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Income Tax Appellate Tribunal, BENCH “A”, KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM]
Date of Hearing : 19.9.2016. Date of Pronouncement : 19.10.2016. ORDER This is an appeal by the assessee against the order dated 23.03.2015 of CIT(A)-11, Kolkata relating to A.Y.2005-06. This appeal was originally heard and an order dated 9.12.2015 was passed. The Assessee filed M.A.32/Kol.2016 pointing out certain apparent errors in the order dated 9.12.2015. This tribunal by order dated 13.7.2016 recalled its order dated 9.12.2015 in so far as the validity of service of notice u/s.143(2) of the Income Tax Act, 1961 (Act) is concerned.
The issue with regard to validity of issue of notice u/s.143(2) of the Act is contained in Ground No.2 raised by the assessee which reads as follows :- “2. For that the notice u/s 143(2) of the Act is not served within the stipulated time prescribed in the Act resulting in the reassessment order is without jurisdiction, opposed to requirement of law and bad in law.”
The Assessee is an individual. She derives income in the form of commission from acting as Agent for selling insurance policies. She filed return of income for AY 2005-06 on 1.8.2005 declaring total income of Rs.3,35,970/-. The same was processed u/s.143(1) of the Act. Subsequently it was found that the Assessee had claimed deduction of interest on loans against her income from insurance commission. There being no nexus between the utilization of loan fund and earning of insurance Smt. Puneet Kaur Dhupia A.Y.2005-06 2 commission, the AO was of the view that the income of the Assessee had been under assessed. Accordingly a notice u/s.148 was issued. The Assessee filed a letter on 15.5.2007 requesting the AO to treat the return filed on 1.8.2005 be treated as a return filed in response to the notice u/s.148 of the Act. Therefore the date of filing of return of income in response to notice u/s.148 of the Act is 1`5.5.2007.
3.1. The requirements of service of notice u/s.143(2) of the Act is governed by the following provisions of the Income Tax Act, 1961 (Act). 3.2. The following amendments were made in section 143 by the Finance Act, 2002, namely :— (a) for sub-section (2), the following sub-section was substituted with effect from the 1st day of June, 2002, namely:— "(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,— (i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim; (ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not under-stated 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, 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."; Amendment by the Finance Act, 2008, w.e.f. 1.4.2008. In sub-section (2), in clause (ii), for the proviso, the following proviso was substituted, "Provided that no notice under clause (ii) was served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.".
ITA No.578/Kol/2015 Smt. Puneet Kaur Dhupia A.Y.2005-06 3 3.3. It can be seen from the aforesaid provisions that notice u/s.143(2) of the Act as per the law as it prevailed prior to 1.4.2008 is that the said notice has to be served within a period of 12 months from the end of the month in which the return of income was filed. The return of income in this case is deemed to have been filed on 15.5.2007 when the Assessee requested the AO to treat the return originally filed as a return filed in response to notice u/s.148 of the Act. The limitation of time would therefore be 31.5.2008 for service of notice u/s.143(2) of the Act on the Assessee. In the present case the notice u/s.143(2) was served on the Assessee on 5.9.2008. The AO was of the view that as per the amended provisions of Sec.143(2) by the Finance Act, 2008 referred to above, the limitation of time for service of notice u/s.143(2) would be 6 months from the end of the financial year in which the return of income was filed. That time would expire only on 30.9.2008. The AO was of the view that at the relevant time when notice u/s.143(2) was issued the aforesaid amended provisions has come into force and the requirements of service of notice being a procedural law and not a substantive law, the said amended provisions will apply and therefore the service of notice u/s.143(2) of the Act was within the time as contemplated in law. This view of the AO was also endorsed by the CIT(A).
Before us the learned counsel for the Assessee submitted that law applicable will the law that prevailed during the relevant AY for which the assessment is sought to be made and in this regard placed reliance on the following two judicial pronouncements, viz., Krishna Mohan Banik Vs. ITO 232 ITR 339 (Gau.) and Ashok B.Bafna Vs. DCIT (2012) 18 ITR (Trib.) 43 (ITAT) (Mum). If the law applicable for service of notice u/s.143(2) of the Act is held to be the law as it prevailed when the Assessee filed her return of income, then the notice u/s.143(2) of the Act in the case of the Assessee, was served on the Assessee beyond the time limit laid down in Sec.143(2) of the Act, and therefore the order of assessment will have to be held as bad in law.
The question that arises for consideration therefore is: Whether the law as it prevailed when the return of income was filed i.e., as on 15.5.2007 which gives a time limit of 12 months from the end of the month in which the return of income was filed by the Assessee i.e., on or before 31.5.2008 Smt. Puneet Kaur Dhupia A.Y.2005-06 4 or the law that prevails when the AO conducts the Assessment proceedings when the AO issued notice u/s.143(2) of the Act on 5.9.2008 i.e., after the insertion of proviso to Sec.143(2)(ii) of the Act by the finance Act, 2008, w.e.f. 1.4.2008 whereby the time limit for service of notice was 6 months from the end of the financial year in which the return of income was filed by the Assessee i.e., on or before 30.9.2008.
In support of the contention that the law with regard to time limit for service of notice u/s.143(2) of the Act, as it prevails on the date of filing of the return of income by the Assessee should alone be applied, the learned counsel for the Assessee had placed reliance on the decision of the Hon’ble Gauhati High court in the case of Krishna Mohan Banik Vs. ITO 232 ITR 339 (Gau).
In the case of Krishna Mohan Banik (supra), the facts before the Hon’ble Gauhati High Court was that the Assessee in that case for the assessment year 1990-91, filed its income-tax return on March 31, 1992. Notice u/s.143(2) of the Act was issued on october 27, 1992. Section 143(2) of the Income-tax Act, 1961, and its proviso as it stood prior to its amendment on October 1, 1991, was to the following effect :
"(2) 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 expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid 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 therein, 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 the financial year in which the return is furnished or the expiry of six months from the end of the month in which the return is furnished, whichever is later." With effect from October 1, 1991, the Finance (No. 2) Act, 1991, substituted the following proviso for the aforesaid proviso to Section 143(2) :
"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."
Smt. Puneet Kaur Dhupia A.Y.2005-06 5 The Hon’ble Gauhati High Court held that the law as on the date when the return of income is filed by the Assessee i.e., as on 31.3.1992, will be applicable and therefore held that the notice issued on 27.10.1992 and served on the Assessee on that date was not barred by limitation as it was within the period of 12 months from the end of the month in which the return is furnished. The following were the relevant observations of the Court:
“On a reading of the Finance (No. 2) Act, 1991, or the aforesaid substituted proviso, there is nothing to show that Parliament intended that the aforesaid proviso was not to apply to the assessment year 1990-91 and was only to apply to the assessment year 1991-92 onwards as contended by Mr. Osmani. However, it is a well-settled principle of law that a provision under a taxing statute should not be so construed as to affect the finality of a tax assessment or to open up a tax liability which had become barred (see ITO v. S.K. Habibullah [1962] 44 ITR 809). The question therefore is as to whether the tax liability of the petitioner for the assessment year 1990-91 had become barred or final and could not be opened by the Assessing Officer under Section 143(2) of the Income-tax Act, 1961. The proviso, as it stood prior to its amendment on October 1, 1991, quoted above would show that no notice under Section 143(2) could be served on the assessee after the expiry of the financial year in which the return was furnished or the expiry of six months from the end of the month in which the return was furnished, whichever was later. Before October 1, 1991, the petitioner's firm had not filed its income-tax return for the assessment year 1990-91 and hence even under the proviso as it stood prior to its amendment with effect from October 1, 1991, the tax liability of the petitioner for the assessment year 1990-91 had not become final for non-issue of notice under Section 143(2) of the Income-tax Act, 1961. With effect from October 1, 1991, the aforesaid proviso was no longer in operation and instead the substituted proviso introduced by the Finance (No. 2) Act, 1991, providing that no notice under Section 143(2) shall be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished came into force. It is only after the said amended proviso to Section 143(2) came into force that the petitioner's firm filed its return for the assessment year 1990-91 on March 31, 1992, Smt. Puneet Kaur Dhupia A.Y.2005-06 6 and the liability of the petitioner for the assessment year 1990-91 on the basis of the said return would have become final if no notice had been issued by the Assessing Officer under Section 143(2) within the period of 12 months from March 31, 1992, i.e., before March 31, 1993. But well before March 31, 1993, the impugned notice dated October 27, 1992, was served by the Assessing Officer on the petitioner requiring him to produce evidence or cause production of the evidence under Section 143(2) in support of the return. I am, therefore, of the opinion that the impugned notice dated October 27, 1992, under Section 143(2) of the Income-tax Act, 1961, issued to the petitioner for the assessment year 1990-91 does not open up any liability of the petitioner which had become final, and is not barred by limitation.”
(emphasis supplied) 8. The aforesaid decision of the Hon’ble Gauhati High Court, clearly supports the plea of the Assessee that the notice u/s.143(2) of the Act ought to have been served on the Assessee in the present case on or before 31.5.2008 as per the law as it prevailed when the Assessee filed return of income on 15.5.2007, whereas it was served only on 5.9.2008. Hence, the entire reassessment proceedings ought to be held as invalid and the order of reassessment is hereby annulled. In view of the aforesaid conclusion, the determination of total income in the reassessment order will have no effect.
In the result, the appeal of the Assessee is allowed on the issue of order of assessment being held to be invalid for want of service of notice u/s.143(2) of the Act within the time required by law.
In the result, appeal by the Assessee is allowed.
Order pronounced in the court on 19.10.2016.