2008 (12) TMI 233 - AT - Income Tax

Tribunal invalidates reassessment due to lack of notice, deeming it null and void.

The Tribunal quashed the reassessment by the AO as the non-issuance of notice u/s 143(2) rendered the reassessment invalid. The Tribunal held that the ... Reopening of assessment - reassessment under section 147 - mandatory nature of service of notice under section 143(2) - intimation under section 143(1) not amounting to assessment - effect of amendment to section 148 - non-retrospective operation of section 292BBIntimation under section 143(1) not amounting to assessment - reopening of assessment - Validity of reopening assessment by issuing notice under section 148 where earlier intimation under section 143(1) had been issued but no regular assessment under section 143(2) was completed - HELD THAT: - The Tribunal, following the Supreme Court in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., held that an intimation under s. 143(1) is not equivalent to an assessment and the AO is not precluded from reopening assessment by issuing notice under s. 148. The intimation operates only for limited machinery purposes and does not amount to a substantive assessment or give rise to change-of-opinion protection. Consequently, the assessee's contention that issuance of notice under s. 148 was impermissible because no regular assessment under s. 143(2) had been made was rejected. [Paras 6, 7]Reopening by notice under section 148 was not barred merely because no regular assessment under section 143(2) had been made; the contention to the contrary is rejected.Mandatory nature of service of notice under section 143(2) - reassessment under section 147 - Whether non-issuance of notice under section 143(2) in proceedings under section 147 renders the reassessment invalid - HELD THAT: - The Tribunal observed divergence of views across fora and expressly followed the Special Bench decision in Raj Kumar Chawla vs. ITO, which held that issuance of notice under s. 143(2) within the prescribed time is mandatory where proceedings under s. 147 are initiated. Applying that binding Special Bench precedent (not having been superseded by a superior authority or the relevant High Court), the Tribunal held that in the present case no notice under s. 143(2) was issued and, therefore, the reassessment carried out under s. 147 is invalid. In view of this conclusion, the Tribunal did not adjudicate the merits of the addition. [Paras 8, 12]Reassessment is invalid for want of service of notice under section 143(2); therefore the assessment under section 147 is quashed.Effect of amendment to section 148 - non-retrospective operation of section 292BB - Whether subsequent legislative amendments to sections 148 and 292BB aid the Revenue in validating the reassessment where notice under section 143(2) was not served - HELD THAT: - The Tribunal examined the amendments to s. 148 (Finance Act, 2006) and s. 292BB (Finance Act, 2008). It held that the specific provisos to s. 148 operate only in the limited circumstances and do not assist where no notice under s. 143(2) at all was issued. Section 292BB, which deems service where the assessee has appeared or cooperated, was held inapplicable because it came into force w.e.f. 1st April, 2008 and therefore cannot be given retrospective effect to validate the reassessment in this case. [Paras 9, 10, 11]Amendments to section 148 do not save the assessment in the absence of any s. 143(2) notice; section 292BB is inapplicable retrospectively and does not validate the reassessment.Final Conclusion: Following the Special Bench precedent, the Tribunal held the reassessment for AY 2000-01 invalid for want of service of notice under section 143(2); the reopening under section 148 was otherwise not barred by prior intimation under section 143(1), and subsequent statutory amendments (section 148 provisos and section 292BB) do not validate the impugned reassessment. The assessment is quashed and the appeal is allowed. Issues Involved:1. Validity of the reopening of assessment without issuing notice u/s 143(2).2. Validity of the assessment when the return was pending.3. Justification of disallowance of interest.Summary:Validity of the reopening of assessment without issuing notice u/s 143(2):The assessee contended that no notice u/s 143(2) was issued before making the assessment u/s 143(3) r/w s. 147, rendering the reassessment invalid. The Tribunal referred to the Special Bench decision in Raj Kumar Chawla vs. ITO, which held that the issue of notice u/s 143(2) within the prescribed time is mandatory in proceedings initiated u/s 147, and in its absence, the reassessment is null and void. The Tribunal rejected the Departmental Representative's argument that non-issue of notice u/s 143(2) was a mere procedural irregularity, citing the binding nature of the Special Bench decision.Validity of the assessment when the return was pending:The assessee argued that since the return was pending, the notice u/s 148 could not be issued. The Tribunal, relying on the Supreme Court's decision in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., clarified that an intimation u/s 143(1)(a) is not an assessment, and the AO retains the right to issue a notice u/s 148. The Tribunal thus rejected the assessee's contention.Justification of disallowance of interest:The assessee contended that the disallowance of interest was unjustified as the firm and partners constitute the same entity, and share income from the firm is not exempt from taxation. However, since the reassessment was held invalid due to the non-issue of notice u/s 143(2), the Tribunal did not address the merits of the addition, rendering this contention infructuous.Conclusion:The Tribunal quashed the reassessment made by the AO due to the invalidity arising from the non-issue of notice u/s 143(2), and allowed the appeal of the assessee.