Non-issuance of notice u/s 143(2) for reassessment will make entire procedure adopted for escaped assessment procedure void

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 under section 148 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.

The provisions contained in section 143(2) is 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 absence of any such notice, the entire procedure adopted for escaped assessment, would not be valid.

Decision: In assessee’s favour.

Followed: Asstt. CIT & Anr. v. M/s. Hotel Blue Moon (2010) 321 ITR 362 (SC), R Dalmia & Anr. v. CIT (1999) 236 ITR 480 (SC), National Thermal Power Company Ltd. v. CIT (1998) 229 ITR 383 (SC), M/s. Travancore Diagnostics (P) Ltd. v. Asstt. CIT, Circle-1, Kollam (2017) 390 ITR 167–KERALA High Court, PR. Commissioner -18 v. Silver Line (2016) 383 ITR 455 (Del-HC), The CIT v. Gitsons Engineering Co. (2015) 370 ITR 87 (Mad), CIT-II v. M/s. Salarpur Cold Storage ((P).) Ltd. in (Income Tax Appeal No. – 24 of 2014, 19-8-2014), Assistant CIT, Circle 2(1), Panaji v. Geno Pharmaceuticals Ltd. in (Tax Appeal Nos. 75 TO 78 of 2012, 14-2-2013) and Tiny Girl Clothing Company (P) Ltd., Jayesh Sanghrajka & Co. LLP Charter Accountants v. DCIT 13 (3) (2), Mumbai in (ITA No.3599/MUM/201, 20-12-2017)

IN THE ITAT, MUMBAI BENCH

C.N. PRASAD, J.M. & N.K. PRADHAN, A.M.

Mehta Emporium Jewellers v. ITO

ITA No.3769/MUM/2016

C.O.NO.39/MUM/2018

15 June, 2018

Assessee by: Devendra H. Jain

Department by: Pooja Swaroop

ORDER

C.N. Prasad, J.M.

This appeal and cross objection are filed by the assessee and Revenue respectfully against the order of the learned Commissioner (Appeals)-41 Mumbai dated 8-3-2016 for the assessment year 2011-12.

2. In its appeal the assessee challenged the order of the learned Commissioner (Appeals) in holding that the Assessment Order passed by the assessing officer is valid though the notice under section 143(2) was not issued to the assessee which is a mandatory requirement.
3. Briefly stated the facts are that, the assessee filed return of income on 30-9-2011 declaring income of Rs. 80,701. Subsequently, assessment was reopened by issue of notice under section 148 of the Act and re-assessment was completed on 28-3-2014 under section 143(3) read with 147 of the Act determining the income at Rs. 1,90,85,290 by making addition of Rs. 1,90,04,592 as unexplained expenditure under section 69C of the Act with respect to certain purchases made by the assessee treating them as non-genuine. Assessee preferred appeal before the learned Commissioner (Appeals) and by way of additional ground assessee questioned the validity of assessment contending that no notice under section 143(2) was issued and served on the assessee though it is mandatory requirement for completion of assessment under section 143(3) of the Act. However, the learned Commissioner (Appeals) rejected this ground of appeal observing that the assessee has complied and participated in the Assessment Proceedings till the end and no objection was raised before completion of assessment and therefore in view of the provisions of section 292BB, if assessee appears in any proceedings or cooperates in any inquiry relating to assessment or re-assessment it shall be deemed that any notice under the provisions of the Act which is required to be served upon the assessee has been duly served upon assessee in time in accordance with the provisions of section 292BB of the Act. With this observation the learned Commissioner (Appeals) rejected the ground raised by the assessee on validity of assessment made by the assessing officer.
4. Before us, learned Counsel for the assessee submitted that in the absence of issue and service of notice under section 143(2) the assessment become null and void. He placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of ACIT v. Geno Pharmaceuticals Ltd.,(2013) 214 Taxman 83 (Bombay)wherein it has been held that notice under section 143(2) is mandatory and in the absence of service of notice assessing officer cannot proceed to make an enquiry on return filed in compliance with notice issued under section 148 of the Act. Learned Counsel for the assessee further relying on the decision of the Hon’ble Delhi High Court in the case of Pr. CIT v. Silver Line (2016) 383 ITR 455 (Delhi) submitted that Hon’ble High Court held that merely because assessee participated in proceedings pursuant to notice under section 148 of the Act, it would not obviate mandatory requirement of assessing officer to issue notice under section 143(2) before finalizing the assessment. However, relying on the decision of the Hon’ble Kerala High Court in the case of Travancore Diagnostics (P) Ltd., v. ACIT (2017) 390 ITR 167 (Kerala)submitted that the Hon’ble High Court held that, in case of proceedings initiated under section 143(3) read with section 147 requirement to issue notice under section 143(2) is mandatory and section 292BB does not in any manner grant any privilege to assessing officer in dispensing with issue of notice under section 143(2) of the Act. Learned Counsel for the assessee also placed reliance on the decision of the Tribunal in the case of Raj Files & Stationers (P) Ltd. v. ITO in ITA No. 7553/Mum/2016, dt. 5-7-2017 wherein the Tribunal following the decision of the Hon’ble Bombay High Court in the case of ACIT v. Geno Pharmaceuticals Ltd., (supra) quashed the assessment framed in the absence of notice under section 143(2) of the Act.
5. Learned Departmental Representative vehemently supported the orders of the authorities below.
6. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. The preliminary issue to be decided is, as to whether the assessment is valid in the absence of issue and service of notice under section 143(2) of the Act. The Hon’ble Jurisdictional High Court in the case of ACIT v. Geno Pharmaceuticals Ltd.,(supra) held as under :–

“4. So far as Tax Appeals No. 77/2012 and 78/2012 are concerned, in both these appeals, the ITAT has held that the issuance of notice after reopening of the case was mandatory and this order is under challenge. It is contended that the said order is contrary to the provisions of sections 292BB which was introduced by the Finance Act 2008 with effect from 1-4-2008, in which it is stated that in a case where an assessee has appeared in any proceedings or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of the said Act which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of the said Act. Perusal of the order of the ITAT reveals that this aspect was not canvassed before the ITAT.

5. Apart from that, it is an admitted position that no notice under section 143(2) had been issued while making assessment under section 143(3) read with section 147. The Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383has held that the Tribunal has discretion to allow or not to allow a new ground to be raised. But in a case where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. The ITAT, after relying on the judgment of the Apex Court in R. Dalmia v. CIT (1999) 236 1TR 480/102 Taxman 702, came to the conclusion that issuance of notice under section 143(2) was mandatory. The ITAT has taken into consideration the relevant provisions and has also taken into consideration the judgment of the Apex Court and relying on the said judgments, the ITAT has held that notice under section 143(2) is mandatory and in the absence of such service, the assessing officer cannot proceed to make an inquiry on the return filed in compliance with the notice issued under section 148.
6. Under these circumstances, no case is made out for interfering with the Tax Appeals No. 77/2012 and 78/2012since no substantial question of law is raised in both the appeals.”
7. The Kerala High Court in the case of Travancore Diagnostics (P) Ltd., v. ACIT(supra) held as under

“It is virtually admitted by the Revenue that no notice under section 14392) had been issued. It is settled position of law that omission on the part of the assessing officer under section 143(2) cannot be a procedural irregularity and that the same is not curable and that therefore, the requirement of notice under section 143(2) cannot be dispensed with. This emphatic statement of law, in the absence of issuance of a notice under section 143(2) by the revenue, would, therefore, inure to the benefit of the assessee, even though as noticed above, the contention of assessee that it was not aware of the proceedings under section 143 for the assessment year 2009-10 cannot be accepted. However, when the statute makes it imperative that notice under section 143(2) is to be issued, the omission or failure would then hit at the root of the jurisdiction.

‘The extended question then is whether even if the assessee is deemed to have participated in the proceedings under section 143, even without the assessing officer having issued the mandatory notice, would the revenue be entitled to the benefit provided under section 292BB of the Act. Section 292BB creates an estoppel against the assessee in claiming that no notice has been served on him, if he has participated in the proceedings. However, the said section does not in any manner grant any privilege to the assessing officer in dispensing with the issuance of a notice under section 143(2) of the Act. Since the jurisdiction under section 143 is founded on the issuance of a notice under section 143(2), the assessing officer could have assumed jurisdiction only after issuing a notice under section 143(2). Even the participation of the assessee would not provide the benefit under section 292BB to the revenue. The requirement that a notice be issued is mandatory and the assessing officer has no other option but to issue the notice before commencing the jurisdiction.”

8. We also find that the Coordinate Bench of the Tribunal in the case of M/s. Tiny Girl Clothing Company (P) Ltd. in ITA No. 3599/Mum/2016 dated 20-12-2017considering the judgment of the Hon’ble Allahabad High Court in the case of CIT v. M/s. Salarpur Cold Storage ((P).) Ltd. in (IT Appeal No. 24 of 2014, dt. 19-8-2014)and the decision of the Hon’ble Madras High Court in the case of CIT v. Gitsons Engineering Co. (370 ITR 87) and the effect of provisions of section 292BB held as under :–

“5. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied upon. Before coming to the merits of the addition/disallowance, the preliminary issue in this case is regarding the invalid issue of service of notice under section 143(2) of the Act. On a reading of the learned Commissioner (Appeals) order, it is an admitted fact that notice under section 143(2) dated 19-1-2015 was issued and served on the assessee in the course of Assessment Proceedings. Proviso to section 143(2)(ii) mandates that no notice shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. In this case the return of income was furnished by the assessee on 20-9-2011 for the assessment year 2011- 12 and the period for issue of notice under section 143(2)(ii) expired on 30-9-2012 i.e. six months from the end of the financial year in which return was furnished by the assessee. In the Remand proceedings also the assessing officer stated that notice under section 143(2) dated 19-1-2015 was issued and served on the assessee.

6. In the case of CIT v. M/s. Salarpur Cold Storage (P) Ltd.(supra) the Hon’ble Allahabad High Court considered a situation where the notice was issued beyond the period specified in the section and in such circumstances whether such notice is valid and consequent Assessment Order is valid or not. It was held that where the assessing officer fails to issue a notice within a period of six months as specified in the provisions of clause (ii) of section 143(2) of the Act the assumption of the jurisdiction under section 143(3) of the Act would be invalid. While coming to such conclusion the Hon’ble Allahabad High Court also considered the decision of the ACIT v. M/s. Hotel blue Moon (321 ITR 362) and held as under :–

“Under clause (ii) of sub-section (2) of section 143, the assessing officer is required to serve, on the assessee, a notice requiring him to attend the office or to produce evidence on which the assessee may rely in support of the return, if the assessing officer considers it necessary or expedient 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. Under the proviso to clause (ii), it has been specified that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. Service on the assessee of a notice within the period prescribed by the proviso presupposes the issuance of a notice for, it is only when a notice is issued, that it can be served. Thereafter, the provisions of sub-section (3) of section 143 of the Act stipulate that on the date specified in the notice issued under clause (ii) of sub-section (2) of section 143 of the Act, the assessing officer shall, after hearing the evidence as the assessee may produce and considering such other evidence as he may require and upon taking into account all relevant material, by an order in writing make an assessment of the total income or loss of the assessee. The jurisdiction of the assessing officer to make an assessment under section 143(3)(ii) of the Act is premised on the issuance of a notice under clause (ii) of section 143(2) of the Act. The proviso to clause (ii) of sub-section (2) of section 143 of the Act stipulates that a notice must be served on the assessee no later than the expiry of six months from the end of the financial year in which the return has been furnished. If a notice is not even issued within the period of six months from the end of the financial year in which the return is furnished, there would be no occasion to serve it upon the assessee within the stipulated period.

In the present case, the facts which are not in dispute are that the assessee had filed its return of income on 30-9-2008 for assessment year 2008-09. The notice under section 143 (2) of the Act ought to have been issued by 30-9-2009 which was the date of the expiry of the period of six months from the end of the financial year in which the return was furnished. A notice was, however, issued on 6-10-2009 much beyond the period of six months. In such a situation, there could be no occasion to serve the notice within six months since the very act of issuance was beyond six months.

Now, it is in this background that it would be necessary to consider the provisions of section 292 BB of the Act. Section 292 BB provides as follows:–

“292 BB. 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 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.”

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

This principle is no longer in doubt having due regard to the law laid down by the Supreme Court in the decision in Asstt. CIT & Anr. v. M/s. Hotel Blue Moon.While construing the provisions of Chapter XIV-B of the Act in relation to block assessments, the Supreme Court in that decision considered the effect of section 143 (2) of the Act. The Supreme Court held as follows :–

“…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 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 Supreme Court has, therefore, clearly held that the omission on the part of the assessing officer to issue a notice under section 143(2) of the Act is not a procedural irregularity and is not curable. The requirement of a notice under section 143(2) of the Act cannot be dispensed with.

In our view, where the assessing officer fails to issue a notice within the period of six months as spelt out in the proviso to clause (ii) of section 143 (2) of the Act, the assumption of jurisdiction under section 143 (3) of the Act would be invalid. This defect in regard to the assumption of jurisdiction cannot be cured by taking recourse to the deeming fiction under section 292 BB of the Act. The fiction in section 292 BB of the Act overcomes a procedural defect in regard to the non-service of a notice on the assessee, and obviates a challenge that the notice was either not served or that it was not served in time or that it was served in an improper manner, where the assessee has appeared in a proceeding or cooperated in an enquiry without raising an objection. Section 292 BB of the Act cannot come to the aid of the revenue in a situation where the issuance of a notice itself was not within the prescribed period, in which event the question of whether it was served correctly or otherwise, would be of no relevance whatsoever. Failure to issue a notice within the prescribed period would result in the assessing officer assuming jurisdiction contrary to law.”

7. In the case on hand we see that the notice under section 143(2) itself is dated 19-1-2015 which is beyond the date prescribed for issue of notice i.e. 30-9-2012. In such circumstances the assessing officer could not have issued any notice prior to 30-9-2012. Therefore, admittedly in this case as the notice under section 143(2) was issued beyond 30-9-2012 and in view of the decision of the Hon’ble Allahabad High Court the assessing officer could not have assumed jurisdiction in the absence of valid issue of notice under section 143(2) of the Act. Thus, respectfully following the said decision, we hold that there is no valid issue of notice under section 143(2) of the Act in this case and consequently the Assessment Order passed under section 143(3) is a nullity. Hence we quash the Assessment Order passed under section 143(3) read with section 147 of the Act.”
8. The Revenue could not prove that the notice under section 143(2) has been issued and served on the assessee in the case on hand before us. Therefore, in the absence of issue and service of notice under section 143(2) of the Act the re-assessment made by the assessing officer under section 143 read with section 147 of the Act dated 28-3-2014 for the assessment year 2011-12 became null and void. Thus, we quash the Assessment Order passed under section 143 read with section 147 of the Act. as bad in law
9. As we have held that Assessment Order is a nullity, we are not adjudicating the grounds on merits as they become only academic. Hence the other grounds are disposed off accordingly. The cross objection filed by the Revenue become infructuous.
10. In the result, appeal of the assessee is allowed as indicated above and the cross objection of the Revenue is dismissed as in fructuous.