KALPANABEN NAYANKUMAR SHAH,AHMEDABAD V. THE ITO, WARD-5(3)(1), AHMEDABAD

ITA 1878/AHD/2024

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The case involves two appeals by the assessee, Kalpanaben Nayankumar Shah, against the orders of the National Faceless Appeal Centre (NFAC), Delhi, which confirmed the assessment orders passed under sections 147 and 144 of the Income Tax Act, 1961 for the assessment years 2016-17 and 2017-18. The assessments were reopened based on the belief that certain share transactions were bogus. The primary legal contention was the failure to issue a notice under section 143(2) of the Act, which the assessee argued was mandatory for a valid assessment. The Tribunal found that the absence of this notice, coupled with a system failure at the department's end that prevented its issuance, invalidated the assessments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 297939 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Other Referred Cases: ACIT vs Hotel Blue Moon 321 ITR 362 (SC), CIT vs Rajeev Sharma 336 ITR 678, PCIT vs Staunch Marketing Pvt. Ltd. 404 ITR 299
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NITIN KULKARNI
• Assessee Lawyers: URVASHI SODHAN
• Keywords: Set aside; Unexplained cash credit; Principle of natural justice; Initiation of penalty proceedings; Bogus
• Section: 147; 148; 144; 143(3); 143(2); 68; 2

Judgement Text

"THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH Before Ms. Annapurna Gupta, Accountant Member Kalpanaben Nayankumar Shah, B-13, Taksheel Apt., B/h Jetabhia Park Bus Stop, NN Road, Paldi, Ahmedabad PAN: AHZPS1132K (Appellant) Vs The Income Tax Officer, Ward-5(3)(1), Ahmedabad (Respondent) Assessee by: Ms. Urvashi Sodhan, A.R. Revenue by: Shri Nitin Kulkarni, Sr. D.R. Date of hearing : 16-04-2025 Date of pronouncement : 23-04-2025 आदेश/ORDER The present two appeals have been filed by the Assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)’] dated 18.07.2024 & 10.07.2024 arising out of the assessment order passed u/s.147 r.w.s 144 of the Income Tax Act, 1961 (here-in- after referred to as “the Act”) relevant to the Assessment Years 2016-17 & 2017-18. 2. The facts of the case are that for both the years, the assessee had initially filed return of income which was subjected to scrutiny assessment and order passed u/s. 143(3) of the Act. Subsequently, the case of the assessee was re-opened for both the years, notice issued u/s. 148 of the Act and order passed ITA Nos. 1877 & 1878/Ahd/2024 Assessment Year 2016-17 & 2017-18 I.T.A Nos. 1877 & 1878/Ahd/2024 Kalpanaben Nayankumar Shah, A.Y. 2016-17 & 2017-18 2 u/s. 147 of the Act making addition to the income of the assessee on identical issue, holding two transactions of sale of shares undertaken by the assessee to be bogus. The one resulting in loss, which was claimed as a set off against short term capital gain earned by the assessee, was disallowed, while the transaction resulting in short term capital gain was treated as unexplained cash credit and addition made u/s. 68 of the Act. The CIT(A) confirmed the order of the Assessing Officer. Before us, the assessee has raised identical grounds of appeal in both the years which read as under:- ITA No. 1877/Ahd/2024 “1. Ld. CIT(A) (NFAC) erred in law and on facts in dismissing the ground challenging failure of AO to issue notice u/s 143(2) of the Act, a mandatory requirement under law before proceeding with assessment. 2. Ld.CIT (A) (NFAC) erred in law and on facts confirming action of AO in reopening the assessment in absence of failure on part of the assessee to disclose all relevant and material facts which were duly verified by AO in the scrutiny assessment u/s 143 (3) of the Act. 3. Ld. CIT (A) (NFAC) erred in law and on facts confirming addition made by AO merely on the basis of general information that short- term capital gain of Rs. 38,99, 624/- from transactions in the script of Stampede Capital Ltd. was an accommodation entry without making any independent inquiry. 4. Ld. CIT (A) (NBAC) erred in law and on facts to appreciate that AO did not grant opportunity to cross examine the persons on whose statements the assessment was re-opened which is against the principles of Natural Justice. 5. Ld. CIT (A) (NFAC) erred in law and on facts in confirming addition of Rs. 38,99,650/- made by AO as unexplained cash credit u/s 68 of the Act. 6. Ld. CIT (A) (NBAC) erred in law and on facts in confirming action of AO treating Rs. 38,99,624/- as bogus short term capital gain when transaction was carried out on a recognised stock exchange & all the transaction details, contract notes, ledger account from the broker were submitted before AO. I.T.A Nos. 1877 & 1878/Ahd/2024 Kalpanaben Nayankumar Shah, A.Y. 2016-17 & 2017-18 3 7. Levy of interest u/s 234A/234B/234C & 234D of the Act is unjustified. 8. Initiation of penalty proceedings u/s 271 (1)(c) of the Act is unjustified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal” ITA No. 1878/Ahd/2024 “1. Ld. CIT (A) (NFAC) erred in law and on facts in dismissing the ground challenging failure of AO to issue notice u/s 143(2) of the Act, a mandatory requirement under law before proceeding with assessment. 2. Ld.CIT (A) (NFAC) erred in law and on facts confirming action of AO in reopening the assessment in absence of failure on part of the assessee to disclose all relevant and material facts. 3. Ld. CIT (A) (NFAC) erred in law and on facts confirming disallowance made by AO merely on the basis of general information that short-term capital loss of Rs. 1, 49, 809/- from transactions in the script of Stampede Capital Ltd. was bogus without making any independent inquiry. 4. Ld. CIT (A) (NFAC) erred in law and on facts in confirming addition of Rs. 3, 77, 290/- made by AO as unexplained cash credit u/s 68 of the Act. 5. Ld. CIT (A) (NBAC) erred in law and on facts to appreciate that AO did not grant opportunity to cross examine the persons on whose statements the assessment was re-opened which is against the principles of Natural Justice. 6. Ld. CIT (A) (NBAC) erred in law and on facts in confirming action of AO treating Rs. 1, 49, 809/- as bogus short term capital loss & Rs. 3, 77, 290/-as unexplained cash credit when transaction was carried out on a recognised stock exchange & all the transaction details, contract notes, ledger account from the broker were submitted before AO. 7. Levy of interest u/s 234A/234B/234C & 234D of the Act is unjustified. 8. Initiation of penalty proceedings u/s 271 (1)(c) of the Act is unjustified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal” I.T.A Nos. 1877 & 1878/Ahd/2024 Kalpanaben Nayankumar Shah, A.Y. 2016-17 & 2017-18 4 3. Since the issue involved in both the appeals is identical, I shall be dealing with the appeal of the assessee in ITA No.1877 /Ahd/24 and my decision therein will apply mutatis mundis to the other appeal in ITA No.1878/Ahd/24 also. 4. During the course of hearing before us, the ld. counsel for the assessee first took up ground no. 1 contending that the order passed by the Assessing Officer was invalid since assessment was framed without issuing the mandatory jurisdictional notice u/s. 143(2) of the Act. 5. Ld.Counsel for the assessee first pointed out to me that this ground, though raised before the Ld.CIT(A), was not dealt with in his order. 6. Thereafter, the ld. counsel for the assessee contended that it is settled law that for framing of valid assessment, notice u/s. 143(2) is to be mandatorily issued against return filed by the assessee in response to the notice u/s. 148 of the Act. Reference was made to the decision of the Hon’ble Apex Court in the case of ACIT vs Hotel Blue Moon 321 ITR 362 (SC), CIT vs Rajeev Sharma 336 ITR 678,PCIT vs Staunch Marketing Pvt. Ltd. 404 ITR 299. 7. My attention was then drawn to the facts of the assessee having filed return in response to notice u/s 148 of the Act and no notice being issued by the AO u/s 143(2) of the Act before proceeding to frame assessment in the present case. 8. Drawing my attention to page 2 of the assessment order, she pointed out that the Assessing Officer noted the fact that the I.T.A Nos. 1877 & 1878/Ahd/2024 Kalpanaben Nayankumar Shah, A.Y. 2016-17 & 2017-18 5 assessee had filed return in response to the notice u/s. 148 of the Act but was unable to e-verify the same on account of system failure of the department itself and noting the said fact she pointed that the Assessing Officer noted further that on account of this the system did not allow the Assessing Officer to issue notice u/s. 143(2) as no valid return was in the system data base and therefore he proceeded to frame the assessment u/s. 144 of the Act. My attention was drawn to these facts at page 2 of the assessment order as under:- “It is also pertinent to mention herein that the assessee has categorically urged that failure to e-verify the ITR was attributable to system failure, not to her. On this submission, it is mentioned herein that her submission is considered and assessment in this case is being made u/s 144 of the Act merely because the system did not allow to issued notice u/s 143(2) as no valid return was in system database. Although, the details filled in the ITR by the assessee shall be taken cognizance of.” Thus, she pointed out that admittedly the assessee did file the return of income and though it was not e-verified, but the failure was not attributable to the assessee but to the department on account of technical fault in their system. She pointed out therefore that even as per the Assessing Officer the failure to file valid return of income could not attributed to the assessee but to the department. She further pointed out that admittedly the system was unable to generate notice u/s. 143(2) and therefore the same was not issued to the assessee. 9. Ld.Counsel for the assessee argued that failure of the system of the Department would not relieve the Assessing Officer from the discharge of his statutory duties. 10. Besides the above, she pointed that the fact of the matter is that the assessee was able to get return e-verified on the 28th I.T.A Nos. 1877 & 1878/Ahd/2024 Kalpanaben Nayankumar Shah, A.Y. 2016-17 & 2017-18 6 Feb, 2022 but despite the said fact the Assessing Officer still went ahead and framed assessment u/s. 147 of the Act without issuance of any notice u/s. 143(2) of the Act after one month i.e. 27th March, 2022. She pointed out the fact of the assessee having e-verified the return on 28th Feb, 2022 was brought to the notice of Assessing Officer during assessment proceedings vide letter filed by the assessee in response to the show cause notice issued by the Assessing Officer dated 16th March, 2022. She drew my attention to the assessee’s letter dated 23-03-22 placed at P.B page No.105 bringing out the said fact to the notice of the AO. 11. The ld. Departmental Representative was unable to controvert the factual contention of the ld. counsel for the assessee that e-verified return was filed by the assessee in the present case on 22nd Feb, 2022 which fact was brought to the notice of the Assessing Officer also during assessment proceedings and the fact remains that no notice u/s. 143(2) was issued to the assessee before framing the assessment u/s. 147 of the Act on 23rd March, 2022 by the Assessing Officer. The Ld.DR was also unable to distinguish the law said to be settled in this regard about the assessment order passed without issuance of the jurisdictional notice u/s. 143(2) of the Act being invalid. Though the ld. Departmental Representative relied on the findings of the Assessing Officer that the notice u/s. 143(2) could not be issued on account of the system not generating the said notice in the absence of e-verified return in the data base of the system. 12. In the light of the above undisputed facts before me that the assessee had filed return in response to the notice u/s. 148 I.T.A Nos. 1877 & 1878/Ahd/2024 Kalpanaben Nayankumar Shah, A.Y. 2016-17 & 2017-18 7 of the Act in time but the same could not be e-verified on account of system failure at the end of the department that it was ultimately belatedly e-verified when the system was working and despite that no notice u/s. 143(2) was issued to the assessee before framing assessment u/s. 147 of the Act, and applying the settled proposition of law to the facts, I have no hesitation at all in holding that the assessment order framed is invalid in the absence of issuance of the mandatory jurisdictional notice u/s. 143(2) of the Act by the Assessing Officer. In the light of the same, the assessment order passed is set aside as invalid. Ground No. 1 is allowed . 13. The remaining grounds being academic in nature were neither argued before me nor are being adjudicated by me. 14. In effect, both the appeals of the assessee are allowed in above terms. Order pronounced in the open court on 23-04-2025 Sd/- (Annapurna Gupta) Accountant Member Ahmedabad : Dated 23/04/2025 True Copy आदेश कȧ ĤǓतͧलͪप अĒेͪषत / 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 अपीलȣय अͬधकरण, अहमदाबाद "