2024 (10) TMI 473 - AT - Income Tax

Validity of reassessment w/o issuance of a valid notice u/s. 143(2) - Whether curable defect? - non-deduction of TDS on payment of labour charges to sub-contractor namely, supervisor or Munshis - Addition u/s. 40(a)(ia) - HELD THAT - We are of the view that the issuance of a valid notice u/s. 143(2) is a sine-qua-non for framing of a valid assessment is no more res-integra in light of the judgments of Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT and Laxman Das Khandelwal 2019 (8) TMI 660 - SUPREME COURT We find that the Hon ble Apex Court in the case of Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT had quashed the assessment in absence of a notice u/s. 143(2) of the Act having been issued by the AO. We find in the case of Pr. CIT Vs. S.G Portfolio (P). Ltd. 2023 (4) TMI 635 - DELHI HIGH COURT had recently held that where the assessee company had communicated to A.O that its original return be treated as a return filed in response to notice issued u/s. 148 of the Act, the A.O was required to issue notice u/s. 143(2) of the Act and further proceed in the matter. We are unable to persuade ourselves to subscribe to the conations of the revenue to cover the issue under the scope of section 292BB, thus, in present case the assessment framed by the A.O u/s. 147 dehors valid assumption of jurisdiction on account of non-issuance of notice u/s 143(2) cannot sustain, thus is liable to be quashed and we do so. Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of reassessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Applicability of Section 40(a)(ia) related to non-deduction of TDS on labor charges.
3. Requirement of notice under Section 143(2) for a valid assessment.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:

The reassessment proceedings were challenged on the grounds of lack of satisfaction or bona fide belief regarding the escapement of income as required under Section 147 of the Income-tax Act, 1961. The approval granted under Section 151 was argued to be mechanical and without application of mind. The tribunal examined the reasons recorded by the Assessing Officer (A.O) and found that the reasons contained a mere narration of facts and recitation of statutory language, without indicating satisfaction about the escapement of income. The tribunal, referencing the decision in ITO Vs. Bishambar Dayal Agrawal, concluded that the initiation of reassessment proceedings was illegal and without jurisdiction, warranting the quashing of the assessment order.

2. Applicability of Section 40(a)(ia) Related to Non-deduction of TDS on Labor Charges:

The revenue appealed against the deletion of disallowance of Rs. 58,50,226/- under Section 40(a)(ia) for non-deduction of TDS on payments to sub-contractors. The Commissioner of Income-Tax (Appeals) had earlier allowed the assessee's appeal on this issue. However, since the tribunal quashed the reassessment proceedings due to procedural lapses, it refrained from addressing the merits of this issue. Therefore, the tribunal did not make a determination on the applicability of Section 40(a)(ia) in this specific case.

3. Requirement of Notice under Section 143(2) for a Valid Assessment:

The tribunal emphasized that the issuance of a valid notice under Section 143(2) is a sine qua non for the framing of a valid assessment, as established by the Hon'ble Supreme Court in cases such as ACIT & Anr. Vs. Hotel Blue Moon and CIT Vs. Laxman Das Khandelwal. It was noted that no notice under Section 143(2) was issued in the present case, rendering the assessment invalid. The tribunal cited the decision in Pr. CIT Vs. S.G Portfolio (P). Ltd., which reiterated the necessity of issuing a notice under Section 143(2) when an original return is treated as a return in response to a notice under Section 148. The tribunal rejected the revenue's contention to cover the issue under Section 292BB, affirming that the absence of a Section 143(2) notice invalidated the assessment.

Conclusion:

The tribunal quashed the assessment framed by the A.O under Section 147, dated 27.05.2014, due to the absence of a valid notice under Section 143(2), and thus dismissed the revenue's appeal. The tribunal did not address the merits of the case regarding the disallowance under Section 40(a)(ia) due to the procedural invalidity of the assessment. The order was pronounced in open court on 30th September 2024.