2015 (2) TMI 776 - HC - Income Tax

Reopening of assessment - validity of notice - first and second notice returned as un-served with the report that the assessee had gone out for the medical treatment - third notice was issued after expiry of period of limitation - Curable defect u/s 292B - Notice admittedly remained un-served on the appellant while the entire proceedings were carried out by assuming jurisdiction on the basis of Notice u/s 17.06.2005, which admittedly was issued beyond the period of limitation - bogus entries of sale proceeds of shares - Held that - The remand report of the Assessing Officer makes it apparently clear that three different notices under Section 148 of the Act were issued on 24.03.2005, 28.03.2005 and 17.06.2005. The first notice dated 24.03.2005 was an invalid notice because no reasons to believe were recorded nor sanction order was obtained by the Assessing Officer. The second notice dated 28.03.2005 was a valid notice but came back unserved and this notice was dropped and no further action was taken on this notice. The third notice, which was issued on 17.06.2005 was issued after the period of limitation and, consequently, was an invalid notice. The Assessing Officer assumes jurisdiction under Section 148 of the Act only upon issuance of a valid notice. Since the notice dated 17.06.2005 was an invalid notice, the assessment order cannot be sustained. Reliance by the Tribunal that the notice dated 17.6.2005 was in fact a notice dated 28.3.2005, which was a curable defect under Section 292B is totally misplaced. Section 292B has no application in the instant case. The notice dated 17.6.2005 could not be treated as a notice dated 28.3.2005 or a notice in continuation of the notice dated 28.3.2005. Thus assessment order passed by the Assessing Officer under Sections 147 and 148 of the Act are quashed. - Decided in favour of the assessee.

Issues Involved:
1. Validity of reassessment proceedings based on unserved notice dated 28.03.2005.
2. Effect of issuing a second notice dated 17.06.2005 beyond the period of limitation.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings Based on Unserved Notice Dated 28.03.2005:

The appellant filed a return of income for the assessment year 1998-99. The assessing authority received information about bogus entries of sale proceeds of shares involving the appellant. Consequently, a notice dated 24.03.2005 under Section 148 of the Income Tax Act, 1961 was issued, which was returned unserved. The assessing authority recorded reasons to believe that income had escaped assessment and issued another notice dated 28.03.2005, which also came back unserved. A subsequent notice dated 17.06.2005 was served on the appellant on 29.06.2005.

The High Court examined the procedural requirements under Sections 147, 148, 149, and 151 of the Act, emphasizing that the issuance of a notice is a substantive requirement, while the service of notice is procedural. The Supreme Court in R.K. Upadhyaya Vs. Shanabhai P. Patel clarified that jurisdiction is conferred upon the assessing officer when a notice is issued within the period of limitation, not necessarily when it is served.

The court found that the notice dated 28.03.2005 was issued within the limitation period, thus conferring jurisdiction on the assessing officer. However, since this notice was not served, the reassessment could not be validly made based on it.

2. Effect of Issuing a Second Notice Dated 17.06.2005 Beyond the Period of Limitation:

The subsequent notice dated 17.06.2005 was issued after the period of limitation and served on the appellant on 29.06.2005. The Commissioner of Income Tax (Appeals) quashed the reassessment proceedings, holding that the notice dated 17.06.2005 was barred by limitation and invalid. The Tribunal had a split opinion, with the third member concurring with the Accountant Member, who upheld the reassessment proceedings based on the notice dated 28.03.2005.

The High Court rejected the Tribunal's majority view, stating that the notice dated 17.06.2005 could not be treated as a continuation of the notice dated 28.03.2005. The court emphasized that a valid notice is a condition precedent for a valid assessment order under Section 147 of the Act. The issuance of the notice dated 17.06.2005 after the limitation period invalidated the reassessment proceedings.

The court referred to precedents, including Madan Lal Agarwal Vs. Commissioner of Income Tax and Commissioner of Income Vs. Shital Prasad Kharag Prasad, which held that the absence of a valid notice invalidates the jurisdiction of the assessing authority.

Conclusion:

The High Court quashed the majority view of the Tribunal and the reassessment order passed by the assessing officer. The court held that the notice dated 17.06.2005 was invalid as it was issued beyond the limitation period, and the reassessment proceedings could not be sustained. The questions of law were answered in favor of the assessee and against the revenue.

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