Issue of notice u/s 143(2) on the same day, return was filed made entire assessment illegal

Issue of notice u/s 143(2) on the same day return was filed made the entire assessment illegal for being non application of mind by the AO – ITAT

ABCAUS Case Law Citation:
ABCAUS 2841 (2019) (03) ITAT

Important Case Laws Cited/relied upon by the parties

Ashtech Industries Pvt. Ltd., Delhi vs. DCIT
Satish Kumar, New Delhi vs. ITO
Micron Enterprises Pvt. Ltd. Vs. ITO
Bhikubhai Patel vs State of Gujarat (4 SCC 144)

In the instant case, the appeal by assessee was directed against the order of CIT(A) in dismissing the appeal.

On the basis of the information received that large amount of cash was going to be withdrawn from a bank account of the assessee, a search under section 132 of the Income Tax Act, 1961 (the Act) was conducted in the case of the assessee and his brother.

By the time authorities could stop bank transactions, a large amount stood transferred to another bank account and simultaneously withdrawn therefrom. Rest of the amount in the bank account was seized.

The statement of assessee was recorded in which he has stated that he does not know about the source of the amount credited to his bank account and the entire affairs were being looked after by his brother in law Shri Pankaj Sharma.

The Assessing Officer (AO) on the basis of the search and seizure operation and enquiries conducted noted that assessee was engaged in the business of providing accommodation entries.

Notice under section 153A of the Act was issued for block years and notice under section 142(1) was issued for assessment year under appeal for filing of the return of income.

The assessee filed return of income  showing meagre income from salary income and other sources.

After considering the explanations of the assessee, the AO considered 3% commission income on the gross deposits and made an addition. Further, he made addition on protective basis and passed the assessment order under section 143(3).

The CIT(A) dismissed the appeal of assessee.

Before the Tribunal, the assessee raised an additional ground and submitted that the AO issued notice u/s 143(2) on the same day when the return of income was filed.

It was submitted that the impugned assessment order passed by the Assessing officer u/s 153A/143(3) of the Act was invalid and void ab initio for want of valid notice u/s 143(2) as per law as notice u/s 143(2) was issued on very same day when return in response to notice u/s 142(1) was filed. It was contended that the action of the AO showed non application of mind in issuing notice u/s 143(2) and thereafter in framing the assessment and accordingly all proceedings were nullity

It was also contended that the impugned assessment framed u/s 143(3) on basis of notice u/s 143(2) was invalid and void ab initio being made on basis of non est return filed u/s 153A/153C as no return was there u/s 139/142 filed on the date to validly issue notice u/s 143(2).

Therefore, it was contended that the entire assessment was illegal and vitiated and was liable to be quashed.

On the other hand, the Revenue submitted that assessee did not cooperate with the A.O, therefore, there was no time left with the A.O. to issue notice under section 143(2) of the Income Tax Act. He, therefore, submitted that additional ground may not be admitted.

However, the Tribunal in view of the judgment of the Hon’ble Supreme Court admitted the additional ground.

Regarding the allegation of non-compliance or non cooperation on the part of the assesse, the Tribunal noted that both the A.O. as well as the CIT(A) had nowhere mentioned if any of the said notices /summons had been served upon the assessee. Therefore, the contention of the Revenue was rejected.

The Tribunal opined that since it stood established that the A.O. issued notice under section 143(2) on the same day when the return of income was filed by the assessee, there was no application of mind on the part of the AO and the entire assessment proceedings are vitiated and was bad in the eye of Law.

The Tribunal relied on the decision of the coordinate bench where the Tribunal concurred with the contention of the assessee that language of section 143(2) of the Act in so far as it uses the phrase “if considers it necessary or expedient” presupposes application of mind on part of AO before notice u/s 143(2) of the Act is issued which words have been explained by Hon’ble Apex court.

The Hon’ble Supreme Court had observed that the said expression is of crucial importance. The term consider means to think over; it connotes that there should be active application of the mind. In other words the term consider postulates consideration of all the relevant aspects of the matter. A plain reading of the relevant provision suggests that the State Government may publish the modifications only after consideration that such modifications have become necessary. The word necessary means indispensable, requisite; indispensably requisite, useful, incidental or conducive; essential; unavoidable; impossible to be otherwise; not to be avoided; inevitable. The word necessary must be construed in the connection in which it is used.

Accordingly, the Tribunal set aside the orders of the authorities below and quashed the assessment order.

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