2019 (8) TMI 660 - SC - Income Tax

Requirement of notice under section 143(2) is mandatory; section 292BB cannot validate absence of notice

SC affirmed that the requirement of notice under section 143(2) is mandatory and, while section 292BB can cure infirmities in service where the assessee ... Notice under Section 143(2) - Framing of assessment under Section 143(3) - Deemed validity of notice under Section 292BB - Absence of notice versus infirmity in service - Curable procedural defectNotice under Section 143(2) - Framing of assessment under Section 143(3) - Curable procedural defect - Effect of non-issuance of notice under Section 143(2) on the validity of assessment completed under Section 143(3). - HELD THAT: - The Court considered earlier precedent in Assistant Commissioner of Income Tax v. Hotel Blue Moon and concluded that issuance of notice under Section 143(2) is a statutory requirement which cannot be treated as a curable purely procedural defect where no such notice was in fact issued. The Tribunal and High Court findings that, in the absence of any notice under Section 143(2), the reassessment/regular assessment stood vitiated were held to be correct. The Court therefore affirmed that complete non-issuance of the mandatory notice cannot be cured by treating the omission as a mere irregularity. [Paras 4, 5, 8, 10]Non-issuance of notice under Section 143(2) rendered the assessment invalid and the Tribunal and High Court were correct in so holding.Deemed validity of notice under Section 292BB - Absence of notice versus infirmity in service - Whether Section 292BB cures complete absence of notice under Section 143(2) where the assessee participated in proceedings. - HELD THAT: - The Court analysed Section 292BB and held that its legal fiction operates only where a notice has emanated from the department but suffered infirmities in service (not served, not served in time, or served in an improper manner). Section 292BB is not intended to, and does not, validate a situation of complete non-issuance of notice. Accordingly, participation by the assessee does not convert a non-existent notice into a deemed valid notice under Section 292BB; the provision only cures defects in service of an existing notice. [Paras 6, 9, 10]Section 292BB does not cure complete absence of notice; it only validates infirmities in service of a notice that has been issued by the department.Final Conclusion: The appeals were dismissed. The Court upheld the Tribunal and High Court conclusions that absence of notice under Section 143(2) invalidated the assessment, and that Section 292BB does not cure a complete non-issuance of notice. Issues:1. Effect of absence of notice under Section 143(2) of the Income Tax Act, 1961.2. Applicability and impact of Section 292BB of the Income Tax Act.Issue 1: Effect of absence of notice under Section 143(2) of the Income Tax Act, 1961:The case involved an individual carrying out a brokerage business, where search and seizure operations were conducted at the individual's premises. The assessment resulted in various additions to the income under different categories. The Commissioner of Income Tax (Appeal) deleted certain amounts, and the Tribunal quashed the reassessment proceedings due to the absence of a notice under Section 143(2) of the Act. The High Court considered the mandatory application of Sections 142 and 143(2) and (3) in such cases. The Supreme Court analyzed the impact of the absence of the notice under Section 143(2) and the applicability of the provisions of Section 292BB.Issue 2: Applicability and impact of Section 292BB of the Income Tax Act:Section 292BB of the Income Tax Act, effective from 01.04.2008, deems a notice to be valid in certain circumstances if the assessee has participated in the proceedings. The section precludes the assessee from objecting to the notice based on certain grounds if they have cooperated in the inquiry. The Respondent argued that the absence of a notice under Section 143(2) rendered the entire proceedings invalid. However, the Supreme Court clarified that Section 292BB does not cure the complete absence of notice. It only validates the notice if there are infirmities in the service, provided the notice originated from the department. As no notice under Section 143(2) was issued in this case, the Court upheld the findings of the High Court and the Tribunal, dismissing the Appeals.In conclusion, the Supreme Court dismissed the Appeals, emphasizing that Section 292BB does not cure the absence of notice under Section 143(2) of the Income Tax Act. The Court upheld the decision that the absence of the notice rendered the proceedings invalid, in line with the provisions of the Act and previous legal interpretations.