Section 292BB cannot cure jurisdictional error; Time-barred Notice cannot be deemed as valid

Full Text of the ITAT Order is as follows:-

1. This appeal of the assessee is directed against the order of CIT(A) – VII, Hyderabad, dated 16/08/2011 relating to AY 2008-09.

2. The assessee has raised the following grounds of appeal:

1. (a) The learned Commissioner of Income Tax (Appeals) – VII, Hyderabad (CIT(A)) has erred on facts and in law.

(b) The assessment order is invalid in law as notice u/s 153A is The initiation of assessment proceedings being not legal, consequent assessment is invalid.

(c) The notice and assessment u/s 153A is not valid also for the reason that no incriminating material was found in the course of search.

2. The learned CIT{A) has failed to notice that the amount invested in the purchase of the site in Tirupati was only Rs. 1,05,84,000/- and not Rs. 1,22,09,495/-.

(b) The learned CIT(A) failed to notice that the Assessing Officer (AO) is inconsistent in holding one part of the sworn statement as correct and the other parts as not correct. The AO cannot approbate and reprobate.

3. The learned CIT(A) has erred in sustaining an addition of Rs. 5 Lakhs on the ground that the amount received from Sri K Shiva Kumar Reddy has not been explained. He ignored the relevant facts that the amount of Rs. 10,00,000/- was received from B Shyam Sunder Reddy who has accepted and explained the payment of Rs. 10,00,000/- to the assessee.

4. (a) The learned CIT (A) is not justified in upholding the addition of Rs. 9 Lakhs received by way of gift from Sri Radha Krishna Reddy.

(b) The AO has accepted the creditworthiness of Sri Radha Krishna Reddy, the grand father of the spouse of the assessee. The lower authorities ought to \ have accepted the gift as it was given to facilitate the acquisition of site by the \ assessee out of love and affection.

(c) The sources were all stated in the course of sworn statement recorded on the day of search.

5. The learned CIT(A) has erred in upholding addition of Rs. 15,70,000/- received back from Sri B Ravi Shankara Reddy. Having not .doubted the payment of Rs. 15,70,000/- to Sri Ravi Shankara Reddy for the purpose of payment to the vendors, the source of Rs. 15,70,000/- ought to have been accepted. The fact of return of the receipt issued by Sri Ravi Shankar Reddy at the time of payment to him on the occasion of the conclusion of the deal ought to have been accepted. This is especially so as the return of the receipt was averred in the course of sworn statement.

6. For these and any other grounds that may be raised at / before the time of hearing it is prayed that the additions sustained by the CIT(A) be completely deleted.”

2.1 The assessee has also filed the following revised additional grounds of appeal:

“1. (a) The notice u/ s 143(2) issued on 20-10-2009 is barred by limitation under proviso to Sec 143(2) (ii) of the IT Act according to which no notice shall be served u/ s 143(2) six months after the end of the previous year in which returns is filed. The return was filed on 18-03-2009. The issue of notice is beyond the statutory period making it impossible to be served within the said period of six months which expired on 30-09-2009.

(b) The ratio of the judgment of the Supreme Court in the case of CIT (Asst.) Vs Hotel Blue Moon Vs CITT (321 ITR 362) applies to the facts of the case.

(c) As there was no notice u/s 143(2) existing by 30-09-2009, the assessment proceedings and the resultant assessment order are legally invalid and non est.

2. (a) Learned Assessing Officer (AO) erred in presuming that the investment in purchase of the vacant land is Rs. 1,12,25,000/- and making addition in the assessment on that Assessee invested only Rs. 1,05,84,000/- (roundly) as evidenced by the Registered Sale Deed. Excess addition of Rs. 6,41,000/- on this account is incorrect.

(b) Learned AO erred in not considering the amount of Rs. 3,00,000/- offered as income to cover deficiencies during the search. The only deficiency noticed is the investment in purchase of vacant site.

3. (a) The assessment order is invalid in law as notice under u/s 153A is invalid. The initiation of assessment proceedings being not legal consequent assessment is invalid.

(b) The notice and assessment u/s 153A in not valid also for the reason that no incriminating material was found in the course of search.”

3. As the additional grounds are purely legal in nature and goes to the root of the matter and there is no need for fresh inquiry into facts, we hereby admit the same for adjudication.

4. First we deal with the additional grounds raised by the assessee.

5. Briefly the facts of the case are that search and seizure operations were conducted in the premises of the assessee, assessments for previous AYs 2002-03 and 2007-08 were completed u/s 143(3) r.w.s. 153A of the Income-tax Act, 1961 ( in short ‘the Act’) accepting the returned income of the assessee.

6. The present AY is the year subsequent to block period i.e. AY 2002-03 to 2007-08. However, the AO had issued combined notices U/s 142(1) & 143(2) for the AYs 2002-03 to 2008-09. By following such notice u/s 153A, the assessee filed return of income on 18/03/2009 declaring the total income of Rs. 5,06,600/- and the income of the assessee was determined at Rs. 89,81 ,600/- by making various additions. When the assessee carried the matter in appeal before the CIT(A), the CIT(A) confirmed all the additions except the addition in respect of loan from NRI sister, which was deleted.

7. Aggrieved, the assessee is in appeal before us.

8. Before us, the assessee has raised a legal ground by way of additional ground that the notice u/ s 143(2) issued on 20-10-2009 is barred by limitation under proviso to Sec 143(2)(ii) of the IT Act according to which no notice shall be served u/ s 143(2) six months after the end of the previous year in which returns is filed. The return was filed on 18-03-2009. The issue of notice is beyond the statutory period making it impossible to be served within the said period of six months which expired on 30-09-2009.

9. Ld. AR submitted that the assessment order passed by the AO is invalid as notice u/s 153A is invalid on the ground that no incriminating material was found in the course of search. He further submitted that the notice u/s 143(2) issued by the AO is barred by limitation under proviso to section 143(2) as the AO issued the said notice on 20/10/2009, which was supposed to be issued on or before 30/09/2009 from the date of filing of return i.e. on 18/03/2009. He, therefore, contended that as there was no notice u/s 143(2) existing by 30/09/2009, the assessment proceedings and the resultant assessment order are legally invalid and non est. He relied on the following cases:

1. Pr. CIT Vs. Silver Line, [2016] 383 ITR 455 (Del.)

2. CIT Vs. Mukesh Kumar Agarwal, [2012] 345 ITR 29 (All.)

3. CIT Vs. Salarpur Gold Storage (P) Ltd., Ltd., 50 Taxmann.com 105 (All.)

4. UKT Software Technologies (P) Ltd. Vs. ITO, ITA No. 5293 & 5294/Del/200, dated 11/02/2011.

10. The ld. DR, on the other hand, submitted that the issue of notice was not raised before the AO nor before the CIT(A) and the assessee cannot raise the same for the first time before the Tribunal. Further, he submitted that as per the provisions of section 292BB, the notices are deemed to be valid if there is any shortcomings in serving the same. He relied on the following cases:

1. CIT Vs. Premium Capital Market and others, [2005] 275 ITR 260

2. Aaravali Engineers (P) Ltd. Vs. CIT & Anr, 335 ITR 508 (P&H)

3. CIT Vs. Shri Kamaljeet Singh Ahluwalia, ITA No. 175/2009, dated 24/05/2017 (Jaipur High Court)

11. In the rejoinder, the ld. AR relied on the judgment of Hon’ble Jurisdictional High Court in the case of State of Andhra Pradesh Vs. Commercial Tax Officer, Kurnool, 169 ITR 564 to submit that when there are two views possible, while referring to the decisions of different High Courts, the decision which is beneficial to the assessee must be preferred.

12. Considered the rival submissions and perused the material facts on record as well as the case law cited by both the counsels. The fact is, the AO has issued 153A notices for the AYs 2002-03 to 2008-09. He also issued 143(2) notices for the AYs 2002-03 to 2008-09 on 20/10/2009. The AYs 2002-03 to 2007-08 covers the block period and AY 2008-09 is the year in which the search took place. In this AY, AO has to do the regular assessment u/s 143(3). The regular assessment procedure has to be followed. To complete the assessment u/s 143(3), the AO has to issue notice u/s 143(2) to get the jurisdiction to complete the assessment u/s 143(3). As per the provisions of section 143(2), AO has to issue the notice u/s 143(2) within 6 months from the end of the financial year in which the return is furnished. In the given case, AO must issue notice on or before 30/09/2009. But the notice was issued on 20/10/2009. Is the action of the AO proper and the provisions of section 292BB will come to rescue in the given facts of the case ? As per the ratio laid down in the case of PCIT Vs. Silver Line (supra), the Hon’ble Delhi High Court has clearly held a reassessment order cannot be passed without compliance with the mandatory requirement of notice u/s 143(2) being issued as the requirement of issuance of such notice is a jurisdictional one and section 292BB cannot cure jurisdictional error.

12.1 The ld. DR has relied on the cases (supra) including the case of Aaravali Engineers (P) Ltd. (supra), wherein the Hon’ble P&H High Court has laid down the rule that Appellate Authority can allow a question to be raised for the first time even if such a question was not raised at a lower forum, but, the discretion to do so has to be exercised in the interest of justice. Normally a question of fact may not be allowed to be raised for the first time as it may prejudice the other side. But as per the ratio laid down in NTPC case, the question of law can be raised at any stage. In the given case, it is not the issue of serving of notice but issue of notice to acquire jurisdiction to complete the assessment u/s 143(3). Hence, it is the question of law and not fact. Hence, the cases relied upon by the ld. DR (supra) are not applicable to the facts of the case under consideration. Moreover, section 292BB cannot be applied in the given case because the issue is not serving of notice but issue of notice to acquire the jurisdiction to complete the assessment u/s 143(3). Therefore, in the given case, issue is not serving of notice but issue of notice within the period of limitation prescribed in proviso to section 143(2) to complete the assessment u/s 143(3). It is clear from the record that AO has issued the notice u/s 143(2) only on 20/10/2009 instead of issuing the notice on or before 30/09/2009. It clearly shows that the AO has no jurisdiction to complete the assessment u/s 143(3). Hence, the assessment completed u/s 143(3) cannot be passed without compliance with the mandatory requirement of notice being issued u/s 143(2), therefore, the assessment order in question is legally unsustainable and the same is hereby quashed.

13. In the result, the additional ground raised by the assessee is allowed and the other main grounds are dismissed as not pressed.

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

Pronounced in the open Court on 10^th November, 2017.