EKLAVYA GEMS,SURAT V. ITO, WARD 3(2)(1), SURAT

ITA 119/SRT/2024

AI Insights

The case involves Eklavya Gems, the appellant, contesting an assessment order for the Assessment Year 2008-09, which included additions on account of bogus purchases and was reopened under section 147 of the Income Tax Act. The primary legal contention was the absence of a notice under section 143(2) during the reassessment proceedings, which the assessee argued was a jurisdictional defect. The Tribunal admitted the additional ground of appeal regarding the non-issuance of this notice and found in favor of the assessee, leading to the allowance of the appeal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470576 (ITAT-SURAT)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-10-2024
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2024
• Other Referred Cases: NTPC vs. CIT, Jute Corporation India vs. CIT, Krypton Diamonds Pvt. Ltd. vs. ACIT, Mukesh Mahavirprasad Sen vs. ITO, Deepak S. Mehta vs. ITO, GN Mohan Raju vs. ITO, ITO vs. Lakhmani Mewal Das, Ganga Saran & Sons Vs. ITO, Bharatkumar Nihalchand Shah vs. ACIT, Adani Power Maharastra Ltd. vs. ACIT, CIT vs. National Organic Chemical Industries Ltd., CIT vs. Trend Electronics, Haryana Acrylic Manufacturing Co. vs. CIT, Deepak Bajaj vs. ITO, PCIT vs. Devendranath G. Chaturvedi, PCIT vs. Marack Biosciences Limited, PCIT vs. Silver Line, ITO vs. Mukesh Mahavirprasad Singh
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: RASESH SHAH
• Keywords: Bogus purchase; Tangible material; Borrowed satisfaction; Procedural lapse; Bogus
• Section: 147; 148; 143(3); 292BB; 143(2); 139(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT (SMC) BENCH BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 119/SRT/2024 for AY: 2008-09 (Physical hearing) Eklavya Gems, 46-47, Saarthi Ind. Estate, NaiduDoshi Ni Wadi, Shiv Sai Krupa, Vasta Devdi Road, Kattargam, Surat – 395004, Gujarat PAN : AAAFE8396H Vs The ITO, Ward – 3(2)(1), Surat APPELLANT RESPONDEDNT Appellant by Shri Rasesh Shah, CA Respondent by Shri Mukesh Jain, Sr. DR Date of Institution 01/04/2024 Date of hearing 03/10/2024 Date of pronouncement 16/10/2024 Order under Section 254(1) of Income tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-4, Surat dated 07.12.2023 for Assessment Year (AY) 2008-09. The assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case as well as on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in re-opening assessment under section 147 by issuing notice under section 148 of the I.T. Act, 1961. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in making addition of Rs.24,64,125/- on account of bogus purchases. 3. It is therefore prayed that assessment framed under section 143(3) r.w.s. 147 may kindly be quashed and/or addition made by assessing officer and confirmed by CIT(A) may please be deleted. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of appeal.” 2. The assessee vide application dated 19.06.2024 has raised the following additional grounds of appeal: ITA No.119/SRT/2024/AY.2008-09 Eklavya Gems 2 “On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in passing the order under section 143(3) of the Act without issuing notice under section 143(2) of the Act.” 3. Rival submissions of both the parties and perused the record. The learned Authorized Representative (ld. AR) of the assessee submits that vide application dated 19.06.2024, the assessee has raised additional grounds of appeal. The additional ground of appeal is purely legal and nature. No new facts are to be brought on record for adjudicating additional grounds of appeal. Facts relating to adjudication of additional ground of appeal are emanating from the orders of lower authorities itself. The assessment order was passed without issuing notice under section 143(2), which is condition precedent and cannot be dispensed with in any circumstances. To support his submission, ld. AR relied upon the decisions of Hon'ble Supreme Court in NTPC vs. CIT, 229 ITR 383 (SC) and Jute Corporation India vs. CIT, 187 ITR 688 (SC). 4. In support of additional grounds of appeal, the ld. AR for assessee submits that notice under section 143(2) was not issued by Assessing Officer. The assessee vide his letter dated 25.08.2015, submitted that original return filed under section 139(1) be treated as returned in response to notice under section 148 dated 30.03.2015. Such letter was not rejected by Assessing Officer nor treated it non-est on the ground that it was filed belatedly. The assessee filed his letter dated 25.08.2015 for treating original return as returning response to notice under section 148, time period for passing assessment order was upto 31.03.2016 thus, there was sufficient time with Assessing Officer to issue notice under section 143(2). Thus, in absence of notice under 143(2), the assessment order passed notice under 147 is invalid as has been held by various Courts and ITA No.119/SRT/2024/AY.2008-09 Eklavya Gems 3 Tribunals. After filing the present appeal, the assesse has filed application before Assessing Officer to provide copy of reasons recorded and a copy of notice under section 143(2), if any. No such copy of reasons recorded is provided nor made any response to such application. The assessee again vide application dated 05.07.2024, filed a provision of Right to Information Act, 2005 for seeking copy of notice under section 143(2), if any. In response to such application, the assessee was informed vide reply dated 11.07.2024 from Nodal Officer / ITO(HQ) in the Office Chief Commissioner of Income-tax, Ahmedabad wherein DCIT, Central Circle – 2 was informed that required detail be sent to applicant/assessee as such information relates to Central Circle. The assessee received reply from the Office of DCIT, Central Circle - 2, Surat vide reply dated 16.08.2024 wherein it was informed that PAN of assessee was centralized to discharge from the Office of ITO, Ward – 3(2)(6), Surat and he is in the process of collecting such information and was informed that information would be provided as soon as received. Copy of application dated 24.06.2024, filed before Assessing Officer as well as under Right to Information Act, 2005 dated 05.07.2024, reply of ITO(HQ) / Nodal Officer in the Officer of Chief Commissioner of Income-tax, Ahmedabad dated 11.07.2024 and reply of DCIT, Central Circle – 2, Surat dated 16.08.2024 is filed. The ld. AR submits that till date no such proof of issuance of notice under section 143(2) is provided to the assessee. In anticipation of contention of revenue that notice under section 143(2) is not required, if no return of income is passed after expiry of 30 days of time period prescribed in the notice under 148. The ld AR of the assessee ITA No.119/SRT/2024/AY.2008-09 Eklavya Gems 4 submits that even such stand is not sustainable on the basis of various decisions of Tribunal are as follows:  Krypton Diamonds Pvt. Ltd. vs. ACIT, in ITA 310, 311 & 312/SRT/2019 (Surat – Trib.)  Mukesh Mahavirprasad Sen vs. ITO – ITA 106, 107/SRT/2017 (Surat Trib.)  Deepak S. Mehta vs. ITO – ITA 1503/AHD/2017 (Surat Trib.)  GN Mohan Raju vs. ITO – 57 taxmann.com 415 (Bang.) 5. On merit of addition on account of bogus purchase, the ld. AR of the assessee submits that assessee is engaged in the business of cut and polished diamond by procuring rough diamond and getting processed through outside agencies. The assessee maintained complete books of accounts purchase together with stock register and sale register. All quantities are tailed and is part of the tax audit report which is already placed on record. To substantiate the purchases shown from Avi Export and Eklavya Gems, the assessee furnished copy of invoice from Avi Export, copy of confirmation, ledger account, bank statement showing payment to the parties and copy of sales registers. The Assessing Officer also issued notice to the supplier directly by issuing notice under section 133(6), the suppliers furnished their reply directly to the Assessing Officer. The assessee has declared gross profit at 6.39% which is higher to earlier years. The turnover of assessee was increased during the year. The Assessing Officer made addition by disallowing 25% of purchases shown from Avi Export and Eklavya Gems on the basis of report of Investigation Wing without independent verification of fact. The sale of assessee was not disputed. The entire purchases of the assessee is genuine and no disallowance on account of purchases are warranted. In alternative submission, the ld. AR submits that this Bench is in a series of decisions on similar purchase which are based on the allegation that ITA No.119/SRT/2024/AY.2008-09 Eklavya Gems 5 such purchases are shown from entry provider, sustained / restricted similar purchases to the extent of 6.00%. The assessee has already declared more than 6.00 % of the gross profit, therefore, even if, it is assumed that any disallowance warranted, the assessee declared much more gross profit, thus, no such disallowance warranted. 6. In support of Ground No.1 which relates to validity of reopening, the ld. AR of the assessee submits that Assessing Officer reopened the case on the basis of information of third party. The Assessing Officer has not verified the fact before reopening. The reasons recorded as no rational connection. The reasons recorded are mere repetition of Report of DDIT. Thus, the Assessing Officer made reopening on the basis of borrowed satisfaction based on third party information. To support his contentions, the ld AR for the assessee relied on the following decisions;  ITO vs. Lakhmani Mewal Das – 103 ITR 437 (SC)  Ganga Saran & Sons Vs. ITO – 130 ITR 1 (SC)  Bharatkumar Nihalchand Shah vs. ACIT – 128 taxmann.com 228 (Guj.)  Adani Power Maharastra Ltd. vs. ACIT – 147 taxmann.com 583 (Guj.)  CIT vs. National Organic Chemical Industries Ltd. – 115 taxmann.com 245 (SC)  CIT vs. Trend Electronics – 379 ITR 456 (Bom.)  Haryana Acrylic Manufacturing Co. vs. CIT – 308 ITR 38 (Del.)  Deepak Bajaj vs. ITO – ITA No.721/Kol/2020 (Kol) 7. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the revenue, against the additional grounds of appeal submits that notice under section 148 dated 30/03/2015 was served upon the assessee. The assessee has not filed return of income as per the time allowed in notice under 148. Since no return in response to notice 148 within time was filed nor any objection against ITA No.119/SRT/2024/AY.2008-09 Eklavya Gems 6 reopening was raised by assessee. The assessee has no legal right to raise such objection at this stage. The assessee duly participated in the assessment proceeding without raising any such objections. 8. The assessee has raised this additional ground of appeal for the first time before Tribunal, therefore, such ground of appeal should not be entertained for admission. No such ground of appeal was raised before ld. CIT(A). On merit, against additional ground of appeal, Sr. DR submits that once the assessee participated in the proceeding and contested such assessment proceeding, the assessee has not shown whether he has suffered any prejudice and such non- issuance of notice. Against validity of reopening, ld. Sr. DR submits that report of Investigation Wing in fresh tangible material before Assessing Officer. Tangible material in the form of information about the bogus purchase is sufficient for making belief that income of assessee has escaped from assessment. The assessee has not filed any objection against reopening, therefore, the assessee has no right to raise objection at this stage. To support his submission, ld. Sr. DR relied upon the decision of Gujarat High Court in the case of Peas Industrial Engineering Pvt. Ltd. vs. DCIT, in SCA No.3249 of 2016, dated 13.07.2016. 9. On merit of addition, the ld. Sr. DR submitted that assessee has shown purchase for well-known entry provider. The purchases are shown to inflate the expenses. So far as various evidences allegedly furnished by assessee, the evidences in bogus purchase are always kept in a better way than the normal purchases. The lower authorities have reasonably sustained the addition to the extent of 25% of such disputed purchase shown from well-known entry ITA No.119/SRT/2024/AY.2008-09 Eklavya Gems 7 provider which was managing both the entities from whom the assessee has shown purchases. 10. I have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. First, I will consider the application for admission of additional ground of appeal. In the application for admission of additional ground of appeal, the assessee has raised the plea that no notice under section 143(2) was issued by the Assessing Officer. I find that additional ground of appeal is purely legal in nature which goes to jurisdiction of Assessing Officer. It is settled law that legal issue can be raised even at this stage of second appeal. Thus, additional ground of appeal raised by assessee is admitted for adjudication. Now, adverting to considering the merit of additional ground of appeal. I find that notice under section 148 was issued to the assessee on 30.03.2015 to file return of income within 30 days of receipt of such notice. Though the assessee admittedly not filed return of income within time allowed in notice under section 148. It is matter of record that assessee filed application before Assessing Officer on 25.08.2015 stating therein that return filed on 27.09.2008 be treated as return in response to notice under section 148. I find that neither the application of assessee dated 25.08.2015 was rejected nor such stand of assessee was treated as invalid. 11. I find that jurisdictional High Court in case of PCIT vs. Devendranath G. Chaturvedi, (2017) 83 taxmann.com 141 (Guj.) held that where return of income was for blocked period filed by assessee belatedly was not discarded as invalid, in such case, if Assessing Officer wanted to frame assessment at higher income, he was bound to issue notice under section 143(2). Further, in case of ITA No.119/SRT/2024/AY.2008-09 Eklavya Gems 8 PCIT vs. Marack Biosciences Limited, (2019) 106 taxmann.com 399 (Guj.) held that non-issuance of notice under section 143(2) is not a procedural irregularity and same cannot be cured under section 292BB. Hon’ble Patna High Court in CIT vs. Nagendra Prasad, (2023) 156 taxmann.com 19 (Patna) also held that where notice was issued by Assessing Officer under section 148, requiring the assessee to file return within 30 days, but return was filed after eight and a half months, since return was filed by assessee in response to said notice though delayed, there should have been a notice issued under section 143(2) as requirement of issue notice could not be dispensed with. Hon’ble Delhi High Court in case of PCIT vs. Silver Line, (2016) 383 ITR 455 (Delhi) / 65 taxmann.com 137 (Delhi) also held that merely because assessee participated in proceeding pursuance to notice under section 148, it would not obviate mandatory requirement of Assessing Officer to issue a notice under section 143(2) before finalizing order of assessment. I further find that Division Bench of Surat Tribunal in case of ITO vs. Mukesh Mahavirprasad Singh, (2021) 131 taxmann.com 348 (Surat – Trib) 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 under section 143(2). 12. Now again turning to the facts of case in hand qua issue under discussion, I 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 Assessing Officer. The assessee has place sufficient material on record that despite raising specific request in ordinary as well as by virtue of invoking ITA No.119/SRT/2024/AY.2008-09 Eklavya Gems 9 provisions of Right to Information Act, the Assessing Officer failed to provide such information to the assessee that notice under section 143(2) was issued by Assessing officer before passing assessment order. Thus, considering the aforesaid legal and factual discussion, I am of the view that in absence of issuance of notice under section 143(2), the assessment order is invalid. Hence, the additional ground of appeal is allowed. Further considering the facts that I have allowed additional ground of appeal / legal issue in favour of assessee, therefore, adjudication on other grounds of appeal raised by the assessee have become academic. 13. In the result, appeal of the assessee is allowed. Order pronounced on 16/10/2024 in the open court. Sd/- (PAWAN SINGH) JUDICIAL MEMBER Surat, Dated: 16/10/2024 SAMANTA Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File By order // TRUE COPY // Assistant Registrar/Sr.PS/PS, ITAT, Surat "