2018 (4) TMI 1734 - HC - Income Tax

Validity of assessment u/s 143 (3) read with Section 153 (D) - non-issue of notice u/s 143 (2) - Unexplained cash u/s 69 was added on account of unexplained jewellery and on account of unexplained hundies - HELD THAT - We find that there was no notice issued u/s 143 (2) prior to the completion of assessment under section 143 (3) of the Act by the AO; that the year under consideration was beyond the scope of the provisions of section 153 A of the Act, it being the search year and not covered in the six year to the year of search as as per the assessment scheme/procedure defined u/s section 153A; that the AO has passed regular assessment u/s 143 (3) of the Act; although the ld CIT has mentioned the section as 143 r.w.s. 153A and that the department had not controverted these facts at the stage of hearing. It is noted that issue of notice u/s 143 (2) for completion of regular assessment in the case of the assessee was a statutory requirement as per the provisions of the Act and non-issuance thereof is not a curable defect. Even in case of block assessment u/s 158 BC, it has been so held by the Apex court in the case of 'ACIT Vs. Hotel Blue Moon' 2010 (2) TMI 1 - SUPREME COURT Assessment order is passes without issue of notice u/s 143 (3) of the Act and this defect can not be cured by taking recourse to the provisions of section 292 BB of the Act. AO had no valid jurisdiction to pass the assessment order and the very foundation of the assessment proceedings is bad in law.

Summary

Issues:
1. Validity of assessment proceedings under Section 143 (3) of the Income Tax Act, 1961.
2. Jurisdiction of the Assessment Officer regarding the non-issuance of notice under Section 143 (2) of the Act.

Validity of Assessment Proceedings under Section 143 (3):
The appeal was directed against the order passed by the Income Tax Appellate Tribunal, where the assessee, an individual engaged in brokerage business, had undergone a search and seizure operation under section 132 of the Income Tax Act, 1961. The assessment was completed under Section 143 (3) read with Section 153 (D) of the Act, resulting in additions on various accounts, including unexplained cash, jewelry, hundies, and cash receipts. The Commissioner Income Tax (Appeal) partially deleted certain additions, which led to further appeals by both the Revenue and the Assessee.

Jurisdiction Issue and Non-issuance of Notice under Section 143 (2):
The Tribunal upheld the cross-objection filed by the Assessee, quashing the reassessment proceedings due to the absence of a notice under Section 143 (2) of the Act. The Tribunal emphasized the statutory requirement of issuing such notice and concluded that the Assessment Officer lacked jurisdiction in the absence of the said notice. The Tribunal referred to the case law and highlighted that the defect of non-issuance of notice under Section 143 (2) is not curable, even under section 292 BB of the Act. The Tribunal further noted that the assessment order was passed without the required notice, rendering the entire assessment proceedings invalid in law.

Legal Precedent and Conclusion:
The Tribunal's decision was supported by legal precedents, including the case of Assistant Commissioner of Income Tax & Anr. Vs. M/s Hotel Blue Moon, where the Supreme Court held that the issuance of notice under Section 143 (2) is mandatory and not a procedural irregularity. Consequently, the Tribunal's decision to quash the assessment order due to the lack of jurisdiction was upheld. The appeal was dismissed, emphasizing that no substantial question of law arose for consideration in light of the established legal principles.

This judgment highlights the critical importance of adhering to procedural requirements, such as issuing notices under relevant sections of the Income Tax Act, to maintain the validity of assessment proceedings and ensure the jurisdiction of the Assessment Officer. The decision underscores the significance of statutory compliance in tax assessments and the implications of non-compliance on the legality of the assessment process.