2019 (3) TMI 1811 - AT - Income Tax

Reopening of assessment u/s 147 - notice under section 143(2) not served on the assessee - HELD THAT - In keeping with the provisions of the Act as considered hereinabove and in accordance with Shri Rajeev Sharma 2010 (5) TMI 600 - ALLAHABAD HIGH COURT and UPSIDC 2016 (7) TMI 1584 - ALLAHABAD HIGH COURT both rendered by the Hon ble jurisdictional High Court to both of which no contradictory decision has been cited we hold that since the assessee had in the reassessment proceedings requested the A.O to treat the original return filed as a return filed in the reassessment proceedings and that this being so it was incumbent on the A.O to issue and serve a notice u/s 143(2) to the assessee. This having not been done the reopening of the completed assessment of the assessee cannot survive and it is quashed. In the absence of service of notice under section 143(2) of the Act proceedings under section 147 of the Act are invalid. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of initiation of proceedings under Section 147 by issuing notice under Section 148.
2. Validity of proceedings under Section 147 being barred by limitation.
3. Issuance and service of mandatory notice under Section 143(2).
4. Validity of assessment based on books of account seized from a third party.
5. Affidavit evidence regarding the seized books of account.
6. Addition of sums aggregating ?35,02,27,426/- to the income of the appellant.
7. Set-off of debit entries against assessed income.
8. Treatment of debit entry of ?4,06,00,000/-.
9. Contradiction of the order with facts, law, and principles of natural justice.

Detailed Analysis:

1. Legality of Initiation of Proceedings under Section 147:
The assessee argued that there was no "relevant material" to form a "reason to believe" for initiating proceedings under Section 147, making the notice under Section 148 dated 24.03.2015 illegal. The CIT(A)'s contrary view was deemed inconsistent with the facts and applicable law.

2. Validity of Proceedings under Section 147 being Barred by Limitation:
The assessee contended that the notice under Section 148 dated 24.03.2015 was issued after four years from the assessment year 2008-09, making it barred by limitation as per the proviso to Section 147. The CIT(A) was held wrong in considering the notice within the time limit prescribed under Section 149(1)(b).

3. Issuance and Service of Mandatory Notice under Section 143(2):
The assessee claimed that no notice under Section 143(2) was served, which was a mandatory requirement. The CIT(A) dismissed this objection, relying on case laws stating that non-issuance of notice under Section 143(2) does not invalidate proceedings under Section 147. However, the Tribunal found that the Department's record did not show service of notice under Section 143(2), thus invalidating the reassessment proceedings as per the jurisdictional High Court's rulings in "CIT vs. Rajeev Sharma" and "UPSIDC vs. CIT."

4. Validity of Assessment Based on Books of Account Seized from a Third Party:
The appellant argued that the assessment based on books of account labeled "M/s ABC," seized from a third party, was invalid. The Tribunal did not delve into this issue due to the quashing of the reassessment proceedings.

5. Affidavit Evidence Regarding the Seized Books of Account:
The appellant presented an affidavit stating that the seized books of account were from the possession of a third party and not related to the appellant's transactions. This affidavit was not rebutted or cross-examined by the authorities.

6. Addition of Sums Aggregating ?35,02,27,426/-:
The authorities added ?35,02,27,426/- to the appellant's income based on the seized material. The Tribunal did not address this issue separately due to the quashing of the reassessment proceedings.

7. Set-off of Debit Entries Against Assessed Income:
The appellant argued for the set-off of debit entries against the assessed income, resulting in a loss. This issue was not separately adjudicated due to the quashing of the reassessment proceedings.

8. Treatment of Debit Entry of ?4,06,00,000/-:
The appellant contended that the debit entry of ?4,06,00,000/- should not be added to the income as the payer was unidentified and the purpose was not established. This issue was also not separately adjudicated due to the quashing of the reassessment proceedings.

9. Contradiction of the Order with Facts, Law, and Principles of Natural Justice:
The appellant argued that the order was contrary to facts, law, and principles of natural justice. The Tribunal found merit in the appellant's grievances regarding the non-service of notice under Section 143(2), leading to the quashing of the reassessment proceedings.

Conclusion:
The Tribunal quashed the reassessment proceedings under Section 147 due to the non-service of mandatory notice under Section 143(2), rendering the entire reassessment process invalid. The appeal was allowed, and the stay petition was disposed of as infructuous.