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Income Tax Appellate Tribunal, JAIPUR BENCHES (SMC
Before: SHRI VIJAY PAL RAOvk;dj vihy la-@ITA No. 963/JP/2017
ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 01/09/2017 of ld. CIT(A)-1, Jaipur for the A.Y. 2007-08. The assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in confirming the validity of assessment completed by Id.AO without issuing notice u/s 143(2) of the Income Tax Act,1961. It is prayed that completion of assessment without issuing notice u/s 143(2) is not in 2 ITA 963/JP/2017 Shri Shiv Narain Joshi Vs ITO accordance with law and thus consequent order passed by Id.AO is void ab initio and deserves to be quashed.
2. That, the Id. CIT(A) erred in not admitting the additional evidence by completely ignoring the fact that assessee was prevented by reasonable cause from producing such documents before ld.AO during the course of assessment proceedings. 2.1 That, the Id.CIT(A) erred in not admitting copy "Valuation Report dated 19.03.1997" furnished as additional evidences solely for the reason that appellant could not produce original thereof. Appellant prays that additional evidence furnished by appellant ought to have been accepted more particularly when no discrepancy whatsoever was pointed out by Id. CIT(A) in such report.
3. On the facts and in the circumstances of the case and in law, Id.CIT(A) erred in confirming the addition of Rs.14,68,610/- under the head "Capital Gain" made by Id. AO. Appellant prays addition of Rs.14,68,610/- made by ld.AO deserves to be deleted. 3.1 That, Id. CIT(A) erred in confirming the action of Id.AO in not providing the deduction on account of cost of construction carried out during the period Oct.1985 to Oct.1986 and during the period Oct.1993 to Nov.1996 in phased manner, and which was duly shown in two valuation reports furnished before AO. Appellant prays that cost so claimed by appellant deserves to be allowed.
4. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.”
2. Ground No.1 of the appeal is regarding validity of assessment completed U/s 143(3) of the Income Tax Act, 1961 (in short, the Act) without issuing notice U/s 143(2) of the Act. The assessee is an 3 ITA 963/JP/2017 Shri Shiv Narain Joshi Vs ITO individual and did not file any return of income for the year under consideration U/s 139(1) of the Act. The A.O. on the basis of the information received from DIT (Inv.), issued a notice U/s 148 of the Act on 28/02/2014. The assessee filed return of income in response to notice issued U/s 148 of the Act on 02/02/2015. The assessment was completed by the A.O. on 06/02/2015 U/s 143(3) r.w.s. 147 of the Act.
3. The ld AR of the assessee has submitted that the reassessment was completed without issuing notice U/s 143(2) of the Act and therefore the order passed by the A.O. is not sustainable in law and liable to be quashed. He has referred to the computation of income by the A.O. and submitted that the A.O. has duly considered the return of income filed by the assessee and thereafter made certain additions on account of long-term capital gain. Therefore, once the assessee filed return of income in response to notice U/s 148 which was considered by the A.O. while completing the assessment then the assessment completed without issuing notice U/s 143(2) of the Act is invalid. He has referred to the decision of the Hon’ble Supreme Court in the case of ACIT Vs Hotel Blue Moon 321 ITR 362 (SC) and submitted that a notice U/s 143(2) of the Act is a mandator requirement even in the case of assessment completed U/s 153A of the Act, therefore, in 4 ITA 963/JP/2017 Shri Shiv Narain Joshi Vs ITO absence of notice U/s 143(2), the assessment framed by the A.O. is not valid and liable to be quashed. The ld AR has also relied on the decision of Hon’ble Delhi High Court in the case of Pr.CIT Vs Jai Shiv Shankar Traders Pvt. Ltd. 383 ITR 448 (Delhi) as well as decision of the Coordinate Bench of this Tribunal dated 06/02/2018 in the case of Kamla Devi Sharma Vs ITO in ITA No. 1026/JP/2016.
On the other hand, the ld. DR has submitted that the return of income filed by the assessee was not valid as it was belated return, therefore, the A.O. was not required to issue notice U/s 143(2) of the Act. The A.O. has also initiated proceedings U/s 271F of the Act for not filing the return of income by the assessee, thus, the assessment framed by the A.O. is valid. He has relied upon the orders of the authorities below.
I have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessment framed U/s 143(3) r.w.s. 147 of the Act by the A.O. in the case of the assessee on 06/02/2015 is without issuing any notice U/s 143(2) of the Act. It is also not in dispute that the assessee filed return of income in response to notice issued U/s 148 of the Act on 02/02/2015. The said fact is duly recorded by the A.O. in the assessment order in para 1 as under:
5 ITA 963/JP/2017 Shri Shiv Narain Joshi Vs ITO “On the basis of information received from DIT, Investigation, Jaipur, after recording reasons and taking prior approval of appropriate authority, notice u/s 148 dated 28/02/2014 was issued and served through registered post. In compliance to this notice and notices issued subsequently during the course of assessment proceedings, A/R of the assessee Shri Dinesh Singhal, C.A. appeared from time to time, filed return of income on 02/02/2015 in compliance to notice u/s 148, filed written submission and produce copies of documents, bank statement, valuation report etc. which were examined and case was discussed with him.”
Thus, it is clear that the A.O. has taken note of the fact that the assessee filed return of income in compliance to notice U/s 148 of the Act. The A.O. has not treated the return filed by the assessee as invalid or nonest on the ground of delay but the assessment was framed on the basis of the return of income filed by the assessee. This fact is further manifested in the computation of income by the A.O. as under:
“Subject to the above discussion, the total income of the assessee is computed as under: Income declared by the assessee Rs. 9,840/- Add: Long term capital gain as discussed Rs. 14,78,440/- above Gross total income Rs. 14,88,288/- Less: Deduction u/s Chapter VI-A Rs. 60,823/- Total Taxable Income Rs. 14,27,465/- Rounded Off-- Rs. 14,27,470/- Even the A.O. has framed the assessment U/s 143(3) r.w.s. 147 and not U/s 144 of the Act which suggests that the assessment was framed 6 ITA 963/JP/2017 Shri Shiv Narain Joshi Vs ITO by taking the return of income under scrutiny. Therefore, the A.O. has completed the assessment based on the return of income filed by the assessee and after making addition on account of long term capital gain. Once the A.O. has not treated the return of income filed by the assessee in response to notice U/s 148 of the Act as invalid or nonest then it is a precondition to issue the notice U/s 143(2) of the Act to assume the jurisdiction by the A.O.. The ld CIT(A) has rejected the objection of the assessee on the ground that the return was not filed within the period of limitation and therefore, it is a nonest return, however, once the A.O. has not treated the return as nonest and proceeded to frame the assessment based on the return of income then notice U/s 143(2) of the Act is a mandatory requirement. The Hon’ble Delhi High Court in the case of Pr.CIT Vs Jai Shiv Shankar Traders Pvt. Ltd. (supra) has considered an identical issue in para 12 to 19 as under: “12. The narration of facts as noted above by the Court makes it clear that no notice under Section 143(2) of the Act was issued to the Assessee after 16th December 2010, the date on which the Assessee informed the AO that the return originally filed should be treated as the return filed pursuant to the notice under Section 148 of the Act.
In DIT v. Society for Worldwide Interbank Financial Telecommunications [2010] 323 ITR 249 (Delhi), this Court invalidated an reassessment proceedings after noting that the notice under Section 143(2) of the Act was not issued to the Assessee pursuant to the filing of the return. In other words, it was held mandatory to serve the notice under Section 143(2) of the Act only after the return filed by the Assessee is actually scrutinised by the AO.
7 ITA 963/JP/2017 Shri Shiv Narain Joshi Vs ITO 14. The interplay of Sections 143 (2) and 148 of the Act formed the subject matter of at least two decisions of the Allahabad High Court. In CIT v. Rajeev Sharma [2011] 336 ITR 678/[2010] 192 Taxman 197 (All.) it was held 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. It was observed: "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 AO 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, the entire procedure adopted for escaped assessment, shall not be valid."
In a subsequent judgment in CIT v. Salarpur Cold Storage (P.) Ltd. [2014] 50 taxmann.com 105/[2015] 228 Taxman 48 (All.) (Mag.) it was held as under: "10. Section 292 BB of the Act was inserted by the Finance Act, 2008 with effect from 1 April 2008. Section 292 BB of the Act provides a deeming fiction. The deeming fiction is to the effect that once the assessee has appeared in any proceeding or cooperated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under the provisions of the Act, which is required to be served on the assessee, has been duly served upon him in time in accordance with the provisions of the Act. The assessee is precluded from taking any objection in any proceeding or enquiry that the notice was (i) not served upon him; or (ii) not served upon him in time; or (iii) served upon him in an improper manner. In other words, once the deeming fiction comes into operation, the assessee is precluded from raising a challenge about the service of a notice, service within time or service in an improper manner. The proviso to Section 292 BB of the Act, however, carves out an exception to the effect that the Section shall not apply where the assessee has raised an objection before the completion of the assessment or reassessment. Section 292 BB of the Act cannot obviate the requirement of complying with a jurisdictional condition. For the Assessing Officer to make an order of assessment under Section 143 (3) of the Act, it is necessary to issue a notice under Section 143 (2) of the Act and in the absence of a notice under Section 143 (2) of the Act, the assumption of jurisdiction itself would be invalid."
In the same decision in Salarpur Cold Storage (P.) Ltd. (supra), the Allahabad High Court noticed that the decision of the Supreme Court in Hotel 8 ITA 963/JP/2017 Shri Shiv Narain Joshi Vs ITO Blue Moon (supra) where in relation to block assessment, the Supreme Court held that the requirement to issue notice under Section 143(2) was mandatory. It was not "a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with."
The Madras High Court held likewise in Sapthagiri Finance & Investments v. ITO [2012] 25 taxmann.com 341/210 Taxman 78 (Mad.) (Mag.). The facts of that case were that a notice under Section 148 of the Act was issued to the Assessee seeking to reopen the assessment for AY 2000-01. However, the Assessee did not file a return and therefore a notice was issued to it under Section 142 (1) of the Act. Pursuant thereto, the Assessee appeared before the AO and stated that the original return filed should be treated as a return filed in response to the notice under Section 148 of the Act. The High Court observed that if thereafter, the AO found that there were problems with the return which required explanation by the Assessee then the AO ought to have followed up with a notice under Section 143(2) of the Act. It was observed that: "Merely because the matter was discussed with the Assessee and the signature is affixed it does not mean the rest of the procedure of notice under Section 143(2) of the Act was complied with or that on placing the objection the Assessee had waived the notice for further processing of the reassessment proceedings. The fact that on the notice issued u/s 143(2) of the Act, the assessee had placed its objection and reiterated its earlier return filed as one filed in response to the notice issued u/s 148 of the Act and the Officer had also noted that the same would be considered for completing of assessment, would show that the AO has the duty of issuing the notice under Section 143(3) to lead on to the passing of the assessment. In the circumstances, with no notice issued u/s 143(3) and there being no waiver, there is no justifiable ground to accept the view of the Tribunal that there was a waiver of right of notice to be issued u/s 143(2) of the Act."
As already noticed, the decision of this Court in Vision Inc. (supra) proceeded on a different set of facts. In that case, there was a clear finding of the Court that service of the notice had been effected on the Assessee under Section 143 (2) of the Act. As already further noticed, the legal position regarding Section 292BB has already been made explicit in the aforementioned decisions of the Allahabad High Court. That provision would apply insofar as failure of "service" of notice was concerned and not with regard to failure to "issue" notice. In other words, the failure of the AO, in re- assessment proceedings, to issue notice under Section 143(2) of the Act, prior to finalising the re-assessment order, cannot be condoned by referring to Section 292BB of the Act.
The resultant position is that as far as the present case is concerned the failure by the AO to issue a notice to the Assessee under Section 143(2) of the 9 ITA 963/JP/2017 Shri Shiv Narain Joshi Vs ITO Act subsequent to 16th December 2010 when the Assessee made a statement before the AO to the effect that the original return filed should be treated as a return pursuant to a notice under Section 148 of the Act, is fatal to the order of re-assessment.” Following the said decision, the Coordinate Bench of this Tribunal in the case of Kamla Devi Sharma Vs ITO (supra) has also decided this issue in favour of the assessee, accordingly, when there is failure on the part of the A.O. to issue notice U/s 143(2) of the Act then the assessment framed by the A.O. on the return of income filed by the assessee is invalid for want of jurisdiction. Hence, the assessment order passed by the A.O. is void ab initio and liable to be quashed.
Since the assessment framed by the A.O. is held as invalid and consequently quashed, therefore, the other grounds raised by the assessee become infructuous and not taken up for adjudication.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 14th October, 2019.