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2006 (12) TMI 169 - AT - Income TaxReopening of assessment u/s 147 - Non issuance of notice u/s 143(2) - procedural in nature - Income Escaping Assessment - amendment to section 148 by the Finance Act - retrospective effect - time-limit for completion of assessment - Whether the assessment framed without issuing the notice u/s 143(2) of the Act is a valid assessment? - HELD THAT - In the present case, admittedly, the notice u/s 148 was issued validly. The return was also deemed to have been filed by the assessee by virtue of letter dated 25-6-2001 wherein, it was stated that original return filed by him should be treated as filed in pursuance of notice u/s 148. We have already held that this amounted to filing of return in view of the case of Tiwari Kanhaiya Lal 1984 (5) TMI 15 - RAJASTHAN HIGH COURT . Therefore, it cannot be said that the assessment proceedings was not validly initiated and, therefore, on this ground, it cannot be said that assessment proceedings were void ab initio. Once the notice u/s 148 has been issued validly, the Assessing Officer is vested with the powers to assess or reassess u/s 147 of the Income-tax Act. Therefore, jurisdictional power for making reassessment is vested in the Assessing Officer by virtue of section 147 and, therefore, it cannot be said that the assessment order was without jurisdiction. The combined reading of all the judgments leads to the only one conclusion that the provisions of section 143(2) is only the procedural provisions though mandatory and does not give jurisdiction to assess and does not vest in the Assessing Officer to make the assessment. The real purpose behind provisions of section 143(2) is to provide an effective opportunity to the assessee to support and explain the return filed by him and the books of account maintained by him. This requirement is part of the natural justice, which has been incorporated in the Act. Noncompliance of the same may invalidate the assessment order but certainly it does not render the assessment without jurisdiction. Accordingly, we hold that non-compliance of provisions of section 143(2) in the present case does not render the assessment as null and void since valid jurisdiction was vested in the Assessing Officer by virtue of clear provisions of section 147/148 itself. This view of ours is also fortified by the recent judgment in the case of Areva T D India Ltd. v. Asstt. CIT 2006 (11) TMI 166 - MADRAS HIGH COURT . The facts of that case are similar to facts of the present case. In that case, it was held in that case that not issuing the notice u/s 143(2) and not considering the objections of the assessee for reopening were only irregularities and the matter was set aside to the Assessing Officer with a direction to consider the matter afresh, particularly the objection given by the assessee for reopening and to issue notice u/s 143(2) of the Act and after providing opportunity to the assessee of being heard. We feel that after this change regarding making the notice u/s 143(2) valid even if the same is issued after prescribed period of 12 months but before the expiry of time-limit for completion of assessment, the purpose of issuing notice is nothing but to provide natural justice to the assessee to enable him to explain his case before the Assessing Officer completes the assessment. In view of this, we are of the considered opinion that after this amendment in section 148, this Tribunal judgment rendered in the case of Raj Kumar Chawla 2005 (1) TMI 334 - ITAT DELHI-F is not valid in the present case because in the present case also, return is deemed to have been filed by the assessee in pursuance to notice u/s 148 issued during this period, i.e., during 1-10-1991 to 30-9-2005. Having held that the impugned assessment order is only irregular and not illegal, we feel that the correct course of action is to set aside the same and restore the matter to the Assessing Officer for framing a fresh assessment order after issuing notice u/s 143(2) to the assessee but we also feel that this whole exercise will be academic only and will not serve any real purpose because in the present case, although, no notice u/s 143(2) was issued but queries were raised by issuing notice u/s 142(1) and the assessee has participated in the assessment proceedings, has submitted his explanations and the Assessing Officer has considered the submissions made by the assessee. The issue of setting aside of assessment order in such a case merely to give a fresh notice to the assessee has been discussed elaborately by the Special Bench of Lucknow ITAT in the case of Nawal Kishore Sons Jewellers 2003 (8) TMI 194 - ITAT LUCKNOW . In this case, it has been held that if principles of natural justice have otherwise been met then setting aside the assessment order would be a futile exercise and in such a situation, the appellate authority should proceed to decide the case on merits. Thus, we do not set aside the assessment order but we want to make it clear that where proper opportunity was not provided to the assessee, the assessment order should be invariably set aside under these circumstances. Deduction on account of interest - HELD THAT - The sale of shares by the company is on behalf of those shareholders and it is at par with sale by the shareholders. Hence, the nature of income remains same, i.e., capital gains. Since, in the present case, it was offered by the assessee wrongly under the head 'Income from other sources', it cannot assume the character of 'Income from other sources' although the Assessing Officer accepts the same but still it cannot be held that the investment in shares is also for the purpose of earning 'Fraction Entitlement' taxable under the head 'Other sources'. We, therefore, reject this contention of the assessee also. We find force in this argument of the learned AR of the assessee and we direct the Assessing Officer that deduction should be allowed for interest expenses incurred during 1-4-1997 to 31-5-1997. He should quantify the amount of deduction allowable for these 2 months after providing adequate opportunity of being heard to the assessee. The issue is restored to him for allowing deduction on account of interest for this period of 2 months. Ground Nos. 1 to 3 are rejected and Ground No. 4 is partly allowed. In the result, this appeal of the assessee stands partly allowed.
Issues Involved:
1. Validity of the assessment order due to non-issuance of notice under section 143(2). 2. Disallowance of interest of Rs. 9,67,727. Detailed Analysis: 1. Validity of the Assessment Order Due to Non-Issuance of Notice Under Section 143(2): Facts and Submissions: - The assessee argued that the assessment order was invalid because no notice under section 143(2) was issued. - The assessee cited various judgments, including the Special Bench decision in Raj Kumar Chawla v. ITO, to support the claim that the absence of a notice under section 143(2) renders the assessment order null and void. - The revenue countered by citing judgments that non-issuance of notice under section 143(2) does not invalidate the assessment order. Tribunal's Findings: - The Tribunal acknowledged that the notice under section 143(2) was not issued, as confirmed by the CIT(A). - The Tribunal examined the provisions of section 143(2) before and after 1-4-1989 and noted that the amendment by the Finance Act, 2006, allows for the issuance of notice under section 143(2) before the completion of the assessment, even if it is beyond the 12-month period. - The Tribunal held that the real purpose of section 143(2) is to provide the assessee an opportunity to support the return, which was fulfilled through notices under section 142(1) and the assessee's participation in the proceedings. - The Tribunal concluded that the non-issuance of notice under section 143(2) is a procedural irregularity, not a jurisdictional defect, and does not render the assessment null and void. - The Tribunal decided not to set aside the assessment order as the principles of natural justice were met, and setting aside the order would be a futile exercise. 2. Disallowance of Interest of Rs. 9,67,727: Facts and Submissions: - The assessee claimed that the interest expenses were incurred for business purposes and should be allowed as a deduction. - The Assessing Officer disallowed the interest, arguing that the borrowed funds were used for personal withdrawals and investment in shares, not for business purposes. - The CIT(A) upheld the disallowance. Tribunal's Findings: - The Tribunal rejected the argument that section 14A could not be invoked in reassessment proceedings, as there was no mention of section 14A in the reasons for reopening the assessment. - The Tribunal also rejected the argument that the investment in shares was for earning taxable 'Fraction Entitlement' income, holding that such income should be classified under 'Capital gains' and not 'Income from other sources.' - The Tribunal accepted the argument that since dividend income was taxable up to 31-5-1997, interest expenses should be allowed as a deduction for the period from 1-4-1997 to 31-5-1997. - The Tribunal directed the Assessing Officer to quantify the allowable interest deduction for this period after providing the assessee an opportunity to be heard. Conclusion: - The appeal regarding the validity of the assessment order due to non-issuance of notice under section 143(2) was rejected. - The appeal regarding the disallowance of interest was partly allowed, with the Tribunal directing the Assessing Officer to allow the interest deduction for the period up to 31-5-1997. - Ground No. 5 was dismissed as not pressed. - The appeal of the assessee was partly allowed.
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