B.S.SUBBA RAO,,VISAKHAPATNAM vs. THE ITO, WARD - 1 (4),, VISAKHAPATNAM

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA Nos. 582/VIZ/2013 (Asst. Year : 2005-06) B.S. Subba Rao, vs. ITO, Ward-1(4), D.No. 48-3-3, Srinagar, Visakhapatnam. Visakhapatnam. PAN No. ABVPB 0294 K (Appellant) (Respondent)

ITA Nos. 583/VIZ/2013 (Asst. Year : 2005-06) B. Nageswari, vs. ITO, Ward-1(4), D.No. 48-3-3, Srinagar, Visakhapatnam. Visakhapatnam. PAN No. AADHB 5249 K (Appellant) (Respondent)

Assessee by : Shri I. Kamasastry – FCA. Department By : Smt. Suman Malik – Sr.DR

Date of hearing : 05/09/2019. Date of pronouncement : /09/2019. O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER

These appeals by the different assessees are directed against the separate orders of Commissioner of Income Tax (Appeals),

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Visakhapatnam, both dated 28/06/2013 for the Assessment Year 2005-06. Since the facts in all the appeals are identical, clubbed and heard together and disposed of by way of this consolidated order. 2. In both the appeals, the assessees have raised additional grounds with regard to validity of assessment framed u/sec. 143(3) r.w.s. 147 and also issuance of notice u/sec. 148 of the Income Tax Act, 1961. The additional grounds raised by the assessees during the appeal hearing read as under:- ―1. The assessment order is passed u/sec. 143(3) whereas the order ought to have been passed u/sec. 143(3) r.w.s. 147. 2. The notice issued u/sec. 148 is invalid because the approval/ sanction of the higher authority as mandated by section 151 is not obtained and therefore the assessment order is invalid. (The relevant paragraphs for approval/ sanction of higher is conspicuously struck off in the notice issued u/sec. 148) 3. The assessment order has been passed without issuing a notice u/sec. 143(2) and therefore the assessment order is invalid.‖

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Assessing Officer computed the taxable capital gains in the hands of the assessee at Rs.22,71,733/-. 6. Against the order of the Assessing Officer, the assessee went on appeal to the ld. CIT(A) and the ld. CIT(A) dismissed the appeal of the assessee. 7. Against the order of the ld. CIT(A), the assessee is in appeal before this Tribunal. 8. During the appeal hearing, the assessee has raised additional ground challenging the order of the Assessing Officer stating that the assessment was completed without issuing notice the u/sec. 143(2), therefore, reassessment completed u/sec. 143(3) r.w.s. 147 is invalid and required to be quashed. The ld.AR submitted that the additional grounds could not be raised before the ld. CIT(A) due to in advertence and non-supply of information by the Assessing Officer in spite of specific requests made by the assessee. The ld.AR further submitted that in the instant case the Assessing Officer has not served the notice u/sec.143(2) on the assessee and the assessment was made without the service of notice, therefore the additional ground is raised for adjudication. As per Income-tax Act, notice u/sec. 143(2) required to be served within the period of six months from the end of the financial year in which the return was furnished. In

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this case, time limit for issuance of notice u/sec. 143(2) got expired on 30/09/2011. Since the Assessing Officer had completed the assessment without service of notice, the ld.AR argued that the additional ground raised goes to the root of the assessment and the validity of assessment framed u/sec. 143(3) is questionable and hence, requested to admit the additional grounds for adjudication. 9. On the other hand, ld.DR vehemently opposed for admission of the additional grounds raised by the assessee. 10. We have heard both the sides and perused the material available on record. 11. We find force in the arguments advanced by the ld.AR since, the service of notice u/sec.143(2) is mandatory requirement as per the Income-tax Act, therefore we admit the additional grounds raised by the assessee and take up first the additional grounds for adjudication. 12. During the appeal hearing, ld.AR submitted that the Assessing Officer did not serve the notice to the assessee as required u/sec. 143(2) of the Act. The ld.AR submitted that the Assessing Officer had served the notice u/sec. 148 and the assessee responded to it by filing reply requesting to treat the return of income filed on 30/07/2005 as return in response to the

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notice u/sec. 148 of the Act. Therefore, the Assessing Officer is required to serve the notice on or before 31/09/2011 to take up the assessment. The assessee further submitted that the Assessing Officer neither served the notice nor furnished the evidence for service of notice issued u/sec. 143(2). Though the Assessing Officer had issued, notice u/sec. 142(1) on 17/10/2011 and assessee complied with the notice the same cannot be treated as participation in assessment proceedings to invoke the provisions of section 292BB of the Act to take the adverse view against the assessee. The ld.AR further argued that as per section 292BB, the assessment framed u/sec. 143(3) without the issue of notice u/s.143(2) is void ab initio. Accordingly, requested to quash the assessment proceedings and set aside the order of the ld. CIT(A). In support of his contentions, the Ld.AR relied on the following case laws : (i) Hon’ble High Court of Gujarat in the case of Kanubhai M. Patel (HUF) Vs. Hiren Bhatt or his successors to office & others (2011) 334 ITR 0025 (ii) Hon’ble High Court of Allahabad in the case of Commissioner of Income Tax Vs. Mohammad Khaleeq Commercial Taxes (2015) 229 Taxman 0566 (Allahabad) (iii) Hon’ble High Court of Delhi in the case of Commissioner of Income Tax Vs. Chetan Gupta (2016) 382 ITR 0613 (Delhi) (iv) Hon’ble High Court of Delhi in the case of Pr.Commissioner of Income Tax & Anr Vs. Silver Line & Anr (2016) 383 ITR 0455 (Delhi)

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(v) Hon’ble High Court of Madras in the case of Commissioner of Income Tax Vs. Gitsons Engineering Co. (2015) 231 Taxman 0506 (Madras) (vi) Hon’ble High Court of Gujarat in the case of Principal Commissioner of Income Tax Vs. Nexus Software Ltd. (2017) 248 Taxman 0243 (Gujarat) 13. On the other hand, ld.DR supported the orders of the authorities below and submitted that the notice was issued on 22/08/2011 fixing the case for hearing on 30/08/2011 and there was no response from the assessee, hence, the notice u/sec. 142(1) was issued subsequently. The assessee also participated in the assessment proceedings. Therefore argued that the assessee’s case is squarely covered by the provisions of section 292BB of the Act and also on the decision of the Hon'ble Apex Court in the case of CIT Vs. Laxman Das Khandelwal in Civil Appeal Nos. 6261 & 6262/2019 dated 13/08/2019. Hence requested to uphold the validity of the assessment framed u/sec. 143(3) and dismiss the appeal of the assessee. 14. We have heard both the sides and perused the material placed on record. 15. In this case, notice u/sec. 148 was issued and served on the assessee on 28/10/2010. In response to which, the assessee has filed a letter stating that the return already filed on 30/07/2006 may be treated as return in response to the notice of 148. Thus,

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the assessee has complied with the notice u/sec. 148 and hence the Assessing Officer required to serve the notice u/sec. 143(2) on or before 30/09/2011 to take up the case for assessment. In the instant case, there is no evidence on record to show that the notice was dispatched or served on the assessee on or before 30/09/2011. Though, ld.DR has stated that the notice was issued on 22/08/2011, but could not place any evidence to show that the notice was served or dispatched to the assessee so as to enable him to reach the same on or before 30/09/2011. As per the notice issued u/sec. 143(2), dated 22/08/2011, the assessee required to attend the office on 30/08/2011 without having served the notice on the assessee. The department had issued notice u/sec. 142(1) on 17/10/2011 that is beyond the prescribed time limit for issuance of notice u/sec. 143(2). Thus, there is no evidence on record to show that the Assessing Officer had issued the notice or served the same on or before 30/09/2011 as required u/sec. 143(2) of the Act. It is held in number of cases that service of notice u/sec. 143(2) is mandatory requirement for taking up the case for assessment. Though the assessee has responded to the notice u/sec. 142(1) dated 17/10/2011 and the filed information from time to time before the Assessing Officer the action of the assessee cannot be treated as participation in

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assessment proceedings, since the notice u/s 142(1) was also issued beyond the time limit for service of notice. Ld.DR relied on the decision of the Hon'ble Supreme Court in the case of Laxman Das Khandelwal (supra). The Hon'ble Supreme Court in the said case held that section does not save complete absence of notice. For application of section 292BB, the notice must have been emanated from the department. In the instant case, on filing the affidavit by the assessee for non service of notice, we have called for the records and verified the same. Though there was a notice u/s 143(2) dated 22/08/2011 available in the assessment records, on the notice despatch date was mentioned as 22/08/2017. Even if we presume that there was a mistake in mentioning the date of despatch on the notice, there is no evidence placed before us for despatch of the notice on 22/08/2011. On perusal of the assessment records, there is no entry with regard to issue of notice u/sec. 143(2) in the order sheet. The Assessing Officer also did not mention anywhere in the assessment order regarding the issuance of notice u/sec. 143(2). In the assessment order the Assessing Officer mentioned only the issue of notice u/sec. 142(1) dated 17/10/2011 which is also supported by the entries in the order sheet. Therefore, it is

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established beyond the doubt that no notice u/sec. 143(2) was issued to the assessee.

15.1 The Ld.AR relied on the decision of Hon’ble Gujarat High court in the case of Kanubhai M. Patel (HUF).v. Hiren Bhatt or His Successors to Office, [2011] 12 taxmann.com 198 (Gujarat) wherein Hon'ble High Court while deciding the issue of notice u/s 148 held that the date of issue of notice to be reckoned from the date of dispatch of notice or the date of presentation of notice in the post office. The relevant part of the order of the Hon'ble High Court reads as under:

―16. Thus, the expression to issue in the context of issuance of notices, writs and process, has been attributed the meaning, to send out; to place in the hands of the proper officer for service. The expression "shall be issued" as used in section 149 would therefore have to be read in the aforesaid context. In the present case, the impugned notices have been signed on 31-3-2010, whereas the same were sent to the speed post centre for booking only on 7-4-2010. Considering the definition of the word issue, it is apparent that merely signing the notices on 31-3-2010, cannot be equated with issuance of notice as contemplated under section 149 of the Act. The date of issue would be the date on which the same were handed over for service to the proper officer, which in the facts of the present case would be the date on which the said notices were actually handed over to the post office for the purpose of booking for the purpose of effecting service on the petitioners. Till the point of time the envelopes are properly stamped with adequate value of postal stamps, it cannot be stated that the process of issue is complete. In the facts of the present case, the impugned notices having been sent for booking to the Speed Post Centre only on 7-4-2010, the date of issue of the said notices would be 7-4-2010 and not 31-3-2010, as contended on behalf of the revenue. In the circumstances, impugned the notices under section 148 in relation to assessment year 2003-04, having been issued on 7-4-2010 which is clearly

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beyond the period of six years from the end of the relevant assessment year, are clearly barred by limitation and as such, cannot be sustained.‖

15.2 The assessee also referred the decision of the Hon'ble Allahabad High Court in the case of CIT Vs. Mohammad Khaleeq Commercial Taxes [(2015) 229 Taxman 566 (All.)]. Hon’ble High court referring to CBDT circular No.549 of 1989 held that if the assessee after furnishing the return of income does not receive a notice under section 143 (2) of the Act within the stipulated period, he can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. The Hon’ble high court further held that the provision of Section 292BB of the Act has been inserted by the Finance Act, 2008 w.e.f. 01.04.2008. So, the new provision is applicable for the assessment year 2008-09 and certainly not applicable for the assessment year under consideration i.e. 2007-08.

15.3 The assessee relied on the decision of Commissioner of Income-tax, Chennai.v. Gitsons Engineering Co., [2015] 53 taxmann.com 108 (Madras), in the cited case Hon’ble Madras High court placing reliance Hon’ble apex court’s decision in the case of Hote Blue moon [2010] 321 ITR 362/188 Taxman 113, held that it is mandatory requirement of service of the notice for completion

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of assessment. The Honble Madras High court also considered the issue of dispatch and the service of notice and held as under:

―5. The word "shall" employed in Section 143(2) of the Act contemplates that the Assessing Officer should issue notice to the assessee so as to ensure that the assessee has not understated income or has not computed excessive loss or has not underpaid the tax in any manner. It is, therefore, clear that when the Assessing Officer considers it necessary and expedient to ensure that the tax is paid in accordance with law, he should call upon the assessee to produce evidence before him to ensure that the tax is paid in accordance with law. A reading of the said provision makes it clear that service of notice under section 143(2) of the Act within the time limit prescribed is mandatory and it is not a mere procedural requirement. 6. In the instant case, even though a plea is taken by the learned counsel for the Revenue that the objection in relation to non- service of notice contemplated under Section 143(2) of the Act was not an issue before the Assessing Officer and the Commissioner of Income Tax (Appeals) and the same was raised for the first time before the Tribunal, we find that it is a legal plea which goes to the root of the matter and, therefore, the assessee is entitled to raise such a plea before the Tribunal, which is the ultimate fact finding body. 7. In the case on hand, it is beyond any cavil that the assessee filed return of income on 31.10.2007. Even though the department claims to have sent a notice under Section 143(2) of the Act on 17.9.2008, the Revenue failed to produce any records to show that the said notice was despatched and served on the assessee. However, it is stated that the department subsequently issued another notice under Section 143(2) of the Act on 27.8.2009, which, on the face of it, is beyond the period of limitation prescribed under Section 143(2) of the Act. 8. The basic requirement of Section 143(2) of the Act having not been satisfied, the department's further proceedings, in our considered opinion, becomes non-est in law. 9. The above said view of this Court is fortified by a decision of the Supreme Court in Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 and it was observed as under (page 369) : "Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural

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irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with."

15.4 In the instant case though notice was stated to have been issued there was no entry in the order sheet for issue of notice and there is no evidence for dispatch of notice provided by the department. Hence, we hold that no notice was issued in this case u/sec. 143(2) before the due date i.e 30/09/2011 and the assessee’s case is squarely covered by the decision of Hon'ble Madras High Court in the case of Gitsons Engineering Company (supra).

15.5 The coordinate Bench of ITAT, Bangalore in Assistant Commissioner of Income-tax, Central Circle 1 (1), Bangalore. v. Ashed Properties & Investments (P.) Ltd., [2015] 62 taxmann.com 340 (Bangalore - Trib.) has considered the similar issue in great detail and held that Where no notice under section 143(2) was issued within period of limitation, revenue could not take advantage of provisions of section 292BBof the act. For the sake of clarity we reproduce hereunder the relevant part of the order of the ITAT which reads asunder:-

―13. We have given a very careful consideration to the rival submissions. From the narration of the factual details as given above, it is clear that the only notice issued u/s. 143(2) was dated 13.10.2011 and the same was beyond the period

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contemplated under proviso to sec. 143(2)(ii) of the Act. Two questions arise for our consideration; (i) Whether notice u/s. 143(2) of the Act is mandatory before completion of proceedings u/s. 147 of the Act? (ii) Whether provisions of section 292BB of the Act will come to the rescue of the Revenue so as not to render the order of assessment u/s. 147 null and void? 14. As far as first question is concerned, in the case of C. Ramaiah Reddy (supra), this Tribunal has considered the non- issue of notice u/s. 143(2) of the Act within the period of limitation in response to notice u/s. 148 of the Act as fatal and had annulled the assessment u/s. 147 of the Act. Similar view has also been taken in the case of H. Gouthamchand (supra). The Special Bench of the Delhi Tribunal in Raj Kumar Chawla v. ITO [2005] 94 ITD 1/145 Taxman 12 (Mag.) was confronted with similar/identical facts. The questions required to be answered by the Special Bench were as under:— "1. Whether the proviso to s. 143(2) of the I.T. Act.1961, which mandates the service of notice within 12 months from the end of the month in which return is filed, also applies to the returns filed pursuant to notice under s. 148 of the I.T. Act, 1961? If the answer to the aforesaid question is in the affirmative 2. then what is the effect of non-service of notice under the proviso to s. 143(2) within the time prescribed, to the return filed pursuant to s. 148 of the I.T. Act, 1961?" The Hon'ble Special Bench, concluded that in view of the legal fiction created by sec. 148 that a return filed under that section is to be treated as one under see. 139, proviso to sec. 143(2) also applies to a return filed in response to notice u/s, 148 and no assessment can be made, if the notice u/s. 143(2) is not served within the time prescribed by the proviso u/s. 143(2). In the operative part. the Hon'ble Special Bench, held as under :— '39. It may be noted that no doubt, the foundation to assess or reassess is laid by issue of a valid notice under s. 148 but such jurisdiction is subject to further compliance was has been stipulated in the statute itself. If compliance of the proviso is not made, the very purpose of creating the proviso is defeated, i.e. uncertainty of assessee with respect to assessment shall continue. It is again a settled principle of interpretation that no construction of a statute should be made in a manner, which leaves a statute redundant, On the contrary law requires a strict interpretation of the proviso. We may here clarify that provisions of limitation are to be strictly construed. An illuminating reference to this aspect

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can be found in the following observation of the Supreme Court in the case of K. M. Sharma v. ITO (supra). "A fiscal statute more particularly a provision such as the present one regulating period of limitation must received strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigants for an indefinite period on future unforeseen events." If limitations are not followed strictly, chaotic situation would follow. 40. In the light of the analysis of the relevant provisions of law and judicial precedents, we are of the considered view that the return filed pursuant to notice under s. 148 of the Act must be assumed and treated to be a return filed under s. 139 of the Act and the assessment must thereafter be made under s. 143 or 144 of the Act after complying with all the mandatory provisions. Accordingly, it is incumbent upon the assessing authority to issue notice under s. 143 (2) of the Act within the period as stipulated in the proviso thereunder. In this view of the matter, the first question before the Special Bench is answered in affirmative.' 15. Sec.148 of the Act was amended by the Finance Act, 2006 by insertion of two proviso below Sub-section (1) and an Explanation. The amended provisions read as follows: "Sec.148: Issue of notice where income has escaped assessment. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, 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 in a case — (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) subsequently a notice has been served under sub-section (2)

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of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case— (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Explanation: For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section." The two provisos in sub-section (1) to section 148 has been inserted with retrospective effect from 1st October, 1991. The gist of the two provisos may suitably be stated thus - Where a return has been furnished daring the period commencing on 1st October, 1991 and ending on 30th September, 2005, in response to a notice of reassessment served under section 148, and subsequently a notice has been served under section 143(2) [or 143(2)(ii), as the case may be] after the expiry of twelve months as specified in the relevant proviso but before the expiry of the time-limit for making the assessment, reassessment or re- computation as specified in section 153(2), such (otherwise time- barred) notice shall be deemed to be a valid notice. Further, the new Explanation inserted with effect from 1st October, 2005, specifically clarifies that the aforestated (newly inserted) provisos shall not apply to any return which has been furnished on or after 1st October, 2005, in response to a notice served under section

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148(1) of the Act. The purpose of the amendment is to ensure that notices which were issued and barred by limitation and those which were not issued and which could not have been issued should be validated by the Finance Act, 2006 with retrospective effect from 1st April, 1990 amending section 142 for the purpose of validating notices which were otherwise not issued or served within the time-limit. The invalidity of notice as well as the absence of any notice became fatal to the proceedings and are sought to be validated and justified by the retrospective amendments. The explanation clarifies that the amended provisions will not apply to any return which has been furnished on or after 1st October, 2005, in response to a notice served under section 148(1) of the Act. Thus the legislature has accepted the position that issue and service of notice u/s.143(2) of the Act within the time limit laid down in those provisions is mandatory. 16. In the light of the precedents on the issue, we are, therefore, of the view that issue and service of notice u/s. 143(2) of the Act within the period of limitation contemplated under the proviso to sec. 143(2)(ii) is mandatory for validity of assessment u/s. 147 of the Act. 17. The next issue is with regard to applicability of provisions of section 292BB of the Act. It is clearly from the statutory provisions that these provisions only insulate the AO from the proof of service of notice u/s. 143(2) of the Act. It does not in any way insulate the AO from default in issuing notice u/s. 143(2) within the period of limitation contemplated therein. When the records show that there was no issue of notice u/s. 143(2) within the period of limitation prescribed under the said proviso, the Revenue cannot take advantage of the provisions of section 292BB. In other words, "issue of notice" and "service of notice" are two different aspects and what is covered by section 292BB is only "service of notice". Non-issue of notice u/s. 143(2) within the period of limitation would not be covered under the ambit of section 292BB of the Act. The decision of the Tribunal in the case of Amithi Software Technologies (P.) Ltd. (supra) referred to in the earlier part of this order clearly supports the plea of the assessee in this regard. We therefore hold that assessment proceedings are invalid for the reason that notice u/s. 143(2) had not been issued and served within the time limit prescribed by those provisions. Accordingly, the order of assessment is annulled. In view of the conclusions on the preliminary issue raised in the Cross Objection, we are of the view that there is necessity to go into the merits on the issues raised by the Revenue in its appeal.

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From the facts discussed above, in the instant case there is no evidence of issue of notice u/s 143(2) and the facts of the case is squarely covered by the case laws discussed above. Therefore we hold that the assessment made u/sec. 143(3) r.w.s. 147 is unsustainable and void ab initio and accordingly we, annul the assessment made under section 143(3) r.w.s 147 of the act. Since we annulled the assessment order we consider it is not necessary to adjudicate the grounds raised on merits. Thus, the appeal filed by the assessee is allowed.

ITA No.583/VIZ/2013- B.Nageswari 16. The facts of the case are identical to the case of Shri B.S.Subba Rao in ITA No.582/viz/2013 discussed above in this order. Since the facts are identical respectfully following the view taken in the case of Shri B.S.Subba Rao we hold that the assessment was completed without the issue of notice u/s 143(2) of the Act, hence we hold that the assessment made u/sec. 143(3) is unsustainable and void ab initio and accordingly we, annul the assessment made under section 143(3) r.w.s 147 of the act and allow the appeal of the assessee.

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Sd/- sd/- (V. DURGA RAO) (D.S. SUNDER SINGH) Judicial Member Accountant Member Dated:25th September, 2019. vr/- Copy to: 1. The Assessee a) B.S. Subba Rao b) B. Nageswari, Both the residents of D.No. 48-3-3, Srinagar, Visakhapatnam. 2. The Revenue – ITO, Ward-1(4), Visakhapatnam. 3. The CIT-1, Visakhapatnam. 4. The CIT(A), Visakhapatnam 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.