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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
ORDER PER RAVISH SOOD, J.M:
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-30, Mumbai, dated 15.07.2014, which in turn arises from the order passed by the A.O under Sec. 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟), dated 11.03.2013. The impugned order has been assailed by the assessee on the following grounds of appeal before us:
“1. The learned Commissioner of Income-tax (Appeals) has erred in upholding action of assessing officer in - re-opening of assessment u/s.147 of I.T. Act, 1961. - issuing notice u/s.148 of before recording reasons for re-opening of case. - failure in issuance of notice u/s.143(2) of I.T. Act, 1961.
2. The learned Commissioner of Income-tax (Appeals) has erred in upholding disallowance of exemption u/s.54EC of I.T. Act, 1961 without considering facts and circumstances of the case.
3. The learned Commissioner of income-tax (Appeals) has erred in upholding action of assessing officer by treating rent and interest income as "income from other sources" instead of "Business Income".
2 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4)
4. The learned Commissioner of income-tax (Appeals) has erred in upholding action of assessing officer by upholding disallowance of expenses incurred for earning rent & interest income.
5. The learned Commissioner of income-tax (Appeals) has erred in not accepting alternative contention of the appellant to assess rental income under the head "income from house property". 6. The learned Commissioner of income-tax (Appeals) has erred in upholding levy of interest u/s.234-A, 234-B and 234-C of Income-tax Act, 1961. 7. Your appellant craves leave to add, to alter or to withdraw any ground or grounds of appeal on or before the date of hearing.”
Briefly stated, the assessee had filed his return of income for A.Y. 2009-10 on 31.07.2009, declaring a total income of Rs.7,96,600/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, information was received by the A.O that the assessee had during the year in question sold a house property for Rs.60 lac (market value of Rs.65.77 lac) to Shri Punit R. Bhatt vide an „agreement for sale‟, dated 14.07.2008. As the said transaction was not reflected in the assessee‟s return of income, his case was reopened under Sec.147 of the Act. Notice under Sec. 148, dated 25.01.2012 was issued to the assessee and he was called upon to file his return of income in compliance to the said notice within a period of 30 days. However, no return of income in response to the aforesaid notice was filed by the assessee. Subsequently, the A.O issued a notice under Sec.142(1), dated 13.03.2012. As can be gathered from the assessment order, the assessee in compliance to the statutory notices which were issued and served upon him attended the proceedings through his authorized representative viz. Mr. Kishor Gada, Chartered accountant. Also, as is discernible from the assessment order, the assessee pursuant to the notice issued under Sec. 148 of the Act, dated 25.01.2012 had filed a letter dated 16.07.2012 along with certain details and copies of the return of income for A.Y. 2007-08, A.Y 2008-09 and A.Y. 2009-10. Further, the assessee in compliance to the notices issued under Sec. 148 filed a letter dated 10.12.2012, wherein he had requested that his original return of income for A.Y. 2009-10 may be treated as a return filed in response to the aforesaid notice. However, the A.O declined to accept the aforesaid request of the assessee for the reason that the original return of income that was filed by the assessee on 31.07.2009 was a defective return as capital gain w.r.t the sale transaction in question was not offered in the same. At the same time the A.O
3 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4) provided the assessee a copy of the reasons to believe on the basis of which his case was reopened.
During the course of the assessment proceedings, the A.O called upon the assessee to furnish the various details/documents pertaining to the transaction of purchase and sale of immovable property. Also, the assessee was directed to support his claim for deduction of LTCG under Sec. 54 of the Act. On a perusal of the details filed by the assessee, it was noticed by the A.O that the property in question was sold on 12.07.2008 for a total consideration of Rs.60 lac (market value Rs.65.77 lacs). It was observed by the A.O that the aforesaid property was purchased by the assessee on 29.06.2005 for Rs.23 lacs (agreement value) and the payments were made in parts, viz. (i) on 13.06.2005: Rs. 1 lac; (ii) on 06.08.2005: Rs.21 lacs; and (iii) on 08.08.2005: Rs. 1 lac. Observing that the holding period of the property in question was less than 36 months, the A.O worked out the STCG on the sale of the same under Sec. 50C at Rs.40,85,977/-. As the sale transaction in question had resulted into STCG thus, the A.O observed that no deduction under Sec. 54 was allowable to the assessee. Backed by his aforesaid deliberations, the A.O after inter alia making an addition of STCG of Rs.40,85,977/- assessed the income of the assessee at Rs.50,86,210/-, vide his order passed under Sec. 143(3) r.w.s 147 of the Act, dated 11.03.2017.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Before the first appellate authority, it was inter alia submitted by the assessee that as the A.O had not issued any notice under Sec. 143(2), the assessment framed under Sec. 143(3) r.w.s 147 of the Act, dated 11.03.2013 thus could not be sustained and was liable to be quashed. Apart from that, the assessee assailed the additions made by the A.O on merits. However, the CIT(A) not finding favour with the contentions advanced by the assessee dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal assailed the validity of the jurisdiction assumed by the A.O for framing the assessment under Sec. 143(3) r.w.s 147, dated 11.03.2013. It was submitted by the ld. A.R that as the impugned assessment had been framed by the A.O without issuing a notice under Sec. 143(2)
4 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4) of the Act, the same, thus, was liable to be quashed. In order to buttress his aforesaid claim the ld. A.R took us through the body of the assessment order wherein no reference to the issuance of any notice under Sec. 143(2) was found mentioned. Apart from that, it was submitted by the ld. A.R that pursuant to the direction of the Tribunal the assessee (through his chartered accountant) had inspected the assessment records, wherein the fact that no notice under Sec. 143(2) was ever issued to the assessee stood proved to the hilt. In support of his aforesaid claim the ld. A.R took us through an „affidavit‟ dated 31st day of December, 2018 of his Chartered accountant viz. Shri Devchand Vora s/o Shri Lalji M. Vora. In sum and substance, it was the claim of the ld. A.R that de hors issuance of any notice under Sec. 143(2) of the Act, the assessment framed under Sec. 143(3) r.w.s. 147, dated 11.03.2013 could not be sustained and was liable to be quashed on account of the said jurisdictional defect itself.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. As the ld. A.R has assailed the validity of the jurisdiction assumed by the A.O for framing the assessment under Sec. 143(3) r.w.s 147, dated 11.03.2013 we, therefore, shall first deal with the said aspect. On a perusal of the records, we find that the assessee had assailed the validity of the assessment framed by the A.O under Sec. 143(3) r.w.s 147, dated 11.03.2013 in the course of the proceedings before the CIT(A). Observing, that the assessee had not filed any supporting evidence to establish his aforesaid claim and also had cooperated during the course of the assessment proceedings by filing the return of income for the year in question in response to notice under Sec. 148 of the Act and furnishing of written submissions during the course of the assessment proceedings, the CIT(A) was of the view that the assessment proceedings were to be deemed to be valid within the meaning of Sec. 292BB of the Act. Also, the CIT(A) was of the view that the challenge thrown by the assessee to the validity of the jurisdiction assumed by the A.O for framing the assessment under Sec. 143(3) r.w.s 147 did not merit acceptance, for the reason, that no objections were raised by him before the completion of the assessment. As 5 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4)
such, on the basis of his aforesaid observations the CIT(A) rejected the aforesaid claim of the assessee.
On a perusal of the records, we find that pursuant to the aforesaid specific plea raised by the assessee as regards the validity of the assessment order passed by the A.O under Sec. 143(3) r.w.s 147, dated 11.03.2013, the Tribunal on 13.11.2018 had directed the assessee to inspect the assessment records and furnish an „affidavit‟ in support of his claim that no notice under Sec. 143(2) was issued by the A.O. At the same time, the A.O was also directed by the Tribunal to facilitate the inspection of the assessment records for the year in question by the assessee. It is in the backdrop of the aforesaid direction of the Tribunal, we find, that as stated by the assessee‟s Chartered accountant in his „affidavit‟, dated 31st December, 2018, that a letter dated 06.12.2018 was filed with the A.O requesting him to provide inspection of the assessment record of the assessee for the year in question i.e A.Y. 2009-10. As deposed by the Chartered accountant, the assessment records of the assessee for the year in question i.e AY. 2009-10 was thereafter as per instructions given by the tribunal inspected by him and no copy of any notice under Sec. 143(2) was found available in the assessment file/folder. Further, as deposed by the Chartered accountant in his „affidavit‟ there was no evidence in the assessment file/folder that a notice under Sec. 143(2) was ever issued in the assessee‟s case either during the course of the reassessment proceedings or before the completion of the same. In sum and substance, it is the claim of the assessee which is supported by an „affidavit‟ of his Chartered account that an inspection of the assessment records for the year in question i.e A.Y. 2009-10 revealed that no notice under Sec. 143(2) was issued by the department w.r.t the reassessment proceedings that were initiated vide notice issued under Sec. 148, dated 25.01.2012. On being confronted with the aforesaid fact the ld. D.R could not controvert the same.
9. We have given a thoughtful consideration to the aforesaid issue, and find, that the claim of the assessee that no notice under Sec. 143(2) was issued w.r.t the impugned assessment which thereafter was concluded under Sec. 143(3) r.w.s 147, dated 11.03.2013 prima facie appears to be correct on a perusal of the assessment order dated 11.03.2013 passed by the A.O under Sec. 143(3) r.w.s 147 of the Act.
6 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4)
As is discernible from the assessment order, it is a matter of fact borne from the records that there is no mention of any notice having been issued by the A.O under Sec. 143(2) of the Act. But then, as the mere fact of a non-mention of issuance of a notice under Sec. 143(2) in the body of the assessment order could not on the very face of it be taken as a conclusive evidence of non-issuance of the said notice as was claimed by the assessee, the tribunal thus, had on an earlier occasion i.e on 13.11.2018 directed the assessee to inspect the assessment record for the year in question and furnish an „affidavit‟ in support of his aforesaid claim, along with a direction to the A.O to facilitate such inspection. As observed by us hereinabove, the assessee through his Chartered accountant Shri Devchand Vora, had filed a letter dated 06.12.2018 with the A.O requesting for the inspection of the assessment record of the assessee for the year in question. As deposed by the Shri. Devchand Vora, Chartered accountant in his „affidavit‟ dated 31st December, 2018 the inspection of the assessment record of the assessee for the year in question i.e A.Y. 2009-10 that was facilitated by the A.O revealed, viz. (i) no copy of the notice under Sec. 143(2) was available in the assessment file/folder; and (ii) that there was no evidence in the assessment file/folder that a notice under Sec. 143(2) was issued in the course of or before the completion of the aforesaid reassessment proceedings. As observed by us hereinabove, the ld. D.R on being confronted with the aforesaid factual position could not controvert the same. Be that as it may, we find that the CIT(A) while disposing off the aforesaid challenge thrown by the assessee to the validity of the jurisdiction assumed by the AO for framing the assessment under Sec. 143(3) r.w.s 147, dated 11.03.2013 qua the absence of issuance of a notice under Sec. 143(2) of the Act had though not declined to accept the factual position as was claimed by the assessee, but had rejected the said claim for three fold reasons, viz. (i) that the assessee had not filed any supporting evidence to establish his aforesaid claim of non-issuance of mandatory notice under Sec. 143(2) of the Act; (ii) that the assessee had cooperated during the course of the assessment proceedings by filing the return of income in response to the notice issued under Sec. 148 of the Act, and also had furnished written submissions during the course of the assessment proceedings; and (iii) that the assessee had not furnished any evidence to show that the aforesaid objection was raised before the completion of the assessment. In the backdrop of the aforesaid facts, before adverting any further on the adjudication of the aforesaid claim of the assessee, we are of the considered view that the claim of 7 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4) the assessee that no notice under Sec. 143(2) of the Act was issued prior to framing of the assessment under Sec. 143(3) r.w.s 147, dated 11.03.2013 has been established beyond doubt. At this stage, we may herein observe that neither is there any material available on record nor any such contention had been raised before us which could dislodge, disprove or even raise any doubts as regards the aforesaid claim of the assessee. In fact, we find that pursuant to the directions given by the Tribunal on 13.11.2018, the assessee by placing on record an „affidavit‟, dated 31st December, 2018 of his Chartered accountant had substantiated his aforesaid claim to the hilt.
In the backdrop of the factual position that no notice under Sec. 143(2) of the Act was issued by the A.O prior to framing of the assessment under Sec. 143(3) r.w.s 147, dated 11.03.2013, we shall now deal with the validity of the impugned assessment framed by the A.O. On a perusal of Sec. 143(2) of the Act, we find that the same envisages that where a return has been furnished under Sec. 139, or in response to a notice under Sub-section(1) of Sec.142, the A.O or the prescribed income tax authority, as the case may be, if considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be 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 such, for framing of an assessment pursuant to a return furnished under Sec. 139 or in response to a notice under Sub-section (1) of Sec. 142, the A.O as per the mandate of law is obligated to issue a notice as contemplated under Sub- section (2) of Sec. 143 of the Act. Insofar the observation of the A.O that the request of the assessee vide his letter dated 10.12.2012 for treating his original return of income filed on 31.07.2009 for A.Y. 2009-10 as a return filed in compliance to the notice issued under Sec. 148 of the Act could not be acted upon, for the reason, that the same was a defective return as no computation of capital gain pertaining to the sale of the property in question was therein reflected, we are unable to persuade ourselves to subscribe to the same. In our considered view, once the assessee had opted that his original return of income for A.Y. 2009-10 that was filed well within the stipulated time period i.e on 31.07.2009 be treated as a return in compliance to the 8 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4)
notice issued under Sec. 148 of the Act, the same could not have been rejected by the A.O for the reason that the capital gain income on the basis of which the case of the assessee had been reopened was not offered in the said return. In our considered view, in the backdrop of the aforesaid request of the assessee, it was open for the A.O to have accepted the return of income filed by the assessee u/s 139 as a return filed in compliance to notice issued u/s 148, and added the undisclosed capital gain on sale of the property in question while framing the assessment. Be that as it may, in our considered view even if the aforesaid request of the assessee for treating its original return as a return of income filed in compliance to notice under Sec. 148 was not to be accepted, the A.O thereafter could not have framed the assessment under Sec. 143(3) r.w.s 147 of the Act.
11. We shall now deal with the sustainability of the observation of the CIT(A) that now when the A.O had issued a notice under Sec. 148, dated 25.01.2012 and notice under Sec. 142(1), dated 13.03.2012, and the assessee had appeared and cooperated during the course of the assessment proceedings as well as not raised any objections insofar the validity of the assessment before the completion of the same, the assessment proceedings were to be deemed to be valid under Sec. 292BB of the Act. We are afraid that the aforesaid view taken by the CIT(A) does not find favour with us. As observed by the Hon’ble Supreme Court in the case of ACIT Vs. Hotel Blue Moon (2010) 321 ITR 362 (SC), the omission on the part of the assessing authority to issue notice under Sec. 143(2) cannot be held to be a mere procedural irregularity and the same is not curable. As regards the observation of the CIT(A) that the absence of the notice issued under Sec.143(2) of the Act, in the backdrop of the fact that the assessee had complied with the notices issued under Sec. 148 and Sec. 142(1) of the Act and had not raised any objection as regards the validity of the assessment before completion of the same by the A.O was a defect which could be cured under Sec. 292BB of the Act, we are afraid that the same does not find favour with us. In our considered view Sec. 292BB is not intended to cure complete absence of notice under Sec. 143(2) of the Act. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Laxmandas Khandelwal (2019) 417 ITR 325 (SC). In its aforesaid order, it was held by the Hon‟ble Apex Court that Sec. 292BB is not intended to cure complete absence of notice under Sec. 143(2) of the Act. It was observed by the Hon‟ble Apex
9 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4)
Court that as per Sec. 292BB of the Act, if the assessee had participated in the proceedings, then by way of a legal fiction the notice would be deemed to be valid even if there be infractions as detailed in the said section. It was observed by the Hon‟ble Apex Court, that the scope of the provisions of Sec.292BB was to make service of notice having certain infirmity to be proper and valid if there was requisite participation on part of the assessee. It was, however, held by the Court that Sec. 292BB did not save complete absence of notice. To sum up, the Hon‟ble Court had observed that for Sec. 292BB to apply, the notice must have emanated from the department and it is only the infirmity in the manner of service of notice that the said statutory provision seeks to cure. It was clearly held by the Hon‟ble Apex Court that Sec. 292BB is not intended to cure complete absence of notice itself. Accordingly in the backdrop of its aforesaid observations the Hon‟ble Court had concluded that as in the case before them no notice under Sec. 143(2) of the Act was ever issued by the department thus, the Hon‟ble High Court and also the Tribunal had rightly quashed the entire reassessment proceedings, for the reason, that the A.O lacked jurisdiction in absence of the notice issued under Sec. 143(2) of the Act. For the sake of clarity, the observation of the Hon’ble Supreme Court in its aforesaid order in the case of CIT Vs. Laxmandas Khandelwal (2019) 417 ITR 325 (SC) are culled out as under :
“5. At the outset, it must be stated that out of two questions of law that arose for consideration in Hotel Blue Moon's case the first question was whether notice under Section 143(2) would be mandatory for the purpose of making the assessment under Section 143(3) of the Act. It was observed:- "3. The Appellate Tribunal held, while affirming the decision of CIT (A) that non-issue of notice under Section 143(2) is only a procedural irregularity and the same is curable. In the appeal filed by the assessee before the Gauhati High Court, the following two questions of law were raised for consideration and decision of the High Court, they were: "(1) Whether on the facts and in circumstances of the case the issuance of notice under Section 143(3) of the Income Tax Act, 1961 within the prescribed time-limit for the purpose of making the assessment under Section 143(3) of the Income Tax Act, 1961 is mandatory? And (2) Whether, on the facts and in the circumstances of the case and in view of the undisputed findings arrived at by the Commissioner of Income Tax (Appeals), the additions made under Section 68 of the Income Tax Act, 1961 should be deleted or set aside?"
10 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4)
The High Court, disagreeing with the Tribunal, held, that the provisions of Section 142 and sub-sections (2) and (3) of Section 143 will have mandatory application in a case where the assessing officer in repudiation of return filed in response to a notice issued under Section 158-BC(a) proceeds to make an inquiry. Accordingly, the High Court answered the question of law framed in affirmative and in favour of the appellant and against the Revenue. The Revenue thereafter applied to this Court for special leave under Article 136, and the same was granted, and hence this appeal. ... ... ... 13. The only question that arises for our consideration in this batch of appeals is: whether service of notice on the assessee under Section 143(2) within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIV-B of the Income Tax Act, 1961? ... ... ... 27. The case of the Revenue is that the expression "so far as may be, apply" indicates that it is not expected to follow the provisions of Section 142, sub-sections (2) and (3) of Section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the Revenue, since we do not see any reason to restrict the scope and meaning of the expression "so far as may be, apply". In our view, where the assessing officer in repudiation of the return filed under Section 158- BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of Section 142, sub-sections (2) and (3) of Section 143." 6. The question, however, remains whether Section 292BB which came into effect on and from 01.04.2008 has effected any change. Said Section 292BB is to the following effect:- "292BB. Notice deemed to be valid in certain circumstances. - Where an assessee has appeared in any proceeding or cooperated 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." 7. A closer look at Section 292BB shows that if the assessee has participated in the proceedings it shall be deemed that any notice which is required to be served
11 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4) upon was duly served and the assessee would be precluded from taking any objections 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. According to Mr. Mahabir Singh, learned Senior Advocate, since the Respondent had participated in the proceedings, the provisions of Section 292BB would be a complete answer. On the other hand, Mr. Ankit Vijaywargia, learned Advocate, appearing for the Respondent submitted that the notice under Section 143(2) of the Act was never issued which was evident from the orders passed on record as well as the stand taken by the Appellant in the memo of appeal. It was further submitted that issuance of notice under Section 143(2) of the Act being prerequisite, in the absence of such notice, the entire proceedings would be invalid.
8. The law on the point as regards applicability of the requirement of notice under Section 143(2) of the Act is quite clear from the decision in Blue Moon 's case. The issue that however needs to be considered is the impact of Section 292BB of the Act.
According to Section 292BB of the Act, if the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee. It is, however, to be noted that the Section does not save complete absence of notice. For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself.
10. Since the facts on record are clear that no notice under Section 143(2) of the Act was ever issued by the Department, the findings rendered by the High Court and the Tribunal and the conclusion arrived at were correct. We, therefore, see no reason to take a different view in the matter.
These Appeals are, therefore, dismissed. No costs.”
In the backdrop of the aforesaid position of law, we are of the considered view that the issue that an assessment order passed under Sec. 143(3) in the absence of issuance of a notice under Sec. 143(2) of the Act cannot be cured under Sec. 292BB of the Act, is no more res-integra pursuant to the aforesaid judgment of the Hon‟ble Supreme Court in the case of Laxmandas Khandelwal (supra). As in the case before us, the A.O had failed to issue a notice under Sec. 143(2) thus, the assessment framed by him under Sec. 143(3) r.w.s 147, dated 11.03.2013 cannot be sustained and is herein quashed for want of valid assumption of jurisdiction. The Ground of appeal No. 1 is allowed.
12. As we have quashed the assessment framed by the A.O under Sec. 143(3) r.w.s 147, dated 11.03.2013 on the ground of invalid assumption of jurisdiction by the 12 Mahendra Tejshi Shah Vs. The ITO, Ward 19(2)(4)
A.O, therefore, we refrain from adverting to the contentions raised by the assessee as regards the merits of the case, which are left open.
The appeal filed by the assessee is allowed in terms of our aforesaid observations.