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2015 (7) TMI 83 - AT - Income TaxReopening of assessment - whether the assessment framed without issuing the notice u/s 143(2) of the Act is a valid assessment? - Held that - Where notice u/s 143(2) of the Act is not issued to the assessee before framing the assessment u/s 143(3) of the Act, the AO does not have the jurisdiction to make the assessment. In the present case, the AO issued the notice u/s 148 of the Act and the assessee furnished the return of income in response to the said notice. Thereafter the AO asked the assessee to furnish certain details by issuing the questionnaire u/s 142(1) of the Act but nowhere issued the notice u/s 143(2) of the Act. Therefore, the assumption of jurisdiction for framing the assessment was invalid. Whether the provisions of section 292BB of the act come to the rescue of the department, even when the notice u/s 143(2) of the Act is not issued within the stipulated time? - Held that - Section 292BB incorporates the principles of estoppel. It stipulates that an assessee, who has appeared in any proceeding and co-operated in any enquiry relating to assessment or reassessment shall be deemed to be served with any notice which was required to be served and would be precluded from objecting that the notice was not served upon him or was served upon him in an improper manner or was not served upon him in time. However, the proviso states that the principle of estoppels incorporated in the main section would not apply, if the assessee has raised objection in reply to the notice before completion of assessment or reassessment. In the present case, as we have already noted that the notice u/s 143(2) of the Act was neither issued nor served upon the assessee before making an order of assessment u/s 143(3) r.w.s. 147 of the Act. It is well settled that the issuance of notice u/s 143(2) of the Act is not procedural irregularities and the same is not curable, therefore, the requirement of issuance of notice u/s 143(2) of the Act cannot be dispensed with and no assessment can be framed u/s 143(3) r.w.s. 147 of the Act without issuance of notice u/s 143(2) of the Act. - Decided in favour of assessee.
Issues Involved:
1. Non-issuance of mandatory notice under Section 143(2) of the Income Tax Act, 1961. 2. Validity of the assessment order based on the absence of a notice under Section 143(2). 3. Jurisdiction of the Assessing Officer (AO) to make the assessment. 4. Application of Section 292BB of the Income Tax Act, 1961. 5. The treatment of surplus income and expenses by the AO. 6. The classification of the assessee as a Local Authority under Section 10(20) of the Income Tax Act, 1961. 7. The nature of grants and expenses incurred by the assessee. 8. The principle of natural justice in the assessment process. Detailed Analysis: Issue 1: Non-issuance of Mandatory Notice under Section 143(2) The primary contention raised by the assessee was the non-issuance of the mandatory notice under Section 143(2) of the Income Tax Act, 1961. The assessee argued that no such notice was issued after the issuance of the notice under Section 148, which is a prerequisite for a valid assessment. Issue 2: Validity of the Assessment Order The Tribunal observed that the AO did not issue the notice under Section 143(2) of the Act before completing the assessment. The AO's order did not mention the issuance of such a notice, and the dispatch register entry did not indicate the issuance of a notice under Section 143(2). The Tribunal concluded that the assessment framed without this notice was invalid and void. Issue 3: Jurisdiction of the Assessing Officer The Tribunal referenced the Supreme Court's decision in ACIT vs. Hotel Blue Moon, which established that the issuance of a notice under Section 143(2) is mandatory for the AO to have jurisdiction to make an assessment. The Tribunal found that the AO lacked jurisdiction to complete the assessment without issuing this notice. Issue 4: Application of Section 292BB The Tribunal considered whether Section 292BB, which deals with the deemed service of notice, could cure the defect of non-issuance of the notice under Section 143(2). The Tribunal cited the Delhi High Court's decision in Alpine Electronics Asia Pte. Ltd. vs. DGIT, which held that Section 292BB does not apply when the notice itself was not issued within the prescribed period. The Tribunal concluded that Section 292BB could not validate the assessment in this case. Issue 5: Treatment of Surplus Income and Expenses The AO had added the surplus income and disallowed certain expenses, treating the entire surplus as taxable income. The Tribunal did not delve into the merits of this issue, as the assessment itself was found to be invalid due to the procedural lapse. Issue 6: Classification as a Local Authority The assessee had claimed exemption under Section 10(20) of the Act, which was denied by the AO based on a High Court judgment. The Tribunal noted that the AO and the CIT(A) had relied on the Allahabad High Court's decision that the assessee did not qualify as a Local Authority post the amendment to Section 10(20). Issue 7: Nature of Grants and Expenses The AO disallowed grants to ITTUP, GB University, and UPSRTC, questioning their nature and treatment. The CIT(A) upheld this disallowance due to the lack of necessary details and evidence from the assessee. However, the Tribunal did not address this issue on merits due to the invalidity of the assessment. Issue 8: Principle of Natural Justice The assessee argued that the assessment was completed in violation of the principles of natural justice, as the AO did not issue the mandatory notice under Section 143(2). The Tribunal agreed, emphasizing that the procedural requirements must be strictly followed to uphold the principles of natural justice. Conclusion: The Tribunal quashed the assessment order dated 29.01.2014 as invalid and void due to the non-issuance of the mandatory notice under Section 143(2) of the Income Tax Act, 1961. The appeal of the assessee was allowed on this legal ground, and no findings were given on the merits of the case. The decision underscores the importance of adhering to procedural requirements in the assessment process to ensure the validity and jurisdiction of the assessment.
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