Jurisdiction at notice issuance and profit estimation for unverifiable purchases guide assessment validity and purchase-related additions

A notice under Section 143(2) remains supportable where the issuing Assessing Officer had jurisdiction when the notice was issued, even if the case is later transferred under Section 127; Section 129 addresses a change of incumbent rather than territorial transfer. For unverifiable purchases from an alleged accommodation-entry provider, where sales and quantitative records are accepted, the analysis supports estimating a reasonable profit element instead of disallowing the entire purchases. The notes also indicate that an unaddressed challenge to rejection of books of account is unlikely to succeed, and identify a 6% benchmark as applicable to the disputed purchases.

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Issues: (i) Whether the notice under Section 143(2) issued by the Mumbai Assessing Officer was without jurisdiction and rendered the assessment void ab initio; (ii) whether the disallowance relating to purchases from Rajan Gems was required to be deleted, sustained at 5%, or enhanced; (iii) whether the rejection of the assessee's books of account was sustainable.

Issue (i): Whether the notice under Section 143(2) issued by the Mumbai Assessing Officer was without jurisdiction and rendered the assessment void ab initio.

Analysis: The return and PAN-based records indicated jurisdiction with the Mumbai Assessing Officer when the notice under Section 143(2) was issued. The subsequent transfer of the case to Surat was supported by the CBDT notification defining territorial jurisdiction and the transfer record. Section 129 concerns continuation of proceedings upon a change of incumbent, whereas transfer of jurisdiction is governed by Section 127. The materials did not establish that the initial notice was issued by an officer lacking jurisdiction.

Conclusion: The notice under Section 143(2) was valid, and the assessment was not void ab initio.

Issue (ii): Whether the disallowance relating to purchases from Rajan Gems was required to be deleted, sustained at 5%, or enhanced.

Analysis: The sales and quantitative details were not disputed, but the purchases from Rajan Gems were linked to an alleged accommodation-entry provider. The evidence supported estimation rather than disallowance of the entire purchases. A consistent benchmark applicable to similar cases was 6% of the disputed purchases, making the 5% estimate inadequate.

Conclusion: The disallowance was enhanced from 5% to 6% of the purchases from Rajan Gems.

Issue (iii): Whether the rejection of the assessee's books of account was sustainable.

Analysis: The assessee did not make specific submissions addressing the ground challenging rejection of the books of account.

Conclusion: The ground challenging rejection of the books of account was dismissed.

Final Conclusion: The jurisdictional challenge failed, the purchase-related addition was enhanced to 6%, and the challenge to rejection of the books of account was unsuccessful.

Ratio Decidendi: A notice under Section 143(2) is not invalid merely because the case is subsequently transferred to another Assessing Officer where the issuing officer had jurisdiction when the notice was issued; in cases involving unverifiable purchases and accepted sales, the addition may be determined by a reasonable profit estimation rather than disallowance of the entire purchases.

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