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2025 (6) TMI 325 - AT - Income TaxReopening of assessment - validity of the notice issued under section 148 and the requirement of prior sanction u/s 151 - HELD THAT - It is pertinent to note that though the contention of the assessee that the notice u/s. 148 of the Act is not signed is not sustainable as the same is properly signed and hence this additional ground stands rejected. The second addition ground related to prior sanction u/s. 151 by the PCIT was also taken by the AO and therefore re-opening was justifiable. Hence both the additional grounds are rejected. Rejection of books of accounts without pointing out how the method of the assessee which was adopted continuously was defective or the income computed cannot be the reason for rejecting the method of accounting of the assessee - While rejecting the books of account u/s. 145(3) AO has given the details as to the discrepancies related to the books of account as the auditor has given the report in Form No.3CB column No.28 (a) that no stock register is available for verification. But the assessee has filed a copy of order of MetropolitianMagistrate claiming that there is seized material which includes Lorry receipts and transport receipt seized by the Commercial Tax Officer during the course of search. The assessee has filed the return prior to the search dated 28.01.2012 as the original return was filed on 09.10.2010. If the auditor is recording that no stock register was available for verification it amounts to that the assessee is not keeping stock registered and the books are not very verifiable to that extent for it completeness and correctness. AO has categorically expressed this and therefore the AO has rightly rejected the books of account of the assessee. As regard to net commission at the rate of 1.25% the commission adopted by the AO the sum of sales and purchases the same needs to be verified as the VAT authorities has accepted the same as per the submission of the assessee during the course of hearing. Hence this issue is remanded to the file of the AO to verify the assessee s turnover as accepted by the VAT authorities. The assessee be given opportunity of hearing by following the principle of natural justice. After verifying the details the AO will adjudicate the same as per the Income Tax Law. Ground partly allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in these appeals arising from assessment years 2010-11, 2011-12, and 2012-13 include:
2. ISSUE-WISE DETAILED ANALYSIS Validity of Reopening under Section 148 and Notice Issued Legal Framework and Precedents: Section 148 empowers the AO to reopen an assessment if there is reason to believe that income has escaped assessment. Section 151 mandates prior sanction from the Principal Commissioner of Income Tax (PCIT) before issuing a notice under section 148. The notice under section 148 must be duly signed to be valid. Court's Interpretation and Reasoning: The assessee challenged the reopening on the grounds that the notice under section 148 was unsigned and that prior sanction under section 151 was not obtained before issuance of the notice. The Tribunal examined the notice and found it to be duly signed. Further, it was established that the AO had obtained prior sanction under section 151 before passing the assessment order, thereby validating the reopening. Key Evidence and Findings: The AO's records showed proper signature on the notice and sanction accorded by the PCIT. The assessee's contention was thus rejected. Application of Law to Facts: The Tribunal held that the procedural requirements under sections 148 and 151 were complied with, rendering the reopening valid. Treatment of Competing Arguments: The assessee's arguments were rejected on the ground of lack of factual basis, and the Revenue's submissions were accepted. Conclusion: The reopening of the assessment was held to be valid and legal. Validity of Assessment Where No Addition Was Made for Reasons of Reopening Legal Framework: An assessment order passed without making any addition or change on the grounds on which reopening was initiated can be challenged as void or illegal. Court's Interpretation: The Tribunal noted that this ground was raised but did not find merit in it, as the assessment order did contain additions and was not void merely because the reopening was based on certain reasons. Conclusion: The assessment was not void or illegal on this ground. Rejection of Books of Accounts under Section 145(3) Legal Framework and Precedents: Section 145(3) permits the AO to reject the books of accounts if they are found to be incorrect or incomplete. However, the rejection must be based on cogent reasons and material evidence. Mere non-maintenance of item-wise or daily stock register is not a sufficient ground unless it leads to a conclusion that the books are unreliable. Court's Interpretation and Reasoning: The AO rejected the books of accounts primarily on the basis that the assessee failed to maintain stock registers and did not produce evidence such as lorry receipts and transport documents, which were allegedly seized by the Commercial Tax Department. The auditor's report (Form 3CB, column 28(a)) noted the absence of stock registers for verification. The assessee failed to furnish these despite repeated requests and summons. The Tribunal observed that the assessee claimed seizure of documents during a search conducted by the Commercial Tax Department but the AO verified and found no such seizure. The absence of stock registers and failure to produce transportation evidence rendered the books incomplete and unverifiable. Key Evidence and Findings: Auditor's report, non-furnishing of lorry receipts, failure to substantiate sales and purchases, and contradictory statements regarding maintenance of stock registers were critical in the AO's decision. Application of Law to Facts: The Tribunal upheld the AO's rejection of the books of accounts under section 145(3) as justified on the facts. Treatment of Competing Arguments: The assessee argued that non-maintenance of item-wise stock register alone does not justify rejection, relying on judicial precedents. However, the Tribunal distinguished the present facts where the assessee failed to produce other corroborative evidence and the auditor's report confirmed absence of stock registers. Conclusion: The rejection of books of accounts was upheld. Addition of Commission Income at 1.25% of Sales and Purchases Legal Framework: When books are rejected, the AO is empowered to estimate income based on available material. The estimation must be reasonable and based on relevant data. Court's Interpretation and Reasoning: The AO estimated commission income at 1.25% on the aggregate of sales and purchases amounting to Rs. 84,33,18,101/-, relying on the scale of billing and discrepancies found during investigation. This addition was challenged by the assessee as arbitrary and unjustified, contending that no commission was received. The Tribunal noted that the aggregate sales and purchases figure was disputed and required verification vis-`a-vis the figures accepted by the VAT authorities. The Tribunal did not uphold the addition outright but remanded the issue to the AO for verification of turnover as accepted by VAT authorities and to afford the assessee an opportunity of hearing in accordance with principles of natural justice. Key Evidence and Findings: Discrepancies between sales reported in Income Tax Return and Commercial Tax assessment, absence of proof of goods dispatch, and non-availability of transportation documents were central to the AO's addition. Application of Law to Facts: The Tribunal recognized the AO's approach but required proper verification and hearing before confirming the addition. Treatment of Competing Arguments: The assessee's plea that the addition was arbitrary was accepted to the extent that verification was necessary before final adjudication. Conclusion: The addition was partly allowed for statistical purposes and remanded for fresh adjudication. Opportunity of Hearing and Cross-Examination of Commercial Tax Officer Legal Framework: Principles of natural justice require that the assessee be given an opportunity to be heard and to cross-examine adverse witnesses or officials whose statements form the basis of adverse findings. Court's Interpretation and Reasoning: The AO declined to afford the assessee an opportunity to cross-examine the Commercial Tax Officer. The Tribunal did not expressly find fault with this but emphasized that the assessee must be given an opportunity to present evidence and defend the case upon remand. Conclusion: The AO was directed to provide opportunity of hearing on remand. 3. SIGNIFICANT HOLDINGS "Though the contention of the assessee that the notice u/s. 148 of the Act is not signed is not sustainable as the same is properly signed and hence this additional ground stands rejected." "The prior sanction u/s. 151 of the Act accorded by the PCIT was also taken by the AO and therefore re-opening was justifiable." "The AO in para 6.10 of the assessment order has categorically expressed this and therefore the AO has rightly rejected the books of account of the assessee." "The sum of sales and purchases aggregating to Rs. 84,33,18,101/- the same needs to be verified as the VAT authorities has accepted the same as per the submission of the assessee during the course of hearing. Hence, this issue is remanded to the file of the AO to verify the assessee's turnover as accepted by the VAT authorities." "The assessee be given opportunity of hearing by following the principle of natural justice. After verifying the details the AO will adjudicate the same as per the Income Tax Law." Core principles established include:
Final determinations on issues were that the reopening was valid; the rejection of books was justified; the addition of commission income was not upheld outright but remanded for verification and fresh adjudication; and the assessee must be afforded opportunity to be heard on remand. The appeals for all assessment years were partly allowed for statistical purposes and remanded accordingly.
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