2022 (4) TMI 679 - AT - Income Tax

Validity of order u/s 143(3) - time limit for issue of notice u/s 143(2) - mandation of issuance of notice under section 143(2) within the prescribed time limit - notice u/s 143(2) by the AO should have been issued on or before 31st March, 2009 but the AO issued the notice under section 143(2) on 28th August, 2009 and served on the assessee on 02.09.2009 which was beyond the time limit prescribed under the IT Act, 1961 - HELD THAT - We do not agree with this contention of the ld. D/R because in the case in hand what is absent is the issuance of notice under section 143(2) within the prescribed time limit and not the service of the notice issued by the AO is disputed by the assessee. Only in the case where the notice issued under section 143(2) was disputed by the assessee on the point of service of the said notice but the fact of issuance of notice is already available on record, in such a case if the assessee has participated in the assessment proceedings in response to the notice under section 143(2), then subsequently the assessee cannot take the objection of notice issued under section 143(2) was not properly served on the assessee. Since it is a case of non-issuance of notice within the prescribed time under section 143(2), therefore, the initiation of scrutiny proceedings itself was without jurisdiction conferred by the provisions of section 143 - See M/S. TRAVANCORE DIAGNOSTICS (P) LTD 2016 (11) TMI 76 - KERALA HIGH COURT Thus when the AO has passed the assessment order without properly issuing notice as prescribed under section 143(2), then the assessment order is not sustainable in law and the same is invalid - Appeal of assessee allowed.

Issues Involved:
1. Validity of the assessment order under section 143(3) due to the alleged invalidity of the notice issued under section 143(2).
2. Confirmation of trading addition of ?12,25,525/-.
3. Addition of ?8,78,500/- under section 68.
4. Disallowance of ?18,62,147/- out of interest and bank charges.
5. Disallowance of ?22,47,127/- on account of interest paid on loan for factory construction.
6. Disallowance of ?2,04,259/- out of certain expenses.
7. Disallowance of ?15,21,765/- for discount and commission expenses.
8. Disallowance of ?16,02,991/- on account of interest paid for funds used in WIP construction.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3):
The primary issue was the validity of the assessment order under section 143(3) due to the alleged invalidity of the notice issued under section 143(2). The assessee argued that the notice under section 143(2) was issued beyond the prescribed time limit, rendering the entire assessment proceedings void ab initio. The Tribunal noted that the notice under section 143(2) should have been issued within 12 months from the end of the month in which the return was filed. Since the notice was issued on 28.08.2009 and served on 02.09.2009, beyond the prescribed period, the Tribunal held that the assessment order was invalid. The Tribunal relied on the Supreme Court's decision in ACIT vs. Hotel Blue Moon, which emphasized that the issuance of notice under section 143(2) within the prescribed time is a mandatory condition and not a procedural irregularity.

2. Confirmation of Trading Addition of ?12,25,525/-:
The Tribunal did not address this issue in detail as the primary ground regarding the validity of the assessment order was upheld, rendering other grounds infructuous.

3. Addition of ?8,78,500/- under Section 68:
Similar to the trading addition, this issue was not addressed in detail due to the quashing of the assessment order on the primary ground.

4. Disallowance of ?18,62,147/- out of Interest and Bank Charges:
The Tribunal did not delve into this issue as the assessment order was quashed.

5. Disallowance of ?22,47,127/- on Account of Interest Paid on Loan for Factory Construction:
This issue was also not analyzed in detail because the primary ground regarding the invalidity of the assessment order was upheld.

6. Disallowance of ?2,04,259/- out of Certain Expenses:
The Tribunal did not address this issue due to the quashing of the assessment order.

7. Disallowance of ?15,21,765/- for Discount and Commission Expenses:
This issue was not discussed in detail as the assessment order was invalidated on the primary ground.

8. Disallowance of ?16,02,991/- on Account of Interest Paid for Funds Used in WIP Construction:
The Tribunal did not consider this issue due to the quashing of the assessment order.

Conclusion:
The Tribunal quashed the assessment order due to the invalidity of the notice issued under section 143(2), which was beyond the prescribed time limit. Consequently, all other grounds raised by the assessee became infructuous and were not addressed in detail. The appeal of the assessee was allowed, and the assessment order, as well as the order passed by the CIT (A), were set aside.

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