2018 (2) TMI 1516 - AT - Income Tax

Reopening of assessment - Non issuance of notice under section 143(2) - Held that - Non issuance of notice under section 143(2) of the Act by the Assessing Officer invalidates the order passed under section 143(3) r/w 147 of the Act. As far as the submissions of the learned Departmental Representative that assessee should have raised the objection against non issuance of notice under section 143(2) within a period of one month as per section 124(3) of the Act, we do not find merit in such submissions of the learned Departmental Representative as the said provision basically deals territorial jurisdiction of the Assessing Officer. Non disposal of objections raised by the assessee before completion of assessment - Held that - Assessing Officer did not dispose off the objections of the assessee prior to completion of the assessment under section 143(3) r/w section 147 of the Act. On the contrary, while completing the impugned assessment, the Assessing Officer simultaneously disposed off the objection of the assessee. In our view, the non disposal of assessee s objections independently before completion of the assessment under section 143(3) r/w section 147 of the Act is against the ratio laid down by the Hon ble Supreme Court in case of GKN Drive Shaft India Ltd. (2002 (11) TMI 7 - SUPREME Court). - Decided in favour of assessee Disallowance u/s 14A r/w rule 8D - Held that - We direct the Assessing Officer to exclude from the average value of investment the investments which are not capable of yielding exempt income and the investments which have not yielded any exempt income in the impugned assessment year for computing disallowance under rule 8D(2). Needless to mention, the Assessing Officer must afford reasonable opportunity of being heard to the assessee before deciding the issue. Ground no.1 raised by the assessee is allowed for statistical purposes. Short credit of TDS - Held that - Having heard the submissions of the parties, we direct the Assessing Officer to verify assessee s claim with regard to TDS credit and decide the issue after providing due opportunity of being heard to the assessee.

Issues Involved:
1. Validity of the assessment order under section 143(3) r/w 147 due to non-issuance of notice under section 143(2).
2. Non-disposal of objections raised by the assessee before completion of the assessment.
3. Disallowance under section 14A r/w rule 8D.
4. Short credit of TDS.
5. Levy of interest under sections 234B and 234C.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3) r/w 147 due to Non-Issuance of Notice under Section 143(2):
The assessee challenged the validity of the assessment order on the grounds of non-issuance of notice under section 143(2). The first appellate authority upheld the assessment order, stating that the defect was cured under section 292BB of the Act due to the assessee's participation in the proceedings. However, it was noted that section 292BB, introduced by Finance Act, 2008, w.e.f. 1st April 2008, has prospective effect and is not applicable to the impugned assessment year. The Tribunal referenced various judicial precedents, including the Hon'ble Supreme Court's decision in Hotel Blue Moon and the Hon'ble Delhi High Court's decision in PCIT v/s Jai Shiv Shankar Traders Pvt. Ltd., which held that non-issuance of notice under section 143(2) invalidates the assessment order. Consequently, the Tribunal quashed the assessment order for non-issuance of notice under section 143(2).

2. Non-Disposal of Objections Raised by the Assessee Before Completion of the Assessment:
The assessee argued that the Assessing Officer (AO) failed to dispose of the objections raised against the initiation of proceedings under section 147 before completing the assessment. The Tribunal found that the AO did not independently dispose of the objections before completing the assessment, which is contrary to the Supreme Court's directive in GKN Drive Shaft India Ltd. The Hon'ble Jurisdictional High Court in KSS Petron Pvt. Ltd. also held that non-disposal of objections invalidates the assessment order. Therefore, the Tribunal quashed the assessment order on this ground as well.

3. Disallowance under Section 14A r/w Rule 8D:
For the assessment year 2010-11, the AO made a disallowance under section 14A r/w rule 8D, which the assessee contested, arguing that its own funds were used for investments yielding exempt income. The first appellate authority directed the AO to verify the assessee's claim regarding the utilization of borrowed funds for specific purposes and to re-calculate the disallowance. The Tribunal agreed with this direction and further instructed the AO to exclude investments not capable of yielding exempt income from the average value of investments for computing disallowance under rule 8D(2).

4. Short Credit of TDS:
The assessee raised the issue of short credit of TDS amounting to ?5,82,040. The Tribunal directed the AO to verify the assessee's claim and resolve the issue after providing an opportunity for the assessee to be heard.

5. Levy of Interest Under Sections 234B and 234C:
The assessee challenged the levy of interest under sections 234B and 234C, which are consequential in nature. The Tribunal directed the AO to give consequential effect while re-computing the income of the assessee in light of the Tribunal's orders.

Conclusion:
The Tribunal allowed the appeal for the assessment year 2007-08 partly and for the assessment year 2010-11 for statistical purposes, quashing the assessment order due to jurisdictional errors and procedural lapses, and directing the AO to re-examine specific claims and calculations as per the Tribunal's guidance.

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