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Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI. SUNIL KUMAR YADAV & SHRI A. K. GARODIA
Per Sunil Kumar Yadav, JM :
This appeal is preferred by the assessee against the order passed consequent to the order of the DRP inter alia on following grounds:
The learned Assessing Officer has erred, in law and in facts, in passing final assessment order under section 147 read with section 143(3) read with section 144C(5) and 144C(8) of the Income-tax Act, 1961 and thereby assessing the total income of the Appellant at Rs. 21,77,85,571, as against Rs.NIL, based on the Return of Income filed by the Appellant; 2. The learned Assessing Officer has erred, in law and in facts, by holding that the fee from management and administrative support services provided by the Appellant is subject to tax in India partly as "Royalty" and partly as 'Fee for Technical Services"; 3. The learned Assessing Officer has erred in facts in concluding
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Page 2 of 10 that the Appellant has not provided any documentary support without appreciating the submissions made by the Appellant. 4. The learned Assessing Officer has failed to appreciate the nature of services rendered by the Appellant to its group entity (i.e., TNT India Pvt. Ltd) and thus has erroneously concluded that few services provided by the Appellant under the Management and Administration Services Agreement (hereinafter referred to as WAS Agreement") are in the nature of "Know-how" and accordingly has characterized a part of the fee from management and administrative support services earned by the Appellant as "Royalty" as defined in Article 13 of the Convention for avoidance of double taxation and prevention of fiscal evasion between India and United Kingdom of Great Britain and Northern Ireland.
During the course of pendency of appeal, the assessee has raised additional grounds assailing the validity of the assessment framed under section 143(3) r.w.s. 147 of the Act. The additional grounds raised are reproduced hereunder: “Without Prejudice to Ground Nos. 1 to 6: 7. On the facts and in the circumstances of the case and in law, the Learned Assessing Officer ('AO') erred in passing the order u/s. 143(3) r.w.s. 147 & 144C(3) of the Income Tax Act, 1961 ('the Act') without proper issuance and service of notice under section 143(2) of the Act.
The Appellant prays that the re-assessment made without the issuance and service of notice u/s. 143(2) of the Act be treated as without jurisdiction and therefore deserves to be quashed. Without Prejudice to Ground Nos. 1 to : 8. On the facts and in the circumstances of the case and in law, the Ld. AO erred in reopening the assessment u/s. 147 of the Act.
The Appl1ant prays that the reopening of assessment u/s. 147 of the Act be held as bad in law and / or void-ab-initio.
The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
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Page 3 of 10 3. Since the additional grounds raised go to the root of the case, we admit the same and prefer to adjudicate it at the threshold. During the course of hearing, the learned counsel for the assessee emphatically argued that assessee has filed the return of income in response to notice issued under section 147 of the Income Tax Act (hereinafter called as an “Act”). Thereafter, the AO issued a notice under section 142(1) and completed the assessment without issuing notice under section 143(2) of the Act. As per the provisions of section 147 of the Act, the assessment is to be completed as the return was filed under section 139 of the Act. Meaning thereby the assessment is to be completed under section 143(3) and all necessary requirement for completing the assessment under section 143(3) are required to be fulfilled. It was further contended that it is a settled position of law that for completing the assessment under section 143(3) of the Act, AO is required to serve the notice under section 143(2) of the Act in order to assume the jurisdiction over the assessee to frame the assessment. Similarly, while completing the assessment under section 147 r.w.s. 143 of the Act, AO is required to serve the notice under section 143(2) of the Act. The assessment framed without serving the aforesaid notice would be invalid and void-ab-initio.
During the course of hearing, in order to verify the facts whether notice under section 143(2) was served upon the assessee or not, DR was asked to ascertain the facts and file a report accordingly. The learned DR sought the comments from the AO and the AO has admitted that notice under section 148 was issued on 23.11.2010 and return of income was filed in response thereto on 23.12.2010. The AO further admitted that notice under section 143(2) was not issued and after serving the notice under section 142(1), the assessment was completed. The AO further stated that since the assessee joined the
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Page 4 of 10 assessment proceedings, the notice is deemed to have been served upon the assessee as per the provisions of section 292BB of the Act. Along with this report, the learned DR filed written submissions and placed the reliance upon the judgment of Hon’ble Delhi High Court in the case of CIT Vs Madhay Bharat Energy Corporation Ltd., (2011) 337 ITR 389 (Del), in which the Hon’ble High Court has held that the Act does not specifically provide that the assessment made under section 147 of the Act will be after issue of notice under section 143(2) of the Act. In fact the AO has basic jurisdiction to assess the income in terms of section 147 and 148 of the Act where he has reason to believe that income has escaped assessment. Therefore, no specific notice was required to be served under section 143(2) of the Act. The learned DR has also placed reliance upon the judgment of Madras High Court in the case of Areva T&D India Ltd. vs. ACIT (294 ITR 233) with the submission that at the most the mater can be sent back to the AO to frame assessment after issuing notice under section 143(2) of the Act, as it is mere irregularity and not illegality.
In rebuttal, the learned counsel for the assessee has contended that the judgment of Hon’ble Delhi High Court in the case of Madhay Bharat Energy Corporation Ltd., (supra) was modified by the Hon’ble High in a review petition 441/2011 and it was held that the question No. 1 which relate to the validity of the reassessment was not admitted and the Hon’ble High Court has admitted only question B relating to interest income. Therefore the finding given by the Hon’ble High Court with regard to validity of reassessment is no finding at all as it was not required to do so by the Hon’ble High Court.
The learned Counsel for the assessee further placed reliance upon the judgment of the Hon’ble Delhi High Court in the case of Pr.CIT Vs. Silver
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Page 5 of 10 Line in ITA No. 578/2015 in which the Hon’ble High Court has categorically held after making a detailed discussion that reassessment order cannot be passed without compliance with the mandatory requirement of notice being issued by the AO to the assessee under section 143(2) of the Act. In this judgment, the Hon’ble High Court has placed reliance upon the legal propositions laid down through various judicial pronouncements. The judgment of jurisdictional High Court was also followed by the Tribunal in the case of ING Bewaar Maatschappiji B. V. Vs. Addl. DIT (IT) and the Tribunal of the Bengaluru Bench in the case of H. Gouthamchand Vs. Addl. CIT (131 TTJ 204).
Having carefully examined the orders of the authorities below in the light of rival submissions and the judgments referred to by the assessees and the documents placed on record, we find that undisputedly the return of income was filed within the period prescribed in the notice issued under section 148 of the Act. It is also an undisputed fact that notice under section 143(2) was not issued upon the assessee and the AO has completed the reassessment under section 147 r.w.s. 143(3) of the Act. Now the question arises whether the assessment framed on the basis of return filed consequent to notice under section 148 of the Act without serving notice under section 143(2) of the Act is a valid assessment. The Revenue placed reliance upon the judgment of Hon’ble Delhi High Court in the case of ACIT Vs. Madhay Bharat Energy Corporation Ltd., (supra). But later on, this judgment was modified by another order of the High Court in which it was held that the question with regard to validity of reassessment was not admitted at all by the Hon’ble High Court. Once the question was not admitted, the finding given by the Hon’ble High Court has become totally irrelevant. Therefore, we are
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Page 6 of 10 not supposed to take the cognizance of the same. The Revenue placed the reliance upon the other judgments of the Madras High Court in the case of Areva T&D India Ltd. vs. ACIT (294 ITR 233) in which the Hon’ble High Court has held that non serving of the notice under section 143(2) is irregular, not illegal. Therefore, the matter may be remanded back to the AO for completing the assessment after issuing notice under section 143(2) of the Act.
The learned Counsel for the assessee has placed reliance upon the judgment of Hon’ble Delhi High Court in the case of Pr.CIT Vs. Silver Line(supra) in which the Hon’ble High Court has examined this issue in the light of various judicial pronouncements and finally concluded that the assessment order cannot be passed without compliance with the mandatory requirement of notice being issued by the AO to the assessee under section 143(2) of the Act. The relevant observation of the Hon’ble High Court is extracted hereunder for the sake of reference:
“17. On the question of whether the notice under Section 143(2) of the Act was in the facts and circumstances mandatory, Mr. Sahni sought to distinguish the long line of decisions including the recent decision of this Court in Shri Jai Shiv Shankar Traders Pvt. Ltd. (supra) on the ground that there was no occasion for the AO to issue any notice under Section 143 (2) of the Act since the Assessee had, in fact, not filed a return. He submitted that the original return was filed in the 'Saral Form' which had since been replaced with a different form for filing of returns. Consequently, the said return could not have been treated as a return filed pursuant to the notice issued to the Assessee under Section 148 of the Act. He further submitted that with no discrepancy having been found by the AO in the returns for AYs 2005- 06 till 2007-08, which were processed under Section 143 (1) of the Act, there was no occasion for the AO to issue a notice under Section 143 (2) of the Act. Mr. Sahni submitted that in the circumstances, the
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Page 7 of 10 action of the AO in finalising the reassessment orders without notice under Section 143 (2) of the Act was justified. 18. The wording of Section 143(2)(ii) of the Act, which is applicable in the present case, requires the AO to be satisfied on examining the return filed that prima facie the Assessee has "understated the income" or has "computed excessive loss" or has "underpaid the tax in any manner". The AO has the discretion to issue a notice under Section 143 (2) if he considers it "necessary or expedient" to do so. This exercise by the AO under Section 143 (2) of the Act is qualitatively different from the issuance of a notice under Section 142(1) of the Act, which as noted hereinbefore, is in a standard proforma. 19. The Court is unable to accept the submission of the Revenue that in the present case, no return was filed by the Assessee pursuant to the notice issued to it under Section 148 of the Act. If after receiving the letter dated 1st April 2011 of the Assessee the AO was of the view that the return originally filed in the Saral Form could not be treated as the return pursuant to the notice under Section 148 of the Act, then he should have drawn the attention of the Assessee to that fact. In the present case all that the AO did was to send a notice under Section 142 (1) of the Act. The Assessee was not made aware as to why he was required to file a return. Had a notice been issued to him under Section 143 (2) of the Act, the AO would have been obliged to let the Assessee know why he was being asked to file a return notwithstanding his letter dated 1st April 2011. In the circumstances, the Assessee was justified in proceeding on the basis that it had not committed any default in communicating to the AO that the return already filed should be treated as the return filed pursuant to the notice under Section 148 of the Act. 20. The proposal to reopen an assessment under Section 147 of the Act is to be based on reasons to be recorded by the AO. Such reasons have to be communicated to the Assessee. However, merely because the Assessee participates in the proceedings pursuant to such notice under Section 148 of the Act, it does not obviate the mandatory requirement of the AO having to issue to the Assessee a notice under Section 143(2) of the Act before finalising the order of the reassessment.
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Page 8 of 10 21. In this context reference may be made to the decision of the Madras High Court in Sapthagiri Finance & Investments (supra) where again the Assessee did not file a return pursuant to Section 148 of the Act. The AO then issued a notice to it under Section 142(1) of the Act. The Assessee thereafter appeared before the AO and stated that the original return filed should be treated as the return filed in response to the notice under Section 148 of the Act. In those circumstances, the High Court observed that if there was some explanation that was required to be offered by the Assessee, notwithstanding the above submission made by it, the AO ought to have issued a notice under Section 143(2) of the Act. The Madras High Court observed:— "Merely because the matter was discussed with the Assessee and the signature is affixed it does not mean the rest of the procedure of notice under Section 143(2) of the Act was complied with or that on placing the objection the Assessee had waived the notice for further processing of the reassessment proceedings. The fact that on the notice issued u/s 143(2) of the Act, the assessee had placed its objection and reiterated its earlier return filed as one filed in response to the notice issued u/s 148 of the Act and the Officer had also noted that the same would be considered for completing of assessment, would show that the AO has the duty of issuing the notice under Section 143(3) to lead on to the passing of the assessment. In the circumstances, with no notice issued u/s 143(3) and there being no waiver, there is no justifiable ground to accept the view of the Tribunal that there was a waiver of right of notice to be issued u/s 143(2) of the Act." 22. The decisions of the Allahabad High Court in Rajeev Sharma (supra) and Salarpur Cold Storage (P.) Ltd. (supra) also reiterate the above legal position. As far as this Court is concerned, the decision in DIT v. Society For Worldwide Inter Bank Financial, Telecommunications [2010] 323 ITR 249 (Delhi) and the recent decision in Shri Jai Shiv Shankar Traders (P.) Ltd. (supra) hold likewise. 23. With the legal position being abundantly clear that a reassessment order cannot be passed without compliance with the mandatory requirement of notice being issued by the AO to the Assessee under Section 143(2) of the Act, the ITAT was in the present case right in
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Page 9 of 10 concluding that the reassessment orders in question were legally unsustainable.”
The judgment of Hon’ble Delhi High Court and other judgments were also taken into account by the Tribunal of Bengaluru Bench in the case of ING Bewaar Maatschappiji B. V. Vs. Addl. DIT (IT) and H. Gouthamchand Vs. Addl. CIT and Tribunal has also taken a consistent view that without serving a notice under section 143(2) upon the assessee, reassessment under section 143(3) cannot be made.
In the light of this legal proposition after examining the fact of the case, we find that notice under section 143(2) was never issued by the AO upon the assessee and he completed the assessment under section 143(3) r.w.s. 147 of the Act. In the absence of notice under section 143(2), the assessment framed is not a valid assessment and we have no hesitation in holding that the assessment is invalid and we accordingly quash the same. Since we have quashed the assessment, we find no justification to deal the issues on merit.
In the result, order of the CIT(A) is set aside and the appeal of the assessee is allowed.
Order pronounced in the open court on this 11th October, 2017.
Sd/- Sd/- (A. K. GARODIA) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER
Place : Bangalore Dated : 11/10/2017 /NShylu/*
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Page 10 of 10 Copy to : 1 Appellant 2 Respondent 3 CIT 4 DR 5 Guard file By order
Senior Private Secretary Income-tax Appellate Tribunal Bangalore