Delhi High Court held In the case of Principal CIT vs. Shri Jai Shiv Shankar Traders Pvt. Ltd. that the failure by the AO to issue a notice to the Assessee under Section 143(2) subsequent to 16th December 2010 when the Assessee made a statement before the AO to the effect that the original return filed should be treated as a return pursuant to a notice under Section 148 of the Act, is fatal to the order of re-assessment. Accordingly, re-assessment without issuing notice u/s 143(2) is not valid.
Facts of the Case
The Assessee filed its return of income for the AY 2008-09 on 16th September, 2008. The said return was accepted by the Department and an acknowledgement was issued under Section 143(1). Subsequently the return was picked up for scrutiny. After recording reasons, notice was issued to the Assessee on 30th March, 2010 under Section 148. Subsequently, on 1st October, 2010, a notice was issued under Section 143(2) of the Act by the AO stating that there were certain points in connection with the return filed on which the AO “would like some further information”. Here it is not in dispute that both the notices i.e. notice u/s 148 & 143(2) were not received by the assessee. The AO proceeded to pass an assessment order on 31st December, 2010 whereby, inter alia, an addition of Rs.1 crore was made to the income of the Assessee under Section 68 of the Act as unexplained credits.
Contention of the Assessee
The ld counsel of the assessee refer to an order passed by this Court on 17th August, 2011 in Review Petition No.441/2011 in ITA No.950/2008 (CIT v. Madhya Bharat Energy Corporation) whereby this Court reviewed its main judgment in the matter rendered on 11th July 2011 on the ground that the said appeal had not been admitted on the question concerning the mandatory compliance with the requirement of issuance of notice under Section 143(2) of the Act. In its review order, this Court noted that at the time of admission of the appeal on 17th February, 2011 after noticing that in the said case that no notice under Section 143(2) had ever been issued, the Court held that no question of law arose on that aspect. The upshot of the above discussion is that the decision of this Court in CIT v. Madhya Bharat Energy Corporation is not of any assistance to the Revenue as far as the issue in the present case is concerned.
Further he reliance on a large number of decisions of the High Courts. He submitted that the failure to issue a notice under Section 143(2) of the Act subsequent to the Assessee having informed the AO that the return originally filed should be treated as the return filed pursuant to the notice under Section 148 was fatal to the order of re-assessment.
Contention of the Revenue
The ld counsel of the revenue relied on the decision of this Court in ‘Commissioner of Income Tax v. Madhya Bharat Energy Corporation Ltd. (2011) 337 ITR 389 ) Del which purported to hold that non-issue of notice under Section 143(2) of the Act on an Assessee prior to completion of the reassessment would not be fatal to the reassessment. She also sought to distinguish the decision in ACIT v. Hotel Blue Moon on the ground that it pertained to a block assessment.
Further it was submitted that the decision of this Court in CIT v. Vision Inc. (2012) 73 DTR 201 (Del) would apply to the current case. In this judgment it was held that since on the facts of that case the Assessee had been properly served with the notice under Section 143(2) of the Act within the statutory time limit prescribed under the proviso thereto, the ITAT should not have set aside the re-assessment in toto. She placed reliance on Section 292BB of the Act and urged that the Assessee having not raised any objection about non service of the notice under Section 143(2) of the Act either at any time before the AO or prior to, or during the reassessment proceedings, the Assessee was precluded from raising such an objection in the subsequent stages of the proceedings.
Held by CIT (A)
CIT (A) held that no specific notice was required to be issued under Section 143(2) of the Act and that questionnaires dated 11th November, 2003 and 21st January, 2004 issued by the AO had provided the Assessee’s sufficient opportunity to support his return by documentary evidence. Secondly, it was held that non issue of notice under Section 143(2) did not render the reassessment invalid.
Held by ITAT
ITAT allowed the appeal of the assessee. ITAT refer the decision of the Supreme Court in ACIT v. Hotel Blue Moon (2010) 321 ITR 362 and a plethora of judgments of the High Courts and concluded that for completing the assessment under Section 148 compliance with the procedure under Section 143 (2) was mandatory. It was held that if notice was not issued to the Assessee before completion of the re-assessment, then such reassessment was not sustainable in law.
Held by High Court
It is clear that no notice under Section 143(2) was issued to the Assessee after 16th December 2010, the date on which the Assessee informed the AO that the return originally filed should be treated as the return filed pursuant to the notice under Section 148 of the Act.
In DIT v. Society for Worldwide Interbank Financial Telecommunications (2010) 323 ITR 249 (Del), this Court invalidated an reassessment proceedings after noting that the notice under Section 143(2) of the Act was not issued to the Assessee pursuant to the filing of the return. In other words, it was held mandatory to serve the notice under Section 143(2) of the Act only after the return filed by the Assessee is actually scrutinised by the AO.
In CIT vs. Rajeev Sharma (2011) 336 ITR 678 (All.) it was held that a plain reading of Section 148 of the Act reveals that within the statutory period specified therein, it shall be incumbent to send a notice under Section 143(2) of the Act.
In a subsequent judgment in CIT v. Salarpur Cold Storage (P.) Ltd. (2014) 50 Taxmann.com 105 (All), it was held that for the Assessing Officer to make an order of assessment under Section 143 (3) of the Act, it is necessary to issue a notice under Section 143 (2) of the Act and in the absence of a notice under Section 143 (2) of the Act, the assumption of jurisdiction itself would be invalid. Further it was noticed by the Allahabad High Court that the decision of the Supreme Court in ACIT v. Hotel Blue Moon (2010) 321 ITR 362 where in relation to block assessment, the Supreme Court held that the requirement to issue notice under Section 143(2) was mandatory. It was not “a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with.” The Madras High Court held likewise in Sapthagiri Finance & Investments v. ITO (2013) 90 DTR 289 (Mad).
As already noticed, the decision of this Court in CIT v. Vision Inc. (2012) 73 DTR 201 (Del) proceeded on a different set of facts. In that case, there was a clear finding of the Court that service of the notice had been effected on the Assessee under Section 143 (2). As already further noticed, the legal position regarding Section 292BB has already been made explicit in the aforementioned decisions of the Allahabad High Court. That provision would apply insofar as failure of “service” of notice was concerned and not with regard to failure to “issue” notice. In other words, the failure of the AO, in re-assessment proceedings, to issue notice under Section 143(2) of the Act, prior to finalising the re-assessment order, cannot be condoned by referring to Section 292BB of the Act.
Accordingly, appeal of the revenue dismissed.