2016 (4) TMI 865 - AT - Income Tax

Validity of reopening of assessment - Held that - In the absence of notice under section 143(2) pursuant to notice under section 148, the re-assessment order passed by the Assessing Officer is rendered bad in law and therefore requires to be quashed. - Decide in favour of assessee

Issues Involved:
1. Validity of reassessment under section 147 without issuance of notice under section 143(2).
2. Applicability of section 292BB in curing the defect of non-issuance of notice under section 143(2).
3. Entitlement to claim exemption under section 10(20) of the Income-tax Act.
4. Classification of expenditure on repairs as revenue expenditure.

Detailed Analysis:

1. Validity of Reassessment under Section 147 without Issuance of Notice under Section 143(2):
The primary issue raised by the assessee was the validity of the reassessment order framed under section 143(3) read with section 148 of the Income-tax Act, 1961, due to the non-issuance of notice under section 143(2). The assessee filed its return of income belatedly and a notice under section 148 was issued. However, no notice under section 143(2) was issued, which the assessee contended rendered the reassessment order void ab initio. The Tribunal observed that the issuance of notice under section 143(2) is mandatory for the validity of reassessment proceedings, as established by various judicial precedents, including the Supreme Court's decision in ACIT vs. Hotel Blue Moon. Consequently, the reassessment orders for both assessment years 2007-08 and 2008-09 were held to be invalid and void ab initio due to the failure to issue the mandatory notice under section 143(2).

2. Applicability of Section 292BB in Curing the Defect of Non-issuance of Notice under Section 143(2):
The Revenue argued that the defect of non-issuance of notice under section 143(2) was curable under section 292BB since the assessee had cooperated during the reassessment proceedings. However, the Tribunal referred to the decision of the Hon'ble Delhi High Court in Pr.CIT vs. Shri Jai Shiv Shankar Traders Pvt. Ltd., which held that the failure to issue notice under section 143(2) is not a mere procedural irregularity but a mandatory requirement, and section 292BB does not cure such a defect. Therefore, the Tribunal rejected the Revenue's contention and held that the reassessment orders were invalid despite the provisions of section 292BB.

3. Entitlement to Claim Exemption under Section 10(20) of the Income-tax Act:
The assessee also contested the denial of exemption under section 10(20) of the Act. However, since the reassessment orders were held to be invalid due to the non-issuance of notice under section 143(2), the Tribunal did not adjudicate on the merits of this issue, rendering it infructuous.

4. Classification of Expenditure on Repairs as Revenue Expenditure:
The assessee claimed that the expenditure incurred on repairs of road, compound wall, canteen, toilet, sundry shops, platform, etc., should be treated as revenue expenditure. Similar to the exemption issue, this ground was not adjudicated due to the invalidity of the reassessment orders.

Conclusion:
The Tribunal allowed the appeals for both assessment years 2007-08 and 2008-09, quashing the reassessment orders due to the non-issuance of mandatory notice under section 143(2). The other grounds raised by the assessee became infructuous and did not require further adjudication. The decision emphasizes the mandatory nature of section 143(2) notices in reassessment proceedings and the limitations of section 292BB in curing such defects.

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