Benefit of section 292BB not available if scrutiny notice is issued beyond statutory time limit provided – ITAT Rajkot Bench

Facts of the Case:

• Income escapement proceedings were initiated against the Assessee (Girishbhai Nanjibhai Solaki) u/s 147 of the Income Tax Act, 1961 (the Act) by issuing notice u/s 148 of the Act dated 13.08.2015. Thereafter, the Assessing Officer (AO/ Revenue) framed the assessment u/s 147 r.w.s. 143(3) of the Act vide order dated 30.12.2016 after making certain additions to the total income of the Assessee. Aggrieved by such order the Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. However, the CIT(A) confirmed the addition made by AO on merit of the case. Being aggrieved by order of CIT(A), the Assessee filed an appeal before the Hon’ble Income Tax Appellate Tribunal (ITAT).
• In ITAT, the Assessee raised an additional legal ground which goes to the root of matter i.e., the validity of the assessment order since notice u/s 143(2) of the Act was issued after statutory limit provided under the provisions of law. The Hon’ble ITAT after placing their reliance on decision of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd v CIT [1998] accepted the additional ground raised by the Assessee.

Contention of the Assessee:

• The Assessee in response to the notice issued u/s 148 of the Act submitted that their original return of income filed u/s 139 of the Act shall be treated as return against such notice. Further, in order to acquire the jurisdiction to assess the income of the Assessee, the AO was required to issue notice u/s 143(2) of the Act within the time limit prescribed i.e., six months from the end of financial year in which return of income was furnished.
• In current case, the Assessee furnished return of income on 24.10.2015 and the AO was required to issue notice u/s 143(2) of the Act on or before 30.09.2016 however, notice has been issued on 07.12.2016 which was beyond the time limit provided under the statute. Hence, the notice issued u/s 143(2) of the Act was invalid. Therefore, the AO was not having valid jurisdiction to pass the assessment order in the absence of valid notice u/s 143(2) of the Act. Further in support of their contention the Assessee has also relied on various case laws.

Contention of the Revenue/AO:

• The Assessee has never challenged the validity of the assessment framed under section 147 of the Act on the reasoning that notice u/s 143(2) of the Act was issued beyond the time limit prescribed under the Act. It is not the case here that the notice u/s 143(2) of the Act was not issued. Accordingly, such defect can be cured under the provisions of section 292BB of the Act.
• Further, in support the above contention the revenue placed their reliance on decision of Hon’ble Supreme Court of India in case of CIT v. Laxmandas Khandelwal [2019] wherein it was held that if there is any issue or infirmity in relation to the service of notice the same can be cured under the provisions of section 292BB of the Act.
• It was also pointed out by the revenue that undoubtedly the notice u/s 143(2) of the Act was issued belatedly but before the completion of the assessment. Furthermore, this issue was not challenged before the authorities below, therefore the same can be cured under the provisions of section 292BB of the Act.

Issue before the Hon’ble ITAT:

• Whether the issue of notice u/s 143(2) of the Act was mandatory to frame assessment under section 143(3) r.w.s 147 of the Act?
• Whether the assessment made u/s 143(3) r.w.s. 147 of the Act is valid in a situation where the notice u/s 143(2) was issued beyond the statutory time limit prescribed under the Act?
• Whether the provision of section 292BB of the Act is attracted in the given facts and circumstances so as to make the assessment valid?

Decision of the Hon’ble ITAT:

• While discussing the first issue, the Hon’ble ITAT placed their reliance in the judgement of Hon’ble Supreme Court in case of R. Dalmia v. CIT [1992] observed that procedural provisions for making the assessment u/s 143(3) of the Act has to be followed. Therefore, it is mandatory upon the revenue to ensure the service of notice u/s 143(2) of the Act even in the assessment framed u/s 147 of the Act. Thereafter, the Hon’ble ITAT concluded that AO was under obligation to issue notice u/s 143(2) of the Act for making the assessment or reassessment as the case may be. In case AO has not done so, the order framed u/s 143(3) r.w.s. 147 of the Act becomes invalid.
• While discussing the second issue, the Hon’ble ITAT placed their reliance on judgement of Hon’ble Gujarat High Court in case of Deputy CITv. Mahi Valley Hotels and Resorts [2006] 287 ITR 360 and held that notice issued after the prescribed time limit is not valid for the reason that the AO has no power to issue such notice after expiry of 6 months from the end of financial year in which return has been furnished. Therefore, any assessment made based on notice which itself is not valid will also become void ab initio.
• It has been further observed that provisions of section 292BB of the Act deals with situation where notice is not served or not served in on time or served in improper manner viz-a-viz the Assessee does not raise objection before the completion of the assessment however in present case the issue is whether the assessment framed u/s 147 r.w.s 143(3) of the Act is valid in a situation where the mandatory notice u/s 143(2) of the Act was issued beyond statutory time limit prescribed. Accordingly, it has been held by the Hon’ble ITAT that provisions of section 292BB of the Act does not extend any benefit to the revenue.
• Hence, it has been held by the Hon’ble ITAT that in absence of valid statutory notice, the assessment framed u/s 143(3) r.w.s 147 of the Act is not sustainable thereby the appeal has been allowed in favour of the Assessee.

In Income Tax Appellate Tribunal, (Rajkot Bench)
Girishbhai Nanjibhai Solanki
v.
Income Tax Officer

Virendra Vikram, Tax Associate, SW India