A K SANTHOSH, KOCHI V. DCIT, Corporate Circle-1(1), Kochi, Kochi

ITA 567/COCH/2022

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 1205 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 02-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHANTAM BOSE
• Keywords: Revision of order; Procedural lapse
• Section: 263; 144; 142(1); 292BB; 143(2); 153

Judgement Text

ITA Nos.567/Cochin/2022 A.K. Santhosh, Kochi IN THE INCOME TAX APPELLATE TRIBUNAL BENCH : COCHIN BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA No.567/Coch/2022 Assessment Year: 2017-18 A.K. Santhosh Arakkathara House Palluruthy Kochi PAN NO : AEMPS1221D Vs. Deputy Commissioner of Income-tax Circle-1(1) Kochi APPELLANT RESPONDENT Appellant by : Shri R. Krishnan, A.R. Respondent by : Shri Shantam Bose, D.R. Date of Hearing : 01.08.2022 Date of Pronouncement : 01.08.2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against order of PCIT passed u/s 263 of the Act dated 25.3.2022. The assessee is in appeal before us with regard to taking of issue by PCIT u/s 263 of the Act by way of following grounds: 1) “The Learned Principal Commissioner of Income Tax erred in setting aside an assessment, which was not a valid assessment in the eyes of law. 2) The learned Principal Commissioner of Income Tax ought to have appreciated that an assessment, which is ab-initio void is incapable of revision u/s 263 of the Income Tax Act. ITA Nos.567/Cochin/2022 A.K. Santhosh, Kochi Page 2 of 6 3) The learned Principal Commissioner of Income Tax went wrong in stating that the appellant cannot raise the ground of invalidity in a revisionary proceedings. The appellant was only trying to point the infirmity in the proceedings. An order that is nonest in the eyes of law cannot be revised as per law. 4) The learned Principal Commissioner of Income Tax ought to have appreciated that in order to assume jurisdiction u/s 263 of the Income Tax Act, the twin conditions of error and prejudice should be satisfied. Having explained the source of the Capital credit, there was no prejudice caused to the department, much less an error. 5) The learned Principal Commissioner of Income tax erred in not considering the reply of the appellant and the case laws cited. To that extent the order u/s 263 is bad in law.” 2. Facts of the case are that the assessee is the Managing Director of M/s ATS Transport Services Pvt. Ltd. The assessee e- filed his return of income for AY 2017-18 belatedly on 27.09.2019, declaring total income at Rs.40,60,350/-. The case was selected for scrutiny and the assessment was completed u/s 144 of the Income-tax Act,1961 ['the Act' for short] on 25.11.2019, accepting the total income returned. 2. From perusal of records, it is noticed that the Assessment Order u/s 144 dated 25.11.2019, passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue for the reasons mentioned below: "The assessee had introduced capital amounting to Rs.43,11,583/ - during the previous year relevant to the AY 2017-18. The assessee has failed to furnish any detail /explanation regarding the capital introduced by him. In the absence of any detail /explanation by the assessee with regard to the capital introduction made, the same remains unexplained. The AO has also failed to verify the sources for this capital introduction. Thus, it is clear that the AO has mistakenly and erroneously omitted to consider the above facts, while completing the assessment, thereby causing prejudice to the interests of revenue." ITA Nos.567/Cochin/2022 A.K. Santhosh, Kochi Page 3 of 6 3. On appeal, Ld. CIT(A) observed that the AO received information that the assessee had made huge cash deposits in specified bank notes of the denomination Rs.1000/- and Rs.500/- in his bank accounts. Since the assessee did not file his return for AY 2017-18 within the prescribed time limit u/s 139, notice u/s 142(1) was issued on 22.12.2017. In the absence of any reply from the assessee even after a period of 18 months, further notices u/s 142(1) dated 19.06.2019 and 29.08.2019 were served on the assessee. Ultimately, the assessee filed his return of income for AY 2017-18 on 27.09.2019 admitting total income at Rs.40.60 lakhs. Again notice u/s 142(1) was issued on 18.11.2019, in response to which assessee furnished certain details. However, AO inexplicably passed the assessment order on best judgment basis u/s 144 on 25.11.2019 accepting the returned income. The assessee has taken a separate pleading during the present revisionary proceeding that the assessment order issued by the AO is invalid since no notice u/s 143(2) of the Act was received by him. The fact of the matter is that AO has passed the impugned assessment order on best judgment basis u/s 144 of the Act. If the assessee had any grievance with the assessment order, he ought to have filed an appeal with the Commissioner (Appeals), which he had failed to do. The present revisionary proceeding/authority is not the forum to agitate about the validity of the assessment order issued by the AO. In any case, it is evident that the AO has incorrectly assumed the facts of the case and has incorrectly applied the law while passing the impugned assessment order. Ld. CIT(A) noted that the AO has passed the impugned assessment order without application of mind and if he considers the submission made by the assessee in the proper context, it would appear that the AO has not applied the principles of natural justice as well while completing the assessment proceedings. Therefore, Ld. CIT(A) held that the AO has ITA Nos.567/Cochin/2022 A.K. Santhosh, Kochi Page 4 of 6 passed an erroneous assessment order which is also prejudicial to the interest of the revenue. 3.1 The above omission by the Assessing Officer in the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. Therefore, Ld. CIT(A) held that the assessment order on the above issue is set aside to the assessing officer for de-novo examination and to pass a speaking order in accordance with law as per time limit specified under Section 153 of the Act, after affording due opportunity to the Assessee. Against this assessee is in appeal before us. 4. We have heard the rival submissions and perused the materials available on record. At the time of hearing, the Ld. A.R. made a primary objection by way of ground No.2 that assessment order in this case was passed u/s 144 of the Act on 25.11.2009. Further, he submitted that the assessee has e-filed the return of income for the assessment year 2017-18 on 27.9.2019, which was belated return. This return was subject to assessment u/s 144 of the Act vide assessment order dated 25.11.2019 without issuing notice u/s 143(2) of the Act. The assessee made a contention before Ld. CIT(A) that the assessment order is bad in law in view of the no notice issued u/s 143(2) of the Act. The Ld. CIT(A) observed that the assessment order was passed on best judgement basis u/s 144 of the Act. If the assessee had any grievance with the assessment order, he ought to have filed an appeal with the Ld. CIT(A) which he had failed to do so as such he was of the opinion that he is justified in invoking the provisions of section 263 of the Act, so as to correct certain errors in the assessment order as the AO has not considered all the facts of the case correctly. In our opinion, issue of notice u/s 143(2) of the Act within statutory period before completion of ITA Nos.567/Cochin/2022 A.K. Santhosh, Kochi Page 5 of 6 assessment is a mandatory in nature as held by Hon’ble Supreme Court in the case of ACIT Vs. Hotel Blue Moon reported in 321 ITR 362, wherein held as under:- “If the AO for any reason, repudiate the return filed by the assessee, he must necessarily issue notice u/s 143(2) of the Act within the time prescribed in the proviso to section 143(2) of the Act; omission on the part of the AO to issue notice u/s 143(2) of the Act cannot be a mere procedural irregularity and the same is not curable”. 5. Further, same view was taken by Hon’ble Supreme Court in the case of CIT Vs. Laxman Das Khandelwal reported in 417 ITR 325, wherein held as under: “According to Section 292BB of the Act, if the assesee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee. It is, however, to be noted that the Section does not save complete absence of notice. For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself. Since the facts on record are clear that no notice under Section 143(2) of the Act was ever issued by the Department, the findings rendered by the High Court and the Tribunal and the conclusion arrived at were correct.” 6. In the present case, the revenue authorities is not in a position to show that there was a valid service of notice u/s 143(2) of the Act before completion of assessment. Being so, the assessment order is ab-initio which cannot be survived. This is being so, where there is no valid assessment order that order cannot be subject matter of revision u/s 263 of the Act by PCIT. Accordingly, on the primary ground raised by assessee, we quash the order passed by PCIT u/s 263 of the Act. Further, we refrain from going into other grounds of appeal raised by the assessee at this stage, which are kept open. ITA Nos.567/Cochin/2022 A.K. Santhosh, Kochi Page 6 of 6 7. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 1 st Aug, 2022 Sd/- (George George K. ) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 1 st Aug, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.