URMISH M. UDANI,MUMBAI vs. ACIT 10(3), MUMBAI

On the peculiar facts of the case discussed hereinabove, the first\nnotice dated 02/02/2011 u/s 143(2) of the Act was premature and non\nest as no return of income was available with the AO. A valid return was\nfiled on 03/03/2011 and the time limit available for issue of notice u/s\n143(2) of the Act was till 30/09/2011 but the second notice was issued\nu/s 143(2) of the Act on 10/07/2012, which is beyond the period of\nlimitation.\n7. The Hon'ble Supreme Court in the case of Hotel Blue Moon {321\nITR 362} has settled the position of law that in the absence of any valid\nnotice u/s 143(2) of the Act, the entire assessment order stands vitiated\nas bad in law. On identical facts, the Co-ordinate bench in the case of\nM/s. U.S. Roofs Ltd. in & ITA No.\n1960/Mum/2018, vide order dated 26/05/2023, held as under:-\n\"4.\nThe dispute raised by the assessee, by way of the aforesaid additional ground, is that the\nassessment in the present case has been concluded without issuing a valid statutory notice under\nsection 143(2) of the Act. Since this is a jurisdictional issue, therefore, we deem it appropriate to deal\nwith this jurisdictional aspect first and if necessary thereafter, to deal with the other issues raised in\nthe present cross-appeal.\n5.\nThe brief facts of the case pertaining to this issue are: The assessee is a company engaged in\nthe business of sale and purchase of plot rights in respect of agricultural lands acquired by the\nGovernment of Maharashtra. A survey action under section 133A of the Act was conducted on\n19/11/2010 at the business premises of the assessee and M/s US Realty Private Limited.\nConsequently, proceedings under section 147 of the Act were initiated and notice under section 148\nof the Act was issued to the assessee on 24/11/2010. In response to the aforesaid notice, the assessee\nfiled its return of income on 31/03/2011 declaring a total income of Rs.67,33,525. The Assessing\nOfficer (“AO”) issued statutory notices under section 143(2) as well as section 142(1) of the Act and\nconcluded the assessment vide order dated 24/08/2012 passed under section 143(3) read with section\n147 of the Act computing the total income of the assessee at Rs.742,40,18,900 under normal\nprovisions of the Act after making various additions. The learned CIT(A) vide impugned order\ngranted partial relief to the assessee. Being aggrieved, both the parties are in appeal before us.\n6.\nDuring the hearing, the learned Authorised Representative (“learned AR\") submitted that\nno valid notice under section 143(2) of the Act has been issued in the present case, and thus the order\npassed under section 143(3) read with section 147 of the Act is bad in law. The learned AR by referring\nto the assessment order submitted that, during the reassessment proceedings, the AO issued two\nnotices under section 143(2) of the Act, however, none of them is a valid notice as per law. It was\nfurther submitted that the first notice was issued by the AO on 20/02/2011, i.e. prior to the filing\nof the return of income by the assessee on 31/03/2011, and therefore, the said notice is non-est in law.\nWhile the second notice was issued on 17/10/2011, i.e. beyond the time limit prescribed under the\nprovision of section 143(2) of the Act, and therefore, the said notice is also not valid in the eyes of the\nlaw.\n7.\nOn the contrary, the learned Departmental Representative (“learned DR\") vehemently\nsupported the assessment order and submitted that the return filed by the assessee, pursuant to the\nnotice issued under section 148 of the Act, is not a valid return since it was filed beyond time period\n30 days prescribed under the said notice and therefore there is no need for issuance of notice under\nsection 143(2) of the Act. In support of his submission, the learned DR placed reliance upon the\ndecision of the coordinate bench of the Tribunal in Sanjaykumar Ramkishan Mantri (HUF) vs ACIT,\nin ITA No. 1591/PN/2012.\n8.\nWe have considered the rival submissions and perused the material available on record. In\nthe present case, consequent to the survey action under section 133A of the Act, reassessment\nproceedings under section 147 of the Act were initiated and notice under section 148 of the Act was\nissued on 24/11/2010. It is undisputed that during the reassessment proceedings, the AO issued a\nnotice under section 143(2) of the Act on 20/02/2011, and thereafter, upon transfer of the case, fresh\nnotice under section 143(2) of the Act was issued on 17/10/2011. Since the issue in dispute is\npertaining to the validity of notice issued under section 143(2) of the Act, therefore, before proceeding\nfurther, it is pertinent to analyse the provisions of section 143(2) of the Act, as it stood at the relevant\ntime, which reads as under:-\n“(2) Where a return has been furnished under section 139, or in response to a notice under sub-section\n(1) of section 142, the Assessing Officer shall,\n(i)\nwhere he has reason to believe that any claim of loss, exemption, deduction, allowance or\nrelief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such\nclaim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified\ntherein to produce, or cause to be produced, any evidence or particulars specified therein or on which\nthe assessee may rely, in support of such claim:\nProvided that no notice under this clause shall be served on the assessee on or after the 1st day of June,\n2003;\n(ii)\nnotwithstanding anything contained in clause (i), if he considers it necessary or expedient\nto ensure that the assessee has not understated the income or has not computed excessive loss or has\nnot under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be\nspecified therein, either to attend his office or to produce, or cause to be produced, any evidence on\nwhich the assessee may rely in support of the return:\nProvided that no notice under clause (ii) shall be served on the assessee after the expiry of six months\nfrom the end of the financial year in which the return is furnished.\"\n9.\nThus, section 143(2) of the Act would come into play when a return is furnished under\nsection 139 or in response to a notice issued under section 142(1) of the Act. Clause (i) to section\n143(2) of the Act is not relevant for the year under consideration. Insofar as clause (ii) to section\n143(2) is concerned, from the perusal of the same, it is evident that it presupposes the existence of\nreturn of income since only thereafter the AO can verify whether the assessee has understated the\nincome or has computed excessive loss or under-paid the taxes in any manner. Further, as per proviso\nto clause (ii), no notice shall be served on the assessee after the expiry of six months from the end of\nthe financial year in which the return is furnished.\n10.\nIn the present case, undisputedly no return of income was originally filed by the assessee,\nand only pursuant to the notice issued under section 148 of the Act the assessee filed its return of\nincome on 31/03/2011. Thus, the first notice dated 20/02/2011 under section 143(2) of the Act was\nissued when no return of income was available on record and therefore, this notice cannot be said to\nhave been issued to verify whether the assessee has understated the income or has computed excessive\nloss or under-paid the taxes in any manner. Hence the first notice issued under section 143(2) of the\nAct in the present case is a mere empty formality, without any legal consequence, and therefore,\ncannot be treated as a notice on a return filed by the assessee. We find that the Hon'ble Delhi\nHigh\nCourt in DIT v/s Society for Worldwide Interbank Financial, Telecommunications, [2011] 9\ntaxmann.com 142 (Delhi) held that the provisions of section 143(2) make it clear that the notice can\nonly be served after the AO has examined the return filed by the assessee. Thus, in view of the above,\nthe first notice issued under section 143(2) is not a valid notice as per the provisions of the Act.\n11.\nFurther, since the return of income was filed by the assessee on 31/03/2011, therefore, the\ntime limit for issuance of notice under section 143(2) of the Act, as per proviso to clause (ii), was\navailable only till 30/09/2011. However, the second notice under section 143(2) of the Act was issued\non 17/10/2011, i.e. beyond the time limit prescribed under the provisions of section 143(2) of the Act.\nTherefore, the second notice is also invalid as per the provisions of section 143(2) of the Act.\n12.\nAs per the learned DR, since the return has been filed by the assessee beyond the time\nprescribed under the notice issued under section 148 of the Act, therefore, the said return is not a valid\nreturn and there is no requirement to issue notice under section 143(2) of the Act. In support of his\nsubmission, the learned DR placed reliance upon the following observations of the coordinate bench\nof the Tribunal in Sanjaykumar Ramkishan Mantri (HUF) (supra):-\n\"20. We find no merit in the plea of the assessee in this regard. The issue is to be looked into from the\nperspective of the provisions of the Act and whether the assessee had followed the same in true spirit.\nThe requirements of various provisions of the Act have to be complied with and in case the assessee\nfails to comply with the provisions, the whole machinery of assessment fails and the assessee cannot\nbe allowed to do so. On the one hand, the assessee furnishes all the information for scrutiny assessment\nbut fails to comply with the direction issued by the Assessing Officer under section 148 of the Act on\n30.03.2010 to file return of income within period of 30 days. The assessee does not file any return of\nincome. Even thereafter, scrutiny assessment proceedings were taken up and the assessee had\nparticipated in the scrutiny assessment proceedings. Thereafter, the alleged return of income is\nclaimed to be filed vide letter dated 10.11.2010, but the said return of income filed by the assessee is\nan invalid return and non-est. The return of income which was filed beyond the time allowed under\nthe Act or even within reasonable time could have been accepted, but the assessee claims to have filed\nthe said return at the fagend of assessment proceedings and such a return of income filed by the\nassessee is invalid and non-est and there is no requirement to issue notice under section 143(2) of the\nAct. Accordingly, we hold that the reassessment completed in the case is valid and under the\nprovisions of the Act. The Assessing Officer had issued requisite notices of hearing to the assessee and\nthe assessee having participated in the said proceedings, cannot be aggrieved at this stage by the fact\nthat no notices under section 143(2) of the Act was issued after alleged filing of the return of income\nbelatedly. We have already held in the paras hereinabove that the said return of income filed by the\nassessee is invalid and nonest and hence, no requirement to issue notice under section 143(2) of the\nAct.\"\n(emphasis supplied)\n13.\nFrom the above findings of the coordinate bench, it is evident that since the taxpayer has filed\nthe return at the fag-end of the assessment proceedings, such return of income was treated as invalid\nand non-est. The coordinate bench of the Tribunal, however, noted that the return of income which\nwas filed beyond the time allowed under the Act or even within the reasonable time could have\nbeen accepted. In order to test this argument of the learned DR, it is relevant to examine the provisions of\nsection 148 of the Act, as it stood at the relevant time, which reads as under:-\n\"148. (1) Before making the assessment, reassessment or recomputation under section 147, the\nAssessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as\nmay be specified in the notice, a return of his income or the income of any other person in respect of\nwhich he is assessable under this Act during the previous year corresponding to the relevant\n assessment year, in the prescribed form and verified in the prescribed manner and setting forth such\nother particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply\naccordingly as if such return were a return required to be furnished under section 139 :\"\n14.\nThus, section 148 of the Act mandates that before making the assessment/reassessment under\nsection 147, the AO has to serve notice on the assessee requiring him to furnish, within such period\nas may be specified in the notice, inter-alia, a return of his income. It is pertinent to note that section\n148 of the Act further provides that such return should be in the prescribed form and verified in the\nprescribed manner and setting forth such other particulars as may be prescribed. Further, the\nprovisions of the Act shall apply as if such return is a return required to be furnished under section\n139 of the Act. As per sub-\nsection (4) of section 139 of the Act, the assessee can furnish his return of income belatedly. Section\n139(4) of the Act, as it stood at the relevant time, reads as under:-\n“(4) Any person who has not furnished a return within the time allowed to him under sub-section\n(1), or within the time allowed under a notice issued under sub-section (1) of section 142, may furnish\nthe return for any previous year at any time before the expiry of one year from the end of the relevant\n assessment year or before the completion of the assessment, whichever is earlier :\"\n15.\nIn the present case, since the assessee did not furnish its return of income within the time\nallowed under section 139(1), therefore, as per section 139(4) of the Act, the assessee had time till\n31/03/2011 to furnish its return of income, i.e. one year from the end of the relevant assessment year\n2009-10. Accordingly, the return of income filed by the assessee on 31/03/2011, in the facts of the\npresent case, is within the time allowed under the Act. Thus, even in view of the decision relied upon\nby the learned DR, the said return is acceptable. It is pertinent to note that in the aforesaid decision,\nthe coordinate bench of the Tribunal accepted the proposition that in case a return of income is validly\nfiled in response to notice under section 148, the requirement of the Act is to issue the notice under\nsection 143(2) of the Act. The relevant findings of the coordinate bench, in this regard, are as under:-\n“22. We are in agreement with the proposition raised by the Ld. Authorized Representative for the\nassessee that in case return of income is validly filed in response to notice under section 148, the\nrequirement of the Act is to issue notice under section 143(2) of the Act. But all the acts have to be\ndone within the time frame provided under the Act or at best within reasonable time.....\"\n16.\nTherefore, even by applying the decision relied upon by the learned DR, the return of income\nfiled by the assessee is a valid return, and thus the requirement of issuance of valid notice under\nsection 143(2) of the Act cannot be dispensed with. Before concluding, it is pertinent to note that the\nlegislature vide Finance Act, 2023 has inserted a third proviso to section 148 w.e.f. 01/04/2023, which\nnow specifically provides that any return of income, required to be furnished by an assessee under this\nsection and furnished beyond the period allowed shall not be deemed to be a return under section 139\nof the Act. However, during the year under consideration, such a provision was not in the Act.\nTherefore, in view of the above, we find no merits in the aforesaid submission made by the learned\nDR.\n17.\nIn any case, it cannot be disputed that the AO in the present case has accepted the return of\nincome filed by the assessee and has concluded the assessment under section 143(3) read with section\n147 of the Act. Further, the mandatory requirement of issuance of notice under section 143(2) of the\nAct is quite clear from the decision of the Hon'ble Supreme Court in ACIT vs Hotel Blue Moon [2010]\n321 ITR 362 (SC).\n18.\nSince in the present case, no valid notice under section 143(2) of the Act was issued by the\nAO and the assessment was completed without following the mandatory requirement of the Act,\ntherefore, the entire assessment proceedings concluded under section 143(3) read with section 147 of\nthe Act is rendered null and void, and is accordingly quashed. As we have quashed the assessment\nproceedings for this short reason, we see no need to deal with other issues raised by the parties in the\npresent cross-appeal. Those aspects of the matter, as of now, are academic and infructuous.\"\nOn finding parity of facts, respectfully following the decision of\nthe Co-ordinate Bench (supra), we hold that that the assessment is bad\nin law and is liable to be quashed. Since we have quashed the\nassessment order, we do not find it necessary to delve into the merits of\nthe case.\n9.\nIn the result, appeal of the assessee is allowed.\nOrder pronounced in the Court on 9th October, 2025 at Mumbai.\nSd/-\nSd/-\n(ANIKESH BANERJEE)\nJUDICIAL MEMBER\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nMumbai, Dated 09/10/2025\n*SC SPPS\nआदेश की प्रतिलिपि अग्रेषित/