2020 (11) TMI 175 - AT - Income Tax

Validity of assessment order passed by the AO for want of a valid notice u/s.143(2) - HELD THAT - Assessee has not pointed out how the notice issued by the AO u/s.143(2) of the Act on 25-08- 2009 is invalid. Further, the assessee has participated in the assessment proceedings in pursuant to the notice u/s.143(2) of the Act as well as notice u/s.142(1) - when this objection was not raised by the assessee before the authorities below and not disputed the service of notice issued u/s.143(2) of the Act, then in view of the provisions of Section 292BB of the Act, the assessee cannot be allowed to dispute the service of notice issued u/s.143(2) of the Act. It is a matter of fact that the AO issued notice u/s.143(2) on 25-08-2009, which is within the limitation period as prescribed under such section, accordingly, the Ground No.3 of the assessee s appeal is dismissed. NP estimation - rejection of books of accounts - Addition being the Net Profit @10% adopted by the Assessing Officer as against the Net Profit declared by the assessee as 5.7% - HELD THAT - Net Profit declared by the assessee in the preceding year as well as in the subsequent year, which was accepted by the Assessing Officer is a reasonable and proper guidance to estimate the income for the year under consideration. Having considered the fact that the Net Profit declared by the assessee is more than the average of Net Profit for the AYs.2007-08 and 2009-10, then, even after rejection of books of accounts, no trading addition is called for. Addition made to the gross receipts of the assessee on account of the receipt from M/s.Nagarjun Construction Co., for ₹ 15,58,492/- it is noted that in response to notice u/s.133(6) the said company has furnished information of payment of ₹ 59,70,453/- as well as ₹ 15,58,492/- to the AO. AO further noted that both the TDS certificates are dated 21-06- 2008. The assessee has not disputed the fact that he has reported only ₹ 59,70,453/- but contended that this amount of ₹ 15,58,492/- is part and parcel of ₹ 59,70,453/-. This is not the fact appearing from the certificates issued by M/s.Nagarjun Construction Co. Though the payment was not received by the assessee during the year under consideration, however, once the said payment was accrued and become due in the year under consideration, the actual receipt of the payment becomes irrelevant when the assessee is following the Mercantile System of accountancy. Since the assessee has not claimed the TDS credit against the said amount, therefore, the corresponding TDS credit shall be allowed to the assessee once the said amount is added to the gross receipt of the assessee. Hence, to the extent of the addition in the gross receipts is confirmed. Protective addition on account of un-explained capital introduced by the two partners of assessee-firm - HELD THAT - Since the AO has made only protective addition in the hands of assessee-firm and proposed to make a substantive addition in the hands of partners, therefore, the fate of the protective addition is depending on the outcome of the substantive addition made in the hands of the partners. Nothing has been brought on record about the substantive addition, if any, made in the hands of the partners of the assessee-firm and further, whether the said addition was challenged and sustained by the CIT(A) or not? Accordingly, when the impugned order was passed by the CIT(A) ex-parte and without considering this material fact of the outcome of the substantive addition, if any, in the hands of the partnership firm, this issue is set aside to the record of the CIT(A) for fresh adjudication, after considering the outcome of the substantive addition, if any, made in the hands of the partners. Needless to mention that assessee should be given a fair opportunity of hearing, before passing a fresh order.

Issues Involved:
1. Validity of the assessment order due to non-service of notice under section 143(2).
2. Justification of trading addition and Net Profit rate applied by the Assessing Officer.
3. Addition of unexplained capital introduced by the partners.
4. Charge of penal interest under sections 234-B and 234-D.

Issue-wise Detailed Analysis:

1. Validity of the assessment order due to non-service of notice under section 143(2):
The assessee contended that the assessment order was illegal and without jurisdiction as no notice under section 143(2) was served within the stipulated 12 months. However, the Tribunal noted that the notice under section 143(2) was issued on 25-08-2009, within the limitation period. The assessee participated in the assessment proceedings, and no objection was raised before the authorities below. Thus, under section 292BB, the assessee cannot dispute the service of notice. Consequently, this ground was dismissed.

2. Justification of trading addition and Net Profit rate applied by the Assessing Officer:
The Assessing Officer rejected the assessee's books of accounts under section 145(3) due to discrepancies and estimated the Net Profit rate at 10%. The assessee argued that the addition of ?15,58,492 to the gross receipts was unjustified as it was already part of the total receipts from M/s. Nagarjun Construction Co. The Tribunal observed that the Assessing Officer did not provide any comparable case to justify the 10% Net Profit rate. The Net Profit declared by the assessee in preceding and subsequent years was accepted by the Assessing Officer at lower rates. Therefore, the Tribunal found the 10% rate arbitrary and unjustified, leading to no trading addition being warranted. However, the addition of ?15,58,492 to the gross receipts was confirmed as it was accrued and due during the year under consideration. Thus, grounds related to trading addition were partly allowed.

3. Addition of unexplained capital introduced by the partners:
The Assessing Officer made a protective addition of ?4,36,830 for unexplained capital introduced by two new partners, who were not assessed to tax. The Tribunal noted that the protective addition's fate depended on the outcome of the substantive addition in the partners' hands. Since the CIT(A) passed an ex-parte order without considering this material fact, the issue was remanded back to the CIT(A) for fresh adjudication, considering the substantive addition's outcome. The assessee was to be given a fair opportunity of hearing.

4. Charge of penal interest under sections 234-B and 234-D:
The Tribunal did not specifically address the issue of penal interest under sections 234-B and 234-D in the detailed analysis, implying no significant change or consideration was made regarding this ground.

Conclusion:
The appeal was treated as partly allowed for statistical purposes, with specific grounds being dismissed, partly allowed, or remanded back for fresh adjudication. The detailed analysis preserved the legal terminology and significant phrases from the original judgment, ensuring a comprehensive understanding of the Tribunal's decision.

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