HEMANT MITTAL,HISAR vs. ITO WARD-2, HISAR

This appeal is heard on virtual mode. Ld. counsel and ld. DR both argued their case from their respective premises. They addressed and assisted us in deciding the dispute through telecommunication medium.

Mr. Hemant Mittal, individual, files this appeal against the order of the Ld. COMMISSIONER OF INCOME TAX (APPEALS), HISSAR [TheLd. CIT (A)] dated 25th of March 2019 raising several grounds of appeal

Ld. departmental representative objected to it and stated that these are after thoughts.

We have carefully considered rival contention and perused application of assessee for admission of additional grounds. We find that additional grounds raised

Pursuant to that, relevant information was furnished by assessee. Ld. AO noted that assessee has raised unsecured loan from five different persons amounting to � 694000/–. Therefore, assessee was asked to prove genuineness of these unsecured loans along with the identity and creditworthiness of those lenders. Assessee furnished requisite details such as passbook of those lenders. The Ld. AO was not satisfied about the onus discharged by the assessee and also noted that all these creditors have the low bank balances speaks about the creditworthiness of those lenders. Further,on few occasions cash has been deposited. Further immediate after deposit of cash on such occasions cheques were issued in favour of assessee. Ld. AO noted that assessee has furnished such information in respect of lenders only on 23/12/2016. As the matter was time barring, it was not feasible to issue summons to lenders and examine them on this issue. Therefore,Ld. AO held that delay in submission of information is a strategy to avoid personal attendance of the creditors. Accordingly, he held that � 6,94,000/– received in the shape of unsecured loan is in unaccounted income of the assessee. He added it to total income of assessee. Ld. AO further noted that from assessee’s bank account statement that assessee has made a cash deposit of 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar �2 lakhs on 29/05/2009. Assessee did not furnish any information and therefore it was also added to total income of assessee. The AO further computed total income of the assessee noting that assessee has purchased a hydraulic excavator machine on 30/05/2009 for which total receipt has been shown at Rs. 21,82,550/–. Assessee also claimed depreciation at rate of 30% on it. Therefore as per profit and loss account assessee declared that profit are� 86567/- only which gives net profit ratio of 4% of the total receipt. He noted that rate that profit shown by the assessee is ridiculously low, though machine is run on rent, which is charged on hourly basis. He noted that assessee has opted for presumptive rate of taxation u/s44AD of The Income Tax Act. Ld. AO noted that, as assessee is not operating any goods carriage but a hydraulic excavator machine, it does not fall in the category of vehicle used in plying and transportation business. Therefore he applied provisions of section 44AD and estimated the profit at the rate of 8% of the total receipts amounting to � 1,74,604/-. As assessee has declared a profit of � 8 6576 only, balance addition of � 88,000/- was made to total income of assessee. Consequently, total income of assessee was assessed at � 10,68,580/– against � returned income of 86,580/–. Assessment order was passedu/s147 read with section 143 (3) of the act on 20 April 2016.

Assessee aggrieved with the order of Ld. AO , assessee preferred an appeal before the Ld. CIT (A) Hissar, dismissed it as per order on 25/3/2019. Therefore, assessee is aggrieved with that order has preferred appeal before us.

Coming to the first additional ground raised by the assessee, which is that notice issued u/s143 (2) of the act dated 9/11/2016 is invalid. As per assessee,it was issued on the spot on the date of filing of return of income along with questionnaire. As per him, ld. 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar AO should have applied his mind before issue, so which cannot be applied if notices are issued on the spot on the same day. Therefore impugned order of assessment dated 28/12/2016 u/s147 read with section 143 (3) of the act is without jurisdiction and deserves to be quashed. Ld. authorized representative submitted a chronology of events. He submitted that issue under consideration is squarely covered by decision of the coordinate bench in SATISH KUMAR Versus ITO, WARD 2 (3) , FARIDABAD 2019 (3) TMI 436 - ITAT DELHI Dated:- 14-1-2019 - in ITA number 3586/del/2018 dated 14/1/2019 (SMC).Therein SMC tribunal, after considering the judgment of the honourable Delhi High Court in 323 ITR 249 quashed assessment, wherein that assessee filed return of income in response to notice u/s148 of the act on 12 August 2015 and notice u/s143 (2) of the act was also issued on 12 August 2015. He further relied upon the decision inShri Ajay Sharma, Ghaziabad Versus The DCIT (Central Circle) , UttarPradesh2019 (3) TMI 571 Dated:- 5-3-2019 - He further relied upon the several other decision of the SMC benches i.e. MICRON ENTERPRISES PVT. LTD. VERSUS THE INCOME TAX OFFICER, WARD-1 (4) , GHAZIABAD - 2018 (5) TMI 1018 - ITAT DELHI and SHRI HARSH BHATIA C/O. M/S. RRA TAXINDIA VERSUS THE I.T.O WARD-50 (3) NEW DELHI - 2017 (10) TMI 1313 - ITAT DELHI. Therefore, he stated that the assessment made may kindly be quashed as such.

The Ld. departmental representative vehemently objected to the above ground of appeal and submitted that assessee should have raised any objection before the assessing officer. He referred to the provisions of section 292BB and submitted that where the assessee has not raised any such objection before the completion of such assessment or reassessment the assessee precluded challenging the notice issued by the Ld. AO in any proceedings or 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar enquiry under this act. He submitted that assessee has not challenged it before the Ld. AO, thus, it is merely an afterthought.

We have carefully considered the rival contention and perused the orders of lower authorities. Admittedly, in this case assessee did not comply with the notice u/s148 of The Income Tax Act. However, subsequently, assessee filed his return of income on 9/1/2016vide acknowledgement number 709091116002527 with ITO Ward – 2, Hissar. Ld. AO noted at paragraph number 2 of assessment order that after receiving return, notice u/s143 (2)/ 142 (1) along with questionnaire was issued on 9/11/2016 itself for fixing hearing on 15/11/2016 and served upon the assessee’s counsel on the spot. This action of the Ld. AO has been challenged by the assessee. It is that provisions of section 143 (2) provides that where the return has been furnished u/s139, or in response to a notice under subsection (1) of section 142 can be issued by AO, if, considers it necessary or expedient to ensure that assessee has not understated the income or has not computed the excessive loss or has not under paid the tax in any manner, serves on the assessee a notice requiring him on a date to be specified therein, either to attend the office of the AO or to produce or cause to be produced before the AO any evidence on which the assessee may rely in support of the return. Therefore, Moment return of income is filed the Ld. AO is required to apply his mind to ascertain whether it is considered necessary or expedient to ensure that assessee a. has understated the income or b. has not computed excessive loss or c. has not under paid the tax then only he shall serve the notice to the assessee. Thereby it implies that the AO has to apply his mind before issuing notice 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar u/s143 (2) of the act. Thus, now the issue arises that how much time ld. AO can take to apply his mind on the return of income. Obviously, there cannot be any standard parameter for the same. If the issue is straightforward, it may take seconds, and if the issue is complicated, law itself has given him time to issue such notices up to 6 months from the end of the AY in which return of income is filed. However, there is no minimum statutory time that must elapse before a notice under this section can be issued after assessee files return of income, has been fixed by legislature. Therefore, when even the lawmaker did not thought it proper to put any minimum time limit for assessing officer to issue notice after receipt of notice, if a minimum threshold is put, then it will amount to curtailing the powers of assessing officer. Obviously, he cannot issue the notice before the return of income is filed by the assessee. Such was the case before honourable Delhi high court in which assessment order was quashed and which is heavily relied up on by the ld. AR We will come to discuss that decision in a short while. Therefore, we are not inclined to put any minimum time limit for AO to make him wait for issue of notice u/s 143(2) after assessee files his return of income. If We do so, we are afraid, we are rewriting the law. However, if the assessing office is arbitrary in issuing notice or has exceeded his jurisdiction, then only, we are empowered and may come to the rescue of the assessee, otherwise not. We have our reason for that, which we will discuss later.

The most important is that before issue of Notice u/s 143 (2), he must apply his mind whether he “considersit necessary or expedient.” Possibly, he can do so the moment, he goes through the return of income, or possibly, he may exhaust the full time allowed to him, i.e. six months from the end of the AY in which return is filed. Section 143 (2) contemplates making an assessment of the income of the assessee by issue of notice. The two important words used are ‘necessary’ and ‘expedient’. the word expedient is more comprehensive and generally deals with the wider range of situations than ‘necessary’. Circumstances warranting ‘expedience” is incapable of putting in to a compass box; generally it would cover wide range of criteria for selection of cases such as scrutiny assessment. The word “necessary” is limited in its sphere compared to ‘expedient “and is applicable generally in the cases where reassessment or any other mandatorily warranted assessments to be made.

Now the moot question that arises whether AO could have applied his mind on the return of income furnished by the assessee and “considered it ‘necessary’ to issue notice to the counsel of the 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar assessee on the same day at the same time and on the spot along with questionnaire, despite him having no information about the assessee except reasons recorded by him u/s 147 of the act.

There may be many situations, which can be visualized. Some of them illustratively arelike as follows.

First situation which can be visualized as was before the honourable Delhi High Court in case of Director Of Income Tax Versus Society Forward Interbank Financial Telecommunication reported in (2010) (323 ITR 249) (Del) where assessee filed its return of income and on the same date the notice was served upon the authorized representative of the assessee by hand when he came to file the return of income. However, the notice was bearing a date two days before the date of filing the return of income. Thus, the notice u/s 143(2) of the act was issued prior to filing of return of income by assessee. Honourable High court held that :- “5. The only issue sought to be raised before us is with regard to the validity of the assessment proceedings. The admitted position is that the assessee filed the return of income on 27.03.2000 and the assessment was completed on 31.03.2000. The learned counsel for the appellant/revenue contended before us that both the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal have returned findings of fact that the notice under Section 143(2) of the Income Tax Act, 1961 was issued on 23.03.2000, whereas the return of income was filed on 27.03.2000 and was served on the same date on the assessee.” ……. “8. We are of the view that the impugned order does not call for any interference. Both the Commissioner of Income Tax 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar (Appeals) and the Income Tax Appellate Tribunal have returned a concurrent and clear finding of fact that the notice under Section 143 (2) was issued on 23.03.2000 and since the return was filed on 27.03.2000, the notice was not a valid one and, therefore, the assessment completed on the basis of the notice was also invalid and was consequently set aside. It is for the first time before us that the learned counsel for the appellant contends that the notice, in fact, was issued on 27.03.2000 and not on 23.03.2000, the date, which is recorded on the notice itself. No such contention was raised before the Lower Appellate Authorities. Consequently, the said contention cannot be raised before us for the first time.” “9. However, even if we accept what the learned counsel for the appellant / revenue submits, it does not make the case any better for him. In para 3.4 of the memorandum of appeal, the appellant has stated that the return was filed by the assessee on 27.03.2000 and the notice under Section 143(2) was served upon the Authorized Representative of the assessee by hand when the Authorized Representative of the assessee came and filed return. However, the date of the notice was mistakenly mentioned as 23.03.2000.

Assuming the aforesaid to be true, the notice was served on the Authorized Representative simultaneously on his filing the return which clearly indicates that the notice was ready even prior to the filing of the return. ………. “11. The provisions of Section 143(2) make it clear that the notice can only be served after the Assessing Officer has examined the return filed by the assessee. Whereas what para 3.4 indicates is that when the assessee came to file the 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar return, the notice under Section 143(2) was served upon the Authorized Representative by hand. Thus, even if we take the statement of the Assessing Officer at face value, it would amount to gross violation of the scheme of Section 143 (2) of the said Act.”

In those circumstances,Honourable Delhi High Court has held that notice can only be served after the AO has examined the return filed by the assessee. Honourable high court in facts quashed order only for the reason that notice was dated prior to the date of filing of return by assessee. We do not find anywhere in the order that there can be a rule that AO cannot issue notice u/s 143(2) of the act on the day on which he receives return of income. It would be too much to read in that decision which is not held. Further, that was not the case of reopened assessment but a fresh assessment. In that particular case, the concurrent lower authorities have held that when the assessee has filed its return of income on 27March 2000, the notice u/s143 (2) could not have been issued on 23rd of March 2000, i.e. prior to filing of return of income. Therefore, it was much of a case where the notice was purportedly issued and kept ready prior to even filing of the return of income by the assessee. In that situation, honourable High Court held that assessment completed on the basis of such notice is invalid.However, such is not the case before us. In the impugned case before us, the case of the assessee has been reopened on the basis of information available with the assessing officer. This decision is of no help to assessee.

Secondly,the case may be that assessee might have filed his original return of income. The assessee may have been issued notice u/s148 of The Income Tax Act. In the reasons recorded by the AO there is definite information available to the AO that 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar

However, another situation that arises, the assessee has not at all filed any return of income. Notice u/s148 in that case is issued to the assessee. AO does not have any other information except the AIR information available with him. If in such cases, when assessee files return, issuing notice u/s143 (2) of the act to the assessee on the spot perhaps shows that AO has not applied his mind on the return furnished by the assessee. Naturally AO will have to look at the AIR information or any other tangible material based on which notice u/s 148 of the act is issued, compare it with the details available in the return of income, then he can say that it is ‘necessary” to issue notice to the assessee. It may happen that assessee might have filed the return incorporating the income covered in 148 notices. Thus, the issue is in such circumstance AO may need some time for verification.

The present case is one-step higher than third situation. In the present case, the return of income filed by the assessee was accompanied with the competition of income, the trading and profit and loss account as well as the balance sheet of the assessee along with the fixed assets account and capital account. At the time of issue of notice, the AO was merely having information about cash deposit of � 1297900 in his savings bank account maintained with Indusind Bank Limited. AO did not have any information about what kind of business assessee is doing, whether the bank 5161/Del/2019 Mr. Hemant Mittal V ITO Ward -2, Hissar account in which alleged is deposited, whether that appears in the balance sheet of the assessee. Whether the level of income shown by the assessee justifies the amount of cash deposited etc. In such a situation, it can be said that, the AO didnot thought it “necessary’ but issued the notice in a mechanical manner.If assessment order is read carefully, it shows that not only he issued the notice u/s143 (2)/142 (1) of the act but also issued questionnaire. In addition, that too along with the notices was served on the spot when he went to file the return to the counsel of the assessee. In such a situation the decision of the honourable Delhi High Court, this clearly says that before issue of notice, AO has to examine the return filed by the assessee. In the present case, not only that the AO issued the notice on the spot to the counsel of the assessee but also issued questionnaire along with that. In such a situation, we are unable to sustain the assessment order passed by the Ld. assessing officer. Thus, we quash the assessment order passed by the Ld. AO u/s143 (3) of the act on 28/12/2016. Thus, we allow the additional ground number [1] raised by the assessee.

As we have allowed the appeal of the assessee on jurisdictional issue, we do not think it necessary to go into the merits as well as other grounds of appeal