2017 (11) TMI 243 - AT - Income Tax

Reassessment order quashed for lack of Section 143(2) notice, rendering it void ab-initio. Appeal partly allowed.

The Tribunal quashed the reassessment order for the Assessment Year 2011-12 due to the non-issuance of a mandatory notice under Section 143(2) of the ... Validity of reopening of assessment - absence of issue and service of notice u/s. 143(2) - Held that:- Since the Revenue could not produce before us any evidence to show that notice u/s. 143(2) has been issued or served to the assessee the re-assessment made u/s. 143(3) r.w.s. 147 is void ab-initio in view of the above decisions of ACIT v. Greater Noida Industrial Development Authority (2015 (8) TMI 620 - ALLAHABAD HIGH COURT) and ACIT v. Geno Pharmaceuticals (2013 (10) TMI 218 - BOMBAY HIGH COURT). Thus, respectfully following the said decisions we hold that the re-assessment made u/s. 143(3) r.w.s. 147 of the Act is legally unsustainable. - Decided in favour of assessee. Issues Involved:1. Validity of the assessment order due to non-issuance of notice under Section 143(2) of the Income Tax Act.2. Validity of the reassessment proceedings under Section 143(3) read with Section 147.3. Justification of additions made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals).4. Procedural fairness and opportunity of being heard.5. Rejection of books of account without proper notice.6. Enhancement of assessed income by the Commissioner of Income Tax (Appeals) without notice.Issue-Wise Detailed Analysis:1. Validity of the Assessment Order Due to Non-Issuance of Notice under Section 143(2):The core issue raised by the assessee was the validity of the assessment order under Section 143(3) read with Section 147 due to the non-issuance and non-service of notice under Section 143(2). The assessee argued that the absence of such a notice rendered the assessment void ab-initio. The Tribunal noted that the issuance of a notice under Section 143(2) is a mandatory requirement for the initiation of assessment proceedings. The Tribunal relied on precedents from the Allahabad High Court in ACIT v. Greater Noida Industrial Development Authority and the Bombay High Court in ACIT v. Geno Pharmaceuticals Ltd, which held that the failure to issue such a notice invalidates the assessment. The Tribunal concluded that the Revenue could not provide evidence of the issuance or service of the notice, thus deeming the reassessment void ab-initio.2. Validity of the Reassessment Proceedings under Section 143(3) read with Section 147:The Tribunal scrutinized the jurisdictional validity of the reassessment proceedings initiated without the mandatory notice under Section 143(2). It was emphasized that the jurisdiction of the Assessing Officer to make an assessment under Section 143(3) is contingent upon the issuance of this notice. The Tribunal cited the Allahabad High Court's decision, which clarified that Section 292BB, a provision that deems notices served if the assessee participates in the proceedings, cannot cure the jurisdictional defect of non-issuance of notice under Section 143(2). Consequently, the Tribunal held the reassessment proceedings invalid.3. Justification of Additions Made by the Assessing Officer and Upheld by the Commissioner of Income Tax (Appeals):The assessee contended that the additions made by the Assessing Officer, amounting to Rs. 66,62,862, were erroneous and based on conjectures and surmises without cogent evidence. The Tribunal, having quashed the reassessment order on jurisdictional grounds, did not delve into the merits of these additions. However, it noted the assessee's argument that the lower authorities had erred in making and upholding these additions without substantial evidence.4. Procedural Fairness and Opportunity of Being Heard:The assessee argued that the lower authorities failed to provide an effective opportunity of being heard and did not allow cross-examination of the parties whose statements were used against the assessee. The Tribunal acknowledged these procedural lapses but did not adjudicate on them separately, as the reassessment itself was deemed void.5. Rejection of Books of Account Without Proper Notice:The Tribunal noted the assessee's grievance that the Commissioner of Income Tax (Appeals) rejected the books of account without issuing a show-cause notice or providing reasons. This procedural irregularity was highlighted but not separately adjudicated due to the quashing of the reassessment order.6. Enhancement of Assessed Income by the Commissioner of Income Tax (Appeals) Without Notice:The assessee contended that the Commissioner of Income Tax (Appeals) enhanced the assessed income by increasing the Gross Profit rate by 5% without giving notice of enhancement or assigning reasons. The Tribunal recognized this as a procedural flaw but did not address it separately, given the primary decision to quash the reassessment order.Conclusion:The Tribunal quashed the reassessment order passed by the Assessing Officer under Section 143(3) read with Section 147 for the Assessment Year 2011-12 due to the non-issuance and non-service of the mandatory notice under Section 143(2). Consequently, it did not adjudicate the other grounds of appeal, deeming them academic. The appeal of the assessee was partly allowed, and the reassessment order was declared void ab-initio.Order Pronounced:The order was pronounced in the open court on 25th October 2017.