2011 (5) TMI 4 - AT - Income Tax

Invalid reassessment orders due to non-issuance of mandatory notice under tax law

The Tribunal upheld the decision that reassessment orders were invalid due to the non-issuance of a mandatory notice under section 143(2) of the Income ... Reassessment u/s 147/148 - Issuance of Notice u/s 143(2) - In view of decision of Apex Court in ACIT vs. Hotel Blue Moon (2010 -TMI - 35251 - SUPREME COURT OF INDIA) A.O. is bound to serve on the assessee a notice u/s. 143(2) of the Act requiring him, on a date to be specified therein, either to attend at the A.O.’s office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return furnished by him - That not being done in the instant case, the assessments framed on 20/12/2007 for the assessment years under consideration are bad in law and void ab initio - Hence, upheld the orders of the ld. C.I.T.(A) that the reassessment orders passed by the A.O. are invalid on account of non-issuance of mandatory notice to be issued u/s. 143(2) of the Act for the purpose of reassessment u/s 147 – Thus, appeals by the department are dismissed. Issues Involved:1. Condonation of delay in filing the appeal for the assessment year 2000-01.2. Validity of reassessment proceedings due to non-issuance of notice under section 143(2) of the Income Tax Act, 1961.Detailed Analysis:1. Condonation of Delay:The department's appeal for the assessment year 2000-01 was filed two days late. The department submitted an application for condonation of the delay, citing reasonable cause. The appellant did not dispute the reasons given. After considering the submissions and the application, the Tribunal decided to condone the delay and entertain the appeal on its merits.2. Validity of Reassessment Proceedings:The central issue in these appeals was whether the reassessment proceedings were invalid due to the non-issuance of notice under section 143(2) after the initiation of reassessment proceedings under section 148.- Department's Argument:The Departmental Representative argued that the non-issuance of notice under section 143(2) did not invalidate the reassessments since the assessee was afforded a reasonable opportunity before the assessment orders were passed. The representative relied on the decisions of the Hon'ble Madras High Court in Areva T & D India Ltd. vs. ACIT and ITAT Mumbai and Jodhpur Benches, which held that failure to issue notice under section 143(2) was a procedural irregularity that could be rectified.- Assessee's Argument:The assessee's representative supported the orders of the CIT(A), who had called for a remand report from the AO. The AO confirmed that no notice under section 143(2) was issued after the notice under section 148. The representative cited several judicial precedents, including the Hon'ble Madras High Court in CIT vs. C. Palaniappan, ITAT Lucknow Bench in DCIT vs. K.M. Sugar Mills Ltd., and the Hon'ble Supreme Court in ACIT vs. Hotel Blue Moon, which held that the issuance of notice under section 143(2) is mandatory and non-issuance vitiates the reassessment proceedings.Tribunal's Findings:- The Tribunal agreed with the assessee's representative that the provisions of section 292BB, which deem a notice to be valid despite irregularities in service, were not applicable since no notice under section 143(2) was issued at all. Moreover, section 292BB applies only from the assessment year 2008-09, whereas the years under consideration were 2000-01, 2001-02, and 2003-04.- The Tribunal emphasized that service of notice under section 143(2) is a condition precedent for initiating scrutiny and/or reassessment proceedings. The failure to issue such a notice within the stipulated time rendered the reassessment proceedings invalid. The Tribunal cited various judicial pronouncements supporting this view, including decisions from the Hon'ble Bombay High Court, Hon'ble Gauhati High Court, and the Hon'ble Punjab & Haryana High Court.- The Tribunal concluded that the assessments framed without issuing notice under section 143(2) were bad in law and void ab initio. Consequently, the orders of the CIT(A) declaring the reassessment orders invalid were upheld.Conclusion:Since the reassessment orders were invalid due to the non-issuance of mandatory notice under section 143(2), the Tribunal did not consider it necessary to address other grounds raised by the department regarding the deletion of additions made by the AO. All three appeals by the department were dismissed.