PERSONAL TAX: No inquiry if no notice on returns

A taxpayer filed his return of income for the financial year 2009-10 on August 31, 2010, i.e. within the prescribed due to date. This return was processed by the tax officer under the summary assessment procedure prescribed under the Income Tax Act (the Act) on March 21, 2012. Subsequently, the tax payer’s case was reopened and the corresponding notice u/s 148 of the Act dated April 1, 2013, which was delivered to the taxpayer on April 8, 2013. Under the provisions of the Act, a re-opening notice requires the taxpayer to file his return of income for the relevant year in question.

Further, the tax officer issued the prescribed assessment notice (u/s 143(2) of the Act) dated May 3, 2013, requesting the taxpayer to attend his office on May 13, 2013. The taxpayer, in response to the earlier notice u/s 148, filed his reply on May 23, 2013, requesting the tax officer to treat the original return filed be treated as the return filed in response to the reopening notice. The tax officer completed the assessment and passed the order dated March 19, 2015. The taxpayer had filed an appeal against certain additions made in the return of income, which was rejected by the first appellate authority. 

At the second level of appeal before the tax Tribunal, the taxpayer challenged the re-opening assessment order passed by the tax office on technical grounds. The taxpayer argued that the order is bad in law as no notice u/s 143(2) of the Act was issued to him after filing the return of income on May 23, 2013. The only notice issued was dated May 3, 2013; which falls before the date of filing his return in response to the re-opening notice u/s 148. The taxpayer argued that in relation to an assessment when no notice u/s 143(2) is issued after the filing of returns, the assessment order so framed is invalid and bad in law. For this purpose, the taxpayer relied on precedent judgements passed by Mumbai and Delhi High Courts on this issue.

On a review of facts of the case, the tax Tribunal observed that under the procedure prescribed for assessment under the Act, the notice u/s 143(2) can be issued only when a validly filed return is pending assessment. In the given case, as the taxpayer had filed his reply letter dated May 23, 2013, as above, it can be inferred that the assessee has filed his return of income only on May 23, 2013. No notice u/s 143(2) was issued by the tax office after May 23, 2013. 

Next, the Tribunal examined the question whether an assessment can be framed without issuing a notice u/s 143(2) where a return was filed by the taxpayer in response to notice u/s 148. For this purpose, it relied on a precedent Bombay High court decision, wherein it was held that notice u/s 143(2) is mandatory and in the absence of such notice, the tax officers cannot proceed to make any inquiry on the return filed in response to notice u/s 148. Further reliance was placed on a Delhi High Court decision, where it was held that section 143(2) of the Act make it clear that the notice can be issued only after the tax officer has examined the return filed by the taxpayer. 

In view of both the above judgements, the tax Tribunal held that as no notice was issued by the tax office on or after May 23, 2013, the assessment order passed is bad in law and accordingly ordered for the assessment to be quashed. Consequently, additions made in the said order by the tax office were deemed redundant. 

The writer is Sebi-registered investment adviser