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2016 (11) TMI 76 - HC - Income TaxReopening of assessment - non issue of notice u/s 143(2) - Held that - We are unable to understand why a notice under Section 143(2) was not issued for the year 2009-10 when the same was issued for the year 2010-11. The order sheet, Annexure- A2 annexed along with the papers shows that the Assessing Officer was aware of the need for issuance of the said notice as early as in April 2012. The only reason for not issuing a Section 143(2) notice has been recorded by him in the order sheet as it is not possible to generate notice under Section 143(2) through an AST, since the assessee has not filed the return electronically . The order sheet further shows that the assessee was again requested to file their return in response to Section 148 electronically. This conduct of the Assessing Officer is rather surprising and it defies logic, since the assessee cannot be forced and coerced to file their return electronically so as to then enable the Assessing Officer to issue a notice under Section 143(2) of the Act. This is more so because even in the absence of such an electronic return for the year 2010-11, the Assessing Officer had infact issued the mandatory notice for that year on 11.01.2012. It is beyond comprehension that even though the Assessing Officer had time till 30.09.2011 to issue notice under Section 143(2) and even though he had recorded the reasons for assuming jurisdiction under Section 147 for re-assessment on 21.09.2011, he had still not chosen to issue the notice which would have then given him the jurisdiction to continue with the proceedings. We are unable to obtain any reasons to these omissions and it is rather distressing, as we have recorded in the opening lines of the judgment, that on account of this omission and non compliance of mandatory and imperative provisions, the assessee would now be entitled to reliefs which they otherwise would not have able to obtain. We have, therefore, no other option but to hold in the absence of a Section 143(2) notice, proceedings of assessment initiated, conducted and completed for the year 2009-10 will have to fail but for the year 2010-11, since the proceedings have been continued on the basis of a validly issued Section 143(2) notice, same is being upheld.
Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income Tax Act. 2. Service of notice under Section 143(2) of the Income Tax Act. 3. Method adopted by the authorities in arriving at the quantum of assessment. Issue-Wise Detailed Analysis: 1. Assumption of Jurisdiction under Section 147 of the Income Tax Act: The court examined whether the Assessing Officer (AO) had sufficient reasons to issue a notice for reassessment under Section 147 of the Income Tax Act. The AO's reasons included findings from a survey under Section 133A, discrepancies in the assessee’s receipts, and the absence of copies of bills issued to patients. The court referenced the Supreme Court's ruling in ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., which states that the AO needs "reason to believe" that income has escaped assessment, which can be based on materials independently collected. The court concluded that the AO was justified in assuming jurisdiction under Section 147 and that the notice issued under Section 148 was valid. 2. Service of Notice under Section 143(2) of the Income Tax Act: The court emphasized the necessity of issuing a notice under Section 143(2) before making an assessment or reassessment. The absence of such a notice would invalidate the assessment proceedings. The court cited the Supreme Court's decision in Assistant Commissioner of Income Tax v. Hotel Blue Moon, which held that the omission to issue a notice under Section 143(2) is not a procedural irregularity but a jurisdictional defect that cannot be cured. The court found that no notice under Section 143(2) was issued for the assessment year 2009-10, which invalidated the proceedings for that year. However, for the assessment year 2010-11, the court upheld the assessment as the notice under Section 143(2) was issued. 3. Method Adopted by the Authorities in Arriving at the Quantum of Assessment: The court reviewed the method used by the AO to estimate the assessee's income. The AO had based the assessment on documents impounded during the survey and the statement given by the assessee's representative, which indicated suppressed receipts. The AO extrapolated the figures from the impounded documents for the entire year and applied a 24% increase for the subsequent year. The court found this method to be rational and upheld the ITAT's approval of the AO's approach. The court rejected the assessee's contention that the materials impounded during the survey and the statement had no evidentiary value, referencing the Supreme Court's judgment in Pullangode Rubber Produce Co. Ltd. v. State of Kerala, which allows for admissions to be retracted, but noted that the assessee had not done so. Conclusion: The court allowed ITA 221/2015, setting aside the assessment order for the year 2009-10 due to the absence of a notice under Section 143(2). ITA 228/2015 was dismissed, upholding the assessment order for the year 2010-11, as the mandatory notice under Section 143(2) was issued. The court did not award costs, noting that the relief granted to the appellant was based on technical grounds.
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