Need for notice u/s 143(2) cannot be dispensed with in a case where AO proceeds to make inquiry for assessment, and determination of taxes payable after issuing notice u/s 143(1) as well : ITAT
BOTH the assessee and the Department are in appeal before the ITAT.
The grounds raised in the appeal filed by the Assessee are as follows; – The CIT(A)
1. erred in rejecting the contention that the block assessment for the period 1.4.89 to 29.11.99 made by the A.O. was invalid, bad in law, void ab-initio and without jurisdiction as the notice issued u/s.143(2) of the Act was beyond the prescribed time limit of one year as provided in the proviso to s.143(2) of the Act.
2. erred in holding that the payments made to Smt. LeenaJ.Sonawala over the block period of Rs.5,75,277/- towards the salary, Rs.3,00,000/- towards the ex-gratia payment and Rs.3,22,120 towards her Keyman Insurance Policy premium totaling to Rs.11,97,397/- were a non-business expenditure. Erred in ignoring the fact that the proceeds of the Keyman Insurance Policy when realized in subsequent year within the block period were offered by the Company for taxation in its assessment proceedings and thus were not payment to her.
3. Erred in ignoring the fact that the allegations in letters from a director and disgruntled shareholders, emanating out of a family feud, which formed the basis for the additions by the A.O., relate to her irregular attendance and the cost-benefit of such expenditure and did not relate to non attendance at all; and in relying upon the letters addressed by a director and some disgruntled shareholders while adjudicating on this issue when he himself has rejected these letters as inconsequential and/or without substance while adjudicating other issues.
4. erred in observing that the AR did not bring any material or evidence on the record to show that Smt. LeenaJ.Sonawala had rendered any service to the Company when in fact all such material and evidences brought on record at the assessment and the appellate stage were not appreciated by him.
5. Erred in holding that the A.O. rightly observed that the addition of Rs.10lacs was required to be made on account of Board resolution dated 7.1.2000 when such resolution was rescinded and revoked by another resolution dated 5.6.2000.
6. failed to record any finding that there was any underlying income to support such addition.
7. erred in rejecting the claim vide grounds no. 11, 12 & 13 in appeal before him that disallowable expenditure as distinct from undisclosed income unless proved to be totally bogus and/or fictitious is not assessable under Chapter XIV-B and that there is a vast distinction between two sets of assessment proceedings, namely, Regular Assessment proceedings (Chapter XIV) and Block Assessment Proceedings (Chapter XIV B).
therefore the appellant prayed that that the order of the A.O. be declared as in excess and beyond his jurisdiction and therefore null and void. Without prejudice to such prayer and in the alternative, the undisclosed income confirmed by the CIT(A) at Rs.11,97,397/- be directed to be determined at Rs.Nil after deleting the disallowances/additions confirmed by the CIT(A).’
The grounds raised in the appeal filed by the Revenue are as below:-
“On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.20,79,086/- on account of suppression of job work charges, ignoring (a) that normal percentage of scrap inclusive of rejected materials was approximately 1.5% to 2% maximum, whereas assessee shown huge fluctuations of percentage of scrap-rejected materials in block year, ranging from 2.44% to 13.47%, (b) that assessee’s submission before the Ld.CIT(A) that if the amount of rejects are excluded, the percentage of wastage would come around to 1.5%, is not correct because in such a circumstance, assessee would not have shown huge fluctuations of percentage of scrap/rejected materials in the block years, ranging from 2.44% to 13.47%, (c) that the A.O. brought on record through analysis of seized materials various instances where scrap returned worked out to as high as 32.99%, and also in certain cases scrap/rejected materials were claimed to be delivered to NRPL, without any corresponding production, which confirm that assessee had returned finished goods in the guise of scrap, resulting in suppression of job work charges in the hands of the assessee.”
The Tribunal observed,
1. The rule regarding the limitation requires strict interpretation and strict compliance.
2. Limitation is one of the most inflexible rule in any scheme of assessment. Therefore, Sec.143(2) cannot be brushed-aside as a procedural section. It is a procedural section coupled with rule of limitation.
3. The provisions of sub-section (3) show that the power under this sub-section should be invoked only after service of notices under sub-section (2).
4. The Assessing Officer admittedly did not follow the proceedings of sub-section (2) of Sec.143.
5. The words “so far as may be”, will thus become mandatory where the Assessing Officer proceeds to make an inquiry in repudiation of the return filed in response to a notice u/s.158BC. Similarly, application of the provisions of Sec.142 and sub-sections (2) and (3) of Sec.143 will become directory where the Assessing Officer does not embark upon an inquiry to determine the loss or profit reflected in the return filed.
6. There is no dispute that in the case of assessment under Chapter XIV, a notice under section 143(2) is mandatory where the Assessing Officer proceeds to make an inquiry as provided in section 142.
7. Similarly, the provision of section 143(2) will be mandatorily applicable in the case of block assessment also where the Assessing Officer in repudiation of the return filed under section 158BC(a) proceeds to make an inquiry in the proceeding under Chapter XIV-B.
8. Once the power of inquiry under section 142 is invoked, the Assessing Officer has no option but to follow the provisions of section 143(2).
9. The words “so far as may be”, will thus become mandatory where the Assessing Officer proceeds to make an inquiry in repudiation of the return filed in response to a notice issued under section 158BC.
10. The circular issued by the Central Board of Direct Taxes provides that a notice under sub-section (2) of section 143 can be served on the assessee during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later. The circular further provides that the Assessing Officer must serve notice under sub-section (2) on the assessee within this period if a case is picked up for scrutiny.
11. It is further clarified that it a notice is not served under section 143(2), the assessee 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.
12. The clarification given by the Board has a binding effect on the Department. Hence in the case of block assessment under Chapter XIV-B, where the Assessing Officer does not proceed to make assessment and determine the tax payable on the basis of the return filed in response to a notice under section 158BC(a), he has to follow the provisions of sub-section (2) of section 143.
13. The requirement of a notice under sub-section (2) of section 143 cannot be dispensed with in a case where the Assessing Officer proceeds to make an inquiry for the purpose of assessment, and determination of taxes payable after issuing notice under section 143(1) as well.
14. If no notice is issued u/s.143(2), the consequent assessment would be void. It is equally true that any assessment made on the basis of an invalid notice is also invalid.
15. A notice barred by limitation is no notice at all.
16. In the present case, the notice u/s. 143(2) is issued beyond the prescribed time limit of one year. Therefore, the notice issued by the Assessing Officer u/s. 143(2) is a time barred notice. It is as good as there was no notice.
So the Tribunal held that the impugned block assessment is ab initio void and not sustainable in law. As the assessment itself is held void, the grounds raised by the Revenue in its appeal do not stand and they have to be dismissed as infructuous. In result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.
(See 2007-TIOL-314-ITAT-MUM in ‘Income Tax’ + 2007-TIOL-314-ITAT-MUM in ‘Legal Corner’)