2022 (5) TMI 110 - AT - Income Tax

Reopening of assessment u/s 147 - assessment order passed without issuing notice u/s.143(2) - HELD THAT - As framing of an assessment u/s.143(3) of the Act presupposes the issuance of a notice u/s.143(2), the existence of which by no means or stretch of imagination can be substituted by a notice issued u/s.142(1) of the Act. Our aforesaid conviction that issuance of notice u/s.143(2) of the Act is a sine-qua-non for framing of an assessment u/s.143(3) can safely be gathered from the judgment in the case of Assistant Commissioner of Income Tax Vs. M/s. Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT . It has been held by the Hon ble Apex Court that the issue of notice u/s.143(2) of the Act is mandatory and not procedural and if the notice is not served within the prescribed period, then, the assessment order would be invalid. We, thus, in terms of our aforesaid observations are unable to concur with the view taken by the CIT(Appeals) who had upheld the assessment framed by the Assessing Officer u/s.143(3)/148 and accordingly, set aside his order. Thus, the assessment framed by the Assessing Officer u/s.143(3)/148 being devoid and bereft of any force of law is hereby quashed - Decided in favour of assessee.

Summary

Issues:
1. Validity of re-assessment proceedings initiated under Sec.147 of the Income Tax Act, 1961 without issuing notice u/s.143(2).
2. Addition of Rs.24,00,000/- as income from other sources u/s.56 of the Income Tax Act, 1961.

Analysis:

Issue 1:
The appeal challenged the re-assessment proceedings initiated under Sec.147 without issuing notice u/s.143(2). The Assessing Officer reopened the case as the assessee had sold a property but not filed the income tax return. The Assessing Officer added Rs.24 lacs as income from "other sources" and determined Long Term Capital Gain. The CIT(Appeals) upheld the assessment based on notices u/s.142(1) as substitutes for u/s.143(2). However, the ITAT disagreed, stating that the absence of a filed return meant no valid assessment under u/s.143(3) could be made. The ITAT held that a notice u/s.143(2) is mandatory for assessment, citing the Supreme Court's ruling in Assistant Commissioner of Income Tax Vs. M/s. Hotel Blue Moon, (2010) 321 ITR 362 (SC), where it was held that the notice is mandatory, and without it, the assessment is invalid. Thus, the ITAT quashed the assessment as it lacked legal basis.

Issue 2:
The second ground of appeal concerned the addition of Rs.24,00,000/- as income from other sources u/s.56 of the Income Tax Act, 1961. The Assessing Officer added this amount due to discrepancies in the property sale transaction. The CIT(Appeals) upheld this addition. However, the ITAT's decision to quash the assessment under Issue 1 rendered this addition moot. Consequently, the ITAT allowed the appeal based on the quashing of the assessment, thereby nullifying the addition of Rs.24,00,000/- as income from other sources.

In conclusion, the ITAT allowed the appeal, quashing the assessment due to the absence of a valid notice u/s.143(2) and thereby nullifying the addition of Rs.24,00,000/- as income from other sources.