THE ITO, WARD-2(1)(3),, AHMEDABAD vs. M/S. HOTEL SAHAJ PVT. LTD.,, AHMEDABAD

PER Ms. MADHUMITA ROY - JM: The instant appeal filed by the revenue is directed against the order dated 14.09.2016 passed by the Commissioner of Income Tax (Appeals)-4, Ahmedabad under section 144 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) arising out of the order dated 30.06.2014 passed by the Income Tax Officer, Ward – 4(3), Ahmedabad for the Assessment Year 2012-13.

ITA No.3101/Ahd/2016 ITO vs. Hotel Sahaj Pvt. Ltd. Asst.Year –2012-13 - 2 - of the Act and a notice u/s 148 of the Act dated 07.08.2014 was issued and served upon the assessee. The assessment was finalized by an addition of Rs.85,74,741/- on the sole ground that the assessee did not declare any short term capital gain in the original return of income filed on the sale of property. In appeal, such re-opening and finalization of assessment u/s 148 was deleted by the Learned CIT(A) on the ground that when the time was available for issuing of notice u/s 143(2) of the Act with the AO issuance of notice u/s 148 of the Act by the Learned AO is bad in law. Hence, the instant appeal filed by the revenue before us.

The case of the assessee is this that the assessee filed its return of income through electronic media on 16.01.2014 u/s 139(4) of the Act for A.Y. 2012-13 but the Learned AO has issued notice u/s 148 on 07.03.2014 for A.Y. 2012-13. The A.Y. 2012-13 gets time barred by 31.03.2014. The return should be submitted from the expiry of one year from the end of the relevant assessment year and therefore, the return can be submitted on or before 31.03.2014. The assessee has submitted the return on 16.01.2014 and therefore the return is in time u/s 139(4) of the Act. It is the contention of the assessee that the AO was permitted to issue the notice u/s 143(2) of the Act before September, 2014 i.e. within 6th month from the end of financial year, in which the return was filed. The return was filed on 16.01.2014 and the financial year ends on 31.03.2014. Therefore, the notice u/s 143(2) should have been issued by 30.09.2014 even if the return filed on 16.01.2014 is processed u/s 143(1) of the Act. Notice u/s 148 can be issued unless the limitation period for the issuance of notice u/s 142(1) or 143(2) is over and since the Learned AO instead of issuing notice u/s 143(3) issued notice u/s 148 on 07.03.2014, the entire re-assessment proceeding is vitiated and thus bad in law. We find that a

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remand report was also asked for on this count by the Learned CIT(A) and the assessee relying upon the certain judgments submitting inter alia the following rejoinder dated 14.09.2016 to the said remand report: "We thank you very much for giving us Remand Report dated 06-06-2016 by AO and Addl. CIT, Range - 2(1) which has summarized the AO's Remand Report for A.Y. 2012-2013. Our comments on the Remand Report by the AO are as under: 1. The assessee has submitted that the income tax return though filed for A.Y. 2012-2013 was submitted on 16-01-2014 i.e. before the end of financial year ending on 31-03-2014 time permitted under Section 139(4).Therefore the AO had time available upto to 30-09-2014 i.e. within six months from the end of financial year in which the income tax return is submitted. Therefore the assessee contented that notice issued under Section 148 on 07-03-2014 is bad in law since such notice cannot be issued before the expiry of limitation period for issued notice under Section 143(2) i.e. on 30-09-2014. 1.1 The AO in his remand report stated that the income tax return was not filed by 31-03-2013 i.e. by end of A.Y. 2012-2013 and therefore he has power to issue notice under Section 148, the A.Y. 2012-2013 is over. 1.2 In this connection, it may please be noted that the AO has misappreciated the facts and law both. The AO does not consider the facts that the assessee has submitted the return on 16-01-2014. If the AO would have issued the notice under Section 148 i.e. before the filing of the return of the assessee, the notice under Section 148 would have been valid but the AO has not issued any notice under Section 148 till the assessee submits the return on 16-01-2014. Once the return is submitted, the AO finds that there is need for some inquiry than he has to issue notice under Section 143(2) within the prescribed time i.e. within 30-09-2014 i.e. before limitation period is over. In the present case the limitation period for issue of notice under Section 143(2) expired on 30-09-2014 therefore the AO should have issued the notice under Section 143(2). However the AO issued the notice under Section 148 on 07-03-2014 which is bad in law. This is so held in the cases relied upon by the assessee stated in the written submission dated 03-02-2016. There is no escapement of income in as much as the AO did not issue notice under Section 143(2). Therefore the notice issued under Section 148 is bad in law and the consequential assessment is also bad in law. Therefore the assessment is null and void and therefore the assessment order is liable to be set-aside. 1.3 It is stated by the AO in the Remand Report as under:

ITA No.3101/Ahd/2016 ITO vs. Hotel Sahaj Pvt. Ltd. Asst.Year –2012-13 - 4 - "It was found that the assessee had failed to disclose the capital gain arising from the sale of immovable properties sold during the year. In the present case, as per provisions of Section 139(1) of the Act, the assessee was legally bound to file a return of income on or before 30- 09-2012." It is true that the assessee has not disclosed the Short Term Capital Gain [STCG] on sale of building but the AO could have issued the notice under Section 143(2) and could have made inquiry. AO's failure to make inquiry under Section 143(2) does not entitle him to issue notice under Section 148 before the expiry of limitation period. 2. The AO has placed reliance on GKN Drive Shafts India Ltd. V/s. ITO 259 ITR 19 (SC). The assessee submitted the letter dated 26-06-2014 in which it was clearly stated that because of system failure, the e-return under Section 148 could not be submitted. However, the statement of income in pursuance to Section 148 named as "Revised Return" is submitted. It is made very clear to the AO that because of system failure the income tax return under Section 148 could not be submitted. However the revised return with revised statement of income was submitted. The return submitted though stated as revised but it is in effect the return in response to notice under Section 148. In response of this, it was AO's duty to furnish the reasons recorded for reopening of the assessment. In the absence of any reasons furnished, it cannot be said that the AO has followed the procedure laid down by GKN Drive 259 ITR 19.Further, the question of following the procedure arises only if the notice under Section 147 issued is valid. In the present case, the issue of notice under Section 147 is under challenge. Therefore, it is not proper to say that the AO has followed the procedure as laid down by GKN Drive 259 ITR 19. 3. The AO does not agree that Section 148 notice cannot be issued before the limitation of period for issue of notice under Section 143(2) is over. According to him, if the AO records the reasons for reopening of the assessment than he can issue the notice under Section 148. In this connection, it may please be noted that the assessee has challenged the issue of notice under Section 148 itself. Whether reasons are recorded or notis not relevant. What is relevant is whether the limitation period for issue of notice under Section 143(2) is over. If so he is duty bound to issue notice under Section 143(2) prior to limitation period and not notice under Section 148. 4. It is stated by the AO in the Remand Report on Page No.2 as under: "The assessee did not file any objection to the issuance of notice under Section 148 of the Act or reassessment proceedings but has duly complied with the notices issued under Section 142(1) of the Act. Therefore, by virtue of provisions of Section 292BB of the Act, the

ITA No.3101/Ahd/2016 ITO vs. Hotel Sahaj Pvt. Ltd. Asst.Year –2012-13 - 5 - assessee is precluded from taking any objection in respect of completed proceedings.Further, the assessee has not complied with the forms of a notice issued to it under Section 148 of the Act. Therefore there was no valid return of income filed by the assessee company in response to notice under Section 148 on which the AO was required to issue a notice under Section 143(3) of the Act. Since, assessee has grossly failed to discharge his duty by filing return of income in response to the notice issued under Section 148 of the Act. Hence, assessee's plea may not consider on the above referred ground." 4.1 The objection of the AO is that the assessee has not objected to the reopening of the assessment and that has complied the notices issued under Section 142(1). Therefore the assessee precluded from taking objections under Section 292BB. In this connection, kind attention is drawn to the Delhi High Court judgment in the case of Pr. CIT V/s. Shri Jai Shiv Shankar Traders Pvt. Ltd. 383 ITR 448 (Del) - Para No. 18 on Page No. 454 - 455. The copy of judgment is enclosed. "18. 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. " In the present case, the notice under Section 143(2) was never issued and that it is not a failure to serve the notice. It is not a procedural matter about issue of notice under Section 143(2) but it is mandatory to issue notice under Section 143(2) in reassessment proceedings. Therefore, Section 292BB does not help the revenue. 5. It is stated by the AO that the assessee's case was not selected through CASS and therefore he could not issue notice under Section 143(2). He issued notice under Section 148 after recording reasons since the STCG was not disclosed. In this connection, it may please be noted that even if the assessee's case was not selected for scrutiny through CASS, he could have issued notice under Section 143(2) with prior permission of Joint CIT or CIT before the

ITA No.3101/Ahd/2016 ITO vs. Hotel Sahaj Pvt. Ltd. Asst.Year –2012-13 - 6 - limitation period for issue of notice under Section 143(2) is over since the STCG was not disclosed. 6. It is stated by the AO in the Remand Report on Page No.3 as under: "Since, the assessee has not complied with the terms of notice issued under Section 148 of the Act and has not provided the complete details called for under Section 142(1) of the Act, the AO was justified in completing the assessment under Section 144 of the Act. From the records it has been ascertained that subsequent to issue of notice under Section 147 of the Act on 07-03-2014, notice under Section 142 had been issued on 04-04-2014 specifically calling for the working of capital gain on the sale of Hotel and also explain difference in valuation as per the documented price by the assessee and the sub- registrar. But the assessee failed to fully comply with the same. The assessee has merely submitted a revised computation wherein it has added Rs. 70,00,000/- in its building chart. This cannot be held as compliance with Section 142(1) of the Act cannot be agreed upon and the assessment order has rightly been framed under Section 144 of the IT Act. " 6.1 The AO justified assessment under Section 144. Please refer Para No. 2 on Page No. 2 of the assessment order. The relevant portion is as under: "In response to the notice issued, Shri Rajeev C. Shah, CA, AR of the assessee attended from time to time and furnished the details / evidences as called for, which are perused and placed on record. " There is no question of justification of passing order under Section 144 having regard to the observation in the assessment order as above. 6.2 It is already pointed out that the assessee submitted a letter dated 26- 06-2014 stating that because of system failure, the e-return under Section 148 could not be submitted. However, the statement of income in pursuance to Section 148 named as "Revised Return" is submitted. It is made very clear to the AO that because of system failure, the income tax return under Section 148 could not be submitted. However the revised return with revised statement of income was submitted. The return submitted though stated as revised but it in effect the return in response to notice under Section 148. Therefore, to pass order under Section 144 only on the ground that the assessee has not submitted the return in response to notice under section 148, is not proper and bad in law. 6.3 Further, it may please be noted that Section 144 can be invoked only if there is a failure to comply with 143(2) or 142(1) notices and not for failure

ITA No.3101/Ahd/2016 ITO vs. Hotel Sahaj Pvt. Ltd. Asst.Year –2012-13 - 7 - to furnish return in response to notice under Section 148. The AO has power to enforce the submission of return in pursuance to notice under Section 148 rather than to invoke Section 144. Further, the assessee has already complied with the notices under Section 142(1) as stated in Para No.2 of the assessment order. 7. It is stated by the AO in last para of the Remand Report that the assessee has not claimed the expenditure of improvement of Rs. 70,00,000 and therefore the claim cannot be entertained. It may please be noted that the assessee has submitted the original return omitting to disclose STCG through oversight. Therefore the question of claiming improvement cost does not arise.The assessee has claimed the improvement cost of Rs.70,00,000 in the revised return in response to notice under Section 148. According to the AO, the assessee has not furnished any additional evidence along with the original submission to CIT(A) and the same cannot be entertained, In this connection, it may please be noted that the AO failed to appreciate that the remand proceedings is nothing but extension of assessment proceedings and therefore AO had power to call for the details of improvement cost of Rs. 70,00,000. In the absence of any such details and in the absence of Show Cause Notice, the computation of STCG of Rs. 85,74,741 and thereby computing the total income of Rs. 93,14,200 is not proper and in bad in law. Your honour is therefore prayed to allow the appeal.”

The submission rendered by the assessee in respect to the remand report and the case made out by the appellant was carefully considered by the Learned CIT(A) during the course of appellate proceeding. The specific observation made by the Learned CIT(A) while deleting such addition is as follows:

“7.2 The submissions produced by the appellant alongwith case laws cited and reasons given by the AO have been carefully considered. The appellant filed return for assessment year under consideration on 16-01-2014, which falls u/s 139(4) of the act. The return was processed u/s 143(1) of the Act. As per provisions contained u/s 143(2) of the Act, the AO had time to issue notice till 30th September, 2014 for making assessment u/s 143(3) of the Act. However, the AO issued notice u/s 148 of the Act. On going through the various case laws cited by the appellant, it is found that wherever there is time available for issue of notice u/s 143(2) of the Act available with the AO, the AO cannot issue notice u/s 148 of the Act. If such time for issue of notice

ITA No.3101/Ahd/2016 ITO vs. Hotel Sahaj Pvt. Ltd. Asst.Year –2012-13 - 8 - u/s 143(2) is available with the AO and the AO issue notice u/s 148 of the Act, such notice issued u/s 148 of the Act is bad in law.” The judgment relied upon by the assessee was also considered by us including the issue adjudicated by the Hon’ble Apex Court which held that if there is time available with the AO for issuance of notice u/s 143(2), notice u/s 148 during such period is bad in law. Hence notice u/s 148 of the Act cannot be held to be legal. He thus quashed the said proceeding initiated by the Learned AO u/s 148 of the Act.

Taking into consideration the entire aspect of the matter, we find no justification in interfering with the order passed by the Learned CIT(A) which has practically dealt with the matter considering the scope of issuance of notice u/s 148 of the Act without any infirmity as discussed above. Hence, the same is hereby confirmed.

Sd/- Sd/- ( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 17/05/2019 Priti Yadav, Sr.PS

ITA No.3101/Ahd/2016 ITO vs. Hotel Sahaj Pvt. Ltd. Asst.Year –2012-13 - 9 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-4, Ahmedabad. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad