2025 (2) TMI 125 - AT - Income Tax

Non service of notice u/s 143(2) - statutory period to issue the notice - lack of proper notice and opportunity to the assessee - HELD THAT - The relevant A.Y. is 2012-13 and statutory period of six months from the end of the relevant A.Y. expires on 30.09.2013 and as per law valid notice u/s 143(2) supposed to issued on or before 30.09.2013 enabling the AO to proceed with the assessment u/s 143(3) of the Act. Second notice u/s 143(2) dated 07.01.2015 has no value in the eye of the law as having been issued after prescribed period for this purpose and so far notice u/s 143(2) is concerned it was returned undelivered by postal remarks wherein landlord informed that any company with this name does not exist on this address) which was sent to assessee s registered address on 26.09.2013 and thereafter and before dated 30.09.2013 no any other notice u/s 143(2) was issued or served as per law. As no steps were taken to serve the notice in even alternative mode and also assessee / appellant submitted affidavit containing facts of that effect before the Ld. AO in the assessment proceedings but the Ld. AO completed the assessment without disposing the objection regarding question of valid service. As no notice u/s 143(2) was duely served upon the assessee / appellant on or before 30.09.2013 hence requirement of law not been fulfilled. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the assessment order passed by the Assessing Officer (AO) is valid in the absence of a duly served notice under section 143(2) of the Income Tax Act, 1961.
Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in making additions to the trading results without rejecting the books of accounts.
Whether the assessment order is in violation of the principles of natural justice due to lack of proper notice and opportunity to the assessee.
Whether the CIT(A) erred in relying on the report of the inspector without confronting it to the appellant company.
Whether the Revenue's appeal regarding unexplained accumulated profit and Reserve & Surplus is maintainable.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Assessment Order due to Lack of Notice under Section 143(2)

Relevant Legal Framework and Precedents: Section 143(2) of the Income Tax Act mandates the issuance of a notice to the assessee for scrutiny assessment within six months from the end of the financial year. The Supreme Court in ACIT vs. Hotel Blue Moon established that the absence of such notice is not curable under section 292BB.
Court's Interpretation and Reasoning: The Tribunal emphasized that the issuance and service of notice under section 143(2) is a jurisdictional requirement. The Tribunal relied on precedents like Lunar Diamonds Ltd., which shifted the burden of proof to the Revenue once the assessee filed an affidavit denying receipt of notice.
Key Evidence and Findings: The notice dated 23.09.2013 was returned unserved with remarks indicating the non-existence of the company at the address. The Revenue failed to take alternative steps to serve the notice.
Application of Law to Facts: The Tribunal found that no valid notice was served by 30.09.2013, rendering the assessment order void.
Treatment of Competing Arguments: The Revenue's reliance on the presumption of service under the General Clauses Act was rejected due to lack of evidence.
Conclusions: The assessment order was quashed due to lack of jurisdiction stemming from the non-service of notice under section 143(2).

2. Additions to Trading Results Without Rejecting Books of Accounts

Relevant Legal Framework and Precedents: Additions to income require a basis in the rejection of books of accounts as per standard accounting and tax principles.
Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) made additions without identifying defects in the books of accounts, which is procedurally incorrect.
Key Evidence and Findings: The assessee provided comprehensive documentation, including sales details and confirmations, which were overlooked.
Application of Law to Facts: The Tribunal found that the CIT(A) acted on presumptions without a substantive basis for rejecting the books.
Treatment of Competing Arguments: The Tribunal did not delve into this issue further due to the quashing of the assessment order.
Conclusions: The Tribunal did not make a final determination on this issue due to the quashing of the assessment order.

3. Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: Principles of natural justice require adequate notice and opportunity to be heard.
Court's Interpretation and Reasoning: The Tribunal noted procedural lapses in the issuance of notices and opportunity to the assessee.
Key Evidence and Findings: Lack of proper notice and opportunity was evident from the records.
Application of Law to Facts: The Tribunal highlighted that the procedural deficiencies contributed to the invalidity of the assessment order.
Treatment of Competing Arguments: The Tribunal focused on the jurisdictional issue, rendering this point moot.
Conclusions: The violation of natural justice principles was acknowledged but not separately adjudicated due to the primary jurisdictional issue.

4. Reliance on Inspector's Report Without Confrontation

Relevant Legal Framework and Precedents: Reliance on external reports requires confrontation with the assessee.
Court's Interpretation and Reasoning: The Tribunal did not specifically address this issue due to the quashing of the assessment order.
Key Evidence and Findings: The issue was noted but not elaborated upon.
Application of Law to Facts: The Tribunal's decision on jurisdiction rendered this point secondary.
Treatment of Competing Arguments: Not specifically addressed.
Conclusions: The Tribunal did not make a separate determination on this issue.

5. Revenue's Appeal on Unexplained Accumulated Profit and Reserve & Surplus

Relevant Legal Framework and Precedents: The Revenue's burden is to substantiate claims of unexplained income or reserves.
Court's Interpretation and Reasoning: The Tribunal did not address this issue due to the quashing of the assessment order.
Key Evidence and Findings: The Revenue's claims were not substantiated in light of the jurisdictional defect.
Application of Law to Facts: The Tribunal's decision on the primary issue precluded further analysis.
Treatment of Competing Arguments: Not specifically addressed due to the quashing of the assessment order.
Conclusions: The Revenue's appeal was dismissed as moot.

SIGNIFICANT HOLDINGS

Core Principles Established: The necessity of serving a notice under section 143(2) within the statutory period is a jurisdictional requirement that cannot be bypassed.
Final Determinations on Each Issue: The Tribunal quashed the assessment order due to lack of jurisdiction stemming from non-service of notice under section 143(2). Other issues were not adjudicated due to this primary finding.
Verbatim Quotes of Crucial Legal Reasoning: "No notice u/s 143(2) was duly served upon the assessee/appellant on or before 30.09.2013, hence requirement of law not been fulfilled... the Ld. AO was not having jurisdiction to make assessment and consequently impugned assessment order passed lacking jurisdiction liable to be quashed."

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