SURENDRA KUMAR MISHRA,ALLAHABAD vs. ACIT, CIR-2, ALLAHABAD

5. BECAUSE in view of the admitted facts on record that the appellant had filed return in compliance to notice dated 11.02.2008 issued under section 148 of the Act, vide letter dated 10.11.2008 and no notice under section 143(2) of the Act, CIT(A) has erred in law in not following the binding precedence of the various judicial pronouncement of the Hon'ble Supreme Court and various high courts (including the jurisdiction high court) wherein the entire proceedings have been quashed being void-ab-initio in the absence of notice under section 143(2) having been issued by the Assessing Officer after filing of the return in compliance to 148 notice.

6. BECAUSE the entire re-assessment proceedings are vitiated and void-ab-initio the CIT(A) has erred in not following the binding precedence and further erred in not quashing the assessment order dated 26.12.2008 passed by ld. Assessing Officer under section 148 of the Act.

WITHOUT PREJUDICE TO THE AFORESAID 8. BECAUSE the CIT(A) has erred in confirming the addition towards free hold charges which has been added by the Id. Assessing Officer, merely relying upon the observation made by the CIT(A) in the first round of litigation vide appellate order dated 29.03.2012 on the ground of alleged failure of genuineness of transaction in the name of Sri Rajat Kumar Mitra as the appellant was having title of the property and he got converted into freehold so he cannot disown the transaction.

10. BECAUSE the CIT(A) should have deleted the addition of Rs.10,06,644/-made by the Id. Assessing Officer towards alleged investment in making payment of 'free hold changes' in the assessment order dated 26.12.2008, as the addition itself is erroneous keeping with the principle laid down by the Hon'ble apex court in the case of CIT Vs Smt. PK. Noorjahan reported in (1999) 237 ITR 570, after the observations made by the Id. Assessing Officer himself to the effect that the appellant did not have any source of income (other than salary income).

12. BECAUSE the authorities below have erred in law and on facts in not allowing full deduction of expenses claimed (other than freehold charges) at Rs.15,73,360/- and in restricting the same to Rs.14,16,024/- (being 90% of the claimed amount).

raised by the assessee. On the merits of the issue, he decided the matter against the assessee. He observed that the ld. AO had dealt with this case in totality, the assessee had failed to produce Shri. Rajat Kamal Mitra to verify the facts stated by him and he had failed to produce the bank account or prove the transfer of any funds to Shri. Rajat Kamal Mitra, subsequent to the sale. Therefore, the ld. AO had rightly assessed the income from the said transaction in the hands of the assessee. With regard to expenses claimed by the assessee, the ld. CIT(A) observed that the onus was upon the title holder to explain the income and expenditure, and since the assessee was the title holder and he had been shirking his responsibilities to satisfactorily explain the matter on account of his story that Shri. Rajat Kamal Mitra was the owner, the addition had rightly been made by the ld. AO.

5. The appellant then carried the matter to the ITAT Allahabad Bench in ITA No.304/Alld/2012. The Hon’ble Bench vide their orders dated 9.11.2012, held that the ld. CIT(A) had failed to note that the provisions of 292BB has been inserted in the Income Tax Act by the Finance Act, 2008 w.e.f. 1.04.2008. The ITAT Delhi Special Bench, in the case of Kuber Tobacco Products (P) Ltd. vs. DCIT 117 ITD 273 had held that section 292BB inserted by the Finance Act, 2008 had no retrospective effect and was to be construed prospectively. Therefore, the above provisions would not be applicable to the assessment year under appeal i.e. AY 2002-03. They noted that the ld. CIT(A) had not disputed the orders of the Hon’ble Allahabad High Court in the case of CIT vs. Rajiv Sharma (supra), but had not followed them on account of 292BB. They further observed that the Hon’ble Allahabad High Court in the case of CIT vs. Mukesh Kumar Agarwal 345 ITR 29 had considered the issue of section 292BB and held that it would have no effect on the judgment of the Hon’ble Supreme Court in the case of Hotel Blue Moon [2010] 321 ITR 362 (SC). The Hon’ble Bench held that the ld. CIT(A’s) could therefore not be sustained. Examining the finding of the ld. CIT(A), that the return under section 148 had not been filed within time, the ld. Bench observed that the ld. AO acted upon the reply of the assessee dated 10.11.2008 and considered the earlier return of income filed by the assessee on 13.07.2003 declaring income of Rs.1,68,000/- for the purposes of computing the income of the assessee and had taken the income disclosed in the earlier year in the computation of re-assessment and thereafter completed the re-assessment proceedings. Therefore, it observed that this was suggestive of the fact that the ld. AO had acted upon the return of income filed by the assessee belatedly on 10.11.2008. Hence, since the legal issue had not been addressed by the ld. CIT(A), the ld Bench remanded the matter back to the ld. CTI(A), with a direction to admit the additional grounds and to decide the same in accordance with law after giving reasonable and sufficient opportunity of being heard ,in the light of the judgments of the Hon’ble jurisdictional Allahabad High Court.

6. The case was again taken up for hearing by the ld. CIT(A), NFAC. The assessee filed a written submission in which he relied upon the decisions of the Hon’ble Allahabad High Court in the case of Rajiv Sharma (supra) and Mukesh Kumar Agarwal (supra). In a nutshell, he submitted that all the judgments, including the judgment of the Hon’ble Supreme Court, had ruled that for the completion of assessment, notice under section 143(2) must be issued after the filing of return. However, the ld. CIT(A) held that in the present case, the ld. AO had not committed any mistake, because a notice under section 143(2) was not required to be issued unless there was a valid return filed in a prescribed form and in the prescribed manner. He observed that in this case, the notice under section 148 was issued on 11.02.2008 and served on 22.02.2008. The return was required to be furnished within 30 days. Therefore, time was allowed up till 30th March, 2008. But the return, in response to notice under section 148 was not filed within the stipulated period. Since, no return was filed in response to the notice under section 148, there was no cause of action under section 143(2). He submitted that in his opinion, a proper return should have been filed in response to the notice under section 148, and mere information that the return filed earlier on 13th July, 2003, may be treated as a return in response to notice under section 148 was not compliance of notice under section 148. He observed that a notice under section 143(2) could not be issued against a return dated 13.07.2003 and therefore, no notice was required to be issued in the said matter. The ld. CIT(A) observed further that the facts in the judgment of the CIT vs. Rajiv Sharma (supra) were different from the present case, because in that case, the ld. AO had written to the assessee giving the assessee a last opportunity to file a return upto 8.01.2002, while in this case, the last opportunity was 30 days from the issue of notice under section 148. Since the ld. AO gave no such opportunity, the assessee could not claim the benefit of extended time and seek shelter under the judgment of CIT vs. Rajiv Sharma (supra). He further observed that in case there was no return leading to issue of notice under section 143(2), the assessment could be completed under section 147 / 144 after issue of notice under section 142(1) only. He therefore held that the concerns of the Hon’ble ITAT regarding the completion of the order on 26.12.2008 when assessee filed reply on 10.11.2008, were addressed. Moving on to look into the issue on merits, the ld. CIT(A) held that it was clear from the order of the ld. AO that the investment in the name of Shri. Rajat Kamal Mitra was facade. The assessee could not prove that the investment was made by Shri. Rajat Kamal Mitra. He, therefore, confirmed the addition of undisclosed investment under section 69C on free hold charges amounting to Rs. 10,06,644/- as he was in agreement with the predecessor CIT(A) that since the assessee had the title of the property, he could not disown the transaction. With regard to the determination of short-term capital gain of Rs.16,13,976/-, he held that since the investment in the free hold property was that of the assessee, the sale proceeds of this property accrued to him. The assessee could not prove the transfer of Rs.4, 50, 000/- to Shri Rajat Kamal Mitra. He could not prove the identity, creditworthiness or genuineness of the transaction stated to take place with Shri. Rajat Kamal Mitra. With regard to disallowance out of expenditure, the ld. CIT(A) pointed out that the assessee had not provided any corroborative evidence and therefore, the ld. AO had disallowed 10% of the expenditure. He held that since the disallowance was reasonable in the circumstances, the assessee did not deserve to hold any grudge against the said disallowance. The ld. CIT(A) submitted that the assessee would neither produce his bank statements or evidence of the so called expenditure. Since, the assessee could not discharge his onus, therefore, the disallowance of expenditure was justified. The ld. CIT(A) also drew reference to the fact that he had himself issued an enquiry letter to the assessee seeking information on various points, but the assessee had declined to furnish the same, saying that the counsel associated with the original assessment was no longer in contact with them and therefore, they were not able to trace the necessary documents. In the circumstances, he held that the stand taken by the ld. AO deserves to be upheld and he dismissed the appeal of the assessee.

7. Aggrieved with this dismissal of his appeal, the assessee has come before us. Shri. Ashish Bansal, Advocate (hereinafter referred to as the ‘ld. AR’) who argued the case of the assessee, submitted that the ld. CIT(A) had erred by dismissing the appeal and observing that the return filed by the assessee in terms of a letter dated 10.11.2008 was not a valid return in compliance to the notice dated 11.02.2008, because the furnishing of the letter requesting to treat the return filed originally as a return in compliance to notice under section 148, was a valid return and the ld. CIT(A) erred in observing that the same was not in compliance with the notice. It was further pointed out that the Hon’ble Allahabad High Court had observed in the case of CIT vs. Rajiv Sharma (supra) that the issue of notice under section 143(2) was mandatory after the filing of the return and in the present case, the ld. AO had himself issued a notice under section 142(1) of the Act, after the issue of notice under section 148, requiring the assessee to prepare a true and correct return and file the same before him. Thus, the judgment of the Hon’ble Allahabad High Court in the case of CIT vs. Rajiv Sharma (supra) was squarely applicable to the facts of the assessee’s case. He also placed reliance on the decision in the case of CIT vs. Salarpur Cold Storage in Income Tax Appeal No. 24 of 2014 (Allahabad).It was submitted that in view of the admitted fact on record, that the assessee had filed a return in compliance to notice dated 11.02.2008 vide its letter dated 10.11.2008 and no notice under section 143(2) of the Act had been issued, the ld. CIT(A) should have followed the binding precedents of various judicial pronouncement of the Hon’ble Supreme Court and the Hon’ble High Courts on the subject and quashed the proceedings as void ab initio in the absence of notice under section 143(2) having been issued. It was, therefore, submitted that the entire re-assessment proceedings were vitiated in the eyes of law and deserve to be quashed on this account. It was further submitted that the ld. CIT(A’s) view that because the assessee had the title to the property, he could not disown the transaction was an erroneous view, because the source of investment in making the payment of, ‘free hold charges’ stood fully explained by the confirmation of Shri. Rajat Kamal Mitra and therefore, the same should not have been held to be undisclosed income in the hands of the assessee. Reliance was placed on the case of CIT vs. Smt. P.K. Noor Jahan (1999) 237 ITR 570 for this proposition. Furthermore, it was submitted that the payment of free hold charges should have been considered as, ‘cost of improvement’ of the, ‘capital asset’ and the same should have been taken into account in that manner in the computation of capital gains. Furthermore, the assessee should have been allowed the full deduction of expenses at Rs.15,73,360/- (other than free hold charges) instead of restricting them by 10%. It was submitted that this restriction by 10% was wholly erroneous and inconsistent with the facts of the case. Furthermore, it was submitted that the surplus arising out of transfer of capital asset should have been subjected to assessment as, ‘long term capital gain’ instead of, ‘short term capital gain’ as had been made / upheld by the authorities below. Needless to say, these arguments were made without prejudice to the assessee’s earlier contention, that the investment and income was not that of the assessee but that of Shri. Rajat Kamal Mitra.

8. On the other hand, Shri. A.K. Singh, Sr. DR (hereinafter referred to as the ‘ld. Sr. DR) arguing on behalf of the Revenue submitted that the notice under section 148 had been issued on 11.02.2008 and the period of 30 days had lapsed, long before the letter had been filed by the assessee. He invited our attention to a letter filed by the assessee on 10.09.2008, during assessment proceedings, where additional time was allowed to the assessee to file the return in response to notice under section 148 by 16.09.2008. Ld. Sr. DR submitted that compliance was not made on this date also. Therefore, he submitted that once the time period allowed under section 139 and section 148 and even section 142(1) had lapsed, the assessee could not claim a right to file the return at any time of his choosing. Therefore, the letter dated 10.11.2008, which was clearly filed beyond the time allowed to the assessee to make compliance, could not be held to constitute a valid return in response to notice under section 148 or the extended time allowed by the ld. AO in response to his notice under section 142(1). This return was non-est and therefore, the assessee cannot seek a notice under section 143(2) as a matter of right on a return which was non-est. The ld. Sr. DR further argued that if one were to consider the purpose and intent of the notice under section 143(2), then it was that nobody should go unheard. However, in the present case, no prejudice had been caused to the assessee due to the fact, that the assessee was constantly present during the assessment proceedings. The ld. Sr. DR, in support of his arguments placed reliance on the following case laws:- i. CIT vs. Umang Agarwal, (2014) 365 ITR 164 ii. Smt. Parvati Devi vs. CIT (1970) 75 ITR 625 iii. Bhola Dutt In re (1981) 130 ITR 468 iv. PCIT vs. Broadway Shoe Company (2018) 259 taxman 223 J & K.

9. The ld. Sr. DR also submitted that the observations of the ITAT in the first round of appeal regarding cognizance of the letter dated 10.11.2008 were not called for, because the cognizance was only taken for computational purposes and did not 13 validate the return as a return under section 148. The ld. Sr. DR, therefore, pleaded that there was no merit in the legal grounds cited by the assessee. Arguing on the merits of the case, the ld. Sr. DR pointed out that it was for the assessee to produce proof and verifiable evidences, to show that the story about the transaction with Shri. Rajat Kamal Mitra were true. The objective facts as they stood were that he had obtained a power of attorney from Shri. Rajat Kamal Mitra, transferred the title to his own name and thereafter, sold the property to another party. There was also evidence that it was he who had incurred the expenditure, both for payment of free hold charges and for compensation / development, therefore, these had to be assessed in his hands, unless he could produce evidence to shift the onus upon him to explain the said expenditure and investment. The ld. Sr. DR, therefore, submitted that the expenditure had rightly been disallowed in the hands of the assessee and also that the capital gains had rightly been assessed in his hands. He submitted that since the assessee had got the property converted to free hold on 15.06.2001 and sold the property between July to October 2001, therefore, it was clearly a case of short-term capital gain, unless, he could show that he had purchased the property from Shri. Rajat Kamal Mitra more than two years back. In the circumstances, the ld. Sr. DR prayed that the orders of the ld. AO and ld. CIT(A) may kindly be upheld.

11. It is, therefore, pertinent to analyze the case of the assessee with reference to these positions held by the various Courts. It is fairly clear that the assessee was issued with a notice on 11.02.2008 which was served upon him on 28.02.2008, that required him to furnish a return of income within 30 days i.e. 30.03.2008. The assessee did not file the return of income within the stipulated period. Subsequently, the ld. AO issued a notice under section 142(1) on 25.08.2008. In his order, he states that that notice was issued asking the assessee to furnish relevant information and documents necessary to complete the assessment. In its submissions before authorities earlier, the assessee has pointed out that it was for requiring the assessee to furnish a, ‘true and correct return of income’. Be that as it may, the fact is that the assessee appeared on 10.09.2008 and requested for one more month to file the relevant documents. In response, the ld. AO adjourned the case up till 16.09.2008, on the condition that the return of income under section 148 for the assessment year 20001-02 and 2002-03 were filed on 16.09.2008. However, the return of income as called for in the notice under section 148 was not furnished by 16.09.2008. There is nothing on record to show that the ld. AO gave any further time to the assessee to file a return. In the circumstances, the filing of a letter on 10.11.2008, that the returns filed under section 139 may be treated as the returns in response to the notice under section 148, cannot acquire the status of a valid return in response to notice under section 148. On examining the order of the Tribunal in we observe that our ld. Brothers, while restoring the matter back to the CIT(A) for a fresh decision, have opined that, by commencing the computation of escaped income from the returned income filed on 13.07.2003, the ld. AO has taken cognizance of the letter filed on 10.11.2008 and therefore, this would amount to acting upon the return of income filed by the assessee belatedly as per his letter dated 10.11.2008. However, we are not in agreement with this understanding. In our view, the computation of escaped income under section 147, has to necessarily start either from the last returned income or the last assessed income. It cannot start from zero, where a return of income had been filed earlier. Therefore, the mere fact that the ld. AO recorded what had already been disclosed by the assessee earlier, as a starting point for computing the escaped income, does not mean that he acted upon any belated returned income and therefore, this cannot confer any legitimacy upon the letter dated 10.11.2008 as a valid return. Therefore, since there was no valid return, the ld. AO was not obliged to issue the notice under section 143(2), but was fully empowered to complete the assessment under section 144 r.w.s.