M/S. KAIZEN ORGANICS PVT. LTD.,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, JAIPUR

PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 4th

September, 2017 of ld. CIT (A)-1, Jaipur for the assessment year 2009-10. The

assessee has raised the following grounds :-

“1. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the actions of the ld. AO in reopening the assessment u/s 147 of Income Tax Act, 1961. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the reassessment proceedings being illegal and without any basis.

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and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 8,04,524/-.

The assessee has also raised an additional ground as under :-

“ In the facts and circumstances of the case, and in law, the ld. AO has erred in completing assessment u/s 147 without issuing notice u/s 143(2) of the Income Tax Act, 1961. The action of ld. AO is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing entire reassessment proceedings, being void and illegal.”

Since the additional ground raised by the assessee is legal in nature and goes to the

root of the matter, therefore, we first propose to take the additional ground raised

by the assessee.

legal in nature and all relevant facts for adjudication of this ground are available on

record. He has further contended that no new facts are required to be examined or

investigated, therefore, the additional ground raised by the assessee may be

admitted for adjudication. In support of his contention he has relied upon the

decision of Hon’ble Supreme Court in the case of NTPC vs. CIT 229 ITR 383 (SC)

and submitted that the Hon’ble Supreme Court has discussed the power of the

Tribunal in entertaining the fresh plea at this stage which does not require any new

facts or investigation of any fact for adjudication and, therefore, a legal issue can be

raised before the Tribunal for first time so long as the relevant facts are on record in

respect of that item.

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ground and submitted that the assessee did not raise this issue before the

authorities below and after the AO as well as the ld. CIT (A) have decided the matter

against the assessee, the assessee has first time raised this ground without

explaining the reasons as to why the same was not raised before the authorities

below, therefore, the same cannot be accepted at this stage.

record as it is apparent from the additional ground that the assessee has raised the

issue of validity of re-assessment passed under section 143(3) read with section 147

of the IT Act without issuing notice under section 143(2) of the Act. Thus the issue

raised in the additional ground is purely legal in nature and all the relevant facts for

adjudication of this issue are already on record, as no new fact is either required to

be investigated or to be verified for the purpose of adjudication of this issue raised

by the assessee, then there is no reason as to why the additional ground raised by

the assessee should not be admitted for adjudication on merits. Accordingly, in the

facts and circumstances of the case and by following the decision of the Hon’ble

Supreme Court in the case of NTPC vs. CIT (supra), we admit the additional ground

raised by the assessee for adjudication.

Validity of re-assessment for want of jurisdiction under section 143(2) :

material on record. The ld. A/R of the assessee has submitted that the re-

assessment has been completed by the AO without issuing notice under section

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143(2) of the IT Act and, therefore, the order passed by the AO is illegal and not

sustainable in law as held by the Hon’ble Supreme Court in the case of ACIT vs.

Hotel Blue Moon, 188 Taxman 113 (SC). The ld. A/R of the assessee has also relied

upon the following decisions :-

Travancore Diagnostics (P) Ltd. vs. ACIT 390 ITR 167 (Kerala)

Principal CIT vs. Silver Line 383 ITR 455 (Delhi)

Thus the ld. A/R has submitted that the impugned re-assessment order passed by

the AO is bad in law and liable to be quashed.

any return of income in response to notice under section 148 of the Act but

submitted before the AO that the original return of income filed under section 139 of

the IT Act may be treated as return filed in response to notice under section 148.

Thus the ld. D/R has submitted that when no fresh return was filed by the assessee

then there is no requirement for issuing notice under section 143(2) of the Act for

completion of the re-assessment. He has further contended that the assessee has

participated in the re-assessment proceedings and never raised any objection about

the notice under section 143(2), therefore, the assessee has surrendered to the

jurisdiction of the AO and cannot be allowed to raise this objection at this stage.

record. The ld. D/R was directed to produce the assessment record to show

whether the AO issued notice under section 143(2) prior to completion of the

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reassessment order in this case. The ld. D/R has produced the assessment record

and fairly admitted the fact that there is no notice under section 143(2) issued by

the AO at any stage during the reassessment proceedings. We have also verified

the fact whether the AO has stated anything about the issuance of notice under

section 143(2) in the proceeding sheet of the reassessment record but there is

nothing even in the order sheet notings of the AO of the assessment record to

indicate issuance of any notice under section 143(2) of the Act. Thus it is clear that

the AO did not issue any notice under section 143(2) prior to completion of the

reassessment proceedings in the case of the assessee. The Notice under section

143(2) is a mandatory requirement and gives the jurisdiction to the AO to proceed

with the scrutiny assessment. Thus the notice under section 143(2) is a

jurisdictional condition and in the absence of notice under section 143(2), the order

passed by the AO is invalid for want of jurisdiction. The ld. D/R has submitted that

the assessee did not file any return of income in response to notice under section

148 of the Act, however, it is not in dispute that the assessee has duly responded to

the notice under section 148 and submitted that the return of income filed under

section 139 of the Act may be treated as return in response to notice under section

return in response to notice under section 148 of the Act. Hence, we do not find

any merit or substance in the contention of the ld. D/R. The Hon’ble Supreme Court

in the case of ACIT vs. Hotel Blue Moon (supra) while considering the requirement of

notice under section 143(2) in the block proceedings has held in para 15 to 18 as

under :-

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“15. We may now revert back to Section 158 BC(b) which is the material provision which requires our consideration. Section 158 BC(b) provides for enquiry and assessment. The said provision reads "that the assessing officer shall proceed to determine the undisclosed income of the Block period in the manner laid down in Section 158 BB and the provisions of Section 142, sub- section (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply." 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 assessee 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 provisions of Section 158 BC, the provisions of Section 142 and sub-sections

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(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." 16. 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 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. 17. Section 158BH provides for application of the other provisions of the Act. It reads : "Save as otherwise provided in this Chapter, all the other provisions of this Act shall apply to assessment made under this Chapter". This is an enabling provision, which makes all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment. The provisions which are specifically included are those which are available in Chapter XIV-B of the Act, which includes section 142 and sub-sections (2) and (3) of section 143. 18. On a consideration of the provisions of Chapter XIV-B of the Act, we are in agreement with the reasoning and the conclusion reached by the High Court.”

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Thus the requirement of notice under section 143(2) of the Act is a mandatory

condition and cannot be dispensed with. It was also held that the omission on the

part of the AO to issue notice under section 143(2) cannot be a procedural

irregularity and same is not curable. The ld. D/R has contended that the assessee

has participated in the assessment proceedings and did not raise any objection.

Therefore, once the assessee has submitted to the jurisdiction of the AO, then it

cannot raise objection at this stage. We do not agree with this contention of the ld.

D/R because in the case in hand what is absent is the issuance of notice under

section 143(2) and not the service of the notice issued by the AO is disputed by the

assessee. Only in the case where the notice issued under section 143(2) was

disputed by the assessee on the point of service of the said notice but the fact of

issuance of notice is already available on record, in such a case if the assessee has

participated in the assessment proceedings in response to the notice under section

143(2), then subsequently the assessee cannot take the objection of notice issued

under section 143(2) was not properly served on the assessee. Since it is a case of

non-issuance of notice under section 143(2), therefore, the initiation of scrutiny

proceedings itself was without jurisdiction conferred by the provisions of section 143

of the Act. The Hon’ble Kerala High Court in the case of Travancore Diagnostics Pvt.

Ltd. vs. ACIT (supra) has dealt with the issue of validity of reassessment order

passed by the AO without issuing notice under section 143(2) in para 33 & 34 as

under :-

“33. The extended question then is whether even if the assessee is deemed to have participated in the proceedings under Section 143, even without the Assessing Officer having issued the mandatory notice, would the Revenue be

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entitled to the benefit provided under Section 292BB of the Act. Section 292BB creates an estoppel against the assessee in claiming that no notice has been served on him, if he has participated in the proceedings. However, the said section does not in any manner grant any privilege to the Assessing Officer in dispensing with the issuance of a notice under Section 143(2) of the Act. Since the jurisdiction under Section 143 is founded on the issuance of a notice under Section 143(2), the assessing officer could have assumed jurisdiction only after issuing a notice under Section 143 (2). Even the participation of the assessee would not provide the benefit under Section 292BB to the Revenue. The requirement that a notice be issued is mandatory and the Assessing Officer has no other option but to issue the notice before commencing the jurisdiction. Here, we draw support from the judgment of the Hon'ble Supreme Court in Asstt. CIT v. Greater Noida Industrial Development Authority [2015] 379 ITR 14 (All.), wherein it was held as under: "Section 148(1) provides for service of notice as a condition precedent to making the order of assessment. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess. The mandate of section 148(1) is that reassessment shall not be made until there has been service. The requirement of issue of notice is satisfied when a notice is actually issued." 34. The only benefit that Section 292BB obtains to the assessing officer is that after the issuance of such notice the assessee appears and participates in the proceedings, then he shall not he heard, subject to the proviso to the said section, that he had not been properly served with notice. We have no hesitation in holding that the Assessing Officer can claim and avail the benefit under Section 292BB and the assessee will be burdened by the rigour of estoppel contained therein only after a notice under Section 143(2) had been validly issued. When it is virtually admitted that no such notice had been issued, the Assessing Officer loses even the authority to enter into the jurisdiction under Section 143 and the participation or otherwise of the assessee would be of no avail. It is here that the words of Rowlat, J. vide supra in paragraph 5 of this judgment assumes climataric importance because in taxation nothing is to be intended and nothing can be presumed. If a notice under Section 143(2) has not been issued, the Assessing Officer cannot claim the benefit under Section 292BB and the claim that the earlier notice extracted in paragraph 29 of the judgment was intended to be the notice issued under Section 143(2) and that substantial compliance under Section 143(2) must be inferred, cannot be countenanced.”

Accordingly, in view of the facts and circumstances of the case when the AO has

passed the re-assessment order without issuing notice under section 143(2), then

the re-assessment order is not sustainable in law and the same is invalid. Hence,

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following the decision of the Hon’ble Supreme Court as well as of the Hon’ble High

Courts as referred hereinabove, we quash the impugned re-assessment order passed

by the AO. Since we have quashed the re-assessment order itself, therefore, the

other grounds raised by the assessee become infructuous and we do not propose to

go into the other grounds.

Order is pronounced in the open court on 19/12/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 19/12/2018. Das/

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

11 ITA No. 834/JP/2017 M/s. Kaizen Organics Pvt. Ltd., Jaipur.