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Facts
The assessee, engaged in the diamond business, had its assessment reopened for AY 2009-10 and 2010-11 following a search action on a third-party group from whom the assessee allegedly obtained accommodation entries. The assessee responded to the Section 148 notice by treating its original return as the return for reassessment proceedings. The AO made additions, which were confirmed by the CIT(A), leading the assessee to appeal before the Tribunal.
Held
The Tribunal held that the reassessment orders were invalid and should be quashed because the Assessing Officer failed to issue a mandatory notice under Section 143(2) of the Income Tax Act after the assessee filed its return in response to the Section 148 notice. Relying on Supreme Court and High Court judgments, the Tribunal clarified that the non-issuance of a Section 143(2) notice is not a mere procedural irregularity but a fatal flaw, making the reassessment order unsustainable.
Key Issues
Whether the reassessment proceedings are valid if a notice under Section 143(2) is not issued after the assessee files a return in response to a Section 148 notice.
Sections Cited
148, 143(2), 143(1), 142(1), 147, 151(1), 292BB
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SMT BEENA PILLAI & SMT RENU JAUHRI
Present for: Assessee by : Shri Himanshu Gandhi Revenue by : Shri Usha Gaikwad, Sr. A.R. Date of Hearing : 17.10.2024 Date of Pronouncement : 17.12.2024 O R D E R Per Beena Pillai, JM: Present appeals filed by the assessee arises out of order dated 22.03.2024 passed separately for assessment years 2009-10 and 2010-11. Brief facts of the case are as under:
& 1967/MUM/2024 Vinod Kumar Kasturchand Golechha; A. Y.2010-11 & 2009-10 2. The assessee is engaged in the business of import, export and trading of cut and polished, and rough diamonds. The original return of income for A.Y. 2009-10 was filed by the assessee on 28.09.2009 declaring total income of Rs.2,70,210/- and return of income for A.Y. 2010-11 was filed on 14.10.2010 declaring total income of Rs.3,50,170/-. 2.1. Pursuant to search and seizure action carried on in the case of one Bhawarnlal Jain and Group concerns on 03.10.2013, case of assessee for the year under consideration was reopened. The assessee was issued notice u/s. 148 of the act for A.Y. 2009-10 and 2010-11 on 18.03.2016. In response to the notice, the assessee filed letter on 06.06.2016 stating that, the original return of income filed for the years under consideration may be treated as return in response to the notice u/s. 148 of the act. 2.2. Subsequently, notice u/s. 143(2) and 142(1) of the act was issued, calling upon the assessee to furnish various details for the purposes of reassessment. In response to statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as called for. The assessee also sought for the reasons recorded to reopen the assessment years under consideration, that was provided, which reads as under: The assessee has filed return of income for the year under corisideration on 28.09.2009 declaring total income at Rs.2,70,210/- The same has been processed u/s. 143(1) of the Act.
Search & seizure action has been carried out by the DGIT (Inv.), Mumbai in the case of Shri Bhanwarlal Jain and his Group Concerns on 03.10.2013. During the course of search/survey action, it was revealed that these group concerns are were merely providing accommodation & 1967/MUM/2024 Vinod Kumar Kasturchand Golechha; A. Y.2010-11 & 2009-10 entries through various benami concerns operated and managed by Shri Bhanwarlal Jain and his Son. It was found that these concerns are indulged into fraudulent transactions of issuing accommodation/hawala entries which purportedly shows transaction of purchase and sale of materials and bogus unsecured loans and advances.
On the basis of information received and also on perusal of the records of the assesse, it has been noticed that the above mentioned assesse has availed accommodation entries from the said Group Concerns during the year under consideration. 4 Details of the hawala entities from whom the assessee has obtained accommodation entries for the year under consideration are given as under:- Sr.No. Name of the hawala PAN Amount entities involved 1. MERIDIAN GEMS AAQFM7140P 39438810 2. MOULI GEMS ANBPB0169K 4983082 3. NAMAN EXPORTS AGWPC1001D 42794544 Total 8,72,16,436 5. On the basis of the aforesaid information available with the undersigned, I have reason to believe that income chargeable to tax, as indicated above, to the tune of Rs.8,72,16,436/-, or any other income chargeable to tax which comes to my notice subsequently in the course of proceedings for re-assessment, has escaped assessment. within the meaning of section 147 of the IT Act 1961. The assessee has, therefore, failed to disclose true and complete particulars of income for the year under consideration. Accordingly, the case is being re-opened u/s. 147 of the Income Tax Act for A.Yr. 2009-10.
As per the Provision to Sec. 151(1) of the Income tax Act 1961, permission of the Pr. Commissioner of Income tax-19, Mumbai is hereby sought to re-open the case of the assessee for A.Y. 2009-10 by issue of notice u/s. 148 of the Income tax Act 1961.”
It is submitted that the reasons recorded furnished to the assessee for A.Y. 2010-11 is identically worded. 2.3. The assessee filed its objections to the reopening for both the year on 12.07.2016 which is placed in the paper book (at page 24 to 27 for A.Y. 2009-10 and 25 to 28 for A.Y. 2010-11). The Ld.AO & 1967/MUM/2024 Vinod Kumar Kasturchand Golechha; A. Y.2010-11 & 2009-10 passed order on the application filed by assessee objecting reopening of the assessment vide letter dated 31.08.2016 placed at page 28-29 for A.Y. 2009-10 and 29-30 for A.Y. 2010-11 of the paper book. 2.4. The Ld.AO thereafter considering the submissions of the assessee completed the assessment by making additions in the hands of the assessee Rs. 46,31,030/- for A.Y. 2009-10 and Rs. 4,36,821/- for A.Y. 2010-11. Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A).
Before Ld.CIT(A), assessee raised challenge against reopening of the assessment u/s. 147 of the act on multiple grounds that : i) The Ld.AO made addition in the hands of the assessee without appreciating the facts and that the reopening was merely based on the information obtained from the investigation wing, wherein it is stated that, Bhanwarlal Jain and group were engaged in providing accommodation entries and that assessee had obtained accommodation purchases from the said group. ii) No opportunity of cross examination was granted to the assessee based on which the additions is made and that the Ld.AO never gave the materials to the assessee that was relied upon, thereby violating the principles of natural justice. 3.1. The Ld.CIT(A) in respect of the above legal contentions, rejected the arguments of the assessee by relying on the observations of the & 1967/MUM/2024 Vinod Kumar Kasturchand Golechha; A. Y.2010-11 & 2009-10 Ld.AO to reject reopening of the assessee dated 31.08.2016, and decision of Hon’ble Supreme Court in case of GKN Driveshafts India Limited vs ITO reported in (2003) 259 ITR 90. 3.2. The assessee also raised additional ground claiming that, notice u/s. 143(2) of the act was not issued in response to the return filed by the assessee for the years under consideration. The assessee alleged that Ld.AO issued notice u/s. 143(2) on 03.06.2016, whereas the assessee filed the return of income in response to the notice issued u/s. 148 of the act on 06.06.2016. The assessee thus contended that notice u/s. 143(2) was not issued on the return of income filed by the assessee in response to the notice u/s. 148 of the act. 3.2.1. The Ld.CIT(A) dismissed the additional ground raised
by the assessee by observing as under:- “7.2.3. Moreover, this is not the case wherein notice u/s 143 (2) has not been issued at all and further the appellant never brought up this issue before AO during assessment proceedings. In view of the above, the contention of the appellant on the additional grounds of appeal is not found tenable. In view of the fact that there is no material on record to warrant interference in the order of Assessing Officer, the Grounds of Appeal is hereby dismissed.” 3.3. On merits of the addition, the Ld.CIT(A) confirmed the addition made by the Ld.AO. Aggrieved by the order of the Ld.CIT(A) for both the years under consideration, the assessee has filed appeals before this Tribunal.
4. The primary ground raised by the assessee is on non issuance of notice u/s. 143(2) of the act after filing the return of income in response to the notice issued u/s. 148 of the act. He placed reliance ITA No.1966 & 1967/MUM/2024 Vinod Kumar Kasturchand Golechha; A. Y.2010-11 & 2009-10 on the decision of Hon’ble Gujarat High Court in case of PCIT vs. Marck Bio Sciences Ltd reported in (2019) 106 taxmann.com 399. He also placed reliance on the decision of Hon’ble Supreme Court in case of Hotel Blue Moon reported in 321 ITR 362, and submitted that, section 292BB of the act, will come to the rescue of revenue only after issuance of notice u/s. 143(2) of the act. 4.1. The Ld.AR further place reliance on the decision of Hon’ble Surat Tribunal in case of Crypton Diamonds Pvt. Ltd. Vs ACIT in 311 and 312/SRT/2019 (assessee’s appeal) and ITA Nos. 350-352/SRT/2019 (appeals by revenue) for A.Y. 2011-12 to 2013- 14 vide order dated 07.12.2021 wherein identical issue was considered. 4.2. On the contrary the Ld.DR relied on the order passed by the authorities below. He submitted that, though no notice u/s. 143(2) was issued to the assessee after filing return of income in response to notice 148 of the act, the assessee was aware of the scrutiny assessment initiated by the Ld.AO as 143(2) notice was issued on 03.06.2016, post issuance of notice u/s. 148 of the act. We have perused the submissions advanced by both sides in the light of records placed before us.
5. The wording of the section 143(2)(ii) as applicable to the present year under consideration requires the Ld.AO to be satisfied after examination of the return filed by the assessee that, prima facie the assessee understated the income or has computed excessive loss or has underpaid the tax in any manner. The Ld.AO thus has a & 1967/MUM/2024 Vinod Kumar Kasturchand Golechha; A. Y.2010-11 & 2009-10 discretion to issue a notice u/s. 143(2), if he considers it necessary or expedient to do so. 5.1. We also note that such exercise by the Ld.AO u/s. 143(2) of the act, is qualitatively different from the issue of notice u/s. 142(1) of the act which is in a standard proforma. In the present facts of the case the notices u/s. 143(2) was issued to the assessee, but is not based on examining the return of income filed by assessee that was picked up for scrutiny in the reassessment proceedings. Thus, based on various judicial pronouncements on this aspect, and the legal position being evidently clear that, the reassessment order can be passed without compliance with the mandatory requirement of a notice being issued by Ld.AO u/s. 143(2) of the act pursuant to filing of return of income, cannot be treated to be the correct procedure in the eyes of law as observed by Hon’ble Supreme Court in case of Hotel Blue Moon (supra). Further, non issuance of notice u/s. 143(2) of the act after filing of return of income cannot be said to be mere procedural irregularity and the same is not curable as observed by Hon'ble Supreme Court in case of Hotel Blue Moon (Supra). 5.2. The basic requirement under the act for issuance of notice u/s. 143(2) cannot be dispensed as held by with Hon’ble Delhi High Court in case of PCIT vs. Shree Jay Shivshakar Pvt. Ltd reported in (2015) 64 taxmann.com 220 on identical set of facts. The Ld.AO in present facts non issue notices u/s. 143(2) for both years under consideration, subsequent to the letter filed by the assessee dated & 1967/MUM/2024 Vinod Kumar Kasturchand Golechha; A. Y.2010-11 & 2009-10 06.06.2016 intimating the Ld.AO to treat original return as return pursuant to the notice u/s. 148 of the act would be fatal to reassessment order so passed. 5.3. Respectfully following above discussion and decision referred to, we are of the opinion that, the reassessment orders passed for the years under consideration deserves to be quashed in the present facts of the case as no notice u/s. 143(2) was issued for both years under consideration to the assessee post response filed by the assessee to treat its original return in response to the notice u/s. 148 of the act. Accordingly Ground No. 1 raised by assessee stands allowed for both the years under consideration.
6. We have allowed the legal issue raised by the assessee, as a consequences of which, the reassessment order passed for A.Y. 2009-10 and 2010-11 stands quashed. We therefore do not find any reason to discuss the issues on merits of the addition as they become academic. In the result appeal filed by the assessee for both the years under consideration stands allowed. Order pronounced in the open court on 17-12-2024. Sd/- Sd/- RENU JAUHRI BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 17.12.2024. Snehal C. Ayare, Stenographer/Dragon & 1967/MUM/2024 Vinod Kumar Kasturchand Golechha; A. Y.2010-11 & 2009-10 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT //True Copy// BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai