Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A.K. GARODIA
Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of CIT(Appeals)-11, Bangalore dated 29.12.2014 for the assessment year 2011-12 inter alia on the following grounds:-
“1. The orders of the Learned Lower Authorities are bad in law and contrary to the evidences and fact on record.
ITA No.416/Bang/2015 Page 2 of 13
The Learned CIT(A) has erred in upholding the validity of the assessment proceedings in regard to the issue and service of notice u/s.143(2) of the Act. 3. The Learned CIT(A) without prejudice to the above ground, has erred in upholding the additions of s.2,37,/00,000/- without considering the written submissions dated: 9.10.2014 and 14.8.2014 and the evidences submitted therewith enclosed as annexures "A" & "B" to this appeal Memo. 4. The Learned CIT(A) has grossly erred in holding that there is no such loan amount outstanding in the balance sheet of Krishna Enterprises, ignoring all the evidences placed before the Learned CIT(A) in the letters / written submission cited in Ground No.3 above. 5. The Learned CIT(A) has also grossly erred in upholding the addition on the ground that the appellant has initially stated that the receipt was a fee for certain project, which later got converted into loan and that there are certain contradiction in the statement of the appellant and on other assumptions and presumptions which are all irrelevant. 6. The Learned CIT(A) also failed to appreciate that the evidences and facts on record are contrary to the assumptions and presumptions made and even if there are any contradictions in the statement given in the state of confusion, the Authorities in fairness are bound to take the statements which are supported by the evidences in preference to those which are not supported by evidences. 7. The Appellant craves leave to add any other ground or modify or revise the grounds taken at the time of hearing before the Hon'ble Income-tax Appellate Tribunal, Bangalore. For these and any other ground that may be urged during the hearing, it is prayed that this appeal may be allowed in the interest of equity and justice.”
The assessee has raised a preliminary objection with regard to validity of the assessment on the ground that the notice u/s. 143(2) of the
ITA No.416/Bang/2015 Page 3 of 13
Income-tax Act, 1961 [“the Act”] was not served within the prescribed time,
therefore the notice issued by the AO is not valid and assessment framed
consequent thereto deserves to be annulled.
The ld. counsel for the assessee invited our attention to the fact that
assessee has filed return of income on 20.8.2011, therefore the notice u/s.
143(2) of the Act has to be issued on or before 30.09.2012. Though the
AO has claimed that he issued a notice u/s. 143(2) of the Act on 13.9.2012,
but it was never served on the assessee. In the order itself, the AO himself
has admitted that since no response from the assessee was received with
respect to notice dated 13.09.2012, another notice u/s. 143(2) was issued
on 14.12.2012. This narration of the AO is sufficient to establish that the
first notice dated 13.09.2012 was not served upon the assessee and for
that reason he has issued another notice dated 14.12.2012. Since notice
u/s. 143(2) is not issued within the prescribed period, the assessment
framed consequent to the invalid notice issued after the prescribed period
deserves to be quashed. In support of his contentions, he has placed
reliance upon the judgment of the Hon’ble Allahabad High Court in the case of ACIT v. Greater Noida Industrial Development Authority, 379 ITR 14 (All)
in which Their Lordships have held that if notice u/s. 143(2) was not issued
in time, the assessment framed consequent thereto is not a valid
assessment and deserves to be quashed.
ITA No.416/Bang/2015 Page 4 of 13
The ld. DR, on the other hand, has contended that the AO has
categorically observed in his order that notice u/s. 143(2) was issued on
13.09.2012, therefore it was issued before the specified date i.e.,
30.09.2012. Moreover, for the safer side, the AO has also issued a second
notice. The ld. DR further contended that in any case, the assessee has
joined the proceedings, therefore, he cannot raise a plea that notice u/s.
143(2) was not served. Moreover, the provisions of section 292BB covers
this type of mistakes and as per these provisions, if the assessee appeared
and joined the proceedings, he cannot raise a plea with respect to service
of notice of hearing at appellate stage.
Having carefully examined the order of lower authorities in the light
of rival submissions, we find that undisputedly the assessee has filed her
return of income on 20.8.2011 and in support thereof, copy of
acknowledgement is also placed on record during the course of hearing.
Therefore notice u/s. 143(2) is to be issued by 30.09.2012. In the
assessment order itself, the AO has observed that notice u/s. 143(2) was
issued on 13.09.2012 and since there was no response to this notice,
another notice u/s. 143(2) was issued on 14.12.2012. This admission of
the AO clearly speaks that notice u/s. 143(2) dated 13.09.2012 was not
served upon the assessee and therefore he was forced to issue second
notice u/s. 143(2) on 14.12.2012. Moreover, as per the provisions of
section 143(2) of the Act, the requirement of law is to serve a notice within
a specified period and not only issuance of notice. It is also noticed that
ITA No.416/Bang/2015 Page 5 of 13
during the course of appellate proceedings, the assessee has filed an affidavit contending therein that notice dated 13.09.2012 was never served upon the assessee, but the revenue has not brought any evidence on record to establish that the notice dated 13.09.2012 was ever served upon the assessee. In the light of these facts, we have no hesitation in holding that notice dated 13.09.2012 was not served on the assessee and once that notice is not served within a prescribed period, the AO could not assume jurisdiction to frame assessment over the assessee u/s. 143(3) of the Act.
The scope of provisions of section 292BB was also examined by the Hon’ble Allahabad High Court in the case of ACIT v. Greater Noida Development Authority (supra) and Their Lordships have held that the defect of service of notice u/s. 143(2) could not be cured by recourse to deeming fiction provided by section 292BB of the Act. Their Lordships have also examined the effect of non-service of notice u/s. 143(2) within the prescribed period. The relevant observations of the Hon’ble High Court are extracted hereunder for the sake of reference:-
“10. In order to understand the controversy as to whether a notice under Section 143(2) of the Act is essential to be issued and served upon the assessee in reassessment proceedings it would be appropriate to refer to the said section. For facility, the provisions of Section 143(2) of the Act is extracted hereunder: "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, –
ITA No.416/Bang/2015 Page 6 of 13
(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, or 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 underpaid 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 produced, any evidence on which the assessee may rely in support of the return: Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished." 11. Under clause (ii) of sub-section (2) of Section 143, the Assessing Officer is required to serve, on the assessee, a notice requiring him to attend the office or to produce evidence on which the assessee may rely in support of the return, if the Assessing Officer 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. Under the proviso to clause(ii), it has been specified that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. Service on the assessee of a notice within the period prescribed by the proviso presupposes the issuance of a notice for, it is only when a notice is issued, that it can be served. Thereafter, the provisions of subsection (3) of Section 143 of the Act stipulate that on the date specified in the notice issued under clause (ii) of sub-section (2) of Section 143 of the Act, the Assessing Officer shall, after hearing the evidence as the assessee may produce and considering such other evidence as
ITA No.416/Bang/2015 Page 7 of 13
he may require and upon taking into account all relevant material, by an order in writing make an assessment of the total income or loss of the assessee. 12. The jurisdiction of the Assessing Officer to make an assessment under Section 143(3) (ii) of the Act is premised on the issuance of a notice under clause (ii) of Section 143(2) of the Act. The proviso to clause (ii) of sub-section (2) of Section 143 of the Act stipulates that a notice must be served on the assessee not later than the expiry of six months from the end of the financial year in which the return has been furnished. If a notice is not even issued within the period of six months from the end of the financial year in which the return is furnished, there would be no occasion to serve it upon the assessee within the stipulated period. 13. The Supreme Court in Assistant Commissioner of Income Tax And Another Vs. Hotel Blue Moon, (2010) 321 ITR 362 (SC) = 2010-TIOL-08-SC-IT, while considering the provision of Chapter XIV-B of the Act in relation to block assessments considered the effect of Section 143(2) of the Act and held: "..........But Section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under Section 143(2). However, if an assessment is to be completed under Section 143(3) read with Section 158-BC, notice under Section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under Section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with." 14. The Supreme Court clearly held that omission on the part of the Assessing Officer is not a procedural irregularity and is incurable and, therefore, the requirement of notice under Section 143(2) of the Act cannot be dispensed with. 15. Similar view was held by a Division Bench of this Court in Commissioner of Income Tax II Lucknow Vs. Salarpur Cold Storage (P) Ltd. , (2014) 50 Taxman.Com.105 = 2014-TIOL-
ITA No.416/Bang/2015 Page 8 of 13
1522-HC-ALL-IT, Commissioner of Income-tax, Faizabad Vs. Adarsh Travel Bus Service, (2012) 17 taxmann. Co 140(All.) as well as in Commissioner of Income-tax Vs. Mukesh Kumar Agrawal, 345 ITR 29 and Commissioner of Income-tax Vs. Rajeev Sharma, (2010) 192 Taxman 197 (All.) = 2010-TIOL-381- HC-ALL-IT. 16. In the light of the aforesaid decisions, it is apparently clear that the jurisdiction of the Assessing Officer to make an assessment under Section 143(3) (ii) of the Act is based on the issuance of a notice under Section 143(2)(ii) of the Act. The proviso to clause (ii) of sub Section (2) of Section 143 clearly stipulates that a notice must be served on the assessee. 17. In the light of the aforesaid, we have to see as to whether the word "notice" specified in paragraph 16 of the Supplementary Affidavit is in fact a notice issued under Section 143 (2) of the Act. The learned counsel was directed to show the said notice from the original assessment records. The relevant notice was shown to the Court. The notice which has been mentioned in paragraph 16 of the Supplementary Affidavit is a notice dated 10.12.2013, which accompanies the questionnaire dated 10.12.2013. The last paragraph of the questionnaire indicates that the accompanying notice is being issued under Section 142(1) of the Act. From the said notice, it is clear that the notice which the appellant is asserting to be a notice under Section 143(2) is patently erroneous and mischievous. It is nothing else but a notice under Section 142(1) of the Act. The record does not indicate any other notice being issued, which could purport to be one under Section 143(2) of the Act. We are, therefore, of the opinion that from a perusal of the original assessment record, we find that no notice under Section 143(2) of the Act was ever issued. 18. The submission of the learned counsel for the appellant that the assessee had participated in the reassessment proceedings and, therefore, cannot assert that the notice was not served in view of Section 292BB is patently erroneous. For facility, Section 292BB of the Act is extracted hereunder: "292BB. Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in
ITA No.416/Bang/2015 Page 9 of 13
time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was- (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment” 19. Section 292BB of the Act was inserted by the Finance Act, 2008 with effect from 1 April 2008. Section 292 BB of the Act provides a deeming fiction. The deeming fiction is to the effect that once the assessee has appeared in any proceeding or cooperated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under the provisions of the Act, which is required to be served on the assessee, has been duly served upon him in time in accordance with the provisions of the Act. The assessee is precluded from taking any objection in any proceeding or enquiry that the notice was (i) not served upon him; or (ii) not served upon him in time; or (iii) served upon him in an improper manner. In other words, once the deeming fiction comes into operation, the assessee is precluded from raising a challenge about the service of a notice, service within time or service in an improper manner. The proviso to Section 292 BB of the Act, however, carves out an exception to the effect that the Section shall not apply where the assessee has raised an objection before the completion of the assessment or reassessment. Section 292 BB of the Act cannot obviate the requirement of complying with a jurisdictional condition. For the Assessing Officer to make an order of assessment under Section 143 (3) of the Act, it is necessary to issue a notice under Section 143 (2) of the Act and in the absence of a notice under Section 143(2) of the Act, the assumption of jurisdiction itself would be invalid. 20. In view of the aforesaid, we are of the opinion that Section 292BB, which was inserted with effect from 01.04.3008 is not applicable to the proceedings for the assessment year 2006-07,
ITA No.416/Bang/2015 Page 10 of 13
2007-08, 2008-09. We are also of the opinion that Section 292BB of the Act is not applicable also for the assessment years 2009- 10, 2010-11 and 2011-12. The deeming fiction that once an assessee has appeared in any proceeding or participated in any query relating to assessment or reassessment, it shall be deemed that the notice under the provisions of the Act, which is required to be served has been duly served upon him in accordance with the provisions of the Act and, therefore, is precluded from contending that the notice was not served upon him or was not served upon him in time or was not served upon him in a proper manner, in our view, is not applicable for the following reason. 21. There is a clear distinction between "issue of notice" and "service of notice". In R.K.Upadhyaya Vs. Shanabhai P. Patel, 166 ITR 163, the controversy was that a notice under Section 148 was issued on 31.03.1970 i.e. the last date of limitation, which notice was served on the assessee on 03.04.1970, after the expiry of limitation. The High Court held that since the notice was served after the expiry of the period, the assessment order was invalid and had accordingly quashed the notice for reassessment issued under Section 147 of the Income Tax Act, 1961. The Supreme Court held that the scheme of 1961 Act in so far as the notice for reassessment was concerned was quite different than that contained under Section 34 of the Income Tax Act, 1922. The Supreme Court held that a clear distinction has been made between "issue of notice" and "service of notice" under the Act. The Supreme Court held that once a notice is issued within the period of limitation, the Income Tax Officer gets the jurisdiction to proceed to reassess and make the assessment order. The mandate of Section 148(1) of the Act is, that reassessment shall not be made until there has been a service of notice which is a condition precedent to making an order of assessment. The Supreme Court further held that the requirement of issue of notice is satisfied when a notice is actually issued and that service under the Act, 1961 is not a condition precedent to conferment of jurisdiction on the Income Tax Officer to deal with the matter but it is only a condition precedent to the making of the order of assessment. The Supreme Court held: "Section 34, conferred jurisdiction on the Income-tax Officer to reopen an assessment subject to service of notice within the prescribed period. Therefore, service of notice within limitation was the foundation of jurisdiction.
ITA No.416/Bang/2015 Page 11 of 13
The same view has been taken by this Court in Janni v. Indu Prasad Bhat, 72 ITR 595 as also in C.I.T. v. Robert, 48 ITR 177. The High Court in our opinion went wrong in relying upon the ratio of 53 ITR 100 in disposing of the case in hand. The scheme of the 1961 Act so far as notice for reassessment is concerned is quite different. What used to be contained in section 34 of the 1922 Act has been spread out into three sections, being sections 147, 148 and 149 in the 45 1961 Act. A clear distinction has been made out between 'issue of notice' and 'service of notice' under the 1961 Act. Section 149 prescribe the period of limitation. It categorically prescribes that no notice under section 149 shall be issued after the prescribed limitation has lapsed. Section 148(1) provides for service of notice as a condition precedent to making the order of assessment. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess. The mandate of section 148(1) is that reassessment shall not be made until there has been service. The requirement of issue of notice is satisfied when a notice is actually issued. In this case, admittedly, the notice was issued within the prescribed period of limitation as March 31, 1970, was the last day of that period. Service under the new Act is not a condition precedent to conferment of jurisdiction in the Income-tax Officer to deal with the matter but it is a condition precedent to making of the order of assessment. The High Court in our opinion lost sight of the distinction and under a wrong basis felt bound by the judgment in 53 ITR 100. As the Income-tax Officer had issued notice within limitation, the appeal is allowed and the order of the High Court is vacated. The Income-tax Officer shall now proceed to complete the assessment after complying with the requirements of law. Since there has been no appearance on behalf of the respondents, we make no orders for costs." 22. From the aforesaid, it is clear that the essential requirement is "issuance of notice" under Section 143(2) of the Act. The deeming fiction under Section 292BB of the Act is with regard to "service of notice". Since the initial requirement of issuance of notice was not made by the Assessing Officer, the deeming fiction of service of notice under Section 292BB of the Act, consequently, does not arise and is not applicable.
ITA No.416/Bang/2015 Page 12 of 13
In the light of the aforesaid, since the Assessing Officer failed to issue notice within the specified period under Section 143(2) of the Act, the Assessing Officer had no jurisdiction to assume jurisdiction under Section 143(2) of the Act and this defect cannot be cured by taking recourse to the deeming fiction provided under Section 292BB of the Act. Consequently, the Tribunal was justified in setting aside the order of the Assessing Officer as well as the order of the Appellate Authority. 24. The contention that adequate opportunity was not given to the appellant before the Tribunal now becomes redundant in view of the specific finding given by us on the issuance of the notice under Section 143(2) of the Act. However, we must observe that the appellant was not fair to the Court in alleging that no proper opportunity was given or that the Tribunal gave no directions to the Department to produce the original records. We are constrained to observe that there is no affidavit of the departmental representative who had appeared before the Tribunal to state on oath that the observations made by the Tribunal with regard to the production of the original records at the stage of hearing of the stay application and thereafter was perverse. In the absence of any affidavit being filed, it was not open for the Department to allege that no proper opportunity was given. Further, we find that the assertion made in paragraph 16 of the Supplementary Affidavit that a notice was issued is patently erroneous and, an attempt was made by the Department to deceive the Court. The notice asserted in para 16 of the Supplementary Affidavit is not a notice under Section 143(2) of the Act but is only a notice issued under Section 142(1) of the Act. Such tactics adopted by the Department is totally deplorable.”
The Tribunal has also taken a view in a number of cases that if notice u/s. 143(2) is not served within the prescribed period, the assessment framed consequent thereto is bad in law and deserves to be quashed, following the various judgments of different High Courts. We therefore, following the judgment of the Hon’ble Allahabad High Court, hold
ITA No.416/Bang/2015 Page 13 of 13
that the notice u/s. 143(2) was not served within the prescribed period, therefore assessment framed consequent thereto is quashed. Accordingly, we set aside the order of the CIT(Appeals) as well as the assessment order. Since we have quashed the assessment order, we find no justification to deal on the merits of the case.
In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 5th day of August, 2016.
Sd/- Sd/-
( A.K. GARODIA ) (SUNIL KUMAR YADAV ) Accountant Member Judicial Member
Bangalore, Dated, the 5th August, 2016.
/D S/
Copy to:
Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.