Saktijit Dey, Judicial Member - This appeal by the department and Cross Objection by the assessee are directed against the order dated 28-2-2011 passed by the CIT (A), Guntur in ITA No.0225/DDIT(E)-II/CIT(A)/GNT/07-08 pertaining to the assessment year 1999-2000.
2. Briefly the facts are, the assessee, a society is engaged in the activity of running educational institution. For the impugned assessment year, the assessee filed its return of income on 30-1-2002 declaring 'nil' income. As noted in the assessment order by the Assessing Officer, since the return was not filed within the due date prescribed u/s 139(1) and even the extended period provided u/s 139(4) of the Act, the return was treated as non est. The Assessing Officer initiated action u/s 147 of the Act by issuing a notice u/s 148 of the Act on 21-3-2006 which was served on the authorised representative of the assessee Sri K.V. Chalamaiah on 15-9-2006. Information received as a result of survey operation conducted u/s 133A in July, 2005 at Ramtekh, Maharashtra disclosed that the assessee society had collected Rs. 27,78,000 as donation which has not been reflected in the books of accounts. The Assessing Officer in the course of assessment proceedings issued a letter to the assessee seeking his objections as to why the exemption u/s 11 should not be denied. In response to the aforesaid letter dated 6-11-2007 of the Assessing Officer, the assessee submitted that the notice u/s 148 stated to have been issued was never received by it and further since no valid return is existing for the impugned assessment year, the denial of exemption u/s 11 of the Act would not arise. The Assessing Officer however rejected the contention of the assessee and proceeded to complete the assessment u/s 143(3) read with section 147 of the Act vide order dated 28-12-2007 by determining the total income at Rs.1,09,29,130/-. Being aggrieved of the assessment order so passed, the assessee preferred an appeal before the CIT (A).
3. In course of hearing of appeal before the CIT (A), the assessee challenged the validity of proceedings u/s 147 of the Act on the ground that there is no valid service of notice u/s 148 of the Act on the assessee as it was served on a person who was not authorised by the assessee to receive notice on behalf of the assessee. It was further contended that the assessment order passed u/s 143(3) read with section 147 of the Act is also invalid due to the fact that no notice either u/s 143(2) or 142(1) of the Act was issued to the assessee before completing the assessment u/s 143(3) read with section 147 of the Act. The CIT (A) called for a remand report from the Assessing Officer on the contentions raised by the assessee. After considering the submissions of the assessee in the context of the comments in the remand report, the CIT (A) proceeded to dispose of the appeal vide order dated 28-2-2011. So far as the assessee's contention with regard to the validity of reopening of assessment, the CIT (A) upheld the action of the Assessing Officer so far as the reopening of the assessment is concerned by negating the contentions raised by the assessee. However, so far as the other contention of the assessee challenging the validity of the order passed u/s 143(3) read with section 147 of the Act due to non issuance of notice u/s 143(2) of the Act, the CIT (A) accepted such contention and held that the assessment order passed without issuing notice u/s 143(2) of the Act. The finding of the CIT (A) in this regard is extracted hereunder:—
"Regarding other contention of the appellant that the A.O. erred in completing the assessment u/s. 143(3) before service of mandatory notice u/s. 143(2) on facts and in the circumstances of the case, which is not a valid assessment has a point to consider. The A.O. conspicuously was silent on this issue. Perusal of records revealed that no such incidence was spotted. It is a settled matter by now that issue and service of a notice under section 143(2) is mandatory for a valid assessment to be made, that too with in twelve months from the end of the month in which the return has been filed. The Allahabad High Court in the case of Rajeev Sharma reported in 92010) 232 CTR 303 (All.) held that the provision contained in section 143(2), is mandatory in nature and it is obligatory for the Assessing Officer to apply his mind to the contents of the return filed in response to notice under section 148 and thereafter issue notice under section 143(2), before proceeding to decide the controversy regarding escaped assessment, non issue of notice under section 143(2), after filing of return by the appellant vitiated the reassessment proceedings. In fact, the Apex Court in the case of Hotel Blue Moon reported in (2010) 321 ITR 362 (SC) held that if an assessment is to be completed under section 143(3) read with section 158BC, issue of notice under section 143(2) is mandatory and that the non issue of the notice is not a procedural irregularity and cannot be cured. Thus, the re-computation of income by the A.O. has to be held invalid and thus, the action of the A.O. in this regard is treated as dismissed."
Being aggrieved of the aforesaid order passed by the CIT (A), the department is in appeal before us, while the assessee has filed a cross objection challenging that part of the order of the CIT (A) wherein he upheld the validity of service of notice u/s 148 of the Act. We will first take up the appeal of the department.
4. The only issue arising out of the grounds raised by the department is whether the CIT (A) was justified in annulling the assessment completed u/s 143(3) read with section 147 of the Act on the ground of non issuance of notice u/s 143(2) of the Act.
5. In so far as the issuance of notice u/s 143(2) is concerned, the learned Departmental Representative orally as well as through his written submission submitted before us that a notice u/s 143(2) assumes importance principally because it denotes an opportunity of being heard. He further submitted the principal reason why non issuance of notice u/s 143(2) is to be treated as fatal for an assessment completed u/s 143(3) of the Act is because of the underlying presumption, as held in the case of Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC), that no assessee shall be put to any adverse consequence without the benefit of being heard. However, when an opportunity is extended, in which form it is provided is not material as form cannot override substance. However, if the material on record would show that an opportunity was otherwise granted to the assessee then assessment cannot be held to be invalid for non issuance of notice u/s 143(2) of the Act. In this context, the learned Departmental Representative referred to the decision of Hon'ble AP High Court in case of CWT v. Pachigolla Narasimha Rao [1982] 134 ITR 640/[1980] 4 Taxman 120 wherein it was held that the machinery provisions are to be construed in a manner that would not defeat or render the charging provision otiose, otherwise, public interest will be jeopardized by vexatious litigation. The learned Departmental Representative referring to a decision of Agra bench of Income-tax Appellate Tribunal in case of Chandra Bhan Bansal v. Dy. CIT [2001] 79 ITD 639 submitted that the CIT (A) was wrong in cancelling the assessment for the reason that no notice u/s 143(2) was served within 12 months. He submitted that while doing so, the CIT (A) also lost sight of the fact that there was no return of income filed in response to the notice, hence there cannot any requirement of issuing notice u/s 143(2) of the Act. The learned Departmental Representative also relied upon the decision Kerala High Court in case of K.J. Thomas v. CIT [2008] 301 ITR 301.
6. The learned authorised representative for the assessee has also filed written submissions before us. The contention of the learned authorised representative for the assessee with regard to aforesaid issue is that the Assessing Officer has completed the assessment u/s 143(3) read with section 147 of the Act. Therefore, it is mandatory that before proceeding for assessment u/s 143(3) of the Act, a notice u/s 143(2) is required to be issued to the assessed. It is further submitted that admittedly the Assessing Officer neither issued a notice u/s 143(2) or u/s 142(1) of the Act before completing the assessment u/s 143(3) read with section 147 of the Act. The learned Authorised Representative referring to the remand report submitted by the Assessing Officer during the proceedings before the CIT (A) submitted that the Assessing Officer himself had admitted in the remand report that to pass an order u/s 143(3) read with section 147 of the Act, it is necessary to issue a notice u/s 143(2) or u/s 142(1) of the Act to the assessee. The learned authorised representative for the assessee submitted that the Assessing Officer could not possibly have made the assessment u/s 143(3) read with section 147 without meeting the mandatory requirement of the statute of issuing notice u/s 143(2) of the Act. It was submitted that the Assessing Officer has not even issued notice u/s 142(1) of the Act. In these circumstances, the CIT (A) was correct in annulling the assessment. In support of such contention, the learned authorised representative for the assessee relied upon the decision of Hon'ble Supreme Court in case of Hotel Blue Moon (supra).
7. We have considered rival submissions of the parties and perused the material on record. We have also gone through the orders of the revenue authorities. We have also carefully applied our mind to the decisions relied upon by the parties. Undisputed fact is that the assessment order in case of the assessee for the impugned assessment year was passed u/s 143(3) read with section 147 of the Act. Section 143(2) of the Act mandates that for an assessment to be made u/s 143(3) of the Act, a notice u/s 143(2) of the Act is required to be issued to the assessee within the period of 12 months specifying the particulars of any claim of loss, deduction, allowance or relief which the Assessing Officer has reason to believe to be inadmissible and requiring the assessee to appear before him on the specified date and to produce any evidence or particulars on which the assessee may rely upon in support of such claim. Undisputedly, in the facts of the present case, it is apparent from the materials on record as well as the remand report submitted by the Assessing Officer, no notice either u/s 143(2) of the Act or section 142(1) of the Act was issued to the assessee before completing assessment. It is also not the case of the department before us that the Assessing Officer has wrongly mentioned it as 143(3) read with section 147 of the Act. On the contrary, the learned Departmental Representative has tried to make out a case that when there is no valid return filed by the assessee, there is no requirement of issuing notice u/s 143(2) of the Act. However, we are unable to accept such contention of the learned Departmental Representative. If the Assessing Officer treats the return filed belatedly to be a non est return then certainly the Assessing Officer could not have proceeded for making assessment u/s 143(3) of the Act. However, once the Assessing Officer proceeds to complete the assessment u/s 143(3) of the Act, then the mandatory requirement under the statute is that he must issue a notice u/s 143(2) of the Act, which has not been done in the present case. As held by the Hon'ble Supreme Court in the case of Hotel Blue Moon (supra) the requirement of issuing notice u/s 143(2) of the Act is a mandatory requirement and not a curable procedural irregularity. When the statute requires an act to be done in a particular manner, then it has to be done in that manner only. The Assessing Officer having proceeded to make an assessment u/s 143(3) read with section 147 of the Act, notice u/s 143(2) should have been issued to the assessee before completing the assessment. The Assessing Officer having not issued any notice u/s 143(2) of the Act, the assessment order is bad in law. In fact, the Assessing Officer himself in the remand report has admitted this fact and has stated that at least one notice u/s 143(2) and u/s 142(1) of the Act was required to be issued to the assessee before completing the assessment u/s 143(3) read with section 147 of the Act.
8. So far as the decisions relied upon by the learned Departmental Representative are concerned, on careful examination, we find them to be factually distinguishable and not applicable to the facts of the present case. In case of K.J. Thomas (supra) the assessee's contention was rejected because the assessee had furnished a detailed reply therefore it was held that once the assessee had been given opportunity to file a reply and a detailed reply was filed by the assessee there is no need for issuing a notice u/s 143(2) of the Act. However, in the present case, as is revealed from the discussion made in the assessment orders, the assessee in the first instance has objected to the initiation of proceeding u/s 148 of the Act on the ground of service of notice. However, the Assessing Officer without addressing the grievance of the assessee proceeded to complete the assessment u/s 143(3) read with section 147 of the Act without issuing any further notice to the assessee either u/s 143(2) or u/s 142(1) of the Act. Similarly, the decision of the Income-tax Appellate Tribunal, Agra Bench in case of Chandra Bhan Bansal (supra) will not apply to the facts of the present case as no notice u/s 143(2) was ever issued to the assessee. The decision of Hon'ble AP High Court in case of Pachigalla Narsimha Rao (supra) is also factually distinguishable and does not apply to the facts of the present case. In view of the fact that the Assessing Officer has completed the assessment u/s 143(3) read with section 147 of the Act without issuing any notice u/s 143(2) as per the statutory mandate, the assessment order passed is legally unsustainable. In such view of the matter, the order passed by the CIT (A) cannot be interfered with and is accordingly upheld. The grounds raised by the department are dismissed.
C.O. No.55/Hyd/2011:
9. Since we have upheld the order of the CIT(A) annulling the assessment order while deciding the departmental appeal hereinabove, the grounds raised in cross Objection have become academic in nature and hence the Cross Objection filed by the assessee are dismissed as infructuous.
10. In the result, appeal filed by the department and Cross Objection filed by the assessee stand dismissed.