2024 (5) TMI 1480 - HC - Income Tax

Validity of assessment order passed u/s 143(3) r.w.s. 144B - Rejection of books of accounts - disallowance u/s 40(a)(ia) - as argued petitioner had not been placed on notice of an intent of the AO to reject the books of account and to make additions referable to section 40(a)(ia) HELD THAT - As is evident from the extract of the show-cause notice, AO had in clear and unequivocal terms placed the petitioner- assessee on notice with respect to the doubts harboured by it relating to the correctness and completeness of the accounts of the assessee. AO had further observed that since the expenditure claimed is not verifiable, income was proposed to be assessed at 12 per cent. of the total disclosed revenue after rejecting the books of account. The submission, therefore, that the petitioner had not been apprised of the proposed rejection of the books and variation in income would clearly not sustain. Disallowance u/s 40(a)(ia) no specific disallowance has been made nor have any additions consequentially factored in. All that the AO has observed is that the dis allowance is not being made at this stage subject to the view that any appellate authority may take with respect to rejection of books of account. No merits in the challenge which stands raised. WP dismissed.

Summary

Issues:
Challenge to final assessment order under section 143(3) of the Income-tax Act, 1961 read with section 144B based on lack of notice of intent to reject books of account and make additions under section 40(a)(ia). Allegation of non-compliance with section 194C(6) not disclosed in show-cause notice.

Analysis:
The writ petition sought various reliefs, including calling for the assessment record, quashing the impugned order dated March 22, 2024, prohibiting recovery of demand raised, and seeking any other appropriate order. The petition was initially dismissed but reconsidered due to clarifications sought. The challenge was primarily on the grounds of lack of notice regarding rejection of books of account and additions under section 40(a)(ia) and non-disclosure of non-compliance with section 194C(6) in the show-cause notice.

The Assessing Officer issued a show-cause notice dated February 26, 2024, indicating doubts about the correctness and completeness of the accounts of the assessee. The notice highlighted discrepancies in the expenditure claimed, leading to a proposed assessment at 12% of the total disclosed revenue after rejecting the books of account under section 145(3) of the Act. The petitioner was given an opportunity to show cause against the proposed variation.

The petitioner contended that they were not informed about the proposed rejection of books and income variation. However, the show-cause notice clearly placed the petitioner on notice regarding doubts about accounts' correctness and completeness. The Assessing Officer's observations were explicit in proposing the assessment based on the verifiability of claimed expenses.

Regarding the disallowance under section 40(a)(ia), the final assessment order outlined the assessee's reply to the show-cause notice. The Assessing Officer noted the lack of verifiable expenses and unreliability of the books of account, leading to the proposed total income assessment. No specific disallowance under section 40(a)(ia) was made at that stage, pending appellate proceedings' outcome on the books' rejection.

The court found no merit in the challenges raised and dismissed the writ petition. The order was without prejudice to the petitioner's rights and contentions to be addressed in appropriate proceedings.