NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 IS MANDATORY AFTER FILING OF THE RETURN OF INCOME AFTER ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT

[Mr. M. GOVINDARAJAN]

In ITO (EXEMPTION) , WARD-1 (2) , NEW DELHI VERSUS INNOVATIVE WELFARE AND EDUCATIONAL SOCIETY AND INNOVATIVE WELFARE AND EDUCATIONAL SOCIETY VERSUS ADIT (E) , TRUST CIRCLE, NEW DELHI - 2022 (12) TMI 198 - ITAT DELHI,  the  assessee (appellant in this appeal) had filed its return of income on 31.03.2006 declaring NIL income.  The said return was processed and assessed on 21.09.2007.  It came to the knowledge of the Assessing Officer that the assessee has re-audited its books of account on 22.09.2011.  This re-audit is from the financial year 2005 – 06 onward.  The re-audit account has not been submitted to the Department till the same recorded by the Department. 

The Assessing Officer found that the books of account are in the form of history and cannot be revised any time in the future.  They are to be accepted by the shareholders in the Annual General Meeting.  Once it is approved it will be the final document. 

Since the Assessing Officer found it difficult to verify the claims of the assessee and to determine the income and application he referred to the Special Auditor for checking the veracity of original and re-audited accounts of the assessee.  The Assessing Officer re-opened the case on 27.03.2012 under Section 147/148 of the Income Tax Act, 1961 (‘Act’ for short).  Show cause notice was issued on 01.05.2012 to the assessee and the assessee also replied to the show cause notice.  On considering the reply the Assessing Officer held that the assessee was to file the revised return b 27.04.2012 i.e., within 30 days from the date of issue of notice.  The assessee filed its revised return on 12.10.2012 belatedly.  The Assessing Officer accepted the return but treated as non-est since the said return was filed after the due date.

On getting the report from the Special Auditor the Assessing Officer compared with the original audited accounts.  The Assessing Officer found some differences in amounts.  The Assessing Officer also observed that the assessee has not shown its expenses in the books of account.  The difference is due to the expenses and its circulation of funds between two societies in the form of unsecured loan and repayment which resulted in difference between the loan amount of assessee society and Patronage Welfare and Educational Society.  The assessee did not produce original bills for the expenses claimed by it to the tune of Rs.3,84,50,457/-. 

The Assessing Officer passed the assessment order under section 143(3) of the Act and made additions to the tune of Rs.3,84,50,457/-.  Further the Assessing Officer held that the activities of the society are not in accordance with its objects.  Therefore the Assessing Officer denied the exemption given to the assessee.  A proposal for withdrawal of registration under Section 12AA has been moved separately to DIT (Exemptions).

The assessee, being aggrieved against the order of Assessing Officer filed an appeal before the Commissioner of Income Tax (Appeals) who allowed the appeal partly.  The Commissioner of Income Tax (Appeals) considered the assessment order and the submissions of the appellant’s analysis of the differences between the original and re-casted accounts.  The difference came @ Rs.1,95,87,531/- whereas the Assessing Officer made additions to the tune of Rs.3,84,50,457/- which cannot be sustained according to the Commissioner of Income Tax (Appeals).  The Commissioner of Income Tax (Appeals) restricted the addition @ Rs.1,95,87,531/- .  The Commissioner of Income Tax (Appeals) did not find any fault on the holding of the Assessing Officer’s proposal for the withdrawal of exemption to the assessee. 

Against the order of Commissioner of Income Tax (Appeals) the appellant filed the present appeal before the Income Tax Appellate Tribunal (‘ITAT’ for short).  The appellant submitted the following before the ITAT-

• The notice issued under section 143 (2), dated 01.05.2012 is bad in law and consequential assessment framed in response to the said notice is un-sustainable and assessment framed under section  148 read with section143(3) after treating the return filed on dated 12.10.2012 is as non-est, is unwarranted and liable to be set aside.
• The notice under section 143(2) of the Act is not only mandatory but in the absence of such notice, the Assessing Officer cannot proceed to make enquiry.
• The Assessing Officer has erred in holding that the return filed on dated 12.10.2012 in response to the notice under section 148 after specified time limit of 30 days is non-est.
• The reasons recorded and the reopening under section 148 is bad in law since no proper approval as required under section 151 has been obtained.

The Revenue supported the impugned order passed by the Commissioner of Income Tax (Appeals) and submitted that the same is not suffered from any perversity, impropriety and illegality and therefore does not require any interference.  After issuing notice under section 148 of the Act to the Assessee, admittedly two notices under section 143(2) have been issued on dated 01.05.2012 and 09.08.2012 to the Assessee, hence the assessment framed and its sustenance do not require any interference.

In the present appeal the ITAT is to decide the questions as to whether-

• issuance of notice under section 143(2) of the Act is mandatory after filing of return of income in response to the notice issued under section 148 of the Act;
• if the answer is ‘yes’ then what would be the fate of the assessment order framed without issuing notice under section 143(2) of the Act.

The ITAT relied on the following judgments for the purposes of this case-

• In ASSISTANT COMMISSIONER OF INCOME TAX & ANR. VERSUS M/S. HOTEL BLUE MOON - 2010 (2) TMI 1 - SUPREME COURT, the Supreme Court held that the requirement to issue notice under section 143(2) is mandatory and non issuance of a notice is not a procedural irregularity and the same is not curable.  Therefore the requirement of notice under section 143(2) of the Act cannot be dispensed with.
• In THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 VERSUS MARCK BIOSCIENCES LTD. - 2019 (4) TMI 215 - GUJARAT HIGH COURT, while dealing with the situation where the assessment order was passed without issuance of valid notice under section 143(2) of the Act after filing of return of income, has held that section 143 read with section 292 BB of the Act on non-issuance of notice under section 143(2) is not a procedural irregularity and same cannot be cured under section  292 BB of the Act.   Notice issued under section 143(2) of the Act to the Assessee prior to filing of return of income, being invalid notice and assessment order passed in pursuance to the notice deserves to be set aside.
• In ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 2(1), PANAJI VERSUS GENO PHARMACEUTICALS LTD. - 2013 (10) TMI 218 - BOMBAY HIGH COURT, the ITAT held that that notice under section 143(2) is mandatory and in absence of such service, the Assessing Officer cannot proceed to make an enquiry on the return filed in compliance with the notice issued under section 148 of the Act.
• In DIRECTOR OF INCOME-TAX VERSUS SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL, TELECOMMUNICATIONS - 2010 (4) TMI 43 - DELHI HIGH COURT the High Court dealt with the same situation where the notice was served on the authorized representative simultaneously on filing of its return.  The High Court held that the notice was ready even prior to filing of the return of income and therefore, on its face value would amount to gross violation of the scheme under section 143(2) of the Act.
• In ‘Sri Rishav Prakash Jain New v. Income Tax Officer, New Delhi’ – ITA No. 2016/Del/2012, decided on 08.02.2019, ITAT, New Delhi observed that it is an admitted fact that in response to the notice under section 148 dated 28.03.2008 the assessee, vide letter dated 09.05.2008 has requested the Assessing Officer to treat the return already filed as return filed in response to notice under section 148. It is also an admitted fact that no notice under section 143(2) of the Act was issued subsequent to the filing of the return by the assessee in response to the notice under section 148 of the Act.  Therefore the reassessment order passed by the Revenue is not sustainable.

The ITAT, in view of the above judgments, held that it is clear that for processing the revised return filed in response to the notice under section 148 of the Act, issuance of notice under section 143(2) of the Act is necessary and mandatory.  Non-issuance of the notice under section 143(2) is not a procedural irregularity and therefore the same cannot be cured under section 292 BB of the Act. Consequently the assessment framed against the Assessee without issuing notice under section 143(2) of the Act is unsustainable and liable to be quashed being void-abinitio.