2015 (1) TMI 570 - AT - Income Tax

Invalid Notice under Section 148 Renders Assessment Void; Appellant's Appeal Allowed

UP Housing & Development Board, (UP Avas Evam Vikas Parishad) Versus ACIT., Range-II, Lucknow

The tribunal held that the proceedings initiated under section 147 by issuing a notice under section 148 were invalid as no income had escaped assessment ... Reopening of assessment u/s 147 r.w 148 – Reason to believe – Whether it can be said that an income has escaped assessment on the date of issue of notice u/s 148 of the Act i.e. on 30/03/2006 - Notice u/s 148 of the Act was issued by the AO on 30/03/2006 and it was duly served on the assessee on 30/03/2006 and the assessee has filed its return of income on 31/03/2006 – Held that:- The basis of the decision of the authorities below is that since the assessee has not filed any return of income by the due date u/s 139 (1), income has escaped assessment - if the assessee does not file any return of income on or before the due date as prescribed u/s 139(1) of the Act, then the AO may issue notice to the assessee for filing return of income u/s 142(1) of the Act - when an assessee does not file its return of income within the time prescribed under sub section (1) of section 139 of the Act, the AO can ask the assessee to furnish the return of income - Similarly as per the provisions of section 147, if the AO has reason to believe that the income chargeable to tax has escaped assessment, he can assess or reassess such income – the AO has to record his reasons for belief and then issue notice u/s 148 - till the time available to the assessee for filing return u/s 139(4) has not expired, it cannot be said that any income has escaped assessment - such time has not expired on 30/03/2006 when the AO issued notice to the assessee u/s 148 and therefore, the action of the AO in issuing notice u/s 148 is not valid because no income has escaped assessment till that date - the proceedings initiated by AO by issuing notice u/s 148 is not valid and the assessment framed u/s 143(3)/148 is to be set aside – Decided in favour of asseesee. Issues Involved1. Validity of proceedings under section 147 by issue of notice under section 148.2. Recognition of the appellant as an institution existing for charitable purposes under section 12AA.3. Validity of the return filed under section 139 during the pendency of proceedings under section 147.4. Disharmony between the person in whose case proceedings were initiated and the person described in the assessment order.5. Unadjudicated grounds regarding tax deduction at source, filing of Form No.10, and charges of interest under sections 234A, 234B, and 234C.Detailed Analysis1. Validity of Proceedings under Section 147 by Issue of Notice under Section 148The appellant contested the validity of the reassessment proceedings initiated by the Assessing Officer (AO) under section 147 by issuing a notice under section 148 on 30/03/2006. The appellant argued that there existed no material, much less relevant material, which could lead to the formation of the requisite 'reason to believe' that income chargeable to tax had escaped assessment. The tribunal noted that the AO issued the notice on 30/03/2006, and the appellant filed the return of income on 31/03/2006. The tribunal held that until the time available to the assessee for filing the return under section 139(4) had not expired, it could not be said that any income had escaped assessment. Therefore, the action of the AO in issuing the notice under section 148 was deemed invalid, rendering the assessment framed under section 143(3)/148 void.2. Recognition of the Appellant as an Institution Existing for Charitable Purposes under Section 12AAThe appellant argued that it was recognized as an institution existing for charitable purposes as per the certificate dated 17/01/2006 issued by the CIT-I, Lucknow under section 12AA of the Act. The tribunal observed that the AO did not consider the relevant facts and material, such as the registration granted by the CIT-I, Lucknow. The tribunal concluded that the initiation of proceedings under section 147 was not based on 'relevant material' capable of forming a 'nexus' between the 'formation of reason to believe' and 'income escaping assessment.'3. Validity of the Return Filed under Section 139 During the Pendency of Proceedings under Section 147The appellant contended that the return filed under section 139 on 31/03/2006 was a valid return, and during the pendency of such a valid return, the proceedings initiated under section 147 could not remain in force. The tribunal agreed with this contention, stating that the AO could have issued a notice under section 142(1) if the return was not filed within the time prescribed under section 139(1). Since the return was filed within the time allowed under section 139(4), it could not be said that any income had escaped assessment on 30/03/2006.4. Disharmony Between the Person in Whose Case Proceedings were Initiated and the Person Described in the Assessment OrderThe appellant raised the issue of disharmony between the 'person' in whose case the proceedings under section 147 were initiated and the 'person' described as Artificial Juridical Person (AJP) in the assessment order. The tribunal did not specifically address this issue, as the primary ground of invalidity of the notice under section 148 was sufficient to quash the assessment.5. Unadjudicated Grounds Regarding Tax Deduction at Source, Filing of Form No.10, and Charges of Interest under Sections 234A, 234B, and 234CThe appellant argued that various grounds taken in the appeal against the assessment order, such as the claim of tax deduction at source on bank fixed deposits, filing of Form No.10, and charges of interest under sections 234A, 234B, and 234C, remained unadjudicated. The tribunal did not find it necessary to adjudicate these grounds, as the primary issue of the invalidity of the notice under section 148 rendered the entire assessment void.ConclusionThe tribunal concluded that the proceedings initiated by the AO under section 147 by issuing a notice under section 148 were invalid, as no income had escaped assessment on the date of issuing the notice. Consequently, the assessment framed under section 143(3)/148 was quashed, and the appeal of the assessee was allowed.