Validity of reassessment if No valid service of section 143(2) notice

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Validity of reassessment if No valid service of section 143(2) notice

Short Overvivew : Clearly, notice under section 143(2) can only be served after AO had examined return filed by assessee. In the instant case, when assessee came to file the return, notice under section 143(2) was served upon assessee by hand. This would amount to gross violation of scheme of section 143(2). Therefore, notice issued under section 143(2) was invalid on account of non-application of mind on AO’s part and resultantly, reassessment was vitiated.

Assessee filed reply in response to notice under section 148 and submitted that original return filed by him could be treated as return filed in response to said notice. AO on the same day served notice under section 143(2) upon assessee. Assessee challenged validity of consequent reassessment framed by AO.

it is held that Clearly, notice under section 143(2) can only be served after AO had examined return filed by assessee. In the instant case, when assessee came to file the return, notice under section 143(2) was served upon assessee by hand. This would amount to gross violation of scheme of section 143(2). Therefore, notice issued under section 143(2) was invalid on account of non-application of mind on AO’s part and resultantly, reassessment was vitiated.

Decision: In assessee’s favour.

Relied: Shri Harsh Bhatia, New Delhi v. ITO, Ward-50(3), New Delhi ITA No. 1262 and 1263/Del./2017, dt. 17-10-2017, Micron Enterprises (P) Ltd. v. ITO ITA No. 801/Del/2016 (AY 2006-07) vide Order, dt. 14-5-2018.

IN THE ITAT, DELHI BENCH

H.S. SIDHU, J.M.

Satish Kumar v. ITO

ITA No. 3586/DEL/2018

14 January, 2019

Appellant by: Somil Aggarwal, Advocate

Respondent by: S.L. Anuragi, Sr. Departmental Representative.

ORDER

This is an appeal by the assessee against the Order, dt. 12-3-2018 of the learned Commissioner (Appeals), Faridabad relevant to assessment year 2008-09 on the following grounds :–

1. That having regard to the fact and circumstances of the case, learned Commissioner (Appeals) has erred in law and on facts in confirming the action of learned assessing officer in framing the impugned reassessment order as the assessment order was passed without complying with the mandatory conditions of section 147 to 151 of the Income Tax Act, 1961 and without recording valid reasons as per law and without obtaining valid approval as per law and in any case reopening of the assessment and framing of the reassessment order was contrary to law.

2. That in any view of the matter and in any case, action of learned Commissioner (Appeals) in confirming the action of learned assessing officer in reopening of the impugned assessment under section 143(3)/147 is bad in law and against the facts and circumstances of the case.

3. That having regard to the facts and circumstances of the case, learned Commissioner (Appeals) has erred in law and on facts in upholding the action of the learned assessing officer in framing the impugned reassessment in under section 143(3)/147 of the Act, and that too without issuing/serving the mandatory notice under section 143(2) within the statutory allowable period and more so by not fulfilling the requirements of the provisions of law.

4. That in any view of the matter and in any case, action of learned Commissioner (Appeals) in confirming the action of learned assessing officer in restricting the addition to the extent of Rs. 17,77,886 being 12.5% of the purchases i.e. Rs. 1,42,23,093 claimed to have been made, allegedly on account of bogus purchases from M/s. Maa Durga Trading Company and that too without proper appreciation of facts on record, and by recording incorrect facts and findings, and making allegations without any basis, material or evidence and merely on the basis of surmises and conjectures and without observing the principal of natural justice.

5. That in any case and in any view of the matter, action of learned Commissioner (Appeals) in confirming the addition of Rs. 17,77,886 is bad in law and against the facts and circumstances of the case.

6. That having regard to the facts and circumstances of the case, learned Commissioner (Appeals) has erred in law and on facts in confirming the action of assessing officer in passing the impugned order without giving adequate opportunity of being heard.

7. That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.

2. The brief facts of the case are that the assessee filed his return of income declaring at Rs. 2,54,083 on 24-4-2008. Later on, as per the information available with the Department the proceedings under section 147 fo the Income Tax Act, 1961 were initiated after recording reasons by assessing officer. Notice under section 148 of the Act was issued on 26-3-2015. In response to notice under section 148 for the Act no return was filed by the assessee. The reassessment under section 143(3)/147 was completed on 21-3-2016 at an assessed income fo Rs. 45,21,010. assessing officer on going through the information received from Investigation Wing, found that the assessee has made payment of Rs. 1,83,43,517 to M/s. Maa Durga Trading Company on account of accommodation entries provided by him to the assessee during the year. Against the order of the assessing officer, the assessee appealed before the learned Commissioner (Appeals), who vide his impugned Order, dt. 12-3-2018 has partly allowed the appeal of the assessee. Aggrieved with the order of the learned Commissioner (Appeals), assessee appealed before the Tribunal.

3. Learned Counsel for the assessee has only argued the ground no. 3 relating to upholding the action of the assessing officer in framing the impugned reassessment under section 143(3)/147 of the Act, and that too without issuing/serving the mandatory notice under section 143(2) of the Act within the statutory allowable period and more so by not fulfilling the requirements of the provisions of law. During the hearing, learned counsel for the assessee stated that the assessee filed its return of income on 24-4-2008 declaring total income of Rs. 2,94,083. The assessing officer started the proceedings under section 147 of the Act after recording the reasons on 26-3-2015 and accordingly issued notice under section 148 of the Act to the assessee on 26-3-2015. But the assessee did not appear and has also not filed return in response to the same. assessing officer has issued notice under section 142(1) for 23-6-2016, 15-7-2015, but again assessee did not appear nor filed any return. Due to change of jurisdiction again notice under section 142(1) was issued on 12-8-2015 fixing the case for 26-8-2015 which was received by the assessee and in response to the same the Authrorised Representative of the assessee appeared on 12-8-2015 and filed power of attorney, copy of ITR alongwith computation and requested to treat the original return filed in response to the notice under section 148 of the Act. He draw my attention towards page no. 14 which is the copy of the notice under section 148 of the Act dated 26-3-2015 and also the page no. 16 which the copy of the notice under section 143(2) of the Act dated 12-8-2015 and also page no. 17 which the copy of the reply filed by the Authrorised Representative of the assessee dated 7-9-2015 in which the assessee has filed some documentary evidence which the copy of income tax return alongwith computation of income for assessment year 2008-09, copy of Audit Report for the financial year 2007-08 and copy of Auditable Balance Sheet alongwith complete annexure, trading and profit and loss account with complete annexure. Finally he stated that Authrorised Representative of the assessee appeared on 12-8-2015 and stated that original return filed by the assessee may be treated the return of income filed in response to the notice under section 148 of the Act, but on the same date the assessing officer given the notices to the assessee i.e. 12-8-2015 under section 143(2) of the Act which is at page no. 16 of the Paper Book. He stated that in response to the return filed by the assessee which is a letter dated 12-8-2015 when the assessee’s counsel appeared and made the statement on the same date that assessing officer had issued notice dated 12-8-2015 is invalid, void abinitio for want of valid notice under section 143(2) of the Act. He further submitted that the additional ground in identical facts has been accepted and assessment under section 143(3) of the Act was passed without proper issue and service of notice under section 143(2) of the Act, which was later quashed by the ITAT and the Hon’ble High Court in the following cases :–

(i) Hon’ble Delhi High Court in the case of Director of Income Tax v. Society for Worldwide Inter Bank Financial, Telecommunications in ITA No. 441/2010, reported at (2010) 323 ITR 249 (Delhi) : 2010 TaxPub(DT) 1465 (P&H-HC)

(ii) Delhi ITAT in case of Micron Enterprises (P) Ltd. v. ITO in I.T.A No. 901/DEL/2016 (A.Y. 2006-07) Order, dt. 14-5-2018

(iii) Delhi ITAT in Harsh Bhatia case ITA Nos. 1262/& 1263/DEL/2017 (A.Ys. 2008-09 & 2009-10) Order, dt. 17-10-2017.

(iv) Delhi ITAT, in the case of Ashtech Industries (P) Ltd. v. DCIT in ITA No. 2332/Del/2018 (AY 2009-10), dt. 20-12-2018.

4. On the contrary, learned Departmental Representative relied upon the orders of the authorities below and opposed the request of learned counsel for the assessee and prayed for dismissal of ground no. 3, because assessee did not file return under section 148 within the specified period.

5. I have heard both parties and perused the records, especially the assessment order, paper book and the impugned order as well as the notice, I find that assessing officer started the proceedings under section 147 of the Act after recording the reasons on 26-3-2015 and accordingly issued notice under section 148 of the Act to the assessee on 26-3-2015. But the assessee did not appear and has also not filed return in response to the same. assessing officer has issued notice under section 142(1) for 23-6-2016, 15-7-2015, but again assessee did not appear nor filed any return. Due to change of jurisdiction again notice under section 142(1) was issued on 12-8-2015 fixing the case for 26-8-2015 which was received by the assessee and in response to the same the Authrorised Representative of the assessee appeared on 12-8-2015 and filed power of attorney, copy of ITR alongwith computation and requested to treat the original return filed in response to the notice under section 148 of the Act. After perusing the Paper Book especially the page no. 14 which is the copy of the notice under section 148 of the Act dated 26-3-2015; page no. 16 which the copy of the notice under section 143(2) of the Act dated 12-8-2015 and also page no. 17 which is the copy of the reply filed by the Authrorised Representative of the assessee dated 7-9-2015 in which the assessee has filed some documentary evidence which the copy of income tax return alongwith computation of income for assessment year 2008-09, copy of Audit Report for the financial year 2007-08 and copy of Auditable Balance Sheet alongwith complete annexure, trading and profit and loss account with complete annexure, I find considerable cogency in the submission of the assessee’s counsel that assessee appeared on 12-8-2015 and stated that original return filed by the assessee may be treated the return of income filed in response to the notice under section 148 of the Act, but on the same date the assessing officer given the notices to the assessee i.e. 12-8-2015 under section 143(2) of the Act which is at page no. 16 of the Paper Book, which shows non-application of mind on the part of the of the assessing officer. Therefore, notice under section 143(2) is invalid and resultantly, the assessment is vitiated and is liable to be quashed. I accordingly, set aside the orders of the authorities below and quash the reassessment proceedings in the matter and allow the legal ground no. 3 argued by the learned counsel for the assessee. Since the reassessment has been quashed, there is no need to adjudicate the other grounds. My aforesaid view in allowing the ground no. 3 which is legal in nature, is squarely covered in favour of the assessee by the following judgment/decisions wherein on identical facts and circumstances of the case, the reassessment was quashed.

5.1 The Hon’ble Delhi High Court in the case of Director of Income Tax v. Society for Worldwide Interbank Financial Telecommunications (2010) 323 ITR 249 (Delhi) : 2010 TaxPub(DT) 1465 (P&H-HC) has held as under :–

“Both the Commissioner (Appeals) and the Tribunal have returned a concurrent and clear finding of fact that the notice under section 143(2) was issued on 23-3-2000 and since the return was filed on 27-3-2000, the notice was not a valid one and, therefore, the assessment completed on the basis of the notice was also invalid and was consequently set aside. It is for the first time that the counsel for the appellant contends that the notice, in fact, was issued on 27-3-2000 and not on 23-3-2000, the date which is recorded on the notice itself. No such contention was raised before the lower appellate authorities. Consequently, the said contention cannot be raised before the Court for the first time. The appellant has stated that the return was filed by the assessee on 27-3-2000 and the notice under section 143(2) was served upon the Authorized Representative of the assessee by hand when the Authorized Representative of the assessee came and filed return. However, the date of the notice was mistakenly mentioned as 23-3-2000. Assuming the aforesaid to be true, the notice was served on the Authorized Representative simultaneously on his filing the return which clearly indicates that the notice was ready even prior to the filing of the return. The provisions of section 143(2) make it dear that the notice can only be served after the assessing officer has examined the return filed by the assessee. Whereas it is dear that when the assessee came to file the return, the notice under section 143(2) was served upon the Authorized Representative by hand. Thus, it would amount to gross violation of the scheme of section 143(2).”

5.1.1. And the conclusion is as under :–

“Assessment made in pursuance of a notice under section 143(2) issued on 23-3-2000 when the return was filed on 27-3-2000 is invalid.”

5.2 The ITAT, Delhi in the case of Shri Harsh Bhatia, New Delhi v. ITO, Ward-50(3), New Delhi in ITA No. 1262 and 1263/Del./2017, dt. 17-10-2017 has held as under :–

10. “It was further argued by the learned counsel for the assessee Dr. Rakesh Gupta that notice under section 143(2) of the Act, was issued on 17-9-2014 and which is the same date on which return was filed. This is apparent from the assessing officer’s order in para 3 at page 1. Therefore, the assessing officer has not applied his mind independently while issuing notice under section 148 of the Act. On this count also, the assessment deserves to be quashed. Accordingly, under the facts and circumstances of the case, the legal grounds of the assessee are allowed.”

5.3 The ITAT, Delhi Bench in the case of Micron Enterprises (P) Ltd. v. ITO ITA No. 801/Del/2016 (AY 2006-07) vide Order, dt. 14-5-2018 has held as under :–

“5. Learned Counsel for the assessee submitted that assessee filed reply to the notice under section 148 of the Income Tax Act on dated 26-11-2013 which is noted in the assessment order, copy of which, is filed at page-11 of the paper book, in which, assessee explained that the return already filed under section 139(1) may be treated as return filed in response to notice under section 148 of the Income Tax Act. He has submitted that on the same day assessing officer issued notice under section 143(2) i.e., on 26-11-2013, copy of which, is filed at page-12 of the paper book. He has, therefore, submitted that the assessing officer has not validly assumed jurisdiction under section 147 and 143(3) of the Income Tax Act to pass the assessment order against the assessee. He has submitted that the issue is covered in favour of the assessee by the judgment of the Hon’ble Delhi High Court in the case of Director of Income Tax v. Society for Worldwide Interbank Financial Telecommunications(2010) 323 ITR 249 (Delhi) : 2010 TaxPub(DT) 1465 (P&H-HC) in which it was held as under :

“Both the Commissioner (Appeals) and the Tribunal have returned a concurrent and clear finding of fact that the notice under section 143(2) was issued on 23-3-2000 and since the return was filed on 27-3-2000, the notice was not a valid one and, therefore, the assessment completed on the basis of the notice was also invalid and was consequently set aside. It is for the first time that the counsel for the appellant contends that the notice, in fact, was issued on 27-3-2000 and not on 23-3-2000, the date which is recorded on the notice itself. No such contention was raised before the lower appellate authorities. Consequently, the said contention cannot be raised before the Court for the first time. The appellant has stated that the return was filed by the assessee on 27-3-2000 and the notice under section 143(2) was served upon the Authorized Representative of the assessee by hand when the Authorized Representative of the assessee came and filed return. However, the date of the notice was mistakenly mentioned as 23-3-2000. Assuming the aforesaid to be true, the notice was served on the Authorized Representative simultaneously on his filing the return which clearly indicates that the notice was ready even prior to the filing of the return. The provisions of section 143(2) make it dear that the notice can only be served after the assessing officer has examined the return filed by the assessee. Whereas it is dear that when the assessee came to file the return, the notice under section 143(2) was served upon the Authorized Representative by hand. Thus, it would amount to gross violation of the scheme of section 143(2).”

5.1. And the conclusion is as under :

“Assessment made in pursuance of a notice under section 143(2) issued on 23-3-2000 when the return was filed on 27-3-2000 is invalid.”

6. He has submitted that the same order have been followed by ITAT, Delhi Bench, in the case of Shri Harsh Bhatia, New Delhi v. ITO, Ward-50(3), New Delhi in ITA No. 1262 and 1263/Del./2017, dt. 17-10-2017 in which the Tribunal held as under :–

10. “It was further argued by the learned counsel for the assessee Dr. Rakesh Gupta that notice under section 143(2) of the Act, was issued on 17-9-2014 and which is the same date on which return was filed. This is apparent from the assessing officer’s order in para 3 at page 1. Therefore, the assessing officer has not applied his mind independently while issuing notice under section 148 of the Act. On this count also, the assessment deserves to be quashed. Accordingly, under the facts and circumstances of the case, the legal grounds of the assessee are allowed.”

7. On the other hand, learned Departmental Representative submitted that assessee did not file return under section 148 within the specified period. Therefore, this ground of appeal of assessee may be dismissed.

8. After considering the rival submissions, I am of the view that the issue is covered in favour of the assessee by the Judgment of Hon’ble Delhi High Court in the case of Director of Income Tax v. Society for Worldwide Inter bank Financial Telecommunications (supra) and Order of ITAT, Delhi Bench in the case of Shri Harsh Bhatia, New Delhi v. ITO, Ward-50(3), New Delhi (supra). It is an admitted fact that assessee filed reply in response to the notice under section 148 of the Income Tax Act on 26-11-2013 and submitted before assessing officer that original return filed before him may be treated as return filed in response to the notice under section 148 of the Income Tax Act. The assessing officer on the same day served notice under section 143(2) upon assessee-company whose signature tally on the said notice. Therefore, notice issued under section 143(2) is invalid and resultantly, the assessment is vitiated and is liable to be quashed. I, accordingly, set aside the orders of the authorities below and quash the re-assessment proceedings in the matter. Resultantly, all additions stands deleted. In view of the above, there is no need to decide other contentions raised by Learned Counsel for the Assessee.

9. In the result, appeal of assessee is allowed.”

6. In the result, appeal of the assessee stands allowed.

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