ACIT Vs M/s. Sukhamani Cotton Industries (ITAT Indore)
Conclusion: Reassessment order passed u/s 147 r.w.s 143(3) by issuing notice under section 148 but without issuance of notice u/s 143(2) was invalid and void ab initio and thus liable to be quashed.
Held: AO reopened assessment by issuance of notice u/s 148 on the basis of information received from DCIT investigation Mumbai for the alleged bogus purchases. Immediately, after issuance of notice u/s 148 and recording reasons the assessment proceedings u/s 143(3) r.w.s 148 were initiated and subsequently completed after making various additions. It was held even though notice u/s 148 had been issued but the notice u/s 143(2) had not been issued in the case of assessee thus, a fatal error had been committed by AO and thus the reassessment order passed u/s 147 r.w.s 143(3) was bad in law and void ab initio and thus liable to be quashed.
FULL TEXT OF THE ITAT JUDGEMENT
The above captioned appeals filed by the Revenue and cross objections by both the assessee pertaining to A.Y. 2011- 12 are directed against the order of Ld. Commissioner of Income Tax(Appeals)-II, Indore, (in short ‘CIT(A)’), vide order dated 23.12.2016 which is arising out of the order u/s 143(3) of the Income Tax Act 1961 (hereinafter called as the ‘Act’) framed on 30.10.2015 by ACIT-Khandwa.
2. As common issues have been raised in these appeals and Cross Objections these were heard together and are being disposed off by this common order for the sake of convenience and brevity.
In the case of Sukhmani Cotton Industries:
The Revenue has taken following grounds of appeal in ITA No. 222/Ind/20 17
“Whether on the facts and in the circumstances of the case, the ld. CIT(A) was justified in restricting the addition made on account of bogus purchase to 6% of total bogus purchases of Rs. 67,75,050/-“
The assessee (namely Sukhmni Cotton Industries) has raised following grounds of appeal in Cross Objection No. 16/Ind/2018
1) That the learned Commissioner of Income tax (A) erred in law in not deciding the issue relating to validity of reopening the assessment u/s. 147 of the Act based on report of two suppliers of cotton received from sales tax department, Maharastra wherein neither the name of the appellant exist nor any statement was recorded of any of the suppliers so as to arrive at any adverse inference against the appellant. Such information from the Sales Tax Department, Maharastra cannot be made a basis to treat genuine purchases effected by the appellant as bogus hence notice so issued u/s 148 of the Act was ab-initio void.
2) That the learned Commissioner of Income tax (A) further erred in law in deciding the appeal on merits only without appreciating the fact that though notice u/s. 142(1) was issued but notice u/s 143(2) of the Act was not issued as stated in the assessment order. It being a mandatory requirement before passing any order u/s 143(3)/147 of the Act, assessment order passed without issue of such notice deserves to be quashed as failure to issue notice u/s. 1 43(2) renders the reassessment void.
In the case of Manjeet Cotton Pvt. Ltd.:
The Revenue has taken following grounds of appeal in ITA No. 223/Ind/2017
“Whether on the facts and in the circumstances of the case, the ld. CIT(A) was justified in restricting the addition made on account of bogus purchase to 6% of total bogus purchases of Rs.11,08,07,574/-.”
The assessee (namely Manjeet Cotton Pvt. Ltd. ) has raised following grounds of appeal in Cross Objection No.04/Ind/20 18:
1) That the learned Commissioner of Income tax (A) erred in law in not deciding the issue relating to validity of reopening the assessment u/s. 147 of the Act based on report of two suppliers of cotton received from sales tax department, Maharastra wherein neither the name of the appellant exist nor any statement was recorded of any of the suppliers so as to arrive at any adverse inference against the appellant. Such information from the Sales Tax Department, Maharastra cannot be made a basis to treat genuine purchases effected by the appellant as bogus hence notice so issued u/s 148 of the Act was ab-initio void.
3) That the learned Commissioner of Income tax (A) further erred in law in deciding the appeal on merits only without appreciating the fact that though notice u/s. 142(1) was issued but notice u/s 143(2) of the Act was not issued as stated in the assessment order. It being a mandatory requirement before passing any order u/s 143(3)/147 of the Act, assessment order passed without issue of such notice deserves to be quashed as failure to issue notice u/s. 1 43(2) renders the reassessment void.
3. We will first take up the cross objections for A.Y. 2011-12 raised by both assessees challenging the validity of the assessment proceedings completed u/s 143(3) r.w.s. 147 of the Act alleging that notice u/s 143(2) of the Act was not served upon the assessee during reassessment proceedings. As both the parties have accepted that the facts relating to this common issue raised in cross objections are similar we will take the facts of Sukhmani Cotton Industries for adjudication purpose.
4. The facts in brief are that e-return of income was filed on 24.09.2011 declaring income of Rs.46,83,090/-. Case was picked up for scrutiny through CASS and assessment u/s 143(3) of the Act was framed on 22.03.20 13 assessing income at Rs. 50,00,000/-. Subsequently, the case was reopened by issuance of notice u/s 148 of the Act dated 23.03.20 15 on the basis of information received from DCIT investigation Mumbai for the alleged bogus purchases. Immediately, after issuance of notice u/s 148 of the Act and recording reasons the assessment proceedings u/s 143(3) r.w.s 148 of the Act were initiated and subsequently completed after making various additions.
As the notice u/s 143(2) of the Act was not issued before commencing reassessment proceedings u/s 147 of the Act, the assessee has filed cross objection before us pleading that non-issuance of notice u/s 143(2) of the Act in the reassessment proceedings initiated u/s 148 of the Act is mandatory else the reassessment proceedings are void ab initio and not valid.
5. Ld. counsel for the assessee made following written submissions wherein reliance has been placed on various judgments in support of the ground raised in the cross objection:
“Non-issue of notice u/s 143(2) before assessment:
After reopening of the assessment, though notice u/s. 142(1) was issued by the AO but notice u/s 143(2) of the Act was not issued which is mandatory requirement before passing any order u/s 143(3)I147 of the Act. On perusal of assessment order also it is evident that notice u/s 142(1) was issued but notice u/s 143(2) was not issued. The appellant had applied for supply of certified copy of assessment proceeding as well copy of information received to initiate proceedings u/s 148 of the Act. Copy of assessment proceedings supplied by the Asstt. Commissioner of Income tax, Khandwa is annexed from which it is evident that notice u/s 143(2) of the Act was not issued. Copy of order sheet obtained is annexed for kind perusal in support. The order was passed without issue of such notice deserves to be quashed due to noncompliance of mandatory condition as failure to issue notice u/s. 143(2) renders the reassessment void. Reliance is placed on following judgments:-
