THE COMMISSIONER OF INCOME TAXAHMEDABAD-V vs. RADHIKA P. MODI

Facts

The Revenue has filed these appeals challenging the orders of the Income Tax Appellate Tribunal (ITAT) which confirmed the decision of the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) had annulled a reassessment order passed under section 143(3) read with section 147 of the Income Tax Act, 1961. The ground for annulment was that the mandatory notice under section 143(2) of the Act was not issued within the prescribed time. The assessment year in question is 1996-97. The Assessing Officer (AO) had reopened the assessment based on information regarding the sale of shares, believing that capital gains had escaped assessment. The assessee had requested their original return to be treated as a response to the notice under section 148. The AO finalized the assessment under section 143(3) read with section 147, making additions. The CIT(A) and the ITAT found that the assessment was bad in law due to the non-issuance of the notice under section 143(2) within the stipulated period.

Held

The High Court held that the mandatory requirement of issuing a notice under section 143(2) within twelve months from the end of the month in which the return is furnished is absolute. The Court referred to its own decision in Deputy Commissioner of Income Tax vs. Mahi Valley Hotels and Resorts, which held that any neglect to attend to this requirement would invalidate the whole proceedings. Furthermore, the High Court cited the Apex Court's decision in Assistant Commissioner of Income-tax vs. Hotel Blue Moon, which clarified that the Assessing Officer must necessarily follow the provisions of section 142 and sub-sections (2) and (3) of section 143. The Apex Court did not accept the submission that the requirement of notice under section 143 could be dispensed with as a mere procedural irregularity. Since both the CIT(A) and the ITAT found as a fact that the procedure of issuing a notice under section 143(2) was not followed, and this factual finding was not disputed by the Revenue, the High Court concluded that the assumption of jurisdiction by issuing the notice of reopening itself was not sustainable. Therefore, the concurrent findings of the authorities below were upheld, and the reassessment order was rightly held to be bad in law. The appeals were dismissed.

Key Issues

1. Whether the Appellate Tribunal was right in law and on facts in confirming the order passed by the CIT(A) annulling the reassessment order passed under section 143(3) read with section 147 of the Act as bad in law on the ground that notice under section 143(2) was not issued within the prescribed time? Assessee's contentions: The assessee argued that the assessment framed was unsustainable because the mandatory notice under section 143(2) was not issued within the prescribed time. The CIT(A) relied on the Apex Court's decision in R. Dalmiya and another (236 ITR 480) to hold that after a notice of reassessment under section 148, the procedure under sections 142(1) and 143 must be followed. The ITAT concurred, rejecting the Revenue's contention that a notice under section 142(1) calling for details was a substitute for the notice under section 143(2). The High Court also relied on its own decision in Deputy Commissioner of Income Tax vs. Mahi Valley Hotels and Resorts ([2006] 287 ITR 360) and the Apex Court's decision in Assistant Commissioner of Income-tax vs. Hotel Blue Moon ([2010] 321 ITR 362). Revenue's contentions: The Revenue contended that the reassessment order was valid. They argued that the issuance of a notice under section 142(1) calling for details was, in substance, the issuance of a notice under section 143(2). They also relied on the Apex Court's decision in Assistant Commissioner of Income-tax vs. Hotel Blue Moon, but the High Court interpreted it to support the assessee's position.