2008 (12) TMI 233 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the reopening of assessment without issuing notice u/s 143(2).
2. Validity of the assessment when the return was pending.
3. Justification of disallowance of interest.

Summary:

Validity of the reopening of assessment without issuing notice u/s 143(2):
The assessee contended that no notice u/s 143(2) was issued before making the assessment u/s 143(3) r/w s. 147, rendering the reassessment invalid. The Tribunal referred to the Special Bench decision in Raj Kumar Chawla vs. ITO, which held that the issue of notice u/s 143(2) within the prescribed time is mandatory in proceedings initiated u/s 147, and in its absence, the reassessment is null and void. The Tribunal rejected the Departmental Representative's argument that non-issue of notice u/s 143(2) was a mere procedural irregularity, citing the binding nature of the Special Bench decision.

Validity of the assessment when the return was pending:
The assessee argued that since the return was pending, the notice u/s 148 could not be issued. The Tribunal, relying on the Supreme Court's decision in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., clarified that an intimation u/s 143(1)(a) is not an assessment, and the AO retains the right to issue a notice u/s 148. The Tribunal thus rejected the assessee's contention.

Justification of disallowance of interest:
The assessee contended that the disallowance of interest was unjustified as the firm and partners constitute the same entity, and share income from the firm is not exempt from taxation. However, since the reassessment was held invalid due to the non-issue of notice u/s 143(2), the Tribunal did not address the merits of the addition, rendering this contention infructuous.

Conclusion:
The Tribunal quashed the reassessment made by the AO due to the invalidity arising from the non-issue of notice u/s 143(2), and allowed the appeal of the assessee.