Whether Notice u/s 143(2)is a Preliminary Requirement for Valid Assessments u/s 153A/153C or 147?

[ROHIT KAPOOR]

This article endeavours to the interpret compulsory issue of notice under section 143(2) in case of“Section 153A- Assessment  in case of search and requisition”/“Section 153C Assessment of income of other person”or where assessment is framed “under section-147 Income escaping assessment”of the Income Tax Act, 1961. It has forever been a conflict as to how the sectionmust be interpreted, in order to decide whether the procedure of regular assessment i.e. issuing notice under section 143(2)has to be followed in the proceeding under section 153A or under section 147. This article tries to decode the mixed opinions of the court with regard to whether it is the compulsory to issue notice U/s 143(2) before completing an assessment under section 153A or under section 147. The author, based on thorough analysis of Section 153A and Section 147 and keeping in view the language of the both the section and the interpretations attached to it by the judiciary, have tried to resolve the conflict.

I. Introduction

This research paper mainly discusses the various interpretations given by the Courts with respect to issue of notice under section 143(2) in case where assessment is completed under section 153A or under section 147 of the Income Tax Act,1961 (hereinafter referred to as Act). Further, it talks about the importance of a notice being issued to the assessee when any assessments are to be made, with the purpose of finalizing the assessment or otherwise. Thus, the provisions should be read as a “whole” and as such they exist, and there is no necessity of reading them down or providing casus omissus. Where the search is conducted, there is a mandate on the Assessing Officer (A.O) to issue notice calling for return of all six/extended period commencing from assessment years preceding the current assessment year in which search was executed. Thereafter, the first proviso casts a duty on him to assess or reassess the total income in respect of each assessment year. Whereas, Reassessment under section 147 is another distinguished weapon which empowers the Assessing Officer to assess, reassess or recompute income which has escaped assessment.

II     Issue of notice under section 143(2) is not compulsory where assessment is completed under section 153A/153C

1. Every clause of a section should be construed with reference to the context and other clauses thereof, so that, the construction to be put on a particular provision makes a consistent enactment of the whole statue. The section 153A starts with non obstante clause and it pertinent to mention that section 139 is one of the sections which is covered in the notwithstanding clause. The notice under section 143(2) is required to be issued when return has been furnished under section 139 or in response to notice under section 142(1). In the case of section 153A, the section 139 has specifically been kept aside.The words "so far as may be" in clause (a) of sub section (1) of Section 153A could not be interpreted that the issue of notice under Section 143(2) was mandatory in case of assessment under Section 153A. The use of the words, "so far as may be" cannot be stretched to the extent of mandatory issue of notice under Section 143(2). It is noted, a specific notice is required to be issued under Clause (a) of sub-section (1) of Section 153A calling upon the persons searched or requisitioned to file return. That being so, notice under Section 143(2) could not be contemplated compulsory for assessment under Section 153A. The same view has been affirmed by various court¹

¹Ashok Chaddha v. ITO (2011 (7) TMI 252) (Para No.7).

¹Tarsem Singla v. DCIT, Central Circle-III, Ludhiana  [2016] (7) TMI 703 (P & H) (par 9).

¹Roshan Lal Verma v. DCIT, Central Circle-II, Faridabad [2018] (6) TMI 1462 – ITAT DELHI (par 9).

1.1       However in view of the decision of the Honourable Supreme Court in case of ASSISTANT COMMISSIONER OF INCOME TAX & ANR. VERSUS M/S. HOTEL BLUE MOON [2010 (2) TMI 1 - SUPREME COURT] has held that omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with.It is to be noted that the above said judgment was in the context of Section 158BC. Clause (b) of Section 158BC expressly provides that "the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of Section 142, sub sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply. The law laid down in Hotel Blue Moon, is thus not applicable to the facts of the present situation of 153A and 153C.This decision has been followed by various tribunals and courts and has decided the matter in the favour of assessee. But the decision as given by the Apex courts only applicable in the context of section 158BC and not in the context of section 153A and 153C. Therefore, the said issue is highly debatable, and it is not correct to rely straightway upon the decisions as given by some courts that the notice u/s 143(2) is necessary for proceedings u/s 153A/153C.²

²(2010 (2) TMI 1)-SUPREME COURT OF INDIA- ASSISTANT COMMISSIONER OF INCOME TAX & ANR. VERSUS M/S. HOTEL BLUE MOON

²[2010](1) TMI 1184 - ITAT INDORE M/S. S.K. JAIN, SMT. REKHA JAIN and others

²[2010] (2) TMI 690 - ITAT, INDORE DCIT, CIRCLE 1 (1) , UJJAIN V/S SUSHIL KUMAR JAIN

²YOGESHWAR GOEL (ITAT Delhi)

²2010 (1) TMI 653 - ITAT, INDORE- ACIT VERSUS GM INFRASTRUCTURE

1.2       The provisions of section 143(2) of the Act did not give option to make an assessment under Section 143(3) but make it obligatory to comply with these provisions before making assessment under section 143(3) or section 144 as the case may be. However, the assessment of the “search year” has to be completed u/s 143(3) or u/s 144, and issue of notice u/s 143(2) is mandatory for that year. The same view has been purported by many courts.³ It is important to note that non issuance of notice is not a curable defect by following the provisions of section 292BB.⁴

³ 2017 (8) TMI 80 - ALLAHABAD HIGH COURT - COMMISSIONER OF INCOME TAX (CENTRAL) KANPUR VERSUS SRI MOINS IQBAL, SRI SIRAJ IQBAL

³2012 (8) TMI 1053 - ITAT PUNE- AKBANI SALIM ABDUL GAFFAR v. DCIT, CENTRAL CIRCLE, KOLHAPUR

⁴ 2019 (8) TMI 660 - SUPREME COURT CIT v. Laxman Das Khandelwal.

Conclusion

The issue whether notice u/s 143(2) is mandatory in case of six years or extended period as per section 153A/153C is highly debatable. But as per the author opinion and keeping in view the above analysis, it can be concluded that issuing of notice under section 143(2) is not mandatory requirement for the years for which notice under section 153A/153C was issued and even in case of situation covered u/s 153C(2). The use of the words, "so far as may be" cannot be stretched to the extent of mandatory issue of notice under Section 143(2). Therefore, notice under Section 143(2) could be not be contemplated compulsory for assessments to be made under Section 153A/153C.

3. Whether Issue of notice under section 143(2) is compulsory where assessment is made under section 147 ?.

1. There has been always litigation on the issue that whether the notice u/s 143(2) is compulsory where the assessment has been framed u/s 147 in response to the return filed u/s 148. The notice u/s 148 requires an assessee to file the return within the stipulated period as mentioned in the notice. It is evident that section 148 specifically provides that all the provisions of Act shall be applicable in respect of return of income u/s 148 as if the same was return furnished u/s 139. But by only taking this argument, the litigation will notstop.It is therefore necessary to go to the roots of the section to decide this issue. In this regard, kind attention is required to be drawn towards first and second provisos to section 148 that providesthetime limit for issuance of notice u/s 143(2) on the basis of date of filing return of income u/s 148. The said amendment was made as many courts have held that assessment under section 147 is invalid⁵ if the notice under section 143(2) is not served within 12 months from the end of the month in which return under section 148 was filed. To cure such defect, the law has been amended retrospectively. Two new provisos to sub-section (1) have been inserted retrospectively with effect from 1-10-1991. As per the said amendment, all the notices which were issued after the period as mentioned in section 143(2) shall be deemed to be valid notice. Further, an explanation has been inserted, with effect from 1-10-2005 in section 148(1) so as to clarify that the provisions of the aforesaid provisos shall not apply in relation to any return which has been furnished on or after 1-10-2005 in response to a notice served under section 148(1).

⁵RAJ KUMAR CHAWLA. VERSUS INCOME-TAX OFFICER 2005 (1) TMI 334 - ITAT DELHI-F

1.1          Thus, so far as returns furnished on or after 1-10-2005 are concerned, the pre-amendment law will apply and the notices will have to be served within a period of 12/6 months specified in section 143(2).Thus, it isnot discretionary rather mandatory for an assessing officer to issue notice u/s 143(2) once thereturn of income is filed by assessee. The only relaxation in the case of re assessment is that notice u/s 143(2) can be issued at any time before the expiry of time limit for completing assessment/ reassessment and the same would be deemed as valid notice.

1.2          Therefore, the completion of the assessment/reassessment proceedings without issue of notice u/s 143(2) will make the whole assessment without jurisdiction. The department cannot take shelter by applying provisions of section 292BB that the assessee has participated in the proceedings and therefore assessment/reassessment made u/s 147 without issue of notice u/s 143(2) will be valid. The same position has been cleared by recent judgement by the Apex Court in the case of 2019 (8) TMI 660 - SUPREME COURT CIT v. Laxman Das Khandelwal that complete absence of notice under section 143(2) is not a curable defect by under section 292BB. The notice u/s 143(2) must have emanated from department and it is only infirmities in manner of service of notice that section seeks to cure and it is not intended to cure complete absence of notice itself.

1.3    Conclusion: -

Keeping in view the above analysis, it can be concluded that issue of notice under section 143(2) is mandatory requirement before completion of assessment u/s 147. Thus, it is not discretionary rather mandatory for an assessing officer to issue notice u/s 143(2) once the return of income is filed by assessee in response to the notice u/s 148.The failure to issue notice is not a curable defect and will make whole assessment/reassessment invalid. Therefore, requirement of issue notice u/s 143(2) cannot be dispensed with in case of assessment/reassessment framed under section 147. The same gets support from the decisions of various courts.⁶

⁶ 2016 (11) TMI 76 - KERALA HIGH COURT- M/S. TRAVANCORE DIAGNOSTICS (P) LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM

⁶ 2015 (10) TMI 1765 - DELHI HIGH COURT - PR. COMMISSIONER OF INCOME TAX-08 VERSUS SHRI JAI SHIV SHANKAR TRADERS PVT. LTD.

⁶ 2010 (5) TMI 600 - ALLAHABAD HIGH COURT - COMMISSIONER OF INCOME TAX-II LUCKNOW VERSUS RAJEEV SHARMA, LUCKNOW

⁶ 2012 (8) TMI 523 - MADRAS HIGH COURT - M/S SAPTHAGIRI FINANCE & INVESTMENTS VERSUS THE INCOME TAX OFFICER, KANDHIPURAM

⁶ 2019 (7) TMI 751 - GUJARAT HIGH COURT - PRINCIPAL COMMISSIONER OF INCOME TAX VERSUS JIGNESH BHAGWANDAS PATEL

⁶[2018] (11) TMI 874 - RAJASTHAN HGH COURT- PR COMMISSIONER OF INCOME TAX, JAIPUR-III, JAIPUR VERSUS KAMLA DEVI SHARMA W/O SHRI KAILASH CHAND SHARMA

(Author can be reached at [email protected])