Case Law Details
ITO Vs Mukesh Mahavirprasad Sen (ITAT Surat)
Search was initiated against the assessee. However, notice was not issued u/s 143(2). AO reopened the matter and issued notice u/s 148. Held, reassessment of proceedings u/s 148, without issuance of notice u/s 143(2), is unsustainable in law
Facts-
AO had reason to believe that an income has escaped assessment in the hands of the assessee. Therefore, the case was reopened and notice u/s 148. In absence of any reply from the assessee, AO confirmed the bogus purchase. Being aggrieved, assessee carried the matter to CIT(A). CIT(A) quashed the reassessment proceedings initiated u/s 147/148. Being aggrieved, revenue preferred the present appeal.
Conclusion-
Held that in absence of notice under section 143(2) of the Act, the Assessing Officer could not assume jurisdiction and this defect cannot be cured subsequently, since it is not procedural defect but it is the defect that goes to the root of the jurisdiction.
Held that for completing the assessment under section 148 of the Act, compliance with the procedure of issue of notice under Section 143 (2) was mandatory.
We are of the view that in the absence of fulfillment of mandatory requirement of issuance of notice under section 143(2) of the Act, the assumption of jurisdiction by issuance of notice of reopening itself would not be sustainable in law.
FULL TEXT OF THE ORDER OF ITAT SURAT
Captioned two appeals filed by Revenue, pertaining to Assessment Years 2007-08 and 2008-09, are directed against the separate orders passed by the ld.Commissioner of Income Tax(Appeals) [Ld.CIT(A)], which in turn arise out of separate assessment orders passed by the Assessing Officer under section 144 r.w.s 147 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”].
2. Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in ITA No.106/SRT/2017, for assessment Year 2007-08, have been taken into consideration for deciding the above appeals en masse.
3. Grounds of appeal raised by the Revenue in lead case in ITA No.106/SRT/2017 for A.Y. 2007-08 are as follows:
“i) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred deleting the addition of Rs. 3,99,61,340/- made on account of bogus purchase.
ii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in quashing the reassessment order passed by the assessing officer u/s 144 r.w.s. 147 of the Act the basis of the additional grounds of appeal submitted by the assessee because the assessing officer vide his letter dated 30.12.2014 furnished the reasons recorded by him for the purpose of reopening the case of the assessee for assessment and also request the assessee to file objections, if any against the re-opening of the assessment. However, the assessee did not object to the same as no other correspondence attendance was made by the assessee.
iii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in appreciating the fact that the concerns like M/s Mihir Diamonds, M/s. Krishna Dial and M/s Karishma Diamonds Pvt Ltd from which the assessee made the said purchases amounting to Rs. 3,99,61,340/-, were non-existent entities and they were used for providing bogus purchase bills to the assessee. The entire modus operandi of such bogus transactions was accepted in statement u/s 132(4) of the Act by the respective key persons of Shri Gautam Jain Group in light of the various documents/evidences found and seized from their premises.
iv) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in holding commission income @0.50% on bogus purchase on the basis that proper books of accounts and stock register were maintained without considering the fact that neither these books of accounts were submitted by the assessee before the assessing officer during the assessment proceedings nor by the Ld CIT(A) during the appellate proceedings, thereby not giving ample opportunity to examine the same.
v) On the facts and in the circumstance of the case and in law, the Ld CIT(A) erred in treating commission @ 0.50% on bogus purchase without appreciating the fact that the assessee never either attended the office of the assessing officer or filed any submission before him during the assessment proceedings as well as during the remand proceedings.
vi) On the facts and in the circumstance of the case and in law, the Ld CIT(A) erred in admitting the additional evidence because the assessee did not fulfil any of the conditions laid down under Rule 46A(1) for filing of additional evidences and the same was also conveyed by the assessing officer in his remand report.
vi) On the facts and in the circumstances of the case and in Law, the Ld.CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld CIT(A)-1 Surat may be set-aside and that of the Assessing Officer’s order may be restored.”
4. Brief facts as discernable from the orders of lower authorities are that during the assessment proceedings, the assessing officer got a letter bearing no. DI(Inv)-II/Information/LJ/Bogus sales/2013-14/838, dated 13.03.2014, alongwith enclosures, from the Director of Income Tax (Investigation)-II, Mumbai, through the Commissioner of Income Tax – II, Surat and the Addl. Commissioner of Income Tax, Range-6, Surat. The assessing officer observed that said letter contained details of accommodation entries of bogus purchases, sales, unsecured loan, share capital, etc., given by Shri Bhawarlal Jain group of Mumbai, a leading entry provider. A search and seizure action was carried out by the Investigation wing, Mumbai in the Bhawarlal Jain group of cases on 03.10.2013, which resulted in collection of evidences and other findings, which conclusively proved that the said Shri Bhawarlal Jain and his son, Shri Rajesh Bhawarlal Jain had, through a web of 70 benami concerns, run and operated by them in the names of their employees, provided accommodation entries to various parties in respect of bogus unsecured loans and bogus purchases. Various evidences found and seized from the premises of the said Shri Bhawarlal Jain and his son proved the above facts. The evidences will having details of calendar year wise (Jan to Dec) accounts of these benami entities right from F.Y. 2004-05 onwards. The assessing officer noted that the said group has indulged in giving such accommodation entries of about Rs.25,000 crores. Shri Bhawarlal Jain has admitted the entire nature of bogus transactions in his statement recorded u/s 132(4) of the Income Tax Act, 1961 recorded at 16, Mohan Building, JSS Road, Girgaum, Mumbai – 04, on 11.10.2013. It was also stated by the dummy partners/ Directors/ proprietors of the entities of this group that they are closely known and associated with Shri Bhawarlal Jain and that they belong to the native place of Shri Bhawarlal Jain and that they were made partners/ Directors/ proprietors of the entities of this group at the direction of Shri Bhawarlal Jain & his family but the entities were managed and controlled by the latter. It was further admitted by the dummy partners/ Directors/ proprietors of the entities of this group that they were merely employees of Shri Bhawarlal Jain and his family and that they were looking after miscellaneous office work like depositing cheques in banks, handing over parcels to clients, making data entry, etc.
5. On being asked about various aspects of the business of this group, the dummy partners/ Directors/ proprietors of the entities of this group, they expressed their ignorance and stated that they are not involved in any such activities and that they are paid lump sum salary in cash. During the course of search, blank cheque books signed by the dummy partners/ Directors/ proprietors of the entities of this group were also found, which were seized. Similarly, books of account in the name of the dummy partners/ Directors/ proprietors of the entities of this group were also found, which were also seized. The assessing officer noted that according to the regular books of accounts and the returns of income filed by different entities of the group, the business of these entities are disclosed to be trading of rough and finished diamonds and manufacturing of diamond jewellery. However, no stock of diamond was found from any of the premises searched or surveyed. It was also seen that no books of account were maintained by the group at the respective registered offices and the books of account of all the 70 entities were found from two secret offices located at (i) 16, Mohan Building, JSS Road., Girgaum, Mumbai – 04 and (ii) Plot no. 233, Ground Floor, Navkar House, Vitthal Bhai Patel Road, Girgaum, Nr. PrarthnaSamaj, V.P.road, Mumbai -04. The statements of all the persons recorded during the course of search revealed that this group was engaged in giving accommodation entries and this fact has also been admitted by the employees, the dummy partners/ dummy Directors/ dummy proprietors of the entities of this group as also by Shri Bhawarlal Jain. The assessing officer observed that investigations made by the investigation wing revealed that actual importers of rough diamonds import part of their diamond requirement through benami entities operated by Shri Bhawarlal Jain & family, which ensures benefit of suppression of turnover, profits and capital requirement of the former. The consignments are sent on credit by the suppliers in the names of these benami entities at the instance of the actual importers and on receipt of the imported consignments from Customs, through CHA, the consignment is handed over to the actual importer and the bogus stock is entered in the books of the benami entities and the same is not recorded in the books of the actual importer. These benami entities of Shri Bhawarlal Jain group thereafter issue bogus sale bills against the bogus stock.
6. From the details and evidences made available through the above referred letter dated 13.03.2014 of the Director of Income Tax (Investigation), Mumbai, it was observed by the assessing officer that the following entities of Shri Bhawarlal Jain group have given accommodation entries of bogus purchases as under, during F.Y. 2006-07 to the assessee Shri Mukesh Mahavirprasad Sen.
Name of the entry provider – Amount (in Rs.)
- M/s. Karishma Diamonds P.Ltd – 76,62,508/-
- M/s. Krishna Diam P.Ltd – 31,38,561/-
- M/s. Mihir Diamonds – 2,91,60,271/-
TOTAL – Rs. 3,99,61,340/-
On verification of the office records, it was noted by the assessing officer that assessee has filed its return of income for the year under consideration. Since the evidential and material facts found during the course of search and survey in the case of Shri Bhawarlal Jain group proves that accommodation of purchase entries of Rs. 3,99,61,340/- from above parties, the bogus concerns run by Bhanwarlal group. It is prima facie apparent that the assessee has utilized such bogus purchase bills to suppress the profits for the year under consideration.
7. In view of the above, the Assessing Officer had reason to believe that an income of Rs.3,99,61,340/- as stated above, has escaped assessment in the hands of the assessee for the year under consideration. Therefore, the case was reopened and notice under148 of the I.T. Act was issued on 29.03.2014. The same was served by affixture on 31-3-2014. Thereafter, various opportunities were granted to the assessee and the assessee has not complied to any of the opportunities accorded. The opportunities granted to the assessee are discussed in tabular form in para 8 of the assessment order.
8. The assessing officer observed that assessee has failed to comply with any of the terms of notices issued during the assessment stage and also failed to furnish the return. In this background, a show cause letter dated 13.02.2015 narrating the above facts was issued to the assessee. In the said show cause, it was proposed to make the assessment under section 144 of the I.T. Act to the best judgement of the assessing officer.The assessee was granted time to comply with this show cause on 20.02.2015. However, neither the assessee attended personally or through his authorized representative nor any written submission has been filed till finalizing the assessment order. Therefore, assessing officer held that evidential and materials facts found during the course of search and survey in the case in Shri Bhawarlal Jain group proved giving of accommodation purchase entries of Rs. 3,99,61,340/-. Accordingly, the amount of Rs.3,99,61,340/- as bogus purchases from above mentioned four concerns was added to the total income of the assessee.
9. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) admitted the additional ground of the assessee on legal issue and allowed the appeal of the assessee stating that notice under section 143(2) of the Act was not issued to the assessee at all and therefore, the reassessment proceedings under section 147/ 148 of the Act would not valid and hence, the ld.CIT(A) has quashed the reassessment proceedings initiated under section 147/148 of the Act.
10. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us.
11. Shri Ritesh Mishra, Learned -CIT(DR) for the Revenue contends that decision of the Ld. CIT(A) is not acceptable as the ld CIT(A) has erred in quashing the reassessment order passed by the assessing officer u/s 144 r.w.s. 147 of the Act on the basis of the additional grounds of appeal raised by the assessee during the appellate proceedings. He further contends that assessing officer vide his letter dated 30.12.2014 furnished the reasons recorded by him for the purpose of reopening the case of the assessee for assessment and also requested the assessee to file objections, if any, against the re-opening of the assessment. However, the assessee did not object to the same as no other correspondence/ attendance was made by the assessee during the assessment satge. Therefore, the Ld. CIT(A) ought to have sustained the reassessment order passed by the assessing officer. He also argues that ld CIT(A) should not have allowed the additional evidences since the assessee did not fulfil any of the conditions laid down under Rule 46A(1) for filing of additional evidences. The Ld. CIT(A) also erred in accepting the plea of the assessee to treat commission @0.50% on bogus purchase on the basis that proper books of accounts and stock register were maintained without considering the fact that no such books of accounts and documents were produced before Assessing Officer, during assessment stage, therefore, ld DR prays the Bench that either the matter may be remitted back to the file of the assessing officer for de novo adjudication or addition made by the assessing officer may be sustained.
12. On the other hand, Shri Rohit Vijayvargiya, Learned Counsel for the assessee begins by pointing out that ld CIT(A) has passed a reasoned order after taking remand report from the assessing officer. He pleads that admission of additional ground by the ld CIT(A) is purely of legal nature. On the basis, of material available on record it is certain that additional ground raised by the assessee challenging the very jurisdiction of the Assessing Officer to pass assessment order is no longer res-integra and it is well settled that an assessee can raise a legal ground at any stage of proceeding as held by the Apex Court in case of CIT v/s. Varas Internation reported in 284 ITR 80(SC). During the assessment proceedings, the assessing officer has failed to issue a notice to the Assessee under section 143(2)of the Act, therefore, ld CIT(A) has rightly held that assessing officer does not have jurisdiction to frame the assessment order. The ld Counsel further pointed out that default of non-issue of notice u/s 143(2) of the Act is fatal to the order of re-assessment and have rendered the whole reassessment proceeding void-ab-initio being without jurisdiction. The ld Counsel pleaded that any assessment framed without issue of notice u/s 143(2) suffers from jurisdictional defect. The ld Counsel, in order to prove his stand, has relied on various judgments of Hon’ble Supreme Court and other High Courts (including Gujarat High Court), and prays the Bench that order passed by the ld CIT(A), on legal issue, may be upheld.
13. We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee with the able assistance of Shri Rohit Vijayvargiya, representing the assessee and Shri Ritesh Mishra, Learned CIT(DR), representing the Revenue. We find that one key issue arises for our apt adjudication in the instant lis, which is, whether issue of notice under section 143(2) is mandatory by the assessing officer to assume the jurisdiction to frame the scrutiny assessment/reassessment?
We note that this legal issue before us, is no longer res-integra, it is well settled by various judgments of the Hon`ble Supreme Court and other High Courts that in absence of notice under section 143(2) of the Act, the Assessing Officer could not assume jurisdiction and this defect cannot be cured subsequently, since it is not procedural defect but it is the defect that goes to the root of the jurisdiction.
We note that Assessing officer had furnished the remand report on 21.06.2017. In the remand report, the assessing officer fairly admitted that on verification of case records no such notice u/s 143(2) of the IT Act issued was on record.
14. However, ld DR vehemently contended before us that since the notice under section 142(1) of the Act dated 11.09.2014 and 08.12.2014 was issued by the Ld assessing officer providing sufficient opportunity to the assessee to support his return of income by documentary evidences, therefore assessing officer has fulfilled the statutory condition. Learned DR also contended that no specific notice was required to be issued u/s 143(2) and also contended that non issuance of notice u/s 143(2) will not render the assessment invalid. Learned DR had also referred to a case law to buttress his contention, [Commission of Income Tax v. Madhya Bharat Energy Corporation Ltd. (2011) 337 ITR 339 Del], which purported to hold that non-issue of notice under 143(2) of the Act on an assessee prior to completion of the reassessment would not be fatal to the reassessment. Learned DR also sought to distinguish the decision in ACIT v. Hotel Blue Moon 321 ITR 362(SC), on the ground that it pertained to a block assessment.
15. We have also noted the argument of the Ld. Counsel for the Assessee that assessing officer has not followed the mandatory procedure of assessment laid down under section 142 and 143 of the Act by not issuing notice U/s 143(2) which is by now an undisputed fact duly confirmed by the assessing officer in his remand report. In the remand report assessing officer had submitted that there was no notice under section 143(2) found in the case records. It simply means that no Notice u/s 143(2) of the Act was issued but present assessing officer for the reasons best known to him has restrained himself in saying so. However, this fact is further corroborated by the very fact that Ld assessing officer has not made any reference in assessment order about dates of issue and service of Notice u/s 143(2) of the Act, whereas details of other statutory notices have been mentioned by the assessing officer.
16.However, ld DR for the Revenue has again argued before us that no specific notice was required to be issued u/s 143(2) and contented that non issuance of notice u/s 143(2) will not render the assessment invalid. To support this proposition, Ld. DR has placed reliance on the judgment of Hon’ble High Court of Delhi in the case of Commissioner of Income Tax v. Madjiya Bharat Energy Corporation Ltd. (2011) 337 ITR 339 Del.
17. Learned Counsel of the assessee drew our attention on the order passed by Delhi High Court on 17th August, 2011 in Review Petition No.441/2011 in ITA No.950/2008 (CIT v. Madhya Bharat Energy Corporation) whereby Court reviewed its main judgment in the matter rendered on 11th July 2011 on the ground that the said appeal had not been admitted on the question concerning the mandatory compliance with the requirement of issuance of notice under section 143(2) of the Act. In its review order, Court noted that at the time of admission of the appeal on 17th February, 2011 after noticing that in the said case that no notice under section 143(2) had ever issued, the Court held that no question of law arose on that aspect. The upshot of the above discussion is that the decision of this Court in CIT v. Madhya Bharat Energy Corporation (supra) is not of any assistance to the Revenue as far as the issue in the present case is concerned. This is important to mention that the same Delhi High Court in its subsequent decision in the case of Pr. CIT v/s Shri Jai Shiv Shankar Traders (P) Ltd. (383 ITR 448) has overturned the earlier ruling given in case of Madhya Bharat energy Corporation (after duly considering this decision) and held that failure of assessing officer to issue notice u/s 143(2) is fatal to order of reassessment and such failure cannot be condoned by referring to section 292BB of the Act. Thus, decision in the case of Madhya Bharat Energy Corporation does not hold the field.
18.We note that Ld. DR for the Revenue also sought to distinguish the decision in ACIT v. Hotel Blue Moon on the ground that it pertained to a block assessment. We note that Ld Counsel of the Assessee had referred plethora of judgments laid down by Hon’ble High courts following the judgment of the Apex court where in the facts were similar to case at hand and it was held that for completing the assessment under section 148 of the Act, compliance with the procedure of issue of notice under Section 143 (2) was mandatory. This position of law has been further clarified by Delhi high Court in the case of Alpine Electronics Asia Pvt. Ltd. v/s. DCIT (2012) 341 ITR 247 (Del).
19. It has been also contended by ld DR that assessee attended the assessment proceedings regularly and never objected regarding issue and service of notice u/s143(2) so the default can be treated as procedural irregularity u/s 292BB of the Act. As per the provision of section 292BB where an assessee had appeared in any proceedings or cooperated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act which is required to be served upon him, has been duly served upon him in time in accordance with the provision of this Act. The provision of section 292BB clearly laid down the circumstances/conditions under which the deeming fiction has to come into force. These conditions have been stated to be as (a), (b) and (c) which talks about the situation where: (a) notice was not served upon the assessee, (b) not served upon him in time, and (c ) served upon him in an improper manner respectively. Therefore, section 292BB talks about only the situation where the assessee raises the issue of non-service of notice and still co-operates with the Department. The issuance of statutory notice cannot be dispensed with by the cooperation of the assessee. Since this notice 143(2) forms the basis for the Assessing Officer to assume jurisdiction under respective sections. To support this proposition, we rely on the decision of P & H High Court in the case of CIT v/s Cebon India Ltd (2012) 347 ITR 583 wherein it has been categorically held that absence of a statutory notice cannot be held to be curable u/s 292BB of the Act.
20. We note 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. 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 assessing officer 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 148, the entire procedure adopted for escaped assessment, shall not be valid.
21. We are of the view that in the absence of fulfillment of mandatory requirement of issuance of notice under section 143(2) of the Act, the assumption of jurisdiction by issuance of notice of reopening itself would not be sustainable in law. Besides, section 292BB of the Act would apply with regard to failure of ‘service’ of notice’ and not with regard to issue of notice u/s 143(2) prior to finalization of assessment order, cannot be condoned by referring to section 292BB of the Act. It has been also held that merely because assessee participated in proceedings pursuant to notice issued under section 148, it does not obviate mandatory requirement of issue of notice under section 143(2) of the Act.This is an undisputed position of fact, as far as the present case is concerned, that assessing officer failed to issue a notice to the assessee under section 143(2) of the Act when the Assessee made a request before the assessing officer vide letters dated 23.12.2014 and dated 21.02.2015 (paper book page 106) that the original return filed should be treated as return filed in response to notice under section 148 of the Act. The Ld. assessing officer has unequivocally admitted in his Remand Report that no notice was issued (not available on record) u/s 143(2) of the Act. The assessee has also filed an affidavit dated 31.01.2017 (duly notarized) stating that he never received notice under section 143(2) of the Act. These averments remained uncontroverted. Thus, we do not find any infirmity in the order of ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
22. We have adjudicated Revenue`s appeal by taking lead case in ITA No.106/SRT/2017 for assessment year 2007-08, our observations made in No.106/SRT/2017, shall apply mutatis mutandis to the other appeal of Revenue, namely, ITA No.107/SRT/2017, as the entire facts are identical and same.
23. Before parting, we make it clear that since we have adjudicated the legal issue and dismissed both appeals of Revenue, thus all other issues on merits of the additions, in the impugned proceedings, are rendered academic and infructuous.
24. In the result, appeals filed by the Revenue ( in ITA No.106 & 107/SRT/2017), are dismissed.
Order is pronounced in the open court on 20/09/2021 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963.
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