Non-issuance of notice under section 143(2) will make entire procedure adopted for escaped assessment invalid

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Non-issuance of notice under section 143(2) will make entire procedure adopted for escaped assessment invalid

Where AO had framed the reassessment under section 148 without issuing notice under section 143(2), the reassessment order was invalid because it is mandatory obligation of AO to serve notice by assigning reasons therein with regard to his belief of escaped tax liability before making assessment of any escaped income.

Assessee assailed reassessment order passed by AO on the ground that notice under section 143(2) was not issued to assessee. CIT(A) rejected assessee’s contention holding that mere non-issuance of notice under section 143(2) would not vitiate entire assessment proceedings. Held: The provisions contained in section 143(2) are mandatory even in the case of reassessment because the legislature by using the word ‘reason to believe’ had cast a duty on AO to apply mind to the material on record with regard to escaped liability and to serve a notice under section 143(2) by assigning reason therein. In the absence of any such notice the entire procedure adopted for escaped assessment shall not be valid.

Decision: In assessee’s favour.

Distinguished: CIT v. Madhya Bharat Energy Corporation (2011) 337 ITR 389 (Del)

Followed: ACIT & Anr. v. Hotel Blue Moon (2010) 321 ITR 362 (SC), Dalmia (R.) v. CIT (1999) 236 ITR 480 (SC), Indus Towers Ltd. v. Dy. CIT & Anr. [W.P.(C) No. 1560/2014, dt. 29-5-2017], Pr. CIT v. Jai Shiv Shankar Traders (P.) Ltd. (2016) 383 ITR 448 (Del), CIT v. Salarpur Cold Storage (P.) Ltd. [IT Appeal No. 24 of 2014, dt. 19-8-2014], CIT v. M/s. Parikalpana Estate Development (P) Ltd. [Income Tax Appeal Nos. 160 & 161 of 2009, dt. 11-10-2012], Sapthagiri Finance & Investments v. ITO [TC(A). No. 159 of 2006, dt. 17-7-2012], CIT v. Vision Inc. [ITA No. 1142/2009, ITA No. 64/2010, dt. 25-5-2012], DIT v. V.R. Educational Trust [ITA No. 510/2011, dt. 10-2-2012], Alpine Electronics Asia Pvt. Ltd. v. DGIT (2012) 341 ITR 247 (Del.), CIT v. Mukesh Kumar Aggarwal (2012) 345 ITR 29 (All), CIT v. Rajeev Sharma (2011) 336 ITR 247 (Del.), DIT v. Society for Worldwide Interbank Financial Telecommunications (2010) 323 ITR 249 (Del), CIT v. M/s. Cebon India Ltd. (2012) 347 ITR 583 (P&H), CIT v. Pawan Gupta (2009) 318 ITR 322 (Del.), Dy. CIT v. M/s. Silver Line [ITA Nos. 1809, 1504, 1505 & 1506/Del/2013, C.O. Nos. 122, 109, 107 & 108 /Del/2013, dt. 26-9-2014], UKT Software Technologies Pvt. Ltd. v. ITO [ITA Nos. 4719 & 4720/Del/2011, dt. 16-1-2013], ITO v. Smt Sukhini P. Modi (2007) 295 ITR (AT) 169 (Ahmedabad Bench)

IN THE ITAT, DELHI BENCH

H.S. SIDHU, J.M. & T.S. KAPOOR, A.M.

ACIT v. M/s. Dimension Promoters (P) Ltd.

ITA No. 1105/Del./2011, C.O. No. 326/Del./2011

2 January, 2018

Revenue by: Ashima Neb. Sr. DR

Assessee by: Sanjeev Bajaj, CA

ORDER

T.S. Kapoor, A.M.

This appeal has been filed by the Revenue against the order of learned Commissioner (Appeals) dated 2-11-2010. The assessee has also filed cross-objections, raising various legal issues.

2. At the outset, the learned AR took up ground No. 3 of cross objections, which relates to non-issue of notice under section 143(2) of the Income Tax Act. The learned AR invited our attention to the order of assessment and submitted that nowhere in the assessment order, the assessing officer mentioned about the issuance of notice under section 143(2) of the Act. Further inviting our attention to the learned Commissioner (Appeals)’s order, the learned AR submitted that when this ground was raised before the learned Commissioner (Appeals), the learned Commissioner (Appeals) has held that non-issue of notice under section 143(2) by itself cannot be said to vitiate the assessment proceedings. It was submitted that from the findings of the learned assessing officer and the learned Commissioner (Appeals), it becomes amply clear that no notice under section 143(2) was issued to the assessee and therefore, the assessment order is liable to be quashed. Reliance in this respect was placed on a number of case laws mentioned in paper book pages A to M, which are as under :–

(i) ACIT & Anr. v. Hotel Blue Moon (2010) 321 ITR 362 (SC)

(ii) DIT v. V.R. Educational Trust [ITA No. 510/2011, dt. 10-2-2012]

(iii) Alpine Electronics Asia Pvt. Ltd. v. DGIT (2012) 341 ITR 247 (Del.)

(iv) Dalmia (R) v. CIT (1999) 236 ITR 480 (SC)

(v) CIT v. Pawan Gupta (2009) 318 ITR 322 (Del.)

(vi) Dy. CIT v. M/s. Silver Line [ITA Nos. 1809, 1504, 1505 & 1506/Del/2013, C.O. Nos. 122, 109, 107 & 108 /Del/2013, dt. 26-9-2014]

(vii) CIT v. Rajeev Sharma (2011) 336 ITR 247 (Del.)

(viii) ITO v. Smt Sukhini P. Modi (2007) 295 ITR (AT) 169 (Ahmedabad Bench)

(ix) UKT Software Technologies Pvt. Ltd. v. ITO [ITA Nos. 4719 & 4720/Del/2011, dt. 16-1-2013]

(x) CIT v. Mukesh Kumar Aggarwal (2012) 345 ITR 29 (All)

(xi) CIT v. M/s. Parikalpana Estate Development (P) Ltd. [Income Tax Appeal Nos. 160 & 161 of 2009, dt. 11-10-2012]

(xii) CIT v. M/s. Cebon India Ltd. (2012) 347 ITR 583 (P&H)

3. The learned DR, on the other hand, submitted that due notice under section 142(1) was issued to the assessee and therefore, there was no need to issue notice under section 143(2) of the Act. Reliance was placed on the order of Delhi High Court in the case of Madhya Bharat Energy Corporation (2011) 337 ITR 389 (Del).

4. The learned AR, in his rejoinder, submitted that after considering the judgment of Madhya Bharat Energy Corpn. (supra), the Hon’ble Delhi High Court in the case of Alpine Electronics Asia Pvt. Ltd. v. DCIT (supra) and in V.R. Education Trust in Appeal No. 510 of 2011 has again held that service of notice under section 143(2) is a mandatory requirement even in the proceedings under section 148 of the Act.

5. We have heard the rival parties and have gone through the material placed on record. From the findings of the assessing officer and learned Commissioner (Appeals), one thing is apparent that no notice under section 143(2) was issued to the assessee as the learned Commissioner (Appeals) himself has held that mere non-issuance of notice under section 143(2) by itself cannot be said to vitiate the assessment proceedings. In a number of judgments delivered by various Courts and Tribunals, it has been held that service of notice under section 143(2) is mandatory requirement. The Hon’ble Delhi High court in recent case of Indus Towers Ltd. v. Dy. CIT & Anr. in W.P.(C) No. 1560/2014 vide its judgment dt. 29-5-2017 has also considered similar issue by following the judgment of Hotel Blue Moon (2010) 321 ITR 366 (SC) and CIT v. Jai Shree Shiv Shankar and has again decided the issue in favour of the assessee by holding as under :–

“13. In response to the above submissions, Mr. Dileep Shivpuri, learned Senior Standing Counsel for the Department, submitted that as far as second submission is concerned, the facts speak for themselves. He had nothing further to add because there was no explanation for the failure to issue notice under section 143(2) of the Act pursuant to the notice under section 148 of the Act before 30-9-2013, the last date by which the notice ought to have been issued.

14. The law on this point is fairly well settled in the decisions in ACIT v. Hotel Blue Moon (2010) 321 ITR 362 (SC) reiterated in CIT v. Madhya Bharat Energy Corporation (2011) 337 ITR 389 (Del) and Pr. CIT v. Jai Shiv Shankar Traders (P.) Ltd. (2016) 383 ITR 448 (Del). In the last mentioned judgment, this Court held that the delay in issuing a notice under section 143(2) of the Act would be fatal to the re-assessment proceedings.

15. For the aforementioned reasons, it is held that as far as the second ground is concerned, the Petitioner should succeed. In that view of the matter, the Court does not consider it necessary to examine the first ground of challenge. The impugned notice dated 22-2-2013 issued to the Petitioner under section 148 of the Act as well as the consequential order dated 20-1-2014 disposing of its objections as well as the reassessment proceedings pursuant thereto are hereby quashed.”

Similar finding has been made by various courts in the decisions relied on by the learned AR.

6. The case law relied on by the learned DR in Madhya Bharat Energy Corporation (supra) is not applicable, as this decision has been reviewed by Hon’ble Delhi High Court in Revenue Petition No. 441/2011 videorder dt. 17-8-2011. This fact has been noted by the Hon’ble High Court in the case of Pr. CIT v. Sri Jai Shiv Shankar Trader Pvt. Ltd. at para 9 which reads as under —

“Outset drew the attention of this Court to an order passed by this Court on 17-8-2011 in Review Petition No. 441/2011 in ITA No. 950/2008 (CIT v. Madhya Bharat Energy Corporation) whereby this Court reviewed its main judgment in the matter rendered on 11-7-2011 on the ground that the said appeal had not been admitted on the question concerning the mandatory compliance with the requirement of issuance of notice under section 143(2) of the Act. In its review order, this Court noted that at the time of admission of the appeal on 17-2-2011 after noticing that in the said case that no notice under section 143(2) had ever been issued, the Court held that no question of law arose on that aspect. The upshot of the above discussion is that the decision of this Court in CIT v. Madhya Bharat Energy Corporation (supra) is not of any assistance to the Revenue as far as the issue in the present case is concerned.”

Therefore, this judgment is also not relevant and in view of the facts discussed on the judgment relied on by the learned DR, this is distinguishable on the facts.

7. Hon’ble Delhi High court in the case of CIT v. Shri Jai Shiv Shankar Pvt. Ltd. (supra) has also considered the judgment of Delhi High court in the case of Mandhya Bharat Energy Corporation (supra) and has also considered the decision in the case of CIT v. Vision Inc. (supra) and after considering these judgments, Hon’ble High Court decided the issue in favour of the assessee wherein it has been decided that even in the cases covered under section 148, the issuance of notice under section 143(2) is a mandatory requirement. The relevant part of the order of Delhi High Court is reproduced below :–

“9. Dr. Rakesh Gupta, learned counsel appearing for the assessee, at the outset drew the attention of this Court to an order passed by this Court on 17-8-2011 in Review Petition No. 441/2011 in ITA No. 950/2008 (CIT v. Madhya Bharat Energy Corporation) whereby this Court reviewed its main judgment in the matter rendered on 11-7-2011 on the ground that the said appeal had not been admitted on the question concerning the mandatory compliance with the requirement of issuance of notice under section 143(2) of the Act. In its review order, this Court noted that at the time of admission of the appeal on 17-2-2011 after noticing that in the said case that no notice under section 143(2) had ever been issued, the Court held that no question of law arose on that aspect. The upshot of the above discussion is that the decision of this Court in CIT v. Madhya Bharat Energy Corporation (supra) is not of any assistance to the Revenue as far as the issue in the present case is concerned.

10. Ms. Aggarwal nevertheless urged that notwithstanding the above position, the decision of this Court in CIT v. Vision Inc. (2012) 73 DTR 201 (Del) would apply. The said judgment held that since on the facts of that case the assessee had been properly served with the notice under section 143(2) of the Act within the statutory time limit prescribed under the proviso thereto, the ITAT should not have set aside the re-assessment in toto. Ms. Aggarwal placed reliance on section 292BB of the Act and urged that the assessee having not raised any objection about non service of the notice under section 143(2) of the Act either at any time before the assessing officer or prior to, or during the reassessment proceedings, the assessee was precluded from raising such an objection in the subsequent of the proceedings.

11. Dr. Rakesh Gupta for the assessee on the other hand placed reliance on a large number of decisions of the High Courts apart from the decision of the Supreme Court in ACIT v. Hotel Blue Moon (supra). He submitted that the failure to issue a notice under section 143(2) of the Act subsequent to the assessee having informed the assessing officer that the return originally filed should be treated as the return filed pursuant to the notice under section 148 of the Act, was fatal to the order of re-assessment.

12. The narration of facts as noted above by the Court makes it clear that no notice under section 143(2) of the Act was issued to the assessee after 16-12-2010, the date on which the assessee informed the assessing officer that the return originally filed should be treated as the return filed pursuant to the notice under section 148 of the Act.

13. In DIT v. Society for Worldwide Interbank Financial Telecommunications (2010) 323 ITR 249 (Del), this Court invalidated an reassessment proceedings after noting that the notice under section 143(2) of the Act was not issued to the assessee pursuant to the filing of the return. In other words, it was held mandatory to serve the notice under section 143(2) of the Act only after the return filed by the assessee is actually scrutinized by the assessing officer.

14. The interplay of sections 143(2) and 148 of the Act formed the subject matter of at least two decisions of the Allahabad High Court. In CIT v. Rajeev Sitanna (2011) 336 ITR 678 (All.) it was held that a plain reading of section 148 of the Act reveals that within the statutory period specified therein, it shall be incumbent to send a notice under section 143(2) of the Act. It was observed :–

“The provisions contained in sub-section (2) of section 143 is mandatory and the legislature in their wisdom by using the word ‘reason to believe’ had cast a duty on the assessing officer to apply mind to the material on record and after being satisfied with regard to escaped liability, shall serve notice specifying particulars of such claim. In view of the above, after receipt of return in response to notice under section 148, it shall be mandatory for the assessing officer to serve a notice under sub-section 2 of section 143 assigning reason therein. In absence of any notice issued under sub-section 2 of section 143 after receipt of fresh return submitted by the assessee in response to notice under section, the entire procedure adopted for escaped assessment, shall not be valid.”

15. In a subsequent judgment in CIT v. Salarpur Cold Storage (P.) Ltd. [IT Appeal No. 24 of 2014, dt. 19-8-2014] it was held as under :–

“10. Section 292BB of the Act was inserted by the Finance Act, 2008 with effect from 1-4-2008. Section 292BB 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 292BB 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 292BB 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.

(A) In the same decision in CIT v. Salarpur Cold Storage (P.) Ltd. (supra), the Allahabad High Court noticed that the decision of the Supreme Court in ACIT v. Hotel Blue Moon (supra) where in relation to block assessment, the Supreme Court held that the requirement to issue notice under section 143(2) was mandatory. It was not “a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with.”

The Madras High Court held likewise in Sapthagiri Finance & Investments v. ITO [TC(A). No. 159 of 2006, dt. 17-7-2012]. The facts of that case were that a notice under section 148 of the Act was issued to the assessee seeking to reopen the assessment for assessment year 2000-01. However, the assessee did not file a return and therefore a notice was issued to it under section 142(1) of the Act. Pursuant thereto, the assessee appeared before the assessing officer and stated that the original return filed should be treated as a return filed in response to the notice under section 148 of the Act. The High Court observed that if thereafter, the assessing officer found that there were problems with the return which required explanation by the assessee then the assessing officer ought to have followed up with a notice under section 143(2) of the Act. It was observed that :–

“Merely because the matter was discussed with the assessee and the signature is affixed it does not mean the rest of the procedure of notice under section 143(2) of the Act was complied with or that on placing the objection the assessee had waived the notice for further processing of the reassessment proceedings. The fact that on the notice issued under section 143(2) of the Act, the assessee had placed its objection and reiterated its earlier return filed as one filed in response to the notice issued under section 148 of the Act and the Officer had also noted that the same would be considered for completing of assessment, would show that the assessing officer has the duty of issuing the notice under section 143(3) to lead on to the passing of the assessment. In the circumstances, with no notice issued under section 143(3) and there being no waiver, there is no justifiable ground to accept the view of the Tribunal that there was a waiver of right of notice to be issued under section 143(2) of the Act.”

18. As already noticed, the decision of this Court in CIT v. Vision Inc. proceeded on a different set of facts. In that case, there was a clear finding of the Court that service of the notice had been effected on the assessee under section 143(2) of the Act. As already further noticed, the legal position regarding section 292BB has already been made explicit in the aforementioned decisions of the Allahabad High Court. That provision would apply insofar as failure of “service” of notice was concerned and not with regard to failure to “issue” notice. In other words, the failure of the assessing officer, in reassessment proceedings, to issue notice under section 143(2) of the Act, prior to finalising the re-assessment order, cannot be condoned by referring to section 292BB of the Act.

19. The resultant position is that as far as the present case is concerned the failure by the assessing officer to issue a notice to the assessee under section 143(2) of the Act subsequent to 16-12-2010 when the assessee made a statement before the assessing officer to the effect that the original return filed should be treated as a return pursuant to a notice under section 148 of the Act, is fatal to the order of reassessment.”

8. In view of the above facts and circumstances, we decide the ground No. 3 of cross objections in favour of the assessee and we hold that the reassessment order passed in this case is bad, void ab initio. In view of our decision on ground No. 3, the rest of the grounds taken in the cross objections do not require any adjudication. Accordingly, the cross objections filed by the assessee are partly allowed. The appeal filed by the Revenue has become infructuous and, therefore, same is dismissed.

9. In nutshell, the cross objections filed by the assessee are partly allowed and the appeal filed by the Revenue is dismissed.

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