2016 (8) TMI 1615 - AT - Income Tax

Non issue of notice u/s. 143(2) within period of limitation - also not addressed to the the principal Officer - non compliance with the procedural requirement - HELD THAT - We find that in this case no notice u/s.143(2) of the Income Tax Act 1961 was served upon the assessee within the time permitted by proviso to section 143(2) of the Act and secondly the notice u/s. 143(2) is not addressed to the the principal Officer as required by section 282 of the Act. In this case the return for AY 2001-02 was filed on 31.10.2001 and the period of limitation for service of notice u/s 143(2) expired on 31.10.2002 hence such notice had to be mandatorily served by 31.10.2002; however admittedly the first notice was issued on 16.09.2002; the said notice was sent by Regd. Post and admittedly the same returned back unserved on 21.9.2002 without any postal remark. According to A.O. another notice was issued and served through Process Server and Inspector on 26.9.2002; but there is no entry in the order sheet to this effect. According to A.O. another notice was issued and served through process server and inspector on 28.10.2002; but there is no entry in the order sheet to this effect also; the next notice was dated 7.7.2003 which is beyond statutory period. In view of the above discussions we are of the considered view that Revenue has failed to establish that it has followed the procedure as laid down under Section 282 of the Income Tax Act 1961; under order V Rule 17 20 of the CPC hence the Service of Notice is illegal and void ab inito. See Ramendra Nath Ghosh 1971 (8) TMI 26 - SUPREME COURT Naveen Chander 2010 (2) TMI 155 - PUNJAB AND HARYANA HIGH COURT Appeal filed by the Assessee stands allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

• Whether the notice under Section 143(2) of the Income Tax Act, 1961, was served upon the assessee within the statutory time limit and in compliance with the procedural requirements.
• Whether the jurisdiction of the Assessing Officer (AO) was validly exercised in making the assessment.
• Whether the procedural lapses in the service of notice could invalidate the assessment order.
• Whether the additions made by the AO regarding prior period expenses and unexplained unsecured loans were justified.
• Whether the interest charged under Sections 234B, 234D, and 244A of the Act was excessive or incorrectly applied.
• Whether the refusal to admit additional evidence by the CIT(A) was justified.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Notice under Section 143(2)

• Relevant legal framework and precedents: Section 143(2) of the Income Tax Act mandates that notice must be served within 12 months from the end of the month in which the return is filed. Additionally, Section 282 and Order V Rules 17 and 20 of the CPC outline the procedures for serving notices.
• Court's interpretation and reasoning: The Tribunal found that the Revenue failed to establish proper service of notice as per the statutory requirements. The notices were either returned unserved or lacked proper documentation of service through affixture.
• Key evidence and findings: The Tribunal noted the absence of entries in the order sheet regarding the service of notices and the lack of compliance with procedural rules for service by affixture.
• Application of law to facts: The Tribunal applied the legal standards from Section 282 and relevant CPC rules, concluding that the service of notice was illegal and void ab initio.
• Treatment of competing arguments: The Tribunal considered the Revenue's argument that the notice was served through affixture but found it unsubstantiated due to procedural non-compliance.
• Conclusions: The Tribunal held that the failure to properly serve the notice invalidated the assessment.

2. Jurisdiction of the Assessing Officer

• Relevant legal framework and precedents: Jurisdictional issues are typically procedural and do not invalidate the assessment unless they affect the substantive rights of the parties.
• Court's interpretation and reasoning: The Tribunal noted that procedural lapses regarding jurisdiction do not invalidate the assessment if the assessee had opportunities to explain disallowances.
• Key evidence and findings: The Tribunal found no substantive evidence that the jurisdictional errors affected the assessment outcome.
• Application of law to facts: The Tribunal concluded that jurisdictional issues were procedural and did not affect the assessment's validity.
• Conclusions: The Tribunal dismissed the jurisdictional challenge, emphasizing procedural nature.

3. Additions for Prior Period Expenses and Unexplained Loans

• Relevant legal framework and precedents: The AO made additions for prior period expenses and unexplained loans, which the assessee contested.
• Court's interpretation and reasoning: The Tribunal did not address these issues in detail due to the fundamental issue of invalid notice service, which rendered the entire assessment void.
• Conclusions: The Tribunal's decision to void the assessment due to notice issues precluded a detailed examination of these additions.

4. Interest Charged under Sections 234B, 234D, and 244A

• Relevant legal framework and precedents: The assessee challenged the interest charged, particularly under Section 234D, which was introduced prospectively.
• Court's interpretation and reasoning: The Tribunal did not specifically address the interest issue due to the overarching decision on notice validity.
• Conclusions: The interest charges were not separately adjudicated due to the assessment's invalidation.

5. Admission of Additional Evidence

• Relevant legal framework and precedents: The CIT(A) had refused to admit additional evidence, which the assessee contested.
• Court's interpretation and reasoning: The Tribunal did not delve into this issue separately, given the primary focus on notice service.
• Conclusions: The refusal to admit additional evidence was not specifically addressed due to the assessment's nullification.

SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: The Tribunal emphasized, "Revenue has failed to establish that it has followed the procedure as laid down under Section 282 of the Income Tax Act, 1961; under order V Rule 17 & 20 of the CPC, hence, the Service of Notice is illegal and void ab initio."
• Core principles established: Proper service of notice is fundamental to the validity of an assessment; procedural compliance with statutory requirements is essential.
• Final determinations on each issue: The Tribunal allowed the appeal, canceling the assessment due to improper notice service, rendering other issues moot.