THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 vs. MARCK BIOSCIENCES LTD.

Facts

The assessee, Marck Biosciences Ltd., is in appeal against an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 2005-06. The original assessment order under section 143(3) was passed on 31.12.2007. The case was reopened under section 147 due to alleged short levy of tax under section 115JB. A reassessment order under section 143(3) read with section 147 was passed on 12.11.2010, computing book profit at Rs. 1,55,80,355. The assessee contended before the Commissioner (Appeals) that notices under section 148 were issued on multiple dates, but the notice under section 143(2) was served on 12.03.2010, prior to the reasons for reopening being recorded on 20.07.2010 and before the assessee requested acceptance of the earlier return as response to the section 148 notice on 19.07.2010. The Commissioner (Appeals) quashed the assessment order, holding the section 143(2) notice invalid. The ITAT upheld this decision.

Held

The High Court held that section 292BB of the Income-tax Act, 1961, applies to situations where a notice has been issued, and there is a contention regarding its service (non-service, late service, or improper service). It does not apply to a situation where no notice has been issued at all. In this case, it was an admitted position that no notice under section 143(2) was issued after the assessee filed its return of income. The Court found that the omission to issue a notice under section 143(2) is not a procedural irregularity and is not curable, making it mandatory to issue such a notice. The Court disagreed with the Punjab and Haryana High Court's decision in Ram Narain Bansal and distinguished the Madras High Court's decision in Venkatesan Raghuram Prasad as a case of defective service, not non-issuance. Therefore, the assessment order passed without a valid notice under section 143(2) is rendered invalid. The Tribunal and the Commissioner (Appeals) did not err in their findings. The appeal was dismissed, and the substantial question of law was answered in favour of the assessee.

Key Issues

1. Whether the Appellate Tribunal erred in quashing the reassessment proceedings by ignoring the provisions of section 292BB of the Income-tax Act, 1961, introduced w.e.f. 01.04.2008? (Question of law) 2. Whether the Appellate Tribunal failed to appreciate that the Assessing Officer validly conducted reassessment proceedings, the assessee attended them, and the ground of non-issuance of a section 143(2) notice was raised for the first time before the CIT(A) in contradiction of section 292BB? (Question of mixed law and fact) Assessee's arguments (Revenue's arguments): The Revenue argued that the assessee participated in the proceedings, and under section 292BB, it is deemed that the notice under section 143(2) was duly served. Therefore, the Tribunal erred in holding the assessment invalid. The Revenue relied on Commissioner of Income-tax, Hisar v. Ram Narain Bansal (2011) and Venkatesan Raghuram Prasad v. Income-tax Officer (2018), arguing that objections regarding notice issuance/service cannot be raised for the first time before the appellate authority when the assessee participated without objection before the AO. Revenue's arguments (Assessee's arguments): The assessee argued that section 292BB applies only when a notice is issued and there is a defect in service (non-service, late service, improper service), not when no notice is issued at all. The assessee relied on Shirishbhai Hargovandas Sanjanwala v. Commissioner of Income-tax (2017) and the Supreme Court's decision in the context of section 158BC, which held that omission to issue a section 143(2) notice is not a curable procedural irregularity and is mandatory.