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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri B.R. Baskaran
Per B.R. Baskaran, Accountant Member
The appeal of the assessee is directed against the order dated 08-01- 2018 passed by Ld CIT(A)-2, Pune and it relates to the assessment year 2009-10. The assessee is aggrieved by the decision of Ld CIT(A) in partially sustaining disallowance of expenditure. The assessee has also challenged the validity of re-opening of assessment.
I heard the parties and perused the record. The assessee is engaged in the business of manufacturing of chemicals. The AO received information from investigation wing that some of its dealers have provided only accommodation bills without actually supplying materials. It was noticed that the assessee has purchased materials to the tune of Rs.8256/- from one of such dealers. Hence the AO reopened the assessment of the year under consideration by issuing notice u/s 148 of the Act. The assessee
[2] M/s. Visa Chemical Industries filed return of income in response thereto, wherein it offered the above said amount of Rs.8,256/-. During the course of assessment proceedings, the AO disallowed 20% of various expenses claimed by the assessee. In the appellate proceedings, the Ld CIT(A) reduced the disallowance to 15%. Still aggrieved, the assessee has filed this appeal.”
At the time of hearing, the Ld A.R raised a legal issue. He submitted that the assessee has filed return of income only on 09-12-2013. However, the AO has issued notice u/s 143(2) of the Act prior to the filing of return of income, i.e., on 27.11.2013. Accordingly he submitted that the assessment order is liable to be quashed as per the following decisions:- (a) DIT vs. Society for worldwide Inter Bank Financial Telecommunications (2010)(323 ITR 249)(Delhi) (b) Shri Sudhir Menon vs. ACIT (ITA No.1744/Mum/2016 dated 03- 10-2018) The Ld A.R further submitted that the AO has disallowed 20% of expenses on adhoc basis and such kind of estimated disallowances cannot be considered to be income escaping assessment within the meaning of sec.147 of the Act.
I heard Ld D.R and perused the record. I notice that the assessing officer has issued notice u/s 143(2) of the Act prior to the filing of return of income by the assessee. The Hon’ble Delhi High Court has considered this issue in the case of Society for worldwide Inter Bank Financial Telecommunications (supra) and has held that the notice served on the assessee u/s 143(2) of the Act prior to the filing of return of income is not valid and accordingly the assessment completed on the basis of such notice is invalid. The Mumbai bench of Tribunal has followed the above said decision in the case of Shri Sudhir Menon (supra). For the sake of [3] M/s. Visa Chemical Industries convenience, we extract below the relevant portion of order passed by the co-ordinate bench in the above said case:-
“Can assessment be framed without issuing a notice under section 143(2) of the Act when the return was filed by the assessee in response to notice under section 148 of the Act?
This issue has been examined by Hon’ble Bombay High Court Geno Pharmaceuticals Ltd. (supra), wherein it is held as under: –
“5. Apart from that, it is an admitted position that no notice under Section 143(2) had been issued while making assessment under Section 143(3) read with Section 147. The Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 has held that the Tribunal has discretion to allow or not to allow a new ground to be raised. But in a case where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. The ITAT, after relying on the judgment of the Apex Court in R. Dalmia v. CIT [1999] 236 ITR 480/102 Taxman 702, came to the conclusion that issuance of notice under Section 143(2) was mandatory. The ITAT has taken into consideration the relevant provisions and has also taken into consideration the judgment of the Apex Court and relying on the said judgments, the ITAT has held that notice under Section 143(2) is mandatory and in the absence of such service, the Assessing Officer cannot proceed to make an inquiry on the return filed in compliance with the notice issued under Section 148..”
[4] M/s. Visa Chemical Industries 7. Similar is the position in the case of Ms. Malvika Arun Somaiya (supra), wherein Hon’ble Bombay High Court has considered the similar issue.
8. Further, Hon’ble Delhi High Court in the case of Society for Worldwide Inter Bank Financial, Telecommunications (supra), wherein Hon’ble High Court considered identical situation on facts and held as under: –
“5. We are of the view that the impugned order does not call for any interference. Both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal have returned a concurrent and clear finding of fact that the notice under Section 143 (2) was issued on 23.03.2000 and since the return was filed on 27.03.2000, the notice was not a valid one and, therefore, the assessment completed on the basis of the notice was also invalid and was consequently set aside. It is for the first time before us that the learned counsel for the appellant contends that the notice, in fact, was issued on 27.03.2000 and not on 23.03.2000, the date which is recorded on the notice itself. No such contention was raised before the Lower Appellate Authorities. Consequently, the said contention cannot be raised before us for the first time.
6. However, even if we accept what the learned counsel for the appellant / revenue submits, it does not make the case any better for him. In para 3.4 of the memorandum of appeal, the appellant has stated that the return was filed by the assessee on 27.03.2000 and the notice under Section 143(2) was served upon the Authorized Representative of the assessee by hand when the Authorized Representative of the assessee came and filed
[5] M/s. Visa Chemical Industries return. However, the date of the notice was mistakenly mentioned as 23.03.2000.
7. Assuming the aforesaid to be true, the notice was served on the Authorized Representative simultaneously on his filing the return which clearly indicates that the notice was ready even prior to the filing of the return. Section 143(2) of the said Act clearly indicates that where a return has been furnished under Section 139, or in response to a notice under Section 142(1), the Assessing Officer shall-
(i) Where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim.
(ii) Notwithstanding the aforesaid, if the Assessing Officer considers it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not under-paid the tax in any manner, he may serve the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support return.”
The provisions of Section 143(2) make it clear that the notice can only be served after the Assessing Officer has examined the return filed by the assessee. Whereas what
[6] M/s. Visa Chemical Industries para 3.4 indicates is that when the assessee came to file the return, the notice under Section 143(2) was served upon the Authorized Representative by hand. Thus, even if we take the statement of the Assessing Officer at face value, it would amount to gross violation of the scheme of Section 143 (2) of the said Act.
9. In any event, we do not agree with the contentions raised by the learned counsel for the appellant that the notice was issued on 27.03.2000 in as much as the Tribunal has already returned a finding that the notice was issued on 23.03.2000. That being the case, no interference with the impugned order is called for.”
In view of the fact that notice under section 148 of the Act dated 1.04.2013 was issued and AO before filing of return by assessee in response to this notice, a notice under section 143(2) of the Act dated 03.05.2013 requiring the assessee to attend the office on 13.05.2013 was also issued. Up to this date i.e. 13.05.2013 no return of income was filed by the assessee in response to notice under section 148 of the Act. According to us, in view of consistent view of jurisdictional High Court and Delhi High Court, in the absence of pending return of income, the provisions of section 143(2) of the Act is clear that notice can be issued only when a valid return is pending for assessment. Accordingly, this notice has no meaning. The assessee filed return of income under section 148 of the Act vide letter dated 23.05.2013 stating that the original return of income can be treated as return filed in response to notice under section 148 of the Act. It means that the assessee has filed return of income only on 23.05.2013. No notice under section 143(2) of the Act was issued by the Department on or after 23.05.2013. According to us the assessment framed without issuing a notice under section 143(2) of the Act when the return was filed by the [7] M/s. Visa Chemical Industries
assessee in response to notice under section 148 of the Act, the assessment framed is bad in law. Accordingly, assessment is quashed. This issue of assessee raised by way of additional ground is allowed.”
Accordingly, following the above said decisions, I also hold that the impugned assessment order is bad in law, as it has been framed without issuing mandatory notice u/s 143(2) of the Act before filing return of income. Accordingly assessment is quashed.
Since I have quashed assessment , I do not find it necessary to adjudicate other legal grounds and the merits of additions.
In the result, the appeal of the assessee is allowed.