ARIMILLI RAMA KRISHNA,WEST GODAVARI DIST vs. ACIT, CIRCLE-1, RAJAHMUNDRY

5. Without prejudice to Ground no.2 to 4, the learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.2,14,97,772 made by the assessing officer u/s 2(22)(e) of the Act towards deemed dividend.

6. Any other ground that may be urged at the time of appeal hearing.”

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna than the turnover. The AO, vide his order passed under section 143(3) of the Act dated 27.06.2016, framed the assessment and accepted the income returned by the assessee, as such.

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna Ltd., and was holding not less than 10% of the voting power. The AO observed that the assessee, during the year under consideration, had withdrawn an amount of Rs. 7,93,44,000/- as against the credit balance of Rs. 2,01,40,100/- (Cr) available in his Current Account maintained with the above-mentioned company. It was, thus, observed by the AO that the assessee had, during the subject year, withdrawn an amount of Rs. 5,92,04,000/- over and above the credit balance available in his Current Account with the company. The AO, taking cognizance of the fact that the above-mentioned company viz., M/s. Ind Andhra Agro Products (P) Ltd., had reserves and surplus of Rs.2,14,97,772/-, thus held the excess amount withdrawn by the assessee, i.e., up to the extent of the accumulated profits available with the company as “deemed dividend” under section 2(22)(e) of the Act and made an addition of the same in the hands of the assessee. Accordingly, the AO, vide his order passed under section 143(3) r.w.s. 147 of the Act, dated 30.12.2019, determined the income of the assessee at Rs.2,21,57,712/- along with agriculture income of Rs. 55,200/-.

7. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A), as under: -

“6. Adjudication:- 6.1 I have considered the facts of the case and examined the documents uploaded by the appellant at the time of filing of appeal. The appeal is being decided after considering the same as below:

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna 6.2 The first ground of appeal is general and needs no discussion. 6.3 In the second ground the appellant has stated that no fresh facts came to the knowledge of the assessing officer and the reopening was not justified. This claim of the appellant is not correct. His case was earlier assessed under section 143(3) under limited scrutiny on the issue of investment in purchase of property. Accordingly there was no requirement for any fresh facts so far as the proceeding are concerned. The ground on which the case has been reopened is not related to this ground or at the most it can be stated that it is very remotely related and does not flow from that ground. The facts of the case leading to reopening are fresh as these have not been considered in the earlier assessment Accordingly the case law cited by the appellant is not applicable and this ground of appeal has no force and is dismissed. 6.4 In the third ground the appellant has contended that he applied for reasons recorded before issues of notice under section 148 which were not supplied by the AO. Accordingly the assessment is bad in law as per the decision of the Hon'ble Supreme Court in the case of GKN Drive Shaft India limited 259 ITR19. On going through the facts it is noticed that the appellant filed the return on 30th March 2019 and filed request for supply of reasons on 02.12.2019, that is more than 8 months after filing the return. Such request is to be filed immediately after filing the return of income, so that one can file objections to the same and the AO can consider and decide the same within a reasonable time. Against this the the other proceedings were being attended by the appellant in physical mode whereas this appellant made it just before the case was going to get barred by time limitation. Moreover request has been made through e-proceedings. This is clear from page number 23 of the paper book submitted by the appellant and is very surprising. It seems that the appellant wanted that this should not come to the notice of the AO and it would try to take advantage of the same in appeal. When everything is going on physically the AO is not supposed to look into anything having come through e-proceedings. It may be worth noting that on the same day the appellant made other submission pertaining to his assessment in physical mode. In view of these facts, it is held that the request made by the appellant was not in proper manner and in proper spirit and at the appropriate time. Accordingly there is no genuineness in this request and the ground of appeal. The appellant doesn't deserve any benefit of the decision of the Hon'ble Supreme Court. In view of the whole scenario as discussed above the ground is dismissed. 6.5 The fourth ground is that the AO completed the assessment under section 143(3) read with section 147 without issuing the notice under section 143(2) within the statutory time limit. It has been stated that the return was filed on 30th March 2019 and the notice was liable to be issued on or before 30th September 2019. However it was issued on 02.12.2019 which is beyond the prescribed time. In view of the same the assessment is claimed to be bad in law and liable to be quashed. This ground of appeal has been carefully considered. The proceedings under appeal were initiated u/s 147/148. The purpose of section 148 and 147 is reassessment i.e. assessment of the income again. Notice under section 143(2) is issued to Page. No 5

I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna inform the assessee about selection of his case under scrutiny and intimating him that his case will be scrutinized. In the case of reassessment there is no such option with the assessing officer once the notice under section 148 has been issued. This notice itself means that the case will be assessed under scrutiny. Therefore there is no requirement of issuance of notice under section 143(2) in such cases. The fact that such a notice was issued by the AO on 2nd December 2019 has not caused any prejudice to the appellant and he has no cause of grievance. As such this ground is dismissed. 6.6 In the fifth ground the appellant has alleged that the notice uls 148 was issued by an officer not holding valid jurisdiction. Such challenge has to be made u/s 120(3) within 30 days from the issuance of such notice whereas no such challenge was made by the appellant at the appropriate time. This is not the proper time and forum for making this challenge. Accordingly this ground is totally miss-placed and out of time and is not liable to be accepted. Therefore this ground of appeal is dismissed 6.7 In the sixth ground it has been alleged that the proceedings under appeal were initiated under the dictate of superior authority. It has been stated that the Ld. CIT initiated proceeding u/s 263. However the same were closed after considering the submission of the appellant and the Ld. CIT issued directions to the AO to initiate proceedings u/s 148. However no such evidence has been furnished that any such direction has been issued by any authority to the assessing officer. In his written submission the appellant has reproduced other extracts from the notices and other proceedings u/s 263. However the relevant part of the order u/s 263, vide which the alleged directions were issued, has not been reproduced. Accordingly in the absence of any evidence this ground has no meaning and no force and is not acceptable and is dismissed. 6.8 In the 7th ground the addition made under section 2(22)(e) of the Income Tax Act 1961 has been challenged. It has been stated that the appellant had offered his personal properties as collateral to the bank and also given personal guarantee for availing credit facilities for the company. Further he had given interest free advances to the company of Rs. 2 crores. In view of the same it has been claimed that when he was in need of some money to purchase property he used the funds of the company for a short period and the proceedings under section 2(22)(e) are not applicable. In his support he has cited the judgement of the Hon'ble tribunal in the case of Yarlangda Surendra Babu dated 09.03.2018. The appellant has not disputed the other facts regarding the funds taken from the company and there being sufficient surplus with the company on the date of such advance. The claim of the appellant has been gone into and carefully considered. The decision of the Hon'ble tribunal quoted by the appellant has been based on earlier decision in the case of DCIT vs Hariprasad Bhararia dated 09.09.2016. Although in those cases also the assessees had mortgaged/pledged their assets with the banks for the purposes of the concerned companies, there is a big difference. In those

Page. No 6 I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna cases all the assets had been so mortgaged/pledged whereas the appellant has not made such a claim. Moreover he used the funds of the company to buy a property, against which too he could obtain loan from the bank. As such there was no pressing compulsion to borrow the funds from the company. The funds of the company were in fact used by the appellant because these were surplus and the appellant ran dictate to use these as per his will. In view of these facts, this usage is equivalent to dividend and is liable to be deemed as dividend within the meaning of section 2(22)(e) of the Income Tax Act 1961. In these circumstances the ratio of the case cite by the appellant is not applicable. There is no other reason as to why the provisions of section 2(22)(e) are not attracted. As such the appellant has failed to establish that the provisions of section 2(22)(e) are not attracted. In these circumstances he doesn't deserve any relief and the ground of appeal is dismissed. 6.9 In the eighth ground of appeal it has been alleged that the order passed on 30.12.2019 has been served on 04.01.2020. As such it was not served in time. Under law the order is required to be passed within the given time frame, 31.12.2019 in the present case, and there is no provision that it must be served within that time. The appellant has not claimed that it was not passed in time. As such there is no irregularity or breach of law and the appellant doesn't deserve any consideration out of this ground of appeal. Accordingly this ground of appeal is also dismissed. 6.10 The 9th ground of appeal is general and needs no discussion.

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna which had lapsed way back on 30.09.2019, therefore, he had grossly erred in assuming jurisdiction and framing the impugned assessment on the basis of the aforesaid invalid notice. Carrying his contention further, the Ld.AR submitted that the assessee, in response to the notice issued by the A.O under section 148 of the Act, dated 30.03.2019, had filed his return of income on the same date, i.e., on 30.03.2019, declaring an income of Rs. 6,04,940/- along with agriculture income of Rs. 55,200/-. The Ld. AR submitted that the AO had issued the notice under section 143(2) of the Act to the assessee only on 02.12.2019. The Ld.AR submitted that as the impugned assessment had been framed by the A.O vide his order passed under section 143(3) r.w.s. 147 of the Act, dated 30.12.2019, in the absence of a valid notice issued under section 143(2) of the Act, therefore, the impugned assessment framed by him cannot be sustained and is liable to be quashed for want of a valid assumption of jurisdiction. The Ld. AR in support of his contention that a notice under section 143(2) of the Act is sine qua non for valid assumption of jurisdiction and framing of assessment by the A.O had pressed into service the judgment of the Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon (2010) (321 ITR (SC) and CIT v. Laxman Das Khandelwal (2019) 417 ITR 325 (SC). The Ld. AR drawing support from his aforesaid contention, submitted that as the impugned assessment had been framed by the AO in the absence of a valid assumption of jurisdiction by him, therefore, the same on the said count itself cannot be sustained and is liable to be quashed.

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna 10. Per contra, Shri K. Prasad, Learned Senior Department Representative (for short, “Ld. DR”), relied upon the orders of the authorities below. It was submitted by him that as the AO had validly issued notice under section 148 of the Act, dated 30.03.2019, and based on the same, framed the subject assessment, therefore, no adversity regarding the validity of the jurisdiction so assumed by him for framing the assessment vide his order passed under section 143(3) r.w.s. 147 of the Act, dated 30.12.2019, emerges from the record. Elaborating further on his contention, the Ld. DR submitted that in a case where the re-assessment proceedings are initiated by the AO based on a notice issued under section 148 of the Act, there is no further obligation cast upon him to thereafter issue a separate notice under section 143(2) of the Act for framing the assessment. Apart from that, the Ld. DR vehemently submitted that as the assessee had participated in the assessment proceedings, therefore, as per the mandate of section 292BB of the Act, it shall be deemed that the notice under section 143(2) of the Act was validly served upon the assessee and he was thereafter precluded from raising any objection as regards the validity of the same. The Ld. DR to buttress his contention had taken us through section 292BB of the Act.

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna 12. Before proceeding further, we deem it apposite to observe that it is a matter of fact borne from the record that the AO had issued notice under section 148 of the Act, 30.03.2019, wherein he had called upon the assessee to file his return of income in compliance thereto, Page 11 of APB. In response, the assessee had filed his return of income on 30.03.2019, declaring an income of Rs. 6,04,940/- along with agriculture income of Rs. 55,200/-, Page 12 of APB. Also, we find that a perusal of the assessment order reveals that the AO had issued notice under section 143(2) of the Act, dated 02.12.2019. At this stage, we may herein observe that neither is it discernible from the record nor has any material been produced before us, which would reveal that any other notice under section 143(2) of the Act was ever earlier issued to the assessee. In fact, the Ld. DR has controverted the claim of the assessee’s counsel regarding the validity of the jurisdiction assumed by the AO to frame the assessment in absence of a valid notice under section 143(2) of the Act, based on his solitary contention that as the case of the assessee was reopened and a notice under section 148 was issued to him, therefore, no further obligation was cast upon the AO to thereafter issue any notice under section 143(2) of the Act for framing the reassessment.

I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna section 143(2) of the Act was mandatorily required to be issued by the AO within the time period prescribed under the statute for framing the reassessment?

I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna income is filed in response to a notice under section 148 of the Act, but we stand corrected on our aforesaid view. We say so, for the reason that section 148 of the Act (as was available on the statute at the relevant point of time) contemplated that the provisions of the Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 of the Act. Accordingly, a return of income filed in response to notice under section 148 of the Act is to be treated as a return of income required to be furnished under section 139 of the Act. We thus, are of the view that as the return of income filed in response to the notice under section 148 of the Act is to be construed as a return of income filed under section 139 of the Act with all the provisions of the Act to be applied in the similar manner as it would apply to a return of income filed under section 139 of the Act, therefore, the AO to ensure that the assessee had not under stated the income disclosed by him in the return of income filed in response to notice under section 148 of the Act remains under a statutory obligation to issue a notice under section 143(2) of the Act, i.e., in a similar manner as if he would have done in response to a return of income furnished under section 139 or under section 142(1) of the Act.

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna with the same. We say so, for two reasons, viz., (i) as observed by us herein above, the return of income filed by the assessee in response to notice under section 148 of the Act is to be construed as if it is a return of income filed under section 139 of the Act; and (ii) that section 148 of the Act though provides for a notice to be issued to the assessee calling upon him to file his return of income, but the machinery for framing of the assessment is not provided in the said section and for the said limited purpose the return of income so filed by the assessee is to be construed as a return of income filed under section 139 of the Act and thus, for framing of the assessment pursuant to the return of income filed by the assessee in response to the notice under section 148 of the Act notice under section 143(2) of the Act is mandatorily required to be issued.

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna 17. Our aforesaid view that a notice under section 143(2) is mandatorily required to be issue where the assessee has filed a return of income in response to notice under section 148 of the Act is supported by the judgment of the Hon’ble High Court Allahabad in the case of Commissioner of Income Tax (CIT) v. Rajeev Sharma (2011) 336 ITR 678 (All). It was observed that, where the return of income is filed by the assessee in response to notice under section 148 of the Act, the AO, before proceeding to decide the controversy with regard to the escaped assessment, is mandatorily required to issue notice under section 143(2) of the Act. Also, a similar view had been taken by the Hon’ble High Court of Madras in the case of CIT v. M. Chellappan (2006) 281 ITR 444 (Madras). The Hon’ble High Court had observed that where the assessee had filed a return of income in response to notice under section 148 of the Act, but no notice under section 143(2) was issued after filing of the said return of income, then, the same is a violation of the mandatory provisions of law, and therefore, the re-assessment order passed under section 147 of the Act was a nullity and was to be quashed. Also, we find that the Hon’ble High Court of Rajasthan in the case of PCIT vs. Kamala Devi Sharma, dated 10/07/2018, had observed that the issue of notice under section 143(2) of the Act in reassessment proceedings, prior to finalizing reassessment order cannot be condoned by referring to section 292BB of the Act and was fatal to the order of the reassessment. Also, we find that the 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

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna (Madras) has held that where the AO did not issue notice under section 143(2) of the Act upon the assessee, then initiation of reassessment proceedings, order rejecting the assessee’s objection against assumption of jurisdiction for reopening and also reference to the Transfer Pricing Officer (TPO) were to be quashed. We further find that the Hon’ble High Court of Punjab & Haryana in the case of CIT vs. Nagendra Prasad (2013) 156 Taxmann.com 19 (Punjab & Haryana) had observed that where the notice was issued by AO under section 148 of the Act requiring the assessee to file a return within 30 days, but the said return was filed after 8½ months, since return of income was filed by the assessee in response to the notice under section 148 of the Act, though delayed, there should have been a notice issued under section 143(2) as the requirement to issue notice cannot be dispensed with. Further, the Hon’ble High Court of Delhi in the case of PCIT v. S.G. Portfolio Pvt. Ltd. (2023) 454 ITR 761 (Delhi) had, inter alia, held that where the assessee company had filed the return income in response to notice under section 148 of the Act, the AO was required to issue notice under section 143(2) of the Act for framing the assessment. Also, the Hon’ble High Court of Madras in the case of Sapthagiri Finance & Investments vs. ITO (2012) 25 taxmann.com 341 (Madras) had, inter alia, held that where the AO found that there was a problem in the return of income filed by the assessee under section 148 of the Act, which required an explanation, then he ought to have followed up by issuing notice under section 143(2) of the Act. Also, we find that the Hon’ble High Court of Delhi in the case of PCIT v. Dart Infrabuild Pvt. Ltd. (2024)

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna 460 ITR 532 (Delhi)(HC) had observed that the issuance of notice under section 143(2) of the Act is mandatory for framing of an assessment. Also, the Hon’ble High Court of Allahabad in the case of CIT vs. Salarpur Cold Storage, [2015] 228 Taxman 48 (Allahabad) after relying upon the judgment of the Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon (2010) 321 ITR 362 (SC), held that the requirement of issuance of a notice under section 143(2) is mandatory and cannot be brought within the meaning of a procedural irregularity. Apart from that, we find that the “Special Bench” of the ITAT, Delhi in the case of Raj Kumar Chawla vs. ITO (2005) 1 SOT 934 (Delhi) (SB), had held that return of income filed pursuant to notice under section 148 of the Act must assume and be treated to be a return of income filed under section 139 of the Act and the assessment must thereafter be made under section 143 or 144 of the Act after complying with the mandatory provisions. Also, it was observed that pursuant to the return of income filed by the assessee in response to notice under section 148 of the Act, it is incumbent upon the assessing authority to issue notice under section 143(2) of the Act within the prescribed time period. Also, a similar view has been taken by the ITAT, Hyderabad “B" Bench in the case of Sanghi Textiles Private Limited v. ITO in dated 07.01.2026.

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna of the AO to issue notice under section 143(2) of the Act for framing the assessment, we respectfully follow the same.

I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna section 292BB of the Act. Consequently, the AO could not have assumed jurisdiction to frame assessment. Also, we find that the Hon’ble High Court of Gujarat in the case of Commissioner of Income Tax-III vs. Panorama Builders (P.) Ltd (2014) 45 taxmann.com 159 (Gujarat), had observed that section 292BB of the Act is only confined to service of notice and does not apply to issuance of notice, neither it cures defect or enlarges statutory period where a mandatory notice under section 143(2) of the Act is required to be issued within limitation fixed under the Act. Apart from that, the Hon’ble High Court of Allahabad in the case of Commissioner of Income Tax-II, Lucknow vs. M/s. Salarpur Cold Storage (Pvt.) Ltd, Income Tax Appeal No.24 of 2014, dated 19/08/2024 had after referring to the judgment of the Hon’ble Supreme Court in the case of Assistant Commissioner of Income Tax & Another vs. M/s. Hotel Blue Moon, inter alia, observed that where the AO fails to issue a notice within the prescribed time period contemplated under section 143(2) of the Act, the assumption of jurisdiction under section 143(2) of the Act would be invalid. It was further observed that the defect in regard to the assumption of jurisdiction cannot be cured by taking recourse to the deeming fiction under section 292BB of the Act. Elaborating further, the Hon’ble Court had observed that section 292BB of the Act cannot come to the aid of the Revenue in a situation where the issuance of the notice itself was not within the prescribed time limit, in which event the question of whether it was served correctly or otherwise, would be of no relevance whatsoever. Accordingly, it was observed that the failure to issue a notice within

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna the prescribed time period would result in the AO assuming jurisdiction contrary to law.

I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna the Act, dated 30.12.2019, therefore, the impugned assessment framed by him cannot be sustained and is liable to be struck down for want of valid assumption of jurisdiction on his part.

Order pronounced in the open court on 18th March, 2026.

Sd/- Sd Sd/-- Sd/-(ओंकारे�र िचदारा) (रवीश सूद) (RAVISH SOOD) (OMKARESHWAR CHIDARA) �ाियक सद�/JUDICIAL MEMBER लेखा सद� /ACCOUNTANT MEMBER Dated: 18.03.2026 *Giridhar, Sr.PS आदेश की �ितिलिप अ�ेिषत/ Copy of the order forwarded to:- 1. िनधा�रती/ The Assessee : Arimilli Rama Krishna D.No. 20-175 Beside AVR & CO. Rice Mill Velpur, West Godavari District-534222 Andhra Pradesh 2. राज�/ The Revenue : ACIT, Circle – 1 Income Tax Office Aayakar Bhavan Veerabhadrapuram Rajahmundry-533105

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I.T.A.No.639/VIZ/2025 Arimilli Rama Krishna Andhra Pradesh