2018 (10) TMI 2043 - AT - Income Tax

Validity of reassessment proceedings - notice u/s 143(2) was not issued - HELD THAT - When the law is very clear on the aspect of issuance of notice u/s 143(2) if the AO seeks not to accept any part of the return of income as furnished by the assessee or makes an assessment order contrary thereto and even in the course of re-assessment proceedings, such notices are required to be issued. This legal position has been clarified in Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT wherein it was held that if the AO, for any reason, repudiate the return of income filed by the assessee in response to the notice u/s 158BC(a) he must necessarily issue notice within the time prescribed proviso under section 143(2). The omission on the part of the Assessing Officer to issue notice u/s 143(2) cannot be a mere procedural irregularities and the same is not curable. Whether a curable defect u/s 292BB? - HELD THAT - As in the case of Oberoi 2018 (6) TMI 1472 - CALCUTTA HIGH COURT wherein it was held that issuance of notice under section 143(2) of the Act is mandatory, if the AO seeks not to accept any or part of the return of income as furnished by the assessee or makes an assessment order contrary thereto and even in the course of re-assessment proceedings, such notices cannot be dispensed with. Provisions of section 292BB must be understood to cure any defect in the service of the notice and not authorized to dispensation of notice. In this case, the authorities below have accepted the fact that no notice u/s 143(2) has been issued, therefore, we are of the considered view that the reassessment order passed 147 without issuance of notice u/s 143(2) of the Act is void ab initio. Decided in favour of assessee.

Summary

Issues Involved:

1. Confirmation of addition of Rs. 23,11,000 by the Assessing Officer.
2. Non-issuance of notice under section 143(2) in reassessment proceedings.
3. Consideration of merits of the case by the Commissioner (Appeals).

Detailed Analysis:

1. Confirmation of Addition of Rs. 23,11,000:

The primary issue in the appeal was the confirmation of an addition of Rs. 23,11,000 made by the Assessing Officer. The Assessing Officer had determined that the assessee made cash payments totaling Rs. 27 lakh for the purchase of agricultural land, of which Rs. 23,11,000 was treated as undisclosed income. The assessee contended that the payment was made from a gift received from his wife, but failed to provide adequate evidence for the full amount. The Commissioner (Appeals) upheld the addition, leading to the assessee's appeal.

2. Non-Issuance of Notice Under Section 143(2):

A significant procedural issue was the non-issuance of a notice under section 143(2) of the Income Tax Act, which the assessee argued was a fatal flaw in the reassessment proceedings. The Assessing Officer admitted in a remand report that such a notice was not issued. The Commissioner (Appeals) reasoned that since the assessee participated in the proceedings and did not initially object, the lack of notice did not invalidate the reassessment. However, the Tribunal found that the issuance of notice under section 143(2) is mandatory, as clarified by the Supreme Court in the Hotel Blue Moon case. The Tribunal concluded that the omission was not a mere procedural irregularity and could not be cured by section 292BB, thus rendering the reassessment order void ab initio.

3. Consideration of Merits:

The assessee also contended that the Commissioner (Appeals) failed to consider the merits of the case adequately. The Tribunal's decision focused primarily on the procedural lapse concerning the notice under section 143(2), which overshadowed the substantive examination of the merits. Consequently, the Tribunal did not delve deeply into the merits, as the procedural defect was sufficient to quash the reassessment order.

Conclusion:

The Tribunal allowed the appeal, quashing the reassessment order due to the non-issuance of the mandatory notice under section 143(2). The Tribunal emphasized the legal necessity of this notice in reassessment proceedings, aligning with the precedent set by the Supreme Court. The procedural lapse, coupled with the assessee's participation in the proceedings, did not suffice to cure the defect, leading to the appeal's success.