2020 (12) TMI 525 - AT - Income Tax

Tribunal Invalidates Income Tax Reassessment Due to Premature Notice, Citing Pending Assessment Proceedings Rule.

Shree Prakash Singh Versus ITO, Ward-1, Digboi

The Tribunal quashed the reassessment proceedings initiated under Sec. 147/148 of the Income Tax Act, 1961, deeming them invalid due to the premature ... Validity of reopening of assessment - time limit for issue of notice u/s. 143(2) has not expired and regular assessment could have been made - Assessee had filed the return of income belatedly - HELD THAT:- In the light of the above judgment in the case of Smt. Suman vs. ITO [2017 (8) TMI 567 - BOMBAY HIGH COURT] it is abundantly clear that no reassessment proceedings can be initiated so long assessment proceedings on the basis of return of income filed by the assessee is pending. The assessment proceedings would seize to be pending either by passing an order u/s. 143(3) of the Act or by expiry of time to issue a notice u/s. 143(2) to complete the assessment proceedings u/s. 143(3) of the Act. So long as the above event, has not passed, the Assessing Officer cannot render the provision of section 143(2) of the Act redundant/otiose by issuing a notice for reopening u/s. 147/148 of the Act. Therefore, in our view, the reassessment proceedings initiated in the case of assessee under consideration is bad in law. In assessee's case under consideration the time limit to issue notice under section 143(2) was not expired therefore assessing officer cannot issue the notice under section 148 to make the reassessment under section 147 - we do not agree with the argument of ld DR to the effect that the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings under section 147 of the Act. In assessee's case the time available for issue of notice under section 143(2) of the Act is on or before 30.09.2014 and after 30.09.2014, the assessing officer cannot issue notice under section 143(2) of the Act to frame the assessment under section 143(3) - up to 30.09.2014, the assessing officer could have issued notice under section 143(2) of the Act to frame the assessment under section 143(3) of the Act and the assessing officer could have assessed all the income of the assessee including escaped income, thus there is no need to jump the queue and to issue notice under section 148 of the Act on 21.06.2014, [before the expiry of time limit under section 143(2)], that is, assessing officer should not have jumped the queue, as the time limit to issue notice under section 143(2) is available before the assessing officer, up to 30.09.2014. In the assessee's case under consideration, the assessing officer jumped the queue and issued notice under section 148 of the Act within the time limit available to issue notice under section 143(2) of the Act and such action of the assessing officer is not acceptable - Decided in favour of assessee. Issues Involved:1. Validity of reassessment proceedings initiated under Section 147/148 of the Income Tax Act, 1961.2. Application of Section 50C of the Income Tax Act, 1961 in computing capital gains.3. Disregard of actual sale price realized by the assessee.4. Principles of law and natural justice in framing the assessment order under Section 147/143(3) of the Act.Issue-wise Detailed Analysis:1. Validity of Reassessment Proceedings Initiated Under Section 147/148 of the Income Tax Act, 1961:The primary grievance of the assessee was the initiation of reassessment proceedings under Section 147/148, which was argued to be bad in law. The assessee contended that the Assessing Officer (AO) issued the notice under Section 148 before the expiry of the time limit for issuing a notice under Section 143(2) for scrutiny assessment. The assessee had filed the return of income on 29.06.2013, and the AO had time until 30.09.2014 to issue a notice under Section 143(2). However, the AO issued the notice under Section 148 on 21.06.2014. The Tribunal relied on the judgment of the Hon’ble Bombay High Court in the case of Smt. Suman vs. ITO, which held that reassessment proceedings cannot be initiated as long as assessment proceedings based on the return of income filed by the assessee are pending. The Tribunal concluded that the AO's action of issuing a notice under Section 148 before the expiry of the time limit to issue a notice under Section 143(2) was not acceptable and quashed the reassessment proceedings as bad in law.2. Application of Section 50C of the Income Tax Act, 1961 in Computing Capital Gains:The AO made an addition of Rs. 5,50,17,042 by applying the provisions of Section 50C, which deals with the valuation of capital assets for the purpose of computing capital gains. The AO considered the stamp duty valuation, which was significantly higher than the sale price declared by the assessee. The assessee argued that the property in question was leasehold and encumbered, and thus, Section 50C should not apply. However, since the Tribunal quashed the reassessment proceedings on legal grounds, this issue became academic and was not adjudicated.3. Disregard of Actual Sale Price Realized by the Assessee:The AO disregarded the actual sale price of Rs. 60,00,000 declared by the assessee and instead adopted the stamp duty valuation for computing capital gains. The assessee contended that there was no evidence of receiving the alleged higher sales consideration. Again, this issue was not adjudicated due to the quashing of the reassessment proceedings.4. Principles of Law and Natural Justice in Framing the Assessment Order Under Section 147/143(3) of the Act:The assessee argued that the AO failed to apply basic principles of law and natural justice while framing the assessment order. The Tribunal did not delve into this issue in detail as the reassessment proceedings were quashed on legal grounds.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings initiated under Section 147/148 as bad in law. The other grounds raised by the assessee on merits were not adjudicated as they became academic following the decision on the primary legal issue. The reassessment proceedings were quashed due to the AO's premature issuance of notice under Section 148 before the expiry of the time limit for issuing a notice under Section 143(2).