Validity of order passed u/s 154 of IT Act, 1961 when demand notice served after limitation period

RELEVANT PARAGRAPH

10. A plain reading of section 154 quoted above reveals that the Assessing Officer has to pass an order amending the assessment within the period of limitation as provided under sub-section (7) . Sub-section (3) of section 154 quoted above makes it obligatory upon the Assessing Officer to give a notice to the assessee and afford reasonable opportunity of being heard if the proposed amendment has the effect of enhancing an assessment or reducing a refund. In this case there is no dispute that the Assessing Officer had issued a notice to the assessee and subsequently the assessee had also given consent to the rectification. Sub-section (4) of section 154 makes it obligatory upon the Assessing Officer to pass an order in writing. Sub-section (6) of section 154 provides that where any amendment has the effect of enhancing the assessment or reducing a refund, the Assessing Officer shall serve a notice of demand in the prescribed form and that such notice shall be deemed to be issued under section 156 and the provisions of the Act shall apply accordingly. Sub-section (7) of section 154 provides for limitation upon the power of the Assessing officer to make an amendment after the expiry of four years from the end of the financial year in which the order sought to be amended was passed. Sub-section (7) of section 154, which provides for limitation, speaks of amendment under that section but does not refer to the notice of demand, which is deemed to be a notice under section 156. It will be useful to compare the provisions of section 154 with section 143(3). Section 143(3) reads as under: –
“Assessment.

143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,

………………………………………………………………………

(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment”.

11. Section 156 will also be relevant. It reads as under: –

“Notice of demand.

156. When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable”.

13. Since the provisions of sections 143(3), 144 and 156 are comparable with the provisions of section 154 as a whole, it can safely be said that the limitation under section 154 applies to passing of an order and determination of the tax payable by the assessee. But the said limitation does not apply to the issue of notice under section 154, whether the notice required to be served under sub-section (7) of section 154, which is equivalent to the notice under section 156. Since the issue is covered by the decision of the Hon’ble Supreme Court, the decisions of any other High Court to the contrary, if any, needless to say, is of no consequence. Reference to certain decisions made, however, be useful where it has been held that the passing of order under section 143(3) within the period of limitation and calculation of tax is the requirement of law; and such case where the demand notice has been served after the period of limitation, the action of the Assessing Officer would not be barred by limitation.

16. As pointed out earlier, our attention has been invited by the learned counsel for the assessee to certain judgments, referred to in Para 4 of this order. In these cases the assessee had claimed that the order had not been passed within the period of limitation and to support the claim, reference had been made to the service of demand notice. The above cases are distinguishable on facts. More over, the Hon’ble Supreme Court having laid down the law in regard to passing of an order under section 143(3), the same is applicable in respect of the making of the amendment under section 156. We therefore hold that the order of amendment under section 156 would mean an order in writing and calculation of tax on the basis of such order. If the amendment and calculation of tax is made within the period of limitation as provided in sub-section (7) of section 154, the mere fact that the demand notice has been served upon the assessee after the period of limitation will not render the order passed by the Assessing Officer to be invalid. However, since the issue of limitation was raised before the Tribunal for the first time, it would be appropriate to restore this issue to the file of the CIT(A), to decide as to whether the amendment made by the Assessing Officer under section 156 along with ITNS 150 was signed by the Assessing Officer within the period of limitation as prescribed under sub-section (7) of section 154. If the CIT(A) finds the order to have been passed within the period of limitation, the mere fact that the notice of demand had been issued after the period of limitation will not, in our view, invalidate the order of amendment made within the period of limitation. We accordingly restore this issue to the file of the CIT(A) for determination on above lines, after giving an opportunity of being heard to the assessee.