2017 (10) TMI 46 - AT - Income Tax

Valid notice u/s 143 - mode of serving notice - whether posting of the notice issued under section 143(2) a day before the expiry of the prescribed limitation would be a valid service when admittedly the notice is received by the assessee after expiry of the limitation so prescribed in this behalf? - assessment barred by limitation - Held that - The assessing authority is bound by Circular of the Central Board of Direct Taxes. The Central Board of Direct Taxes Circular No. 549 dated October 31, 1989 states in clear terms that the Assessing Officer is required to serve the notice on the assessee within the prescribed period, if a case is picked up for scrutiny. It follows that if an assessee, after furnishing the return of income does not receive a notice under section 143(2) from the Department within the aforesaid period, he can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. Therefore, the assessee succeeds on this ground. The assessment framed by the Assessing Officer is barred by time as the requisite notice under section 143(2) was not served on the assessee within the time as prescribed by law. Respectfully following the judgment of the hon ble Delhi High Court rendered in the case of CIT v. Bhan Textiles (2006 (9) TMI 129 - DELHI High Court ), the draft assessment order dated March 28, 2013 cannot be sustained, the same is hereby quashed being barred by time. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice under section 143(2) of the Income-tax Act, 1961.
2. Assessment of income at a higher amount than returned.
3. Jurisdiction under section 143(3) based on the notice service.
4. Classification of income as 'fee for technical service'.
5. Applicability of section 44BB of the Income-tax Act.
6. Imputation of an arbitrary profit rate.
7. Consideration of service tax in computing profits.
8. Levy of interest under sections 234A, 234B, and 234C.
9. Initiation of proceedings under sections 271B and 271(1)(c).

Detailed Analysis:

1. Validity of the Notice under Section 143(2):
The primary issue was whether the notice issued under section 143(2) was valid, given that it was served after the statutory period. The assessee argued that the notice was served on October 5, 2011, beyond the prescribed six-month period from the end of the financial year 2010-11. The Dispute Resolution Panel (DRP) relied on the judgment of the Supreme Court in Banarsi Debi v. ITO, which held that the terms 'issue' and 'service' can be used interchangeably. However, the Tribunal noted that the Delhi High Court in CIT v. Lunar Diamonds Ltd. and CIT v. Vardhman Estate P. Ltd. had ruled that the notice must be served within the prescribed period. The Tribunal also referred to the CBDT Circular No. 549, which mandates that the notice must be served within the prescribed period. Consequently, the Tribunal held that the assessment framed was barred by time as the notice was not served within the prescribed period, and thus, the draft assessment order dated March 28, 2013, was quashed.

2. Assessment of Income at a Higher Amount:
The assessee contested the assessment of income at ?5,22,27,000 as against the returned income of ?2,08,90,802. However, since the Tribunal quashed the draft assessment order on the preliminary issue of the validity of the notice under section 143(2), this ground was not adjudicated further.

3. Jurisdiction under Section 143(3) Based on Notice Service:
The assessee argued that the Assessing Officer (AO) erred in assuming jurisdiction under section 143(3) based on a notice that was not served within the stipulated time. The Tribunal upheld this contention, quashing the assessment order as the notice was served beyond the prescribed period.

4. Classification of Income as 'Fee for Technical Service':
The assessee challenged the classification of income as 'fee for technical service' under section 9(1)(vii). The Tribunal did not adjudicate this issue as the assessment order was quashed on the preliminary ground.

5. Applicability of Section 44BB:
The assessee argued that the provisions of section 44BB were applicable to its case. However, this issue was not adjudicated due to the quashing of the assessment order.

6. Imputation of an Arbitrary Profit Rate:
The assessee contested the imputation of an ad hoc profit rate of 25%, claiming it was arbitrary and unreasonable. This issue was also not adjudicated as the assessment order was quashed.

7. Consideration of Service Tax in Computing Profits:
The assessee argued that the AO did not allow sufficient opportunity to substantiate that the service tax had been paid and thus should be reduced from the gross receipts for computing profits. This issue was not adjudicated due to the quashing of the assessment order.

8. Levy of Interest under Sections 234A, 234B, and 234C:
The assessee contested the levy of interest under sections 234A, 234B, and 234C, arguing that the entire income was subject to tax deduction under section 195 and that interest should be charged on the returned income, not the assessed income. These issues were not adjudicated as the assessment order was quashed.

9. Initiation of Proceedings under Sections 271B and 271(1)(c):
The assessee argued that the AO mechanically initiated proceedings under sections 271B and 271(1)(c). These issues were not adjudicated as the assessment order was quashed.

Conclusion:
The Tribunal quashed the draft assessment order dated March 28, 2013, on the ground that the notice under section 143(2) was not served within the prescribed period, making the assessment barred by time. Consequently, the other grounds raised by the assessee were not adjudicated. The appeal of the assessee was allowed.

← Previous Next →