2022 (12) TMI 405 - HC - Income Tax

Reopening of assessment u/s 147 - non-issue of a notice u/s 143(2) - assumption of jurisdiction by an officer commences with, and is triggered by, the issuance of a notice under Section 143(2) and failure to do so, would compromise the proceedings fatally - HELD THAT - There is complete uniformity in the conclusion of Courts on the issue as to whether non-issue of notice under Section 143(2) would vitiate the assessment, answering the issue in the affirmative. CBDT Instruction No.3 of 2003 elucidates upon and explains the provisions relating to Transfer Pricing, as contained in Sections 92 and 92F of the Act that had come into force, with effect from assessment year 2002-03 onwards. The Circular reinforces the position that it is sine qua non for the Assessing Officer to assume jurisdiction prior to taking any steps in the matter of assessment, including reference of the matter to the TPO. The jurisdiction assumed by an officer in terms of Section 120 of the Act is activated by issuance of notice under Section 143(2), and as a consequence, failure to issue the statutory notice will lead to the inevitable result of the Officer not having assumed jurisdiction, for all practical purposes. Period when the matter was pending before the Assessing Officer for compliance of the procedure set out should stand excluded in computing the period of 6 months required to issue notice under Section 143(2) - As the statutory period of six months cannot be altered except in the situations contemplated under Explanation to Section 153. The Explanation takes note of events that might intervene in the course of assessment proceedings, and excluded the time taken for those events to run their course, in computation of limitation. These are the only situations where statutory limitation under Section 153 may be expanded. On 10.01.2020, reasons had been supplied and on 04.03.2020, the petitioner filed its objections. These objections have been disposed only on 23.07.2021, after a period of one year and four months. There was nothing that prevented the assessing officer to have called for objections, assigning a time limit to the assessee to file the same, and disposed the objections expeditiously. The procedure set out in the case of GKN Drive shafts (India) Ltd 2002 (11) TMI 7 - SUPREME COURT nowhere envisages modification/expansion of the statutory limitations under the Act. Thus impugned notice under Section 148 and reference to TPO stand vitiated by non-issue of notice under Section 143(2) of the Act and the same are quashed. WP allowed.

Summary

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act.
2. Assumption of jurisdiction for re-assessment under Section 147 of the Act.
3. Requirement of notice under Section 143(2) within the statutory time limit.
4. Reference to the Transfer Pricing Officer (TPO) and compliance with procedural requirements.

Detailed Analysis:

1. Validity of Notice under Section 148 of the Income Tax Act:
The petitioner, a company incorporated in Spain, received a notice under Section 148 of the Act on 12.12.2019, which it challenged. The petitioner had filed a return for the assessment year (AY) 2016-17 and obtained a Nil tax withholding certificate for amounts received from Indian entities. Despite filing the return in time, the petitioner received the notice under Section 148, which led to the filing of a return in compliance with the notice and seeking reasons for the notice. The objections to the notice were raised following the procedure laid down by the Supreme Court in GKN Drive shafts (India) Ltd. v. Income Tax Officer, but were ultimately rejected.

2. Assumption of Jurisdiction for Re-assessment under Section 147 of the Act:
The petitioner argued that the assumption of jurisdiction for re-assessment under Section 147 was invalid due to the non-issuance of a notice under Section 143(2) within the statutory time limit. The petitioner cited several judicial precedents, including Assistant Commissioner of Income-tax v. Hotel Blue Moon and Sapthagiri Finance & Investments v. Income-tax Officer, to support the argument that the issuance of a notice under Section 143(2) is mandatory for the validity of re-assessment proceedings.

3. Requirement of Notice under Section 143(2) within the Statutory Time Limit:
The core issue was whether the failure to issue a notice under Section 143(2) within the statutory time limit vitiated the re-assessment proceedings. The petitioner contended that the notice under Section 143(2) should have been issued within six months from the end of the financial year in which the return was furnished, extended to 31.03.2021 by the TOLA Act. Since no notice was issued by this deadline, the petitioner argued that the entire re-assessment process was invalid. The court agreed, stating that the non-issuance of the notice within the stipulated time frame is fatal to the proceedings, as supported by multiple judicial decisions.

4. Reference to the Transfer Pricing Officer (TPO) and Compliance with Procedural Requirements:
The petitioner also challenged the reference to the TPO for determining the Arms' Length Price of international transactions. The TPO issued a notice under Section 92CA, which the petitioner requested to defer until the objections to the jurisdiction were resolved. The court noted that the jurisdiction to assess, including referring matters to the TPO, is contingent upon the proper issuance of a notice under Section 143(2). Since this did not occur, the reference to the TPO was also invalid.

Conclusion:
The court concluded that the non-issuance of a notice under Section 143(2) within the statutory period vitiated the re-assessment proceedings, including the notice under Section 148, the rejection of objections to the jurisdiction, and the reference to the TPO. The court quashed the impugned notice under Section 148 dated 12.12.2019, the order dated 23.07.2021, and the reference to the TPO on 24.11.2020. The writ petitions were allowed, with no costs, and the connected miscellaneous petitions were closed.