2025 (3) TMI 1267 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - as argued notice was issued on the borrowed satisfaction and assessment was completed without satisfying the requirement of section 147 - HELD THAT - AO has proceeded to complete the assessment without resorting to the new provisions. It is fact on record that the notice u/s 148 was issued only on 01.04.2021 and he cannot proceed to apply the old provisions to complete the assessment. From the record we observed that the AO has proceeded to complete the assessment in hurry without even waiting for information from the assessee considering the limitation period based on the old provisions. The fact brought on record shows that the AO merely satisfied the information received from the investigation wing on receipt of STR without proper investigation on his part and after collecting partial information from the assessee and proceeded to complete the assessment with the incomplete information and without giving any opportunity also not shared the information to the assessee and also not considered the information filed by the assessee. AO should have followed the amended and new provisions with effect from 01.04.2021 based on the fact that the notice was actually issued only on 01.04.2021 and even AO was aware of the fact that the notice was only issued on 01.04.2021 and also he was aware of the fact that new provisions are applicable with effect from 01.04.2021. Therefore the assessment passed u/s 147 is without adhering to the new procedure applicable from 01.04.2021 and it is beyond jurisdiction and bad in law. Hence we are inclined to set aside the order passed u/s 147 of the Act. In the result ground no.2 raised by the assessee is allowed. Non-issue of notice u/s 143(2) - On careful consideration it is fact on record that the AO has failed to issue any notice u/s 143(2) for both the assessment years under consideration i.e. AY 2016-17 and AY 2017-18. Therefore the completion of assessment without issuing notice u/s 143(2) is bad in law and also invalid in the eyes of settled position of law. Even the provisions of section 292BB of the Act will not come to rescue for non-issue of notice u/s 143(2) of the Act the provision u/s 292BB is only to cure infirmities in the manner of service of notice and it is not intended to cure the complete absence of the notice itself as held in the case of Laxman Das Khandelwal 2017 (12) TMI 517 - ITAT AGRA Hence we are inclined to treat the assessment completed without issue of statutory notice u/s 143(2) is bad in law and deserves to be quashed as void ab initio.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment include:

• The validity of the notice issued under Section 148 of the Income Tax Act, 1961, particularly concerning the procedural requirements post-amendments effective from April 1, 2021.
• The legality of the assessment conducted under Section 147 without issuing a notice under Section 143(2) following the filing of a return in response to a Section 148 notice.
• The appropriateness of the additions made under Section 68 concerning unsecured loans and the treatment of evidence regarding the identity, creditworthiness, and genuineness of the transactions.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Notice under Section 148

• Relevant Legal Framework and Precedents: The amendments to Section 148 and the introduction of Section 148A in the Finance Act 2021, effective April 1, 2021, require specific procedures to be followed before issuing a notice for reassessment. The issuance of a notice is considered valid only when it is dispatched, not merely when it is digitally signed.
• Court's Interpretation and Reasoning: The Tribunal found that the notice under Section 148 was issued on April 1, 2021, and thus, the new procedural requirements should apply. The Tribunal relied on precedents from various High Courts, which held that the issuance date is the dispatch date, not the date of digital signing.
• Key Evidence and Findings: Evidence showed that the notice was dispatched on April 1, 2021, as per the communication reference and email records.
• Application of Law to Facts: Since the notice was issued after the new provisions became effective, the Assessing Officer (AO) was required to follow the amended procedures, which were not adhered to, rendering the notice and subsequent assessment invalid.
• Conclusions: The Tribunal concluded that the assessment under Section 147 was beyond jurisdiction and bad in law due to non-compliance with the new procedural requirements.

Legality of Assessment without Notice under Section 143(2)

• Relevant Legal Framework and Precedents: Section 143(2) mandates issuing a notice to the assessee after a return is filed in response to a Section 148 notice. The absence of such a notice invalidates the assessment.
• Court's Interpretation and Reasoning: The Tribunal emphasized that the issuance of a notice under Section 143(2) is crucial for completing the assessment, as established in various judicial precedents.
• Key Evidence and Findings: The record showed no notice under Section 143(2) was issued for the assessment years 2016-17 and 2017-18.
• Application of Law to Facts: The failure to issue a notice under Section 143(2) rendered the assessments for these years invalid and void ab initio.
• Conclusions: The Tribunal quashed the assessments for the years 2016-17 and 2017-18 due to the absence of a notice under Section 143(2).

Additions under Section 68 for Unsecured Loans

• Relevant Legal Framework and Precedents: Section 68 requires the assessee to prove the identity, creditworthiness, and genuineness of any loan or credit entries in their accounts.
• Court's Interpretation and Reasoning: The Tribunal noted that the assessee provided partial compliance and evidence regarding the unsecured loans but found procedural lapses in the AO's approach.
• Key Evidence and Findings: The Tribunal observed that the AO relied on internal reports without adequate independent verification or opportunity for the assessee to respond.
• Application of Law to Facts: The Tribunal found that the AO's assessment lacked proper investigation and procedural fairness, leading to the partial allowance of the assessee's claims.
• Conclusions: The Tribunal allowed partial relief to the assessee by setting aside some of the additions made under Section 68.

3. SIGNIFICANT HOLDINGS

• The Tribunal held that the assessment under Section 147 was invalid due to non-compliance with the amended procedural requirements effective from April 1, 2021. It stated, "the assessment passed u/s 147 is without adhering to the new procedure applicable from 01.04.2021 and it is beyond jurisdiction and bad in law."
• The Tribunal established that the absence of a notice under Section 143(2) invalidates the assessment, reinforcing the necessity of procedural compliance in reassessment cases.
• It concluded that procedural lapses and lack of proper investigation by the AO could not justify the additions made under Section 68, granting partial relief to the assessee.

In conclusion, the Tribunal partly allowed the appeals filed by the assessee and dismissed the appeals filed by the Revenue, emphasizing the importance of adhering to procedural requirements in reassessment proceedings.