2022 (1) TMI 832 - AT - Income Tax

Invalid Notice Under Section 143(2) Leads to Dismissal of Revenue's Appeal

The Tribunal dismissed the Revenue's appeal, finding the reassessment proceedings invalid due to the non-issuance of a mandatory notice under Section ... Validity of the reassessment proceedings u/s 147 - absence of issue of notice u/s 143(2) - Addition u/s 68 - HELD THAT:- A perusal of the assessment order as well as the order of the CIT(A) shows that no notice u/s 143(2) was ever issued to the assessee before completing the assessment u/s 143(3)/147 - it is mandatory to issue notice u/s 143(2) even in reassessment proceedings and non-issuance of the same makes the assessment order illegal and null. Hon’ble Delhi High Court in the case of PCIT vs. Shri Jai Shiv Shankar Traders Pvt. Ltd [2015 (10) TMI 1765 - DELHI HIGH COURT] has held that the failure of the AO in reassessment proceedings to issue notice u/s 143(2) prior to finalizing the reassessment order cannot be condoned by referring to section 292BB. We hold that the reassessment proceedings, in the instant case, completed u/s 143(3)/147 are not in accordance with the law in absence of issuance of notice u/s 143(2) of the IT Act. Therefore, we hold that the reassessment proceedings are invalid. The ground raised by the assessee as per Rule 27 of the Income-tax (Appellate Tribunal) Rules is accordingly allowed. Issues Involved:1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.2. Requirement and non-issuance of notice under Section 143(2) of the Income Tax Act.3. Addition under Section 68 of the Income Tax Act for unexplained share capital and share premium.Detailed Analysis:1. Validity of Reassessment Proceedings:The reassessment proceedings were initiated based on information received from the Investigation Wing, Chandigarh, which indicated that the assessee had received share capital and share premium from two Kolkata-based companies, M/s Olipha Trading & Investment Pvt. Ltd. and Sopan Merchants Pvt. Ltd. These companies were found to be non-existent at their registered addresses and were identified as paper/jamakharchi companies controlled by entry operators. The Assessing Officer (AO) reopened the assessment under Section 147 of the Income Tax Act and issued notice under Section 148, believing that income had escaped assessment. The assessee filed objections, which were disposed of by the AO through a speaking order.2. Requirement and Non-Issuance of Notice Under Section 143(2):The assessee challenged the validity of the reassessment proceedings in the absence of a notice under Section 143(2). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the validity of the reassessment proceedings but noted that no notice under Section 143(2) was issued. The Tribunal referred to several judicial precedents, including the Hon'ble Delhi High Court's decision in the case of PCIT vs. Shri Jai Shiv Shankar Traders Pvt. Ltd., which held that the failure to issue a notice under Section 143(2) in reassessment proceedings is fatal and renders the reassessment proceedings invalid. The Tribunal concluded that the reassessment proceedings were not in accordance with the law due to the non-issuance of the mandatory notice under Section 143(2), thus rendering the reassessment proceedings invalid.3. Addition Under Section 68 for Unexplained Share Capital and Share Premium:The AO added Rs. 5,03,82,000/- under Section 68, treating the share capital received from M/s Olipha Trading & Investment Pvt. Ltd. and Sopan Merchants Pvt. Ltd. as bogus. The CIT(A) deleted the addition, observing that the assessee had provided sufficient documentary evidence to prove the identity, genuineness, and creditworthiness of the investors, including confirmations from investors, bank statements, PAN cards, and income tax returns. The CIT(A) further noted that the AO had not provided the investigation wing's report to the assessee, depriving it of the opportunity to rebut the findings. The Tribunal, however, did not adjudicate on the merits of the addition under Section 68 due to the invalidity of the reassessment proceedings.Conclusion:The Tribunal allowed the assessee's challenge under Rule 27 of the ITAT Rules, holding that the reassessment proceedings were invalid due to the non-issuance of the mandatory notice under Section 143(2). Consequently, the appeal filed by the Revenue was dismissed, and the ground raised by the Revenue on the merits of the addition under Section 68 was not adjudicated, as it became academic in nature.