In Commissioner of Income Tax vs. Gitsons Engineering Co., the High Court held that the notice u/s 143(2) shall mandatorily be served within time limit prescribed.

Facts of the case:

The assessee filed the return for the assessment year 2007-08 on 31.10.2007. The return of income was filed showing NIL income. The same was processed under section 143(1). The case was selected for scrutiny on the basis of Computer Assisted Scrutiny System. The notice under Section 143(2) of the Act was issued to the assessee and the case was taken up for hearing.

While scrutiny proceedings, the AO found that the assessee has not produced bills for Rs.15,000/- in respect of expenditure claimed under the head “office equipment”. With regard to the claim under the head “travelling and conveyance”, it was found that the assessee claimed Rs.16,00,656/- and out of the said sum, Rs.50,000/- was disallowed, being personal in nature, and the same was added to the total income. Anent the claim of the assessee towards TDS of Rs.1,36,290/- on labour charges received from Alpump Limited, Perungudi, Chennai of Rs.60,73,014/-, the Assessing Officer, on verification of the TDS certificates and the records filed, held that the amount received towards labour charges and credited in the profit and loss account is only Rs.56,99,791/- and, therefore, added the difference of Rs.3,73,313/- to the total income as undisclosed business income.

On this, the assessee appealed to the Commissioner (Appeals) who confirmed the order of the AO.

Thereafter, the assessee went before the Tribunal. The assessee argued that the notice u/s 142(2) was served on 27.8.2009 which was beyond the prescribed time limit. On this, the Department pleaded that the said notice was prepared on 18.9.2008. It was also found that the department has not produced any record to show that the said notice was dispatched and served on the assessee. The Tribunal, took the view that the notice was served only on 27.8.2009, beyond the time prescribed under Section 143(2) of the Act. Thus, it was held that such notice was invalid.

Revenue appealed to the High Court.

It was held that:

The High Court viewed the salient features of the applicable section.

• For regular /scrutiny assessment u/s 143(3), a notice u/s 143(2) has to be issued.
• The notice shall be issued only when the assessee has furnished return of income u/s 139(1) or 142(1)
• The notice u/s 143(2) shall be served on the assessee within twelve months of expiry of financial year in which the return was furnished.
• The Assessing Officer (AO) is not required to possess any ‘reason to believe’. In this assessment, the AO shall ensure that the assessee:

-Has not understated income

-Has not computed excessive loss

-Has not under paid taxes

The word “shall” employed in Section 143(2) of the Act contemplates that the Assessing Officer should issue notice to the assessee so as to ensure that

• the assessee has not understated income or
• has not computed excessive loss or
• has not underpaid the tax in any manner.

For the above stated purpose, the AO should call upon the assessee to produce evidence before him to ensure that the tax is paid in accordance with law. Thus, service of notice under section 143(2) within the time-limit prescribed is mandatory and it is not a mere procedural requirement.

In the present case, the notice u/s 143(2) was served on the assessee on 27.8.2209. the Department failed to produce any records that the said notice was dispatched and served on the assessee on 17.09.2008.

Thus, the Court was satisfied that the basic requirement of section 143(2) was not fulfilled. Hence, the appeal of revenue was dismissed.

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