2016 (7) TMI 743 - AT - Income Tax

Rectification of mistake - validity of service of notice u/s.143(2) of the act and decide the said issue afresh after giving proper opportunity of being heard to the Assessee - Held that - The date of filing of return in response to notice u/s.148 by the Assessee has been wrongly mentioned as 15.5.2008 whereas the correct date is 15.5.2007 . This is the first apparent factual error in the order of the Tribunal. The second error is that the tribunal after noticing the time limit for service of notice u/s.143(2) of the Act for return of income filed in response to notice u/s.148 of the Act between the period 1.10.1991 to 30.9.2005 has wrongly applied that time limit to the case of the Assessee. Such time limit was not applicable to the case of the Assessee at all because the Assessee filed return of income in response to notice u/s.148 of the Act on 15.5.2007. Therefore the time limit laid down in Sec.143(2) of the Act as discussed would alone apply. The Tribunal has taken the date of filing of the return as 1.8.2005 which was the original return of income filed by the Assessee and applied the amendment to the provisions of Sec.148(2) which was applicable for return filed between the period 1.10.1991 to 30.9.2005. The date of filing of the return referred to in Sec.148(2) is the date of filing of the return in response to notice u/s.148 of the Act, which in the present case is 15.5.2007 and not 1.8.2005. This was a mistake apparent on the face of the record. The question that the Tribunal ought to have considered was therefore, whether the law as it prevailed when the return of income was filed i.e., as on 15.5.2007 which gives a time limit of 12 months from the end of the month in which the return of income was filed by the Assessee i.e., on or before 31.5.200 or the law that prevails when the AO conducts the Assessment proceedings when the AO issued notice u/s.143(2) of the Act on 5.9.2008 i.e., after the insertion of proviso to Sec.143(2)(ii) of the Act by the finance Act, 2008, w.e.f. 1.4.2008 whereby the time limit for service of notice was 6 months from the end of the financial year in which the return of income was filed by the Assessee i.e., on or before 30.9.2008. Therefore the order of the Tribunal suffers from a mistake apparent on the face of the record. The order dated 09.12.2015 is recalled in so far as it relates to validity of service of notice u/s 143(2) of the Act. The appeal is directed to be fixed for hearing to decide the said issue after notice to the parties.

Summary

Issues Involved:

1. Validity of service of notice under Section 143(2) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Service of Notice under Section 143(2):

The Assessee filed a miscellaneous application under Section 254(2) of the Income Tax Act, 1961, requesting the rectification of the Tribunal's order dated 9.12.2015. The main contention was regarding the validity of the service of notice under Section 143(2) of the Act and the need for a fresh decision after providing a proper hearing opportunity to the Assessee.

The Assessee, an individual earning commission from selling insurance policies, filed her return of income for AY 2005-06 on 1.8.2005, declaring an income of ?3,35,970/-. The return was processed under Section 143(1). However, the AO found that the Assessee claimed a deduction of interest on loans without a nexus to her insurance commission income, leading to an under-assessment. Consequently, a notice under Section 148 was issued, and the Assessee requested that her original return be treated as a response to this notice on 15.5.2007.

The first issue was whether the notice under Section 143(2) was served within the specified time limit. The factual position was that the notice was served on 5.9.2008. According to the law as it stood when the return was filed (15.5.2007), the notice should have been served by 31.5.2008. However, an amendment by the Finance Act, 2008, effective from 1.4.2008, changed the time limit to six months from the end of the financial year in which the return was filed, extending the deadline to 30.9.2008.

The AO, supported by the CIT(A), believed that the amended provisions applied, making the service of notice within the legal time frame. The Assessee's counsel argued that the applicable law should be the one prevailing during the relevant assessment year or at the time of filing the return, citing judicial precedents. If this argument held, the notice served on 5.9.2008 would be beyond the permissible limit, rendering the assessment invalid.

The Tribunal initially decided the validity of the notice based on the assumption that the amendment by the Finance Act, 2006, applicable to returns filed between 1.10.1991 and 30.9.2005, was relevant. However, the Assessee filed her return on 15.5.2007, making this assumption incorrect. The Tribunal's order contained factual errors, such as incorrectly stating the return filing date as 15.5.2008 instead of 15.5.2007 and misapplying the time limits for service of notice.

The Tribunal should have considered whether the law as it stood on 15.5.2007, which allowed 12 months for serving the notice, or the amended law effective from 1.4.2008, which allowed six months, was applicable. The Tribunal acknowledged these errors and recalled its order dated 09.12.2015 concerning the validity of the notice under Section 143(2). The appeal was directed to be reheard after notifying the parties.

Conclusion:

The Tribunal recognized the mistakes apparent on the record and allowed the miscellaneous application, directing a fresh hearing to decide the issue of the validity of the notice under Section 143(2). The order was pronounced in open court on 13.07.2016.