A reassessment order is a nullity without a valid Section 143(2) notice.

ORDER

Manish Agarwal, Accountant Member. – The captioned appeal of the assessee is directed against the order of Commissioner of Income Tax (Appeals), NFAC, Delhi, [“Ld. CIT(A)”] u/s 250 of the Act, dated 21.02.2024 for the Assessment Year 2012-13, arising from the assessment order passed by Income Tax Officer 58(8), New Delhi u/s 147/143(3) of the Act, dated 30.12.2019.

2. The brief facts of the case are that the assessee filed original return of income on 28.09.2012 for AY 2012-13, declaring total income of Rs.5,55,300/-. Based on the information received from Investigation Wing that assessee deposited foreign currency in bank account, number of which was large but each deposit was smaller than 5000 USD which was within the customs declaration threshold. Therefore, the case was reopened and assessment u/s 143 r.w.s 147 was completed by making an addition of Rs.1,52,91,550/- u/s 68 of the Act to the income of the assessee.

3. Against such order, an appeal was filed before the ld. CIT(A) who dismissed the appeal of the assessee.

4. Aggrieved by the said order of ld. CIT(A), assessee is in appeal before us and filed the following concise grounds of appeal:

1. “That the jurisdictional LD.AO has-erred, both in law and in facts, by assuming wrong jurisdiction in reopening the assessment, to issue notice under section 148, which is wholly without jurisdiction, thus reopening was bad in law and procedure, on all the parameters, laid down under the Act.

2. That the, Id. AO erred both in law and on the facts in not complying with the mandatory provisions of law & procedure laid down u/s 147 to 153 and in violation of infringement of mandatory applicable binding CBDT instructions/circulars etc, in relation to both reopening u/s 148 and reassessment, thus reassessment was bad in both law and procedure.

3. That the Id. AO erred both in law and on the facts in not supplying “Reason to believe” to the assesse, as per the mandate of Apex Court in GKN Driveshaft (India) Ltd. v. ITO, (2003) 259 ITR 19 (SC) and in compliance of Delhi High Court in Sabh Infrastructure 398 ITR 198, thus reassessment was bad in both law and procedure.

4. That the jurisdictional LD.AO had erred, both in law and in facts, in not jurisdictional notice u/ s 143(2), thus reassessment was bad in both law and procedure.

5. That the jurisdictional LD.AO has erred, both in law and in facts, by passing the impugned order u/s147/143(3), which was in totally arbitrary manner & without due application of mind, without making proper enquiry/investigation, in so far impugned additions are concerned, was wholly without jurisdiction, erroneous, illegal and against the principles of natural justice and equity as well as the well settled laws of the land, thus whole assessment was bad in law and in procedure, on all the parameters, laid down under the Act, thus was void-ab-initio and liable to be quashed.

6. That the jurisdictional LD.AO has erred, both in law and in facts, by passing impugned assessment order in violation of constitutional provisions of Art. 14 and Art. 265 and is against Real Income theory, thus assessment was bad in both law and procedure.

7. That the jurisdictional LD.AO has erred, both in law and in facts, by not following the “Rule of Consistency uniformity, predictability and certainty ” and against “Real Income Theory”, thus whole assessment was bad in law and in procedure is void-ab-initio and liable to be quashed.

8. That the jurisdictional LD.AO has erred, both in law and in facts to made the addition, in totally perverse manner, without issuing proper show cause notice before making the addition u /s 68 made to returned income are concerned, which is wholly without jurisdiction, thus assessment was bad in law and procedure, on all the parameters, laid down under the Act.

9. That the jurisdictional LD.AO has erred, both in law and in facts, by failed to carry out proper investigation and field inquiry so as to verify whether the cash deposit in foreign currency during the year have been duly recorded in the books of accounts or not or to verify the identity and existence of the cash deposit in foreign currency during the year (within the limit of RBI Guidelines for relevant year), there was bad both in law and procedure laid down under the Act.

10. That the jurisdictional LD.AO has erred, both in law and in facts, without considering/appreciating the facts and circumstance of the case and in law the LD.AO was incorrect and unjustified in holding that the amount of Rs. 1,52,91,550/- deposited in the bank account by way of foreign currency was not explained, on account of foreign currency received on account of sale proceeds and also from the debtors and the LD.AO was incorrect and unjustified in treating the amount of Rs. 1,52,91,550/- as income on the basis of Borrowed satisfaction, doubt and suspicion and without bringing any material on record to prove that submission made by the assessee in respect of the amount was wrong or incorrect, thus assessment was bad in both law and procedure.

11. That the jurisdictional LD.AO has erred, both in law and in facts, without considering/appreciating the facts and circumstance of the case and in law the LD.AO was incorrect and unjustified in treating the amount of Rs.1,52,91,550/- as income u/s 68 even when all the three conditions necessary for satisfaction u/s 68 has been satisfactorily explained, thus assessment was bad in both law and procedure.

12. That the LD.AO had erred, both in law and in facts, by taxing the Amount deposited in the bank account by way of foreign currency received on account of sale proceeds and also from the debtors, without the mandate of law, in relation to tax rate, thus reassessment was bad in both law and procedure.

13. That the jurisdictional LD.AO has erred, both in law and in facts, by chargeability of interest under section 234A and 234B of the Act are bad in law. The Authority below is directed to alter, modify or delete the same in accordance with law, there was bad both in law and procedure laid down under the Act.

14. That the Appellant craves leave to add, amend, alter, vary and/or withdraw any or all the grounds of appeal either before or at the time of hearing of appeal.

It is therefore prayed that the order of CIT(A) may be please upheld and/or any other relief may be given which your honor may deem fit be also allowed in the interest of Justice.”

5. Before us, the ld. AR of the assessee first argued on the Ground of appeal No. 4 where the validity of the assessment order is challenged on the ground that no notice u/s 143(2) was issued after filing of return of income in response to notice u/s 148 of the Act.

6. At the outset, Ld. AR on behalf of the assessee submitted that in the present case the assessment was framed u/s 147 /143(3) dated 20.12.2019. Notices u/s 148 was issued on 29.03.2019 (copy placed before us at page no. 145 to 158 of paper book). In response to the said notice, return of income was filed by the assessee on 22.05.2019 through a letter wherein return of income alongwith the computation of income was filed before the AO requesting that the return filed may be treated as filed in response to notice u/s 148. This fact is stated by AO in para 3.1 (copy at page no.145 of the paper book). Ld. AR submitted that as per provisions of section 143(2), the notice under the said section was mandatory to be issued within 6 months from the end of the FY in which the return is furnished i.e., by 30.09.2020, whereas in the instant case, the notice u/s 143(2) was never issued and re-assessment order was passed on 29.12.2019. It was the submission by Ld. AR that as the notice u/s 143(2) of the Act was not issued which is a prerequisite for framing the assessment u/s 147 r.w.s. 144B, the reassessment order passed by Ld. AO in the present case was illegal and void ab-initio on account of non-issuance of notice u/s 143(2) thus, the re-assessment framed is at nullity and liable to be quashed. Ld. AR on this aspect, placed his reliance on the order of Hon’ble Supreme Court of India in the case of Assistant Commissioner of Income-tax v. Hotel Blue Moon (SC) dated 02.02.2010, wherein while considering the same question of law raised by the revenue, Hon’ble Apex Court had held 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, subsection (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 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  30 (Madras). 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 v. 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, subsections (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 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.

19. The result is that the appeals fail and are dismissed. No order as to costs.”

7. Per contra, Ld. Sr.DR representing the revenue vehemently supported the order of the lower authorities. Ld.Sr.DR placed on record the report of the AO dated 26.09.2024 wherein it is stated by AO as under-

“The notice u/s 148 was issued on 29.03.2019 and directed to file the ITR within a period of 30 days, however, the assessee fails to file his ITR u/ s 148 of the IT Act within the period of 30 days. Further, it is submitted that the assessee has filed a letter dated 22/05/2019 requested to treat the original ITR as ITR filed u/ s 148 of the I.T. Act, 1961. However, this letter was not filed within the time allowed to file ITR in compliance to notice u/s 148. Hence, no notice u/s 143(2) has been issued.”

8. We have considered the rival submissions, perused the material available on record and judicial pronouncements relied upon by the Ld. AR. To decide the issue raised by the Ld. AR, the relevant provisions of the Act are extracted hereunder:

(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return:

Provided that no notice under this sub-section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.

[(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, 7[* * * as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 :]

[Provided that in a case—

(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and

(b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of2002) but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice:

(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and

(b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of subsection (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub- section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice.]

[Explanation. — For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.]

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.

9. On perusal of above discussion and after a conjoint reading of the aforesaid provisions, it can be safely gathered that at the relevant point of time i.e., AY 2012-13, the time limit of issuance of notice u/s 143(2) within a period of one year but before the expiry of the time limit for making the assessment, which was prescribed under the Act in clause (b) of 1^st proviso to section 148 was no more applicable in the year under consideration as have become otiose by insertion of explanation effective from 01.10.2005 that, “For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.” In view of the said explanation, the issuance of notice u/s 143(2) which is qua the returns filed u/s 139 of the Act shall apply in cases where the returns are filed u/s 148 also, as going by the provisions of section 148, it is clarified that, the provisions of the Act shall, so far as may be, apply accordingly as if such return (u/s 148 r.w.s. 139) were a return required to be furnished under section 139.

10. Accordingly, in the present case which pertains to AY 2012- 13, for issuance of notice u/s 143(2), the time limitation as provided in proviso to sub-clause (ii) of section 143(2) shall be applied. As observed above, in the present case, the Return of Income in response to notice u/s 148 was filed by the assessee on 22.05.2019, and no notice u/s 143(2) was issued. The contention of the Revenue that the assessee has not filed return in response to notice u/s 148 within time thus, no notice is issued u/s 143(2) of the Act. However, from the perusal of the assessment order, it is seen that nowhere in the assessment order, the AO has commented upon this issue nor the ITR filed by assessee was rejected by a separate order. Rather in the computation of income at page 14 of the order, the AO compute the income after taking into consideration the income declared in the ITR. Thus, the contention now raised by Revenue cannot be accepted that notice u/s 143(2) was not issued as return in response to notice u/s 148 was filed late. Hon’ble Jurisdictional High Court in the case of PR.CIT v. Shri Jai Shiv Shankar Traders (P.) Ltd.  220/[2016] 282 CTR 435/383 ITR 448 (Delhi), has held that even when the return was filed at the feg end of the proceedings then also the issue of notice u/s 143(2) is mandatory requirement before completion of assessment order.

11. As per the proviso to sub-clause (ii) of section 143(2), notice was to be issued within 6(Six) months i.e., on or before 30.09.2020 but the reassessment order was passed on 29.12.2019 without issue of notice u/s 143(2) of the Act which is an admitted fact by the Revenue. On this issue, the observations of Hon’ble Apex Court in the case of Hotel Blue Moon (supra), which was further supported by the view taken by Hon’ble Apex Court in the case of CIT v. Laxman Das Khandelwal  171 (SC), wherein Hon’ble Apex Court has referred to the judgment in the case of Hotel Blue Moon (supra) and had affirmed the proposition laid down therein.

12. Respectfully following the principle of law laid down by Hon’ble Apex Court, in the Judgments referred (supra), which is followed by ITAT, Delhi Benches regularly, we find substance in the contention of the Ld. AR that in absence of a valid notice u/s 143(2), which was not issued for the purpose of making assessment is a violation of mandatory provisions of law, therefore, the reassessment impugned order passed u/s 147 /143(3) of the Act dated 29.12.2019, is a nullity and liable to be quashed.

13. Considering the aforesaid facts, circumstances and observations, the Ground of appeal No.4 taken by the assessee is allowed and the impugned reassessment order stands quashed.

14. As the impugned reassessment order u/s 147/143(3) is quashed by us in terms of our aforesaid observations, therefore, the other grounds of appeal raised by the assessee became infructuous.

15. In the result, the appeal of the assessee is allowed.