By TIOL News Service

ALLAHABAD, SEPT 01, 2015: THE issue before the Bench is - Whether jurisdiction of the AO to make assessment u/s 143(3)(ii) is based on issuance of notice u/s 143(2)(ii) and proviso to clause (ii) of sub Section (2) of Section 143 clearly stipulates that a notice must be served on assessee. YES is the answer.

Facts of the case

The assessee is a state development authority. Its proceeding u/s 147, 148 was initiated after obtaining approval from the Joint Commissioner of Income Tax u/s 151 (2), pursuant to which notice u/s 148 was issued. Upon receipt of the notice u/s 148, a return of income was filed claiming an exemption u/s 10(20). AO held that the assessee was not a local authority as per Section 10(20) and added the surplus income and expenditure of the account and few other amounts on the total income. On appeal, CIT(A) dismissed the appeal and affirmed the order of AO holding that the exemption claimed by the assessee u/s 10(20) was not tenable as it was not a local authority within the meaning of Section 10(20). On further appeal, Tribunal allowed the appeal and quashed the assessment orders passed by AO as well as the order of the Appellate Authority holding that the AO had wrongly passed a reassessment order for all the assessment years. The Tribunal held that the mandatory requirement of issuance of a notice u/s 143(2) was not followed and, therefore it was incurable and that the defect in the assumption of jurisdiction by the AO could not be cured by taking recourse to the deeming fiction u/s 292BB. Tribunal, while allowing the appeal and holding that no notice u/s 143(2) was issued, came to this conclusion on the basis of the inspection of the records and the notings of the order sheet made by the assessee as well as on account of the fact that inspite of time being granted, the Department failed to produce the original records of the assessment proceedings. The Tribunal further found that the Department had not factually controverted the claim of the assessee, that no notice u/s 143(2) was ever issued.

Held that,

++ it is clear that the essential requirement is "issuance of notice" u/s 143(2). The deeming fiction u/s 292BB is with regard to "service of notice". Since the initial requirement of issuance of notice was not made by the AO, the deeming fiction of service of notice under Section 292BB of the Act, consequently, does not arise and is not applicable. In the light of the aforesaid, since the AO failed to issue notice within the specified period under Section 143(2), the AO had no jurisdiction to assume jurisdiction under Section 143(2) of the Act and this defect cannot be cured by taking recourse to the deeming fiction provided under Section 292BB. Consequently, the Tribunal was justified in setting aside the order of AO as well as the order of the Appellate Authority. The contention that adequate opportunity was not given to the appellant before the Tribunal now becomes redundant in view of the specific finding given by us on the issuance of the notice u/s 143(2). However, we must observe that the appellant was not fair to the Court in alleging that no proper opportunity was given or that the Tribunal gave no directions to the Department to produce the original records. We are constrained to observe that there is no affidavit of the departmental representative who had appeared before the Tribunal to state on oath that the observations made by the Tribunal with regard to the production of the original records at the stage of hearing of the stay application and thereafter was perverse. In the absence of any affidavit being filed, it was not open for the Department to allege that no proper opportunity was given. Further, we find that the assertion made in paragraph 16 of the Supplementary Affidavit that a notice was issued is patently erroneous and, an attempt was made by the Department to deceive the Court. The notice asserted in para 16 of the Supplementary Affidavit is not a notice u/s 143(2) but is only a notice issued u/s 142(1). Such tactics adopted by the Department is totally deplorable. In the light of the aforesaid, no substantial question of law arises for consideration. All the appeals fail and are dismissed

(See 2015-TIOL-2007-HC-ALL-IT)