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Income Tax Appellate Tribunal, DELHI BENCH ‘B’: NEW DELHI
ORDER PER M. BALAGANESH AM: This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals)-15, Delhi,
[hereinafter referred to as ‘Ld. CIT(A)’] in Appeal No.111/18-
19/CIT(A)-15 dated 22/02/2019 against the order passed by Dy.
Edge Infrabuild Pvt. Ltd. vs. DCIT Commissioner of Income Tax, Circle-8(1), New Delhi (hereinafter referred to as the ‘Ld. AO’) u/s 147/143(3) of the Income Tax Act,
1961 (hereinafter referred to as ‘the Act’) on 26/12/2017 for the Assessment Year 2010-11.
2. The assessee has raised various grounds of appeal:
“1. Because the Id. CIT(A) has erred on law and facts in confirming the assessment order making an addition of Rs. 1,00,00,000/- u/s 68 and proviso to Sec 68 of the Act whereas the proviso to Sec 68 was not applicable in the AY 2010- 11and the burden u/s 68 was duly discharged by the appellant.
2. Because the CIT(A) has erred on law and facts in confirming assessment order which was passed in pursuance of assessment proceedings initiated u/s 147/148 of the Act by recording reasons by DCIT. Circle 8(1), New Delhi, who had no jurisdiction over the appellant as per law and thus the entire assessment proceedings initiated u/s 147/148 of the Act is beyond jurisdiction, illegal and against the authority of law and thus liable to be quashed.
3. Because the CIT(A) has erred on law and facts in confirming the assessment order which was passed in pursuance of assessment proceedings initiated u/s 147/148 of the Act, beyond four years, without fulfillment the mandatory jurisdictional conditions as per law, and in particular, relying on the borrowed satisfaction without any Independent inquiry, without any independent application of mind, based on some investigation wing report, without any tangible material to link the fact of the transaction of the appellant and thus the entire assessment proceedings initiated u/s 147/148 of the Act is without jurisdiction in terms of Sec 147, illegal and against the authority of law and thus liable to be quashed.
4 Because the CIT(A) has erred on law and facts in confirming the assessment order which was passed in pursuance of assessment proceedings initiated u/s 147/148 of the Act by recording reasons without valid legal approval as per law in terms of Sec 151 of the Act, and in particular, without independent application of mind but only mechanically by the approving authority.
Edge Infrabuild Pvt. Ltd. vs. DCIT 5. Because the ld. CIT(A) has erred on law and facts in confirming the assessment order by Ld. AO, without appreciating the fact that the Ld. AO has failed to dispose off the objections filed by the assessee in response to reasons recorded, by a speaking order, as per mandate of law according to the Judgement of GKN Driveshafts (India) Ltd. [2002] 125 Taxman 963 (SC).
Because the ld. CIT(A) has erred on law and facts in confirming the assessment order by Ld. AO, without appreciating the fact that the Ld. AO has failed to issue the mandatory jurisdictional Notice u/s 143(2) of the Act before completion of assessment proceedings u/s 147/148 of the Act.
7. Because the ld. CIT(A) has erred on law and facts in confirming addition made by Ld. AO without appreciating that no addition can be made us 68 in the very first year of the assessee, F.Y 2009-10, the assessee being incorporated on 08/12/2009 whereas appellant has no business in the first year.
8. Because the first year. Because the ld. CIT(A) has erred on law and facts in confirming addition made by Ld. AO without considering the documentary evidence filed by the assessee u/s 68 of the Act in due discharge of the burden of proof on the part of assessee, and without confronting any adverse material to the assessee against the principles of natural justice.
9. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
3. We find that the assessee has raised the preliminary objection for invalid assumption of jurisdiction by the Ld. A.O. for reopening the assessment of various facets. The interconnected issue involved therein is that no notice u/s 143(2) of the Act was issued and served on the assessee after the assumption of jurisdiction by the Ld. A.O. in the reassessment proceedings. Since, this issue goes to the root of the matter, we deem it fit to address the same before Page 3 of 11 Edge Infrabuild Pvt. Ltd. vs. DCIT going into the merits of the addition made u/s 68 of the Act in the sum of Rs.1 Crore.
We have heard the rival submissions and perused the material available on record. The assessee filed its original return of income electronically on 15/10/2010 declaring total income of Rs.5,03,571/-. The case was sought to be re-opened by issuance of notice u/s 148 of the Act dated 30/03/2017 after recording the reasons for reopening thereon. For the sake of convenience, the reasons recorded by the Ld. A.O. as enclosed in page 8-9 of the PB are reproduced hereunder:
“1. Background The assessee company M/S. Edge Infrabuild Pvt. Ltd. has filed its return of income for A.Y. 2010-11, as per information available on ITD system of this Circle.
Information received 2.1. This office has received information from ADIT (Inv.) Unit 6(3), New Delhi in the above mentioned case which is as under: "Sh Himanshu verma was engaged in the activities of providing accommodation entries to various beneficiaries group. He did this by Incorporation of numerous corporate and non- corporate entities where directors/ partners/ proprietors were his employees and closed associates. Modus operandi of sh Himanshu Verma was observed to be mainly of three types: i) He used to take cash from the beneficiaries, deposit the same in some of his entities/ individuals' bank accounts, routing the same and finally remitting it to various companies of the beneficiary Edge Infrabuild Pvt. Ltd. vs. DCIT group in the form of share application money, share capital and/or unsecured loan.
ii) He used to accept cheques of one set of companies of beneficiary group to the bank accounts of some his corporate entities, rotate the same through his various group entities, finally remitting the same to some other set of beneficiary companies. Through this method, the beneficiary group companies used to inflate their balance sheets for the purpose of procuring more funds from banks/ financial institutions. This method was also applied for siphoning off fund from public limited company to the Pvt. Limited companies of the same group. iii) He used to take cheques of the beneficiary companies and used to issue them sale bills, mainly of fabrics and related articles. This cheque amount was either withdrawn immediately or after rotating the same amongst its group entities. The cash was then returned back to the beneficiary companies. This method was adopted by some concerns who wanted to inflate their purchases."
As per information the assessee company M/s Edge Infrabuild Pvt. Ltd. has accommodation entry from Himanshu Verma Group in F. Y. 2009-10 as follows: Name PAN Name of Himanshu Amount Verma Group (Rs.) Compnay Edge Infrabuild AACCE3120 Jaguar Softech Pvt. 50,00,000 Pvt. Ltd. C Ltd. Shubh Propbuild Pvt. 50,00,000 Ltd.
Reasons for formation of belief
The assessee company has received fund and credited in its' books of M/s Edge Infrabuild Pvt. Ltd. from M/s Jaguar Softech Pvt. Ltd. and M/s Shubh Propbuild Pvt. Ltd. who are involved in providing of accommodation entries which are duly been emerged in the investigation carrion by ADIT, Inv. Wing -6(3), New Delhi. It is also apparent from the information received from investigation wing that these companies have transferred fund to the assessee company in lieu of cash. The director of these shell companies are found dummy and bogus entity from which the assessee has received Rs. 1,00,00,000/- and being used to transferred beneficiary are undisclosed/unexplained in lieu of cash.
Edge Infrabuild Pvt. Ltd. vs. DCIT In the light of above discussion, it is apparent that the assessee company has credited bogus entries to the tune of Rs 1,00,00,000/- from M/s Jaguar Softech Pvt. Ltd. and M's Shubb Propbuild Pvt. Ltd. which was not disclosed in return of income. Since the assessee company was accounted a bogus entry of Rs. 1,00,00,000/- as per details given above and information in the possession of this office, therefore, I have reason to believe that at least an income of Rs 1,00,00,000 has escaped assessment as defined by section 147 of the Act for Assessment Year 2010-11 The income chargeable to tax has escaped assessment for this year by the reasons of the failure on the part of the assessee to disclose fully and truly all material facts. Therefore it is a fir case for the issuance of notice w's 148 of the Act for the financial year 2009-10 relevant to assessment 2010-11. The necessary sanction in this regard is being obtained separately from Pr. Commissioner of Income Tax, Delhi-03, New Delhi before the issue of notice u/s 148.”
The reassessment was completed u/s 143(3) r.w.s.147 of the Act on 26/12/2017 at a sum of Rs.1 Crore in respect of amounts received by the assessee company from two entities belonging to Mr. Himanshu Verma Group as under:
(i) Jaguar Softech Pvt. Ltd. Rs.50,00,000/- (ii) Shubh Propbuild Pvt. Ltd. Rs.50,00,000/- Total Rs.1,00,00,000/- The Ld. A.O. issued summons u/s 131 of the Act to the Director of these two companies but none appeared in respect of above summons. Subsequently, summons were also issued to the Directors of the M/s Trapati Propbuild Pvt. Ltd. (formerly known as Shubh Propbuild Pvt. Ltd.) and M/s Ikshit Softech Pvt. Ltd. Edge Infrabuild Pvt. Ltd. vs. DCIT (formerly known as Jaguar Softech Pvt. Ltd.) through the Inspectors of DCIT, Circle-8(1), New Delhi, who visited the premises of the above companies and furnished the report stating that - (a) the address of Trapati Propbuild Pvt. Ltd. is situated at multistoried commercial building and that the Inspector could not find any shop/office in that name and that one Mr. Karan Singh working as an employee in courier company operating in the same building had stated that he had never heard about the presence of the company in the name of Trapati Propbuild Pvt. Ltd. Accordingly, the Inspector had to affix the summons u/s 131 of the Act at the said premises.
(b) The Inspector visited the office address of Ikshit Softech Pvt. Ltd and could not find any such company with such name. Accordingly, he had to affix summons issued u/s 131 of the Act at the premises.
Based on this, the ld. AO concluded that assessee could not satisfactorily prove the nature and source of credit received from these two companies totaling to Rs 1,00,00,000/- which was treated by the AO as unexplained cash credit u/s 68 of the Act and added the same to the total income. Page 7 of 11 Edge Infrabuild Pvt. Ltd. vs. DCIT 6. This action of the Ld. AO was upheld by the Ld. CIT(A).
At the outset, we find that the Ld. AR made a preliminary objection that notice u/s 143(2) of the Act was not issued to the assessee in the reassessment proceedings. Hence, he pleaded that the entire reassessment proceedings without the issuance of mandatory notice u/s 143(2) of the Act, had to be quashed as void abinitio. When this was confronted to Ld. DR, the Ld. DR vehemently relied upon para 4.6 of the order of the Ld. CIT(A) which read as under:
“4.6. The AR of the appellant has also objected that the impugned reassessment order has been passed without assuming jurisdiction as per law and without serving the mandatory notices u/s 143(2) of the Income Tax Act, 1961 In this regard, It is seen from the order of the AO that in para 2 on page 1, it is clearly mentioned that notices u/s 143(2) was issued the assessee. It is further seen from the order of AO that the AR of the appellant has duly attended the reassessment proceedings and the order has been passed u/s 147/143(3). The assessee never objected to the proceedings before the completion of re-assessment proceedings, as provided for in the Proviso to Section 292BB. Therefore, by invoking the provisions of the section 292BB, it is held that the notice u/s 143(2) is deemed to have been served. Therefore, in view of the factual and legal position mentioned therein, I do not find any force in the argument raised by the appellant and accordingly, this argument is hereby dismissed.”
From the perusal of the aforesaid discussion of the Ld. CIT(A), it is abundantly clear that notice u/s 143(2) of the Act was never issued to the company in the reassessment proceedings. We find that the Edge Infrabuild Pvt. Ltd. vs. DCIT Ld. CIT(A) is only trying to take shelter of the proviso to section 292BB of the Act that the assessee had cooperated during the course of assessment proceedings and had not raised this objection before the Ld. A.O. This goes to prove categorically that no notice u/s 143(2) of the Act was issued to the assessee company after issuance of notice u/s 148 of the Act. Whether the provisions of section 292BB of the Act cures the jurisdictional defect committed by the Ld. A.O. was subject matter of adjudication before the Hon’ble Supreme Court in the case of CIT vs. Laxman Das Khandelwal reported in 417 ITR 325 wherein it was held as under:
“8. The law on the point as regards applicability of the requirement of notice under Section 143(2) of the Act is quite clear from the decision in Hotel Blue Moon's case (supra). The issue that however needs to be considered is the impact of Section 292BB of the Act.
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.
Since the facts sin 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.”
Edge Infrabuild Pvt. Ltd. vs. DCIT
Respectfully following the same, we hold that non- issuance of notices u/s 143(2) of the Act is jurisdictional defect not curable u/s 292BB of the Act. Ld. DR before us sought time to check the assessment records in this regard and provide written submission thereon. The matter was taken as heard on 25/04/2023 but no such written submission was filed by the Ld. DR till the date of passing of this order. Accordingly, we confirm the observation of the Ld. CIT(A) that no notice u/s 143(2) of the Act was ever issued in the instant case. Respectfully following the observations of the Hon’ble Supreme Court, the entire reassessment proceedings are to be declared as void abinitio.
Since, the relief is granted to the assessee by quashing the entire reassessment proceedings on this ground, the other grounds raised by the assessee on reopening and the grounds raised by the assessee on merits need not be gone into, as adjudication of the same would be merely academic in nature and hence no opinion is given by us with regard to those grounds and they are left upon.
Accordingly, the grounds raised by the assessee are allowed.
Edge Infrabuild Pvt. Ltd. vs. DCIT 10. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 28th June, 2023.