2001 (3) TMI 281 - AT - Income Tax

Summary

Issues Involved:
1. Validity of assessment proceedings under section 148.
2. Whether defects in the notice under section 148 can be cured by invoking the provisions of section 292B.

Issue 1: Validity of Assessment Proceedings under Section 148

The assessment proceedings under section 147 were initiated by issuing a notice under section 148 on 6-12-1989 in the names of "Smt. Sumanbai Waman Chaudhary & Smt. Sushilabai V. Wagh & others" without specifying the status of the assessee. The assessment was completed considering the status of the assessee as an "AOP" (Association of Persons), which was challenged before the CIT(A). The CIT(A) observed that the assessment was made in the names of Smt. S.W. Chaudhary and Smt. S.V. Wagh & others, but the "others" were not identified by the Assessing Officer, nor were notices issued to such persons. The CIT(A) set aside the assessment to the file of the Assessing Officer for fresh adjudication to determine whether the activity was carried on as an AOP or otherwise.

Upon fresh enquiries, the Assessing Officer determined that the income was earned by the two ladies, Smt. Sumanbai Waman Chaudhary and Smt. Sushilabai V. Wagh, and completed the assessment in their names in the status of 'AOP' without issuing any fresh notice of reassessment. This reassessment was challenged again, and the Tribunal held that the notice issued by the Assessing Officer was invalid and consequently, the entire proceedings were void ab initio, referencing Supreme Court decisions in Y. Narayana Chetty v. ITO and CIT v. Thayaballi Mulla Jeevaji Kapasi.

Issue 2: Applicability of Section 292B to Cure Defects in Notice

The revenue filed a miscellaneous application under section 254(2), arguing that the provisions of section 292B should apply to cure the defects in the notice. The Tribunal recalled the earlier order to give the department an opportunity to argue on this aspect. The department contended that the notice was issued to the AOP comprising the two ladies and that the word 'others' was added as a measure of abundant caution, which should be considered a technical defect under section 292B. They cited several decisions to support their argument.

The assessee's counsel argued that section 292B covers only procedural defects and not defects that go to the root of the matter, such as the assumption of jurisdiction. They pointed out that the Assessing Officer had initially understood the AOP to consist of more than two persons, as evidenced by various documents and communications. They argued that if the Assessing Officer concluded that the AOP consisted of only two ladies, fresh proceedings should have been initiated. They also highlighted that the approval of the D.C.I.T. was not obtained before issuing the notice under section 148, as required by section 151(1), making the notice invalid.

The Tribunal examined section 292B, noting that it applies only if the notice is in substance and effect in conformity with or according to the intent and purpose of the Act. They concluded that a notice with vital defects that go to the root of the matter cannot be saved by section 292B. The Tribunal cited various legal precedents, including the Bombay High Court in CIT v. Ramsukh Motilal and the Supreme Court in CIT v. Kurban Hussain Ibrahimji Mithiborwala, to support their conclusion that a valid notice under section 148 is a condition precedent for assuming jurisdiction under section 147.

The Tribunal found that the notice issued in the name of "Smt. Sumanbai Waman Chaudhary and Smt. Sushilabai V. Wagh & others" without specifying the status of the assessee was invalid. They noted that the notice did not indicate whether the entity was a partnership firm, an AOP, a body of individuals, or a proprietary concern. Even assuming the notice was issued to an AOP, it suggested more than two persons, while the assessment was made on an AOP of two ladies only, without issuing a fresh notice. Additionally, the Tribunal noted that the approval of the D.C.I.T. was not obtained before issuing the notice, further invalidating it.

In conclusion, the Tribunal held that the defects in the notice were vital and could not be cured by section 292B, rendering the entire proceedings null and void. The appeal of the assessee was allowed.