2015 (6) TMI 843 - AT - Income Tax

Validity of assessment u/s 143 - whether notice u/s 143(2) having been served beyond the limitation period? - Held that - Since notice under section 143(2) of the Act was not validly issued upon the assessee within the prescribed period, the Assessing Officer could not assume jurisdiction to frame the assessment under section 143(3) of the Act. Therefore, the assessment framed consequent to the invalid assumption of jurisdiction is not sustainable in the eyes of law. We accordingly annul the assessment and delete the additions made by the Assessing Officer - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice u/s 143(2) for assessment jurisdiction
2. Taxability of interest income on funds parked by assessee
3. Addition made under section 14A read with Rule 8D

Issue 1 - Validity of notice u/s 143(2) for assessment jurisdiction:
The appellant challenged the jurisdiction of the assessing officer due to the notice u/s 143(2) being served beyond the limitation period. The appellant argued that the assessment order lacked validity as the notice was not served within the prescribed time frame. The tribunal examined the issuance and service of the notice, finding discrepancies in the dates and the jurisdiction of the officers involved. The tribunal concluded that the notice served on the last day of the prescribed period was invalid as it was issued by an officer without jurisdiction over the assessee. Citing legal precedents, the tribunal emphasized the importance of a valid notice u/s 143(2) for the assessing officer to assume jurisdiction, ultimately annulling the assessment due to the lack of valid jurisdiction.

Issue 2 - Taxability of interest income on funds parked by assessee:
The appellant contended that the interest income of funds parked in a bank was not assessable as income, as those funds were provided by the government for specific purposes and the assessee acted as a trustee. The tribunal analyzed the nature of the funds and the purpose for which they were allocated, noting that the government intended the interest on these funds to be utilized for specific schemes. The tribunal disagreed with the assessing officer's treatment of the interest income as part of the assessee's income, considering the unique circumstances of the funds and their control by external authorities. Consequently, the tribunal ruled in favor of the appellant on this issue.

Issue 3 - Addition made under section 14A read with Rule 8D:
The appellant challenged the addition made under section 14A read with Rule 8D, arguing that the assessing officer applied the rule mechanically without proper consideration of the facts and submissions provided by the assessee. The tribunal observed discrepancies in the assessing officer's approach, noting that the officer failed to assess the expenditure claimed by the assessee and incorrectly applied the rule without justifying the disallowances. The tribunal found fault with the first appellate authority for upholding the addition without proper assessment of the expenditure. Additionally, the tribunal highlighted the necessity for the assessing officer to consider direct expenses before calculating indirect expenses under Rule 8D(2). Ultimately, the tribunal ruled in favor of the appellant, annulling the addition made under section 14A read with Rule 8D.

In conclusion, the tribunal allowed the appeal of the assessee, annulling the assessment and deleting the additions made by the assessing officer. The judgment emphasized the importance of a valid notice u/s 143(2) for the assessing officer to assume jurisdiction, considered the specific circumstances of the funds in question for taxability, and highlighted the necessity for proper assessment of expenditures under section 14A read with Rule 8D.