2016 (2) TMI 830 - AT - Income Tax

Invalid Notice Service under Section 143(2) leads to Appeal Win & Disregard of Other Tax Issues

M/s. Farmson Basic Drugs Pvt. Ltd. Versus ITO 10 (1) (1), Mumbai

The ITAT allowed the appeal, quashing the assessment order due to the invalid service of notice under Section 143(2) of the Income-tax Act. As a result, ... Validity of assessment - non-service of notice u/s.143(2) - Held that:- there is no evidence or even presumption of service of notice u/s.143(2) by post on the assessee. Since in the instant case, the department has not been able to demonstrate that notice u/s.143(2) was served within the statutory time limit, the assessment made on the basis of such invalid notice could not be treated to be valid assessment and, hence, such assessment order deserves to be treated as null and void and liable to be quashed and annulled. Accordingly, we allow assessee’s appeal on legal issue regarding non-service of notice u/s.143(2). The consequential additions thus have no legs to stand and the same accordingly stand deleted. The other grounds raised by the assessee have thus become infructuous and need no adjudication. - Decided in favour of assessee Issues Involved:1. Validity of notice issued under Section 143(2) of the Income-tax Act.2. Disallowance of loss incurred in the business of transportation of goods.3. Disallowance of depreciation on leased assets.4. Initiation of penalty proceedings under Section 271(1)(c) of the Income-tax Act.5. Charging of interest under Section 234B of the Income-tax Act.6. Charging of interest under Section 234C of the Income-tax Act.Detailed Analysis:Issue 1: Validity of Notice Issued Under Section 143(2)The assessee challenged the validity of the notice issued under Section 143(2) of the Income-tax Act, contending that it was not served within the statutory period of 12 months. The return was filed on 25.11.1994, and the notice was issued on 14.11.1995 and dispatched on 20.11.1995. The AO relied on a letter from the Department of Posts dated 12.12.1996, which certified the delivery of the letter containing the notice. However, the assessee argued that the receipt did not contain the address, and the notice was not received. The CIT(A) upheld the AO's findings, but the ITAT remanded the matter to the AO to provide evidence, including the letter from the postal authorities. Upon reassessment, the AO maintained that the notice was validly served. The ITAT found that the notice was issued to an outstation address and that the postal receipt only contained the name without the address. It ruled that the burden was on the Department to prove service within the prescribed time, which it failed to do. Consequently, the assessment was deemed invalid and quashed.Issue 2: Disallowance of Loss Incurred in the Business of Transportation of GoodsThe CIT(A) confirmed the AO's action of disallowing the loss incurred in the transportation business and assessing Rs. 72,000 as income under Section 44AE, leading to an addition of Rs. 2,48,392. The assessee maintained that all required books of accounts were maintained and audited. However, since the assessment was quashed due to the invalid notice under Section 143(2), this issue became infructuous.Issue 3: Disallowance of Depreciation on Leased AssetsThe CIT(A) upheld the AO's disallowance of depreciation amounting to Rs. 1,61,510 on leased assets. As with the previous issue, the disallowance became irrelevant due to the quashing of the assessment order.Issue 4: Initiation of Penalty Proceedings Under Section 271(1)(c)The CIT(A) confirmed the AO's initiation of penalty proceedings under Section 271(1)(c). However, this issue also became infructuous following the annulment of the assessment order.Issue 5: Charging of Interest Under Section 234BThe CIT(A) upheld the AO's action of charging interest under Section 234B. With the assessment order quashed, this issue was rendered moot.Issue 6: Charging of Interest Under Section 234CThe CIT(A) confirmed the AO's action of charging interest under Section 234C. Similar to the other issues, this became irrelevant due to the annulment of the assessment order.ConclusionThe ITAT allowed the appeal of the assessee, quashing the assessment order due to the invalid service of notice under Section 143(2). Consequently, all other grounds of appeal became infructuous and were not adjudicated. The appeal was allowed in favor of the assessee.