By TIOL News Service

KOLKATA, JULY 03, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether issuance of notice u/s 143(2) is indispensable, irrespective of fact that notice u/s 148 makes the assessee aware on what count his income is perceived to have escaped attention. YES IS THE VERDICT.

Facts of the case:

The Revenue Department preferred the present appeal challenging the action of ITAT in quashing the entire reassessment proceedings on the assessee’s assertion that no notice u/s 143(2) was issued by the AO before undertaking the reassessment. The Department urged that in view of Section 292BB, the ground could not have been urged by the assessee before the ITAT, particularly, as the assessee participated in course of reassessment, the objections of assessee as to the reassessment were considered by AO and it was not pointed out by the assessee prior to the reassessment being completed that no notice u/s 143(2) had been issued to him in respect of the reassessment. In the alternative, the Revenue contended that if a notice u/s 143(2) was deemed to be mandatory so that in the absence thereof, the subsequent order of assessment or reassessment had to be annulled, the matter must be restored to the stage where a notice u/s 143(2) might be issued for completing the assessment or reassessment, as the case may be.

High Court held that,

++ in course of a block assessment when the AO repudiated the return filed by assessee, but failed to issue any notice u/s 143(2) within the prescribed period of time, the Supreme Court in case of Hotel Blue Moon, held that a notice u/s 143(2) is mandatory if the return as filed is not accepted and an assessment order is to be made at variance with the return filed by assessee. It is also evident that the issue is not limited to block assessment but would apply to every case where a notice u/s 143(2) is necessary. However, this Court in case of Commissioner of Income Tax v. Humboldt Wedag India Pvt. Ltd., opined that when an order of assessment was passed in course of reassessment u/s 143(3), the omission could have been a reason for setting aside the order of assessment, but that could not have been a reason for nullifying the exercise u/s 147. Such view taken by this Court in Humboldt Wedag India Pvt. Ltd was without noticing the Supreme Court judgment in Hotel Blue Moon. The relevant Bench also did not take into consideration a previous order of this Court, when the reassessment proceedings were quashed merely on the ground that no notice u/s 143(2) was issued to the assessee before making the reassessment;

++ the Department has however relied on a Madras High Court judgment in Areva T & D India Ltd. v. ACIT - 2006-TIOL-371-HC-MAD-IT where the view taken was that "the non-issuance of a notice u/s 143(2) will not make the re-assessment nullity in law, which is validly initiated u/s 148. However, such judgment of Madras High Court was noticed and discussed in a later judgment of the same Court in Sapthagiri Finance & Investments v. ITO - 2012-TIOL-608-HC-MAD-IT, wherein it was held that the view taken in Areva T & D India Ltd was no longer good law in view of the Supreme Court judgment in Hotel Blue Moon. Therefore, taking into consideration the law laid down by the Supreme Court in Hotel Blue Moon, it is inescapable that the issuance of a notice u/s 143(2) is mandatory if the AO seeks not to accept any part of the return as furnished by assessee or make an assessment order contrary thereto and, even in course of reassessment proceedings, such notice cannot be dispensed with;

++ on of the arguments put forth on behalf of the Revenue is that in course of reassessment proceedings, once a notice is issued u/s 148, the assessee is made aware of what part of the income or on what count the assessee’s income is perceived to have escaped attention. It is submitted that in such a scenario, the requirement of notice u/s 143(2) may be somewhat diluted, if not unnecessary. Apart from the fact that such argument cannot be countenanced in the light of the dictum in Hotel Blue Moon, it is evident that an assessment u/s 143(3) is consequent upon a hearing and the production of evidence on such points on which the AO may harbour doubts and are indicated in his notice u/s 143(2) of the Act. Section 143(3) contemplates an assessment undertaken by the AO upon material being produced by the assessee on grounds which are indicated by AO in his notice u/s 143(2) in respect whereof the AO may have misgivings or may disagree with the return filed by assessee. Even if the provision does not carry a non-obstante clause, since Section 292BB is a provision of general application, it would be applicable in all situations; but only in so far as it proclaims to operate. Section 292BB which mandatorily require notices to be issued in divers situations, cannot be said to have dispensed with the issuance of such notices altogether. Section 292BB must be understood to cure any defect in the service of the notice and not authorise the dispensation of a notice when the appropriate interpretation of a provision makes the notice provided for thereunder to be mandatory or indispensable. In addition, it is held that in the light of the Supreme Court dictum in Hotel Blue Moon, the view expressed in 'Wedag India Pvt. Ltd is per incuriam and, as such, not good law.

(See 2018-TIOL-1233-HC-KOL-IT)