Service U/s 143(2) – ‘Whether a Sword of Cooperation’

Advocate Sameer Bhatia

Introduction -The provisions concerning the recuperative and the penal statutes are always to be construed strictly and stringently as per the profuse principles of interpretative jurisprudence available and codified into analogous legislative spheres. In what can be called as a formal invitation to invoke the jurisdiction of the adjudicating and arbitrating authority, what goes to the root of the matter is the just, constructive, veritable and undeniable and most above all un-challengeable cognizance and service of notice upon the subject liable to attend the trail and succession of proceedings under the relevant statutes. An effective and purposive service of notice is not only tenacious but adherence to it must be adopted as a norm without which the principles of natural justice will take a back seat thereby causing an environment of the greatest affront and abuse to the seriatim of proceedings. The very character of `Service’ is not to be coincided with just a spherule but it penetrates into the heart and soul of the litigation and the law suit under reference thereby channelizing and portraying it as a front and apex runner of the schematic cause of sitting upon the legitimate jurisdiction and hegemony being conferred by legislative plenum in force through the territory of our country. The word `Service’ as it is popularly called in relation to section 143 of the Income Tax Act, customarily called as the proclamation giving way to framing of assessments which further stood corroborated and cushioned by the inbuilt language of the provisos appended to section 143, has for some past time been an apple of discord between the assesses and the department with both sides at a discount to accept the contention of the other.

Main Body

The acid test giving way to a number of burning questions concerning the due service of notice have been settled by various courts differently by relying upon assorted and variegated provisions of law in force. In furtherance of the resolution of the conflict arising between the term `Service’ and its due `Issuance’ before the time stipulated for by the enactment though `Serviced later’ thereby giving way to a feasible, legitimate, constitutional and licensed service of notice under second proviso appended to section 143(2)(ii), the assessees will tend to remain on the tenter hooks. As per the Black’s Law Dictionary, 7<sup>th</sup> Edition, p.1373, the expression `Serve’ means to make a legal delivery of (a notice or process) of a copy of the pleading on all interested parties. The word ‘Service’ relatively is also understood to be used in so far as the proceedings governing the civil cause of action is concerned, but it is material to note that the Assessment Proceedings under the Income Tax Act, 1961 cannot be reckoned as a suit for adjudication of a civil dispute as held by the Hon’ble Supreme Court of India. To corroborate the above said proposition, it will be pertinent to state the law settled by the Hon’ble Supreme Court of India in a case titled, `Gadgil (S.S.), Income Tax Officer vs. Lal and Co [1964] 53 ITR 231,

`A proceedings for assessment of tax under the Income Tax Act is not a suit for adjudication of a civil dispute. That an income-tax proceeding is in the nature of a judicial proceedings between the contesting parties, is a matter which is not capable of evev a plausible argument. The Income Tax authorities who have to assess and recover tax are not acting as Judges deciding a litigation between the citizen and the state; they are administrative authorities whose proceedings are regulated by statute, but whose function is to estimate the income of the taxpayer and to assess him to tax on the basis of that estimate. Tax Legislation necessitates the setting up of machinery to ascertain the taxable income, and to assess tax on the income, but that does not impress the proceeding with the character of an action between the citizen and the state. To root and branch the debatable issue of `Service of notice u/s 143(2))’ it is of utmost importance to state the bare language of the provision followed by its relative interpretation by the Courts of Record and other authorities acting in the aid of constitution.

Section 143[(2) :

Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall –

(i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim:

[Provided that no notice under this clause shall be served on the assessee on or after the 1^st day of June, 2003;]

ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend hid office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return:

[Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.]]

Second proviso appended to section 143(2) substituted by the Finance Act, 2008, with effect from 01^st April, 2008 in a unambiguous, comprehensible, intelligible, lucid and perspicuous manner lay down a rule of law that no notice shall be served on the assessee for the purpose of stepping into the shoes of assessment after the expiry of six months from the end of the financial year in which the return of income is furnished by the assessee in due compliance with the requirements of discharging its obligations under the Income Tax Act, 1961. The expression `Shall’ as used in the proviso also did not stood alien to judicial scrutiny. Hon’ble Patna High Court in the case of Haradhan Mahatha vs Kuhju Mahatha AIR 1993 Pat 129 has categorically commented and deliberated upon the expression `shall’ as it denotes that the court would presume in that event, no discretion has been left with the court and there is a legislative command to it to raise a presumption and regard such fact as proved unless and until it is disapproved.

Hon’ble Supreme Court of India has held in a case titled Assistant Commissioner of Income Tax & Another vs. Hotel Blue Moon, Civil Appeal No.1198 of 2010 [2010] 229 CTR (SC) 219, `Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a mere procedural irregularity and the same is not curable. If assessing authority for any reason, repudiates the return filed by the assessee in response to a notice under section 158BC(a), he must necessarily issue notice under section 143(2) within the time prescribed in the proviso to s. 143(2); any omission on the part of assessing authority to issue notice cannot be reckoned as a mere procedural irregularity and it cannot be cured.

The intention of the legislation clearly embarks upon the situs of service subject to the fulfillment of the required criteria of notice being served not later than six months from the end of financial year in which the return of income stood furnished. In this context the time limit specified by the enactment and proviso to section 143(2) is sacrosanct and any varied construction of correlating service of notice with the issuance of notice does not partake and carry forward the true intention of the legislative charter. In this context, it will be most viable to refer to the law settled by the various courts and tribunals paving way for vitiating the proceedings in case the service of notice is effected beyond a period of six months as mentioned in the 2^nd Proviso to section 143(2).

a) Hon’ble Kerala High Court has stamped proposition favourable to the interest of assessee in a case titled Coconut Palm Beach Garden vs. Commissioner of Income Tax [2014] 224 Taxman 65 (Mag.) (Ker), `Where notice under section 143(2)(ii) is served beyond time specified, further proceeding will be vitiated and consequently would be of no utility’.

b) In due furtherance thereof Hon’ble Kerala High Court has held in the case titled Romi vs. Commissioner of Income Tax [2014] 363 ITR 311 (Ker), `Where no notice was issued under section 143(2) to assessee, assessment made under section 143(3) was to be set aside.

c) Hon’ble Allahabad High Court has held in a case titled Commissioner of Income Tax vs. Salarpur Cold Storage Private Limited [2015] 228 Taxman 48 (Mag.) (Allahabad), `Where there is a failure apparent to issue a notice under section 143(2) within prescribed period, it cannot be cured by taking recourse to section 292BB of the Income Tax Act , 1961.

d) To add further, the Hon’ble Allahabad High Court in a case titled Commissioner of Income Tax vs. Pardeep Kumar Gupta [2014] 221 Taxman 15 (Mag.) (Allahabad) settled, `Assessment Order passed under section 143(3) without serving notice to assessee under section 143(2) within stipulated period was invalid and, thus without merit and deserved to be set aside.

e) Hon’ble Punjab & Haryana High Court in the case of Commissioner of Income Tax vs Cebon India Limited (2010) 229 CTR (P&H) 188 has categorically recorded a finding to the effect that a notice under section 143(2) has to be served within the stipulated time and any non-compliance of the said provisions will make the impugned assessment a nullity, still born and a nonest assessment and the same is not a curable defect under section 292BB of the Income Tax Act, 1961.

f) Hon’ble Punjab & Haryana High Court in the case of CIT vs Sunil Kumar Chhabra (2012) 250 CTR (P&H) 195 has held that in the absence of proper service of notice under section 143(2) assessment order was rightly set aside by the Tribunal. It was also held that `Assessment was invalid where notice under section 143(2) was sent at wrong address’.

g) Hon’ble Punjab & Haryana High Court in the case of Commissioner of Income Tax vs AVI-OIL India (P) Limited (2010) 323 ITR (P&H) has again reiterated the opinion that on perusing the provisions of section 143(2) of the Income Tax Act, 1961, notice under section 143(2) is not only to be issued but has to be served before the expiry of 12 months from the end of month in which return was furnished. If the notice is served beyond the period of twelve months upon the assessee, the same is not valid in the eyes of law and hence invalid. Any action taken pursuant to the said invalid notice is liable to be set aside and the assessment framed is to be annulled.

h) Hon’ble Allahabad High Court has settled in the case titled Commissioner of Income Tax vs. Mukesh Kumar Agrawal [2012] 25 taxmann.com (Allahabad), `Where notice under section 143(2) was not issued, Assessing officer did not have jurisdiction to make assessment.

i) Hon’ble Delhi High Court in the case of Commissioner of Income-tax Vs CPR Capital Services Ltd. (Del) 330 ITR 43 has held that It is the duty of the assessing officer to prove that notice u/s. 143 (2) was served on the assessee and in absence of that, the assessment framed is null and void. Service of notice is mandatory.

j) Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs Silver Streak Trading Private Limited 326 ITR 418 Delhi has held that if the assessee files an affidavit that, mandatory notice u/s. 143 (2) was not received by him within the prescribed time, it is the duty of the revenue to prove that, notice was served in time.

Any notice serviced beyond the time limited specified by 2^nd Proviso to section 143(2) appears to be lacking in jurisdictional boundaries and hence invalid in the eyes of law. It is Coram non judice. The said defect of jurisdiction goes to the root of the matter and cannot be cured even by the consent of parties as held by the Hon’ble Supreme Court of India in the case of Kiran Singh vs Chaman Paswan AIR 1951 SC 340 as below:-.           

`It is a fundamental principle well established that a decree passed by a court without jurisdiction is a nullity and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction… strikes at the very authority of the court to pass any decree, and such defect cannot be cured even by consent of parties.’

One of the growing controversies surrounding the circumstances giving way to legalize the defective, flawed, fallacious and non-curable service of notice was evident from the correlation that seem to have been equated and created between the term called `Issuance’ and the term called `Service’ as stipulated for by the enactment. The Hon’ble Punjab & Haryana High Court in a case titled V.R.A.Cotton Mills (P) Limited vs. Union of India & Others [2012] 250 CTR (P&H) 188 struck a balance between the term service and the term issuance of notice by the department thereby leading to legalize that service of notice which stood served beyond a period of six months from the end of financial year in which return of income got furnished as a mode of discharging the obligation by the assessee. The Hon’ble Court has held, `Expressions `serve’ and `issue’ are interchangeable, as has been noticed in Section 27 of the General Clauses Act, 1887 – Date of receipt of notice by the addressee is not relevant to determine, as to whether the notice has been issued within the prescribed period of limitation- Expression `serve’means the date of issue of notice – Notice issued on 30^th September, 2010 was thus within limitation period though received by the assessee after 30^th September, 2010.

However it is also vital to note that Hon’ble Delhi High Court in the case titled Commissioner of Income Tax vs. Bhan Textiles Private Limited [2006] 287 ITR 370 (Delhi) has settled, “There is a clear cut distinction between `issuance of notice’ and `service of notice’ According to above proposition, the notice must be served which was not done and hence the assessment was not valid.

It is also of utmost importance to have recourse to the provisions contained in section 292BB of the Income Tax Act, 1961 the bare language of which reads, `Notice deemed to be valid in certain circumstances’. The essential, crucial and indispensable legislative intent to legalizing the effect of defective and weakened notices was the introduction of an amendment introduced in the Income Tax Act, 1961 by the Finance Act, 2008, with effect from 01^st April, 2008. Section 292BB reads as below:-

292BB. Notice deemed to be valid in certain circumstances.- Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner

Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.

Special Bench of the Income Tax Appellate Tribunal in construing the provisions concerning section 292BB of the Income Tax Act, 1961 has held in a case titled Kuber Tobacco Products (P) Limited vs. Deputy Commissioner of Income Tax [2009] 120 TTJ (Del)(SB) 577, `In no case, the department can rely on section 292BB for saving the assessment proceedings where notice under section 143(2) has not been served or has been served beyond the period of limitation.

In Cebon India Limited [2010] 229 CTR (P&H) 188, the counsel for the revenue submitted that a notice has been despatched to the assessee on 13^th November, 1997 and the irregularity was curable under section 292BB. Dismissing the plea, the Hon’ble Punjab & Haryana High Court has held that as per the concurrent findings recorded by the Commissioner of Income Tax (Appeals) and by the jurisdictional Income Tax Appellate Tribunal (ITAT) on the question of date of service of notice, notice was not served within the stipulated time. In absence of notice being served, the Assessing Officer has no jurisdiction to make assessment. Absence of notice cannot be held to be curable under section 292BB of the Income Tax Act, 1961.

Conclusion

2^nd proviso appended to section 143(2) provides a very ascendant, dominant, prepotent and authoritative exception over the entire section with regard to the issue of service of notice. Only thing expected off from an assessee is not to cooperate with the department in the event of any latent or patent defect in the notices not issued and/or not served within the time allowed by the statutory provisions. Since the proviso appended to section 292BB empowers the assessee to raise the issue of servicing in an improper manner, non-service upon the assessee and no service upon the assessee within the time permitted and admissible during the course of both assessment and reassessment proceedings, it is expected of from an assessee to take up the cudgels accompanied by throwing down the gauntlet and to be intolerant to any form of illegal service of notice which goes to the root of the matter and should in every possibility uproot and deracinate the inbuilt and inherent illegality of the notice forming the very basis of assessing/reassessing the income under the Income Tax Act, 1961. Cooperation at the level of assessment or reassessment with regard to the defects prevalent in the notice might be taken to be a case of fatality thereby leading to estoppel from raising the plea at the higher hierarchy of the authority.

(Article by – Advocate Sameer Bhatia, R/o 158/2, Guru Teg Bahadur Nagar, Opposite Mata Gujri Park, Jalandhar – 144003, Punjab Contact No:- 9041304900 Email Address: adv.sameerbhatia@gmail.com)

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