2019 (6) TMI 403 - HC - Income Tax

Validity of assessment proceedings - notice u/s 143(2) issued beyond the limitation prescribed under the proviso attached to Section 143(2) - period of limitation - HELD THAT - There is no dispute that the return was filed in the financial year 2004-05 which ended on 31.03.2005 and the notice u/s 143(2) was being issued on 08.08.2006 as admitted by the Assessing Authority himself, which was far beyond the limitation prescribed under the proviso attached to Section 143(2) which ended on 30.09.2005 and thus was clearly hit by limitation. In such view of the matter, the entire exercise by the Assessing Authority u/s 143(3) is illegal and time barred and its affirmation by the appellate authority is an illegality perpetuated. For the reasons discussed, we quash the entire proceedings including the assessment order passed by the Assessing Authority for the assessment year 2004-05 - Decided in favour of assessee

Summary

Issues:
Challenge to assessment order for Assessment Year 2004-05, Time limitation under Section 143(2) of the Income Tax Act, 1961.

Analysis:
The petitioner contested the assessment order for Assessment Year 2004-05 and the appellate order passed by the Commissioner of Income Tax (Appeals) under Section 143 of the Income Tax Act, 1961. The petitioner's counsel argued that the interest accrued on a deposit should not be treated as income, as it offsets the grant received from the State Government. Additionally, the petitioner raised the issue that the assessment order was time-barred under the proviso of Section 143(2) of the Act, which prohibits serving a notice after six months from the end of the financial year in which the return was filed.

The respondent's counsel acknowledged that the interest earned on the deposit should be considered 'income from other sources' as per the Act. However, she contended that since the petitioner did not raise the limitation issue earlier, it could not be raised before the Court. The respondent argued that on merit, the petitioner's case was weak regarding the treatment of interest as income.

The Court, after considering the arguments and evidence, focused on the issue of limitation. It held that even if the petitioner did not raise the limitation objection earlier, the law prohibits initiating proceedings after the specified time limit. Therefore, the petitioner's participation in the proceedings did not prevent them from raising the limitation issue later. The Court noted that the notice under Section 143(2) was issued well beyond the prescribed limitation period, rendering the entire assessment process illegal and time-barred.

Consequently, the Court quashed the assessment order and the appellate order for the Assessment Year 2004-05, citing the illegality of the proceedings due to the time limitation violation. The writ petition was allowed in favor of the petitioner.