2024 (5) TMI 542 - AT - Income Tax

Revenue cannot make tax additions without serving mandatory section 143(2) notice first, procedural violation fatal

Rama Mohan Soma Versus The Income Tax Officer, Ward – 1, Hindupur.

ITAT Hyderabad held that failure to issue notice under section 143(2) before making additions constituted a jurisdictional error that rendered the ... Non-issuance of notice u/s 143(2) - DR tried to persuade us that there was no requirement of notice u/s 143(2) of the Act - HELD THAT:- Notice u/s 143(2) is required to be served on the assessee before making the addition in the hands of the assessee. Since the needful was not done by the AO before making addition in the hands of the assessee as contemplated u/s 143(2) of the Act, thus, there was jurisdictional error committed by Revenue before making addition in the hands of the assessee which goes to the root of the matter. Hence, any addition based on such fatal error, is not sustainable, in the eye of law. See Hotel Blue Moon [2010 (2) TMI 1 - SUPREME COURT] decided the issue in favour of the assessee. Issues Involved:1. Addition towards unexplained investment u/s 69B of the Income Tax Act, 1961.2. Issuance and service of notice u/s 143(2) read with section 254 of the Act.3. Violation of CBDT circulars regarding Document Identification Number (DIN).4. Relevance of invoking provisions of section 69B.5. Non-supply of reasons for reopening the assessment and related documents.6. Incorrect assessment year mentioned in the demand notice u/s 156.Summary:1. Addition towards unexplained investment u/s 69B:The assessee contested the addition of Rs. 50,00,000/- as unexplained investment u/s 69B. The Tribunal noted that the Assessing Officer (AO) treated the amount as unexplained investment due to the assessee's failure to prove the sources of money with evidence and creditworthiness of lenders.2. Issuance and service of notice u/s 143(2) read with section 254:The Tribunal observed that the AO claimed to have issued a notice u/s 143(2) r.w.s 254, but there was no proof of service of this notice. The Tribunal emphasized that issuing notice u/s 143(2) is mandatory and the failure to do so constitutes a jurisdictional error. The Tribunal relied on the Supreme Court's decision in ACIT v. Hotel Blue Moon, which held that the issuance of notice u/s 143(2) is mandatory even in block assessments.3. Violation of CBDT circulars regarding DIN:The assessee argued that the assessment order did not quote the DIN, violating CBDT circulars 19/2019 and 27/2019. The Tribunal noted that the AO admitted the absence of DIN on the notice and assessment order, which is against statutory requirements.4. Relevance of invoking provisions of section 69B:The Tribunal found that the Commissioner of Income Tax (Appeals) did not pass a speaking order on the ground that invoking section 69B was irrelevant to the facts of the case. The Tribunal held that the addition of Rs. 50,00,000/- u/s 69B was not justified.5. Non-supply of reasons for reopening the assessment and related documents:The assessee contended that the AO did not supply copies of the reasons recorded for reopening the assessment, satisfaction note, and material collected from the investigation wing. The Tribunal noted that this omission violated the principle of natural justice.6. Incorrect assessment year mentioned in the demand notice u/s 156:The Tribunal acknowledged the typographical error in the demand notice, where the assessment year was mentioned as 2017-18 instead of 2012-13. The Tribunal found this to be a typographical error, but it did not affect the validity of the notice as per section 292B of the Act.Conclusion:The Tribunal allowed the appeal of the assessee, primarily on the ground of non-issuance of notice u/s 143(2), which constituted a jurisdictional error. Consequently, the Tribunal did not adjudicate the remaining grounds. The appeal was allowed, and the order was pronounced in the Open Court on 9th May, 2024.