CONDITION PRECEDENT FOR ASSESSMENT UNDER SECTION 143(3) OF INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Under Section 143(2)(ii) of the Income Tax Act, 1961 (‘Act’ for brevity) the Assessing Officer is required to serve, on the assessee, a notice requiring him to attend the office or to produce evidence on which the assessee may rely in support of the return, if the Assessing Officer considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in many manner.   The proviso to this section provides that no notice shall be served after the expiry of six months from the end of the financial year in which the return is furnished.  Service on the assessee of a notice within the period prescribed by the proviso presupposes the issuance of a notice for, it is only when a notice is issued, that it can be served.   Thereafter Section 143(3) of the Act stipulate that on the date specified in the notice, the Assessing Officer shall, after hearing the evidence as the assessee may produce and considering such other evidence as he may require and upon taking into account all relevant material, by an order in writing make an assessment of the total income or loss of the assessee.

In ‘Assistant Commissioner of Income Tax V. Hotel Blue Moon’- [2010 (2) TMI 1 - SUPREME COURT OF INDIA] the Supreme Court held that omission on the part of the Assessing Officer to issue a notice is a not a procedural irregularity and is incurable and therefore the requirement of notice under Section 143(2) of the Act canoe be dispensed with.

In ‘Assistant Commissioner of Income Tax V. Greater Noida Industrial Development Authority’ –[ 2015 (8) TMI 620 - ALLAHABAD HIGH COURT] a group of appeals under Section 260A have been filed for the assessment years 2006 – 07 to2011-12.  The Revenue initiated proceedings against the assessee under Sections 147, 148 of the Income Tax Act, 1961 after getting the approval of Joint Commissioner under Section 151 (2) of the Act.  The assessee filed a return declaring income which was claimed as exemption under Section 10(20) of the Act.  The Assessing Officer held that the assessee was not a local authority and hence exemption under Section 10(20) of the Act will not applicable to the assessee and confirmed the amount.

The assessee filed an appeal before the Commissioner of Income Tax (Appeals) who dismissed the appeal confirming the order of the Assessing Officer.  The assessee filed a second appeal before the Tribunal against the order of Commissioner (Appeals) contending that the order of Assessing Officer is void ab initio inasmuch as no mandatory notice under Section 143 (2) of the Act was issued at any stage of the assessment proceedings.

The Tribunal allowed the appeal of the assessee holding that the Assessing Officer had wrongly passed a reassessment order for all the assessment years.   The mandatory requirement of issuance of a notice under Section 143 (2) was not followed and it was incurable and the defect in the assumption of jurisdiction by the Assessing Officer could not be cured by taking recourse to deeming fiction under Section 292BB of the Act.    The Tribunal further held that the Department failed to produce the original records of the assessment proceedings despite time being granted.

Against this order the Revenue filed appeal before the High Court.  The Revenue contended the following before the High Court:

• Adequate opportunity was not given to the Department by the Tribunal to produce the original assessment records and had a proper opportunity being given, the Department would not only produced the record but would have satisfied the Tribunal that a notice under Section 143 (2) of the Act was issued to the assessee;
• The requirement of issuance of notice under Section 143 (2) was not a mandatory requirement as no format has been provided under the Act or the Rules for the issuance of notice;
• The assessee participated in the reassessment proceedings and, therefore, could not assert at the stage of the Tribunal that notice was not served under Section143(2) of the Act;
• In view of Section 292B of the Act, the assessee, after having participated in the proceedings could not contend that the reassessment proceedings were a nullity on the ground that the notice was not served.

The High Court directed the Department to produce the original assessment records as well as the order sheet of the Tribunal.   A supplementary affidavit was filed by the Department to show that on the basis of the order-sheet of the Tribunal, adequate opportunity was not given and the order-sheet was silent on the question of production of original records.  Even though it was not specifically mentioned in the order-sheet the notice and questionnaire was available in the assessment record.

The High Court found, on analyzing the provisions of Section 143 (2), that it is apparently clearly that the jurisdiction of the Assessing Officer to make an assessment under Section 143(3)(ii) of the Act is based on the issuance of a notice under Section 143 (2)(ii) of the Act.  The proviso to this section clearly stipulates that a notice must be served on the assessee. The High Court directed the Department to show the notice issued by the Department from the original assessment records.  The notice accompanied is being issued under Section 142(1) of the Act.   The High Court was of the opinion that from perusal of the original assessment order no notice under Section 143(2) of the Act was ever issued.

The High Court then  considered the submission of the Department that the assessee had participated in reassessment proceedings and therefore cannot asset that the notice was served in view of Section 292 BB of the Act.  The High Court held that the argument of the Department is patently erroneous.   Section 292 BB of the Act was inserted with effect from 01.04.2008.  It provides a deeming fiction which is to the effect that once the assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under the provisions of the Act, which is required to be served on the assessee has been duly served upon him in accordance with the provisions of the Act.  The assessee is precluded from taking any objection in any proceeding or inquiry that the notice was-

• not served upon him; or
• not served upon him in time; or
• served upon him in an improper manner.

The proviso to this section provides that the section shall not apply where the assessee had raised an objection before the completion of the assessment or reassessment.  The High Court observed that Section 292BB of the Act cannot obviate the requirement of complying with a jurisdictional condition.  The High Court held that for the assessing officer to make an order of assessment under Section 143(3) of the Act, it is necessary to issue a notice under Section 143(2) of the Act and in the absence of a notice under Section 143 (2) of the Act, the assumption of jurisdiction itself would be invalid.

The High Court was of the opinion that since Section 292BB was inserted with effect from 01.04.2008 it is not applicable to the proceedings for the assessment year 2006 – 07 to 2008 – 09.  The High Court was also of the opinion that Section 292BB was also not applicable for the remaining assessment years.   The concept of deeming fiction under Section 292BB will not be applicable to the present case since the notice was not issued under Section 143(2)(ii) of the Act in time.

The High Court lastly considered the contention of the Department that adequate opportunity was not given to the appellant before the Tribunal and held that it now becomes redundant in view of the specific findings given by the High Court on the issuance of the notice under Section 143 (2) of the Act.  The High Court further indicated that the appellant Department was not fair to the Court in alleging that no proper opportunity to produce the original documents.   There is no affidavit of the Departmental representative who had appeared before the Tribunal to state an oath that the observations made by the Tribunal with regard to the production of the original records at the stage of hearing of the stay application and thereafter was perverse.

The High Court dismissed the appeal since there is no substantial question of law.