M/s. Kunj Malls, Ahmedabad V. ITO, Ward-5(3)(1), Ahmedabad

ITA 1088/AHD/2018

AI Insights

This case involves an appeal by M/s. Kunj Malls against the order of the Commissioner of Income Tax (Appeals), which confirmed the action of the Assessing Officer in reopening the case under section 147 of the Income Tax Act and making a protective addition of Rs. 2,72,00,000 on account of cash received from booking shops in Kunj Mall. The Tribunal noted that substantive additions regarding the same income had been deleted in the hands of M/s Kunj Infrastructure Private Limited by a previous ITAT decision. The Tribunal relied on various precedents to conclude that protective assessments cannot stand when substantive assessments have been deleted.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131352 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-03-2023
• Assessment Year: 2008-2009
• Appeal Filed On: 30-04-2018
• Other Referred Cases: DCIT v. M/s Kunj infrastructure Private Limited, ITO v. Keshava Nanda Kakati, ITO v. Fussy Financial Services Private Limited, M.P. Ramchandran v. DCIT, G.K. Consultants Ltd. v. ITO, PCIT vs. Marck Bioscinces Ltd, ACIT vs. Ashed Properties & Investment (P.) Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Accommodation entries
• Section: 147; 148; 139; 143(3); 142(1); 250; 292BB; 143(2)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member M/s. Kunj Malls, Nr. Kunj Ho mes, Niko l Cross Road, Opp . Sakun tal Bungalows, Nikol, Ah medabad PAN: AAIF K582 8N (Appellant) Vs The ITO, Ward-5(3)(1), 1 s t Flo or, Narayan Chamber s, Ashram Road, Ahmedabad (Resp ondent) Asses see b y : Shri Deepak Shah, A. R. Revenue by : Shri Rajdeep Singh, Sr. D. R. Date of hearing : 16-03 -2 023 Date of pronouncement : 17-04 -2 023 आदेश /ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals), Ahmedabad-5 in Appeal no. CIT(A)-5/ITO. Wd. 5(3)(1)/109/2016-17, in proceeding u/s. 250 of the Act vide order dated 14/02/2018, passed for the assessment year 2008-09. 2. The assessee has taken the following grounds of appeal:- ITA No. 1088 /Ahd/2018 Assessment Year 2008-09 I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 2 “Being aggrieved and dissatisfied by the order dt. 14-02-2018 passed by the Id. CIT (A), the appellant begs to prefer this appeal on the following amongst other grounds : 1. That the Ld. CIT (A) erred in law and on the facts of the case in confirming the action of the AO in reopening the case of the appellant u/s 147 of the act. 2. That the Ld. CIT (A) erred in law and on the facts of the case in confirming the order of the AO in making an addition of Rs. 2,72,00,000/- being protective addition on account of cash received against booking of shops in Kunj Mall. 3. Any other ground which may be urged before or during the hearing of the appeal.” 3. At the outset, the counsel for the assessee submitted that in the instant facts, the additions have been made in the hands of the assessee on “protective basis” and the “substantive additions” have been made in the hands of M/s Kunj infrastructure Private Limited. The counsel for the assessee drew our attention to the fact that the “substantive additions” in respect of the aforesaid income have been deleted in the hands of M/s Kunj Infrastructure Private Limited by ITAT Ahmedabad in the case of DCIT v. M/s Kunj infrastructure Private Limited in ITA numbers 1809- 1810/Ahd/2016 for assessment year 2008-09 vide order dated 22-10-2019. Accordingly, it was submitted before us that when “substantive additions” have been deleted by the ITAT in the hands of M/s Kunj Infrastructure Private Limited, the additions made on “protective basis” in the hands of assessee cannot be sustained and are therefore liable to be set aside. In response, DR placed reliance on the observations made by Ld. CIT(Appeals) in the appellate order. I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 3 4. We have heard the rival contentions and perused the material on record with respect to the contention of the Ld. Counsel for the assessee, challenging the validity of assessment in the hands of the assessee on “protective basis”, when the “substantive assessments” in the hands of M/s Kunj Infrastructure Private Limited have itself been deleted by the ITAT vide order dated 22-10-2019, as referred to in the preceding paragraphs. 4.1 We observe that in the case of ITO v. Keshava Nanda Kakati 133 taxmann.com 316 (Gauhati - Trib.), the ITAT held that protective assessment made in case of the assessee in respect of credits in bank account as “income from other sources” were liable to be deleted as there was no substantive assessment/addition in hands of other party. 4.2 We further observe that in the case of ITO v. Fussy Financial Services Private Limited [I.T.A. No. 44/DEL/2014 dated 5-6-2017, it was held as follows, by the Hon'ble ITAT-Delhi: We further note that the analysis of the investment account reveal that the company has made investment of Rs. 5,04,01,000/. The statement given by Sh. PN Jha assumes importance wherein he categorically admitted that the company was doing the business of investment and finance and during the year the bank accounts of the company have been used to provide the accommodation entries. The addition of Rs. 3,17,67,951/- made by the Assessing Officer on protective basis, which is not sustainable in the eyes of law, because in this case the AO himself stated in the assessment order that the Department is I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 4 looking after the cases of beneficiaries and the amounts channelized through this group would be taxed in the hands of the beneficiaries, the amount of total credits of Rs. 3,17,67,951/- made in its bank account with Kotak Mahindra Bank, KG Marg, New Delhi, during the year is added to the income of the assessee on protective basis. In this case we find that AO has not made any substantive assessment. There may be substantive assessment without any protective assessment, but there cannot be any protective assessment without there being a substantive assessment. 4.3 Again in the case of M.P. Ramchandran v. DCIT [129 TTJ 190 at page 195], it was held as follows, by the Hon'ble ITAT : "In order to give a different colour, the ld. DR contended that this disallowance was made on protective basis only and hence cannot be equated with the substantive disallowance. We have noted above about the validity and presumption of the protective assessment in general. Protective assessment cannot be independent of substantive assessment. Thus protective assessment is always successive to the substantive assessment. There may be a substantive assessment without any protective assessment but there cannot be any protective assessment without there being a substantive assessment. In simple words there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition. Substantive addition/assessment is made in the hands of the person in whose hands the AO prima facie holds the I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 5 opinion that the income is rightly taxable. Having done so and with a view to protect the interest of the Revenue, if the AO is not sure that the person in whose hands he had made the substantive addition rightly, he embarks upon the protective assessment. Thus the protective assessment is basically based on the doubt of the AO as distinct from his belief which is there is the substantive assessment." 4.4 In the case of G.K. Consultants Ltd. v. ITO [IT Appeal No. 1502 (Delhi) of 2013, dated 27-6-2014], [upheld in CIT v. G.K. Consultants Ltd., [IT Appeal No. 86 of 2015, dated 24-5-2016] High Court], it was held, as follows, by the Hon'ble ITAT Delhi : "19. On careful consideration of above contention, we are of the view that there may be a substantive assessment without any protective assessment but there cannot be any protective assessment/addition without substantive assessment/addition, meaning thereby there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition. In the present case, the AO proceeded to make protective assessment by way of reopening of assessment of the assessee appellant company without being a substantive assessment on the date of assumption of jurisdiction u/s 147 of the Act which is not permissible as per decision of ITAT, Mumbai in the case of M.P. Ramachandaran v. DCIT (supra) and Suresh K Jajo v. ACIT (supra)." I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 6 4.5 We observe that in the instant case, the “substantive additions” were deleted by the Ahmedabad ITAT in the hands of M/s Kunj infrastructure Private Limited by ITAT Ahmedabad in the case of DCIT v. M/s Kunj infrastructure Private Limited in ITA numbers 1809-1810/Ahd/2016 for assessment year 2008-09 vide order dated 22-10-2019, with the following observations: “6. The issue raised by the assessee in ground No. 2 is that the learned CIT (A) erred upholding the assessment framed under section 143(3) read with section 147 of the Act though the statutory notice under section 143(2) of the Act was not issued by the AO. 7. The assessee before the ld. CIT-A submitted that the AO has never issued notice u/s 143(2) during the re-assessment proceeding which is pre-requisite to frame an assessment order. Accordingly assessee prayed that the impugned assessment order should be cancelled. The assessee in this regard placed his reliance on Hon’ble SC judgment in case of ACIT vs. Hotel Blue Moon 229 CTR 219 and various other judgments. 8. However, the ld. CIT (A) on the submission filed by the assessee called for the remand report from AO who submitted that during the assessment proceeding assessee did not take any stand in this regard. Therefore in light of provision of section 292-BB of the Act, the assessee claim is not tenable. The AO, further placed his reliance on Hon’ble Delhi HC judgment in case of MTNL vs. Chairman CBDT 246 ITR 173, Madras HC decision in case of Arvea T & D India ltd. vs. ACIT 294 ITR 233. 8.1 The ld CIT-A after considering the submission of assessee and remand report, rejected the contention of the assessee and confirmed the order of the AO. 9. Being aggrieved by the order of the learned CIT (A), the assessee is in the CO before us. 10. The learned AR for the assessee before us reiterated the submissions as made before the learned CIT (A) whereas the learned DR vehemently supported the order of the authorities below. 11. We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 148 of the Act states that the return filed in response to the notice issued under section 148 of the Act shall I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 7 be subject to the provisions applicable to the return as furnished under section 139 of the Act. 11.1 Similarly, the provisions of section 143(2) of the Act mandates that, where a return has been furnished under section 139 of the Act or in response to the notice issued under section 142(1) of the Act, the AO if considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid tax in any manner, he shall serve a notice upon the assessee. 11.2 A conjoint reading of both the provisions makes compulsory to issue a notice under section 143(2) of the Act in respect of the proceedings initiated under section 147 of the Act. In this regard, we find support and guidance from the judgement of Hon’ble Gujarat High Court in case of PCIT vs. Marck Bioscinces Ltd reposted in [2019] 106 taxmann.com 399 (Gujarat) wherein it was held as under: “20. In the facts of the present case also, if the contention of the appellant were to be accepted, it would amount to dispensing with the notice under section 143(2) of the Act in view of the fact that it is an admitted position that no such notice had been issued after the return of income was filed by the assessee. After the filing of the return of income, unless a notice under section 143(2) of the Act is issued to the assessee, he would have no means of knowing as to whether or not the Assessing Officer has accepted the return of income as filed by him. As held by the Supreme Court in the above decision, omission to issue a notice under section 143(2) of the Act is not a procedural irregularity and is not curable. It is, therefore, mandatory to issue notice under section 143(2) of the Act. 21. At this juncture, reference may also be made to the contents of the Central Board of Direct Taxes Circular No.549 dated 31.10.1989, which finds reference in the decision of this Court in case of Mahi Valley Hotels & Resorts (supra), which has been reproduced in paragraph 8.5 hereinabove. A perusal of the above circular indicates that if an assessee, after furnishing the return of income, does not receive a notice under section 143(2) of the Act from the Department within the prescribed period, then he can take it that the return filed by him has become final and no scrutiny proceedings could be started in respect of that return. This is the kind of significance that has been attached to a notice under section 143(2) of the Act by the Central Board of Direct Taxes itself. 22. Section 292BB of the Act provides for a deeming provision that any notice under any provision of the Act, which is required to be served upon the assessee, has been duly served upon him in time, in accordance with the provisions of the Act. In the opinion of this Court, this section would be applicable where a notice has, in fact, been issued and a contention is I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 8 raised that such notice has not been served upon the assessee or has not been served in time or has not been served properly, namely, where there is a defect in the service of notice. This provision does not apply to a case where no notice has been issued at all. In the facts of the present case, at the cost of repetition, it may be stated that no notice under section 143(2) of the Act has been issued after the assessee had filed its return of income and hence, section 292BB of the Act would not be attracted.” 11.3 Thus, we note that the AO can acquire the jurisdiction for the assessment under section 147 of the Act only if the notice under section 143(2) was issued upon the assessee. In the absence of issuance of such notice, the proceedings initiated under section 147 of the Act are void-ab-initio. Such defect cannot be cured even under the provisions of section 292 BB of the Act. It is because the provision of section 292BB of the Act deals with the service of the notice. The relevant provision of section 292BB of the Act reads as under: “Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was— (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.” 11.4 The provision of section 292-BB of the Act nowhere talks about the issuance of notice. Thus, where the statutory notice has not been issued by the income tax authorities, then the question of acquiring the jurisdiction in the proceedings initiated under section 147 of the Act does not arise. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of Marck Bioscinces Ltd (supra). 11.5 We also draw support and guidance from the order of the ITAT Bangalore ‘C’ Bench in case of ACIT vs. Ashed Properties & Investment (P.) Ltd reported in 62 taxman.com 340 wherein it was held as under: I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 9 “with regard to applicability of provisions of section 292BB. It is clearly from the statutory provisions that these provisions only insulate the Assessing Officer from the proof of service of notice under section 143(2). It does not in any way insulate the Assessing Officer from default in issuing notice under section 143(2) within the period of limitation contemplated therein. When the records show that there was no issue of notice under section 143(2) within the period of limitation prescribed under the said proviso, the revenue cannot take advantage of the provisions of section 292BB. In other words, 'issue of notice' and 'service of notice' are two different aspects and what is covered by section 292BB is only 'service of notice'. Non-issue of notice under section 143(2) within the period of limitation would not be covered under the ambit of section 292BB. The decision of the Tribunal in the case of Amithi Software Technologies (P.) Ltd. v. ITO [IT Appeal No. 540 (Bang.) of 2012, dated 7-2-2014] clearly supports the plea of the assessee in this regard. Therefore, assessment proceedings are invalid for the reason that notice under section 143(2) had not been issued and served within the time limit prescribed by those provisions. Accordingly, the order of assessment is annulled” 12. The learned DR, appeared on behalf of the revenue, has not brought anything on record contrary to the arguments advanced by the learned AR for the assessee. In view of the above, we hold that the assessment framed under section 147 of the Act without issuing notice under section 143(2) of the Act is not sustainable. Accordingly, we quash the same. Hence, the ground raised by the assessee in the CO is allowed. In the result, the CO of the assessee is partly allowed.” 4.6 Accordingly, since the “substantive addition” have been deleted by the ITAT, Ahmedabad in the aforesaid decision in the hands of M/s Kunj Infrastructure Private Limited, respectfully following view taken by various Courts in various decisions on this issue referred to above, we are of the considered view that the additions made in the hands of the assessee on “protective basis” cannot sustain once the additions made on “substantive I.T.A No. 1088/Ahd/2018 A.Y. 2008-09 Page No. M/s. Kunj Malls vs. ITO 10 basis” have been deleted. Accordingly, the appeal of the assessee is allowed. 5. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 17-04-2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 17/04/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद