Income Tax Appellate Tribunal - Jaipur
Mangala Product Private Limited, ... vs Acit, Jaipur on 23 December, 2019
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH 'A', JAIPUR
Jh fot; iky jkWo] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k
BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 347/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2007-08.
M/s. Mangala Ispat (Jaipur) Ltd., cuke The ACIT,
B-234, Road No. 9, VKI Area, Vs. Circle-4,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AABCM 2067 P
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 348/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2007-08.
M/s. Mangala Product Pvt. Ltd., cuke The ACIT,
B-235, Road No. 9, VKI Area, Vs. Circle-4,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AACCM 1206 F
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@Assessee by : Shri Vedant Gupta (Advocate) &
Shri Satish Gupta (CA)
jktLo dh vksj ls@ Revenue by : Ms. Chanchal Meena (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 17.12.2019.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 23/12/2019.
vkns'k@ ORDER
PER VIJAY PAL RAO, J.M.
These two appeals by two connected assessees (group concerns) are directed against two separate orders of ld. CIT (A) both dated 30.03.2017 arising from the common facts for the assessment year 2007-08. Therefore, both these appeals are 2 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
clubbed together for the purposes of hearing and disposal. For the purpose of recording the facts, the appeal in case of M/s. Mangala Product Pvt. Ltd. in ITA No. 348/JP/2017 is taken as lead case wherein the assessee has raised the following grounds :-
1. On the facts & circumstances of the case and in law also Ld A.O. grossly erred in reopening the assessment by invoking the provisions of section 147 of the Act without having any material forming the belief of escapement of Income. Ld CIT (A) also erred in confirming the same.
1.1 On the facts & circumstances of the case and in law also Ld A.O. grossly erred in initiating reassessment proceedings simply on the basis of information received from Inv. Wing, Mumbai without independent application of mind.
1.2 On the facts & circumstances of the case and in law also Ld A.O. grossly erred in initiating reassessment proceedings mechanically without giving copy of satisfaction recorded by superior authority on the approval in regards to escapement of income by the assessee.
1.3 On the facts & circumstances of the case and in law also Ld A.O. grossly erred in initiating reassessment proceedings even without having copy of statements & details at the time of recording reasons. 1.4. On the facts & circumstances of the case the notice issued u/s 148 is time barred as the notice was issued after expiry of 4 years ignoring the fact that no allegation in the reasons have been made that some material facts were not disclosed fully and truly by the assessee as prescribed in first proviso to section 147 of the Act.
2. On the facts & circumstances of the case & in law also Ld. A.O. grossly erred in passing the order on 22/03/2015 i.e. only after 9 days from the date of rejection of preliminary objections by Ld A.O. As per para 2.4 at page 5 of the assessment order the preliminary objections were rejected on 13.03.2015.
3. On the facts & circumstances of the case and in law also Ld A.O. grossly erred in framing the assessment without issuing notice u/s 143(2) to the assessee. On 30/05/2014 no notice u/s 143(2) was issued. Ld CIT (A) grossly erred in rejecting this ground by relying 3 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
only on the mention of Ld A.O in the assessment order, ignoring the remand report that copy of notice is not available in record and fact that no notice u/s 143(2) has been issued in this case.
4. On the facts & circumstances of the case & in law also Ld. A.O. grossly erred in not providing the opportunity of cross examination of Praveen Kumar Jain and even full copy of his statements to the assessee on the logic that it is the responsibility of assessee company to prove cash credit ignoring the fact & law that since reopening was made by the department on the basis of that alleged statement, therefore it was duty of Ld A.O. to provide the opportunity of cross examination. We rely on Hon'ble Supreme Court the case of Kishan Chand Chelaram 125 ITR 713(SC) & on the case of Andman Timber Industries in appeal no 4228 of 2006 (SC). Ld CIT (A) also erred in confirming the A.O's order in this respect.
5. On the facts & circumstance of the case & in law also Ld. A.O. grossly erred in making addition of Rs. 45, 00,000/- u/s 68 of the Income Tax Act, 1961 simply on assumptions, & presumption, surmises & conjectures ignoring the following facts:-
(i) That no where the name of Assessee company has been stated by Praveen Kumar Jain.
(ii) That the assessee company has no relation with Praveen Kumar Jain.
(iii) That the assessee company has proved all the three ingredients i.e., identity, genuineness of the transaction and credit worthiness beyond doubt and there is no material before Ld A.O. to prove them wrong except alleged statements.
(iv) That the assessee company has also allotted shares of the company to the applicants, which is not possible in case of any name lender.
(v) That Ld A.O. did not consider the detailed replies filed by the assessee.
6. On the facts & circumstances of the case and in law also Ld. A.O. grossly erred in not considering the retraction of Sh. Praveen Kumar jain through an affidavit and Sh. Praveen Kumar jain was not cross examined by the department thereafter. Therefore reliance on rebutted statements is unlawful."
4
ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
In ground no. 3 which is also common in both the appeals, the assessee has challenged the validity of reassessment framed by the AO without issuing a notice under section 143(2) of the IT Act.
2. The ld. A/R of the assessee has submitted that the assessee filed its return of income under section 139(1) of the IT Act on 26.10.2007 declaring loss of Rs. 35,81,940/-. The original assessment was completed under section 143(3) of the IT Act on 1st December, 2009 on total loss of Rs. 23,31,940/-. Thereafter, the AO initiated the proceedings under section 147/148 by issuing notice under section 148 on 27th March, 2014 on the reason that as per the information received from the Investigation Wing, Mumbai it was found that the assessee has received accommodation entries in the shape of share application money from the entities controlled and managed by Shri Praveen Kumar Jain. The assessee filed its return of income in response to notice under section 148 on 22nd April, 2014 declaring the same income as declared in the return of income filed under section 139(1) of the IT Act. The AO has completed the reassessment without issuing notice under section 143(2) of the Act. He has submitted that though the AO has mentioned in the assessment order that notice under section 143(2)/142(1) of the Act was issued on 30th May, 2014, however, no such notice was issued by the AO or received by the assessee. Even the ld. CIT (A) called for a remand report from the AO on this point and the AO has admitted the fact that there is no notice under section 143(2) available on record. Thus the ld. A/R has submitted that the assessment framed by the AO without issuing the notice under section 143(2) is invalid and liable to be 5 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
quashed for want of jurisdiction. In support of his contention, he has relied upon the following decisions :-
Principal CIT vs. Silver Line 383 ITR 455 (Delhi) CIT vs. Cebon India Ltd.
347 ITR 583 (P&H) ACIT vs. Hotel Blue Moon 321 ITR 362 (SC) CIT vs. Laxman Das Khandelwal 108 taxmann.com 183 (SC) PCIT vs. Kamla Devi Sharma Dated 10th July, 2018 in DBIT Appeal No. 197/2018 (Raj.) M/s. Kaizen Organics Pvt. Ltd. vs. ACIT (In ITA No. 834/JP/2017 dated 19.12.2018.
Thus the ld. A/R has contended that the notice under section 143(2) is mandatory requirement for completing the scrutiny assessment under section 143(3). It is not a procedural irregularity, and omission to issue the notice is not a curable defect. Therefore, the notice under section 143(2) is a jurisdictional condition and in the absence of notice, the assessment framed by the AO is a nullity.
3. On the other hand, the ld. D/R has submitted that the AO has given the date of notice issued under section 143(2) as well as under section 142(1) of the Act. The assessee has never raised any objection regarding the service of the notice during the assessment proceedings and has duly participated in the proceedings before the AO, therefore, the asessee cannot be allowed to raise this objection after completion of the assessment. The ld. D/R has also produced the assessment record and submitted that though on the assessment record notice under section 6 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
143(2) is not available, however, the official copy of notice under section 142(1) is available on record. Thus the ld. D/R has contended that when both the notices were issued on the same date and one notice under section 142(1) is available on record, then the notice under section 143(2) issued on the same date cannot be disputed. She has relied upon the orders of the authorities below.
4. We have considered the rival submissions as well as the relevant material on record. The ld. D/R has produced the assessment record as directed by the Bench and after verification of the assessment record, the ld. D/R has fairly admitted this fact that there is no notice available on record issued under section 143(2) of the Act, however, notice under section 142(1) dated 30th May, 2014 is available on record. The ld. D/R has also admitted that there is no proceeding recorded by the AO regarding the notice issued under section 143(2) and the proceedings were recorded by the AO only from the month of August, 2014 and not prior to that. We find that the AO has stated in para 2.2 of the assessment order as under :-
" Notice under section 143(2)/142(1) of the Act was issued on 30.05.2014 "
This statement of the AO in the assessment order is recorded only at the time of passing the assessment order and does not lead to the conclusion that the notice under section 143(2) was actually issued by the AO when there is no record of issuing the said notice either in the form of proceeding sheet or any evidence of sending the notice under section 143(2) to the assessee. The department has not produced any record showing that the notice under section 143(2) was actually sent 7 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
by the AO either through registered post or any other mode. Therefore, the mere mention of the notice under section 143(2)/142(1) of the Act would not ipso facto prove the fact that the notice was actually issued by the AO. Except this one narration in the assessment order, there is no material or any other evidence available on the assessment record including any proof of sending the notice in the shape of postal receipt or dispatch register to show that the notice under section 143(2) was issued by the AO. It appears that at the time of passing the assessment order when the AO realized this defect of not issuing notice under section 143(2) of the Act, he has just mentioned that notice under section 143(2)/142(1) was issued on 30th May, 2014. Therefore, stating a notice under section 143(2) with notice under section 142(1) in the assessment order without actually issuing any notice under section 143(2) would not satisfy the mandatory condition of such notice to be issued by the AO within the period of limitation provided under section 143(2) of the Act. Hence we find that there is no notice issued by the AO under section 143(2) in the case of the assessee. The AO has not stated anything about the issuance of notice under section 143(2) in the proceeding sheet of the assessment record which gives the details of the proceedings conducted by the AO in chronological order. Thus the AO did not issue any notice under section 143(2) prior to completion of reassessment in the case of the assessee. The notice under section 143(2) is a mandatory requirement and gives the jurisdiction to the AO to proceed with the scrutiny assessment. It is a jurisdictional condition and in the absence of the notice under section 143(2), the order passed by the AO is invalid for want of jurisdiction. Once the assessee has filed the return of income in response to notice under section 8 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
148, then the notice under section 143(2) is a mandatory jurisdictional requirement for taking up the return of income under scrutiny. The Hon'ble Supreme Court in case of ACIT vs. Hotel Blue Moon (supra) while considering the requirement of notice under section 143(2) in block assessment proceedings, has held in para 15 to 18 as under :-
"15. We may now revert back to Section 158 BC(b) which is the material provision which requires our consideration. Section 158 BC(b) provides for enquiry and assessment. The said provision reads "that the assessing officer shall proceed to determine the undisclosed income of the Block period in the manner laid down in Section 158 BB and the provisions of Section 142, sub- section (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply." An analysis of this sub section indicates that, after the return is filed, this clause enables the assessing officer to complete the assessment by following the procedure like issue of notice under Sections 143(2)/142 and complete the assessment under Section 143(3). This Section does not provide for accepting the return as provided under Section 143(i)(a). The assessing officer has to complete the assessment under Section 143(3) only. In case of default in not filing the return or not complying with the notice under Sections 143(2)/142, the assessing officer is authorized to complete the assessment ex- parte under Section 144. Clause (b) of Section 158 BC by referring to Section 143(2) and (3) would appear to imply that the provisions of Section 143(1) are excluded. 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 other important feature that requires to be noticed is that the Section 158 BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the assessing officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This Section even speaks of subsections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the assessing officer, if for any reason, repudiates the return filed by the assessee in response to notice under Section 9 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
158 BC(a), the assessing officer must necessarily issue notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of Section 158 BC(b) it has done so specifically. Thus, when Section 158 BC(b) specifically refers to applicability of the proviso thereto cannot be exclude. We may also notice here itself that the clarification given by CBDT in its circular No.717 dated 14 August, 1995, has a binding effect on the department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158 BC, the provisions of Section 142 and sub-sections (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act. However, it is contended by Sri Shekhar, learned counsel for the department that in view of the expression "So far as may be" in Section 153 BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable. In support of that contention, the learned counsel has relied on the observation made by this Court in Dr. Pratap Singh's case [1985] 155 ITR 166 (SC). In this case, the Court has observed that Section 37(2) provides that "the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under Section 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in Section 165 has to be generally followed. The expression "so far as may be"
has always been construed to mean that those provisions may be generally followed to the extent possible. The learned counsel for the respondent has brought to our notice the observations made by this Court in the case of Maganlal Vs. Jaiswal Industries, Neemach and Ors., [(1989) 4 SCC 344], wherein this Court while dealing with the scope and import of the expression "as far as practicable" has stated "without anything more the expression `as far as possible' will mean that the manner provided in the code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied."
16. The case of the revenue is that the expression 'so far as may be apply' indicates that it is not expected to follow the provisions of section 142, sub- sections (2) and (3) of section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the revenue, since we do not see any reason to restrict the scope and meaning of the expression 'so far as may be apply'. In our view, where the Assessing Officer in repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143.
17. Section 158BH provides for application of the other provisions of the Act. It reads : "Save as otherwise provided in this Chapter, all the other provisions of this Act shall apply to assessment made under this Chapter". This is an enabling provision, which makes all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment. The 10 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
provisions which are specifically included are those which are available in Chapter XIV-B of the Act, which includes section 142 and sub-sections (2) and (3) of section 143.
18. On a consideration of the provisions of Chapter XIV-B of the Act, we are in agreement with the reasoning and the conclusion reached by the High Court."
The Hon'ble Apex Court has held that the notice under section 143(2) is a mandatory condition and cannot be dispensed with and omission on the part of the AO to issue notice under section 143(2) cannot be a procedural irregularity and same is not curable. A similar view has been taken by the Hon'ble Supreme Court in case of CIT vs. Laxman Das Khandelwal (supra) and held in para 9 and 10 as under
:-
"9. According to Section 292BB of the Act, if the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee. It is, however, to be noted that the Section does not save complete absence of notice. For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself.
10. Since the facts on record are clear that no notice under Section 143(2) of the Act was ever issued by the Department, the findings rendered. by the High Court and the Tribunal and the conclusion arrived at were correct. We, therefore, see no reason to take a different view in the matter."
Thus section 292BB of the Act can be pressed into service only when the notice is issued by the AO but the service of the same is disputed by the assessee after completion of the assessment. Therefore, we do not find any force in the contention of the ld. D/R that the assessee has participated in the proceedings and did not raise 11 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
any objection because in the case in hand what is absent is the issuance of notice under section 143(2) of the Act and not the service of the notice issued by the AO. The provisions of section 292BB can be invoked only in case where notice is duly issued by the AO under section 143(2) but the service of the said notice is disputed by the assessee after completion of the assessment and after participation in the assessment proceedings. Therefore, in such cases where the assessee has participated in the assessment proceedings in response to notice under section 143(2), the assessee is not allowed to take objection of service of the notice issued under section 143(2) after completion of assessment. It is a case of non issuance of notice under section 143(2), therefore, the initiation of proceedings itself was without jurisdiction conferred by the provisions of section 143 of the Act. The Hon'ble Delhi High Court in case of PCIT vs. Silver Line (supra) has again considered this issue in para 18 to 20 as under :-
"18. The wording of Section 143(2)(ii) of the Act, which is applicable in the present case, requires the AO to be satisfied on examining the return filed that prima facie the Assessee has "understated the income" or has "computed excessive loss" or has "underpaid the tax in any manner". The AO has the discretion to issue a notice under Section 143 (2) if he considers it "necessary or expedient" to do so. This exercise by the AO under Section 143 (2) of the Act is qualitatively different from the issuance of a notice under Section 142(1) of the Act, which as noted hereinbefore, is in a standard proforma.
19. The Court is unable to accept the submission of the Revenue that in the present case, no return was filed by the Assessee pursuant to the notice issued to it under Section 148 of the Act. If after receiving the letter dated 1st April 2011 of the Assessee the AO was of the view that the return originally filed in the Saral Form could not be treated as the return pursuant to the notice under Section 148 of the Act, then he should have drawn the attention of the Assessee to that fact. In the present case all that the AO did was to send a notice under Section 142 (1) of the Act. The Assessee was not made aware as to why he was required to file a return. Had a notice been issued to him under Section 143 (2) of the Act, the AO would have been obliged to let the 12 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
Assessee know why he was being asked to file a return notwithstanding his letter dated 1st April 2011. In the circumstances, the Assessee was justified in proceeding on the basis that it had not committed any default in communicating to the AO that the return already filed should be treated as the return filed pursuant to the notice under Section 148 of the Act.
20. The proposal to reopen an assessment under Section 147 of the Act is to be based on reasons to be recorded by the AO. Such reasons have to be communicated to the Assessee. However, merely because the Assessee participates in the proceedings pursuant to such notice under Section 148 of the Act, it does not obviate the mandatory requirement of the AO having to issue to the Assessee a notice under Section 143(2) of the Act before finalising the order of the reassessment."
In view of the above facts and circumstances where the reassessment was completed without issuing a notice under section 143(2), then the reassessment order is not sustainable in law and the same is invalid. Hence, following the binding precedents of Hon'ble Supreme Court as well as the Hon'ble High Courts as referred above, we quash the impugned reassessment order passed by the AO. The reassessment orders passed by the AO in both the cases are based on identical facts and we find that there is no notice under section 143(2) in the other connected appeal in ITA No. 347/JP/2017 and the AO has made identical statement being notice under section 143(2)/142(1) of the Act was issued on 30th May, 2014. However, from the assessment record it is clear that no such notice was found to be issued as nothing is recorded in the proceeding sheet about such notice, nor any other record showing any notice under section 143(2) was actually sent by the AO to the assessee. Accordingly both the reassessment orders passed by the AO without issuing notice under section 143(2) are invalid and quashed.
5. Though the assessee has also raised legal grounds regarding validity of initiation of proceedings under section 147/148 of the Act and has placed reliance on 13 ITA Nos. 347 & 348/JP/2017 M/s. Mangala Ispat (India) Ltd & M/s. Mangala Product Pvt. Ltd., Jaipur.
various judgments in support of the contention, however, since we have quashed the reassessment orders on the issue of non issuance of notice under section 143(2), therefore, we do not propose to go into the other legal issue as well as the grounds raised on the merits of the addition.
6. In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on 23/12/2019.
Sd/- Sd/-
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(Vikram Singh Yadav) (VIJAY PAL RAO)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 23/12/2019.
das/
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant-M/s. Mangala Ispat (Jaipur) Ltd., Jaipur & M/s. Mangla Product Pvt. Ltd., Jaipur.
2. izR;FkhZ@ The Respondent-The ACIT Circle-4, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File {ITA No. 347 & 348/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar