2005 (1) TMI 334 - AT - Income Tax

Income escaping assessment - Applicability of the proviso to section 143(2) to the proceedings u/s 148 - effect of non-service of notice under the proviso to section 143(2) within the time prescribed - Whether the proviso to section 143(2) which mandates the service of notice within 12 months from the end of the month in which return is filed, also applies to the returns filed pursuant to notice u/s 148 ? - HELD THAT - From the reading of the proviso as it stands in the relevant year and the above circular it is clear that Assessing Officer has got no power to make a scrutiny assessment unless he issues a notice in the prescribed time of 12 months making his intentions clear to the assessee. Further, the only procedure of making assessment which the Act prescribes are under sections 143(1), 143(3) and 144 (incidentally we may point out that provisions of Chapter XIV-B prescribing for a separate assessment of undisclosed income are no more applicable on searches initiated after 31-5-2003), therefore, one has to follow the procedure laid down there. Essentially, therefore, there is no choice to apply part of the section and leave the other part when the effect has to be given to the scheme contained in the whole section i.e. section 143(2) of the Act along with the proviso. Proviso, therefore, cannot be divorced from the main section. It has to be construed with reference to the preceding parts of the section to which it is appended and as subordinate to the main provisions of the Act. It has been said that there is no rule that an Act containing a proviso is to be construed as to its first or enacting part without reference to the proviso. The section must be construed as a whole, each portion throwing light on the rest. Section 148 confers jurisdiction merely to issue notice, calling for a return, in cases where income has escaped assessment, for making assessment or reassessment as provided u/s 147. This section however does not make the assessment or reassessment mandatory but leaves it to the discretion of the Assessing Officer when read with section 147 of the Act. Section 147 has used the word may for making assessment or reassessment so as to give discretion to the Assessing Officer. It may be noted that no doubt, the foundation to assess or reassess is laid by issue of a valid notice u/s 148, but such jurisdiction is subject to further compliance as has been stipulated in the statute itself. If compliance of the proviso is not made, the very purpose of creating the proviso is defeated, i.e., uncertainty of assessee with respect to assessment shall continue. It is again a settled principle of interpretation that no construction of a statute should be made in a manner, which leaves a statute redundant. On the contrary, law requires a strict interpretation of the proviso. We are of the considered view that the return filed pursuant to notice u/s 148 of the Act must be assumed and treated to be a return filed u/s 139 of the Act and the assessment must thereafter be made u/s 143 or 144 of the Act after complying with all the mandatory provisions. Accordingly, it is incumbent upon the assessing authority to issue notice u/s 143(2) of the Act within the period as stipulated in the proviso thereunder. In this view of the matter, the first question before the Special Bench is answered in affirmative. So far as the issue on question No. 2 is concerned, we hold that no assessment can be made if the notice u/s 143(2) of the Act is not served within the time prescribed by the proviso u/s 143(2) of the Act and thus the return filed will be deemed as accepted. In the case of appellants/Shri Raj Kumar Chawla, Rajiv Chawla and Ajay Chawla, notice u/s 148 was issued on 26-3-1998. Shri Ajay Chawla filed the return of income on 28-4-1998 but notice u/s 143(2) of the Act has been issued on 13-7-1999 for 21-7-1999. Shri Raj Kumar Chawla filed return on 15-5-1998 but notice u/s 143(2) is stated to have been issued on 13-7-1999 and served on him on 21-7-1999. In the case of Shri Rajiv Chawla the return has been filed on 15-5-1998 and the notice u/s 143(2) was issued on 13-7-1999 for 21-7-1999. Parties are not able to state the exact date of service of notice but the admitted fact is that the notice u/s 143(2) in respect of the three appellants have been served after the expiry of period of 12 months as provided under proviso to section 143(2) of the Act. Since the assessing authority has failed to serve the notices, within the statutory period provided u/s 143(2) of the Act. The Assessing Officer had lost its jurisdiction to make assessment u/s 143(3), read with section 147 of the Act in the light of the decision reached by the Special Bench. The interveners shall have the orders in their appeals from the respective Benches as the only purpose of granting an intervention, is to entitle the interveners to address arguments in support of one or the other side. This is so held by the Apex Court in Saraswati Industrial Syndicate Ltd. v. CIT 1999 (3) TMI 3 - SUPREME COURT . Since we have decided in assessee's favour the interveners may take advantage of that order. In the result, the appeals stand allowed.

Summary

Issues Involved:
1. Applicability of the proviso to section 143(2) of the Income-tax Act, 1961 to returns filed pursuant to notice u/s 148.
2. Effect of non-service of notice u/s 143(2) within the prescribed time on the return filed pursuant to notice u/s 148.

Summary:

Issue 1: Applicability of Proviso to Section 143(2) to Returns Filed Pursuant to Notice u/s 148

The Tribunal examined whether the proviso to section 143(2), which mandates the service of notice within 12 months from the end of the month in which the return is filed, applies to returns filed pursuant to notice u/s 148. The Tribunal concluded that the words "so far as may be" in section 148 imply that the procedural provisions subsequent to section 139, including section 143(2), must be followed. This interpretation was supported by several judicial precedents, including the Supreme Court's ruling in R. Dalmia v. CIT [1999] 236 ITR 480, which emphasized that the procedure laid down in sections subsequent to section 139 must be followed in assessments and reassessments under section 147. The Tribunal also noted that the Punjab & Haryana High Court in Mrs. Rama Sinha v. CIT [2002] 256 ITR 481 had upheld the applicability of section 143(3) procedures to assessments under section 148. Therefore, the Tribunal held that the proviso to section 143(2) applies to returns filed pursuant to notice u/s 148.

Issue 2: Effect of Non-Service of Notice u/s 143(2) within Prescribed Time

The Tribunal addressed the consequences of failing to serve notice u/s 143(2) within the prescribed 12-month period. It was determined that non-service of notice within this period renders the assessment invalid. The Tribunal emphasized that the proviso to section 143(2) is mandatory and not merely directory. This interpretation was grounded in the principle that procedural provisions regulating periods of limitation must be strictly construed, as highlighted in K.M. Sharma v. ITO [2002] 254 ITR 772 (SC). The Tribunal concluded that if the notice u/s 143(2) is not served within the stipulated time, the return filed must be deemed as accepted, and no assessment can be made. This view was consistent with the judicial precedents that stress the necessity of adhering to statutory timelines to avoid rendering legislative provisions redundant.

Case-Specific Details:

In the cases of the appellants, notice u/s 148 was issued on 26-3-1998. The returns were filed on various dates in April and May 1998, but notices u/s 143(2) were issued on 13-7-1999, beyond the 12-month period. Consequently, the Tribunal held that the Assessing Officer lost jurisdiction to make assessments u/s 143(3) read with section 147 due to the failure to serve notices within the statutory period. The appeals were thus allowed.

Interveners:

The interveners, who supported the appellants' position, were advised that they could benefit from the Tribunal's decision in their respective appeals.