2017 (8) TMI 80 - HC - Income Tax

Tribunal dismisses appeal due to lack of notice compliance, Assessing Officer's jurisdiction questioned

The Tribunal dismissed the Revenue's appeal, emphasizing the non-compliance with the mandatory requirement of issuing a notice under Section 143(2). It ... Assessment under search and requisition provisions - Mandatory nature of notice under Section 143(2) - Curability of clerical mis description of the statutory provision - Jurisdiction to assess under Section 153A versus Section 143(3) - Non obstante override in search assessment provisionsCurability of clerical mis description of the statutory provision - Assessment under search and requisition provisions - Whether mere mention of a wrong section in the assessment order vitiates the assessment where the order also refers to Section 143(3)/153A. - HELD THAT: - The Court accepted Revenue's concession that the mention of Section 153A was an error and that wrong citation, by itself, may be a clerical defect. However, the determinative question is the substance of the order. The Tribunal and this Court examined whether the assessment was in truth completed under Section 143(3) and, if so, whether mandatory procedural requirements for assessment under Section 143(3), notably issuance of notice under Section 143(2), were complied with. The Court held that the assessment was vitiated not merely because of an erroneous citation but because the mandatory requirement of Section 143(2) was not complied with and that this omission cannot be treated as a curable mere procedural irregularity. The Court relied on authority treating issuance of notice under Section 143(2) as mandatory in comparable contexts, including ACIT and another vs. Hotel Blue Moon and Commissioner of Income Tax vs. Rajeev Sharma, to conclude that non issuance of s.143(2) invalidates completion under s.143(3). [Paras 19]Mention of a wrong section was not the ground for upholding the assessment; the assessment was invalidated because mandatory compliance with Section 143(2) was absent and that omission was not a curable clerical defect.Mandatory nature of notice under Section 143(2) - Jurisdiction to assess under Section 153A versus Section 143(3) - Whether assessment in the facts of these cases could properly be held to have been completed under Section 143(3) in the absence of any notice under Section 143(2). - HELD THAT: - The Court agreed with the Tribunal's reasoning that jurisdiction to make an assessment under Section 143(3) is conditioned on the procedural prerequisites, including notice under Section 143(2), unless an alternate statutory scheme expressly dispenses with it. The search assessment scheme created by Section 153A is a distinct code with its own jurisdictional and procedural matrix; it does not permit an assessment for the years covered by Section 153A to be validly completed under Section 143(3) without adherence to the mandatory requirements of Section 143(2) where that route is relied upon. Given that no notice under Section 143(2) was issued in these cases, the Tribunal and this Court held that the contention that the assessments were in substance under Section 143(3) could not be sustained. [Paras 20]Assessments could not be sustained as completed under Section 143(3) because no notice under Section 143(2) was issued; the Tribunal's conclusion that AO had no jurisdiction to pass the orders under Section 153A in the manner done was upheld.Assessment under search and requisition provisions - Non obstante override in search assessment provisions - Whether the time limit and procedural scheme under Sections 153A/153B/153C permit the AO to treat the assessment for the relevant assessment year as a Section 153A assessment when the statutory procedure (including notice requirements) for Section 143(3) was not followed. - HELD THAT: - The Court examined Section 153A as a non obstante provision creating a separate mechanism for assessment in search/requisition cases and noted that Section 153B(1)(b) prescribes limitation for completion of assessments for the years covered by the search. Nevertheless, the Court agreed with the Tribunal that there is no provision in Section 153A which makes the assessee furnish the return for the relevant year under Section 139 in lieu of the procedural requirements otherwise applicable; the AO can call for a return under Section 142(1) or proceed under Section 147 where applicable. The consequence was that where the AO purports to complete the assessment by invoking Section 143(3) (and thus would be bound by Section 143(2) requirements) but failed to issue the mandatory notice, the assessment could not be sustained merely by reference to the time limit or debatable overlap of Sections 153A/153B/153C. [Paras 20]The Tribunal was justified in holding that the AO had no jurisdiction to pass the impugned orders under Section 153A in the manner done; the interplay of Sections 153A/153B/153C did not cure the absence of mandatory procedures required for assessment under Section 143(3).Final Conclusion: Both appeals were dismissed. The High Court upheld the Tribunal's view that the assessments were invalid because mandatory compliance with Section 143(2) was not shown, and the mere mis quotation of the statutory provision did not salvage the orders. Issues Involved:1. Validity of assessment order under the wrong section.2. Jurisdiction of the Assessing Officer under Section 153A.3. Requirement of notice under Section 143(2) for assessment.Detailed Analysis:1. Validity of Assessment Order under the Wrong Section:The primary issue was whether the Income Tax Appellate Tribunal (ITAT) was justified in dismissing the appeal of the Revenue by ignoring that quoting a wrong section does not render the assessment order void. The Revenue argued that the assessment order was passed under Section 143(3) after serving notice under Section 142(1), and the mention of Section 153A was merely precautionary. The Tribunal upheld the CIT(A)’s decision that the assessment should have been under Section 143(3) and not Section 153A, despite the AO mentioning both sections.2. Jurisdiction of the Assessing Officer under Section 153A:The Tribunal found that the AO did not have the jurisdiction to pass an order under Section 153A for the assessment year under consideration. The Tribunal noted that Section 153A, read with Section 153C, empowers the AO to proceed with assessments in search cases. However, the provisions of Section 143(2) are obligatory for making an assessment under Section 143(3) or Section 144. The Tribunal concluded that the AO’s jurisdiction under Section 153A was not applicable in this case, as the assessment should have been made under Section 143(3) following the issuance of a notice under Section 142(1).3. Requirement of Notice under Section 143(2) for Assessment:The Tribunal emphasized that no notice under Section 143(2) was issued to the Assessee in both cases. The Tribunal cited the Supreme Court's decision in ACIT vs. Hotel Blue Moon, which held that the omission to issue a notice under Section 143(2) is not a procedural irregularity and cannot be cured. The Tribunal also referred to the Allahabad High Court’s decision in Commissioner of Income Tax vs. Rajeev Sharma, which underscored the mandatory nature of Section 143(2) before proceeding with an assessment under Section 143(3). Consequently, the Tribunal upheld the CIT(A)’s decision that the assessment orders were invalid due to the non-issuance of the mandatory notice under Section 143(2).In conclusion, the Tribunal's decision to dismiss the Revenue's appeal was based on the non-compliance with the mandatory procedural requirement of issuing a notice under Section 143(2). The Tribunal found that the AO did not have jurisdiction under Section 153A for the assessment year in question, and the assessment should have been made under Section 143(3) following the issuance of a notice under Section 142(1). The Tribunal’s findings were consistent with the legal precedents that mandate the issuance of a notice under Section 143(2) before making an assessment under Section 143(3).