2021 (3) TMI 20 - AT - Income Tax

Invalid Notices under Section 148 Overturned by Tribunal, AO's Actions Deemed Null

Income-tax Officer, Ward-Dimapur Versus Shri Ankit Agarwalla, Nagaland, Deputy Commissioner of Income-tax, Circle-Dimapur Versus Shri Sanwarmall Agarwalla, Dimapur, Income-tax Officer, Ward-Dimapur Versus Shri Bhama Agarwalla, Dimapur And Income-tax Officer, Ward-Dimapur Versus M/s. Parsuram Sanwarmal Agarwalla & Sons, Dimapur

The Tribunal upheld the decision that notices issued under section 148 were invalid due to the AO's failure to record satisfaction that the income ... Validity of Reopening of assessment u/s 147 - Assessment reopened after four years from the end of the relevant assessment year - as argued AO non satisfying the condition precedent as prescribed in clause (b) of section 149 of the Act as well as the Ld. PCIT/CIT should not have given the sanction to issue notice u/s. 148 on the reasons recorded by AO as a fit case, without satisfying the legal requirement of section 149 of the Act and, therefore, the sanction of PCIT/CIT is bad in law for non-application of mind - HELD THAT:- AO should not have issued notice without satisfying the condition precedent as laid down in clause (b) of section 149(1) of the Act. And the Ld. PCIT/CIT should not have given sanction to reopen on the basis of the reasons recorded by AO without satisfying the condition precedent as prescribed in section 149 of the Act. Failure to do so, makes the sanction of the authority u/s. 151 of the Act fragile for non-application of mind. Thus without satisfying both the legal requirements as stipulated u/s 149 and section 151 of the Act, the jurisdictional conditionprecedent, the AO could not have validly reopened the assessment by issuing notice u/s. 148 of the Act and in such an event, the AO does not enjoy jurisdiction to have validly reopen the assessment. And it is noted that this issue is no longer res integra and the Hon’ble Allahabad High Court in the case of Amar Nath Agarwal [2014 (10) TMI 8 - ALLAHABAD HIGH COURT] Reasons are to be examined only on the reasons as recorded. Here, in this case, as noted the condition precedent as required u/s. 149(1)(a) and (b) having not been satisfied and since it was an essential ingredient for seeking the sanction u/s. 151 of the Act, the omission is fatal to the issue of notice u/s. 148 of the Act. Therefore, the AO lacked jurisdiction to issue notice u/s. 148 of the Act and, therefore, all consequent action is null in the eyes of law. And, therefore confirm the action of the Ld. CIT(A) and dismiss all the four appeals of the revenue. Issues Involved:1. Issuance of notice under section 148 of the Income-tax Act, 1961 after four years from the end of the relevant assessment year.2. Requirement of recording satisfaction that income chargeable to tax has escaped assessment amounting to or likely to amount to one lakh rupees or more.3. Validity of the sanction by the Principal Commissioner of Income Tax (PCIT) under section 151 of the Income-tax Act, 1961.4. Jurisdiction of the Assessing Officer (AO) to issue notice under section 148 without fulfilling the conditions of sections 149 and 151.Detailed Analysis:1. Issuance of Notice Under Section 148 After Four Years:The appeals concern the issuance of notices under section 148 of the Income-tax Act, 1961 for the assessment year 2011-12, issued after four years from the end of the relevant assessment year. The legal issue raised by the assessee was that the notice should not have been issued without the AO indicating in the reasons recorded that income chargeable to tax amounting to one lakh rupees or more had escaped assessment for that year.2. Requirement of Recording Satisfaction:The assessee argued that the reasons recorded by the AO did not mention that the income chargeable to tax which had escaped assessment was more than one lakh rupees, as mandated by section 149(1)(b) of the Act. The AO's reasons for reopening the assessment did not include this crucial detail, which is a condition precedent for issuing a notice under section 148 after four years from the end of the relevant assessment year.3. Validity of the Sanction by PCIT:The revenue contended that the sanction from the PCIT was valid as the ITBA system required the AO to mark that the income escaped was more than one lakh rupees before seeking approval. However, the assessee maintained that the reasons recorded for reopening must explicitly mention the escapement of income of more than one lakh rupees. The Tribunal found that the absence of this mention in the reasons recorded by the AO rendered the sanction by the PCIT invalid due to non-application of mind.4. Jurisdiction of the AO to Issue Notice:The Tribunal concluded that the AO lacked jurisdiction to issue the notice under section 148 without fulfilling the conditions stipulated in sections 149 and 151. The reasons recorded by the AO must stand alone and clearly state the escapement of income of more than one lakh rupees. The Tribunal referenced the case of Amar Nath Agarwal vs. CIT, where it was held that the failure to record such reasons makes the issuance of the notice invalid.Conclusion:The Tribunal upheld the decision of the CIT(A) that the notices issued under section 148 were invalid due to the AO's failure to record the necessary satisfaction that the income chargeable to tax which had escaped assessment amounted to one lakh rupees or more. Consequently, the appeals by the revenue were dismissed, and the actions of the AO were deemed null and void for lacking jurisdiction. The Tribunal emphasized that the reasons for reopening must be self-explanatory and meet the legal requirements to confer jurisdiction on the AO for issuing notices under section 148.