2022 (8) TMI 1550 - AT - Income Tax

Assessment u/s 153C - AO valid Jurisdiction to pass assessment order for A.Y. 2014-15 - Whether present A.Y. 2014-15 should be taken as year of search for the other person also? - HELD THAT - The period of six years would be A.Y. 2010-11 to 2015-16 and the year of initiation of proceedings u/s. 153C of the Act viz the year of search for the purpose of other person would be assessment year 2016-17. Obviously present assessment year under consideration A.Y. 2014-15 falls within the period of six years from A.Y. 2010-11 to 2015-16, therefore, the AO was required assumed jurisdiction to initiate assessment proceedings and to frame assessment order for present A.Y. 2014- 15 only by issuing u/s.153C of the Act. Undisputedly, impugned assessment order has been framed u/s. 143 (3) of the Act by mentioning details of search in the first para by the AO. As per contention of Ld. CIT (DR) since the search was conducted in the case of other person on 27.06.2013, therefore, the relevant year of search was A.Y. 2014-15 for present assessee i.e. other person and, therefore, the AO was in treating the present assessment year as year of the search for the other person and thereby the AO was not required to issue u/s. 153C of the Act to the assessee in the present case. We are not in agreement with the contention of the Ld. CIT (DR) that present A.Y. 2014-15 should be taken as year of search for the other person also, therefore, there was no requirement of issuing u/s. 153C of the Act to the assessee before initiating assessment proceedings for A.Y. 2014-15. Thus, impugned assessment as well as first assessment order dated 30.03.2018 and first appellate order dated 14.10.2019 are not sustainable and thus we quash the same accordingly. Ground No. 3 of assessee s appeal is allowed. Impugned assessment year is invalid and without jurisdiction as the said assessment has been completed without complying mandatory legal requirement provision u/s. 143 (2) and, therefore, such assessment is void-ab-initio and liable to be quashed - In the present case we are satisfied that at the time of issuing notice u/s.143 (2) of the Act on 26.10.2015, the AO was only having copy of acknowledgment of filing return of income by the assessee and not the copy of the return. Therefore, immediately after receipt of copy of acknowledgment of filing of return on 26.10.2015 immediately issuing notice u/s. 143 (2) of the Act on the very same date would amount to issuing notice without having benefit of perusal of return of income tax and without examination of the same by the AO. Therefore, we incline to hold that the notice issued by the AO on 26.10.2015 was not a valid notice as per mandate of section 143(2) and Judgment of Society for Worldwide Interbank Financial Telecommunications 2010 (4) TMI 43 - DELHI HIGH COURT . Thus, we are compelled to hold that the AO did not assume valid jurisdiction to frame assessment u/s. 143 (3) of the Act on the strength of notice dated 26.10.2015 u/s. 143 (3) - assessment order and all subsequent proceedings and orders are hereby quashed. Accordingly, additional ground No. 1 and 2 of assessee are also allowed.

Summary

Issues Involved:

1. Admission of additional grounds of appeal.
2. Validity of assessment order due to non-compliance with Section 143(2) of the Income Tax Act.
3. Application of Section 153C regarding jurisdiction and assessment proceedings.
4. Deduction of prior period expenses.

Issue-wise Detailed Analysis:

1. Admission of Additional Grounds of Appeal:

The assessee sought admission of additional grounds of appeal, arguing that these grounds were legal in nature and went to the root of the validity of the assessment. The Tribunal admitted these additional grounds, acknowledging their relevance and the legal precedent set by the Supreme Court in similar cases. The Tribunal emphasized that these grounds could be adjudicated based on the existing record without the need for extraneous material.

2. Validity of Assessment Order Due to Non-compliance with Section 143(2):

The assessee contended that the assessment order was invalid as it was completed without adhering to the mandatory requirements of Section 143(2) of the Income Tax Act. The Tribunal noted that the notice under Section 143(2) was issued on the same day the return was filed, indicating a lack of application of mind by the Assessing Officer (AO). Citing the judgment of the Delhi High Court in the case of Society for Worldwide Interbank Financial Telecommunications, the Tribunal held that the AO must examine the return before issuing a notice under Section 143(2). Since the AO issued the notice without having the return, the Tribunal concluded that the notice was invalid, leading to the quashing of the assessment order.

3. Application of Section 153C Regarding Jurisdiction and Assessment Proceedings:

The Tribunal examined whether the AO had validly assumed jurisdiction under Section 153C for the assessment year 2014-15. The Tribunal referred to the ITAT's decision in the case of Mapsa Tapes Pvt. Ltd., which clarified that the six-year period for assessment under Section 153C should be counted from the date of recording satisfaction by the AO of the searched person. In this case, the satisfaction was recorded on 22.09.2015, making the relevant assessment years 2010-11 to 2015-16. Since the AO did not issue a notice under Section 153C for the assessment year 2014-15, the Tribunal held that the AO did not have valid jurisdiction, leading to the quashing of the assessment order.

4. Deduction of Prior Period Expenses:

The assessee argued for the deduction of prior period expenses amounting to Rs. 11,05,027/-, claiming there was no dispute on their allowability except for the period they pertained to. The Tribunal did not adjudicate on this issue as the appeal was partly allowed on legal grounds, rendering the merits of the case infructuous.

Conclusion:

The Tribunal allowed the appeal partly, quashing the assessment order due to the AO's failure to comply with the mandatory requirements of Sections 143(2) and 153C. The additional grounds of appeal were admitted, and the Tribunal emphasized the importance of following procedural requirements to ensure the validity of assessment orders. The issue of prior period expenses was dismissed as not pressed, and the grounds on merits were not adjudicated due to the relief granted on legal grounds.