TODAY REALTY P.LTD,NEW DELHI vs. ITO, WARD-25(3), NEW DELHI

The assessee has filed this appeal against the impugned order dated 27.3.2019 passed by the Ld. Commissioner of Income Tax (Appeals-28), New Delhi.

Consequently, the share application money of the share applicants were treated from unexplained sources and the case was reopened under section 147 of the I.T. Act by issuing notice u/s. 148 of the Act on 31.3.2017. In response to the notice u/s. 148 of the Act assessee not filed any return. As per AO during the assessment proceedings on 31.8.2011, the assessee filed a letter at the DAK Counter mentioning that the return of income was enclosed with that letter. But on verification the AO found that no such return was filed / enclosed by the Assessee. However, during the assessment proceedings, the AO observed that assessee has received huge share application money from 15 persons mentioned in the assessment order. AO issued notice u/s. 133(6) of the I.T.

Act to the share applicants, but most of the notices were returned back unserved with the remarks “No Such Person”, ‘Left without address’, etc. except 04 persons who appared before the AO and recorded their statement. After discussing the details of the share applicants the AO found that none of these share applicants were having creditworthiness of investing huge amount as share application money in the assessee company as well as their identity was not proved. While relying upon the decision of the Hon’ble Jurisdictional High Court of various cases, the AO treated the share application money in dispute as unexplained u/s. 68 of the I.T. Act and 3% of commission thereon was also disallowed u/s. 69 of the Act and added back to the income of the assessee. AO completed the assessment u/s. 143(3) / 147 of the Act on 22.12.2017.

Aggrieved by the aforesaid order passed by the AO, the assessee filed the appeal before the Ld. CIT(A) who vide his impugned order dated 27.3.2019 dismissed the appeal of the assessee. Now the Assessee is aggrieved against the impugned order dated 27.3.2019 of the Ld. CIT(A) and filed the present appeal before the Tribunal.

“2. That the Ld. CIT(A) has erred in law as well as on facts in confirming the addition made in the assessment order passed under section 143(3)/147 of the Act dated 22.12.2017 (impugned order) passed by the Ld. AO. 3. That the Ld. CIT(A) has erred in law as well as on facts in confirming the 3 impugned order passed under section 143(3)/147 of the Act is without jurisdiction for want of issue of notice u/s. 143(2) of the I.T. Act, 1961 and thus void ab initio.” 3.1 Ld. Counsel for the assessee stated that return of income showing total income of Rs. 87970/- was filed on 29.9.2011 and the same was processed u/s. 143(1) of the Act and then the assessment was reopened u/s. 147 of the Act by issuing notice u/s. 148 of the Act on 31.3.2017 on the issue of share application money received by the Applicant Company. Subsequently, letter dated 11.8.2017 and 14.11.2017 was issued by the AO calling for return of income and other details. The requisite details were filed before the AO on 23.11.2017 and 14.12.2017. However, the AO disregarded the details of explanation filed and completed the assessment u/s. 143(3)/147 of the Act on 22.12.2017 by making the addition in dispute.

3.2 Ld. Counsel for the assessee filed the copy of return of income filed u/s. 139(1) of the Act for AY 2011-12 vide letter dated 31.8.2017 in response to the notice u/s. 148 of the Act. He submitted that it is clear that assessee company had submitted the said return so that the same be considered as return filed in response to notice u/s. 148 of the Act. To prove this argument, Ld. Counsel for the assessee has field his letter Receipt dated 31.8.2017 as Annexure-1 before the Bench, the contents of the same are reproduced as under:-

We note that the above said letter, was written to the ITO, Ward 25(3), Room NO. 167, CR Bldg., IP Estate, New Delhi – 11 0002 wherein it was stated that “in reference to your letter dated 11.8.2017 regarding the proceedings in the case of M/s Today Realty Pvt. Ltd. For the AY 2011-12. We are submitting the return of income in the above said assessment year.” Ld. Counsel for the assessee stated that in spite of this fact the assessee has filed the letter dated 31.8.2017 stating that we are submitted the return of income for assessment in year in dispute. He stated that the AO completed the assessment u/s. 143(3)/147 of the I.T. Act without serving the notice u/s. 143(2) of the Act to the asssessee company.

He stated that if this argument is accepted by this Bench, then the AO has completed the assessment without issuing notice u/s. 143(2) of the Act then the assessment is null and void. Therefore, he stated that keeping in view the judgment of the Hon’ble Supreme Court of India in the case of ACIT vs. Hotel Blue Moon (2010) 321 ITR 362 the assessment may be quashed and appeal of the assessee be allowed. Without prejudice to the aforesaid arguments, advanced by the Ld. Counsel for the assessee, he submitted that whenever a return in response to the notice u/s. 148 of the Act is not filed then assessment has to be completed u/s. 144/148 of the Act. However, in the case of assessee, the assessment has to be completed u/s. 144/148 of the Act. However, in the case of the assessee the assessment has been completed u/s. 143(3)/147 of the Act, then it is deemed that the return filed originally is accepted as return filed in response to notice u/s. 148 of the Act and it is mandatory to issue notice u/s. 143(2) of the Act in such cases. However, in the present case no notice u/s. 143(2) of the Act has been issued by the AO and therefore, the assessment is invalid and void ab initio, in view of the decision of the Hon’ble Supreme Court of India in the case of ACIT vs. Hotel Blue Moon (2010) 321 ITR 362.

3.3 Alternatively, Ld. Counsel for the assessee also argued that if the assessee failed to file the return in response to the notice u/s. 148(1) of the I.T. Act shall constitute default envisaged in clause (a) of section 144(1) of the Act and any such failure shall provide jurisdiction to the AO to make a best judgment assessment u/s. 144 of the Act. He submitted that in the present case the AO did not proceed with the assessment u/s. 144 /147 of the Act due to non- filing of the return in response to notice u/s. 148 of the Act. On the contrary, the AO proceeded with assessment u/s. 143(3)/147 of the I.T. Act and hence, it was mandatory to issue notice u/s. 143(2) of the Act. He submitted that on this account assessment in dispute is liable to be quashed. In support of his arguments, he relied upon the ITAT, Delhi decision in the case of Kush Leasing (P) Ltd. Vs. ITO, Ward 5(3), New Delhi (2008) 20 SOT 337 (Delhi) and various following other decisions:- i) PCIT vs. Shri Jai Shiv Shankar Traders

Pvt. Ltd. 383 ITR 448 (DHC). ii) CIT vs. CPR Capital Services Ltd. (2011) 330 ITR 43 (DHC). iii) Virendra Deve Dixit vs. ACIT (2011) 331 ITR 483 (All. HC). iv) CIT vs. Cebon India Ltd. (2012) 347 ITR 583 (P&H-HC). v) DCIT vs. Mahi Valley Hotels & Resorts (2006) 287 ITR 360 (Guj. HC). vi) Sapthgiri Finance & Investments vs. ITO (2012) (Mad. HC.) vii) Meenakshi Aggarwal vs. ITO ITA No. 4171/Del/2015 (Delhi ITAT).

3.4 Ld. Counsel for the assessee finally stated that the Ld. First Appellate Authority has mentioned in the impugned order that inadvertently the AO has mentioned section 143(3)/147 of the Act 8 due to typing mistake, though all the ingredients of section 144 of the Act are available in the assessment order. The mistake is bonafide and does not vitiate the assessment proceedings in view of the provisions of section 292B of the I.T. Act. He submitted that it is necessary to bring out the fact that no show cause notice was issued to the assessee before passing the alleged order u/s. 144/147 of the Act. In fact the last notice dated 8.12.2017 was issued to the assessee company required to produce the share applicants and subsequently assessment order 143(3)/147 was passed on 22.12.2017. Finally, Ld. Counsel for the assessee argued that the AO in his Remand Report has stated that the AO has committed this mistake in the assessment order AY 2010-11 as well as AY 2011-12, therefore, the provisions of section 292B of the Act is not applicable as the jurisdiction cannot be rectified by the procedural provisions. Section 292B of the Act does not empower the Act to act without jurisdiction and submitted that the aforesaid principle has been laid down by the Hon’ble Delhi High Court in the case of JCB India Ltd. VS. DCIT (2017) 398 ITR 189. He requested that keeping in view of the aforesaid argument, the assessment in dispute is without jurisdiction and may be quashed by treating the same as void ab initio.

Act.

HELD: “It is mandatory for the AO to issue notice u/s 143 (2). The issuance and service of notice u/s 143 (2) is mandatory and not procedural. If the notice is not served within the prescribed period, the assessment order is invalid Reassessment-----Notice-----Assessee intimating original return be treated as fresh return---Reassessment proceedings completed despite assessee filing affidavit denying serviced of notice under section 143(2)---- Assessing Officer not representing before Commissioner (Appeals) that notice had been issued---- Reassessment order invalid due to want of notice under section 143(2)- -- Income-tax Act, 1961, ss. 143, 147, 148(1), prov.---- ITO v. R.K. GUPTA [308 ITR 49 (Delhi)Tribu.,” 5.1 As regards to the finding of the Ld. CIT(A) and the arguments advanced by the Ld. DR regarding bonafide mistake by the AO for wrongly mentioned the section i.e. 143(3)/147 should be read as 144/147. We have seen that the AO has passed the similar type of assessment order in AY 2010-11 and also mentioned the section 143(3)/147 of the Act where the assessee has not filed any return of income and he has also not issued any notice u/s. 143(2) of the I.T. Act in which we have declared the assessment as void ab initio by respectfully following the order of the Hon’ble Supreme Court of India in the case of ACIT vs. Hotel Blue Moon (2010) 321 ITR 362 (SC). Hence, we are of the view that this is not an oversight intentionally mistake committed by the AO. Even otherwise, the provisions of section 292B of the Act is not applicable as the jurisdiction cannot be rectified by the procedural provisions.

Section 292B of the Act does not empower the Act to act without jurisdiction. This view is supported by the decision of the Hon’ble Delhi High Court in the case of JCB India Ltd. VS. DCIT (2017) 398 ITR 189. We further find that apart from the aforesaid decision of the Hon’ble Supreme Court of India in the case of ACIT vs. Hotel Blue Moon (Supra), the various High Courts/ Tribunal has declared assessment/reassessment as invalid on account of non-service of notice u/s. 143(2) of the Act.

DCIT vs. Indian Syntans Investments (P) Ltd. [(2007) 107 ITD 457 (Chennai)] Validity of reassessment order - Non-service of notice under s.143(2) – “The amended Proviso to s.148 of the Income Tax Act 1961 was not applicable in case where the assessee was not served a notice under s.143(2) of the Act. The reassessment made in such a case was invalid S.143(2) and s.148 of the Income Tax Act 1961.” CIT vs. M/s Panorama Builders Pvt. Ltd. in Tax Appeal no. 435 of 2011 of Hon'ble Gujarat High Court

Issue Involved: "Whether non-issuance of the notice u/s 143(2) within the prescribed time, made the whole block assessment order null and void and bad in law, despite the assessee not having raised any objection before the passing of the assessment order and despite the provisions of section 292BB of the Act? " Held: “In this case, Hon'ble High Court has held that section 292BB cures the defects in service of notice but section 292BB is 'confined to only service of notice under this Act and this section does not apply to 'Issuance of notice' under the provisions of Act. It does not lay down that if a mandatory notice is required to be issued by the assessing officer and it has not been issued within the period of limitation fixed under the law, then such notice shall be deemed to have been issued within time. It has been further held that resort cannot be taken by the Revenue to section 292BH to give a go-bye to mandatory requirement of issuance of notice within the statutory fixed by the proviso to section I43(2) of the Act.” CIT vs Rajeev Sharma 336 ITR 678, High court of Allahabad. “In view of above submissions and case laws, it has been established that no notice u/s 143(2) was issued in the present case and therefore the impugned assessment is liable to be annulled.” M/s Sapthagiri Finance and Investments vs. ITO: TC(A). No. 159 of 2006 dated 17.07.2012 (Mad HC) [(2013) 90 DTR (Mad) 289] Relevant para reproduced here under:

"13. As far as the present case is concerned, the provisions of Section 148 also uses the expression "so far as may be apply accordingly as if such return were a return required to be furnished under Section 139". Thus, understanding this provisions in the background of the decision of the Apex Court, on the facts available, we are of the view that in completing the assessment under Section 148 of the Act, compliance of the procedure laid down under Sections 142 and 143 (2) is mandatory. On the admitted fact that beyond notice under Section 142(1), there was no notice issued under Section 143(2), and in the light of the fact that the very basis of the reassessment was the failure on the part of the assessee in not disclosing the capital gains arising on the transfer of property for assessment and that admittedly the assessee had requested the officer to accept the original return as a return filed in response to Section 148 of the Act, we hold that there was total failure on the part of the Revenue from complying with the procedure laid down under Section 143(2) of the Act, which is mandatory one as held by the Apex Court.” Alpine Electronics Asia Pte Ltd. vs. DGIT & Ors: [(2012) 341 ITR 247 (Del) Held: “The service of notice u/s 143(2) within the statutory time limit is mandatory and is not an inconsequential procedural requirement. Omission to issue notice u/s 143 (2) is not curable and the requirement cannot be dispensed with. S. 143(2) is applicable to proceedings u/s 147 & 148.” JYOTI PAT RAM VS. ITO [(2005) 92 ITD 423 (Lucknow) - ShreeJai Shiv Shonhor Traders (P) Ltd. - A.Y. - 2008-09 “Reassessment order passed under section 143(3)/148 without issue of a valid notice under section 143(2) was illegal.”

CIT vs. Pawan Gupta & Ors. [(2009) 318 ITR 322 (Del) Hon'ble Delhi High Court held in Para 38 of the order observed as under:- "Thus, we are of the clear view that where the assessing officer is not inclined to accept the return of undisclosed assessment filed by the assessee issuance of a notice under section 143(2) is a prerequisite for framing the block assessment order under chapter XlV B of the Income Tax Act, 1961. We are also of the view that if an assessment order is passed in such a situation without complying with section 143(2), it would be invalid and not be merely irregular." RAJ KUMAR CHAWLA AND ORS. VS. ITO - (2005) 94 ITD 1 (Del)(SB) Limitation for re-assessment- Service of notice u/s143(2) in time - A.Y.1995-96. “It was presumed by legal fiction that a return filed uls 148 of the Income Tax Act 1961 would be treated as a return filed u/s 139 of the Act. The assessee had filed its return in response to a notice issued u/s 148 of the Income Tax Act 1961. The service of notice u/s143(2) of the Act within 12 months of filing the return u/s 148 of the Act was mandatory, but the notice had been served beyond 12 months. Therefore, as the re-assessment was barred by limitation, no re-assessment could be made u/s 143(3) r/w S.147 of the Act.- ITAT Delhi ‘F’ Special Bench.”

Order pronounced on 22/07/2019.