Assumption of jurisdiction u/s. 147 (of Income Tax Act, 1961) by the AO is without recording reasons and proper service of notice u/s. 148 (of Income Tax Act, 1961) is bad in law.

This is an appeal filed by the assessee against the order of the CIT(A)-2, Bhubaneswar dated 27.2.2017 for the assessment year 2012- 13.

2. The appeal is time barred by 08 days. The assessee has filed condonation petition dated 16.8.2017 supported by affidavit stating the reasons for filing the appeal belatedly. After considering the submissions of the parties and condonation petition, I am satisfied that the assessee was prevented by sufficient cause for filing the appeal late. Hence, I condone the delay of 8 days and admit the appeal for adjudication.

3. The assessee has filed the following grounds of appeal:

“1. For that after giving the appeal effect the Computation of CAPITAL GAIN Income for the Assessment Year 2012=13 made by the Assessing Officer at Rs- 2,84,871 (Appeal Effect Order Dt- 11.04.201) is arbitrary and unlawful as the Assessing Officer as well as the Appeal Commissioner should have considered the exemption U/s 54 (of Income Tax Act, 1961), towards purchase of another house/flat at Life Style Green, PATIA, BBSR. (Detail of documents filed in the Court/Forum below are enclosed herewith.)

2. For that relating to source of cash deposits of Rs- 29,20,000 in the Appellants Bank A/c should not have been rejected both by the Assessing Officer and by the Appeal Commissioner.

The confirmation of cash deposits of Rs-10,50,000 ( out of 25Lakhs cash deposits ) should not have been rejected by the Appeal Commissioner (Reference internal page-7 of Appeal Commissioners Order Dt-27.02.2017) indicating the same constituted to be additional evidence, even though the Appellant had no scope to file the same at the Assessment stage.

Towards the source of balance cash deposits of Rs 420,000 (Rs 29,20,000-Rs25,00,000) both the forums below should have accepted the same to be out of Appellants past savings including sale of old furniture of pervious flat etc.

3. For that both the Assessing Officer and the Appeal Commissioner should not have added the Non Cash Deposits of Rs- 5,64,945 in Appellants Bank as Unexplained Income even though the definite source of such non cash deposits were explained before the Forum below.”

4. The assessee has filed an application for admittance of an additional ground of appeal, which reads as under:

“1. For that although the assessment completed u/s.143 (of Income Tax Act, 1961)(30/147 of the I.T.Act, but the notices u/s.148 (of Income Tax Act, 1961) and 143(2) (of Income Tax Act, 1961) were never issued nor served on the appellant which are required in the statute and in absence of such notices, assessment made and orders passed are liable to be quashed and annulled in toto.

2. For that the ld AO has recorded the different dates for compliance but in fact no such notices served on the appellant, therefore, the objections made as well as failure of natural justice vis-à-vis unlawfully proceeded to complete the assessment cause illegality, thus the order of assessment is bad in law.”

Assessee’s Application for admission of additional grounds: 5. Ld counsel for the assessee submitted that the additional ground being legal in nature, may be taken up first, because in the event of this additional ground of appeal being admitted, and being decided in favour of the assessee, all other grievances raised in the original grounds will be rendered infructuous. Ld counsel for the assessee submitted that these grievances raised in the additional grounds were not raised before the authorities below, but contends that the assessee’s failure to do so does not affect his legal rights to raise the above legal pleas before the Tribunal. Reliance is placed on Hon’ble Supreme Court judgment in the case of NTPC vs. CIT, (229 ITR 383). It is submitted that the additional ground of appeal pertains to a purely legal ground and all the material facts, necessary for its disposal, are already on record. It is not disputed that this grievance was not raised before the authorities below but reliance is placed on the decision of Hon’ble Bombay High Court in the case of Inventors Industrial Corporation Ltd Vs CIT, 194 ITR 548 (Bom) in support of the proposition that “a ground by which the jurisdiction to make assessment itself is challenged can be urged before any of the authority for the first time”. It is contended that, as held by Hon’ble Supreme Court in the case of NTPC (supra), the powers of the Tribunal are not really confined to the issues arising out of order of the CIT(A) but also to the questions of law arising from facts which are already on record. It is submitted that the additional ground be admitted and disposed of the same on merits.

6. Replying to above, ld Sr. DR opposed to the admission of additional and further submitted that the assessee had all the opportunities to raise this grievance before the Assessing Officer and before the CIT(A) but he has bypassed these forums and approach the Tribunal directly. It is submitted that while Tribunal may indeed have powers to admit an additional ground of appeal, but there have to be good reasons for assessee not raising such a grievance before the first appellate authority.

7. After hearing the rival submissions, I am inclined to admit the additional ground of appeal since, as assessee rightly contends, it is a pure question of law challenging the very assumption of jurisdiction to pass impugned order which goes to the root of the case and merely because the assessee did not raise this grievance earlier the assessee cannot be prevented from raising this grievance now. In view of these facts, and in view if the law laid down by Hon’ble Supreme Court in NTPC’s case (supra), I admit the additional grounds of appeal and proceed to deal with the same. Additional grounds of assessee:

8. Ld A.R. of the assessee narrated the sequences regarding the action taken by the AO for reopening of assessment u/s.143(3) (of Income Tax Act, 1961)/147 of the Act. He submitted that on 2.2.2013, the assessee filed the return of income but notice under section 148 (of Income Tax Act, 1961) vide dated 6.12.2013 of the Act was by the Assessing officer on 6.12.2013 without recording of “reasons of prior objections” in the order sheet and also no satisfaction note of such issue got indicated and the date of service of notice u/s.148 (of Income Tax Act, 1961). He further submitted from the copy of the order/note sheets from 6.12.2013 to 9.6.2017 as submitted by ld DR on 25.11.2020 at pages 11 to 16 of departmental paper book, that on 15.4.2014, notice u/s.142(1) (of Income Tax Act, 1961) stating to have been served by the AO on 25.4.2014 but no entry was made in the order sheet and in the meantime the jurisdiction of assessment was transferred as stated by the ITO -2(4) on 30.1.2014 got recorded in the order sheet to the ITO -3(4), then the notice u/s.142(1) (of Income Tax Act, 1961) issued on 15.4.2014 fixing the date of hearing on 25.4.2014 by the ITO Ward 2(4) was illegal since it had no jurisdiction to hold the assessment which had gone before that to the ITO Ward 3(4) then the notice issued got invalid to enforce the proceedings. Ld A.R. submitted that no service of notice u/s.148 (of Income Tax Act, 1961) was made to enforce the assessee for filing the return of income.

9. Ld A.R. further submitted that from the above facts, it was apparent that the requirements of mandatory section 147 (of Income Tax Act, 1961) was not satisfied. Consequently, in absence of any satisfaction having been recorded by the AO that income has escaped assessment by reasons of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, assumption of jurisdiction u/s.147 (of Income Tax Act, 1961) was failure and,therefore, the impugned notice u/s.148 (of Income Tax Act, 1961) and all consequent orders cannot be sustained. It was thus submitted by ld counsel for the assessee that reopening of assessment should be held to be bad in law as the AO in the present case has not recorded any satisfaction specifically alleging that escapement of income was due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. He submitted that the notice u/s.148 (of Income Tax Act, 1961) has never served on the assessee, thus the notice is invalid and, therefore, assessment is invalid and bad in law. For this proposition, he relied on the following judicial pronouncements:

i) ITO vs Om Prakash Kukerja, (2016) 178 TTJ (Chd)1

ii) Suresh Kumar Sheetlani vs ITO (2018) 257 Taxman 338 (All)

iii) Mrs Shubhashri Panicker vs CIT, 403 ITR 434 (Raj)

iv) Harjeet Eurajprakash Girotra vs UOI & Ors (2019) 311 CTR 287

v) CIT vs Eshaan Holding Pvt ltd., 344 ITR 541 (Del)

10. Replying to above, ld Sr DR submitted that notice u/s.148 (of Income Tax Act, 1961) was issued to the assessee in the address available in the assessee’s PAN date base i.e. Puspanjali Mishra, D/O Balakrishna Mishra, C-004, R B Palace, Bomikhal, Near Ekamra Cinema Hall, Bhubaneswar, Orissa-751010. He submitted that a notice u/s.142(1) (of Income Tax Act, 1961) dated 15.4.2014 was issued to the assessee in the address provided by the assessee in her ITR i.e. Ms Puspanjali Mishra, Flat No.201, Basudev Enclave, Kanan Vihar, Swarnapuri, Patia, Bhubaneswar-751024. Subsequent notices u/s.142(1) (of Income Tax Act, 1961) were issued to the assessee on 14.10.2014 and 30.12.2014. Ld DR referred to the copy of order sheet and letter of the assessee at page 10 t0 16 (filed by the department), the assessee appeared on 9.3.2015 in response to notice dated 2.2.2015 and filed written submissions, which proves that the assessee has complied with the notice and filed the written submissions. Further, ld D.R. submitted that on 17.3.2015, the assessee appeared and filed another written submissions alongwith some documents which were placed on record. He submitted that the assessee is frequently changing her address as is evident from the acknowledgement of return. The notices were sent to the different addresses given by the assessee with the department. Hence, it cannot be claimed by the assessee that the notice issued by the revenue in connection with assessment proceedings does not hold good.

11. Ld D.R. further submitted that the assessee has neither asked the reasons recorded nor raised any objection regarding reopening of assessment during the entire course of assessment proceedings. If she had any objection, she could have raised in the course of assessment proceedings to be disposed by the AO, as has been held by Hon’ble Supreme Court in the case of GKN Driveshafts ( India ) Ltd vs ITO (123 Taxman 802). Ld D.R. submitted that since the assessee has appeared and co-operated with the proceedings before the AO, as is evident from the order sheet produced before the Bench, in terms of section 292 (of Income Tax Act, 1961) BB of the Act, she cannot raise a fresh objection after completion of the assessment.

He further submitted that the grounds regarding reasons recorded and non- service of notice was not raised before the first appellate authority and, therefore, the assessee cannot file the same as an additional ground before the Tribunal.

12. In rejoinder, ld A.R. submitted that before the issue of notice u/s.148 (of Income Tax Act, 1961), the AO should have recorded the reasons for initiating reassessment proceedings. He further referred to the decision of Hon’ble Bombay High Court in the case of PCIT vs Tata Sons Limited, (2019) 267 Taxman 13 (Bom.)(HC), wherein, it was held that issue of notice prior to recording of reasons for reopening of assessment is held to be without jurisdiction and deserves to be quashed and also defects could not be cured by invoking S.292B of the Act. He submitted that Hon’ble Gujarat High Court in the case of Rajoo Engineers Ltd vs DCIT, 218 CTR (Guj) 53, held that reasons to be recorded before issue of notice and validity of notice challenged got quashed the order of assessment. Similar view has been taken by Hon’ble Rajastahan High Court in the case of CIT vs. Shivratan Soni, 279 ITR 261 (Raj). Ld A.R. also referred to the decision of Hon’ble P&H High Court in the case of CIT vs K.G.Madan, 275 ITR 294 (P&H), wherein, it was held that reassessment notice issued u./s.148 of the Act but reasons were recorded after issue of notice, hence, the reassessment is invalid. Therefore, it is mandatory requirement of the Act that the AO must record reasons stating escapement of income by the assessee for relevant assessment year for assumption of valid jurisdiction to initiate reassessment proceedings and to issue notice u/s.148 (of Income Tax Act, 1961).

13. In reply to submission of ld D.R. that the jurisdiction was not challenged by the assessee before the ld CIT(A) and now challenged before the Tribunal as an additional ground, ld A.R. submitted that the point of jurisdiction can be raised at any stage and any point of time and even before the authority and with jurisdiction, the order is a nullity and its invalidity can be agitated even at the point of execution and collateral proceedings. He submitted that the revenue has filed affidavit, wherein, in para No.3, it has been stated that from page No.99 to 116 of the paper book of the assessee, the relevant materials were not available before the AO in course of assessment and this being the strange allegation made by the department, the AO had no truth at all because of the recordings of the materials in the order sheet were not made since the order sheet of the department had not disclosed the “prior objections” and allegation necessitated to issue and initiate the action u/s.147 (of Income Tax Act, 1961). Hence, the affidavit of the ITO filed before this Bench is not acceptable. For this proposition, he relied on the decision of Hon’ble Delhi High Court in the case of Prabhat Agarwal vs. DCIT, (2018) 169 DTR 282 (Delhi)(HC).

14. We have heard the rival submissions and perused the record of the case. The short question before us for adjudication as to whether the reopening of assessment u/s.147 (of Income Tax Act, 1961) is justified without recording satisfaction by the Assessing officer. The assessee in this case has challenged the jurisdiction of the Assessing Officer for taking up action u/s.148 (of Income Tax Act, 1961).

15. The contention of the department is that the assessee has furnished several addresses of the assessee while applying PAN, filing income tax returns and subsequently changing her addresses, etc. Therefore, notice u/s.148 (of Income Tax Act, 1961) and also statutory notice u/s.142(1) (of Income Tax Act, 1961) were issued to the assessee as per the given addresses. In response to said notices, the assessee personally appeared and participated in the assessment proceedings as well as filed written submissions. Therefore, it cannot be said that the assessee had not received any notice(s) in connection with the assessment proceedings. He submitted that the assessee is frequently changing her address, as is evident from acknowledgement of return, hence, the department was forced sent the notices in various address furnished to the department and it is proved that when the assessee has participated the proceedings, then it is vividly clear that the assessee has received the notices.

16. Before reopening the assessment, an assessee could receive a notice under section 148 (of Income Tax Act, 1961) in case the Assessing Officer believes that such assessee’s income chargeable to tax might have escaped assessment. In case the assessee has proof supporting his belief, the AO would record his reasons in writing and send the assessee notice under section 148 (of Income Tax Act, 1961). The Assessing Officer can’t just change his mind and go for re-investigation without a valid reason. In case the assessee has disclosed all the documents and correct information during the original assessment, the Assessing Officer cannot send a notice to the assessee for reassessing the same documents. Some facts or new documents which show that the income has escaped assessment should come into the light. In case the new information or documents come to light indicating that the individual has concealed income, then the AO could take action against such assessee under section 147 (of Income Tax Act, 1961) and 148 (of Income Tax Act, 1961).

17. The contention of ld A.R. is that no reasons were recorded before issue of notice u/s.148 (of Income Tax Act, 1961). The Bench specifically asked ld D.R. to furnish the reasons recorded by the Assessing Officer for issuing notice u/s.148 (of Income Tax Act, 1961). Ld DR produced the order sheet starting from 6.12.2013 to 9.6.1017 but no where it is mentioned that the reasons are recorded . Ld D.R., in all fairness, submitted that on perusal of entire reassessment proceedings file/folder, he is unable to find any copy of the reasons recorded by the AO prior or after issuing notice u/s.148 (of Income Tax Act, 1961) on 6.12.2013. Even before initiating the action u/s.147 (of Income Tax Act, 1961), it is the pre-condition upon the AO to record his reasons for taking up action u/s.147 (of Income Tax Act, 1961).

18. In the case of Tata Sons Ltd (supra), it is held that in absence of recording no prior reasons by the AO taking action by issue of notice u/s.148 (of Income Tax Act, 1961) of the At is to be quashed because reasons were recorded on 19.3.2009 but notice u/s.148 (of Income Tax Act, 1961) was issued on 6.3.2009, hence the order of assessment was dismissed even section 292BB (of Income Tax Act, 1961) could not be operated. Even in the present case of the assessee, keeping in view submission of ld D.R. we safely presume that no reasons were recorded and served on the assessee by the AO before initiation of proceedings u/s 147 (of Income Tax Act, 1961) and issuing notice u/s.148 (of Income Tax Act, 1961).

19. The Hon’ble Bombay High Court in the case of Mavany Bros vs CIT & Anr, (2015) 120 DTR 0286 (Bom) has held as under:

“ The jurisdiction under section 147 (of Income Tax Act, 1961)/148 of the Act is an extraordinary jurisdiction and can only be exercised when condition precedent as provided in sections 147/148 of the Act are satisfied. It is the appellant’s case that the aforesaid conditions are not satisfied inasmuch as in the absence of the AO having the original return of income available it would not be possible for him to have a reasonable belief that income chargeable to tax has escaped assessment. This issue of jurisdiction according to the respondent revenue could only have been raised before the AO and not having been raised before him, the appellant had waived its rights to raise the same. The appellant having submitted to the jurisdiction of the AO cannot now challenge the same. This is not entirely correct. It is well settled that mere acquiescence will not give jurisdiction to an authority who has no jurisdiction. In fact this Court in CIT vs ITSC A Ors (2014) 365 ITR 87 (Bom) has held that mere participation by a party in proceedings without jurisdiction will not vest/confer jurisdiction on the authority. Reason to believe that income chargeable to tax has escaped assessment is a jurisdictional fact and only on its satisfaction does the AO to acquire jurisdiction to issue notice. Thus this lack of satisfaction of jurisdictional fact can never confer jurisdiction and an objection to it can be raised at any time even in appeal proceedings. The mere fact that no objection is taken before the AO would not by itself bestow jurisdiction as the AO. Such an objection can be taken in appeal also. Moreover, the apex Court in its recent decision in Kanwar Singh Saini v High Court of Delhi, 2012 (4) SCC 307 has held that it settled position that conferment of jurisdiction is a legislative function and cannot be conferred by consent of petitioner. An issue of jurisdiction can be raised at any time even in appeal or execution. “

20. Recording of reasons before issue of notice is mandatory hence Reassessment was held to be bad in law as held in CIT v. Blue Star Ltd, 301 CTR 38 (Bom) (HC).

21. In Prashanth Projects Ltd v. CIT [2011] 333 ITR 368 , (Bom) (HC), It was held that before the Tribunal the question of supply of reasons recorded by the AO was raised by the assessee and it went to the root of the matter. On this issue, the Bench directed the Departmental Representative to produce the records to verify as to whether the reasons were recorded by the AO and whether same were supplied to the assessee.

The AO appeared with the assessment records but the relevant records were not traceable or were not available. It was found that even after completion of the assessment/appellate proceedings the assessee was requesting the AO to supply him the copy of the reasons. But, till the date of hearing i.e. on 19.09.2014 i.e. even after 18 years of the issuance of notice u/s. 148 (of Income Tax Act, 1961), the AO has not been able to prove that the assessee was supplied copy of the reasons recorded. Hence, the assessment was quashed.

22. In the case of Prabhat Agarwal (supra), it is held that it is settled position in law that a new reasons cannot be allowed to be introduced or supplied by way of affidavit. Validity of an order must be judged by the reasons so mentioned therein. Reasons recorded cannot be supplemented by filing affidavit or making oral submission. Department cannot amend or change the notice or reasons, noticee or the assessee should not be prejudiced or be taken by surprise. If the reopening is based on some information or material, the same should have a reference in the reasons recorded which will have to be the basis for reopening. The AO is expected to deal with the assessee’s objection vis a vis the reasons recorded and not to any external material.

23. In CIT vs. Eshaan Holding P. Ltd. (supra), it is held that before issue the notice u/s. 148 (of Income Tax Act, 1961), it is expected of the AO to have checked up if there is any change of address because valid service of notice of reopening the assessment is a jurisdictional matter and this is a condition precedent for a valid reassessment. Further, though the correct address of the assessee has been constantly mentioned in the return of income quite for a long time. However, notice was not sent to such address, as a result of which reassessment proceedings and notice u/s. 148 (of Income Tax Act, 1961) read with Section 147 (of Income Tax Act, 1961) is illegal, bad in law and without jurisdiction.

24. The Hon’ble Allahabad High Court in the case of Mithlesh Kumar Tripathi Vs CIT [2006] 280 ITR 16 (All), is very relevant. It was, inter-alia,held in this case that the reasons recorded under section 148(2) (of Income Tax Act, 1961), must be communicated to the assessee along with the notice under section148 (of Income Tax Act, 1961), in view of the principles of natural justice. This mandatory pre-condition has not been complied by the AO before taking action u/s.147 (of Income Tax Act, 1961) and issue notice u/s.148 (of Income Tax Act, 1961).

25. In this case, there is no proper issue of notice u/s.148 (of Income Tax Act, 1961) and notice issued without recording the reasons. From the order sheet dated 30.1.2014, it is recorded that the jurisdiction of the case was transferred to ITO Ward -3(4) but on 15.11.2014, the ITO Ward 2(4) had issued notice u/s.142(1) (of Income Tax Act, 1961) on same issue and, therefore, the notices issued to the assessee are clearly in mess.

26. On a careful consideration of the matter in light of the above decisions, I hold that the assumption of jurisdiction u/s. 147 (of Income Tax Act, 1961) by the AO is without reasons record and proper service of notice u/s. 148 (of Income Tax Act, 1961) and is bad in law and reassessment proceedings and all consequent orders including reassessment order dated 17.3.2015 are consequently liable to be quashed. I accordingly, quash the same. Since I have quashed the reassessment proceedings on the legal ground, other grounds taken by the assessee in original grounds on the merits of the case are not being adjudicated upon.

27. In the result, appeal of the assessee is allowed.

Order pronounced on 17/12/2020.

Sd/-

(Chandra Mohan Garg)

JUDICIAL MEMBER

Cuttack; Dated 17/12/2020