Notice Under Section 143(2) Is Not Mandatory in Reassessment and Scope Extends Beyond Recorded Reasons

ORDER

1. By this Common Order, both these Writ Petitions are being disposed of.

2. In W.P.No.2485 of 2019, the Petitioner has challenged the impugned Assessment Order dated 26.12.2018 passed for the Assessment Year 20112012 under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

3. In W.P.No.2495 of 2019, the Petitioner has challenged the impugned Section 148 Notice dated 29.03.2018 issued to the Petitioner.

4. The challenge to the impugned Assessment Order is primarily on the ground that the impugned Assessment Order dated 26.12.2018 has been passed without following the due procedure prescribed under Section 143(2) read with Section 148 of the Act.

5. On perusal of the records before this Court reveals that originally the Petitioner had filed a Return of Income under Section 139(1) of the Act on 31.07.2011. In the said Return of Income, the Petitioner had declared only a sum of Rs.8,30,997/- as a gross total taxable income.

6. The Return was also processed under Section 143(1) of the Act on 15.10.2011. Subsequently, a summons was issued to the Petitioner on 21.08.2012 under Section 272A of the Act in response to which, the Petitioner replied on 28.08.2012, 29.08.2012 and 05.10.2012.

7. In this background, the Petitioner filed a Revised Return under Section 139(4) of the Act on 11.09.2012. In the Revised Return, the Petitioner declared a gross total taxable income of Rs.17,29,621/- and paid a sum of Rs.4,34,512/- towards income tax.

8. The Revised Return that was filed by the Petitioner under Section 139(4) of the Act was followed with a Section 148 Notice dated 29.03.2018.

9. In response to Section 148 Notice dated 29.03.2018, the Petitioner filed a Return on 22.05.2022 wherein the Petitioner reiterated the content of Revised Return filed under Section 139(4) of the Act on 11.09.2012.

10. After the Petitioner filed the aforesaid Return of Income, the Petitioner was furnished with the reasons for reopening of assessment on 08.06.2018, wherein it was stated as under:-

“As requested by you the reasons for reopening of Assessment for Assessment Year 2011-2012 is as under:

The assessee, is the founder of M/s.Smartlearn Edutech (P) Ltd, and has filed his return of income for the Assessment Year 2011-2012 on 31.07.2011 admitting total income of Rs.8,16,000/- after claiming Chapter VIA deduction to the tune of Rs.15,000/-. The return was processed and completed under Section 143(1) of the Income-tax Act, 1961, on 15.10.2011. The case was not selected for scrutiny for the Assessment Year 2011-2012.

2. Based on the information received from DDIT(Inv), Unit II(2), Chennai, in the case of M/s.Smartlearn Edutech (P) Ltd, it is seen that M/s.Smartlearn Edutech (P) Ltd was the brainchild of Shri K.Swaminathan, who founded the company which offered IIT/JEE course material online to aspirants. After sometime, all the assets of this company was sold to M/s.Edserve Ltd for a consideration of Rs.2 crores. However, M/s.Edserve which took over this company insisted that the said sale of Rs.2 crores would be sent to Shri Swaminathan and in turn he should sent back this sum of M/s.Edserve which would allot shares to him on agreed price. Thus, on 04.11.2010, M/s.Aspire Telecom Pvt. Ltd. Shri Swaminathan’s account (A/c No.602605053105) was credited with Rs.2 crores and on the same day Rs.2 crores was sent back to M/s.Edserve and they allotted 93458 shares of Rs.214/- per share. On further enquiry, Shri.Swaminathan was asked to state that what were the other benefits received by him in his individual capacity. He had stated that he received Rs.42,65,000/- as non compete fee from Edserve Ltd.

3. On verification of the Return of Income filed by the assessee for the Assessment Year 2011-2012 as well as the computation of total income, it is seen that the assessee has reported a total income of Rs.8,16,000/-comprising of salary and income from other sources being interest income. The assessee has neither reported the receipt of non-competent fee as per the return filed nor furnished the working of any capital gains or business income arising out of the same. Therefore, there is clearly an escapement of income in this case for the Assessment Year 2011-2012 on account of non reporting of the non-compete fee received by the assessee from M/s.Edserve Ltd to the tune of Rs.42,65,000/-.

4. In this case, a return of income was filed for the year under consideration but no scrutiny assessment under Section 143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceeding under Section 147 of the Act is reason to believe which has been recorded above in Paragraph 2 above.

It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated under Section 2(40) of the Act was made and the return of income was duly processed under Section 143(1) of the Act. In view of the above, provisions of Clause (b) of Explanation 2 to Section 147 are applicable to facts of this case and the Assessment Year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.”

11. In this background, the Petitioner sent a reply on 03.10.2018 wherein the Petitioner has stated that in the Revised Return dated 11.09.2012 filed under Section 139(4) of the Act, the Petitioner had admitted an income of Rs.42,65,000/- as “non-compete fee” received from M/s.Edserve Soft Systems Limited.

12. In these circumstances, the Notice under Section 142(1) of the Act was issued to the Petitioner on 20.11.2018 wherein, the Petitioner was called upon to submit the details of “non-compete fee” and the “business loss” which was written-off by the Petitioner.

13. In the Reply dated 26.11.2018, the Petitioner has stated that he had filed the Revised Return on 11.09.2012 showing a receipt of Rs.42,65,000/-towards “non-compete fee”, and that the Petitioner had booked an amount of Rs.27,97,576/- towards “business loss” which was written-off as the Petitioner could not recover the money due from M/s.Aspire Learning Company Private Limited due to severe financial crisis.

14. That apart, it was stated that many of the documents were lost during 2015 flood. In this background, a Notice under Section 142(1) of the Act was issued once again on 14.12.2018. The Petitioner had replied to the Section 142(1) Notice on 17.12.2018, 20.12.2018 and 24.12.2018.

15. After participating in the proceedings and after the above reply was given by the Petitioner, the impugned Assessment Order was passed by the Respondent on 26.12.2018 in furtherance of the impugned Section 148 Notice dated 29.03.2018.

16. Learned counsel for the Petitioner would draw attention to the express language in Section 143(2) of the Act and the express language in Section 148 of the Act as it stood during the period in dispute.

17. Specifically, the learned counsel for the Petitioner would draw reference to Section 143(2) of the Act as it stood during the period in dispute. It is submitted that after the Return was filed on 22.05.2018 in response to the impugned Section 148 Notice dated 29.03.2018, the Assessing Officer or the prescribed Income Tax Authority was required to issue a Notice specifying the date to attend the Office of the Assessing Officer and/or to produce, or cause to be produced before such Officer any evidence on which the assessee may rely in support of the Return.

18. Text of Section 143(2) of the Act reads as under:-

“143. Assessment:

(1) ….

(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.”

19. It is submitted that as per Section 148 of the Act as it stood during the period in dispute, the provisions of the Act so far as may apply as if such Returns were required to be furnished under Section 139(1) of the Act.

20. A reference was made to the following decisions of the Hon’ble Supreme Court, Allahabad High Court, Delhi High Court and that of this Court:-

21. It is, therefore, submitted that the proceedings has to abate after Section 148 Notice was issued in the absence of a Notice under Section 143(2) of the Act.

22. Learned Junior Standing Counsel for the Respondent on the other hand would place reliance on the decision of the Division Bench of this Court in Areva T & D India Ltd. v. Asstt. CIT 294 ITR 233 (Madras).

23. Apart from the above, the learned Junior Standing Counsel for the Respondent has also placed reliance on the decision of the Hon’ble Supreme Court and that of the Delhi High Court:-

24. Learned Junior Standing Counsel for the Respondent would submit that the assessment proceedings cannot abate even if there was any procedural irregularity committed.

25. By way of rejoinder, the learned counsel for the Petitioner would submit that the decision of the Division Bench of this Court in Areva T & D India Limited (supra) was rendered prior to the decision of the Hon’ble Supreme Court in Hotel Blue Moon’s case (referred to supra) and therefore, it cannot be held to have any precedential value.

26. I have considered the arguments advanced by the learned counsel for the Petitioner and the learned Junior Standing Counsel for the Respondent. I have also perused the records and affidavit and counter affidavit filed on behalf of Petitioner and the Respondent. I have also examined the provisions of the Act.

27. The point for consideration is whether Section 143(2) Notice was required to be issued to the Petitioner or not before proceeding to pass the impugned Assessment Order dated 26.12.2018.

28. The Division Bench of this Court in Sapthagiri Finance & Investments (supra) was rendered in the context of an Assessment Order passed pursuant to a Section 148 Notice.

29. In Paragraph No.12 of the Order, the Division Bench of this Court observed as under:-

“12. As far as the contention of the Revenue that failure to issue notice under Section 143(2) of the Act is only curable defect is concerned, the decision relied on by the assessee reported in Hotel Blue Moon’s case (supra), also covers the said issue. It is no doubt true that the said decision dealt with the assessment done under Chapter XIV relating to block assessment. The assessee therein raised a contention that the failure to issue notice under Section 143(2) within the prescribed time for the purpose of block assessment could be fatal to the validity of the assessment made under Chapter XIVB of the Income Tax Act, 1961. In other words, the assessee contended that the issuance of notice under Section 143(2) within the prescribed period of time for the purpose of block assessment is mandatory for assessing the assessee’s undisclosed income found during the search. The Revenue took the stand that issue of notice under Section 143(2) of the Act was only procedural irregularity which was curable. The Apex Court pointed out to Section 158BC(b) provided for determination of the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, sub sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply. The Apex Court pointed out after return is filed, the Assessing Officer has to follow the procedure like the issue of notice under Section 143(2)/142 and complete the assessment under Section 143(3). In the event, the assessee is not filing the return or not complying with the notice under Section 143(2)/142, the Officer is authorised to complete the assessment ex parte under Section 144. The Apex Court further pointed out that notice under Section 143(2) would become necessary only where the block return does not conform undisclosed income inferred by the authorities. Thus, if an assessment is to be completed under Section 143(3) read with Section 158BC, notice under Section 143(2) should be issued within one year from the date of filing of the block return. The Apex Court further held that 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 legislation referring to the compliance of the provisions under Section 143, 144 and 145 of the Act is a legislation by incorporation. Thus, where the Assessing Officer repudiates the return filed by the assessee in response to notice under Section 158BC(a), the Assessing Officer must necessarily issue notice under Section 143(2) of the Act. Dealing with the contention that the issue of notice is not mandatory but optional and is to be applied to the extent practicable, in view of expression “so far as may be” in Section 153BC(b), the Apex Court pointed out that the expression “so far as may be” has always been construed to mean that those provisions may be generally followed to the extent possible. Rejecting the contention of the Revenue that it is not expedient to follow the provisions under Sections 142 and 143(2) and (3) strictly for the purpose of block assessment, the Apex Court held that in completing the assessment, when the officer repudiates the return filed under Section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of Section 142 and 143(2) and (3) of the Act.”

30. The decision of the Hon’ble Supreme Court in Hotel Blue Moon’s case referred to supra dealt with the special procedure for making assessment of search cases under Chapter XIV-B of the Act as it stood then. There, the said appeal arose from the decision of the Gauhati High Court which framed the following substantial question of law:-

31. The Gauhati High Court there held that the provisions of Section 142 and Section 143(3) will have to be mandatorily applied in a case where the Assessing Officer repudiates a Return in response to a Notice issued in Section 158BC(a) of the Act and proceedings.

32. In Hotel Blue Moon’s case referred to supra, the Hon’ble Supreme Court ultimately framed the following question of law in Paragraph No.7 which reads as under:-

“7. The only question that arises for our consideration in this batch of appeals is, whether service of notice on the assessee under Section 143(2) within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIV-B of the Income Tax Act, 1961.”

33. Section 158BC of the Act which fell for interpretation before the Hon’ble Supreme Court in the above case reads as under:-

“158BC. Procedure for block assessment:-

Where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 132A, in the case of any person, then,-

[(a) the Assessing Officer shall-

i. in respect of search initiated or books of account or other documents or any assets requisitioned after the 30^th day of June, 1995, but before the 1^st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days;

ii. in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1^st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days,

as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under Clause (I) of Sub-Section (1) of Section 142, setting forth his total income including the undisclosed income for the block period:

Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this Chapter:

Provided further that a person who has furnished a return under this Clause shall not be entitled to file a revised return:]

(b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, Sub-Sections (2) and (3) of Section 143 and Section 144 shall, so far as may be, apply;

(c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;

(d) the assets seized under Section 132 or requisitioned under Section 132A shall be retained to the extent necessary and the provisions of Section 132B shall apply subject to such modifications as may be necessary and the references to “regular assessment” or “reassessment” in Section 132B shall be construed as references to “block assessment”.”

34. The Hon’ble Supreme Court answered the question of law and affirmed in favour of the Respondent Assessee therein and against the Appellant/Income Tax Department.

35. As per the said provision as it stood then, which has been captured in Paragraph Nos.21 to 26 of the said decision, it is clear that the provisions of Section 142, Sub-Sections (2) and (3) of Section 143 and Section 144 shall, so far as may be, apply.

36. The Hon’ble Supreme Court took note of the express language in Section 158BC(b) of the Act and held that 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. The Hon’ble Supreme Court did not agree with the submissions of the Revenue, observing that it did not see any reason to restrict the scope and meaning of the expression ‘so far as may be apply’.

37. In the above decision, the Hon’ble Supreme Court also took note of the clarification in Clause (e) of the Central Board of Direct Taxes (CBDT) in its Circular No.717 dated 14.08.1995, [1995] 215 ITR 70] wherein it was stated as under:-

“(e) Procedure for making block assessment:

i. The Assessing Officer shall serve a Notice on such person requiring him to furnish within such time, not being less than 15 days, as may be specified in the Notice, a return in the prescribed form and verified in the same manner as a return under Clause (i) of SubSection (1) of Section 142 setting forth his total income including undisclosed income for the block period. The Officer shall proceed to determine the undisclosed income of the block period and the provisions of Section 142, Sub-Sections (2) and (3) of Section 143 and Section 144 shall apply accordingly. “.

38. Paragraph Nos.21 to 26, from the above decision of the Hon’ble Supreme Court in Hotel Blue Moon’s case referred to supra is reproduced below:-

“21. 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:

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(1)(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 authorised to complete the assessment ex parte under Section 144.

22. Clause (b) of Section 158-BC by referring to Sections 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.

23. The other important feature that requires to be noticed is that 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 sub-sections 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 excluded.

24. We may also notice here itself that the clarification given by CBDT in its Circular No. 717 dated 14-8-1995 [(1995) 215 ITR (St) 70], 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.

25. However, it is contended by Shri Shekhar, learned counsel for the Department that in view of the expression “so far as may be” in Section 158-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. Partap Singh case [(1985) 3 SCC 72 : 1985 SCC (Cri) 312 : 1985 SCC (Tax) 352 : (1985) 155 ITR 166] . In this case, the Court has observed that: (SCC p. 80, para 12)

26. The learned counsel for the respondent has brought to our notice the observations made by this Court in Maganlal v. Jaiswal Industries [(1989) 4 SCC 344] , wherein this Court while dealing with the scope and import of the expression “as far as practicable” has stated: (SCC p. 359, para 28)

39. It is in this background, in Paragraph Nos.16 and 17, the Hon’ble Supreme Court held as under:-

“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 purposes 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.”

40. The Hon’ble Supreme Court also observed that after a Return is filed, it enables an 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) of the Act.

41. Having considered the decision of the Hon’ble Supreme Court in Hotel Blue Moon’s case referred to supra, which has been applied by this Court in the context of Section 158BC of the Act in Chapter XIV-B as it stood then and the decision of the Division Bench of this Court in Sapthagiri Finance & Investments referred to supra, I shall now refer to a decision of the Division Bench of the Allahabad High Court cited by the learned counsel for the Petitioner in the case of Salarpur Cold Storage (P.) Ltd. (supra).

42. There, the Division Bench of the Allahabad High Court following the view of the Hon’ble Supreme Court in Hotel Blue Moon’s case referred to supra observed that the omission on the part of the Assessing Officer to issue a Notice under Section 143(2) of the Act is not a procedural irregularity and is not curable.

43. The requirement of a Notice under Section 143(2) of the Act cannot be dispensed with. The Division Bench of the Allahabad High Court also observed that where the Assessing Officer fails to issue a Notice within the period of six months as spelt out in the Proviso to Clause (ii) of Section 143(2) of the Act, the assumption of jurisdiction under Section 143(3) of the Act would be invalid and that this defect in regard to the assumption of jurisdiction cannot be cured by taking recourse to the deeming fiction under Section 292BB of the Act.

44. Section 292BB of the Act reads as under:-

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-

Provided that nothing contained in this Section shall apply where the assessee has raised such objection before the completion of such assessement or reassessment.”

45. The above decision of the Division Bench of the Allahabad High Court records that a Notice under Section 143(2) of the Act was issued on 06.10.2009 and thereafter the assessment was completed on 24.12.2010 under Section 143(3) of the Act.

46. Therefore, the Commissioner of Income Tax (Appeals) had held that the Notice dated 06.10.2009 issued under Section 143(2) of the Act was not issued within the period stipulated under Section 143(3) of the Act and hence the question of its service either within or beyond the time prescribed or its improper service within the meaning of Section 292BB of the Act would not arise.

47. The view of the Commissioner of Income Tax Appeals was confirmed by the Tribunal. The Tribunal held that a Notice under Section 143(2) of the Act is of a statutory nature through which the Assessing Officer assumes jurisdiction over the assessee to frame an assessment under Section 143(3) of the Act. If the jurisdiction was not properly assumed by the Assessing Officer by issuing a valid Notice under Section 143(2) of the Act, the assessment so framed would be without a valid assumption of jurisdiction and would be invalid.

48. Keeping the above decisions of the Hon’ble Supreme Court and other High Courts and the decision cited by the learned Junior Standing Counsel for the Respondent in Areva T & D India Ltd. case referred to supra and the other decisions cited, I shall proceed to refer to both Section 148 of the Act and Section 143(2) of the Act.

49. Section 143(2) of the Act as it stood during the period in dispute and Section 148 of the Act as it stood prior to its substitution before 01.04.2021 does not in any manner further the case of Petitioner.

50. Under Section 148(1) of the Act, a Return filed pursuant to a Notice under Section 148 of the Act is to be treated as a Return required to be furnished under Section 139 of the Act. However, the assessment has to be completed within the limitation prescribed under Section 153(2) of the Act i.e., within the period of nine months from the end of the Financial Year in which Section 148 Notice was issued.

51. In the facts of the present case, there is no dispute that the Petitioner had earlier filed a Return of Income under Section 139(1) of the Act on 31.07.2011, declaring income of only Rs.8,30,977/- when indeed the Petitioner had received a sum of Rs.42,65,000/- towards “non-compete fee” and a sum of Rs.2,00,00,000/- on 04.11.2010, directly from M/s.Edserve Soft Systems Limited after the assets of M/s.Smartlearn Edutech Private Limited was transferred to former.

52. The amount that was payable for the sale of assets of M/s.Smartlearn Edutech Private Limited to M/s.Edserve Soft Systems Limited was strangely retransferred to M/s.Edserve Soft Systems Limited itself on 04.11.2010 and on the same day, M/s.Smartlearn Edutech Private Limited was allotted 93458 shares of Rs.214/- per share in M/s.Edserve Soft Systems Limited.

53. These were not declared in the aforesaid Return of Income that was filed on 31.07.2011. The Petitioner merely declared the total income of the Petitioner as Rs.8,30,977/-. The Return was processed under Section 143(1) of the Act on 15.10.2011.

54. It is in this background, the Petitioner was issued a Notice under Section 272A of the Act on 21.08.2012 in response to which the Petitioner had replied on 28.08.2012, 29.08.2012 and 05.10.2012 and thereafter filed a revised Return of Income under Section 139(4) of the Act on 11.09.2012.

55. Thus, the Petitioner declared a taxable income of Rs.17,29,621/-and paid tax of Rs.4,34,512/-. It is in this background, a Notice was also issued under Section 148 of the Act on 29.03.2018 which is impugned in W.P.No.2495 of 2019.

56. As mentioned above, once a Notice is issued under Section 148 of the Act, the Assessing Officer has to pass a Reassessment Order under Section 153(2) of the Act within a period of nine months from the end of the Financial Year in which a Notice under Section 148 of the Act was served.

57. For the sake of clarity, Section 153(2) of the Act is reproduced below:-

“153. Time limit for completion of assessment, reassessment and recomputation:

(1)……

(2) No order of assessment, reassessment or recomputation shall be made under Section 147 after the expiry of nine months from the end of the financial year in which the notice under Section 148 was served.

Provided that where the notice under Section 148 is served on or after the 1^st day of April, 2019, the provisions of this Sub-Section shall have effect, as if for the words “nine months”, the words “twelve months” had been substituted.”

58. In this case, pursuant to the Notice issued under Section 148 of the Act dated 29.03.2018, the Petitioner had submitted Letters dated 27.04.2018 and 22.05.2018. In the Letter dated 27.04.2018, the Petitioner had requested the Respondent to consider his earlier Revised Return filed on 11.09.2012 as a Return to be filed in response to the Notice under Section 148 of the Act. However, in his Letter dated 22.05.2018, the Petitioner requested the Respondent to consider his Return dated 22.05.2018 as a Return filed in response to the Notice under Section 148 of the Act.

59. Section 143 of the Act applies to Return filed under Section 139 or a Return filed in response to a Notice under Section 142(1) of the Act. A Return filed pursuant to Section 148 Notice is deemed to be a Return filed under Section 139 of the Act.

60. The scope for issuance of Section 143(2) Notice will arise only where the Assessing Officer considers it “necessary” or “expedient” as is evident from a reading of Section Section 143(2) of the Act.

61. For the sake of clarity, Section 143(2) of the Act is reproduced below:-

“143. Assessment:

(1)…….

(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.”

62. Under Section 143(2) of the Act, if the Assessing Officer or the prescribed Income Tax Authority, as the case may be, considers it “necessary” or “expedient” that in the Return furnished under Section 139 of the Act or in response to a Notice under Sub-Section (1) of Section 142 of the Act, the assessee has

shall serve on the assessee,

63. As per the Proviso to Section 143(2) of the Act, such a Notice should be issued within six months from the end of the Financial Year in which such Return was furnished.

64. It is only under those situations, the Assessing Officer or the Income Tax Authority 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. Thus, Notice under Section 143(2) of the Act is discretionary and not mandatory to ensure that there is no violation of Principles of Natural Justice.

65. As per the Letters dated 27.04.2018 and 22.05.2018 and going by the Petitioner’s own submissions, the Notice under Section 143(2) of the Act ought to have been issued either before 30.09.2013 [i.e., six months from the end of the Financial Year in which such revised Return of Income was filed on 11.09.2012] or latest by 30.09.2019 [i.e., six months from the end of the Financial Year of Letter dated 22.05.2018]. However, as mentioned above, under Section 153(2) of the Act, an Order of Assessment, Reassessment or Recomputation under Section 147 of the Act has to be passed within nine months from the end of the Financial Year in which the Notice under Section 148 of the Act was served i.e., on or before 31.12.2018.

66. If the Returns under Section 148(1) of the Act is said to have been filed on 22.05.2018 based on the said Letter, it is to be treated as if it were a Returns required to be furnished by the Petitioner under Section 139 of the Act, a Section 143(2) Notice ought to have been issued latest by 30.09.2019 i.e., after the due date for passing the Assessment Order on 31.12.2018 in terms of the limitation under Section 153(2) of the Act. This is evident from a reading of Section 148 of the Act as it stood during the period in dispute.

67. Thus, an anomalous situation arises, as in the present case, after a Section 148 Notice of the Act was issued, the Department could not have issued a Notice under Section 143(2) of the Act either after the date of the Revised Return was filed on 11.09.2012, or before the expiry of limitation for passing Orders under Section 147 read with Section 153(2) of the Act i.e., 31.12.2018 when the date of Revised Return i.e., Letter dated 22.05.2018 is taken as a Return, the period for issuance of Notice under Section 143(2) of the Act would have long surpassed the last date.

68. The reassessment proceedings under Section 148 read with Section 147 of the Act are intended to protect the Revenue and therefore the interpretation which would further the case of the Revenue has to be accepted. In this case, I am fortified by the view of the Hon’ble Supreme Court in CIT v. Sun Engineering Works (P.) Ltd. 198 ITR 297 (SC)/(1992) 4 SCC 363, wherein it was held as under:-

“40. Although, Section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessement and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under Section 147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at gathering the ‘escaped income’ of an assessee, the same cannot be allowed to be converted as ‘revisional’ or ‘review’ proceedings at the instance of the assessee, thereby making the machinery unworkable.”

69. Therefore, the decision of the Division Bench of this Court in Sapthagiri Finance & Investments case referred to supra was not laid before the Hon’ble Supreme Court in Hotel Blue Moon’s case referred to supra. The provision of Section 143(2) of the Act and Section 148 of the Act as it stood prior to its substitution with effect from 01.04.2021 do not warrant issuance of Notice pursuant to Section 148 of the Act.

70. The other decision of the Allahabad High Court and that of the Delhi High Court following the decision of the Hon’ble Supreme Court in Hotel Blue Moon’s case referred to supra cannot be applied stricto sensu.

71. That apart, the Petitioner has participated in the proceedings and therefore it is not open for the Petitioner to challenge the Assessment Order on the ground of jurisdiction in view of Section 292BB of the Act.

72. In the present case, Section 148 Notice was issued on 29.03.2018. The last date for the Financial Year would end on 31.03.2018, and the last date for passing Order under Section 147 read with Section 153 of the Act would be on 31.12.2018. Thus, a Notice under Section 143(2) of the Act, is an impossibility as the time for passing an Assessment Order would expire on 31.12.2018.

73. Thus, it has to be held that the procedure prescribed under Section 143(2) of the Act is not mandatory and it has to be issued only where the Assessing Authority or the Assessing Officer as the case may be considers it “necessary” or “expedient” to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid tax in any manner. That apart, the Petitioner has not filed a Revised Return as is contemplated under Section 148 of the Act rather the Petitioner has merely reiterated the Revised Return that was filed on 11.09.2012.

74. The argument of the Petitioner that the reasons for reopening the assessment was different from the ultimate finding in the Impugned Assessment Order also cannot be countenanced.

75. Although pursuant to the issuance of Section 148 Notice, the Petitioner was asked to furnish the details of “non-compete fee” during the course of reassessment. It is noticed that the Petitioner claimed excessive loss to the tune of Rs.27,97,576/- against the said income. There is a direct nexus between the reasons for reopening and the disallowance made in the Order passed under Section 147 of the Act. Thereafter, the Petitioner has not filed new Return after Section 148 Notice dated 29.03.2018 was issued. Therefore, there is no justification for interfering with the Impugned Assessment Order.

76. In any event, the said issue is pending before the Hon’ble Supreme Court in Director of Income Tax (IT)-II v. Black & Veatch Prichard, Inc. , in Civil Appeal No.9105 of 2017 in SLP (C) No.7658 of 2012, in view of the divergent views taken by different High Courts while interpreting Explanation 3 to Section 147 of the Act which read as under:-

“Explanation 3 – For the purpose of assessment or reassessment under this Section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this Section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”

77. Whether there were justifiable reasons for claiming a business loan written off of Rs.27,97,576/-, while filing the Revised Return under Section 139(4) of the Act on 11.09.2012, which was reiterated in the letter filed on 22.05.2018 in response to the impugned Section 148 Notice dated 27.04.2018 was to be justified or not was to be decided by the Assessing Officer on merits. Therefore, I do not wish to make any further observation on the same as it touches on the merits of the case.

78. That apart, once a Return has been filed, the deduction claimed by the Petitioner is a subject matter of a scrutiny and that in this case the Petitioner has not furnished any documents to substantiate the same.

79. That apart, as stated earlier, there is also no merit in the challenge to the proceedings on the ground of jurisdiction in view of Section 292BB of the Act. As such, there are also no procedural irregularity in passing the Impuged Assessment Order warranting its interference under Article 226 of the Constitution of India.

80. Therefore, both W.P.No.2495 of 2019 as also W.P.No.2485 of 2019 are liable to be dismissed.

81. In the result,