2009 (12) TMI 559 - HC - Income Tax

Reassessment limitation Section 143 of the Act prior to amendment by the Direct Tax Laws (Amendment) Act 1987 (with effect from April 1 1989) contemplated an assessment of a return in situations covered by the provisions of section 143(1) as it existed before amendment and alternatively an assessment after a notice is issued under section 143(2) - no notice under section 143(2) of the Act having been issued to the assessee and the time limit for notice expired and the time limit for completion of assessment over Appeal dismissed

Summary

Issues Involved:
1. Infraction of Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963.
2. Validity of reassessment proceedings without notice under section 143(2) of the Income-tax Act, 1961, when the return is furnished under section 148.

Detailed Analysis:

Issue 1: Infraction of Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963
The Revenue contended that the Tribunal set aside the assessment orders based on a ground not specifically raised by the assessee in their appeal. They argued that under Rule 11, the Tribunal must provide an opportunity to the affected party if a new ground of appeal is urged during the hearing. The Tribunal had decided the appeals on a pure question of law arising from undisputed facts, and the representative of the Revenue did not raise any issue on this question but participated in the proceedings. Therefore, the Tribunal's decision did not violate Rule 11.

Issue 2: Validity of Reassessment Proceedings Without Notice Under Section 143(2)
The core issue was whether the reassessment proceedings were invalid due to the absence of a notice under section 143(2) of the Income-tax Act, 1961, when the return was furnished under section 148. The Tribunal found that no notice under section 143(2) was issued to the assessee, rendering the assessments barred by limitation.

The Revenue argued that the absence of notice under section 143(2) did not vitiate the assessment orders as the assessee had filed elaborate submissions and was heard by the Assessing Officer. They cited the Kerala High Court decision in K.J. Thomas v. CIT to support their stance. However, the respondent-assessee contended that notice under section 143(2) is mandatory for assuming jurisdiction to make an assessment, and its absence invalidates the reassessment proceedings. They cited the Punjab and Haryana High Court decision in Vipan Khanna v. CIT and two Madras High Court decisions to substantiate their argument.

The court analyzed the scheme of assessment under sections 142 and 143 of the Act, emphasizing that the issuance of notice under section 143(2) is a condition precedent for assuming jurisdiction to make an assessment under section 143(3). The court referred to Circular No. 549 issued by the Central Board of Direct Taxes, which clarifies that if no notice under section 143(2) is received within the stipulated period, the return filed by the assessee becomes final.

The court concluded that the absence of notice under section 143(2) and the expiry of the time limits for such notice and completion of assessment rendered the reassessment proceedings invalid. The Tribunal's decision to set aside the assessments was upheld.

Conclusion:
The appeals were dismissed, and the Tribunal's order dated December 29, 2005, was affirmed. The court found no infraction of Rule 11 and held that the reassessment proceedings were invalid due to the absence of notice under section 143(2). No order as to costs was made.