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Income Tax Appellate Tribunal, ‘’ D’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned two appeals have been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-3, Ahmedabad, dated 24/06/2019 and 25/06/2019. Out of two appeals, the ITA No. 1182/Ahd/2019 is a quantum appeal arising in the matter of assessment order passed under s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (here-in-after
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referred to as "the Act") and ITA No. 1192/Ahd/2019 is the penalty appeal arising in the matter of penalty order passed u/s 271(1)(c) of the Act, relevant to the Assessment Year 2010-11.
The assessee has raised following grounds of appeal: 1. That the learned C1T(A) has erred in law and fact by not quashing he assessment order, as the learned AO has not complied the provisions of section 147 of the Act and further that the notice under section 143(2) of the Act has not been issued by the AO and therefore order passed by the leaned AO is to be quashed and the addition made therein should be deleted in full. 2. That the learned CIT(A) has erred in laws and facts by making addition of Rs.23, 59.342 on account of unexplained investment and therefore the learned AO is to be directed to delete the said addition in full , while computing the total income. 3. That correct total income and income lax thereon is to be computed and interest under section 234A, 234B, 234C and 234D of the Act s to be computed as per law and facts on the record. 4. That your appellant craves a leave to add, alter or amend any grounds at the time of hearing.
The first issue raised by the Assessee is that the Ld. CIT-A erred in holding the assessment framed under section 143(3) read with section 147 of the Act as valid in the absence of statutory notice to be issued under section 143(2) of the Act upon the assessee.
The assessee is an individual and has shown income from other sources by declaring total income of Rs. 1,02,000/- only. There was an information received from NMS containing the details about the investment in shares/mutual fund made by the assessee. Accordingly, the AO issued notice under section 148 of the Act dated 31-08-2017 for reopening of the assessment and the assessee in response to such notice, filed return of income dated 12-10-2017. Thereafter, the AO framed the assessment under section 143(3) r.w.s. 147 of the Act vide order dated 01-11- 2017 by making an addition of Rs. 23,59,342/- to the total income of the assessee.
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4.1 The assessee before the Ld. CIT (A) has raised the objection upon the validity of the impugned assessment on the ground that the statutory notice under section 143(2) of the Act was not issued upon him. Accordingly, the assessee claimed that the assessment framed under section 143(3) read with section 147 of the Act vide order dated 01-11-2017 is not sustainable and thus liable to be quashed. However the learned CIT(A) rejected the contention of the assessee by observing as under: 2.3, / have carefully considered the issues, submissions of the appellant, judicial pronouncements and the discussions/findings of the AO in the assessment order. The \ Appellant has challenged the reassessment proceedings on the ground of jurisdiction 1 possessed by the AO and there being no failure on the part of the Appellant to disclose all material facts. In this case, it is observed that the case of the Appellant is reopened on the basis of information regarding investments in shares/mutual funds of Rs.23,59,342/- during A.Y.201Q-11. The notice u/s148 of the Act is issued on 31.08.2017 i.e. after four years from the end of Assessment Year. The argument of the appellant that present re-assessment u/s 147 of'the Act in the absence of any failure on the part of Appellant to disclose material facts is required to be quashed is not acceptable. The Hon'ble Gujarat High court in the case of Pushpak Bullion (P) Ltd. Vs DCIT (2017) 85 taxmann com 84 has held as under: "IT: Where investigation wing of department had during course of investigation in case of a third party found that he was indulged in providing accommodation entries and bogus bills, and assesses had made sizeable purchases from him, reopening notice against assesses was justified" 2.4. Further, the appellant has also not brought any specific evidences suggesting that this issue was considered in original Assessment Proceedings. The Hon'ble Gujarat High Court in the case of Praful Chunilal Patel v/s ACIT, 236 ITR 832 (Guj) has held as under: j "Section 147 of the Income-tax Act, 1961 - Income escaping assessment - General - Assessment year 1991-92 - Whether power to make assessment or reassessment within four years of end of relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in first instance, and whether it is an error of fact or law that has been discovered or found out justifying belief required to initiate proceedings - Held, yes - Whether words "escaped assessment" where return is filed, are apt to cover case of discovery of a mistake in assessment caused by either an erroneous construction of transaction or due to its non- consideration, or caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based - Held, yes - Whether if Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a 'reason to believe' that such income had escaped assessment - Held, yes - Whether unless it is shown that Assessing Officer never enquired into matter at all or that he never honestly believed that a mistake has been made, result of his investigation and initiation of proceedings under section 147 could not be challenged on ground of want of jurisdiction - Held, yes" The reopening of assessment for the year under consideration carried out after four years from the end of the Assessment year but Assessing Officer has valid ground for re-opening the case as assesses failed to submit necessary details in the original reopening under section 147 of the Act. Accordingly this ground of the Appellant challenging validity of re- assessment carried out u/s 143(3) r.w.s 147 of the Act is not acceptable. However, this
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contention of the Appellant is not in conformity with the decision of Hon'ble Gujarat High Court in the case of HVK International Pvt. Limited V/s DCIT [2016] 389 ITR 630, the relevant paras of which are reproduced hereunder- "11. Coming to the last contention of the petitioner, we have already perused the reasons recorded, which in our opinion, do not suggest either any inconsistency or absence of any material to enable the Assessing Officer to form a belief that income chargeable to tax has escaped assessment. If the allegations contained in the reasons recorded are ultimately established, which must depend on the nature of material that may ultimately be brought on record during the reassessment and with respect to which we obviously would not make any comment, 'it would certainly indicate that the assesses had claimed bogus labour contract charges without incurring them. According to the department, in large number of cases, labour contractors who were in fact, the employees of the assessee, were paid labour charges without their being any such expenditure being incurred by the assessee. If these facts are ultimately established, it would only indicate that the assessee had claimed higher expenditure than what was incurred thereby suppressing the profit. It is true that the Assessing Officer had relied heavily on the investigation carried out by the investigation wing and the material collected during such process, which culminated into a final report submitted by the investigation wing. However, it is not impermissible for the Assessing Officer to rely on such material, as long as of course he has applied his mind to the materials on record and formed his own belief that on the basis of such material, it can be stated that income chargeable to tax has escaped assessment. It was in this context, we have reproduced the concluding portion of the reasons recorded by the Assessing Officer, which are in the nature of his observations on the basis of materials supplied by the investigation wing collected during the search operations. These observations indicate the application of mind by the Assessing Officer and his own formation of belief that income chargeable to tax has escaped assessment. This is therefore, not a case of the Assessing Officer proceeding on a borrowed satisfaction of the 'investigation wing. Considering the facts discussed herein above, it is observed that AO has issued notice u/s 148 of the Act and passed reassessment order within framework of the Act and such notice is a valid notice. Thus, this ground of appeal is dismissed.
Being aggrieved by the order of the learned CIT-A the assessee is in appeal before us.
The learned AR before us contended that the notice under 148 of the Act was issued to the assessee as on 31-08-2017 which falls beyond the period of six years from the end of relevant assessment i.e. A.Y. 2010-11. Hence, such notice is barred by time. Therefore, the assessment framed on basis of such time barred notice is required to be quashed. Furthermore, the reasons for reopening the assessment, after filing the return of income under section 148 has not been provided, therefore on this count also the assessment is invalid.
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6.1 The learned AR further challenged the validity of the assessment by contending there was no notice issued under section 143(2) of the Act by the AO. Thus, the AO was not having jurisdiction to frame the assessment as it necessary for the AO to acquire the jurisdiction for assessment by issuing notice under section 143(2) of the Act. Therefore, the assessment framed without having jurisdiction is bad in law and required to be quashed.
On the other hand the learned DR vehemently supported the order of the lower authorities.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the learned AR contended that there was no notice issued under section 143(2) of the Act. Therefore, the assessment order is not sustainable. We find considerable force in the argument of the learned AR. We find that there was identical issue came before this tribunal in case of DCIT vs. M/s. Specific Ceramics Ltd in ITA No. 121/Ahd/2019 wherein the ITAT vide order dated 08-06-2021 has held as under: 9. We have heard the rival contentions and perused the materials available on record. The issue in the instant case raises two situations as detailed under: 1- Whether the assessment made under section 143(3) read with section 147 of the Act without issuing the notice under section 143(2) is valid. And 2- Whether the provision of section 292BB is attracted in the given facts and circumstance so as to make the assessment valid. 9.1 Admittedly, the return was filed by the assessee in response to the notice issued under section 148 of the Act. The return filed under section 148 of the Act is deemed to have filed under section 139 of the Act. Therefore all the provision specified under section 139 of the Act comes into play to a return filed under section 148 of the Act. The relevant provisions of section 148 of the Act read as under: [Issue of notice where income has escaped assessment. 148. [(1)] Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve49 on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 :]
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9.2 We further note that the expression used under section 148 of the Act i.e. “so for as may be” has been interpreted by the Hon’ble Apex court in the case of R Dalmia Vs. CIT reported in 236 ITR 480, that once the return filed under section 148 of the Act then in making the assessment and reassessment under section 147 of the Act the provisions as specified under section 139 of the Act has to be followed. The relevant extract of the judgment is reproduced as under: “It is no doubt that assessments under section 143 and assessments and reassessments under section 147 are different, but in making assessments and reassessments under section 147 the procedure laid down in sections subsequent to section 139, including that laid down by section 144B, has to be followed” 9.3 From the above judgment, there remains no ambiguity that the procedural provisions for making the assessment under section 143(3) of the Act has to be followed. Therefore, it is mandatory upon the Revenue to ensure the service of notice under section 143(2) of the Act even in the assessment framed under section 147 of the Act. 9.4 We also find support and guidance from the order of Special Bench of Delhi in the case of Raj Kumar Chawla v/s ITO reported in 145 Taxman 12 wherein it was held as under: “Section 148 does not provide any methodology for computing the income on reassessment or assessment. On the contrary, it creates a legal fiction that such return shall be treated as one made under section 139. By the creation of such legal fiction all the procedures prescribed in and subsequent to section 139 automatically apply in toto. It is a settled principle that a legal fiction has to be taken to its logical conclusion and, therefore, what is valid for a return under section 139 will be valid with equal force to a return filed under section 148. Therefore, the proviso will apply to a return filed in response to notice under section 148. Clause (b) of section 158BC specifically talks of the applicability of section 142, sub-sections (2) and (3) of section 143. There is an omission of sub-section (1) of section 143. This Chapter clearly prescribes its own return, form of own methodology for computation of income but falls back on the provisions of sections 142, 143 and 144 etc., only for procedural aspect. If the proviso is made applicable, then a clash erupts between the provisions of Chapter XIV-B with section 143(2) as the assessment is mandatory under this Chapter. [Para 31” 9.5 We also find support and guidance from the judgment of Hon’ble Kerala High Court in the case of Lally Jacob v/s ITO reported in 197 ITR 439 wherein it was held as under: “A reading of sections 147 and 148 makes it clear that, at any rate, an assessment for the first time made by resort to section 147 is a regular assessment. Section 148 enjoins the Income-tax Officer before making an assessment under section 147 to serve a notice on the assessee containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139. The further provision in that section is very significant which provides that the aforesaid notice has to be treated as if it is a notice under section 139(2) and that all the provisions of the Act shall apply to the subsequent procedure and the final assessment. In other words, the notice issued under section 148 has to be deemed to be a notice under section 139(2) and, if the other provisions of the Act have to be applied, an assessment in pursuance of that can be made only under section 143 or section 144. We were not shown any other provision by which the Income-tax Officer is authorised to make an order of assessment under the Act. The provisions contained in section 140A also give an indication that an assessment made in pursuance of a notice under section 148 is a regular assessment under section 143 or section 144, for section 140A(2) provides that any admitted tax paid in pursuance of section 140A(1) shall be deemed to have been paid towards the regular assessment under section 143 or section 144. It is pertinent to note that section 140A(1) deals with a return required to be furnished under section 139 or section 148. That makes the provision clear that an assessment made under section 147 also will be a regular
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assessment under section 143 or section 144. Accordingly, we hold that any assessment made for the first time by resort to section 147 will also be a regular assessment for the purpose of invoking section 217 of the Act. With great respect, we dissent from the view expressed in certain decisions referred to earlier in this judgment which take a contrary view." (p. 452)”
9.6 We also find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of ITO versus Smt. Sukhini P. Modi. Reported in 367 ITR 682 wherein it was held as under: “8. The apex court in the case of Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 has considered the very issue. The apex court held that the Assessing Officer has to necessarily follow the provisions of section 142 and sub-sections (2) and (3) of section 143. It did not accept the submission of the Revenue that the requirement of the notice under section 143 can be dispensed with and the same is mere procedural irregularity. In the words of the apex court, it is held as under (page 370) : "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 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143." 9. In the instant case, we notice that both the Commissioner of Income-tax (Appeals) and the Tribunal have held that the procedure prescribed of issuance of notice under section 143(2) has not been followed at all. This realm of fact has not been disputed by the Revenue. In view of this decision of the apex court, the assumption of the jurisdiction of issuance of notice of reopening itself would not be sustainable, and, therefore, this court does not require to indulge into the concurrent findings of both the authorities. In the absence of fulfilment of mandatory requirement of issuance of notice under section 143(2) both the authorities rightly and validly held against the Revenue and in favour of the assessee. Resultantly, the tax appeals deserve no further consideration and are dismissed with no order as to costs.” 9.7 Thus in view of the above we conclude that the AO was under the obligation to issue a notice under section 143(2) of the Act for making the assessment or reassessment as the case may be under section 147 of the Act. But the AO has not done so. Accordingly, the order framed under section 143(3) read with section 147 of the Act becomes invalid. 9.8 We further note that the provisions of section 292BB of the Act deals with the situation where notice is not served or not served on time or served in a improper manner viz a viz the assessee does not raise objection before the completion of the assessment. As such, the provision of section 292BB of the Act does not deal about the issuance of notice. In the present case, the issue is whether the assessment framed under section 147/143(3) of the Act is valid without the issuance of the mandatory notice under section 143(2) of the Act. Accordingly we hold that, the provision of section 292BB of the Act does not extend any benefit to the Revenue. 9.9 In holding so we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of PCIT v/s Marck Biosciences Ltd. reported in 106 Taxmann.com 399 wherein it was held as under; “The facts as emerging from the record show that it is an admitted position that no notice under section 143(2) had been issued after the assessee informed the Assessing Officer to treat the earlier return of income as the return filed in response to the notice under section 148 of the Act. In other words, no notice under section 143(2) was issued
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after the filing of the return of income. The question that, therefore, arises for consideration is whether the assessment order framed under section 143(3) read with section 147, would be rendered invalid in the absence of a notice under section 143(2) of the Act? On a plain reading of provision of section 143(2), it is manifest that it contemplates that when an assessee files a return under section 143 and the Assessing Officer finds that any claim as described therein is inadmissible, he is required to serve a notice to the assessee specifying particulars of such claim and a date on which he should produce or cause to be produced, any evidence or particulars specified therein on which the assessee may rely in support of such claim. Further, from the language employed in section 292BB of the Act, it emerges that a notice would be deemed to be valid in the three circumstances provided therein, namely, where the assessee has participated in the proceedings it would not be permissible for him to raise objection that (i) the notice was not served upon him; or (ii) was not served upon him in time; or (iii) was served upon him in an improper manner Thus, all the circumstances contemplated under section 292BB of the Act are in a case where a notice has been issued, but has either not been served upon the assessee or not served in time or has been served in an improper manner. The said provision clearly does not contemplate a case where no notice has been issued at all In the facts of the present case, if the contention of the assessee were to be accepted, it would amount to dispensing with the notice under section 143(2) of the Act in view of the fact that it is an admitted position that no such notice had been issued after the return of income was filed by the assessee. After the filing of the return of income, unless a notice under section 143(2) of the Act is issued to the assessee, he would have no means of knowing as to whether or not the Assessing Officer has accepted the return of income as filed by him. As held by the Supreme Court, omission to issue a notice under section 143(2) is not a procedural irregularity and is not curable. It is, therefore, mandatory to issue notice under section 143(2) of the Act. Section 292BB provides for a deeming provision that any notice under any provision of the Act, which is required to be served upon the assessee, has been duly served upon him in time, in accordance with the provisions of the Act. This section would be applicable where a notice has, in fact, been issued and a contention is raised that such notice has not been served upon the assessee or has not been served in time or has not been served properly, namely, where there is a defect in the service of notice. This provision does not apply to a case where no notice has been issued at all. In the facts of the present case, at the cost of repetition, it may be stated that no notice under section 143(2) has been issued after the assessee had filed its return of income and hence, section 292BB would not be attracted. In the light of the fact that non-issuance of a notice under section 143(2) is not a procedural irregularity, the same cannot be cured under section 292BB of the Act and hence, the assessment order passed without issuance of notice under section 143(2) would be rendered invalid. The Tribunal as well as the Commissioner (Appeals), therefore, did not commit any error in holding that the notice issued prior to the filing of the return of income was invalid and that, in absence of a valid notice under section 143(2) the assessment order was rendered invalid.” 9.10 We also find important to refer the judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Panorama Builders Pvt. Ltd. reported in 45 taxmann.com 159 wherein it was held as under:
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“14. Therefore, we are of the considered opinion that section 292BB does not apply to issuance of notice, neither it cures the 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. In absence of issuance of the notice under the proviso to section 143(2) of the Act within a period of 12 months from the end of the month in which return was furnished by the assessee, the proceedings initiated by the Assessing Officer with regard to block assessment period 1.4.1997 to 25.7.2002 on the basis of notice issued on 6.7.2006 under section 143(2), after about 20 months, was time barred and the entire proceedings in pursuance of such notice is null and void.” 9.11 In view of the above, we conclude that it was mandatory to issue the statutory notice under section 143(2) of the Act within the prescribed time and such defect cannot be cured under the provisions of section 292BB of the Act. The Ld. DR has also not brought anything on record contrary to the arguments advanced by the Ld. AR for the assessee. Thus in the absence of the statutory notice, the assessment framed under section 143(3)/147 of the Act is not sustainable. Hence the ground raised by the Revenue is dismissed.
8.1 At the time of hearing, the learned DR has also produced the assessment records in original to verify whether the copy of the notice under section 143(2) of the Act is available on record. However, on perusal of the same, we do not find any copy of the notice issued under section 143(2) of the Act available in the records. The fact of non-availability of the notice under section 143(2) was also not disputed by the ld. DR at the time of hearing. Thus in the absence of the statutory notice and respectfully following the above order of this tribunal, the assessment framed under section 143(3)/147 of the Act is not sustainable. Hence the ground raised by the assessee is allowed.
The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 23,59,342/- on account of unexplained investment.
At the outset we note that we have quashed the assessment order on technical ground, therefore we refrain our-self from giving finding on merit. Thus the ground of appeal raised by the assessee is hereby dismissed as infructuous.
In the result appeal of the assessee is partly allowed.
Coming to the ITA No. 1192/Ahd/2019, an appeal by the assessee.
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The assessee has raised following ground of appeal
That the learned CIT(A) has erred in law and facts by not cancelling penalty levied under section 271(1)(c) of Rs.6,61,675/- and therefore the ld.Assessing officer should be directed to cancel the penalty u/s.271(1)(c) of the Act. 2. That your appellant craves to leave to add, alter or amend any grounds at the time of hearing.
The only issue raised by the assessee is that the learned CIT(A) erred in confirming the penalty order for Rs. 6,61,675/- only.
At the outset we note that the penalty under section 271(1)(c) can be levied on account of tax evaded by the assessee either by way of concealment of income or by furnishing inaccurate particular of income which has been unearthed by the AO and addition have been made to the total income of the assessee in quantum proceedings. Coming to the case of the assessee, we find that the AO has made addition on account of unexplained investment. The AO has also initiated the penalty proceeding while making addition to the total income of the assessee under quantum proceedings. Subsequently, the addition made by the AO was confirmed by the learned CIT (A) and the AO after receiving the order of the learned CIT(A) completed the penalty proceeding and levied the penalty under section 271(1)(c) of the Act. However, we note that the assessee against the validity of assessment order filed an appeal before us in ITA No. 1182/Ahd/2019 which has been allowed by us in favour of the assessee vide paragraph No. 8 of this order. In other words, we have quashed the assessment order. Therefore once the assessment order itself has been quashed, no addition as made by the authorities below, is sustainable. Thus the question of levying penalty under section 271(1)(c) of the Act on the same does not arise. Therfore, in view of the aforesaid discussion we quash the penalty order. Hence the ground of appeal of the assessee is allowed.
14.1 In the result, the appeal of the assessee is allowed.
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14.2 In the combined results, appeal of the assessee bearing ITA No. 1182/Ahd/2019 is partly allowed and ITA No.1192/Ahd/2019 for A.Y.2010-11 is allowed.
Order pronounced in the Court on 28/02/2022 at Ahmedabad.
Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy) Ahmedabad; Dated 28/02/2022 Manish