2016 (9) TMI 1071 - AT - Income Tax

Validity of assessment - Notice served u/s. 143(2)(iii) - applicability of provisions of section 292BB - Held that - In this case the assessee has filed the return of income, which was selected for scrutiny and assessment was completed u/s.143(3)(ii) of the Act. The undisputed fact in this case is that though the notice u/s.143(2) was issued on 26.09.2008 to the assessee, which is beyond the prescribed statutory time limit prescribed. Now the law is well settled that it is mandatory on the A.O. to issue the notice u/s.143(2) and served the same on the assessee within 12 months from the end of the month in which the assessee has filed the return of income. We, therefore, respectfully following the principles laid down by the Hon ble Special Bench in the case of Kuber Tobacco Products (P) Ltd. 2009 (1) TMI 304 - ITAT DELHI hold that even if in the present assessment year in i.e. A.Y. 2007-08, the assessee has fully participated in the assessment proceeding and even did not raise any objection till the completion of the said proceedings, yet the assessee can validly raised an objection for non service of the notice u/s.143(2) of the Act within the time limit prescribe vide proviso to said sub-section, as Sec. 292BB of the Act is applicable from the A.Y. 2008-09. In this case, admittedly, the A.O. has has served the notice u/s. 143(2) on 30.09.2008 i.e. after the expiry of twelve months from 24.07.2007 i.e. the date of filing of return of income. We find no merit in the plea of the Ld. D.R. that the notice was issued after 1.4.2008 hence provision of section 292BB are applicable as amendment is effective for AY 2008-09 onwards only as discussed above. We, therefore, hold that assessment order passed by the A.O. u/s.143(3) is bad in law and we accordingly cancel the same

Summary

Issues Involved:
1. Validity of notice served under section 143(2) beyond the prescribed time limit.
2. Addition of ?13,50,000/- as unsecured loans.
3. Disallowance under section 40A(3) amounting to ?1,08,554/-.
4. Inclusion of agricultural income of ?1,25,498/- in total income.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 143(2):

The primary issue pertains to the validity of the notice served under section 143(2) of the Income Tax Act, 1961. The assessee filed the return of income on 24.07.2007, and the notice under section 143(2) was issued on 26.09.2008 and served on 30.09.2008, which is beyond the twelve-month period from the end of the month in which the return was filed. The CIT(A) held that the notice was deemed valid under section 292BB as the assessee had participated in the assessment proceedings. However, the Tribunal referred to the case of Kuber Tobacco Products (P) Ltd. and concluded that section 292BB, which precludes the assessee from challenging the validity of the notice if they have participated in the proceedings, is applicable prospectively from Assessment Year 2008-09. Therefore, for the Assessment Year 2007-08, the assessee could still challenge the validity of the notice. The Tribunal held that the assessment order passed under section 143(3) was invalid as the notice was served beyond the prescribed time limit.

2. Addition of ?13,50,000/- as Unsecured Loans:

Since the assessment order itself was invalidated due to the improper notice under section 143(2), the Tribunal did not delve into the merits of the addition of ?13,50,000/- as unsecured loans. The ground was allowed solely based on the invalidity of the assessment order.

3. Disallowance under Section 40A(3):

Similarly, the disallowance of ?1,08,554/- under section 40A(3) was not examined on its merits by the Tribunal. The ground was allowed because the assessment order was rendered invalid.

4. Inclusion of Agricultural Income of ?1,25,498/-:

The issue regarding the inclusion of agricultural income of ?1,25,498/- in the total income was also not addressed on its merits. The Tribunal allowed this ground as well, based on the invalidity of the assessment order.

Conclusion:

The Tribunal concluded that the assessment order passed by the Assessing Officer under section 143(3) was invalid due to the improper service of notice under section 143(2) beyond the prescribed time limit. Consequently, the grounds related to the addition of unsecured loans, disallowance under section 40A(3), and inclusion of agricultural income were allowed without examining their merits. The appeal of the assessee was allowed, and the assessment order was canceled.