2017 (5) TMI 1776 - HC - Income Tax

Invalid Notice under Section 148 Overturned: Assessments Must Follow Due Process

The court held that the notice issued under section 148 was invalid as the regular assessment could have been framed under section 143(3) instead. Relying ... Reopening of assessment u/s 147 - AO processed the return u/s 143(1)(a) - statutory provisions which was made applicable under section 143 at the relevant time which is produced on record and subsequent amendment - HELD THAT:- It will not be out of place to mention that order under section 143 was confirmed on August 11, 2000 when the return was filed and the notice which is impugned under section 148 came to be issued before the assessment could have been done. The contention of the assessee that in the notice which has been issued under section 148, ingredients under section 148 are not fulfilled, in our considered opinion, when an order under section 143 is passed, the observations which are made in the case of Rajesh Jhaveri [2007 (5) TMI 197 - SUPREME COURT] in para Nos. 11, 12 and 13 as reproduced hereinabove would apply. The contention raised by the counsel for the appellant is required to be accepted in view of the observations made by the Delhi High Court in KLM Royal Dutch Airlines [2007 (1) TMI 138 - DELHI HIGH COURT] We are of the opinion that the Tribunal has seriously committed an error in upholding the notice under section 148 when the officer has regularly framed assessment. The view taken by the Commissioner of Income-tax (Appeals) is required to be accepted. - Decided in favour of assessee. Issues Involved:1. Validity of notice under section 148 when the Assessing Officer could have issued a notice under section 143(2) for regular assessment under section 143(3).2. Applicability of section 145 to reject the statement of affairs when there was no requirement to maintain books of account under sections 44AA and 44AF.Detailed Analysis:Issue 1: Validity of Notice under Section 148The primary issue revolves around whether the Income-tax Appellate Tribunal was justified in upholding the issuance of notice under section 148, given that the Assessing Officer could have issued a notice under section 143(2) to frame the regular assessment under section 143(3).Facts of the Case:- The assessee filed the return on December 6, 1999, showing an investment in a plot at Rs. 1,31,000.- The return was processed under section 143(1)(a) on August 11, 2000.- The assessee revised the balance sheet and profit and loss account, showing the investment at Rs. 5,22,936 on August 16, 2000.- The Assessing Officer issued a notice under section 148 on September 14, 2000, based on the revised balance sheet and then issued a notice under section 143(2) on October 3, 2000.Arguments by the Appellant:- The original return was accepted on the same day it was filed.- The issuance of notice under section 148 was not justified as the regular assessment could have been framed under section 143(3).Legal Provisions and Precedents:- Section 147: Provides for reassessment if the Assessing Officer has reason to believe that income has escaped assessment.- Section 148: Requires the Assessing Officer to serve a notice to the assessee before making an assessment, reassessment, or recomputation under section 147.- Section 143: Deals with the procedure for assessment.The appellant relied on several judicial precedents:1. Trustees of H.E.H. The Nizam's Supplemental Family Trust v. CIT: Reassessment notice under section 148 cannot be issued if the original return is still pending.2. CIT v. Ram Kishan Leela: Two assessment proceedings cannot run parallelly.3. Jhunjhunwala Vanaspati Ltd. v. Asst. CIT: Reassessment notice is invalid if the original assessment proceedings are pending.4. KLM Royal Dutch Airlines v. Asst. DIT: Section 147/148 cannot be invoked while regular assessment proceedings are pending.5. CESC Ltd. v. Dy. CIT: Jurisdiction for assessment of non-residents is confined to Mumbai authorities.6. CIT v. K.M. Pachayappan: Notice under section 148 cannot be issued when a valid return is pending.7. CIT v. TCP Ltd.: Reassessment cannot be initiated while the original return is pending.8. Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd.: Clarified the scope of section 143(1) and the conditions for reassessment under section 147.9. CIT v. Abdul Gani Mohd. Ismail: Reassessment notice under section 148 is invalid if the original return is pending.10. Punjab Tractors Ltd. v. Joint CIT: Notice under section 147/148 is not vitiated by the absence of notice under section 143(2).11. Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT: Failure to take steps under section 143(3) does not preclude reassessment under section 147.12. Pradeep Kumar Har Saran Lal v. Assessing Officer: Reassessment is permissible even if the original return is processed under section 143(1)(a).Court's Analysis:- The court noted that the original assessment under section 143 was confirmed on August 11, 2000, and the notice under section 148 was issued before the assessment could be completed.- The court emphasized the observations in Rajesh Jhaveri and KLM Royal Dutch Airlines, which clarified that reassessment under section 147 cannot be initiated while regular assessment proceedings are pending.Conclusion:The Tribunal erred in upholding the notice under section 148. The Commissioner of Income-tax (Appeals) correctly held that the notice was invalid. The issue was decided in favor of the assessee and against the Department.Issue 2: Applicability of Section 145The appellant did not press this issue; hence, it was not argued in detail.Conclusion:The appeal was allowed, and the Tribunal's decision to uphold the notice under section 148 was overturned. The court ruled in favor of the assessee, emphasizing that reassessment proceedings cannot be initiated while regular assessment proceedings are pending.