2006 (1) TMI 616 - HC - Income Tax

Validity of assessment order - barred by limitation - non-service of statutory notice u/s 143(2) - No independent reason for rejecting additional ground - HELD THAT - There is no dispute that before passing the assessment order under section 143(3) of the Act, issuance of notice u/s 143(2) of the Act within the specified time, is mandatory and in case if it is not issued, assessment order passed, stand illegal. Thus, in my opinion, ground, which has been raised and sought to be added in the grounds of appeal, is a legal ground which goes to the root of the matter, and, thus, the Tribunal ought to have allowed the application and the ground sought to be added be permitted to be added in the grounds of appeal. The argument of learned standing counsel that it is not correct to say that the notice u/s 143(2) of the Act has not been issued within the specified time, may be correct, but this aspect of the matter has to be adjudicated by the Tribunal after entertaining the ground in this respect and for the purposes of admission of new ground, this aspect of the matter is not relevant. In the result, petition is allowed.

Summary

Issues involved:
1. Rejection of application for addition of additional ground in appeal.

Analysis:
The petitioner filed a writ petition under Article 226 seeking to quash the order dated 26-5-2005, rejecting the application for adding an additional ground in appeal. The ground sought to be added related to the jurisdiction and limitation of assessment proceedings due to non-service of a statutory notice under section 143(2) within the prescribed period. The Tribunal rejected the application citing a similar rejection in another case without providing independent reasons for the petitioner's case.

The petitioner argued that the additional ground was crucial as it pertained to a legal issue that goes to the root of the matter. They contended that without the service of a notice under section 143(2) within the specified period, no valid assessment order could be passed, rendering the entire assessment order time-barred. The petitioner relied on various legal precedents to support their argument.

On the other hand, the revenue's counsel contended that the notice under section 143(2) was indeed issued within the prescribed time, making the additional ground invalid. However, the court found that the issue of notice timing needed to be adjudicated by the Tribunal after allowing the ground to be raised, as it was crucial to the assessment's legality.

The court held that the Tribunal's rejection was unsustainable as the issuance of notice under section 143(2) before passing the assessment order was mandatory. The court emphasized that the legal ground raised by the petitioner was significant and should have been allowed to be added in the grounds of appeal. Quoting a decision by the Apex Court, the court highlighted the Tribunal's discretion to allow new grounds to be raised, especially when necessary to assess tax liability correctly.

Consequently, the court allowed the petition, quashed the Tribunal's order, and directed the Tribunal to permit the petitioner to add the additional ground in the appeal for adjudication while disposing of the case. No costs were awarded in the matter.