Validity of notices under the Income Tax Act in certain circumstances | CA Prakash Hegde and CA Raghavendra N.

Validity of notices under the Income Tax Act in certain circumstances

By CA Prakash Hegde and CA Raghavendra N.

In most of the proceedings under the Income Tax Act, 1961 (‘the Act’), issue and service of notices form a very important part. The initiation proceeding commences on issue of proper notice and proper service of that notice.  An issue of notice serves the dual purpose of (i) giving an assessee the opportunity of being heard and hence, ensure natural justice and (ii) act as means for obtaining information / details from the assessee.

In many instances, the assessees question the validity of service of notice after responding to those notices or after participating in the proceedings or during appeal.  In situations where the notice is found to be invalid, the income tax authorities may issue fresh notice appropriately provided the time limit for such notice is not over.  However, if the objection is raised by the assessee after the time limit for issuance of a valid fresh notice is over, the defect cannot be remedied by the income tax authorities.

Therefore, the Government thought it necessary to restrict the assessee from questioning the validity of service of notice once he participates in the proceedings in pursuance of a notice.  As a result, the Finance Act, 2008 inserted section 292BB with effect from 01 April 2008 to deem notices to be valid in certain circumstances, which reads as under:

“292BB. Notice deemed to be valid in certain circumstances — Where an assessee has appeared in any proceedings or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was-

 (d) not served upon him; or

 (e) not served upon him in time; or

 (f) served upon him in an improper manner

 Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.”

In short, if an assessee had appeared in any proceedings or co-operated in any inquiry, it shall be deemed that any notice required to be served on him, has been duly served upon him in time and in accordance with the provisions of the Act. It is important to note that such deeming provision will not apply where the assessee has raised an objection (either regarding non-service of notice or non-service of notice in time or improper service of notice) before the completion of such assessment or reassessment.

 The Central Board of Direct Taxes (‘CBDT’) vide Circular No. 1 of 2009 has clarified that the provisions of section 292BB shall be applicable to all proceedings which were pending on 01 April 2008.

 Judicial Precedents

 In a very recent decision by the Kerala High Court in the case of Travancore Diagnostics (P.) Ltd. Vs ACIT [2016] 74 taxmann.com 239 (Kerala), the issue under consideration was the contention of the assessee that before making an assessment under section 143(3) read with section 147, the Assessing Officer ought to have given a statutory notice under section 143(2) of the Act. In the absence of a notice under section 143(2), it is obvious that no further proceedings can be continued for assessment under section 143 and without such a notice, the Assessing Officer could not assume jurisdiction and that this defect cannot be cured subsequently, since it is not a procedural defect, but it is a defect that goes to the root of the jurisdiction.  In this case, it was admitted by the assessee that his representative had appeared before the Assessing Officer. The Revenue, therefore asserted that since the assessee had appeared in the proceeding and had co-operated with the inquiry, he shall be precluded under section 292BB from raising any contention that no notice had been served on him. The High Court held that:

 “On a clear reading of the section 292BB it becomes inscrutable that the issue of estoppel would arise against the assessee only after he had appeared in the assessment proceeding pursuant to a notice validly issued.  Therefore, in the absence of a section 143(2) notice, proceedings of assessment initiated, conducted and completed would have to fail.”

Similarly, the Punjab & Haryana High Court, in the case of Cebon India Ltd [TS-105-HC-2009(P & H)] has held that in the absence of service of notice under section 143(2), the AO had no jurisdiction to proceed with assessment. The High Court observed that notice was not served within the stipulated time and hence, held that the absence of a notice cannot be held to be curable under section 292BB of the Act.

On a similar question of whether the revenue could not take advantage of provisions of section 292BB where no notice under section 143(2) was issued within period of limitation, the Bangalore Tribunal in the case of ACIT vs. Ashed Properties & Investments (P.) Ltd [2015] 62 taxmann.com 340 (Bangalore – Trib.) has held that the issue and service of notice under section 143(2) within the period of limitation contemplated under the proviso to section 143(2)(ii) is mandatory for validity of assessment under section 147.  On the applicability of provisions of section 292BB, when the records show that there was no issue of notice under section 143(2) within the period of limitation prescribed under the said proviso, the revenue cannot take advantage of the provisions of section 292BB.  In other words, ‘issue of notice’ and ‘service of notice’ are two different aspects and what is covered by section 292BB is only ‘service of notice’.  Non-issue of notice under section 143(2) within the period of limitation would not be covered under the ambit of section 292BB.

Conclusion

Based on the above, it can be understood that, non-issue of notice within the period of limitation would not be covered under the ambit of section 292BB. Further, where an assessee appears in any proceedings or co-operates in any inquiry, without raising any objection regarding non-service of notice or non-service of notice in time or improper service of notice before the completion of such assessment or reassessment, it shall be deemed that any notice required to be served on him has been duly served upon him in time and in accordance with the provisions of the Act.