TMI Blog2007 (6) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate order, was available with the Assessing Officer in the form of audited statement of account as well as Tax Audit report under section 44AB, at the time of processing the return and no discrepancy having been found in such information (at the time of initiation of action under section 147) the action under section 147 is bad in law. 3. Because in any case, non-issuance of notice under section 143(2), after the appellant had filed the return in compliance with the notice under section 148, was fatal to the very survival of the assessment order as was impugned before her and the learned CIT (Appeals) has erred in law and on facts in holding that sufficient opportunity of hearing having been given to the appellant otherwise, there was no requirement in law to issue notice under section 143(2). 4.1 Because the learned CIT (Appeals) had erred in law and on facts in upholding the addition of Rs. 63,100 as had been made in the assessment order, on the ground that the sources of corresponding credit remained unexplained. 4.2 Because the appellant had duly discharged his onus of proving the nature and source of the credits in question and merely because the appellant was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble, even if made for the first time in the re-assessment proceedings, as earlier assessment stood wiped off after initiation of proceedings under section 147. 7. Because the appellant disputes levy of interest under various heads. 8. Because the order appealed against is contrary to the facts, law and principles of natural justice." 2. The facts of the case are that the assessee is a proprietory concern of Shri Anil Kumar Gupta, and is engaged in the production of Agarbatti, Dhoop etc. The return for the assessment year 1998-99 was filed originally on 31-10-1998 showing total income of Rs. 4,38,834. The case was processed under section 143(1) on 28-7-1999. The Assessing Officer later issued notice under section 148 on 18-9-2002, which was served on the assessee on 21-9-2002. In compliance to the said notice, the assessee filed return of income with a note on the top "In response to notice under section 148 under protest on 23-12-2002." The income returned therein was Rs. 4,38,832 i.e., the originally returned figure. The assessee claimed in this return deduction under section 80-IA for Rs. 1,09,708 thus declaring total income at Rs. 3,29,130. The Assessing Officer noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63,100 ------------------------------------------------------------ 4. According to the Assessing Officer, neither the identity nor the capacity and creditworthiness has been established. The confirmations filed did not reveal complete details of income and savings of the creditors to advance loans. As the assessee did not discharge the onus of proving these loans and also did not produce the creditors, even though asked for by him, he added Rs. 63,100 as credits not proved. 5. Before the ld. CIT(A), the assessee raised the grounds relating to re-opening of assessment contending that re-opening was bad, because the Assessing Officer did not arrive at proper satisfaction, the assessment was sought to be declared bad as the Assessing Officer did not issue notice under section 143(2) and on merits, it was submitted before the ld. CIT(A) that adequate time was not allowed to produce the creditors. The additions on account of disallowance were made on ad hoc basis, which was not permissible. 6. The ld. CIT(A) upheld the re-opening of the assessment on the ground that reasons for re-opening of the assessment was recorded at the time of initiating proceedings and the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o nexus of any material with the escapement of income. According to the ld. A.R., the Assessing Officer had all the information on record. He mentioned in the reasons that he intends to do deeper scrutiny. According to him, some enquiries are called for, but this is not the requirement of law. The assessment cannot be re-opened without pointing escapement of income. The ld. A.R. relied on the decisions of Hon'ble Supreme Court in Chuggamal Rajmal v. S.P. Chaliha [1971] 79 ITR 603, Sheonath Singh v. AAC [1971] 82 ITR 147 (SC), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), Gangasaran Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 (SC), Addl. CIT v. Jai Engineering works Ltd. [1978] 113 ITR 389 (Delhi), CIT v. Kelvinator (India) Ltd. [2002] 256 ITR 1 (Delhi)(FB) and Dass Friends Builders (P.) Ltd. v. Dy. CIT [2006] 280 ITR 77 (All.) for the proposition that reopening of assessment will be bad if there is no nexus of the formation of belief with the material available to the Assessing Officer. 8. On the question of non-issuance of notice under section 143(2), the ld. A.R. submitted that if no notice is issued under section 143(2) before completing the assessment under section 143(3), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t resort to disallowances. The ld. CIT(A) has also confirmed part disallowances without considering the arguments of the assessee. 11. Regarding the claim under section 80-IA, the ld. AR submitted that the return filed under section 148 is at par with the return filed under section 139. The assessment once opened under section 148 is opened for all purposes, including the claims of deductions not originally made. Thus, deductions can be claimed in the return filed in response to notice under section 148. 12. In response to this, the ld. DR submitted that the Assessing Officer had recorded the reasons and they were provided to the assessee. The reasons show nexus of the re-opening. There is a case or justification for re-opening of the assessment. The Assessing Officer had framed on honest and bona fide belief. He further submitted that sufficiency of reasons cannot be challenged. The assessment was originally done under section 143(1), therefore, conditions such as true and full disclosures are not required for entertaining the belief for re-opening of the assessment. He relied on the decision of Hon'ble Gujarat High Court in Praful Chunnilal Patel's case. ITO v. Selected Dalur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t his contention that the assessee has not been able to establish the identity of the creditor, their creditworthiness and genuineness of the transactions and the assessee has also not produced the creditors in spite of he being specifically asked by the Assessing Officer. 15. Regarding the claim of the assessee under section 80-IA, the ld. DR submitted that re-opening of the assessment under section 148(1) is for the benefit of revenue and only the income escaped as originally believe, or subsequently discovered can only be taxed and no further relief than what is originally given to the assessee can be allowed. He relied on the following decisions: CIT v. Sun Engineering Works (P.) Ltd [1992] 198 ITR 297 (SC), Chettinad Corpn. (P.) Ltd. v. CIT [1993] 200 ITR 320 (SC), Gyarsi Lal Gupta Sons v. ITO [2005] 94 ITD 329 (Jp.) and Videocon Leasing Ind. Fin. Ltd. v. Jt. CIT [2006] 103 ITD 309 (Ahd.). 16. Regarding the claim under section 80-IA, the ld. D.R. submitted that such claim was not made with the original return. The audit report as required under section 80-IA in Form No. 10CCB was not filed originally but filed with the return in response to notice under section 148(1). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 147 initiated. Issue notice under section 148." 19. These reasons, show that the Assessing Officer examined the original return filed by the assessee and found that in respect of creditor the assessee had not given complete addresses and confirmations of loans, therefore, they could not be treated as explained. The onus under section 68 lies on the assessee to establish identity of the creditors, their creditworthiness and also genuineness of transactions. The assessee has shown credits during the financial year. They figure in the balance sheet. Therefore, it is the duty/liability of the assessee to enclose with the return the proper evidence and nature and source of such credits. If no such explanation is furnished with the return then the Assessing Officer is bound to believe that those credits are not genuine and, therefore, they are deemed income of the assessee within the meaning of section 68. As the assessment was originally processed under section 143(1)(a), the Assessing Officer could not have any occasion to give an opportunity to the assessee to furnish those "details on the basis of which he could have satisfied himself that the credits are genuine. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):- Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee, to make a return under section 139 or in response to a notice issued, under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year." 21. In a case, completed originally under section 143(1)(a), the Assessing Officer should have reasons to believe that any income chargeable to tax has escaped assessment. This belief can be formed also on the basis of appraisal of the material already available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g taxable income at Rs. 63,900. The Assessing Officer assessed the taxable income at Rs. 7,87,789 instead, making an addition of Rs. 7,23,889 after making adjustments under section 143(1)(a) of the Act. As per the adjustments explanatory sheet, appended to the intimation, the Assessing Officer recomputed the taxable income at the rate of 40 per cent of the purchase price applying the provisions of section 44AC, discarding the profits as worked out by the petitioner having recourse to sections 28 to 43C. An application for rectification was rejected and on appeal, the Commissioner of Income-tax (Appeals) held that the Assessing Officer was not justified in applying the provisions of section 44AC while sending intimation in terms of section 143(1)(a). The appellate authority thus ordered the deletion of the addition of Rs. 7,23,889. The Assessing Officer then issued a notice under section 148. On a writ petition against the notice it was held that: "The only requirement of section 147 is that Assessing Officer must have good reason to believe that some income had escaped assessment. One this belief is well-founded, recourse to reassessment proceedings cannot be said to be illegal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained subsequently during scrutiny assessment. Thus in absence of documents showing an explanation or a satisfactory explanation filed with the return about the cash credits appearing in the balance sheet and the return having been accepted under section 143(1) the Assessing Officer will have reasons to believe that deemed income chargeable to tax under section 68 has escaped assessment. 26. Regarding second issue that notice under section 143(2) was not issued by the Assessing Officer and, therefore, assessment is invalid, we are of the considered view that the return filed by the assessee in response to notice under section 148 was beyond the time prescribed by the Assessing Officer in the notice, therefore, such return cannot be treated as a valid return. We are supported in our view by the decision of Hon'ble Allahabad High Court in Smt. Parbati Devi v. CIT [1970] 75 ITR 625, Hon'ble Punjab Haryana High Court in Auto Metal Engineers v. Union of India [1978] 111 ITR 161 and also the decision in R.K. Chawla's case (supra) and Mohd. Ayub's case as referred to by the ld. D.R. 27. On validity of a return filed after due date the head notes from the decision in Parbati Devi' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer to the petitioner; and, therefore, the Income-tax Officer could not make a best judgment assessment under section 144 of the Act and the bar against assessment provided in section 153(1)(a)(iii) of the Act was not attracted. The return filed on 12-5-1975, having been filed beyond time, the Income-tax Officer was not unjustified in treating the same as non est. Therefore, the ground that the notice under section 147 could not be issued because the return already filed by the petitioner was pending, was unsustainable." 29. In this context, it is pertinent to refer to the Head Notes from Raj Kumar Chawla's case as under:- "The proviso to section 143(2) is applicable to a valid return and not to an invalid return. Whenever a notice is issued under section 148, calling for a return as time limit of filing return will be prescribed, the Assessing Officer will never issue a notice granting the assessee unlimited period to file the return. If he does so, he would be doing so at his own peril, If the return is not filed within that period, that would not amount to a return pursuant to notice under section 148." 30. Once the return filed by the assessee on 23-12-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48(1) and secondly even otherwise, such non-issuance of notice under section 143(2) is mere irregularity and will not make the assessment void ab initio. Such an irregularity particularly in case of re-assessment proceeding is rectifiable and therefore, the matter cannot be sent back to the Assessing Officer. 31. We notice in the present case that the Assessing Officer, had issued notice under section 142(1) in response to which the assessee had produced the books of account and vouchers etc., which are in fact required to be produced in response to notice under section 143(2). Practically, all the requirements of a notice under section 143(2) have been met in response to notice under section 142(1). Really, no prejudice is caused to the assessee. 32. On merits, we agree with the ld. A.R. that the Assessing Officer has not given sufficient time to produce the creditors. The assessee was asked to produce the creditors on 27-12-2002 and assessment was completed on 30-12-2002. In such a short time, creditors could not have been produced. The loans of the creditors are old and they have dealings with the assessee. In our considered view, the Assessing Officer should give adequate t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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