Case Law Details
It is mandatory for the AO to issue notice u/s 143 (2). The issuance and service of notice u/s 143 (2) is mandatory and not procedural. If the notice is not served within the prescribed period, the assessment order is invalid
UKT Software Technologies Vs. ITO (ITAT Delhi)
ITA No. 5293 & 5294/Del/2010 Assessment Years: 2005-06 & 2006-07
ORDER
PER I.P. BANSAL, JUDICIAL MEMBER
Both these appeals are filed by the assessee. They are directed against the consolidated order passed by the CIT (A) dated 29th October, 2010 for assessment years 2005-06 and 2006-07. Grounds of appeal in both the appeals read as under:-
ITA No. 5293/Del/2010
1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)J is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in upholding the validity of the reopening of assessment u/s 147 of the Act.
3. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that the reasons recorded for reopening are bad in law & as such the reassessment done in consequence to that needs to be quashed.
4. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that the assessment order is bad in law & is liable to be quashed as the same has been made without first disposing of the objections raised by the appellant against the reopening.
5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in upholding the reassessment framed under section 143 (3) despite the fact that no notice under section 143 (2) has been issued, a fact admitted by the A.O. in remand report.
6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.32,85,500/- on account of training & development expenses.
7. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that no reliance can be placed on the statement of Sh. S./. Gupta recorded at the back of the assessee without providing cross examination.
8. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that the A.O. has misinterpreted the statement of Sh. S./. Gupta & has wrongly used the same against the assessee, as the appellant has not been named in the said statement & there is no allegation against it coming out of the said statement.
9. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in arbitrarily rejecting the evidence submitted in support of the expenditure incurred despite the fact that even in the remand report A.O. has not pointed out any defect and has not given any adverse comment on that.
10. That the appellant craves leave to add, amend or alter any of the grounds of appeal.
ITA No. 5294/Del/2010
1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)J is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in upholding the validity of the reopening of assessment u/s 147 of the Act.
3. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that the reasons recorded for reopening are bad in law & as such the reassessment done in consequence to that needs to be quashed.
4. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that the assessment order is bad in law & is liable to be quashed as the same has been made without first disposing of the objections raised by the appellant against the reopening.
5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in upholding the reassessment framed under section 143 (3) despite the fact that no notice under section 143 (2) has been issued, a fact admitted by the A. O. in remand report.
6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.30,41,975/- on account of training & development expenses.
7. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that no reliance can be placed on the statement of Sh. S./. Gupta recorded at the back of the assessee without providing cross examination.
8. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that the A.O. has misinterpreted the statement of Sh. S./. Gupta & has wrongly used the same against the assessee, as the appellant has not been named in the said statement & there is no allegation against it coming out of the said statement.
9. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in arbitrarily rejecting the evidence submitted in support of the expenditure incurred despite the fact that even in the remand report A.~. has not pointed out any defect and has not given any adverse comment on that.
11. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in rejecting the contention of the appellant that the appellant being eligible for deduction u/s 1OB the same was required to be recomputed on the assessed income and benefit of the same ought to have been allowed.
11. That the appellant craves leave to add, amend or alter any of the grounds of appeal.
2. As it can be seen from the grounds of appeal, for both the years one common ground is regarding challenging the validity of the re-assessment orders passed by the Assessing Officer on the ground of non-issuance of notice u/s 143 (2) and such fact is recognized by the Assessing Officer in both the years in the remand report submitted by him to learned CIT (A)
3. Both the parties were heard on the short issue relating to non-issue of notice u/s 143 (2).
4. Learned AR submitted that one of the grounds on which the assessee had assailed the validity of re-assessment order was that no notice u/s 143 (2) was issued during the course of re-assessment proceedings. He submitted that such grievance of the assessee has been mentioned by learned CIT (A) at page 5 of the appellate order. He submitted that it was pleaded before him that “no notice u/s 143 (2) or for that matter u/s 142 (1) has been issued, as such, the assessment is liable to be quashed.” He submitted that learned CIT (A) has not recorded any finding upon that issue and according to the decision of Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon 321 ITR 362 (SC) and the decision of Hon’ble Delhi High Court in the case of CIT vs. Pawan Gupta and Ors. 318 ITR 322 (Del), if the assessment is framed without issue of notice u/s 143 (2), the same is liable to be quashed as that is not merely procedural, but, mandatory. He submitted that in the remand report the Assessing Officer has admitted this fact and for this purpose he referred to the remand report submitted by the Assessing Officer to CIT (A) dated 15th September, 2010 in respect of assessment year 2005-06 wherein the Assessing Officer has himself admitted that notice u/s 143 (2) could not be issued and he drew our attention towards the observations of the Assessing Officer in the said remand report, the copy of which is placed at pages 178 to 185. The relevant observations are as under:-
“Ground No.1 : Assessment order is in bad in law and no notice under section 143 (3) was issued:
The perusal of assessment records shows that the A.O. did provide opportunity to the assessee to place its claim in its defence. The statutory notice u/s 143 (2) could not be issued in this case.”
5. Similarly, for assessment year 2006-07, he invited our attention towards the following observations of the Assessing Officer (copy of remand report is filed at pages 138 to 142 of the paper book):-
“Ground No.1 : Assessment order is in bad in law and no notice under section 143 (3) was issued:
The perusal of assessment records shows that the A.O. did provide opportunity to the assessee to place its claim in its defence. The statutory notice u/s 143 (2) could not be issued in this case.”
6. Thus, it was pleaded by him that either the case of the assessee should be accepted on the submissions made by the Assessing Officer before the CIT (A) in the remand report or to determine this fact the matter may be restored back to the file of the CIT (A) as this issue will go to the root of the matter and if no notice has been issued or served on the assessee u/s 143 (2), then, the re-assessment order passed by the Assessing Officer will be invalid.
7. On the other hand, learned DR submitted that for verification of the fact that whether or not notice u/s 143 (2) was issued during the course of re-assessment proceedings the matter may be restored back to the file of the CIT (A) to record a finding in this regard and, then, the matter can be decided.
8. We have heard both the parties on this issue. The law relating to validity of the assessment proceedings in absence of issuance of notice u/s 143(2), in a case where the Assessing Officer proceeded to frame the assessment in pursuance of a return is well established. If the assessment is framed u/s 143 (3), either read with Section 158 BC or read with Section 147 of the Act, then, it is mandatory for him to issue notice u/s 143 (2). The issuance and service of notice u/s 143 (2) is mandatory and not procedural. Earlier, there had been a doubt that whether issuance of service of notice u/s 143 (2) is procedural or mandatory, but by the pronouncement of the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Pawan Gupta (supra), it has become clear that in cases where the Assessing Officer proceeds to frame assessment u/s 143 (3), then, there is no option to the Assessing Officer, except to issue and serve notice upon the assessee as per Section 143 (2) and such issuance of notice is not mere procedural, but mandatory and it is clear from the following observations of their lordships from the said decision:–
“We are of the view that s.143(2) is a mandatory provision whether we look at it from the standpoint of a regular assessment or from the standpoint of an assessment under Chapter XIV-B. If the A.O., on receipt of the return of undisclosed income in the Form 2B from the assessee, is satisfied with the same as reflecting the true state of affairs then it is not necessary for him to embark upon any further enquiry or investigation. No further information or explanation is called for from the assessee. In such an eventuality he can straightaway pass the order under s.158BC (c) of the said Act. And, if he does so, the assessee cannot be heard to complain that no notice under s. 143 (2) was served upon him because his return as filed has been accepted. It is here that the expression “so far as may be, apply” comes into play. Sec. 143 (2) has no application in such a situation and therefore no notice under that provision would be necessary. If the A.O. makes the assessment order in terms of the return of undisclosed income filed by the assessee without issuing a notice under s.143 (2) then he would not have committed any mistake. This is a situation where the s.143(2) notice would not be necessary at all.”
(emphasis ours)
9. The aforementioned view of Hon’ble jurisdictional High Court has now been confirmed by the Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon (supra) wherein their lordships have observed as under:-
“15. We may now revert back to s.158BC(b) which is the material provision which requires our consideration. Sec.158BC (b) provides for enquiry and assessment. The said provision reads “that the A.O. shall proceed to determine the undisclosed income of the block period in the manner laid down in s.158BB and the provisions of s.142, sub-ss. (2) and (3) of s.143, s.144 and s.145 shall, so far as may be, apply.” An analysis of this sub-section indicates that, after the return is filed, this clause enables the A.O. to complete the assessment by following the procedure like issue of notice under s.143(2)/142 and complete the assessment under s.143 (3). This section does not provide for accepting the return as provided under s.143 (1)(a). The A.O. has to complete the assessment under s.143 (3) only. In case of default in not filing the return or not complying with the notice under s.143 (2)/142, the A.O is authorized to complete the assessment ex parte under s.144. Clause (b) of s.158BC by referring to ss.143 (2) and 143 (3) would appear to imply that the provisions of s.143 (1) are excluded. But s.143 (2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under s. 143 (2). However, if an assessment is to be completed under s. 143 (3) r/w.s. 158 BC, notice under s. 143 (2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under s. 143 (2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under s. 143 (2) cannot be dispensed with. The other important feature that requires to be noticed is that the s. 158 BC (b) specifically refers to some of the provisions of the Act which requires to be followed by the A.O. while completing the block assessment under Chapter XIV-B of the Act. This legislation is by incorporation. This section even speaks of sub-sections which are to be followed by the A.O. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the A.O., if for any reason, repudiates the return filed by the assessee in response to notice under s. 158 BC (a), the A.O. must necessarily issue notice under s. 143 (2) of the Act within the time prescribed in the proviso to s. 143 (2) of the Act.”
10. In respect of re-assessment proceedings, there has been a variance in law so as it relates to return of income filed between the period from 1st October, 1991 to 30th September, 2005 wherein notice u/s 143 (2) could be served upon the assessee before the completion of re-assessment proceedings, but, there also, the requirement of service of notice u/s 143 (2) was not waived altogether, but, it was also necessary to serve notice on assessee u/s 143 (2) before completion of the re-assessment proceedings. That amendment was brought into the statute by virtue of proviso to Section 148 inserted by Finance Act, 2006 and such position of law has been explained by Hon’ble Madras High Court in the case of CIT vs. Mrs. C. Malathy (2007) 294 ITR 532 (Mad).
11. For an authority that for re-assessment proceedings also the requirement of issuing notice u/s 143 (2) within 12 months is mandatory, reference can be made to the decision of Hon’ble Madras High Court in the case of CIT vs. C. Palaniappan (2006) 284 ITR 257 (Mad) wherein it has been held that completion of re-assessment without issue of notice u/s 143 (2) within 12 months is invalid.
From the above discussion of law, it is clear that even in respect of re¬assessment proceedings if the Assessing Officer, on receipt of return in response to notice u/s 148, requires further information or explanation, then, he has to serve notice u/s 143 (2) and issue of notice u/s 143 (2) is not necessary in a case where he accept the return as it has been filed by the assessee.
12. The facts of the present case are that for assessment year 2005- 06, the assessee had originally filed the return of income on 28th October, 2005. Vide notice dated 27th March, 2009 issued u/s 148 of the Income-tax Act, the assessee was required to furnish the return of income within 30 days from the date of service of such notice. The copy of such notice is filed at page 40 of the paper book. Vide reply dated 23rd April, 2009, the assessee had submitted to the Assessing Officer that the return originally filed in this regard may kindly be deemed as return in compliance to such notice. Copy of the said reply is filed at page 41 of the paper book. Therefore, a return of income is deemed to be filed on 23rd April, 2009 in response to notice u/s 148 as per that letter and the re-assessment order is framed by the Assessing Officer vide order dated 24th December, 2009.
13. For assessment year 2006-07, the return of income was originally filed electronically by the assessee on 25th November, 2006 by provisional acknowledgement and, thereafter, copy of the same was submitted on 27th November, 2006. Copy of the acknowledgement is filed at page 1 of the paper book. Vide notice dated 27th March, 2009 issued u/s 148, the assessee was required to file return of income within 30 days from the date of service of such notice and in response thereto vide letter dated 23rd April, 2009, the assessee had submitted that the return originally filed may kindly be deemed as return in compliance to the notice. Copy of such reply is filed at page 39 of the paper book. Therefore, the return in the present case as per that letter is deemed to be filed on 23rd April, 2009.
14. In both the cases, thus, the return was filed in response to notice u/s 148 on 23rd April, 2009. It has already been mentioned above that if the Assessing Officer want to assess the income of the assessee by way of assessment proceedings, then, the issue of notice u/s 143 (2) is mandatory. The relevant observations of the Assessing Officer in the remand report of respective years has already been reproduced. The contention of the assessee vide which it was submitted that the assessment is invalid due to non-issuance of notice u/s 143 (2) have been recorded at page 5 of the order of CIT (A). These contentions were raised by the assessee before the CIT (A) and these contentions were also forwarded to Assessing Officer. Therefore, it was necessary for learned CIT (A) to record a finding on that fact that whether or not any notice u/s 143 (2) was issued to the assessee or served upon it. Learned CIT (A) has not recorded such findings. The issuance and service of notice u/s 143 (2) will go to the root of the matter as, according to the law explained above, if notice is not issued and served u/s 143 (2), then, it will affect the validity of re-assessment order. In this view of the situation, without going into other grounds, we are of the opinion that these matters requires to go back to the CIT (A) to determine such fact and re-adjudicate the matter again by keeping in view the aforementioned law explained in the above part of this order. We direct accordingly. Since we are restoring these appeals to the file of CIT (A), to adjudicate on the legal issue which affects the very validity of the assessment orders, we do not express any opinion on merits of the addition and other grounds which have been agitated by the assessee in the present appeals as they can be decided only after determination of the legal issue regarding issuance and service of notice u/s 143 (2).
15. In the result, for statistical purposes, the appeals filed by the assessee are allowed in the manner aforesaid.
The order pronounced in the open court on 11.02.2011
Dated, 11.02.2011.
