Padinjarekara Agencies (P) Ltd. Vs CIT (Kerala High Court)
Procedure under Section 143(2) is intended to ensure that an adverse order is passed against the assessee only after affording the assessee a proper opportunity. Therefore, the question to be considered is whether the assessee in this case had such an opportunity. It is in this context, the notices that were issued to the assessee assumes importance. Reading of the reasons recorded and communicated to the assessee, Annexure E notice posting the case, and Annexure I notice, show that the assessee was put on notice the inadmissibility of the reduction from the total income made by it and the assessee by its Annexure C objections, F reply and the reply filed by it to Annexure I notice had justified the deduction made by it. Further before Annexure K assessment order was passed, the assessee was afforded an opportunity of hearing also. Evidently, therefore, the assessee had ample notice of the case it had to answer and the assessee availed of those opportunities by answering the case against it. In such a situation, we are not prepared to think that there was absence of notice under Section 143(2) or that any prejudice was caused to the assessee in defending the case against it. We are not, therefore, prepared to think that the assessment order is invalid on the ground contended by the assessee.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-
In this appeal, the assessee calls in question the order passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.375/14 for the assessment year 2005-2006.
2. The assessee is a company engaged in the business of manufacture and sale of Centrifuged Latex. The assessment for the year 2005-2006 was completed under Section 143(1) of the Income Tax Act, 1961 and that was reopened under Section 148 of the Act on the ground that in computing the net profit under Section 115 JB, Rs.81,47,859/- was reduced in the agricultural income. According to the Assessing Officer, Rs.81,47,859/- represented as unrepresented liability and, therefore, could not have been reduced. Overruling the objections of the assessee, assessment order was passed under Section 148, a copy of which is Annexure K. This order was confirmed by the Commissioner of Income Tax (Appeals) whose order is Annexure L. The assessee carried the matter in appeal to the Tribunal and the appeal was dismissed as per Annexure O order. It is in these circumstances, the assessee has filed this appeal before this court.
3. In this appeal, although various questions of law have been framed for the consideration of this court, arguments of both sides revolved around the question “whether, on the facts and circumstances of the case, the assessment completed without issuing notice under Section 143(2) is non est”. To substantiate this contention, reference is made to the judgment of the Apex Court in Assistant CIT v. Hotel Blue Moon  321 ITR 362 (SC) and the judgment of this court in Travancore Diagnostics (P) Limited v. Assistant Commissioner of Income Tax [2016 (4) KLT 350].
4. We heard the senior counsel for the assessee and the learned Senior Counsel appearing for the Revenue.
5. Before we answer the question of law, it is necessary to refer to the facts in brief. As we have already stated, assessment under Section 143(1) was completed. Thereafter, the assessment was sought to be reopened and the reasons recorded by the Assessing Officer as required under Section 148, a copy of which is Annexure B, shows that the agricultural income reduced from the net profit was Rs.81,47,859/- and that in normal computation as per Section 115 JB the amount of income to which the provisions of Section 10 applies can be reduced from the net profit only if such amount is credited to the Profit and Loss Account. It is also stated that no agricultural income was credited to the Profit and Loss Account other than Rs.5,228/- included in the other income.
6. The reasons recorded by the Assessing Officer to reopen the assessment and to complete it under Section 147 was communicated to the assessee and the assessee filed its objections as per Annexure C justifying reduction in the net profit. Subsequently, notice under Section 148 was issued on 11.7.2007 and the assessee filed its reply on 10.9.2007. It would also appear that in the meanwhile, in response to the notice under Section 148 requiring the assessee to furnish its return, the assessee by its communication dated 13.7.2007 informed the Assessing Officer that the return filed by it on 29.10.05 and on 11.7.2007 be treated as its return under Section 148.
7. Subsequently, Assessing Officer again issued Annexure E notice explaining the irregularity of deduction of Rs.81,47,859/- to which the assessee filed Annexure F reply dated 9.7.2008, once again justifying deduction from the total income. While matters stood thus, the assessee filed an application under Section 144 A of the Act to the Additional Commissioner of Income Tax seeking directions for the guidance of the Assessing Officer to complete the assessment. Accordingly, the Additional Commissioner issued Annexure G directions under Section 144 A of the Act, upholding the view of the Assessing Officer and directing that Minimum Alternative Tax under Section 115 JB may be recomputed and assessed accordingly. Subsequently, Annexure I notice was issued by the Assessing Officer, posting the assessment proceedings to 31.2.2008 and accordingly, the assessee was afforded an opportunity of hearing and Annexure J written submissions were filed. Taking into account the materials that were available before him, the Assessing Officer completed assessment under Section 148 as per Annexure K order.
8. Reading of Annexure K assessment order and Annexure L order of the Commissioner of Income Tax (Appeals) show that neither before the Assessing Officer nor before the Commissioner did the assessee raise a complaint that the assessment proceedings were invalid for non issuance of notice under Section 143(2) of the Act. Even Annexure M appeal memorandum filed before Tribunal also do not contain a contention to that effect. However, it appears that during the course of hearing, argument to that effect was raised and the Tribunal rejected the same taking note of the notices that were issued to the assessee, the opportunities afforded to them and holding that non adherence to the prescribed rule or mode of proceedings, would not make the assessment orders null and void. It was, accordingly, the appeal of the assessee was rejected by the Tribunal.
9. Section 147 of the Income Tax Act provides for assessment of income escaping assessment. Such assessment has to be in terms of Section 148, which provides for recording of reasons and issue of notice where income has escaped assessment. This Section, inter alia, provide that before making an assessment, reassessment or re-computation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish a return of his income which is assessable under the Act during the previous year corresponding to the relevant assessment year and that the provisions of the Act shall so far as may be applied accordingly as if such a return where such a return required to be furnished under Section 139. In the context of the assessment under Section 147 courts have taken the view that notice under Section 147(2) is required to be issued to the assessee. See in this connection, the judgment of the Delhi High Court in Alphine Electronics Asia PTE Ltd. v. Director General of Income Tax and others  341 ITR 247 vide paragraph 24 thereof.
10. Section 143(2) shows that the purpose of issuing a notice thereunder is to require the assessee to produce, or cause to be produced, any evidence on which the assessee may rely, in support of the return filed by him. That a notice under Section 143(2) is a mandatory requirement and is not an empty formality has been clarified by the Apex Court in its judgment in Hotel Blue Moon (supra) and that judgment has been followed by this court in the judgment in Travancore Diagnostics (P) Limited (supra).
11. However, insofar as this case is concerned, question to be considered is whether the omission to mention Section 143(2) literally in any one of the notices issued to the assessee would invalidate the assessment order. While in this context, it is relevant to take note of the Division Bench judgment of this court in K.J.Thomas v. Commissioner of Income Tax  301 ITR 301 [Ker], where a Division Bench of this court has held thus:
“The appellant himself had produced annexure A-I which is the reply filed by him pursuant to the details called for by the Assessing Officer. It is seen from annexure A-I that the entire questions raised and considered in the reassessment was answered by the assessee. However, the assessee has written in paragraph 7 of the said reply that he was not issued any notice under Section 143(2) of the Act. In the normal course, a detailed reply in this nature is furnished only after issuing a notice under section 143(2) of the act. In any case, we find that after the assessee filed annexure A I reply, no further notice is required, because reply was already filed by the appellant. The procedure under Section 143(2) of the Act is to ensure that an adverse order is issued only after proper opportunity is given to the assessee. In this case, it is conceded that the assessee got opportunity to file reply and detailed reply was in fact filed and the reassessment notice and the final order were also issued within the time limit prescribed under the Act.”
12. From the above, it is obvious that the procedure under Section 143(2) is intended to ensure that an adverse order is passed against the assessee only after affording the assessee a proper opportunity. Therefore, the question to be considered is whether the assessee in this case had such an opportunity. It is in this context, the notices that were issued to the assessee assumes importance. Reading of the reasons recorded and communicated to the assessee, Annexure E notice posting the case, and Annexure I notice, show that the assessee was put on notice the inadmissibility of the reduction from the total income made by it and the assessee by its Annexure C objections, F reply and the reply filed by it to Annexure I notice had justified the deduction made by it. Further before Annexure K assessment order was passed, the assessee was afforded an opportunity of hearing also. Evidently, therefore, the assessee had ample notice of the case it had to answer and the assessee availed of those opportunities by answering the case against it. In such a situation, we are not prepared to think that there was absence of notice under Section 143(2) or that any prejudice was caused to the assessee in defending the case against it. We are not, therefore, prepared to think that the assessment order is invalid on the ground contended by the assessee.
13. In such circumstances, answering the aforesaid question of law in favour of the Revenue and against the assessee this appeal is dismissed.
No other questions were argued.