THE COMMISSIONER OF INCOME TAX-II, KOCHI vs. V.V.DEVASSY

Section 143(2) as was in existence at the relevant point of time is as follows:- “Where a return has been made under section 139, or in response to a notice under sub- section(1) of section 142, the Assessing Officer shall, if he considers it necessary or expedite to ensure that the assessee has not understated 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 his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return: Provided that no notice under this sub- section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.”

The learned Senior Counsel, Government of India (Taxes), would rely on Assistant CIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC) and an unreported judgment of a Division Bench of this Court in I.T.A No.65 of 2015 dated 11th July of 2017 [Padinjarekara Agencies Pvt. Ltd. v. The Commissioner of Income Tax]. The submission is that though the proviso speaks of service of notice, the Hon'ble Supreme Court has understood it as “issuance of notice” in Hotel Blue Moon. On similar set of facts, the Division Bench in I.T.A No.65 of 2015 also found that absence of Section 143(2), notice is not relevant when the assessee has participated in the proceedings. The Division Bench had also relied on yet another decision of a Division Bench of this Court in K.J Thomas v. Commissioner of Income Tax [2008] 301 ITR 301 [Ker]. The learned Counsel appearing for the assessee however would contend that Hotel Blue Moon is in his favour.

A reading of Hotel Blue Moon would indicate that the issue decided was as to “whether service of notice on the assessee under Section 143 (2) within the prescribed period is a prerequisite for framing the block assessment under Chapter XIV-B of the Income Tax act, 1961” (sic-para 4). The Tribunal, considering the appeal from the block assessment found that it is only a procedural irregularity and the same was curable. The High Court of Guwahati reversed the order of the Tribunal finding the provisions under Section 142 and sub-section (2) and (3) of Section 143 of the Act to have mandatory application. It was argued by the department that Chapter XIV-B being a complete code in itself, enabling block assessment, pursuant to a search; the other provisions of the Act are applicable only so far as it is possible of being extended. The Supreme Court found that after the return is filed, on the notice issued under Section 158BC(a), if the assessing officer intends to repudiate the return filed and to initiate an inquiry, then the notice under Section 143(2) is mandatory.

It is argued that the Hon'ble Supreme Court in Hotel Blue Moon had at many places in the decision spoken of the issuance of notice U/S 143(2)/142 of the Act and hence the proviso has to be understood as mandating only issuance of notice and not serving of notice. We are unable to accept the argument raised by the Department. Firstly there was no question raised before the Hon'ble Supreme Court as to whether the notice under Section 143(2) of the Act has to be served or issued; within the time as spoken of in the proviso. The Hon'ble Supreme Court was considering the issue as to whether notice under Section 143(2) of the Act is mandatory or not. There was no contention raised by the Department that the notice was issued well within the time, but however served out of time; as is the case herein. The ordinary recitals made in the decision as to the notice under Section 143(2), required to be issued, need not be given the status of a binding declaration. The ratio of a decision is to be called out from the question that specifically arose, discussed and answered and not what can be logically deducted there from. More importantly the proviso speaks of 'service' and it cannot, by any interpretative process, be understood as 'issued'. It cannot at all be said that the Hon'ble Supreme Court had laid down that what is contemplated under Section 143(2) is only issuance of notice and not service within the expiry of 12 months from the end of the month, in which return is furnished; failing which it would be hit by limitation.

In I.T.A No.65 of 2015 the Division Bench was concerned with a reopening of assessment, under Section 147 on the ground of escapement of income. On notice of reopening issued, with reasons recorded under section 148, the assessee filed its reply with detailed objections and also requested the return filed to be treated as one filed under Section 148. Notices were again issued posting the case and the assessee was also informed of the inadmissibility of the deduction made from the total income. Before reassessment was completed the assessee filed written submissions and was afforded an opportunity of hearing. Incidentally the assessee had also approached the Additional Commissioner under Section 144A, to issue directions for the guidance of the Assessing Officer which was also done. The assessee hence had ample notice of the reopening proposed, which the assessee availed of by answering the case against it. It was in such a situation that the Division Bench held that the absence of notice under Section 143(2) of the Act raised subsequent to the assessment, was not sustainable. In K.J.Thomas (supra) though assessee denied receipt of notice, the assessee had filed a detailed reply and was heard before the re-assessment was completed.

In the present case, we do not see any such proceedings in which the assessee was informed of the inadmissibility of the returns or the grounds on which the returns were sought to be rejected. A notice was issued under Section 158BC on 23.05.2000 and the assessee filed its return in Form 2B on 24.07.2000. It was after the returns were filed, the necessity of a notice under Section 143(2) of the Act arises; if the return is not accepted. The Assessing Officer was obliged to issue such a notice within the 12 month period as provided under Section 143(2) of the Act. Herein, though a contention is raised that the notice was dated prior to the limitation period, it was served only after the period of limitation, as admitted by the department before the Tribunal. Whether it is three days, three months or three years, if the notice is served after the limitation period, there could be no further proceedings taken. We are inclined to agree with the order of the Income Tax Appellate Tribunal and answer the question in favour of the assessee and against the Department.

The learned Senior Counsel would then submit that the assessee never raised this ground before the assessing officer or the first appellate authority and cannot be allowed to raise it before the Tribunal. The question raised being one of limitation; it is permissible of being raised at any time.; a mixed question of fact and law. In fact the law makers had remedied the objection as pointed out by the Senior Counsel by enactment of S 292BB, which was introduced in the year 2008 , by way of amendment. Section 292BB reads as under: