2005 (7) TMI 537 - AT - Income Tax

Appellate Tribunal, Income escaping assessment, Return of income, etc., not to be invalid on certain grounds

Issues Involved:
1. Validity of the assessment under section 143(3) read with section 147.
2. Admission of additional ground of appeal regarding the legality of the assessment.
3. Issuance and timing of notice under section 143(2).
4. Treatment of the original return as a response to the notice under section 148.
5. Compliance with procedural requirements under sections 142, 143, and 144.
6. Application of section 292B to cure procedural defects.

Issue-wise Detailed Analysis:

1. Validity of the assessment under section 143(3) read with section 147:
The Tribunal examined whether the assessment made under section 143(3) read with section 147 was valid. It was concluded that the assessment was vitiated in law due to non-compliance with the mandatory procedural requirements. Specifically, the assessment was deemed invalid because no valid notice under section 143(2) was issued after the assessee's intimation that the original return should be treated as a response to the notice under section 148. The Tribunal held that without a valid notice under section 143(2), the assessment under section 143(3) could not be sustained.

2. Admission of additional ground of appeal regarding the legality of the assessment:
The Tribunal admitted the additional ground of appeal raised by the assessee, which challenged the legality of the assessment. The Tribunal relied on the judgment of the Hon'ble Supreme Court in National Thermal Power Corpn. Ltd. v. CIT [1998] 229 ITR 383, which allows a legal ground to be taken up at any point of time. The Tribunal found no mala fides in the assessee's failure to raise this plea earlier and decided to adjudicate the issue on its merits.

3. Issuance and timing of notice under section 143(2):
The Tribunal emphasized that the issuance of a notice under section 143(2) is a sine qua non for a valid assessment under section 143(3). The notice under section 143(2) was issued on 17th June 1998, but as on that date, there was no valid income-tax return in existence. The Tribunal held that the issuance of a notice under section 143(2) presupposes the existence of a valid return, and since no such return existed at the time, the notice was invalid. Consequently, the assessment based on such notice was also invalid.

4. Treatment of the original return as a response to the notice under section 148:
The Tribunal rejected the notion that the original return could automatically be treated as a return in response to the notice under section 148 upon the expiry of the thirty-day time limit. The Tribunal clarified that either a return must be filed by the assessee, or there must be a request from the assessee to treat the original return as one filed in response to the notice. In this case, the letter from the assessee's tax consultant dated 12th November 1998, requesting that the original return be treated as a response, was not accepted by the revenue as valid.

5. Compliance with procedural requirements under sections 142, 143, and 144:
The Tribunal noted that if the assessee does not file a return in response to a notice under section 148, the Assessing Officer can issue a notice under section 142(1) and proceed with the assessment under section 144 after giving the assessee an opportunity to show cause. However, in this case, no notice under section 142(1) was issued, nor was an opportunity under section 144 provided. The Tribunal concluded that the assessment could not be treated as a best judgment assessment under section 144 and was therefore invalid.

6. Application of section 292B to cure procedural defects:
The Tribunal rejected the revenue's argument that the provisions of section 292B could cure the procedural defect of not issuing a valid notice under section 143(2). The Tribunal emphasized that section 292B cannot be used to validate an assessment when a mandatory notice has not been issued. The Tribunal held that the assessment was vitiated in law due to the lack of a valid notice under section 143(2), and section 292B could not rectify this fundamental illegality.

Conclusion:
The Tribunal upheld the preliminary objection raised by the assessee and set aside the impugned assessment order. The assessment was found to be in violation of the provisions of section 143 and contrary to the scheme of the Income-tax Act. As a result, all other grounds of appeal were rendered infructuous, and the appeal was allowed.

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