2018 (12) TMI 1327 - AT - Income Tax

Validity of reopening of assessment u/s 147 - non-issuance of notice u/s 143(2) - Held that - As relying on PR. COMMISSIONER OF INCOME TAX-08 VERSUS SHRI JAI SHIV SHANKAR TRADERS PVT. LTD. 2015 (10) TMI 1765 - DELHI HIGH COURT Even though notice u/s 148 of the Act has been issued but the notice u/s 143(2) of the Act has not been issued in the case of both the assessee namely M/s.Sukhmani Cotton Industries Pvt. Ltd. & M/s. Manjeet Cotton Pvt. Ltd. a fatal error has been committed by AO and thus the reassessment order passed u/s 147 r.w.s 143(3) of the Act is invalid bad in law and void ab initio and thus liable to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Non-issuance of notice under Section 143(2) of the Income Tax Act before reassessment proceedings.
3. Justification of the addition made on account of bogus purchases.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act:
The assessee argued that the Commissioner of Income Tax (Appeals) erred in law by not addressing the validity of reopening the assessment under Section 147 based on reports from the Sales Tax Department, Maharashtra. The reports did not include the assessee's name, nor were any statements from suppliers recorded to infer adverse conclusions against the assessee. Consequently, the notice issued under Section 148 was deemed "ab-initio void."

2. Non-Issuance of Notice under Section 143(2) of the Income Tax Act:
The primary contention was the non-issuance of a mandatory notice under Section 143(2) before commencing reassessment proceedings under Section 147. The assessee argued that the failure to issue this notice renders the reassessment proceedings void ab initio. The tribunal examined various judgments, including ACIT vs. Hotel Blue Moon (2010) and CIT vs. Rajeev Sharma (2012), which consistently held that the issuance of notice under Section 143(2) is mandatory for reassessment proceedings under Section 147.

The tribunal noted that the Departmental Representative confirmed that no notice under Section 143(2) was issued in both cases. This omission was deemed a fatal error, making the reassessment orders invalid, bad in law, and void ab initio.

3. Justification of the Addition Made on Account of Bogus Purchases:
The Revenue's appeals questioned whether the CIT(A) was justified in restricting the addition made on account of bogus purchases to 6% of the total alleged bogus purchases. However, since the reassessment proceedings were quashed due to the non-issuance of notice under Section 143(2), the tribunal found that the remaining grounds, including the justification of the addition, became infructuous and were dismissed.

Conclusion:
The tribunal quashed the reassessment proceedings in both cases due to the non-issuance of the mandatory notice under Section 143(2) of the Income Tax Act. Consequently, the additions made on account of bogus purchases were also deleted, and the appeals filed by the Revenue were dismissed. The cross objections filed by the assessees were partly allowed.