2023 (5) TMI 699 - AT - Income Tax

Additions towards sundry creditors - there is an increase in sundry creditors when compared to previous financial year even though there is no significant business activities in the impugned financial year - HELD THAT - As assessee has explained trade payables appearing in their books of accounts with necessary evidences and the ld. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards trade payables u/s. 68 of the Act. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue. Validity of assessment order passed u/s. 143(3) - directions of the Joint Commissioner of Income-tax u/s. 144A without giving an opportunity to the assessee to furnish its reply to the proposed directions of the JCIT, as per provisions of section 144A - HELD THAT - Directions issued by the JCIT is on the lines on which the investigation connected to the assessment should be made and also the Assessing Officer has made additions as per the directions of the JCIT issued u/s. 144A - assessment order framed by the Assessing Officer is on the basis of directions issued by the JCIT u/s. 144A of the Act and further, said directions is prejudicial to the assessee, the JCIT ought to have given an opportunity to the assessee to be heard before issuing such directions. Since, the JCIT had issued directions u/s. 144A of the Act, without providing an opportunity to the assessee to be heard as provided under proviso to section 144A of the Act, in our considered view the whole proceedings including assessment proceedings is vitiated and consequent assessment order passed by the Assessing Officer is liable to be quashed. Argument of the ld. DR since the Assessing Officer did not refer to the directions issued by the JCIT u/s. 144A of the Act, it cannot be presumed that the assessment framed is in pursuant to directions u/s. 144A of the Act - We find that although, the Assessing Officer did not specifically referred to the directions of the JCIT issued u/s. 144A in the assessment order, but if you go through the directions and the assessment order, the directions issued by the JCIT is in lines on which the investigation connected with the assessment should be made. Therefore, we are of the considered view that, the assessment made in pursuant to directions of the JCIT issued u/s. 144A of the Act, without providing opportunity to the assessee to be heard as per provisions of section 144A of the Act is illegal, void and liable to be quashed. Thus, we quash the assessment order passed by the Assessing Officer u/s. 143(3) dated 29.03.2016.

Summary

Issues Involved:
1. Legitimacy of trade payables and related interest expenditure.
2. Validity of the assessment order under Section 143(3) of the Income Tax Act, 1961, based on directions issued by the Joint Commissioner of Income-tax (JCIT) under Section 144A without providing an opportunity to the assessee to be heard.

Summary:

Issue 1: Legitimacy of Trade Payables and Related Interest Expenditure

The revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which accepted the assessee's claim that the amount shown as "Trade Payable" was certified by a Statutory Auditor and filed before the Registrar of Companies (ROC). The Assessing Officer (AO) had added the trade payables under Section 68 of the Income Tax Act, 1961, on the grounds that there was an increase in trade payables despite no substantial business activities during the assessment year 2013-14. The AO was not convinced by the assessee's explanation that the funds were received from M/s. Ruchika Global Interlinks Pvt. Ltd., transferred to SLO Steel Ltd., and finally adjusted against dues payable to other group companies.

The CIT(A) found that the transactions were genuine and routed through proper banking channels, supported by confirmation letters from the creditors and sister concerns. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided all necessary evidence, including ledger extracts and bank statements, proving the genuineness of the transactions. The Tribunal emphasized that the AO's additions were based on suspicion and lacked factual basis. The Tribunal cited the Supreme Court's decision in CIT vs Lovely Exports Ltd and the Gujarat High Court's decision in DCIT vs Rohini Builders to support its conclusion that the assessee had satisfied the conditions under Section 68 of the Act.

Issue 2: Validity of Assessment Order under Section 143(3) Based on Directions Issued by JCIT under Section 144A

The assessee contended that the assessment order was invalid as the JCIT issued directions under Section 144A without providing an opportunity to the assessee to be heard, as required by the proviso to Section 144A. The Tribunal noted that the JCIT issued directions on his own motion, and the AO's assessment was based on these directions. The Tribunal found that the directions were prejudicial to the assessee and were issued without providing the required opportunity to be heard, violating the proviso to Section 144A.

The Tribunal concluded that the assessment proceedings were vitiated due to this procedural lapse, rendering the assessment order illegal and void. Consequently, the Tribunal quashed the assessment order passed by the AO under Section 143(3).

Conclusion:

The Tribunal dismissed the revenue's appeal regarding the legitimacy of trade payables and related interest expenditure, upholding the CIT(A)'s decision. Additionally, the Tribunal allowed the assessee's cross-objection, quashing the assessment order due to the procedural lapse under Section 144A. The order was pronounced on 10th May 2023 at Chennai.