Income Tax Appellate Tribunal - Ahmedabad
The Income-Tax Officer vs Smt. Sukhini P. Modi, Smt. Radhika P. ... on 19 January, 2007
Equivalent citations: [2008]112ITD1(AHD), (2008)113TTJ(AHD)63
ORDER
R.P. Garg, Vice President
1. These appeals by the Revenue and the Cross Objections by the Assessees are directed against the order of the CIT(A)-XVII, Ahmedabad, for assessment years 1996-97 and 1997-98. There being identical sets of facts and circumstances, for the sake of convenience, we decide to dispose of these appeals and cross objections by this common order.
2. The common grounds in these appeals by the Revenue is that CIT(A) erred in law and on facts in annulling the reassessment order passed Under Section 143(3) read with Section 147 of the IT Act as bad in law on the ground that no notice Under Section 143(2) which was to be issued within one year of filing of return of income was issued.
3. The facts appearing in all cases are identical we therefore referring the facts in the case of Sukhini P Modi as a representative case. Brief facts of the case are that the assessee has filed its return of income on 5.3.1997 for Asst. Year 1996-97 showing income at Rs. 1,65,951, which was processed by the Assessing Officer Under Section 143(1) of the Act, No return was filed for Asst. Year 1997-98. During the course of investigation, it was found that the shares of Rupmanglam Investment P. Ltd. (RIPL) and Flovin Plastics P. Ltd. (FPPL) were transferred to Dhanushya Financial P. Ltd. and the share-holders of FPPL and RIPL had already received sale price of the shares. On scrutiny of case records, it was found that the assessee had not shown sale of shares and no capital gain had been offered for taxation. AO therefore, issued notice Under Section 148 of the Act. In response to which the assessee had filed her return of income on 27.10.2000 for A.Y. 1997-98 at Rs. 47,673. In respect of Asst.Year 1996-97, the assessee vide her written submissions dated 22.6.2001, stated that the return filed on 5.3.1997 may be treated as return to notice Under Section 148. Thereafter, notice Under Section 142(1) was issued on 7.3.2002 for both the Assessment years under consideration. In response to this the assessee submitted that she had not transferred any shares and negotiations were going on to sale the shares to DFPL and she had received advance amounting to Rs. 19,20,000 but due to disputes regarding payments, the deal was not completed and the shares were not transferred and the sale did not take place. Assessments were completed accordingly.
4. The assessee filed appeals and submitted before CIT(A) that the no notices Under Section 143(2) had been issued by the A.O. within the period prescribed in the first proviso to Section 143(2). It being a case of a return filed Under Section 148 the assessee, drew attention to the wordings of the Section 148 to the effect that "provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139". Thus the returns of income filed in response to notice Under Section 148 were to be considered as returns Under Section 139 and so the provisions of Section 143(2) and its proviso would also applicable to the asses to be made on the basis of return submitted in response to notice Under Section 148. It was stated that the Supreme Court in the case of R. Dalmia and Anr. 236 ITR 480 (SC) held that the notice having been issued Under Section 148, the procedure set out in sections subsequent to Section 139 has to be followed. The assessee also relied on the Tribunal decisions of: i) AC IT v. Santosh Kumar and Ors. 81 TTJ 279 (All) and ii) Uma Polymers (P.) Ltd. v. ACIT 123 Taxman Magazine 226(Mum). Attention was also invited to the appellate order dated 2.5.2002 for A.Y. 1995-96 in favour of the assessee wherein on similar circumstances, the reassessment order has been quashed by order dated 23.01.2004 by CIT in the case of M/s Kalyan Paper Mart.
5. The CIT(A) observed that no notice Under Section 143(2) was issued within a period of one year and only a notice Under Section 142(1) was issued on 07.03.2002. The CIT(A), therefore, observed as under:
I have carefully considered the issue and the submissions filed by the A.R. and I am of the view that the judicial decisions are in favour of the appellant. The fact that notice Under Section 143(2) has not been issued and only a notice Under Section 142(1) was issued is very clear from the records. The Hon'ble Supreme Court in the case of R. Dalmia and Anr. (supra) has very clearly stated that after the notice Under Section 148 has been issued, the procedures as required Under Section 142(1) and 143 (in that pecific case Under Section 144B), for completing of the assessment has to be carried out. It was stated that while assessment Under Section 143 and reassessment Under Section 147 are different but in making the assessments and reassessments Under Section 147, the procedure as laid down subsequent to Section 139, including that laid down under Section 144B has to be followed. The Ahmedabad bench has also applied the ratio of this decision in the case of Rakesh S. Mardia v. D.C.I.T. 74 TTJ, 836 in context of a block assessment Under Section 158BC. It will be worthwhile to quote from the order to clarify the issues.
In view of the above it is clear that the legislature when enacts a new provision or introduces a new provision in the existing statute, it shall make provision for applicability of the existing or old provisions to the new sections either wholly or with modifications. Therefore, unless the provisions are modified specifically, the existing provisions as engrafted in the new provisions have got to be read as a whole and no part of the existing provisions can be ignored. Thus, when the legislature has used the words "so far as may be, apply" the entire provisions referred to have to be taken into consideration without any modifications while interpreting Section 158BC(b) unless modifications are specifically mentioned in the new provisions.
The Hon'ble Supreme Court in an earlier decision in the case of Banarsi Debi and Anr. v. ITO at page 101 inter alia held as follows:
It is well-established principle of construction of statues that, where a word or phrase of doubtful meaning has received a clear judicial interpretation, a subsequent statute which incorporates the same word or the same phrase in a similar context must be construed so that the word or phrase is interpreted according to the meaning that has previously been assigned to it." 8.1 Therefore, in the absence of any specific provision restricting the scope of Section 143(2), the said section has to be applied alongwith proviso and the case of Assessment Officer for non-applicability of proviso will not survive. Further we may point out that it is not open to the authority acting under the provisions of the statute to state that proviso to Section 143(2) is redundant. The authorities working under the provisions of the Act which may be the learned Assessment Officer, CIT(A) or even the Tribunal are all creatures of the statute and they are not permitted to hold that any of the provisions of the Act are either ultra vires or redundant as per the ratio of the decision of the Supreme Court in the case of K.S. Venkataraman & Co.(P) Ltd. v. State of Madras .
In the case of A.C.I.T. v. Santoshkumar and Ors. (supra), the Tribunal has opined that if it is a return Under Section 139, either the A.O. is required to issue a notice Under Section 143(2)7142(1) for making the assessment Under Section 143(3) or accept it Under Section 143(1)(a). Therefore in case an assessment is required to be made, the provisions of Section 143(2) shall be applicable including the proviso. The decision of I.T.A.T., Mumbai in the case of Uma Polymers (P.) Ltd. (supra) is also on the similar lines.
From the above, it is quite clear that the judicial position at the moment is in support of the fact that even in case of return filed in response to notice Under Section 148, the requirement of issuing a notice Under Section 143(2) within a year of filing of the return cannot be ignored.
Following the same, in the appellant's case also, it is held that the assessment framed cannot be sustained as the notice Under Section 143(2) which was required to be issued within a year of filing of the return was not issued. Hence the assessment framed in this case is hereby annulled being bad in law.
The other grounds of appeal against the quantum addition are not being taken up, as they become academic in the circumstances and are treated as infructuous.
6. The core question in these appeals is whether the reassessments completed without issue of formal notice Under Section 143(2) are invalid, null and void or irregular or in these cases the assessees had notice and there was a sufficient compliance thereof in sum and substance.
7. We have heard the parties and considered their rival submissions. The relevant provisions of Section 143(2) as it stood originally read as under:
Where a return has been made under Section 139 but the AO is not satisfied without requiring the presence of the assessee or the production of any evidence that the return is correct and complete, he shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or cause to be there produced, any evidence on which the assessee may rely in support of the return.
8. It was amended by Taxation Laws (Amendment) Act, 1970 with effect from 1-4-1971 to the following:
Where a return has been made under Section 139 and-
(b) ... the AO considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the Assessing Officer shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Assessing Officer's office or to produce, or cause to be there produced, any evidence on which the assessee may rely in support of the return
9. By Direct Tax Laws (Amendment) Act 1987) it was amended as under:
Where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142, the AO shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return:
Provided that no notice under this sub-section shall be served on the assessee after the expiry of the financial year in which in which the return is furnished or the expiry of six months from the end of the month in which the return is furnished, whichever is later.
10. The Proviso was amended again by Finance (No. 2) Act, 1991 with effect from 1-10-1991 to the following:
Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.
11. Section 148 as it stood in the relevant year are reproduced hereunder:
(1) Before making the assessment, reassessment or recomputation under Section 147, the AO shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the, previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139. (2) The AO shall, before issuing any notice under this section, record his reasons for doing so.
12. Certain Provisos are added by the Finance Act, 2006 to Section 148 to save the assessments completed on the assumption that no such notice need be issued for completing such assessments if the notice was issued before completion of assessment as under:
Provided that in a case:
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and
(b) subsequently a notice has been served under Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Sub-section (2) of Section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in Sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice;
Provided further that in a case -
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and
(b) subsequently a notice has been served under Clause (ii) of Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Clause (ii) of Sub-section (2) of Section 143, but before the expiry of the time limit for making the assessment, re-assessment or re-computation as specified in Sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice.
Explanation. - For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.
13. The controversy is submitted before us in 4 parts. These are- (i) Whether it is necessary to issue notice Under Section 143(2) of the IT Act, 1961 in the cases where assessments were reopened and completed Under Section 148/147? (ii) What is the notice Under Section 143(2), i.e., is it procedural or jurisdictional and whether assessment made without issuing notice Under Section 143(2) is a nullity, or would it only be an irregularity, which can be cured? (iii) What is the effect of retrospective amendment brought by the Finance Act 2006 by inserting the proviso to Section 148 of the IT Act, 1961? And (iv) whether there was compliance of provisions of Section 143(2)?
14. As regards first part of the question the ld. Departmental Representative Dr. Banwarilal, submitted that the proceedings in the present cases are Under Section 148 and not under Section 143 and therefore there is no requirement to issue a notice Under Section 143(2) at all. Under the whole scheme of Income tax Act, 1961, there are two categories of returns; (a) filed voluntarily Under Section 139(1) or 139(4), and (b) involuntarily i.e. in compliance to notice Under Section 142(1), notice Under Section 148 and Under Section 158 BC(a). For the purposes of issue of notice Under Section 143(2) within 12 months, legislature has consciously picked up return filed in response to 142(1) only from the second category. Thus, there is no legal requirement for issuance of notice Under Section 143(2) in the cases of returns filed Under Section 148 or 158 BC(a). This position is evident and can be viewed from this angle, namely, see the Proviso to Section 147, which reads "...where assessment is made Under Section 143(3) or this section...." The words "this section" used in Section 147 contemplates that assessment is to be made Under Section 147 without referring to Section 143(3). Further there is specific & separate provision for appeal Under Section 246(1 )(b) against the orders passed Under Section 147. Thus provisions of Section 147 to 153 constitute a separate and complete code for the purposes of reassessment if income has escaped assessment. Thus the assessment made Under Section 147 is entirely different from assessment made Under Section 143(3). He referred to the SB decision in ...wherein it is held in connection with an assessment Under Section 158BC that provisions of Section 143(2) are taken as an aid for completing the assessment but not bodily lifted and incorporated in procedure for making block assessment. Reliance placed on Dr. Partap Singh and Anr. v. Director of Enforcement and Ors. Supreme Court 155 ITR 166 (SC) wherein it is held that search and seizure Expression "the provisions of the code relating to searches, shall so far as may be, apply to searches directed under Section 37(1)" occurring in Section 37(2) of 1922 Act does not mean that Section 165 (1) of Cr.PC has been incorporated by pen and ink in Section 37(2)-Expression "so far as may be" to be construed to mean that the provisions in Section 165 may be generally followed as far as possible or such procedure would be broadly followed. Legality in the method, manner or initiation of search does not necessarily mean that anything seized during search has to be returned.
15. Shri Mehul K Patel, the ld. Counsel of the assessee contended that this issue is covered by the Special Bench decision of Rajkumar Chawla 94 ITD 1(SB) particularly paragraphs 41-42 thereof. He also relied upon the decisions Smt. Kamla Devi Todi 174 ITR 414 (Gauhati); Vipin Khanna 255 ITR 220 (P&H); Uma Polymers P. Ltd. 123 Taxman 226 (Mag.) (Bom.); Baikunth Nath Singhal 89 ITD 109 (Agra) and Mrs.Ch. Malathy [88 ITD 37 (Chennai). He then referred to CBDT Circular No. 549 dated 31.10. 1989 182 ITR (St.) 1, 24.
16. On hearing the parties we find that this first issue stands covered by Special Bench in the case of Rajkumar Chawla 94 ITD 1 (Del) (SB), in favour of the assessee. This is a case for Asst. Year 1995-96 wherein the admitted fact was that the notice under Section 143(2) in respect of the three appellants have been served after the expiry of period of 12 months as provided under proviso to Section 143(2). The bench held that since the assessing authority has failed to serve the notices within the statutory period provided under Section 143(2), he lost jurisdiction to make assessment under Section 143(3) r/w Section 147. A contrary construction would render the adoption of procedure as prescribed in Sections 139 to 143 and other provisions as meaningless. The phrase has been used so as to provide that the provision would be generally applicable but to the extent it is not inconsistent with the express provisions of the adopting legislation. The proviso nowhere comes in conflict with the provisions of Section 147. Had the proviso curtailed the limitation period as prescribed under Section 153(2), then, certainly it will not apply. AO has to be more vigilant in making assessment pursuant to notice under Section 148. Therefore, in almost all cases, he will issue notice to the assessee for completion of assessment before the expiry of 12 months from the date of filing a return in response to notice under Section 148 and no extra burden is cast upon him by following the proviso. One, therefore, cannot subscribe to the view that it is not practical to follow the proviso. Therefore, full provisions of Section 143 including the Proviso would be applicable to assessment/reassessment done under Section 147. No doubt, the foundation to assess or reassess is laid by issue of a valid notice under Section 148, but such jurisdiction is subject to further compliance as has been stipulated in the statute itself. If compliance of the proviso is not made, the very purpose of creating the proviso is defeated, i.e., uncertainty of assessee with respect to assessment shall continue. It is again a settled principle of interpretation that no construction of a statute should be made in a manner, which leaves a statute redundant. On the contrary, law requires a strict interpretation of the proviso. Provisions of limitation are to be strictly construed. If limitations for making assessments are not followed strictly, chaotic situation would follow. Thus, the return filed pursuant to notice under Section 148 must be assumed and treated to be a return filed under Section 139 and the assessment must thereafter be made under Section 143 or 144 after complying with all the mandatory provisions. Accordingly, it is incumbent upon the assessing authority to issue notice under Section 143(2) within the period as stipulated in the Proviso thereto. No assessment can be made if the notice under Section 143(2) is not served within the time prescribed by the proviso under Section 143(2) and thus the return filed will be deemed as accepted. Reliance placed on Dr. Partap Singh and Anr. v. Director of Enforcement and Ors. Supreme Court 155 ITR 166 (SC) where in it is held that search and seizure Expression "the provisions of the code relating to searches, shall so far as may be, apply to searches directed under Section 37(1)" occurring in Section 37(2) of 1922 Act does not mean that Section 165 (1) of Cr.PC has been incorporated by pen and ink in Section 37(2)- Expression "so far as may be" to be construed to mean that the provisions in Section 165 may be generally followed as far as possible or such procedure would be broadly followed. Legality in the method, manner or initiation of search does not necessarily mean that anything seized during search has to be returned. This decision has been taken into consideration by the Special Bench in arriving its decision and therefore no further discussion is necessary. To similar effect is the order in Mrs. C. Malathy v. ITO wherein ITAT, Chennai Bench 88 ITD 37 held that in order that an assessment could be framed on the assessee within the time permitted under Section 153, the AO has to necessarily and compulsorily follow the procedure prescribed under Section 143 (2) if he has to frame the assessment by calling upon the assessee, that is to frame an assessment order under Section 143(3) or under Section 144 notice under Section 143(2) is a compulsory and mandatory prerogative to be complied by ensuring that the notice is issued within twelve months from the end of the month in which the return is furnished. In this case the decision of Rakesh S. Mardia (2002) 74 TTJ (Ahd) 836 was relied on. In Asst. CIT v. Baikunthnath Singhal and Ors. ITAT, Agra Bench 89 ITD 109 relying upon Triple Crown Agencies and Uma Polymers v. Asstt. CIT (2002) 123 Taxman 226 (Mum)(Mag) held that Section 148 clearly says that the return of income filed in compliance to notice under Section 148 shall be considered as if return were a return required to be furnished under Section 139. Once the return of income was filed in compliance to notice under Section 148, the provisions of Section 139 shall apply due to mandatory provision of Section 148. The notice under Section 143(2) is not merely a procedural in nature but is mandatory provision. Once the valid return under Section 148 is filed by the assessee, the provisions of Section 143(2) being mandatory in nature, the non-issue of notice under this subsection within the time-limit prescribed statutorily will render the order passed under Section 143(3) as invalid. Therefore, the assessment-framed under Section 143(3) r/w Section 147 shall be invalid. Non-issue notice under Section 143(2) within the time-limit statutorily prescribed will invalidate an assessment under Section 147 r/w Section 143(3).
17. On the second issue it is submitted by the ld. DR that the notice Under Section 143(2) of the IT Act, 1961 is procedural in nature issued in order to make the assessment unlike a notice Under Section 148 issued to assuming jurisdiction by the Assessing Officer to assess/reassess. He submitted that the liability to pay Income tax is founded on Sections 4 and 5 of the I T Act, 1961, which are the charging sections. Section 143 is mere machinery sections to determine the amount of tax payable. It is a purely procedural section containing the various modes of making an order of assessment. Not following the procedural provisions will not make an assessment null and void, where the Assessing Officer otherwise had the jurisdiction to make assessment/reassessment. It would at the most be an irregularity, which can be cured or rectified. It is further submitted that in reassessment proceedings the Assessing Officer assumes jurisdiction to assess/reassess any escaped income by issuing notice Under Section 148 and not by issuing notice Under Section 143(2) of the IT Act, 1961. It is a procedural irregularity not involving the question of jurisdiction and can be cured by the appellate authority, as held in CF. Kimtee v. CIT 151 ITR 73(MP), H.S. Maharaja Raja Pawerdevas 138 ITR 518(MP) and Prabhudayal Amichand v. CIT 180 ITR 80 (MP). Referring to the case of Ghansham Dass 51 ITR 557 (SC), he submitted that it is a settled legal position that the assessment proceedings are validly initiated either by filing of return or by issuance of notice for filing of return. In the instant cases of assessees, there is no provision for filing of voluntary return for escapement of income and the only provision under which return can be filed is on issue of a notice under Section 148. He submitted that escaped income assessment proceedings were validly initiated by issuance of notice Under Section 148 after recording proper reasons and therefore the AO would have seisin over the case resulting in vesting of overall jurisdiction in the A.O. Accordingly non-issuance of notice Under Section 143(2) would only be a case of deviation from rule of law resulting in irregularity only, which is curable, and not a nullity. The A.O. having assumed valid jurisdiction by issuing a valid notice Under Section 148, is not further required to assume jurisdiction for second time under any other provision. The contention of the Department is that Section 148 uses the phrase 'so far as may be and, therefore, the procedural set up in Chapter XIV will apply to the extent it is practical or possible and consequently, the same is not applicable to the return filed in pursuance to notice under Section 148. The learned D.R. narrated the factual position in a tabular form as under: Asst.
Asst. Year 1996-97
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Particulars Date Remarks
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Original Return filed 05.03.1997 Invalid being belated.
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Notice Under Section 148 31.05.2001 Served on 31.05.2001. 30 days issued time was specified,
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Letter filed 28.06.2001 Original return being invalid requesting to treat cannot be treated as valid original return as return Under Section 148. return Under Section 148.
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Notice Under - Order of CIT(A) and Section 143(2) assessee's submission reveal that the notice Under Section 143(2) was issued beyond a period of 12 months.
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Notice Under 07.03.2002 Assessee/AR filed PA and Section 142(1) issued replies in response to this along with detailed notice on 15.3.2002 questionnaire
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Assessment made 28.03.2002 Under Section 143(3)/147.
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Year 1997-98
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Particulars Date Remarks
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Original Return filed - Not filed. Notice Under Section 148 28.08.2000 Served on 29.08.2000. 30 days issued time was specified.
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Letter filed 11.10.2000 Even the request is made after requesting to treat expiry of time prescribed original return as Under Section 148. return Under Section 148.
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Return filed 27.10.2000 Invalid being belated. Under Section 148
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Notice Under - Order of CIT(A) and Section 143(2) assessee's submission reveal that the notice Under Section 143(2) was issued beyond a period of 12 months.
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Notice Under Section 142(1) 07.03.2002 Assessee/AR filed PA and issued along with replies in response to this detailed notice on 15.3.2002 questionnaire
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Assessment made 28.03.2002 Under Section 143(3)/147.
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18. The ld. Counsel of the assessee contended that issue of notice is a jurisdictional issue as held by the Gujrat High Court in the case of Mahi Valley Hotels 201 CTR 308 (Guj) and Rajkumar Chawla 94 ITD 1(SB) particularly paragraphs 41-42 thereof. He also relied upon the decisions Smt. Kamla Devi Todi 174 ITR 414 (Gauhati); Vipin Khanna 255 ITR 220 (P&H); Uma Polymers P. Ltd. 123 Taxman 226 (Mag.) (Bom.); Baikunth Nath Singhal 89 ITD 109 (Agra) and Mrs. Ch Malathy [88 ITD 37 (Chennai). He then referred to CBDT Circular No. 549 dated 31.10.1989 182 ITR (St.) 1 at 24. he also relied upon the arguments raised in the cases of Suratwala in ITA Nos. 3218-19 & 3203-04/Ahd?2004 by Mr. S N Soparkar.
19. At the outset we may observe that as per settled legal position that the AO gets jurisdiction under the Act for assessment when proceedings are initiated either by suo moto filing of return by the assessee or by issue of notice requiring him to file the return. In the present cases there is no scope/occasion for filing a voluntary return for escapement of income and the only provision under which return can be filed is on issue of a notice under Section 148. The assessment proceedings for escaped income were initiated by issue of notice Under Section 148 and therefore the AO was vested with jurisdiction over the case. The assessee filed the returns pursuant to notices Under Section 148 therefore for making assessment the AO was to issue notice Under Section 143(2) giving an opportunity to the assessee to produce or cause to be produced the evidence and material to support the income shown in the return of income. This is only after the return is filed and AO had already assumed jurisdiction over the case. The A.O. having assumed valid jurisdiction by issuing a valid notice Under Section 148, is not further required to assume jurisdiction for second time under any other provision. Not issuing notice Under Section 143(2) would only be a case of deviation from rule of law resulting in irregularity, which is curable. It would and not be a nullity, as it does not touch upon the jurisdiction. On a bare reading of the provisions it is evident that notice under Section 143(2) is issued in order to verify the correctness the return filed by the assessee. It provides only a procedural step towards the making the assessment. It is issued to the assessee to attend and/or produce or caused to be produced evidence in support of the return. Jurisdiction to assess has already been assumed by the AO on filing of the return.
20. It may be stated that notice Under Section 143(2) is unlike the notice Under Section 148, which is a jurisdictional one and confers power on the AO to make assessment of income, which has escaped assessment. It is a cardinal proposition in law that not issuing notice at all or issuing that beyond statutory period or issue of an invalid notice under Section 148 does affect the jurisdiction of AO and would make the assessment/reassessment "null and void" because the notice under this section is not a mere procedural requirement but a condition precedent to assume jurisdiction and to make a valid assessment/reassessment. Absence of such a notice would make the assessment invalid and without jurisdiction in view of the decisions of Y Narayana Chetty v. ITO 35 ITR 388 (SC); CIT v. Thayaballi Mulla Jeevaji Kapasi 66 ITR 147 (SC); CIT v. Kurban Hussain Ibrahimji Mithiborwala 82 ITR 821 (SC); Nayalchand Malukchand Dagli v. CIT 62 ITR 102 (Guj); Madanlal Agarwal v. CIT 144 ITR 745 (All); PN Sasikumar v. CIT 170 ITR 80 (Ker); and Electro Steel Castings Ltd. 264 ITR 410 (Cal)-SLP Dismissed 266 ITR (St.) 104 (SC). The existence of a valid 148 notice being a condition precedent for the exercise of the jurisdiction by the Assessing Officer to assess or reassess Under Section 147, it does not confer any right to the assessee, which he could abandon. Want of a notice affects the jurisdiction of the Assessing Officer to proceed with the assessment and failure to give the requisite notice shall deprive the Assessing Officer of his jurisdiction as held in Ghansham Dass (1964) 51 ITR 557 (SC); Brij Bushan Lal v. CIT 81 ITR 497 (Punj); T.A. George v. Ag. ITO 153 ITR 721 (Ker); and CIT v. Hindusthan Steel Ltd. .
21. the argument of the Departmental Representative is that the failure to issue notice within the prescribed time of 12 months will not render the assessment a nullity and such a failure is to be treated as a procedural lapse which will be construed as mere irregularity and not illegality because the limitation provisions are directory and not mandatory That however is not true for a notice to be issued and served Under Section 143(2) of the Act, which is issued after assumption of jurisdiction by the AO and upon filing of the return of income. It is only a procedural requirement to be complied with before making the assessment under the Act in view of the decisions in the cases of -(i) Shivanand Electronics 209 ITR 63 (Bom); (ii) Direction of Inspection v. Puranmal & Sons 96 ITR 39C (SC); and (iii) Topline Shoes Ltd. v. Corpn. Bank . We find that there are many other decisions, which hold that absence of notice Under Section 143(2) would not make the assessment null and void; not issuing it can at best be treated as an irregularity liable to be cured and in such a case the assessments could be set aside, to be redone. The lack of notice does not amount to the revenue authority having had no jurisdiction to assessee, but that the assessment was defective by reason of notice not having been given. An assessment proceeding does not cease to be a proceeding under the Act merely by reasons of want of notice. It will be a proceeding liable to be challenged and corrected. These are judgments in the cases of:
(a) Estate of Late Ranglal Jajodia v. CIT 79 ITR 505 (SC) The facts in this case are that Rangalal Jajodia filed his IT return for the asst. yrs. 1942-43 and 1943-44 under the Income Tax Act as well as under the Excess Profits Tax Act. Before the assessments were completed, he died (on 11th Jan., 1946). Rangalal had a son, Shankar Lal, by his pre-deceased wife. He married a second time and had children from the second wife, Aruna Devi. Rangalal executed a will totally disinheriting Shankar Lal and appointing Aruna Devi and another as executors of his will. The ITO, probably unaware of the will, gave notice to Shankar Lal, who objected that he is not the legal representative of the deceased and that the second wife (Aruna Devi) and the other executor are the proper persons to be notified. The ITO called for a copy of the will but it was not produced. The ITO thereupon completed the assessment describing the assessee as "the estate of late Sri Rangalal Jajodia by legal heirs and representatives Sri Shankar Lal Jajodia, son of Rangalal Jajodia, Smt. Aruna Devi, wife of Rangalal Jajodia and her children". Appeals were preferred by the second wife, Aruna Devi contending, inter alia, that the assessments having been made without notice to her and the other executor were illegal and invalid. This plea was rejected by the AAC and the Tribunal, who however remitted the matters to the ITO to complete the assessments after notice to Aruna Devi. The High Court too rejected the said contention whereupon the matter was brought to Supreme Court, which held that absence of notice to Aruna Devi makes the assessment merely defective but not null and void. The Supreme Court sustained the direction given by the AAC to the ITO to make fresh assessment on Aruna Devi in accordance of the provisions of the Act. It held that if an assessment made with notice to Shankar Lal (who was not really the legal representative of the deceased Rangalal) and without serving notice upon the lawful legal representatives (Aruna Devi, is only "defective" and not null and void. The principle that emerges from the above decision is that an omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging sections). Any such omission or defect may render the order made irregular depending upon the nature of the provision not complied with but certainly not void or illegal.
(b) CIT v. Jai Prakash Singh 219 ITR 737 (SC).
The Supreme court again in this case held that an omission to serve or any defect in the service of notices Under Section 143(2) provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging sections). Any such omission or defect may render the order made irregular depending upon nature of the provision not complied with but certainly not void or illegal. In this case, for Asst. Year 1965-66, 1966-67, 1967-68, the returns were filed voluntarily disclosing the income received by B during the relevant accounting years by one of his legal representatives inviting an assessment. The names of all the legal representatives were already intimated to the ITO. The High Court was held not right in holding in the above circumstances that the assessment orders made are null and void. At the worst, they are defective proceedings-or irregular proceedings. An omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging sections). Any such omission or defect may render the order made irregular-depending upon the nature of the provision not complied with-but certainly not void or illegal. Reliance is placed on Chatturam and Ors. v. CIT (1947) 15 ITR 302 (FC), wherein it has been held by the Federal Court:
The IT assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the ITO to make the assessment or of the liability of the assessee to pay the tax. It may be urged that the issue and service of a notice under Section 22(1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. Suppose a person, even before a notice is published in the papers under Section 22(1), or before he receives a notice under Section 22(2) of the IT Act, gets a form of return from the IT Office and submits his return, it will be futile to contend that the ITO is not entitled to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The liability to pay the tax is founded in Sections 3 and 4 of the IT Act, which are the charging sections. Section 22, etc., are the machinery sections to determine the amount of tax.
The decision in the Maharaja of Patiala v. CIT (1943) 11 ITR 202 (Bom) is noted with approval. In that case the facts were that the late Maharaja of Patiala had income from property and business in British India. On his death the ITO, Bombay served upon the successor Maharaja two notices under Sections 22(2) and 38 of the Indian IT Act, 1922 addressed to the Maharaja of Patiala requiring him to make a return of his income from all sources. Returns were filed, signed by the Foreign Minister of Patiala. The ITO passed assessment orders describing the assessee as "His Highness....late Maharaja of Patiala". The succeeding Maharaja appealed against the assessment orders contending that the notices were really addressed to the late Maharaja, who was not alive when the said notices were issued and that they were wrongly served upon him. The argument was rejected by the authorities under the Act as well as by the High Court on reference. The Division Bench comprising Beaumont, C.J. and Kania, J. held that inasmuch as the present Maharaja (who raised the contention of nullity) was the legal representative of the late Maharaja of Patiala and because the return of the Late Maharaja's income was made by the Foreign Minister on his behalf and because he knew perfectly well that what was being assessed was the income of his predecessor, the assessment made, though not complying strictly with Section 24B (corresponding to Section 159 of the present Act), is yet valid.
The court noted that the decision, one of the earliest on the subject, shows that an assessment made without strictly complying with Section 24B (Section 159 in the present Act) is not void or illegal and that any infractions in that behalf can be waived by the assessee. The decision in Estate of Late Rangalal Jajodia v. CIT (supra) was also noted.
(c) CIT v. Gyanprakash Gupta 165 ITR 501 (Rajasthan).
It is a case for Asst. Year 1965-66. The court held that the assessment order passed without serving notice Under Section 143(2) is not void ab initio. It is simply invalid but not going to affect the root of proceedings. Jurisdiction of ITO, which is assumed as soon as return is filed, is not lost. Assessment is not to be annulled, but can be set aside. The court explained the position in detail as:
To issue a notice under Section 143(2) is mandatory and, therefore, if the assessment is made without complying with Section 143(2), then the assessment is, ordinarily, invalid. But the contention of Revenue is that in such a situation, the correct order to be passed by the AAC is to set aside the assessment, whereas according to assessee it should have been annulled. The assessment order passed without notice under Section 143(2) is invalid and it is vitiated, but the invalidity is not, however, of such a nature which goes to the root of the proceedings and, that being so, the AAC having found it to be invalid, that invalidity did not go to the root of the matter. It could be set aside for being redone de novo. He should not have annulled it. Failure to serve notice on the assessee under Section 143(2) is merely an irregularity and the ITO, until and unless he gets the notices served, cannot complete the assessment. It is difficult to hold that the ITO has no jurisdiction in respect of the proceedings. As soon as the return is filed, he gets seisin over the case. He has jurisdiction over it, but on failure to comply with Section 143(2), the only limited restriction is that he cannot complete the assessment. In these circumstances, the assessment orders completed without service of notice under Section 143(2) cannot be said to be void ab initio and when it is not so, the assessment order cannot be annulled.
In this case the court followed Sant Baba Mohan Sing v. CIT and Rattan Lai Tiku v. CIT . The court dissented from Jaiprakash Singh v. CIT and that decision is now reversed by the Supreme court as aforesaid. An important observation in this decision is made to the effect that an assessment proceeding did not cease to be a proceeding under the Act merely by reason of want of notice and that it would be a proceeding liable to be challenged and corrected. The court discussed the matter with reference to power of AAC and observed:
The AAC has power to annul the assessment under Section 251(1)(a) of the Act. Equally, he has power to set it aside. It is not disputed by learned Counsel for the Revenue and the assessee that the notice was required to be given to the legal representatives of the deceased, Mohanlal Gupta, or for that matter to Smt. Dayawati Gupta before completing the assessment under Section 143(2), according to which, principles of natural justice would have been complied with or that an opportunity of hearing should have been given before making the assessment. This is what is statutorily required. To issue a notice under Section 143(2) is mandatory and, therefore, if the assessment is made without complying with Section 143(2), then the assessment is, ordinarily, invalid. But the contention of Mr. Arora is that in such a situation, the correct order to be passed by the AAC is to set aside the assessment, whereas according to Mr. Balia, it should have been annulled. As stated above, the assessment order passed without notice under Section 143(2) is invalid and it is vitiated, but the invalidity is not, however, of such a nature which goes to the root of the proceedings and that being so, the AAC having round it to be invalid, that invalidity did not go to the root of the matter. It could be set aside for being redone de novo. He should not have annulled it. Failure to serve notice on the assessee under Section 143(2) of the Act is merely an irregularity and the ITO, until and unless he gets the notices served, cannot complete the assessment. We find it difficult to hold that the ITO has no jurisdiction in respect of the proceedings. As soon as the return is filed, he gets seisin over the case. He has jurisdiction over it, but on failure to comply with Section 143(2) of the Act, the only limited restriction is that he cannot complete the assessment. In these circumstances, the assessment orders completed without service of notice under Section 143(2) cannot be said to be ab initio void and when it is not so, the assessment order cannot be annulled.
(d) Sant Baba Mohan Singh v. CIT 90 ITR 197 (All).
A case for Asst. Year 1960-61, wherein it is held that Section 31(3)(a) speaks of the power of the AAC to annul an assessment. That is a power to be exercised where the assessment proceeding is a nullity in the sense that the ITO had no jurisdiction ab initio to take the proceeding. A proceeding is a nullity when the authority taking it has no jurisdiction either because of want of pecuniary jurisdiction or of territorial jurisdiction or of jurisdiction over the subject- matter of the proceeding. A proceeding is a nullity when the authority taking it has no power to have seisin over the case. The omission of the ITO to issue a notice under Section 23(2) does not affect the ab initio jurisdiction enjoyed by the ITO in respect of the proceeding. The ITO had seisin over the case, he had overall jurisdiction over the case and in that sense had power to initiate the proceeding. The omission to issue a notice under Section 23 (2) merely prevents the ITO from making an assessment order under Section 23(3), and after he rectifies the omission by issuing that notice he can proceed further to the next stage, that is, to exercise the power of completing the assessment under Section 23(3). All these are steps within the overall jurisdiction vested in the ITO over the entire assessment proceeding. The failure of the ITO to issue a notice under Section 23(2) does not call for an order by the AAC annulling the assessment. The AAC was right in merely setting aside the assessment. The language of Section 31(3)(b) does not warrant a narrow interpretation. Inasmuch as the notice under Section 23(2) had not been issued by the ITO the assessment order had to be quashed by the AAC and thereafter a fresh assessment had to be framed. Completion of assessment under Section 23(3) without issuing notice under Section 23(2) does not call for an order annulling the assessment and the AAC was held justified in directing the ITO to make a fresh assessment after issuing a proper notice under Section 23(2).
(e) Rattan Lal Tiku v. CIT 97 ITR 553 (J & K) It is a case for Asst. Year 1963-64. In this case it is held that as an appellate Court the AAC had plenary powers to make any order he liked on the facts and circumstances of the case. The second part of Section 250(4) empowers the AAC to give directions to the ITO to make further inquiry. The power of setting aside the order of assessment, where it is illegal, is inherent in any appellate Court and the AAC has passed a perfectly legal order in directing the ITO to issue notice to the assessee before making an assessment because he was not satisfied regarding the correctness of the assessee's return. The AAC had ample jurisdiction either to call for a report or to give directions to the ITO to comply with the requirements of law. AAC, it is held, has inherent power to set aside illegal order of assessment and direct ITO to comply with mandatory requirements while making de novo assessment. It is further held that Section 143 of the Act is not a substantive but purely a procedural section laying down the procedure for making assessment in various contingencies. The court then examined the effect of Section 143(2). To begin with, it observed that it would appear that Sub-section (2) of Section 143 incorporates the essential rule of audi alteram partem., i.e., no man should be condemned unheard. It is, therefore, clear that this provision must be construed to have a mandatory force, because the object of the legislature is that if the ITO is not satisfied with the correctness of the return filed by an assessee or the documents or materials furnished by him, then before making the assessment he must give an opportunity to the assessee to explain and if possible to satisfy the ITO regarding the correctness of the assessee's return. Secondly, the words "shall serve on the assessee a notice" imply a duty or an obligation to be performed and, therefore, the words must be held to have a mandatory force. Thirdly, the word "shall" used in the sub-section clearly connotes that the provision is a mandatory one, particularly having regard to the circumstances mentioned above. The assessee's contention that, as the mandatory provisions of Section 143(2) of the Act had not been complied with by the ITO, the AAC should have annulled rather than set aside the assessment and remanded the case for giving a fresh notice and held that as an appellate Court the AAC had plenary powers to make any order he liked on the facts and circumstances of the case. The court saw no reason how this order prejudiced the assessee: in fact the order is in favour of the assessee rather than against him. In the instant case the assessee had no doubt filed his return and his accounts showed certain transactions which were not clear and understandable and, therefore, it would have been a wrong exercise of discretion on the part of the AAC to annul the assessment altogether and thus deprive the Revenue of an opportunity to reassess the assessee after hearing him.
(f) C.G.G. Panicker In this case the AO made an assessment which was challenged in appeal before the appellate authority, who set aside the assessment order and remitted the case to the AO with the direction to re-do the assessment after giving an opportunity of being heard to the assessee. The AO passed the assessment order de novo. The finding by the Tribunal was that the assessment order was passed de novo by the AO without giving any notice to the assessee. It set aside the assessment. Referring to the decisions in Estate of Late Rangalal Jajodia v. CIT and Guduthur Bros. v. ITO the court held the Tribunal to be right in setting aside the assessment not annulling it. It held that want of notice would not make the assessment bad in law. An assessment proceeding does not cease to be a proceeding under the Act merely by reason of want of notice.
(g) In Guduthur Bros. v. ITO the Supreme Court, almost in the same factual background, held that the ITO had jurisdiction to continue the proceedings from the stage at which the illegality had occurred.
(h) In Prabhudayal Amichand v. CIT 180 ITR 84 (MP), a case for Asst. Year 1973-74 the ITO levied a penalty under Section 271(1)(c) of the Act. Aggrieved, the assessee preferred an appeal and contended that the order passed by the ITO deserved to be quashed as no approval of the IAC, as required by the proviso to Clause (iii) of s 271(1) of the Act, was obtained by him and no opportunity of hearing was given to the assessee. The CIT (A) upheld these contentions and quashed the order passed by the ITO. On an appeal the Tribunal held that the CIT (A), instead of quashing the order passed by the ITO imposing penalty, should have remitted the matter to the ITO for passing a fresh order it accordance with law and directed the ITO to pass an order afresh in accordance with law. The court, on relying upon the decision of this Court in Kimtee v. CIT 151 ITR 73 (MP), upheld the Tribunal that a there was procedural irregularity not involving the question of jurisdiction and that can be cured.
(i) High Court of Madhya Pradesh (Indore Bench) for Asst. Year 1996-97 noted that the assessee having submitted to the jurisdiction of the AO and participated in the proceeding on each date of hearing, which lasted for more than one year, raising all possible pleas on merits of the case cannot challenge the validity of service of notice under Section 143(2) for the first time before Tribunal which is held it to be a clear case of waiver and/or abandoning the so-called ground, it being not a ground based on a pure question of law. Question whether a particular notice is properly served on the assessee or not is a mixed question of law and fact. It held that at best it could be regarded as an irregularity in effecting service on the assessee of the notice but not an invalidity as alleged by the assessee so as to annul the entire assessment.
(j) In M.S. Kimtee v. CIT It is a case for Asst. Year 1974-75 The Court held that "Non-compliance with the provisions of Section 144B is only a procedural irregularity and no question of jurisdiction is involved in such cases. The Tribunal was, therefore, right in holding that if there was non-compliance with the provisions of Section 144B, it was a procedural irregularity, which could be cured by directing the ITO to follow the procedure laid down in the provision. It relied upon another Division Bench of this Court in H.H. Maharaja Rawer, Dewas v. CIT observing: "Besides, the argument that the assessment order was totally invalid or non est on account of non-compliance with the procedure laid down under Section 144B of the Act, is not correct. There was no jurisdictional error even though the procedure under Section 144B of the Act was not complied with. The scheme of Section 144B clearly envisages that the jurisdiction to pass an order even when there is a variance of rupees one lakh and more between the income returned and the income assessed, is with the ITO, though Section 144B provides for a machinery for the service of a draft order on the assessee and a consulation with a superior officer. This is only a procedural matter not involving jurisdiction and, therefore, if there is a procedural irregularity which can be cured by directing the ITO to frame an assessment after following the correct procedure. The Madhya Pradesh High Court in Banarasidas Bhanot & sons v. CIT , has considered this question and held that non-compliance with the provisions of Section 144B of the Act is only a procedural irregularity and no question of jurisdiction is involved in such cases." It also considered its another decision in Banarsidas Bhanot & Sons v. CIT wherein also it was held that non-compliance with the provisions of Section 144B of the Act is only a procedural irregularity and no question of jurisdiction is involved in such cases.
(k) In CIT v. Sumatbhai C. Munshaw (Deed) Jurisdictional High Court of Gujrat examined a matter in connection with proceedings Under Section 159 & 143(2). Relying upon Chaube Jagdish Prasad v. Ganga Prasad Chaturvedi the High court explained the concepts of 'nullity', 'illegality' and 'irregularity' and observed that a nullity results from an error which is incurable and, therefore, fatal to the proceeding. An illegality occurs when there is a breach of some provision of law and an irregularity, which is usually, amendable, occurs when some error of procedure is committed in the course of a proceeding. When there is a contravention of some provision of law, the question often arises whether the act done in the breach of such provision is perforce a nullity. If the provision is only directory, an act done in contravention thereof is manifestly not a nullity. However, if the provision is couched in a mandatory form, prima facie, it would be a nullity. Every act done in breach of a mandatory provision, however, is not necessarily a nullity. The court observed that the basic scheme underlying the provision, which extends the legal personality of a deceased person for the purpose of assessment of tax, proceed on a recognition of the audi alteram partem rule which mandates that no man shall be condemned unheard. The court also observed that if the legal representative (which term includes plurality of persons) is present before the taxing authority in some capacity or voluntarily appears in the proceeding without service of notice or upon service of notice not addressed to him but to the deceased assessee, and does not object to the continuance of the proceeding against the deceased person and is heard by the ITO, in regard to the tax liability of the deceased and invites an assessment on merits, such a legal representative must be taken to have exercised the option of abandoning the technical plea that the proceeding has not been continued against him, although, in substance and reality, it has been so continued. It therefore held that it was obvious that if the assessment was not a nullity, the AAC would be competent to give a direction as to fresh assessment even after the time-limit therefor had expired, subject, of course, to any other just exception that could be taken under the law. The court noted that in Dhirendra Nath Gorai v. Sudhir Chandra Ghosh , the following passage from the decision in Ashutosh Sikdar v. Behari Lal Kirtania (1907) ILR 35 Cal 61 (FB) was cited with approval to bring about the distinction between a nullity and an irregularity (p. 1304 of AIR 1964 SC):
...no hard and fast line can be drawn between nullity and an irregularity; but this much is clear, that an irregularity is a deviation from a rule of law which does not take away the foundation or authority for the proceeding, or apply to its whole operation, whereas a nullity is a proceeding that is taken without any foundation for it or is so essentially defective as to be of no avail or effect whatever, or is void and incapable of being validated.
As to the question 'what is a workable test to distinguish a nullity from an irregularity?' the following passage from the decision in Holmes v. Russel (1841) 9 Dowl 487, is cited with approval in Dhirendra Nath (supra) at p. 1304:
It is difficult sometimes to distinguish between an irregularity and a nullity; but the safest rule to determine what is an irregularity and what is a nullity is to see whether the party can waive the objection; if he can waive it, it amounts to an irregularity; if he cannot, it is a nullity.
A waiver, as observed in Dhirendra Nath (supra), is an intentional relinquishment of a known right. But can an objection as to jurisdiction be waived? Jurisdiction ordinarily means the authority to act in the matter and not the power to do or order an act (see Anowar Hussain v. Ajoy Kumar Mukherjee ). There cannot be a waiver of an objection to jurisdiction, for, consent cannot give jurisdiction whether there is none. In Dhirendra Nath (supra), the following observations were made in this context:
Where the Court acts without inherent jurisdiction, a party affected cannot by waiver confer jurisdiction on it, which it has not. Where such jurisdiction is not wanting, a directory provision can obviously be waived. But a mandatory provision can only be waived if it is not conceived in the public interest, but in the interest of the party that waives it.
It would thus appear to be well settled that where an authority, who does not lack inherent jurisdiction, acts in contravention of a mandatory provision, it would be open to the aggrieved party to waive its objection to such breach if the provision is not conceived in the public interest but in the interest of the party waiving it. The underlying principle appears to be that everyone has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity, which may be dispensed with without infringing any public right or public policy. In other words, if the statutory conditions are inserted simply for the security or benefit of the party to the proceeding and no public interests are involved, such conditions will not be considered as indispensable and either party may waive them without affecting the jurisdiction of the authority seized of the proceeding. If the assessing authority, in the exercise of his jurisdiction, omits to take one or more of the various procedural steps therein laid down or in taking any of such steps commits an error or even deviates from the statutory mandate, the assessment would be null and void, only if the omission, error or breach, as the case may be, is so fundamental as could not be waived because it affects inherent jurisdiction. The legal representative has a right to waive the advantage of any of the statutory provisions made solely for his protection or benefit and not conceived in public interest. The court referred to Maharaja of Patiala v. CIT (supra); Chooharmal Wadhuram v. CIT (supra); and Estate of Late Rangalal Jajodia v. CIT (supra), in which the question whether if one or more of the essential steps envisaged in such a machinery section are not taken and the assessing authority acts in breach of the said section or any part thereof, the assessment proceeding is rendered invalid, has come to be considered in the context of Section 24B of the Indian IT Act, 1922. These three decisions lay down that an error or omission in taking one or more of the various procedural steps prescribed under the said section or even a breach of the statutory injunction contained therein does not necessarily affect the inherent jurisdiction of the taxing authority and that, in certain cases subject to other just exceptions open under law, the resultant defective assessment can be substituted by a fresh assessment undertaken pursuant to a finding or direction of a higher authority without any inhibition of time limit and that, in others, the assessment would still be valid and effective, notwithstanding the defect, depending upon the conduct of the parties and other relevant circumstances.
22. Assessee relies on Smt. Kamla Devi Todi (supra) wherein Gauhati High Court held "The contention that procedure prescribed is not followed is well founded. Furthermore the principle of audi alteram partem stands violated. When assessee was served notice under Section 142(1) to cause production of accounts books he stated the books were not available for they were burnt in the arson and riots occurred on 6th Aug., 1966. The issue in such circumstances is whether the assessee was entitled to further notice under Section 143(2). If the ITO is not satisfied of the return he can serve notice is expressly stated in Section 143(2). The issue is whether ITO can pass assessment order in circumstances of the case without notice to the assessee. It is in this grey area the language of the Clause (2) of Section 143 is silent and it has to be held that including in such a grey area the principle of audi alteram partem operates and no order can be passed without hearing the assessee. In this case the court applied its earlier decision in Jai Prakash Singh v. CIT but that is reversed by the Supreme Court(supra).
23. In Vipan Khanna v. CIT the Punjab & Haryana High Court held that the returns filed in response to notices under Section 148 were the same as filed originally. The AO had the option to issue a notice under Section 143(2) requiring the assessee to produce evidence in support of the returns if he considered it necessary to ensure that the assessee had not understated the income or had not computed excessive loss or had not underpaid the tax in any manner. Such a notice could be issued only within twelve months from the end of the month in which the respective returns had been filed originally. Admittedly, no such notice had been served on the petitioner within the stipulated period and, therefore, it has to be held that the AO had not found it necessary to require the petitioner to produce any evidence in support of the returns. Thus, the returns filed by the petitioner had become final. This finality could not be disturbed even in proceedings under Section 147 in respect of issues on which there is no material on record suggesting any escapement of income. Except for excessive claim of depreciation there is no material to suggest any underassessment or escapement of income under any other item. There is no gainsaying the fact that in proceedings under Section 147 it is only the escaped income which has to be assessed or reassessed. When proceedings under Section 147 are initiated, the proceedings are open only qua items of underassessment. The finality of assessment proceedings on other issues remains undisturbed. It makes no difference whether the assessment proceedings have become final on account of framing of an assessment under Section 143(3) or on account of non-issue of a notice under Section 143(2) within the stipulated period. In view of the above discussion, the letter dated 30th July, 1998 issued by the AO insofar as it relates to matters unconnected with the issue of depreciation as also the directions issued by the Dy. CIT under Section 144A cannot be sustained. The same are hereby vacated. The AO will now proceed with the assessment under Section 147 in accordance with law. CIT v. Sun Engg. Works (P) Ltd. followed. This is a case obviously for proceeding with items concluded in original proceedings which the AO wanted to reexamine and the court held he cannot.
24. From the discussion above it is evident that an assessment proceeding does not cease to be a proceeding under the Act merely by reasons of want of notice. It will be a proceeding liable to be challenged and corrected. An omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging sections). Any such omission or defect may render the order made irregular depending upon the nature of the provision not complied with but certainly not void or illegal. At the worst, they are defective proceedings or irregular proceedings liable to be cured. To issue a notice under Section 143(2) is mandatory. It is true that the assessment order passed without notice under Section 143(2) is invalid and it is vitiated, but the invalidity is not, however, of such a nature, which goes to the root of the proceedings. It could be set aside for being re-done de-novo. The CIT(A) should not have annulled the assessment. As soon as the return is filed, the ITO gets seisin over the case. He has jurisdiction over it, but on failure to comply with Section 143(2) the only limited restriction is that he cannot complete the assessment. In these circumstances, the assessment orders completed without service of notice under Section 143(2) cannot be said to be ab initio void and when it is not so, the assessment order cannot be annulled.
25. As observed earlier it is important to note that an assessment proceeding do not cease to be a proceeding under the Act merely by reason of want of notice and that it would be a proceeding liable to be challenged and corrected. One of the power of the CIT(A) is to annul an assessment. That is a power to be exercised where the assessment proceeding is a nullity in the sense that the ITO had no jurisdiction ab initio to take the proceeding. A proceeding is a nullity when the authority taking it has no jurisdiction either because of want of pecuniary jurisdiction or of territorial jurisdiction or of jurisdiction over the subject matter of the proceeding or when the authority taking it has no power to have seisin over the case. The omission of the AO to issue a notice under Section 143(2) does not affect the ab initio jurisdiction enjoyed by the AO in respect of the proceeding. The AO had seisin over the case, he had overall jurisdiction over the case and in that sense had power to initiate the proceeding. The omission to issue a notice under Section 143(2) merely prevents the ITO from making an assessment order under Section 143(3), and after he rectifies the omission by issuing that notice he can proceed further to the next stage, that is, to exercise the power of completing the assessment under Section 143(3). All these are steps within the overall jurisdiction vested in the ITO over the entire assessment proceeding. The failure of the ITO to issue a notice under Section 143(2) does not call for an order by the CIT(A) annulling the assessment. The power of setting aside the order of assessment, where it is illegal, is inherent in any appellate Court his order would be perfectly legal order in directing the ITO to issue notice to the assessee before making an assessment because he was not satisfied regarding the correctness of the assessee's return. The CIT(A) had ample jurisdiction to give directions to the ITO to comply with the requirements of law. He has inherent power to set aside illegal order of assessment and direct ITO to comply with mandatory requirements while making de novo assessment. In 1960 the Supreme Court in Guduthur Bros, almost in the same factual background, held that the ITO had jurisdiction to continue the proceedings from the stage at which the illegality had occurred.
26. The assessee can waive the right of notice either specifically or by his conduct. When the assessee submitted to the jurisdiction of the AO and participated in the proceeding on each date of hearing raising all possible pleas on merits of the case and challenging the validity of service of notice under Section 143(2) for the first time in appeal the courts held it to be a clear case of waiver and/or abandoning the so-called ground. Further, it is not a ground based on a pure question of law. Question whether a particular notice is properly served on the assessee or not is a mixed question of law and fact. At best it could be regarded as an irregularity in effecting service on the assessee of the notice but not an invalidity as alleged by the assessee so as to annul the entire assessment. The very fact that the assessee thereafter appeared before the AO and went on participating in the entire proceedings on the merits for more than one year, clearly showed that the so-called illegality/irregularity did not cause any prejudice to the assessee. In other words, the assessee was afforded fullest opportunity to participate in the proceedings.
27. Even in cases of "Non-compliance with the provisions of Section 144B it is held to be only a procedural irregularity and no question of jurisdiction is involved in such cases. The scheme of Section 144B clearly envisages that the jurisdiction to pass an order even when there is a variance of rupees one lakh and more between the income returned and the income assessed, is with the ITO, though Section 144B provides for a machinery for the service of a draft order on the assessee and a consultation with a superior officer. This is only a procedural matter not involving jurisdiction and, therefore, if there is a procedural irregularity which can be cured by directing the ITO to frame an assessment after following the correct procedure.
28. As explained by High Court of Gujrat in Sumatbhai C. Munshaw (Deed), (supra), a nullity results from an error which is incurable and, therefore, fatal to the proceeding. An illegality occurs when there is a breach of some provision of law and an irregularity, which is usually, amendable, occurs when some error of procedure is committed in the course of a proceeding. When there is a contravention of some provision of law, the question often arises whether the act done in the breach of such provision is perforce a nullity. If the provision is only directory, an act done in contravention thereof is manifestly not a nullity. Every act done in breach of a mandatory provision, however, is not necessarily a nullity.
29. The aforesaid is the situation prior to the introduction of time limit prescribed for issuing the notice Under Section 143(2). After the prescription of time limit of 12 months is prescribed by the proviso to this sub-section, the Gujrat High Court, in the case of. Mahi Valley Hotels & Resorts (supra) has held it to be a mandatory requirement while dealing with a normal assessment Under Section 143(3). In this case the notice under Section 143(2) was issued beyond the statutory period of limitation prescribed under proviso to Section 143(2) i.e., one year from the end of the month of filing of return. The CIT(A) and the Tribunal held that the assessment was void ab initio. The High court held both are right by observing that on a plain reading of the language in which the proviso is couched it is apparent that the limitation prescribed therein is mandatory, the format of provision being in negative terms; that the position in law is well settled that if the requirements of a statute which prescribes the manner in which something is to be done are expressed in negative language, that is to say, if the statute enacts that it shall be done in such a manner and in no other manner, such requirements are, in all cases absolute and neglect to attend to such requirement will invalidate the whole proceeding; that it goes without saying that the Departmental authorities are bound by the circulars issued by the CBDT and in the circumstances, it is not open to the Revenue to contend otherwise; that the Circular No. 549, dated 31st Oct., 1989 and Circular No. 621, dated 19th Dec, 1991 are explanatory, they give contemporaneous exposition of legal position; that even otherwise, on a plain reading of the section and the proviso it is more than abundantly clear that the proviso prescribes a mandatory period of limitation in light of the scheme of assessment wherein majority of returns are required to be accepted without scrutiny and only certain returns are taken up for scrutiny and therefore the orders of the CIT(A) and the Tribunal reflect correct reading of the statutory scheme of the Act which is plain, unambiguous and clear, as well as in consonance with the circulars of the Board.
30. The ld. DR submitted that by the amendment by insertion of the Proviso to Section 148 with retrospective effect the time limit of 12 months for issue of notice Under Section 143(2) has been done away with in cases of reopened assessments. Thus status of law before 1-4-1988 has been restored. Thus after removal of time limit for issuance of notice Under Section 143(2), the requirement for issuing notice Under Section 143(2), if any, becomes procedural only and therefore the ratio laid down in the case of Raj Kumar Chawla 94 ITD 1 (Del) (SB) and cases relied by the ld. Counsel of the assessee would not apply. The discussion in paragraphs 38 & 39 of this case of Raj Kumar Chawla for holding that non-issuance of notice Under Section 143(2) was a procedural lapse only, turned on the ground that the provisions of limitation are to be strictly construed. Similar were the views in other cases relied by ld. Counsel. These cases are of the period, the ld. DR contended, when limitation had been provided for issuing the notice Under Section 143(2), namely the period between 1-4-1988 onwards, but upon amendment by the Finance Act 2006 by inserting the Proviso to Section 148 with retrospective effect from 1-10-1991 to Section 148, the position is brought back to pre 1988 situation where there was no limit to issue notice Under Section 143(2) calling for the details. The ld. Counsel of the assessee on the other hand submitted that amendment is made in Section 148 only and no amendment is made in Section 143(2); that the language of the amendment shows that only the notice which was served upon the assessee beyond the statutory period, is validated and nothing more; and that it does not in any way dispense with the requirement of service of notice; on the contrary it reaffirms the said requirement and relaxes the time period only. It is further submitted that it gives a temporary respite for the omissions of service within time during a specified period only. Post October 2005, requirement of notice and its service within time is not dispensed with. If the legislature wanted to relax service completely, the easiest way was to omit the Proviso to Section 143(2) retrospectively so as to restore the position prior to 1989. He then referred to Notes on clauses and Memorandum explaining the Bill 281 ITR 194-5(st).
31. The memorandum explaining the insertion as appearing in INCOME TAX REPORTS (STATUES) 281 ITR 194 reads:
The time limit for issue of notice under Sub-section (2) of Section 143 for the purpose of making assessment or reassessment under Section 147.
Under the existing provisions of Sub-section (1) of Section 148 it has been provided that before making any assessment, reassessment or re-computation under Section 147, the Assessing Officer shall serve a notice under Section 148, on the assessee, requiring him to furnish his return of income and the provisions of the Act shall apply as if the return furnished in response to such notice were a return required to be furnished under Section 139.
It is proposed to insert a proviso to Sub-section (1) so as to provide that where a return has been furnished during the period from 1st October, 1991 to 30th September, 2005 in response to a notice served under Section 148 and, subsequently a notice has been served under Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Sub-section (2) of Section 143 as it stood immediately before the amendment of the said sub-section by the Finance Act, 2002, but before the expiry of the time-limit for making the assessment, reassessment or re-computation as specified in Sub-section (2) of Section 153, such notice shall be deemed to be valid notice.
It is further proposed to insert a proviso in the said sub-section so as to provide that where a return has been furnished during the period from 1 October, 1991 to 30 September, 2005 in response to a notice served under Section 148 and, subsequently a notice has been served under Clause (ii) of Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Clause (ii) of Sub-section (2) of Section 143, but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in Sub-section (2) of Section 153, such notice shall be deemed to be valid notice.
These amendments will take effect retrospectively from the 1st October, 1991.
It is also proposed to insert an Explanation in Sub-section (1) so as to clarify that the provisions of the newly inserted first proviso or the second proviso shall not apply in relation to any return which has been furnished on or after 1st October, 2005 in response to a notice served under Sub-section (1) of Section 148.
This amendment will take effect retrospectively from the 1st October, 2005.
32. The Proviso is extracted in the earlier part of the order. On a close reading of the provisions of the inserted Proviso to Section 148 in the light of the aims and object extracted above, it is evident that Proviso saves only those notices, which have been served under Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Sub-section (2) of Section 143 or served under Clause (ii) of Sub-section (2) of Section 143 and which are in respect of a returns furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to notices Under Section 148 and issued before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in Sub-section (2) of Section 153. It is true that in effect it lifts the time limit and dispense with the time period of twelve moths for issuing the notice if it was issued before making the assessment, but on the careful reading of the Proviso we find that it declares only those notices Under Section 143(2) as valid which are in fact issued and that too before the time limit prescribed Under Section 153(2) of the Act for completing the reassessment and not those which might be issued after the expiry of that period. Even if the assessment is set aside the AO cannot issue the notice Under Section 143(2) as the fresh assessment would be governed by another provision 153(2A) of the Act. We may quote these two sections for ready reference as under:
153(2) No order of assessment, reassessment or recomputation shall be made under Section 147 after the expiry of one year from the end of the financial year in which the notice under Section 148 was served:
Provided that where the notice under Section 148 was served on or after the 1st day of April, 1999 but before the 1st day of April, 2000, such assessment, reassessment or recomputation may be made at any time up to the 31st day of March, 2002:
Provided further that where the notice under Section 148 was served on or after the 1st day of April, 2005, the provisions of this sub-section shall have effect as if for the words "one year", the words "nine months" had been substituted.
(2A) Notwithstanding anything contained in Sub-section (1) (1A), (IB) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under Section 250 or Section 254 or Section 263 or Section 264, setting aside or canceling an assessment, may be made at any time before the expiry of one year from the end of the financial year in which the order under Section 250 or Section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under Section 263 or Section 264 is passed by the Chief Commissioner or Commissioner:
Provided that where the order under Section 250 or Section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under Section 263 or Section 264 is passed by the Chief Commissioner or Commissioner, on or after the 1st day of April, 1999 but before the 1st day of April, 2000, such an order of fresh assessment may be made at any time up to the 31st day of March, 2002:
Provided further that where the order under Section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under Section 263 or Section 264 is passed by the Commissioner on or after the 1st day of April, 2005, the provisions of this sub-section shall have effect as if for the words "one year", the words "nine months" had been substituted.
33. The time limit for issuing the notice Under Section 143(2) has already expired because the returns were filed much before the 12 months. Similarly the time limit prescribed Under Section 153(2) has also expired the fresh notice cannot be issued within that period, further the fresh limit of completing the assessment pursuant to direction of appellate authority is under Section 153(2A) of the Act and issue of notice within that time limit is not saved by the amendment. Any notice issued after the prescribed limit is not saved and would therefore be not valid.
34. Posing the question, what is a notice under Sub-section (2) of Section 143, the ld. DR submitted that this section deals with the right of the assessee to be heard before making an assessment. The basic scheme underlying this provision proceeds on a recognition of the audi alteram partem rule which mandates that no man shall be condemned unheard. Reference may be had on the decisions of Jai Prakash Singh 219 ITR 737 (SC); Dr Pratap Singh 155 ITR 166 (SC); Sumantbhai C. Munshaw 128 ITR 142 (Guj) and Premium Capital Market & Invst. Ltd. 198 CTR 680 (MP); wherein notices Under Section 142(1) along with detailed questionnaire & show-cause notices have been duly issued before making the assessment, the non issue of notice Under Section 143(2) was held to be required as the assessee participated in the proceedings and assumed to have waived the service of notice Under Section 143(2) of the Act. If the assessee is present before the taxing authority either on issue of a notice or voluntarily appears in the proceeding without service of notice and does not object to the continuance of the proceeding and is heard by the ITO, in regard to the tax liability and invites an assessment on merits, such an assessee must be taken to have exercised the option of abandoning the technical plea that the proceeding has not been validly continued against him, although in substance and reality, it has been so continued. In such circumstances the assessment is not a nullity. It is, therefore, clear that this provision though must be construed to have a mandatory force, because the object of the legislature is that if the AO is not satisfied with the correctness of the return filed by an assessee or the documents or materials furnished by him, he must give an opportunity to the assessee before making the assessment to explain. In these present cases when asked for the details though vide notice dated 7/3/2003 which could be only in order to support of the return. These are:
In connection with scrutiny assessment in your case for A.Y. 1997-98, you are hereby requested to please furnish the following details, duly verified and signed by you, so as to reach the undersigned on or before 15.3.2002.
1. Please explain your holdings of shares in the companies named Rupmanglam Investment P. Ltd. and Flovin Plastics P. Ltd.
2. Date of acquisition of shares and cost of shares.
3. Copy of Agreement, if any executed for transfer of shares of the above referred shares.
4. Date of transfer of shares as per your records and the records of the company if any.
5. Amount of sale consideration for the sale of shares and the date-wise payment received.
6. Please explain whether you were beneficial user of the property named Rupmangla Bungalow, situated at Parimal Crossing, Ambawadi, Ahmedabad as 81% of the property was owned by the company.
7. Whether any agreement/document has been executed for handing-over the possession of the property. Copy of NOC, if any, obtained for transfer the rights may be furnished.
8. When the possession of the property was passed on to the purchaser of the shares of the companies! Please furnish supporting evidence.
9. Details of investment of sale consideration and the income earned therefrom.
A notice Under Section 142(1) is enclosed fixing hearing on
35. Though this notice is stated to be Under Section 142 but the details required were those which are required Under Section 143(2) to which the assessee replied and had furnished the details and information also written a letter, On 15.3.2002, which reads as under:
My submission in respect of your queries regarding taxation of capital gains for A.Y. 98-99 is as under:
I was holding shares of following companies namely Rup & Flovin P. Ltd. in respect of which I am ask to explain as to why it should not be held that the shares were transferred by me to M/s. Dhanushya Financial P. Ltd. somewhere in financial year 97-98.
In these respect of above named companies I have to state that I have not transferred the shares to any one including Dhanushya Financial Corporation Ltd. (P). No doubt negotiation for sale of these shares to place somewhere in 95 with Dhanushya Financial Ltd. and I had received advance of Rs. 1920000/- fro the said company. Due to dispute regarding payment the shares were not transferred and the sale did not take place. I therefore request you to show us any evidence which you may have so that we can give our explanation.
I also request you to kindly issue summons to the following person so that truth regarding transfer of shares will be known.
1. Shri Hemant Kashiparekh of M/s. Kashiparekh Associates Akshay Apartment, Nr. Old High Court Lane Navrangpura, Ahmedabad.
2. Shri Jatin Jhanunwalla Director of Dhanushya Financial P. Ltd.
Core-tower, Opp. Dr. House Parimal Crossing, Ahmedabad.
3. Shah & Shah (C.A.) Auditors for Dhanushya P. Ltd.
501, Aniket 5th Floor, Navrangpura, Ahmedabad.
I have also to request you to direct Shir Hanunwalla, Shri Kashiparekh, Directors of company namely Dhanushya and Rup Mangal P. Ltd. by issue of summons to produce following documents connected with the transfer of shares belonging to me.
1. Share transfer from Rup Mangal P. Ltd.
C/o.Kashiparekh Associates who are their Auditors.
2. Shares certificate (Rup Mangal P. Ltd.)
3. Shares Register (Rup Mangal P. Ltd.)
4. Minute books recording transfer of shares of Rup Mangal P. Ltd.
5. P&L A/c and balance Sheet of Rup Mangal for A.Y. 96-97 to 98-99 (Rup Mangal P. Ltd.)
6. Assessment Orders (Rup Mangal P. Ltd.)
7.Audited P & L Account and Balance Sheet of Dhanushya for Financial Year 94-95 to 98-99.
8. Valuation report given by Auditors kashiparekh to Rup Mangal P. Ltd. in respect of transfer of these shares.
I may also bring to your kind notice that the matter was investigated by Deputy CIT Investigation Unit 1(4), Ahmedabad. Information in respect of transaction of shares can be had from his office.
36. The assessee also requested for copies of documents as mentioned above and cross examination of the parties as mentioned above so that he may be in position to prove before the AO that transfer of shares have not taken place so far and no capital gains has arisen from that transaction. In these circumstances there is substantial compliance of the provision even within 12 months.
37. The ld. DR further submitted that there is no Statutory Format for notice Under Section 143(2). It is a non-statutory form (ITNS). Hence, various letters and show cause notices issued should be construed as a compliance of notice Under Section 143(2). Merely, because section was not mentioned on such letters/show-cause notices the proceedings cannot be treated as null and void. At this juncture, it is also very important to note that Form for return is statutory and if mere filing of a letter by assessee stating that the original return be treated as return Under Section 148, (this has been done by assessee for A.Y. 1998-99) fulfills the statutory requirement, then issuance of letter and show-cause notices providing opportunity to assessee must be treated as compliance of non-statutory form prescribed for notice Under Section 143(2) on same logic. Therefore, non-mentioning of Section 143(2) on various letters and show-cause notices, is merely an omissions. Hence, in view of provisions of Section 292B, assessment cannot be treated as invalid.
38. We do not find any force in this contention of ld. DR. The provisions of Section 143(2) provide that where the Assessing officer considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the Assessing Officer shall serve on assessee a notice requiring him, on a date to be therein specified, either to attend at the AO's office or to produce, or to cause to be there produced, any evidence on which assessee may rely in support of the return. It is true that the assessee was required vide notice issued Under Section 142(1) to the assessee dated 7.3.2002 to appear and produce or cause to be produced the accounts and/or documents specified overleaf on 15.3.2002 and the requirement is contained in letter dated 7.3.2002. But the fact remains that it was not a notice meant for the purposes of Section 143(2) but to comply with the directions for requirements Under Section 142(1) of the Act. As observed by the jurisdictional High Court in the case Mahi Valley Hotels (supra):
4. The second contention regarding there being acquiescence and/or waiver on part of the assessee by participating in the proceedings also does not merit acceptance. It is an admitted position that the return of income was filed on 30th March, 1997 for asst. yr. 1997-98 and the notice under Section 143(2) of the Act came to be issued for the first time only on 20th Aug., 1998. Therefore, the notice was admittedly beyond the period of 12 months which is the statutory period of limitation prescribed under the proviso to Sub-section (2) of Section 143 of the Act.
5. The scheme of the Act broadly permits the assessment in three formats;(i) acceptance of the returned income; (ii) acceptance of returned income subject to permissible adjustments under Section 143(1) of the Act by issuance of intimation; and (iii) scrutiny assessment under Section 143(3) of the Act. This scheme was originally introduced by Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989. The issuance of notice under Section 143(2) of the Act is in the course of assessment in the third mode, namely, scrutiny assessment.
6. Section 143(2) of the Act requires that where return has been made by an assessee, if the AO considers it necessary or expedient to ensure the assessee has not understated the income, or has not computed excessive loss, or has not underpaid tax in any manner, he shall serve on the assessee a notice requiring him either to attend his office, or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return. Therefore, the language of the main provision requires AO to prima facie arrive at satisfaction of existence of any one of the three conditions. Proviso under the said sub-section states : "provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished". On a plain reading of the language in which the proviso is couched it is apparent that the limitation prescribed therein is mandatory, the format of provision being in negative terms. The position in law is well settled that if the requirements of a statute which prescribes the manner in which something is to be done are expressed in negative language, that is to say, if the statute enacts that it shall be done in such a manner and in no other manner, such requirements are, in all cases absolute and neglect to attend to such requirement will invalidate the whole proceeding.
7. When the provision was first introduced in the statute the CBDT issued Departmental Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1} and the necessity of the proviso as well as the consequences flowing on failure to issue notice within the limitation have been explained in the following words:
5.13 A proviso to Sub-section (2) provides that a notice under the sub-section can be served on the assessee only during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later. This means that the Department must serve the said notice on the assessee within this period, if a case is picked up for scrutiny. It follows that if an assessee, after furnishing the return of income does not receive a notice under Section 143(2) from the Department within the aforesaid period, he can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return.
39. We therefore reject the contention of the Revenue that in substance the notice was issued Under Section 143(2) by calling for the details, these being for purposes of Section 142(1) of the Act and also the contention that there was acquiescence or waiver of the contention by participating in the proceedings as here again the participation was to comply with the requirements of Section 142(1) notice and the details called thereunder. It may be stated here before parting with the cases that in absence of any notice received by an assessee, as clarified by the CBDT in Circular No. 549 dated 31/10/1989 that returned income of the assessee becomes final and no scrutiny assessment is required to be made and not that the assessment is not at naught as it is on the income returned by the assessee. We, therefore, uphold all the orders of the CIT(A) and decide the appeals against the revenue and in favour of the assessees.
40. In Cross objection by the assessee the dispute raised is that CIT(A) should have decided the appeals on merits. As the assessment Under Section 143(3) itself is invalid the other issues need no consideration and the CIT(A) was justified in not dealing with the same.
41. In the result the appeals and cross objections are dismissed.
This Order is pronounced in the open court on 19th January, 2007.