Income Tax Appellate Tribunal (ITAT) Delhi in a recent judgment has held that the non-issue of notice u/s 143(2) of the Income Tax Act, 1961 after filing of the return of the Assessee makes the assessment order passed u/s. 143(3) rws. 147 bad in law.

Case Details:
ITA No. 4171-4172-4173-4174-4175-/Del/2015 AY 2003-04
Meenakshi Aggarwal, Savitri Aggarwal, Yogesh Aggarwal, Jhabermal Aggarwal, Lakshya Gupta (Appellants) vs ITO (Respondent)
Date of Order: 16-10-2015

Brief Facts of the Case:
Aforesaid all five appeals were filed by different Assessees against a common Order passed by CIT(A) for the Assessment Year 2003-04. In all these appeals the assessee has taken up the ground that no valid notice u/s 143(2) was served upon them after intimating the AO to treat the original Return of Income (ROI) as filed in response to the notice u/s 148.

Excerpts from the ITAT Order:
The issue is squarely covered in favour of the Assessee and against the Revenue. The ITAT, ‘C’ Bench, Bangalore in its order dated 10.10.2014 in the case of Shri GN Mohan Raju vs. ITO passed in ITA No. 242 & 243(Bang)2013 (AYrs 2006-07 & 2007-08), has been held as follows:-

“7. This brings us to the crux of the issue i.e. whether notices under section 143(2) is mandatory in a reopened procedure and whether notices issued prior to the reopening would satisfy the requirement specified u/s 143(2) of the Act. That issue of a notice u/s 143(2) of the Act, is mandatory even in a re-assessment proceeding initiated u/s 148 of the Act has been clearly laid down by the Hon'ble Delhi High Court in the case of M/s Alpine Electronics Asia PTE Ltd., (supra). Hon'ble Delhi High Court had reached this conclusion after considering the decision of the Hon'ble Apex Court in the case of Hotel Blue Moon (supra). At para-24 of the judgment their Lordship has held that Section 143(2) was applicable to a proceedings u/s 147/148 also, since proviso to section 148 of the Act, granted certain specific liberties to the revenue, with regard to extension of time for serving such notices. No doubt, Hon'ble Madras High Court in the case of Areva T and D India Ltd.,(supra) had held that issue of notice u/s 143(2) was procedural in nature. However, Co-ordinate Bench in the case of M/s Amit Software Technologies Pvt. Ltd.,(supra) after considering the decision of the Hon'ble Madras High Court as well as Delhi High Court had held that Section 143(2)of the Act, was a mandatory requirement and not a procedural one. Of course, in the case before us, a notice u/s 143(2) of the Act has been issued to the assessee, but on the date when such notice was issued viz., 23-09-2010 assessee had not filed any return pursuant to the reopening notice undersection 148 of the Act. First instance when the assessee requested the AO to treat the returns originally filed by it as returns filed pursuant to the notices u/s 148 of the Act, was on 05-10-2010 which is clear from the narration in the order sheet which is reproduced here under;

" Sri M.Srinivas Rao Mannan, CA appeared in response to notices issued u/s 143(2)& 142(1) and requested that the return of income filed originally shall be treated as return of income filed in response to notice u/s 148. He has been asked to explain as to why a sum of Rs.1,00,00,000/- (Rs. One Crore) received from Wifi Networks Pvt. Ltd., should not be treated as revenue receipt and taxed accordingly. The case is posted for final hearing on 20-10-2010 at 3.30 pm. No further adjournment will be granted. If no compliance is forthcoming on that day, assessment will be completed bringing to tax Rs.1.00 (Rs. One Crore) as revenue receipt as per the provisions of sec.28(va) of the Act.”

8. A look at Section 143(2) is called for at this juncture. It is reproduced hereunder;

"143(2) Where a return has been furnished under section 139, or in response to a notice under sub-section(1) of section 142, the AO shall

(i) where he has reason to believe that any claim of loss, exemption,

deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim; (Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003)

(ii) notwithstanding anything contained in clause (1), if he 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 he tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his officer or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return. (Provided that no notice under clause (ii) 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).

Once the original return filed by the assessee was subject to processing u/s 143(1) of the Act, the procedure of assessment pursuant to such a return, in our opinion came to an end, since AO did not issue any notice within the 6 months period mentioned in proviso to section 143(2)(ii). No doubt, if the income has been understated or the income has escaped assessment, an AO is having the power to issue notice u/s 148 of the IT Act. Notice u/s 148 of the Act, issued to the assessee required it to file a return within 30 days from the date of service of such notice. There is no provision in the Act, which would allow an AO to treat the return which was already subject to a processing u/s 143(1) of the IT Act, as a return filed pursuant to a notice subsequently issued u/s 148 of the Act. However, once an assessee itself declare before the AO that his earlier return could be treated as filed pursuant to notice u/s 148 of the IT Act, three results can follow. Assessing Officer can either say no, this will not be accepted, you have to file a fresh return or he can say that 30 days time period being over I will not take cognizance of your request or he has to accept the request of the assessee and treat the earlier returns as one filed pursuant to the notice u/s 148 of the IT Act. In the former two scenarios, AO has to follow the procedure set out for a best of judgment assessment and cannot make an assessment under section 143(3). On the other hand, if the AO chose to accept assessee's request, he can indeed make an assessment under section 143(3). In the case before us, assessments were completed under section 143(3) read with section 147. Or in other words AO accepted the request of the assessee. This in turn makes it obligatory to issue notice u/s 143(2) after the request by the assessee to treat his earlier return as filed in pursuance to notices u/s 148 of the IT Act was received. This request, in the given case, has been made only on 05-10-2010. Any issue of notice prior to that date cannot be treated as a notice on a return filed by the assessee pursuant to a notice u/s 148 of the Act. Or in other words, there was no valid issue of notice u/s 143(2) of the IT Act, and the assessments were done without following the mandatory requirement u/s 143(2) of the IT Act. This in our opinion, render the subsequent proceedings all invalid. Learned CIT(A) had only adjudicated on a position where there was no service of notices u/s 143(2) of the IT Act. He had not dealt with the scenario, where notice was issued prior to the filing of return by the assessee. We therefore, quash the assessment done for the impugned assessment years. Since the appeals of the assessee are allowed on its ground 3, other grounds are not adjudicated.”

ITAT, ‘E’ Delhi Bench decision dated 08.4.2015 passed in the case of ITO vs. Naseman Farms Pvt. Ltd.& Ors. In ITA No. 1175/Del/2011 (AY 2002- 03) wherein the Tribunal has followed the decision of the Apex Court in the case of ACIT vs. Hotel Blue Moon (2014) 321 ITR 362 (SC). The Tribunal has held as under:-

“15. In the light of the above, we are of the view that the AO has not issued notice u/s. 143(2) of the Act which is mandatory. We are also of the view that in completing the assessment u/s. 148 of the Act, compliance of the procedure laid down u/s. 142 and 143(2) is mandatory. As per record, we find that there was no notice issued u/s. 143(2) of the Act which is very much essential for reassessment and it is a failure on the part of the AO for not complying with the procedure laid down in section 143(2) of the Act. If the notice is not issued to the assessee before completion of the assessment, then the reassessment is not sustainable in the eyes of law and deserves to be cancelled. In view of above facts and circumstances of the present case, the issue in dispute raised in additional ground relating to non issue of the mandatory notice u/s. 143(2) of the Act is decided in favour of the assessee and we hold that the impugned assessment order dated 31.12.2009 passed u/s. 147/143(3) of the Act by the AO as invalid. Our view is supported by the various judgments of the Hon’ble Supreme Court, and Hon’ble Jurisdictional High Court. The relevant portion of the head- notes of various judgments of the Hon’ble Courts are reproduced as under:-

“ACIT& Anr. vs. Hotel Blue Moon: [(2010) 321 ITR 362 (SC)] HELD: “It is mandatory for  he AO to issue notice u/s 143 (2). The issuance and service of notice u/s 143 (2) is  mandatory and not procedural. If the notice is not served within the prescribed period, the assessment order is invalid Reassessment-----Notice-----Assessee intimating original return be treated as fresh return---Reassessment proceedings completed despite assessee filing affidavit denying serviced of notice under section 143(2)----Assessing Officer not representing before Commissioner (Appeals) that notice had been issued---- Reassessment order invalid due to want of notice under section 143(2)--- Income-tax Act, 1961, ss. 143, 147, 148(1), prov.----ITO v. R.K. GUPTA [308 ITR 49 (Delhi)Tribu.,”

CIT vs. Vishu & Co. Ltd. In ITA No. 470 of 2008 (2010) 230 CTR (Del) 62 Assessment – validity – Non Service of notice under section 143(2) within time – Notice served on the last date after office hours by affixture as no authorized person was present at assessee’s premises – is not a valid service of notice – Assessment framed in pursuance of such notice is not valid – It is immaterial that the assessee appeared in the proceedings.”

CIT Vs. Cebon India Ltd. (2012) 347 ITR 583 (P&H)  5. We find that concurrent finding has been recorded by the CIT(A) as well the tribunal on the question of date of service of notice. Notice was not served within the stipulated time. Mere giving of dispatch number will not render the said finding to be perverse. In absence of notice being served, the AO had no jurisdiction to make assessment. Absence of notice cannot be held to be curable under s 292BB of the Act.

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