2017 (11) TMI 127 - HC - Income Tax

High Court affirms ITAT's ruling on Section 143(2) notice in reassessment. Legal complexities clarified.

The High Court upheld the ITAT's decision, emphasizing the jurisdictional significance of issuing a notice under Section 143(2) in reassessment ... Requirements of issuing notice under Section 143(2) - validity of reopening of assessment - Held that:- The subsequent judgment of the Division Bench in PR. Commissioner of Income Tax vs. Silver Line [2015 (11) TMI 809 - DELHI HIGH COURT] has revisited the issue wherein held reassessment order cannot be passed without compliance with the mandatory requirement of notice being issued by the AO to the Assessee under Section 143(2) of the Act, the ITAT was in the present case right in concluding that the reassessment orders in question were legally unsustainable. The proposal to reopen an assessment under Section 147 of the Act is to be based on reasons to be recorded by the AO. Such reasons have to be communicated to the Assessee. However, merely because the Assessee participates in the proceedings pursuant to such notice under Section 148 of the Act, it does not obviate the mandatory requirement of the AO having to issue to the Assessee a notice under Section 143(2) of the Act before finalising the order of the reassessment - Decided in favour of assessee. Issues:1. Validity of reassessment proceedings under Section 147/148 of the Act due to non-issuance of notice under Section 143(2).2. Interpretation of the requirement of notice under Section 143(2) in reassessment proceedings.3. Impact of subsequent judgments revisiting the issue on the present case.Analysis:Issue 1: Validity of reassessment proceedings under Section 147/148 of the Act due to non-issuance of notice under Section 143(2):The Revenue challenged the ITAT's order for Assessment Years 1999-2000 and 2000-2001, arguing that the reassessment orders lacked jurisdiction due to the absence of a notice under Section 143(2). The Court noted that the requirement of such notice is jurisdictional, going to the root of the matter. It emphasized that the absence of such notice before finalizing reassessment orders raises a significant legal question. The Court cited precedents like National Thermal Power Co. Ltd. v. Commissioner of Income Tax and Gedore Tools (P) Ltd. v. Commissioner of Income Tax to support the importance of this notice in reassessment proceedings.Issue 2: Interpretation of the requirement of notice under Section 143(2) in reassessment proceedings:The Court addressed the argument that no notice under Section 143(2) was necessary as the Assessee had not filed a return. However, it clarified that the wording of Section 143(2)(ii) mandates the Assessing Officer to issue a notice if there is a prima facie understatement of income or other specified conditions. The Court differentiated this notice from a standard proforma notice under Section 142(1), emphasizing the discretionary nature of issuing a notice under Section 143(2) based on the AO's satisfaction.Issue 3: Impact of subsequent judgments revisiting the issue on the present case:The Court acknowledged the subsequent judgment in PR. Commissioner of Income Tax v. Silver Line, which revisited the issue at hand. It noted that the ITAT's decision allowing the Assessee to raise the non-issuance of notice under Section 143(2) was in line with settled legal principles. The Court found no error in the ITAT's decision, concluding that no substantial question of law arose, leading to the dismissal of the appeals.In conclusion, the High Court upheld the ITAT's decision, emphasizing the jurisdictional significance of issuing a notice under Section 143(2) in reassessment proceedings. The Court's analysis highlighted the legal complexities surrounding the interpretation and application of this notice requirement, underscoring its critical role in ensuring the validity of reassessment orders under the Income Tax Act.