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2015 (11) TMI 809

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..... ue being ITA Nos. 1809, 1504, 1505 and 1506/Del/2013 and four cross objections of the Assessee being CO Nos. 122, 109, 107 and 108/Del/2013 for the Assessment Years ( AYs ) 2005-06, 2006-07, 2007-08 and 2008-09. 2. The central issue in the present case is whether the failure by the Assessing Officer ( AO ) to issue a notice to the Assessee under Section 143(2) of the Act is fatal to the reassessment proceedings under Sections 147/148 of the Act? 3. The Assessee firm is engaged in the business of trading in silver and gold jewellery and also in precious and semi-precious stones. A return of income in the Saral Form was initially filed by the Assessee for AY 2005-06 on 20th September 2005. The return was processed under Section 143(1) of the Act. The return filed by the Assessee for the subsequent AY 2006-07 was also processed under Section 143(1) of the Act. For AY 2007-08, the return was picked up for scrutiny and a notice under Section 143(2) of the Act was issued. Subsequently, the assessment was finalised by the AO by passing an order under Section 143 (3) of the Act. The return for AY 2008-09 was processed under Section 143(1) of the Act. 4. Information was received .....

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..... Estate, New Delhi on 18-11-2011 at 11:00 a.m. 6. It is not in dispute that although the above letter refers to the enclosure of a blank return form, no such blank return form was in fact enclosed. It is further not disputed that the above notice under Section 142(1) of the Act is in a standard form. 7. For AY 2005-06, the reassessment proceedings were finalised and an assessment order was passed by the AO on 28th December 2011 making an addition of ₹ 7,05,600 on account of deduction wrongly made. The taxable income was computed at ₹ 2,02,19,273. Similar orders of reassessment were passed by the AO for AYs 2006-07, 2007-08 and 2008-09. 8. The Assessee appealed to the Commissioner of Income Tax (Appeals) [ CIT (A) ) questioning the initiation of the reassessment proceedings as well as the reassessment orders on merits. By the order dated 31st December 2012 for AY 2005-06, the CIT (A) upheld the re-opening of the assessment but held on merits that the addition was not justified. Similar orders were passed in the Assessee's appeals for the other three AYs. 9. Against the said orders of the CIT (A), the Revenue filed four appeals before the ITAT. The Asses .....

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..... of the Act was only a rule of evidence for dealing with service of notice and has nothing to do with the mandatory requirement of issuance of notice under Section 143 (2) of the Act which is a notice giving jurisdiction to AO. Reference was also made to the decision of this Court in Pr. CIT v. Shri Jai Shiv Shankar Traders Pvt. Ltd. (decision dated 14th October 2015 in ITA No. 519 of 2015). Dr. Gupta further pointed out that for three of the AYs in question i.e. 2005-06, 2006-07 and 2007-08, Section 292 BB of the Act could not be invoked since that provision was introduced in the statute book with effect from 1st April 2008. Referring to the decision in Commissioner of Income Tax v. Mohammad Khaleeq (2015) 229 Taxman 566 (All.) and the decision of this Court dated 6th October 2010 in ITA No. 1159/2010 (CIT v. Kuber Tobacco Producers P. Ltd.) he pointed out that Section 292BB of the Act has been held to be prospective, i.e., applicable only from AY 2008-09. Finally Dr. Gupta submitted that in any event the question as to the legal effect of the failure of the AO to issue a notice under Section 143(2) of the Act was a pure question of law and on the strength of the decision of the S .....

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..... tion between a failure to 'issue' notice and a failure to 'serve' a notice on an Assessee. It was held, after noticing the decisions of the Allahabad High Court in Commissioner of Income Tax v. Rajeev Sharma (2011) 336 ITR 678 and Commissioner of Income-tax-II, Lucknow v. Salarpur Cold Storage (P.) Ltd. [2014] 50 taxmann.com 105 (All.) and the decision of the Madras High Court in Sapthagiri Finance Investments v. Income Tax Officer (2013) 90 DTR (Mad) 289), that Section 292 BB of the Act would apply insofar as failure of 'service' of notice was concerned and not with regard to the failure to 'issue' notice. In other words, the failure of the AO, in re-assessment proceedings, to issue notice under Section 143(2) of the Act, prior to finalising the re-assessment order, cannot be condoned by referring to Section 292BB of the Act. 14. Consequently, the Court does not find merit in the objection of the Revenue that the Assessee was precluded from raising the point concerning the non-issuance of notice under Section 143 (2) of the Act in the present case in view of the proviso to Section 292BB of the Act. 15. The Court also finds merit in the conte .....

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..... the returns for AYs 2005-06 till 2007-08, which were processed under Section 143 (1) of the Act, there was no occasion for the AO to issue a notice under Section 143 (2) of the Act. Mr. Sahni submitted that in the circumstances, the action of the AO in finalising the reassessment orders without notice under Section 143 (2) of the Act was justified. 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 A .....

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..... d the notice for further processing of the reassessment proceedings. The fact that on the notice issued u/s 143(2) of the Act, the assessee had placed its objection and reiterated its earlier return filed as one filed in response to the notice issued u/s 148 of the Act and the Officer had also noted that the same would be considered for completing of assessment, would show that the AO has the duty of issuing the notice under Section 143(3) to lead on to the passing of the assessment. In the circumstances, with no notice issued u/s 143(3) and there being no waiver, there is no justifiable ground to accept the view of the Tribunal that there was a waiver of right of notice to be issued u/s 143(2) of the Act. 22. The decisions of the Allahabad High Court in Commissioner of Income Tax v. Rajeev Sharma (supra) and Commissioner of Income-tax-II, Lucknow v. Salarpur Cold Storage (P.) Ltd. (supra) also reiterate the above legal position. As far as this Court is concerned, the decision in Director of Income Tax v. Society For Worldwide Interbank Financial Telecommunications (2010) 323 ITR 249 (Del) and the recent decision in Pr. CIT v. Shri Jai Shiv Shankar Traders Pvt. Ltd. (supra) ho .....

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