Assessment order under section 143(3) upheld after rejecting books of accounts with adequate notice provided

Delhi HC upheld assessment order u/s 143(3) r.w.s. 144B rejecting books of accounts. Petitioner argued inadequate notice regarding book rejection and s. 40(a)(ia) disallowance. Court found show-cause notice clearly informed assessee of doubts about account correctness and completeness, with AO proposing 12% income assessment after book rejection. Regarding s. 40(a)(ia), no specific disallowance was made, with AO reserving decision pending appellate authority's view on book rejection. Writ petition dismissed for lack of merit.

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Issues:
Challenge to final assessment order under section 143(3) of the Income-tax Act, 1961 read with section 144B based on lack of notice of intent to reject books of account and make additions under section 40(a)(ia). Allegation of non-compliance with section 194C(6) not disclosed in show-cause notice.

Analysis:
The writ petition sought various reliefs, including calling for the assessment record, quashing the impugned order dated March 22, 2024, prohibiting recovery of demand raised, and seeking any other appropriate order. The petition was initially dismissed but reconsidered due to clarifications sought. The challenge was primarily on the grounds of lack of notice regarding rejection of books of account and additions under section 40(a)(ia) and non-disclosure of non-compliance with section 194C(6) in the show-cause notice.

The Assessing Officer issued a show-cause notice dated February 26, 2024, indicating doubts about the correctness and completeness of the accounts of the assessee. The notice highlighted discrepancies in the expenditure claimed, leading to a proposed assessment at 12% of the total disclosed revenue after rejecting the books of account under section 145(3) of the Act. The petitioner was given an opportunity to show cause against the proposed variation.

The petitioner contended that they were not informed about the proposed rejection of books and income variation. However, the show-cause notice clearly placed the petitioner on notice regarding doubts about accounts' correctness and completeness. The Assessing Officer's observations were explicit in proposing the assessment based on the verifiability of claimed expenses.

Regarding the disallowance under section 40(a)(ia), the final assessment order outlined the assessee's reply to the show-cause notice. The Assessing Officer noted the lack of verifiable expenses and unreliability of the books of account, leading to the proposed total income assessment. No specific disallowance under section 40(a)(ia) was made at that stage, pending appellate proceedings' outcome on the books' rejection.

The court found no merit in the challenges raised and dismissed the writ petition. The order was without prejudice to the petitioner's rights and contentions to be addressed in appropriate proceedings.

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