2017 (2) TMI 804 - AT - Income Tax

Validity of reopning of assessment - non issue of notice - Held that - AO has not issued any notice u/s 143(2) of the I.T. Act to the assessee. During the entire assessment proceedings, the assessment order in dispute is invalid, void abnitio and against the provisions of the law and the impugned order is not sustainable in the eyes of law. Therefore, the assessment order as well as the appellate order stand cancelled and appeal of the assessee stands allowed.

Issues Involved:
1. Initiation of proceedings under section 147 and completion of assessment under section 147/144.
2. Non-issuance and service of notice under section 143(2) post filing of return.
3. Sustaining an addition of ?9,00,000 on an estimated basis.
4. Levy of interest under sections 234A and 234B.

Detailed Analysis:

1. Initiation of proceedings under section 147 and completion of assessment under section 147/144:
The assessee challenged the initiation of proceedings under section 147 of the Income Tax Act and the subsequent completion of assessment under sections 147/144. The contention was that the initiation of these proceedings was erroneous both in law and on facts. The Tribunal reviewed the background where the assessee had not filed a return for the assessment year 2007-08 despite significant cash deposits in her bank account. Consequently, the provisions of section 147 were invoked, and notice under section 148 was issued, followed by multiple notices under section 142(1). The Tribunal upheld the initiation of proceedings as valid based on the information received and the subsequent actions taken by the Assessing Officer (AO).

2. Non-issuance and service of notice under section 143(2) post filing of return:
The primary legal contention raised by the assessee was the failure of the AO to issue a notice under section 143(2) after the return was filed in response to the notice under section 148. The Tribunal emphasized the mandatory nature of issuing a notice under section 143(2) within the prescribed time limit. The Tribunal cited several judicial precedents, including the Supreme Court's decision in ACIT vs. Hotel Blue Moon, which held that the issuance and service of notice under section 143(2) is mandatory and not merely procedural. The Tribunal concluded that the failure to issue this notice rendered the assessment invalid and unsustainable in law. Therefore, the assessment order was quashed.

3. Sustaining an addition of ?9,00,000 on an estimated basis:
The assessee contested the addition of ?9,00,000 made on an estimated basis to cover possible leakages in her accounts. The Tribunal did not delve deeply into this issue since the assessment itself was declared invalid due to the non-issuance of the notice under section 143(2). Consequently, the addition sustained by the Commissioner of Income Tax (Appeals) (CIT(A)) was also rendered void.

4. Levy of interest under sections 234A and 234B:
The assessee also challenged the levy of interest under sections 234A and 234B, amounting to ?2,85,335 and ?2,94,540 respectively. Given that the assessment order was quashed, the Tribunal did not specifically address the issue of interest levy. However, it implicitly followed that the interest levies, being part of the invalid assessment, were also annulled.

Conclusion:
The Tribunal found that the non-issuance of a notice under section 143(2) post the filing of the return was a critical procedural lapse that invalidated the entire assessment process. Consequently, the assessment order and the subsequent appellate order were quashed, and the appeal of the assessee was allowed. The Tribunal's decision was supported by multiple judicial precedents emphasizing the mandatory nature of the notice under section 143(2). The other issues raised by the assessee, including the addition of ?9,00,000 and the levy of interest, were rendered moot due to the quashing of the assessment order.

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