ITAT quashes Assessment Order Due to Lack of Opportunity given to be Heard to Assessee u/s 144A [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) recently quashed the assessment order passed under Section 144A of the Income Tax Act due to lack Opportunity to be heard for assessee.

M/s. Shri Mahalakshmi Metal & Scrap Processing Pvt. Ltd., an iron and steel scrap trading company, filed their income tax return for the assessment year 2013-14, reporting a total income of Rs. 3,77,770/-.

During the assessment, the Assessing Officer noted an increase in trade payables despite no business activities conducted by the company in that year. The officer requested the company to provide explanations for the rise in payables.

The company submitted ledger extracts showing funds received from M/s. Ruchika Global Interlinks Pvt. Ltd., which were subsequently transferred to SLO Steel Ltd and SLO Industries to settle outstanding payables.

However, the Assessing Officer found the explanation insufficient, as the company couldn't clarify how the funds reached SLO Steels Ltd.

Consequently, the Assessing Officer rejected the company's arguments and added the trade payables under Section 68 of the Income-tax Act, 1961. Being aggrieved by the assessment order, assessee preferred an appeal before the CIT(A).

The CIT(A) opined that the assessee received funds from M/s. Ruchika Global Interlinks Pvt. Ltd for trading activities, with legitimate transactions recorded as a loan and subsequent transfer to SLO Industries Ltd. All transactions were conducted through proper banking channels, supported by confirmations from creditors and sister concerns, it was further observed.

The Assessing Officer's decision to add to sundry creditors based on increased amounts, despite the absence of regular business activity, is unwarranted. The assessee provided sufficient explanation for the fund transfers between parties. Additions made by the Assessing Officer towards sundry creditors under Section 68 of the Income Tax Act. Being aggrieved by the order of the CIT(A), the revenue preferred the present appeal before Tribunal.

Counsel for the assessee, supporting order of the CIT (A) submitted that the assessee has filed all possible evidence including confirmation from M/s. Ruchika Global Interlinks Pvt. Ltd, SLO Steel Ltd and SLO Industries Ltd and explained transactions between the parties. The assessee had also filed relevant ledger extracts of parties in the books of accounts along with bank statements to prove that funds had been transferred through proper banking channels.

The assessee had also explained the sum of Rs. 20 crores received from M/s. Ruchika Global Interlinks Pvt. Ltd with necessary evidence. All three parties have confirmed the transactions along with their financial statement.

Counsel for the revenue S. Senthil Kumaran, submitted that the CIT (A) erred in accepting the claim of the assessee that amount shown as trade payable is reflected in the financial statement of the assessee and certified by the auditor ignoring the fact that the assessee could not explain as to how huge amount has been received from M/s. Ruchika Global Interlinks Pvt. Ltd, even though there is no business activity for the impugned assessment year.

The counsel representing the revenue, further submitted that the CIT (A) has failed to notice that the assessee has shown amount received from creditors under the head trade payable and claims that said amount is loan received from the party without any documentary evidence.

However, CIT(A) without appreciating relevant facts simply deleted additions made by the Assessing Officer, he further submitted.

The bench consisting of two members, the Judicial Member V. Durga Rao and the Accountant Member Manjunatha observed that the Assessing Officer made additions towards sundry creditors solely based on an increase in the amount, without providing any evidence that the creditors were non-genuine or accommodation entries.

The assessee submitted confirmation letters, ledger extracts, and bank statements to prove that the funds were received through legitimate banking channels. They explained the transactions between the parties and provided financial statements and explanations for receiving funds from M/s. Ruchika Global Interlinks Pvt. Ltd and transferring them to SLO Industries Ltd.

It was further noted that the assessee  had satisfied all three conditions under Section 68 of the Income Tax Act, demonstrating the identity of the creditor, the genuineness of the transactions, and the trade creditworthiness.

The assessee's position aligns with the decision of the Supreme Court in CIT vs. Lovely Exports Ltd (2008) 216 ITR 195 SC. Considering the facts and circumstances, the Commissioner of Income Tax (Appeals) rightly deleted the additions made by the Assessing Officer towards trade payables under Section 68 of the Income Tax Act. Therefore, the appeal filed by the revenue was dismissed, upholding the Commissioner's findings.

The Bench further added that according to Section 144A of the Income Tax Act, the Joint Commissioner (JCIT) has the authority to examine pending assessment proceedings and issue directions to the Assessing Officer (AO) for completing the assessment.

However, the proviso to Section 144A of the Income Tax Act states that no directions prejudicial to the assessee should be issued without providing the assessee an opportunity to be heard. In this case, the Joint Commissioner of Income Tax (JCIT) issued directions without giving the assessee an opportunity to be heard. The assessment order passed by the Assessing Officer was based on these directions, which were prejudicial to the assessee.

Therefore, the entire proceedings, including the assessment, are deemed to be vitiated, the tribunal bench opined. The assessment order passed by the Assessment Officer was resultantly held liable to be quashed.

Although the assessment order did not explicitly mention the directions issued by the joint Commissioner of Income Tax (JCIT), a comparison between the directions and the assessment order reveals that the assessment was carried out based on the directions. Consequently, the assessment made without providing the assessee an opportunity to be heard, as required by Section 144A, is illegal and void. As a result, the assessment order passed by the Assessment Officer under Section 143(3) of Income Tax was quashed.

In result, the appeal filed by revenue was quashed.

To Read the full text of the Order CLICK HERE

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