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Facts
The assessee filed her return of income and later a survey was conducted. Based on the survey, the AO issued a notice u/s 148 for escapement of income. The assessee requested to treat her original return u/s 139(1) as a response to the notice u/s 148. The AO disallowed capital gains claim u/s 54B without issuing a notice u/s 143(2).
Held
The Tribunal held that the assessment order is bad in law and illegal because the Assessing Officer failed to issue a notice u/s 143(2) of the Act after taking into consideration the return filed by the assessee. The non-issuance of this notice is fatal and cannot be cured.
Key Issues
Whether the assessment order is valid when the Assessing Officer failed to issue a notice u/s 143(2) after considering the assessee's return and request to treat it as a response to a notice u/s 148.
Sections Cited
133A, 148, 147, 139(1), 144, 54B, 143(2), 292BB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, BANGALORE “C” BENCH, BANGALORE
Syeda Mariam The Income Tax Officer No. 482, 14th Main Ward - 3(1)(4) Koramangala 3rd Block vs. BMTC Building, 80Ft. Road Bangalore 560034 6th Block, Koramangala PAN – AAZPM2737P Bengaluru 560095 (Appellant) (Respondent) Assessee by: Shri Zain Ahmed Khan, CA Revenue by: Shri V. Parithivel, JCIT-DR Date of hearing: 18.06.2024 Date of pronouncement: 25.07.2024 O R D E R Per: Soundararajan K.,J.M. This appeal filed by the assessee challenges the order of the CIT(A)-11, Bengaluru dated 28.12.2023 in respect of the Assessment Year (AY) 2014-15.
The brief facts of the case are that the assessee filed her return of income on 28.07.2014. Thereafter a survey u/s. 133A was conducted at the company M/s. Intact Developers P. Ltd., in which the assessee is a Director and based on the survey it was found that the assessee had lent unsecured loans to the company and in support of the unsecured loans the assessee filed confirmation letters from the company. Insofar as the source for the loan, the assessee submitted that she got capital gain in AYs 2013-14 and 2014-15 and out of this she offered loans to the company. The ld. Assessing Officer (AO) verified the details filed by the assessee and came to the conclusion that there
Syeda Mariam is some escapement of income and issued a notice u/s. 148 of the Act on 06.02.2019, directing the assessee to file her return of income. The assessee had not responded. Therefore, a reminder notice has been issued on 13.03.2019 and thereafter a show cause notice u/s. 144 r.w.s. 147 of the Act was issued on 03.05.2019. The assessee immediately filed her reply on 20.05.2019 and requested to treat the return filed u/s. 139(1) of the Act as the return filed in response to the notice issued u/s. 148 of the Act. The assessee also explained the other issues in her reply. The ld. AO had not accepted her request to treat the return filed u/s. 139(1) of the Act as return filed to the notice issued u/s. 148 by relying on the judgement of the Hon'ble Supreme Court in the case of GKN Driveshaft v. ITO [2022] 259 ITR 19 (SC). With respect to the other issues the ld. AO not accepted the submissions of the assessee and further added the interest income for the purpose of assessment. The ld. AO finally made the assessment u/s. 144 r/w sec 147 of the Act and disallowed the Capital Gain claim u/s 54 B of the Act, interest credited to the capital gain account and added the same along with the returned income declared on 28.06.2014 as the income.
Aggrieved with the order of the AO, the assessee filed an appeal before the CIT(A) and contended that the ld. AO had concluded the assessment arbitrarily. The ld. CIT(A) had considered the issue in detail and also the various documents filed before him and held that the assessment was made on firm legal and factual grounds and dismissed the appeal filed by the assessee.
Against the above said order of the CIT(A) the assessee filed appeal before the Tribunal raising the following grounds: - “
1 The Order of the learned CIT (A) is opposed to law, facts and circumstances of the case.
2. The Order is passed in haste, without providing sufficient and reasonable opportunity of being heard.
Syeda Mariam 3 The Order is passed against the principles of natural justice and thus liable to be quashed. 4 The Ld. AO erred in disallowing exemption u/s. 548 of the Act and the Ld. CIT(A) erred in confirming the same. 5 The Ld. AO and Ld. CIT(A) ought to have appreciated that the capital gains were reinvested in agricultural land in satisfaction of conditions laid down in section 54B of the IT Act. 6 Without prejudice to the above grounds, the Ld. AO erred in not issuing statutory notice u/s. 143(2) of the IT Act”
At the time of hearing the learned A.R. of the assessee first argued on the legal plea that the order of the ld. AO is bad in law and not in accordance with the provisions and judgements of various High Courts since no notice u/s. 143(2) was issued. It is his further contention that the judgement relied on by the ld. AO is also not on the facts and circumstances of the case. The learned A.R. further submitted that before passing the assessment order u/s. 144 r/w sec 147 of the Act the assessee had sent a request to treat the return filed u/s. 139(1) of the Act as the return filed in response to notice u/s. 148 of the Act and, therefore, the ld. AO ought to have considered that the return was filed pursuant to the notice u/s. 148 and, therefore, he ought to have issued a notice u/s. 143(2) of the Act before passing the assessment order. The learned A.R. further contended that the finding of the AO that no return was filed in response to notice u/s. 148 is not correct and submitted that while passing the assessment order u/s. 144 of the Act in pg. 7 of the order in the computation of income and tax, the ld, AO had first took the original income returned on 28.06.2014 and, therefore, the AO had taken the return for his consideration and therefore he ought to have issued a notice u/s. 143(2) of the Act. The learned A.R. further submitted that non-issuance of notice u/s. 143(2) is fatal and it cannot be cured or condoned by referring to sec. 292BB of the Act. The learned A.R. made his submissions in respect of other grounds of appeal also and prayed to allow the appeal.
The learned D.R. submitted that the legal grounds now raised by the assessee is not maintainable and also relied on the judgements in the case of Syeda Mariam PCIT v. Broadway Shoe Co. [2018] 99 taxmann.com 83 (J&K) and ACIT v. Uday Bhagwan Industries [2013] 33 taxmann.com 226 (Agra-Trib.) and argued that the legal plea is not well founded and prayed to dismiss the appeal.
We have heard the rival contentions and perused the material on record. First we will take up the main contention of the learned A.R. that the entire assessment is bad in law since no notice u/s. 143(2) was issued by the AO before passing the assessment order, that too after the assessee had requested the AO to treat the return of income filed u/s. 139(1) of the Act as the return filed pursuance to the notice u/s. 148 of the Act. In this case the assessee filed her return of income u/s. 139(1) of the Act on 28.06.2014 declaring a total income of Rs.25,39,120/-. Thereafter, based on the survey conducted in the company and based on the books of account of the company the ld. AO found that there are discrepancies in the capital gain computation and, therefore, issued notice u/s. 148 of the Act, directing the assessee to file her return of income. We find that the Ld AO issued a reminder on 19.03.2019 and finally a show cause notice was issued on 03.05.2019. At that time the assessee filed her reply and requested the AO to treat the return filed u/s. 139(1) as the return filed in response to the notice issued u/s. 148 of the Act. The assessee also produced records and submitted that the discrepancy found in the capital gain computation is not correct. The ld. AO rejected the request of the assessee to treat the return filed u/s. 139(1) as the return filed u/s. 148 for the reason that the same was not filed with the time prescribed after issuing of notice u/s. 148 of the Act.
Before proceeding further, let us have a look at the provisions dealing with this issue.
Section 148: Before making the assessment, reassessment or recomputation under Section 147, the assessing officer shall serve a Syeda Mariam notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this act shall, so for as may be, apply accordingly as if such return were a return required to be furnished under section 139; Section 143(2) :Where a return has been furnished under section 139, or in response to a notice under sub section(1) of section 142, the assessing officer shall,-
(i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim:
Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003;
(ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce or cause to be Syeda Mariam produced, any evidence on which the assessee may rely in support of the return:
We have seen that the assessee had filed her ROI on 28.06.2014 and the AO had not passed any order or intimation under the provisions of the Act. While so, based on the survey conducted in the business premises of a company and the deliberations done subsequently, the AO thought it fit to issue a notice u/s 148 of the Act for disallowing the Capital Gains claim u/s54B of the Act. From the above it is clear that the AO had considered the return filed by the assessee and proposed to disallow the claim for which a notice u/s 148 was issued asking the assessee to file a return. The assessee considered the notice and replied that the return filed u/s 139 may be treated as the return for the notice issued u/s 148 of the Act .This reply has been filed before passing the order u/s 144 r/w sec 147 of the Act by the AO but the AO not accepted to treat the return as a one filed to the notice issued u/s 148 since the same was not filed within the time granted. The AO thereafter proceeded to consider the original return and disallowed the deduction claimed u/s 54B of the Act without issuing any notice u/s 143(2) of the Act. The AO for the first time has considered the return and disallowed the deduction, without issuing notice u/s 143(2) of the Act and made an assessment u/s 144 r/w sec 147 of the Act. Further we are of the view that the assessee participated in the proceedings and therefore there is no necessity to invoke the provision 144 of the Act. When the AO had taken into consideration the return filed u/s 139 and made a disallowance, he ought to have issued notice u/s 143(2) of the Act before passing the order. It is immaterial whether the AO had passed the order u/s 143 or 144, when there is a return and the AO wanted to disallow some claim, it is mandatory that he should issue a notice u/s 143(2) of the Act. In this case the AO while computing the income had taken into consideration the return and therefore we are of the view that the AO ought to have issued notice u/s 143(2) of the Act.
In our view the ld. AO failed to consider that the assessee had replied to the notice u/s. 148 before passing the assessment order on 30.08.2019 and the return of income filed on 28.06.2014 was also taken into consideration by the ld. AO while passing the assessment order. Once the return of income was filed by the assessee or the assessee had requested the AO to treat the return of income filed u/s. 139(1) of the Act as the return in response to notice u/s. 148 of the Act, then the ld. AO ought to have issued a notice u/s. 143(2) of the Act. So in the present case before passing the assessment order the assessee had given her option to treat the return filed u/s. 139(1) as the return of income filed in response to notice u/s. 148 of the Act and therefore the AO ought to have issued notice u/s 143(2) of the Act.
Further the Supreme Court case law relied on by the AO in the case of GKN Driveshaft (supra) to reject the request of the assessee is also on different set of facts and circumstances and it can not be relied on for rejecting the request.
We have also perused the assessment order and found that while computing the income and tax at pg. 7 of the order, the ld. AO had taken into consideration the return of income filed by the assessee and thereafter made the computation to make the assessment u/s. 144 r/w 147 of the Act as if, no returns were filed by the assessee. Once the AO had taken into consideration the return of income filed by the assessee then for disallowing some claim as inadmissible, he has to necessarily issue a notice u/s. 143(2) of the Act. We find that the AO had not issued any notice u/s. 143(2) of the Act before considering the return of income filed by the assessee and, therefore, the same is not in accordance with the law and the non issuance of the notice u/s. 143(2) is a fatal one and it cannot also be cured u/s. 292B of the Act. In view of the Syeda Mariam above discussion we come to the conclusion that the legal issue raised by the assessee is well founded.
We also draw our support from the judgement of the Hon’ble Supreme Court, in coming to the above conclusion, in the judgement reported in (2010) 321 ITR 362 (SC) in the case of CIT(Asst) Vs Hotel Blue Moon wherein it was held as follows:
“ We conclude even for the purpose of Chapter XIV-B of the Act, for the determination of the undisclosed income for block period under the provisions of section 158BC, the provision of section 142 and sub sections (2) and (3) of section 143 are applicable and no assessment could be made without issuing notice under section 143(2) of the Act” The above judgement of the Hon’ble Supreme Court was followed by the Delhi High Court in the judgement reported in (2016) 383 ITR 448 (Delhi) wherein it was held as follows:
Failure by the assessing officer to issue a notice to the assessee under section 143 (2) of the Act subsequent to December 16, 2010 when the assessee made a statement before the Assessing officer to the effect that the original return filed should be treated as a return pursuant to a notice under section 148 of the Act is fatal to the order of assessment The above judgment made it clear that notice u/s 143(2) of the Act is mandatory before passing the order.
We have also perused the following orders cited by the learned D.R. in support of his arguments that the non issuance of notice u/s. 143(2) of the Act is not fatal.
(i) In the order dated 15.05.2020 in the case of Rakesh Aggarwal v. ITO, the ITAT Delhi Bench has given a finding that “From the perusal of records, the Ld. AR could not point out that the notice was not duly served upon the assessee. In fact, the records show that the notice was Syeda Mariam served to the assessee, but the assessee could not attend the assessment proceedings which leads to passing of Assessment Order u/s. 144 of the Act. The reliance of case laws by the Ld. AR will not help in the present case, as the assessee could not demonstrate that the notice was not served to him at his address mentioned in the records. Thus Ground No. 3 is dismissed.”
(ii) In the case of Uday Bhagwan Industries cited supra, relied on by the learned D.R., the facts are that the assessee had not filed the return of income pursuant to the notice u/s 144 or not filed any reply seeking the AO to treat the return already filed as the return filed in response to the notice u/s. 148 of the Act and in that the circumstances only the Agra Bench of the ITAT had held that no notice is required to be issued u/s. 143(2) of the Act.
(iii) In the case of Broadway Shoe Co. cited supra and relied on by the learned D.R. the facts are that the assessee did not file any reply to the notice issued u/s. 148 of the Act and, therefore, the Hon'ble Court held that no notice is required to be issued u/s. 143(2) of the Act. Therefore all the orders relied on by the ld DR are on different facts and therefore they are not supporting the case of the Department.
In the case on hand we have satisfied ourselves that no notice u/s. 143(2) has been issued, after taking into account the return filed by the assessee, and, therefore, the assessment order passed by the ld. AO is illegal and liable to be set aside. Further in our case the assessee had filed a letter dated 20.05.2019 and requested the AO to treat the return filed u/s. 139(1) of the Act as return filed in response to the notice issued u/s. 148 whereas in the orders and judgements relied upon by the learned D.R., no return or reply was filed by the assessees and, therefore, the above said order and judgements are not similar to the facts of the present case.
Syeda Mariam In the result we accepted the legal issue and held that the assessment order dated 30.08.2019 and the order of the CIT(A) dated 28.12.2023 are not sustainable, hence allowed the appeal filed by the assessee. Since we are accepting the legal plea and allowed the appeal, we are not giving any findings on merits in respect of the other grounds raised by the assessee.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 25th July, 2024.