2015 (8) TMI 226 - AT - Income Tax

Validity of reopening of assessment - non service of notice u/s. 143(2) before completion of the assessment u/s. 147 - DR relied on the provisions of section 292BB of the Act and submitted that non-issue of notice u/s. 143(2) within the time specified under the proviso to sec. 143(2)(ii) will not render the order of reassessment null and void - Held that - The two provisos in sub-section (1) to section 148 has been inserted with retrospective effect from 1st October, 1991. The gist of the two provisos may suitably be stated thus- Where a return has been furnished daring the period commencing on 1st October, 1991 and ending on 30th September, 2005, in response to a notice of reassessment served under section 148, and subsequently a notice has been served under section 143(2) or 143(2)(ii), as the case may be after the expiry of twelve months as specified in the relevant proviso but before the expiry of the time-limit for making the assessment, reassessment or re-computation as specified in section 153(2), such (otherwise time-barred) notice shall be deemed to be a valid notice. Further, the new Explanation inserted with effect from 1st October, 2005, specifically clarifies that the aforestated (newly inserted) provisos shall not apply to any return which has been furnished on or after 1st October, 2005, in response to a notice served under section 148(1) of the Act. The purpose of the amendment is to ensure that notices which were issued and barred by limitation and those which were not issued and which could not have been issued should be validated by the Finance Act, 2006 with retrospective effect from 1st April, 1990 amending section 142 for the purpose of validating notices which were otherwise not issued or served within the time-limit. The invalidity of notice as well as the absence of any notice became fatal to the proceedings and are sought to be validated and justified by the retrospective amendments. The explanation clarifies that the amended provisions will not apply to any return which has been furnished on or after 1st October, 2005, in response to a notice served under section 148(1) of the Act. Thus the legislature has accepted the position that issue and service of notice u/s.143(2) of the Act within the time limit laid down in those provisions is mandatory. We therefore, of the view that issue and service of notice u/s. 143(2) of the Act within the period of limitation contemplated under the proviso to sec. 143(2)(ii) is mandatory for validity of assessment u/s. 147 of the Act. Applicability of provisions of section 292BB - It is clearly from the statutory provisions that these provisions only insulate the AO from the proof of service of notice u/s. 143(2) of the Act. It does not in any way insulate the AO from default in issuing notice u/s. 143(2) within the period of limitation contemplated therein. When the records show that there was no issue of notice u/s. 143(2) within the period of limitation prescribed under the said proviso, the Revenue cannot take advantage of the provisions of section 292BB. In other words, issue of notice and service of notice are two different aspects and what is covered by section 292BB is only service of notice . Non-issue of notice u/s. 143(2) within the period of limitation would not be covered under the ambit of section 292BB of the Act. The decision of the Tribunal in the case of Amithi Software Technologies Pvt. Ltd. (2014 (2) TMI 989 - ITAT BANGALORE) clearly supports the plea of the assessee in this regard. We therefore hold that assessment proceedings are invalid for the reason that notice u/s. 143(2) had not been issued and served within the time limit prescribed by those provisions. Accordingly, the order of assessment is annulled. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment proceedings under Section 147 of the Income-tax Act, 1961 due to non-issue/service of notice under Section 143(2) within the prescribed time.
2. Applicability of Section 292BB of the Income-tax Act, 1961 in the context of non-issuance of notice under Section 143(2).

Detailed Analysis:

1. Validity of the Reassessment Proceedings under Section 147:
The assessee, a company engaged in property development, filed its return of income for AY 2008-09 on 30.9.2008. A search operation under Section 132 was conducted in the case of M/s. Zeenath Transport Co., Bellary ("ZTC"), which had booked a flat with the assessee. Based on the impounded materials during a survey under Section 133A, the assessment was reopened for AY 2008-09 by issuing a notice under Section 148 on 11.8.2010. The assessee requested to treat the original return filed on 30.9.2008 as a return in response to the notice under Section 148.

The Assessing Officer (AO) made an addition of Rs. 9,75,24,011 to the total income of the assessee, citing discrepancies in the balance sheets under the heads "Option-I" and "Option-II" as compared to the signed audit report for FY 2007-08.

The CIT(Appeals) deleted the addition but upheld the validity of the reassessment proceedings, noting that the AO had issued notice under Section 148 and had conducted hearings with the assessee. However, the Tribunal found that the notice under Section 143(2) was issued on 13.10.2011, beyond the period of limitation prescribed under the proviso to Section 143(2)(ii), which ended on 30.9.2011. The Tribunal held that the issuance of notice under Section 143(2) within the statutory time limit is mandatory for the validity of the assessment under Section 147.

2. Applicability of Section 292BB:
The Revenue argued that Section 292BB, which deems notice to be valid if the assessee has cooperated in the proceedings, should apply. However, the Tribunal clarified that Section 292BB insulates the AO from the proof of service of notice but does not cover the non-issuance of notice within the prescribed time limit. The Tribunal relied on precedents, including the Special Bench decision in Raj Kumar Chawla & Ors. vs. ITO, which held that the return filed under Section 148 is to be treated as one under Section 139, and the issuance of notice under Section 143(2) within the prescribed time is mandatory.

The Tribunal concluded that the assessment proceedings were invalid due to the failure to issue notice under Section 143(2) within the prescribed time limit. Consequently, the order of assessment was annulled.

Conclusion:
The appeal by the Revenue was dismissed, and the Cross Objection by the assessee was allowed. The Tribunal pronounced the judgment in the open court on 30th July 2015, holding that the reassessment proceedings under Section 147 were invalid due to the non-issuance of notice under Section 143(2) within the statutory time limit, and Section 292BB did not apply to rectify this defect.