2025 (2) TMI 441 - AT - Income Tax

Addition made on trading results - estimation of sales and gross profit - Tribunal in own case for Assessment Year 2000-01 to 2004-05 restricted the GP rate at 15% - HELD THAT - The identical issue has been considered by the Co-ordinate Bench of the Tribunal in Assessee s own case for Assessment Year 2000- 01 to 2004-05 in Assessee s own case 2014 (9) TMI 1070 - ITAT DELHI thus restrict the GP rate at 15% for the year under consideration and direct the A.O. to compute the trading addition. Penalty u/s 271(1)(c) - defective notice - non striking off the irrelevant portion - HELD THAT - As could be seen from case of Mr. Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s. 271(1)(c) of the Act held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. As the notice u/s. 274 r.w.s. 271(1)(c) of the Act was issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued the penalty order passed u/s 271(1)(c) of the Act by the Assessing Officer and the order of the CIT(A) in confirming the penalty order are erroneous. Appeal filed by the Assessee is allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment include:

Whether the assessment order passed under Section 153A of the Income Tax Act is valid, considering the alleged lack of valid action under Section 132.
Whether the additions and disallowances made during the assessment were justified based on the material found during the search.
Whether the principles of natural justice were violated due to the lack of reasonable opportunity of being heard.
Whether reliance on third-party statements and documents without cross-examination was appropriate.
Whether the penalty proceedings initiated under Section 271(1)(c) were valid, considering the alleged defects in the notice issued under Section 274.

ISSUE-WISE DETAILED ANALYSIS

Validity of Assessment Order under Section 153A

Legal Framework and Precedents: Section 153A of the Income Tax Act deals with assessments in cases of search and seizure. The validity of such assessments depends on the existence of a valid search action under Section 132.
Court's Interpretation and Reasoning: The Tribunal considered whether the assessment was confined to the material found during the search and whether the Assessing Officer (AO) had the authority to reassess settled issues.
Key Evidence and Findings: The Tribunal noted that the AO relied on third-party statements and documents without proper verification or cross-examination.
Application of Law to Facts: The Tribunal found that the AO's reliance on third-party evidence without allowing cross-examination was not justified.
Conclusions: The Tribunal concluded that the assessment order was not entirely justified due to procedural lapses.

Principles of Natural Justice

Legal Framework and Precedents: The principles of natural justice require that parties be given a fair opportunity to present their case.
Court's Interpretation and Reasoning: The Tribunal examined whether the assessee was given a reasonable opportunity to be heard.
Key Evidence and Findings: The Tribunal noted that the assessee was not afforded a proper opportunity to contest the evidence used against them.
Conclusions: The Tribunal found that the principles of natural justice were violated.

Penalty Proceedings under Section 271(1)(c)

Legal Framework and Precedents: Section 271(1)(c) deals with penalties for concealment of income or furnishing inaccurate particulars. The notice issued under Section 274 must specify the charge.
Court's Interpretation and Reasoning: The Tribunal considered the validity of the penalty proceedings based on the notice issued.
Key Evidence and Findings: The Tribunal found that the notice was defective as it did not specify the charge, rendering it vague.
Application of Law to Facts: The Tribunal applied the precedent set by the Bombay High Court, which held that such defects in the notice invalidate the penalty proceedings.
Conclusions: The Tribunal quashed the penalty order due to the defective notice.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reiterated the necessity for assessments under Section 153A to be based on material found during the search and emphasized the requirement for notices under Section 274 to specify the charge for penalty proceedings.
Final Determinations on Each Issue: The Tribunal partly allowed the appeal regarding the assessment order by restricting the Gross Profit rate to 15% and quashed the penalty order due to the defective notice.

The Tribunal's decision underscores the importance of adhering to procedural requirements and ensuring that assessments and penalty proceedings are conducted fairly and transparently, in line with established legal principles and precedents.

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