2021 (12) TMI 552 - AT - Income Tax

Validity of assessment - mandation of service of notice under Section 143(2) - Period of limitation to issue notice - non-service of notice under Section 143(2) on time - HELD THAT - As notice u/s 143(2) has to be served on the assessee within the statutory time limit if he considers that there is any under-statement of income etc. in the return filed by the assessee. Thus, the Assistant Commissioner of Income Tax, Circle 1, New Delhi, if he is scrutinizing the return of income then, if he considers necessary to vary the return income then he is suppose to send the notice and it is on the address mentioned in the return of income and that to be within the time prescribed under the first provision. If such a statutory requirement is not complied with, then the resultant effect is that assessment order itself is bad in law. This has been held so by the Hon ble Jurisdictional High Court in the case of CIT Vs. Hotline International Pvt. Ltd. 2007 (4) TMI 44 - DELHI HIGH COURT and in CIT V. Lunar Diamonds Ltd. 2005 (3) TMI 33 - DELHI HIGH COURT The Hon ble Delhi High Court in the case of CIT Vs. Lunar Diamonds Ltd. (supra) held that the burden is on the revenue to prove that notice was served within time and when assessee has filed an affidavit stating that it had not received the notice, then the burden was on the revenue to prove that notice was served upon the assessee within the prescribed limit. Here the revenue has failed to prove service on the assessee as stated above. Accordingly, we hold that failure to serve the notice on the assessee within the prescribed statutory time limit, assessment proceedings become void ab initio and consequently the assessment order is quashed - Decided in favour of assessee.

Issues Involved:

1. Validity of the assessment order under Section 144 of the Income Tax Act due to alleged non-service of notice under Section 143(2).
2. Treatment of agricultural income as unexplained income.
3. Treatment of gross receipts from contractual work.
4. Addition of cash deposits and cheque deposits as unexplained investments.
5. Addition of purchase price of land as unexplained investment under Section 69.
6. Overall legality and factual correctness of the CIT (A)’s order.

Issue-wise Detailed Analysis:

1. Validity of the assessment order under Section 144 of the Income Tax Act due to alleged non-service of notice under Section 143(2):

The primary issue is whether the notice under Section 143(2) was served on the assessee within the statutory period. The notice was dispatched to an incorrect address (1417/3, Gali No. 7, Rajiv Nagar, Gurgaon) rather than the address mentioned in the return of income (E-914, Chitranjan Park, New Delhi). The assessee contended that the notice was not served and filed an affidavit denying receipt. The department argued that the notice was sent to the address in the PAN database and was not returned unserved. The Tribunal observed that the correct address for service is the one provided in the return of income. Since the notice was sent to a wrong address, the assessment order was deemed invalid. The Tribunal relied on the Delhi High Court rulings in CIT Vs. Lunar Diamonds Ltd. and CIT Vs. Hotline International Pvt. Ltd., which mandate that the burden lies on the revenue to prove service of notice within the statutory period. Consequently, the assessment order was quashed due to the failure to serve the notice properly.

2. Treatment of agricultural income as unexplained income:

The assessee declared agricultural income of ?3,82,300/-, which was treated as unexplained income by the authorities. The Tribunal noted that the holding of agricultural land by the assessee was not doubted, and agricultural income had been accepted in other assessment years. Therefore, there was no justification for treating the declared agricultural income as unexplained.

3. Treatment of gross receipts from contractual work:

The assessee disclosed gross receipts of ?34,82,191/- as part of the total contractual receipts of ?2,31,04,460/- from M/s Paradise Villa. The authorities treated the gross receipts as separate from the contractual receipts and denied setting off the net business income. The Tribunal found the approach of the authorities to be arbitrary and unreasonable, noting that the TDS deducted by the payer was duly declared and claimed by the assessee. Thus, the addition was set aside.

4. Addition of cash deposits and cheque deposits as unexplained investments:

The authorities added total cash deposits of ?1,30,90,000/- and cheque deposits of ?22,00,000/- and ?35,00,000/- as unexplained investments. The assessee explained that these were refunds of advance money received earlier. The Tribunal observed that the evidence of transactions and explanations provided by the assessee were brushed aside without proper consideration. The addition was deemed against the facts and judicial pronouncements, and thus, liable to be deleted.

5. Addition of purchase price of land as unexplained investment under Section 69:

The authorities considered the purchase price of land at Khasra No. 4/36, Village Bhichadaii, Taluka Jodhpur, paid by M/s OMG Builders Private Ltd., as unexplained investment in the hands of the assessee. The Tribunal noted that the purchase through a registered sale deed was not doubted, and the addition was made merely because the sale price did not match the AIR sheet. This approach was found to be unwarranted and arbitrary, leading to the deletion of the addition.

6. Overall legality and factual correctness of the CIT (A)’s order:

The Tribunal found the CIT (A)’s order to be bad in law and against the facts of the case. The assessment order was quashed due to the non-service of notice under Section 143(2), rendering the issues on merits purely academic.

Conclusion:

The Tribunal quashed the assessment order on the primary ground of non-service of notice under Section 143(2) within the statutory period, making the assessment proceedings void ab initio. Consequently, the issues raised on merits were not addressed as they became academic. The order was pronounced in the open court on 07/12/2021.

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