MAESTRO MULTI STATE COOPERATIVE GROUP HOUSING SOCIETY LTD,DELHI vs. ITO, WARD-39(4), NEW DELHI

PER N.S.SAINI, ACCOUNTANT MEMBER :

These two appeals filed by the assessee against the order of Commissioner of Income Tax (Appeals)-13, New Delhi dated 06.04.2018 pertaining to assessment year 2011-12, 2014-15 2. In this appeal the assessee has raised following grounds of appeal :- ITA No. 3871/Del/2018 1. “That on facts and circumstances of the case, the order passed by the Ld. CIT (Appeal) is bad both in the eyes of law and on facts. 2. That the assessment order dated 14/12/2016 passed by Ld AO is without jurisdiction and void ab-initio and is liable to be quashed, as no notice under section 143(2) of the Act was issued.

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Without prejudice to the above grounds: 3. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in 'sustaining reassessment u/s 147 in violation of mandatory jurisdictional conditions stipulated under the Act. 4. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in sustaining reopening action of Ld AO u/s 148 on the basis of reasons contrary to the facts of the case. 5. That the Ld. CIT (Appeal) has erred on facts and in law in sustaining reopening action of Ld AO u/s 148 which is purely change of opinion. 6. That the Ld. CIT (Appeal) has erred on facts and in law in confirming the addition of Rs. 3,34,108/- by disallowing the exemptions of the interest on the bank deposits claimed by the appellant ignoring facts of the case and submission made by the appellant. 7. That the Ld. CIT (Appeal) has erred on facts and in law in confirming the addition of Rs. 4,87,949/- by disallowing the exemptions of the interest on the saving bank account claimed by the appellant ignoring facts of the case and submission made by the appellant. 8. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence. 9. That the Appellant craves leave to add/alter any/ all grounds of appeal before or at the time of hearing of the Appeal.”

ITA No. 3872/Del/2018 1. “That on facts and circumstances of the case, the Ld AO failed to issue notice u/s 143(2) the mandatory jurisdictional conditions

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stipulated under the Act; 2. That the assessment order dated 14/12/2016 passed by Ld AO is without jurisdiction and void ab initio and is liable to be quashed, as no notice under section 143(2) of the Act was issued. Without prejudice to above grounds: 3. That on facts-and circumstances of the case, the order passed by the Ld. CIT (Appeal) is bad both in the eyes of law and on facts. 4. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in sustaining reassessment u/s 147 in violation of mandatory jurisdictional conditions stipulated under the Act. 5. That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in not considering and deciding the allowability of expenditure of the appellant for the concerned Assessment Year amounting to Rs. 4,73,809/-, ignoring facts of the case and submission made by the appellant and despite the fact that same were allowed by the same Ld AO in the preceding assessment year. 6. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporarv jurisprudence. 7. That the Appellant craves leave to add/alter any/ all grounds of appeal before or at the time of hearing of the Appeal.”

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with the appeal memo in Form no. 36 therefore, these grounds of appeal are dismissed for want of prosecution. 4. In ground nos. 1 to 5 of the appeal for the A.Y. 2011- 12 and ground nos. 1 to 4 of the appeal for A.Y. 2014-15 the grievance of the assessee is that the Assessing Officer has passed the orders u/s 147 of the Act on 14.12.2016 both dated for assessment years 2011-12 and 2014-15. Without issuing notice u/s 143(2) of the Act and hence the Assessment orders are bad in law. 5. The Authorised Representative of the assessee, Shri P.C.Yadav submitted that from the assessment order for assessment year 2011-12 it will be observed from para 1 of the order that the Assessing Officer has observed that the assessee has e-filed the return of income for assessment year 2011-12 declaring nil income on 29.09.2012. Proceedings u/s 148 of the Income Tax Act were initiated on the basis of information received from ITO Ward-39(1), New Delhi that the assessee had wrongly claimed exemption for interest earned on fixed deposit amounting to Rs. 3,34,108/- and interest on Saving Bank amounting to Rs. 4,87,959/- by application of the principle of mutuality. Notice u/s 148 of the Income Tax Act, 1961 was accordingly issued to the assessee on 18.03.2016. Thereafter, the assessee requested for reasons for reopening of the assessment vide letter dated 17.06.2016. A certified copy of the reason was provided on 17.06.2016 notice u/s 142(1) of the Act was issued to the assessee on 31.08.2016 in

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response to which assessee vide letter dated 14.09.2016 filed a copy of return of income originally filed on 29.09.2012. 6. Similarly, in the assessment year 2014-15, the Assessing Officer observed has observed that the assessee has e-filed the return of income for assessment year 2014- 15 declaring nil income on 24.09.2014. Proceedings u/s 148 of the Income Tax Act were initiated on the basis of information received from ITO Ward-39(1), New Delhi that the assessee had wrongly claimed exemption on interest earned on fixed deposit amounting to Rs. 37,28,503/- and interest on Saving Bank amounting to Rs. 3,81,630/- by application of the principle of mutuality. Notice u/s 148 of the Income Tax Act, 1961 was accordingly issued to the assessee on 18.03.2016. Thereafter, the assessee requested for reasons for reopening of the assessment vide letter dated 17.06.2016. A certified copy of the reason was provided on 17.06.2016. Notice u/s 142(1) of the Act was issued to the assessee on 31.08.2016 in response to which the assessee e-filed its return of income on 13.09.2016 vide acknowledgement No. 446117921130916 declaring an income of Rs. 36,36,320/-. 7. Hence, it was his submission that it will be observed from the assessment orders for Assessment Years 2011-12 and 2014-15 that no notice u/s 143(2) of the Act was issued by the Assessing Officer before passing the order u/s 147 of the Act and hence the orders of assessment are bad

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in law and are liable to be cancelled. He further submitted that opportunity was provided to the revenue to substantiate its claim by the Tribunal for issue of notice u/s 143(2) of the Act by producing the assessment records on 04.10.2018 and 13.12.2018 and the department has failed to do so. Therefore, the appeals of the assessee should be allowed by cancelling the reassessment orders passed by the AO for the assessment years 2011-12 and 2014-15. He also submitted that he was making statement at bar to the effect that no notice u/s 143(2) of the Act was issued to the assessee before passing the reassessment orders u/s 147 of the Act and therefore the reassessment orders are liable to be quashed. He relied on the decision of the Hon’ble Delhi High Court in the case of Pr.CIT vs. Shri Jai Shankar Traders Pvt. Ltd. [2016] 383 ITR 448 (Del) and decision of Hon’ble Delhi Court in the case of Alpine Electronics Asia PTE, Ltd. vs. Director General of Income Tax and Ors. [2012] 341 ITR 247 (Del). 8. On the other hand the Departmental Representative Shri S.L.Anuragi, relied on the decisions of Hon’ble Delhi High Court in the case of CIT vs. Madhya Bharat Energy Corporation Ltd. [2012] 20 taxmann.com 557 (Delhi) to contend that the Hon’ble Delhi High Court has held that non-issuance of notice u/s 143(2) of the Act are not as per the scheme of the provisions of Section 147 and 148 of the Act and therefore the reassessment order cannot be said to be bad in law.

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Corporation Ltd. has been considered by the Hon’ble Delhi High Court in the decision of Shri Jai Shankar Traders Pvt. Ltd(supra)and distinguished and therefore the reassessment order passed u/s 147 of the Act without issuance of notice u/s. 143(2) of the Act is bad in law and hence liable to be cancelled. I have also observed from the order sheet entries dated 04.10.2018 and 13.12.2018 in the appeal file that the Tribunal had allowed two opportunities to the revenue to controvert the contention of the assessee by producing assessment folder that no notice u/s 143(2) of the Act was issued before passing the reassessment orders u/s 147 of the Act. The Department failed to produce the assessment folder before the Tribunal. 12. In the above background of the case, I find that the Hon’ble Delhi High Court in the case of Pr. CIT vs. Shri Jai Shankar Traders Pvt. Ltd has held as under :

“Pursuant to a scrutiny of the return filed by the assessee, the Assessing Officer issued notice under section 148 of the Income-tax Act, 1961and another notice under section 143(2) requiring further information and fixing a date for the assessee to appear. The notices were not served on the assessee. A further notice under section 142(1) was issued with a returnable date. On the returnable date the assessee’s authorised representative gave a statement that the original return filed should be treated as a return filed pursuant to the notice under section 148 . An assessment order was passed making an addition of a sum as unexplained credits under section 68 . The Commissioner

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(Appeals) dismissed the appeal of the assessee holding that sufficient opportunity was provided through questionnaires to support his return by documentary evidence and that non issuance of notice under section 143(2) did not invalidate the reassessment. The assessee’s further appeal was allowed by the Tribunal holding that the order of reassessment was unsustainable as a notice was not issued by the Assessing Officer before the completion of reassessment. On appeal :

Held, dismissing the appeal, that there was no legal infirmity in the order of the Tribunal. Subsequent to the statement of the assessee on the returnable date to treat the original return filed as a return filed pursuant to a notice under section 148 , the Assessing Officer’s failure to issue notice under section 143(2) invalidated the order of reassessment. No question of law arose.

CIT v. MADHYA BHARAT ENERGY CORPN. LTD. [2011] 337 ITR 389 (Delhi) and CIT v. VISION INC. [2012] 73 DTR 201 (Delhi) distinguished.CIT v. RAJEEV SHARMA [2011] 336 ITR 678 (All),CIT v. SALARPUR COLD STORAGE (P.) LTD. [2014] 50 taxmann.com 105 (All) and SAPTHAGIRI FINANCE AND INVESTMENTS v. ITO [2013] 90 DTR 289 (Mad) relied on.”

“Section 143(2) of the Income-tax Act, 1961, is applicable to proceedings under section 147 / 148 of the Act.The proviso to section 148 of the Act grants liberty to the

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Revenue to serve notice under section 143(2) of the Act before passing the assessment order for returns furnished on or before October 1, 2005. In respect of returns filed pursuant to notice under section 148 of the Act after October 1, 2005, it is mandatory to serve notice under section 143(2) of the Act, within the stipulated time limit.

Section 292BB incorporates the principle of estoppel. It stipulates that an assessee, who has appeared in any proceeding and cooperated in any enquiry relating to assessment or reassessment shall be deemed to be served with any notice which was required to be served and would be precluded from objecting that the notice was not served upon him or was served upon him in an improper manner or was not served upon him in time. However, the proviso states that the principle of estoppel incorporated in the main section would not apply, if the assessee has raised objection in reply to the notice before completion of assessment or reassessment.

The order under section 144C is a draft assessment order. The assessee has to file objections to the draft assessment order within the stipulated time. After objections are filed, the Dispute Resolution Panel has to decide the objections and issue necessary directions to enable the Assessing Officer to complete the assessment. The draft order is not the final assessment order and does not result in completion of assessment. Under sub-section (2) to section 144C , the assessee has a right to accept, within 30 days, the draft assessment order or has the right to file objections with the Dispute Resolution Panel and the Assessing Officer. Under section 144C(3) , the Assessing

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Officer shall complete assessment proceedings on the basis of the draft order only if the assessee files his acceptance to the variations or if no objections are received within 30 days. In case objections are filed, the Assessing Officer is to await directions of the Dispute Resolution Panel. Subsection (5) states that the Dispute Resolution Panel can issue directions, as it thinks fit, for guidance of the Assessing Officer to enable him to complete the assessment. Section 144C(13) stipulates that the directions issued by the Dispute Resolution Panel under sub-section (5) will be binding on the Assessing Officer and the Assessing Officer in conformity of the said directions shall complete the assessment.

On February 27, 2009, the petitioner, with a view to closing its liaison office in India, applied pursuant to a direction of the Reserve Bank of India, for a no objection certificate from the Income-tax Department. The Assistant Director called for various details and information in reply to which the petitioner stated that it was only maintaining a liaison office and was receiving money from abroad for meeting the administrative expenses and it was not authorised to carry on any business activity. Further details asked for were also furnished. The petitioner filed a writ petition during the pendency of which the Assistant Director issued notices under section 147 / 148 of the Act, but they were received back undelivered as the premises from where the liaison office was operating were found closed. The court directed services of notices on the chartered accountant authorised to appear for the petitioner and entitled to receive communications. Thereafter, notices were served

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on July 31, 2009 for reopening assessments for the assessment years 2003-04 and 2004-05 and on August 26, 2009 for the assessment years 2005-06 and 2006-07. The petitioner filed a letter dated November 19, 2009 stating that the returns of income filed under section 139(1) should be treated as filed in response to the notice under section 147 / 148 of the Act. By order dated January 28, 2010, the petitioner was asked to file objections and the Assessing Officer was asked to pass a reasoned order and proceed in accordance with law. The petitioner filed objections on July 13, 2010 and July 19, 2010 to the reopening stating that it had not been furnished a copy of the approval granted by the Additional Director under section 151 of the Act. On August 20, 2010, the petitioner was furnished the order dated August 19, 2010 passed by the Assessing Officer rejecting the objections. In the draft assessment order dated August 19, 2010 passed under section 144C of the Act, the Assessing Officer estimated 20 per cent. of the sales made in India during the year by the assessee as reasonable estimate of the profits made and holding that 50 per cent. of such profits were attributable to the activities of the permanent establishment in India he proposed to recompute the assessee’s income. Notice under section 143(2) of the Act was served on November 23, 2010. On a writ petition contending that this was beyond the period of six months prescribed in the proviso to section 143(2)(ii) :

Held, allowing the petition, that the Assessing Officer had earlier recorded detailed reasons dated July 17, 2009 for the assessment year 2003-04 and 2004-05 for approval

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under section 151(2) by the Additional Commissioner. By letter dated July 17, 2009, the Assessing Officer was asked to redraft them with specific emphasis on the material on record, conclusion drawn and statement of income in a more crystallized and concise form. In the reasons to believe, common to all the assessment years, the Assessing Officer has observed that the liaison office in India was in fact a permanent establishment as the petitioner was involved in activities which were beyond the scope of ancillary activities. On the question of the quantum of income which had escaped assessment, the Assessing Officer in the reasons to believe had recorded that the India liaison office should have been remunerated at arm’s length price by the Singapore head office at the rate of cost plus mark up. The Assessing Officer by order dated August 19, 2010 rejected the assessee’s objections holding that all the aspects were required to be examined and determined at the time of final assessment. Admittedly the petitioner had filed returns of income pursuant to the notice under section 147 / 148 by letter dated November 19, 2009 adopting its earlier returns under section 139(1) of the Act and the notice under section 143(2) was issued only on November 23, 2010. The final assessment order had not been passed and only a draft assessment order had been passed. The proviso to section 292BB was applicable. The principle of estoppel under section 292BB would therefore, not apply. In these circumstances, the Assistant Director could not rely upon the main section 292BB and claim that notice under section 143(2) was deemed to be served within the stipulated time. In view of this position, there was no reason why reassessment proceedings should continue as

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no notice under section 143(2) of the Act was served on the assessee within the stipulated time. The assessment proceedings pursuant to the notices under section 148 of the Act were to be quashed and the Assistant Director was to issue a “no objection certificate” to the petitioner as required by the Reserve Bank of India.”

28th Order pronounced in the Open Court on December, 2018 at New Delhi.

Sd/- (N.S.SAINI) ACCOUNTANT MEMBER

Dated: 28.12.2018 *BR*