2019 (7) TMI 1055 - HC - Income Tax

Non-issuance of notice u/s 143(2) - scrutiny assessment u/s 143(2) r.w.s. 158BC - validity of assessment - HELD THAT - In the present case, admittedly, no notice under Section 143(2) of the said Act was ever issued to the Assessee. By applying the law laid down by the Hon'ble Apex Court in Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT we will have to hold that the assessment made in the present case stands vitiated. Therefore, even if we were to hold in favour of the Revenue with regard to the other substantial questions of law framed at the time of admission of this appeal, the assessment made in the present matter would nevertheless stand vitiated for want of mandatory notice under Section 143(2) of the said Act. - Decided against revenue

Summary

Issues:
- Whether the finding of the Tribunal that non-issuance of notice under Section 143(2) of the Income Tax Act vitiates the proceedings?
- Whether the assessment order under Section 143(3) of the Income Tax Act is valid without the issuance of notice under Section 143(2)?
- Whether the judgment of the Hon'ble Supreme Court in the case of Assistant Commissioner of Income Tax vs. Hotel Blue Moon is applicable in the present case?

Analysis:

1. Notice under Section 143(2) and Assessment Order under Section 143(3):
The Court framed an additional substantial question of law regarding the necessity of issuing a notice under Section 143(2) of the Income Tax Act before passing an assessment order under Section 143(3). The Respondent argued that the findings of fact by the Income Tax Appellate Tribunal (ITAT) were erroneous as per the judgment of the Hon'ble Supreme Court in the case of Assistant Commissioner of Income Tax vs. Hotel Blue Moon. The Court agreed that the notice under Section 143(2) is mandatory before passing the assessment order under Section 143(3), as held by the Supreme Court. The absence of such notice vitiates the assessment proceedings, even if other substantial questions of law are decided in favor of the Revenue.

2. Validity of Assessment Procedure:
The case involved a search conducted at the Assessee's premises, leading to the issuance of a notice under Section 158 BC of the Income Tax Act to assess undisclosed income. The assessment order was challenged, and the ITAT allowed the Assessee's appeal. The Revenue appealed under Section 260-A of the Act. The Court noted that the non-issuance of a notice under Section 143(2) was raised by the Assessee, but both the Commissioner (Appeals) and the ITAT rejected this contention based on the Nawal Kishore & Sons Jewellers case. However, the Court emphasized that the Supreme Court's ruling in Hotel Blue Moon mandates the issuance of such notice for a valid assessment.

3. Impact of Supreme Court Judgment:
The Court highlighted the significance of the Supreme Court's decision in Hotel Blue Moon, stating that the omission to issue a notice under Section 143(2) cannot be considered a procedural irregularity. The Court reiterated that the notice requirement is fundamental and cannot be overlooked, even in cases involving the determination of undisclosed income for a block period under Section 158BC. As a result, the Court held that the assessment in the present case was vitiated due to the absence of the mandatory notice under Section 143(2), leading to the dismissal of the appeal in favor of the Assessee.

In conclusion, the judgment emphasized the mandatory nature of issuing a notice under Section 143(2) of the Income Tax Act for a valid assessment procedure, as established by the Supreme Court's ruling in Hotel Blue Moon. This case serves as a reminder of the essential procedural requirements that must be adhered to in income tax assessments to ensure fairness and legality in the process.