Saktijit Dey, Member (J) -
(1.) THIS appeal by the Department and cross -objection by the assessee are directed against the order dt. 28th Feb., 2011 passed by the CIT(A), Guntur, in ITA No. 0225/Dy. Director of IT (Exe.) -II/CIT(A)/GNT/2007 -08 pertaining to the asst. yr. 1999 -2000. 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 30th Jan., 2002 declaring 'nil' income. As noted in the assessment order by the AO, since the return was not filed within the due date prescribed under s. 139(1) and even the extended period provided under s. 139(4) of the Act, the return was treated as non est. The AO initiated action under s. 147 of the Act by issuing a notice under s. 148 of the Act on 21st March, 2006 which was served on the Authorised Representative of the assessee, Sri K.V. Chalamaiah, on 15th Sept., 2006. Information received as a result of survey operation conducted under 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 account. The AO in the course of assessment proceedings issued a letter to the assessee seeking his objections as to why the exemption under s. 11 should not be denied. In response to the aforesaid letter dt. 6th Nov., 2007 of the AO, the assessee submitted that the notice under 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 under s. 11 of the Act would not arise. The AO however rejected the contention of the assessee and proceeded to complete the assessment under s. 143(3) r/w s. 147 of the Act vide order dt. 28th Dec, 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).
(2.) IN the course of hearing of appeal before the CIT(A), the assessee challenged the validity of proceedings under s. 147 of the Act on the ground that there is no valid service of notice under 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 under s. 143(3) r/w s. 147 of the Act is also invalid due to the fact that no notice either under s. 143(2) or 142(1) of the Act was issued to the assessee before completing the assessment under s. 143(3) r/w s. 147 of the Act. The CIT(A) called for a remand report from the AO 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 dt. 28th Feb., 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 AO 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 under s. 143(3) r/w s. 147 of the Act due to non -issuance of notice under s. 143(2) of the Act, the CIT(A) accepted such contention and held that the assessment order passed without issuing notice under 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 AO erred in completing the assessment under s. 143(3) before service of mandatory notice under s. 143(2) on facts and in the circumstances of the case, which is not a valid assessment has a point to consider. The AO 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 s. 143(2) is mandatory for a valid assessment to be made, that too within twelve months from the end of the month in which the return has been filed. The Allahabad High Court in the case of CIT vs. Rajeev Sharma : (2010) 232 CTR (All) 303 : (2010) 40 DTR (All) 129 held that the provision contained in s. 143(2), is mandatory in nature and it is obligatory for the AO to apply his mind to the contents of the return filed in response to notice under s. 148 and thereafter issue notice under s. 143(2), before proceeding to decide the controversy regarding escaped assessment, non -issue of notice under s. 143(2), after filing of return by the appellant vitiated the reassessment proceedings. In fact, the apex Court in the case of Asstt. CIT vs. Hotel Blue Moon : (2010) 229 CTR (SC) 219 : (2010) 35 DTR (SC) 1 : (2010) 321 ITR 362 (SC) held that if an assessment is to be completed under s. 143(3) r/w s. 158BC, issue of notice under s. 143(2) is mandatory and that the non -issue of the notice is not a procedural irregularity and cannot be cured. Thus, the recomputation of income by the AO has to be held invalid and thus, the action of the AO 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 under s. 148 of the Act. We will first take up the appeal of the Department.
The only issue arising out of the grounds raised by the Department is whether the CIT(A) was justified in annulling the assessment completed under s. 143(3) r/w s. 147 of the Act on the ground of non -issuance of notice under s. 143(2) of the Act.
(3.) INSOFAR as the issuance of notice under s. 143(2) is concerned, the learned Departmental Representative orally as well as through his written submission submitted before us that a notice under 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 under s. 143(2) is to be treated as fatal for an assessment completed under s. 143(3) of the Act is because of the underlying presumption, as held in the case of Asstt. CIT vs. Hotel Blue Moon : (2010) 229 CTR (SC) 219 : (2010) 35 DTR (SC) 1 : (2010) 321 ITR 362 (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 under 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 vs. Pachigolla Naraismha Rao : (1980) 18 CTR (AP) 122 : (1982) 134 ITR 640 (AP), 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 Tribunal in case of Chandra Bhan Bansal vs. Dy. CIT : (2004) 90 TRJ (Agra) 635 : : (2001) 79 ITD 639 (Agra) submitted that the CIT(A) was wrong in cancelling the assessment for the reason that no notice under 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 be any requirement of issuing notice under s. 143(2) of the Act. The learned Departmental Representative also relied upon the decision of Kerala High Court in the case of K.J. Thomas vs. CIT : (2008) 4 DTR (Ker) 98 : (2008) : 301 ITR 301 (Ker).;