HARIPRIYA TEKUPALLY,HYDERABAD vs. INCOME TAX OFFICER, INT TXN - 2, HYDERABAD

Aggrieved by the above proposed additions under the head “Long term capital gains” by the Assessing Officer, the assessee has opted for filing objections before the 5 ITA.Nos.786 & 787/Hyd./2024 Disputes Resolution Panel [in short “DRP”], Bangalore vide application dated 26.04.2023. The DRP after hearing the objections of the assessee, was of the opinion that the assessee ought to have file his objections against each such proposed variations in the Draft Assessment order within 30 days in prescribed Form-35A before it and the assessee had furnished Form-35A on 26.04.2023 after the prescribed time limit of 30 days and accordingly dismissed the objections of the assessee vide it’s directions dated 01.11.2023 u/sec.144C(5) of the Act.

Since the DRP is a superior authority, the Assessing Officer has given effect to the directions of DRP and passed his Final Assessment order by making addition of Rs.68,06,390/- being ½ share in each hands of these two assessee’s vide Final Assessment Order dated 02.11.2023 passedu/sec.147 r.w.s.144C(13) of the Act.

Aggrieved by the Final Assessment order of the Assessing Officer, the assessee carried the matter in appeal before the learned CIT(A) and the learned CIT(A) dismissed the appeal of the assessee vide order dated 26.06.2024 on 6 ITA.Nos.786 & 787/Hyd./2024 the ground that, against the directions of DRP the appeal lies with the Income Tax Appellate Tribunal and he lacks jurisdiction. Accordingly, the learned CIT(A) dismissed the appeal of the assessee in limine.

Aggrieved by the order of the learned CIT(A), the assessee has filed before the Tribunal. The ITAT, Hyderabad Benches, Hyderabad vide it’s order dated 11.02.2015 in ITA.Nos.786 & 787/Hyd./2024 has disposed of the appeal filed by the assessee’s and rejected the contentions of the assessee’s. Thereafter, the assessee has filed Miscellaneous Application u/sec.254(2) of the Income Tax Act, 1961 against the Order of the Tribunal dated 11.02.2015 and the Tribunal vide it’s order dated 19.05.2025 in M.A.Nos.16 & 17/Hyd./2025 has recalled the order of the Tribunal dated 11.02.2025 passed in ITA.Nos.786 & 787/Hyd./2024 qua grounds nos.6 and 7 of assessee’s appeals for re- adjudication on the ground that, there is a mistake apparent on record in not specifically adjudicating ground nos.6 and 7 of assessee’s appeals. Therefore, the present appeals ITA.Nos.786 & 787/Hyd./ 2024 were heard to 7 ITA.Nos.786 & 787/Hyd./2024 decide the ground nos.6 and 7 of assessee’s appeals alone and grounds of appeal nos.6 and 7 of assessee’s appeal in ITA.No.786/Hyd./2024 reads as under :

Learned Counsel for the Assessee referring to ground no.6 submitted that, the Assessing Officer has erred in law, in not following the provisions of section 130, 144B and 153A of the Income Tax Act, 1961 [in short "the Act"] along with CBDT Circular dated 28.03.2022 and 29.03.2022 mandating re-assessment proceedings only in faceless manner. Learned Counsel for the Assessee referring to the CBDT Notification No.187/2020 dated 13.08.2020 submitted that, all the assessment orders passed through

Learned Counsel for the Assessee further referring to ground no.7 of the assessee’s appeal submitted that, the Assessing Officer has failed to issue notice u/sec.143(2) of the Act before completion of the assessment, which render the assessment order illegal, void abinitio and liable to be quashed. Learned Counsel for the Assessee referring to the decision of ITAT, Hyderabad A-Bench, Hyderabad in the case of Jahangir Syed, Hyderabad vs., ITO, Ward-8(2), Hyderabad in ITA.No.646/Hyd./2023 dated 30.06.2025 submitted that, once an assessee filed his return of income, in response to notice issued under section 10 ITA.Nos.786 & 787/Hyd./2024 148 of the Act, even if belated, it is the duty of the Assessing Officer to issue notice u/sec.143(2) of the Act as mandated under the law and in case, the assessment has been completed without issuing statutory notice under section u/sec.143(2) of the Act, then, the said assessment order become illegal and liable to be quashed. In this regard he relied upon decision of Hon'ble Supreme Court in the case of ACIT vs., Hotel Blue Moon [2010] 321 ITR 362 (SC).

Sri Siva Prasad SV, learned Sr. AR for the Revenue, on the other hand supporting the order of the learned CIT(A) submitted that, as per Notification issued by the CBDT dated 13.08.2020, all the assessment orders passed through the Faceless Assessment Scheme-2019, shall be passed by National e-Assessment Centre through Faceless Assessment Scheme-2019, except, in cases, where the assessment orders assigned to International Tax charges. Since, the case of the assessee has been assigned to international taxation charges, the mandatory Faceless Scheme of Assessment, is not applicable to the present case. Learned Sr. AR further referring to notice issued 11 ITA.Nos.786 & 787/Hyd./2024 under section 148 of the Act dated 26.03.2021 and Notification issued by the CBDT dated 29.03.2022 submitted that, the CBDT in order to give effect to the provisions of section 151A of the Act, has issued Notification for the purpose of Faceless Assessment, Re-assessment or Re-computation and as per the said Notification, issuance of notice u/sec.148 of the Act shall be through automated allocation and in a faceless manner to the extent provided in section 144B of the Act. Since the Notification of the CBDT is came into effect from the date of Gazette i.e., on 29.03.2022, issuance of notice by the Faceless Assessing Officer as provided under section 144B of the Act, is not applicable to the present case. In this case, notice under section 148 of the Act has been issued before the Scheme was notified by the CBDT on 29.03.2022. Therefore, he submitted that, there is no merit in the ground taken by the assessee on this issue and thus, the same should be rejected.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The assessee has challenged the validity of the assessment order passed by the Income Tax Officer, International Taxation-2, Hyderabad dated 02.11.2023, and argued that, it is contrary to the provisions of section 151A of the Act and Notification issued by the CBDT dated 29.03.2022. Therefore, notice issued u/sec.148 of the Act by the jurisdictional Assessing Officer instead of Faceless 14 ITA.Nos.786 & 787/Hyd./2024 Assessing Officer is contrary to provisions of section 151A and Notification of the CBDT. We find that, provisions of section 151A has been inserted by the Taxation and Other Laws [Relaxation and Amendment of Certain Provisions] Act, 2020 [in short “TOLA”] w.e.f. 01.11.2020. As per section 151A(1), the Central Government may make a Scheme, by Notification in the Official Gazette, for the purpose of assessment, re-assessment or re-computation under section 147 or issuance of notice under section 148 or sanction for issue of such notice under section 151, so as to impart greater efficiency, transparency and accountability. Sub- section (2) of sec.151A makes it clear that, the Central Government may, for the purpose of giving effect to the Scheme made under sub-section (1), by Notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification, provided that no direction shall be issued after. 31st day of March 2022. Further to give effect to the Faceless Assessment of Income Scheme of as per section 15 ITA.Nos.786 & 787/Hyd./2024 151A of the Act, the CBDT vide Notification dated 29.03.2022 formulated a Scheme for issue of notice in faceless manner to the extent provided in section 144B of the Act and such notification has been issued on 29.03.2022 in the Official Gazette. Before that, as per notification issued by the CBDT dated 13.08.2020 and 06.09.2021, the Faceless Assessment of income in respect of cases assigned to Central Charges or International Tax Charges are, excluded from the Scheme of Faceless Assessment. In otherwords, before issue of Notification dated 29.03.2022, issue of notice u/sec.148 or assessment of income of an assessee assessable under international tax charges is not mandated through Faceless Assessment Scheme. Only upon issue of Notification dated 29.03.2022, it was mandatory to issue notice u/sec.148 of the Act through Automated Allocation in accordance with Risk Management Strategy Formulated by the Board as referred to in sec.148 for issue of notice in a Faceless manner to the extent provided u/sec.144B of the Act. In the present case, admittedly, notice u/sec.148 of the Act was issued on 16 ITA.Nos.786 & 787/Hyd./2024 26.03.2021 by the Income Tax Officer, International Taxation-2, Hyderabad i.e., jurisdictional Assessing Officer and the assessment has also been completed without following the Faceless Assessment Procedure. Since the notice u/sec.148 has been issued prior to notification of Faceless Assessment Scheme vide notification dated 29.03.2022, in our considered view, the arguments advanced by the Learned Counsel for the Assessee in light of Judgment of Hon’ble High Court for the State of Telangana in the case of Venkata Ramana Reddy Patloola vs., DCIT, Circle-1(1), Hyderabad (supra) that, notice issued by the jurisdictional Assessing Officer is contrary to sec.151A of the Act and Notification of CBDT cannot be accepted.

In so far as case law relied upon by the Learned Counsel for the Assessee in the case of Sri Venkataramana Reddy Patloola (supra), in our considered view, the facts of the above case are totally different because, in the above case notice under section 148 of the Act was issued by the DCIT, Circle-1(1), on 26.04.2022 without following Faceless 17 ITA.Nos.786 & 787/Hyd./2024 Assessment Scheme, even though, the Faceless Assessment was notified by the CBDT on 29.03.2022. Therefore, under those facts, the Hon’ble High Court for the State of Telangana has held that, notice issued by jurisdictional Assessing Officer without following the Faceless Assessment Scheme is void abinitio and liable to be quashed. In the present case, since the notice under section 148 of the Act was issued prior to notification of the Faceless Assessment Scheme, in our considered view, the case law relied upon by the Learned Counsel for the Assessee does not apply and thus, rejected. Therefore, we are of the view that, there is no merit in the arguments of the Counsel for the Assessee in light of ground no.6 and thus, ground no.6 of assessee’s appeal is rejected.

Coming back to ground no.7 of assessee’s appeal. Learned Counsel for the Assessee challenged validity of assessment order passed by the Assessing Officer under section 147 of the Act, without mandatorily issuing statutory notice u/sec.143(2) of the Act. As per the provisions of section 143(2) of the Act, where return has 18 ITA.Nos.786 & 787/Hyd./2024 been furnished under section 139 or in response to notice under sub-section (1) of section 142, the Assessing Officer as the case may be, if considers it necessary or expedient to ensure that the assessee has not understated the income, shall serve on the assessee a notice requiring him, on a date specified therein, either to attend the office of the Assessing Officer or to produce or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return. As per the plain reading of section 143(2) of the Act, notice u/sec.143(2) of the Act is required to be issued only in a case, where a return has been furnished under section 139 or in response to notice under section 142(1) of the Act. Further, third proviso to section 148 of the Act, deals with return of income and as per the said proviso, 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 filed under section 139 of the Act. On a conjoint reading of section 143(2) r.w.s.148 of the Act and third proviso provided therein, the requirement of issuance of 19 ITA.Nos.786 & 787/Hyd./2024 notice u/sec.143(2) of the Act arise only in a case where the return of income has been furnished under section 139 of the Act or within the due date provided in the notice issued under section 148 of the Act or notice issued under section 142(1) of the Act.

In the present case, although, the assessee has not furnished return of income on or before the due date provided under section 139 or even due date provided in notice issued under section 148 of the Act, but, the assessee has furnished a return, in response to notice issued under section 142(1) and furnished a return of income on 07.09.2022. Further, the Assessing Officer had also taken into account the return of income filed by the assessee for the purpose of assessment, which is evident from the assessment of income towards capital gain. Therefore, once the Assessing Officer considered the return of income furnished by the assessee dated 07.09.2022 in response to notice under section 142(1) of the Act, in our considered view, then, the Assessing Officer is bound to issue notice u/sec.143(2) of the Act before completion of the assessment.

We shall first deal with the Ld. DR’s contention that as the assessee had delayed the filing of his return of income in compliance to the notice issued under Section 148 of the Act, dated 27.03.2019 i.e. filed the same beyond the prescribed period of 30 days on 11.12.2019, therefore, the A.O. had rightly refrained from issuing notice u/s 143(2) of the Act, and had framed the assessment vide his order passed under Section 143(3) r.w.s. 147 of the Act, dated 31.12.2019.

It is a matter of fact borne from the record that the assessee pursuant to the notice u/s 148 of the Act, dated 27.03.2019, had filed his “return of income” beyond the prescribed period of 30 days i.e. on 11.12.2019. Admittedly, the A.O. not only in his order passed u/s 143(3) r.w.s. 147 of the Act, dated 31.12.2019 specifically mentioned that the assessee had filed his return of income for the subject year, but also had, inter 22 ITA.Nos.786 & 787/Hyd./2024 alia, while quantifying the assessed income considered the “income from other sources” of Rs.3,47,921/- that was declared by the assessee in the said return of income. We are of the firm conviction, that merely for the reason that the assessee had delayed the filing of his “return of income” in compliance to the notice u/s. 148 of the Act, dated 27.03.2019, and had filed the same on 11.12.2019, i.e. after the lapse of the prescribed period allowed in the aforesaid notice, the same could by no means form a basis for treating the said “return of income” as invalid. Our aforesaid conviction is fortified by the fact that in case of a delay involved in filing the “return of income” in compliance to the notice under Section 148 of the Act, i.e. furnishing of the same after the prescribed period, the assessee is visited with the levy of interest for the delayed period u/s. 234A of the Act. On a bare perusal of Section 234A(3) of the Act, it transpires that though the said statutory provision contemplates that the delay involved in the filing of a “return of income” in response to the notice under Section 148, i.e. furnished after the “due date” is to be subjected to levy of interest, but the same in no way provides that the “return of income” so filed is to be held as invalid. Our aforesaid view is fortified by the order of the ITAT, Mumbai in the case of Smt. Amina Ismil Rangari Vs. ITO, Ward-17(2)(4), dated 15.09.2017. In the aforesaid case, the assessee's claim for exemption u/s. 54F of the Act was declined by the A.O., for the reason that the same was raised in the “return of income” that was filed u/s. 148 of the Act beyond the specified period. The A.O. was of the view that as the “return of income” filed in compliance to the notice u/s. 148 of the Act was not a valid "return of income", thus, the assessee was not entitled to the claim of exemption u/s. 54F of the Act as was raised by her. On appeal, the aforesaid view of the A.O. was 23 ITA.Nos.786 & 787/Hyd./2024 vacated by the Tribunal. It was observed that the “return of income” filed by the assessee beyond the specified period contemplated in the notice u/s. 148 of the Act would though lead to characterizing the same as a “return of income” filed beyond the prescribed period, but the same would not cease to be a “return of income” filed in response to the notice u/s. 148 of the Act. Also, we find that our aforesaid view is fortified by the judgment of the Hon'ble High Court of Kerala in the case of The Chirakkal Service Co-operative Bank Ltd. Vs. The Commissioner of Income Tax, (2016) 384 ITR 490 (Ker). The indulgence of the Hon'ble High Court was, inter alia, sought for adjudicating the following substantial question of law.

Apropos the validity of the assessment framed by the A.O. vide his order passed u/s 143(3) r.w.s. 147 of the Act, dated 31.12.2019, wherein he despite taking cognizance of the “return of income” filed by the assessee on 11.12.2019 in response to the notice issued under Section 148 of the Act, dated 27.03.2019 (which has been held by us hereinabove to be a valid return of income), had by treating the said “return of income” as invalid, dispensed with the statutory requirement of issuing a notice u/s 143(2) of the Act and framed the assessment vide his order passed u/s 143(3) r.w.s. 147 of the Act, dated 31.12.2019, we find that the said issue is covered by the judgments of the Hon'ble Supreme Court in the cases of ACIT and Anr. Vs. Hotel Blue Moon (2010) 321 ITR 362 (SC) and CIT Vs. Laxman Das Khandelwal (2019) 417 ITR 325 (SC) and is no 26 ITA.Nos.786 & 787/Hyd./2024 more res integra. The Hon'ble Apex Court in its aforesaid judicial pronouncements, has held, that the A.O. pursuant to the return of income filed by the assessee remains under the statutory obligation to issue notice u/s 143(2) of the Act for framing the assessment.

Our aforesaid view is further fortified by the judgment of the Hon’ble High Court of Delhi in the case of Pr. CIT Vs. Shri Jai Shiv Shankar Traders (P) Ltd. (2016) 3783 ITR 488 (Del). The Hon’ble High Court had held that the absence of notice u/s.143(2) of the Act impregnates the proceeding with a jurisdictional defect, and hence, renders it as invalid in the eyes of law. The aforesaid view had thereafter been reiterated by the Hon’ble High Court in the case of Pr. CIT Vs. Dart Infrabuild (P) Ltd., (2024) 166 taxmann.com 4 (Del). Also, the Hon’ble High Court of Allahabad in the case of CIT Vs. Salarpur Cold Storage (P) Ltd. (2015) 228 Taxman 48 (Allahabad) had after relying upon the judgment of the Hon’ble Apex Court in the case of CIT Vs. Hotel Blue Moon (supra), held that the requirement of issuance of notice u/s.143(2) of the Act was mandatory and cannot be brought within the meaning of a procedural irregularity. The Hon’ble High Court of Madras in the case of Sapthagiri Finance & Investments Vs. ITO, (2012) 25 taxmann.com 341 (Mad), has held that where the A.O found that there was a problem in the “return of income” filed by the assessee u/s.148 of the Act, which required an explanation, then he ought to have followed up by a notice u/s.143(2) of the Act. The Hon’ble High Court of Delhi in the case of Pr. CIT Vs. S.G Portfolio (P) Ltd. (2023) 454 ITR 761 (Del.) has, inter alia, held that where the assessee has filed a “return of income” in response to notice u/s. 148 of the Act, the A.O. was required to issue notice u/s.143(2) of the Act for framing the assessment. We 27 ITA.Nos.786 & 787/Hyd./2024 further find that Hon’ble High Court of Madras in the case of Amec Foster Wheeler Iberia SLU-India Project Office Vs. DCIT, (2023) 148 taxmann.com 124 (Mad), has held that where the A.O did not issue notice u/s.143(2) of the Act upon the assessee, then the initiation of reassessment proceedings; order rejecting the assessee’s objection against the assumption of jurisdiction for reopening and also the reference to the TPO were to be quashed.

Apropos the Ld. DR’s claim that as the assessee in the course of the proceedings before the A.O had not objected to the assumption of the jurisdiction by him, and on the contrary participated in the assessment proceedings, therefore, the non- issuance of the notice u/s 143(2) of the Act will be saved by the provisions of Section 292BB of the Act, we are unable to concur with the same. We say so, for the reason that the deeming provisions of the said statutory provision only cure the infirmities in the manner of service of notice and is not intended to cure the complete absence of notice itself. Our aforesaid view is supported by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Laxman Das Khandelwal (2019) 417 ITR 325 (SC). The Hon’ble Apex Court relying on its earlier order in the case of ACIT Vs. Hotel Blue Moon (supra), has held that the failure to issue a notice under Section 143(2) renders the assessment order void even if the assessee had participated in the proceedings.

We thus, based on our aforesaid deliberations conclude as under:

Accordingly, we are of the view that as the A.O in the present case before us, had erroneously held the “return of income” filed by the assessee on 11.12.2019 i.e in response to the notice u/s 148 of the Act, dated 27.03.2019 as invalid and non-est, and thereafter had on the said wrong premises dispensed with the statutory requirement of issuing the notice u/s 143(2) of the Act, and framed the impugned assessment vide his order passed under Section 143(3) r.w.s. 147 of the Act, dated 31.12.2019, therefore, the assessment order so passed by him cannot be sustained and is liable to be quashed for want of valid assumption of jurisdiction.

The facts and issues involved in this appeal are identical to the facts and issues which we have considered 30 ITA.Nos.786 & 787/Hyd./2024 in appeal ITA.No.786/Hyd./2024 in the case of Gangaram Reddy Tekulapalli. The reasons given by us in the preceding paragraph nos.10 to 15 shall equally apply to this appeal as well. Therefore, for similar reasons, we reject ground no.6 of assessee’s appeal and allow ground no.7 of the assessee.

In the result appeal ITA.No.787/Hyd./2024 of the assessee is partly allowed.