2016 (3) TMI 502 - HC - Income Tax

Validity of reopening of assessment - non service of notice under section 143(2) - Held that - CIT(Appeals) as well as the Tribunal had annulled the assessment proceedings on the ground that no notice under section 143(2) of the Act was ever issued. This issue is now squarely covered by the judgement of Supreme Court in case of Assistant Commissioner of Income-tax and another v. Hotel Blue Moon reported in (2010 (2) TMI 1 - SUPREME COURT OF INDIA). Though this judgement was rendered in the background of block assessment, nevertheless, it was observed that for any assessment under section 143(3) of the Act, notice under section 143(2) within the time limit would be essential. It was held that omission on part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and is not curable and dispensable. When notice under section 143(2) was not issued at all and the question is not of one of the date of service of notice within time prescribed or otherwise, the Government in our opinion committed no error. - Decided against revenue

Summary

Issues:
1. Whether the reassessment order passed under Section 147 was improper and required to be cancelled?
2. Whether the Assessing Officer should deduct indexed cost of acquisition from full value of sale consideration?
3. Whether the Assessing Officer should allow long term capital loss?
4. Whether the investment made in shares should be considered as stock-in-trade?

Analysis:

Issue 1: Reassessment Order under Section 147
The High Court considered whether the reassessment order under Section 147 was improper and needed cancellation. The Court referred to a similar case and noted that the question in that case arose concerning the service of notice under section 143(2) of the Income Tax Act, not the non-issuance of the notice altogether. The Court found that in the present case, both the CIT(Appeals) and the Tribunal had annulled the assessment proceedings due to the non-issuance of the notice under section 143(2). The Court relied on a Supreme Court judgment that emphasized the essentiality of issuing a notice under section 143(2) for any assessment under section 143(3) of the Act. The Court concluded that the omission to issue such notice is not a procedural irregularity and is not curable, thus upholding the decision to dismiss the tax appeals.

Issue 2: Deduction of Indexed Cost of Acquisition
The Court examined whether the Assessing Officer should deduct the indexed cost of acquisition from the full value of the sale consideration. This issue was addressed by the Appellate Tribunal, which directed the deduction. However, the Court's decision to dismiss the tax appeals encompassed this aspect as well, without providing a separate analysis.

Issue 3: Allowance of Long Term Capital Loss
Regarding the direction of the Appellate Tribunal to allow long term capital loss, the Court did not delve into a detailed analysis of this issue separately. The decision to dismiss the tax appeals covered this aspect in conjunction with the overall judgment.

Issue 4: Investment in Shares as Stock-in-Trade
The Court also considered whether the investment made in shares should be held as stock-in-trade. The Appellate Tribunal's decision on this matter was not discussed explicitly in the judgment. The dismissal of the tax appeals encompassed this issue without a specific analysis.

In conclusion, the High Court of Gujarat dismissed the tax appeals primarily due to the non-issuance of the notice under section 143(2) of the Income Tax Act, emphasizing the importance of such notice for assessment proceedings. The Court's decision covered various substantial questions of law, including the reassessment order, deduction of indexed cost of acquisition, allowance of long term capital loss, and the classification of investment in shares.