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Facts
The assessee's assessment for AY 2015-16 and 2016-17 was reopened following a search and survey which revealed escaped income, primarily due to disallowed goodwill amortization, disallowance of Section 10AA exemption, and additions under Section 69C. The Assessing Officer issued a reassessment notice dated 31/03/2021, but it was dispatched via email on 16/04/2021 and was not digitally signed, prompting the assessee to challenge the validity of the reassessment proceedings.
Held
The Tribunal, relying on Supreme Court judgments and CBDT instructions, held that while the unsigned email notice could be valid under Sections 282A and Rule 127A, the effective date of issuance was the dispatch date (16/04/2021). Since this date was after 01/04/2021, the new reassessment regime and procedures outlined in Instruction No. 1/2022 were applicable. As the Revenue failed to follow the prescribed new procedure, the assessment orders for both AYs 2015-16 and 2016-17 were quashed as bad in law, rendering the merits of the additions infructuous.
Key Issues
1. Validity of unsigned Section 148 reassessment notices sent via email. 2. Determination of the 'date of issuance' (generation vs. dispatch) of reassessment notices and the applicability of pre- or post-Finance Act, 2021 reassessment regimes. 3. Compliance with procedures laid down by the Supreme Court in Union of India v. Ashish Agarwal and CBDT Instruction No. 1/2022 for reassessment proceedings initiated after April 1, 2021.
Sections Cited
Section 10AA, Section 69C, Section 115JB, Section 132, Section 133, Section 133A, Section 133B, Section 134, Section 135, Section 142(1), Section 143(1), Section 143(2), Section 143(3), Section 147, Section 148, Section 148A, Section 149, Section 151, Section 153A, Section 153C, Section 282A, Section 292B, Section 144B(6)(i)(b), Rule 127A
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Income Tax Appellate Tribunal, E BENCH, MUMBAI
Deputy Commissioner of Income Tax, Central Circle 4(4), Mumbai, Room No. 1918, Air India Building, Nariman Point, Mumbai - 400021 …………… Appellant M/s Hazel Mercantile Limited, 181, Ashoka Shopping Centre, Vs Mumbai G.P.O., Mumbai - 400001 [PAN: AAACH2671K] ……………. Respondent Appearance For the Appellant/Assessee : Shri Rakesh Joshi For the Respondent/Department : Shri P.D. Chougule Date Conclusion of hearing : 02.05.2024 Pronouncement of order : 30.05.2024 O R D E R Per Bench 1. This is a batch of two cross-appeals pertaining to Assessment Years 2015-16 and 2016-17 which were heard together as the 3600, 3475 & 3596/Mum/2023 Assessment Years : 2015-16 & 2016-17 same involved identical issues and are, therefore, being disposed off by way of a common order.
Assessment Year 2015-16 2. With the consent of both the sides we would first take up cross- appeals for the Assessment Year 2015-16 as lead matters.
These cross-appeals arise from the order, dated 31/07/2023, passed by the Learned Commissioner of Income Tax (Appeals)- 52, Mumbai [hereinafter referred to as ‘the CIT(A)’] whereby the CIT(A) had partly allowed the appeal preferred by the Assessee against the Assessment Order, dated 31/03/2022, for the Assessment Year 2015-16 passed under Section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. 3.1. The Assessee has raised the following grounds of appeal in
1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in reopening the assessment completed u/s.143(3) r.w.s 153C of the Income Tax Act, 1961, without considering the facts and circumstances of the case.
On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in directing the assessing officer to examine the realization of exports, without considering the facts & circumstances of the case and the provisions of the Act. 3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition to the extent of Rs.3,67,21,145/-u/s 69C of the Act, without considering the facts & circumstances of the case. 3.2. The Assessee has also raised the following Additional Grounds of grounds of appeal
vide letter dated 15/03/2024: Assessment Years : 2015-16 & 2016-17 “1. The Learned Assessing Officer has erred in serving unsigned notice u/s. 148 of the Income Tax Act, 1961 dated 31.03.2021 on 16.04.2021, which is barred by limitation as per the provision of section 149 of the Income Tax Act, 1961 and also in violation of provisions of section 282A of the Act.
2. Without prejudice to ground 1 above, if Hon'ble ITAT concludes that the impugned Notices were issued on or after 1st April, 2021, then, the new regime of Section 147, 148, 148A, 149 and 151 of the Act of 1961, shall govern these reassessment proceedings and the decision of the Supreme Court in Union of India v. Ashish Agarwal, 444 ITR 1, would apply. In that case, the impugned Notices though issued under Section 148 of the unamended Act of 1961, would be considered to be issued under Section 148A(b) of the Act of 1961, as amended by the Finance Act, 2021.
3. The Commissioner of Income-tax (Appeals) ['CIT(A)'] has erred in confirming the reopening done on the basis of approval which is not in compliance with the provisions of section 151 of the Income Tax Act, 1961.” 3.3. The Revenue has raised the following grounds of appeal in ITA No. 3600/Mum/2023: “1. 1 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in not considering the addition of amortization of goodwill of Rs. 68,03,68,000/- to book profit for the purpose of MAT u/s 115JB of the Income Tax Act, 1961."
2 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition made towards disallowance of exemption claimed u/s 10AA of the Income Tax Act, 1961 of the Rs. 70,75,12,188/- without appreciating the fact that the survey findings had shown that the assessee has not carried out any genuine activity of software development and software exports from SEZ."
3 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in restricting the addition made u/s 69C of the Income Tax Act, 1961 to 0.5% instead of addition made by the AO at 1% of the circular transaction without appreciating that the estimate made by the AO is very Assessment Years : 2015-16 & 2016-17 reasonable." 4 The appellant craves to leave, to add, to amend and /or to alter any of the ground of appeal
, if need be. 5 The appellant, therefore, prays that on the ground stated above, the order of the Ld.CIT (A)-52, Mumbai, may be set aside and that of the Assessing Officer restored.” Appeal by Assessee (AY 2015-16) Additional Ground No. 1 & 2
4. We would first take up Additional Ground No. 1 & 2 raised in appeal preferred by the Assessee.
5. When the appeal was taken up for the hearing, the Learned Authorised Representative for the Assessee invited our attention to letter, dated 15/03/2024, whereby the aforesaid Additional Ground No. 1 & 2 were raised by the Assessee challenging the validity of the re-assessment proceedings. We have heard both the sides on admission of Additional Ground No. 1 & 2 and perused the material on record. In our view, the Additional Ground No. 1 & 2 raised by the Assessee are legal grounds which can be adjudicated after taking into consideration material already on record without inquiring into new facts. Thus, in view of the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT: 229 ITR 383, the Additional Ground No. 1 & 2 raised by the Appellant are admitted. Since the Additional Ground No. 1 & 2 travel to the root of the matter, we proceed to first adjudicate the same.
6. The facts relevant for adjudication of Additional Ground No. 1 & 2, in brief, are as under. 6.1. The Assessee filed return of income for the Assessment Year 2015-16 on 27/11/2015. The return was processed under Section Assessment Years : 2015-16 & 2016-17 143(1) the Act. Thereafter, a search action under Section 132 of the Act was conducted in the case of the Assessee and search assessment was framed on the Assessee vide order, dated 29/12/2017, assessing total income of the Assessee at INR 21,93,60,720/-. Subsequently, a survey action was conducted under Section 133A of the Act in the case of the Assessee, being part of Veritas group, on 23/03/2021 at its office premises in which Shri Nitin Kumar Didwania the promoter and director of the group was also covered. During the survey proceeding, it was found that the Assessee had used amalgamation process to create goodwill of INR 340,18,40,000/- in the books of accounts and had claimed huge amortization expenses in respect of the same. According to the Assessing Officer this had resulted in escape of income. Therefore, re-assessment proceedings were initiated in the case of the Assessee for the Assessment Year 2015-16 which culminated into order, dated 31/03/2022, passed under Section 147 read with Section 143(3) of the Act whereby the income of the Assessee was assessed at INR 1,46,13,22,480/- after making following addition/disallowances to the income of INR 21,93,60,720/- as assessed vide order, dated 29/12/2017, passed under Section 143(3) read with section 153A of the Act: (a) Disallowance of amortization expenses related to goodwill amounting to INR 68,03,68,000/- (b) Disallowance of exemption claimed under Section 10AA of the Act amounting to INR 70,75,12,188/- (c) Addition on account of addition of INR 7,34,42,292/- under Section 69C of the Act on account of undisclosed expenditure
7. Being aggrieved, Assessee preferred appeal before CIT(A) against the assessment order and challenge the validity of the assessment proceedings as well as legal propriety of the Assessment Years : 2015-16 & 2016-17 addition/disallowance made by the Assessing Officer on merits. The CIT(A) partly allowed the appeal vide order, dated 31/07/2023. The CIT(A) upheld the validity of the reassessment proceedings holding that reassessment proceedings were initiated on sound legal and factual basis. However, the CIT(A) granted partial relief to the Assessee and deleted the disallowance of amortization expenses related to goodwill amounting to INR 68,03,68,000/- observing that the Assessee had not claimed deduction for the aforesaid amount in the computation of income under normal provisions of the Act. As regards claim of deduction under Section 10AA of the Act, the CIT(A) directed the Assessing Officer to grant deduction under Section 10AA of the Act and issued directions to the Assessing Officer regarding the quantification of the exemption. Further, the CIT(A) restricted the addition on account undisclosed expenditure to INR 3,67,21,145/- as against INR 7,34,42,292/- made by the Assessing Officer under Section 69C of the Act.
8. Being aggrieved by the order, dated 31/03/2023, passed by CIT(A), the Assessee as well as the Revenue have preferred the present cross appeals before the Tribunal on the grounds/Additional Grounds reproduced in paragraph 3.1, 3.2 and 3.3 above.
9. By way of Additional Ground No.1 & 2 the Assessee has challenged the validity of reassessment proceedings. We have heard both the sides on Additional Ground No. 1 & 2.
10. The contention of the Assessee is that notice, dated 31/03/2021, issued under Section 148 of the Act is bad in law and void-ab- initio in view of the following: (a) The notice, dated 31/03/2021, served upon the Assessee through e-mail was not signed either digitally Assessment Years : 2015-16 & 2016-17 or physically by the Assessing Officer (b) The notice, dated 31/03/2021, issued under Section 148 of the Act was served upon the Assessee on 16/04/2021 over email. With effect from 01/04/2021 the amended/new provisions contained in Sections 147, 148, 148A, 149 & 151 of the Act came into effect. The Assessing Officer was, therefore, required to comply with the mandatory procedure prescribed under the newly inserted Section 148A of the Act in respect of notices issued after 31/03/2021 under Section 148 of the Act. The Assessing Officer had failed to comply with the aforesaid amended/new provisions. In support of the above contention reliance was placed by the Ld. Authorised Representative for the Assessee on the judicial precedents forming part of the paper-book as well as the Instruction Number 1/2022, dated 11/05/2022, issued by Central Board of Direct Taxes (CBDT) for implementation of judgment of the Hon’ble Supreme Court, dated 04/05/2022 in the case of Union of India Vs. Ashish Aggarwal [2022] 444 ITR 1 (SC)[04-05- 2022].
11. Per contra, it was the contention of the Revenue that the notice dated, 31/03/2021, is valid in the eyes of law as the same contains the name and designation of the Assessing Officer. The aforesaid notice meets the requirement of the provisions contained in Section 148 of the Act as in effect on the date of issuance of notice, i.e. 31/03/2021. The amended/new provisions were not applicable as the notice was issued on 31/03/2021. Therefore, the notice, dated 31/03/2021, issued under Section 148 of the Act and the assessment order, dated 31/03/2022, passed under Section 147 of the Act are valid as per applicable Assessment Years : 2015-16 & 2016-17 law.
12. We have given thoughtful consideration to the rival submissions and perused the material on record including the judicial precedents cited during the course of hearing.
13. The first issue that arises for consideration is whether the notice issued by the Assessing Officer which is neither signed physically or digitally can be regarded as a valid notice, and the second issue that arises for consideration is what would be the date of issuance of notice in the facts and circumstances of the present case. We find that both the aforesaid issues came up for consideration in a batch of writ petitions before the Hon’ble Delhi High Court [Suman Jeet Agarwal Vs. Income Tax Officer : W.P.(C) Nos. 10 & 269 of 2022. Ors, Dated 27/09/2022 reported in [2022] 449 ITR 517 (Delhi) After taking into consideration all the relevant aspects, the Hon’ble Delhi High Court held that the notice issued under Section 147 of the Act sent through email without digital/physical signature shall constitute valid notice provided the same meets the requirements of Section 282A of the Act read with Rule 127A of the Income Tax Rules, 1962 (for short’ the Rules’). As regards the second issue, rejecting the contention of the Revenue that the date of notice should be taken as the date of issuance of notice for the purpose of Section 148 of the Act, the Hon’ble Delhi High Court held that the date on which email is sent, as per the date time stamp in the Income Tax Business Application (ITBA) Portal, is out of control of the Assessing Officer should be taken as the date of issuance of notice. The relevant extract of the judgment of the Hon’ble Delhi High Court is as under: “1. By way of the present batch of petitions, this Court has been called upon to decide the validity of the Notices issued under section 148 of the Income-tax Act, 1961 ('Act of 1961'), Assessment Years : 2015-16 & 2016-17 as it stood prior to its amendment on 01st April, 2021, by the Finance Act, 2021. Brief Facts 1.1 The sections 147, 148, 149 and 151 of the Act of 1961 were amended vide the Finance Act of 2021, with effect from 1st April, 2021. 1.2 As per the unamended section 149(1)(a) of the Act of 1961, the reassessment proceedings could be initiated within 4 years from the end of the relevant Assessment Years ('AYs'). 1.3 As per the unamended section 149(1)(b) of the Act of 1961, the reassessment proceedings could be initiated within 6 years from the end of the relevant AY if the income chargeable to tax that has escaped assessment amounts to one lakh rupees or more for that year. 1.4 As per the unamended section 149(1)(c) of the Act of 1961, the reassessment proceedings could be initiated within 16 years from the end of the relevant AY if income in relation to any foreign asset chargeable to taxess escaped assessment. 1.5 However, with effect from 1st April, 2021, under the amended Section 149(1)(a) of the Act of 1961, reassessment could be initiated within 3 years from the end of the relevant AY. Thus, under amended Section 149(1)(a) of the Act of 1961, as on 1st April, 2021, reassessment could only be reopened up to AY 2018-19 and all prior assessment years were barred. 1.6 For initiation of reassessment proceedings on 1st April, 2021, for any AY prior to AY 2018-19, the pre-conditions contained in the amended section 149(1)(b) of the Act of 1961 were required to be fulfilled by the Income-tax Department ('Department'). 1.7 Further, before issuance of a notice under section 148 of the Act of 1961 after 1st April, 2021, the Department had to comply with the mandatory procedure prescribed under the newly inserted Section 148A of the Act of 1961. 1.8 Since there was a regime change with respect to law of limitation coming into effect from 1st April, 2021, which curtailed the time limit for re-opening of assessment from 6 years to 3 years, the Department with a view to avail the Assessment Years : 2015-16 & 2016-17 limitation prescribed under the unamended Section 149 of the Act of 1961, generated reassessment Notices under section 148 of the Act of 1961 for AYs 2013-14, 2014-15, 2015-16, 2016- 17 and 2017-18, all dated 31st March, 2021 ('Notices'). 1.9 The impugned Notices were generated and sent for despatch through electronic mail ('e-mail') by the Jurisdictional Assessing Officer ('JAO') using the Income-tax Business Application ('ITBA') software developed by the Tata Consultancy Services ('TCS') for the Department. 1.10 The facts on record evidence that though the impugned Notices were generated by JAO using the ITBA software on 31st March, 2021, the same were despatched through the ITBA's e- mail system, using the ITBA servers on or after 1st April, 2021; and/or despatched by JAO through normal post on or after 1st April, 2021. 1.11 In view of the admitted fact as regards the date of despatch being 1st April, 2021, or thereafter, the Department has sought to contend that for the purpose of determining the date on which the impugned Notices have been 'issued' within the meaning of section 149 of the Act of 1961, the date of despatch by ITBA software system through e-mail or speed post is not relevant and it is only the date of generation of the impugned Notices on the ITBA portal, which must be considered. 1.12 The petitioners have agreed that the date of receipt of the impugned Notice by the assessee is not the criterion for determining whether the impugned Notices have been 'issued' within the time limit prescribed under section 149 of the Act of 1961. Categories identified 1.13 The impugned Notices as categorized by the Counsel for the petitioners, Ms. Kavita Jha and recorded by this Court vide its order dated 24th March, 2022, are reproduced hereinunder: "…
1. Category A: is in respect of writ petitions where Notice is dated 31st March, 2021 or before but digitally signed on or after 1st April, 2021, however sent and received on or after 1st April, 2021. Assessment Years : 2015-16 & 2016-17
2. Category B: is in respect of writ petitions where Notice is dated 31st March, 2021 or before, digitally not signed, however sent and received on or after 1st April, 2021.
3. Category C: is in respect of writ petitions where Notice is dated 31st March, 2021 or before, digitally signed on or before 31st March, 2021, however sent and received on or after 1st April, 2021.
4. Category D: is in respect of writ petitions where Notice is dated 31st March, 2021 or before, digitally signed on or before 31st March, 2021, no service either by e-mail or by post or any other mode and assessee came to know later on through Portal or receipt of subsequent notice under section 142(1).
5. Category E: is in respect of writ petitions where Notice is dated 31st March, 2021 or before, manually signed, no service by e-mail but despatched through speed post on or after 1st April, 2021. …" 1.14 Since the deadline for passing the assessment orders in most of these cases was 31st March, 2022, the proceedings pursuant to the impugned reassessment Notices were stayed till further orders by this Court vide the aforesaid order dated 24th March 2022.
2. Therefore, the controversy which has arisen for consideration is whether these impugned Notices were issued on or before 31st March, 2021 or thereafter. If this Court holds that the impugned Notices were validly issued under the unamended section 149 of the Act of 1961 on or before 31st March 2021, then, the re- assessment proceedings would be governed by the unamended provisions of sections 147, 148, 149 and 151 of the Act of 1961 as they stood before 1st April, 2021. However, if this Court concludes that the impugned Notices were issued on or after 01st April, 2021, then, the new regime of Sections 147, 148, 148A, 149 and 151 of the Act of 1961, shall govern these re-assessment proceedings and the decision of the Supreme Court in Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1 (SC)/2022 Assessment Years : 2015-16 & 2016-17 SCC OnLine SC 543, would apply. In that case, the impugned Notices though issued under section 148 of the unamended Act of 1961, would be considered to be issued under section 148A(b) of the Act of 1961, as amended by the Finance Act, 2021.
3. There is no dispute that since the impugned Notices pertain to A.Ys. 2013-14, 2014-15, 2015-16, 2016-17 and 2017-18, they were getting time barred on 31st March, 2021, as per the newly amended Section 149(a) of the Act of 1961 and were therefore, as per law required to be 'issued' on or before 31st March, 2021.
4. It is an admitted fact in all these petitions that though the impugned Notices were generated on the ITBA portal on 31st March, 2021, however, the same have been despatched only on or after 1st April 2021; and therefore the issue arising for determination before this Court is whether the impugned Notices will be governed by the re-assessment regime which came into effect on 01st April, 2021, or the re- assessment regime which was in existence as on 31st March, 2021. xx xx
7. The Compliance Affidavit states as follows: 7.1 The JAO uses the ITBA software to generate Notice under section 148 of the Act of 1961, and thereafter, the ITBA software triggers an e-mail, with the Notice appended as an attachment, using the e-mail ID of the JAO, which is sent to the assessee's e- mail ID. 7.2 In the ITBA software, for generating Notice under section 148 of the Act of 1961, the JAO has the following two options on the ITBA Screen: (a) Generating Notice + digitally signing it; (b) Generating Notice (No option to digitally sign) 7.3 If the JAO exercises option (a) i.e., to generate Notice + digitally sign it, a Notice is generated on the ITBA portal in an un- editable PDF format (i.e., as a PDF file). The JAO thereafter has up Assessment Years : 2015-16 & 2016-17 to 15 days to affix his/her Digital Signature Certificate ('DSC') on the Notice so generated. 7.4 Upon affixation of the DSC by the JAO, the ITBA software's e- mail system will automatically trigger an e-mail to the assessee with the DSC appended Notice enclosed as an attachment to the e-mail. The ITBA software system will also share the DSC appended Notice with the assessee's E-filing portal's software database (which is a separate portal developed by the Department for the assessee). 7.5 In the event the JAO omits to affix his/her DSC to the Notice within 15 days from the date of its generation, the said Notice (without DSC) will be automatically triggered by the ITBA software system through e-mail and it will also be shared on the E-filing portal's database. 7.6 In case the JAO opts for option (b) i.e., to generate the Notice without DSC, the Notice is generated in an un-editable PDF format on the ITBA portal. Upon generation itself, the ITBA software's e-mail system is triggered and an e-mail containing the said Notice (without DSC) is sent to the e- mail address of the assessee and also uploaded on the E- filing portal, which is accessible by the assessee for his/her viewing. 7.7 The e-mail will be sent by the ITBA e-mail system to the assessee only if the assessee's valid e-mail ID is present in the ITBA system. 7.8. On 31st March, 2021, the average time taken for triggering the e-mail process by the ITBA software system was approximately 6 hours. The said delay was due to the high number of documents being generated on the said date. Therefore, a substantial time was taken by the ITBA servers for triggering the e-mails and consequent receipt of e-mails by the assessee. 7.9 The ITBA software's e-mail triggering system is programmed in such a manner that e-mails are triggered in a batch mode, in a controlled manner i.e., at the rate of 400 documents per 2 minutes so as to avoid getting the ITBA system's IPs blacklisted by e-mail service providers like Yahoo or Google. Assessment Years : 2015-16 & 2016-17 7.10 The ITBA software's process of triggering of e-mail and sending of Notices to the E-filing portal's data base is an automated function. 7.11 The e-mails are triggered by the ITBA software using the Simple Mail Transfer Protocol ('SMTP') from back end, which reach the messaging gateway of the ITBA system. Upon reaching the messaging gateway, message ID is created by the messaging gateway and the same gets updated in the 'e-mail table'. Thereafter, depending on the availability of the destination domain server i.e. assessee's server and the user account, e-mails are either immediately delivered to the assessee or re-attempted in cases of failure. 7.12 The JAO of his/her own has no control over the Notice document generated on the ITBA portal, once it has been so generated. After the notice document is generated on the ITBA portal, the JAO cannot alter, amend, or delete the said Notice document through the ITBA system 7.13 The ITBA portal allows the JAO to cancel a draft of the notice under section 148 of the Act of 1961, which is a step prior to its generation. Once a notice has been generated on the ITBA software portal, the JAO cannot cancel the same.” xx xx
27. Question No. (IV) Whether the Section 148 Notices sent as an attachment through e-mails, from the designated e- mail addresses of the JAOs, which do not bear the respective JAO's digital signature are valid under section 282A the Act of 1961 read with rule 127A of the IT Rules?- The Court has answered this question in the affirmative, in favour of the Department. 27.1 Notices falling under category 'B' are admittedly not digitally signed. They were sent to the assessees via e-mail, with the Notice documents appended as an attachment, from the designated e-mail addresses of the respective JAOs. As per the Compliance Affidavit, the JAO has the option to (a) generate Notice+ affix DSC later or (b) generate Notice without DSC. In this case either of the two options may have been chosen, the JAOs may have selected option (a) and did not affix DSC later which triggered the e-mail system software of the ITBA 15 days after Assessment Years : 2015-16 & 2016-17 generation of notice and despatched the unsigned notice through email or (b) generated Notice without any DSC which ideally should have triggered the e-mail system software of the ITBA immediately. 27.2 It was stated by the learned counsel for the Department that in view of section 282A of the Act of 1961 and rule 127A of the IT Rules, affixation of DSC is not mandatory. A notice will be considered authenticated if the name and office of the designated income-tax authority is printed, stamped or otherwise written. It was also pleaded that the lack of DSC is merely a defect and would fall under section 292B of the Act of 1961. 27.3 The learned counsel for the petitioners, in response, had relied upon Instruction No. 1/2018 [F. No. 225/157/2017- ITA II] dated 12-2-2018 and Notification No. 137/2021 dated 13-12-2021 and argued that the affixation of DSC is mandatory as per these circulars. 27.4 The aforementioned provisions relied on by the Revenue are reproduced hereunder: [Authentication of notices and other documents] Section 282A. (1) Where this Act requires a notice or other document to be issued by any income-tax authority, such notice or other document shall be [signed and issued in paper form or communicated in electronic form by that authority in accordance with such procedure as may be prescribed]. (2) Every notice or other document to be issued, served or given for the purposes of this Act by any income-tax authority, shall be deemed to be authenticated if the name and office of a designated income-tax authority is printed, stamped or otherwise written thereon. (3) For the purposes of this section, a designated income-tax authority shall mean any income-tax authority authorised by the Board to issue, serve or give such notice or other document after authentication in the manner as provided in sub-section (2).] (Emphasis Supplied) [Authentication of notices and other documents] Rule 127A. (1) Every notice or other document communicated in electronic form by an income-tax authority under the Act shall be deemed to be authenticated,— Assessment Years : 2015-16 & 2016-17 (a) in case of electronic mail or electronic mail message (hereinafter referred to as the e-mail), if the name and office of such income-tax authority— (i) is printed on the e-mail body, if the notice or other document is in the e-mail body itself; or (ii) is printed on the attachment to the e-mail, if the notice or other document is in the attachment, and the e-mail is issued from the designated e-mail address of such income-tax authority; (b) in case of an electronic record, if the name and office of the income-tax authority— (i) is displayed as a part of the electronic record, if the notice or other document is contained as text or remark in the electronic record itself; or (ii) is printed on the attachment in the electronic record, if the notice or other document is in the attachment, and such electronic record is displayed on the designated website. (2) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall specify the designated e-mail address of the income-tax authority, the designated website and the procedure, formats and standards for ensuring authenticity of the communication."(Emphasis Supplied) 27.5 The circulars relied on by the counsel for the Petitioners have been reproduced hereunder: Instruction No. 01/2018 dated 12-2-2018 titled- 'Section 143, Read with Sections 142 & 2(23C), of the Income-tax Act, 1961'- Assessment- Conduct of Assessment Proceedings in Scrutiny Cases Electronically' "Sub-section (23C) of Section 2 of the Income-tax Act, 1961 (Act), applicable from 1-6-2016, provides that "hearing" includes communication of data and documents through electronic mode. Accordingly to facilitate conduct of assessment proceedings electronically, vide letter dated 23-6-2017, in file of even number, Board had issued a revised format of notice(s) under section 143(2) of the Act. Para 3 of these notice(s) provided that assessment proceedings in cases selected for scrutiny would be conducted electronically in 'E-Proceeding' facility through assessee's account in E-filing website of Income-tax Department. ….… Assessment Years : 2015-16 & 2016-17 4.2 Use of digital signature by Assessing Officer: All Departmental orders/communications/notices being issued to the assessee through the 'e-Proceeding' facility are to be signed digitally by the Assessing Officer.…" (Emphasis Supplied)
Notification No. 137/2021 - S.O. 5187(E) - e- Verification Scheme, 2021, dated 13-12-2021. ".…… 3. (1) The scope of the Scheme shall be in respect of: (i) calling for information under section 133 of the Act; (ii) collecting certain information under section 133B of the Act; (iii) calling for information by the prescribed income- tax authority under section 133C of the Act; (iv) exercise of power to inspect registers of companies under section 134 of the Act; and (v) exercise of power of Assessing Officer under section 135 of the Act.….…….
Authentication of electronic record. For the purposes of this Scheme, an electronic record shall be authenticated by the -(i) Commissioner of Income-tax (e-Verification) or the Prescribed Authority, as the case may be, by affixing its digital signature; …" (Emphasis Supplied) 27.6 On a perusal of the circulars submitted by the learned counsel for the petitioners, it can be seen that they are not applicable to Section 148 notices. Instruction No. 1/2018 [F. No. 225/157/2017- ITA II] dated 12-2-2018 pertains specifically to notices issued under section 143 read with Sections 142 & 2(23C) of the Act of 1961, hence it is inapplicable to the notices issued under section 148 of the Act of 1961. Further, Notification No. 137/2021 dated 13-12-2021 deals with the e-Verification scheme and it applies only to Sections 133, 133B, 134 and 135 of the Act of 1961, hence this is also not applicable to the present case. 27.7 In this regard, it would be relevant to note that, the Finance Act, 2008, to inter alia implement the e-filing scheme of Assessment Years : 2015-16 & 2016-17 Returns, for the purposes of authentication of the electric communication, inserted section 282A. The original section 282A(1) read as - "Where this Act requires a notice or other document to be issued by any income-tax authority, such notice or other document shall be signed in manuscript by that authority". 27.8 This Section 282 A was amended by the Finance Act, 2016 and the expression "shall be signed in Manuscript by the authority" was replaced with "signed and issued in paper form or communicated in electronic form by the authority in accordance with such procedure as may be prescribed". 27.9 The scope and effect of this amendment was explained in the Memorandum of Finance Bill, 2016, wherein it is stated that, the provision is being amended to enable the Income-tax authority to issue notice and documents under the Act, either in paper form or in electronic form, in accordance with such procedure as may be prescribed. The relevant portion of the Memorandum Explaining the Finance Bill, 2016 is reproduced hereunder: "Providing legal framework for automation of various processes and paperless assessment It is proposed to amend the relevant provisions of the Act so as to provide adequate legal framework for paperless assessment in order to enhance efficiency and reduce the burden of compliance. A series of changes are proposed to achieve this end. Sub-section (1) of section 282A provides that where a notice or other document is required to be issued by any income-tax authority under the Act, such notice or document should be signed by that authority in manuscript. It is proposed to amend sub-section (1) of section 282A so as to provide that notices and documents required to be issued by income-tax authority under the Act shall be issued by such authority either in paper form or in electronic form in accordance with such procedure as may be prescribed. …. These amendments will take effect from the 1st day of June, 2016…" 27.10 The proviso to section 282A and the amendments carried- out to the said section by the Finance Act, 2016, therefore, gives Assessment Years : 2015-16 & 2016-17 recognition to the notices served in the e-form. Sub-section (2) of section 282A provides that any notice issued by such authority with his/her name and his/her office provided, as may or otherwise written thereon will be deemed to be authenticated and thus validly issued. 27.11 Further, it should be noted that, where the legislature intended to mandate the affixation of the digital signatures, it has specifically provided for the same in the provision itself. This is illustrated in Section 144 B(6)(i)(b) of the Income-tax Act, 1961, which reads as under : "Section 144B (6)(i)(b) of Income-tax Act, 1961 (i) an electronic record shall be authenticated by— ** ** ** (b) the assessment unit or verification unit or technical unit or review unit, as the case may be, by affixing digital signature; …" 27.12 Similarly, there are other circulars issued by the Directorate of Income-tax (Systems) such as the circular titled "Miscellaneous-Digital Signature Certificate (DSC) Policy-2018- Letter" [F.No. System/ITBA/Digital Signature/16-17/181] dated 16th February, 2018 recommending the use of the digital signatures certificate, however, there are no instructions of the Directorate of Income-tax (Systems) which makes affixation of digital signature on a section 148 notice mandatory. 27.13 Along with the provisions relied on by the Revenue it would be pertinent to note that there is a note under every e-mail (with the notices appended as an attachment) sent in these proceedings to the assessees. The note in the end mentions that: "Note: This communication is computer generated and may not contain signature This communication may be treated as compliant with the requirements of Income-tax rules 127 and 127A Assessment Years : 2015-16 & 2016-17 Signed copy may be sent separately if not already digitally signed." 27.14 Further as per the Compliance Affidavit, the ITBA portal was itself developed for the Department in such a way that it makes the affixation of DSC optional. The notice upon generation may or may not be affixed with DSC, it would, regardless of whether DSC is attached or not, be sent through the ITBA e-mail system once it has been generated. 27.15 From a combined reading of the relevant provisions, the explanation to the Finance Bill, 2016 and the abovementioned note, it becomes evident that the affixation of DSC in notices issued under section 148 of the Act of 1961 has not been made mandatory. As long as the requirements of section 282A of the Act of 1961 and Rule 127A of the IT Rules, are followed the notices would be considered to be authenticated. xx xx Finding for Notices falling under category 'B' 27.16 In the present case, the Notices were sent from the designated e-mail ID of the respective JAOs, fulfilling all requirements of authentication as per the relevant provisions. There was no doubt in the mind of the assessees that the Notices were sent by the Department. Therefore, the Notices falling under category 'B' would not be invalid simply because DSCs were not appended to the Notices. 27.17 The JAO is therefore directed to determine time of despatch as recorded by the ITBA portal for each of these Notices and the date and time of despatch as determined by the JAO will be considered to be the date of issuance.” (Emphasis Supplied) 14. On perusal of the above, it can be observed that the Hon’ble Delhi High Court has held that the notice issued without digital/physical signature sent through email of the concerned authority is valid in case it fulfills the requirements of Section Assessment Years : 2015-16 & 2016-17 282A of the Act read with Rule 127A of the Rules. In the present case, the notice has been sent by the email address of the Assessing Officer. Both, the email body and the attachment contain the name and designation of the Assessing Officer. Therefore, in the present case, the notice, dated 31/03/2021, issued under Section 148 of the Act cannot be said to be invalid as the same fulfills the requirements of Section 282A of the Act read with Rule 127A of the Rules. Accordingly, we hold the notice, dated 31/03/2021, issued under Section 148 of the Act to be a valid notice.
We note the Hon’ble Delhi High Court has held that the time and dispatch of notice as per ITBA portal would be taken as the date of issuance of notice in respect of notices sent by email. In the present case, on perusal of the material on record it cannot be disputed that as per ITBA portal the date of dispatch is 16/04/2021. Therefore, we reject the contention of the Revenue that the notice under Section 148 of the Act was issued on 31/03/2021 and accept the contention of the Assessee that the aforesaid notice, dated 31/03/2021, was issued on 16/04/2021. Since the notice was issued after 01/04/2021, the new/amended provisions were applicable. As per the judgment of the Hon’ble Supreme Court in the case of Ashish Agarwal (supra), the Revenue was to follow the procedure set out in the said judgment and implemented by Revenue as per Instruction No. 1/2022, dated 11/05/2022, issued by CBDT. Since the aforesaid procedure relating to reassessment proceedings was not followed by the Revenue, the assessment order, dated 31/03/2022, passed under Section 147 of the Act by following the un- amended provisions contained in Section 147, 148, 149 and 151 of the Act is hereby quashed as being bad in law.
However, we note that in the present case the aforesaid Assessment Years : 2015-16 & 2016-17 assessment order, dated 31/03/2022, was passed before the judgment in the case of Ashish Agarwal was pronounced on 04/05/2022 and therefore, the Revenue could not have taken the remedial action to implement the directions of the Hon’ble Supreme Court. Now, since we have quashed the assessment order, dated 31/03/2022, as being bad in law, the Revenue would be free to take action in case so permitted as per the new/amended provisions of Section 147 to 151 of the Act (effective from 01/04/2021) and the Instruction No. 1/2022, dated 11/05/2022, issued by CBDT.
In view of the above, Additional Ground No. 2 raised by the Assessee is allowed and Additional Ground No. 1 raised by the Assessee is partly allowed. All the other grounds/additional grounds raised
by the Assessee are dismissed as being infructuous. Appeal by Revenue 2015-16)
18. Since we have quashed the assessment order, dated 31/03/2022, passed under Section 147 of the Act, all the grounds raised by the Revenue in the appeal relating to the merits of the addition have been rendered infructuous and therefore, dismissed.
19. In result, the appeal preferred by the Assessee is treated as allowed for statistical purposes whereas the appeal preferred by the Revenue is dismissed as being infructuous. Assessment Year 2016-17
20. We would now take up cross-appeals for the Assessment Year 2016-17.
21. These cross-appeals arise from the order, dated 31/07/2023, Assessment Years : 2015-16 & 2016-17 passed by the CIT(A), whereby the CIT(A) had partly allowed the appeal preferred by the Assessee against the Assessment Order, dated 31/03/2022, for the Assessment Year 2016-17, passed under Section 147 of the Act. 21.1. The Assessee has raised the following grounds of appeal in ITA No. 3475/Mum/2023:
1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in reopening the assessment completed u/s.143(3) r.w.s 153C of the Income Tax Act, 1961, without considering the facts and circumstances of the case.
2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in directing the assessing officer to examine the realization of exports, without considering the facts & circumstances of the case and the provisions of the Act.
3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition to the extent of Rs.2,50,97,685/- -u/s 69C of the Act, without considering the facts & circumstances of the case. 21.2. The Assessee has also raised the following Additional Grounds of grounds of appeal: “1. The Learned Assessing Officer has erred in serving unsigned notice u/s. 148 of the Income Tax Act, 1961 dated 31.03.2021 on 16.04.2021, which is barred by limitation as per the provision of section 149 of the Income Tax Act, 1961 and also in violation of provisions of section 282A of the Act.
2. Without prejudice to ground 1 above, if Hon'ble ITAT concludes that the impugned Notices were issued on or after 1st April, 2021, then, the new regime of Section 147, 148, 148A, 149 and 151 of the Act of 1961, shall govern these reassessment proceedings and the decision of the Supreme Court in Union of India v. Ashish Agarwal, 444 ITR Assessment Years : 2015-16 & 2016-17 1, would apply. In that case, the impugned Notices though issued under Section 148 of the unamended Act of 1961, would be considered to be issued under Section 148A(b) of the Act of 1961, as amended by the Finance Act, 2021. 21.3. The Revenue has raised the following grounds of appeal in : “1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in not considering the addition of amortization of goodwill of Rs. 68,03,68,000/- to book profit for the purpose of MAT u/s 115JB of the Income Tax Act, 1961." 2 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition made towards disallowance of exemption claimed u/s 10AA of the Income Tax Act, 1961 of the Rs. 61,35,42,041/- without appreciating the fact that the survey findings had shown that the assessee has not carried out any genuine activity of software development and software exports from SEZ. 3 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in restricting the addition made u/s 69C of the Income Tax Act, 1961 to 0.5% instead of addition made by the AO at 1% of the circular transaction without appreciating that the estimate made by the AO is very reasonable. 4 The appellant craves to leave, to add, to amend and /or to alter any of the ground of appeal, if need be. 5 The appellant, therefore, prays that on the ground stated above, the order of the Ld.CIT (A)-52, Mumbai, may be set aside and that of the Assessing Officer restored.” Appeal by Assessee ITA No. 3475/Mum/2023 (AY 2016- 17) Additional Ground No. 1 & 2
22. We would first take up Additional Ground No. 1 & 2 raised in appeal preferred by the Assessee.
23. Both the sides agreed that Additional Ground No.1 & 2 raised in Assessment Years : 2015-16 & 2016-17 the appeal preferred by the Assessee for the Assessment Year 2015-16 as well as the applicable facts are identical to the appeal for the Assessment Years 2016-17, and therefore, our findings and adjudication in respect of Additional Ground No.1 & 2 of appeal raised by the Assessee for the Assessment Year 2015-16 shall apply mutatis mutandis to the corresponding grounds raised in the appeal for the Assessment Year 2016-17.
24. For Assessment Year 2016-17 notice dated 31/03/2021, issued under Section 148 of the Act was sent from the e-mail ID to the Assessing Officer to the Assessee on 16/04/2021. Therefore, the issuance of the aforesaid notice is 16/04/2021. Adopting the reasoning given while disposing the Additional Ground No.1 & 2 for the Assessment Year 2015-16, we hold that notice dated 31/03/2021, issued under Section 148 of the Act for Assessment Year 2015-16 is valid since the same fulfills the requirements of Section 282A of the Act read with Rule 127A of the Rules. However, since the notice has been issued after 01/04/2021, the new/amended provisions were applicable. Whereas the assessment order, dated 31/03/2022, has been passed under Section 147 of the Act by following the un-amended provisions. Therefore, the aforesaid assessment order, dated 31/03/2022 is quashed as being bad in law. The Revenue would be free to take action in case so permitted as per the new/amended provisions of Section 147 to 151 of the Act (effective from 01/04/2021) and the Instruction No. 1/2022, dated 11/05/2022, issued by CBDT. Accordingly, Additional Ground No 2 raised in appeal preferred by the Assessee for the Assessment Year 2016-17 is allowed, Additional Ground No. 1 raised in appeal by the Assessee is partly allowed.
25. All the other grounds/additional grounds raised by the Assessee are dismissed as being infructuous. Assessment Years : 2015-16 & 2016-17 Appeal by Revenue ITA No. 3596/Mum/2023 (AY 2016-17)
26. Since we have quashed the assessment order, dated 31/03/2022, passed under Section 147 of the Act, all the grounds raised by the Revenue in the appeal relating to the merits of the addition have been rendered infructuous and therefore, dismissed.
27. In result, the appeal preferred by the Assessee is treated as allowed for statistical purposes, whereas the appeal preferred by the Revenue is dismissed as being infructuous.
28. In result, ITA No. 3476/Mum/2023 and ITA No. 3475/Mum/2023 preferred by the Assessee are allowed for statistical purposes and ITA No. 3596/Mum/2023 and ITA No. 3600/Mum/2023 preferred by the Revenue are dismissed.