Case Law Details
Bizcloud Vs ITO (ITAT Nagpur)
In the case of involving reassessment proceedings for AY 2017–18, the Income Tax Appellate Tribunal (ITAT), Nagpur Bench, partly allowed the assessee’s appeal for statistical purposes and restored the issue of turnover reconciliation to the Assessing Officer (AO) for fresh adjudication.
The assessee, a partnership firm, was subjected to reassessment proceedings after the AO observed from the ITBA system that professional receipts amounting to ₹1,42,87,000 were reflected in Form 26AS on which tax had been deducted under Section 194J by M/s Excellon Softwares Pvt. Ltd. Since the assessee had not filed its return of income, notice under Section 148 was issued. Despite several notices under Sections 142(1) and 144, the assessee did not respond during assessment proceedings.
The AO completed the assessment under Sections 147 read with 144 and 144B on a best judgment basis. While examining Form 3CB, the AO noticed that the assessee had disclosed gross receipts of ₹1,05,36,746 and claimed expenditure of ₹71,43,546. As supporting evidence and documents were allegedly not produced, the AO treated both the receipts reflected in Form 26AS and the receipts disclosed in Form 3CB as taxable income. Consequently, total income was determined at ₹2,48,23,950.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the AO had wrongly made a double addition because the amount disclosed in Form 3CB and the receipts reflected in Form 26AS related to the same source. Accordingly, the addition of ₹1,05,36,746 was deleted. The CIT(A) also allowed deduction of business expenditure of ₹71,43,546, observing that complete disallowance was unjustified considering the nature and volume of business. However, the CIT(A) sustained gross receipts of ₹1,42,87,000 reflected in Form 26AS.
Before the Tribunal, the assessee argued that the reassessment order was invalid because no notice under Section 143(2) had been issued after initiation of reassessment proceedings. It was contended that such notice was mandatory and absence of the same rendered the reassessment void. The assessee also submitted that Form 26AS entries could not automatically be treated as taxable receipts without proper verification and reconciliation with books of account, service tax returns, and tax audit reports. According to the assessee, the discrepancy arose due to incorrect or excess reporting by the deductor, and the matter had already been brought to the notice of the Department.
The Department argued that the assessee had failed to comply with notices issued during reassessment proceedings and therefore the AO was justified in completing the assessment ex parte. It was further submitted that the assessee itself had claimed TDS credit corresponding to the receipts reflected in Form 26AS and therefore could not subsequently dispute those receipts.
The Tribunal rejected the assessee’s legal challenge regarding non-issuance of notice under Section 143(2). It observed that the assessee had not filed a valid return of income in response to notice under Section 148. Relying on the judgment of the Jammu & Kashmir High Court in PCIT vs. Broadway Shoe Co., the Tribunal held that issuance of notice under Section 143(2) is mandatory only where a return of income is furnished in response to notice under Section 148. Since no such return had been filed, the requirement of issuing notice under Section 143(2) did not arise.
On the issue of turnover reconciliation, the Tribunal noted that reconciliation of turnover between books of account, Form 26AS, and service tax returns had been produced for the first time during the hearing. Referring to the Bangalore Tribunal’s decision in Xerox Business Services India LLP vs. DCIT, the Tribunal held that reconciliation statements and statutory records must be examined before making additions based solely on reported receipts.
Accordingly, the Tribunal restored the matter to the AO for de novo adjudication. The AO was directed to verify the turnover by cross-checking with M/s Excellon Software Pvt. Ltd. and the Service Tax Department and to provide adequate opportunity of hearing to the assessee. The Tribunal also directed the assessee to cooperate fully in the proceedings.
The ground relating to levy of interest under Sections 234A and 234B was treated as consequential in nature. The appeal was partly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
This appeal filed by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (for short, “CIT(A)”) dated 22.08.2024 passed u/s. 250 of the Income Tax Act, 1961 (for short, “Act”) which is emanating from assessment order dated 07.03.2022 framed u/s. 147 r.w.s. 144 r.w.s. 144B for Assessment Year (AY) 2017–18.
2. This appeal is barred by limitation by 152 days. Learned counsel for the assessee has explained the reasons which prevented the assessee from filing the appeal within the prescribed period. We are satisfied that sufficient cause prevented the assessee from filing the present appeal in time and the delay is not intentional and therefore adopting a justice oriented approach and also taking guidance from the judgments of Hon’ble Apex Court in the case of Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. [(1987) 2 SCC 107] and in the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382), we hereby condone the delay of 152 days in filing the instant appeal before this Tribunal and admit it for adjudication.
3. Assessee has raised the following grounds of appeal:-
1. That assessment finalised, by invoking the provision of section 144, is bad in law and liable to quash the assessment order passed by the Learned Assessing Officer u/s. 147 r.w.s. 144 of The Income Tax Act 1961 by overlooking the facts that no notice u/s. 143(2) was issued.
2. That the Learned Commissioner of Income Tax (Appeal) erred in upholding gross receipts amounting Rs. 1,42,87,200/- as per 26AS as amount received to the assessee by overlooking the facts of case that turnover amounting Rs. 1,05,36,746/-declared in service tax return and tax audit report.
3. That the Learned Assessing Officer erred in charging the interest u/s. 234A/B/C of The Income Tax Act 1961.
4. That assessee craves leaves to modify/ alter the grounds of appeal, to raised additional grounds of appeal during the course of hearing.”
4. Facts of the case in brief are that assessee is a partnership firm. Based on the information available on the ITBA system, it was noticed by the Assessing Officer (AO) that during the year under consideration, assessee had received professional receipts amounting to Rs. 1,42,87,000/- from M/s. Excellon Softwares Pvt. Ltd., on which tax was deducted at source under section 194J of Act. However, the assessee had not filed its return of income. Accordingly, Ld. AO initiated reassessment proceedings u/s. 147 of the Act by issuing notice u/s. 148 dated 27.03.2021. In response thereto, assessee neither filed return of income nor furnished any details. Thereafter, statutory notice u/s. 142(1) dated 25.06.2021, 09.12.2021 and 17.12.2021 were issued through ITBA portal calling for details and fixing the case for hearing from time to time. However, no response was received from the assessee. Therefore, considering the limitation period, a final show-cause notice u/s. 144 dated 30.12.2021 was issued, but to no avail. The Ld. AO, therefore, proceeded to complete the assessment u/s. 144 of the Act on a best judgment basis. During the course of assessment proceedings, the Ld. AO observed that assessee had received an amount of Rs.1,42,87,000/- from M/s Excellon Softwares Pvt. Ltd. u/s. 194J, which was not offered to tax. Further, on perusal of Form 3CB, Ld. AO noticed that assessee had disclosed gross receipts of Rs. 1,05,36,746/- and claimed expenditure of Rs. 71,43,546/-Since the assessee allegedly failed to furnish supporting details, bills, vouchers, or documentary evidence, Ld. AO held that the genuineness and allowability of such expenditure could not be verified. The Ld. AO further observed that it could not be ascertained whether tax had been deducted at source on such expenses in accordance with Chapter XVII-B of the Act. Thereafter, a final show-cause notice dated 16.02.2022 along with the draft assessment order was issued to the assessee, but no compliance was made. Consequently, Ld. AO treated the aggregate amount of Rs. 2,48,23,946/- comprising (i) receipts of Rs. 1,42,87,000/- reflected u/s. 194J and (ii) gross receipts of Rs. 1,05,36,746/- shown in Form 3CB, as taxable income of the assessee and completed the assessment u/s. 147 r.w.s. 144 r.w.s. 144B of the Act determining the total income at Rs. 2,48,23,950/-.
5. Aggrieved by the order of Ld. AO, assessee preferred appeal before t he Ld. CIT(A), who observed that assessee produced bank statements during appellate proceedings showed receipts from M/s. Excellon Software Pvt. Ltd. The Ld.CIT(A) further noted that assessee itself had claimed TDS credit as reflected in Form 26AS therefore, the receipts of Rs. 1,42,87,000/-appearing in Form 26AS were accepted as correct receipts of the assessee. However, Ld.CIT(A) held that AO erred in separately adding Rs. 1,05,36,746/- reflected in Form 3CB in addition to Rs. 1,42,87,000/- reflected in Form 26AS, as both amounts pertain to the same source of receipts, thereby resulting in double addition. Accordingly, the addition of Rs. 1,05,36,746/-was deleted. Ld.CIT(A) further held that complete disallowance of business expenditure of Rs. 71,43,546/- was unjustified, particularly when the expenses were reasonable having regard to the nature and volume of business carried on by the assessee. Therefore, the said expenditure was allowed. Accordingly, Ld.CIT(A) sustained the gross receipts at Rs. 1,42,87,000/- and allowed deduction of expenditure of Rs. 71,43,546/-, thereby partly allowed the appeal of the assessee. It is pertinent to mention that the relief granted by the Ld. CIT(A) is unchallenged by the Revenue.
6. Dissatisfied with the order of Ld. CIT(A), the assessee is in further appeal before this Tribunal. Learned counsel for the assessee submitted that reassessment order passed by the Ld. AO u/s. 147 r.w.s. 144 of the Act is invalid, illegal and void ab initio inasmuch as no mandatory notice u/s. 143(2) of the Act was ever issued or served upon the assessee after initiation of reassessment proceedings. It was contended that issuance of notice u/s. 143(2) is a jurisdictional requirement and a condition precedent for framing an assessment u/s. 147 of the Act. In absence of such mandatory notice, the entire reassessment proceedings stand vitiated and deserve to be quashed. Learned counsel further submitted that Ld. AO merely proceeded on the basis of information reflected in Form 26AS and completed the assessment ex parte u/s. 144 of the Act without making proper verification of the actual professional receipts earned by the assessee during the relevant previous year. It was argued that both the Ld. AO as well as the Ld. CIT(A) failed to appreciate that the figures reflected in Form 26AS cannot automatically be treated as taxable receipts unless corroborated with actual books of account and statutory records maintained by the assessee. He drew attention to the service tax returns and tax audit report furnished by the assessee and submitted that professional receipts disclosed therein were duly reconciled with the books of account maintained in the regular course of business. It was submitted that the authorities below ignored these statutory records and proceeded merely on the basis of TDS entries reflected in Form 26AS. According to the learned counsel, the difference in receipts reflected in Form 26AS arose due to incorrect/excess reporting by the deductor, namely M/s Excellon Software Pvt. Ltd., and the assessee had already brought this discrepancy to the notice of the Department by way of representation before the CIT(TDS). It was further contended that Ld. CIT(A), despite partly granting relief by deleting the double addition made by the Ld. AO, erred in sustaining gross receipts at ₹1,42,87,000/- solely on the basis of Form 26AS without properly appreciating the service tax returns, audited financial statements and tax audit report placed on record. Learned counsel thus submitted that the addition sustained by the Ld. CIT(A) is unsustainable both on facts and in law and liable to be deleted.
7. Per contra, Ld.Departmental Representative (DR) supported the orders of the authorities below. It was submitted that despite repeated opportunities granted through notices issued u/s. 148 and 142(1), assessee neither filed return of income nor furnished requisite details before the Ld. AO. Therefore, Ld. AO was justified in completing the assessment ex parte u/s. 144 of the Act based on material available on record. Ld. DR further submitted that the receipts of Rs.1,42,87,000/-reflected in Form 26AS were duly supported by TDS deducted u/s. 194J by M/s. Excellon Software Pvt. Ltd. and the assessee itself had claimed corresponding TDS credit. Hence, assessee cannot dispute such receipts subsequently. It was also submitted that Ld. CIT(A) had already granted substantial relief by deleting the double addition and allowing business expenditure claimed by the assessee. Regarding the objection relating to non-issuance of notice u/s. 143(2), Ld.DR submitted that since no return of income was filed by the assessee in response to notice u/s. 148, issuance of notice under section 143(2) was not required. Accordingly, it was prayed that the order of the Ld. CIT(A) be upheld.
8. We have heard rival submissions and perused the material available on record and have given our thoughtful analysis upon the same.
8.1. Ground No.1: The assessee has raised this legal ground before this Tribunal for the first time contending that assessment completed by the Ld. AO u/s. 147 r.w.s. 144 of the Act is bad in law for want of issuance of mandatory notice u/s. 143(2) of the Act. However, this issue was neither raised before the Ld. AO nor before the Ld. CIT(A). The assessee has raised this contention for the first time before this Tribunal without demonstrating any sufficient cause for not raising the same at the earlier stages of proceedings. We observe that assessee did not file any return of income in response to notice issued u/s. 148 of the Act and the assessment came to be completed ex parte u/s. 147 r.w.s. 144 r.w.s. 144B of the Act. We find that Assessment order is passed on 07.03.2022. Admittedly the assessee has produced the copy of acknowledgment of return dated 22.02.2022 which is not signed by the partner, hence, the admissibility of such evidence is doubtful. In absence of filing of return of income by the assessee, the question of issuance of notice u/s. 143(2) does not arise. This view is fortified by the decision of the Hon’ble Jammu & Kashmir High Court in the case of PCIT vs. Broadway Shoe Co. (99 taxmann.com 83), wherein it was held that issuance of notice u/s. 143(2) is mandatory only where a return of income is furnished in response to notice u/s. 148 of the Act and that furnishing of return is sine qua non for issuance of notice u/s. 143(2).
Therefore, this ground raised by the assessee is devoid of merit. Accordingly, the same is dismissed.
8.2. Ground No.2 relates to upholding of gross receipts at Rs.1,42,87,000/- on the basis of Form 26AS as against turnover of Rs.1,05,36,746/- disclosed in the service tax returns and tax audit report. We observe that the coordinate bench of Bangalore Tribunal in the case of M/s. Xerox Business Services India LLP vs. DCIT in ITA No. 2595/Bang/2017 has decided the same issue and remitted the matter back to the Ld. AO. The findings of the tribunal are as follows:-
“5. Ground No.4 raised by the assessee is in respect of the addition of ₹ 2,85,79,928/- as undisclosed income on account of alleged difference between the revenue from operations as per books of account of the assessee and the revenue reported by the service tax department obtained under section 133(6) of the Act, by the Ld.AO.
5.1 The Ld.Counsel submitted that the assessee filed form STR3 and the reconciliation of the financials vis-à-vis the turnover as per form STR 3, which was ignored by the Ld.AO. He is a submitted that the issue may be remanded to the Ld.AR to verify the same.
5.2 The Ld.AR did not object for the submissions by the learnt counsel.
5.3 We have perused the submissions advanced by both sides in light of records placed before us.
5.4 We note that the reconciliation of the turnover as per STR -3, vis-à-vis the financials are to be considered before making such additions. We are therefore remanding this issue to the Ld.AO to carry out necessary verifications in the light of the reconciliation statement, the STR-3 form. The Ld.AO is directed to consider the claim of assessee in accordance with law.
5.5 Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law.
Respectfully following the aforesaid decision, we restore this issue to the file of the Ld. AO for de novo adjudication in accordance with law. Ld. AO shall be at liberty to call for such information and documents as may be considered necessary for proper adjudication of the issue without any fetters on his power. The assessment was carried out u/s. 147 r.w.s. 144 r.w.s. 144B of the Act. The reconciliation of turnover as per books vis-à-vis Form 26AS vis-à-vis service tax returns has been produced for the first time during hearing. Moreover, the claim of Rs. 38,00,000/- as advance is doubtful as the same is not reflected as liability in books. Needless to state, adequate and reasonable opportunity of being heard shall be afforded to the assessee before passing the order. The assessee is also directed to extend full cooperation in the proceedings and avoid seeking unnecessary adjournments except for bona fide and reasonable cause. The Ld. AO is directed to accurately determine the turnover by cross verifying with M/s. Excellon Software Pvt. Ltd. as well as from the competent authorities of Service Tax Department.
8.3. Ground No. 3 relates to levy of interest u/s. 234A/B of the Act, which is consequential in nature. Since the same is consequential, no separate adjudication is called for on this ground.
9. In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on 13.05.2026 under Rule 34 of Income Tax (Appellate Tribunal) rules 1963
Author Bio
