SHI vs. HANKAR AGARWAL HUFHUF,ANDHERI (EAST)VS.INCOME TAX OFFICER 31(2)(1), MUMBAI, BANDRA (EAST)

The Ld. CIT (A) erred in confirming the disallowance made by the ITO of Rs.309610/- being 12.50% of the alleged bogus purchases.

1. In doing so, the id.CIT(A) erred in issuing notice u/s 251 (2) of the Act proposing disallowance 12.50% of the alleged bogus purchases without appreciating that the said disallowance was already made by the ITO & and the appellant was in appeal before her against the said disallowance

ii. In further doing so, the Id.CIT(A) erred in confirming the disallowance merely on the basis of adverse inferences drawn by the ITO without considering the grounds of appeal raised and the written submissions filed before her.

The assessee is a HUF and carries on business in under proprietorship the name of M/s Karan Steel which is engaged in the business of dealing in Iron & Steel. The assessee filed the return of income for AY 2010-11 on 15.10.2010 declaring a total income of Rs. 8,76,380/-. The assessment was reopened by issue of notice under section 148 of the Act dated 27.11.2015 based on the information received from DGIT (Inv.) that the assessee has obtained bogus bills towards purchases from alleged entry providers. The AO completed the assessment under section 143(3) r.w.s. 147 of the Act on 22.02.2016 where an addition of Rs. 1,60,08,115/- towards bogus purchases were made. Subsequently the AO once again issued a notice under section 148 dated 31.03.2017, requiring the assessee to submit the return of income on the ground that he had reason to belief that the income has escaped assessment. The assessee vide letter dated 04.04.2017 requested the AO to treat the return filed on 15.10.2010 as the return filed under section 148 of the Act. The assessee in the said letter had also requested to provide

The primary contention of the ld. AR before us is that the AO has not supplied the reasons recorded and the assessment completed without providing the reasons recorded is liable to be quashed. The ld. AR in this regard placed reliance on the decision of the Vishakapatnam Bench of the Tribunal in the case of M/s Shri Sarvaraya Sugars Ltd. vs. ITO (ITA No. 294/Viz/2014 dated 20.12.2017). The ld. AR further submitted that the AO has not issued notice under section 143(2) of the Act and on that count also the assessment order is invalid. The ld. AR on merits submitted that the revised purchase amount of Rs. 62,73,461/-

The ld. DR submitted that during the course of earlier hearing the Bench had directed the revenue to produce the report with regard to providing the copy of reasons recorded to the assessee. The ld. DR submitted a report with the response from the AO dated 16.06.2025 with the copies of notice issued under section 148 dated 31.03.2017 and the copy of approval obtained from PCIT dated 24.03.2017 annexed with the draft reasons for reopening. The ld. DR fairly conceded that the AO had not submitted evidence of providing copy of reasons recorded to the assessee. On merits, the ld. DR submitted that the assessee has not discharged the onus of providing the necessary details to substantiate the genuineness of the additional amount of purchases and therefore, the lower authorities have correctly made the addition.

We heard the parties and perused the material on record. The reassessment in assessee's case was originally completed vide order dated 22.12.2016 by making addition towards bogus purchases. It is relevant to note here that the parties from 5 ITA 2468/Mum/2024 Shivshankar Agarwal HUF whom the assessee has made the alleged bogus purchases includes M/s Shree Ram Steel to the tune of Rs. 37,96,584/-. The assessment of the assessee was once again reopened vide notice dated 31.03.2017 and from the perusal of the notice under section 148, we notice that it merely states that the AO has reasons to believe that the income of the assessee has escaped assessment. The relevant copy of the notice under section 148 of the Act is extracted below:

We further notice that the assessee vide letter dated 04.04.2017 submitted that the return filed originally may be treated as the return filed in response to 6 ITA 2468/Mum/2024 Shivshankar Agarwal HUF notice under section 148. We also notice that in the said reply the assessee has requested for the reasons recorded for reopening the assessment. A copy of the letter filed by the assessee is as under:

The AO has completed the assessment without communicating the reasons recorded for issue of notice u/s 148, in spite of the specific request made by the assessee for furnishing the reasons. As per the judgement of Hon’ble Supreme Court in the case of M/s GKN Drive Shafts (India) Ltd. Vs. ITO, it is obligatory on the part of AO to communicate the reasons on furnishing the return of income. The assessee in response to the notice issued u/s 148 submitted a letter to the AO to treat the returns filed earlier as returns in response to the notice issued u/s 148. Thus the assessee has complied with 8 ITA 2468/Mum/2024 Shivshankar Agarwal HUF the mandate of Hon’ble Supreme Court judgement cited supra but the AO failed to communicate the reasons. The assessee relied on the decision of Hon’ble High Court of Calcutta in the case of Berger Paints India Ltd. Vs. ACIT (Supra), wherein Hon’ble High Court held that the assumption of juri iction of assessing officer u/s 147 depends upon existence of reasons followed by communication thereof to the assessee. If the notice served under section 148 is challenged, the AO cannot proceed with the assessment under section 147 unless reasons are communicated. In the instant case, the contention of the assessee is that the assessee has complied with the notice u/s 148 and the AO has not furnished the reasons recorded for issuance of notice u/s 148 despite the request made by the assessee. The Revenue could not place any evidence to controvert the argument of the Ld.AR that the reasons were not communicated. Thus the assessee’s case is squarely covered by the decisions in the case of Berger Paints India Ltd. Vs. ACIT (Supra) and CIT vs. Trend Electronics (Supra).

1. The Hon’ble Bombay High Court in the case of CIT vs. Trend (India) Ltd. Vs. ITO held as under :

2. In the instant case, the AO had issued notice u/s 148 and the assessee has complied with the notice and requested for reasons. The AO completed the assessment without communicating the reasons. Therefore, the facts of the case are similar to that of the decision of Hon’ble Bombay High Court relied upon by the Ld.AR cited supra. Respectfully following the decision of Hon’ble Bombay High Court, we hold that the assessment made u/s 147 r.w.s. 143(3) without communicating the reasons is bad in law. Accordingly, the orders framed u/s 147 r.w.s. 143(3) are quashed and the appeal of the 9 ITA 2468/Mum/2024 Shivshankar Agarwal HUF assessee is allowed. Since, we have quashed the assessment made u/s 143(3), we consider it is not necessary to adjudicate the grounds on merits.”

Similar views have been expressed by the Co-ordinate Bench in the case of DCIT vs Bhawna Computers (P.) Ltd. ([2023] 154 taxmann.com 326 (Mumbai - Trib.)) where it has been held that – As regards the argument that notice u/s. 148 was not served to the assessee and that reasons recorded had not been supplied to the assessee, the assessment records were called for. On perusal of the assessment records, in the course of hearing on 17-10-2022, bench pointed out that the assessment records show that at the fag end of reassessment proceedings, the concerned Ld. AO had requested the predecessor Ld. AO at Kolkata (who issued the notice u/s. 148) regarding the objections taken by the assessee of not receiving any notice u/s. 148 and that no reasons of reopening had been supplied to it. Since, we could not find any proof of service of reasons recorded being supplied to the assessee, ld. DR was asked to respond. Accordingly, the ld. DR submitted the remand report issued by the Ld. AO dated 10-11-2022 wherein he stated that request has been made to the ITO Ward 9(2), Kolkata to provide the reasons recorded for reopening in this case since the same is not available with his office and that the same shall be submitted as soon as the records are received. The ld. DR explained that the case was reopened by the ITO Ward 9(2), Kolkata and case records were later transferred to DCIT, Central Circle -7(3), Mumbai. The ld. AR filed his rejoinder vide letter dated 13-1-2023. Firstly, we find that despite several opportunities given and after perusal of assessment records, no proof is available with respect to supply of the reasons recorded for escapement of income for our verification. Merely because in the assessment order at Para 4 ,it is stated that the reasons for reopening were provided to the assessee, the same cannot be accepted at the face of it more so when there were repeated submissions made by the assessee during the reassessment proceedings vide letter dated 4-3-2016 and 16-3-2016 objecting that it has not received the reasons recorded coupled with the fact that the assessment records itself speak about the same being sought from the concerned Ld. AO at Kolkata which has even not been received till date. Further, even in the Statement of Facts filed [form no 35 Memorandum of Appeal before CIT (A)] before the ld. CIT (A), the assessee had stated that no notice u/s. 148 was received and without prejudice to the same, it had requested to treat the original return as return in response to notice u/s. 148 of the Act and had even requested to provide the reasons recorded for reopening. However, before the ld. CIT (A), the Ld. AO had not responded or rebutted this fact at all. Even before us, the Ld. AO has failed to demonstrate that the reasons were actually supplied to the assessee. Even the ld. AR has 10 ITA 2468/Mum/2024 Shivshankar Agarwal HUF explained that in para 6.2, the ld. CIT (A) had reproduced the submission of A.Y. 2009- 10 and not for A.Y. 2008-09 for which rectification had also been filed on 8-12-2022 and have also drawn our attention to the actual submission dated 11-7-2019 filed before CIT (A) for A.Y. 2008-09 placed at page no. 19 to 44 of PB. Hence, no recourse can be taken of para 6.2 of the CIT (A) order. Further, the assessee has all along sought reasons in the course of assessment proceedings vide letter dated 4-3-2016 and 16-3-2016 and even before the ld. CIT(A) in submission dated 11-7-2019. Therefore, in absence of this statutory requirement under the law of providing reasons recorded, the reassessment order passed is bad in law and invalid. In this regard, support is also drawn from the decision of the Hon'ble Juri ictional High Court in the case of IDBI Ltd (supra) and CIT v. Videsh Sanchar Nigam Ltd. [2012] 21 taxmann.com 53/340 ITR 66 (Bom.). We are also not convinced with the argument of the ld. DR that since the assessee has participated in the reassessment proceedings, no prejudice is caused. In fact, by not providing the reasons recorded, the assessee has been deprived of fundamental right to know and object on the basis of which juri iction has been acquired or assumed by the Ld. AO and is completely in dark about the reasons of reopening against which he could not even file any objections. For these reasons, we quash the reassessment order passed by the Ld. AO for A.Y. 2008-09 as bad in law. (emphasis supplied)

In assessee's case from the extract of the letter filed by the assessee on 04.04.2017 in response to notice under section 148 it is seen that the assessee has requested the AO to treat the return originally filed as the return filed in response to notice under section 148 of the Act thereby complying with the requirement of filing the return of income. The assessee in the said letter has also requested for the copy of the reasons recorded to file appropriate objections to the reopening which has not been provided to the assessee. As has been held by the coordinate bench in the above case, the assessee participating in the reassessment proceedings would not mean that there is no prejudice caused to the assessee as argued by the ld DR in the present case. Considering the facts and circumstances of the case, respectfully following the above judicial precedents we hold that the reassessment done in assessee's case without supply of proper reasons recorded is not sustainable and liable to be quashed.

In result, appeal of the assessee is allowed.