2016 (12) TMI 1410 - AT - Income Tax

Appeal allowed due to invalid notice; assessment order quashed. Other issues not decided.

M/s. Vidyavihar Containers Ltd. Versus DCIT, Circle-10 (2), Mumbai

The Tribunal allowed the appeal for A.Y. 2005-06, ruling that the notice under Section 143(2) was not validly served, leading to the quashing of the ... Validity of Notice under section 143(2) of the Act and the assessment thereunder - invalid service of notice - Held that:- Revenue has not been able to prove that it fulfilled its legal obligations to show what efforts Revenue made between the date of issue of notice on 23.10.2006 to date of service of notice by affixture i.e. 31.10.2006 to effect the service of the said notice under section 143(2) of the Act in a normal manner. No material was placed on record before us to show that any effort was made by the AO to serve the notice in a normal manner before service by affixture was done on 31.10.2006. In so far as the applicability or otherwise of section 292BB of the Act to the case on hand is concerned, the ITAT Special Bench Delhi in the case of Kuber Tobacco Products (I) Ltd. (2009 (1) TMI 304 - ITAT DELHI ) has held that section 292BB of the Act inserted by Finance Act, 2008 w.e.f. 01.04.2008 is not retrospective and would apply prospectively for and from A.Y. 2008-09. Further, in the case on hand, this section would not apply in view of the proviso to section 292BB of the Act, since the assessee has raised its objection to the validity of notice under section 143(2) of the Act vide letter 07.09.2007, admittedly filed with the AO on 07.09.2007 itself before completion of assessment proceedings on 29.11.2007. Thus we are of the considered view that since the alleged affixture of notice under section 143(2) of the Act dated 23.10.2006 on 31.10.2006 is not in accordance with the law and procedure, the said notice is rendered bad in law and therefore the AO had no power to assume jurisdiction to take up the assessee’s case for scrutiny. Consequently, the order of assessment framed under section 143(3) of the Act vide order dated 29.11.2007 for A.Y. 2005-06 on the basis of such invalid notice under section 143(3) of the Act is bad in law and ab initio void and is liable to be quashed. - Decided in favour of assessee Issues Involved:1. Validity of the notice under Section 143(2) of the Income Tax Act, 1961.2. Disallowance of interest payable to Mukand Limited.3. Disallowance of rates and taxes.4. Carry forward of business loss of earlier years.Issue-Wise Detailed Analysis:1. Validity of the Notice under Section 143(2) of the Act:The assessee contended that no notice under Section 143(2) was served within the prescribed time limit, rendering the assessment invalid. The return was filed on 24.10.2005, and the notice should have been served by 31.10.2006. However, the first notice was received on 05.09.2007, and the assessee objected to its legality. The Assessing Officer (AO) claimed that the notice was issued on 23.10.2006 and served by affixture on 31.10.2006 at the old address despite the assessee having notified the change of address on 19.06.2006. The Tribunal found that the service by affixture was not properly executed as it lacked the signatures of two independent witnesses and was served at the wrong address. The Tribunal concluded that the notice was invalid, and the AO had no jurisdiction to proceed with the assessment, thereby quashing the assessment order.2. Disallowance of Interest Payable to Mukand Limited:The assessee challenged the disallowance of Rs. 11,07,57,156/- as interest payable to its holding company, Mukand Limited. The Tribunal did not adjudicate this issue since the primary ground regarding the validity of the notice under Section 143(2) was decided in favor of the assessee, rendering the assessment itself void.3. Disallowance of Rates and Taxes:The assessee contested the disallowance of Rs. 29,06,197/- incurred as rates and taxes, arguing that these expenses were for business purposes and should be allowed as revenue expenditure. Similar to the interest disallowance, this issue was not adjudicated due to the quashing of the assessment.4. Carry Forward of Business Loss of Earlier Years:The assessee argued that the CIT(A) erred in disallowing the carry forward of business losses from earlier years, asserting that the losses were from business activities and had been settled in previous years. Since the assessment was declared void, this issue was also not adjudicated.Conclusion:The Tribunal allowed the appeal on the ground that the notice under Section 143(2) was not validly served, thus quashing the assessment order. Consequently, other grounds raised by the assessee were not adjudicated. The appeal for A.Y. 2005-06 was allowed, and the assessment order dated 29.11.2007 was declared void ab initio.