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Before: Shri H.S. Sidhu & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of ld. CIT(A)-XV, New Delhi dated 30.09.2014 for the assessment year 2005-06 on the following grounds : 1. That on the fact and circumstances of the case, the Ld. CIT(A) has erred in holding the assessment as valid inspite of the fact that he himself, on calling the assessment records from the AO, has noted that no notice under section 143(2) was issued and served to the assessee which is sine qua non for making assessment under section 143(3) of the Act. Therefore upholding the assessment proceedings for want of proper issue and servicing of notice under section 143(3) is invalid and illegal.
2. Without prejudice to the ground no. 1 above and on the fact and circumstances of the case, the Ld. CIT(A) has erred in confirming the addition of Rs. 3,82,55,045/- upholding the addition done by the Sales tax Authorities without any evidence in hand with the CIT(A) and in view of the fact that the Appellate Authorities in VAT have also set aside this addition with a direction for fresh assessment having regard to the fact that the factory premises have been sealed by the Sales Tax Authorities and the assessee was left no option to produce the evidence.
3. That on the fact and circumstances of the case, the Ld. AO has erred in enhancing the addition made under section 69C of the Act amounting to Rs. 62,89,918/- without giving any notice of enhancement and opportunity of being heard and to present the version before him.
Apart from the above grounds of appeal
, the appellant has also sought permission to raise following additional grounds by way of application dated 18th January, 2018 :
1. That the assessment framed u/s 143(3)/147 of the Act is without jurisdiction and deserves to be quashed as such.
2. That both the initiation of proceedings and the assessment framed without satisfying the pre-conditions for invoking the provisions of section 148 of the Act is invalid and untenable.
3. That the very basis of reassessment, being the information in re the Sales Tax Search and subsequent Assessment Order in case of the Assessee have been set aside by the Hon'ble Delhi High Court vide Order dated 23.02.2007, much prior to the issue of Sec. 148 Notice and thus there was no reason to believe for reopening the assessment after 4 years, and is a mere change of opinion . ”
In order to admit these additional grounds, it is stated on behalf of the assessee that these grounds are purely legal in nature and go to the root of the matter and therefore, the same may be admitted in view of decision of Hon’ble Supreme Court in National Thermal Power Corporation Limited vs. CIT, 229 ITR 383 (SC) and CIT vs. Varas International (P) Ltd., 284 ITR 80 (SC), where it has been held that the question of law or the grounds legal in nature can be raised at any stage of proceedings. The ld. DR failed to offer any plausible objection to the contention of the assessee. We, therefore, considering the nature of these additional grounds, being legal and adhering to the aforesaid decisions of Hon’ble Apex Court, admit these grounds for consideration.
The brief facts of the case are that the assessee-company is engaged in trading of Toyota Cars and their servicing etc. The return of income was filed declaring Income of Rs.35,69,633/-. The assessment u/s 143(3) was completed at income of Rs.35,69,633/-. Subsequently, proceedings u/s 147 of the I. T. Act were initiated by recording reasons on the basis of information received from the Investigation Wing of the Department informing that a survey was conducted on 11.5.2006 at the premises of assessee by a team of Enforcement Branch of the Department of Trade & Taxes, New Delhi where it was found that the assessee had suppressed its turnover of Rs.21,16,38,052/- by maintaining duplicate set of books, according to which the sales as per higher value of Invoices were found at Rs.1,72,09,86,183/- and sale amount as per books was shown at Rs.1,50,93,48,131/-. Based on the aforesaid information, the Assessing Officer initiated proceedings u/s. 147/148 after recording the reasons and seeking necessary approval for issuance of notice u/s. 148 from the competent authority. The assessee furnished detailed reply before the Assessing Officer, who after considering the submissions of the assessee and material available on record, made addition of Rs. Rs.21,16,38,052/- as suppression of sales vide order dated 28.03.2013.
The assessee carried the matter in appeal before the ld. CIT(A), where he challenged the validity of reopening of assessment on various legal contentions as well as merits of addition by filing detailed written submissions and relying on various decisions. The ld. CIT(A), however, after considering the submissions of the assessee and the assessment order on various aspects, restricted the addition to Rs.3,82,55,045/- on account of suppressed sales and also made addition of Rs.62,89,918/- u/s. 69C on account of suppressed purchases. Aggrieved, the assessee is in appeal before the ITAT.
The ld. AR of the assessee assailed the impugned order on various legal aspects, which are summarized as under :
(i). The reassessment made without serving any notice u/s. 143(2) of the IT Act, is invalid under law.
(ii). The initiation of proceedings and consequential assessment without satisfying the pre-conditions for invoking the provisions of section 148, is invalid in law.
(iii). Reasons recorded and formation of belief are based on mere survey report of Delhi Sales Tax Department, and the action taken by Sales Tax Department on the basis of same survey stood quashed by higher authorities of said department, meaning thereby, the information was not complete to form a belief of escapement of income.
(iii). The information wrongly taken as tangible material for formation of belief of escapement of income without considering the other related information, i.e., order of VTO based on the same information and appeal order of Special Commissioner II, which were brought to the notice of Assessing Officer that the assessments made by the Sales Tax Department on the basis of said survey /information stood quashed by various orders of their higher authorities.
5.1 Apart from the above, the ld. AR relied on the submissions made before the authorities below and various decision cited before the ld. CIT(A). He has also filed a small paper book of 15 pages, inter alia, containing the reasons recorded , order of Hon’ble Delhi High court dated 23.02.2007 quashing the exparte order of VTO dated 08.03.2006, assessment order of VTO dated 29.01.2008 based on the survey of their Enforcement Unit, order of Special Commissioner-II, Trade & Taxes (Appellate Authority) dated 30.12.2010, quashing the order of VTO dated 29.01.2008. The paper book also contained the copies of following decisions relied by the ld. AR :
(i). Mohinder Kumar Chhabra vs. ITO, (2014) 48 taxmann.com 120 (Delhi-Trib). (ii). Director of Income-tax (IT) vs. Atomstroyexport, (2018) 95 taxmann.com 260 (SC) (iii). Director of Income-tax (IT) vs. Atomstroyexport, (2018) 95 taxmann.com 260 (Bombay).
5.2 On merits of the addition, it was submitted on behalf of the assessee that the ld. Authorities below have failed to consider the plausible explanation clarifying the maintenance of double invoices of different amounts.
On the other hand, the ld. DR relied upon the order of the ld. CIT(A) and submitted that the first appellate authority has made an elaborate discussion in the impugned order on each and every contention of assessee and has rightly sustained the impugned additions. Since the assessee failed to reconcile the difference between the amounts shown in higher value invoices and that declared in the books of account, the order of the first appellate authority does not call for any interference.
7. We have considered the submissions of both the sides and have gone through the entire material available on record. Before we consider the legal contentions of the assessee, we deem it proper to mention here the chronological sequence of events in the instant case as under :
08.03.2006: An exparte assessment was passed by Sales Tax Authorities raising a demand of Rs.4,74,56,058/-. 11.05.2006: A survey was conducted by Enforcement Branch of Trade & Taxes Deptt. At the premises of the assessee, where it was found that the assessee has sold 2187 Cars of Toyota Company instead of 1872 Cars shown to have been sold by the assessee during the year. The enforcement department also found that the assessee has developed a CDMI program for inflation of the price of the cars. The premises were sealed and computer laptop and related papers were also seized by them.
23.02.2007: Writ petition of the assessee stood disposed of by Hon’ble Delhi High Court quashing the exparte order dated 08.03.2006. 29.01.2008: Assessment order in pursuance to Survey dated 11.05.2006 was passed by VAT Officer, creating a demand of Rs.1,04,37,563/-. The VTO found that numbers of cars sold by the assessee as per audited balance sheet were found 1872 as shown by the assessee. The VTO, however, held that the difference between the price of cars sold and price shown remains of Rs.3,82,55,045/- which was taxed under the Delhi Sales Tax Act. 30.12.2010: The assessment order dated 29.01.2008 was set aside by the Appellate Authority(Special Commissioner-II, Trade & Taxes Deptt.) and reduced the difference by Rs.2,73,14,588/- on account of cancelled and double invoices of the same cars and worked out the total difference in sales of Rs.1,09,40,457/- and the matter was remitted to the AO for making fresh assessment on the basis of actual material/evidences, which could not be produced by the assessee due to the premises, having been sealed. The assessment in pursuance to above order is still pending. 20.03.2012: Notice u/s. 148 was issued on the basis of information received from Investigation Wing, giving the details of survey by Enforcement Branch of Sales Tax Deptt.
The position of demand/suppression made by authorities of Sales Tax Deptt. as well as revenue authorities below us, on the basis of subject survey is summarized as under :
Suppressed sale as per Survey team : Rs.21,16,38,052/- Suppressed sale as per order dated 29.01.2008 : Rs.3,82,55,045/- As per Appeal order of Spcl. Commissioner: Rs.1,09,40,457/- Trade & Taxes Deptt.
Suppressed sales worked out by Assessing Officer u/s. 147 : Rs.21,16,38,052/- Suppression worked out by ld. CIT(A) : (i). Sales : 3,82,55,045 (ii). Purchase: 62,89,918 : Rs.4,45,44,963/-
8. An insight over the above chronological events and position of demands/suppression at various stages of Sales Tax Proceedings and Income- tax proceedings, as noted above, goes to show that on the basis of same survey report various authorities have taken different stands. The impugned information regarding survey by Sales Tax Department has been solely used by the Assessing Officer in letter and spirit for formation of belief of escapement of income without making any enquiry or application of mind, particularly when subsequent proceedings before various authorities of Sales Tax Department were available before issuance of notice u/s. 148 and were got acknowledged to the AO before passing the reassessment order. In presence of these facts, the reasons recorded by the AO cannot, in any way, be said to be proper to form a belief of escapement of income, as the information so received was neither found well founded nor the AO made any efforts to make any verification or application of his mind on the same. The provisions of section 147 do not give unfettered powers to reopen the assessment and the AO is required to satisfy the pre-conditions as given in the said section, which is lacking in the present case. For this, there are several decisions of Hon’ble Courts, as also cited by the assessee before the ld. CIT(A). In view of this, the reassessment u/s. 147 cannot be said to be valid.
9. Adverting to the next legal contention of the assessee regarding non- issuance of notice u/s. 143(2) before passing the reassessment, a perusal of the impugned order shows that the ld. CIT(A) though has categorically recorded that issuance of notice u/s. 143(2) is sine qua non, which was not issued to the assessee in the instant case, yet we find that even after recording such a finding, the ld. CIT(A) has not addressed on the validity of re- assessment on this score, despite finding that no copy of notice u/s. 143(2) was found in assessment record nor was there any evidence to dispatch any such notice. The ld. CIT(A), however, without deciding this legal issue challenging the validity of reopening proceedings, in our opinion, has wrongly proceeded to sustain the additions. The assessment record was called for by this bench vide order sheet entry dated 08.08.2018, but no such record is placed by the ld. DR before us till the last date of hearing. In support of his contention, the ld. AR has relied on the decision of Delhi Tribunal in the case of Mohinder Kumar Chhabra (supra), where it has been held as under :
We have carefully considered the submissions of both the sides and perused the material placed before us. After considering the arguments of both the sides and the facts of the case, we find the contention of the learned counsel to be justified. The issue before the Hon'ble Jurisdictional High Court in the case of Ashok Chaddha (supra) was whether the issue of notice under Section 143(2) is necessary when the notice has been sent in a search case under Section 153A. Hon'ble Jurisdictional High Court in the said case held as under:-
Held, dismissing the appeal, that (i) no specific notice was required under section 143(2) of the Act when the notice as required under section 153A(1)(a) of the Act was already given. In addition, the two questionnaires issued to the assessee were sufficient so as to give notice to the assessee, asking him to attend the office of the Assessing Officer in person or through a representative duly authorized in writing or produce or cause to be produced at the given time any documents, accounts, and any other evidence on which he may rely in support of the return filed by him.
However, in the case of V.R. Educational Trust (supra), the issue before the Hon'ble Jurisdictional High Court was identical to the issue in the present appeal because there also, the dispute was regard to issue of notice under Section 143(2) where the assessment was reopened under Section 147/148. The contention of the department was that the notice had already been issued under Section 142(1). However, Hon'ble Jurisdictional High Court did not agree with the Revenue’s contention and held as under:- “Even otherwise, it is difficult to accept the contention of the appellant that notice under Section 142(1) can be regarded as a notice issued under Section 143(2) of the Act. This Court in the case of Commissioner of Income Tax versus Lunar Diamonds Ltd. [2008] 281 ITR 1 (Del.) has held that service of notice under Section 143(2) is mandatory. It is not disputed that in respect of the proceedings under Section 147 of the act, notice under Section 143(2) is required and is mandated except in cases covered by the first and second proviso to Section 148 of the Act. The present case is not covered by the exceptions carved out in the two provisos as the return in the present case filed on or after 1 st October, 2005. In the case of Assistant Commissioner of Income Tax and Another vs. Hotel Blue Moon (2010) 321 ITR 362 (SC), the Supreme Court had examined the question of mandate and necessity to issue notice under Section 143(2) of the Act, in the case of block assessment proceedings and it was observed as under: “The other important feature that requires to be noticed is that Section 158-BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the assessing officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This section even speaks of sub-sections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the assessing officer, if for any reason, repudiates the return filed by the assessee in response to notice under Section 158-BC(a), the assessing officer must necessarily issue notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of Section 158-BC(b) it has done so specifically. Thus, when Section 158-BC(b) specifically refers to applicability of the proviso thereto cannot be excluded.
We may also notice here itself that the clarification given by CBDT in its Circular No.717 dated 14-8-1995, has a binding effect on the Department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158-BC, the provisions of Section 142 and subsections (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act. (emphasis supplied) The aforesaid reasoning will equally apply to proceedings initiated under Section 147 of the Act.”
That even in the case of Alpine Electronics Asia Pte. Ltd. (supra) also, the Hon'ble Jurisdictional High Court quashed the assessment proceedings because of non-issue of notice under Section 143(2) within time. In the said case also, the assessment was reopened under Section 147/148. In the aforesaid case, their Lordships of Hon'ble Jurisdictional High Court held as under:-
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 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.”
In view of the above, we are of the opinion that on the facts of the assessee’s case, the decision of Hon'ble Jurisdictional High Court in the case of Alpine Electronics Asia Pte. Ltd. (supra) and V.R. Educational Trust (supra) would be applicable. Respectfully following the same, we hold that the assessment completed without issue of notice under Section 143(2) of the Act was invalid. The same is quashed and consequentially, the assessment order passed in pursuance thereto is also cancelled. “ 10. In view of the aforesaid decision, in our considered opinion, the issue of notice u/s. 143(2) is mandatory in the reassessment proceedings and its failure to do so, make the re-assessment as void. It is so held also by Hon’ble Bombay High court in CWT vs. HUF of HH Late Shri J.M. Scindia (2008) 300 ITR 193 (Bom). Similar view has been taken by Hon’ble Bombay High Court in another case CIT vs. Mundra Nanvati (2009) 227 CTR 387 (Bom. HC). In view of this, the impugned re-assessment deserves to be held as void.
Keeping in view what has been discussed above, we are not inclined to support the orders of the authorities below. Since the reopening of assessment u/s. 147/148 itself is held invalid on legal aspects of this case, we do not think it necessary to enter into the merits of additions, which will be academic in nature.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 5TH November, 2018