2016 (4) TMI 172 - HC - Income Tax

Assessment u/s 144 - compulsion of notice under Section 143(2) - Held that - It is now well established that if the AO does not accept the return filed by the Assessee on its face and he is required to issue a notice under Section 143(2) of the Act and provide an opportunity to the Assessee to produce the necessary material in support of his return It is now well settled by a number of decisions (See Pr. CIT v. Silver Line and Anr. 2015 (11) TMI 809 - DELHI HIGH COURT , ACIT v. Hotel Blue Moon(2010 (2) TMI 1 - SUPREME COURT OF INDIA) and CIT v. Pawan Gupta (2009 (4) TMI 48 - DELHI HIGH COURT) that whenever the return filed by an Assessee is not accepted at its face, it is mandatory for the AO has to issue a notice under Section 143(2) of the Act for proceeding further. It is thus not open for the AO to not issue a notice under Section 143(2) of the Act and proceed directly under Section 144 of the Act by rejecting the return filed by the Assessee.

Summary

Issues:
1. Challenge to the ITAT's finding on assessment orders passed without issuing notice under Section 143(2) of the Income Tax Act.
2. Validity of returns filed by the Assessee and the necessity of notice under Section 143(2) for assessment under Section 144.

Analysis:
1. The Revenue challenged the ITAT's finding that assessment orders were passed without issuing notice under Section 143(2) of the Act. The Revenue argued that no notice was necessary for assessment orders under Section 144. The Assessee contended that the issue was covered by a previous court decision. The Assessee, a society, was granted registration under Section 12A of the Act in 2006. The AO believed income had escaped assessment for AYs 2002-03 to 2004-05. Notices were issued, returns filed, but assessment orders were passed without a Section 143(2) notice. The Revenue argued that returns were invalid due to late filing. The Assessee disagreed, stating a delay only attracts interest, not invalidity.

2. The Assessee argued that the returns were valid as they were filed within a reasonable time after the last notice issued under Section 142(1). The Court held that the AO cannot frame an assessment under Section 144 without issuing a Section 143(2) notice if the return is not accepted on face value. Previous court decisions established the mandatory nature of the Section 143(2) notice. The Court distinguished a prior case and emphasized the necessity of the notice. The Court found merit in the Assessee's argument that belated returns cannot be ignored without proper justification. In this case, as the Assessee was in the process of filing returns and an adjournment was granted, the returns could not be ignored. The Court upheld the ITAT's order, dismissing the appeals as no substantial question of law arose. Each party was directed to bear its own costs.