2022 (12) TMI 198 - AT - Income Tax

Validity of reopening of assessment u/s 147 - issuance of notice u/s 143(2) - Period of limitation - non serving statutory notice u/s 143(2) of the Act within statutory period - whether issuance of notice u/s 143(2) of the Act is mandatory after filing of return of income in response to the notice issued u/s 148? - HELD THAT - We find that the Ld. Commissioner thoroughly considered the factual positions of the case and even examined the assessment record and also called for the comments of the AO and thereafter only came to the conclusion, on which we are having concurrence that no notice u/s 143(2) was served upon the Assessee within the statutory period prescribed in the Act and notice u/s 143(2) issued on dated 12.08.2009 is time barred and no assessment can be made on such notice and consequently the Assessment order held to be null and void and deserves to be annulled. Even otherwise we do not find any reason and material to controvert the findings of the Ld. Commissioner and therefore are not inclined to interfere with the impugned order consequently, the appeal filed by the revenue department stands dismissed.

Issues Involved:
1. Validity of notice under Section 143(2) of the Income Tax Act.
2. Denial of exemption under Section 11 of the Income Tax Act.
3. Addition of unexplained cash withdrawals.
4. Disallowance of expenses incurred for running the institution.
5. Addition of loan given to another society.
6. Classification of the assessee as an Association of Persons (AOP).

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 143(2):
The Assessee argued that the notice issued under Section 143(2) on 01.05.2012 was invalid as it was not issued after the filing of the return in response to the notice under Section 148. The Tribunal referred to the Supreme Court's decision in ACIT v. Hotel Blue Moon and several High Court judgments, which established that issuing a notice under Section 143(2) is mandatory after the return is filed in response to a notice under Section 148. The Tribunal found that the Assessing Officer (AO) failed to issue a valid notice under Section 143(2) after the return was filed on 12.10.2012, rendering the assessment order void ab initio. Consequently, the Tribunal quashed the assessment order on this ground.

2. Denial of Exemption under Section 11:
The AO denied the exemption under Section 11, citing that the activities of the society were not in accordance with its objects and that there were violations under Sections 13(1)(d) and 13(3) of the Act. The Tribunal noted that the AO found discrepancies between the original and re-audited accounts and that the expenses claimed were not supported by original bills and vouchers. The Tribunal upheld the AO's decision to deny the exemption, agreeing that the society's activities were not aligned with its objects and that the financial records were poorly maintained.

3. Addition of Unexplained Cash Withdrawals:
The AO added Rs. 15,00,000/- to the income on account of unexplained cash withdrawals. The Tribunal observed that the Assessee failed to establish the source of the cash for subsequent deposits made into the bank account. In the absence of satisfactory explanation, the Tribunal upheld the addition of Rs. 15,00,000/-.

4. Disallowance of Expenses Incurred for Running the Institution:
The AO disallowed expenses amounting to Rs. 3,84,50,457/- due to the lack of supporting original bills and vouchers. The Tribunal found that the expenses were not verifiable, as no valid explanation was provided for the discrepancies between the original and revised accounts. The Tribunal restricted the addition to Rs. 1,95,87,531/- to avoid double counting but upheld the disallowance due to poor maintenance of accounts.

5. Addition of Loan Given to Another Society:
The AO added the loan amount given to the Patronage Society to the income, citing violations under Sections 13(1)(d), 13(3), and 11(5) of the Act. The Tribunal noted that there was no satisfactory explanation for the transfer of funds between the societies and upheld the addition, agreeing that the transactions violated the provisions of the Act.

6. Classification of the Assessee as an Association of Persons (AOP):
The AO treated the Assessee as an AOP, denying the claim of being a charitable institution. The Tribunal upheld this classification, noting that the society's activities were not conducted in accordance with its objects and that there were significant issues with the maintenance of financial records. The Tribunal agreed that the society did not meet the criteria for exemption under Sections 11 and 12 due to the violations and poor record-keeping.

Separate Judgment on Revenue's Appeal (ITA No. 166/Del/2015):
The Revenue's appeal involved the validity of the assessment order for the Assessment Year 2007-08. The Tribunal found that the notice under Section 143(2) was issued on 12.08.2009, which was beyond the statutory period, rendering the assessment order null and void. The Tribunal upheld the Ld. Commissioner’s decision to annul the assessment order due to the time-barred notice.

Conclusion:
The Tribunal allowed the Assessee's appeals (ITA Nos. 7598 & 7599/Del/2018) by quashing the assessment orders due to the invalid notice under Section 143(2). The Tribunal dismissed the Revenue's appeal (ITA No. 166/Del/2015) by upholding the annulment of the assessment order due to the time-barred notice under Section 143(2).

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