2017 (6) TMI 732 - HC - Income Tax

Validity of block assessment - period of limitation - no notice under Section 143 (2) issued - whether the delayed return treated as non-est return - Held that - AO had issued a letter seeking information from the assessee. This thus clearly was not a notice in any format. Section 143 (2) requires a notice by Assessing Officer, if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or does not compute excessive loss or has not under-paid the tax in any manner. Only after issuance of such a notice, the Assessing Officer can frame the assessment under Section 143 (3). The fact that such a notice would be necessary even in case of block assessment is settled in the case of Hotel Blue Moon (2010 (2) TMI 1 - SUPREME COURT OF INDIA ). Had the assessee in the present case not filed the return in response to the notice issued by the Assessing Officer or for some reasons such return was held to be invalid or non-est, revenue s contention that no notice under sub-section (2) of Section 143 was necessary and the Assessing Officer could have proceeded to frame the assessment under Sub-section (1) of Section 144 would merit further consideration. In the present case, however, the assessee did file the return, though belatedly. The Assessing Officer did not discard such return but proceeded on the basis of such return and framed an assessment assessing the income higher than the returned income. Under the circumstances, before rejecting such income, notice under Section 143 (2) of the Act was necessary. Such notice not having been issued, the Tribunal correctly upheld the judgment of the CIT (Appeals). - Decided against revenue

Summary

Issues:
1. Validity of the block return filed after a significant delay.
2. Consideration of notice under Section 143 (2) of the Income Tax Act.
3. Applicability of the Hotel Blue Moon judgment in the assessment process.

Issue 1: Validity of the block return:
The appeal concerned a block assessment for the period from 1990 to 2001. The Assessing Officer's assessment was set aside by the CIT (Appeals) and the Tribunal due to the absence of a formal notice under Section 143 (2) of the Income Tax Act. The revenue argued that a letter requesting information from the assessee could be considered a notice under Section 143 (2), and the delayed return should have been treated as invalid. The revenue contended that no notice was required under Section 143 (2) if the return was invalid.

Issue 2: Notice under Section 143 (2) consideration:
The revenue argued that the Tribunal erred in relying on the Hotel Blue Moon judgment when the return was invalid. The revenue claimed that notice under Section 143 (2) was only necessary for a valid return. However, the assessee's counsel argued that the return was accepted by the Assessing Officer, who raised queries and framed an assessment based on the returned income. The absence of a notice under Section 143 (2) was crucial when rejecting the returned income, as per the Hotel Blue Moon judgment.

Issue 3: Applicability of the Hotel Blue Moon judgment:
The Tribunal clarified that the letter seeking information from the assessee was not a valid notice under Section 143 (2). Section 143 of the Act mandates a notice for assessment, and the absence of such a notice was crucial, even in the case of block assessment, as established by the Hotel Blue Moon judgment. The Assessing Officer's failure to issue a notice under Section 143 (2) before rejecting the returned income led to the dismissal of the Tax Appeal.

In conclusion, the delayed block return, the necessity of a notice under Section 143 (2), and the relevance of the Hotel Blue Moon judgment were key aspects addressed in the judgment. The Tribunal upheld the CIT (Appeals) decision, emphasizing the importance of following procedural requirements in assessments to ensure fairness and compliance with the law.