Whether issuance of notice u/s 143(2) is mandatory for completing search assessment
What is section 143(2) of the Income Tax Act?
When the income tax department finds discrepancies, minor or major, in your income tax returns, a notice will be issued under Section 143(2). The discrepancies can be under-reporting income or over-reporting losses. The notice is issued to make sure that you have not underpaid tax in any way.
Fact of the case
A search was conducted in the premises of C.Vijayabaskar on 07.04.2017. All files relating to the searched entity as well as those associated to him were centralized on 24.09.2019. Notices under Section 153C were issued on 25.10.2019. Incidentally the petitioner points out that the impugned orders of assessment refer to a notice under Section 143(2) that is stated to have been issued on nil.12.2019. However, no notices have, admittedly been issued under Section 143(2) for any of the years in question. If the reference is to notice dated 07.12.2019, this is a questionnaire under Section 142(1) of the Act and not a notice under Section 143(2) of the Act. However, nothing turns on this error which is immaterial to decide the legal issue raised. The petitioner filed responses to the questionnaires and after taking note of the same, assessments have come to be completed on 30.12.2019 in terms of Section 143(3) read with Section 153C of the Act.
Issue of the case
The issues that are sought to be argued are as under
(i) Whether a notice under Section 143(2) of the Act is to be mandatorily issued prior to completion of an assessment in consequence of a notice under Section 153C and
(ii) Whether the provisions of natural justice have been satisfied in these cases. As regards the second set of writ petitions, in addition to the issues crystallized for batch one, an additional issue raised is as to whether the Assessing Authority was right in relying on a valuation report sought for and obtained by the investigating officer post proceedings for search.
Observation of the court
The Kerala High Court in case of Tarsem Singla (Punjab & Haryana High Court) stated that it was also dealing with a statutory appeal wherein one of the substantial questions related specifically to the issue of whether a notice under Section 143(2) was mandatory and has to be issued in line with the procedure stipulated under Section 139 of the Act. The Bench relied on the decision of the Delhi High Court in Ashok Chaddha’s case and the Punjab & Haryana High Court in Tarsem Singla (supra), reiterating their conclusion that there was no requirement for a notice to be issued under Section 143(2) for completion of an assessment under Section 153C and thus the question of adhering to the time limit prescribed under the proviso to Section 143(2) did not arise. The difference in the language of Section 158 BC and Section 153A must be attributed sufficient weightage. While there is specific reference to the provisions of Section 143(2) in Section 158 BC, such reference is conspicuous by its absence in Section 153A. Section 153A only states that an assessment in terms thereof shall be completed in terms of the provisions of the Income Tax Act, 1961 as if such return were a return required to be furnished under Section 139.
It would thus suffice that in framing an assessment under Section 153A, due regard must be given to the principles of natural justice, which requirement will stand satisfied either by issuance of notice under Section 143(2) or a questionnaire under Section 142(1). In this case, a questionnaire has been issued. The court thus was in agreement with the ratio of the decisions cited above and answer this legal issue in favour of the revenue. In its response, the petitioner has stated that all details of movable and immovable properties have been disclosed in the return of income filed. It was thus incumbent upon the respondent, to have, in the aforesaid circumstances issued a show cause notice putting the petitioner to notice of the properties of which he appears to have collated information found reflected in the order of assessment, and the purchase cost of which, have been added as undisclosed income. Such details however, find mention only in the impugned order and no opportunity has been furnished to the petitioner, prior to passing thereof, which in my view, constitutes a violation of the principles of natural justice.
As far as AY 2015-16 and AY 2016-17 are concerned, no doubt pursuant to the notice under Section 153C, a show cause notice has been issued on 16.11.2019 proposing the addition of undisclosed income from quarrying. The petitioner has replied to the same on 25.11.2019 objecting to the proposal. On 07.12.2019, a questionnaire under Section 142(1) has been issued calling for the same particulars as for the other assessment years under batch-1. The procedure adopted appears to be skewed in so far as normally it is the questionnaire that is issued first and a show cause notice thereafter, after receiving basic and primary details from the petitioner. Be that as it may, a reply was filed by the petitioner to the questionnaire on 13.12.2019 as well a further response to show cause notice on 19.12.2019
The Investigating officer is thus, empowered to refer an issue to valuation even during the process of search. However, such report has to be put to the assessee and his full and complete response sought prior to using the same against him. This has not been done in the present case. Thus, while the reference to valuation is in order, the decision making process is flawed and in violation of the principles of natural justice.
There is no explanation set forth in counter or at the time of hearing to explain why the assessment had been taken up for completion, at the very fag end of limitation and for this reason, the court believed that it would have been justified, had HC annulled the assessments, as a second innings is not to be granted to the department, merely as a matter of rote. However, and solely as a matter of prudence, High Court set aside the assessments with a direction to the Assessing officer to issue fresh notices, hear the petitioner and pass orders of assessments within a period of eight (8) weeks from the date of judgement, with sufficient time being given to the petitioner to put forth his submissions on merits.
The High Court concluded and directed the assessing officer to set aside the assessments and issue fresh notices, hear the petitioner and pass orders of assessments within a period of eight (8) weeks from the date of judgement.
Read the full order from the below linkB.Kubendran-Vs-DCIT