2015 (3) TMI 16 - HC - Income Tax

Validity of assessment - no notice was issued u/s.143(2) of the IT Act during the course of assessment proceedings - whether ITAT was right in law in upholding the assessment order passed by the Assessing Officer for A.Y. 1998-99 as in sum and substances u/s.144 of the IT Act, 1961? - Held that - The facts of the present case show that the A.O. in respect of A.Y.1998-1999 of the Assessee-appellant, assessed income under Section 143(3) read with Section 147 at ₹ 14,96,750/-. In appeal, the C.I.T. (Appeals) maintained the assessment but on the point of interest, the appeal was partly allowed. The Tribunal passed the common order in respect of A.Y.1997-1998 as well as 1998-1999. The Tribunal found that proviso to Section 143(2) of the Act would apply only to a valid return and not to invalid return and hence, the A.O. was not required to issue notice under Section 143(2) of the Act and the assessment was to be made under Section 144 of the Act and, therefore, could be said as upheld. In our view, as the fact situations in the present case are the same, similar view, as was taken in 2015 (3) TMI 15 - GUJARAT HIGH COURT deserves to be taken in the present matter wherein held that where the Assessing Officer in repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143 and in absence of fulfillment of mandatory requirement of issuance of notice under section 143(2) both the authorities rightly and validly held against the Revenue and in favour of the assessee. Thus the assessment proceedings cannot be maintained - Decided in favour of assessee.

Summary

Issues:
1. Validity of assessment order for A.Y. 1998-1999 without notice under Section 143(2) of the I.T. Act.
2. Assessment order passed by the Assessing Officer for A.Y. 1998-1999 under Section 144 of the IT Act.

Issue 1: Validity of assessment order without notice under Section 143(2) of the I.T. Act:
The appellant challenged the assessment order for A.Y. 1998-1999, contending that no notice was issued under Section 143(2) of the I.T. Act during the assessment proceedings, rendering the assessment invalid. The Court noted that a similar issue was previously decided in Tax Appeal No.1385 of 2007. In that case, it was held that the notice under Section 143(2) is mandatory for scrutiny assessment, and failure to comply would invalidate the proceedings. The Court cited the Direct Tax Laws (Amendment) Act, 1989, which introduced the three formats of assessment. The mandatory nature of the notice under Section 143(2) was emphasized, and non-compliance was deemed to invalidate the assessment proceedings. The Court referred to the decision in Deputy Commissioner of Income Tax vs. Mahi Valley Hotels and Resorts, emphasizing the absolute requirement of the notice under Section 143(2) for scrutiny assessment. The Apex Court's ruling in Assistant Commissioner of Income-tax vs. Hotel Blue Moon was also cited to support the necessity of following statutory provisions strictly.

Issue 2: Assessment order under Section 144 of the IT Act:
The Tribunal upheld the assessment for A.Y. 1998-1999 under Section 144 of the IT Act, reasoning that the proviso to Section 143(2) applies only to a valid return, not an invalid one. Therefore, the Assessing Officer was not obligated to issue a notice under Section 143(2) for an invalid return, and the assessment could proceed under Section 144. The Court found the fact situation similar to a previous case and held that the same view as in Tax Appeal No.1385 of 2007 should be adopted. Consequently, the Court ruled in favor of the Assessee against the Revenue, stating that since Issue 1 was decided in favor of the Assessee, the assessment proceedings could not be maintained, and Issue 2 did not require a separate decision.

In conclusion, the Court modified the impugned judgment and allowed the appeal in favor of the Assessee to the extent discussed, with no order as to costs.