NETHERLANDS OPERATING COMPANY B.V.,CHENNAI vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, INT. TAXATION 2(1), CHENNAI, CHENNAI

आदेश / O R D E R

PER ABY T. VARKEY, JM:

4. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A), wherein, the assessee raised legal issue questioning the legal validity of the re-opening of assessment proceedings completed u/s.144C(1) of the Act without issuing notice u/s.143(2) of the Act, which according to the assessee was incurable defect, which vitiates the assessment proceedings and therefore, was ab initio void. The Ld.CIT(A) has adjudicated the same from Para Nos.4.3 to 4.1.4 of his order (Page Nos.7-44) and has dismissed the same, after considering the Remand Report from the AO which he reproduced from Para Nos.4.4 to 4.5 (Page Nos.7-23), wherein, the AO has concluded his remand report at Para No.23 as under:-

The emerging principles are: (i) Section 147 is a self-contained provision and the limitations and conditions are only those specifically stated therein.

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(ii) There exist a clear distinction between the assessment under section 143 and that under section 147 read with section 148 and that assessment under section 147 did not depend upon the authority of section 143 for its completion.

(iii) As to the question of assumption of jurisdiction, the same is assumed as sufficient reasons are recorded by the Assessing Officer in order to issue a notice seeking to re-open the assessment under Section 147 of the Act.

(iv) The notice u/s 143(2) is usually issued in the proforma marked as "ITNS- 33". It is a communication by the Assessing Officer to the assessee giving him the opportunity as required under section 143(2).

(v) Even though a formal notice mentioning the section 143(2) of the Act was not issued various letters seeking details and evidences were issued to the assessee to produce or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return.

(vi) While the mandate for 143(2) is 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, the same purpose has been served already under the provisions of section 147 of the Act as a reason to believe with regard to the understatement of income was already present.

(vii) The history of evolution of the provisions of section 143 clearly reveals that the purpose of section 143(2) is to provide opportunity to the assessee.

(viii) Therefore, the requirement, if any, of section 143(2) has been satisfied.

(ix) Section 143 is procedural because it does not deal with any charge of tax, which falls in Chapter II of the Act, Section 143 is not a charging section and thus cannot be said to be substantive. It is a procedural section.

(x) Without prejudice to the above, Non-compliance with the procedural law is merely a procedural irregularity, which can be cured unlike the defects of inherent lack of jurisdiction in an authority to pass an order which of course will be a nullity.

(xi) Once 148 notice is validly issued then the Assessing Officer would be in seizing of the case and have jurisdiction to determine the income escaping assessment. Once this jurisdiction is validly assumed then any lapse in the procedural part would not render the assessment order to be null and void.

(xii) Non-issue of notice or mistake in the issue of notice or defective service of notice does not affect the jurisdiction of the assessing officer, if otherwise reasonable opportunity of being heard has been given.

(xiii) Issue of notice as prescribed in the Rules constitutes a part of reasonable opportunity of being heard.

(xiv) In a given case when the principles of natural justice are stated to have been violated it is open to the Appellate Authority in appropriate cases to set aside the order and require the Assessing Officer to decide the case de novo.

(xv) The legislature, vide Finance Act. 2008 introduced section 292BB thereby giving immunity to the Department by applying Principle of Estoppel in cases

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4.6 After consideration of both the submissions my finding on the above issue is recorded below:-

(a) The facts on record exactly fit into the legal issues raised in the case of Rajesh Jhaveri Stock Brokers vs. Asst. commissioner of Income-tax in which the Honourable Supreme Court held as under:

"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase ‘reason to believe’ would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in central provinces Manganese ore co. ltd. vs. ITO (1991[191] ITR 662), for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceedings is not relevant. In other words, at the initiation stage, what is required is, reason to believe but not the established fact of escapement of income.

At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief, whether the materials would conclusively prove the escapement is not the concern the stage. This is so because the formation of belief by the Assessing Officer is with the realm of subjective satisfaction (see ITO vs. selected Dalurband Coal Co. Pvt Ltd. (1996 (217) ITR 597 (SC)), Raymond woolen mills Ltd. vs. ITO (1999/286) ITR 34 (SC)) 17. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly, the Assessing Officer must have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Office would have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso."

4.7 Thus, following the above principles laid down by The Honourable Supreme Court, it is concluded that the Assessing Officer acted like a reasonable person for arriving at a "reason" of escaped income on the basis of survey proceedings conducted, during the course of which certain material evidence was found. As 143(1) is a summary assessment, there was no "change of opinion". The appellant has contested the case throughout the assessment proceedings on merits and never asked for an opportunity to cross examine the third party. Having not asked for an opportunity to cross-examine the third party, the appellant cannot raise the question now.

Thus, the reopening proceeding initiated are found to be valid in law.

4.8 Coming to the next issue of non-issue of notice u/s 143(2), I am in complete agreement with Assessing Officer, as the same is a procedural error. It is clear from the assessment record that the appellant was afforded opportunity of hearing and the appellant was aware about the reasons for reopening. There was nothing done at the back of the assessee, so as to be in prejudice. The remand report by the Assessing Officer is relied upon. The need for remand proceedings arise in this case because the question of non-issue of notice u/s 143(2), cross examination of third party, change of opinion and invocation of section 163 were raised first time before me.

4.9 Add to that is the recent Supreme Court decision in the case of Kalinga Institute of Industrial Technology vs. Deputy Commissioner of Income-tax (Exemption), (2023) 151 taxmann.com 434 (SC)/ (2023) 454 ITR 582 (SC) (01.05.2023), in which the Honourable Supreme Court held as under:

"The jurisdiction has been changed after the returns were filed. However, the records also reveals that the assessee had participated pursuant to the notice issued under section 142(1) and had not questioned the jurisdiction of the Assessing Officer.

Section 124(3)(a) precludes the assessee from questioning the jurisdiction of the Assessing Officer if he does not do so within 30 days of receipt of notice under section 142(1)."

4.10 Section 124(3)(a) reads as under:

(3) No person shall be entitled to call in question the jurisdiction of an Assessing Officer-

(a) where he has made a return [under sub-section (1) of section 115WD or under sub-section (1) of section 139, after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 142 or (sub-section (2) of section 115WE or] sub-section (2) of section 143 or after the completion of the assessment, whichever is earlier,

4.11 The appellant is aware that there is no notice u/s 143(2). However, it has participated in the assessment proceedings willingly and compliantly and haven't raised any question about assumption of jurisdiction. Having not done so during the course of assessment proceedings, the appellant's contest regarding the same before me takes the character of opportunism and unfairness. Thus, on this count also, the appellant fails, and the reassessment proceedings are held to be valid in law

4.12 Further, in the factual matrix as available, there is no requirement for the Assessing Officer to invoke section 163 of the Act. as CB & I Lummus Mauritius is a created structure to avoid tax and is not a distinct legal entity. The same would be discussed in the later part of the order.

4.13 The Assessing Officer in her concluding remarks via her remand report submitted that a procedural error which was not pointed out by the appellant during the course of assessment proceedings cannot nullify the proceedings. I am of the same opinion. The Honourable Supreme Court's decision/in Kaljiga Institute of Industrial Technology adds strength to the same.

4.14 Thus, Grounds of Appeal No.2, 2.1, 2.2, 2.3, 2.4 and 2.5 stand dismissed and the order passed u/s.144C (1) r.w.s 148 of Income-tax Act, 1961 stands strong.

6. Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us.

and failure to do so, would compromise the proceedings fatally. And in that case also, it is noted that the AO had issued notice u/s.148 of the Act, but the AO didn’t issue notice u/s.143(2) of the Act, and the AO had referred certain matters to the TPO for determination of the ALP and assessee challenged the action of AO before Hon’ble Madras High Court by filing Writ, since the AO didn’t issue notice u/s.143(2) within the timeline prescribed by the Act. And the assessee’s prayer before the Hon’ble High Court was that the omission/non-issuance of notice u/s.143(2) of the Act would vitiate the assessment proceedings fatally, and as a sequence of which, the notice u/s.148 of the Act was bad and the assumption of jurisdiction by the AO/TPO was ab initio void; and the Hon’ble Madras High Court relying on the decision of the co-ordinate Division Bench in the case of Saptagiri Finance & Investments v. ITO reported in 210 Taxman 78 (Madras), & the decision in the case of CIT v.

Alstorm T & D India Ltd., reported in [2014]226 Taxman 103 (Mad.) and the decision of Hon’ble Apex Court in the case of ACIT v. Hotel Blue Moon reported in [2010] 321 ITR 362 (SC) as well as the decision of the Hon’ble Delhi High Court in the case of Alpine Electronics Asia Pte. Ltd. reported in [2012] 341 ITR 247 (Delhi), wherein the Hon’ble Delhi High Court in Alpine Electronics Asia Pte. Ltd. (supra) held as under:

October, 2005, it is mandatory to serve notice under section 143(2) of the Act, within the stipulated time limit.

1. Amec Foster Wheeler Iberia SLU - India Project Office vs DCIT [2023] 451 ITR 117 (Madras) 2. CIT vs Alstom T & D India Ltd. [2014] 45 taxmann.com 424 (Madras)

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(AY 2010-11) Netherlands Operating Company B.V. 11. In the light of the aforesaid discussion, when it is undisputed that no notice u/s.143(2) of the Act was issued by the AO after issuing notice u/s.147 of the Act, the action of the AO framing assessment order dated 28.02.2018 is vitiated and the impugned action of the AO is held to be wholly without jurisdiction and therefore, the assessee succeeds on the legal issue; and the assessment order dated 28.02.2018 is quashed.

Order pronounced on the 21st day of August, 2024, in Chennai.