INCOME TAX OFFICER WARD 2(2)(2), GHAZIABAD vs. RAJEEV KUMAR ARORA, GHAZIABAD

4. In this background, the respondent-assessee has invoked the provisions of Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 (in short 'the Rules') and has raised the following Grounds in order to support the ultimate decision of CIT(A), and has contended that the appeal of the Revenue be dismissed :-

1. Notice u/s 143(2) is legally invalid On the facts and circumstances and in law, notice u/s 143(2) served by the assessing officer on August 12, 2008 was legally invalid since the same had been served after the expiry of statutory limit of twelve months from the end of the month in which the return of income was furnished by the assessee on 27.7.2007, and though as per Proviso to section 143(2)(ii), the assessing officer could have served the notice u/s 143(2) on or before 31.7.2008.

2. Assessment order passed u/s 143(3) is also legally invalid On the facts and circumstances and in law, since the notice u/s 143(2) was legally invalid as the same had been served after expiry of statutory time limit, the consequential assessment order u/s 143(3) dated 29.12.2009 is also legally invalid ab initio.

3. Fact of belated service of notice u/s 143(2) is obvious The fact of belated services of notice u/s 143(2) is obvious from assessment order itself; and it does not involve any examination of record or investigation into facts not already on record."

5. According to the learned representative for the assessee, notice u/s 143(2) of the Act has been served on the assessee on 12.8.2008, which is after the expiry of the stipulated time limit of 12 months from the end of the month in which return of income was furnished by the assessee, i.e., from 27.7.2007 and, therefore, the consequential assessment finalised u/s 143(3) of the Act was invalid. In this regard, he has referred to the discussion in the assessment order itself to justify the existence of relevant facts that are required for the purpose of adjudicating the said plea. The learned representative placed reliance on the judgments of the Hon'ble Bombay High Court in the case of B.R. Bamasi vs. Commissioner of Income- Tax, 83 ITR 223 (Bom.) and Commissioner of Income-tax vs. Gilbert & Barker, 111 ITR 529 (Bom) to contend that in an appeal filed by the Revenue, the respondent is entitled to raise a plea challenging the legal validity of the Assessing Officer's assessment order in order to seek dismissal of the appeal of Revenue.

6. On this aspect of the matter, the Id. DR has not seriously opposed assessee's plea for admission of the aforesaid Ground for adjudication, but has pointed out that there was no merit in the plea raised by the assessee because of the amendment made by the Finance Act, 2008 whereby clause Page | 4 (ii) of Sub-section (2) of Sec. 143 of the Act has been amended to provide that notice u/s 143(2) of the Act shall be served on the assessee within a period of 6 months from the end of the financial year in which the return is furnished. It was, therefore, contended that the return of income filed by the assessee on 27.7.2007 would be governed by the amended provisions of Sec. 143(2) of the Act and such a return could have been picked up for scrutiny assessment on or before 30.9.2008, whereas in the present case notice u/s 143(2) of the Act has been served on the assessee on 12.8.2008 itself, thereby implying that there is no infirmity in the assessment proceedings.

7. Insofar as the plea of assessee for admitting the aforesaid Grounds of appeal

for adjudication are concerned, in our view, the same is admissible considering the judgment of Hon'ble Bombay High Court in the case of B.R. Bamasi (supra). Notably, the Hon'ble High Court, inter-alia, considered the following questions of law :-

1. Whether, on the facts and in the circumstances of the case, the refusal of the Tribunal to allow the assessee to challenge for the first time before it the validity of notice and assessment under section 34 while considering the appeal filed by the department against the order of the Appellate Assistant Commissioner for the assessment year 1947-48 was in accordance with law? Further, the Hon'ble High Court answered the aforesaid controversy in the following words :- "The only question is whether the Tribunal was entitled in law to refuse to allow the assessee to urge that ground in the appeal before it. Now a Division Bench of this High Court in Commissioner of Income-tax v. Hazarimal Nagji & Co., after considering the relevant sections of the Income-tax Act and the relevant Rules made thereunder, held that the powers of the Appellate Tribunal are similar to the powers of an appellate court under the Civil Procedure Code. It has further held that the respondent in an appeal is undoubtedly entitled to support the decree which is in his favour on any grounds which are available to him, even though the decision of the lower court in his favour may not have been based on those grounds. It has further held that if the appellant in his challenge to the decree of the lower court is entitled to take a new ground not agitated in the court below by leave of the court, there appears to be no reason why a respondent in support of the decree in his favour passed by the lower court should not be entitled to agitate a new ground and subject to the same limitation. A Division Bench of the Allahabad High Court has taken a similar view in Kanpur Industrial Works v. Commissioner of Income-tax. That judgment has considered the position of an appeal under section 33 of the Income- tax Act along with the relevant Rules and that of an appeal under the Page | 5

Code of Civil Procedure and the provisions of Order XLI, rule 22. The judgment holds that when the department files an appeal for an increase in the assessed income, the subject matter of the appeal is the increase claimed by the department and the assessee can urge any ground of defence even though it might have been rejected by the Appellate Assistant Commissioner for showing that there should be no increase. It has further held that that the assessee is not liable to be assessed at all is a ground for showing that there should be no further assessment and the department's appeal can therefore be resisted on that ground and that there is no incongruity in maintaining the assessment order passed against the assessee and yet refusing to increase it on the ground that he was not liable to be assessed at all. The judgment points out however that if the Tribunal accepts the ground of defence that the assessee was not liable to be assessed, it can only refuse to increase the assessed income as only such an order would be within the scope of the appeal filed by the department and any other order such as annulling the assessment would be outside the scope of the appeal. That judgment holds that the position of an appeal under section 33 of the Income-tax Act and an appeal under the Code of Civil Procedure is identical.....

If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears that appeal would have no power to disturb or to set aside the order in favour of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defence against the appeal. If the respondent has not himself taken any proceedings to challenge the order in appeal, the Tribunal cannot set aside the order appealed against. That order would stand and would have full effect in so far as it is against the respondent. The Tribunal refused to allow the assessee to take up this ground under an incorrect impression of law that if the point was allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against the appeal, but it could not be made into a weapon of attack against the order in so far as it was against the assessee."

As per the aforesaid decision of the Hon'ble High Court, assessee is entitled to raise the aforesaid Grounds only as a weapon of defence against the appeal of the Revenue. Moreover, it is also evident that the facts relevant to decide the controversy in the aforesaid Grounds of appeal raised by the assessee are emerging from the discussion in the assessment order itself on which there is no dispute. Therefore, since the Grounds raise a point of law and the relevant facts being available on record, we deem it fit and proper to admit the aforesaid Grounds of appeal raised by the respondent- Page | 6 assessee so far as it is to act as a weapon of defence with the respondent- assessee against the appeal of the Revenue.”

4.1. Similar view was also taken by the Hon’ble Jurisdictional High Court in the case of Sanjay Sawhney vs PCIT reported in 116 taxmann.com 791 (Del HC) vide order dated 18.5.2020 .

4.2. In view of the above decisions, we are inclined to admit the ground raised by the assessee in Rule 27 petition for all the years under consideration wherein, the validity of reopening is challenged.

5. With the consent of both the sides, the appeal for the Asst Year 2014- 15 was taken as the lead case and the decision rendered on those facts shall apply mutatis mutandis for other assessment years also except with change in dates and figures.

Advance as Amount of Relevant Share Share Reserve & on loan/ advance AY which holding of holding of surplus in given action is Shr Rajeev Sh. Rajeev proview proposed Arora in Arora in construction proview Proview construction Realtech pvt. Ltd Pvt. Ltd (assessee company) 31.03.2024 19,95,65,000/- 2014-15 41.15% 50% 10,28,31,917/-

1. Name and address of the M/s. Chugamal Rajpal, assessee Muzaffarpur 2. Status — R.F.

3. Assessment year for which — 1960-61. notice under s. 148 is proposed to be issued.

6. Whether the case falls under cl. — 147(a) (a) or (b) of s. 147.

the issue of notice under Income-tax, Bihar and section 148. Orissa, Patna. 9. Whether the Board is satisfied Secretary, Board of that it is a fit case for the issue Revenue. of notice under s. 148.

During the year the assessee has shown to have taken loans from various parties of Calcutta. From D.I.'s Inv. No. A/P/Misc. (5) D.I./63-64/5623 dated August 13, 1965, forwarded to this office under C.I.T., Bihar and Orissa, Patna's letter No. Inv. (Inv.) 15/65-66/1953-2017 dated Patna September 24, 1965, it appears that these persons are name-lenders and the transactions are bogus. Hence, proper investigation regarding these loans is necessary. The names of some of the persons from whom money is alleged to have been taken on loan on hundis are:

2. Lakha Singh Lai Singh.

3. Radhakissen Shyam Sunder.

The amount of escapement involved amounts to Rs. 1,00,000. Sd/-. S.P. Chaliha, 30-4-66. Income-tax Officer, A-Ward, Muzaffarpur." In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148. The material that he had before him for issuing notice under section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications "it appears that these persons (alleged creditors) are name- lenders and the transactions are bogus". He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of section 151(2). What that provision requires is that he must give reasons for issuing a notice under section 148. In other words he must have some prima facie grounds before him for taking action under section 148. Further his report mentions : "Hence proper investigation regarding these loans is necessary". In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under section 148. Page | 12 Before issuing a notice under section 148, the Income-tax Officer must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the Income-tax Officer has no jurisdiction to issue a notice under section 148. From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148. Further, the report submitted by him under section 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under section 148. To question No. 8 in the report which reads "Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148", he just noted the word "Yes" and affixed his signature thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under section 148. The important safeguards provided in sections 147 and 151 were lightly treated by the Income- tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substituted the form for the substance. In the result this appeal is allowed, the order of the High Court is set aside and the impugned notice quashed. The respondent No. 2 shall pay the costs of the appellant both in this court and in the High Court. " We find that similar decision was rendered by Hon'ble Madhya Pradesh High Court in the case of S. Goyanka Lime & Chemicals Ltd. (supra), wherein the Special leave petition preferred by the revenue was dismissed by the Hon'ble Apex Court in S. Page | 13 Goyanka Lime & Chemicals Ltd. (supra). Respectfully following the said decisions, the reopening of assessment deserves to be declared as void ab initio for improper sanction u/s 151 of the Act also. 4.10. Since reopening of assessment is quashed for more than one reason as enumerated above, we do not deem it fit to address the other legal issues raised by the ld AR as they would be purely academic in nature and hence they are left open. Accordingly , the cross objections raised by the assessee are allowed in view of the abovementioned terms.