2021 (11) TMI 805 - AT - Income Tax

Validity of reopening of assessment - allegation of non issue of notice under Section 143 (2) - addition of Bogus purchases - HELD THAT - In the absence of fulfillment of mandatory requirement of issuance of notice under section 143(2) of the Act, the assumption of jurisdiction by issuance of notice of reopening itself would not be sustainable in law. Besides, section 292BB of the Act would apply with regard to failure of 'service' of notice and not with regard to issue of notice u/s 143(2) prior to finalization of assessment order, cannot be condoned by referring to section 292BB of the Act. Merely because assessee participated in proceedings pursuant to notice issued under section 148, it does not obviate mandatory requirement of issue of notice under section 143(2) of the Act.This is an undisputed position of fact, as far as the present case is concerned, that assessing officer failed to issue a notice to the assessee under section 143(2) of the Act when the Assessee made a request before the assessing officer vide letters dated 23.12.2014 and dated 21.02.2015 that the original return filed should be treated as return filed in response to notice under section 148 of the Act. AO has unequivocally admitted in his Remand Report that no notice was issued (not available on record) u/s 143(2) of the Act. The assessee has also filed an affidavit dated 31.01.2017 (duly notarized) stating that he never received notice under section 143(2) of the Act. These averments remained uncontroverted. Thus, we do not find any infirmity in the order of ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Quashing of reassessment order due to non-issuance of notice under section 143(2).
3. Existence of entities providing bogus purchase bills.
4. Treatment of commission income on bogus purchases.
5. Admission of additional evidence by CIT(A).
6. Validity of reassessment proceedings without notice under section 143(2).

Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases:
The Revenue challenged the deletion of ?3,99,61,340/- added by the Assessing Officer (AO) for bogus purchases. The AO's addition was based on information from the Director of Income Tax (Investigation) indicating that the assessee received accommodation entries from non-existent entities. The CIT(A) deleted the addition, finding that the AO did not properly verify the evidence.

2. Quashing of Reassessment Order Due to Non-Issuance of Notice Under Section 143(2):
The CIT(A) quashed the reassessment proceedings on the ground that the AO failed to issue a notice under section 143(2) of the Income Tax Act. The Tribunal upheld this decision, stating that the issuance of such a notice is mandatory for assuming jurisdiction. The AO’s remand report admitted the absence of such a notice, rendering the reassessment proceedings void ab initio.

3. Existence of Entities Providing Bogus Purchase Bills:
The AO identified entities like M/s Mihir Diamonds, M/s Krishna Dial, and M/s Karishma Diamonds Pvt Ltd as non-existent and used for providing bogus purchase bills. The Tribunal noted that these entities were part of a larger scheme involving 70 benami concerns operated by Shri Bhawarlal Jain, who admitted to the bogus transactions during a search operation.

4. Treatment of Commission Income on Bogus Purchases:
The CIT(A) treated the commission income on bogus purchases at 0.50%, citing the maintenance of proper books of accounts and stock registers by the assessee. The Revenue argued that these books were neither submitted to the AO nor during the appellate proceedings, thus questioning the CIT(A)’s basis for determining the commission.

5. Admission of Additional Evidence by CIT(A):
The Revenue contended that the CIT(A) erred in admitting additional evidence without fulfilling the conditions under Rule 46A(1). The Tribunal found that the CIT(A) had taken a remand report from the AO, who had the opportunity to examine the additional evidence, thus justifying the CIT(A)’s decision.

6. Validity of Reassessment Proceedings Without Notice Under Section 143(2):
The Tribunal emphasized that the issuance of a notice under section 143(2) is a mandatory requirement for reassessment proceedings. The absence of such a notice invalidates the reassessment, as supported by various judicial precedents. The Tribunal dismissed the Revenue’s reliance on the case of CIT v. Madhya Bharat Energy Corporation Ltd., noting that the decision had been reviewed and did not hold the field.

Conclusion:
The Tribunal upheld the CIT(A)’s order quashing the reassessment proceedings due to the non-issuance of notice under section 143(2), rendering all other issues on the merits of the additions academic and infructuous. The appeals filed by the Revenue were dismissed, affirming the CIT(A)’s decisions.