Premkumar K.khatri 14-B, Vepery High Road Chennai – 600 003 v. The Income Tax Officer Ward Ix (3) Chennai – 600 006

THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MR.JUSTICE R.KARUPPIAH Premkumar K.Khatri14-B, Vepery High RoadChennai – 600 003... AppellantVs.The Income Tax OfficerWard IX (3)Chennai – 600 006. .. Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal 'B' Bench, Chennai,dated 28.2.2005 made in I.T.A.No.2957/Mds/2004 for the assessmentyear 2001-2002 against the Income - Tax Officer, Ward IX (3), Chennaimade in PAN.No. / 32243-P, for the Assessment year 2001-02dated 09.02.2004; against the order of the Commissioner of Income Tax (Appeals)-IX, Chennai - 600 034, dated 26.10.2004 made in IT/Appeal No.299 of2004-05;For Appellant :Mr.Venkat Narayananfor M/s.Subbaraya AiyarFor Respondent :Mr.J.NarayanasamySenior Standing Counsel The assessee has filed this appeal challenging the order of theIncome Tax Appellate Tribunal 'B' Bench, Chennai, dated 28.2.2005made in I.T.A.No.2957/Mds/2004 for the assessment year 2001-2002, andthe same was admitted on the following questions of law:(i)Whether, on the facts and in the circumstances ofthe case, the Tribunal was right in law indirecting the Assessing Officer to reopen theassessment invoking Explanation 2 to Section 153 ofthe Act? https://hcservices.ecourts.gov.in/hcservices/ (ii)Whether, on the facts and in the circumstances ofthe case, the Tribunal was right in law indirecting the Assessing Officer to reopen theassessment of an earlier year which would amount toenhancement of income? 2. This is an appeal by an over enthusiastic assessee, who,having fairly conceded before the Tribunal that the assessments ofearlier years in which purchases were made can be reopened and hewould have no objection to such action, is now challenging thedirection given by the Tribunal to the Assessing Officer to reopenthe assessment invoking Explanation 2 to Section 153 of the Act. 3.1. The brief facts of the case are as under: The assessee is awholesale dealer in cloth. For the assessment year 2001-2002, hefiled return of income on 9.10.2001. The return was processed underSection 143(1) on 18.10.2002. The regular assessment under Section143(3) of the Act was completed on 26.3.2004. 3.2. During the course of assessment proceedings, the AssessingOfficer noticed that certain credit balances were lying in the namesof M/s.Rakesh Textiles; M/s.Salar Textiles and M/s.Salasar Syntheticstotalling to Rs.17,82,150/-. The Assessing Officer issued notices tothe said persons. All the notices were returned with endorsement“left”. Thereafter, the Assessing Officer issued notice to theassessee as to why the amount standing to the credit of the abovesaid firms should not be disallowed. The assessee stated that nopurchases were made from those parties after 1996-1997. However, theAssessing Officer held that liability of the assessee towards thesaid firms ceased to exist and accordingly, assessed the aboveamounts under Section 41(1) of the Act. Further, the AssessingOfficer made an addition of Rs.50,000/- towards insufficient drawings. 3.3. Aggrieved by the above said order, the assessee appealed tothe Commissioner of Income Tax (Appeals), who confirmed the orderpassed by the Assessing Officer. 3.3. Aggrieved by the above said order, the assessee appealed tothe Commissioner of Income Tax (Appeals), who confirmed the orderpassed by the Assessing Officer. 3.4. The assessee pursued the matter before the Tribunalcontending that there was no remission of liability and, therefore,addition was not justified. The representative of the departmentpleaded that even if such amounts are excluded in the assessmentyear, direction may be given to the Assessing Officer to examinewhether the purchases were bogus or not under Explanation 2 toSection 153 of the Act. In the rejoinder filed by the assesseebefore the Tribunal, while stating that addition has to be deleted inthe relevant assessment year, it was fairly conceded that if theassessments of earlier years in which such purchases were made isreopened, he would have no objection to such action. 3.5. On this premise, the Tribunal came to hold that there wasno evidence before the revenue that there was a remission or https://hcservices.ecourts.gov.in/hcservices/ cessation of such liability during the relevant assessment year. Itwas also found that the assessee has also not written off thisliability during that year and, therefore, addition cannot be madeduring the assessment year as there was no remission or cessation ofclaim. However, as contended by the representative of the departmentand accepted by the authorised representative of the assessee, theTribunal ordered reopening of the assessment of the year in whichsuch purchases were made from those parties to examine whether suchpurchases were genuine. 3.6. Assailing the said order, the assessee has filed thisappeal on the questions of law referred supra. 4. We have heard Mr.Venkat Narayanan, learned counsel for theassessee and Mr.J.Narayanasamy, learned Senior Standing Counselappearing for the Revenue and perused the orders passed by theTribunal and the authorities below. 5. In the case on hand, admittedly, credit balances are lying inthe names of third parties for long number of years and there are nopurchases by the assessee from those parties after 1996-1997. Thatapart, it was found that no such persons reside in the addressesgiven by the assessee. Under such circumstances, necessarily theseamounts have to be determined under one head or the other. IfSection 41(1) of the Act does not apply to the facts of the presentcase, it has to be determined how the credit balances should betreated. The assessee had conceded before the Tribunal thatassessment of the earlier assessment years relating to such purchasescan be reopened and he has no objection to the same. The purpose ofsuch concession is to determine the correct tax liability. It wasunder such circumstances, the Assessing Officer was directed toreopen the assessment of the year in which such purchases were madefrom third parties to examine whether such purchases were bogus ornot. The net result of such a direction may also go in favour of theassessee, if he is able to prove the bona fides. The effect wouldbe that the correct tax liability will thereafter be determined. Wefind that such a direction is in consonance with the provisions ofExplanation 2 to Section 153 of the Act. Such a direction passed bythe Tribunal in the present factual scenario, in our consideredopinion, cannot be said to be erroneous. For the foregoing reasons, this appeal is dismissed by answeringthe questions of law against the assessee and in favour of therevenue. No costs. Sd/-Assistant Registrar sasi //True Copy// Sub Assistant Registrar To: 1. The Assistant Registrar,Income Tax Appellate TribunalIncome Tax Appellate Tribunal Chennai Bench "B", Chennai. 2. The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi. 3. The Commissioner of Income Tax (Appeals)-IXChennai.Chennai. For the foregoing reasons, this appeal is dismissed by answeringthe questions of law against the assessee and in favour of therevenue. No costs. Sd/-Assistant Registrar sasi //True Copy// Sub Assistant Registrar To: 1. The Assistant Registrar,Income Tax Appellate TribunalIncome Tax Appellate Tribunal Chennai Bench "B", Chennai. 2. The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi. 3. The Commissioner of Income Tax (Appeals)-IXChennai.Chennai. 4. The Income Tax Officer Ward IX(3), Chennai. Ward IX(3), Chennai. TEJ(CO)EU 10.03.15 T.C.(A).No.448 of 2007