Naseman Farms Pvt. Ltd., New Delhi vs Department Of Income Tax

Naseman Farms Pvt. Ltd. ITO, C/o. Ravi Gupta, Advocate Ward-13(1), Room No.13(10), D-10, Kailash Colony, Vs. C.R. Building, New Delhi New Delhi

(Appellant) (Respondent)

Appellant by : P. C. Yadav, Adv Rajesh Jain, FCA Respondent by : Sh. P. Dam Kanunjna, Sr. DR

Date of Hearing 09.02.2015 Date of pronouncement 08.04.2015

ORDER PER A. T. VARKEY, JUDICIAL MEMBER

The Revenue has filed the present appeal and the Assessee has filed the Cross Objection against the impugned order dated 30/11/2010 passed by the Ld. Commissioner of Income Tax (Appeals)-XVI, New Delhi for the assessment year 2002-03 on the following grounds:-

2. The Revenue has raised the following grounds in its Appeal:-

"1. That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.50,00, 000/- made u/s 68 on account of income from undisclosed sources being the amount ITA NO. 1175/Del/2011 & CO 174/DEL/2011

shown received as sale consideration of shares from M/s Aayushi Stock Brokers Pvt. Ltd. an identified entry operator.

2. That on the facts and circumstances of the case and in law the learned CIT(A) has erred in deleting the addition of Rs 10,00,000/- made u/s 68 on account of income from undisclosed sources being the amount shown received as refund of share application money from M/s Aayushi Stock Brokers Pvt. Ltd. an identified entry operator.

3. That on the facts and circumstances of the case and in law the learned CIT(A) has erred In deleting the addition of Rs.12,50,000/- made u/s 68 as income from undisclosed sources being the amount shown received as share application money from M/s Aayushi Stock Brokers P. Ltd, an identified entry operator.

4. That on the facts and circumstances of the case and in law the ld CIT(A) has erred in relying upon the paper book filed by the assessee during the course of appeal proceedings without verifying the facts of the case and also erred in holding that the AO has not been able to bring on record any material evidence.

5. That on the facts and circumstances of the case and in law the Ld.CIT(A) has failed to appreciate the entire facts discussed in the assessment order about the modus operandi of M/s Aayushi Stock Brokers P. Ltd.(an established entry operator) from whom the assessee shown to have received an amount of Rs.50.00,000/- as sale consideration of shares, Rs.10,00,000/- as refund of share application money and Rs 12,50,000/- as share application money. Even the learned CIT(A) failed to verify the contention of the assessee from the Balance-Sheet and Annexures of M/s Aayushi Stock Brokers P. Ltd.

6. That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in relying upon the decision given in the case of Lovely Exports (P) Ltd 216 CTR 199 (SC), the AO did not ask the assessee to produce any of the investor shareholders However, in the instant case the notice issued u/s 133(6) to M/s Aayushi Stock Brokers P. Ltd was received back unserved."

3. The Assessee has raised the following grounds in its Cross Objection:-

"1. That the Ld. CIT (Appeal) has erred in law and on facts in holding that the A.O. was justified in invoking the provisions of section 147 when the same are not applicable on the facts of the case and also treating the service of notice. u/s 148 allegedly issued on 31.3.09 on a different address as proper and valid service.

2. That the Ld. CIT (Appeal) has erred in law and on facts in holding that the A.O. was justified in service of notice through affixture despite the fact that there was neither noting in the records made by the Id. AO that the assessee has refused to accept the

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notice nor any report of the notice server / inspector justifying service of notice through affixture.

3. That the ld CIT(Appeal) has erred in law and on facts in holding that the AO was justified in reopening of assessment u/s 147/148 despite the fact that the reopening is not based on proper and correct reasons, is without application of mind and without any material on record or arrive at the conclusion that certain income has escaped assessment at the time of recording of said reasons and without complying with necessary provisions and conditions laid down under the Income Tax Act, 1961.

4. That the ld CIT(Appeal) has erred in law and on facts in holding that the AO has passed a speaking order on the objections raised by the appellant about issuance and service of notice."

4. First we take up the Cross Objection filed by the assessee. The facts in brief are that the return of income declaring income of Rs. 5148/- was filed on 31.10.2002. The case was processed u/s. 143(1) of the Income Tax Act, 1961 (herein after 'the Act'). Thereafter, on the basis of the Investigation Report in the case of the Cosmo Financials, the AO has reopened the assessment of the impugned Assessment Year, vide its notice dated 31.2.2009 under section 148 of the Act. During the course of reassessment proceedings, AO made certain additions on account of earning of commission income and under section 68 of the Act.

5. Against the re-assessment order, Assessee filed an Appeal before the Ld. CIT(A), on the jurisdictional aspects as well as on merits. The CIT(A) vide his impugned order dated 30.11.2010 confirmed the jurisdiction of the AO to re-open the assessment, however, allowed the appeal of the assessee on merits and hence, the present cross-objections has been filed before us.

6. At the time of hearing Ld. Counsel of the assessee Sh P.C. Yadav, raised the additional ground relating to non-service of notice u/s. 143(2) of the Act. Ld. Counsel of the assessee stated that the assessment order has been passed without issuing the notice u/s. 143(2) of the Act. He stated that on a perusal of the impugned reassessed order and the record will clearly show that the AO has not issued the mandatory notice u/s. 143(2) of the Act before completion of the reassessment in dispute. He submitted that the 3 ITA NO. 1175/Del/2011 & CO 174/DEL/2011

assessee has filed his written submissions on this issue before the Ld. First Appellate Authority but he has rejected the said legal ground of the assessee in a routine and casual manner by stating that non-issue of notice u/s. 143(2) of the Act does not render the reassessment invalid. According to him, the said finding of the Ld. CIT(A) is contrary to the settled law on the issue. So, as per him, if the said mandatory notice is not served to the assessee within the prescribed period, the assessment order is invalid, hence, the same deserve to be quashed and section 292BB cannot cure the defect because the AO did not even issued the same.

7. Ld. Counsel of the assessee further stated that there are plethora of judgments passed by the Hon'ble Jurisdictional High Court and the various Hon'ble High Courts and the Tribunal wherein the Hon'ble Courts held that non-service of the notice u/s. 143(2) of the Act, vitiates the reassessment made in such cases. He contended that on this ground the reassessment in dispute as well as the impugned order passed by the Ld. CIT(A) on this limited issue may be declared invalid, void abnitio. In support of his contention ld counsel for the assessee cited following judgments:-

- CIT Vs. Cebon India Ltd. (2012) 347 ITR 583 (P&H)

- CIT vs. Kishan Chand [2010] 328 ITR 173 (P&H High Court)

- ITAT, 'C' Delhi Bench Chandra Agencies vs. ITO in ITA No. 1970/Del/1998) A.Y. 1985-86. Dated 29.8.2003

- ITAT, Amritsar Bench, Bhagwan Dass vs. ITO in ITA No. 92/A,r/1979 asstt. Year 1965-66 dated 7.1.1980

- CIT vs. Vishnu & Co. (P) Ltd. (2010) 230 CTR (Del) 62 (Delhi High Court)

8. On the other hand, the ld. DR relied upon the order passed by the Ld. CIT(A) on this ground and stated that the Ld. First Appellate Authority has passed a well reasoned order on the basis of the records and as per the provisions of law, therefore, the impugned decision of the ld CIT(A)on this 4 ITA NO. 1175/Del/2011 & CO 174/DEL/2011

issue may be upheld by not admitting this additional ground raised by the Assessee which has been raised for the first time before us.

9. We have heard both the parties and perused the relevant records especially the order passed by the Revenue Authorities along with the documentary evidence filed by the assessee attaching therewith the various documentary evidence supporting the claim of the assessee as well as the various decisions rendered by the Hon'ble Supreme Court on the legal issue in dispute. Regarding admission of this additional ground before us, which is challenging the very jurisdiction of the AO to pass the reassessment order, is no longer res-integra and it is well settled that an assessee can raise a legal ground at any stage of the proceedings as held by Apex Court in the case of CIT Vs. Varas International reported in 284 ITR 80(SC) and National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383 (SC)and the Special Bench decision in the case of DHL operators reported in 108 TTJ 152 (SB). Keeping in view the facts and circumstances of the present case and the arguments raised by the ld. counsel, we are of the view that the issue raised in additional ground regarding the non-issuance of notice u/s. 143(2) of the Act which goes to the root of the matter, needs to be admitted and should be taken up first and decided, so we will adjudicate this issue

10. A perusal of the assessment order reveals that return of income declaring income of Rs.5,148/- was filed on 31.10.2002. The case was processed u/s 143(1) of the Act. Subsequently, it was noticed from the record that the assessee company was incorporated on 23.12.1997 and the share capital has increased by Rs.60,00,000/- during the assessment year under consideration and information was received from the Assistant Director of Income Tax (Investigation), Unit-1, Agra that the assessee company is also one of the beneficiaries of accommodation entries receiver from certain established entry operators (i.e. M/s Cosmos Financial (M/s Aayushi Stock Brokers P. Ltd (M/s Aayush in short) identified by the investigation Wing of Agra, relevant to assessment year 2002-03 and the assessee is shown to have

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received unexplained sums/ accommodation entry from the alleged entry operators.

11. Thereafter, the AO served notice u/s 148 of the Act on 31.03.2009 and since no return was filed in response to the said notice, another notice dated 09.10.2009 u/s 142(1) along with detailed questionnaire was issued on 04.11.2009 and reasons recorded to reopen were given to the assessee. There we find that a show-cause notice was sent by the AO on 27.11.2009 and notice u/s 133(6) to the assessee's bank on 15.11.2009. Assessee filed its objection to re-open to assessment. Then we find that AO on 04.12.2009 issued notice u/s 142(1) along with show cause notice for compliance of assessment proceedings u/s 144 of the Act was issued. And we find that on 31.12.2009 AO passed the assessment u/s 147 read with section 143(3) and has not disposed off the objections of the assessee in respect to reopening as mandated by the Apex court. It has been brought our notice that notice u/s 148 dated 31.03.2009 was send on a wrong address, which came back to the AO with the postal remark 'left'. However notice u/s 142(1) of the Act dated 09.10.2009 was issued at the correct address. The ld counsel of the assessee Adv P.C. Yadav inspected the file of the assessee at the AO's office on 04.10.2012 and found that the reassessment was framed without issuance of notice u/s 143(2) of the Act and has raised this additional legal ground before us, which reads as under :

" The order of the ld AO is legally not tenable and the same is void-ab- initio as the same has been passed without issuing and service of any notice of 143(2) of the Act before the completion of assessment under section 147/143(3) of the Act.

12. In order to examine whether it is mandatory to issue notice u/s 143(2)

we have to read sec. 148 of the Act. Section 148 stipulates that any return

filed in response to the said notice, the provisions of Act shall apply as if such

return was filed as required u/s 139 of the Act. The first proviso and second

proviso to section 148 cures the defect in not serving 143(2) notice within

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specified period i.e. from 01.10.1991 to 30.09.2005. So the legislative intent is

clear that during section 148 proceeding the notice u/s 143(2) shall be issued

before the completion of assessment proceeding even though it is served

beyond the prescribed time limit prescribed u/s 143(2) of the Act. Further, the

explanation to section 148(1) clarifies that serving of notice u/s 143(2) is

mandatory in respect of returns filed on or after 1st October 2005, since it is

clarified that the first and second proviso to section 148(1) has no application

on or after 1st October 2005 onwards. In the instant case the first & second

proviso has no application and a reading of section 143 of the Act,

contemplates two circumstances i.e. when return is filed u/s 139 and return

filed in response to notice u/s 142(1), the said return should be processed in

the manner prescribed u/s 143 of the Act.

13. Now, in this case notice u/s 148 & 142(1) was issued and the assessee

in response to 142(1) notice has submitted that its original return filed on

31.10.2002 vide receipt no. 2591 be treated as the return filed u/s 142(1)

notice. Once return has been filed pursuant to notice u/s 142(1), thus the

provision of Sec. 143(2) namely issuance of notice for scrutiny gets triggered,

so that assessee is given an opportunity to produce its books of accounts,

other documents before the AO and assessment can be completed u/s

143(3) of the Act. The issuance of notice u/s 143(2) within the statutory time

limit is mandatory and issuance of the said notice is mandatory as held by the

Hon'ble Delhi High Court in the case of Alpim Electrance Asian Ptc Ud Vs DCIT

& Ors 341 ITR 247, and as held by the Hon'ble Apex Court in the case of ACIT

Vs. Hotel Blue Moon (2014) 321 ITR 362 (SC) and since the assessing authority 7 ITA NO. 1175/Del/2011 & CO 174/DEL/2011

did not issue notice u/s 143(2) before framing assessment order, the said

defect cannot be said to be a procedural irregularity and the same is not

curable defect even u/s 292 BB which could have cured the said defect

provided the notice u/s 143(2) was issued but not served on the assessee.

Here in this case we find that the AO has not issued notice u/s 143(2) which is

mandatory, before scrutiny assessment is done.

14. In the instant case, on 04.11.2009, the AR appeared before the AO in

response to notice u/s 142(1) of the Act and filed its return of income

originally filed dated 31.10.2002 and has submitted before the AO to treat

the same as return in response to notice issued u/s 148 and 142(1) of the Act.

Therefore the AO should have issued notice u/s 143(2) to proceed further and

before embarking upon the scrutiny assessment of the assessee. Issuance of

notice u/s 143(2) is sine qua non for concluding assessment as envisaged u/s

143(3) of the Act. Sec. 292 BB cannot come to the rescue of the AO or the

impugned assessment order, because issuance of notice u/s 143(2) was

mandatory and in a given case where sec-143 (2) notice was found to have

been issued however not served upon the assessee then in such a scenario

sec. 292BB could have saved the situation. The Ld. DR could not controvert

this factual aspect after going through the assessment records. So in the light

of the inspection conducted by the ld counsel for the assessee and the

inability of the DR to controvert the fact in issue we find that the AO has not

issued notice u/s 143(2) of the Act.

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15. In the light of the above, we are of the view that the AO has not issued

notice u/s. 143(2) of the Act which is mandatory. We are also of the view

that in completing the assessment u/s. 148 of the Act, compliance of the

procedure laid down u/s. 142 and 143(2) is mandatory. As per record, we find

that there was no notice issued u/s. 143(2) of the Act which is very much

essential for reassessment and it is a failure on the part of the AO for not

complying with the procedure laid down in section 143(2) of the Act. If the

notice is not issued to the assessee before completion of the assessment, then

the reassessment is not sustainable in the eyes of law and deserves to be

cancelled. In view of above facts and circumstances of the present case,

the issue in dispute raised in additional ground relating to non issue of the

mandatory notice u/s. 143(2) of the Act is decided in favour of the assessee

and we hold that the impugned assessment order dated 31.12.2009 passed

u/s. 147/143(3) of the Act by the AO as invalid. Our view is supported by the

various judgments of the Hon'ble Supreme Court, and Hon'ble Jurisdictional

High Court. The relevant portion of the head- notes of various judgments of

the Hon'ble Courts are reproduced as under:-

"ACIT & Anr. vs. Hotel Blue Moon: [(2010) 321 ITR 362 (SC)] HELD: "It is mandatory for the AO to issue notice u/s 143 (2). The issuance and service of notice u/s 143 (2) is mandatory and not procedural. If the notice is not served within the prescribed period, the assessment order is invalid Reassessment-----Notice----

-Assessee intimating original return be treated as fresh return--- Reassessment proceedings completed despite assessee filing affidavit denying serviced of notice under section 143(2)---- Assessing Officer not representing before Commissioner (Appeals) that notice had been issued---- Reassessment order invalid due to want of notice under section 143(2)--- Income-tax

9 ITA NO. 1175/Del/2011 & CO 174/DEL/2011

Act, 1961, ss. 143, 147, 148(1), prov.----ITO v. R.K. GUPTA [308 ITR 49 (Delhi)Tribu.,"

CIT vs. Vishu & Co. Ltd. In ITA No. 470 of 2008 (2010) 230 CTR (Del) 62 Assessment - validity - Non Service of notice under section 143(2) within time - Notice served on the last date after office hours by affixture as no authorized person was present at assessee's premises - is not a valid service of notice - Assessment framed in pursuance of such notice is not valid - It is immaterial that the assessee appeared in the proceedings."

CIT Vs. Cebon India Ltd. (2012) 347 ITR 583 (P&H)

5. We find that concurrent finding has been recorded by the CIT(A) as well the tribunal on the question of date of service of notice. Notice was not served within the stipulated time. Mere giving of dispatch number will not render the said finding to be perverse. In absence of notice being served, the AO had no jurisdiction to make assessment. Absence of notice cannot be held to be curable under s 292BB of the Act.

CIT Vs.Mr. Salman Khan, ITA No.508 of 2010

1. In the present case, reassessment order passed under section 143(3) r/w 147 of the Income Tax Act, 1961 is held to be bad in law in view of the fact that the assessing officer has not issued notice under section 143(2) after issuing notice under section 148 of the Income Tax Act, 1961. This Court in the case of The Commissioner of Income Tax Vis. Mr. Salman Khan [Income Tax Appeal No.2362 of 2009)decided on 1st December, 2009 has considered similar question and has held that in the absence of notice under section 143(2) (prior to the insertion of section 292BB), the reassessment order cannot be sustained. In the present case, the reassessment year involved relates to the period prior to the insertion of Section 292BB. In this view of the matter, the appeal is dismissed with no order as to costs.

DCIT Vs. M/s Silver Line, ITA No.1809,1504,1505 & 1506/Del/2013

vii. The Hon'ble ITAT of Agra Bench, in the case of ITO v. Aligarh Auto Centre reported in 152 TTJ (Agra) 767, on an identical issue that of the present issue, has recorded its findings as under:

"5. We have considered the rival submissions and the material on record. It is not in dispute that the assessee filed original return of income and at the reassessment proceedings, the assessee contended before the AO that the original return filed earlier may be treated to have been filed in response to the notice u/s. 10

ITA NO. 1175/Del/2011 & CO 174/DEL/2011

147, which is also supported by order sheet entry dated 09.08.2006 (PB-20). It is also not in dispute that AO never issued any notice u/s. 143(2) of the IT Act. The Revenue merely contended that the CIT (A) should have appreciated the provisions of section 292BB of the IT Act. Section 292 BB of the IT Act provides as under:

"292BB. 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."

The above provision has been inserted by the Finance Act, 2008 w.ef. 01.04.2008. ITAT, Delhi Special Bench in the case of Kuber Tobacco Product Pvt. Ltd. vs. DCIT, 117ITD 273 held that section 292BB has been inserted by Finance Act, 2008, has no retrospective effect and is to be construed prospectively. The assessment order under appeal is 2001-02.

Therefore, the provision of section 292BB of the IT Act would not apply in the case of the assessee. Further, no notice u/s. 143(2) has been issued or served upon the assessee. Therefore, the decision of Hon'ble Punjab & Haryana High Court in the case of Cebon India Ltd. (supra) squarely applies against the revenue. It was held in this case that absence of notice is not curable defect u/s. 292BB of the IT Act. Considering the above discussion and the case laws cited above, the sole objection of the Revenue is not maintainable. Therefore, the Id. CIT (A) was justified in setting aside the entire assessment order. We, therefore, do not find any infirmity in the order of the Id. CIT (A) for interference. "

(v) The Hon'ble Mumbai Bench of the ITAT has, in the case of Sanjeev R Arora v. ACIT [IT (SS)A No.103/Muml2004 dated 25.7.2012], recorded its findings as under.

"Even, the irregularity in proper service of notice which can be treated as curable under section 292B of the Income-tax Act is only in the cases where the notice under section 143(2) was issued properly and within the period of limitation and the assessee did not raise any objection regarding the service of the notice during the assessment proceedings and also participated

11 ITA NO. 1175/Del/2011 & CO 174/DEL/2011

in the assessment proceedings then at a later stage the assessee is precluded from raising such objection. Therefore, the provisions of section 292B are not applicable in the case where the assessing officer has not at all issued notice under section 143 (2) within the period as prescribed."

7.9. Taking into account the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also in views of the judicial pronouncements (supra), we are of the view that the re- assessment's made for the assessment years under consideration have become invalid for not having served the mandatory notice u/s 43(2) of the Act on the assessee. It is ordered accordingly.

7.10 We have since decided that the re-assessment proceedings concluded u/s 147 r/w 143(3) of the Act were invalid for the AYs under dispute, the issues raised by the revenue in its appeals and also the Cross objections of the assessee firm based on the invalid assessment orders have not been addressed to."

16. In the backdrop of the aforesaid discussions and precedents relied

upon, we find that the AO has not issued the notice u/s 143(2) of the Act in

this case before completing the scrutiny assessment, therefore the impugned

assessment order before us is invalid, void abnitio and so the impugned order

is not sustainable in the eyes of law and hence, we cancel the same by

allowing the additional ground raised in the cross objection filed by the

Assessee on this issue.

17. In the result, the Cross Objection filed by the Assessee is allowed. Since the assessment order is held to be void abnitio, the other grounds raised by the assessee in the Cross Objection have become academic in nature, hence, the same are not being adjudicated upon.

18. As we have already quashed the impugned order of the Assessing Officer and allowed the Cross Objection of the assessee, the Appeal of the Revenue has become infractuous; hence, the same is dismissed.

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19. In the result, the Cross Objection filed by the assessee stands allowed and Appeal filed by the Revenue stands dismissed.

Order pronounced in the open court on 08.04.2015.

-Sd/- -Sd/- (S. V. MEHROTRA) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:08/04/2015

A K Keot

Copy forwarded to

1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

Date 1. Draft dictated on 24.02.2015 PS 2. Draft placed before author 28.02.2015 PS 3. Draft proposed & placed before the second JM/AM member 4. Draft discussed/approved by Second JM/AM Member. 5. Approved Draft comes to the Sr.PS/PS 08.04.2015 PS/PS 6. Kept for pronouncement on PS 7. File sent to the Bench Clerk 08.04.2015 PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.

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