2015 (5) TMI 464 - AT - Income Tax

Validity of assessment for want of notice u/s 143(2) - no notice u/s 143 (2) of the Act was not served upon the assessee within the statutory mandatory time prescribed by the proviso to section 143 (2) - Held that - A notice u/s 143(2) gives the jurisdictional power to the Assessing Officer to frame the assessment and failure on the part of the Assessing Officer to serve the notice within the stipulated period of 12 months which renders the assessment void ab initio. Therefore, in the absence of a notice u/s 143(2), the whole proceedings become invalid. Thus the assessment in question is invalid because of lack of jurisdiction of the Assessing Officer as the revenue has failed to show that the notice u/s 143(2) was served on the assessee within the stipulated period. Accordingly, we quash/ set aside the assessment in question. Decided in favour of assessee.

Issues Involved:
1. Admissibility of evidence regarding Fair Market Value (FMV) as on 01/04/1981.
2. Determination of long-term capital loss and subsequent transfer of stock-in-trade.
3. Validity of the appeal filed by the Assistant Commissioner of Income Tax (ACIT).
4. Validity of assessment due to lack of notice under Section 143(2) of the Income Tax Act.
5. Sustaining disallowance under Section 14A of the Income Tax Act.
6. Sustaining addition of income from house property.

Detailed Analysis:

1. Admissibility of Evidence Regarding FMV as on 01/04/1981:
The revenue contended that the CIT(A) erred in admitting evidence related to the FMV as on 01/04/1981 and allowing indexation contrary to Rule 46A(2) & (3) of the Income Tax Rules. The Tribunal did not specifically address this issue in the judgment due to the primary issue of the validity of the assessment.

2. Determination of Long-Term Capital Loss and Subsequent Transfer of Stock-in-Trade:
The revenue argued that the CIT(A) made a contradictory decision by recognizing a long-term capital loss and simultaneously holding that the subsequent transfer of stock-in-trade did not amount to a transfer or sale. This issue was rendered moot due to the Tribunal's decision on the validity of the assessment.

3. Validity of the Appeal Filed by the ACIT:
The assessee raised preliminary objections regarding the maintainability of the appeal filed by the ACIT, arguing that the jurisdiction remained with the Income Tax Officer (ITO). The Tribunal did not specifically adjudicate this issue due to the overarching issue of the validity of the assessment.

4. Validity of Assessment Due to Lack of Notice Under Section 143(2):
The core issue was the validity of the assessment for want of notice under Section 143(2). The assessee argued that no valid notice under Section 143(2) was issued or served within the statutory time limit, rendering the assessment void. The Tribunal noted that the objection regarding the non-receipt of notice was raised during the assessment proceedings via a letter dated 08.08.2008. The Tribunal emphasized that the issuance of notice under Section 143(2) is a jurisdictional requirement and not a mere procedural formality. The Tribunal found that the revenue failed to prove valid service of the notice, as the notice did not bear the identification of the person served, and the affidavits provided by the revenue were insufficient. Citing the Supreme Court's decision in ACIT Vs. Hotel Blue Moon and other relevant case law, the Tribunal concluded that the absence of a valid notice under Section 143(2) rendered the assessment void ab initio.

5. Sustaining Disallowance Under Section 14A:
The assessee contested the disallowance of Rs. 2,78,310 under Section 14A, arguing that there was no finding by the Assessing Officer (AO) linking the expenditure to exempt income. This issue was not adjudicated due to the primary issue of the validity of the assessment.

6. Sustaining Addition of Income from House Property:
The assessee also contested the addition of Rs. 3,36,000 as income from house property, arguing that the CIT(A) failed to appreciate the business of real estate and the municipal valuation. This issue was not adjudicated due to the primary issue of the validity of the assessment.

Conclusion:
The Tribunal quashed the assessment due to the lack of jurisdiction arising from the failure to serve a valid notice under Section 143(2) within the stipulated period. Consequently, the other grounds raised by both the assessee and the revenue were rendered infructuous and dismissed. The appeal filed by the revenue was dismissed, and the cross-objection by the assessee was partly allowed.

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