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Case Law Citation:
Principal CIT vs. Shri Jai Shiv Shankar
Traders Pvt. Ltd. (Delhi High Court), Income tax Appeal no.519 of
2015, Date of Judgment: 14/10/2015
Brief of the Case
Delhi High Court held In the case of Principal CIT
vs. Shri Jai Shiv Shankar Traders Pvt. Ltd. that the failure by the AO
to issue a notice to the Assessee under Section 143(2) subsequent to 16th
December 2010 when the Assessee made a statement before the AO 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 re-assessment.
Accordingly, re-assessment without issuing notice u/s 143(2) is not valid.
Facts of the Case
The Assessee filed its return of income for
the AY 2008-09 on 16th September, 2008. The said return was accepted by the
Department and an acknowledgement was issued under Section 143(1). Subsequently
the return was picked up for scrutiny. After recording reasons, notice was
issued to the Assessee on 30th March, 2010 under Section 148. Subsequently, on
1st October, 2010, a notice was issued under Section 143(2) of the Act by the
AO stating that there were certain points in connection with the return filed
on which the AO “would like some further information”. Here it is not in
dispute that both the notices i.e. notice u/s 148 & 143(2) were not
received by the assessee. The AO proceeded to pass an assessment order on 31st
December, 2010 whereby, inter alia, an addition of Rs.1 crore was made to the
income of the Assessee under Section 68 of the Act as unexplained credits.
Contention of the Assessee
The ld counsel of the assessee refer to an order passed by this
Court on 17th August, 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 11th July 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 17th February, 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 is
not of any assistance to the Revenue as far as the issue in the present case is
concerned.
Further he reliance on a large number of
decisions of the High Courts. He submitted that the failure to issue a notice
under Section 143(2) of the Act subsequent to the Assessee having informed the
AO that the return originally filed should be treated as the return filed
pursuant to the notice under Section 148 was fatal to the order of
re-assessment.
Contention of the Revenue
The ld counsel of the revenue relied on the decision of this
Court in ‘Commissioner of Income Tax v. Madhya Bharat Energy Corporation Ltd.
(2011) 337 ITR 389 ) Del which purported to hold that non-issue of notice under
Section 143(2) of the Act on an Assessee prior to completion of the
reassessment would not be fatal to the reassessment. She also sought to
distinguish the decision in ACIT v. Hotel Blue Moon on the ground that it
pertained to a block assessment.
Further it was submitted that the decision of
this Court in CIT v. Vision Inc. (2012) 73 DTR 201 (Del) would apply to the
current case. In this judgment it was 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. She 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 AO or prior to, or during the
reassessment proceedings, the Assessee was precluded from raising such an
objection in the subsequent stages of the proceedings.
Held by CIT (A)
CIT (A) held that no specific notice was required to be issued
under Section 143(2) of the Act and that questionnaires dated 11th November,
2003 and 21st January, 2004 issued by the AO had provided the Assessee’s
sufficient opportunity to support his return by documentary evidence. Secondly,
it was held that non issue of notice under Section 143(2) did not render the
reassessment invalid.
Held by ITAT
ITAT allowed the appeal of the assessee. ITAT
refer the decision of the Supreme Court in ACIT v. Hotel Blue Moon (2010) 321
ITR 362 and a plethora of judgments of the High Courts and concluded that for
completing the assessment under Section 148 compliance with the procedure under
Section 143 (2) was mandatory. It was held that if notice was not issued to the
Assessee before completion of the re-assessment, then such reassessment was not
sustainable in law.
Held by High Court
It is clear that no notice under Section
143(2) was issued to the Assessee after 16th December 2010, the date on which
the Assessee informed the AO that the return originally filed should be treated
as the return filed pursuant to the notice under Section 148 of the Act.
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 scrutinised by
the AO.
In CIT vs. Rajeev Sharma (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.
In a subsequent judgment in CIT v. Salarpur
Cold Storage (P.) Ltd. (2014) 50 Taxmann.com 105 (All), it was held that 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. Further it was noticed by the Allahabad
High Court that the decision of the Supreme Court in ACIT v. Hotel Blue Moon
(2010) 321 ITR 362 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 (2013) 90 DTR 289 (Mad).
As already noticed, the decision of this Court
in CIT v. Vision Inc. (2012) 73 DTR 201 (Del) 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). 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 AO, in re-assessment 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.
Accordingly, appeal of the revenue dismissed.
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