Reassessment Proceeding completion without section 143(2) notice is invalid

Shri Gaurav Kumar Vs ITO (ITAT Jaipur)

The issue under consideration is whether AO can issue notice under section 148 for re-assessment without issuing notice u/s 143(2)?

ITAT states that the assessee filed its return of income in response to the notice u/s 148 of the Act. The AO had concluded the assessment without issuing notice under section 143(2) of the Act after the return was filed by the assessee in response to notice under section 148 of the Act. The AO after receiving the return of the appellant filed in pursuance to notice u/s 148 of the Income Tax Act, 1961 did not issue notice u/s 143(2) of the Act which is sine qua non for assuming jurisdiction to assess the case. This is a grave error which is even not rectifiable u/s 292BB of the Act and hence order so passed lacks proper authority with the AO and hence the order so passed deserves to be declared void ab initio. In case of reassessment proceedings also once the assessee furnishes his return, same is considered as a return required to be furnished u/s 139 and for proceeding further in a case of return filed u/s 139 the AO is supposed to issue notice u/s 143(2) for assuming jurisdiction to assess the case. In case of non-issuance of such vital notice no assessment can be framed by the AO as the same lacks authority for the same. Further such vital defect cannot be cured even by resorting to the provisions of section 292BB as the provisions of section 292BB are applicable in those cases where notice was issued but not served. In the present case since no notice was ever issued and hence such defect cannot be cured. Hence, Without issue of notice U/s 143(2) completing the reassessment proceedings are liable to be quashed.

In the result, the appeal of the assessee is allowed.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal by the assessee is directed against the order dated 29.03.2019 of ld. CIT (Appeals), Alwar for the assessment year 2010-11. The assessee has raised the following grounds of appeal :-

“ 1. The ld. CIT (A) has erred on facts and in law in confirming addition of Rs. 14,64,000/-, out of addition of Rs. 17,64,000/-made by the AO u/s 69A, through a non speaking order, without appreciating the facts of the case and the submissions of the appellant.

2. the ld. CIT (A) has grossly erred on facts and n law in upholding the order of the AO u/s 143(3)/147 and in confirming the addition of Rs. 14,64,000/-, overlooking the ground of appeal of the appellant that the AO passed order u/s 143(3)/147 without issuing and serving any notice u/s 143(2) which is a mandatory requirement of law. The order passed u/s 143(3)/147 without  issuance and service of notice u/s 143(2) is patently bad in law and deserves to be quashed.”

In Ground No. 2, the assessee has raised the question of validity of reassessment framed by the AO without issuing and service notice under section 143(2) of the IT Act.

2. The ld. A/R of the assessee has submitted that the assessee is engaged in the business of purchase and sale of building material during the year under consideration. However, upto the assessment year 2009-10 he was also having liquor contract business having a partnership concern and 50% partner in M/s. Gaurav Kumar Pohap Singh. During the year under consideration, the assessee made cash deposit of Rs. 17,84,500/- in the savings bank with Union Bank of India. The AO reopened the assessment on the basis of the AIR information regarding the deposit of cash by issuing a notice under section 148 of the IT Act on 29.03.2017. The assessee filed the return of income through e-filing on 08.12.2017 declaring total income at Rs. 1,38,240/-. The reassessment was completed by the AO by making an addition of Rs. 17,84,000/- on account of cash deposit in the bank account under section 69A of the IT Act. The ld. A/R has thus contended that the reassessment was completed by the AO without issuing notice under section 143(2) of the IT Act. In support of his contention he has relied upon the following decision :-

ITO vs. Shri Hans Raj Sharma

ITA No. 504/JP/2016 & C.O. No. 20/JP/2016 dated 09.04.2019.

3. On the other hand, the ld. D/R has relied upon the orders of the authorities below and submitted that the assessee did not file any return of income under section 139(1) of the IT Act. Even the return of income filed in response to notice under section 148 was belated one and the AO has issued a notice under section 143(2) on 11.02.2017, a copy of the same has been produced during the course of hearing. Thus the ld. D/R has submitted that when a notice was issued under section 143(2) and assessee has participated in the proceedings, then the assessee cannot raise this objection at this stage. He has referred to the provisions of section 292BB of the IT Act.

4. I have considered the rival submissions as well as the relevant material on record. The assessee has raised this objection even before the ld. CIT (A) as ground no. 4 reproduced at page 2 of the ld. CIT (A)’s order. However, the ld.CIT (A) has not adjudicated ground no. 4 separately but the entire matter was decided on the merits in para 5.3 and 5.4 as under :-

“ 5.3. I have perused the assessment order as well as submissions filed by the appellant. Following facts have emerged :-

1. That the appellant is engaged in the sale/purchase of building materials during the year under consideration.

2. That the appellant did not file regular return of income for the year under consideration.

3. That on the basis of NMS details, the A.O. has issued notice u/s 148 of the Act on 29.03.2017. However, still no return of income was filed within stipulated dates. Finally, the appellant filed return of income for the year under consideration on 08.12.2017 declaring income of Rs. 1,38,240/- declaring income u/s 44AD of the Act.

4. That the A.O. has found cash deposits of Rs. 17,84,000/- in his bank accounts.

5. That the appellant had submitted that it was out of payments received from previous creditors when during preceding years the appellant was running liquor business which has been closed and also some gift received during the year. However, no evidences were produced before the A.O. Accordingly, the A.O. has added the cash credit of Rs. 17,84,000/- in his hand.

5.4.  I have considered the above mentioned facts of the case. The appellant has declared income of Rs. 1,38,240/- and considering the past business of distributorship in liquor trade and current business of the assessee and gifts received, in my considered view it would be reasonable to give credit of Rs. 3 lakhs for past year savings and receipts towards the cash credit. Accordingly, the addition to the extent of Rs. 14,64,000/- is sustained and the appellant’s ground of appeal on the issue is partly allowed.”

Thus it is clear that despite being specifically raised this ground and taken up for  adjudication by the ld. CIT (A), it is not dealt with by the ld. CIT (A). Since this is a legal issue and goes to the root of the matter, therefore, the same is taken up for adjudication.

5. The AO in the reassessment order has accepted this fact that the assessee has filed the return of income on 08.12.2017 vide acknowledgement no. 328210000081217 as given in the assessment order. The fact of filing the return of income is not in dispute. The reassessment order is also framed on the return of income filed by the assessee. The AO has not treated the return of income as non est but the assessment was framed by taking the return of income and then making the addition. The final computation of total income of the assessee by the AO is as under :-

Once the assessee filed the return of income and which was taken up for scrutiny assessment in the reassessment proceedings, then it is a condition precedent for assuming the jurisdiction that notice under section 143(2) is issued. Though a notice dated 11.12.2017 stated to be issued by the AO under section 143(2), however, from the Note Sheet it is apparent that the entries regarding the said notice under section 143(2) is made in a space which was available after the proceedings on 19.12.2017. How the proceedings on 11.12.2017 can be recorded after the proceedings on 19.12.2017. This fact clearly manifest that this is only an after-thought interpolation made by the AO in between two proceedings dated 19.12.2017 and 27.12.2017. Even the style of the notings makes it clear that due to paucity of space in between, the AO has squeezed the narration and not in the normal font and space as in respect of all other entries/proceedings recorded on the same page. Therefore, it is clear that the alleged notice dated 11.12.2017 was not issued and even not served on the assessee. The alleged proceedings interjected in between two other proceedings that too subsequent proceedings clearly reveals this fact. Accordingly, it becomes manifest and clear that the reassessment was completed without issuing the mandatory notice under section 143(2) of the IT Act and consequently the assessment was framed without assuming the jurisdiction as conferred by section 143(2). An identical issue has been considered by this Tribunal in case of ITO vs. Shri Hans Raj Sharma (supra) in para 14 to 16 as under :-

“14. We have considered the rival contentions and found from the record that the assessee filed its return of income in response to the notice u/s 148 of the Act on 13.03.2015. The AO had concluded the assessment without issuing notice under section 143(2) of the Act after the return was filed by the assessee in response to notice under section 148 of the Act. The AO after receiving the return of the appellant filed in pursuance to notice u/s 148 of the Income Tax Act, 1961 did not issue notice u/s 143(2) of the Act which is sine qua non for assuming jurisdiction to assess the case. This is a grave error which is even not rectifiable u/s 292BB of the Act and hence order so passed lacks proper authority with the AO and hence the order so passed deserves to be declared void ab initio. In case of reassessment proceedings also once the assessee furnishes his return, same is considered as a return required to be furnished u/s 139 and for proceeding further in a case of return filed u/s 139 the AO is supposed to issue notice u/s 143(2) for assuming jurisdiction to assess the case. In case of non-issuance of such vital notice no assessment can be framed by the AO as the same lacks authority for the same. Further such vital defect cannot be cured even by resorting to the provisions of section 292BB as the provisions of section 292BB are applicable in those cases where notice was issued but not served. In the present case since no notice was ever issued and hence such defect cannot be cured.

15. Thus, it is clear that the AO had concluded the reassessment considering the Return of Income filed by the assessee on 13.03.2015 but failed to issued notice u/ s 143(2) of the Act in order to process the said return. The department was precisely asked by the Bench on 16/10/2017, 19/09/2018 and 15/11/2018 to substantiate the issue and service of notice U/s 143(2) of the Act, but the same could not be produced even on the specific query by the bench. Without issue of notice U/s 143(2) completing the reassessment proceedings are liable to be quashed in view of the following judicial pronouncements:

(i) ACIT v/s Hotel Blue Moon 321 ITR 362 (SC) wherein it was held by the Hon’ble SC that issuance of notice u/s 143(2) is mandatory even in block assessments.

(ii) CIT v/s Salarpur Cold Storage 50 taxmann.com 105 (All. HC): For framing order u/ s 143(3) it is necessary to issue a notice u/ s 143(2) of the Act, and in absence of notice u/s 143(2) the assumption of jurisdiction itself would be invalid.

(iii) Travancore Diagnostics P Ltd. v/s ACIT 390 ITR 167 (Kerela HC): Omission to issue notice u/s 143(2) is incurable defect even u/s 292BB of the Income Tax Act, 1961. (iv) PCIT – 08 v/s Jai Shiv Shankar Traders P Ltd. 383 ITR 448 (Delhi): Issue of notice u/s 143(2) is not a procedural requirement and is mandatory and completion of assessment without issue of notice u/s 143(2) is fatal to the assessment. In this case return was filed after issuance of notice u/s 142(1) and since no notice was issued u/s 143(2) the assessment was held to be invalid.

(v) ITO v/s Neeraj Goel (ITAT Delhi Bench SMC) : Assumption of jurisdiction to frame an assessment or nonassumption of jurisdiction to frame an assessment goes to the root of the judicial act of framing an assessment order and in event of non-assumption of jurisdiction u/s 143(2) of the Act to frame an assessment the act of the assessing officer in framing an assessment order without issuing notice u/s 143(2) cannot be saved under the provisions of section 292B of the IT Act, 1961 or under section 292BB of the IT Act, 1961 and therefore the assessment order so framed will be void ab initio.

(vi) Kamla Devi Sharma v/s ITO (ITAT, Jaipur Bench): In this case decided on 06.02.2018 this Hon’ble Bench discussed all the above orders and reached on the conclusion that nonissue of notice u/s 143(2) in reassessment proceedings, prior to finalizing reassessment order cannot be condoned by referring to section 292BB and is fatal to the order of reassessment.

16. Applying the proposition of law laid down in the above judicial pronouncements, we do not find any merit in the assessment so framed U/s 143(3) without issue of notice U/s 143(2) of the Act.”

In view of the above facts and circumstances of the case and following the earlier decision of this Tribunal, the reassessment framed by the AO without issuing notice under section 143(2) is bad in law and same is quashed.

6. Since the reassessment is quashed for want of notice issued under section 143(2) of the IT Act, therefore, the other ground raised by the assessee becomes infructuous and not taken up for adjudication.

7. In the result, the appeal of the assessee is allowed.

Order is pronounced in the open court on 10/10/2019