Case Law Details
ACIT Vs JD Ispat Pvt Ltd (ITAT Nagpur)
In the case of ACIT vs JD Ispat Pvt Ltd, the Income Tax Appellate Tribunal (ITAT), Nagpur Bench, dealt with the validity of reassessment proceedings and the consequences of non-issuance of notice under Section 143(2) of the Income Tax Act.
The Revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], who had set aside the reassessment order for fresh adjudication. The assessee had originally filed its return for Assessment Year 2018–19 declaring nil income. The return was processed under Section 143(1). Subsequently, based on information that the assessee had received Rs.15 lakh from another company, the department initiated reassessment proceedings under Sections 147 and 148.
The assessee explained that the amount represented an advance received against sale of goods and furnished supporting records including books of account and invoices. However, the Assessing Officer completed the reassessment ex parte under Sections 147, 144, and 144B and made an addition of Rs.2.33 crore under Section 68, treating the entire sales amount as unexplained income.
Before the CIT(A), the assessee produced several documents such as ledger accounts, invoices, gate passes, weighment slips, audited financial statements, bank statements, and tax records to establish the genuineness of the transactions. Considering these materials, the CIT(A) exercised powers under Section 251(1)(a) and restored the matter to the Assessing Officer for fresh assessment after proper verification.
The Revenue argued before the Tribunal that the assessee had participated in the assessment proceedings and therefore the assessment should not have been disturbed merely on technical grounds. It also contended that adequate opportunities had been provided during assessment proceedings.
The assessee, on the other hand, argued that the reassessment proceedings suffered from a fundamental jurisdictional defect because no notice under Section 143(2) had been issued after filing the return in response to notice under Section 148. It was contended that participation in proceedings could not cure the absence of a mandatory notice and that Section 292BB could not validate a complete absence of notice.
The Tribunal upheld the CIT(A)’s decision to restore the matter for fresh examination, observing that substantial documentary evidence had been produced before the appellate authority and required verification by the Assessing Officer. The Tribunal noted that the reassessment had been completed ex parte without examining supporting evidence and that the addition of the entire sales amount under Section 68 was made despite the information relating only to receipt of Rs.15 lakh. The Tribunal also referred to Supreme Court rulings affirming that appellate authorities possess co-terminus powers with the Assessing Officer.
In the assessee’s cross objection, the Tribunal examined the legal issue relating to the absence of notice under Section 143(2). The Tribunal relied on the Supreme Court judgment in CIT vs Laxman Das Khandelwal and reiterated that Section 292BB cures only defects in service of notice and not the complete absence of notice itself. It further relied on the Supreme Court decision in ACIT vs Hotel Blue Moon, which held that issuance of notice under Section 143(2) is mandatory for a valid assessment and that omission to issue such notice is not a curable procedural defect.
The Tribunal observed that no notice under Section 143(2) had been issued before completion of reassessment proceedings. Accordingly, it held that the reassessment proceedings were invalid and non est in law. As a result, the entire addition of Rs.2.33 crore was deleted. The Revenue’s appeal was dismissed, while the assessee’s cross objection was allowed.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
This appeal filed by the Revenue and the cross objection filed by the assessee are directed against the order of National Faceless Appeal Centre, Delhi (for short, “CIT(A)”) passed u/s. 250 of the Income Tax Act, 1961 (for short, “Act”) dated 24.01.2025 arising out of assessment order passed u/s. 147 r.w.s. 144 r.w.s. 144B of the Act, dated 23.03.2023 for Assessment Year (A.Y.) 2018–19.
ITA No. 178/Nag/2025
2. The solitary issue raised by the Revenue in the present appeal is whether the Ld. CIT(A) erred in setting aside the assessment order under section 251(1)(a) of the Act despite the fact that assessee having participated and responded during the assessment proceedings.
3. Facts of the case in brief are that assessee-company, engaged in the business of manufacturing Iron and Steel, filed its return of income for A.Y. 2018-19 declaring NIL income on 23.10.2018. Return was processed u/s. 143(1) of the Act. Based on the information available with the department that assessee had received Rs. 15,00,000/- from M/s. Krypton Datamatics Ltd., which has escaped income chargeable to tax. In response to the notice u/s. 148A(b), assessee submitted that it had sold goods to M/s. Krypton Datamatics Ltd. for a sum of Rs. 2,33,32,821/- and assessee received Rs.15,00,000/- as advance against sale of such goods, for which assessee furnished books of accounts, sale invoices etc. Consequently, case was reopened u/s. 147 and a notice u/s. 148 of the Act was issued. Since no response from assessee’s side, Ld. AO completed the assessment u/s. 147 r.w.s. 144 r.w.s. 144B of the Act making addition of Rs. 2,33,32,821/- treating as deemed income of the assessee u/s. 68 of the Act.
4. Being aggrieved with the order of Ld. AO, assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A) assessee furnished written submissions along with various documents i.e. ledger, tax invoices, gate pass issued by Container Corporation of India which contains gate pass number, vehicle number, container number, gate out date & time, weighment slips, original ITR acknowledgment and computation of income, tax audit report, audited balance sheet, profit & loss account and also bank statement. After considering the above documents and in exercise of powers conferred in section 251(1), Ld. CIT(A) set aside the assessment to the file of Ld. AO for denovo assessment.
5. Aggrieved by the order of Ld. CIT(A), Revenue is in appeal. Ld. Departmental Representative (DR) supported the assessment order and submitted that assessee had duly participated in the assessment proceedings from time to time by furnishing replies/details in response to the statutory notices issued by the Ld. AO. It was contended that once the assessee had participated in the proceedings without raising any objection at the relevant stage, the assessment could not have been set aside by the Ld. CIT(A) on mere technical considerations. Ld. DR further submitted that assessment order was passed after providing sufficient opportunities to the assessee and after considering the material available on record. It was argued that the powers under section 251(1)(a) of the Act were not intended to annul or set aside a valid assessment merely because of procedural irregularities, particularly when no prejudice was caused to the assessee. Accordingly, Ld. DR prayed that the order of the Ld. CIT(A) be reversed and that of the Ld. AO be restored.
6. Per contra, Ld. counsel for the assessee strongly supported the impugned order and submitted that assessment suffered from fundamental legal infirmities which rendered the entire proceedings void ab initio and non est in the eyes of law. The mere participation of the assessee in the assessment proceedings would not cure an inherent jurisdictional defect. Ld. Counsel submitted that the issue involved was not a mere procedural irregularity but a substantive illegality going to the root of the assessment. Merely because the assessee furnished replies during the assessment proceedings, the defect in assumption of jurisdiction could not be validated. It was thus contended that Ld. CIT(A) had rightly exercised powers under section 251(1)(a) of the Act in setting aside the assessment order, more so, when order is passed u/s. 147 r.w.s. 144 r.w.s. 144B of the Act. Accordingly, he prayed for dismissal of the appeal filed by the Revenue.
7. We have heard rival submissions and perused the material available on record. The solitary grievance of the Revenue is against the action of the Ld. CIT(A) in setting aside the assessment order to the file of Ld. AO for denovo adjudication. We find that during appellate proceedings, assessee furnished various documentary evidences before the Ld. CIT(A) such as ledger accounts, tax invoices, gate passes, weighment slips, audited financial statements, tax audit report, bank statements and return of income acknowledgment in support of genuineness of sales transactions. Upon examination of these evidences, Ld. CIT(A), in exercise of powers conferred under section 251(1)(a) of the Act w.e.f. 01.10.2024, restored the matter to the file of Ld. AO for denovo adjudication. We find no infirmity in the approach adopted by the Ld. CIT(A). The assessment admittedly came to be completed ex parte u/s.144 of the Act without examining the supporting evidences relating to the impugned transactions which were placed before him. The addition made by the Ld. AO pertains to the entire sales amount of Rs.2,33,32,821/- u/s.68 of the Act despite the information available with the department being only with regard to receipt of Rs.15,00,000/-. The documentary evidences furnished by the assessee before the Ld. CIT(A) has to pass the strict procedure of proper verification and examination at the level of Ld. AO. It is a settled proposition of law that appellate proceedings are continuation of assessment proceedings and the first appellate authority is empowered to make or cause to be made such further inquiry as may be necessary for disposal of the appeal. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in CIT vs. Kanpur Coal Syndicate [53 ITR 225 (SC)] wherein the appellate powers of the CIT(A) were held to be co-terminus with that of the Assessing Officer. Similar view has been reiterated by the Hon’ble Supreme Court in Jute Corporation of India Ltd. vs. CIT [187 ITR 688 (SC)]. In the peculiar facts of the present case, where substantial documentary evidences were produced before the Ld. CIT(A) requiring factual verification, the direction issued to the Ld. AO for fresh examination cannot be faulted with. The Revenue has also failed to demonstrate as to how any prejudice has been caused by such direction of the Ld. CIT(A), particularly when the matter was restored only for proper verification in accordance with law after providing due opportunity to the assessee and there is no reduction of demand. We, therefore, do not find any iota of merit in the grounds raised by the Revenue. In sequitur, the order of the Ld. CIT(A) is upheld and the grounds raised by the Revenue are dismissed.
C.O. No. 02/Nag/2025
8. In this cross objection, assessee has raised a solitary ground that Ld. CIT(A) has not dealt with the legal issue of challenging the notice u/s 148 of the Act and the consequent assessment pursuant thereto. Learned counsel for the assessee submitted that return of income was filed on 23.10.2018. He further adverted that return of income, in response to notice u/s. 148 was also furnished on 09.03.2023, but Ld. AO without issuing 143(2) notice proceeded to complete the assessment. It was adverted that the law is well settled that issue of notice u/s. 143(2) is mandatory and section 292BB does not came to the aid of the Ld. AO. Reliance was rightly placed on the decision of Hon’ble Supreme Court in case of CIT Vs. Laxman Das Khandelwal (2019) 310 CTR 8 wherein it was held as under:
7. A closer look at Section 292BB shows that if the assessee has participated in the proceedings it shall be deemed that any notice which is required to be served upon was duly served and the assessee would be precluded from taking any objections that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner. According to Mr. Mahabir Singh, learned Senior Advocate, since the Respondent had participated in the proceedings, the provisions of Section 292BB would be a complete answer.
On the other hand, Mr. Ankit Vijaywargia, learned Advocate, appearing for the Respondent submitted that the notice under Section 143(2) of the Act was never issued which was evident from the orders passed on record as well as the stand taken by the Appellant in the memo of appeal. It was further submitted that issuance of notice under Section 143(2) of the Act being prerequisite, in the absence of such notice, the entire proceedings would be invalid.
8. The law on the point as regards applicability of the requirement of notice under Section 143(2) of the Act is quite clear from the decision in Hotel Blue Moon’s case (supra). The issue that however needs to be considered is the impact of Section 292BB of the Act.
9. According to Section 292BB of the Act, if the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee. It is, however, to be noted that the Section does not save complete absence of notice. For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself.
10. Since the facts on record are clear that no notice under Section 143(2) of the Act was ever issued by the Department, the findings rendered, by the High Court and the Tribunal and the conclusion arrived at were correct. We, therefore, see no reason to take a different view in the matter.
11. These Appeals are, therefore, dismissed. No costs.
7. We observe that the Hon’ble Supreme Court in the case of ACIT Vs. Hotel Blue Moon (2010) 321 ITR 362 (SC) has held that the omission on the part of the assessing authority to issue notice under Sec. 143(2) cannot be held to be a procedural irregularity, and the same is not curable or amenable to rectification. It was further held that for the purpose of framing a valid assessment, issuance of notice u/s. 143(2) cannot be dispensed with. In this regard, reference can be drawn to the decisions of Hon’ble Allahabad High Court in case of CIT vs Rajeev Sharma (2010) 192 Taxman 197 (All), Hon’ble Bombay High Court in case of ACIT vs Geo Pharmaceuticals Ltd (2013) 32 taxmann.com 162 (Bom) Hon’ble Madras High Court in case of Sapthagiri Finance & Investments vs ITO (2013) 90 DTR (Mad) 289, Hon’ble Delhi High Court in case of PCIT vs Silver line (2016) 383 ITR 445 (Del) and the Hon’ble Calcutta High Court in case of PCIT vs Oberoi Hotels (P) Ltd (2018) 96 taxmann.com 104 (Cal) wherein it has been consistently held in unwavering terms that reassessment order u/s.147 cannot be passed without complying with the mandatory requirement of notice u/s 143(2) of the Act. No notice u/s 143(2) has been issued and the assessment has been completed which is evident from assessment order itself. Ex consequenti, the entire assessment proceedings were vitiated and non est in eyes of law. Consequently, the ground of cross objection raised by the assessee is allowed and the entire addition of Rs. 2,33,32,821/- is hereby deleted since the edifice is bound to collapse in the absence of strong foundation.
8. In the result, appeal filed by the Revenue is dismissed and that of assessee’s cross objection is allowed.
Order pronounced on 14/05/2026 under Rule 34 of Income Tax (Appellate Tribunal) Rules–1963.
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