2011 (8) TMI 767 - AT - Income Tax

Validity of reassessment upheld despite late notice service. Assessment order quashed under Section 143(3) overturned.

The Third Member upheld the validity of the reassessment proceedings initiated by the Assessing Officer, despite the non-service of the notice within the ... Distinction between issuance and service of notice under Section 148 - Jurisdiction vests on valid issuance of notice within limitation - Time limit for issuance of notice under Section 149 - Sanction under Section 151 as condition for valid issuance - Subsequent notice issued after limitation is irrelevantDistinction between issuance and service of notice under Section 148 - Jurisdiction vests on valid issuance of notice within limitation - Time limit for issuance of notice under Section 149 - Validity of reassessment where a notice under Section 148 was issued within the period prescribed by Section 149 but served thereafter - HELD THAT: - The Tribunal held that under the scheme of the Income-tax Act, 1961 a clear distinction exists between the 'issue' of a notice and its 'service'. Section 149 prescribes the period within which a notice must be issued; if a notice is issued within that period, jurisdiction to proceed under Section 147 is vested in the Assessing Officer even if actual service occurs later. The judgment relies on the binding principle in R.K.Upadhyaya that issuance within the prescribed limitation is sufficient to confer jurisdiction and that service is a condition precedent only to making the assessment, not to vesting jurisdiction. Applying that principle to the facts, the Tribunal found that the notice dated 28.3.2005 was validly issued within the six-year period, and consequently the reassessment founded on that issuance is valid notwithstanding later service. [Paras 16, 20, 21]The reassessment is valid because the notice dated 28.3.2005 was issued within the limitation period and thereby vested jurisdiction to proceed.Sanction under Section 151 as condition for valid issuance - Subsequent notice issued after limitation is irrelevant - Legal effect of earlier notice lacking sanction and later notices issued after limitation - HELD THAT: - The Tribunal examined the three notices on file. The notice dated 24.3.2005 was found to be invalid because it was issued without the requisite prior sanction under Section 151 and therefore did not constitute a lawful issuance. The second notice dated 28.3.2005, however, was issued after the sanction under Section 151(2) had been obtained and within the limitation period and so was a valid issuance conferring jurisdiction. The subsequent notice dated 17.6.2005 (served on 29.6.2005) was held to be of no legal consequence; it did not operate as a fresh valid issuance and could not negate the jurisdiction already validly assumed on 28.3.2005. [Paras 8, 20]The first notice (24.3.2005) was invalid for lack of sanction; the notice of 28.3.2005 was valid; the later notice of 17.6.2005 is irrelevant to the validity of the reassessment.Final Conclusion: The Tribunal, applying the distinction between issuance and service and the limitation rules, upheld the reassessment for AY 1998-99 as validly initiated by the notice issued on 28.3.2005 and dismissed the contention that service of a later notice rendered the proceedings void; the Accountant Member's order upholding reassessment is affirmed and the matter is placed before the regular Bench for appropriate orders. Issues Involved:1. Validity of quashing the assessment order under Section 143(3) of the IT Act, 1961.2. Validity of the assessment order based on notice issued under Section 148 of the IT Act, 1961.3. Timeliness and service of the notice under Section 148 of the IT Act, 1961.4. Validity of the assessment proceedings initiated by the AO.Issue-wise Detailed Analysis:1. Validity of Quashing the Assessment Order under Section 143(3) of the IT Act, 1961:The Revenue contended that the learned Commissioner of Income-tax (Appeals)-II, Agra erred in law and on facts in quashing the assessment order under Section 143(3) of the IT Act, 1961. The assessment was based on the information that the assessee had received bogus entries of sale proceeds of shares, which led to the belief that income had escaped assessment. The CIT(A) quashed the assessment order on the grounds that the notice under Section 148 was not served within the stipulated time, rendering the assessment invalid.2. Validity of the Assessment Order Based on Notice Issued under Section 148 of the IT Act, 1961:The CIT(A) held that the Assessing Officer did not base his assessment order on the notice issued under Section 148 dated 28.03.2005, as it was returned unserved. The AO issued another notice on 17.06.2005, which was served on 29.06.2005. The CIT(A) opined that the second notice was beyond the time limit prescribed under Section 149, making the assessment invalid. The learned Accountant Member (AM) disagreed, stating that the issuance of notice and service of notice are distinct processes. The valid issuance of the notice within the prescribed time limit confers jurisdiction, even if the service occurs later.3. Timeliness and Service of the Notice under Section 148 of the IT Act, 1961:The CIT(A) found that the notice issued on 17.06.2005 was beyond the six-year limitation period, making it invalid. The learned AM, however, argued that the notice dated 28.03.2005 was validly issued within the time limit, and the subsequent service of notice is a procedural requirement that does not affect the jurisdiction conferred by the valid issuance. The AM relied on the Supreme Court decision in R.K.Upadhyaya vs. Shana Bhai P.Patel, which distinguishes between the issuance and service of notice, stating that jurisdiction is conferred upon issuance within the limitation period.4. Validity of the Assessment Proceedings Initiated by the AO:The CIT(A) held that the assessment proceedings initiated by the AO were invalid due to the non-service of the notice within the prescribed time. The learned AM, however, upheld the validity of the reassessment proceedings, stating that the notice dated 28.03.2005 was validly issued, and the reassessment was based on this notice. The AM emphasized that the service of notice, while necessary for procedural compliance, does not invalidate the jurisdiction conferred by the valid issuance of the notice.Conclusion:The Third Member agreed with the learned AM, holding that the valid issuance of the notice dated 28.03.2005 conferred jurisdiction for reassessment, and the assessment proceedings were valid despite the subsequent service of notice. The decision of the CIT(A) to quash the assessment order was overturned, and the reassessment proceedings initiated by the AO were upheld as valid. The matter was remanded to the regular Bench for passing appropriate orders.