Supreme Court clarifies the requirements for valid notice under Section 143(2) of the Income Tax Act: Principal Commissioner of Income Tax vs. M/s I-Ven Interactive Limited (2019)

Introduction

Date of the Judgment: 18 October 2019

Citation: (2019) Civil Appeal No. 8132 of 2019

Judges: Uday Umesh Lalit, Indira Banerjee, M.R. Shah

Can an income tax assessment be invalidated if the tax department sends a notice to an old address, even if that address is the one registered in the PAN database? The Supreme Court of India recently tackled this question in a case concerning the validity of a notice issued under Section 143(2) of the Income Tax Act, 1961. The core issue revolved around whether the Income Tax Department is obligated to verify the current address of an assessee beyond what is registered in the PAN database. This judgment, delivered by a three-judge bench comprising Justices Uday Umesh Lalit, Indira Banerjee, and M.R. Shah, clarifies the responsibilities of both the tax department and the assessee regarding address updates. The majority opinion was authored by Justice M.R. Shah.

Case Background

The case involves M/s I-Ven Interactive Limited, an assessee, who filed their income tax return for the Assessment Year 2006-07 on 28 November 2006, declaring a total income of Rs. 3,38,71,716. The return was filed electronically and a hard copy was submitted on 5 December 2006. The Income Tax Department processed the return under Section 143(1) of the Income Tax Act, 1961.

Subsequently, the Assessing Officer (AO) issued a notice under Section 143(2) of the Income Tax Act, 1961, on 5 October 2007, to the assessee at the address available in the PAN database. A further notice was issued on 25 July 2008. The assessee claimed that they had changed their address and that these notices were not received. The assessee also contended that subsequent notices were served after the limitation period for issuing notices under Section 143(2).

The AO completed the assessment under Section 143(3) of the Income Tax Act, 1961, on 24 December 2008, making a disallowance of Rs. 8,91,17,643 under Section 14A of the Income Tax Act, 1961, read with Rule 8 of the Income Tax Rules, and computed the total income at Rs. 5,52,45,930. The assessee appealed this order.

Timeline:

Course of Proceedings

The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee’s appeal on 23 December 2010, holding that the Assessing Officer (AO) had not assumed valid jurisdiction under Section 143(2) of the Income Tax Act, 1961, as the notices were not properly served. The CIT(A) noted that the subsequent service of notice under Section 143(2) was beyond the limitation period and that the earlier notices were sent to an old address.

The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal on 19 January 2015, upholding the CIT(A)’s order. The High Court of Judicature at Bombay also dismissed the Revenue’s appeal on 27 June 2018, confirming the orders of the CIT(A) and ITAT. The Revenue then appealed to the Supreme Court.

Legal Framework

The core legal provision in this case is Section 143(2) of the Income Tax Act, 1961, which deals with the issuance of notices for scrutiny assessments.
Section 143(2) of the Income Tax Act, 1961 states:

“Where a return has been made under section 139, or in response to a notice under sub-section (1) of this section, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend at the office of the Assessing Officer or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return.”

The proviso to Section 143(2) of the Income Tax Act, 1961, specifies the time limit for issuing such notices. The relevant portion states that no notice under this sub-section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.

The Supreme Court also considered the provisions related to the PAN database and the requirement for assessees to keep their information updated with the Income Tax Department.

Arguments

Arguments by the Revenue:

• The Revenue argued that the High Court erred in dismissing their appeal and upholding the orders of the CIT(A) and ITAT.
• The Assessing Officer (AO) had sent the notice under Section 143(2) of the Income Tax Act, 1961, to the assessee at the address available in the PAN database.
• The assessee did not inform the AO about the change of address.
• The notice was sent to the assessee at the available address as per the PAN database, which is sufficient compliance with Section 143(2) of the Income Tax Act, 1961.
• The assessee failed to prove that they had sent a communication dated 6 December 2005, to the AO, intimating the change of address.
• The CIT(A) heavily relied on the alleged communication of 6 December 2005, which was not produced.
• The assessee participated in the assessment proceedings, and therefore, the CIT(A) should have considered the appeal on merits instead of setting aside the assessment order.

Arguments by the Assessee:

• The Assessing Officer (AO) was aware of the new address of the assessee and was required to send the notices to the new address.
• The AO sent the notice to the old address, and therefore, the notice was never served on the assessee.
• By the time the subsequent notice was served, the notice under Section 143(2) of the Income Tax Act, 1961, was barred by limitation.
• The change of address and name of the assessee company was intimated to the Registrar of Companies (ROC) in Form-18.
• The AO was aware of the new address, as assessment orders for A.Y. 2004-05 and A.Y. 2005-06 were sent to the new address.
• Relying on the decision of the Supreme Court in Assistant Commissioner of Income Tax v. Hotel Blue Moon [(2010) 3 SCC 259], the assessee argued that the issuance of notice under Section 143(2) of the Income Tax Act, 1961, within the prescribed time is mandatory.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the Court was:

1. Whether the notice issued under Section 143(2) of the Income Tax Act, 1961, was validly served when it was sent to the address available in the PAN database, despite the assessee having changed its address and allegedly not receiving the notice.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Case Law:

• Assistant Commissioner of Income Tax v. Hotel Blue Moon [(2010) 3 SCC 259] – Supreme Court of India
  
  This case was relied upon by the assessee to argue that the issuance of notice under Section 143(2) of the Income Tax Act, 1961, within the prescribed time is mandatory. The Supreme Court in the present case agreed with this ratio of the case, stating that the notice under Section 143(2) has to be issued within the prescribed time.

Legal Provisions:

• Section 143(1) of the Income Tax Act, 1961: This section deals with the processing of income tax returns.
• Section 143(2) of the Income Tax Act, 1961: This section deals with the issuance of notices for scrutiny assessments.
• Section 143(3) of the Income Tax Act, 1961: This section deals with the assessment of income after scrutiny.
• Section 14A of the Income Tax Act, 1961: This section deals with the disallowance of expenditure in relation to income not includible in total income.
• Rule 8 of the Income Tax Rules: This rule deals with the method of determining the amount of expenditure in relation to income not includible in total income.

Judgment

How each submission made by the Parties was treated by the Court?

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• PAN Database Accuracy: The Court emphasized the importance of maintaining accurate and updated information in the PAN database. It noted that the Income Tax Department relies on this database for sending notices and that it is the assessee’s responsibility to ensure their address is correctly recorded.
• Lack of Evidence: The assessee failed to provide any evidence of having informed the Assessing Officer (AO) about the change of address, particularly the alleged communication dated 6 December 2005.
• Compliance with Section 143(2): The Court clarified that the issuance of notice within the prescribed time under Section 143(2) of the Income Tax Act, 1961, is crucial, but it is sufficient if the notice is sent to the address available in the PAN database.
• Procedural Requirements: The Court highlighted that simply mentioning a new address in the income tax return is not sufficient. The assessee must specifically inform the AO about the change of address and update it in the PAN database.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The Court considered the argument that the notice was not served on the assessee as it was sent to the old address. However, the Court noted that the assessee failed to prove that they had informed the Assessing Officer about the change of address. The Court also noted that the notice was sent to the address available in the PAN database, which is sufficient compliance with Section 143(2) of the Income Tax Act, 1961.

The Court rejected the argument that the assessment order was bad in law as the notice was not served within the prescribed time. The Court held that the notice was issued within the prescribed time as it was sent to the address in the PAN database. The Court also rejected the argument that the Assessing Officer was aware of the new address as assessment orders for A.Y. 2004-05 and 2005-06 were sent to the new address, stating that the Revenue had sufficiently explained this point.

The Court stated:

“In absence of any specific intimation to the Assessing Officer with respect to change in address and/or change in the name of the assessee, the Assessing Officer would be justified in sending the notice at the available address mentioned in the PAN database of the assessee…”

“Once the notice is sent within the period prescribed in the proviso to Section 143(2) of the 1961 Act, in that case, actual service of the notice upon the assessee thereafter would be immaterial.”

“Therefore, the change of address in the database of PAN is must, in case of change in the name of the company and/or any change in the registered office or the corporate office and the same has to be intimated to the Registrar of Companies in the prescribed format (Form 18) and after completing with the said requirement, the assessee is required to approach the Department with the copy of the said document and the assessee is also required to make an application for change of address in the departmental database of PAN, which in the present case the assessee has failed to do so.”

Key Takeaways

• Assessee Responsibility: It is the responsibility of the assessee to ensure that their address is updated in the PAN database.
• PAN Database Reliance: The Income Tax Department is justified in relying on the address available in the PAN database for sending notices.
• Specific Intimation Required: Simply mentioning a new address in the income tax return is not sufficient. The assessee must specifically inform the Assessing Officer about the change of address and update it in the PAN database.
• Timely Notice Issuance: The issuance of notice under Section 143(2) of the Income Tax Act, 1961, within the prescribed time is mandatory, but sending it to the PAN database address is considered sufficient compliance.
• Actual Service Immaterial: Once the notice is sent within the prescribed time to the address in the PAN database, actual service of the notice upon the assessee thereafter is immaterial.

Directions

The Supreme Court quashed and set aside the judgment of the High Court, as well as the orders of the CIT(A) and ITAT. The matter was remanded to the CIT(A) to consider the appeal on merits, in accordance with the law.

Development of Law

The ratio decidendi of this case is that the Income Tax Department is justified in sending notices under Section 143(2) of the Income Tax Act, 1961, to the address available in the PAN database, and it is the responsibility of the assessee to ensure that their address is updated in the PAN database.

This judgment clarifies that the Income Tax Department is not required to go beyond the PAN database for address verification, and it is the assessee’s responsibility to keep their information updated. This is a departure from the view taken by the lower authorities, who had held that the department should have sent the notice to the new address.

Conclusion

The Supreme Court allowed the appeal filed by the Revenue, setting aside the orders of the High Court, CIT(A), and ITAT. The Court held that the notice issued under Section 143(2) of the Income Tax Act, 1961, was validly served as it was sent to the address available in the PAN database. The Court emphasized the importance of maintaining accurate information in the PAN database and the responsibility of the assessee to update their address. The matter was remanded to the CIT(A) for consideration on merits.