2020 (9) TMI 192 - AT - Income Tax

Validity of assessment - non-service of the notice u/s.143(2) - HELD THAT - As observed from the order-sheet produced by the CIT DR that the order has been issued on 04.09.2014 for fixing the case for hearing on 13.10.2014 which has been duly dispatched to the assessee on 12.09.2014 as per the Dispatch No.6181, Office of the Additional CIT/JCIT, Range-2, Bhubaneswar and it has not been returned unserved. It is also clear from the assessment order that the assessee has appeared from time to time before the AO, which is clear from the order-sheet produced by the CIT DR and the assessee has never raised any objection regarding service of notice and jurisdiction of the AO before the AO as well as before the CIT(A). It is also clear from the record that the assessee has raised this issue first time before us, however, the documents which were produced before us, did not speak that the assessee has raised this issue before the lower authorities. CIT DR has produced sufficient evidences for substantiating the case in favour of Revenue and we are in agreement with the documents produced by the ld. CIT DR regarding legal issue raised by the assessee. We dismiss the legal grounds raised by the assessee in the form of additional ground challenging the issuance of notice u/s.143(2) of the Act by the AO as well as the ground No.1 raised by the assessee in the grounds of appeal filed in Form 36. Addition to sundry creditors - HELD THAT - From the order of AO, we find that the AO has accepted the cost of raw material consumed, work-in-progress and finished goods as well as revenue from operations but the AO has not accepted the current liabilities appeared in the books of the assessee. Without the purchases, how the manufacturing process can be done and sales can be made. If there was not genuine or bogus creditors credited by the assessee the effect must be given on the financial statements prepared by the assessee. But the AO has one-sided taken view that the purchase is bogus. This view of the AO is not correct and our view is supported by the decision of the coordinate bench of the Tribunal in the case of Smt. Sudha Loyalka 2018 (7) TMI 1892 - ITAT DELHI - we delete the addition made by the AO and confirmed by the CIT(A) on account of unexplained sundry creditors. Addition for want of non-compliance by the assessee during the course of assessment proceedings - HELD THAT - After careful consideration of the rival submissions, we noticed from the financial statements for the relevant financial year 2012-2013 after current liabilities there is appearing of advance from parties of ₹ 28,50,000/- and there is also opening balance of ₹ 25,50,000/- for the current financial year i.e. only exceeded ₹ 3 lakhs exceeded. During the course of hearing, ld. AR of the assessee submitted that no any fresh advances have been taken from the parties, therefore, as per our considered opinion, ₹ 25,50,000/- is relating to the financial year ended 31.03.2012, which cannot be added in this current assessment year under the scrutiny proceedings. Therefore, the assessee gets relief of ₹ 25,50,000/- and ₹ 3 lakhs is upheld. This ground No.3 of the appeal of the assessee is partly allowed.

Issues Involved:
1. Validity of the order passed by the CIT(A) and the Income Tax Officer.
2. Addition of ?1,42,04,290/- to the total income on account of sundry creditors.
3. Addition of ?28,50,000/- to the total income towards advances from parties.
4. Alleged deprivation of natural justice and reasonable opportunity of being heard.
5. Service and jurisdiction of notice under Section 143(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed by CIT(A) and the Income Tax Officer:
The assessee contended that the orders passed by the CIT(A) and the Income Tax Officer were without valid reason and consideration of the facts, making them illegal and arbitrary. The Tribunal examined the records and found that the assessment and appellate orders were passed following due process and were not arbitrary or illegal. Therefore, the ground challenging the validity of the orders was dismissed.

2. Addition of ?1,42,04,290/- on Account of Sundry Creditors:
The AO made an addition of ?1,42,04,290/- to the total income, doubting the genuineness of sundry creditors. The Tribunal noted that the assessee had an opening balance of ?1,25,24,747/- and a closing balance of ?1,42,05,241/-. The AO had accepted the cost of raw materials, work-in-progress, and finished goods but doubted the current liabilities. The Tribunal observed that without purchases, the manufacturing process and sales could not occur. The Tribunal cited the case of Smt. Sudha Loyalka, where it was held that credit on account of purchases cannot be added under Section 68. Consequently, the Tribunal deleted the addition made by the AO and confirmed by the CIT(A) regarding unexplained sundry creditors.

3. Addition of ?28,50,000/- towards Advances from Parties:
The AO made an addition of ?28,50,000/- due to non-compliance by the assessee. The Tribunal found that the financial statements showed an opening balance of ?25,50,000/- and an increase of ?3,00,000/- in the current financial year. The Tribunal concluded that the addition of ?25,50,000/- from the previous financial year could not be added in the current assessment year. Therefore, the Tribunal provided relief of ?25,50,000/- and upheld the addition of ?3,00,000/-.

4. Alleged Deprivation of Natural Justice and Reasonable Opportunity of Being Heard:
The assessee claimed that they were deprived of natural justice and a reasonable opportunity of being heard. The Tribunal reviewed the assessment order and documents and found that the assessee was given ample opportunity to substantiate their claims. Hence, this ground was dismissed.

5. Service and Jurisdiction of Notice under Section 143(2) of the Income Tax Act:
The assessee challenged the service and jurisdiction of the notice issued under Section 143(2). The Tribunal examined the order-sheet and found that the notice was issued on 04.09.2014 and dispatched on 12.09.2014, which was not returned unserved. The assessee had appeared before the AO and participated in the proceedings without raising any objections regarding the service of notice or jurisdiction. The Tribunal referred to the Supreme Court judgment in CIT Vs. Laxman Das Khandelwal, which stated that participation in proceedings implies deemed service of notice. Therefore, the Tribunal dismissed the legal grounds challenging the issuance of notice and jurisdiction.

Conclusion:
The appeal was partly allowed. The Tribunal deleted the addition of ?1,42,04,290/- related to sundry creditors and provided relief of ?25,50,000/- for advances from parties, upholding only ?3,00,000/-. The other grounds raised by the assessee were dismissed. The order was pronounced in the open court on 01/09/2020.

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