2015 (9) TMI 1443 - AT - Income Tax

Reopening of assessment - non issue of notice - Held that - The mandatory notice under section 143(2) has neither been issued nor served upon the assessee and therefore the Assessing Officer cannot assume jurisdiction to frame assessment of the return filed by the assessee in response to the notice issued under section 148. Thus the impugned assessment order is held to be illegal and the same is hereby quashed. - Decided in favour of assessee

Summary

Issues Involved:
1. Assumption of jurisdiction under section 147 of the Income-tax Act.
2. Recording and communication of reasons for issuing notice under section 148.
3. Formation of belief by the Assessing Officer (AO) under section 147.
4. Material for belief of escaped assessment under section 10A.
5. Service of jurisdictional notice under section 143(2).
6. Connection with Fair Trading Co. and Twinklediam Hongkong Ltd.
7. Conditions for invoking section 80-IA(10).
8. Substitution of sale proceeds received on account of export.
9. Denial of deduction under section 10A.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 147:
The Commissioner of Income-tax (Appeals) (CIT(A)) upheld the AO's assumption of jurisdiction under section 147. However, the assessee argued that the jurisdictional pre-conditions were not fulfilled. This ground was not pressed during the hearing, thus dismissed.

2. Recording and Communication of Reasons under Section 148:
The assessee contended that no reasons were recorded by the AO before issuing the notice under section 148, and the communicated reasons were not the actual reasons. This ground was also not pressed and dismissed.

3. Formation of Belief under Section 147:
The assessee argued that the AO did not form an independent belief as required by section 147, relying solely on findings by the Commissioner of Customs. This ground was not pressed and dismissed.

4. Material for Belief of Escaped Assessment under Section 10A:
The assessee claimed there was no material leading to the belief that income chargeable to tax had escaped assessment. This ground was not pressed and dismissed.

5. Service of Jurisdictional Notice under Section 143(2):
The core issue was whether the mandatory notice under section 143(2) was served. The assessee argued that no notice was issued or served, referencing the Supreme Court judgment in Asst. CIT v. Hotel Blue Moon. The CIT(A) acknowledged no evidence of service but cited section 292BB to reject the assessee's objection, stating it was raised too late. The Tribunal examined the assessment records and found no evidence of issuance or service of the notice under section 143(2). The Tribunal held that service of notice under section 143(2) is mandatory for the AO to assume jurisdiction. The Tribunal also concluded that section 292BB, which precludes objections to notice service if not raised during assessment, does not apply retrospectively and cannot cure defects in issuance. The Tribunal annulled the assessment order due to the lack of service of the mandatory notice under section 143(2).

6. Connection with Fair Trading Co. and Twinklediam Hongkong Ltd.:
The CIT(A) failed to appreciate that these entities were not closely connected to the assessee. This ground was not adjudicated as the assessment was annulled on jurisdictional grounds.

7. Conditions for Invoking Section 80-IA(10):
The CIT(A) did not appreciate that conditions for invoking section 80-IA(10) were not fulfilled. This ground was not adjudicated due to the annulment of the assessment.

8. Substitution of Sale Proceeds Received on Account of Export:
The CIT(A) failed to appreciate that the sale proceeds received were as per the agreement and could not be substituted by an estimated fair value. This ground was not adjudicated due to the annulment of the assessment.

9. Denial of Deduction under Section 10A:
The CIT(A) upheld the denial of deduction under section 10A for the difference between the sale proceeds received and the estimated fair value. This ground was not adjudicated due to the annulment of the assessment.

Conclusion:
The Tribunal quashed the assessment order due to the absence of issuance and service of the mandatory notice under section 143(2), rendering the assessment illegal. The appeal was partly allowed on jurisdictional grounds, and other grounds were not adjudicated.