Reassessment made by issue of notice 143(2) before filing of return of income is invalid

Reassessment made by issue of notice 143(2) before filing of return of income is invalid and not sustainable in the eyes of law

ABCAUS Case Law Citation
ABCAUS 3394 (2020) (09) ITAT

Important case law relied upon by the parties:
Singhad Technical Society 397 ITR 344.
Fast Booking (I) Pvt. Ltd. 378 ITR 693
Silver Line 383 ITR 455
M/s VMT Spinning Co. Ltd. 389 ITR 326
Jolly Fantasy World Ltd. 373 ITR 530
CIT vs. Lalitkumar Bardia (2017) 84 taxmann.com 213 (Bom) Laxman Das Khandelwal
ACIT vs. Hotel Blue Moon (2010) 321 ITR 362
CIT vs. M/s Paramount Biotech Industries Ltd.
Alpine Electronics Asia Pte. Ltd. vs. DGIT (2012) 341 ITR 247
CIT vs. Delhi Kalyan Samit
Dolphin Developers Ltd.

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition and reassessment proceedings. 

The return of the appellant company was first taken up for scrutiny and the assessment was completed u/s 143(3) of the Income Tax Act, 1961 (the Act).

Subsequently, the Assessing Officer (AO) received information from Investigation Cell that share money received by the assessee company were mere accommodation entries and utilized by the assessee to introduce its own unaccounted money in its books of accounts.

Thereafter, the case of the assessee was reopened u/s. 147 of the Act by issue of notice u/s 148 of the Act alongwith copy of reasons for reopening was sent to the assessee after obtaining the prior approval of the CIT.

The AO issued notice u/s 142(1) of the Act asking the assessee to furnish the return of income, information /documents etc.

In response to the notice, the assessee submitted Income Tax Return alongwith Audit Report, Balance Sheet, Profit And Loss Account. 

The Assessee filed objections to the notice u/s. 148 of the Act on the grounds that notice u/s. 148 was served upon the assessee after the period prescribed u/s 148  and  149  of  the Act and that  the information received from the ITO of another assessee did not constitute the ‘reason to believe’. However, the AO rejected the objections.

The AO was of the view that assessee had failed to discharge its onus of proving the creditworthiness of concerned party, and genuineness of the transactions in terms of provisions of section 68 of the Act.     

Therefore, the amount of share application received was held to be the income of the assessee company under section 68 of the Act. The AO also added 3.5% of the transactions as commission usually paid on such entries to the income of the assessee u/s 69C of the Act being unexplained expenditure spent from undisclosed sources being given infuse such funds in the garb of Share Application Money. 

The CIT(A) upheld the order passed by the AO.

Notice 143(2) issued before filing return of income invalid

Before the Tribunal, the assessee took an additional ground that the entire assessment made u/s 147/148 was invalid based on notice u/s 143(2) issued prior to the date of filing of return by the assessee and no valid notice u/s. 143(2) was issued and served upon the assessee after the date of filing ITR.

The assessee relied upon a number of judgments, particularly a recent decision of the Hon’ble Supreme Court of India and contended that the notice u/s 143(2) of the Act was prior to the filing of the return which was illegal and against the provisions of law and was not sustainable in the eyes of law.

The ITAT noted that AO had issued notices u/s 143(2) of the Act prior to the filing of the return of income. Therefore the assessment framed on the basis of such notice was not sustainable in the eyes of law.

Accordingly placing reliance on the decision of Hon’ble Supreme Court, the Tribunal quashed the assessment.     

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