2021 (12) TMI 869 - AT - Income Tax

Reopening of assessment u/s 147 - addition of bogus expenditure - non-issuance of notice under section 143(2) - Information received from DGIT (Investigation), Mumbai that assessee is one of the beneficiaries of bogus purchases shown from various entities managed by Rajendra K Jain - HELD THAT - We find that on the Jurisdictional High Court in PCIT vs. Marck Biosciences Ltd. 2014 (11) TMI 812 - GUJARAT HIGH COURT held that where notice under section 143(2) was issued to assessee prior to filing of return of income, said notice being invalid, assessment order passed in pursuance of same deserved to be set aside. CIT(A) in his order held that non-issuance of notice under section 143(2) of the Act is a curable defect, we find that Hon'ble Jurisdictional High Court in Marck Biosciences Ltd. 2019 (4) TMI 215 - GUJARAT HIGH COURT also considered the provision of section 292BB and held from the language employed in section 292BB, which emerges that a notice would be deemed to be valid in three circumstances provided therein, namely where assessee has participated in the proceedings it would not be permissible him to raise objection that (i) notice was not served upon him; (ii) was not served upon him in time; (iii) was served upon him in an improper manner and held that all the circumstances contemplated under section 292BB of the Act are in case where a notice has been issued, has either not been served upon the assessee or not served in time or has been served in an improper manner. The said provision clearly does not contemplate the case where no notice has been issued at all. Issuance of notice under section 143(2) of the Act prior to filing of return of income was invalid and in absence of valid notice under section 143(2) of the Act, the assessment order is rendered invalid. - Decided against revenue.

Summary

Issues Involved:

1. Validity of reassessment proceedings initiated under Section 148 of the Income Tax Act.
2. Non-issuance of notice under Section 143(2) after filing the return of income.
3. Disallowance of 5% of purchases as non-genuine.
4. Provision of opportunity for cross-examination and adherence to the principle of Audi Alteram Partem.

Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated Under Section 148:

The assessee challenged the reassessment proceedings initiated by the Assessing Officer (AO) under Section 148 of the Income Tax Act, arguing that the notice issued was bad in law. The AO reopened the case based on information from the Investigation Wing, Mumbai, indicating that the assessee had availed bogus purchase/sale accommodation entries from Rajendra Jain Group. The AO issued a notice under Section 148 on 30.03.2018. The assessee responded by stating that the original return should be treated as the return in response to the notice. However, the AO insisted on filing a fresh return, which the assessee did on 28.09.2018. The validity of the reopening was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], who held that quashing the reopening would unduly benefit the assessee due to the AO's mistake.

2. Non-Issuance of Notice Under Section 143(2) After Filing the Return of Income:

The assessee argued that no notice under Section 143(2) was issued after filing the return on 28.09.2018, which was a mandatory requirement. The CIT(A) acknowledged this but considered it a curable defect that did not invalidate the assessment order. The Tribunal, however, disagreed, citing the jurisdictional High Court's decision in PCIT vs. Marck Biosciences Ltd., which held that non-issuance of notice under Section 143(2) after filing the return renders the assessment invalid. The Tribunal concluded that the assessment order was invalid due to the absence of a valid notice under Section 143(2).

3. Disallowance of 5% of Purchases as Non-Genuine:

The AO disallowed 100% of the purchases from five entities managed by Rajendra Jain Group, treating them as bogus. The CIT(A) reduced the disallowance to 5% of the total purchases, referring to various decisions of the Hon'ble Jurisdictional High Court. The Revenue appealed against this reduction, arguing for the restoration of the AO's original disallowance. The Tribunal did not delve into the merits of this issue, as the assessment order itself was declared invalid due to the procedural lapse in issuing the notice under Section 143(2).

4. Provision of Opportunity for Cross-Examination and Adherence to the Principle of Audi Alteram Partem:

The assessee contended that the assessment order was passed without providing the material evidence and the opportunity for cross-examination, violating the principle of Audi Alteram Partem. The Tribunal did not specifically address this issue, as the primary ground of non-issuance of notice under Section 143(2) was sufficient to invalidate the assessment order.

Conclusion:

The Tribunal allowed the assessee's appeals for all three assessment years (2011-12, 2012-13, and 2013-14) and dismissed the Revenue's appeals as infructuous. The primary reason for this decision was the invalidity of the assessment orders due to the non-issuance of valid notices under Section 143(2) after the filing of returns. The Tribunal emphasized that such procedural lapses are not curable and render the assessment orders invalid.