While quashing AY 2022-23 assessment framed directly under Section 143(3) post-search, the New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that where the AO himself accepts that alleged unaccounted purchases led to corresponding sales, only the embedded profit qualifies as ‘income chargeable to tax’ for Section 149(1)(b) threshold.
Since the profit embedded in the alleged unaccounted purchases was admittedly below Rs. 50 lakhs in each relevant year, the statutory condition for reopening beyond three years was not satisfied, and the notices under Section 148 for AY 2014-15 to AY 2018-19 were quashed as without jurisdiction.
The ITAT clarified that following a search under Section 132, the only permissible statutory course is to issue notice under Section 148 and pass an assessment order under Section 147/144B. Resultantly, an assessment framed directly under Section 143(3) without following the Section 148 procedure is void ab initio.
The Division Bench comprising Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member) on the threshold of Rs. 50 lakhs under Section 149(1)(b) for AY 2014-15 to 2018-19, observed that the AO himself has accepted that the alleged unaccounted purchases of mustard oil would necessarily have resulted in corresponding sales in the ordinary course of business. The Tribunal noted that the expression used by the legislature in Section 149 is ‘income chargeable to tax’, and not the gross value of the underlying purchase or sale transaction. The profit embedded in the unaccounted purchases, which the AO himself treated as the escaped income, ranged from Rs. 1.36 lakh (AY 2014-15) to Rs. 3.05 lakh (AY 2016-17), all admittedly below the Rs. 50 lakhs threshold.
On the AY 2022-23 issue, the Tribunal observed that a search and seizure operation under Section 132 was conducted on Ravinder Oil Group on June 2, 2022, and incriminating material relating to the Assessee was found and seized. Pursuant to such search, the AO was required to initiate proceedings under Section 148 as per Explanation 2(iv) of Section 148, and issue notice thereunder, instead of following the assessment proceedings under Section 143(3) of the Act.
On the cross-examination issue, the Tribunal observed that nowhere in the assessment order or the CIT(A) order did the Assessee make any specific request for cross-examination from Ravinder Oil Group, distinguishing the case from Chandra Mohan v. ACIT. On the 30-day notice period issue, the Tribunal observed that the notices under Section 148 for AY 2014-15 to AY 2021-22, prescribing 30 days for filing the return, were issued on March 29, 2023.
The Tribunal noted that prior to April 1, 2023, the period allowed for filing the return was at the discretion of the AO, who would prescribe ‘such period, as may be specified in such notice’. It was only vide the Finance Act 2023 amendment, with effect from April 1, 2023, that the notice was required to be issued requiring the assessee to furnish the return within a period of three months from the end of the month in which such notice is issued.
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Briefly, the Assessee, Ramesh Kumar, proprietor of M/s. Bal Mukund Ramesh Kumar, Kotdwara, Uttarakhand, is engaged in the business of trading in mustard oil. The genesis of the additions traces back to a search and seizure operation conducted under Section 132 of the Act on Ravinder Oil Group on June 2, 2022, wherein incriminating material and loose papers were recovered from a laptop found at the group’s premises. The laptop contained a ‘Sanjeev Tally’ account recording both cash and cheque sales, with only cheque sales being reflected in the books of Ravinder Oil Group. The Assessee was identified as one of the entities to whom unaccounted cash sales were made by Ravinder Oil Group, leading the AO to issue notices under Section 148, for AY 2014-15 to 2018-19.
The AO made additions under Section 69B for alleged unaccounted purchases, ranging from Rs. 1.45 crore (AY 2022-23) to Rs. 6.48 crore (AY 2016-17), and also separately added alleged undisclosed profit embedded in such purchases. On appeal, the CIT(A) deleted the addition of unaccounted purchases and restricted the addition only to the profit element, holding that the alleged unaccounted purchases would have led to corresponding sales.
