2010 (10) TMI 850 - HC - Income Tax

Scope of provisions of s. 143(2)(i) - net addition of Rs. 1.89 lac made as income from house property - Held that - If an AO has reason to believe that an assessee has made a claim of any loss, exemption, deduction, allowance or relief which is inadmissible, he will issue a notice under the new cl. (i) of sub-s. (2) of s. 143. The notice should specify the claim and call upon the assessee to produce evidence and particulars in support thereof. After hearing such evidence and considering such particulars, he will make an assessment of total income or loss under the cl. (i) of sub-s. (3) of s. 143, limiting himself to the claims he had set out to verify. If he feels that the case requires further scrutiny on other issues, he will be free to issue a notice initiating comprehensive scrutiny of the return, as is being done presently. Based on the assessment made by the AO, the officer has also initiated penalty as bad in law. Since the addition made by the AO itself is deleted by the Tribunal reccordig a fact that there was no claim made by the assessee with regard to income from house property or the deduction related thereto. In the absence of any such claim, the Tribunal opined, there was no question of assuming the jurisdiction on the basis that such a claim was inadmissible. In favour of assessee.

Summary

Issues:
Validity of notice issued under section 143(2)(i) of the Income Tax Act, 1961 for assessment year 2001-02. The correctness of the Tribunal's decision to set aside the notice and assessment made by the Assessing Officer (AO) based on the notice.

Analysis:

Issue 1: Validity of Notice under Section 143(2)(i)
The appellant challenged the validity of the notice issued under section 143(2)(i) of the Income Tax Act, 1961. The AO had issued the notice based on the belief that certain claims made by the assessee were inadmissible, specifically mentioning the non-disclosure of income from house property. The Tribunal held that the notice issued by the AO was not in accordance with the law as it expanded the scope of provisions of section 143(2)(i) beyond what was permissible. The Tribunal emphasized that the AO's jurisdiction under this provision is limited to claims specified in the return filed by the assessee. As there was no claim made by the assessee regarding income from house property or related deductions, the Tribunal deemed the notice invalid.

Issue 2: Jurisdiction of AO under Section 143(2)(i)
The Tribunal's decision was based on the interpretation of section 143(2)(i) of the Act, which outlines the conditions under which the AO can issue a notice to the assessee. The provision allows the AO to issue a notice if there is a reason to believe that certain claims made by the assessee in the return are inadmissible. The Tribunal emphasized that the AO must specify the particulars of the alleged wrongful claim in the notice and that such claim must emanate from the return furnished by the assessee. The Tribunal clarified that any item not claimed by the assessee cannot be subjected to scrutiny under section 143(2)(i) and that expanding the scope of this provision would require invoking section 143(2)(ii) instead.

Conclusion:
The High Court upheld the Tribunal's decision, dismissing the Revenue's appeal. The Court found that the AO's assumption of jurisdiction based on the notice issued under section 143(2)(i) was not valid as there was no claim made by the assessee regarding income from house property. The Court emphasized the limited scope of section 143(2)(i) and the necessity for the AO to adhere to the conditions specified in the provision before issuing a notice. As a result, the appeal was dismissed, and the penalty imposed on the assessee was also set aside due to the deletion of the addition made by the AO.