2024 (10) TMI 1200 - AT - Income Tax

Assessment invalidated due to mandatory section 143(2) notice not issued before finalizing section 147 reopening proceedings

Eklavya Gems Versus The ITO, Ward – 3 (2) (1), Surat

The ITAT Surat ruled in favor of the assessee challenging the validity of reopening assessment under section 147. The tribunal held that issuance of ... Validity of reopening assessment u/s 147 - no notice u/s 143(2) - HELD THAT:- Hon’ble Delhi High Court in case of PCIT vs. Silver Line [2015 (11) TMI 809 - DELHI HIGH COURT] also held that merely because assessee participated in proceeding pursuance to notice under section 148, it would not obviate mandatory requirement of AO to issue a notice under section 143(2) before finalizing order of assessment. Further find Mukesh Mahavirprasad Singh [2021 (11) TMI 805 - ITAT SURAT] also held that issuance of notice under section 143(2) is a prerequisite of assuming jurisdiction under section 147/148 and section 292BB does not cure defect of non-issuance of notice u/s 143(2). Now again turning to the facts of case in hand qua issue under discussion, find that despite raising legal issue, the revenue has not placed on record any evidence/ material to show that notice under section 143(2) was ever issued by AO. The assessee has place sufficient material on record that despite raising specific request in ordinary as well as by virtue of invoking provisions of Right to Information Act, the AO failed to provide such information to the assessee that notice u/s 143(2) was issued by Assessing officer before passing assessment order. Appeal of the assessee is allowed. Issues Involved:1. Validity of reopening assessment under section 147 by issuing notice under section 148 of the Income Tax Act, 1961.2. Addition of Rs. 24,64,125/- on account of bogus purchases.3. Non-issuance of notice under section 143(2) of the Income Tax Act.Detailed Analysis:1. Validity of Reopening Assessment:The primary issue was whether the reopening of the assessment under section 147 by issuing a notice under section 148 was valid. The assessee contended that the reopening was based on third-party information and lacked independent verification by the Assessing Officer (AO). The reasons recorded for reopening were merely a repetition of the Investigation Wing's report, which constituted borrowed satisfaction. The assessee relied on several judicial precedents, including *ITO vs. Lakhmani Mewal Das* and *Ganga Saran & Sons vs. ITO*, to argue that such reopening was invalid. The Tribunal noted that the AO had not independently verified the information and thus found the reopening to be invalid.2. Addition on Account of Bogus Purchases:The assessee challenged the addition of Rs. 24,64,125/- made by the AO on account of bogus purchases. The assessee argued that it maintained complete books of accounts and provided substantial evidence, including invoices, confirmations, and bank statements, to substantiate the purchases. The AO had disallowed 25% of the purchases based on the Investigation Wing's report without independent verification. The Tribunal observed that the assessee's declared gross profit was higher than in previous years and that the sales were not disputed. It noted that similar cases had seen disallowances restricted to a much lower percentage. However, since the Tribunal allowed the appeal on the legal issue of non-issuance of notice under section 143(2), this issue became academic.3. Non-Issuance of Notice under Section 143(2):The most critical issue was the non-issuance of notice under section 143(2), which the assessee argued rendered the assessment order invalid. The Tribunal found that the AO did not issue the mandatory notice under section 143(2) after the assessee filed a letter stating that the original return should be treated as a response to the notice under section 148. The Tribunal cited several judgments, including *PCIT vs. Devendranath G. Chaturvedi* and *PCIT vs. Silver Line*, which established that the issuance of a notice under section 143(2) is a prerequisite for assuming jurisdiction under section 147/148. The Tribunal concluded that the assessment order was invalid due to the absence of this notice, thus allowing the additional ground of appeal. Consequently, the other grounds of appeal became academic and were not adjudicated.Conclusion:The appeal was allowed on the basis of the legal issue concerning the non-issuance of notice under section 143(2), rendering the assessment order invalid. The Tribunal did not need to address the other grounds of appeal due to this finding. The order was pronounced on 16/10/2024.