2018 (4) TMI 1416 - AT - Income Tax

Validity of assessment - no notice served u/s 143(2) within the period of limitation - Held that - As theory of service through affixture was an afterthought and manipulated by the A.O. There was no evidence on record to prove that assessee has been served with the notice under section 143(2) within the period of limitation and the alleged service of the notice through affixture is invalid and void abinitio itself. Since no notice under section 143(2) have been served upon the assessee within the statutory period, therefore, the same is invalid, consequently, the assessment order gets vitiated and is null and void. - Decided in favour of assessee. Disallowance of deduction claimed u/s 10B - proof of manufacturing activities undertaken by assessee - Held that - The assessee produced sufficient documentary evidences before Ld. CIT(A) to prove that it manufactures hot mix masala and exports them and claimed exemption under section 10B of the I.T. Act. The claim of assessee is supported by documentary evidences as well as excise records checked by the Excise Authorities. The A.O. in the remand report admitted that the documents submitted by the assessee before Ld. CIT(A) were evident that manufacturing was being done at the premises of the assessee. Admission of the A.O. that assessee is manufacturing hot mix masala and thereafter, it is exported by assessee, supported by documents, the Ld. CIT(A) correctly deleted the addition. - Decided in favour of assessee. Addition on waste of 46401 kg not proved - Held that - The excise records have been checked and verified by the Excise Authorities. CIT(A) found that assessee has maintained the in-put stock register and stock register of the finished goods. Therefore, there were no justification to disbelieve the wastage claimed by the assessee. A.O. did not reject the books of account of the assessee and has not pointed out any of the specific defects in the books of account and records maintained by assessee. The assessee explained that there is a natural loss in the process of production of hot mix masala which is supported by laboratory report. Also there is no evidence on record to prove any sales made by assessee outside the books of account.- Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order under section 143(3) due to non-service of notice under section 143(2) within the statutory period.
2. Disallowance of deduction under section 10B of the IT Act.
3. Addition of ?73,89,823 due to alleged suppression of sales.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3):
The assessee contended that the mandatory notice under section 143(2) was not served within the statutory period, rendering the assessment order invalid. The return was filed on 31st October 2005, and the notice under section 143(2) was issued on 27th October 2006 but served on 2nd November 2006. The assessee argued that the notice should have been served by 31st October 2006, as per the proviso to Section 143(2). The CIT(A) deemed the notice served within time, but the Tribunal found this incorrect. The Tribunal noted that the service through affixture was not valid as the conditions under Order-V, Rule-20 CPC were not met. Therefore, the assessment order was quashed, and the additions were deleted.

2. Disallowance of Deduction under Section 10B:
The Revenue challenged the deletion of the disallowance of ?1,57,41,762 claimed under section 10B. The AO argued that the assessee did not engage in manufacturing activities but purchased hot mix masala for export. The CIT(A) accepted the assessee's evidence, including excise records, showing that the assessee was engaged in manufacturing. The Tribunal upheld the CIT(A)'s findings, noting that the AO admitted in the remand report that manufacturing was done at the assessee's premises. The Tribunal found no merit in the Revenue's appeal and dismissed it.

3. Addition of ?73,89,823 Due to Alleged Suppression of Sales:
The AO added ?73,89,823 to the assessee's income, alleging that the difference in consumption and production was due to unaccounted sales. The assessee argued that the difference was due to natural wastage during the manufacturing process. The CIT(A) accepted the assessee's explanation, supported by excise records and laboratory reports. The Tribunal found that the AO did not reject the assessee's books of account or provide evidence of unaccounted sales. Therefore, the Tribunal upheld the CIT(A)'s deletion of the addition.

Conclusion:
The Tribunal allowed the assessee's cross-objection, quashing the assessment order due to the invalid service of notice under section 143(2). Consequently, all additions made by the AO were deleted. The Tribunal also dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on the disallowance under section 10B and the addition for alleged suppression of sales.