ITO Vs LS Industries Ltd. (ITAT Chandigarh)
Summary: The Revenue filed an appeal before the Income Tax Appellate Tribunal, Chandigarh Bench, against the order of the Commissioner of Income Tax (Appeals) dated 20.05.2024 for assessment year 2015-16. The Revenue challenged the deletion of an addition of Rs.4,59,29,599/- made by the Assessing Officer and also raised the issue of validity of the assessment in view of non-issuance of notice under Section 143(2) of the Income-tax Act, 1961.
The assessee had not filed its return of income for AY 2015-16. The Assessing Officer issued notice under Section 148 on 31.03.2021, allowing 30 days for filing the return. The assessee did not file the return within that period and ultimately filed it on 22.01.2022. Before that filing, the Assessing Officer had issued notice under Section 142(1) on 16.12.2021 and subsequently another notice on 07.03.2022. No notice under Section 143(2) was issued on the return filed on 22.01.2022.
Before the Tribunal, the assessee defended the CIT(A)’s conclusion on this issue with reference to Rule 27 of the ITAT Rules. Reliance was placed upon PCIT Vs COSMAT Traders Pvt. Ltd., PCIT Vs Shri Cherian Abraham and ACIT Vs Hotel Blue Moon. The Revenue, on the other hand, contended that since the assessee had not filed the return within the period allowed, issuance of notice under Section 143(2) was not necessary.
The Tribunal distinguished the authorities relied upon by the assessee. It noted that in Hotel Blue Moon, the return had been filed under Section 158BC for a block period. The Tribunal accepted the proposition that where a return is filed under Section 139(1), notice under Section 143(2) is mandatory for scrutinising the return. However, according to the Tribunal, the facts of the present case were different because the assessment machinery had already been set in motion through the notices issued by the Assessing Officer before the assessee filed its belated return.
The Tribunal reasoned that assessment proceedings cannot depend upon the assessee choosing to file a return at a later stage. It observed that where the assessment was approaching limitation and the assessee filed a return shortly before finalisation of the assessment, a plea that the assessment was invalid merely because notice under Section 143(2) had not been issued on that belated return would frustrate the assessment procedure. The Tribunal therefore held that the assessment order would not become invalid simply because notice under Section 143(2) was not issued on the belated return.
On the Revenue’s substantive ground, the Assessing Officer had treated export sales of about Rs.17.22 crore as the amount which ought to have been accounted for, whereas the assessee had declared export sales of Rs.12,63,47,937/-. This resulted in an addition of Rs.4,59,29,599/-.
The assessee explained that goods valued at Rs.2,51,13,049/- had been damaged and the importer had made deductions against the sale invoices. It further explained that goods valued at Rs.2,08,84,704/- related to an invoice dated 31.03.2014, which had been reflected in the profit and loss account for FY 2013-14 even though the goods were shipped on 05.04.2014. The assessee relied upon export invoices, BRC details issued by DGFT and debit notes issued by the importer.
The CIT(A) had found that the Assessing Officer had not shared the information or bill details supporting the alleged export sale of Rs.17,23,45,690/-. The CIT(A) also accepted the explanation regarding the deductions for damaged goods and the invoice dated 31.03.2014 shipped on 05.04.2014.
The Tribunal found the CIT(A)’s findings to be well reasoned. It held that the Assessing Officer had unnecessarily enhanced the sale value because the additional amount had neither been actually achieved by the assessee nor accrued to it during the relevant year. Accordingly, the Tribunal declined to interfere with the deletion of the addition of Rs.4,59,29,599/-.
The Revenue’s ground concerning the export sales addition was therefore rejected, while the assessment was held not to be invalid merely because no notice under Section 143(2) had been issued on the belated return. The Revenue’s appeal was consequently partly allowed.
Cases Discussed
- PCIT Vs COSMAT Traders Pvt. Ltd. — 2022 (11) TMI 895 (Calcutta)
- Shri Cherian Abraham Vs. DCIT — 444 ITR 420
- ACIT Vs Hotel Blue Moon — 321 ITR 362 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT CHANDIGARH
The Revenue is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT(A)’] dated 20.05.2024 passed for assessment year 2015-16.
2. The first grievance of the Revenue is that ld.CIT (Appeals) has erred in deleting the addition of Rs.4,59,29,599/- made by the AO.
3. The ld. CIT DR also pointed out that ld.CIT (Appeals) has declared the assessment order as bad in law on account of non-issuance of notice u/s 143(2) of the Income Tax Act, 1961. The ld. counsel for the assessee has defended the order of the CIT (Appeals) on this issue also with the help of Rule 27 of the ITAT Rules. Though no specific application has been filed by the ld. counsel for the assessee, but he did not object to the contention of ld. DR for adjudicating the issue, whether assessment order deserves to be treated as invalid on account of non-issuance of a notice u/s 143(2) of the Income Tax Act ? Therefore, we will be dealing with these two issues in this appeal. The second is, whether assessment order is to be treated as invalid in the absence of notice u/s 143(2) of the Income Tax Act ?
4. The brief facts of the case are that as per assessment order, assessee did not file return of income for assessment year 2015-16. The AO has issued a notice u/s 148 on 31.03.2021 vide which assessee was given 30 days’ time for filing the return. The assessee did not file the return within 30 days, rather filed on 22.01.2022. Before filing of this return, AO has issued notice u/s 142(1) on 16.12.2021. Copy of this notice is available on page 7 of the Paper Book. Thereafter, AO has issued second notice on 07.03.2022.
4.1 The grievance of the assessee is that ld. AO has not issued any notice u/s 143(2) of the Act on the return filed by it on 22.01.2022. According to the ld. counsel for the assessee, at the most it can be construed as a belated return. He made reference to the decision of the Kolkata High Court in PCIT Vs COSMAT Traders Pvt. Ltd. reported in 2022 (11) TMI 895 Calcutta. He also referred to the decision of the Karnataka High Court reported in 444 ITR page 420 in the case of PCIT Vs Shri Cherian Abraham. A reference was made to the decision of Hon’ble Supreme Court in the case of ACIT Vs Hotel Blue Moon 321 ITR 362.
4.2 On the other hand ld. CIT DR relied upon Section 143(2) of the Act and submitted that since assessee did not file the return, therefore, it was not necessary for the AO to issue notice u/s 143(2) of the Act.
5. We have duly considered the rival contentions and gone through the record carefully. As far as decisions relied upon by the ld. counsel for the assessee are concerned, there is a distinction amongst facts of those cases vis-à-vis the present case. For example, in the case of Hotel Blue Moon (supra), return was filed u/s 158BC of the Income Tax Act i.e. for the Block Period. Before this decision, it was a debatable issue, whether Section 143(2) notice is required to be issued in a return filed u/s 158BC ? Now, Hon’ble Supreme Court has laid down that for commencing the assessment proceedings, notice u/s 143(2) is mandatory. We do not find any dispute with the proposition that as and when a return is being filed u/s 139(1), notice u/s 143(2) is mandatory for scrutinizing the return. But, here, the facts are slightly different. If we peruse Section 143(2) of the Act, then it would reveal that this Section provides an opportunity to the assessee for making submission in support of its return and thereafter, AO would issue questionnaires. In other words, it is the first opportunity given to the assessee, if you want to make submissions in support of your return ? Otherwise, AO will investigate the issues on other fields.
5.1 In the present case, assessee was given time of 30 days to file return under notice dated 31.03.2021. The assessee did not file return within 30 days and ultimately, AO set the assessment machinery in motion by issuance of a notice u/s 142(1) of the Act. The assessee has filed the return on 22.01.2022. Before that, assessment machinery was already in motion. It is pertinent to note that assessment machinery is not depending upon an assessee that one day, he will file the return and only then, the AO could commence the assessment machinery. For example, an assessment order is going to be time barred on 31st December of a year and if an assessee did not file return upto the last week of December, then assessment order could not be passed ? In another case, assessee filed return 10 days before finalization of the assessment order and then plead that since AO failed to issue notice u/s 143(2), therefore, assessment order is invalid. Such type of plea is an absurd attempt at the end of an assessee to frustrate the assessment procedure. A cognizance of belated return has to be taken by the A.O. while computing the income but assessment order would not be invalid simply for the reason that notice u/s 143(2) was not issued on a belated return. Therefore, on this ground, assessment order cannot be declared invalid.
5.2 As far as the first issue is concerned, we briefly take note of the finding of the ld.CIT (Appeals), which read as under :
Ground no 5: That the AO has wrongly made addition of Rs. 4,59,29,599/-on account of understatement of sale without giving the details of transaction of Rs. 17,23,45,690/- available with the department. The figure of Rs.17,23,45,690/-and also not provided any material to substantiate the sale of Rs.17,23,45,690/- and therefore addition is bad in law and deserves to be quashed.
Ground no 7: That the Ld. AO has wrongly made addition amounting to Rs.4,59,29,599/- on account of undisclosed export sales without appreciating the fact that the assessee has submitted all the export bills and shipping bills as well as sales reconciliation statement to AO which clearly reflects that all the export sales have been truly disclosed.
Decision of Appeal:
These grounds no. 5 & 7 being similar in nature hence adjudicated together.
The AO has held that the appellant has been able to substantiate export sales of Rs. 12,63,47,937/- against the sale consideration given in the show case for Rs. 17,22,77,536/. Hence, addition amounting to Rs. 4,59,29,599/- on account of undisclosed export sales has been made.
The appellant has contended that the figure of Export sale of Rs 172277536 mentioned in show cause notice is factually incorrect as the details of export i.e shipping bill date of shipping during the year under consideration, has been provided to the AO. The appellant has further contested that the details of export sale of Rs. 17,22,77,536/- as alleged by the department, no of information received by the Income Tax Department has been provided to the appellant.
The appellant stated that it had uploaded the latest report from DGFT which gives complete details of shipping bills and date of realization which clearly shows that the figure of Export sale of Rs. 17,22,77,536/- relates to export year under consideration and export made in preceding year. The details of export alongwith the bills has been produced during the appellate proceedings.
The appellant has submitted that the bank knocked down/ cleared the outstanding shipping bills in bank register after complete verification of all documents irrespective of year of export and date of realization. The appellant submitted the information in respect of outstanding export bills which were cleared/
knockdown during the year under consideration by bank irrespective of date of shipping and date of realization.
In reply before the appellate proceedings dated 02.12.2022 and 26.04.2024, the export details in the year under consideration has been elaborated as below:
“The Gross value of export was 2508710 US dollars which amounts to Rs. 15,14,60,986 as per (Annexure 2). The Customers/Importers have made deduction of 405,049 US dollars on account of damaged material. The total value of deduction made by Importers/ customers was Rs.2,51,13,049 as per (Annexure 3) and therefore the company has shown export sale net of deduction at Rs 12,63,47,937 in Profit and Loss account for the year under consideration. It is pertinent to mention that the appellant company has agreed for deduction against sale invoices in order to settle the dispute amicably, however the buyer not paid any amount against material supplied of RS 12.63 crores on account of damaged material received by buyer till date. We also submit that the company has raised export invoices on 31-03-2014 for 349488 US dollar which amounts to Rs. 2,08,84,704 which has been reflected in profit and loss of FY 2013-14 and date of hipping was 5-4-2014 but in Departments records the same has been accounted in FY 2014-15 and if we add value of export invoice dated 31-03-2014 and shipped on 5 April 2014 the Gross Value comes to 17,23,45,690 Rs 151460986 plus 20884704 which is equal to value of export as per information available with the Assessing officer.”
In view of above discussion, the following inference is drawn:
1. The AO has not shared any information with the appellant regarding the bill details to substantiate the export sale of Rs. 17,23,45,690/-.
2. The export bills given by the appellant amounts to 2508710 US dollars which amounts to Rs. 15,14,60,986. The Customers/Importers have made deduction of 405,049 US dollars on account of damaged material. The total value of deduction made by Importers/ customers was Rs.2,51,13,049 as per and therefore the company has shown export sale net of deduction at Rs 12,63,47,937 in Profit and Loss account for the year under consideration. This fact has not been disputed by the AO during the assessment proceedings.
3. During the appellate proceedings, the appellant has submitted the export invoices as on 31.03.2014 which has been shipped on 05.04.2014 has a value of Rs.2,08,84,704/-, the explanation of the appellant that shipping bills for FY 2014-15 has been considered as 17,23,45,690/- on this basis can be accepted.”
5.2 A perusal of the above would indicate that according to the AO, export sales ought to have been accounted at Rs.17.22 Cr as against Rs.12.63 Cr declared by the assessee. The stand of the assessee is ;
a) Goods having value of Rs.2,51,13,049/- were found to be damaged and therefore, Importer did not accept these goods and debited the purchase cost. In other words, did not pay this amount or recognized payment of this amount.
b) Goods having value of Rs.2,08,84,704/- were exported in the last year and Invoice was of 31.03.2014 but it left Port on 05.04.2014. Thus, this sale was recognized in the last year.
6. The assessee has placed on record necessary details placed in the form of Invoices, copy of the details of BRC issued by DGFT, Debit Note issued by the Importer. The ld.CIT (Appeals) has reproduced these Invoices in the impugned order and thereafter recorded a finding that AO has unnecessarily enhanced the sale value which was actually had not been achieved by the assessee or accrued to the assessee in this year.
7. After going through the well-reasoned finding of the ld.CIT (Appeals), we do not find any merit to interfere in the finding of the ld.CIT (Appeals) on this fold of grievance of the Revenue. Accordingly, we are of the view that ld.CIT (Appeals) has rightly deleted the addition made by the AO in the sale value of export sales. This ground of appeal is rejected.
8. In the result, appeal of the Revenue is partly allowed.
Order pronounced on 04.05.2026.
