Assessee wins as addition under section 69C deleted due to procedural violations and accepted books

ITAT Delhi ruled in favor of the assessee regarding jurisdictional and procedural issues. The tribunal found that while the initial notice was validly issued within time limits, the CIT(A) erred by changing the legal provision from section 68 to section 69C without providing mandatory show cause notice. The CIT(A) improperly made additions under section 69C when the AO had accepted books of accounts, audit reports, and sales figures. Since corresponding sales were accepted and gross profit margins were reasonable, the tribunal deleted the addition made under section 69C, allowing the assessee's appeal.

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Issues Involved:
1. Validity of the assessment order under Section 143(3) of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer (AO) and issuance of notice under Section 143(2).
3. Addition of Rs. 6,51,70,866/- under Section 69C of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3):
The assessee challenged the validity of the assessment order passed under Section 143(3) of the Income Tax Act, 1961, arguing that it was void ab initio due to improper issuance of notice under Section 143(2) by a non-jurisdictional Assessing Officer. The assessee contended that the notice issued by the ACIT, Circle 5(1), New Delhi, was without jurisdiction and time-barred. The Tribunal observed that the initial notice under Section 143(2) was issued by the ACIT, Circle 5(1), who did not possess jurisdiction over the assessee. Following the transfer of jurisdiction to the ITO, no fresh notice under Section 143(2) was issued by the ITO. The Tribunal held that the assessment framed under Section 143(3) was void ab initio due to the invalidity of the initial notice issued by a non-jurisdictional officer.

2. Jurisdiction of the Assessing Officer and Issuance of Notice under Section 143(2):
The Tribunal referred to the CBDT Instruction No. 1/2011, which specifies the monetary limits for assigning cases to ITOs and ACs/DCs. For corporate returns, the jurisdiction should lie with ACIT/DCIT if the returned income exceeds Rs. 30,00,000/-. In this case, the assessee's returned income for A.Y. 2012-13 was Rs. 2,10,529/-, and therefore, the jurisdiction should have been with the ITO. The Tribunal cited the decision in YKM Holdings Pvt. Ltd. vs. ACIT Circle 4(1), New Delhi, where it was held that an assessment framed by an officer without jurisdiction is void ab initio. The Tribunal concluded that the notice under Section 143(2) issued by the ACIT was invalid as he did not possess jurisdiction over the assessee, rendering the assessment void.

3. Addition of Rs. 6,51,70,866/- under Section 69C:
The CIT(A) treated the purchases amounting to Rs. 6,51,70,866/- as unexplained under Section 69C of the Income Tax Act, 1961, on the grounds that the parties from whom purchases were made did not respond to notices, and the bills lacked TIN and transportation details. The Tribunal noted that the AO accepted the trading results and did not reject the books of account. The Tribunal emphasized that the CIT(A) made the addition under Section 69C without issuing a show-cause notice to the assessee, which is a mandatory requirement under Section 251 of the Act. The Tribunal referred to various judgments, including the Delhi High Court's decision in Ritu Anurag Aggarwal, which held that disallowance of corresponding purchases cannot be made when sales, purchases, and gross profit are accepted by the AO. The Tribunal concluded that the addition made by the CIT(A) under Section 69C was not justified and deleted the addition.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the assessment framed under Section 143(3) due to the invalidity of the initial notice issued by a non-jurisdictional officer. The Tribunal also deleted the addition of Rs. 6,51,70,866/- made under Section 69C, holding that the CIT(A) acted beyond jurisdiction without issuing a show-cause notice to the assessee. The appeal was allowed, and the order pronounced in the open court on 25.09.2024.

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