GOVIND RAM MAKRANIA PROP. M/S LAXMI OIL & GINNING FACTORY,BHIWANI vs. DCIT, CENTRAL CIRCLE-1, GURGAON

The present appeal has been filed by the assessee against the order dated 27.07.2023 passed by Ld. Commissioner of Income Tax (A)-3, Gurgaon [“Ld.CIT(A)”] in Appeal No.10221/2018-19 passed u/s 250(6) of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 28.12.2018 passed u/s 143(3) r.w.s. 147 of the Act pertaining to assessment year 2011- 12. In Ground No.2, the assessee has challenged the validity of re- 2. assessment order on the ground that no notice u/s 143(2) was issued before completing the assessment though the assessee has filed the return of income. 3. Before us, Ld.AR for the assessee submitted that in the instant case, the notice u/s 148 of the Act was issued on 30.03.2018 by the ITO, Ward-1, Bhiwani. In response to the said notice, in terms of the letter dated 11.12.2018, the assessee filed return of income and requested for the supply of reasons recorded. The AO has supplied reasons thereafter, the assessee filed the objections against the re-opening of the assessment which were dealt with by the AO separately. Finally, the order u/s 143(3) r.w.s. 147 of the Act was passed on 28.12.2018 without issuance of notice u/s 143(2) of the Act after filing the return of income by the assessee on 11.12.2018. The submission of the assessee is that the Ld.CIT(A) has rejected the plea of the assessee by wrongly observing that the return of income was not filed by the assessee by not appreciating the fact that the assessee vide letter dated 11.12.2018 has already filed return of income in response to notice u/s 148 of the Act. He thus prayed that the re-assessment order passed deserves to be hold bad in law as being passed in the absence of notice u/s 143(2) of the Act. He further placed reliance on the following judgments:- [i] PCIT vs Dart Infrabuild (P.) Ltd. 166 taxmann.com 4 (Delhi); [ii] Shaily Juneja vs ACIT 167 taxmann.com 90 (Delhi); [iii] PCIT vs Shri Jai SHiv Shankar Traders (P.) Ltd. 383 ITR 448 (Delhi); [iv] PCIT vs Silverline 383 ITR 455 (Delhi); and [v] Sapthagiri Finance & Investments vs ITO 25 taxmann.com 341 (Madras).

On the other hand, the Ld. Sr. DR for the Revenue vehemently supported the order of the lower authorities and requested for the confirmation of the same.

We have heard the rival contentions and perused the material available on record. In the instant case, the notice u/s 148 of the Act was issued on 31.03.2018 after recording the reasons as available at page 37 of the Paper Book. The copy of the notice issued u/s 148 is also placed at pages 38 of the Paper Book. In response to the said notice, the assessee vide letter dated 11.12.2018 filed before the AO stated that the return of income filed u/s 139(1) on 25.09.2011 be treated as the return filed in response to the notice u/s 148 of the Act and alongwith the said letter, a complete set of income tax return filed for AY 2011-12 u/s 139(1) was enclosed. In the said letter, it was further requested by the assessee that the reasons recorded before issue of notice u/s 147 of the Act be supplied. The relevant portion of the letter filed by the assessee was extracted as under:-

It is also observed by us that the AO in response to such letter has supplied the reasons to the assessee on the next day i.e. on 12.12.2018 filed objection before the AO on the reasons recorded for re-opening. The AO vide letter dated 14.12.2018 has disposed all the objections so raised and asked the assessee to file further details in the matter. This clearly shows that the letter through which the assessee had filed the return of income was considered by AO who thereafter, supplied the reasons recorded in which is in parity with the directions given by Hon’ble Supreme Court in the case of GKN Drive Shaft India Ltd. Vs ITO [2002] 125 taxman 963 (SC). Further when the assessee has filed the return of income on 11.12.2018, it is the mandate on the part of AO to issue notice u/s 143(2) of the Act before concluding the proceedings. Admittedly, in the instant case, no notice u/s 143(2) was issued by the AO. Such action of the AO rendered the entire assessment proceedings as invalid. This is supported by the judgements of the Hon’ble Supreme Court in the case of ACIT vs Hotel Blue Moon 188 taxmann 133 (SC) wherein the Court has observed as under:- 3.7.1.“In the case of ACIT vs. Hotel Blue Moon [2010] 188 Taxman 113 (SC), Hon'ble Apex Court dismissed the appeal of revenue and held as under: "15. An analysis of this sub section indicates that, after the return is filed, this clause enables the assessing officer to complete the assessment by following the procedure like issue of notice under Sections 143(2)/ 142 and complete the assessment under Section 143(3). This Section does not provide for accepting the return as provided under Section 143(i)(a). The assessing officer has to complete the assessment under Section 143(3) only. In case of default in not filing the return or not complying with the notice under Sections 143(2)/142, the assessing officer is authorized to complete the assessment ex-parte under Section 144. Clause (b) of Section 158 BC by referring to Section 143(2) and (3) would appear to imply that the provisions of Section 143(1) are excluded. But Section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under Section 143(2). However, if an assessment is to be completed under Section 143(3) read with Section 158-BC, notice under Section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under Section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with. The other important feature that requires to be noticed is that the Section 158 BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the assessing officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This Section even speaks of subsections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the assessing officer, if for any reason, repudiates the return filed by the appellant in response to notice under Section 158 BC(a), the assessing officer must necessarily issue notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of Section 158 BC(b) it has done so specifically. Thus, when Section 158 BC(b) specifically refers to applicability of the proviso thereto cannot be exclude. We may also notice here itself that the clarification given by CBDT in its circular No.717 dated 14 August, 1995, has a binding effect on the department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the Page | 5 provisions of Section 158 BC, the provisions of Section 142 and sub- sections (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act. However, it is contended by Sri Shekhar, learned counsel for the department that in view of the expression "So far as may be in Section 153 BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable. In support of that contention, the learned counsel has relied on the observation made by this Court in Dr.Pratap Singh's case [1985] 155 ITR 166 (SC). In this case, the Court has observed that Section 37(2) provides that "the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under Section 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in Section 165 has to be generally followed. The expression "so far as may be has always been construed to mean that those provisions may be generally followed to the extent possible. The learned counsel for the respondent has brought to our notice the observations made by this Court in the case of Maganlal Vs. Jaiswal Industries, Neemach and Ors., [(1989) 4 SCC 344], wherein this Court while dealing with the scope and import of the expression "as far as practicable" has stated "without anything more the expression as far as possible' will mean that the manner provided in the code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied."

The case of the revenue is that the expression 'so far as may be apply' indicates that it is not expected to follow the provisions of section 142, sub-sections (2) and (3) of section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the revenue, since we do not see any reason to restrict the scope and meaning of the expression 'so far as may be apply'. In our view, where the Assessing Officer in Page | 6 repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143." The aforesaid judgment of Hon'ble Apex Court clearly explains that the assessment proceedings in respect of search cases u/s 153A or 158BC of the act should be conducted in accordance with the manner prescribed under the provisions of section 143(2) & (3) of the act as the same is applicable to assessment of return of income filed u/s 139 of the act. As such, issuance of notice u/s 143(2) of the act is mandatory and the said defect is not curable in nature i.e. the assessment proceedings cannot be held to be legal in case of non- compliance with basic requirement of said provisions of the act.” Further, the Hon’ble Jurisdictional High Court in the case of PCIT vs 7. Shri Jai Shiv Shankar Traders Pvt.Ltd. [2015] 64 taxmann.com 220 (Delhi) has held that even when the return of income was filed by the assessee at fag end of the proceedings, the AO should issue notice u/s 143(2) and any delay in issuing notice u/s 143(2) of the Act would be fatal to the re- assessment proceedings.

In view of the above facts and by respectfully following the judgements of Hon’ble Supreme Court and Hon’ble High Court as relied upon by the assessee, in our considered view, the re-assessment order deserves to be hold bad in law as the AO has failed to issue notice u/s 143(2) of the Act which is mandatory and even provisions of section 292BB of the Act could not validate such proceedings. Accordingly, the order passed u/s 143(3) r.w.s. 147 of the Act in the absence of issue of notice u/s 143(2) is hereby quashed.

Since we have already allowed the legal grounds raised