M/S. RAJDHANI CRAFTS,JAIPUR vs. ACIT, CIRCLE-4 JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JUDICIAL MEMBER vk;dj vihy la-@ITA No. 1281/JP/2019 fu/kZkj.k o"kZ@Assessment Year: 2010-11 M/s Rajdhani Crafts, cuke A.C.I.T., Vs. Plot No. 54-55, Road No. 5, VKI Circle-4, Area, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADFR 7865 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri Vedant Agarwal (Adv.) jktLo dh vksj ls@ Revenue by : Smt. Monisha Choudhary (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 06/01/2022 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 06/01/2022 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 30/03/2017 of ld. CIT(A)-2, Jaipur for the A.Y. 2010-11. The assessee has raised following grounds of appeal: “1. On the facts & circumstances of the case and in law also Ld. Assessing Officer grossly erred in initiating reassessment proceeding u/s 147 of the Act. 2. On the facts & circumstances of the case and in law also ld. A.O. grossly erred in providing copy of the reasons recorded after the lapse of 16 months from the date of application i.e. dated 29/11/2013 and the copy was given on dated

2 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT 10/03/2015. It is therefore clear that on the date of issuing notice u/s 148 no reasons were recorded by ld. A.O. 3. On the facts & circumstances of the case Ld A.O. also erred in not allowing the proper time after rejection of preliminary objections as the preliminary objections were rejected on dated 13/03/2015 and the assessment order has been passed on dated 25/03/2015. It is against to the principles of natural justice. We rely on several decision of Hon'ble High Court. 4. On the facts & circumstances of the case Ld A.O. grossly erred in initiating reassessment proceedings without independent application of mind as the notice has been issued account of audit para. 5. No Notice under section 143(2) of the Act was issued before passing the assessment order. This fact is also accepted by Ld A.O. in his remand report. 6. On the facts & circumstances of the case and in law also Ld. Lower authorities grossly erred in restricting the deduction u/s 10B of the Act to Rs 9,11,44,609/- as against claim of Rs.9,75,24,234/- and assessing total income at Rs.41,39,000/- as against Rs.1,51,305/-.” 2. At the time of hearing, the ld. AR of the assessee has stated at bar that the does not want to press ground No. 4 of the appeal and the same may be dismissed as not pressed. The ld. DR has raised no objection if the ground No.4 of the appeal is dismissed as not pressed. Accordingly, ground No.4 of the assessee’s appeal is dismissed being not pressed.

3 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT Tax Act, 1961 (in short, the Act). Since this ground is purely legal in nature and goes to the root of the matter, therefore, this is taken up first before going to the other grounds and merits of the appeal.

4 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT (i) CIT Vs Laxman Das Khandelwal 108 taxmann.com 183 (SC) (ii) PCIT Vs Asahi Songwon Colors Ltd. of Hon’ble Gujarat High Court dated 29/11/2017 in Tax Appeal No. 879 of 2017. (iii) Decision of the Coordinate Bench of this Tribunal dated 23/12/2019 passed in ITA No. 347/JP/2017 in the case of M/s Mangala Ispat (Jaipur) Ltd. Vs ACIT. Thus, the ld. AR has submitted that in view of the above decisions, the impugned assessment order is invalid and liable to be quashed.

5 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT response to notice issued U/s 148 of the Act declaring NIL income which is duly recorded by the A.O. in para 2 of the assessment order. The A.O. further stated that in response to notice U/s 143(2)/142(1) of the Act, the ld. AR of the assessee attended and furnished the written reply. The assessee challenged the validity of reassessment order before the ld. CIT(A) on the ground that the reassessment order passed by the A.O. without issuing the notice U/s 143(2) of the Act is invalid. The ld. CIT(A) has dismissed this ground of the assessee as under:

“It is seen that in the assessment order on page 2, it has been recorded that notice under section 143(2) and 142(1) alongwith questionnaire were issued and served upon the assessee. In view of the fact that there is a recorded of this fact in the assessment order itself, thus, it is very clear that the notice under section 143(2) was issued by the Assessing Officer and the same fact is also recorded in the assessment order. As per remand report the same was not now available on record. In my view since the issue of the same is recorded in the assessment order itself, this ground of appeal is dismissed.”

Thus, the ld. CIT(A) has dismissed this ground solely on the basis of the recording in the assessment order that the notice u/s 143(2) and 142(1) alongwith questionnaire was issued and served upon the assessee. It is pertinent to note that the ld. CIT(A) called for a remand report from the

6 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT A.O. and in the remand report dated 03/03/2016, the A.O. has accepted this fact of non-issuance of the notice U/s 143(2) of the Act as under:

“As far as issue of notice u/s 143(2) is concerned it may be mentioned that notice u/s 142(1) was issued on 27/02/2015. In response to this the assessee submitted return of income on 07/03/2015. Order u/s 143(3) was passed on 25/03/2013. On perusal of records it was found that the copy of notice u/s 143(2) is not available on record.” Thus, the A.O. has clearly stated in the remand report that the notice U/s 142(1) was issued on 27/02/2015 and in response to this notice, the assessee submitted return of income and thereafter the assessment was completed U/s 143(3). The A.O. has further stated that on perusal of the record it was found that the copy of notice u/s 143(2) was not available on record. Further this Tribunal vide order dated 17/11/2021 directed the AO/ld.DR to produce the copy of ordersheet of the reassessment proceedings regarding the issuance of notice U/s 143(2) of the Act. In response to the said direction of the Tribunal, the A.O. has filed certain documents alongwith letter dated 21st December, 2021 which contains the notice issued U/s 143(2) dated 30/09/2011. It appears that this notice dated 30/09/2011 was issued by the then A.O. in the original scrutiny assessment U/s 143(3) of the Act completed on 01/03/2013, therefore, this notice has no relevant in so far as the proceedings U/s 147 are concerned in this appeal. Except the notice dated 30/09/2011,

7 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT the A.O. has not produced any material or record to show that the notice u/s 143(2) of the Act was issued after the return of income filed by the aseessee in response to notice U/s 148 of the Act. Thus, it is manifest and evident from the record that no notice was issued by the A.O. U/s 143(2) of the Act and the reassessment was completed without issuing the notice U/s 143(2) of the Act which renders the reassessment order invalid and void ab initio. The Coordinate Bench of this Tribunal in the case of M/s Mangala Ispat (Jaipur) Ltd. Vs ACIT (supra) has considered as identical issue in para 4 and 5 as under: “4. We have considered the rival submissions as well as the relevant material on record. The ld. D/R has produced the assessment record as directed by the Bench and after verification of the assessment record, the ld. D/R has fairly admitted this fact that there is no notice available on record issued under section 143(2) of the Act, however, notice under section 142(1) dated 30th May, 2014 is available on record. The ld. D/R has also admitted that there is no proceeding recorded by the AO regarding the notice issued under section 143(2) and the proceedings were recorded by the AO only from the month of August, 2014 and not prior to that. We find that the AO has stated in para 2.2 of the assessment order as under :-

“ Notice under section 143(2)/142(1) of the Act was issued on 30.05.2014 ”

This statement of the AO in the assessment order is recorded only at the time of passing the assessment order and does not

8 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT lead to the conclusion that the notice under section 143(2) was actually issued by the AO when there is no record of issuing the said notice either in the form of proceeding sheet or any evidence of sending the notice under section 143(2) to the assessee. The department has not produced any record showing that the notice under section 143(2) was actually sent by the AO either through registered post or any other mode. Therefore, the mere mention of the notice under section 143(2)/142(1) of the Act would not ipso facto prove the fact that the notice was actually issued by the AO. Except this one narration in the assessment order, there is no material or any other evidence available on the assessment record including any proof of sending the notice in the shape of postal receipt or dispatch register to show that the notice under section 143(2) was issued by the AO. It appears that at the time of passing the assessment order when the AO realized this defect of not issuing notice under section 143(2) of the Act, he has just mentioned that notice under section 143(2)/142(1) was issued on 30th May, 2014. Therefore, stating a notice under section 143(2) with notice under section 142(1) in the assessment order without actually issuing any notice under section 143(2) would not satisfy the mandatory condition of such notice to be issued by the AO within the period of limitation provided under section 143(2) of the Act. Hence we find that there is no notice issued by the AO under section 143(2) in the case of the assessee. The AO has not stated anything about the issuance of notice under section 143(2) in the proceeding sheet of the assessment record which gives the details of the proceedings conducted by the AO in chronological order. Thus the AO did not issue any notice under section 143(2) prior to completion of reassessment in the

9 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT case of the assessee. The notice under section 143(2) is a mandatory requirement and gives the jurisdiction to the AO to proceed with the scrutiny assessment. It is a jurisdictional condition and in the absence of the notice under section 143(2), the order passed by the AO is invalid for want of jurisdiction. Once the assessee has filed the return of income in response to notice under section 148, then the notice under section 143(2) is a mandatory jurisdictional requirement for taking up the return of income under scrutiny. The Hon’ble Supreme Court in case of ACIT vs. Hotel Blue Moon (supra) while considering the requirement of notice under section 143(2) in block assessment proceedings, has held in para 15 to 18 as under :-

“15. We may now revert back to Section 158 BC(b) which is the material provision which requires our consideration. Section 158 BC(b) provides for enquiry and assessment. The said provision reads "that the assessing officer shall proceed to determine the undisclosed income of the Block period in the manner laid down in Section 158 BB and the provisions of Section 142, subsection (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply." An analysis of this sub section indicates that, after the return is filed, this clause enables the assessing officer to complete the assessment by following the procedure like issue of notice under Sections 143(2)/142 and complete the assessment under Section 143(3). This Section does not provide for accepting the return as provided under Section 143(i)(a). The assessing officer has to complete the assessment under Section 143(3) only. In case of default in not filing the return or not complying with the notice under Sections 143(2)/142, the assessing officer is authorized to complete the assessment ex-parte under Section 144. Clause (b) of Section 158 BC by referring to Section 143(2) and (3) would appear to imply that the provisions of Section 143(1) are excluded. 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

10 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT 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. The other important feature that requires to be noticed is that the Section 158 BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the assessing officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This Section even speaks of subsections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the assessing officer, if for any reason, repudiates the return filed by the assessee in response to notice under Section 158 BC(a), the assessing officer must necessarily issue notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of Section 158 BC(b) it has done so specifically. Thus, when Section 158 BC(b) specifically refers to applicability of the proviso thereto cannot be exclude. We may also notice here itself that the clarification given by CBDT in its circular No.717 dated 14 August, 1995, has a binding effect on the department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158 BC, the provisions 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. However, it is contended by Sri Shekhar, learned counsel for the department that in view of the expression "So far as may be" in Section 153 BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable. In support of that contention, the learned counsel has relied on the observation made by this Court in Dr. Pratap Singh's case [1985] 155 ITR 166 (SC). In this case, the Court has observed that Section 37(2) provides that "the provisions

11 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT of the Code relating to searches, shall so far as may be, apply to searches directed under Section 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in Section 165 has to be generally followed. The expression "so far as may be" has always been construed to mean that those provisions may be generally followed to the extent possible. The learned counsel for the respondent has brought to our notice the observations made by this Court in the case of Maganlal Vs. Jaiswal Industries, Neemach and Ors., [(1989) 4 SCC 344], wherein this Court while dealing with the scope and import of the expression "as far as practicable" has stated "without anything more the expression `as far as possible' will mean that the manner provided in the code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied." 16. The case of the revenue is that the expression 'so far as may be apply' indicates that it is not expected to follow the provisions of section 142, subsections (2) and (3) of section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the revenue, since we do not see any reason to restrict the scope and meaning of the expression 'so far as may be apply'. In our view, where the Assessing Officer in repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143. 17. Section 158BH provides for application of the other provisions of the Act. It reads : "Save as otherwise provided in this Chapter, all the other provisions of this Act shall apply to assessment made under this Chapter". This is an enabling provision, which makes all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment. The provisions which are specifically included are those which are available in Chapter XIV-B of the Act, which includes section 142 and sub- sections (2) and (3) of section 143. 18. On a consideration of the provisions of Chapter XIV-B of the Act, we are in agreement with the reasoning and the conclusion reached by the High Court.”

12 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT The Hon’ble Apex Court has held that the notice under section 143(2) is a mandatory condition and cannot be dispensed with and omission on the part of the AO to issue notice under section 143(2) cannot be a procedural irregularity and same is not curable. A similar view has been taken by the Hon’ble Supreme Court in case of CIT vs. Laxman Das Khandelwal (supra) and held in para 9 and 10 as under :-

“9. According to Section 292BB of the Act, if the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee. It is, however, to be noted that the Section does not save complete absence of notice. For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself. 10. Since the facts on record are clear that no notice under Section 143(2) of the Act was ever issued by the Department, the findings rendered. by the High Court and the Tribunal and the conclusion arrived at were correct. We, therefore, see no reason to take a different view in the matter.” Thus section 292BB of the Act can be pressed into service only when the notice is issued by the AO but the service of the same is disputed by the assessee after completion of the assessment. Therefore, we do not find any force in the contention of the ld. D/R that the assessee has participated in the proceedings and did not raise any objection because in the case in hand what is absent is the issuance of notice under section 143(2) of the Act and not the service of the notice issued by the AO. The provisions of section 292BB can be invoked only in case where notice is duly issued by the AO under section 143(2) but the

13 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT service of the said notice is disputed by the assessee after completion of the assessment and after participation in the assessment proceedings. Therefore, in such cases where the assessee has participated in the assessment proceedings in response to notice under section 143(2), the assessee is not allowed to take objection of service of the notice issued under section 143(2) after completion of assessment. It is a case of non issuance of notice under section 143(2), therefore, the initiation of proceedings itself was without jurisdiction conferred by the provisions of section 143 of the Act. The Hon’ble Delhi High Court in case of PCIT vs. Silver Line (supra) has again considered this issue in para 18 to 20 as under :-

“18. The wording of Section 143(2)(ii) of the Act, which is applicable in the present case, requires the AO to be satisfied on examining the return filed that prima facie the Assessee has "understated the income" or has "computed excessive loss" or has "underpaid the tax in any manner". The AO has the discretion to issue a notice under Section 143 (2) if he considers it "necessary or expedient" to do so. This exercise by the AO under Section 143 (2) of the Act is qualitatively different from the issuance of a notice under Section 142(1) of the Act, which as noted hereinbefore, is in a standard proforma. 19. The Court is unable to accept the submission of the Revenue that in the present case, no return was filed by the Assessee pursuant to the notice issued to it under Section 148 of the Act. If after receiving the letter dated 1st April 2011 of the Assessee the AO was of the view that the return originally filed in the Saral Form could not be treated as the return pursuant to the notice under Section 148 of the Act, then he should have drawn the attention of the Assessee to that fact. In the present case all that the AO did was to send a notice under Section 142 (1) of the Act. The Assessee was not made aware as to why he was required to file a return. Had a notice been issued to him under Section 143 (2) of the Act, the AO would have been obliged to let the Assessee know why he was being asked to file a return notwithstanding his

14 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT letter dated 1st April 2011. In the circumstances, the Assessee was justified in proceeding on the basis that it had not committed any default in communicating to the AO that the return already filed should be treated as the return filed pursuant to the notice under Section 148 of the Act. 20. The proposal to reopen an assessment under Section 147 of the Act is to be based on reasons to be recorded by the AO. Such reasons have to be communicated to the Assessee. However, merely because the Assessee participates in the proceedings pursuant to such notice under Section 148 of the Act, it does not obviate the mandatory requirement of the AO having to issue to the Assessee a notice under Section 143(2) of the Act before finalising the order of the reassessment.” In view of the above facts and circumstances where the reassessment was completed without issuing a notice under section 143(2), then the reassessment order is not sustainable in law and the same is invalid. Hence, following the binding precedents of Hon’ble Supreme Court as well as the Hon’ble High Courts as referred above, we quash the impugned reassessment order passed by the AO. The reassessment orders passed by the AO in both the cases are based on identical facts and we find that there is no notice under section 143(2) in the other connected appeal in ITA No. 347/JP/2017 and the AO has made identical statement being notice under section 143(2)/142(1) of the Act was issued on 30th May, 2014. However, from the assessment record it is clear that no such notice was found to be issued as nothing is recorded in the proceeding sheet about such notice, nor any other record showing any notice under section 143(2) was actually sent by the AO to the assessee. Accordingly both the reassessment orders passed by the AO without issuing notice under section 143(2) are invalid and quashed.

15 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT 5. Though the assessee has also raised legal grounds regarding validity of initiation of proceedings under section 147/148 of the Act and has placed reliance on various judgments in support of the contention, however, since we have quashed the reassessment orders on the issue of non issuance of notice under section 143(2), therefore, we do not propose to go into the other legal issue as well as the grounds raised on the merits of the addition.” The Tribunal has followed the decision of the Hon’ble Supreme Court in the case of ACIT Vs Hotel Blue Moon 321 ITR 362 (SC) as well as in the case of CIT Vs. Laxman Das Khandelwal (supra) wherein the Hon’ble Supreme Court has held that Section 292BB of the Act does not save complete absence of notice and it covers only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself. The Tribunal has also relied upon the various decisions of the Hon’ble High Court wherein it was held that the reassessment completed without issuing a notice U/s 143(2) of the Act is not sustainable in law and the same is invalid. Following the earlier order of this Tribunal as well as the binding precedents of the Hon’ble Supreme Court as well as High Courts, the reassessment order passed by the A.O. without issuing the notice U/s 143(2) of the Act is not sustainable in law and accordingly the same is quashed.

16 ITA 1281/JP/2019 M/s Rajdhani Crafts Vs ACIT 7. Since the reassessment order is quashed for want of notice U/s 143(2) of the Act then the other grounds raised by the assessee become infructuous and I do not propose to go into the other grounds of appeal.

Order pronounced in the open court on 06th January, 2022.

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सहायक पंजीकार@Aेेज. त्महपेजतंत