2010 (4) TMI 43 - HC - Income Tax

Tax Assessment Voided: Invalid Section 143(2) Notice Leads to Dismissal of Revenue's Appeal Against Taxpayer

DIRECTOR OF INCOME-TAX Versus SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL, TELECOMMUNICATIONS

HC dismissed Revenue's appeal regarding assessment proceedings for AY 1997-98. The court upheld lower authorities' findings that the Section 143(2) notice ... Validity of assessment proceedings u/s 143(2) - notice issued on 23.03.2000, whereas the return of income was filed on 27.03.2000 and was served on the same date on the assessee - Held that - Both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal have returned a concurrent and clear finding of fact that the notice under Section 143 (2) was issued on 23.03.2000 and since the return was filed on 27.03.2000, the notice was not a valid one and, therefore, the assessment completed on the basis of the notice was also invalid and was consequently set aside. - It is for the first time before us that the learned counsel for the appellant contends that the notice, in fact, was issued on 27.03.2000 and not on 23.03.2000, the date which is recorded on the notice itself. - Assuming the aforesaid to be true, the notice was served on the Authorized Representative simultaneously on his filing the return which clearly indicates that the notice was ready even prior to the filing of the return. 1. ISSUES PRESENTED and CONSIDEREDThe primary legal issue considered by the Court was the validity of the assessment proceedings under the Income Tax Act, 1961, specifically focusing on whether the notice under Section 143(2) was validly issued. The core questions were:Whether the notice under Section 143(2) of the Income Tax Act was validly issued prior to the filing of the return of income by the assessee.Whether the date of issuance of the notice as recorded (23.03.2000) was correct or if it was actually issued on 27.03.2000, the date on which the return was filed.Whether the assessment completed on 31.03.2000, based on the said notice, was valid.Whether the contention regarding the actual date of issuance of the notice could be raised for the first time before the High Court.Whether the procedural requirements under Section 143(2) regarding the sequence of filing return and issuance of notice were complied with.2. ISSUE-WISE DETAILED ANALYSISValidity of the Notice under Section 143(2) and Timing of IssuanceThe legal framework governing this issue is Section 143(2) of the Income Tax Act, 1961, which mandates that the Assessing Officer shall issue a notice after the return of income has been furnished under Section 139 or in response to a notice under Section 142(1). The notice is to be served when the Assessing Officer has reason to believe that any claim in the return is inadmissible or to ensure that the assessee has not understated income or underpaid tax.Precedents and the statutory scheme emphasize that the notice under Section 143(2) must be issued after the return is filed and examined, not before.The Court examined the assessment order, orders of the Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal (ITAT), which had concurrently found that the notice was issued on 23.03.2000, four days prior to the return being filed on 27.03.2000. This sequence violates the statutory requirement under Section 143(2).The appellant/revenue contended before the High Court that the notice was in fact issued on 27.03.2000, not 23.03.2000 as recorded on the notice. This contention was not raised before the lower authorities and was thus considered a new argument.The Court held that such a contention could not be entertained for the first time at this stage, as the lower authorities had already returned concurrent findings of fact on the date of issuance.Even assuming the appellant's contention to be true, the memorandum of appeal itself admitted that the notice was served simultaneously with the filing of the return on 27.03.2000, indicating the notice was prepared before the return was filed. This would still contravene the scheme of Section 143(2), which requires the notice to be issued after the return is furnished and examined.The Court analyzed the statutory language of Section 143(2), which clearly envisages that the notice is to be issued only after the return has been filed, and not simultaneously or beforehand. The simultaneous service of the notice with the return filing was held to be a 'gross violation' of the statutory scheme.Regarding the reliance on Section 292B of the Income Tax Act by the appellant, the Court did not find it sufficient to validate the notice, as the fundamental procedural requirement under Section 143(2) was not met.Validity of the Assessment Completed on 31.03.2000Since the notice under Section 143(2) was found invalid due to premature issuance, the assessment order passed on 31.03.2000 based on such notice was also invalid. The lower authorities had set aside the assessment on this ground, and the Court found no reason to interfere with this concurrent finding.Admissibility of New Contentions Raised Before the High CourtThe Court emphasized the principle that new factual contentions or arguments not raised before the lower authorities cannot be entertained at the appellate stage before the High Court. The appellant's claim that the notice was issued on 27.03.2000 was raised for the first time before the High Court and hence was rejected.3. SIGNIFICANT HOLDINGSThe Court held:'Both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal have returned a concurrent and clear finding of fact that the notice under Section 143(2) was issued on 23.03.2000 and since the return was filed on 27.03.2000, the notice was not a valid one and, therefore, the assessment completed on the basis of the notice was also invalid and was consequently set aside.''The provisions of Section 143(2) make it clear that the notice can only be served after the Assessing Officer has examined the return filed by the assessee.''Even if we take the statement of the Assessing Officer at face value, it would amount to gross violation of the scheme of Section 143(2) of the said Act.''No interference with the impugned order is called for.'Core principles established include:The notice under Section 143(2) must be issued only after the return of income has been filed and examined by the Assessing Officer, in accordance with the statutory scheme.A notice issued before the return is filed is invalid and vitiates the assessment made pursuant to such notice.Concurrent findings of fact by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal on the date of issuance of the notice are binding and cannot be lightly disturbed.New factual contentions not raised before the lower authorities cannot be entertained at the appellate stage before the High Court.Final determination was that the appeal by the Revenue was dismissed, the impugned order setting aside the assessment was upheld, and no substantial question of law arose for consideration.