2014 (3) TMI 584 - HC - Income Tax

Violation of mandatory requirement of serving notice u/s 143(2) - Whether the Tribunal erred in not setting aside the assessment order for the block period on the ground of violation of mandatory requirement of Sec. 143(2) of the Act Held that - In order to make assessment u/s 143(3) r.w.s 158 BC, notice should be issued under Section 143(2) and omission to issue such a notice is not a procedural irregularity and is not curable - the decision in Assistant Commissioner of Income-tax & another v. Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT OF INDIA followed - no notice was issued under Section 143 (2) of the Income Tax Act to the assessee thus, the order passed by the Tribunal is set aside Decided in favour of Assessee.

Summary

Issues:
Challenge to order passed by Income-tax Appellate Tribunal for block period assessment from 1.4.1985 to 15.9.1995. Allegation of violation of mandatory requirement of Sec. 143(2) of the Income Tax Act. Validity of block assessment order in absence of undisclosed income evidenced by seized material. Legality of sustaining estimate of undisclosed income when entire assessment is deemed illegal. Validity of order of the Appellate Tribunal being arbitrary and illegal.

Analysis:
The appeal challenges the order of the Income-tax Appellate Tribunal for block period assessment from 1.4.1985 to 15.9.1995. The assessee contended that the assessment should have been set aside due to the absence of a notice under Section 143(2) of the Income Tax Act. The Tribunal, however, did not accept this contention and only modified the order to a limited extent. The assessee presented information under the Right to Information Act, revealing that no notice under Section 143(2) was issued for the block period in question.

The substantial questions of law raised by the assessee included the failure of the Tribunal to set aside the assessment order for violating the mandatory requirement of Sec. 143(2), the invalidity of the block assessment order without evidence of undisclosed income, and the legality of sustaining the estimate of undisclosed income despite the overall assessment being deemed illegal and invalid. The Tribunal initially dismissed the issue of non-issuance of notice under Sec. 143(2) due to the elapsed time since the search, but the Department's confirmation that no such notice was issued altered the situation.

The Court analyzed the legal requirement of issuing a notice under Section 143(2) before making an assessment under Section 143(3) read with Section 158 BC. Referring to a relevant judgment, it emphasized that the omission to issue such a notice is not a procedural irregularity and is not curable. With the Department admitting the non-issuance of the required notice, the Court decided to set aside the orders passed by the Tribunal and the Assessing Officer, allowing the appeal in favor of the assessee. The judgment concluded by stating that the appeal was allowed, thereby overturning the decisions of the Tribunal and Assessing Officer.

In summary, the judgment addressed the issues related to the violation of mandatory notice requirements under the Income Tax Act, the validity of the block assessment order, and the legality of sustaining estimates of undisclosed income. It emphasized the importance of adhering to procedural requirements and concluded in favor of the assessee due to the non-issuance of a crucial notice under Section 143(2).