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2011 (8) TMI 767 - AT - Income TaxIssue of notice versus service of notice - Income escaping assessment - validity of notice - Bogus or genuine transaction - Apex Court in the case of R.K.Upadhyaya Vs. Shana Bhai P.Patel (1987 -TMI - 5229 - SUPREME Court) - Held that there is a complete and clear distinction between two legal processes i.e., the issuance of notice and service of notice, each having distinct purposes/functions - there has been proper issue of notice within the limitation period of six years and I fully agree with the reasoning and discussion given by the learned AM in this regard to uphold the validity of assessment framed - Decided against the assessee by way of remand
Issues Involved:
1. Validity of quashing the assessment order under Section 143(3) of the IT Act, 1961. 2. Validity of the assessment order based on notice issued under Section 148 of the IT Act, 1961. 3. Timeliness and service of the notice under Section 148 of the IT Act, 1961. 4. Validity of the assessment proceedings initiated by the AO. Issue-wise Detailed Analysis: 1. Validity of Quashing the Assessment Order under Section 143(3) of the IT Act, 1961: The Revenue contended that the learned Commissioner of Income-tax (Appeals)-II, Agra erred in law and on facts in quashing the assessment order under Section 143(3) of the IT Act, 1961. The assessment was based on the information that the assessee had received bogus entries of sale proceeds of shares, which led to the belief that income had escaped assessment. The CIT(A) quashed the assessment order on the grounds that the notice under Section 148 was not served within the stipulated time, rendering the assessment invalid. 2. Validity of the Assessment Order Based on Notice Issued under Section 148 of the IT Act, 1961: The CIT(A) held that the Assessing Officer did not base his assessment order on the notice issued under Section 148 dated 28.03.2005, as it was returned unserved. The AO issued another notice on 17.06.2005, which was served on 29.06.2005. The CIT(A) opined that the second notice was beyond the time limit prescribed under Section 149, making the assessment invalid. The learned Accountant Member (AM) disagreed, stating that the issuance of notice and service of notice are distinct processes. The valid issuance of the notice within the prescribed time limit confers jurisdiction, even if the service occurs later. 3. Timeliness and Service of the Notice under Section 148 of the IT Act, 1961: The CIT(A) found that the notice issued on 17.06.2005 was beyond the six-year limitation period, making it invalid. The learned AM, however, argued that the notice dated 28.03.2005 was validly issued within the time limit, and the subsequent service of notice is a procedural requirement that does not affect the jurisdiction conferred by the valid issuance. The AM relied on the Supreme Court decision in R.K.Upadhyaya vs. Shana Bhai P.Patel, which distinguishes between the issuance and service of notice, stating that jurisdiction is conferred upon issuance within the limitation period. 4. Validity of the Assessment Proceedings Initiated by the AO: The CIT(A) held that the assessment proceedings initiated by the AO were invalid due to the non-service of the notice within the prescribed time. The learned AM, however, upheld the validity of the reassessment proceedings, stating that the notice dated 28.03.2005 was validly issued, and the reassessment was based on this notice. The AM emphasized that the service of notice, while necessary for procedural compliance, does not invalidate the jurisdiction conferred by the valid issuance of the notice. Conclusion: The Third Member agreed with the learned AM, holding that the valid issuance of the notice dated 28.03.2005 conferred jurisdiction for reassessment, and the assessment proceedings were valid despite the subsequent service of notice. The decision of the CIT(A) to quash the assessment order was overturned, and the reassessment proceedings initiated by the AO were upheld as valid. The matter was remanded to the regular Bench for passing appropriate orders.
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