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Facts
The assessee's appeal is against an order confirming a reassessment order. The primary contention is that the reassessment notice was issued beyond the prescribed limitation period, rendering the assessment void. The Revenue argued that the notice was dispatched, and the assessee had an opportunity to respond.
Held
The Tribunal held that the issue of the notice within the limitation period is crucial for jurisdiction. Since the notice was issued beyond the limitation period, the entire assessment superstructure is deemed to crumble. Therefore, the assessment order and the additions made are directed to be deleted.
Key Issues
Whether reassessment proceedings initiated by issuing a notice beyond the prescribed limitation period are valid and whether the service of notice is a condition precedent for jurisdiction.
Sections Cited
144, 147, 148, 142(1), 234A, 234B, 234C, 149, 151, 139
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Income Tax Appellate Tribunal, “F” BENCH, DELHI
Before: MS. MADHUMITA ROY & SHRI KHETTRA MOHAN ROY
The instant appeal, preferred by the assessee is directed against the order dated 31.05.2023 passed by the Ld. National Faceless Appeal Centre (NFAC), Delhi, arising out of the Assessment Order dated 24.12.2018 passed by ITO, Ward 3(3) Gurugram, under Section 144 r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2011-12.
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned reassessment order u/s 144/147 and that too without assuming jurisdiction as per law and without complying the mandatory conditions of section 147 to 151 of the Act and impugned case has been reopened without recording 'reason' and without obtaining approval of the higher authority u/s 151 in accordance with law.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in passing the impugned reassessment order u/s 147 is beyond jurisdiction, bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.17,77,377/- (i.e. 8% of Rs.2,22,17,214/-) on account of estimation of profit and that too by recording incorrect facts and findings and in violation of principles of natural justice.
4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.17,77,377/- (i.e. 8% of Rs.2,22,17,214/-) on account of estimation of profit, bad in law and against the facts and circumstances of the case.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) ought to have quashed the impugned reassessment order passed by Ld. AO u/s 144/147 as the same was passed without issuing/serving the mandatory notices u/s 148 and 142(1) of Income Tax Act, 1961.
6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A, 234B and 234C of Income Tax Act, 1961.
That the appellant, crave leave to amend, alter, add or delete any of the forgoing grounds of appeal.”
2. At the very onset, the Ld.AR Somil Agarwal vehemently submitted that the assessment be quashed on the ground that the notice under Section 148 was never served upon the assessee.
3. On the other hand, the Ld. DR relied on the report of the AO dated 30.01.2025 which is reproduced as follows:
The Ld. DR also submitted before the Bench that the details of dispatch of notice under Section 140 the same is reproduced as follows:
It is manifested that the notice has been served on 10.04.2018 the last date for the issue of notice was 31.03.2018. The point to be adjudicated as to whether the delayed submission of notice by 10 days is fatal to the assessment. We deem it expedient to reproduced:
This is an appeal by the Revenue by special leave and is directed against the judgment of the Gujarat High Court dt. 20th Aug., 1973, in a writ petition. The High Court quashed the notice for reassessment issued under s. 147(b) of the IT Act, 1961 (hereinafter referred to as The Act"), for the asst. yr. 1965-66. In spite of service of notice, the assessee-respondent has not appeared.
The High Court has quashed the notice by accepting the assessee's contention that the action of the ITO was barred by limitation prescribed by the Act. There is no dispute that the notice in this case under s. 147 (b) of the Act was issued by registered post on 31st March, 1970, and was received by the assessee on 3rd April, 1970. To the facts of the case, s. 147 (b) of the Act applies. The two relevant provisions are in ss. 148 and 149 of the Act which provide : "148. (1) Before making the assessment, reassessment or recomputation under s. 147, the ITO shall serve on the assessee notice containing all or any of the requirements which may be included in a notice under sub-section (2) of s. 139; and the provision of this shall so far as may be apply accordingly, as if the notice were a notice issued under the sub-section."
"149. (1) No notice under s. 148 shall be issued,-....
(b) in cases falling under cl. (b) of s. 147, at any time the expiry of four years and from the end of the relevant assessment year.
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of s. 151."
The High Court relied upon the decisions of this Court in the case Banarsi Debi vs. ITO (1964) 53 ITR 100 (SC), where the validity of a notice under s. 34(1) of the Indian IT Act, 1922, and the scope of s. 4 of the IT (Amendment) Act of 1959 by which sub-section (4) was introduced into s. 34 were considered. This Court indicated keeping the provision of s. 34 in view, that there was realist no distinction between the "Issue" and "Service of notice”. Sec. 34, sub-section (1) as far as relevant provided thus :
"34. (1) If- (a)........
(b)......... he may in cases falling under cl. (a) at any item within eight years and in cases falling under cl. (b) at any time within four years of the end of that year serve on the assessee, and may proceed to assesses or reassess such income..."
Sec. 34, conferred jurisdiction of the ITO to reopen the an assessment subject to service of notice within the prescribed period. Therefore, service of notice within the limitation was the foundation of jurisdiction. The same view has been taken by the Court in J.P. Jani, ITO vs. Induprasad Devshanker Bhatt (1969) 72 ITR 595 (SC), as also in CIT vs. Robert (1963) 48 ITR 177 (SC) The High Court, in our opinion went wrong in relying upon the ratio of Banarsi Debi vs. ITO (supra), in disposing of the case in hand. The scheme of the 1961 Act so far as notice for reassessment is concerned is quiet different. What used to be contained in s. 34 of the 1922 Act has been spread out into three sections, being ss. 147, 148 and 149, in the 1961 Act. A clear distinction has been made out between the "Issue of notice" and "Service of notice" under the 1961 Act. Sec. 149 prescribes the period of limitation. It categorically prescribes that no notice under s. 148 shall be issued after the prescribed limitation has lapsed. Sec. 148(1) provides for service of notice as a condition precedent to making the order of assessment. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the ITO to proceed to reassess. The mandate of s. 148(1) is that reassessment shall not be made until there has been service. The requirement of the issue of notice is satisfied when a notice is actually issued. In this case, admittedly the notice was issued within the prescribed period of limitation as 31st March, 1970, was the last day of that period. Service under the new Act is not a condition precedent to confirme of jurisdiction on the ITO to deal with the matter but it is a condition precedent to the making of the order of assessment. The High Court, in our opinion lost sight of the distinction and under a wrong basis felt bound by the judgment in Banarsi Debi vs. ITO (supra). As the ITO has issued notice within limitation the appeal is allowed and the order of the high Court is vacated. The ITO shall now proceed to complete the assessment after complying with the requirement of law. Since there has been no appearance on behalf of the respondents we make no orders for costs.”
The Hon’ble Apex Court held that the requirement of issue of notice is satisfied when the notice is actually issued. In this case the notice was actually issued on 10.04.2018 which is beyond the end of the limitation period of 6 years as on 31.03.2018. The service of notice at a belated stage demolishes the entire assessment. The entire superstructure is bound to crumble in the absence of foundation. Accordingly, assessment order has not leg to stand upon and the entire addition is directed to be deleted. The appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.