Reassessment under s.144 r.w.s.147 upheld; absence of s.143(2) notice ignored, share trade additions deleted in full

ITAT Ahmedabad upheld the validity of reassessment, holding that absence of notice under s.143(2) did not invalidate the proceedings since the assessment was completed under s.144 due to continuous non-compliance and belated filing of return after conclusion of assessment. The Tribunal held that in such circumstances, the provisions governing scrutiny under s.143(3) were inapplicable and the AO was empowered to complete a best judgment assessment under s.144 read with s.147. On merits, ITAT found no material linking the assessee to accommodation entry providers, noted proper banking and broker records for speculative share trades, and deleted the additions of Rs.1,53,633 and Rs.25,79,787 sustained by CIT(A).

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ISSUES PRESENTED AND CONSIDERED

1. Whether reassessment proceedings under section 147 read with section 144 (best judgment assessment) are invalid for non-issuance of a jurisdictional notice under section 143(2) when a return was filed in response to notice under section 148.

2. Whether the statutory procedure under the faceless e-assessment scheme (including section 144B and related electronic notice requirements) was complied with so as to validate the reassessment completed by electronic/faceless mode.

3. Whether assessment could validly be completed under section 144 where the assessee had, during reassessment proceedings, allegedly failed to comply with repeated notices under section 142(1) and furnished a belated return only at the fag end of the limitation period.

4. Whether additions under section 68 (unexplained investments/credits) based on alleged accommodation entries in a penny-stock scrip and on alleged receipts routed through concerns controlled by identified operators are sustainable where the assessee asserts genuine speculative/non-delivery trading supported by broker contract notes, ledgers and bank statements.

5. Whether principles of natural justice were violated (denial of requested video-conference hearing; nondisclosure of details/investigation material; no cross-examination of relied witnesses) affecting the validity of the reassessment and additions.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of reassessment where no notice under section 143(2) was issued after return filed in response to notice under section 148

Legal framework: Section 148 triggers reassessment; where a return is furnished in response to notice under section 148 and the Assessing Officer proposes to make a scrutiny assessment under section 143(3) read with section 147, a notice under section 143(2) is required. Section 144 empowers best judgment assessment where the assessee fails to comply with statutory requirements.

Precedent treatment: The Tribunal acknowledged settled judicial principles requiring issuance of notice under section 143(2) where a return has been furnished and taken up for scrutiny; such precedents render omission fatal in appropriate factual matrices.

Interpretation and reasoning: The Tribunal distinguished those precedents on facts. It accepted the settled principle but held it applies only where the return was furnished in time and the Assessing Officer seeks to proceed under section 143(3). Here, the assessee had not filed a return under section 139(1), defaulted in complying with notices under section 142(1), filed a belated return only on 17.03.2022 (near limitation), did not place the return before the AO for consideration, and did not seek that the return be considered. Given persistent non-compliance, the AO was entitled to proceed under section 144 and frame a best judgment assessment; the protective requirement of section 143(2) for scrutiny assessment was therefore not attracted.

Ratio vs. Obiter: Ratio - where an assessee persistently fails to comply with reassessment notices and files a belated return at the fag end without seeking its consideration, omission to issue section 143(2) does not invalidate an assessment completed under section 144. Distinguishing ratio from cited precedents is operative and binding on the facts.

Conclusion: The Tribunal rejected the ground of invalidity based on non-issuance of section 143(2) and held the reassessment under section 144 valid in law in the factual matrix of persistent non-compliance and belated filing.

Issue 2 - Compliance with faceless e-assessment scheme and section 144B procedural requirements

Legal framework: Reassessment and related notices can be issued and proceedings conducted through the faceless (e-assessment) scheme; section 144B prescribes procedure for faceless assessment mode and electronic communications.

Precedent treatment: The Tribunal and lower authority treated electronic issuance and faceless conduct as valid where there is broad compliance with statutory requirements and notices are effectively served electronically.

Interpretation and reasoning: The Tribunal accepted CIT(A)'s finding that notices under section 148, section 142(1) and show cause notices were issued electronically in accordance with the faceless scheme and that there was broad compliance with section 144B. No specific mis-service or procedural lacuna under the e-assessment scheme was found to vitiate the proceedings.

Ratio vs. Obiter: Ratio - faceless/electronic issuance complying with section 144B and the scheme's procedure does not, by itself, render reassessment void where effective electronic notices are given and opportunities to respond were provided.

Conclusion: Procedural objections to the faceless mode and section 144B compliance were rejected.

Issue 3 - Validity of proceeding under section 144 where assessee allegedly failed to comply with section 142(1) notices and filed late return

Legal framework: Section 144 empowers best judgment assessment if the assessee fails to comply with statutory notices; the Assessing Officer must still act on available material and not on conjecture.

Precedent treatment: Authorities allow section 144 assessments where non-cooperation persists; however, assessment must be founded on material and proper enquiries where feasible.

Interpretation and reasoning: The Tribunal upheld the legal permissibility of completing assessment under section 144 in cases of sustained non-compliance. However, the Tribunal proceeded to examine whether, on the merits, the AO had made requisite inquiries before making adverse additions. It stressed that section 144 does not absolve the AO of elementary inquiry into available documentary evidence (broker contracts, bank entries) especially where such records were on the record.

Ratio vs. Obiter: Mixed - legal ratio permitting section 144 in non-compliance situations; concurrent obiter emphasis that best judgment assessment nevertheless requires elementary inquiries into foundational records when available.

Conclusion: Proceeding under section 144 was legally permissible on facts of non-compliance, but whether AO properly exercised power under section 144 turns on adequacy of inquiry (examined under merits).

Issue 4 - Sustainment of additions under section 68 for alleged accommodation entries in penny-stock trades and unexplained credit of Rs. 1,53,633/-

Legal framework: Section 68 places onus on assessee to explain nature and source of unexplained investments/credits; where explanation is satisfactory and supported by cogent evidence (contract notes, bank payments, broker ledgers), additions should not be sustained. Classification of non-delivery speculative trades falls under section 43(5) for treatment as speculative business.

Precedent treatment: Tribunal recognized reliance by AO and CIT(A) on investigation material, SEBI findings of price manipulation and lists of alleged beneficiaries; lower authorities treated such material as tangible basis for additions where assessee failed to discharge onus.

Interpretation and reasoning: On close scrutiny, the Tribunal found the assessee had placed before authorities contract notes, broker ledgers and bank statements showing speculative, non-delivery trading routed through recognised brokers and banking channels. The Tribunal noted specific cash deposits in February-March 2013 corresponding to payments to brokers and that neither AO nor CIT(A) inquired into these particulars or counterparty/counterparty settlement mechanics. The Tribunal held that AO's approach - making large additions by mere reference to purchase quantum and to external investigation lists without elementary inquiry into broker records and bank reconciliations - amounted to conjecture and lacked foundational fact-finding. On the small alleged unexplained credit of Rs. 1,53,633/-, the Tribunal observed absence of tangible material connecting the sum to named operators and that AO did not pursue available ledger evidence. Consequently, additions could not be sustained.

Ratio vs. Obiter: Ratio - additions under section 68 cannot be sustained where available documentary material (contract notes, broker ledgers, bank statements) demonstrates speculative non-delivery trading and where AO fails to conduct elementary inquiries into those records before making adverse findings; mere reliance on third-party investigation lists and price-volume charts without linking foundational facts to the assessee is insufficient. Obiter - comment on relative smallness of amounts in context of overall trading, reinforcing requirement of proportional inquiry.

Conclusion: Additions of Rs. 1,25,79,787/- (as unexplained investment) and Rs. 1,53,633/- (as unexplained credit) were set aside by the Tribunal for lack of meaningful inquiry and absence of corroborative material linking the amounts to accommodation entries; the merits appeal was allowed and additions deleted.

Issue 5 - Alleged breach of natural justice (opportunity by VC, non-disclosure, cross-examination)

Legal framework: Principles of natural justice require reasonable opportunity to be heard and fair disclosure of material relied upon to enable effective response; mode of hearing (e.g., video conferencing) may be a facet of reasonable opportunity where sought.

Precedent treatment: Lower orders and parties raised natural justice contentions; Tribunal examined whether there was denial of opportunity or material non-disclosure that prejudiced assessee's ability to respond.

Interpretation and reasoning: The Tribunal did not find a specific factual finding that denial of video conferencing or non-disclosure of investigation particulars resulted in prejudicial denial of opportunity such that the proceedings were vitiated. The Tribunal's primary reversal on merits rested on inadequacy of AO's inquiry rather than on procedural breach of natural justice. Where the assessee had opportunities and partly responded, the Tribunal focused on substantive failure of AO to examine produced records.

Ratio vs. Obiter: Obiter - while natural justice complaints were raised, the Tribunal's decision turned principally on insufficiency of inquiry and evidentiary foundation for additions rather than on a definitive finding of procedural invalidity.

Conclusion: No separate basis to set aside assessment on natural justice grounds was established; the deletions of additions were based on merits/inadequacy of inquiry rather than on procedural vitiation alone.

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