2019 (7) TMI 2059 - AT - Income Tax

Assessment invalid without proper service of Section 143(2) notice within limitation period

Shubhani Engineering & Consultants Pvt. Ltd. Versus ITO, Ward 8 (3), New Delhi

The ITAT Delhi held that an assessment completed without proper service of statutory notice under Section 143(2) within the limitation period was invalid. ... Assessment as completed without service of statutory notice issued u/s. 143(2) within the limitation period - HELD THAT:- As none of the three notice claimed to be served within the limitation were served upon the assessee and the appeal of the assessee company deserves to be succeed on this ground and accordingly, the additions in dispute are deleted. Appeal of the Assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are:1. Whether the assumption of jurisdiction by the Assessing Officer (AO) under sections 143(3)/144 of the Income Tax Act was valid given the alleged improper service of notice under section 143(2).2. Whether the CIT(A) was correct in holding the net profit at 5% of the declared turnover and the alleged undisclosed turnover.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Assumption of Jurisdiction by AORelevant Legal Framework and Precedents:The legal framework involves sections 143(2) and 144 of the Income Tax Act, which pertain to the service of notice and best judgment assessment. The precedents cited include decisions from the Punjab and Haryana High Court, the Supreme Court, and various ITAT decisions, which emphasize the necessity of proper service of notice as a jurisdictional prerequisite.Court's Interpretation and Reasoning:The Tribunal found that the service of notice under section 143(2) was not completed within the statutory limitation period. The first notice was returned undelivered, and subsequent notices were allegedly served by affixture at incorrect addresses, which were not the addresses specified in the company's return of income or communicated to the department.Key Evidence and Findings:The Tribunal noted discrepancies in the addresses used for affixture and the lack of evidence supporting the AO's claim of service. The Tribunal highlighted that the addresses used were not consistent with the address provided by the assessee in their return or subsequent communications.Application of Law to Facts:The Tribunal applied the principles from cited precedents to conclude that the service of notice was not valid, as it did not comply with the procedural requirements under the Income Tax Act and the Code of Civil Procedure.Treatment of Competing Arguments:The Tribunal considered the arguments from the Revenue, which claimed that service was completed according to law. However, it found the assessee's evidence and arguments more compelling, particularly the inconsistency in addresses and the lack of proper affixture procedure.Conclusions:The Tribunal concluded that the jurisdiction to pass the order under section 143(3) was vitiated due to the failure to serve the statutory notice within the limitation period, leading to the quashing of the assessment order.Issue 2: Determination of Net Profit at 5%Relevant Legal Framework and Precedents:The determination of net profit percentage involves assessing the declared and undisclosed turnover under the Income Tax Act. The CIT(A) followed the precedent set by a previous order for the assessment year 2005-06.Court's Interpretation and Reasoning:Given the quashing of the jurisdictional basis for the assessment, the Tribunal did not need to delve deeply into the merits of the net profit determination. However, it noted that the CIT(A) had relied on prior decisions without independently verifying the facts of the current assessment year.Key Evidence and Findings:The Tribunal did not find it necessary to evaluate the evidence regarding the net profit percentage due to the primary finding on jurisdiction.Application of Law to Facts:As the jurisdictional issue was dispositive, the Tribunal did not apply the law to the facts regarding the net profit determination.Treatment of Competing Arguments:The Tribunal acknowledged the arguments but resolved the case on the jurisdictional issue, rendering the profit determination moot.Conclusions:The Tribunal's decision to quash the assessment order on jurisdictional grounds meant that the profit determination at 5% was not upheld.3. SIGNIFICANT HOLDINGSThe Tribunal's significant holding is that the service of notice under section 143(2) is a jurisdictional requirement, and failure to properly serve such notice within the limitation period invalidates the assessment proceedings. This principle is supported by multiple precedents emphasizing the necessity of proper service as a condition precedent for valid jurisdiction.Core Principles Established:'Service of notice must be in accordance with law. Otherwise, the assessee could not be said to have been given a proper opportunity to put forward their case.' This principle underscores the importance of procedural compliance in tax assessments.Final Determinations on Each Issue:The Tribunal quashed the assessment order due to the invalid service of notice, rendering the determination of net profit percentage irrelevant. The appeal of the assessee was allowed, and the additions in dispute were deleted.