Where no return was filed in compliance to notice u/s 148, issuing of notice u/s 143(2) was not required for making assessment – HC

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The High Court of Jammu & Kashmir in the recent judgement in the case of Principal Commissioner of Income-tax v.Broadway Shoe Co. held that where no return was filed in compliance to notice u/s 148, issuing of notice u/s 143(2) was not required for making assessment.

Facts of the Case: 

  1. The assessee filed its return declaring the net loss of certain amount. The return was filed by the assessee belatedly, therefore, the same could not be processed.
  2. The return was the first ever return filed by the assessee and the same is showing an opening balance and some advances.
  3. Thereafter, proceedings under section 147 were initiated and a notice under section 148 was issued by which assessee was asked to file return of income tax within 30 days from the date of service of the notice.
  4. In response to the said notice, the assessee did not file return.
  5. The Assessing Officer asked to explain the opening capital and source of advances through notices on various dates from December 2012 to February 2013. However, no response was made by the assessee.
  6. In absence of any explanation, the Assessing Officer made the additions.

Question of Law:

“Whether in the facts and the circumstances of the case, the ITAT was right in holding that the notice under Section 143(2) of the Income-tax Act was required to be issued even in the case when no return in response to Notice under Section 148 was filed.”

Discussion: 

On the basis of the facts of the case, it can be seen that the assessee has not filed any return in response to the notice u/s 148 of the Income Tax Act, 1961. Also, the proceedings are initiated u/s 148 as the assessee has filed its return belatedly and certain aspects are open to be suspected.

The High Court states the following :

  1. Section 148 of the Act permits issuance of notice in certain circumstances when it is discovered that income has escaped assessment and sub section (1) thereof mandates a return to be filed upon assessee being served a notice under such provisions, whereupon the provisions of this Act shall, so far as it may be, apply accordingly as if such return were a return required to be furnished under Section 139 of the Act.
  2. Section 143 of the Act pertains to an assessment and its opening words referred to “a return being made under Section 139 of the Act or in response to a notice under Section 142(1) of the Act.
  3. Thus plain reading of Section 143(2) of the Act, which talks about issuance of notice where return has been furnished and Section 148(1) of the Act, which talks about return filed in response to notice being treated as return under Section 139, makes it clear that the procedure prescribed in Section 143(2) becomes applicable only when a return has been furnished.
  4. The Judgement in the case of Hotel Blue Moon also does not hold good in this case stating that a notice under Section 143(2) is mandatory, if the return as filed is not accepted and an assessment order is to be made at variance with the return filed by the assessee.

HELD: 

The notice under section 143(2) is required to be given only when return is furnished. Furnishing of the return is a sine qua non for issuance of notice under section 143(2). If no return is furnished by the assessee, there can be no reason for issuance of notice under section 143(2).

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