2006 (9) TMI 86 - HC - Income Tax

Court Invalidates Income Tax Notice; Reopening Assessment Without Fresh Material; Time Limit Breached

BAPALAL AND CO. EXPORTS Versus JOINT COMMISSIONER OF INCOME-TAX (OSD)

BAPALAL AND CO. EXPORTS Versus JOINT COMMISSIONER OF INCOME-TAX (OSD) - [2007] 289 ITR 37 (Mad) Issues Involved:1. Legality of the notice issued under Section 148 of the Income Tax Act.2. Requirement of fresh material for reopening assessments.3. Compliance with mandatory provisions under Sections 148(2) and 153(2) of the Income Tax Act.4. Change in the status of the assessee from 'firm' to 'body of individuals.'5. Requirement for a speaking order on objections raised by the assessee.Detailed Analysis:1. Legality of the Notice Issued Under Section 148 of the Income Tax Act:The petitioner contended that the notice dated March 18, 2005, issued under Section 148 of the Act, was nearly three years after the final assessment and without disclosing any reasons, violating the mandatory provision under Section 148(2) of the Act. The court noted that, as per the Supreme Court ruling in Comunidado of Chicalim v. ITO, when an assessee challenges a notice to reopen under Section 147, the Court must examine the reasons. The court found that the notice was issued without assigning any reason, thus violating the legal requirement.2. Requirement of Fresh Material for Reopening Assessments:The petitioner argued that the reopening of the assessment was not based on any fresh material and was therefore without jurisdiction. The court referred to the Supreme Court's decision in Andhra Bank Ltd. v. CIT, which held that an assessment could not be reopened unless new information from an extraneous source was available. The court concluded that the reopening was not justified as no new material was presented.3. Compliance with Mandatory Provisions Under Sections 148(2) and 153(2) of the Income Tax Act:The petitioner claimed that the notice under Section 148 was issued after the statutory period of twelve months, thus violating Section 153(2). The court confirmed that the notice was indeed issued nearly three years after the original assessment, which contravened the time limit specified under Section 153(2). The court held that the notice was illegal and unsustainable.4. Change in the Status of the Assessee from 'Firm' to 'Body of Individuals':The petitioner asserted that the respondent had changed the status of the assessee from a 'firm' to a 'body of individuals' without issuing any notice, which was illegal. The court agreed with the petitioner, stating that such a change in status without prior notice was a violation of the settled legal position.5. Requirement for a Speaking Order on Objections Raised by the Assessee:The petitioner contended that the respondent failed to pass a speaking order on the objections raised, which is mandatory as per the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO. The court noted that the respondent did not provide a reasoned order addressing the objections, thus failing to comply with the legal requirement for a speaking order.Conclusion:The court concluded that the impugned order dated March 31, 2006, was issued without any fresh material, beyond the statutory period, and without providing reasons, thereby violating the provisions of the Income Tax Act and the principles laid down by the Supreme Court. Consequently, the writ petition was allowed, and the impugned order was set aside. The court, however, clarified that the respondent could proceed further in accordance with the provisions of the Act by adducing any valid reason or fresh material in the future.Judgment:The writ petition is allowed, the impugned order is set aside, and the connected W.P.M.P. No.13824 of 2006 is closed. The respondent is permitted to proceed further in accordance with the provisions of the Act by adducing any valid reason or fresh material.