$ * IN HIGH COURT OF DELHI AT NEW DELHI 4. + ITA 578/2015 PR. COMMISSIONER OF INCOME TAX -18 ...... Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. versus SILVER LINE ..... Respondent Through: Dr. Rakesh Gupta with Ms. Poonam Ahuja, Mr. Somil Agarwal and Mr. Rohit Kumar Gupta, Advocates. WITH 5. + ITA 579/2015 PR. COMMISSIONER OF INCOME TAX -18 ...... Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. versus SILVER LINE ..... Respondent Through: Dr. Rakesh Gupta with Ms. Poonam Ahuja, Mr. Somil Agarwal and Mr. Rohit Kumar Gupta, Advocates. WITH 6. + ITA 580/2015 PR. COMMISSIONER OF INCOME TAX -18 ...... Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. ITA No. 578 of 2015 & connected matters Page 1 of 15 versus SILVER LINE ..... Respondent Through: Dr. Rakesh Gupta with Ms. Poonam Ahuja, Mr. Somil Agarwal and Mr. Rohit Kumar Gupta, Advocates. WITH 7. + ITA 581/2015 PR. COMMISSIONER OF INCOME TAX -18 ...... Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. versus SILVER LINE ..... Respondent Through: Dr. Rakesh Gupta with Ms. Poonam Ahuja, Mr. Somil Agarwal and Mr. Rohit Kumar Gupta, Advocates. WITH 8. + ITA 585/2015 PR. COMMISSIONER OF INCOME TAX -18 ...... Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. versus SILVER LINE ..... Respondent Through: Dr. Rakesh Gupta with Ms. Poonam Ahuja, Mr. Somil Agarwal and Mr. Rohit Kumar Gupta, Advocates. WITH 9. + ITA 586/2015 ITA No. 578 of 2015 & connected matters Page 2 of 15 PR. COMMISSIONER OF INCOME TAX -18 ...... Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. versus SILVER LINE ..... Respondent Through: Dr. Rakesh Gupta with Ms. Poonam Ahuja, Mr. Somil Agarwal and Mr. Rohit Kumar Gupta, Advocates. WITH 10. + ITA 587/2015 PR. COMMISSIONER OF INCOME TAX -18 ...... Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. versus SILVER LINE ..... Respondent Through: Dr. Rakesh Gupta with Ms. Poonam Ahuja, Mr. Somil Agarwal and Mr. Rohit Kumar Gupta, Advocates. AND 11. + ITA 588/2015 PR. COMMISSIONER OF INCOME TAX -18 ...... Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. versus SILVER LINE ..... Respondent Through: Dr. Rakesh Gupta with Ms. Poonam ITA No. 578 of 2015 & connected matters Page 3 of 15 Ahuja, Mr. Somil Agarwal and Mr. Rohit Kumar Gupta, Advocates. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 4.11.2015 S. Muralidhar, J.: 1. These eight appeals by Revenue under Section 260A of Income Tax Act, 1961 ( Act ) are directed against common impugned order dated 26th September 2014 passed by Income Tax Appellate Tribunal ( ITAT ) in four appeals of Revenue being ITA Nos. 1809, 1504, 1505 and 1506/Del/2013 and four cross objections of Assessee being CO Nos. 122, 109, 107 and 108/Del/2013 for Assessment Years ( AYs ) 2005-06, 2006-07, 2007-08 and 2008-09. 2. central issue in present case is whether failure by Assessing Officer ( AO ) to issue notice to Assessee under Section 143(2) of Act is fatal to reassessment proceedings under Sections 147/148 of Act? 3. Assessee firm is engaged in business of trading in silver and gold jewellery and also in precious and semi-precious stones. return of income in Saral Form was initially filed by Assessee for AY 2005-06 on 20th September 2005. return was processed under Section 143(1) of Act. return filed by Assessee for subsequent AY 2006-07 was also processed under Section 143(1) of Act. For AY 2007-08, return was picked up for scrutiny and notice under Section 143(2) of Act was ITA No. 578 of 2015 & connected matters Page 4 of 15 issued. Subsequently, assessment was finalised by AO by passing order under Section 143 (3) of Act. return for AY 2008-09 was processed under Section 143(1) of Act. 4. Information was received from Director of Income Tax (Investigation), Jaipur by letter dated 10th May 2010 that Assessee was making bogus purchases for which cheques were issued and bills were obtained without any physical delivery of goods. It was stated that purchases shown were bogus and purchase bills obtained had been used to suppress profits and, therefore, income to that extent had escaped assessment. On above basis, reasons were recorded for re-opening of assessment under Section 147 of Act and notice under Section 148 of Act was issued on 28th March 2011 and served upon Assessee on 31st March 2011. It was stated by AO in said notice that he had reason to believe that income for AY 2005-06 had escaped assessment. Assessee was called upon to file return in prescribed form for said AY. 5. On 1st April 2011, Assessee wrote letter to AO stating, inter alia, that return for AY 2005-06 originally filed on 20th September 2005 should be treated as return in response to notice under Section 148 of Act. Assessee asked for certified copy of reasons recorded and noted that return was being filed under protest . Thereafter AO on 14th November 2011 issued notice to Assessee under Section 142(1) of Act stating as under: Sir, In connection with assessment for AY-2005-06, you ITA No. 578 of 2015 & connected matters Page 5 of 15 are required to: (a)** prepare true and correct return of income/ for above years.....in respect of which you are assessable under Income Tax Act, 1961. During previous year relevant to assessment year mentioned above. return should be in appropriate form as prescribed in Rule 12 of Income Tax Rules, 1962. blank return form is enclosed. It should be duly verified and signed in accordance with provisions of section 140 of said Act and delivered at my office on or before.............. (b)** produce or cause to be produced before me at my office at Room No.185-A 1st floor, C.R. Bldg., I.P. Estate, New Delhi on 18-11-2011, at 11:00 a.m. accounts and/or documents specified and make compliance of questionnaire annexed. (c)** furnish in writing and verified in prescribed manner information called as per annexure and on points or matters specified therein before me at my office at Room No. 185A, 1st floor, C.R. Bldg., I.P. Estate, New Delhi on 18-11-2011 at 11:00 a.m. 6. It is not in dispute that although above letter refers to enclosure of blank return form, no such blank return form was in fact enclosed. It is further not disputed that above notice under Section 142(1) of Act is in standard form. 7. For AY 2005-06, reassessment proceedings were finalised and assessment order was passed by AO on 28th December 2011 making addition of Rs.7,05,600 on account of deduction wrongly made. taxable income was computed at Rs.2,02,19,273. Similar orders of reassessment were passed by AO for AYs 2006-07, 2007-08 and 2008-09. ITA No. 578 of 2015 & connected matters Page 6 of 15 8. Assessee appealed to Commissioner of Income Tax (Appeals) [ CIT (A) ) questioning initiation of reassessment proceedings as well as reassessment orders on merits. By order dated 31st December 2012 for AY 2005-06, CIT (A) upheld re-opening of assessment but held on merits that addition was not justified. Similar orders were passed in Assessee's appeals for other three AYs. 9. Against said orders of CIT (A), Revenue filed four appeals before ITAT. Assessee filed cross-objections. During course of hearing of appeals before ITAT, Assessee raised additional ground that no notice under Section 143(2) of Act had been issued prior to finalisation of reassessment orders by AO and therefore those orders were without jurisdiction. In impugned common order, ITAT considered said ground and decided it in favour of Assessee and against Revenue. 10. Mr. N.P. Sahni, learned Senior Standing counsel for Revenue, first submitted that ITAT erred in permitting Assessee to raise ground regarding non-issuance of notice under Section 143(2) of Act, when no such ground has been raised during reassessment proceedings before AO. He accordingly submitted that in terms of proviso to Section 292BB of Act, it was not open to Assessee to raise such plea and that too for first time before ITAT. Secondly, it was submitted that Assessee had failed to file any return pursuant to notice issued under Section 148 of Act. return initially filed had been processed under Section 143 (1) for three of AYs. There was no occasion for AO, in ITA No. 578 of 2015 & connected matters Page 7 of 15 absence of any return having been filed by Assessee pursuant to notice issued under Section 148 of Act, to issue notice under Section 143 (2) of Act. It was for above reason that AO thought it appropriate to issue notice under Section 142 (1) of Act. Relying on decision in Alpine Electronics Asia Pte. Ltd. v. Director General of Income Tax (2012) 341 ITR 247, Mr. Sahni submitted that in facts and circumstances of present case, failure of AO to issue notice under Section 143(2) of Act was not fatal to reassessment proceedings. 11. Dr. Rakesh Gupta, learned counsel for Assessee, pointed out that requirement of issuance of notice under Section 143(2) of Act prior to finalisation of reassessment order was jurisdictional one and compliance of such requirement could not be dispensed with by resorting to proviso to Section 292BB of Act. Referring to decisions of Allahabad High Court in Commissioner of Income Tax v. Parikalpana Estate Development (P.) Ltd. (2012) 79 DTR 246 (All.) and Manish Prakash Gupta v. Commissioner of Income Tax (2012) 259 CTR 57 (All.), he submitted that Section 292BB of Act was only rule of evidence for dealing with service of notice and has nothing to do with mandatory requirement of issuance of notice under Section 143 (2) of Act which is notice giving jurisdiction to AO. Reference was also made to decision of this Court in Pr. CIT v. Shri Jai Shiv Shankar Traders Pvt. Ltd. (decision dated 14th October 2015 in ITA No. 519 of 2015). Dr. Gupta further pointed out that for three of AYs in question i.e. 2005-06, 2006- 07 and 2007-08, Section 292 BB of Act could not be invoked since that ITA No. 578 of 2015 & connected matters Page 8 of 15 provision was introduced in statute book with effect from 1 st April 2008. Referring to decision in Commissioner of Income Tax v. Mohammad Khaleeq (2015) 229 Taxman 566 (All.) and decision of this Court dated 6th October 2010 in ITA No. 1159/2010 (CIT v. Kuber Tobacco Producers P. Ltd.) he pointed out that Section 292BB of Act has been held to be prospective, i.e., applicable only from AY 2008-09. Finally Dr. Gupta submitted that in any event question as to legal effect of failure of AO to issue notice under Section 143(2) of Act was pure question of law and on strength of decision of Supreme Court in National Thermal Power Co. Ltd. v. Commissioner of Income Tax (1998) 229 ITR 383 (SC) and Gedore Tools (P) Ltd. v. Commissioner of Income Tax (1999) 238 ITR 268 (Del) such point could have been raised by Assessee during course of hearing in ITAT, as long as it did not require any new or disputed facts to be brought on record. Reliance , in this regard, was also placed on decision in Assam Company (I) Ltd. v. CIT (2002) 256 ITR 423 (Gau). 12. Court first proposes to consider question as to whether in terms of proviso to Section 292BB of Act, Assessee was precluded, at stage of proceedings before ITAT, from raising contention regarding failure of AO to issue notice under Section 143(2) of Act. legal position appears to be fairly well settled that Section 292BB of Act talks of drawing of presumption of service of notice on Assessee and is basically rule of evidence. In Commissioner of Income Tax v. Parikalpana Estate Development (P.) Ltd. (supra) in answering similar question, Court referred to its earlier decision in Commissioner ITA No. 578 of 2015 & connected matters Page 9 of 15 of Income Tax v. Mukesh Kumar Agrawal (2012) 345 ITR 29 (All.) and pointed out that Section 292BB of Act was rule of evidence which validated service of notice in certain circumstances. It introduces deeming fiction that once Assessee appears in any proceeding or has cooperated in any enquiry relating to assessment or reassessment it shall be deemed that any notice under any provision of Act that is required to be served has been duly served upon him in accordance with provisions of Act and Assessee in those circumstances would be precluded from objecting that notice that was required to be served upon him under Act was not served upon him or not served in time or was served in improper manner. It was held that Section 292BB of Act is rule of evidence and it has nothing to do with mandatory requirement of giving notice and especially notice under Section 143(2) of Act which is notice giving jurisdiction to AO to frame assessment. decision of Allahabad High Court in Manish Prakash Gupta v. Commissioner of Income Tax (supra) is also to same effect. 13. In Pr. CIT v. Shri Jai Shiv Shankar Traders Pvt. Ltd. (supra), this Court has also discussed distinction between failure to 'issue' notice and failure to 'serve' notice on Assessee. It was held, after noticing decisions of Allahabad High Court in Commissioner of Income Tax v. Rajeev Sharma (2011) 336 ITR 678 and Commissioner of Income-tax-II, Lucknow v. Salarpur Cold Storage (P.) Ltd. [2014] 50 taxmann.com 105 (All.) and decision of Madras High Court in Sapthagiri Finance & Investments v. Income Tax Officer (2013) 90 DTR (Mad) 289), that Section 292 BB of Act would apply insofar as failure of 'service' of ITA No. 578 of 2015 & connected matters Page 10 of 15 notice was concerned and not with regard to failure to 'issue' notice. In other words, failure of AO, in re-assessment proceedings, to issue notice under Section 143(2) of Act, prior to finalising re-assessment order, cannot be condoned by referring to Section 292BB of Act. 14. Consequently, Court does not find merit in objection of Revenue that Assessee was precluded from raising point concerning non-issuance of notice under Section 143 (2) of Act in present case in view of proviso to Section 292BB of Act. 15. Court also finds merit in contention of Assessee that in any event as far as AYs 2005-06 to 2007-08 is concerned, Section 292BB of Act would not apply since it is prospective in its application, i.e., applicable from AY 2008-09 onwards. legal position in this regard appears to be well settled as explained in CIT v. Kuber Tobacco Producers P. Ltd. (supra) and Commissioner of Income Tax v. Mohammad Khaleeq (supra). 16. As regards objection of Revenue to ITAT permitting Assessee to raise point concerning non-issuance of notice under Section 143(2) of Act for first time in appeal before ITAT, Court is of considered view that in view of settled legal position that requirement of issuance of such notice is jurisdictional one, it does go to root of matter as far as validity of reassessment proceedings under Section 147/148 of Act is concerned. It raises question of law as far as present cases are concerned since it is not in dispute that prior to finalisation of reassessment orders, notice under Section 143(2) of Act was not issued by AO to Assessee. With there being no fresh ITA No. 578 of 2015 & connected matters Page 11 of 15 evidence or disputed facts sought to be brought on record, and issue being purely one of law, ITAT was not in error in permitting Assessee to raise such point before it. This finds support in decision of Supreme Court in National Thermal Power Co. Ltd. v. Commissioner of Income Tax (supra) and decision of this Court in Gedore Tools (P) Ltd. v. Commissioner of Income Tax (supra). 17. On question of whether notice under Section 143(2) of Act was in facts and circumstances mandatory, Mr. Sahni sought to distinguish long line of decisions including recent decision of this Court in Pr. CIT v. Shri Jai Shiv Shankar Traders Pvt. Ltd. (supra) on ground that there was no occasion for AO to issue any notice under Section 143 (2) of Act since Assessee had, in fact, not filed return. He submitted that original return was filed in 'Saral Form' which had since been replaced with different form for filing of returns. Consequently, said return could not have been treated as return filed pursuant to notice issued to Assessee under Section 148 of Act. He further submitted that with no discrepancy having been found by AO in returns for AYs 2005-06 till 2007-08, which were processed under Section 143 (1) of Act, there was no occasion for AO to issue notice under Section 143 (2) of Act. Mr. Sahni submitted that in circumstances, action of AO in finalising reassessment orders without notice under Section 143 (2) of Act was justified. 18. wording of Section 143(2)(ii) of Act, which is applicable in present case, requires AO to be satisfied on examining return filed that prima facie Assessee has understated income or has computed ITA No. 578 of 2015 & connected matters Page 12 of 15 excessive loss or has underpaid tax in any manner . AO has discretion to issue notice under Section 143 (2) if he considers it necessary or expedient to do so. This exercise by AO under Section 143 (2) of Act is qualitatively different from issuance of notice under Section 142(1) of Act, which as noted hereinbefore, is in standard proforma. 19. Court is unable to accept submission of Revenue that in present case, no return was filed by Assessee pursuant to notice issued to it under Section 148 of Act. If after receiving letter dated 1st April 2011 of Assessee AO was of view that return originally filed in Saral Form could not be treated as return pursuant to notice under Section 148 of Act, then he should have drawn attention of Assessee to that fact. In present case all that AO did was to send notice under Section 142 (1) of Act. Assessee was not made aware as to why he was required to file return. Had notice been issued to him under Section 143 (2) of Act, AO would have been obliged to let Assessee know why he was being asked to file return notwithstanding his letter dated 1st April 2011. In circumstances, Assessee was justified in proceeding on basis that it had not committed any default in communicating to AO that return already filed should be treated as return filed pursuant to notice under Section 148 of Act. 20. proposal to reopen assessment under Section 147 of Act is to be based on reasons to be recorded by AO. Such reasons have to be communicated to Assessee. However, merely because Assessee ITA No. 578 of 2015 & connected matters Page 13 of 15 participates in proceedings pursuant to such notice under Section 148 of Act, it does not obviate mandatory requirement of AO having to issue to Assessee notice under Section 143(2) of Act before finalising order of reassessment. 21. In this context reference may be made to decision of Madras High Court in Sapthagiri Finance & Investments v. Income Tax Officer (supra) where again Assessee did not file return pursuant to Section 148 of Act. AO then issued notice to it under Section 142(1) of Act. Assessee thereafter appeared before AO and stated that original return filed should be treated as return filed in response to notice under Section 148 of Act. In those circumstances, High Court observed that if there was some explanation that was required to be offered by Assessee, notwithstanding above submission made by it, AO ought to have issued notice under Section 143(2) of Act. Madras High Court observed: Merely because matter was discussed with Assessee and signature is affixed it does not mean rest of procedure of notice under Section 143(2) of Act was complied with or that on placing objection Assessee had waived notice for further processing of reassessment proceedings. fact that on notice issued u/s 143(2) of Act, assessee had placed its objection and reiterated its earlier return filed as one filed in response to notice issued u/s 148 of Act and Officer had also noted that same would be considered for completing of assessment, would show that AO has duty of issuing notice under Section 143(3) to lead on to passing of assessment. In circumstances, with no notice issued u/s 143(3) and there being no waiver, there is no justifiable ground to accept view of Tribunal that there was waiver of right of notice to be issued u/s 143(2) of Act. ITA No. 578 of 2015 & connected matters Page 14 of 15 22. decisions of Allahabad High Court in Commissioner of Income Tax v. Rajeev Sharma (supra) and Commissioner of Income-tax-II, Lucknow v. Salarpur Cold Storage (P.) Ltd. (supra) also reiterate above legal position. As far as this Court is concerned, decision in Director of Income Tax v. Society For Worldwide Interbank Financial Telecommunications (2010) 323 ITR 249 (Del) and recent decision in Pr. CIT v. Shri Jai Shiv Shankar Traders Pvt. Ltd. (supra) hold likewise. 23. With legal position being abundantly clear that reassessment order cannot be passed without compliance with mandatory requirement of notice being issued by AO to Assessee under Section 143(2) of Act, ITAT was in present case right in concluding that reassessment orders in question were legally unsustainable. 24. In view of settled legal position on all issues raised by Revenue in these appeals, Court is of view that no substantial question of law arises for determination. 25. appeals are accordingly dismissed but in circumstances with no order as to costs. S. MURALIDHAR, J VIBHU BAKHRU, J NOVEMBER 04, 2015 dn/sr ITA No. 578 of 2015 & connected matters Page 15 of 15 Pr. Commissioner of Income-tax-18 v. Silver Line