2014 (10) TMI 112 - HC - Income Tax

Invalid Notice Under Section 148 Renders Income Tax Proceedings Invalid

The High Court of Karnataka upheld the Tribunal's decision that the absence of a valid notice under Section 148 of the Income Tax Act rendered the ... Reopening of assessment u/s 148 – Proof for having dispatched notice - Held that:- Before making the assessment or reassessment or re-computation u/s 147 of the Act, the AO shall serve notice on the assessee - service of notice u/s 148 (1) of the Act is a condition precedent before initiating proceedings u/s 147 of the Act – relying upon S.Narayanappa Vs. Commissioner of Income Tax [1966 (9) TMI 36 - SUPREME Court] - the proceedings for assessment or reassessment u/s 34(1)(a) of the Act which is in pari materia with Section 147 of the Act, which start with the issue of a notice and it is only after the service of notice, that the assessee whose income is sought to be assessed or reassessed becomes a party to the proceedings - if such a service of notice is not affected, there cannot be any assessment or reassessment proceedings – also in Commissioner of Income Tax Vs. Mani Kakar [2008 (10) TMI 565 - HIGH COURT OF DELHI] proceedings u/s 147 of the Act cannot be initiated without the service of notice as mandated in Section 148 of the Act - Service of notice is a precondition for permitting asessement under Section 147 of the Act - when notice u/s 148 of the Act is not duly served on the assessee, the proceedings u/s 147 of the Act is one without jurisdiction and the Tribunal has rightly set aside the order – the order of the Tribunal is upheld – decided against the revenue. Issues:1. Validity of notice under Section 148 of the Income Tax Act, 1961 for reopening assessment.Analysis:The High Court of Karnataka heard an appeal by the Revenue challenging a Tribunal order that deemed the reopening of assessment as invalid due to lack of proper notice under Section 148 of the Income Tax Act. The Tribunal's decision was based on the absence of proof that the notice was duly served on the assessee despite being dispatched. The Revenue contended that the notice was sent on 28.03.2002 after the assessee's representative declined to accept it. However, there was no evidence of the notice being served on the assessee, rendering the proceedings under Section 147 without jurisdiction.The Court examined Section 148(1) of the Act, emphasizing that serving notice on the assessee is a prerequisite before initiating proceedings under Section 147. Referring to the Supreme Court's ruling in S.Narayanappa Vs. Commissioner of Income Tax and the Delhi High Court's decision in Commissioner of Income Tax Vs. Mani Kakar, the Court reiterated that proceedings under Section 147 cannot commence without proper notice as mandated in Section 148. Consequently, the Court upheld the Tribunal's decision, stating that without the valid service of notice under Section 148, assessment or reassessment proceedings under Section 147 cannot be conducted.In conclusion, the Court dismissed the Revenue's appeal, affirming the Tribunal's decision that the absence of valid notice under Section 148 rendered the proceedings under Section 147 invalid. The judgment highlighted the importance of adhering to statutory requirements, specifically the service of notice, before initiating assessment or reassessment proceedings under the Income Tax Act.