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Income Tax Appellate Tribunal, A BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
These appeals at the instance of the assessee are directed against the consolidated order of the ld. CIT(A)-11, Bengaluru, dated 10.02.2025 vide DIN : ITBA/APL/M/250/2024- 25/1073061567(1) for the AY 2015-16; vide DIN: ITBA/APL/M/250/2024-25/1073061747(1) for the AY 2016-17 and vide DIN : ITBA/APL/M/250/2024-25/1073061874(1) for the AY 2017-18 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). Since the legal issues involved & the grounds taken in all these three appeals of the same assessee are common, these are clubbed together, heard together and disposed of by this common order for the sake of convenience & brevity. for the AY 2015-16, has raised the following grounds of appeal: to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 2 of 23
The orders of the lower authorities are opposed to law, facts and circumstances of the case and are based on surmises and conjectures.
The orders of the lower authorities are passed in haste, without providing sufficient and reasonable opportunity of being heard.
The orders of the lower authorities are passed against the principles of natural justice and are liable to be quashed.
4. The ld. AO erred in framing the assessment under the provisions of section 144 r.w.s. 147 of the Act. 5. Without prejudice to ground no.4 above, the ld. AO erred in not following the procedure laid down in section 148 of the Act. 6. The ld. AO erred in not issuing notice u/s 143(2) of the I.T. Act. 7. Without prejudice to the above grounds, the ld. AO erred in disallowing the business expenditure aggregating to Rs.28,60,000/- and the ld. CIT(A) erred in confirming the same. 8. The ld. AO and ld. CIT(A) ought to have appreciated that the expenditure was incurred wholly and exclusively for the purpose of the business of the appellant. 9. Without prejudice to the above grounds, while computing the assessed income, the ld. AO erred in: a) Considering the income as per order 143(3) dated 29.12.2017. b) Ignoring the brought forward loss claimed by the appellant. 10. The ld. AO erred in levying interest u/s 234A and 234B of the Act. Total tax effect Rs.52,40,870/- for the AY 2016-17 has raised the following grounds of appeal:
1. The orders of the lower authorities are opposed to law, facts and circumstances of the case and are based on surmises and conjectures.
2. The orders of the lower authorities are passed in haste, without providing sufficient and reasonable opportunity of being heard.
3. The orders of the lower authorities are passed against the principles of natural justice and are liable to be quashed.
4. The ld. AO erred in framing the assessment under the provisions of section 144 r.w.s. 147 of the Act.
5. Without prejudice to ground no.4 above, the ld. AO erred in not following the procedure laid down in section 148 of the Act.
6. The ld. AO erred in not issuing notice u/s 143(2) of the I.T. Act.
7. Without prejudice to the above grounds, the ld. AO erred in disallowing the business expenditure aggregating to Rs.28,60,000/- and the ld. CIT(A) erred in confirming the same.
8. The ld. AO and ld. CIT(A) ought to have appreciated that the expenditure was incurred wholly and exclusively for the purpose of the business of the appellant.
9. The ld. AO erred in levying interest u/s 234A and 234B of the Act. Total tax effect Rs.73,25,067/- to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 3 of 23 4. The assessee in AY 2017-18 has raised the following grounds of appeal:
1. The orders of the lower authorities are opposed to law, facts and circumstances of the case and are based on surmises and conjectures.
2. The orders of the lower authorities are passed in haste, without providing sufficient and reasonable opportunity of being heard.
3. The orders of the lower authorities are passed against the principles of natural justice and are liable to be quashed.
4. The ld. AO erred in framing the assessment under the provisions of section 144 r.w.s. 147 of the Act.
5. Without prejudice to ground no.4 above, the ld. AO erred in not following the procedure laid down in section 148 of the Act.
6. The ld. AO erred in not issuing notice u/s 143(2) of the I.T. Act.
7. Without prejudice to the above grounds, the ld. AO erred in disallowing the business expenditure aggregating to Rs.28,60,000/- and the ld. CIT(A) erred in confirming the same.
8. The ld. AO and ld. CIT(A) ought to have appreciated that the expenditure was incurred wholly and exclusively for the purpose of the business of the appellant.
9. The ld. AO erred in levying interest u/s 234A and 234B of the Act. Total tax effect Rs.12,51,125/-
Now the brief facts of the case are that the assessee being a private limited company came into existence on 18/11/2011 and carrying on the business of construction of apartments/residential houses. The assessee company filed its return of income for the AY 2015-16 on 28/09/2015 declaring total income of Rs.NIL. The return was thereafter processed u/s.143(1) of the Act by accepting the return income. A Survey u/s. 133A of the Act was conducted on 19/02/2018 at the business premise of the Assessee Company. The assessee company had developed a project by name “INTACT AVENUE” located at Sy. No. 307/2, Begur village, Begur Hobli, Bengaluru. The said project is a residential apartment consisting of 36 units with an area of 1733.31 sq.mtrs. The total buildup area was 46,514 sq.ft. During the course of survey no books of accounts were found in business premises. The statement of Shri. Fiazuddin, the MD of the company was recorded on the date of survey in which he stated that the assessee company have not maintained books of accounts in their office and the data is given to their Accountant to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 4 of 23 who in turn up-date the accounts. Again, in statement recorded u/s 131 of the Act, the MD stated that the books will be submitted by 28/02///2018. On account of non-receipts of books of accounts within stipulated time, the assessee company was issued another showcause notice dated 28/02/2018 and the assessee finally produced the books of accounts for the AY 2016-17 & 2017-18 on 08/03/2018 and the same were impounded u/s. 131 of the Act for further investigation.
5.1 During survey, the assessee claimed that they have followed percentage completion method of revenue recognition. The assessee company were asked to substantiate the claim. However, it was not explained with necessary supporting documents. In the profit and loss account the assessee company has been debiting cost of construction against the revenue/sales. The major expenses were contract charges that vwere paid to so many persons. In the survey proceedings, exhaustive enquiry was carried out on genuineness of these expenses on providing ample opportunity to the assessee. In the AY 2015-16, the cost of construction expenses debited to profit and loss account was Rs.1,98,43,933/-. This includes purchase of Rs.1,82,45,574/-, input tax on purchase of Rs. 29,39,002, contract charges of Rs. 2,61,33,838/-. By adding these amounts into opening WIP of Rs.3,18,87,396/-, a part of the amount of Rs.1,98,43,933/- was transferred into construction account. For this one engineer certificate was submitted. The verification carried out during the survey had revealed a finding that the assessee company had inflated the expenses under the head contract expenses/construction expenses under different persons as under:- 1. Abdul Rasheed 2. Chota Hari 3. Narashimha 4. Abdul Mustafa to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 5 of 23 After carrying out detail enquiry it was found that they were simply name lander and did not carry out any actual work.
5.2 In view of the above the notice u/s. 148 of the Act was issued on 06/02/2019 and served after taking necessary approval from the Addl. Commissioner of Income Tax, Range-3(1), Bengaluru and accordingly one month time was given in the notice to file the return of income. The AO observed that the assessee did not file any Return either in response to notice u/s 148 of the Act or in response to reminder notice served on 12/03/2019. Finally, show cause notice u/s 144 r.w.s. 147 of the Act was issued to the assessee on 03/05/2019 proposing the completion of assessment. On 20/05/2019, the MD of the company filed a reply wherein it was requested to treat the return filed u/s. 139(1) of the Act on 28/09/2015 as the return filed in response to notice issued u/s.148 of the Act. Further, the copy of the return and acknowledgment of the return filed by the assessee company was also enclosed along with the letter. The AO is of the view that the reply filed by the assessee is not acceptable in view of the provision of law and decision of the Hon’ble Supreme Court in the case of GKN Driveshaft vs. ITO [2002] in 259 ITR 19. The AO was also of the view that when the notice u/s. 148 of the Act is issued, the assessee is duty bound to file the return within the statutory time limit given the notice and also observed that in the present case even after getting the reminder, the assessee has not filed any return of income in response to notice u/s. 148 of the Act. Further, the AO observed that the reply of the assessee dated 27/05/2019 requesting to drop the proceedings as all the payments were made through banking channel and are cent percent genuine is also not accepted. The reply of the assessee dated 20/05/2019 as well as 27/05/2019 were scanned and reproduced by the AO in the assessment order. to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 6 of 23 5.3 After analyzing the case details and the assessee’s submission, the AO completed the assessment proceedings by making the following disallowances for the years in appeal- (i) The contract expenses debited relating to the Abdul Rasheed show no conformity between bills raised, work done as per the ledger & 26AS of Abdul Rasheed. The AO ascertained that the bank account of Abdul Rasheed maintained at HDFC, Koramangala was operated by the assessee company. The amounts transferred by the assessee company were withdrawn by the employee of the assessee company which is also admitted by the Abdul Rasheed in the sworn statement and accordingly the AO held that assessee had inflated its expenditure through its vendor which needs to be disallowed as bogus expenses- S.N. F.Y. AY Work done as per ledger submitted by the company 1 2014-15 2015-16 2,20,000/- 2 2015-16 2016-17 31,21,100/- 3 2016-17 2017-18 5,68,161/- ii) With regard to Shri Chota Hari, as the party was not traceable, the year-wise expenditure were added back to total income as under- A.Y. Contract charges as per ledger 2015-16 7,05,000/- 2016-17 26,36,554/- 2017-18 4,29,759/- 2018-19 99,000/- to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 7 of 23 iii) Finally the labour contractor Narashimha, submitted in his statement that he had not raised any bill. He used to write the expenditures on small paper & school note book. It was further admitted that the whole amount were withdrawn by him for the purpose of alleged contract work, however the AO noticed that withdrawal of cheques revealed fact that his bank account were also operated by the assessee company through Samer Ulla Khan who was withdrawing the money for Abdul Rasheed also. Accordingly the AO disallowed the following expenditures in the hands of Assessee Company-
A.Y. Contract charges as per ledger 2015-16 19,35,000/- 2016-17 45,57,010/- 2017-18 7,45,025/- Thus, the AO completed the assessment proceedings and passed the order 144 r.w.s 147 of the Act for the relevant AYs as detailed below:-
AY Order Date of Order Income offered in Total Additions Made Income Assessed in order passed return u/s. 139/148 passed by AO u/s. 2014-15 144 30.08.2019 Rs.(-) 43,32,947/- Rs.15,00,000/- Rs.(-) 28,32,947/- 2015-16 r.w.s 24.09.2019 Rs.72,65,460/- (as Rs.43,60,000/- Rs.1,16,25,460/- per u/s. 143(3) order 147 dated 29.12.2017 2016-17 24.09.2019 Rs.23,91,885/- Rs.1,41,64,664/- Rs.1,65,56,549/- 2017-18 24.09.2019 Rs.23,01,559/- Rs.19,33,025/- Rs.42,34,584/-
6. Aggrieved by the assessment completed u/s.144 r.w.s 147 of the Act dated 24/09/2019, the assessee preferred an appeal before the CIT(A)-11, Bengaluru. to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 8 of 23 7. The ld.CIT(A)-11, Bengaluru, dismissed all the appeals of the assessee on the ground that the assessee had only submitted the copy of the details furnished before the AO & nothing more to prove and substantiate its contentions. In view of the above, due to lack of credit worthiness of genuineness, expenditure debit against some persons which is portrayed the ld. CIT(A)-11, Bengaluru was of the opinion that the AO has correctly disallowed expenditure debit in its book. The AO through recording the statements had established the modus apparendi in the case wherein the bank accounts were opened in the names of the parties and cheques deposited but again withdrawn in cash and nothing contrary brought on record by the assessee during the assessment or appellate proceedings. The other two were not traceable at all which casts a cloud of suspicion over the genuineness of the payments made and accordingly was of the view that addition made by the AO does not call for any interference.
Again being aggrieved by the consolidated order of ld.CIT(A)- 11, Bengaluru dated 10/02/2025, the assessee has filed the present appeals before this Tribunal. The assessee has also filed a case law compilation comprising 58 pages in support of its case. Further, the ld. D.R. had also filed the comments of the AO with regard to non-issuance of notice u/s.143(2) of the Act for the AY 2015-16 to AY 2017-18.
Before us, the ld. A.R. of the assessee raised the legal issues involved in all these assessment years in appeal & vehemently submitted that the AO for all these three AYs had not issued statutory notice u/s. 143(2) of the Act before concluding the assessment proceedings especially when the during the course of assessment proceedings the assessee company vide its reply dated 20/05/2019 had categorically requested to treat the return file to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 9 of 23 u/s. 139(1) of the Act on 28/09/2015 as the return filed in response to notice issued u/s. 148 of the Act by enclosing the copy of the return and acknowledgment of return filed by the assessee company along with the letter and accordingly prayed that the entire assessment proceedings are void-ab-initio & liable to be quashed.
The ld. D.R. on the other hand supported the orders of the authorities below and vehemently submitted that the assessee company had neither filed any ROI in response to notice u/s. 148 of the Act nor filed any reply requesting the AO to treat the return already filed u/s. 139(1) of the Act to be the return in response to notice u/s 148 within the 30 day’s time allowed under the Notice. The request letter filed by the assessee company on 20/05/2019 was much after the date granted by the AO as the notice u/s. 148 of the Act and accordingly the AO has rightly considered that no return of income was filed in response to notice u/s. 148 of the Act. In the above circumstances, the ld. DR prayed that as the notice u/s 143(2) of the Act was not required to be issued by the AO for the said assessment years, the legal ground raised by the assessee may be rejected. Lastly, the ld. DR submitted that the assessee shall be precluded from taking any objection with regard to service of notice if he has appeared in any proceedings or co-operated in any enquiry relating to an assessment.
We have heard the rival submission and perused the material available on record. The only legal issue in all these AYs under appeal raised by the assessee is with regard to non-issuance of notice u/s. 143(2) of the Act before concluding the re-assessment proceedings u/s. 147 of the Act. It is an undisputed fact that the AO had issued notice u/s. 148 of the Act on 06/02/2019 to file the return of income by granting 30 days time from the date of service to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 10 of 23 of notice. It is also a undisputed fact that the managing director of the assessee company had filed the reply on 20/05/2019 where in it was categorically requested to treat the return filed u/s. 139(1) of the Act on 28/09/2015 as the return filed in response to notice issued u/s. 148 of the Act by enclosing the copy of the return as well as acknowledgement of return filed by the assessee company along with the letter. Surprisingly, the AO passed the order u/s 144 r.w.s 147 of the Act by observing that assessee did not file his return in response to the notice issued u/s 148. The relevant Para of the assessment order is reproduced below- “4. In view of the above discussions, the assessment is completed under section 144 of the IT Act as the assessee did not file his return in response to the notice issued u/s 148.”
We are of the considered opinion that the AO’s observation that the assessee did not file its return in response to notice u/s 148 of the Act is incorrect & baseless especially when the AO himself reproduced the scanned copy of the reply letter dated 20/05/2019 in the assessment order in which we find that the MD of the assessee company had categorically stated that the return filed by us u/s 139 may be taken as the return filed by us u/s 148 of the income Tax Act as there is no difference in income/receipts whatsoever. We agree with the contention of the ld. DR that the assessee had neither filed any return in response to notice issued u/s. 148 of the Act nor filed any reply within 30 days from the date of receipt of notice issued u/s. 148 of the Act, however, the same were filed on 20/05/2019 i.e. way after the time period allowed in the notice issued u/s 148 of the Act. Therefore, it is not a case that no return of income was filed in response to notice u/s 148 of Act on or before the completion of the assessment u/s 147 of the Act i.e. on or before 24/09/2019. We are of the considered opinion that to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 11 of 23 once the return is filed, it is open to the Assessing Officer either to accept the same or to require further investigation. If he accepts the return of escaped income as it is, then, there would be no necessity of issuing any notice under section 143(2) of the Act. However, if the Assessing Officer is not satisfied with the return so filed, then he is required to issue further notice under section 143(2) before an assessment order is passed u/s 143(3) r.w.s. 147 of the Act. In the present case of the assessee for the assessment years in appeal, once the assessee had filed a reply letter by stating to treat the return filed u/s 139 of the Act to be the return in response to notice u/s 148 of the Act, then in our considered opinion the AO is duty bound to serve the statutory notice u/s 143(2) of the Act to assume jurisdiction as the notice u/s 143(2) of the Act is the jurisdictional notice and non-issuance of notice is not curable. The service of notice on the assessee under section 143(2) of the Act within the prescribed period of time is a prerequisite for framing the re- assessment once the return has been filed by the assessee.
11.1 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 of the Act. Thus, the Section 144 of the Act concededly deals with the situation where inter alia, the assessee fails to file a return or fails to comply with all the terms of the notice issued under section 142 of the Act or fails to comply with the direction issued under sub section (2A) of section 142 or fails to comply with the terms of the notice issued under section 143(2) of the Act. Therefore, for the AO to take recourse to section 144 of the Act was completely uncalled for. We are of the considered opinion that where the return of income has been filed in response to notice u/s 148 of the Act and no notices has been validly issued by the AO u/s 143(2) of the Act, the subsequent assessment proceedings u/s 147 stand vitiated and to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 12 of 23 the order so passed by the AO u/s 144 r/w 147 deserve to be set- aside.
11.2 Before proceeding further it is apposite here to mention the relevant provisions of the Act dealing with the issue which are as under:-
[Issue of notice where income has escaped assessment 148: Before making the assessment, reassessment or recomputation under section 147, the assessing officer shall serve a notice requiring him to furnish within such period, as may be specified in the notice, a return of his 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 for as may be, apply accordingly as if such return were a return required to be furnished under section 139; 143(2): Where a return has been furnished under section 139, or in response to a notice under section (1) of section 142, the assessing officer shall,-
(i) Where he has reason to believe that nay claim of loss exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying part5iculars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, cause to be produced, any to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 13 of 23 evidence or particulars specified therein or on which the assessee may rely, in support of such claim;
Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003;
(ii) Notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not understand the income or has not computed excessive loss or has not under- paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce or cause to be produced any evidence on which the assessee may rely in support of the return:
Provided that no notice under clause(ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.
[Notice deemed to be valid in certain circumstances.
292BB. Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was— (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner:
Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.] to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 14 of 23 11.3 After going through the above provisions, we take a note of the fact that the reply letter dated 20/05/2019 was filed by the assessee requesting to treat the return filed u/s. 139(1) of the Act on 28/09/2015 as the return filed in response to notice issued u/s.148 of the Act. The AO had also not treated the return filed u/s 139 of the Act to be defective. The reply letter was filed way before the passing of the Order u/s 144 r.w.s 147 of the Act. The AO had also considered the return filed u/s 139 of the Act while concluding the Assessment proceedings. Further, we are of the view that once the assessee participated in the reassessment proceedings and submitted his response on various dates and therefore there is no necessity to invoke the provision of section 144 of the Act. It is immaterial whether the AO has passed the order u/s. 143(3) or 144 of the Act, when there is a return and the AO wanted to disallow some claim, it is mandatory on the part of the AO to issue a statutory notice u/s. 143(2) of the Act. Once the assessee had requested the AO to treat the return of income filed u/s. 139(1) of the Act as the return in response to notice u/s. 148 of the Act, then the AO ought to have issued a statuary notice u/s. 143(2) of the Act. Further, the Supreme Court decision in the case of GKN Driveshaft relied upon by the AO to reject the request of the assessee is also not correct as it was on different sets of facts and circumstances and it cannot be relied upon for rejecting the request of the assessee in treating the return filed u/s. 139(1) of the Act to be return in response to notice u/s. 148 of the Act.
11.4 Further, we also do not agree with the contention of the ld. DR that the assessee shall be precluded from taking any objection with regard to service of notice in an improper manner if he has appeared in any proceedings or co-operated in any enquiry relating to an assessment. Section 292BB of the Act talks about to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 15 of 23 three situations i.e. non service of notice, non service in time & service of notice in an improper manner, whereas in the present case after filing the reply letter to treat the return u/s 139 of the Act to be the return u/s 148 of the Act, the AO completely failed to issue statutory notice u/s 143(2) of the Act in order to assume jurisdiction. Thus, the section 292BB of the Act provides a deeming fiction for service of notice, but does not cure non-issuance of Notice u/s 143(2) of the Act. We are of the considered opinion that it is not discretionary rather mandatory for an assessing officer to issue notice u/s 143(2) of the Act once the return of income is filed by assessee during the course of re-assessment proceedings. The only relaxation in the case of re assessment is that notice u/s 143(2) can be issued at any time before the expiry of time limit for completing assessment/ re assessment and the same will be deemed as valid notice.
11.5 Once notice u/s 148 of the Act, issued to the assessee required it to file a return within 30 days from the date of service of such notice, there is no provision in the Act, which would allow an AO to treat the return which was already subject to a processing u/s 143(1) of the IT Act, as a return filed pursuant to a notice subsequently issued u/s 148 of the Act. However, once an assessee itself declare before the AO that his earlier return can be treated as filed pursuant to notice u/s 148 of the IT Act, two results can follow. Assessing Officer can either say no, this will not be accepted, you have to file a fresh return or he has to accept the request of the assessee and treat the earlier returns as one filed pursuant to the notice u/s 148 of the IT Act. In the former scenario, the AO has to follow the procedure set out for a best of judgment assessment and cannot make an assessment under section 143(3) of the Act. On the other hand, if the AO chose to accept assessee's request, he can indeed make an assessment under section 143(3). If the AO accepts to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 16 of 23 the request of the assessee, this in turn makes it obligatory to issue notice u/s 143(2) after the request by the assessee to treat his earlier return as filed in pursuance to notices u/s 148 of the Act. In the present case the AO neither refused to accept the request letter not specifically denied the same, however preferred to pass order under section 144 r.w.s. 147 of the Act by stating that the assessee did not file his return in response to notice u/s 148 of the Act which is completely unacceptable.
11.6 We also make it clear that during the assessment years in appeal, there was also no such provision under the Act that if the assessee furnished any return as required u/s 148 of the Act beyond the period allowed, then such return shall not be deemed to be a return u/s 139 of the Act. In fact the 3rd Proviso to section 148 of the Act was only introduced by the Finance Act, 2023, w.e.f 01/04/2023 which are reproduced below- “[Provided also that any return of income, required to be furnished by an assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139.]”
Therefore, we are of the considered view that even if the assessee filed his request letter beyond the period allowed as per the notice u/s 148 of the Act, still the same will be treated as return furnished u/s 139 of the Act & the AO is bound to issue notice u/s 143(2) of the Act being a Jurisdictional notice. We find that the AO had not issued any notice u/s. 143(2) of the Act before completing the assessment proceedings u/s. 147 of the Act and therefore, the same is not accordance with the law and non-issuance of notice u/s. 143(2) of the Act is fatal one and it cannot be cured u/s. 292BB of the Act. to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 17 of 23 11.7 In coming to the above conclusion, we draw support & guidance from the judgment of the Hon’ble Supreme Court, in the case of Assistant Commissioner of Income-tax v. Hotel Blue Moon reported in (2010) 321 ITR 362 (SC) wherein it was held as follows:-
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.
11.8 Further, the above judgement of the Hon’ble Supreme Court was followed by the Hon’ble Delhi High Court in the case of Pr. CIT v. Shri Jai Shiv Shankar Traders (P) Ltd reported in 383 ITR 448 (Delhi) wherein it was held as follows:-
“12. The narration of facts as noted above by the Court makes it clear that no notice under Section 143(2) of the Act was issued to the Assessee after 16th December 2010, the date on which the Assessee informed the AO that the return originally filed should be treated as the return filed pursuant to the notice under Section 148 of the Act.
In DIT v. Society for Worldwide Interbank Financial Telecommunications [2010] 323 ITR 249 (Delhi), this Court invalidated an reassessment proceedings to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 18 of 23 after noting that the notice under Section 143(2) of the Act was not issued to the Assessee pursuant to the filing of the return. In other words, it was held mandatory to serve the notice under Section 143(2) of the Act only after the return filed by the Assessee is actually scrutinised by the AO.
The interplay of Sections 143 (2) and 148 of the Act formed the subject matter of at least two decisions of the Allahabad High Court. In CIT v. Rajeev Sharma [2011] 336 ITR 678/[2010] 192 Taxman 197 (All.) it was held that a plain reading of Section 148 of the Act reveals that within the statutory period specified therein, it shall be incumbent to send a notice under Section 143(2) of the Act. It was observed: "the provisions contained in sub-Section (2) of Section 143 is mandatory and the legislature in their wisdom by using the word 'reason to believe' had cast a duty on the Assessing Officer to apply mind to the material on record and after being satisfied with regard to escaped liability, shall serve notice specifying particulars of such claim. In view of the above, after receipt of return in response to notice under Section 148, it shall be mandatory for the AO to serve a notice under sub-Section (2) of Section 143 assigning reason therein. In absence of any notice issued under sub-Section (2) of Section 143 after receipt of fresh return submitted by the Assessee in response to notice under Section, the entire procedure adopted for escaped assessment, shall not be valid."
In a subsequent judgment in CIT v. Salarpur Cold Storage (P.) Ltd. [2015] 228 Taxman 48 (All.) (Mag.) it was held as under: "10. Section 292 BB of the Act was inserted by the Finance Act, 2008 with effect from 1 April 2008. Section 292 BB of the Act provides a deeming fiction. The deeming fiction is to the effect that once the assessee has appeared in any proceeding or cooperated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under the provisions of the Act, which is required to be served on the assessee, has been duly served upon him in time in accordance with the provisions of the Act. The assessee is precluded from taking any objection in any proceeding or enquiry that the notice was (i) not served upon him; or (ii) not served upon him in time; or (iii) served upon him in an improper manner. In other words, once the deeming fiction comes into operation, the assessee is precluded from raising a challenge about the service of a notice, service within time or service in an improper manner. The proviso to Section 292 BB of the Act, however, carves out an exception to the effect that the Section shall not apply where the assessee has raised an objection before the completion of the assessment or reassessment. Section 292 BB of the Act cannot obviate the requirement of complying with a jurisdictional condition. For the Assessing Officer to make an order of assessment under Section 143 (3) of the Act, it is necessary to issue a notice under Section 143 (2) of the Act and in the absence of a notice under Section 143 (2) of the Act, the assumption of jurisdiction itself would be invalid."
In the same decision in Salarpur Cold Storage (P.) Ltd. (supra), the Allahabad High Court noticed that the decision of the Supreme Court in Hotel Blue Moon (supra) where in relation to block assessment, the Supreme Court held that the to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 19 of 23 requirement to issue notice under Section 143(2) was mandatory. It was not "a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with."
The Madras High Court held likewise in Sapthagiri Finance & Investments v. ITO [2012] 210 Taxman 78 (Mad.) (Mag.). The facts of that case were that a notice under Section 148 of the Act was issued to the Assessee seeking to reopen the assessment for AY 2000-01. However, the Assessee did not file a return and therefore a notice was issued to it under Section 142 (1) of the Act. Pursuant thereto, the Assessee appeared before the AO and stated that the original return filed should be treated as a return filed in response to the notice under Section 148 of the Act. The High Court observed that if thereafter, the AO found that there were problems with the return which required explanation by the Assessee then the AO ought to have followed up with a notice under Section 143(2) of the Act. It was observed that: "Merely because the matter was discussed with the Assessee and the signature is affixed it does not mean the rest of the procedure of notice under Section 143(2) of the Act was complied with or that on placing the objection the Assessee had waived the notice for further processing of the reassessment proceedings. The fact that on the notice issued u/s 143(2) of the Act, the assessee had placed its objection and reiterated its earlier return filed as one filed in response to the notice issued u/s 148 of the Act and the Officer had also noted that the same would be considered for completing of assessment, would show that the AO has the duty of issuing the notice under Section 143(3) to lead on to the passing of the assessment. In the circumstances, with no notice issued u/s 143(3) and there being no waiver, there is no justifiable ground to accept the view of the Tribunal that there was a waiver of right of notice to be issued u/s 143(2) of the Act."
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.
The resultant position is that as far as the present case is concerned the failure by the AO to issue a notice to the Assessee under Section 143(2) of the Act subsequent to 16th December 2010 when the Assessee made a statement before the AO to the effect that the original return filed should be treated as a return pursuant to a notice under Section 148 of the Act, is fatal to the order of re-assessment.”
The above judgement made it clear that notice u/s. 143(2) of the Act is mandatory before passing the order. to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 20 of 23 11.9 Further the Hon’ble High court of Delhi in the case of Principal Commissioner of Income-tax v. S.G. Portfolio (P.) Ltd (2023) 454 ITR 761, has held as under- “21. As noted above, the assessment order in the second round was passed under section 147 read with section 144 of the Act.
Section 144 of the Act concededly deals with the situation where inter alia, the assessee fails to file a return or fails to comply with all the terms of the notice issued under section 142 or fails to comply with the direction issued under sub- section (2A) of section 142 or fails to comply with the terms of the notice issued under section 143(2) of the Act.
As noted above, the record shows that the respondent/assessee's return was in place. The respondent/assessee had taken the plea that the earlier return should be treated as a return in response to notice under section 148 of the Act.
Therefore, for the AO to take recourse to section 144 of the Act was completely uncalled.
In our opinion, section 144 of the Act was taken recourse to under a mistaken belief, or otherwise, that there was no return on record.
Since a response was on record, undoubtedly, the AO was required to issue a notice under section 143(2) of the Act and then proceed further in the matter, and perhaps thereafter, frame an assessment under section 147 read with section 144 of the Act. 26.1 This was not done.
Therefore, we are of the view that order passed by the Tribunal does not call for any interference.”
11.10 In the case of PCIT v. Oberoi Hotels (P.) Ltd Reported in (2018) 409 ITR 132, the Hon’ble Calcutta High Court held as under- “The two substantial questions of law are answered accordingly as follows: (1) If the time for issuance of the notice under Section 143(2) of the Act has expired or the time for completing the reassessment proceedings under Section 153(2) of the Act has run out, the failure to issue such notice under Section 143(2) to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 21 of 23 of the Act would result in the entire proceedings, including any order of assessment, to be quashed. (2) Section 292BB of the Act does not dispense with the issuance of any notice that is mandated to be issued under the Act, but merely cures the defect of service of such notice if an objection in such regard is not taken before the completion of the assessment or reassessment. In addition, it is held that in the light of the Supreme Court dictum in Hotel Blue Moon, the view expressed in Humboldt Wedag India Pvt. Ltd is per incuriam and, as such, not good law.”
11.11 The Hon’ble Patna High Court in the case of Commissioner of Income-tax - 11 vs. Nagendra Prasad [2023] 156 taxmann.com 19 (Patna)[02-08-2023] has held as under- “3. The Tribunal found, relying on the decision in Hotel Blue Moon (supra) that the proceedings are liable to be struck down. It was held that the return was filed by the assessee in response to the notice under section 148 though delayed and in such circumstance, there should have been a notice issued under section 143(2) as has been held in Hotel Blue Moon (supra).
The only question of law arising in the facts and circumstances of the case is whether notice should have been issued under section 143(2) of the Income-tax Act? 5. Admittedly, the notice was issued by the Assessing Officer under section 148 of the Act on 14-7-2008 requiring the assessee to file a return within thirty days. A return was filed much later on 31-3-2009, after eight and a half months.
On identical facts, in M.A. No. 239 of 2011 titled as Chand Bihari Agrawal v. Commissioner Of Income Tax, Central, Patna decided on 25-7-2023, this Court considered the issue and held against the revenue.
We find that the question of law has to be answered in favour of the assesee and against the revenue. Hotel Blue Moon (supra) governs the issue which has been followed in Chand Bihari Agrawal (supra).”
11.12 We relying on the above judgments are also of the opinion that the re-assessment proceedings concluded without a valid notice under section 143(2) is bad in law and liable to be quashed in entirety as the return of income filed on 28/09/2015 is a valid return of income u/s 148 of the Act. Even otherwise and without prejudice, no assessment could have been undertaken even under section 144 of the Act without issue of a valid notice under to 824/Bang/2025 Intact Developers Pvt. Ltd., Bangalore Page 22 of 23 section 143(2) of the Act. Further as observed by the Hon’ble Supreme Court in the case of ACIT & Anr. Vs. Hotel Blue Moon (2010) 321 ITR 362 (SC), the omission on the part of the AO to issue notice under sec.143(2) of the Act can not be held to be a procedural irregularity, and the same is not curable. The failure of AO in reassessment proceeding to issue a valid notice under section 143(2) of the Act prior to finalizing the reassessment order cannot be condoned. It was held by the Hon’ble Supreme Court that for the purpose of framing of a valid assessment, issuance of a notice under section 143(2) of the Act cannot be dispensed with.
Thus from the aforesaid discussions, we come to the conclusion that for the AO to take recourse to section 144 of the Act was completely uncalled for. We are of the considered opinion that where the return of income has been filed in response to notice u/s 148 of the Act, the non-issuance of the notice by the AO u/s 143(2) of the Act is fatal and accordingly the subsequent assessment proceedings u/s 147 stand vitiated and the order so passed by the AO u/s 144 r/w 147 are null & void.
Accordingly, the appeals of the assessee for the AY 2015-16 to AY 2017-18 are allowed.