The Delhi Bench of Income Tax Appellate Tribunal (ITAT) held that no enhancement to the assessed income can be made without giving opportunity to the assessee of showing cause against any proposed enhancement.
The assessee company Ratori Maa Trading was incorporated on 12.05.2008. The assessee company filed return of income for Assessment Year 2009-10 which was processed under Section 143(1) of the Income Tax Act,1961.
The Assessing Officer (AO) found that large amount of cash deposits on various branches followed by transfer to account of various individuals and business within the bank and other banks were done by the assessee.
The Assessing Officer thereafter recorded detailed reason under Section 148(2) of the Income Tax Act to conclude that chargeable income has escaped assessment. A Notice under Section 148 of the Income Tax Act was issued for carrying out the assessment under Section 147 of the Income Tax Act. An amount of Rs. 42,10,200 was determined by the Assessing Officer as unexplained investment in the bank being the peak investment lying in the bank account at any point of time during the year.
Aggrieved by the order, the assessee filed an appeal before Commissioner of income Tax Appeals [CIT (A)]. The CIT (A) enhanced the income by reversing the peak credit theory. The assessed income was accordingly enhanced by Rs.3,27,45,060 over and above additions of Rs.42,10,200 made by the Assessing Officer.
Further aggrieved, the assessee preferred an appeal before the Tribunal and contended that the notice under Section 148 of the Income Tax Act has been issued on the company which was wound up by the order of the Registrar of Companies (ROC) and therefore, the notice under Section 148 of the Income Tax Act is illegal and the whole proceeding requires to be quashed on this ground alone.
The Departmental Representative submitted that the AO was never intimated about the removal of the name of the company from register of members and further stated that voluntary winding up and the existing liability of the assessee prior to such voluntary winding up will not dissolve by the act of the assessee to the detriment of the Revenue.
The Bench comprising of Pradip Kumar Kedia, Accountant Member and Yogesh Kumar US, Judicial Member observed that the CIT(A) was prevented from making enhancement to the assessed income without opportunity to the assessee. Thus it was mandatory requirement of law to necessarily provide opportunity failing which the enhancement carried out is unsustainable in law.
Hence the Tribunal held that the enhancement made by the CIT(A) is unsustainable in law and reversed the enhancement carried out.
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