Short Overview: 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 regards 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.

It is held that  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, shall not be valid.

Decision: In assessee’s favour.

Followed: Asstt. CIT & Anr. v. M/s. Hotel Blue Moon (2010) 321 ITR 362 (SC) : 2010 TaxPub(DT) 1434 (SC), M/S. Travancore Diagnostics (P) Ltd. v. Asstt. CIT (2016) 390 ITR 167 (Ker-HC) : 2016 TaxPub(DT) 4566 (Ker-HC), Pr. CIT v. Jai Shiv Shankar Traders Pvt. Ltd. (2015) 383 ITR 448 (Delhi) : 2015 TaxPub(DT) 4975 (Del-HC), CIT v. M/s. Salarpur Cold Storage Pvt. Ltd. (2019) 50 taxmann.com 105 (All-HC) : 2019 TaxPub(DT) 0257 (All-HC).

IN THE ITAT, JAIPUR BENCH

VIJAY PAL RAO, J.M.

Gaurav Kumar v. ITO

ITA No. 804/JP/2019

10 October, 2019

Assessee by: O.P. Batheja, AR

Revenue by: Abhishek Sharma, Addl. CIT

ORDER

Vijay Pal Rao, J.M.

This appeal by the assessee is directed against the Order, dated 29-3-2019 of learned Commissioner (Appeals), Alwar for the assessment year 2010-11. The assessee has raised the following grounds of appeal :–

“1. The learned Commissioner (Appeals) has erred on facts and in law in confirming addition of Rs. 14,64,000, out of addition of Rs. 17,64,000 made by the assessing officer under section 69A, through a non speaking order, without appreciating the facts of the case and the submissions of the appellant.

2. the learned Commissioner (Appeals) has grossly erred on facts and n law in upholding the order of the assessing officer under section 143(3)/147 and in confirming the addition of Rs. 14,64,000, overlooking the ground of appeal of the appellant that the assessing officer passed order under section 143(3)/147 without issuing and serving any notice under section 143(2) which is a mandatory requirement of law. The order passed under section 143(3)/147 without issuance and service of notice under section 143(2) is patently bad in law and deserves to be quashed.”

In Ground No. 2, the assessee has raised the question of validity of reassessment framed by the assessing officer without issuing and service notice under section 143(2) of the Income Tax Act.

2. The learned AR of the assessee has submitted that the assessee is engaged in the business of purchase and sale of building material during the year under consideration. However, upto the assessment year 2009-10 he was also having liquor contract business having a partnership concern and 50% partner in M/s. Gaurav Kumar Pohap Singh. During the year under consideration, the assessee made cash deposit of Rs. 17,84,500 in the savings bank with Union Bank of India.

The assessing officer reopened the assessment on the basis of the AIR information regarding the deposit of cash by issuing a notice under section 148 of the Income Tax Act on 29-3-2017.

The assessee filed the return of income through e-filing on 8-12-2017 declaring total income at Rs. 1,38,240. The reassessment was completed by the assessing officer by making an addition of Rs. 17,84,000 on account of cash deposit in the bank account under section 69A of the Income Tax Act. The learned AR has thus contended that the reassessment was completed by the assessing officer without issuing notice under section 143(2) of the Income Tax Act. In support of his contention he has relied upon the following decision :–

ITO v. Hans Raj Sharma

ITA No. 504/JP/2016 & C.O. No. 20/JP/2016, dated 9-4-2019 : 2019 TaxPub(DT) 2195 (Jp-Trib).

3. On the other hand, the learned DR has relied upon the orders of the authorities below and submitted that the assessee did not file any return of income under section 139(1) of the Income Tax Act. Even the return of income filed in response to notice under section 148 was belated one and the assessing officer has issued a notice under section 143(2) on 11-2-2017, a copy of the same has been produced during the course of hearing. Thus the learned DR has submitted that when a notice was issued under section 143(2) and assessee has participated in the proceedings, then the assessee cannot raise this objection at this stage. He has referred to the provisions of section 292BB of the Income Tax Act.
4. I have considered the rival submissions as well as the relevant material on record. The assessee has raised this objection even before the learned Commissioner (Appeals) as ground no. 4 reproduced at page 2 of the learned Commissioner (Appeals)’s order. However, the learned Commissioner (Appeals) has not adjudicated ground no. 4 separately but the entire matter was decided on the merits in para 5.3 and 5.4 as under :–

“5.3. I have perused the assessment order as well as submissions filed by the appellant. Following facts have emerged :–

1. That the appellant is engaged in the sale/purchase of building materials during the year under consideration.
2. That the appellant did not file regular return of income for the year under consideration.
3. That on the basis of NMS details, the assessing officer has issued notice under section 148 of the Act on 29-3-2017. However, still no return of income was filed within stipulated dates. Finally, the appellant filed return of income for the year under consideration on 8-12-2017 declaring income of Rs. 1,38,240 declaring income under section 44AD of the Act.
4. That the assessing officer has found cash deposits of Rs. 17,84,000 in his bank accounts.
5. That the appellant had submitted that it was out of payments received from previous creditors when during preceding years the appellant was running liquor business which has been closed and also some gift received during the year. However, no evidences were produced before the assessing officer Accordingly, the assessing officer has added the cash credit of Rs. 17,84,000 in his hand.

5.4. I have considered the above mentioned facts of the case.

The appellant has declared income of Rs. 1,38,240 and considering the past business of distributorship in liquor trade and current business of the assessee and gifts received, in my considered view it would be reasonable to give credit of Rs. 3 lakhs for past year savings and receipts towards the cash credit. Accordingly, the addition to the extent of Rs. 14,64,000 is sustained and the appellant’s ground of appeal on the issue is partly allowed.”

Thus it is clear that despite being specifically raised this ground and taken up for adjudication by the learned Commissioner (Appeals), it is not dealt with by the learned Commissioner (Appeals). Since this is a legal issue and goes to the root of the matter, therefore, the same is taken up for adjudication.

5. The assessing officer in the reassessment order has accepted this fact that the assessee has filed the return of income on 8-12-2017 vide acknowledgement no. 328210000081217 as given in the assessment order. The fact of filing the return of income is not in dispute. The reassessment order is also framed on the return of income filed by the assessee. The assessing officer has not treated the return of income as non est but the assessment was framed by taking the return of income and then making the addition. The final computation of total income of the assessee by the assessing officer is as under :–

Return Income of Rs.	1,38,240
Addition – On account of unexplained money under section 69A	17,84,000
Total Income of Rs.	19,22,240

Once the assessee filed the return of income and which was taken up for scrutiny assessment in the reassessment proceedings, then it is a condition precedent for assuming the jurisdiction that notice under section 143(2) is issued. Though a Notice, dated 11-12-2017 stated to be issued by the assessing officer under section 143(2), however, from the Note Sheet it is apparent that the entries regarding the said notice under section 143(2) is made in a space which was available after the proceedings on 19-12-2017. How the proceedings on 11-12-2017 can be recorded after the proceedings on 19-12-2017. This fact clearly manifest that this is only an after-thought interpolation made by the assessing officer in between two proceedings dated 19-12-2017 and 27-12-2017. Even the style of the notings makes it clear that due to paucity of space in between, the assessing officer has squeezed the narration and not in the normal font and space as in respect of all other entries/proceedings recorded on the same page. Therefore, it is clear that the alleged Notice, dated 11-12-2017 was not issued and even not served on the assessee. The alleged proceedings interjected in between two other proceedings that too subsequent proceedings clearly reveals this fact. Accordingly, it becomes manifest and clear that the reassessment was completed without issuing the mandatory notice under section 143(2) of the Income Tax Act and consequently the assessment was framed without assuming the jurisdiction as conferred by section 143(2). An identical issue has been considered by this Tribunal in case of ITO v. Hans Raj Sharma (supra) in para 14 to 16 as under :–

“14. We have considered the rival contentions and found from the record that the assessee filed its return of income in response to the notice under section 148 of the Act on 13-3-2015. The assessing officer had concluded the assessment without issuing notice under section 143(2) of the Act after the return was filed by the assessee in response to notice under section 148 of the Act. The assessing officer after receiving the return of the appellant filed in pursuance to notice under section 148 of the Income Tax Act, 1961 did not issue notice under section 143(2) of the Act which is sine qua non for assuming jurisdiction to assess the case. This is a grave error which is even not rectifiable under section 292BB of the Act and hence order so passed lacks proper authority with the assessing officer and hence the order so passed deserves to be declared void ab initio. In case of reassessment proceedings also once the assessee furnishes his return, same is considered as a return required to be furnished under section 139 and for proceeding further in a case of return filed under section 139 the assessing officer is supposed to issue notice under section 143(2) for assuming jurisdiction to assess the case. In case of non-issuance of such vital notice no assessment can be framed by the assessing officer as the same lacks authority for the same.

Further such vital defect cannot be cured even by resorting to the provisions of section 292BB as the provisions of section 292BB are applicable in those cases where notice was issued but not served. In the present case since no notice was ever issued and hence such defect cannot be cured.

15. Thus, it is clear that the assessing officer had concluded the reassessment considering the Return of Income filed by the assessee on 13-3-2015 but failed to issued notice under section 143(2) of the Act in order to process the said return. The department was precisely asked by the Bench on 16-10-2017, 19-9-2018 and 15-11-2018 to substantiate the issue and service of notice under section 143(2) of the Act, but the same could not be produced even on the specific query by the bench. Without issue of notice under section 143(2) completing the reassessment proceedings are liable to be quashed in view of the following judicial pronouncements :–

(i) ACIT v. Hotel Blue Moon, (2010) 321 ITR 362 (SC) : 2010 TaxPub(DT) 1434 (SC) wherein it was held by the Hon’ble SC that issuance of notice under section 143(2) is mandatory even in block assessments.

(ii) CIT v. Salarpur Cold Storage, (2019) 50 taxmann.com 105 (All-HC) : 2019 TaxPub(DT) 0257 (All-HC). For framing order under section 143(3) it is necessary to issue a notice under section 143(2) of the Act, and in absence of notice under section 143(2) the assumption of jurisdiction itself would be invalid.

(iii) Travancore Diagnostics (P) Ltd. v. ACIT, (2016) 390 ITR 167 (Ker-HC) : 2016 TaxPub(DT) 4566 (Ker-HC). Omission to issue notice under section 143(2) is incurable defect even under section 292BB of the Income Tax Act, 1961.

(iv) PCIT v. Jai Shiv Shankar Traders (P) Ltd., (2015) 383 ITR 448 (Delhi) : 2015 TaxPub(DT) 4975 (Del-HC). Issue of notice under section 143(2) is not a procedural requirement and is mandatory and completion of assessment without issue of notice under section 143(2) is fatal to the assessment. In this case return was filed after issuance of notice under section 142(1) and since no notice was issued under section 143(2) the assessment was held to be invalid.

(v) ITO v. Neeraj Goel, (ITAT Delhi Bench SMC). Assumption of jurisdiction to frame an assessment or non-assumption of jurisdiction to frame an assessment goes to the root of the judicial act of framing an assessment order and in event of non-assumption of jurisdiction under section 143(2) of the Act to frame an assessment the act of the assessing officer in framing an assessment order without issuing notice under section 143(2) cannot be saved under the provisions of section 292B of the Income Tax Act, 1961 or under section 292BB of the Income Tax Act, 1961 and therefore the assessment order so framed will be void ab initio.

(vi) Kamla Devi Sharma v. ITO, (ITAT Jaipur Bench). In this case decided on 6-2-2018 this Hon’ble Bench discussed all the above orders and reached on the conclusion that nonissue of notice under section 143(2) in reassessment proceedings, prior to finalizing reassessment order cannot be condoned by referring to section 292BB and is fatal to the order of reassessment.

16. Applying the proposition of law laid down in the above judicial pronouncements, we do not find any merit in the assessment so framed under section 143(3) without issue of notice under section 143(2) of the Act.”

In view of the above facts and circumstances of the case and following the earlier decision of this Tribunal, the reassessment framed by the assessing officer without issuing notice under section 143(2) is bad in law and same is quashed.

6. Since the reassessment is quashed for want of notice issued under section 143(2) of the Income Tax Act, therefore, the other ground raised by the assessee becomes infructuous and not taken up for adjudication.
7. In the result, the appeal of the assessee is allowed.