such bills were not there in the paper book filed by the assessee before us. It may be mentioned here that no evidence regarding payment of similar commissions, to these parties in the past was placed in the paper book filed before us. Coming to the legal submissions, reliance was placed on the decision of Hon'ble Delhi High Court in the case of Pradeep Kumar Gupta. As pointed out earlier, this case deals with the validity of reopening of the assessment and not for bringing any other income to tax in proceedings of reassessment validly initiated under section 147. The Hon'ble Court had pointed out that the initial burden to prove that the income escaped assessment for reopening the assessment rested with the Assessing Officer even where the assessee has gone through under section 143(1) of the Act. It is not a case where the assessee has challenged the reopening of the assessment. It is also not a case where the notice issued by the Assessing Officer w....
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.... Officer that these liabilities ceased to exist, it was for him to prove so by bringing the case within the four corners of the provisions contained in section 41(1). A reference was made to the decision of Hon'ble Supreme Court in the case of CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518, in which it was held that the entries made in the accounts of the debtor, unilaterally writing off of the debt, without any action on the part of the creditor will not enable the debtor to say that the liability had come to an end. This applied even where the period of limitation prescribed under the Limitation Act came to an end. Apart from that, such an action does not confer any benefit on the debtor. Therefore, it was held that the amounts written off by the debtor would not constitute income under section 41(1). In reply, the learned DR relied on the orders of the Assessing Officer and the learned CIT(A). 8.2 We have considered the facts of the case and rival submissions. It is found that neither the assessment order nor the order of the learned CIT(A) gives details of the nature of differences in the accounts namely, whether the credit balances were more or less or both in the ....
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....the other hand, the learned DR relied on the orders of the authorities below. 9.2 We have considered the facts of the case and rival submissions. The disallowance out of telephone expenses and vehicle running and maintenance expenses on the basis of the orders of past years cannot be said to be any other income which came to the notice of the Assessing Officer in the course of re-assessment proceedings. Various facts of this and earlier years were known when assessment was completed under section 143(1). Such is also the case in respect of sales promotion expenses as it was mentioned that in absence of details furnished by the assessee, it could not be ascertained whether in past such expenses were clubbed under the head "sales promotion expenses" insofar as unclaimed bonus is concerned, it was explained that the same had been disallowed by the assessee in the two years on its own, under section 43B of the Act. In the case of additional finance charges it is not known whether they crystallized in the relevant year or in any earlier year. Thus, various additions are such that they do not fall within the ambit of the words "any other income coming to the notice of the Assessing Of....