2023 (4) TMI 26 - AT - Income Tax

Validity of the re-opening of the assessment - non-issuance of notice u/s. 143(2) of the Act - HELD THAT - The reassessment proceedings initiated by the AO are without due application of mind, and thus, the reassessment proceedings should be quashed as such. AO failed to bring on record notice issued u/s. 143(2) of the Act. In the absence of such notice, it is presumed that AO did not issue any notice u/s. 143(2) of the Act, hence the assessment was framed without meeting the requirement of law. Thus hold accordingly. The case laws relied by the Revenue would not help in view of the fact that AO failed to issue mandatory notice u/s. 143(2) - thus quash assessment being bad in law - Decided in favour of assessee.

Issues Involved:
1. Validity of the re-opening of the assessment u/s. 147.
2. Non-issuance of notice u/s. 143(2).
3. Non-passing of a separate speaking order rejecting objections u/s. 147.
4. Addition of Rs. 10,00,000/- u/s. 68.
5. Discharge of initial onus u/s. 68.
6. Violation of principles of natural justice.

Summary:

1. Validity of the Re-opening of the Assessment u/s. 147:
The Tribunal examined whether the re-opening of the assessment by the AO was justified. The AO had re-opened the assessment based on information regarding an accommodation entry of Rs. 10,00,000/- from M/s. S.R. Cables Pvt. Ltd. The assessee argued that the AO did not apply an independent mind and merely relied on the Investigation Wing's report. The Tribunal noted that the AO must independently apply his mind to the information received and form a belief that income has escaped assessment. The Tribunal found that the AO had not done so in this case, making the re-opening invalid.

2. Non-issuance of Notice u/s. 143(2):
The Tribunal emphasized that the issuance of notice u/s. 143(2) is mandatory and cannot be dispensed with. The AO failed to issue such notice after the assessee filed the return in response to the notice u/s. 148. The Tribunal cited multiple judicial precedents, including the Hon'ble Supreme Court's ruling in Asst. CIT vs. M/s. Hotel Blue Moon, which held that omission to issue notice u/s. 143(2) is not a procedural irregularity and is not curable. Therefore, the assessment framed without this notice was quashed as invalid.

3. Non-passing of a Separate Speaking Order Rejecting Objections u/s. 147:
The assessee contended that the AO did not pass a separate speaking order rejecting the objections to the initiation of proceedings u/s. 147. Instead, the AO included the rejection of objections within the composite assessment order. The Tribunal did not specifically address this issue separately, as the assessment was already quashed on the grounds of non-issuance of notice u/s. 143(2).

4. Addition of Rs. 10,00,000/- u/s. 68:
The AO made an addition of Rs. 10,00,000/- to the returned income, treating it as a bogus transaction u/s. 68. The Tribunal did not delve into the merits of this addition since the assessment was quashed on procedural grounds.

5. Discharge of Initial Onus u/s. 68:
The assessee argued that it had discharged its initial onus u/s. 68 by providing evidence of the identity, genuineness, and creditworthiness of the share applicant, M/s. S.R. Cables Pvt. Ltd. The Tribunal did not address this issue in detail due to the quashing of the assessment on procedural grounds.

6. Violation of Principles of Natural Justice:
The assessee claimed that the AO did not follow the principles of natural justice while passing the assessment order. The Tribunal did not specifically address this issue separately, as the assessment was already quashed on the grounds of non-issuance of notice u/s. 143(2).

Conclusion:
The Tribunal quashed the assessment order on the ground of non-issuance of mandatory notice u/s. 143(2), rendering the remaining grounds of appeal academic. The appeal of the assessee was allowed accordingly.

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