2012 (6) TMI 55 - HC - Income Tax

Issue of reassessment notice u/s 147/148 instead of issuing notice u/s 143(2) for scrutiny assessment - whether the notice issued on 30.12.2004 under Section 143(2) of the Act was validly served upon the assessee-firm on 31.12.2004 as claimed by the Assessing Officer. - held that - Tribunal was not right in quashing the assessment proceedings. We hold that the assessee was properly served with the notice under Section 143(2) of the Act and within the statutory period prescribed by the proviso to the said sub-section. Accordingly, the substantial question of law is answered in the negative, in favour of the Revenue and against the assessee.

Summary

Issues Involved:
1. Validity of the assessment order due to alleged non-service of notice under Section 143(2) within the prescribed period.
2. Merits of the additions made in the assessment order.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order Due to Alleged Non-Service of Notice Under Section 143(2) Within the Prescribed Period:

Background and Facts:
The assessee, a partnership firm, filed its return of income on 02.12.2003. The return was processed under Section 143(1)(a), and subsequently, a notice under Section 143(2) was issued on 30.12.2004. The dispute centers around whether this notice was served on the assessee within the statutory period.

Contentions:
- The assessee contended that no valid notice under Section 143(2) was served within the prescribed period, rendering the assessment order invalid.
- The Assessing Officer (AO) claimed that the notice was served on a person present at the assessee's address, though the partners were out of station.

Findings:
- The Tribunal found that the notice was not served on either of the two partners and held that service on an employee did not amount to valid service.
- The Tribunal relied on the case of CIT v. Rajesh Kumar Sharma, concluding there was no valid service of notice, thus quashing the assessment order.

High Court's Analysis:
- The High Court assumed that the notice was not served on the partners but on an employee. It emphasized the purpose of Section 143(2) is to give the assessee an opportunity to support the return with evidence.
- The Court noted that the assessee's representative appeared before the AO on 05.01.2005, the date fixed in the notice, indicating awareness of the notice.
- The High Court held that the participation of the assessee in the proceedings indicated valid service of the notice, despite it being served on an unauthorized person.
- The Court highlighted that procedural defects in service do not nullify the liability to pay tax, citing Supreme Court precedents.

Conclusion:
The High Court concluded that there was valid service of the notice under Section 143(2) within the statutory period. The Tribunal's decision to quash the assessment proceedings was reversed, and the issue was remitted to the Tribunal for fresh disposal of the appeal on merits.

2. Merits of the Additions Made in the Assessment Order:

Background:
The assessment order included various additions totaling Rs. 8,51,12,030/-. The assessee contested these additions on merits before the CIT (Appeals), who provided substantial relief.

Findings:
- The Tribunal did not examine the merits of the additions due to its decision on the validity of the assessment order.
- The High Court remitted the issue back to the Tribunal for a fresh examination of the merits of the additions.

Conclusion:
The Tribunal is directed to re-examine the merits of the additions made in the assessment order in light of the High Court's finding on the validity of the notice under Section 143(2).

Final Disposition:
The High Court held that the Tribunal was incorrect in quashing the assessment proceedings based on the alleged non-service of notice. The substantial question of law was answered in favor of the Revenue. The Tribunal is to re-examine the merits of the additions made in the assessment order. The appeals of the Revenue were disposed of accordingly, with no order as to costs.