Income Tax Appellate Tribunal ( ITAT ) in a recent case held that meeting statutory requirements of Section 148 of Income Tax Act 1961 ( ITA ) eliminates the need for separate notice under section 143.
The assessee,Shree Gautam Labhdi LLP, submitted income tax return for the Assessment Year (A.Y.) 2018-19 on July 25, 2018, declaring a total income of Rs. 45,664. This return was processed under Section 143(1) of ITA.
Based on information received, the Assessing Officer (AO) noted that Vasant Darji, the proprietor of Vijay Enterprise, provided various accommodation entries in the form of loans, share premiums, purchases, etc., through entities like Vijay Enterprises, Vishal Impex, Chamunda Traders, and M/s. Viral Overseas.
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The assessee was found to have received accommodation entries amounting to Rs. 17,66,600 in the form of Long-Term Capital Gains (LTCG) or Short-Term Capital Gains (STCG), which the AO deemed to be non-genuine transactions requiring taxation.
Consequently, an order under Section 148(d) of ITA was passed on March 24, 2022, followed by a notice issued under Section 148 on January 24, 2022.
To investigate further, a notice under Section 142(1) of ITA dated September 23, 2022, was issued to the assessee.
This notice also referenced earlier notices issued under Section 148 on March 24, 2022, and under Section 142(1) of ITA on July 7, 2022.
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The assessee responded to these notices on October 7, 2022, and November 7, 2022, respectively, providing relevant documents.
After reviewing the assessee’s response and documents, the AO added Rs. 12,94,507 under the head of capital gains.
Aggrieved, the Assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], challenging the assessment. The appeal was dismissed by the CIT(A) on December 19, 2023.
Aggrieved again, the assessee appealed before ITAT.
Before the ITAT, the counsel for assessee submitted that the AO issued an Assessment Order under Section 147 of ITA without serving a notice under Section 143(2) of ITA, despite the assessee having filed a return of income in response to a notice issued under Section 148 of ITA.
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The assessee argued that issuing a notice under Section 148 of ITA is a mandatory requirement, not just a procedural formality. Therefore, the failure to issue such a notice renders the assessment order illegal and void.
The assessee supported this argument by citing the decision of the Supreme Court in the case of ACIT vs. Hotel Blue Moon
In opposition, the Revenue Counsel argued that the assessee failed to file a valid return in response to the notice issued under Section 148 of ITA.
In fact, the return submitted by the assessee was filed only a few days before the assessment was completed.
The counsel submitted that the assessee claimed to have filed an Income Tax return in response to the notice under Section 148 of ITA, but according to the AO, it was not a valid return.
Therefore, there was no requirement for a notice under Section 143(2) of the Act.
After examining the facts of the case, the bench observed that the original return of income for the assessment year 2018-19 was filed under Section 143 of ITA on July 25, 2018.
The case was later reopened under Section 147 of ITA, leading to the issuance of a notice under Section 148 of ITA on March 24, 2022, followed by a notice under Section 142(1) of ITA on July 7, 2022, and a subsequent notice under Section 142(1) of ITA on October 31, 2022.
Upon examining the records up until the issuance of the Section 142(1) notice on October 31, 2022, it was clear that the assessee submitted a reply on November 7, 2022, along with documents, but did not file a return of income.
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It was observed that instead, the assessee chose to file the return of income on February 14, 2023.
However, this filing wasn’t considered a valid response to the notice under Section 148 of ITA as the original return of income was filed earlier. Therefore, the tribunal held that the CIT(A) correctly dismissed the appeal.
Regarding the assessee’s argument that a notice under Section 143(2) of ITA is mandatory, the tribunal observed that the case cited by the assessee (Hotel Blue Moon) explicitly states that in assessments to be completed under Section 143(3) read with Section 158BC of ITA, the requirement of a Section 143(2) notice is not merely procedural and cannot be waived.
However, in the present case where the assessment was reopened, a notice under Section 148 of ITA was properly issued, and the assessee responded to it.
In light of the above observation, the tribunal held that the requirement for a Section 143(2) notice is not justified in this scenario, as the notice under Section 148 of ITA had already been issued, followed by the relevant statutory notices under Section 142(1) of ITA, to which the assessee also responded.
Thus, the ground was dismissed.
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