2020 (9) TMI 272 - AT - Income Tax

Validity of the assessment framed u/s. 143(3) r.w.s. 147 - statutory notice u/s. 143(2) was not issued or served upon the assessee - HELD THAT - So far as the mandatory requirement of issue of notice u/s. 143(2) of the Act in the case of re-assessment proceeding carried out u/s. 147 is concerned, the issue has been settled in the case of 'PCIT vs. Jai Shiv Shankar Traders Pvt. Ltd.' 2015 (10) TMI 1765 - DELHI HIGH COURT held that the failure of the AO to issue a notice to the assessee u/s. 143(2) subsequent to the filing of the return pursuant to the notice issued u/s. 148 is fatal of the order of the re-assessment. Assessment/re-assessment framed by the AO u/s. 143(3) read with section 147 of the Act is liable to be quashed. We order accordingly. In view of this, the consequential addition pursuant to such invalid assessment framed will have no legs to stand and are accordingly ordered to be deleted. Estimation of income - addition on account of GP rate applied on alleged bogus purchases - HELD THAT - entire details were submitted by the assessee. AO without any verification of any of the details submitted by the assessee and even without verification from the concerned seller 'M/s. Nazar Impex Pvt. Ltd.' made the additions without application of mind merely on the basis of the some investigation report from the Director General (Investigation), Mumbai which on stand-alone basis without corroboration with any of the facts of the case of the assessee cannot be made the sole basis to hold that the assessee had made bogus purchases. Assessee has demonstrated that if the alleged bogus purchases and corresponding sales are ignored or excluded, there will be a resultant loss of ₹ 20,16,844/- and under the circumstances, it cannot be said that the assessee had booked bogus purchases to reduce the profits. When the sales have been admitted and there is sufficient profit shown by the assessee on such sales and even without any iota of evidence on the file that the assessee was indulged in bogus purchases, the lower authorities were not justified in making/confirming the impugned additions. Moreover, no defect has been pointed out in the books of account of the assessee and even the books of account have not been rejected by the AO. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Validity of reassessment due to non-service of statutory notice under Section 143(2).
2. Addition made without rejecting the books of account under Section 145(3).
3. Confirmation and enhancement of additions on account of alleged bogus purchases.
4. Dismissal of the plea for quashing the reopening of assessment under Section 147.

Detailed Analysis:

Issue 1: Validity of Reassessment Due to Non-Service of Statutory Notice Under Section 143(2)
The assessee contested the validity of the reassessment framed under Section 143(3) read with Section 147 on the ground that no statutory notice under Section 143(2) was issued or served. The Tribunal noted that the assessment records did not mention any issuance of such notice. The Department Representative (DR) agreed that no notice under Section 143(2) was issued. The assessee's counsel cited several judicial precedents, including the Supreme Court's decision in 'CIT vs. Laxman Dass Khandelwal', which held that Section 292BB does not cure the complete absence of notice. The Tribunal concluded that the absence of notice under Section 143(2) is fatal to the reassessment order, thus quashing the reassessment framed under Section 143(3) read with Section 147.

Issue 2: Addition Made Without Rejecting the Books of Account Under Section 145(3)
The assessee argued that the addition made by the Assessing Officer (AO) was without rejecting the books of account under Section 145(3). The Tribunal observed that the AO did not point out any defects in the books of account nor rejected them. The CIT(A) had justified the addition without rejecting the books, stating that the addition was based on information from the investigation wing. The Tribunal noted that the books of account were not rejected even during the original assessment, and the additions were made without any corroborative evidence. Consequently, the Tribunal held that the additions made without rejecting the books of account are not sustainable.

Issue 3: Confirmation and Enhancement of Additions on Account of Alleged Bogus Purchases
The assessee contested the confirmation of the addition of ?1,28,996 on account of Gross Profit (GP) on alleged bogus purchases and the enhancement of the addition to ?21,49,920 by the CIT(A). The Tribunal noted that the AO made the additions based on an investigation report without verifying the details submitted by the assessee. The Tribunal found that the assessee had provided comprehensive details, including purchase/sales particulars, stock register, and trading account of diamonds. The Tribunal concluded that the additions were made without proper verification and solely based on the investigation report, which is not sufficient to establish bogus purchases. Therefore, the Tribunal ordered the deletion of these additions.

Issue 4: Dismissal of the Plea for Quashing the Reopening of Assessment Under Section 147
The assessee did not press ground No. 4, which contested the reopening of the assessment under Section 147. Consequently, this ground was dismissed as not pressed.

Conclusion:
The Tribunal quashed the reassessment framed under Section 143(3) read with Section 147 due to the absence of a statutory notice under Section 143(2). The Tribunal also ordered the deletion of additions made without rejecting the books of account and based on unverified investigation reports. The findings and conclusions for the assessment year 2012-13 were applied mutatis mutandis to the appeals for the assessment years 2009-10 to 2011-12, resulting in the allowance of all appeals by the assessee.