2018 (8) TMI 644 - AT - Income Tax

Scrutiny/ regular assessment u/s 143(3) - validity of notice issued u/s 143(2) - Belated claim of refund with interest by making application u/s 119(1)(b)(c) - Estimation of income by applying GP rate - The assessee filed an application u/s 199(2)(b) of the Income-tax Act, 1961. The said application came to be decided on 17.01.2008. While disposing of that application, the Ld. CIT(A) directed the AO to determine the refund after scrutinizing the case by issue of notice u/s 143 of the Act, as per para 7 of Instruction No.13 dated 22.12.2006 issued by the Board. In pursuance of that order, a notice u/s 143(2) was issued to the assessee on 16.05.2008. The contention of the assessee is that the AO could not have issued the notice u/s 143(2) of the Act. Held that - There is no ambiguity under the law that the scrutiny assessment is to be framed as per the provisions of Section 143 of the Income-tax Act, 1961. The Instruction No. 13/2006 would not override these provisions. AO has misconstrued direction of the ld. Commissioner of Income-tax and assessed the income by making scrutiny assessment. It is also noticed that there is an inordinate delay in disposing the application by the ld. Commissioner of Income-tax. Under these facts, we are constrained to hold that the impugned assessment order as framed by the AO is contrary to the provisions of law and beyond the jurisdiction of the AO. AO directed to allow refund with interest - Decided in favor of assessee.

Issues Involved:
1. Opportunity of hearing by CIT(A).
2. Issuance of Notice u/s 143(2) being illegal and time-barred.
3. Refund claim of ?1,75,815/- with interest.
4. Application of average Gross Profit (GP) rate.
5. Charging of interest u/s 234A, 234B, 234C, and 234D.
6. Legality of the assessment order u/s 143(3).

Issue-wise Detailed Analysis:

1. Opportunity of Hearing by CIT(A):
The assessee argued that the CIT(A) did not afford sufficient opportunity for a hearing. However, the Tribunal found that the assessee's representative had appeared and submitted written submissions, which were considered by the CIT(A). Therefore, the Tribunal rejected this ground, stating that sufficient opportunity was provided.

2. Issuance of Notice u/s 143(2) Being Illegal and Time-barred:
The assessee contended that the notice issued u/s 143(2) was beyond the prescribed time limit, making it illegal. The original return was filed on 30.10.2000, and a revised return was filed on 09.04.2001. The CIT, Ujjain, passed an order u/s 119(2)(b) on 17.01.2008, and the notice u/s 143(2) was issued on 16.05.2008. The Tribunal held that the CIT's direction to issue the notice beyond the statutory time limit was illegal. The Tribunal quashed the assessment order, stating that the AO's action was contrary to the provisions of the law and beyond jurisdiction.

3. Refund Claim of ?1,75,815/- with Interest:
The assessee claimed a refund of ?1,75,815/- in the revised return, which was within the due date. The Tribunal directed the AO to allow the refund with interest as per the law, following the decision in Tarsem Kumar vs. ITO, where it was held that refunds should be released with interest if the revised return is filed within the limitation period.

4. Application of Average Gross Profit (GP) Rate:
The CIT(A) confirmed an addition of ?10,29,121/- by applying an average GP rate of 15.34% from previous years, whereas the assessee declared a loss of ?5075/-. The Tribunal found that the AO had not rejected the books of accounts u/s 145 and had made an arbitrary estimation without proper basis. The Tribunal noted that the assessee's business was seasonal and export-oriented, and due to specific circumstances, the GP rate was low. The Tribunal directed the deletion of the addition, considering the assessment as bad in law.

5. Charging of Interest u/s 234A, 234B, 234C, and 234D:
The Tribunal noted that this ground was consequential to the other findings. Since the assessment was quashed, the charging of interest under these sections did not survive.

6. Legality of the Assessment Order u/s 143(3):
The Tribunal concluded that the assessment order u/s 143(3) was erroneous and illegal due to the invalidity of the notice u/s 143(2). The order was quashed, and the Tribunal directed the AO to delete the additions made.

Conclusion:
The Tribunal allowed the appeal partly, quashing the assessment order and directing the AO to grant the refund with interest. The Tribunal found that the notice u/s 143(2) was issued beyond the statutory time limit, making the assessment illegal. The addition based on an arbitrary GP rate was also deleted.

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