2018 (4) TMI 1734 - HC - Income Tax

Challenge to Income Tax Assessment Process: Notice Under Section 143(2) is Mandatory

The appeal challenged the assessment proceedings under Section 143(3) of the Income Tax Act, 1961, concerning additions made to the individual's brokerage ... Jurisdiction of Assessing Officer - mandatory requirement of notice under Section 143(2) - non-curability of omission to issue notice under Section 143(2) - application of Section 153A in search cases - inapplicability of section 292BB to cure jurisdictional defect - quashing of assessment/reassessment proceedingsJurisdiction of Assessing Officer - mandatory requirement of notice under Section 143(2) - non-curability of omission to issue notice under Section 143(2) - inapplicability of section 292BB to cure jurisdictional defect - quashing of assessment/reassessment proceedings - Validity of the assessment proceedings where no notice under Section 143(2) was issued before passing assessment under Section 143(3). - HELD THAT: - The Tribunal found, and this Court concurs, that no notice under Section 143(2) was issued prior to completion of assessment under Section 143(3). The year in question was the search year and not within the scope of Section 153A's six-year scheme; notwithstanding departmental characterisation, the Assessing Officer proceeded by way of a regular assessment without issuing the mandatory notice. Reliance is placed on the decision in Assistant Commissioner of Income Tax v. M/s Hotel Blue Moon, which holds that omission to issue notice under Section 143(2) is not a curable defect. The Tribunal further held that the defect could not be remedied by invoking Section 292BB. On these foundations the Tribunal concluded that the AO lacked jurisdiction and quashed the assessment/reassessment proceedings. The impugned order does not raise any substantial question of law contrary to the settled position that notice under Section 143(2) is mandatory and non-curable in such circumstances. [Paras 17, 18, 19]Assessment/reassessment proceedings quashed for want of jurisdiction due to non-issuance of notice under Section 143(2); Revenue's appeal dismissed.Final Conclusion: The High Court affirms the Tribunal's quashing of the assessment proceedings for assessment year 2010-11 on the ground that no notice under Section 143(2) was issued and such omission is not curable; the revenue appeal is dismissed. Issues:1. Validity of assessment proceedings under Section 143 (3) of the Income Tax Act, 1961.2. Jurisdiction of the Assessment Officer regarding the non-issuance of notice under Section 143 (2) of the Act.Validity of Assessment Proceedings under Section 143 (3):The appeal was directed against the order passed by the Income Tax Appellate Tribunal, where the assessee, an individual engaged in brokerage business, had undergone a search and seizure operation under section 132 of the Income Tax Act, 1961. The assessment was completed under Section 143 (3) read with Section 153 (D) of the Act, resulting in additions on various accounts, including unexplained cash, jewelry, hundies, and cash receipts. The Commissioner Income Tax (Appeal) partially deleted certain additions, which led to further appeals by both the Revenue and the Assessee.Jurisdiction Issue and Non-issuance of Notice under Section 143 (2):The Tribunal upheld the cross-objection filed by the Assessee, quashing the reassessment proceedings due to the absence of a notice under Section 143 (2) of the Act. The Tribunal emphasized the statutory requirement of issuing such notice and concluded that the Assessment Officer lacked jurisdiction in the absence of the said notice. The Tribunal referred to the case law and highlighted that the defect of non-issuance of notice under Section 143 (2) is not curable, even under section 292 BB of the Act. The Tribunal further noted that the assessment order was passed without the required notice, rendering the entire assessment proceedings invalid in law.Legal Precedent and Conclusion:The Tribunal's decision was supported by legal precedents, including the case of Assistant Commissioner of Income Tax & Anr. Vs. M/s Hotel Blue Moon, where the Supreme Court held that the issuance of notice under Section 143 (2) is mandatory and not a procedural irregularity. Consequently, the Tribunal's decision to quash the assessment order due to the lack of jurisdiction was upheld. The appeal was dismissed, emphasizing that no substantial question of law arose for consideration in light of the established legal principles.This judgment highlights the critical importance of adhering to procedural requirements, such as issuing notices under relevant sections of the Income Tax Act, to maintain the validity of assessment proceedings and ensure the jurisdiction of the Assessment Officer. The decision underscores the significance of statutory compliance in tax assessments and the implications of non-compliance on the legality of the assessment process.