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TMI Blog2007 (6) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT (Appeals), in para 2 of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiation 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 no certificate in the Form 10CCB was enclosed with the return originally filed on 31-10-1998 but that certificate was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(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 Assessing Officer had adequate reasons to believe that the income has escaped assessment. The ld. CIT(A) also rejected the contention that no notice under section 143(2) was issued and, therefore, the assessment was bad by noting that the assessee had filed the return on 23-12-2002 in response to notice under section 148. The assessee has attended on various dates in response to notice under section 142(1) and no prejudice is caused to the assessee for alleged non-service of notice under section 143(2). The ld. CIT(A) relied on the decision of Hon'ble Gujarat High Court in Praful Chunnilal Patel v. M.J. Makwana, Asstt. CIT [1999] 236 ITR 832. On merits the ld. CIT(A) confirmed the addition of cash credits of Rs. 63,100 on the ground that confirmations filed by the assessee were general in nature and do not establish either the identity of the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition 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), then such assessment would be invalid. He relied on the decision of Guwahati High Court in Smt. Bandana Gogoi v. CIT [2007] 289 ITR 28. According to him, issuance of notice under section 143(2) is mandatory and only after a valid notice under section 143(2) having served on the assessee that Assessing Officer gets jurisdiction to complete assessment under section 143(3). A notice issued under section 142(1) cannot be a substitute for a notice under section 143(2). In case, no notice under section 143(2) is issued and served on the assessee, the Assessing Officer has no option but to accept the returned income. 9. On merits, the ld. A.R. submitted that all the details about the cash credits were available originally. He referred to page 90 onwards of his paper book showing confirmatory letters and copy of account filed by the creditors which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency 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 Band Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC), Rattan Gupta v. Union of India [1998] 234 ITR 220 (Delhi), CIT v. P.V.S. Beedis (P.) Ltd. [1999] 237 ITR 13 (SC), Dr. Amin Pathology Laboratory v. P.N. Prasad, Jt. CIT [2001] 252 ITR 673 (Born.), Bawa Abhai Singh v. Dy. CIT [2002] 253 ITR 83 (Delhi), Rakesh Agrawal v. Asstt. CIT [1996] 221 ITR 492 (Delhi) and Garden Finance Ltd. v. Asstt. CIT [2004] 268 ITR 48 (Guj.) (FB) to support his arguments that the reasons recorded by the Assessing Officer is sufficient to enable him to reopen the assessment. The reasons had live nexus with the reopening. 13. Regarding non-issuance of notice under section 143(2), the ld. D.R. submitted that notice under section 148 was issued on 18-9-2002. The assessee was allowed to file the return within 31 days from the date of service of this notice. The notice was serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. 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). The claim of the assessee fails and for this proposition he relied on the reasoning given by the ld. Assessing Officer and the ld. CIT(A). 17. In response to above contention of the ld. D.R., the ld. A.R. submitted that vide his letter dated 30-12-2002, which is annexed from pages 16 to 27 of his paper book, the assessee wanted much time to produce the creditors, but this time was not given. The assessee had expressed its inability to produce so many creditors in a short time. Regarding the audit report, for the purpose of section 80-IA, the ld. A.R. submitted that such audit report can be submitted at any time before completion of the assessment. On legal issues, the ld. A.R. relied on the decision of the Tribunal in Preet Leasing (P.) Ltd. v. Asstt. CIT in IT Appeal Nos. 352 and 353 decided on 19-7-2005 for the proportion that notice under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come 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, in absence of any material about the genuineness of the credits annexed with the return, the Assessing Officer has reasonable cause to believe that those credits are not genuine and, therefore, income to that extent has escaped assessment. Notwithstanding other part of the reasons recorded about expenditure or gross profit, we are satisfied that the Assessing Officer had adequate belief that the credits are not genuine and, therefore, income has escaped assessment. The Assessing Officer was reasonably satisfied that income has escaped assessment and to that extent the formation of belief is proper and within the legal parameters. He has clearly formed the belief that taxable income has escaped assessment. We do not find any infirmity in these reasons and, therefore, reopening of the assessment on that basis is upheld. 20. Both the parties have cited larg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 on the record. It is not necessary that material for formation of belief must flow from outside of the assessment record. It is because there is no occasion to the Assessing Officer to appraise the material submitted by the assessee with return of income which has to be necessarily accepted on the returned income subject to correction of arithmetical errors as mentioned in section 143(1)(a). There is no occasion to the Assessing Officer to take any view while processing the case under that section. In Aditya & Co. v. CIT [2005] 279 ITR 47 (Punj. & Har.) return was submitted by that firm showing rental income as business income. Intimation was issued under section 143(1) accepting the return. Subsequently notice under section 148 was issued on the ground that income was assessable as income from other sources and that assessee was not a firm. On these facts it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate reassessment proceedings and failure to take steps under section 143(2) will not render the Assessing Officer powerless to initiate the reassessment proceedings." 24. The power to carry out arithmetical corrections in an assessment/intimation do not include taking any view as to whether conditions laid down under section 68 have been satisfied. It would be useful to refer to section 68 in this regard. "68. Cash credits.-Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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's case are as under: "The petitioner filed a voluntary return of her income for 1953-54 on 28-2-1966, on the basis of which the officer passed an assessment order on 1-4-1966, and raised the consequential demand for tax. A revision petition against the said order of assessment was dismissed by the Commissioner of Income-tax. The petitioner thereupon filed writ petitions challenging the validity of the order of the officer dated 1-1-1966, the order of the Commissioner and the notice of demand on the ground that the assessment was barred by time. The High Court upheld this contention on the ground that the voluntary return, not having been filed within a period of four years as provided in section 139(4), there was no valid return, which could support the assessment order even under section 153(1)(c). The fact that the petitioner had agreed to file a voluntary return as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill 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 23-12-2002 is invalid, the Assessing Officer is not in fact, legally obliged to issue notice under section 143(2). After expiry of the time allowed by him in the notice under section 148(1), the Assessing Officer had issued notice under section 142(1) on 18-12-2002 and thereafter the assessee had filed the return on 23-12-2002. Therefore, the authorities cited by the ld. A.R. in support of his contention are not applicable. Notwithstanding we are of the considered view that non-issuance of notice under section 143(2) will only tantamount to an irregularity and will not vitiate the entire assessment. We are supported in our view by the decision of Hon'ble Allahabad High Court in St. Baba Mohan Singh v. CIT [1973] 90 ITR 197. It is held therein that the power under section 31(3)(a) of 1922 Act to annual an assessment is a power to be exercised where the assessment proceeding is a nulli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 time to the assessee to produce the creditors so that he can satisfy himself about the creditworthiness of the creditors and genuineness of the transaction. Regarding the disallowance of expenses, we are again of the considered view that adequate opportunity has not been given to the assessee to justify the claim. Questionnaire was issued on 27-12-2002 and assessment was completed on 31-12-2002. Let the Assessing Officer give adequate opportunity to the assessee to prove the expenses. The Assessing Officer will keep in mind that books are audited and expenses have been subjected to verification by the auditors. Without pointing out any specific defects about non-verifiability of expenses or that a particular expenditure was not incurred for business purposes the Assessing Officer does not get jurisdiction to make disallowance. We restore this issue to the file of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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