2023 (3) TMI 208 - AT - Income Tax

Validity of reopening of assessment - Issue of notice where income has escaped assessment - Necessity to issue notice u/s 143(2) - Whether the issue of notice under section 143(2) of Act was mandatory to frame assessment under section 143(3) r.w.s. 147 - HELD THAT - AO was under the obligation to issue a notice under section 143(2) of the Act for making the assessment or reassessment as the case may be. In case AO has not done so, the order framed under section 143(3) read with section 147 of the Act becomes invalid. Whether the notice under section 143(2) issued beyond the statutory time limit provided under the Act can be held invalid or the provisions of section 292BB of the Act come to rescue the revenue? - Assessee had filed return of income dated 24th October 2015. To carry out the assessment of such return, the AO was required to issue notice under section 143(2) of the Act on or before 30th September 2016 i.e. 6 months from 31st March 2016. However, the notice was issued dated 07th December 2016. Thus, in our considered opinion, the notice issued after the prescribed time limit is not valid for the reason that the AO has no power to issue such notice after expiry of 6 months from the end of financial year in which return has been field. Therefore, any assessment made based on notice which itself is not valid will also become void ab initio. In holding so we also draw support and guidance from the judgment of Hon ble Gujarat High Court in case of DCIT vs. Mahi Valley Hotels Resorts 2005 (8) TMI 84 - GUJARAT HIGH COURT . The provision of section 292BB of the Act does not deal about the issuance of notice. In the present case, the issue is whether the assessment framed under section 147/143(3) of the Act is valid in a situation where the mandatory notice under section 143(2) of the Act was issued beyond statutory time limit prescribed. Accordingly, we hold that, the provision of section 292BB of the Act does not extend any benefit to the Revenue. We conclude that there was not issued the valid statutory notice under section 143(2) of the Act within the prescribed time. The Ld. DR has also not brought anything on record contrary to the arguments advanced by the Ld. AR for the assessee. Thus in the absence of the valid statutory notice, the assessment framed under section 143(3)/147 of the Act is not sustainable. Hence, the ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Validity of the assessment order under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961.
2. Issuance of notice under Section 143(2) beyond the statutory time limit.
3. Applicability of Section 292BB of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Assessment Order:
The appeals were filed by the assessee challenging the validity of the assessment order passed under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961. The primary contention was that the notice under Section 143(2) was issued beyond the statutory time limit. The assessee argued that this delay rendered the assessment order invalid. The Tribunal noted that the issue raised was legal in nature and went to the root of the matter, thereby allowing the additional ground of appeal.

2. Issuance of Notice under Section 143(2):
The assessee contended that the notice under Section 143(2) was issued on 07-12-2016, which was beyond the statutory time limit of six months from the end of the financial year in which the return was furnished (i.e., by 30th September 2016). The Tribunal referred to various judicial precedents, including the Hon'ble Supreme Court's decision in National Thermal Power Co. Ltd. vs. CIT, which emphasized that procedural provisions for making the assessment under Section 143(3) must be followed. The Tribunal concluded that the issuance of notice under Section 143(2) within the prescribed time limit is mandatory, and failure to do so renders the assessment order invalid.

3. Applicability of Section 292BB:
The Revenue argued that the defect in the issuance of notice could be cured under Section 292BB of the Act, which deals with the service of notice. However, the Tribunal clarified that Section 292BB applies to issues related to the service of notice and not to the issuance of notice itself. The Tribunal cited the judgment of the Hon'ble Gujarat High Court in PCIT v/s Marck Biosciences Ltd., which held that the non-issuance of a notice under Section 143(2) is not a procedural irregularity and cannot be cured under Section 292BB. Consequently, the Tribunal held that the provisions of Section 292BB did not extend any benefit to the Revenue in this case.

Conclusion:
The Tribunal concluded that the assessment framed under Section 143(3) r.w.s. 147 of the Act was invalid due to the failure to issue a valid statutory notice under Section 143(2) within the prescribed time limit. As a result, the Tribunal quashed the assessment order. Given this conclusion, the Tribunal refrained from adjudicating other issues raised by the assessee on merit and dismissed them as infructuous.

Judgment:
The appeals filed by the assessee were partly allowed, and the assessment orders were quashed. The order was pronounced in the Court on 01/03/2023 at Ahmedabad.