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Facts
The assessee's appeal is against an order confirming additions made by the AO. The appeal was time-barred by 272 days due to incorrect advice from a local counsel. The primary challenge is that the reassessment proceedings under Section 147 were invalid due to the non-issuance of a notice under Section 143(2) of the Act.
Held
The Tribunal condoned the delay in filing the appeal. It was held that the failure of the AO to issue a notice under Section 143(2) of the Act before completing the reassessment proceedings under Section 147 renders the entire proceedings invalid, arbitrary, and bad in law, thus liable to be quashed.
Key Issues
Whether the reassessment proceedings under Section 147 are invalid for non-issuance of notice under Section 143(2) of the Income Tax Act before completion of the proceedings.
Sections Cited
143(3), 147, 148, 139(1), 143(2), 148A, 132, 132A, 149, 144, 142(1), 144(1)(b)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “C”, DELHI
Before: MS. MADHUMITA ROY & SHRI BRAJESH KUMAR SINGH
The instant appeal filed by the assessee is directed against the order dated 27.07.2023 passed by the Ld. CIT(A)-3, Gurgaon arising out of the order dated of the Income Tax Act, 1961 (hereinafter referred as “Act”) for assessment year 2011-12 whereby and where under the addition made by the AO was confirmed.
2. At the threshold, it is noted that the appeal is time barred by 272 days. In this regard, Ld. AR has reiterated the contentions raised in the application dated 18.01.2025 relating to condonation of delay by submitting that delay so occurred in filing the appeal is prayed to be condoned since the assessee was under advised by Sh. Sachin Goyal, local counsel, not to prefer appeal against the Ld. CIT(A)-3, Gurgaon order dated 27.7.2023. However, later Shri Gautam Jain, Advocate advised him to prefer the instant appeal as the order of assessment is itself without jurisdiction. Hence, the reason for delay in filing the captioned appeal was on account of wrong advice of local counsel. In this behalf, an affidavit of the local counsel, Sh. Sachin Goyal is appended and placed on record. Ld. DR could not controvert the aforesaid contention of the ld. AR.
3. Upon hearing the respective parties and perusing the records, we find that reasonable cause has been attributed to the assessee in filing the belated appeal before the Tribunal, hence, in the interest of justice, the delay in filing the appeal before the Tribunal deserve to be condoned. We hold and direct accordingly. this particular count that notice u/s. 143(2) of the Act have not been issued and served upon the assessee and the reassessment proceedings finalized u/s. 148 of the Act, is therefore, held to be invalid.
The brief facts leading to the case is this, that the assessee has furnished the return of income u/s. 139(1) of the Act on 25.09.2011. The reasons was recorded u/s. 147 of the Act to this effect that income to the tune of Rs. 4,01,70,000/- was escaped assessment by the assessee. Notice u/s. 148 of the Act, thereafter, was issued on 30.3.2018. The assessee duly participated in the assessment proceedings.
On this aspect, Ld. Counsel for the assessee, Shri Gautam Jain, has drawn our attention to page No. 106 of the order passed by the Ld. CIT(A) and further, to page No. 26 of the paper book filed before us where reply dated 11.12.2018 on behalf of the assessee duly filed to the DCIT, Central Circle-I, Gurgaon, is evident whereby and whereunder the assessee duly requested the said authority to treat the return already filed by the assessee u/s. 139(1) of the Act on 25.09.2011, as against the return as directed to be filed in respect to the notice u/s. 148 of the Act.
The complete set of income tax return was duly annexed to the said reply dated 11.12.2018 furnished by the assessee to the said DCIT, CC-I, Gugaon. Such fact further appears to have been on record at page No. 35A of the paper book filed letter dated 11.12.2018 with the request to treat the return filed by the assessee u/s 139(1) of the Act. Inspite of such request made by the assessee, the Ld. CIT(A) at page No. 109 of his order specifically recorded that from the assessment record it is found that the assessee has not furnished the return of income in response to the notice u/s. 148 of the Act and therefore, the AO was justified in not issuing notice u/s. 143(2) of the Act. Under the above facts and circumstances of the matter, the Ld. Counsel, Shri Gautam Jain, appearing for the assessee joins issue to this effect that the assessment order passed u/s. 143(3) r.w.s. 147 of the Act is void ab initio in as much as no notice u/s. 143(2) of the Act was issued and served by the Ld. AO prior to completion of re-assessment. Hence, in the absence of issuance of notice u/s. 143(2) of the Act, the assessment u/s. 143(3) read with section 147 of the Act is not valid and tenable in law and thus, liable to be quashed.
On the other hand, the Ld. DR relied upon the orders passed by the authorities below.
We have heard the rival submissions made by the respective parties and perused the relevant materials available on record. Under the present facts and circumstances of the case, the Ld. AR relied upon series of judgments including the judgment dated 01.01.2025 passed by the Coordinate Bench in book filed before us. In fact, under the identical facts and circumstances of the present case, the Coordinate Bench has been pleased to quash the assessment proceedings, where we find that the original return of income for A.Y. 2011-12 was filed by the assessee on 25.09.2011 declaring total income of Rs. 7,21,260/-.
The assessment therein was sought to be reopened by issuance of notice u/s. 148 of the Act on 30.3.2018. In response to the said notice, the assessee vide letter dated 11.12.2018 submitted that the return filed by the assessee originally u/s. 139(1) of the Act be treated as return filed in response to notice u/s. 148 of the Act. Hence, for all practical purposes, that letter dated 11.12.2018 tantamount to filing of return by the assessee in response to notice u/s. 148 of the Act. We further find that in that particular case at Page No. 104 of the order Ld. CIT(A) categorically admitted that no notice u/s. 143(2) of the Act was issued by the Ld. AO in the reassessment proceedings. In fact, the Ld. CIT(A) thereafter, also stated that since no return of income has been filed by the assessee, there was no requirement of issuance of notice u/s. 143(2) of the Act by the Ld. AO which is also similar to the facts of the case before us. The Coordinate Bench under the identical facts and circumstances of the matter observed that return has indeed been filed by the assessee, in response to notice u/s. 148 of the Act, and admittedly no notice u/s. 143(2) of the Act has been issued in the reassessment proceedings pursuant to the return filed by the 143(3) read with section 147 of the Act dated 28.12.2018 determining total income of the assessee at Rs. 69,11,309/- had no legs to stand and had to be declared void ab-initio. We find that while deciding the matter, the Coordinate Bench has been pleased to rely upon the judgment passed by the Hon’ble Apex Court in the case of Hotel Blue Moon Limited, reported in 321 ITR 362 (SC) and further relied upon the judgment passed by the Hon’ble Delhi High Court in the case of Shaily Juneja vs. ACIT, reported in 167 taxmaan.com 90 (Delhi), copy whereof are annexed to the Paper Book filed before us by the assessee, upon perusal of which, it appears that it has been held that failure to issue notice u/s. 143(2) would render the assessment order invalid.
It was further argued by the Ld. Counsel appearing for the assessee Mr. Gautam Jain that the provision of Section 148 of the Act is applicable to the year under consideration i.e. A.Y. 2011-12 or 31.03.2018. When the notice u/s 148 of the Act was issued did not contain any provision expressly providing the delay in furnishing of return making the return invalid. In this regard he has further relied on the following judgments:
- 166 Taxmann.com 4 (Del) PCIT vs. Dart Infrabuild (P.) Ltd - 167 Taxmann.com 90 (Del) Shaily Juneja vs. ACIT Krishna Kumar Makrania - 383 ITR 448 (Del) PCIT vs. Shri Jai Shiv Shankar Traders (P.) Ltd. - 383 ITR 455 (Del) PCIT vs. Silverline - 25 Taxmann.com 341 (Mad) Sapthagiri Finance & Investments vs. ITO - ITA 696/2015 (Del) CIT vs. Delhi Kalyan Samiti - DCIT vs. M/s. Taureg Properties & Securities Services Ltd. - Bimla Devi vs. DCIT 9. A copy of each of the judgments was annexed to the paper book filed before us. It was further clarified by the Ld. AR that an amendment was brought by the Finance Act, 2023 having effect from 01.04.2023 with the following provisions:
"148. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within a period of three months from the end of the month in which such notice is issued or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee], a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income charge-able to fax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:
Krishna Kumar Makrania 63[Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section:] 63a[Provided also that any return of income, required to be furnished by an assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139.]" *63a: Inserted by Finance Act, 2023, w.e.f. 01.04.2023.
10. Further, written submission was made by him with the following contents:
“Also memorandum explaining the Finance Bill 2023 viz-a-viz the above amendment reported in 451 ITR 199 at pages 258-261 (St.) read as under:
Provisions relating to reassessment proceedings The Finance Act, 2021 amended the procedure for assessment or reassessment of income in the Act with effect from the 1st April, 2021. The said amendment modified, inter alia, sections 147, section 148, section 149 and also introduced a new section 148A in the Act. In cases where search is initiated under section 132 of the Act or books of account, other documents or any assets are requisitioned under section 132A of the Act, assessment or reassessment is now made under section 147 of the Act for all the relevant years prior to the year in which the search was conducted or requisition was made after the Finance Act, 2021. Further, the provisions of re-assessment proceedings by the were rationalized by amendments made vide Finance Act, 2022.
Amendments have been proposed in the provisions relating to conduct of reassessment proceedings under the Act to further streamline them and facilitate their conduct and completion in a seamless manner. It has been proposed that the section 148 of the Act may be amended to provide that a return in response to a notice under section 148 of the Act shall be furnished within three months from the end of the month in which such notice is issued, or within such further time as may be allowed by the Assessing Officer on a request made in Krishna Kumar Makrania this behalf by the assessee. However, any return which is furnished beyond the period allowed in the section 148 to furnish such return of income shall not be deemed to be a return under section 139 of the Act. As a result, the consequential requirements viz. notice under sub- section (2) of section 143 etc. would not be mandatory for such returns.
Further, section 149 of the Act provides the period of limitation for issuance of notice under section 148 of the Act for commencement of proceedings under section 147 of the Act. It is imperative to note here that in case of a search action under section 132 of the Act, requisition under section 132A of the Act and cases for which information emanates from the above proceedings are deemed to be information under section 149 of the Act and there is no requirement for proceedings under section 148A of the Act to be conducted prior to re-opening the cases in these cases...
10. These amendments will take effect from the 1st day of April, 2023. [Clauses 69, 70 & 71]
4 Further notes on clauses to the Finance Bill 2023 in this respect as reported in 451 ITR 136 at pages 176 (St.) read as under: Clause 69 of the Bill seeks to amend section 148 of the Income-tax Act relating to issue of notice where income has escaped assessment. The said section, inter alia, provides that before making the assessment, reassessment or recomputation under section 147 of the Act, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable. It is proposed to amend the said section to provide that such return shall be furnished in a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee. It is further proposed to insert a third proviso in the said section to provide that any return of income, required to be furnished by an Krishna Kumar Makrania assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139. These amendments will take effect from 1st April, 2023"
5 Moreover, it is submitted that explanatory Circular no. 1/2024 dated 23.01.2024 read as under: 46. Provisions relating to reassessment proceedings 46.1 The Finance Act, 2021 amended the procedure for assessment or reassessment of income in the Act with effect from the 1st April, 2021. The said amendment modified, inter-alia, sections 147, section 148, section 149 and also introduced a new section 148A in the Act. In cases where search is initiated under section 132 of the Act or books of account, other documents or any assets are requisitioned under section 132A of the Act, assessment or reassessment is now made under section 147 of the Act for all the relevant years prior to the year in which the search was conducted or requisition was made after the date specified by Finance Act, 2021. Further, the provisions of re- assessment proceedings were rationalized by amendments made vide the Finance Act, 2022. 46.2 Amendments have been made in the provisions relating to conduct of reassessment proceedings under the Act to further streamline them and facilitate their conduct and completion in a seamless manner. The section 148 of the Act has been amended to provide that a return in response to a notice under section 148 of the Act shall be furnished within three months from the end of the month in which such notice is issued, or within such further time as may be allowed by the Assessing Officer on a request made in this behalf by the assessee. However, any return which is furnished beyond the period allowed in the section 148 to furnish such return of income shall be deemed not to be a return under section 139 of the Act. As a result, the consequential requirements viz. notice under sub-section (2) of section 143 etc. are not mandatory for such returns.”
Having regard to the above amendment from time to time we find that now it has been made clear that any return furnished beyond the period allowed in under Section 139 of the Act and consequential requirement of notice under Section 143(2) of the Act is not mandatory for such return. Needless to mention that the said amendment is applicable only with effect from 01.04.2023 and has no relevance in the case in hand.
We have further considered the judgment passed by the Hon’ble Delhi High Court in the case of CIT v. Delhi Kalyan Samiti in dated 22.03.2016, as relied upon by the Ld. AR, wherein the Sr. Counsel for the Department submitted that no notice u/s. 143(2) was required to be issued to the assessee and the said assessment was framed u/s. 144(1)(b) of the Act on account of failure on the part of the assessee to comply with the terms of a notice issued u/s. 142(1) of the Act or failure to comply with the notice issued under section 142(A) of the Act and further that issuance of notice u/s. 143(2) of the Act is, therefore, not a necessary precondition for the same. He further contended that the position would not be different even if the returns were filed in the regular course.
The Division Bench, in that particular matter, observed that it is well established that if the AO does not accept the return filed by the assessee on its face, he is required to issue notice u/s. 143(2) of the Act and provide an opportunity to the observation whereof is reproduced as follows:
"9. It is now well established that if the AO does not accept the return filed by the Assessee on its face and he is required to issue a notice under Section 143(2) of the Act and provide an opportunity to the Assessee to produce the necessary material in support of his return. MrShivpuri had argued that a notice under Section 143(2) was required to be issued only in cases where the AO considers it necessary or expedient to do so and in cases where the Assessee had not filed its response to the notice under Section 142(1) it was not necessary for the AO to issue such notice under Section 143(2). In our view, this contention is bereft of any merits and completely ignores the scheme of the machinery provisions for assessment under the Act. It is now well settled by a number of decisions (See: Pr. CIT v. Silver Line and Anr.: 283 CTR 148 (Del), ACIT v. Hotel Blue Moon: 321 ITR 362 (SC) and CIT v. Pawan Gupta: 318 ITR 322 (Del)) that whenever the return filed by an Assessee is not accepted at its face, it is mandatory for the AO has to issue a notice under Section 143(2) of the Act for proceeding further. It is thus not open for the AO to not issue a notice under Section 143(2) of the Act and proceed directly under Section 144 of the Act by rejecting the return filed by the Assessee.
The decision of this Court in Ashok Chaddha (supra) was rendered in the context of Section 153A of the Act and in our view, the same is not applicable in the present case. This Court in several cases pertaining to proceedings under Section 147 has held that a notice under Section 143(2) is mandatory. [See: Alpine Electronics Asia (P.) Ltd. v. DGIT: 341 ITR 247 (Del), DIT v. Society for Worldwide Interbank Financial Telecommunication: 323 ITR 249 (Del), Pr. CIT v Shri Jai Shiv Shankar Traders Pvt. Ltd.: 282 CTR 435 (Del) and CIT v. Rajeev Verma: 336 ITR (All)]. It is also relevant to note that clause (b) of the proviso to Section 148(1) of the Act also specifically extends the period for issuance of notice under Section 143(2) of the Act." any merits and completely ignores the scheme of the machinery provisions for assessment under the Act.
We have further considered the judgment passed by the Hon’ble Jurisdictional High Court in the case of Shaily Juneja v. ACIT, reported in [2024] 167 taxmann.com 90 (Delhi) dated 27.08.2024, which was duly taken into consideration by the Coordinate Bench in the case of Bimla Devi v. DCIT (supra).
Relying upon the judgment passed by the Hon’ble Delhi High Court in the case of PCIT vs. Silver Line and Anr., reported in 283 CTR 148 (Del); the judgment passed by the Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon, reported in 321 ITR 362 (SC); and judgment in the case of CIT vs. Pawan Gupta, reported in 318 ITR 322 (Del), it has been held in that matter that whenever the return filed by the assessee is not accepted at its face, it is mandatory for the AO to issue notice u/s. 143(2) of the Act for proceeding further; it is thus, not open for the AO not to issue notice under Section 143(2) of the Act and to proceed directly under section 144 of the Act by rejecting the return of income filed by the assessee.
Needless to add that the case before us is on identical fact of that of the case made out and considered by the Hon’ble Delhi High Court in the matter of Bench in the case of Bimla Devi vs. DCIT in ITA 3212/Del/2024 (Supra). Thus, issuance of notice under Section 143(2) of the Act is mandatory before completion of the reassessment proceedings u/s. 148 of the Act.
Having regard to the entire aspect of the matter we find that issuance of notice under Section 143(2) of the Act though mandatory before completion of reassessment proceedings under Section 148 of the Act before the amendment brought by the Finance Act, 2023, having its effect from 01.04.2023, specifying that any return furnished beyond the period allowed in Section 148 to furnish such return of income shall be deemed not to be a return under Section 139 of the Act and consequential requirement of notice under Section 143(2) of the Act is not mandatory for such return only, which is not at all applicable to the case in hand; Thus, it is held that failure to issue such notice under Section 143(2) of the Act in the present case before us would render the reassessment proceedings invalid.
Thus, in the absence of mandatory notice under Section 143(2) of the Act by the Ld. AO in this particular case before the completion of reassessment proceedings under Section 147 of the Act as impugned is found to be invalid, arbitrary, erroneous and bad in law which ultimately vitiates the entire proceedings and is thus. liable to be quashed. With the above observations we, therefore, quash the
In view of our finding on legal ground, the other grounds raised in the appeal have become academic and need not to be adjudicated.
Order orally pronounced in the Open Court on 05.05.2025, upon conclusion of hearing.