Case Law Details
ACIT Vs P & R Infraprojects Ltd. (ITAT Delhi)
A perusal of the assessment order as well as the order of the CIT(A) shows that no notice u/s 143(2) was ever issued to the assessee before completing the assessment u/s 143(3)/147. It is the submission of the ld. Counsel that it is mandatory to issue notice u/s 143(2) even in reassessment proceedings and non-issuance of the same makes the assessment order illegal and null.
Coordinate Bench of the Tribunal in the case of M/s New Okhla Industrial Development Authority (supra) while dealing with non-issuance of notice u/s 143(2) of the Act in a reassessment proceedings has observed as under:-
“…. where notice u/s 143(2) is not issued to the assessee before framing the assessment u/s 143(3) of the Act, the AO does not have the jurisdiction to make the assessment. In the present case, the AO issued the notice u/s 148 of the Act and the assessee furnished the return of income in response to the said notice. Thereafter the AO asked the assessee to furnish certain details by issuing the questionnaire u/s 142(1) of the Act but nowhere issued the notice u/s 143(2) of the Act. Therefore, the assumption of jurisdiction for framing the assessment was invalid.”
Reassessment proceedings, in the instant case, completed u/s 143(3)/147 are not in accordance with the law in absence of issuance of notice u/s 143(2) of the IT Act. Therefore, we hold that the reassessment proceedings are invalid.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the Revenue is directed against the order dated 24.11.2017 of the CIT(A)-38, New Delhi relating to assessment year 2009-10.
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of designing, fabrication and erection of heavy structural steel work/hydro project and other construction work. It filed its return of income on 29th September, 2009 declaring an income of Rs.4,07,74,020/-. Original assessment proceedings u/s 143(3) of the Act was completed in this case on 23.11.2011 at an income of Rs.4,12,74,020/-. Subsequently, based on the information received from the Investigation Wing, Chandigarh, the AO reopened the assessment under the provisions of section 147 of the Act and issued notice u/s 148.
3. The AO in this case received information from the Dy. Director of Income-tax (Investigation)-II, Chandigarh that a survey operation u/s 133A of the Act was conducted in the case of the assessee at various places. During the course of survey and post survey enquiries, it was observed that the share capital and share premium amounting to Rs.5,03,82,000/- was received by the assessee from two Kolkata based companies, namely, M/s Olipha Trading & Investment Pvt. Ltd. and Sopan Merchants Pvt. Ltd. It was also found that the above two companies had received share capital and huge share premium despite having no/negligible assets and negligible turnover and profits and the same share capital and premium were further invested in the group companies of the assessee. In order to verify the identity, capacity and genuineness of the above companies from whom share capital was received, a commission was issued to DDIT (Inv.), Unit-II(3), Kolkata. From the analyses of the commission, it appeared that the source of capital introduced in these companies was also doubtful. The said companies were found non-existent at their registered addresses. It was further informed by the Investigation Wing, Kolkata that the above two companies from whom the assessee has received share capital and share premium are paper/jamakharchi companies being controlled by entry operator, namely, Shri Subhash Kumar Aggarwal and Shri Pankaj Aggarwal respectively. Accordingly, based on the survey report and verification of return of income of the assessee, the AO observed that there were sufficient reasons to believe that income of at least Rs.5,03,82,000/-for the impugned assessment year has escaped assessment. He, therefore, after recording reasons, reopened the assessment and issued notice u/s 148 of the Act on 10th March, 2016.
4. The assessee, in response to the same, filed the return of income on 26th May, 2016. The AO also provided the reasons for reopening the assessment to which the assessee filed its objections which was disposed of by the AO by passing a speaking order.
5. During the course of assessment proceedings, the AO asked the assessee to establish the identity and credit worthiness of the share applicants and genuineness of the transaction. Rejecting the various explanations given by the assessee, the AO held that the share capital received by the assessee company from M/s Olipha Trading & Investment Pvt. Ltd. and Sopan Merchants Pvt. Ltd., amounting to Rs.5,03,82,000/- is bogus and, accordingly, added the same u/s 68 of the IT Act.
6. Before the CIT(A), the assessee, apart from challenging the addition on merit, challenged the validity of the reassessment proceedings. The assessee also challenged the validity of the assessment in absence of issue of notice u/s 143(2) of the IT Act. The ld.CIT(A), deleted the addition on merit by observing as under:-
“6.2 I have considered the facts of the case, the basis of addition made by the Ld. AO and the written as well as oral arguments of the Ld. AR.
6.2.1 The Ld. AO added Rs. 5,03,82,000/- on account of share application money received from M/s Sopan Merchants Pvt. Ltd. (Rs. 1,16,00,000/-) and Olipha Trading and investment Pvt Ltd (Rs. 3,87,82,000/-) on the ground that it is nothing but the assessee’s own income from undisclosed sources. In response to the above, the ld. AR submitted following documents to prove identity, genuineness and creditworthiness of the investor:
a) Confirmation from the investors
b) Form 2 filed before ROC
c) Statements of bank account of the investor companies showing rents towards share application money,
d) Confirmation from investor companies.
e) Share Application form duly filled by the investor companies f)Confirmation in respect of allotment of equity shares to the investor
g) Copy of PAN card of the investor companies.
h) Memorandum & Articles of Association of the investor companies clearly depicting their corporate identity number.
i) Copies of share certificates issued by the assessee company
A copy of the acknowledgement of the Income tax return filed for AY 200910 by the investor company along with its audited financial results for the year ended 31st March, 2009.
6.2.2 The Ld. AR also submitted that identity of the investor is established by the name, address, PAN. PAN is enough to prove the identity of a person as held by the Hon’ble Delhi High Court in the case of CIT vs. Dwarkadhish Investment Pvt. Ltd., 2010) 45 DTR (Del) 281. He further emphasized that genuineness of the transactions is also fully established by the fact that the transaction is duly confirmed by the investor, the amount is duly reflected in the balance sheet of the investor as investment in the appellant company and the fact that the amount is received by A/c Payee cheque indicating cheque no. date, amount, saving bank account no. as well as name and address of the bank. He also argued that creditworthiness of the investor is also fully established by the fact that, the amount is received by A/c Payee cheque indicating cheque no, date, amount, saving bank account no. as well as name and address of the bank. Copy of the bank statements were also filed before the Ld. AO by relying on the following case laws:-
CIT vs. Lovely Export 299 ITR 261 (SC) 2008-TIOL-238-SC-IT
CIT vs. Gangeshwari Metals Pvt. Ltd., 2013-TIOL-96-HC
CIT vs. Kamdhenu Steel & Alloys Ltd., 2032, TIOL-236-HC-DEL-IT
CIT vs. Oasis Hospitalities Pvt. Ltd., 2011-TTOL-69-HC-DEL-IT
CJT vs. Pratham Projects &Finlease Ltd., 1TA 638/2010, Delhi High Court,
CIT’ vs. Winslral Petrochemicals Pvt. Ltd., (2010) 41 DTR 139 (DeL)
ITO vs. NeelkanthFinbuild Ltd; 2015-TI0L-1082-ITAT-DEL
Root Invest Pvt Ltd vs. ITO; 2015-TIOL-238-ITAT- DEL
ITO vs. Reliance Marketing Pvt Ltd; 2015-TIOL-319-ITAT-DEL
ACIT Vs Divine (India) Infrastructure Pvt Ltd; 2015-TIOL-106-ITAT-DEL
6.2.3 I have gone through all the above case laws. In the case of Kamdhenu Steels SLP of the department was dismissed. Relevant extracts from the case laws relied upon by appellant have been reproduced at para 6.1 supra. Therefore, the contention of the Ld. AO that identity, genuineness and credit worthiness of the investors is not proved by assessee is not correct.
6.2.4 The Ld.AO has also taken adverse view observing that subsequently shareholders of M/s Sopan Merchant Pvt. Ltd. and M/s Olipha Trading & Investments Pvt. Ltd. had transferred their entire shareholding to 4 group companies of the appellant. The Ld. AR submitted that subsequent sale of share does not hold the impugned share capital as unexplained by relying on decision of Delhi High Court in the case of CIT Vs SVP Builders (India) Ltd; 2015–TIOL-2912-HC-DEL-IT.
6.2.5 I have gone through the above case law wherein it is held that the fact that the shares of the asessee were subsequently sold at a reduced price is not germane
6.2.6 The Ld, AO has referred to the statement of Sh Pankaj Agarwai, who is controlling M/s Sopan Merchants Pvt Ltd and Sh. Subhash Kumar Agarwal, who is controlling M/s Olipha Trading Investments Pvt Ltd. The two entry operators have been investigated by Investigation Wing, Kolkata and have admitted on oath that they are in the business of providing accommodation entries to various beneficiaries in the form of share capital or unsecured loans.
6.2.7 The Ld. AR submitted that these statements were not recorded by the investigation wing in the case of the appellant. Mr. Pankaj Aggarwal and Mr.Subhash Kumar Agarwal have nowhere mentioned the name of the appellant as the beneficiary. Copies of the statements were never provided to the appellant depriving it from the opportunity of cross examining him. Therefore, these statements have to be excluded from the assessment proceedings. The ld. AR relied on the following case laws:-
KishmichandChella Ram vs. CIT, 125 ITR 713 (SC)
Pr. CIT vs. M/s Rakam Money Matters Pvt. Ltd., 2015-TIOL-2521-HC-DEL
CIT vs. A.L. LaLpuria Construction (P.) LtD. [2013] 32 taxmann.com 384 (Rajasthan)
Sona Electric Co. vs. CIT, 152 ITR 507 (DEL)
Amar Singh vs ITO, 53 TTJ (DEL) 692
Virendra Kumar Saklechavs DCIT, 59 TTJ (Ind) 785
UdeyrajaGoliya (HUF) vs. ACIT, 64 ITD (Bom) 21 (TM)
6.2.8 The Ld. AR also argued that additions have been made on the basis of survey report and the report received from the investigation wing on the commission issued by the Ld. AO but the same were not provided to the appellant. Therefore, these reports could not be used against the appellant. He also relied on the, decision of ITAT Delhi in the case of ACIT vs. DKB Infrastructure Pvt. Ltd., 2016-TIOL- 565-ITAT-DEL.
6.2.9 The Ld. AR further argued that the Ld. AO has not at all commented on the evidences filed by the appellant. He has made the addition on the basis of report received from the investigation wing in response to the commission issued by the Ld. AO. He has further relied upon the statement of Shri Pankaj. Aggarwal which was obtained from the database of Income tax Department. He further emphasized that it is judicially settled that merely on the basis of information from the Investigation Wing, addition could not be made. He also relied on the decision of ITAT Delhi in the case of ITO vs. GRG Steels Pvt. Ltd., 2015-TIOL-21-ITAT-DEL.
6.2.10 I have gone considered the contentions of Ld. AR and the decisions of Hon’ble ITAT Delhi relied upon wherein it is held that if the AO was heavily relying on the Investigation Wing Report then he was duty bound, to have provided a copy of the same to the assessee so that he can rebut or bring evidences to prove his case. The Ld. AO had not provided the report of investigation wing to the assessee. However, no negative inference can he drawn on the basis that such report was not confronted to appellant in view of the order of Apex Court in the case of M/s Pebble Investment And Finance Ltd Vs ITO 2017-TIOL-238-SC-1T.
6.2.11 The Ld. AO, on page 14 of the assessment order, has mentioned that the turnover and profit declared by the investor companies was meagre. In response to this Ld. AR submitted that the consideration for investment is not the income but the availability of funds. The bank statements of the investors filed before the Ld. AO clearly indicate the availability of funds in their hands. He emphasized that no addition could be made on the basis of low income of the investors by relying on the following case laws:-
Prabhatam Investment Pvt. Ltd. vs. ACIT, 2017-TIOL-714-ITAT-DEL ITO Vs. R B Horticulture & Animal Projects Co Ltd., 2016-TIOL-51O-ITAT-KOL
6.2.12 I have gone considered the case laws relied by the Ld. AR wherein it is clearly held that low income earned by investor companies by itself is no ground to treat the share application money received by the assessee as not genuine. It has also been held by Hon’ble ITAT, Kolkata that if the share applicants do not have the means to make investment, the additional burden is on the department to show that investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated the same as undisclosed income. Therefore, low income of the investor does not result in any negative inference. The material fact for making investment is availability of funds.
6.2.13 In the assessment order, the Ld. AO mentioned that stated share application money is nothing but assessed own money from undisclosed source. Ld. AR submitted that there is no evidence that the funds from the appellant were transferred to the investors for investment. The onus is on the department to show that it is the appellant’s money which has been given to the investor for investment. He emphasized that the appellant cannot be asked about source of funds in the hands of investors. He has relied on the following case laws:
Aravali Trading Co. vs, ITO, (2008) 220 CTR (Raj.) 622
CIT vs. Shiv Dhooti Pearls & Investments Ltd., 2016-TIOL-10-HC-DEL
Anil Gajanan Sane vs. ITO, 2016-TIOL-1142-HC-AHM
6.2.14 I have gone through the judicial pronouncements relied by the Ld. AR wherein it is held that addition under s. 68 cannot be sustained in the absence of evidence to establish that the sources of the creditors’ deposits flew from the assessee itself. It is also held that the assessee cannot be burdened to show the sources of his creditor or to prove the creditworthiness of the creditors.
6.2.15 In the assessment order it is mentioned that none of the companies who has invested in shares of appellant were found existing at their given registered addresses and accordingly assessing officer held that creditworthiness of the investors remained doubtful.
6.2.16 In response to this it is submitted by the Ld. AR that the investment was made by the investors in FY 2008-09. Enquiry was conducted in FY 2015-16 i.e., 7 years after the investment. The investors might have shifted from their earlier address. The appellant does not have any control on the investors. It was also submitted by the Ld. AR that if the investor/creditor is not found at the given address, the impugned amount cannot be held to be bogus by relying on the decision of Mumbai High Court in the case of CIT vs. Orchid Industries Pvt. Ltd., 2017-TIOL-1318-HC-MUM.
6.2.17 I have perused the above decision where it was held by the Hon’ble High Court Mumbai that just because investors had not appeared before the Assessing Officer as summons could not be served on the addresses given, no adverse inference could be drawn on this account against the assessee.
6.2.18 The Assessing Officer has mentioned that creditworthiness of the transaction is doubtful. In reply to the above, the Ld. AR emphasised that no addition can be made if the adjudicating authority makes an observation by using the words doubtful, appear, possible etc. on the basis of surmises and conjectures and not the relevant evidence. He has relied on the Hon’ble ITAT Mumbai’s judgment dated 7/1/2011 in the case of Guruprerna Enterprises vs. ACIT; ITA No, 255,256 & 257/Mum/2010 and on another judgment from Hon’ble Delhi High Court in the case of Globus Infocom Ltd. vs. CIT, (2014) 108 DTR (Del) 363.
6.2.19 I have considered the decisions wherein it has been held that the use of word “possible” means no finding but only surmises and conjectures. Therefore, the Assessing Officer should have made the impugned addition u/s 68 of the Act on the basis of some conclusive evidences or information. Addition made just on the basis of doubt is not sustainable. After duly considering the assessment order, documents/ informations provided by the Ld. AO during appellate proceedings as well as in view of the facts and law as discussed above, the addition of Rs. 5,03,82,000/ – made by the Ld. AO u/s 68 of the IT Act, 1961 is hereby deleted and these grounds are allowed.”
7. He, however, upheld the validity of the reassessment proceedings and also the assessment in absence of issue of notices u/s 143(2) of the IT Act.
8. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:-
“(i) On the facts and under the circumstances of the case, Ld. CIT(A) has erred in law and facts in deleting the addition of Rs. 5,03,82,000/- made by the Assessing Officer u/s 68 of the Income Tax Act, 1961, without appreciating the facts produced by the Assessing Officer.”
(ii) The appellant craves to be allowed to add any fresh ground(s) of appeal and/or delete or amend any of the ground(s) of appeal.”
9. The ld. counsel for the assessee, at the outset, invoking the provisions of Rule 27 of the ITAT Rules, submitted that the assessment framed by the AO is invalid in absence of issue of notice u/s 143(2) of the Act. He submitted that although the ld.CIT(A) has deleted the addition made by the AO u/s 68 of the IT Act, however, he has decided the issue of validity of assessment in absence of issue of notice u/s 143(2) of the IT Act against the assessee and the assessee is entitled to raise the same as per provisions of Rule 27 of the ITAT Rules.
10. The ld. DR objected to the ground raised by the assessee by invoking Rule 27 of the ITAT Rules.
11. We have heard the rival arguments made by both the sides on the issue of admissibility of oral ground raised by the ld. Counsel under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 challenging the order of ld. CIT(A) on the issue of validity of reassessment proceedings in absence of issue of notice u/s 143(2) of the Income-tax Act, 1961. We find the Hon’ble Delhi High Court in the case of Sanjay Sawhney vs. PCIT vide ITA No.834/2019, order dated 18.05.2020 has decided an identical issue and has observed as under:-
“26. The upshot of the above discussion is that Rule 27 embodies a fundamental principal that a Respondent who may not have been aggrieved by the final order of the Lower Authority or the Court, and therefore, has not filed an appeal against the same, is entitled to defend such an order before the Appellate forum on all grounds, including the ground which has been held against him by the Lower Authority, though the final order is in its favour. In the instant case, the Assessee was not an aggrieved party, as he had succeeded before the CIT (A) in the ultimate analysis. Not having filed a cross objection, even when the appeal was preferred by the Revenue, it does not mean that an inference can be drawn that the Respondent– assessee had accepted the findings in part of the final order, that was decided against him. Therefore, when the Revenue filed an appeal before the ITAT, the Appellant herein (Respondent before the Tribunal) was entitled under law to defend the same and support the order in appeal on any of the grounds decided against it. The Respondent – assessee had taken the ground of maintainability before Commissioner (Appeals) and, therefore, in the appeal filed by the Revenue, it could rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him. The ITAT, therefore, committed a mistake by not permitting the assessee to support the final order of CIT (A), by assailing the findings of the CIT(A) on the issues that had been decided against him. The Appellant – assessee, as a Respondent before the ITAT was entitled to agitate the jurisdictional issue relating to the validity of the reassessment proceedings. We are, therefore, of the considered opinion that the impugned order passed by the ITAT suffers from perversity in so far as it refused to allow the Appellant – assessee (Respondent before the Tribunal) to urge the grounds by way of an oral application under Rule 27. The question of law as framed is answered in favour of the Appellant – assessee and resultantly the impugned order is set aside. The matter is remanded back before the ITAT with a direction to hear the matter afresh by allowing the Appellant- assessee to raise the additional grounds, under Rule 27 of the ITAT Rules, pertaining to issues relating to the assumption of jurisdiction and the validity of the reassessment proceedings under Section 153C of the Act.”
11.1 Respectfully following the above decision of the Hon’ble Delhi High Court, we allow the oral ground raised by the ld. Counsel for the assessee under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 challenging the validity of reassessment proceedings in absence of issue of notice u/s 143(2) of the IT Act, 1961.
12. The ld. Counsel for the assessee, referring to pages 9 and 10 of the order of the CIT(A), drew the attention of the Bench to the submissions made before him and the findings of the CIT(A) and submitted that it is an admitted fact that no notice u/s 143(2) was issued to the assessee. Referring to paras 5 to 5.2.1 of the order of the CIT(A), he drew the attention of the Bench to the same which reads as under:-
“5.0 Ground of appeal 5 challenges framing of assessment u/s 147 r,w.s.l43 (3) without issuing any notice u/s 143(2).
5.1 Submissions of appellant on this ground of appeal are as under;-
“3. It is very clear from the assessment order itself that notice u/s 143(2) was never issued. Before completing assessment u/s 143(3), it is mandatory to issue notice u/s 143(2) otherwise the assessment order is illegal. Reliance is placed, on the following case laws: –
Pr. CIT vs. Shri Jai Shiv Shankar Traders Pvt Ltd, 2015-TIOL-2477-HC-Del “Held that,
++…….. . For AO to make an order of assessment under Section 143 (3), it is necessary to issue a notice under Section 143 (2) and in the absence of a notice under Section 143 (2), the assumption of jurisdiction itself would be invalid. In the same decision in v. Salarpur Cold Storage (P.) Ltd., the Allahabad High Court noticed that the decision of the Supreme Court in ACIT v. Hotel Blue Moon where in relation to block assessment, the Supreme Court held that the requirement to issue notice under Section 143(2) was mandatory. It was not “a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with;
++…. In other words, the failure of the AO, in re-assessment proceedings, to issue notice under Section 143(2), prior to finalising the re-assessment order, cannot be condoned by referring to Section 292BB
- Greater Noida Industrial Development Authority vs. ACIT, 2015-TIOL-227-ITAT-DEL, order dated 09/01/2015
“7.3. The contention of the assessee is that the Assessing Officer has not issued notice u/s 143(2) for any of the impugned Assessment Years, subsequent to filing of a return by the assessee. The claim of the assessee that notice u/s 143(2) of the Act was not at all issued for all the impugned AYs, could not be factually controverted by the Revenue. During the hearing of the Stay Petition, the Revenue was specifically directed to produce the assessment record, for all these Assessment Years, during the final hearing. This was not done. During the course of final hearing the Bench has directed the Revenue to produce the assessment record within one week from the date of hearing. This is not done till date. The Revenue is silent on this factual matter till date. Hence we draw a conclusion that, the Revenue could not rebut the factual submissions of the assessee, that no notice u/s 143(2) was issued to the assessee, for any of these Assessment Years.
Again the Jurisdictional High Court in the case of CIT vs. Rajeev Sharma (2010) 192 Taxman 197 (All.)= 2010-TIOL-381-HC- ALL-IT at para 45 has held as follows.
“45. In view of the above, the provision contained in s. 143(2) of the Act is mandatory in nature and it shall be obligatory for the AO to apply mind to the contents of the return fried in response to notice u/s 148 of the Act and record reasons and thereafter, issue notice u/s 143(2) of the Act before proceeding to decide the controversy with regard to escaped assessment.”
The Hon’ble Delhi High Court in the case of Alpine Electronics Asia Pte. Ltd, Vs. DIT (2012) 18 taxman.com 246 (Delhi) at para 24 has held as follows.
“24. S. 143(2) is applicable to proceedings u/s 147/148 of the Act. Proviso to s.148 of the Act protects and grants liberty to the Revenue to serve notice u/s 143(2) of the Act before passing of the assessment order for returns furnished on or before 1st October,2005. In respect of returns filed pursuant to notice u/s 148 of the Act after 1st October,2005, it is mandatory to serve notice u/s 143(2) of the Act, within the stipulated time limit”
7.7. In view of the above binding judgments of the Jurisdictional High Court, we have no other alternative but to hold that, the AO has wrongly assumed jurisdiction under the Act, for all these Assessment Years. We also hold that, this defect in the assumption of jurisdiction by the Assessing Officer cannot be cured by taking recourse to the deeming fiction u/s 292 BB of the Act. With respect to the argument of the Ld. D.R. that, this contention has not been raised by the assessee, before the A.O. or the Ld. CIT(A), we hold that this is a legal issue and as all the facts are on record, this contention can be raised before us, by the assessee for the first time, as this is a jurisdictional issue. Thus we dismiss this contention of the Ld.D.R. as devoid on merit.”
- M/s New Okhla Industrial Development Authority vs. ACIT, 2015-TIOL-1259-ITAT-DEL
“++ where notice u/s 143(2) is not issued to the assessee before framing the assessment u/s 143(3) of the Act, the AO does not have, the jurisdiction to make the assessment. In the present case, the AO issued the notice u/s 148 of the Act and the assessee furnished the return of income in response to the said notice. Thereafter the AO asked the assesses to furnish certain details by issuing the questionnaire u/s 142(1) of the Act but nowhere issued the notice, u/s 143(2) of the Act. Therefore, the assumption of jurisdiction for framing the assessment was invalid.
- B R Arora vs. A CIT. 2014- TIOL-491 -ITAT-DEL
- Mohinder Kumar Chhabra vs. ITO, (2014) 31 ITR (Trib) 93 (Delhi)
- UKT Software Technologies Pvt Ltd. vs. ITO, 2013-TIOL-83-ITAT-DBL
- ACIT vs. Hotel Blue Moon, (2010) 321 ITR 362 (SC)
4. Therefore, assessment order u/s 147/143(3) is also illegal on the ground of non issue of notice u/s 143(2).
5.2 I have carefully considered the submissions of appellant and the facts on record. It was held by Delhi High Court in the case of PCIT Vs Mega Corporation Ltd (2017), ITA No.128/2016 that the assessee could have raised objection to jurisdiction only within a month having regard to the notification which was issued on 01.08.2007. In view of Judgment of Delhi High Court in the case of PCIT Vs Mega Corporation Ltd (2017) ITA No.128/2016, I have no hesitation in holding that reassessment proceedings were validly initiated within the time limit prescribed u/s 143(2) and in view of the failure of appellant to raise objection on this ground within one month of initiation of reassessment proceedings. Hence, this ground of appeal is dismissed.”
13. Referring to the above, he submitted that it is an admitted fact that no notice u/s 143(2) of the Act was issued to the assessee. The observation of the ld.CIT(A) that the assessee could have raised objection to the jurisdiction only within a month having regard to the Notification which was issued on 01.08.2007 is erroneous and not in accordance with the law. Referring to the following decisions, he submitted that failure of the AO in reassessment proceedings to issue notice u/s 143(2) prior to finalizing the reassessment order makes the reassessment proceedings a nullity:-
i) Pr. CIT vs. Shri Jai Shiv Shankar Traders Pvt Ltd, 2015-TIOL-2477-HC-Del;
ii) Greater Noida Industrial Development Authority vs. ACIT, 2015-TIOL-227-ITAT-DEL, order dated 09/01/2015;
iii) CIT vs. Rajeev Sharma (2010] 192 Taxman 197 (All.] = 2010-TIOL-381-HC-ALL-IT;
iv) Alpine Electronics Asia Pte. Ltd. Vs. DIT (2012) 18 taxman.com 246 (Delhi); and
v) M/s New Okhla Industrial Development Authority vs. ACIT, 2015-TIOL-1259-ITAT-DEL.
14. So far as the decision relied on by the CIT(A) in the case of PCIT vs. Mega Corporation Ltd (supra) is concerned, he submitted that in this case the issue was regarding the jurisdiction whether the same lies with Addl. CIT or DCIT. However, in the instant case, there is no such issue and, therefore, the decision relied on by the ld.CIT(A) being entirely different on facts, is not applicable to the case of the assessee. So far as the merit of the case is concerned, he relied heavily on the order of the ld.CIT(A).
15. The ld. DR, on the other hand, heavily relied on the order of the AO so far as the addition u/s 68 of the Act is concerned. So far as the ground raised by the assessee by invoking the Rule 27 of the IT Rules is concerned, the ld. DR submitted that the ld.CIT(A) has given justifiable reasons while upholding the assessment order in absence of issue of notice u/s 143(2) of the IT Act.
16. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. Before proceeding to decide the merit of the case as per the grounds raised by the Revenue, we would first like to deal with the ground raised by the assessee as per Rule 27 of the ITAT Rules wherein the assessee has challenged the validity of the assessment order in absence of issue of notice u/s 143(2) of the IT Act. A perusal of the assessment order as well as the order of the CIT(A) shows that no notice u/s 143(2) was ever issued to the assessee before completing the assessment u/s 143(3)/147. It is the submission of the ld. Counsel that it is mandatory to issue notice u/s 143(2) even in reassessment proceedings and non-issuance of the same makes the assessment order illegal and null.
17. We find merit in the above argument of the ld. Counsel for the assessee. The Hon’ble Delhi High Court in the case of PCIT vs. Shri Jai Shiv Shankar Traders Pvt. Ltd. (supra) has held that the failure of the AO in reassessment proceedings to issue notice u/s 143(2) prior to finalizing the reassessment order cannot be condoned by referring to section 292BB of the IT Act. The relevant observations of the Hon’ble High Court reads as under:-
“12. The narration of facts as noted above by the Court makes it clear that no notice under Section 143(2) of the Act was issued to the Assessee after 16th December 2010, the date on which the Assessee informed the AO that the return originally filed should be treated as the return filed pursuant to the notice under Section 148 of the Act.
13. In DIT v. Society for Worldwide Interbank Financial Telecommunications (2010) 323 ITR 249 (Del), this Court invalidated an reassessment proceedings after noting that the notice under Section 143(2) of the Act was not issued to the Assessee pursuant to the filing of the return. In other words, it was held mandatory to serve the notice under Section 143(2) of the Act only after the return filed by the Assessee is actually scrutinised by the AO.
14. The interplay of Sections 143 (2) and 148 of the Act formed the subject matter of at least two decisions of the Allahabad High Court. In CIT v. Rajeev Sharma (2011) 336 ITR 678 (All.) it was held that a plain reading of Section 148 of the Act reveals that within the statutory period specified therein, it shall be incumbent to send a notice under Section 143(2) of the Act. It was observed:
“the provisions contained in sub-Section (2) of Section 143 is mandatory and the legislature in their wisdom by using the word ‘reason to believe’ had cast a duty on the Assessing Officer to apply mind to the material on record and after being satisfied with regard to escaped liability, shall serve notice specifying particulars of such claim. In view of the above, after receipt of return in response to notice under Section 148, it shall be mandatory for the AO to serve a notice under sub-Section 2 of Section 143 assigning reason therein. In absence of any notice issued under sub-Section 2 of Section 143 after receipt of fresh return submitted by the Assessee in response to notice under Section, the entire procedure adopted for escaped assessment, shall not be valid.”
15. In a subsequent judgment in CIT v. Salarpur Cold Storage (P.) Ltd. (2014) 50 Taxmann.com 105 (All) it was held as under:
“10. Section 292 BB of the Act was inserted by the Finance Act, 2008 with effect from 1 April 2008. Section 292 BB of the Act provides a deeming fiction. The deeming fiction is to the effect that once the assessee has appeared in any proceeding or cooperated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under the provisions of the Act, which is required to be served on the assessee, has been duly served upon him in time in accordance with the provisions of the Act. The assessee is precluded from taking any objection in any proceeding or enquiry that the notice was (i) not served upon him; or (ii) not served upon him in time; or (iii) served upon him in an improper manner. In other words, once the deeming fiction comes into operation, the assessee is precluded from raising a challenge about the service of a notice, service within time or service in an improper manner. The proviso to Section 292 BB of the Act, however, carves out an exception to the effect that the Section shall not apply where the assessee has raised an objection before the completion of the assessment or reassessment. Section 292 BB of the Act cannot obviate the requirement of complying with a jurisdictional condition. For the Assessing Officer to make an order of assessment under Section 143 (3) of the Act, it is necessary to issue a notice under Section 143 (2) of the Act and in the absence of a notice under Section 143 (2) of the Act, the assumption of jurisdiction itself would be invalid.”
16. In the same decision in v. Salarpur Cold Storage (P.) Ltd.( supra), the Allahabad High Court noticed that the decision of the Supreme Court in ACIT v. Hotel Blue Moon (supra) where in relation to block assessment, the Supreme Court held that the requirement to issue notice under Section 143(2) was mandatory. It was not “a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with.”
17. The Madras High Court held likewise in Sapthagiri Finance & Investments v. ITO (2013) 90 DTR 289 (Mad). The facts of that case were that a notice under Section 148 of the Act was issued to the Assessee seeking to reopen the assessment for AY 2000-01. However, the Assessee did not file a return and therefore a notice was issued to it under Section 142 (1) of the Act. Pursuant thereto, the Assessee appeared before the AO and stated that the original return filed should be treated as a return filed in response to the notice under Section 148 of the Act. The High Court observed that if thereafter, the AO found that there were problems with the return which required explanation by the Assessee then the AO ought to have followed up with a notice under Section 143(2) of the Act. It was observed that:
“Merely because the matter was discussed with the Assessee and the signature is affixed it does not mean the rest of the procedure of notice under Section 143(2) of the Act was complied with or that on placing the objection the Assessee had waived the notice for further processing of the reassessment proceedings. The fact that on the notice issued u/s 143(2) of the Act, the assessee had placed its objection and reiterated its earlier return filed as one filed in response to the notice issued u/s 148 of the Act and the Officer had also noted that the same would be considered for completing of assessment, would show that the AO has the duty of issuing the notice under Section 143(3) to lead on to the passing of the assessment. In the circumstances, with no notice issued u/s 143(3) and there being no waiver, there is no justifiable ground to accept the view of the Tribunal that there was a waiver of right of notice to be issued u/s 143(2) of the Act.”
18. As already noticed, the decision of this Court in CIT v. Vision Inc. proceeded on a different set of facts. In that case, there was a clear finding of the Court that service of the notice had been effected on the Assessee under Section 143 (2) of the Act. As already further noticed, the legal position regarding Section 292BB has already been made explicit in the aforementioned decisions of the Allahabad High Court. That provision would apply insofar as failure of “service” of notice was concerned and not with regard to failure to “issue” notice. In other words, the failure of the AO, in reassessment proceedings, to issue notice under Section 143(2) of the Act, prior to finalising the re-assessment order, cannot be condoned by referring to Section 292BB of the Act.
19. The resultant position is that as far as the present case is concerned the failure by the AO to issue a notice to the Assessee under Section 143(2) of the Act subsequent to 16th December 2010 when the Assessee made a statement before the AO to the effect that the original return filed should be treated as a return pursuant to a notice under Section 148 of the Act, is fatal to the order of re-assessment.
20. Consequently, there is no legal infirmity in the impugned order of the ITAT. No substantial question of law arises. The appeal is dismissed.”
17.1 Similarly, we find, the Hon’ble Delhi High Court in the case of Alpine Electronics Asia Pte. Ltd. (supra), while dealing with non-issuance of notice u/s 143(2) in reassessment proceedings, has observed as under:-
“24. S.143(2) is applicable to proceedings u/s 147/148 of the Act. Proviso to s.148 of the Act protects and grants liberty to the Revenue to serve notice u/s 143(2) of the Act before passing of the assessment order for returns furnished on or before 1st October, 2005. In respect of returns filed pursuant to notice u/s 148 of the Act after 1st October, 2005, it is mandatory to serve notice u/s 143(2) of the Act, within the stipulated time limit.”
7.7. In view of the above binding judgments of the Jurisdictional High Court, we have no other alternative but to hold that, the AO has wrongly assumed jurisdiction under the Act, for all these Assessment Years. We also hold that, this defect in the assumption of jurisdiction by the Assessing Officer cannot be cured by taking recourse to the deeming fiction u/s 292 BB of the Act. With respect to the argument of the Ld. D.R. that this contention has not been raised by the assessee before the A.O. or the Ld.CIT(A), we hold that this is a legal issue and as all the facts are on record, this contention can be raised before us, by the assessee for the first time, as this is a jurisdictional issue. Thus we dismiss this contention of the Ld. D.R. as devoid on merit.”
17.2 We find, the coordinate Bench of the Tribunal in the case of Greater Noida Industrial Development Authority (supra), while dealing with non-issuance of notice u/s 143(2) of the Act has observed as under:-
“7.3. The contention of the assessee is that the Assessing Officer has not issued notice u/s 143(2) for any of the impugned Assessment Years, subsequent to filing of a return by the assessee. The claim of the assessee that notice u/s 143(2) of the Act was not at all issued for all the impugned AYs, could not be factually controverted by the Revenue. During the hearing of the Stay Petition, the Revenue was specifically directed to produce the assessment record, for all these Assessment Years, during the final hearing. This was not done. During the course of final hearing the Bench has directed the Revenue to produce the assessment record within one week from the date of hearing. This is not done till date. The Revenue is silent on this factual matter till date. Hence we draw a conclusion that, the Revenue could not rebut the factual submissions of the assessee, that no notice u/s 143(2) was issued to the assessee, for any of these Assessment Years.”
17.3 Similarly, the coordinate Bench of the Tribunal in the case of M/s New Okhla Industrial Development Authority (supra) while dealing with non-issuance of notice u/s 143(2) of the Act in a reassessment proceedings has observed as under:-
“…. where notice u/s 143(2) is not issued to the assessee before framing the assessment u/s 143(3) of the Act, the AO does not have the jurisdiction to make the assessment. In the present case, the AO issued the notice u/s 148 of the Act and the assessee furnished the return of income in response to the said notice. Thereafter the AO asked the assessee to furnish certain details by issuing the questionnaire u/s 142(1) of the Act but nowhere issued the notice u/s 143(2) of the Act. Therefore, the assumption of jurisdiction for framing the assessment was invalid.”
18. In view of the above decisions, we hold that the reassessment proceedings, in the instant case, completed u/s 143(3)/147 are not in accordance with the law in absence of issuance of notice u/s 143(2) of the IT Act. Therefore, we hold that the reassessment proceedings are invalid. The ground raised by the assessee as per Rule 27 of the Income-tax (Appellate Tribunal) Rules is accordingly allowed. Since the assessee succeeds on this legal ground, the ground raised by the Revenue on merit is not being adjudicated being academic in nature.
19. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 07.01.2022.
