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Facts
The assessee's appeal challenges an assessment order for AY 2009-10, which was reopened based on information and involved an addition of Rs. 22,50,000/- under Section 68 of the Income Tax Act, 1961, for allegedly bogus loans. The primary issue is the non-communication of reasons for reopening to the assessee.
Held
The Tribunal held that the assessment order and the CIT(A)'s order deserve to be set aside due to the non-communication of reasons for reopening to the assessee. This violation of natural justice deprived the assessee of a reasonable opportunity to object to the reopening.
Key Issues
Whether the assessment order is liable to be set aside for non-communication of reasons for reopening to the assessee, thereby violating principles of natural justice.
Sections Cited
68, 147, 148, 143(3), 131, 178, 143(2), 142(1)
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Income Tax Appellate Tribunal, JAIPUR BENCHES, “B-Bench” JAIPUR
Before: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM vk;djvihy la-@ITA No. 1252/JPR/2024
vkns'k@ORDER PER: NARINDER KUMAR, JUDICIAL MEMBER. Vide impugned order dated 16-08-2024, ld.CIT(A), NFAC-Delhi dismissed the appeal filed by the assessee. That is how, the assessee is before this Appellate Tribunal.
That appeal was filed while challenging assessment order dated 29-12-2016 passed by the AO, relating to assessment year 2009-10. 2 M/S. BANSAL OIL MILLS LTD VS ACIT, CIRCLE-4, JAIPUR 3. As is available from the assessment order, the case of the assessee was reopened on the basis of an information stated to be available on record.
By way of assessment order, the AO computed total income of the assessee at Rs.50,67,460/- by making an addition of Rs.22,50,000/- while resorting to the provisions of Section 68 of the Income Tax Act, 1961.
It may be mentioned here that in the assessment order, the AO recorded following reasons for reopening: ‘’ During the course of assessment proceedings w/s 143(3) of the Income-tax Act, 1961 for the A.Y.2013-14 it was found that the assessee has shown payment of interest amounting to Rs.54,000/- to M/s Kajal Agencies Pvt. Ltd and Rs.3,60,000/- to M/s Alfa Tie Up Pvt. Ltd. To verify the veracity of transaction a commission u/s 131 (1d) was issued to the Deputy Director of Income-tax (Inv), Unit-1(3). Kolkata on 22-12- 2015. The DDIT(Inv) has furnished report on 17-03-2016 concluding that:-
"This office has issued notice u/s 131 to the companies/ entities as mentioned in your above quoted letter and their directors proprietors for personal appearance In response to said notices, none of the directors proprietor of companies entities appeared personally but some of them submitted the replies to this office.
3 M/S. BANSAL OIL MILLS LTD VS ACIT, CIRCLE-4, JAIPUR In view of the above prima facie it appears that the above mentioned concerns entities are merely paper shell entities who are unable to prove their creditworthiness. Hence it can be concluded that the formation of the above concerns entities are only for fund rotation and having no other business activities and the modus operandi adopted with the sole motive to give a color of genuineness to otherwise bogus transactions"
On the basis of inquiry report of the DDIT (Inv) the assessee was asked to prove loan taken from these companies and to produce Directors of these companies. But the assessee failed to produce directors of these companies. Therefore, transaction with these companies found to be non-genuine. It was found that the assessee has taken loan from Mis Alfa Tie Up Pvt. Ltd. amounting to Rs. 10,00,000/- on 17-03-2009 and from M/s Kajal Agencies Pvt. Ltd. amounting to Rs.2,50,000/-on 19-09- 2008. Since the assessee has not been able to prove transactions with these companies and failed to produce Directors of these companies, therefore, I have reason to believe that the loan alleged to have been taken from these two companies is bogus.
Therefore 1, have reasons to believe that income of the assessee to the tune of Rs. 12,50,000/- has escaped assessment within the meaning of provisions of section 147/178.’’ 4 M/S. BANSAL OIL MILLS LTD VS ACIT, CIRCLE-4, JAIPUR 6. Finding that income had escaped assessment, notice u/s 148 of the Act was issued to the assessee on 31-03-2016. In response thereto, the assessee filed return of income on 28-04-2016 declaring its income at Rs.28,17,460/- and it was thereafter that notice u/s 143(2) and u/s 142(1) of the Act was issued on 12-05- 2016. Ultimately, the assessment order was passed making addition in the manner indicated above.
Arguments heard. File Perused.
Ld. AR for the appellant has contended that after notice dated 31-03-2016 issued by the AO to the assessee u/s 148 of the Act, the assessee, by way of letter dated 29-04-2016 requested the AO to provide reasons for reopening of the case, and for issuance of the notice u/s 148 of the Act, but the AO failed to provide copy of reasons, and rather, he proceeded with assessment proceedings and passed the impugned assessment order darted 29-12-2016. Ld. AR has contended that since the principle of natural justice was violated by the AO, the assessment order deserved to be set aside, but vide impugned order, the ld. CIT(A) tried to justify non-providing of reasons for reopening, even though asked for by the assessee vide letter dated 29-04-2016. 5 M/S. BANSAL OIL MILLS LTD VS ACIT, CIRCLE-4, JAIPUR In support of his contention, ld. AR for the appellant has relied upon the decision of Hon’ble Supreme Court in the case of GKN Drivshafts (India) Ltd. vs ITO and Ors, (2003) 259 ITR 19.
Learned DR for the department has stood by the reasons recorded by Assessing Officer and NFAC in passing of the impugned assessment and the impugned order, respectively.
As is available from para 5.7 of the impugned order, said contention was also raised on behalf of the appellant before ld. CIT(A). While dealing with said contention that the reasons for reopening having not been communicated to the assessee the assessment order was bad in law, following observations were made in the impugned order : ‘’5.7 Ground of Appeal One - Under the facts and circumstances of the case, the notice issued u/s 148 and the consequent order passed u/s 147 is illegal and bad in law It is not clear on what point the appellant is contesting the violation of natural justice. On perusal of timeline, it is seen that Ld.JAO has duly recorded the reasons as reproduced in assessment order, obtained approval from the competent authority, issued and served reopening and other notices, took submissions on record. disposed of the objection raised served them, made appellant aware of the issue at hand and passed order. Nothing has been bought on record to suggest any infraction of law. Thus, this ground is dismissed.’’
In the case of GKN Drivshafts (India) Ltd. vs ITO and Ors (2003) 259 ITR 19, while dealing with same issue, Hon’ble Apex Court observed as under:-
6 M/S. BANSAL OIL MILLS LTD VS ACIT, CIRCLE-4, JAIPUR ‘’We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under s. 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the AO has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.’’