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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
Per N.V. Vasudevan, Judicial Member
ITA No.1302/Bang/2012 is an appeal by the Revenue against the order dated 30.7.2012 of CIT(Appeals)-VI, Bangalore relating to assessment year 209-10. The assessee has filed a Cross Objection against the very same order of the CIT(Appeals).
The assessee is a company. It is engaged in the business of property development and real estate. For AY 2008-09, assessee filed a return of income on 30.9.2008 declaring a total income of Rs.4,75,22,320. An intimation u/s. 143(1) of the Income-tax Act, 1961 [“the Act”] dated
29.9.09 was issued in respect of the return of income so filed by the assessee.
There was a search and seizure operation u/s. 132 in the case of one M/s. Zeenath Transport Co., Bellary [“ZTC” for short]. ZTC had
booked a flat in a project that was being developed by the assessee. They had paid advance by account payee cheque to the assessee. To verify the genuineness of the claim of ZTC, a survey u/s. 133A of the Act was conducted in the business premises of the assessee by the Revenue on 25.2.2009. Based on the material impounded during the survey, assessment was reopened for AY 2008-09 by issue of notice dated 11.8.2010 u/s. 148 of the Act. The assessee vide letter dated 22.8.2010
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requested the AO to treat the original return filed on 30.9.2008 as a return filed in response to notice u/s. 148. The Assessing Officer completed the assessment by making an addition of Rs.9,75,24,011 to the total income of the assessee for the following reasons:-
“During the scrutiny proceedings it was seen that Page No. 72 to 122 of the impounded materials contain two sets of balance sheets of M/s. Ashed Properties & Investment Pvt. Ltd as on 31/03/2008. Page No. 72 to 100 contains balance sheer as on 31/03/2008 and its schedule under the head “Option-II”. Page No. 101-122 contains the similar set of balance sheet and its schedule as on 31/03/2008 under the head “Option-I”. Both the balance sheets display figures as on 31/03/2007. However, there is no variation in the figures of both the balance sheets. But, there is variation in figures for F.Y. 2007-08 under certain heads like closing stock & WIP, Provisions, Profit before tax, Provision for current tax, Reserves & Surplus, etc. During the course of survey, a copy of signed audit report for F.Y. 2007-08 was obtained. When compared the figures in the said signed audit report and the figures appearing in the balance sheets under the head “Option-I and “Option-II’, substantial variation have been noticed. Some of the important variations are discussed as under: Sl. Head in the Figures as per Figures as per Figures as Difference No. Balance Balance sheet Balance sheet per signed Col. (4)–(5) Sheet under the head under the Balance Option-II head Option-I sheet for F.Y.2007-08 1 2 3 4 5 6 1 Reserve & 12,29,28,388 18,86,29,209 7,42,52,765 11,23,76,444 Surplus 2 Closing 114,13,13,652 116,44,04,346 31,81,18,837 84,62,85,509 stock & WIP 3 Provision 4,66,92,189 40,82,082 1,76,65,756 (-) 1,30,83,695 4 Profit 12,17,43,218 14,48,33,912 4,73,09,901 9,75,24,011 before tax 5 Provision 4,26,10,126 Nil 1,65,58,465 (-) for current 1,65,58,465 tax
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A plain reading of the chart suggest that the assessee company has suppressed net profit to the tune of Rs.9,75,24,011/- and the same is added to the total taxable income of the assessee.”
Aggrieved by the order of the AO, assessee filed appeal before the CIT(Appeals). Amongst other grounds, assessee also challenged the validity of the proceedings completed u/s. 147 of the Act on the ground that no notice u/s. 143(2) had been issued to the assessee before completion of the assessment u/s. 147 of the Act.
The CIT(Appeals) deleted the addition of Rs.9,75,24,011 made by the AO. Aggrieved by the impugned order, the Revenue has filed the appeal.
As far as ground of appeal raised by the assessee challenging the validity of order passed u/s. 147 for non-issue/service of notice u/s. 143(2) within the time required, the CIT(Appeals) called for a remand report from the AO. The AO in the remand report submitted as follows:-
“Comments on Ground No.2: The order u/s 147 r. w.s. 143(3) of I.T. Act is a valid one in terms of provisions u/s 292BB. Failure to issue notice u/s 143(2) does not render the assessment unsustainable when the assessment is in response to a notice u/s 148. The A.O. has the basic jurisdiction to assess income in terms of sec 147 and sec 148. The scheme of provisions of sec 147 and sec 148 do not provide issue of notice u/s 143(2). In (2000) 3 S.C. 485 C.K.V. Shivakumar Vs Appropriate Authority, Supreme Court has held that equity or hardship are not relevant consideration for interpretation of taking law. The assessee’s contention that no notice u/s 143(2) has been served, is not
ITA No.1302/Bang/2012 & CO 66/Bang/2013 Page 5 of 17 tenable as the assessee has been informed vide this office letter dated 09.09.2010 the reasons for reopening the assessment. In response to the above, the assessee filed a letter dated 10.02.2011 objecting to the reopening of the assessment. The assessee was further informed vide this office letter dated 07.03.2011 that the objections filed are rejected and the proceedings u/s 148 cannot be dropped. Sri K Seshadri, C.A. & Authorised Representative of the assessee appeared on 14.09.2011; 13.10.2011; 02.12.2011; 14.12.2011 and on 21.12.2011 (notings in the order sheet enclosed) and was asked to explain the details in respect of the work-in-progress as per impounded materials and on payments of money. These issues were not substantiated with any valid reasons.”
The CIT(Appeals), on the aforesaid issue, decided the issue against the assessee observing as follows:-
“In the light of the above, it is seen that the A.O. had issued notice u/s 148. The A.O. had explained the various issues to the assessee during the course of various personal hearings that took place. It is seen from the Order Sheet notings that notices u/s 143(2) was also issued. The A.O. had also informed the assessee vide his letter dated 09.09.2010 the reasons for re-opening the assessment. The assessee had objected to the re-opening of the assessment. However, the A.O. had further informed him vide his letter dated 07.03.2011 that the objections filed were rejected. The A.R. of the assessee appeared on several dates before the A.O. which is clear from the Order Sheet notings and they had been asked to explain the various discrepancies which the A.O. wanted to verify. In the light of the above, the assessee’s contention that the assessment u/s 147 r.w.s. 143(3) is not valid in law, is not tenable and this ground is disposed off accordingly.”
Aggrieved by the aforesaid findings of the CIT(Appeals), the assessee has filed Cross Objection before the Tribunal.
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We have heard the ld. counsel for the assessee and the ld. DR on
the issue of non-issue/service of notice u/s. 143(2) within the time required under those provisions as raised by the Assessee in its cross-objection.
The assessment records were called for with a view to ascertain the factual
details. From a perusal of the said records, the facts that emerge are that; the date of filing of return of income in response to notice u/s. 148 of the
Act was 23.8.2010. In terms of proviso to section 143(2)(ii), notice u/s.143(2) of the Act ought to be issued and served on the assessee within
a period of six months from the end of the financial year in which the return
is furnished. The end of financial year in which return of income is furnished in this case is 31.3.2011. In terms of proviso to section
143(2)(ii), the six months period from the end of financial year would end on 30.9.2011. A perusal of assessment records reveals that first notice u/s.
143(2)(ii) proviso, rather the only notice, was issued by the AO only on 13.10.2011, which is well beyond the period of limitation prescribed for
service of notice under proviso to sec. 143(2)(ii).
It is thus clear from perusal of assessment records, that no notice u/s. 143(2) was issued within the period of limitation contemplated under
proviso to sec. 143(2)(ii). It is, however, clear from the record that
assessee was represented by a CA and he had participated in the proceedings throughout.
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On the factual details as narrated above, the ld. DR relied on the provisions of section 292BB of the Act and submitted that non-issue of notice u/s. 143(2) within the time specified under the proviso to sec. 143(2)(ii) will not render the order of reassessment null and void. On the other hand, the ld. counsel for the assessee placed reliance on the decision of this Tribunal rendered in the case of M/s. Amithi Software Technologies Pvt. Ltd. v. ITO, ITA No.540/Bang/2012 for AY 2008-09, order dated 7.2.2014. In the aforesaid decision, the factual position was that return of income was filed by the assessee on 1.10.2008 for AY 2008-09, beyond the period prescribed u/s. 139(1) of the Act and intimation u/s. 143(1) was issued by the AO on 27.8.2009. The assessee filed a revised return of income on 30.9.2009. This return was treated as non est by the AO and a notice u/s. 143(2) was issued on 19.8.2010 with reference to original return of income filed by the assessee on 1.10.2008. The question before the Tribunal was as to, whether assessment proceedings are bad in law for want of issue of notice u/s. 143(2) within the period mentioned under the proviso to sec. 143(2)(ii) of the Act. The Tribunal dealt with the validity of notice issued beyond the period of limitation specified under proviso to sec. 143(2)(ii) and the effect of provisions of section 292BB of the Act, and held as follows:-
“14. We have given a careful consideration to the rival submissions. The admitted factual position is that the notice u/s. 143(2) of the Act dated 09.08.2010 was admittedly beyond the period of six months from the end of the financial year in which
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the return of income was filed by the assessee, as laid down in proviso to section 143(2)(ii) of the Act. It is also not in dispute that this is the only 143(2) notice issued by the AO. The order of assessment is very clear on this aspect. The law is by now well settled that issuance of a notice u/s. 143(2) of the Act within the statutory time limit is mandatory and it is not a procedural requirement which is inconsequential. Reference may be made to the decision of the Hon’ble Delhi High Court in the case of Alpine Electronics Asia Pvt. Ltd. v. DGIT, 341 ITR 247 (Del), CIT v. Vardhana Estates Pvt. Ltd., 287 ITR 368 and ACIT v. Hotel Blumoon, 321 ITR 362 (SC). The contrary view expressed by the Hon’ble Madras High Court, in our view, cannot be followed as the decisions relied on by the ld. counsel for the assessee of Hon’ble Punjab & Haryana High Court and Allahabad High court also took the view that non-issuance of notice u/s. 143(2) of the Act renders assessment order invalid. Admittedly, notice u/s. 143(2) of the Act not having been served on the assessee within the period contemplated under law, the order of assessment has to be held to be invalid and annulled. 15. The ld. DR has, however, placed reliance on the provisions of sections 292B & 292BB of the Act. The aforesaid provisions read as follows:-
“292B Return of income, etc., not to be invalid on certain grounds
No return of income, assessment, notice, summons or other proceedings, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.
“292BBNotice deemed to be valid in certain circumstances.
Where an assessee has appeared in any proceeding or co- operated 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 time in
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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.” 16. As far as section 292B is concerned, we do not think that the notice issued by the AO u/s. 143(2) of the Act in the present case will fall within any mistake, defect or omission which is in substance and effect in conformity with or according to the intent and purpose of this Act. The requirement of giving of notice because completion of the assessment proceedings cannot be dispensed with by taking recourse to the provisions of Sec.292B of the Act. As far as provisions of section 292BB is concerned, as laid down in the decisions of the Allahabad High Court in the case of Manish Prakash Gupta (supra) & Parikalpana Estate Development (P) Ltd. (supra) and Hon’ble Punjab & Haryana High Court in the case of Cebong India Ltd. (supra), provisions of section 292BB cannot be applied in a case where admittedly no notice u/s. 143(2) had been issued within the time limit prescribed in law. We may also clarify that the dispute in the present case is not with regard to issue and service of notice u/s. 143(2) of the Act, as admittedly there was only one notice u/s. 143(2) dated 19.08.2010 issued and served on the assessee before completion of the assessment proceedings. The question is as to, whether the said notice was issued and served within the time contemplated u/s. 143(2) of the Act. The provisions of Sec.292BB lay down presumption in a given case. It cannot be equated to a conclusive proof. The presumption if rebuttable. The provisions of section 292BB cannot extend to a case where the question of limitation is raised on admitted factual position in a given case. We therefore hold that the provisions of section 292BB of the Act will not be applicable to the present case. 17. In light of the discussion as aforesaid, we hold that the assessment proceedings are invalid for the reason that the notice
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u/s. 143(2) of the Act had not been issued and served within the time limit prescribed by those provisions. The order of assessment is accordingly annulled.” (emphasis supplied)
The ld. counsel for the assessee also submitted before us that even before completing the proceedings u/s. 147, provisions of section 143(2) are applicable and in this regard placed reliance on the decision of this Tribunal in the case of C. Ramaiah Reddy v. DCIT, ITA No.121/Bang/2011 for AY 2005-06, order dated 27.1.2012 and H. Goutham Chand v. Addl. CIT, 8 ITR (Trib) 269.
We have given a very careful consideration to the rival submissions. From the narration of the factual details as given above, it is clear that the only notice issued u/s. 143(2) was dated 13.10.2011 and the same was beyond the period contemplated under proviso to sec. 143(2)(ii) of the Act. Two questions arise for our consideration; (i) Whether notice u/s. 143(2) of the Act is mandatory before completion of proceedings u/s. 147 of the Act? (ii) Whether provisions of section 292BB of the Act will come to the rescue of the Revenue so as not to render the order of assessment u/s. 147 null and void?
As far as first question is concerned, in the case of C. Ramaiah Reddy (supra), this Tribunal has considered the non-issue of notice u/s. 143(2) of the Act within the period of limitation in response to notice u/s.
ITA No.1302/Bang/2012 & CO 66/Bang/2013 Page 11 of 17 148 of the Act as fatal and had annulled the assessment u/s. 147 of the Act. Similar view has also been taken in the case of H. Goutham Chand (supra). The Special Bench of the Delhi Tribunal in Raj Kumar Chawla & Ors. Vs. ITO (2005) 94 ITD 1 (Del)(SB) was confronted with similar/ identical facts. The questions required to be answered by the Special Bench were as under:-
"1. Whether the proviso to s. 143(2) of the I.T. Act.1961, which mandates the service of notice within 12 months from the end of the month in which return is filed, also applies to the returns filed pursuant to notice under s. 148 of the I.T. Act, 1961? 2. If the answer to the aforesaid question is in the affirmative then what is the effect of non-service of notice under the proviso to s. 143(2) within the time prescribed, to the return filed pursuant to s. 148 of the I.T. Act, 1961?"
The Hon'ble Special Bench, concluded that in view of the legal fiction created by sec. 148 that a return filed under that section is to be treated as one under see. 139, proviso to sec. 143(2) also applies to a return filed in response to notice u/s, 148 and no assessment can be made, if the notice u/s. 143(2) is not served within the time prescribed by the proviso u/s. 143(2). In the operative part. the Hon'ble Special Bench, held as under :-
"39. It may be noted that no doubt, the foundation to assess or reassess is laid by issue of a valid notice under s. 148 but such jurisdiction is subject to further compliance was has been stipulated in the statute itself. If compliance of the proviso is not made, the very purpose of creating the proviso is defeated, i.e. uncertainty of assessee with respect to assessment shall continue. It is again a settled principle of interpretation that no construction of a statute should be made in a manner, which leaves a statute
ITA No.1302/Bang/2012 & CO 66/Bang/2013 Page 12 of 17 redundant, On the contrary law requires a strict interpretation of the proviso. We may here clarify that provisions of limitation are to be strictly construed. An illuminating reference to this aspect can be found in the following observation of the Supreme Court in the case of K. M. Sharma vs. ITO (supra). "A fiscal statute more particularly a provision such as the present one regulating period of limitation must received strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigants for an indefinite period on future unforeseen events." If limitations are not followed strictly, chaotic situation would follow. 40. In the light of the analysis of the relevant provisions of law and judicial precedents, we are of the considered view that the return filed pursuant to notice under s. 148 of the Act must be assumed and treated to be a return filed under s. 139 of the Act and the assessment must thereafter be made under s. 143 or 144 of the Act after complying with all the mandatory provisions. Accordingly, it is incumbent upon the assessing authority to issue notice under s. 143 (2) of the Act within the period as stipulated in the proviso thereunder. In this view of the matter, the first question before the Special Bench is answered in affirmative.”
Sec.148 of the Act was amended by the Finance Act, 2006 by insertion of two proviso below Sub-section (1) and an Explanation. The amended provisions read as follows:
“Sec.148: Issue of notice where income has escaped assessment. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a 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
ITA No.1302/Bang/2012 & CO 66/Bang/2013 Page 13 of 17 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 far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that in a case — (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case— (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub- section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub- section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Explanation : For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.”
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The two provisos in sub-section (1) to section 148 has been inserted with
retrospective effect from 1st October, 1991. The gist of the two provisos may suitably be stated thus— Where a return has been furnished daring
the period commencing on 1st October, 1991 and ending on 30th
September, 2005, in response to a notice of reassessment served under section 148, and subsequently a notice has been served under section
143(2) [or 143(2)(ii), as the case may be] after the expiry of twelve months as specified in the relevant proviso but before the expiry of the time-limit for
making the assessment, reassessment or re-computation as specified in
section 153(2), such (otherwise time-barred) notice shall be deemed to be a valid notice. Further, the new Explanation inserted with effect from 1st
October, 2005, specifically clarifies that the aforestated (newly inserted) provisos shall not apply to any return which has been furnished on or after
1st October, 2005, in response to a notice served under section 148(1) of the Act. The purpose of the amendment is to ensure that notices which
were issued and barred by limitation and those which were not issued and
which could not have been issued should be validated by the Finance Act, 2006 with retrospective effect from 1st April, 1990 amending section 142
for the purpose of validating notices which were otherwise not issued or served within the time-limit. The invalidity of notice as well as the absence
of any notice became fatal to the proceedings and are sought to be
validated and justified by the retrospective amendments. The explanation clarifies that the amended provisions will not apply to any return which has
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been furnished on or after 1st October, 2005, in response to a notice
served under section 148(1) of the Act. Thus the legislature has accepted the position that issue and service of notice u/s.143(2) of the Act within the
time limit laid down in those provisions is mandatory.
In the light of the precedents on the issue, we are, therefore, of the view that issue and service of notice u/s. 143(2) of the Act within the period
of limitation contemplated under the proviso to sec. 143(2)(ii) is mandatory
for validity of assessment u/s. 147 of the Act.
The next issue is with regard to applicability of provisions of section
292BB of the Act. It is clearly from the statutory provisions that these provisions only insulate the AO from the proof of service of notice u/s. 143(2) of the Act. It does not in any way insulate the AO from default in
issuing notice u/s. 143(2) within the period of limitation contemplated
therein. When the records show that there was no issue of notice u/s.
143(2) within the period of limitation prescribed under the said proviso, the Revenue cannot take advantage of the provisions of section 292BB. In
other words, “issue of notice” and “service of notice” are two different
aspects and what is covered by section 292BB is only “service of notice”. Non-issue of notice u/s. 143(2) within the period of limitation would not be
covered under the ambit of section 292BB of the Act. The decision of the Tribunal in the case of Amithi Software Technologies Pvt. Ltd. (supra)
referred to in the earlier part of this order clearly supports the plea of the
ITA No.1302/Bang/2012 & CO 66/Bang/2013 Page 16 of 17 assessee in this regard. We therefore hold that assessment proceedings are invalid for the reason that notice u/s. 143(2) had not been issued and served within the time limit prescribed by those provisions. Accordingly, the order of assessment is annulled. In view of the conclusions on the preliminary issue raised in the Cross Objection, we are of the view that there is necessity to go into the merits on the issues raised by the Revenue in its appeal.
Accordingly, the appeal by the Revenue is dismissed, while the Cross Objection by the assessee is allowed.
Pronounced in the open court on this 30th day of July, 2015.
Sd/- Sd/-
( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member
Bangalore, Dated, the 30th July, 2015.
/D S/
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Copy to:
Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar / Senior Private Secretary ITAT, Bangalore.