Whether Notice U/s 143(2) Is A Preliminary Requirement For Valid Assessments U/s 153A/153C Or 147?

CA Rohit Kapoor has considered the important question whether the issue of a notice under section 143(2) of the Income-tax Act, 1961 is a mandatory or a directory requirement and whether its non-issue is a curable defect or renders the entire assessment void. He has also examined whether the participation by the assessee in the assessment proceedings can save the assessment order under section 292BB of the Act. All the important judgements on the subject have been referred to

This article endeavours to the interpret compulsory issue of notice under section 143(2) in case of“Section 153A- Assessment  in case of search and requisition”/“Section 153C Assessment of income of other person”or where assessment is framed “under section-147 Income escaping assessment”of the Income Tax Act, 1961. It has forever been a conflict as to how the sectionmust be interpreted, in order to decide whether the procedure of regular assessment i.e issuing notice under section 143(2)has to be followed in the proceeding under section 153A or under section 147. This article tries to decode the mixed opinions of the court with regard to whether it is the compulsory to issue notice U/s 143(2) before completing an assessment under section 153A or under section 147. The author, based on thorough analysis of Section 153A and Section 147 and keeping in view the language of the both the section and the interpretations attached to it by theJudiciary, have tried to resolve the conflict.

I. Introduction

This research paper mainly discusses the various interpretations given by the Courts with respect to issue of notice under section 143(2) in case where assessment is completed undersection 153A or under section 147 of the Income Tax Act,1961 (hereinafter referred to as Act). Further, it talks about the importance of a notice being issued to the assessee when any assessments are to be made, with the purpose of finalizing the assessment or otherwise. Thus, the provisions should be read as a “whole” and as such they exist, and there is no necessity of reading them down or providing casus omissus. Where the search is conducted, there is a mandate on the Assessing Officer (A.O) to issue notice calling for return of all six/extended period commencing from assessment years preceding the current assessment year in which search was executed. Thereafter, the first proviso casts a duty on him to assess or reassess the total income in respect of each assessment year. Whereas, Reassessment under section 147 is another distinguished weapon which empowers the Assessing Officer to assess, reassess or recompute income which has escaped assessment.

II     Issue of notice under section 143(2) is not compulsory where assessment is completed under section 153A/153C

1. Every clause of a section should be construed with reference to the context and other clauses thereof, so that, the construction to be put on a particular provision makes a consistent enactment of the whole statue. The section 153A starts with non obstante clause and it pertinent to mention that section 139 is one of the sections which is covered in the notwithstanding clause. The notice under section 143(2) is required to be issued when return has been furnished under section 139 or in response to notice under section 142(1). In the case of section 153A, the section 139 has specifically been kept aside.The words "so far as may be" in clause (a) of sub section (1) of Section 153A could not be interpreted that the issue of notice under Section 143(2) was mandatory in case of assessment under Section 153A. The use of the words, "so far as may be" cannot be stretched to the extent of mandatory issue of notice under Section 143(2). It is noted, a specific notice is required to be issued under Clause (a) of sub-section (1) of Section 153A calling upon the persons searched or requisitioned to file return. That being so, notice under Section 143(2) could not be contemplated compulsory for assessment under Section 153A. The same view has been affirmed by various court 1

Ashok Chaddha v. ITO [2011] 337 ITR 399/[2012] 20 taxmann.com 387 (Delhi) (Para No.7).

Tarsem Singla v. DCIT, Central Circle-III, Ludhiana[2017] 81 taxmann.com 347 (P & H) (par 9).

Roshan LalVerma v. DCIT, Central Circle-II, Faridabad[2018] (6) TMI 1462 – ITAT DELHI (par 9).

1.1       However in view of the decision of the Honourable Supreme Court in case of Hotel Blue moon in 321 ITR 362 has held that omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with.It is to be noted that the above said judgment was in the context of Section 158BC. Clause (b) of Section 158BC expressly provides that "the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of Section 142, sub sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply. The law laid down in Hotel Blue Moon, is thus not applicable to the facts of the present situation of 153A and 153C.This decision has been followed by various tribunals and courts and has decided the matter in the favour of assessee. But the decision as given by the Apex courts only applicable in the context of section 158BC and not in the context of section 153A and 153C. Therefore, the said issue is highly debatable, and it is not correct to rely straightway upon the decisions as given by some courts that the notice u/s 143(2) is necessary for proceedings u/s 153A/153C.2

2[2010] 188 Taxman 113 (SC)-SUPREME COURT OF INDIA– ACIT v. Hotel Blue Moon

2[2010](1) TMI 1184 – ITAT INDORE M/S. S.K. JAIN, SMT. REKHA JAIN and others

2[2010] (2) TMI 690 – ITAT, INDORE DCIT, CIRCLE 1 (1) , UJJAIN V/S SUSHIL KUMAR JAIN

2YOGESHWAR GOEL (ITAT Delhi)

1.2       The provisions of section 143(2) of the Act did not give option to make an assessment under Section 143(3) but make it obligatory to comply with these provisions before making assessment under section 143(3) or section 144 as the case may be. However, the assessment of the “search year” has to be completed u/s 143(3) or u/s 144, and issue of notice u/s 143(2) is mandatory for that year. The same view has been purported by many courts.3 It is important to note that non issuance of notice is not a curable defect by following the provisions of section 292BB4

32017 (8) TMI 80 – ALLAHABAD HIGH COURT- CIT (CENTRAL) KANPUR v. SRI MOINS IQBAL

32012 (8) TMI 1053 – ITAT PUNE- AKBANI SALIM ABDUL GAFFAR v. DCIT, CENTRAL CIRCLE, KOLHAPUR

4[2019]108 taxmann.com 183 (SC) CIT v. Laxman Das Khandelwal.

2.         The provisions of section 143(2) are not applicable in case of assessment under section 153A or 153C and the same gets clear by the language as referred in section 153C (2).The section 153C comes into play where a search is carried out u/s. 132 of the IT Act on person, various assets and documents may be found and seized or requisition is made u/s. 132A. It is possible that several of “assets/documents" may not actually belong/relates to the "person searched" but may belong to such "other person". In that case, provisions of section 153C gets attracted which clearly provides that proceedings as prescribed in section 153A will be initiated against such "other person" if conditions as laid down in section 153C are satisfied. That such "assets/documents" belongs to or relates to the person other than " searched person". The same shall be handed over to the AO having jurisdiction of such“other person”. Now, AO (having jurisdiction) hasto be satisfied that "assets/documents" seized or requisitioned have a bearing on the determination of the total income of such “other person”. Then only the AO (having jurisdiction) can proceed under section 153C against such “other person” in the manner provided u/s. 153A.The legislative has designed section 153C(2) (a) to (c) to cover possible situation related to “search year”, where no notice in terms of Section 143(2) has been issued to the “other person”, and the time as provided in law u/s 143(2) has expiredby the time  AO of “other person ‘receives the papers from the AO of “searched party”. In that case assessment for that year can be done in in the manner provided in section 153A.The assessment of that particular year will be completed without issuing notice U/s 143(2). The simple notice will be enough to complete the assessment.

3.         For instance, the search took place on 24.05.2017 and the documents related to F.Y 2017-18 has been handed over to the AO of “other person” on 10.10.2019. The AO of “other person” will frame assessment U/s 153C for Assessment year 12-13 to A.Y 2017-18. However, the assessment for A.Y. 2018-19will be made under section 143(3). The “other Person” has furnished return for A.Y. 2018-19 on 20.09.2018. The practical problem in this case is that time period for service of notice under section 143(2) has been expired (i.e. 30.09.2019) whereas the books were handed over to the AO on 10.10.2019. The legislature has covered this possible situation by introducing 153C (2). The relevant extract of section 153C(2) is as under: –

(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year—

a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or

b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or

c) assessment or reassessment, if any, has been made

before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in in the manner provided in section 153A.]

In the given case as far as the pending assessment year is concerned, the return was filed on 20.09.2018. No notice in terms of Section 143(2) can be issued to the assessee, as the time provided by law (i.e.30.09.2019) has been expired by the time its AO received the papers(i.e. on 10.10.2019)from the AO of the “searched party”. Notice issued, necessarily, in terms of Section 153C (2) had to be in the light of the satisfaction that the books of account or materials seized relates to “other person”. The assessment for such assessment year shall be made in in the manner as provided in section 153A. Therefore, the said assessment shall be valid even if no notice under section 143(2) was served. This section makes it clear that notice under section 143(2) is not compulsory to be issued for framing assessment under section 153A.It is pertinent to mention here that the language used in section 153C(2) is “assess or reassess total income of such other person of such assessment year in in the manner provided in section 153A.”. By using such language it has been cleared that there is no need for issue of notice u/s 143(2) in case of search proceedings.

4.         Conclusion

The issue whether notice u/s 143(2) is mandatory in case of six years or extended period as per section 153A/153C is highly debatable. But as per the author opinion and keeping in view the above analysis, it can be concluded thatissuing of notice under section 143(2)is not mandatory requirement for the years for which notice under section 153A/153C was issued and even in case of situation covered u/s 153C(2). The use of the words, "so far as may be" cannot be stretched to the extent of mandatory issue of notice under Section 143(2). Therefore, notice under Section 143(2) could be not be contemplated compulsory for assessments tobe made under Section 153A/153C.

III. Whether Issue of notice under section 143(2) is compulsory where assessment is made under section 147 ?.

1. There has been always litigation on the issue that whether the notice u/s 143(2) is compulsory where the assessment has been framed u/s 147 in response to the return filed u/s 148. The notice u/s 148 requires an assessee to file the return within the stipulated period as mentioned in the notice. It is evident that section 148 specifically provides that all the provisions of Act shall be applicable in respect of return of income u/s 148 as if the same was return furnished u/s 139. But by only taking this argument, the litigation will not stop.It is therefore necessary to go to the roots of the section to decide this issue. In this regard, kind attention is required to be drawn towards first and second provisos to section 148 that provides thetime limit for issuance of notice u/s 143(2) on the basis of date of filing return of income u/s 148. The said amendment was made as many courts have held that assessment under section 147 is invalid5 if the notice under section 143(2) is not served within 12 months from the end of the month in which return under section 148 was filed. To cure such defect, the law has been amended retrospectively. Two new provisos to sub-section (1) have been inserted retrospectively with effect from 1-10-1991. As per the said amendment, all the notices which were issued after the period as mentioned in section 143(2) shall be deemed to be valid notice. Further, an explanation has been inserted, with effect from 1-10-2005 in section 148(1) so as to clarify that the provisions of the aforesaid provisos shall not apply in relation to any return which has been furnished on or after 1-10-2005 in response to a notice served under section 148(1).

5Raj Kumar Chawla v. ITO [2005] 94 ITD 1 (Delhi)(SB)]

1.1          Thus, so far as returns furnished on or after 1-10-2005 are concerned, the pre-amendment law will apply and the notices will have to be served within a period of 12/6 months specified in section 143(2).Thus, it isnot discretionary rather mandatory for an assessing officer to issue notice u/s 143(2) once thereturn of income is filed by assessee. The only relaxation in the case of re assessment is that noticeu/s 143(2) can be issued at any time before the expiry of time limit for completing assessment/ reassessment and the same would be deemed as valid notice.

1.2          Therefore, the completion of the assessment/reassessment proceedings without issue of notice u/s 143(2) will make the whole assessment without jurisdiction. The department cannot take shelter by applying provisions of section 292BB that the assessee has participated in the proceedings and therefore assessment/reassessment made u/s 147 without issue of notice u/s 143(2) will be valid. The same position has been cleared by recent judgement by the Apex Court in the case of [2019]108 taxmann.com 183 (SC) CIT v. Laxman Das Khandelwal that complete absence of notice under section 143(2) is not a curable defect by under section 292BB. The notice u/s 143(2) must have emanated from department and it is only infirmities in manner of service of notice that section seeks to cure and it is not intended to cure complete absence of notice itself.

1.3    Conclusion: –

          Keeping in view the above analysis, it can be concluded that issue of notice under section 143(2) is mandatory requirement before completion of assessment u/s 147. Thus, it is not discretionary rather mandatory for an assessing officer to issue notice u/s 143(2) once the return of income is filed by assessee in response to the notice u/s 148.The failure to issue notice is not a curable defect and will make whole assessment/reassessment invalid. Therefore, requirement of issue notice u/s 143(2) cannot be dispensed with in case of assessment/reassessment framed under section 147. The same gets support from the decisions of various courts.6

6 [2016] 74 taxmann.com 239 (Kerala)- HIGH COURT OF KERALA- Travancore Diagnostics (P.) Ltd

6[2015 }64 taxmann.com 22- DELHI HIGH COURT- PCIT-08 v. SHRI JAI SHIV SHANKAR TRADERS PVT. LTD.

6 [2010] 192 Taxman 197 (Allahabad)- HIGH COURT OF ALLAHABAD– CIT v. RAJEEV SHARMA

6[2012] 25 taxmann.com 341– MADRAS HIGH COURT- SAPTHAGIRI FINANCE & INVESTMENTS v. ITO, KANDHIPURAM

6[2019] (7) TMI 751 – GUJARAT HIGH COURT- PCIT v. JIGNESH BHAGWANDAS PATEL

6[2018] (11) TMI 874 – RAJASTHAN HGH COURT- PCIT, JAIPUR-III, JAIPUR v. KAMLA DEVI SHARMA

The Author can be reached at rohitkapoorca@yahoo.com

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